New York intellectual property law review.

• Author: Miranda, David P.

1. INTRODUCTION

   This review of New York appeals in the area of intellectual property law covers copyright, trademark, and patent cases. Since federal statutes control many legal issues involving intellectual property law, the most significant decisions emanate from federal courts. This discussion will address intellectual property cases in the Second Circuit and their impact beyond this jurisdiction.

   In the area of copyright law, the Second Circuit Court of Appeals' decision in Barclays Capital, Inc. v. Theflyonthewall.com, Inc., addresses the issue of copyright preemption as it is applied to New York's common law doctrine of "hot news" misappropriation. (1) The Second Circuit's decision in Salinger v. Colting modifies the standard for obtaining a preliminary injunction in a copyright infringement case, making it consistent with the standard applied by the U.S. Supreme Court in patent infringement cases. (2) Federal district courts in New York also rendered copyright decisions addressing termination of transfer of rights, as well as standards for bringing a motion to dismiss a copyright infringement claim. (3)

   In the area of trademark law, the Second Circuit addresses the issue of contributory trademark infringement for the sale of counterfeit goods by online auction site eBay in Tiffany (NJ) Inc. v. eBay Inc. (4) The case highlights the difficulties faced by companies doing business in the online marketplace. (5) Although patent cases are tried in district courts throughout the country, patent appeals are decided only by the United States Court of Appeals for the Federal Circuit. In a case arising out of the Southern District of New York, the Federal Circuit addressed the issue of whether certain DNA molecules would be considered patentable subject matter in the case of Ass'n for Molecular Pathology v. U.S. Patent & Trademark Office. (6) Another case arising from the Southern District of New York is Public Patent Foundation, Inc. v. GlaxoSmithKline Consumer, Healthcare, L.P., which addresses the issue of damages when there is a claim for false patent marking. (7)

2. COPYRIGHT

   1. Barclays Capital Inc. v. Theflyonthewall.com, Inc. (8)

      In June 2011 the Second Circuit Court of Appeals addressed the issue of whether a claim for "hot news" misappropriation under New York's common law is preempted by federal copyright law. (9) Several financial services firms, including Barclays Capital Inc. and Merrill Lynch, commenced a lawsuit in the U.S. District Court for the Southern District of New York against the Theflyonthewall.com, Inc., an Internet based subscription news service, alleging claims of copyright infringement, as well as "hot news" misappropriation under New York law, with regard to plaintiffs securities recommendations. (10) Although the district court granted judgment on both claims in favor of the plaintiff, (11) the Second Circuit held that federal copyright law preempted the plaintiffs misappropriation claim. (12)

      The plaintiffs, Barclays and Merrill Lynch, are securities brokers with a public clientele. (13) As part of their business, the plaintiffs perform "extensive research" into the securities markets and make "recommendations as to the wisdom" of particular investment strategies. (14) The firms generally circulate their reports and recommendations each day prior to the opening of U.S. securities markets, providing clients and others with the opportunity to act upon the recommendations when the markets open. (15) The plaintiffs' efforts in providing these reports result in "brokerage commissions" when clients use their firm to act on the recommendations. (16) Defendant, Theflyonthewall.com, owns an electronic news service. (17) Defendant was not disseminating the research of plaintiffs, but rather is briefly reporting on the recommendations of the plaintiffs. (18) Theflyonthewall.com electronically streamed hundreds of headlines each day, including a category entitled "recommendation." (19) Defendant posted plaintiffs' recommendations without the related research or analysis. (20) The plaintiffs claimed that such reporting nullifies the "trading advantage" the reports give to their intended recipients. (21) Defendants essentially conceded copyright infringement liability, and the question remaining for the Second Circuit was whether copyright law preempts the "hot news" misappropriation tort. (22) Google, Inc. and Twitter, Inc. submitted amicus briefs contending that the "hot news" misappropriation tort in New York constitutes "an 'end-run' around the Constitution's [c]opyright [c]lause" and urging the court to repudiate the tort. (23)

      The court makes clear in its decision that it is not addressing the viability of the "hot news" misappropriation tort under New York law, and if in fact it were to consider the continued viability of the tort under New York law, it would likely certify that issue to the New York Court of Appeals. (24) The issue the court specifically addresses is federal preemption.

      Following the 1918 Supreme Court decision in International News Services v. Associated Press, New York courts developed a common law "hot news" claim "to be used when one party used another's transmission of events." (25) Since New York's law with respect to "hot news" misappropriation goes beyond the Copyright Act, it is not necessarily preempted. (26)

      The Second Circuit noted that the only binding precedent directly on the preemption issue raised in the appeal is National Basketball Association v. Motorola, Inc. (27) There, the Second Circuit Court of Appeals dismissed the NBA's copyright and misappropriation claims, holding that providing real time scores of NBA games in progress "did not unlawfully misappropriate the NBA's property." (28)

      The Second Circuit limits "hot news" claims to cases where the gathering of time sensitive information has a cost, "use of the information constitutes [benefits from] plaintiffs efforts," the defendant is in competition with the plaintiff, and the use "so reduce[s] the incentive to produce the product or service that its existence or quality would be substantially threatened." (29)

      In Barclays, the Second Circuit acknowledged that the parties are in general agreement that the District Court and the Second Circuit should employ the five-part analysis taken from the National Basketball Ass'n opinion which the District Court did attempt to employ. (30) The District Court found that the "hot news" misappropriation claim was preempted by the Copyright Act "because Fly is not, under NBA's analysis, 'free-riding.' It is collecting, collating and disseminating factual information...." (31) The Second Circuit found the facts of Barclays analogous to those in National Basketball Ass'n, stating, "Fly's employees are engaged in the financial-industry equivalent of observing and summarizing facts about basketball games and selling those packaged facts to consumers...." (32)

      In what may be the most surprising portion of the Second Circuit's decision, the court engages in a convoluted discussion of the extent to which the National Basketball Ass'n decision and its five-point test is a holding that must be followed or is merely dictum. (33) The court quotes Judge Friendly as stating: '"A judge's power to bind is limited to the issue that is before him; he cannot transmute dictum into decision by waving a wand and uttering the word 'hold." (34) The court went on to say: "The NBA panel decided the case before it, and we think that the law it thus made regarding 'hot news' preemption is, as we have tried to explain, determinative here. But the Court's various explanations of its five-part approach are not." (35)

      Judge Raggi concurred with Judge Sack's majority, but questioned the failure of the majority to view National Basketball Ass'n as controlling and finding preemption based upon "the five-part test enunciated in National Basketball Ass'n v. Motorola, Inc.... [which cannot] dismissed as dictum." (36)

   2. Fifty-Six Hope Road Music Ltd. v. UMG Recordings, Inc. (37)

      The case addressed "ownership of ... renewal term copyrights in. ... pre-1978 sound recordings" of Bob Marley performances. (38) Fifty-Six Hope Road Music Ltd. is owned by the beneficiaries of Jamaican reggae artist Bob Marley. (39) The district court dismissed claims that the artist's heirs own the renewal term copyrights of the Marley sound recordings. (40) The decision is significant because it provides insight into how U.S. District Courts in New York might address the termination of rights under Copyright Act section 203. (41) Termination of copyright rights under section 203 is expected to be the subject of major litigation from 2013 onward because of changes made to the Copyright Act of 1976. (42)

      Section 203 of the Act governs transfers and licenses executed on or after January 1, 1978, including works created under the previous Act but where the transfer was made after January 1, 1978. (43) Section 203 also provides for a five-year window during which an author may terminate the prior grant of rights, which is measured from the point at which the transfer or license was entered into, not the time at which the work was created. (44) Under [section] 203, an author can terminate a previous grant within a five-year window that begins thirty-five years after the rights transferred. (45) Thus, theoretically, termination rights under [section] 203 could take place as early as 2013. (46) For example, if an author transferred rights in a work in 1978 then the author could terminate the grant of those rights thirty-five years later, beginning in 2013 and ending in 2018. (47)

      The recording industry frequently argues that termination rights do not apply to most sound recordings, contending that the master recordings belong to the record labels in perpetuity, rather than to the artists who wrote and recorded the songs, because the recordings are works for hire, created, not by independent performers, but by...