The IP Report

This IP Report is written by the lawyers in Piper Rudnick LLP's Intellectual Property practice group:
http://www.piperrudnick.com/intellectualproperty.

On January 15, 2003, the United States Supreme Court, in a 7-2 vote, upheld the 1998 Copyright Term Extension Act (CTEA),¹ a law that extends the term of existing copyrights by 20 years. As a result of the Court's ruling in Eldred v. Ashcroft,² books like "The Great Gatsby,". films like "The Jazz Singer,". musicals like "Show Boat" and popular cultural icons like Mickey Mouse - all set to enter the public domain - will remain under copyright protection for another two decades.

The Supreme Court's ruling was a victory for the music, entertainment and publishing industries but a major setback for artists, online publishers and anyone else seeking free access to works on the verge of being released into the public domain.

Eric Eldred, the plaintiff, had an idea to launch a web site on which he would publish the creative materials of others, including the poems of Robert Frost - whose copyrights were set to expire. His idea, however, was quickly foiled by the enactment of the CTEA.

On October 27, 1998, President Clinton signed into law the CTEA, which allows copyright holders, including entertainment companies and book publishers, to retain their rights to existing books, music, movies and other creative materials an additional 20 years. Congress passed the law after heavy lobbying from companies with lucrative copyrights such as The Walt Disney Company.

The extension resulted in the copyright term for individual authors being the author's life plus 70 years, and the copyright term for copyrights held by corporations being the lesser of 95 years from publication or 120 years from creation. The 20-year extension applied retroactively, and not merely to newly created works, thus delaying the time that works would enter the public domain. This ensured that the writers and creators of the material could continue to collect revenue and royalties from their works throughout the period.

This is not the first time Congress extended the terms of copyright. Congress has issued a series of extensions over the last 40 years.

Upon the enactment of the CTEA, Eldred was joined by nine other plaintiffs interested in using the creative works of others, including a church choir director, an orchestral sheet music company, a company that restores old films and a book publisher. Together they brought a class action suit in the United States District Court for the District of Columbia challenging this latest copyright extension law, and seeking to use hundreds of thousands of books, movies, poems and songs due to be released into the public domain.³ The group challenged the constitutionality of the CTEA claiming that the law is beyond Congress' enumerated power under the Copyright Clause of the Constitution, and that it violates the First Amendment.⁴

Under Article 1 Section 8 of the United States Constitution, Congress was granted the power "To promote the progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries"⁵ Plaintiffs asserted that by issuing a series of 11 extensions, this latest, being by far the longest, Congress has exceeded it powers by, in effect, giving copyright holders an unlimited monopoly over the use of their material.

Plaintiffs also argued that the CTEA violates the Copyright Clause of the Constitution as it inhibits creativity. They asserted that creativity is stifled when it becomes harder and more expensive for people to obtain and build upon another creator's existing work.

Plaintiffs' First Amendment argument was based on the contention that the continuing extension of copyrights keeps works from the public domain and restricts their free use. These restrictions, they argued, inhibit the free flow of and access to information that is an acknowledged part of the free speech guarantee.

On the other hand, the government and other supporters of the copyright extension argued that the CTEA is a rational exercise of Congress' legislative authority conferred by the Copyright Clause. The government argued that Congress' enactment was offered to promote creativity by offering a larger economic payoff to those who invest in creating works, and that longer terms would encourage copyright holders to invest in the restoration and public distribution of their works. They further argued that the 1998 law aligns the United States copyright terms with those of the European countries, which ensures that American authors would receive the same copyright protection in Europe as their European counterparts.

The District Court entered judgment on the pleadings for the government, holding that the CTEA does not violate the Copyright Clause's "limited Times" restriction because the CTEA's terms, though longer than the 1976 Act's terms, are still limited, not perpetual, and therefore fit within Congress' discretion.⁶ The court also held that there are no First Amendment rights to use the copyrighted works of others.⁷ The District of Columbia Circuit affirmed the District Court's ruling, and the plaintiffs appealed to the Supreme Court.⁸

The Supreme Court in Eldred v. Ashcroft, was asked to address the issues raised by the parties and determine (i) whether Congress acted unconstitutionally in granting the extended copyright protection, and (ii) whether such extension impacted the free speech guarantees afforded under the First Amendment.⁹

The Supreme Court's review of the CTEA marked the first time in history that the Court accepted a case that challenged the constitutionality of any aspect of the U.S. Copyright Act.

In the 7-2 opinion, the majority of the justices found that the CTEA did not violate the Constitution. Writing for the Court, Justice Ruth Bader Ginsberg, found that, "Nothing before the Court warrants construction of the CTEA's 20 year term extension as a congressional attempt to evade or override the 'limited Times' constraint."¹⁰ Instead, the Court held that the Constitution "gives Congress wide leeway to prescribe 'limited times' for copyright protection and allows Congress to secure the same level and duration of protection for all copyright holders, present and future."¹¹ In addition, the Court in finding the extension "a rational enactment" held "we are not at liberty to second-guess congressional determinations and policy judgements of this order, however debatable or arguably unwise they may be."¹²

The Supreme Court also noted additional support for the CTEA in harmonizing U.S. and European Union copyright terms, and in "demographic, economic and technical changes" affecting copyrights.1³

The Supreme Court also rejected plaintiffs' First Amendment arguments. The Court found that the Copyright law "contains built-in First Amendment accommodations" and that the CTEA "supplements these traditional First Amendment safeguards."¹⁴ The built-in protections include the protection of only expression, not underlying facts and ideas; the availability of those facts and ideas for continuing exploitation even when they are published in a copyrighted work; and the availability of fair use as a means for accessing copyrighted expression in certain circumstances.

Justices Breyer and Stevens separately dissented from the Supreme Court's majority opinion.¹⁵ Justice Breyer, in his dissent, wrote that the economic effect of the CTEA is to make the copyright term "virtually perpetual."¹⁶

Justice Stevens, in his dissent, called the extension "a windfall for current copyright owner" and wrote that the majority of the Court was "failing to protect the public interest in free access to the products of inventive and artistic genius."¹⁷

The Supreme Court's ruling is a great victory for the music, entertainment and publishing industries. For example, the Walt Disney Company that owns familiar cultural icons such as original versions of the Mickey Mouse cartoon character, would have lost millions of dollars in royalties had it not benefited from the copyright extension which prevented such works from entering the public domain. Mickey Mouse, copyrighted in 1928 as Steamboat Willie, would have entered the public domain in 2004. It has been estimated that Mickey Œ through Disney's consumer products division and theme parks Œ helped bring in $8 billion in 1998, according to Salomon Smith Barney.¹⁸ In addition, companies such as AOL Time Warner benefit from the Court's decision because well- known movies owned by the company, such as "Casablanca," "The Wizard of Oz" and "Gone With the Wind," would also have entered the public domain without the extension. Whether or not these companies will continue to be successful in obtaining further extensions of their rights to copyrights in the future remains to be seen - but for now, Mickey is saved from the public domain for another 20 years.

On March 4, 2003, the Supreme Court raised the bar for plaintiffs attempting to assert a claim of trademark dilution under the Federal Trademark Dilution Act ¹⁹ (FTDA). In Moseley v. V€Secret Catalogue, Inc.,²⁰ a unanimous Court ruled that lingerie manufacturer Victoria's Secret did not demonstrate that the owner of an adult novelty video shop operating under the name VICTOR'S LITTLE SECRET diluted its VICTORIA'S SECRET mark since it did not provide evidence of actual dilution. The decision by the Court appears to resolve a split among various federal courts as to whether it is necessary to show actual dilution, or merely a likelihood of dilution, to succeed in an FTDA claim.

The FTDA defines dilution as the "lessening of the capacity of a famous mark to identify and distinguish goods or services." The doctrine enables the owner of a famous mark to prevent another party from using the same or similar mark, even if such use is in connection with unrelated goods or services and even if there is no likelihood of confusion between the respective uses.

Dilution occurs if the third-party use blurs the distinctiveness of the famous mark at issue or if it tarnishes ²¹ or disparages it.²² Examples of actionable uses include DUPONT shoes, BUICK aspirin and KODAK pianos.²³ Prior to the enactment of the FTDA in 1995, only about 25 states provided relief for owners of famous marks under state anti-dilution statutes.

V Secret Catalogue, Inc., the parent company of Victoria's Secret, the well-known marketer of lingerie and lingerie models, brought suit against a small "adult novelty" business operating under the name VICTOR'S LITTLE SECRET in Elizabethtown, Kentucky. The small business was - and presumably still is - owned by the Moseleys, a husband and wife engaged in the sale of products ranging from adult videos, novelties and lingerie to pagers and lava lamps. The business was originally named VICTOR'S SECRET but, after receiving a cease and desist letter from plaintiff, the Moseleys changed the name to VICTOR'S LITTLE SECRET. Dissatisfied with the name change, V Secret Catalogue, Inc. filed suit in federal court in the Western District of Kentucky.

The claim included counts for trademark infringement and trademark dilution under the FTDA. While the district court held that there was no likelihood of confusion between the marks (and, therefore, no trademark infringement), the court held in favor of plaintiff with respect to the dilution count. The district court held that dilution occurs when a mark "corrodes" a famous trademark, either by blurring its product identification or by tarnishing the good associations attached to it, and that the defendant's similar mark tarnished the plaintiff's famous VICTORIA'S SECRET mark.

The defendant appealed, and the 6th Circuit affirmed the lower court's decision holding that the VICTORIA'S SECRET mark was, indeed, famous and that the VICTOR'S LITTLE SECRET mark dilutes the mark by tarnishment and by blurring. Further, the 6^th Circuit held that, despite the language of the FTDA, it is unnecessary for plaintiff to demonstrate that Moseley's mark actually diluted the VICTORIA'S SECRET mark. In other words, the 6th Circuit found that it is only necessary for plaintiff to show that defendant's mark is likely to dilute its mark.

The Supreme Court, however, took a different view. In reading the FTDA, the Court noted that the language of the act provides that "the owner of a famous mark" is entitled to relief if a third party's commercial use of a mark or trade "causes dilution of the distinctive quality" of the famous mark.²⁴ Therefore, the Court held that "[t]his text unambiguously requires a showing of actual dilution, rather than a likelihood of dilution."²⁵ Thus, the Court held that under the FTDA, plaintiff must demonstrate that the VICTOR'S LITTLE SECRET mark actually diluted the distinctive quality of the VICTORIA'S SECRET mark.

Under Moseley, plaintiffs must now prove that a Defendant's mark is actually diluting the distinctive quality of their famous mark, and it is insufficient to show that the defendant's mark is likely to dilute the famous mark at issue. But what does this really mean? It appears that a plaintiff now has the onerous burden of producing tangible evidence of dilution, and producing such evidence is likely a very difficult task. For example, a thorough and extensive survey might be sufficient, but surveys are typically very expensive, costing anywhere from $20,000 to $100,000 to perform. And even after all that expense, there is no guarantee that the survey will support plaintiff's dilution theory.

The Supreme Court acknowledges that proving actual dilution may be a very difficult task, but nevertheless ruled that the difficulty in producing evidence is not a valid reason "for dispensing with proof of an essential element of a statutory violation."²⁶ However, the Court indicated that circumstantial evidence may, in some situations, be effective in proving a dilution claim. Unfortunately, the Court's reference was somewhat cryptic, and the opinion did not give any tangible examples as to what constitutes circumstantial evidence of dilution. The Court seems to hint that if the marks at issue are identical, this fact may serve as circumstantial evidence of dilution. However, until the lower courts address this issue, it is unclear how one can circumstantially prove that a mark has been diluted.

One way for a plaintiff to avoid proving actual dilution is by filing a claim under the various state anti-dilution statutes rather than under the FTDA. The Supreme Court noted that there is a contrast in the language of many of the state anti-dilution statutes and the FTDA inasmuch as these state statutes²⁷ provide relief for conduct which results in a "likelihood" of dilution, and do not require a showing of actual dilution. Thus, if the plaintiff is only required to prove a likelihood of harm, then there is no need to proffer the difficult-to-find-evidence that the harm actually has occurred.However, a suit brought under any of these various state statutes requires that the harm be occurring in that state, and some statutes limit the injunctive relief solely to within the state's borders. In short, the state court route, while possibly available, may be of limited value to a plaintiff.

The Court's decision appears to significantly raise the standard of proof for FTDA claims. The costs associated with proving one's case under the FTDA, by way of surveys, experts and other similar mechanisms, may make FTDA claims prohibitively expensive to many potential plaintiffs. However, there may be instances where circumstantial evidence can be effectively used to provide dilution under the FTDA, though the Court failed to give any concrete guidance on this issue. The Court's ruling was highly anticipated and has caused widespread discussion among practitioners of IP law as to whether amendments to the FTDA by Congress are now appropriate in light of the Court's decision. They would include, among other things, amending the FTDA to specifically state that a likelihood of dilution, rather than actual dilution, is the standard of review under the statute. However, until such amendments are enacted by Congress, the lower courts will be responsible for determining the new face of the FTDA.

The Federal Trade Commission has issued its long-awaited final rule amending the Telemarketing Sales Rule, which we first discussed last year in The IP REPORT. With two exceptions, the amended Rule is effective as of March 31. The national do-not-call list will not be fully effective for about seven months, with the official effective date still to be determined. The requirement that telemarketers transmit caller identification information will not be effective until March 31, 2004.

The Rule applies to any entity under the jurisdiction of the Federal Trade Commission. With the passage of the USA Patriot Act, this jurisdiction now includes nonprofit organizations that rely on professional firms to solicit donations, who are not subject to the national do-not-call list but who are subject to other elements of the Rule. The Rule also applies to telemarketers that place calls for businesses otherwise not under the jurisdiction of the FTC, such as common carriers, financial institutions, and insurance carriers. The Direct Marketing Association and the American Teleservices Association are the lead plaintiffs in separate suits in the 10th Circuit challenging the FTC's statutory authority and the constitutionality of the Rule on the national do-not-call list, regulation of abandoned calls, and regulation of pre-acquired account information. Separately, the Federal Communications Commission, which is explicitly delegated by Congress to consider a national do-not-call list and regulate automatic telephone dialing equipment, has initiated a rulemaking requesting comment on amendments to its rules on telephone solicitation, including a national do-not-call list and regulation of abandoned calls. A decision by the FCC is expected within six months or so.

The FTC adopted a national do-not-call list. Full compliance with the list will be required in approximately seven months.

Established Business Relationship (EBR). There will be an established business relationship exception that permits firms to contact customers on the do-not-call list for 18 months after a consumer has bought, rented, or leased a product and three months after a consumer's request for information. If a consumer places his or her name on the do-not-call list and then a transaction takes place, the business can call the consumer for 18 months from the date of the transaction. If the customer specifically asks not to receive such calls from a company where an EBR exists, the company must place the customer on its company-specific do-not-call list, which has been retained.

For purposes of an established business relationship, a transaction will be deemed to have occurred at the last instance of provision of a service. Thus, for magazine or other types of subscriptions, the 18 months will begin to run at the time of expiration of the subscription. The established business relationship exception extends to affiliates and subsidiaries that have the same name or are marketing the same kind of good or service (e.g., Time Magazine and Time-Life Books), but not to all affiliates within a company.

Company-Specific Opt-In and Other Procedural Requirements. Individuals who place their names on the national do-not-call list can provide companies with written permission to call them that would override (for that company) the national do-not-call list requirement. Companies will be required to scrub their lists quarterly against the do-not-call list. A consumer request to be placed on the list will be effective for five years. Individuals will be able to add themselves to the list by calling a toll-free number maintained by the FTC or by signing up via the FTC's web site. There will be no charge to the individual to place his or her name on the list.

Non-profits. Tax-exempt non-profits and the for-profit firms soliciting on their behalf are exempt from complying with the national do-not-call list. For-profit firms soliciting on behalf of non-profits are subject to a new requirement of creating and following company-specific do-not call lists. Service bureaus that conduct calling campaigns for entities otherwise not under the FTC's jurisdiction will be subject to the do-not-call list for such calls. For-profit solicitors must comply with company-specific do-not-call lists. (In addition to the do-not-call requirements, charities/nonprofits and their for-profit solicitors must promptly disclose: (1) the name of the organizations on whose behalf a contribution is sought, and (2) that the purpose of the call is to solicit a contribution.)

State-Federal and Inter-Agency Coordination. There are currently approximately 28 state do-not-call lists. In the Rule, there is no formal preemption or coordination requirement for the national do-not-call list with the state do-not-call lists. There is no discussion in the Rule as to how this list will relate to the FCC proposal. There will exist a safe harbor from enforcement for companies that follow reasonable procedures to comply with a do-not-call list.

Fees. The FTC sought and was granted authority from Congress in the Do-Not-Call Implementation Act to impose fees on telemarketers for the national do-not- call list. The FTC first issued a notice of proposed rulemaking in which they proposed to cap fees per seller at $3,000. In the Final Rule, the FTC said that it would issue a revised rulemaking at a later time. The per-seller annual charge for nationwide calls is expected to increase from the proposed $3,000 to at least $8,000. Telemarketers will be charged on an area code basis; the first five will be free. Each seller must pay to access the do-not-call list (if using more than five area codes), even where several sellers use the same service bureau.

The FTC established regulations on the use of pre-acquired account information in a telemarketing transaction. Specifically, the Rule prohibits the trafficking of unencrypted billing information. In a "free to pay" situation (where a customer is given a trial offer and without cancellation the consumer is charged for the product or service), telemarketers must: (1) obtain express agreement from the consumer about the eventual charge; (2) obtain the last four credit card digits from the consumer; and (3) record and retain the entire telemarketing call.

Outside of the "free to pay" context, the Rule requires telemarketers to: (1) identify the account being charged; and (2) obtain consumer consent to the charge. Taping is not required in these circumstances. If consent is obtained through a letter following the phone call, the letter must be sent via first class mail describing the transaction in a clear and conspicuous manner.

Predictive Dialers. The FTC also prohibited "abandoned calls," which are calls where there is not a live operator available to talk with a consumer. Abandoned calls result from the use of predictive dialers, which are technologies that predict when a consumer will be available for a sales pitch; where the operator is not available when the consumer picks up the phone, the call is dropped. Telemarketers may use predictive dialers if they comply within a safe harbor with four conditions - (1) no more than 3 percent abandoned calls per day, per campaign; (2) a consumer's phone must ring 15 seconds or four rings before the predictive dialer may disconnect the phone (if an operator is not available when the consumer picks up the phone); (3) if no sales representative is available within two seconds of the consumer's greeting, a recorded message (not containing a solicitation) must be played giving the name of the company and a call-back number; and (4) the telemarketer retains records to illustrate compliance with the safe harbor. Among the industry's objections to the regulation of abandoned calls is the prohibition in the FCC's rules of leaving a pre-recorded message, except in limited circumstances.

Caller ID. The Commission's new rule also requires telemarketers, where the telecommunications carrier's technology supports it, to transmit Caller ID that identifies the number and the name of the company whose product is being sold. The effective date of this requirement is March 31, 2004.

Novel Payments The FTC's new rule requires that Customers' iuexpress verifiable authorizationli be obtained for billing consumers except when the method of payment used is a credit card or debit card. Such ianovel paymentls methods include check by phone or the bill of utility or mortgage bills. iiExpress verifiable authorizationlïÞ can be obtained through: (1) written authorization that includes the customer's signature; (2) oral authorization that is audio recorded; or (3) written confirmation of the transaction sent to the customer via first class mail (written confirmation is not permitted in a transaction involving a free-to-pay conversion and preacquired account information).

The European Union (EU) recently voted to increase its membership by adding 10 new countries, the largest expansion in its history. These countries include: Poland, the Czech Republic, Hungary, Slovakia, Cyprus, Lithuania, Latvia, Slovenia, Estonia and Malta. The original EU member states include: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and The United Kingdom. The enlargement becomes effective on May 1, 2004. As a result of the expansion, the EU will increase to 25 member states, with a total consumer base of 450 million people (an increase of 75 million consumers).

The EU's expansion will have an immediate impact on owners of European Community Trademarks (CTMs). Specifically, existing CTMs will automatically be extended to new member states as they enter into the EU. The extension will be seamless, with no additional applications or fees required. There is potential, however, for conflict. For instance, when a CTM registration is extended to a country where a third party holds prior national trademark rights to the same or similar mark, such prior rights may lead to the opposition or cancellation of the CTM in that country. The focus will be on whether the national rights existed prior to the country's accession to the EU. If such rights existed, they will be enforceable even if the CTM was filed before the country's accession date.

On the whole, the EU's enlargement will provide CTM owners with an extraordinary benefit without any additional formalities. Trademark owners who do not yet have CTM registrations for their marks might wish to take advantage of this opportunity by filing CTM applications now, even before the EU expansion becomes effective. CTM owners must remember, however, that this expansion is not a free ticket to utilize the mark in all new countries. As with any expansion of trademark use, CTM owners should perform trademark searches to determine any potential conflicting uses of the mark.