Caselaw Summaries

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Recent Cases of Interest - 2005
James Blomquist, Katheryn Andresen, Greg Stark & Bryan Chant

ARBITRATION

1. Clarus Medical v. Myelotec [USDC MN, 9/9/05]
Arbitration Clause

The case involved a trademark license dispute. Clarus as licensee filed suit, but Myelotec, as licensor, demanded arbitration in accordance with the terms of the license. Although the license did provide that all disputes are to be resolved by arbitration, it further indicated that "notwithstanding any provision of this section to the contrary, each party shall be entitled to seek injunctive and other equitable relief in any court . . . ." The district court held that under the Eighth Circuit standard the wording in the license was not sufficient to allow for court ordered injunctive relief.

COPYRIGHT

2. Krause v. Title Serv [USCA 2, 3/21/05]
Copyright - Software - Owner of software copy may adapt as essential step in utilization.

Software developer created several key software programs for company either as an employee or independent contractor during a span of tens years. After a dispute he left taking source code for some programs, but leaving other source code behind. Companies circumvented the "lock" on the code and modified it to fix bugs and keep it functioning for two years until they could replace it. Software developer sued in federal court alleging copyright infringement. The federal district court rendered summary judgment for the company under 17 U.S.C. Section 117(a)(1). Holding company qualified as "owner of a copy of a computer program" and therefore was allowed to adapt that program in order to utilize it.

An interesting side light is that the federal district court decision in favor of the company was rendered in October 2003 and the second circuit affirmed about 18 months later, in March 2005. In a footnote, the appellate court notes that the company had brought suit in state court in July, 1996, but as of October 2003, the state court action was still pending in New York.

3. Altera v. Clear Logic [USCA 9 9/15/05]
Copyright - Reverse Engineering - EULA

This case involved application specific integrated circuits (ASICs) and programmable logic devices (PLDs). Altera manufactures PLDs which are subject to a EULA which prohibits reverse engineering and which authorizes use "for the sole purpose of programming logic devices manufactured by Altera." The SemiConductor Protection Act specifically allows reverse engineering for the purpose of teaching, analyzing, or evaluating concepts, but a competitor may not reverse engineer to create a second mask work which is substantially identical to the original. In this case, the court held that Clear Logic was guilty of infringement because it induced customers to breach the Altera EULA and its reverse engineering was not permissible. Altera was awarded damages of $30.6 million plus $5.4 million in prejudgment interest and $394,791 in costs.

4. Davidson & Assoc. v. Jung [USCA 8, 9/1/05]
Copyright - Reverse Engineering - EULA

The Copyright Act does not preempt a breach of contract claim when the contract, which was entered into at arms length, negotiates away a user's enumerated rights under the Copyright Act.

Davidson & Associates develops and distributes numerous computer games. Each game includes an End User License Agreement ("EULA") and Terms of Use agreement ("TOS"), both of which require the user to agree not to reverse engineer the software. Davidson eventually launched an on-line gaming service. As a copy protection mechanism, the service authenticated each player's copy of the game before allowing them to sign in.

Some users of this service, including Jung, became dissatisfied with it, for reasons unrelated to the copy protection mechanism, and created another network compatible with Davidson's games. In order to create a fully compatible network, Jung reversed engineered the software so he could determine how data was communicated between the game and the service. Unlike Davidson's service, Jung's network did not attempt to authenticate the copy of the game before allowing the user to use the network.

Davidson sued Jung, alleging, inter alia, breach of the EULA and TOS and circumvention of copyright protection systems. On appeal, Jung argued that the breach of contract claim was preempted by federal copyright law; thus, he would have been allowed to reverse engineer the software as a fair use. The Eighth Circuit disagreed and explained that the states are free to permit their citizens to enter into contracts that waive their right to reverse engineer software even though that particular right is enumerated as a fair use under the Copyright Act. Moreover, since Jung's network allowed users to sign in using pirated copies of the game, the court held that this was sufficient to constitute a violation of the anti-circumvention provisions of the Act.

5. Egilman v. Keller & Heckman [USDC District of Columbia, 11/10/05]
DMCA - Password - Circumvention

Egilman had claimed that the defendant law firm had violated the Digital Millennium Copyright Act ("DMCA") by accessing his website utilizing a user name and password belonging to someone else. The law firm allegedly downloaded material from the website and used those materials to impeach Egilman's credibility in certain litigation and to convince a judge to sanction Egilman for having violated a court order prohibiting persons, including expert witnesses, from publishing statements concerning a pending case. The court held that accessing a computer system though unauthorized use of a valid password does NOT constitute circumvention of a technological measure in violation of the DMCA.

6. Webloyalty.com v. Consumer Innovations, LLC [USDC DE, 9/26/2005]
Copyright Infringement; ad and sell page on website

Following a 1 day bench trial the court awarded Plaintiff statutory damages of $25,000 for each of two works infringed, attorney fees of $226,000 and $43,000 in costs. The court noted that the defendant's testimony denying "copying" was incredible given that their draft sell page was identical to Plaintiff's and even included the Plaintiff's telephone number! In a footnote the court chastised defense counsel for eliciting testimony that was "palpably preposterous". Interestingly the defense attorney's webpage notes that he lectures on legal ethics and he provides a link to the decision at
Webloyalty.com, Inc. v. Consumer Innovations, LLC, Cil. No. 04-90-KAJ, 73 U.S.P.Q. 2d (BNA) 1898 (U.. Dist. Lexis 791 2005)

7. Kay Berry, Inc. V. Taylor Gifts, Inc.; Bandwagon, Inc. [USCA 3, #04-3809, 8/30/05]
http://caselaw.lp.findlaw.com/data2/circs/3rd/043809p.pdf
Copyright Infringement; protectable expression; registration.

Good summary of copyright registration requirements and errors by various courts. Work in question was "Garden Accent Rocks," which are decorative, cement-cast, outdoor sculptures typically resembling rocks or stones, inscribed with writings from the public domain. Copyright registration was based on a catalog of such works. District Court rendered summary judgment for defendant determining that copyright registration was invalid and that the sculptural work was not entitled to copyright protection. USCA 3 reversed and remanded.
8. Paramount Pictures Corp., v. John Davis 2005 WL 3303861 [USDC E.D. PA, 12/2/05]
Copyright Infringement; Peer-to-Peer (P2P) and Internet Distribution.

The court clarified copyright infringement was complicated by internet and P2P technologies. The court held that there were both first propagators and subsequent infringers, with the first propagator being the key infringer on a "but for" assessment.

TRADEMARK

9. Schwans v. Kraft Pizza [USDC MN, ]
Trademark

Schwans and Kraft are the two largest producers and suppliers of frozen pizzas. After spending $500,000.00 on consumer tests related to a new brand name, Schwans adopted the new brand "Brick Oven" for a new line of pizza. The evidence indicated that Schwans spent over $17 million in advertising and marketing that new brand. Kraft decided to put "pricing pressure" on Schwans by offering a very inexpensive pizza product with a label indicating that it was "Brick Oven Style." The court held that Schwans' "Brick Oven" as a generic term entitled to no trademark protection. The court noted that the PTO had rejected three separate applications by Schwans to register its trademark, and each time the PTO had indicated that refusal was because the mark was generic.

10. Frosty Treats v. Sony Computer Entertainment [USCA 8, 7/25/05]
Trademark

Frosty Treats is one of the largest ice cream truck street vendors in the nation. Its trucks carry the label "Frosty Treats" in stylized printing and also show a decal of a happy faced clown admonishing children to "watch cars - cross at rear." Frosty Treats sued Sony because Sony because Sony was marketing a "twisted metal" video game which depicted an ice cream truck and a clown character with a scary face. The court held that the term "Frosty Treats" is generic and that there was no infringement since the marks utilized by the defendant had a distinctively different appearance than the marks claimed by the plaintiff.

11. Gander Mountain v. Cabela's [USDC MN, 8/18/05]
Trademark - License Agreement

When Gander Mountain experienced financial difficulty in the mid 1990s, it cut a deal with Cabela's in order to obtain $35 million in cash. Cabela's obtained $20 million in inventory, paid $7.5 million for certain customer lists and also paid $7.5 million for a trademark license and non-competition agreement, whereby Cabela's obtained the right to use the "Gander Mountain" trademark for catalog sales and Gander Mountain agreed that it would not use its mark for any catalog sales. The court granted summary judgment in favor of Cabela's finding that the exclusive license agreement regarding the Gander Mountain catalog sales trademark was enforceable. Thus, Gander Mountain could not utilize that trademark with regard to catalog sales.

PATENT

12. Pfizer, Inc., v. TEVA Pharmaceuticals USA, Inc., [FED CIR --- F.3d ----, 2005 WL 3110828, 11/22/05]
Patent - Public Interest in Granting Injunction

Patent owner sought injunction on claim of infringement against a competitor drug company. USDC NJ granted injunction and defendants appealed. The court held that as owner was likely to win on infringement claim, either by literal infringement or under doctrine of equivalents. This upheld USDC NJ's finding that harm to patent owner if no injunction granted would exceed harm to defendant if it was granted. The USDC NJ also found that public interest favored granting the injunction despite Teva's argument that public interest should want cheaper drugs and encourage competition.

COMPUTER LAW

13. Prudential v. Prusky [USDC E.D. PA, 7/2005]
E-contract

Prudential sought declaratory relief and Prusky counterclaimed alleging violation of the Electronic Signatures Act at 15 USC Section 7001. Prusky argued that Prudential was obligated to accept telefax or electronic communications. The court held that the E-Sign Act does not require a party to accept electronic signatures.

14. SuperValu v. Quality Farms [USDC MN, 10/6/05]
E-mail - UCC Statutes of Frauds

In refusing to grant Quality Farm's motion for summary judgment, the court held that the e-mails exchanged by the parties were sufficient to satisfy the UCC requirement for a writing with regard to contracts in excess of $500. In that regard, the court cited the Minnesota UETA at 325L.07 requiring legal recognition of electronic records, signatures and contracts.

15. HGI Assoc., Inc., v. WETMORE Printing Co. 427 F.3d 867 [USCA 11, 10/4/05]
Breach of Contract and Defense of "Copyright Estoppel"

Software buyer sued seller for breach of contracts. The USDC S.D. FL held for buyer and cross-appeals were taken. The doctrine of copyright estoppel precluded any possible claim by seller of that the manufacturer's copyrights were violated by the contracts. When the seller repudiated the contract, the buyer could recover lost profits by reselling the software, but the seller still had the right to claim this recovery was inexcusable under the circumstances.

16. Madison River Mgmt. Co., v. Business Management Software Corp., 387 F.Supp.2d 521 [USDC M.D. NC, 8/31/05]
Breach of Contract not Copyright Infringement for Excessive Use Beyond Contractual Terms

Business Management licensed software to Madison River, upon discovering that Madison River was significantly using more copies than licensed, including nightly copying of the generated database, Business Management brought suit for breach of contract and copyright infringement. While the court held for Business Management, it clearly indicated that excessive use under a license was to be dealt with as a breach of contract and not as a claim for copyright infringement because there was a breach of covenant addressing such use. In addition, the nightly copying of the database did not constitute "fair use" because the software as well as the raw data was copied and was another indicator of breach of contract.

LITIGATION

17. Zutz v. Case Corp. [USCA 8, 9/7/05]
Reckless misrepresentation is recognized as a cause of action in Minnesota.

Zutz Farms decided to purchase two drills from Case. The primary consideration Zutz Farms had in deciding which drill to purchase was whether the drills would be compatible with their practice of incorporating herbicide into the soil before planting crops. In their negotiations, the independent dealer, Case's brochure, and a Case representative stated that the drills would be suitable for Zutz Farms' needs.

After purchasing the drills, Zutz Farms discovered that the Case drills caused significant damage to their crops. Consequently, Zutz Farms sued Case alleging breach of express and implied warranty, reckless misrepresentation, and a violation of the Minnesota Consumer Fraud Act. In response, Case argued that reckless misrepresentation is not recognized as a cause of action in Minnesota.

The Court rejected Case's argument and explained that there are three types of misrepresentations that fall under the category of fraud: reckless misrepresentation, negligent misrepresentation, and deceit. The Court then explained that a prima facie case for misrepresentation requires: (1) a false representation by a party of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made as of the party's own knowledge without knowing whether it was true; (3) with the intent to induce another to act in reliance thereon; (4) that the representation cause the other party to act in reliance thereon; and (5) that the party suffered pecuniary damage as a result of the reliance.

The Court found the jury's determination that Case committed negligent misrepresentation was supported by the evidence. The Court found that the Zutz's had reasonably relied upon the statements made by the implement dealer, Case's field representative, and Case's marketing materials regarding the drill's fitness for use with pre-plant-incorporated herbicides. Testimony by Case's expert that the drill was never tested for compatibility with pre-plant-incorporated herbicides confirmed that Case's assertion of fitness had been made without knowledge of the truth or falsity of the representations.

The Court also remanded this case for further review of the express warranty, finding that there is a factual conflict regarding the date of sale - statute of limitations and the warranty disclaimer. Under Minnesota law, a seller creates an express warranty that the goods shall conform to "[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain." Minn. Stat. §§ 313(1)(a)-336.2 (2005).

18. AUTOTECH Technologies LP, v. AUTOMATIONDIRECT.COM, Inc., 2005 WL 3180147 [USDC N.D. IL, 11/23/05]
Preliminary injunction sought but genuine issues of fact required a hearing which led to summary judgment.

AutoTech brought suit for a preliminary injunction. During the initial hearing before the court, the judge concluded genuine issues of fact were established and called for a new hearing. During the second hearing, the judge not only concluded an injunction was inappropriate, but also granted summary judgment to ADC that there was no infringement.

- Last Updated 02/27/06 -