copyright – Attorney Evan Brown

May 22, 2024 Copyright, DMCA

Artist’s side hustle lands him in DMCA litigation with autonomous vehicle company

A dispute between a digital artist and his former employer over content rights resulted in a court allowing the employee’s DMCA claim while striking the employee’s state law claims.

For over five years, plaintiff worked for defendant, crafting digital street scenes of San Francisco to train the company’s self-driving vehicles. But plaintiff’s passion for digital art extended beyond his day job. So, in his spare time, using his own equipment, he created intricate urban scenery for video games, which he then sold on the Epic Games marketplace.

When defendant learned of plaintiff’s side hustle, it claimed plaintiff’s project infringed defendant’s copyright rights. It demanded that plaintiff cease all sales of his digital art. Plaintiff refused to comply. He argued that his creations were made on his own time, with his own resources, and did not utilize any proprietary information from defendant.

Defendant considered plaintiff’s refusal as a resignation and terminated his employment. But that did not end the matter. Defendant escalated the situation by sending a takedown notice to Epic Games under the Digital Millennium Copyright Act (DMCA), alleging that plaintiff’s content infringed on defendant’s copyrighted material. This resulted in Epic removing plaintiff’s content from its marketplace.

The lawsuit

Plaintiff sued, claiming that that defendant sent the takedown notice in bad faith, asserting federal claims under the DMCA and state law claims for interference with contractual relations, interference with prospective economic advantage, and violation of California’s Unfair Competition Law. Defendant moved to dismiss the DMCA claim and also moved to strike the state law claims under California’s anti-SLAPP statute, which aims to prevent lawsuits that chill the exercise of free speech.

The court’s decision

The court denied defendant’s motion to dismiss the DMCA claim, allowing plaintiff’s federal claim to proceed. It found that plaintiff had sufficiently alleged that defendant acted in bad faith when it issued the takedown notice, a key requirement under Section 512(f) of the DMCA. But the court granted defendant’s motion to strike the state law claims. It held that the state law claims were preempted by the DMCA and were also barred by California’s litigation privilege, which protects communications made in anticipation of litigation.

Shande v. Zoox, Inc., 2024 WL 2306284 (N.D. Cal., May 21, 2024)

March 12, 2024 Copyright, DMCA

X avoids much of music industry copyright lawsuit

Plaintiffs sued X for copyright infringement arising from X’s users uploading tweets that contained copyright-protected music. Plaintiffs accused X of “trying to generate the kind of revenue that one would expect as a lawful purveyor of music and other media, without incurring the cost of actually paying for the licenses.” For example, plaintiffs highlighted a feature within the X platform whereby one could seek out tweets that include audiovisual media. And they pointed out infringing content surrounded by “promoted” content on the platform that generated revenue for X. The parties disputed the extent to which X actively encouraged infringing conduct. Plaintiffs sent many DMCA takedown notices to X but complained that the company took too long to respond to those notices. And plaintiffs asserted that X did not have an appropriate procedure in place to terminate users engaged in repeated acts of copyright infringement.

The complaint alleged three counts – direct, contributory and vicarious infringement. X moved to dismiss the complaint for failure to state a claim. The court granted the motion for the most part, except as to certain practices concerning contributory liability, namely, being more lenient to verified users, failing to act quickly concerning DMCA takedown notices, and failing to take steps to in response to severe serial infringers.

No direct infringement liability

The court found that plaintiffs had not successfully alleged direct infringement liability because their claims did not align with the required notion of “transmission” as defined in the Copyright Act and interpreted in the Supreme Court case of American Broadcasting Companies, Inc. v. Aereo, Inc., 573 US 431 (2014). The court distinguished X’s actions from the defendant in the Aereo case by noting that X merely provided the platform for third-party transmissions, rather than actively participating in the transmission of copyrighted material. Therefore, the court concluded that X’s role was more akin to a passive carrier, similar to a telegraph system or telephone company, making its actions more suitable for consideration under theories of secondary liability rather than direct infringement.

Some possible contributory liability

The court found that certain portions of plaintiffs’ claims for contributory infringement liability survived because they plausibly alleged that X engaged in actions that could materially contribute to infringement on the X platform. These actions included failing to promptly respond to valid takedown notices, allowing users to pay for less stringent copyright policy enforcement, and not taking meaningful steps against severe serial infringers. Consequently, the court dismissed the broader claim of general liability across the X platform but allowed the plaintiffs to proceed with their claims related to these specific practices.

No vicarious liability

Finally, the court determined that plaintiffs had not successfully pled vicarious liability for copyright infringement because their allegations did not establish that X had the requisite level of control over the infringing activities on X. The court found that simply providing a service that users might exploit for infringement did not equate to the direct control or supervisory capacity typically required for vicarious liability, as seen in traditional employer-employee or principal-agent relationships. Consequently, the court rejected the application of vicarious liability in this context, emphasizing that contributory infringement, rather than vicarious liability, was the more appropriate legal framework for the plaintiffs’ claims.

Concord Music Group, Inc. v. X Corp., 2024 WL 945325 (M.D. Tenn. March 5, 2024)

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March 11, 2024 Copyright, DMCA

Print-on-demand platform avoids liability for illustrator’s copyright claims

Plaintiff illustrator (known for his works involving fish) sued defendant print-on-demand online platform operators for copyright infringement. Defendants’ platform enabled third parties to upload designs that could be printed on items such as t-shirts, mugs and tumblers. Plaintiff alleged that four of his works had been uploaded to the platform and had been printed on goods without plaintiff’s authorization.

Defendants moved to dismiss, arguing that defendants were neither directly nor secondarily liable for any alleged infringement. The magistrate judge submitted a report and recommendation that the matter be dismissed. Plaintiff objected to the magistrate judge’s report and recommendation. The district court overruled the objections and granted the motion to dismiss.

No liability for direct copyright infringement

The court examined the question of defendants’ alleged volitional conduct and its relation to a claim for direct liability for infringement. The magistrate judge had found that plaintiff failed to adequately allege that defendants had engaged in volitional conduct required to pin liability on defendants for infringements occasioned by defendants’ platform’s third party users. The court agreed that an allegation that defendants merely displayed plaintiff’s copyright-protected works did not plausibly suggest that defendants knew the work was protected by copyright. Moreover, plaintiff did not, for example, allege that defendants designed, manufactured or even selected the products on their website.

No liability for secondary copyright infringement

As for secondary liability for copyright infringement, plaintiff had objected to the magistrate judge’s determination of the question at the motion to dismiss stage. But the court rejected this objection to the magistrate judge’s report and recommendation. The court agreed with the magistrate judge’s determination that plaintiff failed to state a valid contributory infringement claim because he did not allege that defendants induced the third-party infringers; and he failed to state a valid secondary liability claim because he did not allege defendants “declined” to stop or limit third parties from infringing. It appears plaintiff sought to limit any application of these secondary liability elements to questions arising under the safe harbors of the Digital Millennium Copyright Act (“DMCA”). But the court found that plaintiff conflated the DMCA and general theories of copyright infringement liability.

Tomelleri v. Sunfrog, LLC, 2024 WL 940238 (E.D. Michigan, March 5, 2024)

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March 7, 2024 Copyright, DMCA

Game developer prevails in action over bogus DMCA takedown notices

DMCA good faith

Defendant posted some videos on YouTube about the game Destiny 2. The videos stayed online for eight years with no issues until Bungie, the game’s developer and publisher sent a Digital Millennium Copyright Act (“DMCA”) takedown notice to YouTube because defendant’s video violated Bungie’s intellectual property policy. This policy encouraged Destiny 2 enthusiasts to create and post Destiny 2 content so long as the content conformed with the policy. Defendant felt wronged by Bungie’s DMCA takedown notice and, seeking to highlight flaws in the DMCA takedown process, posed as a Bungie employee and submitted 96 fraudulent takedown requests targeting other Destiny 2 content, including videos on Bungie’s own channel.

Bungie sued under Section 512(f) of the DMCA which provides that one may be liable for sending any takedown notification that knowingly materially misrepresents that complained of material is infringing. To be liable, a defendant must lack a subjective, good faith belief that the material targeted by the takedown notification is infringing. Bungie moved for summary judgment on its own claim and defendant did not oppose the motion, even though he had sat for a deposition and otherwise participated in the litigation. The court granted the summary judgment motion in favor of Bungie.

In his deposition, defendant had admitted he was “oblivious to the reprehensible damages [he] was causing to the community” and Bungie in issuing the fraudulent takedown notices, and that he caused financial and emotional damage to several Destiny 2 fans whose videos were subject to the fraudulent takedown notices he had sent. The court determined that defendant lacked a good faith belief in the infringing nature of the content, which supported his liability under the statute. Bungie demonstrated that the material did not infringe its intellectual property policy and that defendant had no authority to issue the DMCA notices. As a result of defendant’s actions, Bungie faced reputational damage and incurred significant costs in addressing the issue. Consequently, the court granted summary judgment in favor of Bungie, recognizing the intentional nature of defendant’s violations and the resultant harm to Bungie.

Bungie, Inc. v. Minor, 2024 WL 965010 (W.D. Washington, March 6, 2024)

February 21, 2024 Copyright

Fourth Circuit overturns massive jury verdict in copyright case against internet service provider

music infringement

Plaintiff copyright holders sued defendant internet service provider alleging both vicarious and contributory copyright infringement liability arising from defendant’s customers downloading or distributing songs using BitTorrent. The jury found defendant liable and awarded $1 billion in statutory damages. Defendant sought review with the Fourth Circuit. On appeal, the court affirmed the jury’s finding of willful contributory infringement but remanded the action for a new trial on damages because it found plaintiffs failed to prove vicarious liability, as defendant did not profit from its subscribers’ acts of infringement.

No vicarious liability

Citing to Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) and CoStar Grp., Inc. v. LoopNet, Inc., 373 F.3d 544 (4th Cir. 2004), the court observed that “[a] defendant may be held vicariously liable for a third party’s copyright infringement if the defendant ‘[1] profits directly from the infringement and [2] has a right and ability to supervise the direct infringer.’” In this case, the court found that plaintiffs failed to prove that defendant profited directly from its subscribers’ copyright infringement.

The crux of the financial benefit inquiry was whether a causal relationship existed between the subscribers’ infringing activity and defendant’s financial benefit. To prove vicarious liability, plaintiff had to show that defendant profited from its subscribers’ infringing download and distribution of plaintiffs’ copyrighted songs. The court found that plaintiffs did not meet that burden.

The appellate court disagreed with the lower court’s determination that defendant’s repeated refusal to terminate infringing subscribers’ accounts was enough to show financial benefit for these purposes. Instead, the court found that continued payment of monthly fees for internet service, even by repeat infringers, was not a financial benefit flowing directly from the copyright infringement itself. “Indeed, Cox would receive the same monthly fees even if all of its subscribers stopped infringing.”

The court rejected plaintiffs’ alternative theories for financial benefit. Plaintiffs argued that the high volume of infringing activity on defendant’s network, with roughly 13% of traffic from peer-to-peer activity and over 99% of that being infringing, suggested that the ability to infringe attracted customers to defendant’s internet service. However, the evidence did not conclusively show that customers chose defendant’s service specifically for its potential to facilitate copyright infringement. The argument overlooked the fact that internet service is essential for many aspects of modern life, and there was no specific evidence that defendant’s internet service was selected over competitors due to a more lenient stance on copyright infringement.

Additionally, plaintiffs claimed that defendant’s subscribers were willing to pay more for internet services that allowed for copyright infringement, citing defendant’s tiered pricing and the correlation between peer-to-peer activity and higher data usage. However, there was no substantial evidence to support the claim that subscribers chose higher internet speeds with the intention of infringing copyright. Plaintiffs’ own expert acknowledged that increased data usage could be attributed to numerous legal activities like streaming and gaming. The argument failed to establish a direct link between the desire for higher internet speeds and the intent to infringe copyright, leaving plaintiffs’ assertion that defendant profited from copyright infringement unsubstantiated. Consequently, the court found no basis for vicarious liability on defendant’s part for its subscribers’ copyright infringements, making it necessary to overturn the lower court’s decision on this issue.

Contributory liability upheld

The court upheld the lower court’s determination that defendant was contributorily liable for its subscribers’ infringement, finding that defendant was aware of and materially contributed to the infringing activities. The court emphasized the need for defendant to have knowledge of specific instances of infringement and the substantial certainty of continued infringement by particular subscribers. Despite defendant’s tiered internet services and a variety of lawful uses, the evidence presented at trial demonstrated defendant’s knowledge of repeat infringements and its decision to continue providing service to infringing subscribers, primarily to avoid losing revenue. The court rejected defendant’s arguments against contributory liability, affirming that providing a service with knowledge of its use for infringement, especially when specific instances are known, constituted material contribution to infringement.

But what are the damages now?

Because the $1 billion damages award was not allocated between the two theories of liability, and the jury was instructed to consider various factors, including the profits defendant earned from the infringements, the court could be sure that the vicarious liability verdict did not impact the damages awarded. Given this uncertainty and the significant discretion granted to the jury in determining statutory damages, the court vacated the damages award and remanded for a new trial on the damages issue.

Sony Music Entertainment v. Cox Communications, Inc., 2024 WL 676432 (4th Cir., February 20, 2024)

DMCA subpoena to “mere conduit” ISP was improper

DMCA defamatory

Because ISP acted as a conduit for the transmission of material that allegedly infringed copyright, it fell under the DMCA safe harbor in 17 U.S.C. § 512(a), and therefore § 512(h) did not authorize the subpoena issued in the case.

Some copyright owners needed to find out who was anonymously infringing their works, so they issued a subpoena to the users’ internet service provider (Cox Communications) under the Digital Millennium Copyright Act’s (“DMCA”) at 17 U.S.C. § 512(h). After the ISP notified one of the anonymous users – referred to as John Doe in the case – of the subpoena, Doe filed a motion to quash. The magistrate judge recommended the subpoena be quashed, and the district judge accepted such recommendation.

Contours of the Safe Harbor

The court explained how the DMCA enables copyright owners to send subpoenas for the identification of alleged infringers, contingent upon providing a notification that meets specific criteria outlined in the DMCA. However, the DMCA also establishes safe harbors for Internet Service Providers (ISPs), notably exempting those acting as “mere conduits” of information, like in peer-to-peer (P2P) filesharing, from liability and thus from the obligations of the notice and takedown provisions found in other parts of the DMCA. This distinction has led courts, including the Eighth and D.C. Circuits, to conclude that subpoenas under § 512(h) cannot be used to compel ISPs, which do not store or directly handle the infringing material but merely transmit it, to reveal the identities of P2P infringers.

Who is in?

The copyright owners raised a number of objections to quashing the subpoena. Their primary concerns were with the court’s interpretation of the ISP’s role as merely a “conduit” in the alleged infringement, arguing that the ISP’s assignment of IP addresses constituted a form of linking to infringing material, thus meeting the DMCA’s notice requirements. They also disputed the court’s conclusion that the material in question could not be removed or access disabled by the ISP due to its nature of transmission, and they took issue with certain factual conclusions drawn without input from the parties involved. Additionally, the petitioners objected to the directive to return or destroy any information obtained through the subpoena, requesting that such measures apply only to the information related to the specific subscriber John Doe.

Conduits are.

Notwithstanding these various arguments, the court upheld the magistrate judge’s recommendation, agreeing that the subpoena issued to the ISP was invalid due to non-compliance with the notice provisions required by 17 U.S.C. § 512(c)(3)(A). The petitioners’ arguments, suggesting that the ISP’s assignment of IP addresses to users constituted a form of linking to infringing material under § 512(d), were rejected. The court clarified that in the context of P2P file sharing, IP addresses do not serve as “information location tools” as defined under § 512(d) and that the ISP’s role was limited to providing internet connectivity, aligning with the “mere conduit” provision under § 512(a). The court also dismissed the petitioners’ suggestion that the ISP could disable access to infringing material by null routing, emphasizing the distinction between disabling access to material and terminating a subscriber’s account, with the latter being a more severe action than what the DMCA authorizes. The court suggested that the petitioners could pursue the infringer’s identity through other legal avenues, such as a John Doe lawsuit, despite potential challenges highlighted by the petitioners.

In re: Subpoena of Internet Subscribers of Cox Communications, LLC and Coxcom LLC, 2024 WL 341069 (D. Hawaii, January 30, 2024)

February 7, 2024 Copyright

Not fair use after all – Fourth Circuit reverses lower court’s decision in online copyright infringement case

fair use

Plaintiff photographer sued defendant news website for copyright infringement over a photo of Ted Nugent that defendant used in an online article. The lower court granted summary judgment for defendant, finding that its use of the photo was fair use. Plaintiff sought review with the Fourth Circuit. On review, the court reversed, applying the factors set out in 17 U.S.C. § 107 in finding the use of the photo was not fair use.

For the first fair use factor, the court found that defendant’s use of the photo was not transformative and was commercial. This caused the factor to weigh against fair use. It looked to the recent Supreme Court case of Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, 598 U.S. 508 (2023). The court noted that in a manner similar to what happened in the Warhol case, plaintiff took the photo of Ted Nugent to capture a “portrait” of him, and defendant used the photo to “depict” the musician. Accordingly, the two uses “shared substantially the same purpose.” The court actually found that defendant in this case had “less of a case” for transformative use than the Andy Warhol Foundation did, because unlike in Warhol, defendant did not alter or add new expression beyond cropping negative space. And though the article in which the photo appeared did not generate much revenue for defendant, the relevant question to determine commercial use was whether defendant stood to profit, not whether it actually did profit.

Though the district court did not address the second and third fair use factors, the appellate court looked at those factors, and found they did not support fair use. Looking at the nature of plaintiff’s photo, the court observed that plaintiff made several creative choices in capturing the photo, including angle of photography, exposure, composition, framing, location, and exact moment of creation. As for the third factor, the court found it to weigh against fair use because defendant copied a significant percentage of the photo, only cropping out negative space while keeping the photo’s expressive features.

Finally, the court also found that the fourth fair use factor weighed against fair use. The court concluded that if defendant’s unauthorized use became “uninterrupted and widespread,” it would adversely affect the potential market for the photo. It emphasized the notion of the potential market. In this case, there was at least one instance where plaintiff had allowed use of his photo for free, and he also made it available for free subject to a Creative Commons license, requiring attribution in return. But that did not change the outcome, given that he customarily licensed if for either money or attribution.

Philpot v. Independent Journal Review, — F.4th —, 2024 WL 442066 (4th Cir., February 6, 2024)

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Ted Nugent photo by Republic Country Club, under this Creative Commons license. Changes made: frame expanded, image color modified and background enhanced using generative AI.

January 12, 2024 Contracts, Copyright

IP warranty in the spotlight: Licensor’s failure to assure licensee of rights leads to litigation

intellectual property

In the recent breach of contract case in federal court in New York, we learn about what it takes for a copyright licensee to successfully assert that a warranty from the licensor as to copyright ownership has been breached. Licensee’s unsuccessful efforts to verify the truth of the facts warranted provided a key basis for the lawsuit to move forward.

Blake and Video Elephant entered into an agreement whereby Video Elephant granted a sublicense for Blake to use certain news, entertainment, sports, and other related content. Video Elephant’s business model was to procure such rights from content owners and then grant sublicenses to licensees such as Blake. The agreement contained a provision whereby Video Elephant “warrant[ed] that [the third party owner] is the sole owner of all copyright in [the content] which is granted to [Blake] under this Agreement other than such logos and trademarks and/or title name which are owned by [Blake].”

Assure or get sued

This warranty was crucial for Blake, as it helped Blake be assured that it could use and broadcast the content without the fear of copyright infringement claims from third parties. After Blake repeatedly attempted, without success, to verify whether the third party creator actually owned the intellectual property rights in the content, and after Video Elephant failed to offer adequate assurances that the third party had such rights, Blake filed a counterclaim in the ongoing litigation between the parties for breach of warranty.

Video Elephant moved to dismiss the counterclaim. The court denied the motion.

Due diligence dead end

Blake alleged that it conducted thorough investigations, consulting relevant rights databases and contacting business contacts in the movie industry, seeking to confirm the third party’s ownership of the rights. Despite these efforts, the ownership remained unverified, leading to Blake’s conclusion that the third party might not be the sole owner of the copyright in the licensed content. This situation, according to Blake, rendered it unable to use the content as intended under the agreement, thereby causing substantial damages.

Video Elephant, on the other hand, argued that Blake’s allegations were unfounded, asserting that Blake’s pleading failed to establish a claim for breach of express warranty. It argued that Blake had not demonstrated that the warranty was, in fact, breached.

Belief about doubt

In ruling in Blake’s favor, the court noted that Blake’s assertions “[u]pon information and belief,” that “[the third party] was not in fact the sole owner of all copyright rights in and to the content licensed” and Blake’s unsuccessful investigations into the ownership of the sublicensed content’s rights made the inference of breach plausible.

Moreover, the court found that under New York law, Blake had pled facts showing its reliance on the warranty as the basis for the agreement, since without such third party rights being granted, Blake would have been at risk of infringement liability. The court also found that the lack of assurances – and the resulting inability to use the content because of the resulting infringement risk – supported Blake’s allegations of “substantial damages”.

Video Elephant Ltd. v. Blake Broadcasting LLC, 2024 WL 68525 (S.D.N.Y. January 5, 2024)

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Google did not “trespass” on websites by placing ads in mobile app

trespass to chattels

Google’s Search App in the Android environment worked much like any web browser. When a user typed in a web address, the app would connect to the host web server and deliver up a copy of the requested web page to be viewed in the app. Between 2018 and 2020, Google configured the app so that a frame at the bottom of the screen accompanied the requested page. A user could click to expand the frame to display larger advertising banners. Google did not pay the owners of the websites over which these banners were displayed. The ads were triggered automatically using algorithms, presumably based on the content of the requested website.

A group of website operators sued Google in federal court, seeking to make the case into a class action. Plaintiffs asserted a number of claims under California law, including trespass to chattels and unjust enrichment. Google filed a motion to dismiss the case for failure to state a claim upon which relief could be granted. The lower court denied the motion to dismiss. Usually, a party who loses a motion to dismiss does not yet have the opportunity to appeal such a decision (that right is normally reserved for final decisions of a court). In this case, however, the court permitted Google to seek review of the denial of the motion to dismiss. On appeal, the Ninth Circuit reversed the lower court’s decision and ordered that the case be dismissed.

No trespass to chattels

Trespass to chattels is a tort that enables a party to recover when another has interfered with possession of personal property. It is in the nature of theft (what in civil proceedings would be called “conversion”) but “not sufficiently important to be classified as conversion”. Plaintiffs’ theory essentially was that when Google placed ads on top of their web pages, Google was messing with plaintiffs’ possessory interest in plaintiffs’ web pages. The “chattels” at issue were the copies of the web pages.

The court held that plaintiffs’ trespass to chattels claim failed because they did not allege a sufficient possessory interest in the copies of their web pages, nor did they allege an appropriate property interest in the pages.

As for the lack of possessory interest, the court observed that (1) the pages were created when a user visited the website using the Search App, (2) the copy existed on the user’s device, and (3) the page was deleted when the user left the page. Because the purported possessory interest was “entirely dependent” on the actions taken by individual users, plaintiffs could not claim ownership of such interest.

And as for the lack of property interest, the court held that the lower court erred in focusing the property-ownership analysis on the website itself, rather than the website copies that appeared on the user’s mobile device. It then applied a three-part test set out in Kremen v. Cohen, 37 F.3d 1024 (9th Cir. 2003) to determine that (1) a website copy is not “capable of precise definition” because there is no single way to display a website copy, (2) a website copy is not “capable of exclusive possession or control” because the user is the one who dispenses with the page in his or her local environment, and (3) there is no “legitimate claim to exclusivity” over website copies, making them different than other types of tangible property recognized as being subject to trespass.

Unjust enrichment claim preempted by federal copyright law

The court used a two-part test to assess whether plaintiffs’ state-law claim for unjust enrichment conflicted with the federal Copyright Act. The first step of the test examined the nature of how plaintiffs’ websites were presented, and led the court to determine that the websites involved the subject matter covered by federal copyright law.

In the second step, the panel compared the rights claimed by plaintiffs under their unjust enrichment claim to see whether they were equivalent to those rights protected by federal copyright law. The court held that it was appropriate to focus on the rights asserted by plaintiffs. It found that the described action of placing ads over the websites resulted in the creation of a derivative work – a right enumerated in the Copyright Act.

Additionally, the court found that plaintiffs’ state-law claim did not include any additional elements that would distinguish it from a typical federal copyright claim. This lack of an “extra element” was a key factor in the panel’s conclusion. As a result, the panel determined that plaintiffs’ state-law claim was indeed preempted by federal copyright law, aligning the state claim with the broader protections offered at the federal level.

What the case means for business

The ruling holds significant implications for digital enterprises, particularly concerning advertisement placement and risk management. This case underscores the legal complexities of embedding advertisements on digital platforms, highlighting the importance of legal compliance and awareness of intellectual property laws. Additionally, it emphasizes the need for diligent risk management in the company’s operations. This case serves as an important reminder of the potential legal risks associated with digital content and advertising practices, making it imperative for companies to maintain a proactive approach to legal compliance and risk mitigation in these areas.

Best Carpet Values, Inc. v. Google, LLC, 2024 WL 119670 (9th Cir., January 11, 2024)

Shake Shack shakes off typeface breach of contract claim

In an ongoing federal case in New York, the well-loved restaurant Shake Shack finds itself embroiled in a copyright and contract dispute with House Industries, a typeface foundry known for developing the Neutraface font. House Industries accused Shake Shack of using the Neutraface font in Shake Shack’s logos and signage without the necessary licensing, claiming that Shake Shack breached Hose Industries’ End User License Agreement (EULA).

The Core of the Dispute

House Industries’ argument centered around its claim that Shake Shack used the proprietary Neutraface font software for commercial purposes, specifically in logos and signage, without obtaining the appropriate permissions. House Industries asserted – in a counterclaim brought against Shake Shack, who had filed a declaratory judgment action against House Industries – that this breached the EULA, which explicitly prohibits use of the Neutraface font software in logos or for the sale of products (unless the user pays an additional license fee).

Shake Shack moved to dismiss the counterclaim. It argued that House Industries failed to provide plausible, non-speculative allegations sufficient to substantiate a breach of contract claim. Moreover, Shake Shack contended that the contract claim was preempted by the Copyright Act. The court agreed with Shake Shack and dismissed House Industries’ claims.

The Court’s Analysis and Ruling

In assessing the breach of contract claim, the court found significant deficiencies in House Industries’ allegations. To establish a breach of contract, House Industries had to demonstrate the existence of an agreement, performance by House Industries, breach by Shake Shack, and resultant damages. House Industries, however, could not substantiate the existence of a contract between itself and Shake Shack. The details of Shake Shack’s assent to the EULA, including who agreed to it and when, were notably absent in House Industries’ claim. The court noted that mere speculation and the inability to identify a specific agreement or its terms were insufficient to sustain a breach of contract claim.

The court also delved into the issue of preemption under the Copyright Act. The central question was whether House Industries’ claim attempted to enforce rights equivalent to those protected under copyright law. The court determined that the Neutraface glyphs, being graphic or pictorial works, fell within the subject matter of copyright. (It is interesting to note that House Industries did not assert that Shake Shack violated the EULA by using the font software without authorization. “House Industries has pleaded no details whatsoever concerning Shake Shack’s alleged use of the proprietary software.”)

Despite House Industries’ assertions to the contrary, the court concluded that the claims were qualitatively similar to a copyright infringement claim. This portion of the analysis was particularly interesting. Copyright law covers pictorial or graphic works – the category in which the glyphs would fall. But type faces are specifically excluded from copyright protection (37 C.F.R. § 202.1(e)). That exclusion did not matter. Even though the glyphs were not subject to copyright protection, they were the type of works copyright protects. Since House Industries’ claim was equivalent to a claim under the Copyright Act concerning these types of works, the court found the breach of contract claim preempted by the Copyright Act.

Implications and Conclusion

This ruling highlights the complexities of intellectual property rights concerning the use of digital assets like fonts in commercial endeavors. It underscores the importance for companies to clearly understand and comply with licensing agreements when using digital creations. This case serves as a reminder of the nuanced legal landscape governing the intersection of technology, art, and commerce.

Shake Shack Enterprises v. Brand Design Company, Inc., 2023 WL 9003713 (S.D.N.Y. December 28, 2023)

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