Internet Library of Law
and Court Decisions

Unfair Competition - Internet Library of Law and Court Decisions - Updated November 26, 2007

(Plaintiff Blue Mountain Arts operates a web site at which it makes available for free to the general public greeting cards for transmission via e-mail. Plaintiff alleged that defendant Microsoft Corporation, to support its competing greeting card site, caused a beta version of Outlook Express, an e-mail program distributed by Microsoft with its popular Internet Explorer browser, to relegate e-mail containing plaintiff's greeting cards in a junk mail folder for immediate discard, rather than in the intended recipients' standard in-box. This allegedly constituted unfair competition in violation of both California Business and Professions Code Section 17200 and common law, intentional interference with contract and prospective economic advantage and trade libel. On plaintiff's motion, the court granted plaintiff a temporary restraining order designed to prevent plaintiff's e-mail from being placed in Outlook Express' junk mail folder.)

On the parties’ cross-motions for partial summary judgment, the Court found defendant Legg Mason guilty of copyright infringement as the result of its unauthorized copying and distribution of numerous editions of a financial newsletter published by plaintiff Lowry’s Reports.  An individual employed in Legg Mason’s research department contracted with Lowry’s to receive a single copy of its financial newsletter.  Her contract prohibited copying or dissemination of the newsletter or its contents.  Without authorization, that employee made numerous copies of various newsletters received which were faxed to Legg Mason brokers and branch offices, posted on the company intranet, and supplied to other members of the research department.  Legg Mason brokers downloaded copies of the newsletter from Legg Mason’s website.  After receipt of a cease and desist letter from Lowry’s, the employee continued to provide copies to other members of the research department.  These activities were conducted over an extended period of time.

The Court found that such activities constituted copyright infringement.  In reaching this result, the Court held Legg Mason vicariously liable for this misconduct of its employees, given that it had both the right and ability to supervise the conduct of its employees at issue, and a direct financial interest in exploitation of the copyrighted materials.

The Court denied so much of defendants’ motion that sought to reduce the statutory damages available to plaintiff for such infringement because defendant was an innocent infringer.  Such a defense was not available as the newsletters contained a copyright notice.

The Court further held that whether defendant was a willful infringer, and thus exposed to additional, and higher statutory damages, would have to await resolution at trial.

The Court did hold that plaintiff could not pursue claims for any indirect profits defendants made by use of the information contained in the newsletter.  While a copyright owner can recover, in addition to its own damages, profits an infringer made from the unauthorized use of his copyrighted materials, Lowry’s could not do so here because the link to such damages was too attenuated.  Thus, held the Court, plaintiff could not prove that profits made by Legg Mason as a result of investments it made were the result of information contained in plaintiff’s newsletters, which did not recommend specific investments, but rather provided informational gauges on the market as a whole.

The Court held that plaintiff could proceed with breach of contract claims, holding they were not preempted by application of the Copyright Act.

The same was not true of Lowry’s state law unfair competition claim, however, which rested on a ‘hot news’ theory.  This claim arose out of Legg Mason’s inclusion of factual information contained in Lowry’s reports – market predictors known as the ‘Lowry’s numbers’ – in a morning phone broadcast to its brokers.  Lowry’s could not pursue such a claim on a copyright infringement theory because the information conveyed – the ‘Lowry’s numbers’ - was held to consist of unprotectable facts.  And because Lowry’s unfair competition claim rested on the same elements as a copyright infringement claim – the broadcast was held akin to a ‘performance’ of the newsletter – it was held preempted by the Copyright Act.

It should be noted that this case was ultimately tried to a jury, which awarded Lowry’s just under $20 million as a result of Legg Mason’s infringing activities.  The case subsequently settled for an undisclosed sum.

Court issues preliminary injunction against Cybernet Ventures, which operates an Age Verification Service, based on the use by web sites operated by third parties of various images in which plaintiff held the copyright, or featuring a model who had assigned her right of publicity to plaintiff. 

Cybernet Ventures operates the Age Verification Service "Adult Check."  Participating web sites put a script on their site which direct first time users to Cybernet, who sells them access to the Adult Check family of sites.  The user is thereafter free to visit Adult Check sites for a set period of time.  The fees generated by this user are paid to Cybernet, who splits them with the web site which sent the user to Cybernet.  To assist the user in finding Adult Check sites to his liking, Cybernet provides both a series of links as well as a search engine.  It also advertises its network. 

Cybernet takes an active interest in the content of Adult Check sites, employing a staff of 12 to review the site both before it is admitted to the Adult Check family, and periodically thereafter.  The content of the site is reviewed by Cybernet to prevent the inclusion of prohibited images.  Cybernet also provides comment on the site's layout.  The images on each site, however, are not provided by Cybernet.  Instead, each site is run by a third party, who is responsible for locating the images, arranging to have the site hosted, and advertising the site.

Perfect 10, which holds the copyright in a number of images of nude women made available to the public both on its web site and in a magazine, brought this suit, charging that web sites in the Adult Check family contained over 10,000 images in which Perfect 10 held the copyright. 

The court determined that Perfect 10 was likely to prevail on its claims contributory and vicarious copyright infringement against Cybernet, as well on its claims of unfair competition under Cal. Bus. and Professions Code Section 17200.  The court held that Perfect 10 was likely to prevail on its contributory infringement claim because Cybernet was likely to be held to have the requisite notice of the infringing activities at issue, and to have materially contributed to this infringement by its operation of the Age Verification Service, and particular its collection of fees for, and advertising of the web sites in question.

The court further held that Perfect 10 was likely to prevail on its vicarious infringement claim, because Cybernet had the ability to control the web sites, as evidenced by the review of its content it conducted, and received a direct financial benefit from the presence on these web sites of the infringing images.  Lastly, the court held that Perfect 10 was likely to prevail on its unfair competition claim, because Cybernet was likely to be held to have aided and abetted a violation of various models' right to publicity, again by virtue of its knowledge of infringement, and contributed thereto by virtue of its operation of the AVS system.

The court further held that Cybernet was unlikely to be able to avoid this liability under the safe harbor provisions of the Digital Millennium Copyright Act, because the court was likely to hold both that the DMCA policy Cybernet adopted failed to comply with the DMCA, and that Cybernet failed to reasonably implement such a policy, or terminate repeat infringers.  Cybernet was also unlikely to be able to seek the protections of the DMCA because it received a financial benefit directly attributable to infringing activity it had the right and ability to control.

The court accordingly issued a preliminary injunction, which prohibited Cybernet from utilizing or linking to the images in question.  The injunction further obligated Cybernet to stop linking to sites containing the images in question where Cybernet had either notice thereof, or knew or should have known of the presence of the images, under circumstances specified in the injunction.  The injunction also obligated Cybernet to undertake reviews both of sites seeking to become members of the Adult Check network, and of designated existing sites, to ascertain whether they were using any of the images at issue, and to bar such new sites from entering the network without proper rights documentation.  The scope of this injunction is discussed in greater depth in the accompanying "in depth" analysis of this decision.

In this case, Playboy charged the defendants, operators of a bulletin board system, with copyright and trademark infringement, as well as unfair competition. Defendants' bulletin board system is accessible via telephone modem to subscribers. Subscribers uploaded onto the bulletin board various pictures published by Playboy to which Playboy owned the applicable copyright. In addition, these subscribers, in the description of the material they provided other bulletin board users, utilized Playboy's trademarks Playboy and Playmate. Lastly, in some instances, Playboy's trademark was removed from the photograph, and replaced with the name of the bulletin board service and its telephone number.

On these facts, the court granted plaintiff's motion for partial summary judgment, finding defendants guilty of copyright and trademark infringement, as well as unfair competition. The court reached such conclusion notwithstanding defendant Frena's claim both that he did not upload the images onto his bulletin board system (subscribers did) and he was unaware of the presence of such images on his service until such time as he was served with the summons and complaint in this action, at which time he caused them to be deleted.

Operation of website titled "Web-A-Sketch" on which users could draw pictures in a manner similar to the famous "Etch-A-Sketch" toy, and deployment on that site of the trademark "Etch-A-Sketch" in ways designed to attract those using search engines to find "Etch-A-Sketch," constituted dilution of plaintiff's famous "Etch-A-Sketch" mark, as well as trademark infringement. The court further held that posting notices on the site requesting users to object to plaintiff's attempt to enforce its trademark rights constituted denigration of plaintiff without cause in violation of Ohio state unfair competition statutes.

Quick Hits

Court denied plaintiff New.net Inc.’s motion for a preliminary injunction, which sought to enjoin defendant Lavasoft from both informing consumers via its Ad-Aware software that NewDotNet, a software program distributed by plaintiff, is installed and running on their computers, and providing consumers with tools that enable them to uninstall that software if they so desire.  Ad-Aware is a popular software program that aids consumers in removing unwanted “spyware.”  Plaintiff charged that by so identifying its software, Lavasoft was mislabeling and disparaging its NewDotNet software by associating it with such unwanted spyware.  As a result, Net.net charged Lavasoft with false advertising, unfair competition, trade libel and tortuous interference with prospective economic advantage. 
The court denied plaintiff’s motion, finding that by informing consumers that NewDotNet was installed and running on their computers, Lavasoft was engaging in speech about a matter of public interest protected by the First Amendment.  As such, the injunction plaintiff sought was an impermissible prior restraint on speech plaintiff claimed was defamatory, before that speech was actually determined to be false.  Said the Court:

For more than thirty years, it has been established that allegations of falsity are insufficient to warrant prior restraint. …  “Equity will not restrain by injunction the threatened publication of a libel, as such, however great the injury to property may be.  This is the universal rule in the United States …”

This prohibition on prior restraint applies to “all causes of action having as their gravamen the alleged injurious falsehood of a statement,” which here included both the Lanham Act and state law claims asserted by the plaintiff.

The court noted that once speech is found to be defamatory and false, a defendant can be enjoined from repeating it.  Said the Court:

The First Amendment offers no protection for false or deceptive commercial speech. …  By contrast, “once a jury has determined that a certain statement is libelous, it is not a prior restraint for the court to enjoin the defendant from repeating that statement.”

New.net generates revenue through the sale of domain names in nonstandard format, such as .free and .shop.  Because the internet does not recognize these domain names, they must be linked to domain names that the internet does recognize for a user to be able to locate them, such as those using traditional extensions such as .com.  According to the court, “without special software, either loaded onto a users computer or incorporate into the software of an internet service provider, an internet user who types a nonstandard domain name in his or her browser will not be able to locate the website.  New.net deals with this problem by providing software “newdotnet” that recognizes the nonstandard extension and connects the user to the web site without requiring the user to know and enter the site’s “true” name.”  According to the court, “New.net is typically introduced onto home computers through ‘bundling’ a process by which an individual who intentionally requests and downloads certain desired software actually gets a bundle of other software the was not sought by the user.”  Often “New.net’s presence is disclosed deep within complicated user agreements that do not allow users to opt out of downloading the bundled conglomeration.”  The court presumed that often, the consumer is unaware that Newdotnet is actually installed on their computers.  Ad-Aware apprises the consumer of the presence of this program, and allows them to remove it if they so choose.