E-Commerce Law Week, Issue 514

False Suggestion of Sponsorship By Trademark Owner Can be Bad for a Website's Health

In Standard Process, Inc. v. Total Health Discount, Inc., a federal court in Wisconsin recently ruled that an Internet reseller's unauthorized use of a manufacturer's trademarks on its website was not protected by the "first sale" or "fair use" defenses, since the reseller used the manufacturer's marks to trigger "prominently" placed search engine advertising and made statements on its website that falsely suggested "sponsorship or endorsement" by the trademark holder.  Accordingly, the court rejected the defendant's motion for summary judgment on the plaintiff's trademark infringement claims. This ruling contrasts with the recent decision in Designer Skin, LLC v. S & L Vitamins, Inc., in which a court found that a distributor's unauthorized use of a manufacturer's trademarks in metatags and search-engine key words did not cause sufficient initial interest confusion to support an infringement claim where the distributor actually sold the manufacturer's goods, though without authorization.  Unlike in Standard Process, the defendant in Designer Skin used the plaintiff's marks to "accurately describe the contents of its websites," without suggesting affiliation or sponsorship.

Google Reaches Agreement with Brazil on Combatting Child Porn

Settling long-running accusations that its Orkut social networking service has been a hot bed for child pornography and other cyber crimes, Google on July 2 signed an agreement with Brazil's federal prosecutors that will require the company to:  notify the prosecutors of all child pornography found on Orkut; ensure the automatic retention and accessibility of non-content log data related to Orkut users in Brazil for six months (and do the same for content published by Orkut users when "specifically requested by the competent authorities" pursuant to a child pornography investigation); and take down and preserve for six months any illegal content identified in a court order or written request from law enforcement.  Google also promises to adopt "filter technology" designed to detect and remove both known images of or links to child porn and accounts belonging to previously identified purveyors of child pornography.  And it agrees to respond within 15 days to users' complaints about "false or offensive" information on Orkut, abide by all Brazilian cyber crime laws, and improve communication with both Brazilian authorities and the "Safernet" cyber crime reporting service.  If the agreement is approved by a federal court, the settlement would end the government's civil action against Google.

French Court Fines eBay for Brokering Auctions in Counterfeit Goods

In three related decisions, the Tribunal de Commerce in Paris on June 30 ordered eBay to pay nearly €40 million in damages to luxury goods consortium LVMH, finding that eBay had allowed illegal online auctions of counterfeit LVMH handbags, couture, and perfumes.  Significantly, the court held that eBay could not claim protection from liability under Article 6-I-2 of the French Law for Confidence in the Digital Economy (LCEN), which states that public providers of "communications services" cannot be held liable for “information stored at the request of a recipient of those services" if the provider "did not have actual knowledge of [the] illegal nature" of the information, or if the provider "acted expeditiously to remove the data or make access impossible" after learning of its illegality.  (This language mirrors Article 14 of the EU E-Commerce Directive.)  The court found several holes in eBay's Article 6-I-2 shield, but its determination that eBay had "knowledge and control of information transmitted over its sites" is perhaps the most worrisome for websites and other communications services, since it suggests that French courts will read the "actual knowledge" exception to Article 6-I-2 quite broadly.

Court Rules that State Law Unfair and Deceptive Practices Claim is Preempted by Copyright Act

A federal court in North Carolina recently ruled in Rutledge v. High Point Regional Health System that a claim brought under the state's Unfair and Deceptive Trade Practices Act (UDTPA) was preempted by the federal Copyright Act.  Plaintiff Dr. Robert Rutledge alleged that the defendants -- the High Point Regional Health System and two of its doctors -- had infringed upon his copyrights and violated the UDTPA by using a set of forms and manuals that he had developed for a "Mini Gastric Bypass" surgery without his authorization.  The defendants moved to dismiss the UDTPA claim, noting that the Copyright Act preempts state law claims if:  (1) the work is "within the scope of copyright"; and (2) the state law creates "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright."  The parties agreed that the forms and manuals were within the scope of copyright.  Resolving their dispute over the second prong of the test, the court noted that the Fourth Circuit has held that "the Copyright Act preempts state law claims that lack an extra element making them 'qualitatively different from a copyright infringement claim.'"  Because the plaintiff had no "free-standing cause of action for misrepresentation upon which to rest the UDTPA claim" and had not predicated his UDPTA claim on acts that were "qualitatively different" from those giving rise to his copyright claim, the court found that his UDTPA claim was preempted, and therefore granted the defendants' motion to dismiss this claim.

Questions and comments about E-Commerce Law Week are always welcome.  Please send your feedback to Sally Albertazzie.