A No-Brainer: Protecting Your Website Under the DMCA

In the United States copyrights are federally protected under the Copyright Act of 1976.[1] Unaddressed under the Copyright Act of 1976,  exponential advances in technology in the nineties led to the proverbial “opening of the floodgates” for a deluge of a variety of infringing activity. To address these activities and to expand upon the rights of copyright owners in the modern age, the Digital Millennium Copyright Act[2] (DMCA) was passed in 1998.

In light of the liability several provisions of the DMCA imparted upon certain parties, such as online service providers, Congress further embedded the Online Copyright Infringement Liability Limitation Act[3] within the DMCA. The Online Copyright Infringement Liability Limitation Act, which is commonly referred to as the “Safe Harbor” provisions of the DMCA, provides immunity to online service providers from being liable for copyright infringement so long as the requirements and criteria of the Safe Harbor provisions are adhered.

The Safe Harbor provisions are divided into separate sections to address different circumstances.[4] For instance, the Safe Harbor provisions address Transitory Digital Network Communications,[5] System Caching,[6] Information Location Tools,[7] and Information Residing on Systems or Networks At Direction of Users.[8] However, only the “Information Residing on Systems or Networks At Direction of Users” provision requires that service providers designate an agent in order to receive DMCA takedown requests.[9]

DMCA Takedown Requests

Within the Copyright Act, the term “service provider” is defined as a party who, upon a user’s request, facilitates the transmission of requested material without modifying the content that is being transmitted, as well as those individuals or organizations who provide online or network service access.[10] This includes most websites that allow users to post or store material on a service provider’s systems, such as search engines and directories, as well as internet service providers.

In order for a service provider to be exempt from liability from copyright infringement, the service provider must not have actual knowledge or be aware of the circumstances surrounding the allegedly infringing material or activity or, upon obtaining knowledge or awareness of such infringing material or activity, must expeditiously remove or disable access to the material.[11] One of the most common methods a service provider gains knowledge or awareness of infringing material or activities is through what is referred to as the “notice and takedown system” or a “DMCA takedown notice.”

DMCA Takedown Notice Requirements

The requirements for a valid takedown notice are set forth in § 512 of the Copyright Act[12] and include:

  1. A physical or electronic signature of the owner of the allegedly infringed material, or an authorized agent of such owner;
  2. Identification of the material that that is allegedly being infringed;
  3. Identification of the allegedly infringing material or activity that is sufficient to allow the service provider to locate the material;
  4. Contact information of the complaining party;
  5. A statement that the complaining party has a “good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law”; and
  6. A statement that “the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner…”[13]

Notably, where a service provider is in receipt of a takedown notice which does not meet all of the notice requirements but at least identifies the protected work that is allegedly being infringed, the infringing material, and the complaining party’s contact information, the service provider is under a duty to take reasonable steps to contact the complaining party to obtain a proper notice in order for the Safe Harbor immunity to apply in such situations.[14]

Defective DMCA Takedown Notices

Within the Safe Harbor provisions, the requirements for preparing a valid DMCA takedown notice are meticulously set out.[15] Additionally, the Safe Harbor provisions provide that a defective notice, one which fails to substantially comply with the takedown notice requirements, shall not be considered as providing the service provider with knowledge or awareness of the infringing material or activities.[16] The result of such a defective notice is that it rends from the notice any power it would have had to put an infringer on notice of that infringement. In essence, despite receipt of a defective notice, in the eyes of the law a service provider is regarded as not having actual knowledge or awareness of such infringing activities or material, which in turn provides the service provider with immunity from liability.[17]

Misrepresentations in DMCA Takedown Notices

However, in instances where a sender has knowingly sent a takedown notice which materially misrepresents the infringing nature of the material or activity, then such sender shall be liable to the service provider “for any damages, including costs and attorneys’ fees, incurred . . . as the result of the service provider relying upon such misrepresentation.”[18] Such “misrepresentation” can arise in many different circumstances, including when a sender of a DMCA takedown request fails to consider the “fair use” defense, acknowledged in the landmark case Lenz v. Universal Music Corp., where Universal Music had wrongfully sent a takedown request for a video of a child who was dancing to Prince’s song “Let’s Go Crazy” without considering whether such activity was protected under the fair use defense.[19]

DMCA Registered Agent

The Safe Harbor provisions further provide that “[t]he limitations on liability established in this subsection apply to a service provider only if the service provider has designated an agent to receive notifications of claimed infringement.”[20] Furthermore, service providers must make the designated registered agent’s name, physical address, phone number, and email address publicly accessible as well as to provide the U.S Copyright Office with such information.[21]

It is required that a service provider appoint a DMCA registered agent in order to be able to avail itself of the DMCA Safe Harbor protection. Indeed, courts have held that service providers were unable to invoke the section 512 Safe Harbor with respect to any infringing conduct occurring until it has a designated agent registered with the Copyright Office.[22] A service provider may only designate one DMCA agent, who may be an individual, a person or position within the service provider’s organization or an independent third-party entity.

In an effort to further facilitate the ease of appointing and managing a service provider’s designated DMCA agent, in 2016 the U.S Copyright Office launched the DMCA Designated Agent Directory which allows service providers to designate a DMCA agent and to pay the requisite fees online.[23] With the potential substantial consequences of failing to designate DMCA registered and the affordability and ease in which a service provider can register a designated DMCA agent, it is imperative that any website owner fully comply with the DMCA Safe Harbor requirements so as to ensure protection from potential liability for infringing material or activities that are made available through your website.

[1] 17 U.S.C. §§ 101-810 (1998). [2] 17 U.S.C. §§ 512, 1201–1205, 1301–1332 (2020); 28 U.S.C. § 4001 (2020). [3] 17 U.S.C. § 512. [4] Id. [5] 17 U.S.C. § 512(a). [6] 17 U.S.C. § 512(b). [7] 17 U.S.C. § 512(d). [8] 17 U.S.C. § 512(c). [9] Id. [10] 17 U.S.C. § 512(k)(1). [11] 17 U.S.C. § 512(c)(1)(A). [12] 17 U.S.C. § 512(c)(3)(A). [13] Id. [14] 17 U.S.C. § 512(c)(3)(B)(1). [15] 17 U.S.C. § 512(c)(3)(A). [16] 17 U.S.C. § 512(c)(3)(B)(1). [17] See, e.g., UMG Recordings v. Shelter Capital, 667 F.3d 1022 (9th Cir. 2011), modified at 718 F.3d 1006 (9th Cir. 2013). [18] 17 U.S.C. §§ 512(f). [19] See, Lenz v. Universal Music Corp., 801 F.3d 1126 (9th Cir. 2015). [20] 17 U.S.C. §§ 512(c)(2). [21] Id. [22] See, e.g., Oppenheimer v. Allvoices, Inc., 2014 3:14-cv-00499-LB (N.D. Cal., June 10, 2014) (indicating that “Section 512(c)(2) ‘plainly specifies that a registered agent is a predicate, express condition’ that must be met and that ‘the safe harbor will apply “only if” such agent has been designated and identified to the Copyright Office for inclusion in the directory of agents.’” citing Perfect 10, Inc. v. Yandex N.V., No. C 12-01521 WHA, 2013 U.S. Dist. LEXIS 65802, 2013 WL 1899851, at *8 (N.D. Cal. May 7, 2013)). [23] 37 C.F.R. § 201.3 (2020).

The Consequences of Misrepresentations in the Sale of a Tech Company

Whether it’s a company buying out its competition or a corporate tech giant purchasing a business so as to integrate its assets with another company’s assets, the sale and acquisition of tech companies is a massive part of the technology industry with billions of dollars on the line.[1] While many of the major acquisitions that are successful become newsworthy, such transactions aren’t always as easy and straightforward as they may seem. Particularly, when a seller of a company has made material misrepresentations to the purchaser.

The Second Edition of the Restatement of Contracts broadly defines a misrepresentation as “an assertion that is not in accord with the facts.”[2] Within this definition lies a variety of different circumstances which give rise to the occurrence of a misrepresentation. In the context of a tech company sale, a misrepresentation can generally be classified as either being fraudulent or negligent. A misrepresentation is fraudulent when it is consciously false and is intended to mislead the other party.[3] In the case of fraudulent misrepresentation, “one becomes liable for breaching the general duty of good faith or honesty.”[4] However, where a party has failed to “exercise reasonable care or competence in supplying correct information,” such a party is liable for negligent misrepresentation.[5] As can be expected, the consequences that a misrepresentation can have are greatest in instances where a party has purposefully provided the other party with false information.

Representations and Warranties

While the details and arrangements concerning the sale of a business may vary greatly from one transaction to another, the commonality in all such dealings is that the buyer typically relies on the seller’s representations and warranties regarding the business affairs of the company. Often, such representations and warranties are supplemented with supporting documentation. However, this may not always be the case for every transaction or for every representation and warranty that is made concerning the business. Knowing the meaning behind such assurances as well as the consequences of relying on false assertions can be essential in avoiding potentially harmful deals.

Organization, Standing, and Power

A common preliminary assertion made by the seller is that the company actually exists and is in good standing in the jurisdiction that it was formed in. Additionally, the person signing on behalf of the company will often represent that they have authority to bind the company to the terms of the sale agreement.

Litigation, Compliance with Laws, Permits, and Business Restrictions

Whether there is, or has been, any claim, action, audit, litigation, proceeding or investigation against a company can make or break a deal. Similarly, a seller’s assurance to a buyer that the company is under no restrictions of doing business and that the company validly holds all necessary permits and licenses is likely to be an essential prerequisite for a buyer to be willing to enter into a transaction for the purchase of a tech company.

Financial Statements, Liabilities, and Tax Matters

The financial status of a business is often among the most important aspects that a purchaser would consider in connection with buying a company. Considering such importance, a potential buyer will typically require the seller to furnish supporting documentation concerning a company’s finances as a condition to closing the deal.

Assets, Intellectual Property, and Customers

Besides the financial condition of a business, another vital component of the purchase of a tech company revolves around the company’s assets. Assets can come in various forms including physical property, intellectual property and the company’s goodwill. Certain aspects such as physical assets and intellectual property can be well documented through records, ledgers and registrations. However, intangible assets such as a company’s goodwill, are not easily documentable and, as such, a buyer must typically rely on the representations made by the seller with respect to such assets.

Types of Remedies Available

The consequences of a misrepresentation concerning a matter in one of these sections can be catastrophic for the purchasing party. In such instances, the buyer may be unknowingly purchasing a company with legal and regulatory issues or entering a deal with a business that doesn’t rightfully hold title to what it warrants to be its intellectual property.

Damages

In the event a party is harmed by another party’s breach of an agreement, courts will look to compensate the injured party in an amount that’s equal to the injury sustained through what’s referred to as “compensatory damages.”[6] In some jurisdictions the court will award an injured party with the “benefit of the bargain” whereby the injured party receives the difference between the value of what was expected less the value of what was actually received.[7] While other jurisdictions compensate an injured party based on “out-of-pocket loss” whereby the injured party receives the difference between the amount that the party paid less the value of what was received.[8] Additionally, where there has been a finding of fraud, courts may potentially award punitive damages to punish the intentional conduct of the breaching party.[9]

Equitable Relief

In addition to the different types of monetary damages that may be available to a party that has been injured by another party’s fraudulent misrepresentations, other forms of remedy, such as equitable relief, may also be available. The availability of certain forms of equitable relief may be dependent on the particular misrepresentations that have been made, while others are general forms of equitable relief which may be available as a result of a party’s reliance on a fraudulent misrepresentation.[10]

Rescission, as an equitable form of relief, allows the injured party to rescind, or cancel, the agreement and further restores the parties to the position that they were in prior to having entered into the agreement.[11] This type of remedy is particularly useful in cases where the seller’s misrepresentation results in the buyer having purchased something that was not contractually agreed to.[12]

As applied to specific misrepresentations that may have been made, an agreement can also be voided or cancelled if the other party has made a misrepresentation that the company had been validly formed or that the company was in good standing at the time that the agreement is entered into.[13] Ultimately, the availability of equitable relief as a remedy depends on the facts of a particular case. For instance, in a case where the person signing on behalf of a company lacked the actual authority to do so, the consequences would depend if the signatory had the express, apparent or inherent authority to do so.[14]

Parties who have been wronged as a result of a misrepresentation in a company sale may pursue compensatory relief, punitive relief, or other equitable relief as applicable in the jurisdiction. Although certain relief and redress may be available for a party that has been injured as a result of another’s fraudulent misrepresentation in a tech company sale, best practice is to try and avoid ending up in such situations in advance of the sale. Prior actions such as performing the requisite due diligence and having a carefully crafted sales agreement are some of the most important steps that can be taken to help mitigate the risk of falling victim to misrepresentations before they happen.

[1] See generally, M&A Statistics, Thomson Financial, Institute for Mergers, Acquisitions and Alliances (IMAA) analysis, https://imaa-institute.org/mergers-and-acquisitions-statistics/ (2020). [2] Restatement (Second) of Contracts §159. [3] Restatement (Second) of Contracts §162. [4] See, Gibb v. Citicorp Mortgage, 246 Neb. 355, 371 (1994). [5] Id. [6] See McKnight v. Denny, 198 Pa. 323 (1901). [7] See Damon v. Sun Co., 87 F.3d 1467 (1st Cir. 1996). [8] See Strouth v. Wilkinson, 224 N.W. 2d 511 (Minn. 1974). [9] See Jugan v. Friedman, 646 A.2d 1112 (N.J. 1994). [10] Restatement (Second) of Contracts § 345. [11] RESCISSION, Black’s Law Dictionary (11th ed. 2019). [12] See, United States v. Jones, 176 F.2d 278 (9th Cir. 1949). [13] See, White Dragon Prods. v. Performance Guars., 196 Cal. App. 3d 163, 168-169 (1987). [14] See, 3 Business Organizations with Tax Planning § 48.02 (2020).

Can a Trademark Owner Force Me to Change My Company’s Name?

Knowing when your company’s brand may be at risk could help you save the identity of your business.

One day, you’ve managed to come up with the perfect name for your company, product or services, the next day you receive a cease and desist letter from someone claiming to own the rights to your brand name. When something like this happens, how do you know if they do, in fact, own the rights to the name? Can someone actually force you to change your company’s name that you’ve already invested money and time into?

While every case is unique and there may not always be a straightforward “yes” or “no” answer to these questions, there are a few basics about trademark law that could help you steer clear of these kinds of situations.

Similarity & Confusion

Trademark infringement is the unauthorized use of a trademark or service mark in connection with goods and/or services that is likely to cause confusion, deception, or mistake about the source of the goods and/or services.[1] In the landmark case, A&H Sportswear, Inc. v. Victoria’s Secret Stores, Inc., the court confirmed that the appropriate standard for determining whether infringement has taken place is the “likelihood of confusion” test.[2] The likelihood of confusion test actually dates back to 1961 in what’s referred to as the Polaroid case.[3] In that case, the court set out eight factors that can be used to determine whether a likelihood of confusion exists between different trademarks.[4] Since then, the likelihood of confusion test has been adopted in one way or another by all thirteen federal circuits in the United States.[5]

Although the actual tests across the country may vary, there are generally two key considerations in any likelihood of confusion analysis: (1) the similarities between the compared marks and (2) the relatedness of the compared goods.[6] In addition to these two key considerations, there is also the universally accepted practice of analyzing these factors on a sliding scale basis, meaning that the strength of one factor can offset the weakness of another factor in determining whether a likelihood of confusion exists between trademarks.[7]

In analyzing similarity, the trademarks are compared in their entireties for similarities in appearance, sound, connotation, and commercial impression.[8] In applying these principles, it turns out that similarity means more than being identical to one another or even having a similar spelling. Whether a trademark looks the same, sounds the same, or feels the same are all factors that can weigh towards a finding of a similarity between the brands.

Senior Users vs. Junior Users

Generally, in the United States the first user of a trademark is considered the “senior” user in the geographical area where the trademark is used. The senior user of a trademark has priority rights over any subsequent, or “junior,” user of the trademark in that area of use. Additionally, a party who files a valid federal trademark application for a mark that is in use and in commerce is provided with such priority use rights throughout the country.[9]

Determining who is the senior user and who is the junior user can be easy in some cases and quite difficult in others. Where one or both parties have a federally registered trademark, the first use date will be included in the trademark registration.[10] However, when dealing with an unregistered trademark, determining who has the priority of use adds additional complexity to the dispute.  In making this determination, some courts look not only at when the first sale of a product or service was made, but also at when the brand was used in advertising brochures, in catalogues and newspapers, and in press releases and trade publications.[11]

Consequences, Remedies & Court Orders

Where a party’s use of a brand name infringes upon the trademark rights of another party who has the senior priority rights of use over the infringer, a court may order the infringer to cease using the trademark, among other forms of remedies which may be available to the senior user.[12] In the United States, trademarks are protected under federal law through the Lanham Act, also known as the Trademark Act of 1946.[13] The Lanham Act provides that in cases where a party has infringed upon another’s trademark that, a court may grant injunctive relief, or order a party to refrain from using another party’s trademark.[14] Additionally, a court may order that the prevailing plaintiff in such case be awarded; (1) the defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.[15]

Additionally, the recent 2020 Supreme Court decision in Romag Fasteners, Inc. v. Fossil Group, Inc., has resolved a previous split between federal circuits by holding that a plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a precondition to an award of profits.[16]

With the holding in Romag Fasteners, Inc., the risks that run with engaging in trademark infringement have never been higher and, in turn, the importance of ensuring that your company’s name and the brand of your products and services are unique have never been greater.

[1] 15 U.S.C. § 1114 (2020). [2] A&H Sportswear, Inc. v. Victoria’s Secret Stores, Inc., 37 F.3d 198 (3d Cir. 2000). [3] Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir. 1961). [4] Id. (Factors included “. . . the strength of his mark, the degree of similarity between the two marks, the proximity of the products, the likelihood that the prior owner will bridge the gap, actual confusion, and the reciprocal of defendant’s good faith in adopting its own mark, the quality of defendant’s product, and the sophistication of the buyers.”). [5] See generally, 1 Trademark and Unfair Competition Law 6B (2015). [6] Herbko Int’l, Inc. v. Kappa Books, Inc., 308 F.3d 1156, 1164-65 (Fed. Cir. 2002). [7] In re E. I. Du Pont de Nemours & Co., 476 F.2d 1357, 1362 (C.C.P.A. 1973). [8] Stone Lion Capital Partners, L.P. v. Lion Capital LLP, 746 F.3d 1317, 1321 (Fed. Cir. 2014). [9] 15 U.S.C. § 1057(c) (2020). [10] 15 U.S.C. § 1057(a) (2020). [11] Malcolm Nicol & Co. v. Witco Corp., 881 F.2d 1063 (Fed. Cir. 1989). [12] See, 15 U.S.C. § 1051-1129 (2020). [13] 15 U.S.C. §§ 1051-1129 (1946). [14] 15 U.S.C. § 1116 (2020). [15] 15 U.S.C. § 1117(a) (2020). [16] Romag Fasteners, Inc. v. Fossil Grp., Inc., 140 S. Ct. 1492 (2020).