The Gray Blog

In Office Depot v. Zuccarini the Ninth Circuit has affirmed a district court decision ruling that a creditor may levy against a domain name in the jurisdiction where the domain name registry is located.  This decision is significant in that it verifies that domain names are property subject to levy.  By ruling that jurisdiction arises were the registry is located, this decision also opens the door to enforcement against foreign owned domains housed in US registries.

At trial, Office Depot obtained a judgment and assigned it to DS Holdings in 2000.  DS went after 190 domain names that were registered in Zuccarini’s name. DS sought to have a receiver appointed over the domain names. The district court granted DS’s request to have the receiver appointed, and Zuccarini appealed. Zuccarini’s appeal focused on whether it was proper to appoint the receiver in the Northern District of California, since the domain names were not necessarily “located” there.

The court of appeals applied California law to the question of whether domains constituted property.  The Court ruled that domains were intangible property subject to seizure.  Then, taking guidance from elements of the Anti-Cybersquating Consumer Protection Act (ACPA), although ACPA was not implicated in the case, the Court found in rem jurisdiction where the “registrar, registry, or other domain name authority” is located.

For a more thorough review of the decision see Eric Goldman’s Blog.

Within two weeks of an alleged leak we have another bigger and better document allegedly stepping through the internet terms of the highly secretive Anti-Counterfeiting Trade Agreement (ACTA).  The new document appears to be a European Union (EU) paper outlining the Internet and Civil Enforcement chapters, and setting forth proposals from the U.S. and responses from the EU, Japan, and other negotiating countries.  Highlights include:

• US advocacy of anti-circumvention controls and opposition from the EU, Japan and New Zealand.
• Arguments for internet service provider liability for knowing facilitation of infringement.
• US advocacy of global implementation of a Digital Millennium Copyright Act (DMCA) style enforcement protocol.
• Advocacy by some countries of limiting ACTA civil enforcement provisions to trademarks and copyrights and not to all intellectual property.
• The EU is seeking injunctive powers against infringing intermediaries.

For more information check out the article on Michael Geist’s Blog.

An alleged excerpt of the secretive Anti-Counterfeiting Trade Agreement (ACTA) has been disseminated as a PDF on a Google file share site.  The PDF is allegedly the proposed language for Article 2.17 of the act providing for internet and digital transmission restrictions.  The file is titled  “Enforcement procedures in the digital environment” and is divided into 7 numbered paragraphs and subsections.

The key provisions revealed in the document include:

• a duty to technology firms to shut down infringement where they have “actual knowledge” that such is taking place;
• a trademark takedown procedures similar to the current copyright takedown procedures;
• an expansion of the DMCA’s injunction against breaking digital locks;
• civil and criminal remedies to be supplemental and cumulative to other remedies;
• a provision for forcing ISPs to implement procedures to monitor for infringements and to address violations. (a footnote suggests that terminating user accounts for repeat infringers)

If genuine, this excerpt discloses many of the concerns with the Act that Internet advocates have been condemning.  For example, the duty to shut down infringement on actual knowledge that infringements may be occurring has previously been suggested in legal arguments.  Critics have characterized the argument as equivalent to requiring a Xerox to stop selling copiers to Kinkos because it has actual knowledge that infringements take place at Kinko’s outlets.  Likewise the termination of accounts are criticized because an entire family’s account is cancelled because of acts which may have been committed by third parties or by a child.  Furthermore, denial of service would arise without legal process and without a specific guaranteed appeal process.

There has been no confirmation that the document is genuine.

The European Court of Justice has ruled in GlaxoSmithKline Services Unlimited v Commission and Others, a case arising from Spain, that differentiated pricing agreements intended to discourage parallel market sales violate European competition laws but has found that exemptions to that rule were not properly investigated.

In March 1998, the pharmaceuticals manufacturer GlaxoSmithKline Unlimited (‘GSK’) entered into an agreement with 75 Spanish wholesalers establishing a two tier price structure for medicinal products sold in Spain or exported from Spain.  The purpose of this differentiated pricing structure was to discourage parallel market sales of pharmaceuticals.

GSK submitted its price conditions to the European Commission seeking a ruling that they did not violate European rules against competitive restrictions. On May 8, 2001, the Commission decided that GSK’s general sales conditions were prohibited by Community competition law, because they constituted an agreement restricting competition and because GSK had not proved that the agreement met a recognized exception.

GSK brought suit seeking to overturn the Commission’s ruling.  On September 27, 2006 the court of first instance upheld the Commission’s finding principal finding but required the Commission to do further investigation regarding GSK’s claim of exemption.  Both GSK and the Commission appealed.

On October 6, 2009, the European Court of Justice, in its appellate capacity, affirmed the lower court’s ruling that GSK’s agreement violates European rules against competitive restrictions.  The Court also found that in order to be subject to an exemption, an agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress.  The Court affirmed the Court of the First Instance’s ruling that the Commission had not conducted an adequate review of the claim of exemption.

In the recent case of Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, No. 07-3340 (10th Cir. April 9, 2009), the 10th Circuit ruled that differences in warranty and service terms can constitute a “material” difference which prevents resale despite under the first sale doctrine.  Beltronics is a manufacturer of electronics equipment which it sells under its Beltronics trademark.  Beltronics maintained at least two authorized distributors who agreed to sell the products for a specified minimum price.  Apparently in violation of their distribution agreements, those distributors sold Beltronics radar detectors to Midwest, which in turn resold them as “new” on the internet auction site eBay.

To prevent Beltronics from discovering that Midwest’s inventory had been supplied by the two distributors, the distributors either replaced each radar detector’s original
serial number label with a phony label or removed the original label altogether
before shipping equipment to Midwest.  On rare occasions, when the distributors
supplied Midwest with a radar detector bearing an original serial number label,
Midwest removed the label prior to resale.

In September 2007, Beltronics filed suit against Midwest alleging (1) counterfeiting and federal trademark infringement under 15 U.S.C. § 1114; (2) false designation or origin under 15 U.S.C. § 1125; and (3) trademark infringement, unfair competition, and passing off in violation of state law.  Beltronics also sought a preliminary injunction.  The preliminary injunction was granted and Midwest appealed.

On appeal the 10th Circuit rejected the argument that “material” differences should be limited to physical differences.    The absence of manufacturer warranty service was material difference enough.   While affirming that adequate disclosure could insulate the sale, the 10th Circuit affirmed the lower court’s rulling that the disclosure placed on the product listing by Midwest was insufficient.  Midwest’s disclosure stated:

WARRANTY – WE PROVIDE A 1 YEAR DEFECTIVE
REPLACEMENT WARRANTY.  THE MFG WILL NOT HONOR
THE WARRANTY IF PURCHASED OFF EBAY.  SINCE WE
HONOR THE WARRANTY, THE SERIAL NUMBER HAS BEEN
REMOVED AND RETAINED BY US.

The district court rejected this disclosure as insufficient because no notice was provided on the products themselves and the disclosure failed to address software updates and other support elements.  Evidence of actual confusion by consumers contacting Beltronics for warranty service further sealed the decision.

Costco Wholesale Corporation (“Costco”) has filed a petition for writ of certiorari with the U.S. Supreme Court seeking to revisit and reconsider the proper interpretation of the first sale rule for foreign manufacturing and sales of products.  The Petition arises in Costco v. Omega, S.A. a case out of the 9th circuit.  This action arises out of the efforts of respondent
Omega, S.A. (“Omega”), to prevent petitioner Costco from reselling watches originally sold by Omega to authorized for-
eign distributors.  Omega affixed a symbol to its watches that it later registered under the Copyright Act in order to claim that, as foreign manufactured goods, under the rationale set forth in Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135 (1998).  The Ninth Circuit upheld that the resale of the products was not protected by the first sale doctrine.  According to Costco: “The words “lawfully made under this title” quite clearly do not mean “manufactured in the United States,
and also manufactured abroad, but only in instances where the copyright holder sells into the United States.”  We will continue to monitor.

The European Commission has enacted a 40% reduction in the official fees required to obtain a Community Trade Mark by merging the application and registration fees.  Previously an application fee was paid at the start of the registration process and an additional fee was paid once the registration was granted.  Effective May 1, 2009, the registration fee portion has been eliminated for all pending and future applications.  The current total official fees for a CTM application are € 1,050.00 for a paper application and € 900 for an electronic application.  Effective August 1, 2009, the official fee for a CTM international application under the Madrid Protocol will be reduced to € 870.00.

This change reflects a desire to encourage great use of the CTM system by small and mid-size firms.  “As a non-profit-making European agency, we have been trying to play our part in providing value for money in this essential service. Taking into account the earlier cut in trade mark fees in 2005, through efficiency measures and greater use of computer technology we have been able to more than halve the cost of Community trade marks over a five year period.”

Justice USA has listed the Gray Blog amongst its top 50 Internet law blogs.  Other popular and well known blogs which also made the list include The TTABlog, The Legal Satyricon, Erik J. Heels, Likelihood of Confusion, Technology and Marketing Law Blog
and the ABA Journal Privacy Law Blog.  Justice USA is a new blog devoted to personal security and law issues.

Well Summer approaches and the Gray Blogger was brought out of his slumber by a new book.  GRAY MARKETS by David R. Sugden, Oxford University Press © 2009, ISBN: 978—0-19-537129-1 (Trade Paperback).   The book jacket describes GRAY MARKETS as “the first comprehensive analysis of the gray market and a blueprint for attorneys and businesses to prevent, detect, and litigate gray market cases.”  To a great extent the book lives up to its description.

But first the caveat.   In approaching this book the reader is warned to be aware of a potential blind spot for the practitioner.   The author, while clearly accomplished and well informed in the area of law, falls prey to the persuasiveness of his own arguments and ignores potentially persuasive rebuttals.   His position is one that sees no good in the parallel market.  A practitioner’s reliance in such arguments without an adequate appreciation of the counter-arguments can undermine the attorney’s credibility with the Court.  Reading the book one often feels that he or she is reading a brief without reading the response.

The author’s clear bias against the parallel market is nowhere more clear than where he lectures manufacturers who knowingly exploit the parallel market as a vehicle for developing brand identity or for selling off excess goods.   Since the manufacturer has a right to control the manner of distribution of his or her brand, it is certainly the height of hubris to preach to them when they themselves exploit the parallel market for their own purposes.  One is left feeling that in the author’s opinion the parallel market is not gray but black.

So after this introduction you might expect a negative review of GRAY MARKETS.  On the contrary, I think that for the attorney or businessman seeking to obtain a good general understanding of strategies and tactics that can be used to discourage and combat parallel market sales, Mr. Suden’s book provides a well informed survey of legal and market strategies.  The book is broad in its coverage if somewhat US centric.  It does not cover all strategies, particularly market techniques that have been employed in Europe to identify regional parallel market sales.   That said, what it does cover is far more comprehensive and well informed than anything that I have previously seen.

I therefore recommend this book to anyone seeking to structure a comprehensive anti-parallel market strategy for his or her company or clients with the caveat that it be read with a clear vision of its obvious bias and with great caution in its mingling of counterfeiting with legitimate parallel market trade.  Likewise, for the parallel market reseller, this book provides a great preview of likely court arguments and legal strategies that need to be anticipated in this challenging trade.

To buy a copy of the book please click the following link: Gray Markets: Prevention, Detection and Litigation

On Friday the Senate approved passage of the PRO-IP act after stripping out provisions which would have given the department of justice the power and obligation to litigate civil suits on behalf of content owners. Initially known as the Enforcement of Intellectual Property Rights Act, s.3325, the bill was recently renamed the “Prioritizing Resources and Organization for Intellectual Property Act.” (PRO-IP) The civil enforcement provision was one of the most controversial about the new law and had induced the Department of Justice to submit a letter to the Senate complaining that the law threatened to turn government attorneys into “pro bono lawyers for private copyright holders regardless of their resources.”

A remaining provision which has drawn fire is the creation of an IP “czar” within the White House. The Bush administration has objected to this as an usurpation of executive authority. Nevertheless this latter provision remains in the act and raises the questions of whether the White House will exercise its veto.

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