Keeping the cybersecurity train moving forward in the House, and keeping consistent with the House Cybersecurity Task Force goal to address cyber on an individual basis within the committees of jurisdiction, there are two cyber developments scheduled for this week. First Intelligence Committee Chairman Mike Rogers (R-MI) and Ranking Member Dutch Ruppersberger (D-MD) will unveil new bipartisan cybersecurity legislation on Wednesday to provide the government “the authority to share classified cyber threat information on potential attacks with approved American companies.”

And on Thursday, the House Small Business Committee will hold a cyber hearing on protecting small businesses, where Phyllis Schneck, Vice President for McAfee, Inc., will be testifying on behalf of SIIA. The hearing will also include testimony from Task Force leader Rep. Mac Thornberry (R-TX), highlighting the recent recommendations of the House Task Force.

David LeDuc is Senior Director, Public Policy at SIIA. He focuses on e-commerce, privacy, cyber security, cloud computing, open standards, e-government and information policy.

Judge Rules “Locker” Site is Not Direct Copyright Infringer (Ars Technica)
A federal judge in Miami has dismissed direct copyright infringement charges against online locker service Hotfile, but is allowing the case to proceed over the secondary liability charge to determine whether Hotfile is guilty of inducing its users to infringe copyrights.

Entertainment Companies Create New Website to Promote Anti-Piracy Effort (Los Angeles Times)
A coalition of major media companies and entertainment labor unions has launched a new website called Creative America to educate the public about content theft and promote anti-piracy legislation.

SAP to Argue for New Trial in Oracle Lawsuit (Computerworld)
SAP is seeking a new trial and a reduction of the $1.3 billion jury award it was ordered to pay.

On the cybersecurity front, last week House Speaker John Boehner appointed a 12-member Republican task force to assess the state of cybersecurity, including the Administration’s proposal, and provide recommendations by October. Rep. Mac Thornberry (R-TX), who was appointed to lead on this issue earlier this year, will lead the task force, joined by Reps. Aderholt (R-AL), Chaffetz (R-UT), Coffman (R-CO), Goodlatte (R-VA), Hurt (R-VA), Latta (R-OH), Lungren (R-CA), McCaul (R-TX), Murphy (R-PA), Stivers (R-OH) and Terry (R-NE).

Also last week, the Supreme Court decided a case that looks to be a major victory for data publishers. In the case Sorrell vs. IMS Health the Court confirmed an appeals court decision that a Vermont law prohibiting the use of physician prescribing data for marketing purposes. While Justice Kennedy’s majority opinion expressed concerns about the “serious and unresolved” issues with respect to personal privacy, the ruling confirmed that the law unfairly imposed a first Amendment burden “based on the content of speech and the identity” of pharmaceutical manufacturing companies. In short, the ruling holds that such commercial speech is equally entitled to the protections of the First Amendment.

For SIIA policy updates including upcoming events, news and analysis, subscribe to SIIA’s weekly policy email newsletter, Digital Policy Roundup.

Top Headlines:

1.) Video Head-to-Head: Newspapers vs. PRs & Meltwater (paidContent.org)
In November, a UK High Court held that operators and customers of paid digital news monitor services should pay newspapers for crawling their stories. Months later, the parties gathered at a debate to discuss the future of content.

2.) John Steinbeck Heirs Lose Bid for Supreme Court to Hear Copyright Dispute (Fox News)
The Supreme Court denied further review of a legal dispute over publication rights to many of Steinbeck’s legendary works in a case brought by Steinbeck’s only surviving son and sole grandchild.

3.) Barclay, BofA Can’t Block Flyonthewall.com Reports on Stocks, Court Rules (Bloomberg)
A federal appeals court in a ruling Monday clarified the law governing the publication of hot news, overturning a lower court ruling that blocked Theflyonthewall.com from reporting the upgrades or downgrades of stocks for two hours or until half an hour after the opening of the NYSE.

4.) Oracle Seeking Billions in Damages From Google in Android Patent Infringement Suit (paidContent.org)
Oracle announced it is seeking billions in damages from Google in a suit over whether the Android operating system infringes patents Oracle bought from Sun Microsystems.

5.) Bloggers Mull Legal Action Against Righthaven (Wired)
Former Righthaven defendants who settled with them are now mulling their legal options after a judge ruled that Righthaven did not have legal standing to bring such lawsuits.

Also today, in Global-Tech v. SEB, the Supreme Court appeared to raise the bar for proving claims of induced patent infringement. The Court held (8-1) that inducement requires knowledge that the induced conduct itself infringes, and that “deliberate indifference” is not enough to satisfy that standard. Rather, the knowledge element can be met by a showing of “willful blindness.”

In other IP news, the PROTECT IP Act was passed unanimously by the House Judiciary Committee last week, making this the second piece of major IP legislation ripe for full House consideration. SIIA submitted a statement congratulating the committee and urging quick enactment of the legislation.

And on the ICANN front, following further consultation with its Government Advisory Committee (GAC) and written comments by stakeholders including SIIA, ICANN published a revised Applicant Guidebook on May 30. While the ICANN Board and GAC have one more meeting scheduled prior to the June 20 vote on the gTLD roll-out, it is believed that the May 30 version is unlikely to change materially prior to that scheduled vote. SIIA is reviewing the May 30 draft, and next week SIIA and other content organizations are tentatively scheduled to meet with U.S. government representatives to the GAC to discuss concerns. In light of the recent Congressional hearing, other avenues also are being considered.

For SIIA policy updates including upcoming events, news and analysis, subscribe to SIIA’s weekly policy email newsletter, Digital Policy Roundup.

The issue in the Vernor v. Autodesk case addresses what it means to be an “owner of a copy” under the copyright law and the way courts distinguish between ownership and licenses. The court’s conclusion supports the software and information industries’ long tradition of licensing as the primary means for distributing its products and services to its customers.

In the case, Autodesk licensed its software to a third party.  The district court looked at the license and found that the transaction was a sale, not a license, primarily because the Autodesk license did not require the software to be returned and specified a lump sum payment, as opposed to royalty payments over time.

As a result, the district court concluded that Vernor was the “owner of a particular copy” and not a licensee and therefore he was lawfully allowed to sell his copy of the software under the copyright law’s first sale doctrine despite terms in the license prohibiting such transfer.  The first sale defense in section 109 of the Copyright Act provides that: “…the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”  If the court had held that Vernor was a licensee, he would not be the “owner of a particular copy” and therefore the first sale doctrine would be inapplicable and he would not be able to transfer the software.

Because SIIA’s members usually license their works, a court decision (as in Vernor) that looks beyond the license and treats the transaction as a “sale” of the copyrighted work and allows the court and the customer to largely ignore the terms of a license, would have significant and adverse repercussions for the software and information industries.  As a result, SIIA filed an amicus brief in support of Autodesk.

The Ninth Circuit court today, citing to SIIA’s brief, vacated the district court decision and remanded the case back to the district court.  In the well-written 23-page decision, the Ninth Circuit held that neither the fact that “Autodesk allows its customers to possess their copies of the software indefinitely” or that it “does not require recurring license payments” is dispositive in determining whether the first sale doctrine applies.

Instead the court specified a new test (or perhaps, more accurately, clarifying its existing test) for determining whether a transaction is a license or a sale for purpose of determining the applicability of the first sale doctrine under section 109 and the essential copying doctrine under section 117 of the Copyright Act.  This test provides that “a software user is a licensee rather than an owner of a copy where the copyright owner

1. specifies that the user is granted a license;
2. significantly restricts the user’s ability to transfer the software; and
3. imposes notable use restrictions.”

The court applied these three consideration to the facts in the present case to conclude that Vernor was a licensee, not an owner, and that neither the first sale doctrine or the essential copying doctrine applied.

“Although unnecessary to…resolution of the case” the court addressed both the legislative history and the policy arguments made by the parties and amici, reaching the conclusion that “those who rightfully possess, but do not own, a copy of copyrighted software are not entitled to claim the essential step defense is also supported by the legislative history.”

SIIA has long believed that this case was wrongly decided–and today’s ruling made that wrong into a right for the software and information industries.

Posted by Keith Kupferschmid, Vice President, Intellectual Property Policy and Enforcement at SIIA

The decision may be one of the most important intellectual property law opinions in years, and could have far reaching ramifications for the software, IT, and financial services industries among others.  Indeed, more than forty companies and organizations filed amicus briefs to advance their respective positions – including a brief I filed on behalf of SIIA and the software industry. At issue in the case is perhaps the most fundamental of questions in IP law:  what things and activities are eligible to be patented.

The SIIA’s brief argued that software should remain eligible for patent protection, as it has for the past several decades.  The industry has grown, thrived, and matured during that time, and patent protection and eligibility has played a role in that success.  While problems with the patent system remain, those problems relate to other aspects of the law, and/or its application, such as weeding out purported inventions that are obvious in light of the prior art.  Problems also exist in the examination system itself, including the fact that the Patent & Trademark Office is widely believed to be underfunded, resulting in long delays in examination, and limited time and expertise that can be spent on any single application.  An ongoing concern of the patent law community is that Congress annually diverts a substantial portion of PTO user fees for unrelated purposes.  Patent Reform debate and proposed legislation have occupied Congress for the past several years.

Bilski’s invention is a “business method,” claimed as a series of steps to “hedge options and risk in commodities trading,” and does not expressly require software or any machine. The U.S. Patent Office rejected the application, and the Court of Appeals for the Federal Circuit upheld the Office’s rejection.  In attempting to define the boundary between patentable and non-patentable subject matter, the appeals court ruled that a process or method must (1) be tied to a particular machine or apparatus, or (2) transform an article into a different state or thing, in order to be patentable.

The Supreme Court seems likely to eschew the bright-line rule imposed by the Federal Circuit, and perhaps return to a more general inquiry as described in its 1981 opinion Diamond v. Diehr.  In that and prior opinions, the Court held that an invention purporting to claim laws of nature, physical phenomena, or abstract ideas was not eligible for patent protection.  That test had proved difficult to implement in practice, leading to the Federal Circuit’s attempt to create a more bright-line rule.  However, a similar theme has played out recently in other patent cases working their way up to the Supreme Court.  In both eBay v. MercExchange (injunctions) and KSR v. Teleflex (obviousness), the Supreme Court rejected bright-line tests developed by the Federal Circuit and instead reiterated more fundamental holdings of its own prior cases.

Whatever test is employed by the Court, it would be surprising if Bilski’s purported invention were deemed patentable subject matter.  The Court may simply deem Bilski’s claims to be too abstract.   But whatever the case may be, thousands of patent owners, licensees, and would-be patent applicants await the Court’s decision.  A broad holding that strikes down Bilski’s application might embolden challenges to other “business method” patents, such as declaratory actions as to existing patents.  Depending on the scope of the holding, software patents could be affected.  On the flip side, if Bilski’s invention is deemed eligible for patenting, one can expect a massive flood of new applications to the patent office.  It would be interesting, to say the least, to see how an already backlogged PTO would handle such a challenge.

By Scott Bain, SIIA Litigation Counsel

SIIA Says 21-Month Federal Jail Sentence for Software Pirate Demonstrates Consequences of Software Piracy

SIIA Initiated Action Against Counterfeiter Responsible for Cheating Nearly 8,000 Consumers

Washington, D.C. (January 12, 2010) – The Software & Information Industry Association (SIIA), the principal trade association for the software and digital content industries, today called the sentencing of convicted software pirate Matthew Purse a major victory and an indication of how seriously the justice system treats software piracy. Purse was sentenced yesterday to 21 months in federal prison. He also received 3 years probation and $12,000 in fines and restitution.

SIIA initially discovered several massive software piracy schemes and began an investigation that eventually led to the indictment and conviction of Purse. SIIA forwarded the results of its investigation to the U.S. Department of Justice and other government agencies, and then worked closely with them to pursue Purse and others involved in the piracy schemes. On February 26, 2009, Purse pled guilty to conspiracy, mail fraud and criminal copyright infringement. Purse and his accomplice, Christopher Loring Walters who remains a fugitive, engaged in the illegal mass duplication of software and sold it using various eBay accounts and commercial websites, such as SoftwareDiner.com.
Following Purse’s sentencing in Phoenix federal court, Keith Kupferschmid, SIIA Senior Vice President for Intellectual Property Policy & Enforcement, issued the following statement:

“Anyone who thinks software piracy isn’t taken seriously should pay close attention to the Matthew Purse case. The 21-month jail term that he will serve is a warning to all would-be counterfeiters that the crime carries steep costs and real consequences. When SIIA uncovers software piracy, the offenders often end up paying thousands of dollars in damages. And as Mathew Purse found out, SIIA’s investigations can also lead to jail time for these software pirates.”

“Matthew Purse duped nearly 8,000 unsuspecting consumers out of hundreds of thousands of dollars. He and Christopher Walters cheated software companies such as Adobe, Symantec, Apple, Corel, Intuit and many others out of millions of dollars in revenue. Like so many others who sell pirated software online or make illegal copies in the workplace, at least Matthew Purse is now finding out that the justice system takes this crime seriously.”

“SIIA leads the industry’s most aggressive campaign against software piracy. Through our own efforts, and through working with the Department of Justice and other government agencies, we pursue and stop pirates operating in the workplace and on the Internet. Our Internet Anti-Piracy Program continues to identify and shut down sites that peddle pirated software and helps make sure those responsible are brought to justice.”

About SIIA
The Software & Information Industry Association (SIIA) is the principal trade association for the software and digital content industry. SIIA provides global services in government relations, business development, corporate education and intellectual property protection to more than 500 leading software and information companies. For further information, visit: www.siia.net.

About SIIA Anti-Piracy
The Software & Information Industry Association’s Anti-Piracy Division conducts a comprehensive, industry-wide campaign to fight software and content piracy. The pro-active campaign is premised on the notion that one must balance enforcement with education in order to be effective.