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Legal Perspective: Australia and U.S. Film Markets – To Subsidize or Not?

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Jose Landivar, Arther Law’s Industry Insider Blog

Quick, someone tell me how the Australian film industry works and what involvement the government has in funding films and subsidizing its burgeoning film industry? Any takers? Good, then this article is for you.

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The Follow-up: Federal Trade Committee v. Activis, Inc.

On April 3rd, Arther Law’s Industry Insider blog covered a highly contentious Supreme Court hearing involving medical patents and “pay-for-delay” settlements by medical patent holders to generic challengers. The case, Federal Trade Committee v. Activis raised questions about the scope of an antitrust challenge to settlement agreements amongst drug companies within the framework of The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, which was passed to promote challenges to patents by generics. [1]

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Grist to the Google Mill: Calif. Judge Finds a Way to Continue Claims Against Internet Giant

by Jose Landivar, Arther Law’s Industry Insider

A judge in California refused to toss out a class action lawsuit against Google this past Thursday over allegations that the company violated a federal wiretap statute by scanning user’s emails for the purpose of targeted advertising.

U.S. District Judge Lucy Koh, allowed the plaintiffs’ claim to proceed on the grounds that Google’s privacy policies did not provide explicit notification of email interceptions and that scanning emails to profile users in order to send out targeted ads were not “instrumental operations” for an email system or within the “ordinary course of business” exception provided under the Electronic Communications Privacy Act.

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Supreme Court Skeptical of Special Treatment of Reverse Payments in FTC v. Actavis

By: Amelia Wong

On Monday, March 25, 2013, the Supreme Court heard oral arguments for the Federal Trade Committee v. Actavis (Federal Trade Committee v. Watson in the 11th circuit opinion) case. In the case at hand, Solvay Pharmaceuticals, Inc., obtained a patent for a pharmaceutical formulation used in AndroGel, a treatment for low testosterone in men. Actavis (previously Watson Pharmaceuticals) and Paddock Laboratories, Inc., submitted separate abbreviated new drug applications for a generic version of AndroGel and a certification stating that the generic would not infringe on Solvay’s AndroGel.[1] Actavis and Paddock decided to partner with Par Pharmaceutical Companies, Inc. by sharing litigation costs and promoting Paddock’s generic version of AndroGel. Solvay sued Actavis and Paddock for patent infringement, but the Actavis/Paddock patent was soon approved by the FDA and to enter the market for sale within a year. Solvay reached a settlement to defer the AndroGel generic into the market until 2015 by paying $19-30 million annually to Watson, $2 million annually to Paddock, and $10 million annually to Par.[2]

The Federal Trade Committee (FTC) filed a claim challenging the settlement and unfair methods of competition and monopoly.[3] The district court dismissed the FTC’s complaint for failure to state a claim. The Eleventh Circuit took a “scope-of-the-patent” approach by affirming the claim stating that, “absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.”[4] The Third Circuit rejected this decision by applying the In re K-Dur Antitrust Litigation, stating that reverse payments should be subjected to a “quick look of reason analysis” where the standard for unlawful and anticompetitive agreements involved “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [is] prima facie evidence of an unreasonable restraint of trade.”[5]

At the oral arguments, the government argued that payments to competitors to stay out of the market violate antitrust principles, similar to the idea of price fixing. The government also claimed that if the patent litigation proceeded, no payments would go from the patentee to generic manufacturer. The drug companies claimed that the “scope-of-the-patent” standard should apply to settlements, which can be subject to antitrust scrutiny. However, the drug companies argue that unlawful anti-competitive behavior can only be determined where the underlying patent litigation if a sham or if patent was obtained by fraud.[6]

Several justices seemed skeptical that a special rule should be adopted for reverse payment agreements, but were concerned about the effect of pay delay settlements. Justice Breyer implied that judges could identify collusive agreements to divide profits and questioned why the standard “rule of reason” should not apply. Justice Sotomayor also questioned whether the simple existence of a payment made activity illegal. However, Justice Scalia took a stronger stance stating that drug companies could not be participating in “illegal activity” if they were still acting within the “scope-of-the-patent.”

Additionally, a significant focus of the arguments was the purpose of The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act. The purpose of the Act was to promote challenges to patents by generics. Settlements like these tend to prevent challenges, which is detrimental to consumers. However, most challenges settle, which is a result of the Hatch-Waxman framework. The tension between the purpose and framework of Hatch-Waxman creates a need to either change the legislation or adapt an entirely new antitrust law.

Allowing “pay-for-delay” could enable pharmaceutical companies to charge up to five times the cost of their products.[7] Pharmaceutical giants can hold onto a monopoly of lifesaving medicine and jack up prices. Because generics are 80-90% less than the brand name pharmaceutical companies[8], generics prevent the pharmaceutical giants from a major profit. The Supreme Court is to reach a decision by June 2013 and corporate interests seem to be upheld by the majority of the court seeming to favor the drug companies. However, due to the justices’ lack of unity, district courts will probably continue considering pay-for-delay on a case-by-case basis, consistent with the trend of modern antitrust law.[9]

Fraley v. Facebook, Inc. Settlement and Privacy Law

By: Anny Mok

Many people may recall receiving an email earlier this year regarding a settlement in Fraley v. Facebook, Inc., a class action suit brought against Facebook. The plaintiffs claimed that the social networking site misappropriated users’ information by featuring them in “Sponsored Stories”. These stories appear on users’ Facebook page and consist of an advertiser’s logo combined with names of Facebook members who “likes” the advertised company.  Advertisers pay Facebook to be featured as “Sponsored Stories.”

Plaintiffs allege that Facebook used its own users’ information to generate revenue without consent and violated California’s Right of Publicity Statute, Civil Code § 3344; California’s Unfair Competition Law, Business and Professions Code § 17200, et seq. (“UCL”); and the common law doctrine of unjust enrichment.

California’s Right of Publicity Statute is based on the tort of “Appropriation of Name or Likeness”. The Restatement (Second) of Torts §652C states: “One who appropriates to his own use or benefit the name or likeness of another is subject to liability to the other for invasion of his privacy.” Under comment (c) of Restatement §652C, liability for appropriation requires that “the defendant must have appropriated to his own use or benefit the reputation, prestige, social or commercial standing, public interest or other values of the plaintiff’s name or likeness.”

This tort aims to protect people’s reputations and prevent exploitation of their identity. The interest protected is one’s dignity. It is based on the privacy law theory that an individual should have exclusive control of their identity and representations of their name or likeness. Control includes the right to grant others the privilege of publishing one’s name or picture for commercial reasons. In other words, someone should have to give permission before their name or picture is used in a way that benefits or endorses someone else’s business.

In many instances, the users probably did not intend to endorse the product. Perhaps they did not even want to disclose information that associated them with the product or service. The plaintiffs argued that when they clicked “like” on certain pages, they were unaware that Facebook would interpret those as endorsements of various brands or services. They claim that both Facebook and the advertisers were making huge profits from this advertising method while the members themselves were essentially “unpaid and unknowing spokespersons” for products. Additionally, the plaintiffs say that they could not have consented because the Terms of Use that they agreed to when they registered for a Facebook account was before the creation of “Sponsored Stories”.

Back in December, both parties reached a settlement of twenty million dollars. The $20 million will cover attorneys’ fees and will potentially be divided among Facebook users who appeared in the “Sponsored Stories” advertisements. The email was distributed to notify potential claimants of the settlement. More information about the settlement can be found at http://www.fraleyfacebooksettlement.com/.

Quote My Work and Show Me The Money.

Artists and their estates have been known to sue whenever they believe their work has been unlawfully used without permission. Considering how ambiguous the law is on the matter this should come as no surprise. Woody Allen’s highest grossing film to date, ‘Midnight in Paris’ has become the latest feature to face misappropriation allegations. Faulkner Literary Rights, the company that controls the rights of William Faulkner’s work has filed suit against Sony Pictures Classics on the grounds of copyright infringement, commercial appropriation and violation of the Lanham Act. They claim Allen, by paraphrasing a passage from Faulkner’s book ‘Requiem for a Nun’, has ‘deceived the film’s viewers as to a perceived affiliation, connection or association’ between the author and the movie.

The original passage reads, “The past is never dead. It’s not even past” whereas Owen Wilson’s character in the movie can be heard saying, “The past is not dead! Actually is not even past.” He then goes on to say, “You know who said that? Faulkner, and he was right. And I met him too, I ran into him at a dinner party.”  It is to be noted, however, that acknowledging the source does not act as substitute for obtaining permission when one is indeed required.

Let’s begin by analyzing the copyright allegation. The Copyright Act of 1976 seeks to protect any ‘original work of authorship’ that is finalized in a fixed form of expression, the rationale behind it is to encourage artists and scientist to create by ensuring they are decently paid. Although one of the most valuable rights conferred by this protection is the right to reproduce or to authorize others to reproduce their work, an important limitation exists in section 107 called the doctrine of ‘fair use’. In accordance with this doctrine, you may use portions of a work (including quotes) without having to license or pay for it for purposes of commentary, criticism or parody, news reporting and scholarly reports.  Given the many contexts on which fair use can be claimed, what it entails is judged on a case-by-case basis. Section 107 further provides four factors that act as guidelines when determining whether a particular use is permissible or not, namely: the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion taken, and the effect upon the potential market or value of the original work. The latter is often seen as the most important factor.

Despite the short length of the infringing quote, there is no established number of words that can be safely copied. Lee Caplin, who represents the estate, argues that despite being only 10 words long, the snippet summarizes the plot of the film and it is one of the most famous quotes in American literature.

Allen’s use, however, is likely within the boundaries of fair use. Faulkner is only one of countless characters that are referred to in the movie, such as F. Scott Fitzgerald, Ernest Hemingway, Pablo Picasso and Salvador Dali.  Also, although a commercial enterprise, no reasonable person would buy the DVD of Midnight in Paris as a substitute for the book where the original quote can be found. Thus, despite claims to the contrary, it appears there is no actual harm to the value of the work from which to base a copyright infringement allegation.

The trademark count based on the Lanham Act, fails for similar reasons. A trademark is any work, name, slogan or symbol used in commerce that identifies a particular product. Signature phrases and saying have become increasingly important in brand-building and marketing. Movie lines such as ‘show me the money’ and ‘hasta la vista, baby’ are quickly associated in the public’s mind with Jerry Maguire and The Terminator, respectively. Much like copyrights, legal rights to trademarks arise automatically without the need of formalities, though registration carries with it many benefits and it is thus highly recommended. Hence, it is arguable that if the quote in question is so famous so as to be instantly associated with William Faulkner, it should be treated as a trademark even if it has not been registered yet. The main test used when evaluating trademark violations is a likelihood of confusion test. Yet, the values behind such protection are threefold: to protect the public from confusion, to protect the owners from others unfairly reaping into the goodwill of their brand, and to foster competition. It is thus evident that the problem is still the same for those representing the estate of Faulkner, no movie viewer can be said to have been confused by Allen’s use of the phrase; no competitor has been harmed, especially considering that the movie and the book are not competing against each other; and lastly, the goodwill of the quote has not been abused or affected by the movie.

Most artists readily admit to have been ‘inspired’ by the work of previous authors, singers and poets. Francis Coppola is reported to have based his film ‘Apocalypse Now’ on Joseph Conrad’s novella ‘Heart of Darkness’. William Faulkner himself named his book ‘The Sound and the Fury’ after a passage in Macbeth, and another of his books, ‘Absalom’, takes his name from the biblical book of Samuel. Furthermore, the passage used in Midnight in Paris has been used many times before. Ben Folds used it in his song ‘Smoke’ and the President of the United States in one his 2008 campaign speeches, to name a few. Let us hope that the courts dealing with this matter will take this occasion to remind the right holders that the reason behind intellectual property protection is to foster creativity, and not to create monopolies on the use of 10 famous words.

Anything You Tweet May be Used Against You in a Court of Law.

As New Yorkers prepare for our Frankenstorm, Mayor Michael Bloomberg has responded to Governor Andrew Cuomo’s declaration of a state of emergency by ordering a mandatory evacuation in parts of the City most vulnerable to flooding. This area, known as Hurricane Evacuation Zone A, includes large swathes of Staten Island, the location of that awful Andy Garcia movie, and several points of the City’s coast in and along the water. Of course, as in any natural disaster, people are taking to social media to discuss their refusal to evacuate.

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Full disclosure: This guy is from Virginia, but I couldn’t resist because it’s so feisty.

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With all the competing messages of people scolding others to evacuate and the scolded resisting, I found one particularly interesting tweet:

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Well, @EricMessick, thank you for giving me a hook for this blog post. Presuming the State of New York eventually wanted to go after brazen non-evacuees, it is in fact a crime in New York to knowingly violate an emergency evacuation order under New York Executive Law § 24(5)—punishable by no more than three months in jail or a fine of no more than $500. While it’s usually hard to prove what someone actually knew, posting your flagrant refusal to evacuate is pretty damning evidence. However, can your tweets, posts, sepia-bordered Instagram snags, and check-ins be used against you in a New York State criminal court? The answer seems obvious, but—as with everything in the criminal law—it’s more complicated than that.

The United States Constitution mandates that the People be secure in their persons, homes, papers, and effects from unreasonable searches and seizures. This has been interpreted to mean that any search without a warrant is per se unreasonable. See Myron Moskovitz, Cases and Problems in Criminal Procedure: The Police 17 (2010). For most of American history, this constitutional requirement did not apply to the States: Americans were not protected from warrantless searches and seizures by the States unless the State prosecuting them in a criminal trial had decided a similar right existed in that State. This made the Fourth Amendment pretty very thin in terms of protection for most people, since there are relatively few federal crimes when compared to voluminous state criminal codes.

In the 60’s the Supreme Court stepped in to bridge this gap in the law with its seminal decision in Mapp v. Ohio, 367 U.S. 643 (1961). In that case, a woman was brought up on obscenity charges after Ohio police burst into her home and ransacked it without warrant and without probable cause. The Supreme Court decided that, where an unreasonable search and seizure had taken place, any evidence gathered in that unreasonable search and seizure was constitutionally unusable even in a state criminal prosecution. While Mapp was a major turning point in American constitutional law, it came with the price of creating a new and convoluted problem for the state courts to resolve: Just what was an unreasonable “search” under this new reading of the Fourth Amendment?

The Supreme Court came up with its test for unreasonable searches just six years after Mapp was decided in Katz v. United States, 389 U.S. 347 (1967). There, the FBI, without a warrant, spied on a man while he used a public telephone booth with a listening device. Since the defendant was using a public telephone booth, the argument went, there was no unreasonable search. The Court rejected this argument, saying that a “search” occurs whenever the government is intruding on a person’s good faith, reasonable expectation of privacy. Since the defendant in Katz had expected privacy in the telephone booth, and since a reasonable person would also expect privacy in it, the FBI’s eavesdropping was a search that would require a warrant in order to be reasonable. Therefore, as the FBI did not have a warrant, the search was unreasonable and the evidence could not be used.

While the Court has twisted and turned the rules that keep evidence obtained illegally out of courts, the U.S. legal system has struggled over when a defendant’s good faith expectation of privacy is, in fact, reasonable. The Court has found that information a defendant says to even one other person is not protected by a reasonable expectation of privacy. See United States v. White, 401 U.S. 745 (1971). The Court has also found that information you divulge to a third party over commercial communication services—such as numbers you dial, email addresses you communicate with, and URLs you visit—are not protected by a reasonable expectation of privacy—even if the content of the phone call or the email or the website itself does carry a reasonable expectation of privacy. See, e.g., United States v. Forrester, 512 F.3d 500 (9th Cir. 2007); United States v. Warshack, 631 F.3d 266 (6th Cir. 2010).

So what’s that got to do with your status updates on Facebook and Twitter? It means that courts have to consider whether a government agent reading through posts you made in private to your social media accounts violates your constitutional right to privacy if the government ever tries to prosecute you for something you admitted to (or alluded to) doing in those posts. After all, this type of activity was completely unimaginable in 1791 when the Fourth Amendment was ratified, and it would have been equally foreign to the Supreme Court that decided Mapp and Katz. A recent New York City Criminal Court case gives good insight into the way that courts consider these novel issues of criminal procedure.

In People v. Harris, 36 Misc. 3d 613 (N.Y. City Crim. Ct. 2012), the court analyzed whether a defendant had standing to keep tweets he had made from being divulged to the prosecutor. While the court reached its decision on grounds not related to the Fourth Amendment, it opined that Harris did not have the ability to keep the prosecution from asking Twitter for the content of his tweets because he did not have a reasonable expectation of privacy in them. Twitter’s Terms of Service provides that every tweet you make on Twitter confers on Twitter a royalty-free license to use, copy, reproduce, process, adapt, modify, publish, transmit, display, and distribute any content you post. As such, no matter how many people you may—or may not—be sharing that content with, and no matter how private you think your tweets are, your expectation of privacy is just not reasonable. To quote the court, “The widely believed (though mistaken) notion that any disclosure of a user’s information would first be requested from the user and require approval by the user is understandable, but wrong.” Id. at 618.

So what’s the take-away? No matter how private you might believe something you post online to be—even if you have it shared with “only me” on Facebook, and even if you later delete them—, that isn’t good enough to keep it beyond the eyes of the government acting without a warrant or wanting to read them without your permission. The act of posting, which on most social media sites confers on the site itself full license distribute and publish whatever you post, legally gets rid of any reasonable expectation of privacy you have in the content of the post. Obviously, any argument about a reasonable expectation of privacy despite such a term of service on the service you’re using would be completely obliterated by sharing your post with the public generally.

While it’s highly unlikely that New York would go after people electing—in my opinion, foolishly—to knowingly violate Mayor Bloomberg’s evacuation order, watch your social media! You never know where it might show up.