Copyright Board Approves SOCAN Tariffs For Performance Of Musical Works Contained In Audiovisual And User-Generated Media Transmitted Over The Internet

The Society of Composers, Authors and Music Publishers of Canada (SOCAN) proposed two tariffs (Tariff 22.D.1 and 22.D.2) for the collection of royalties for musical works performed as part of audiovisual works transmitted over the internet. Several stakeholders including Facebook, Netflix and Bell objected and made submissions in opposition to the proposed Tariffs. On July 18, 2014, the Board rendered its Decision allowing the SOCAN Tariffs. 

Image by Renjith Krishnan

The royalty rates set in these Tariffs are based on an agreement reached during settlement negotiations between SOCAN and some of the original objectors. The Board addressed the setting of general tariffs based on agreements reached by copyright collectives and users in its decision in Re:Sound Tariff 5. That Tariff deals with the public performance of sound recordings. Before allowing an agreement to form the basis for a tariff, the Board said that it is “generally advisable” to consider: 

(a) The extent to which the parties to the agreements can represent the interests of all prospective users; and 

(b) Whether relevant comments or arguments made by former parties and non-parties have been addressed.

Since the Settlement Agreements here involved some of the biggest players, including Apple, Bell, Rogers and Cineplex, the Board found that the parties to the Agreement were sufficiently representative of the interests of other users. It also found that those objectors who were not party to the Agreement had ample opportunity to make their submissions. The Board also noted that the rates fixed in the Agreement were the fruit of extensive negotiations between skilled and savvy counsel.

Several grounds were raised by the objectors. Among them, Facebook and Netflix’s arguments bear some discussion. 

Facebook argued that it has a strict copyright enforcement policy and has implemented software to make sure that any protected uses of copyrighted works are prevented from being uploaded to its network. Facebook noted that any use of copyright protected works not caught by its software would qualify under the new UGC exception found at s.29.21 of the Copyright Act. 

Facebook also argued that an “audiovisual page impression” (defined in the Tariffs as “a page impression that allows a person to hear an audiovisual work”) should only give rise to a royalty when the work in question is actually viewed or heard. The wording of the Tariffs make it so that once a web page that contains the audiovisual work is loaded, a royalty is payable regardless of whether the work is ultimately accessed or not. 

The Board rejected the first argument out of hand. Whether Facebook’s activities would fall under the Tariffs is irrelevant. The Copyright Board sets tariffs of general application. If Facebook does not feel its activities fall under these Tariffs, it does not have to pay royalties until a court of competent jurisdiction says otherwise. To say that the Tariffs should not be allowed because it does not apply to Facebook is a non-sequitur.

The Board also rejected the argument on page impressions. It simply said that SOCAN’s proposed method of calculation was acceptable and consistent with other Tariff 22 classes. 

Netflix argued that its one-month free trials should not be captured by the Tariffs. It based this position on two arguments:

1) The free trial is fair dealing for the purpose of research along the lines of the Supreme Court of Canada’s decision in SOCAN v. Bell (discussed here). In that case, the issue before the Court was whether the sampling of 30-90 second excerpts of musical works constituted fair dealing for the purpose of consumer research.

2) Paying SOCAN for free trials of the service would cause double compensation contrary to the principle of technological neutrality as set out by the Supreme Court in ESA v. SOCAN (discussed here).

On the fair dealing argument, the Board found the analogy between Netflix’s free trial period and the song previews in SOCAN v. Bell to be tenuous. There is a big difference between a low quality sample of a portion of a song and a high-quality, full version of a television show or movie. The Board also declined to look any further into fair dealing as no one (including Netflix) led sufficient evidence to make such a determination. 

The Board was equally unconvinced by Netflix’s technological neutrality argument. It reasoned that there is no technological alternative to Netflix’s free trial period that is or has been used in the offline world: “There is no alternative-technology equivalent to a Netflix free trial. Video stores never offered a free month’s membership with the right to rent as many videos as the customer wanted for no additional charge. Thus, there is no issue with technological neutrality.”

Thoughts

Overall the Board’s decision appears to be reasonable. Its rejection of Facebook’s argument regarding page impressions strikes me as a little dubious. Is there some technological reason why royalties should be calculated this way? Surely it would be more accurate to track the number of clicks received by the media player on the page than the raw number of times that the page is loaded. Some dynamic webpages have auto-refresh features that refresh parts of the page while leaving other parts untouched. This may skew results in favour of more compensation. Still, this outcome seems far from unreasonable. 

Netflix’s argument based on technological neutrality was puzzling. It asserted that allowing SOCAN to collect royalties for free trials would lead to “double dipping” (presumably because Netflix would have to pay a different royalty rate if the free user eventually subscribed). This seems a little simplistic. Surely Netflix is capable of –and certainly is- monitoring which free users eventually subscribe to its service. What is so difficult about subtracting the free trial royalty rate from the higher subscriber royalty rate and paying SOCAN that amount? 

To take a basic example, assume that the free trial royalty rate is $12/year (or $1 for a one-month free trial period) and that the regular royalty rate is 5% of the subscription fee which is $25/month. This would produce an annual royalty of $15 per subscriber.  For a subscriber who takes advantage of the free trial month and then signs up and pays the subscription fee for the rest of the year, all you have to do is subtract the free trial month amount ($1) from the annual royalty ($15) in order to assure that SOCAN is not paid twice for the same period of time (once at the free trial rate and once at the full rate).

While Netflix’s argument was ill-founded, I think the Board may have made a mistake in its reasons. Instead of rejecting Netflix’s argument for the reason set out above, the Board justified its decision by noting that in reality, video rental stores never offered free trials. It reasoned that given the lack of an analogue to Netflix’s free trials in the offline world, the latter’s argument based on the Supreme Court’s establishment of the principle of technological neutrality in ESA was moot. 

The principle of technological neutrality stands for the proposition that copyright protected works should be given the same treatment regardless of the technological medium by which they are conveyed. The Board uses the following example to illustrate: “…since only the reproduction right is triggered when a CD is sold in a store, only the reproduction right should be triggered when a digital album is sold online. The CD is an alternative technology to the digital download.”

The Board is essentially saying that technological neutrality only applies when there is an alternative technology that has been marketed to the public to compare the technology in question to. That need not necessarily be the case. There is nothing in the Supreme Court’s decision in ESA that limits the principle of technological neutrality to comparing extant (or previously extant) business models. This view cheapens the value of this interpretive principle. 

Take the facts from SOCAN v. Bell as an example. In that case, users could access previews of songs by clicking an icon on a service provider’s website. That decision has nothing to do with technological neutrality. However, for illustrative purposes, assume one of the parties wanted to make an argument for more or less compensation based on the principle of technological neutrality. They would have to come up with some analogous technology to the service provider’s website. One potential analogue to the website could be a business method by which music stores send individuals door to door with samples of music they have for sale. The sales representative would play the samples on CD’s or some other physical media; kind of like the Avon lady, but for music. 

To the best of my knowledge, this “Avon lady” sales model was never employed by record stores. This should not matter.  This method of distribution is conceivable and therefore ripe for comparison for copyright purposes. 

This hypothetical technological analogue theory has not been addressed in the case law. In ESA, the Court was comparing two modes of distribution (online digital delivery and shelf display in stores) that do in fact exist side by side. The Court in ESA did not expressly state whether the technological alternatives being compared must be ones that not only exist, but have been implemented in commerce. Given the Act’s statement of the s.3 right as the right to produce or reproduce a work “in any material form whatever”, the lack of limiting language in the Court’s decision should not rule out hypothetical technological alternatives concocted for the purpose of comparison. In that regard, the Board gave the principle of technological neutrality a more narrow interpretation than the one expressly prescribed by the Supreme Court. 

Finally, whether this decision is appealed to the Federal Court of Appeal is an interesting and open question. While it appears that the Board’s decision is reasonable, in light of the Majority of the Supreme Court’s ruling in ESA, the decision may be reviewed, at least in part, on a correctness standard.

Win By Pin: Pinterest's Latest Battle for the Word "Pin"

Last October, Pinterest, the popular social networking platform sued a travel planning service called Pintrips in California District Court for trademark infringement, false designation of origin, unfair competition and dilution of their “PIN” family of trademarks. 

For those unfamiliar with Pinterest, it is a website whereby users (“Pinners”) collect images, recipes and other visual content and “pin” it to their user page (“board”). Much like the Facebook “like” button or Google’s “+1”, Pinterest has a “Pin it” social plug-in that third party sites integrate into their web pages. This is the vehicle by which Pinners add to their boards; by pinning images found on other websites.  

Photo by Norebbo

By its own description, Pintrips offers a service where you can “…shop for flights on your favorite sites, pin the options you care about, and see them on a personalized dashboard.” It markets itself as a travel facilitation application rather than as a social networking platform.

Pinterest’s claims are based on the Lanham Act and the California Business and Professional Code. Among other things, Pinterest claims that it had acquired rights in the “PIN-formative” trademarks before the Defendant began using its marks, and that the Defendant’s marks are confusingly similar and are likely to deceive the public into thinking that they are affiliated with the Pinterest brand. Pinterest’s claim for dilution is based on its assertion that its marks are famous, and have been so since before the Defendant started using its marks. They argue that Pintrips knowingly branded itself so as to capitalize on Pinterest’s goodwill.

Pinterest asks for interlocutory and final injunctive relief, delivery up and destruction, disgorgement of profits and compensatory damages.

While Pinterest acknowledges that the scope of its marks far exceed the travel industry, the Complaint alleges that the Pinterest travel section is one of the most popular parts of the website with more than 600 million total pins.

On January 6, Pintrips fired back with a motion to dismiss the Complaint.  Pintrips based its motion on the following grounds:

•     That Pinterest cannot assert ownership over the PIN prefix;
•     Based on this lack of ownership over PIN, the State law claims must fail; and
•      Even if the State law claims survive, the Court should decline jurisdiction in favour of the State Courts.

Setting the jurisdictional issues aside, Pintrips is arguing that “pin” is a generic term that describes a function. They argue that Pinterest has no trademark registrations for PIN and should not be able to obtain one given the market restricting effect this would have on a number of different web-based businesses.

This is a key element of Pintrips’ argument because Pinterest will doubtless argue on the motion that pin has acquired secondary meaning associating that prefix with its brand; and this regardless of what comes after that prefix. Oddly, Pinterest failed to allege that its family of PIN-formative trademarks are so strong that PIN has acquired secondary meaning. 

Pintrips has cited law to the effect that regardless of how strongly the public may associate a generic term with a given brand, trademark status cannot be granted in the generic term. This strong consumer association with a generic term is known as de facto secondary meaning and has been rejected by courts as sufficient grounds to claim ownership over a generic term like “PC” or “MP3”.

Pintrips provided a number of examples where companies use pin as a generic term in association with “software applications, online maps, and websites”. Among those applications mentioned were Microsoft Windows, Facebook and Google Maps.

It would appear that the law backs up Pintrips’ argument. At the hearing of the motion (Scheduled for February 13, 2014), it will be essential for Pintrips’ counsel to drive home the point that “pin” is a commonly used term to denote a specific type of action in the online environment, namely marking a specific thing or place on a webpage (Google Maps), or the act of posting content from a third-party website to a user page of some sort (Facebook and Pinterest).

It may be tricky to convince a judge, particularly one who is not in the habit of pinning things online, that pin is in fact a generic action in the online environment. It may be helpful for Pintrips to liken the action of pinning to the action of posting. Posting is a familiar action online and can relate to any number of things, some of which could also be described with the term pin.

If I were arguing the motion on Pintrips’ behalf, I would offer the following two analogies:

•       Whether I say “he knocked the ball out of the park” or “he hit the ball out of the park”, without any other information, the mental image one forms in their mind is that of a batter making contact with the baseball hard enough to propel it out of the field.
•       Whether I say “he jumped off the building” or “he leapt off the building”, without any other information, the mental image one forms in their mind is the same.

In the same way, posting a photo or pinning a photo amounts to the same thing. Both are generic terms denoting a single action.

Upon a search of the USPTO trademark database, it appears that Pinterest has applied for PIN (Serial no. 85698998) in association with a wide range of goods and services. The opposition period has expired but the trademark has not been registered. Pinterest also claims registrations in several other jurisdictions.

Pinterest’s claim is not based on a trademark registration, but on Common Law rights. Much of their argument turns on the fact that a great deal of its popularity comes from its third party plug-in buttons; and that the Pintrips button (that may be alongside the “Pin it”) button causes confusion and dilutes Pinterest’s brand. 

The fact that these buttons may appear side by side is a functional reality. Websites that use these third-party plug-ins tend to put them all in the same place on the page. From a visual inspection of these marks, it would appear difficult to confuse them. Apart from the word pin, the marks are completely different. The “Pin it” button has red text with a stylized font. The Pintrips button is in a plane blue font. The Pintrips mark also contains a visual depiction of a sewing pin. In the “Pin it” button, the word pin is a prefix. In the Pintrips button, the word pin stands alone and comes after the image of the sewing pin.

Pinterest argues that in addition to appearance, the confusing trademark sounds the same or confusingly similar. Depending on how one pronounces the word “interest” (in two syllables or three), this may be true. But here, Pinterest can only be comparing its PINTEREST mark with PINTRIPS; not their respective third-party plug-in buttons depicted above. This is not self-evident given the drafting of the Complaint.

While this is only a partial analysis, it may be for naught if the Judge agrees with Pintrips on their motion and dismisses the complaint before arguments for confusion are ever made. Suffice it to say that Pinterest will be fighting an up-hill battle on this motion, and if they succeed, perhaps in the ensuing jury trial.

This is a typical David vs. Goliath situation. The fame of the Pinterest trademarks is beyond question. However, as Pintrips argues, no degree of notoriety should give anyone a monopoly on a technical or generic term.

Post Script:

In a somewhat related turn of events, last November, the European Commission’s Office for Harmonization in the Internal Market, Trade Marks and Designs Division rejected Pinterest’s opposition to a registration for PINTEREST by a news aggregator website and corporation called Premium Interest Ltd. This means that if Pinterest wants to operate officially in Europe, it will have to either change its name or buy a license from the Registrant.

A look at the US Supreme Court's decision in Microsoft v. i4i

In 2009, a Canadian software development company out of Toronto named i4i Inc. won a $290 million law suit against Microsoft for wilfully infringing its patents.  The company developed a new form of document encoding known as XML (Extensible Markup Language). The versatility of the .xml extension lead to its integration into a number of software applications, including Microsoft Office. Microsoft, however, did not license the XML code.   

The Eastern District Court of Texas ruled in favor of i4i stating that a party accused of patent infringement, when asserting the invalidity of a patent, must convince the court of the invalidity by “clear and convincing evidence”.  This is a particularly high burden of proof and one not easily met.  

Photo by Darren Robertson

Microsoft fought the District Court’s interpretation in appeal but the outcome was the same.  Both the Court of Appeals for the Federal Circuit and the United States Supreme Court affirmed the trial judge’s decision and rejected Microsoft’s arguments demanding a lowering of the burden of proof and upheld the trial court’s ruling.

Justice Sotomayor wrote for a unanimous court (8-0 – Justice Thomas concurring. Chief Justice Roberts recused himself because he owns Microsoft stock) in saying that §282 of the American Patent Act of 1952 clearly states that a patent, once issued “shall be presumed valid”.  This places the burden of invalidating the patent on the other party. According to Sotomayor, it has long been settled law that the party alleging invalidity must prove it by clear and convincing evidence.  She cites a 1984 decision rendered by Judge Rich, one of the principal drafters of the 1952 Patent Act, supporting the clear and convincing standard.  In the 30 plus years since the aforementioned decision, the CAFC has never varied their opinion. 

Microsoft’s invalidity defense was twofold: First, they attempted to apply §102(b) of the Act that prohibits the issuing of patents when:

“the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States”

This provision, known as the “on-sale bar”, says that a patent that has been used or sold or has been disclosed in a publication more than one year before the patent is applied for is not patentable under the law. Microsoft claimed that the entirety of the XML patent was disclosed in a previously released i4i product called “S4”.  The Court, however, rejected this defence after hearing from two expert witnesses (the two principal inventors of the XML patent).

Microsoft’s second argument relied on the fact that when the XML patent was being examined, the United States Patent and Trademark Office (USPTO) didn’t have the S4 patent to compare it to.   Relying on a recent decision, Microsoft asserted that when it is brought to light that the PTO didn’t have all relevant information during examination, the strength of their examination is greatly diminished.  Microsoft ultimately asserted that this lowered level of deference for the PTO should concordantly lower the standard of proof incumbent on a party alleging invalidity. 

Both of these arguments were utterly rejected by the Supreme Court who said that the “hybrid” burden of proof system Microsoft proposes has no precedent and no founding in law.  

Though the decision in this case turned primarily on statutory interpretation and the intention of Congress in enacting the law, Microsoft tried as hard as possible to make it seem that the issue at hand was the prior disclosure of the patent and the incomplete analysis of the PTO. 

Many IP professionals are skeptical of the value of this decision.  Surely had the ruling gone the other way, this case would be of paramount importance as it would be reversing a 35 year old interpretation that has thus far remained unchallenged.  Though some may question the importance of this decision outright, I am of the belief that the Supreme Court’s verdict affirms at least two points.

First, that the courts still show a high degree of deference towards the USPTO and therefore should continue to exercise judicial restraint in overturning its rulings.

Second, that smaller companies are capable of defeating behemoths like Microsoft when the law is in their favor.  Doubtless Microsoft fielded an expert team of attorneys who managed to conjure up and elucidate arguments that could have overturned a solid precedent.  Add to that the fact that a long list of tech giants such as Facebook, Google, Apple, Verizon etc. rallied behind Microsoft in support and you have a true David v. Goliath victory in favour of the Canadian i4i Inc. 

In my humble opinion, I think this case is most interesting for its rallying cry effect on smaller businesses than its actual implications on the legal framework of the US Patent system. As damaging as a $290 million verdict is, one would posit that if anyone could absorb such a loss it would be a company on the scale and magnitude of Microsoft. Though this decision surely is a blow to the tech giant, I don’t think too many people are (or should be) balling their eyes out for them right now...except Chief Justice Roberts that is...