SAP ordered to pay largest fine on record for software piracy

A federal jury in California has ruled that software giant, SAP, has to pay $1.3 billion in damages for illegally downloading customer support documents and software belonging to its rival, Oracle. The scheme apparently involved setting up fake customer accounts to access instruction manuals and software information.

The case began in 2007, when Oracle filed a suit against TomorrowNow (TN) alleging the it had made thousands of illegal downloads over a three year period. Oracle claimed that SAP, which acquired TN in 2004, did so in full knowledge of the ongoing piracy. SAP admitted liability, however contested Oracle’s claim that the damages amounted to $1.65 billion. The recent decision turned on the question of how to evaluate the worth of the intellectual property TN illegally downloaded.

Under US copyright law, money can be recovered for statutory damages or for actual damages caused by the infringement, along with any additional profit amassed by the infringer through its wrongdoing. Actual damages can be assessed by considering the “fair market value” of the plaintiff’s work. This approach requires a jury to assess “what a willing buyer would have been reasonably required to pay to a willing seller for the plaintiffs’ work,” Frank Music Corp v Metro-Goldwyn-Mayer Inc (1985). An alternative method to prove actual damages is to indirectly prove the plaintiff’s lost profits.

Using the loss of profit method, SAP argued that Oracle had lost 358 customers as a result of the piracy, and evaluated actual damages at around $40 million. Unsurprisingly, Oracle opted for the “fair market value” option, reaching a figure over 40 times larger. After an 11 day trial, the jury panel decided on an award representing the fair market value of the licence that SAP should have agreed with Oracle.

For further reading:

Bloomberg

by Katey Dixon

ACS Law, Party Babes and the Information Commissioner: Here’s What’s Happening

ACS Law is a London based law firm specializing in file-sharing infringement cases. The firm’s practice includes acting for copyright holders, whom the firm advises on legal action against individuals allegedly guilty of unlicensed file sharing.

ACS Claim Process

Typically, the story begins with an individual receiving a letter from ACS Law alleging that a file (usually pornographic, the cases we have seen refer to “Party Babes”) belonging to ACS’ client has been illegally downloaded. ACS’ letter states that ACS has used a court order to oblige the relevant ISP to reveal the IP address to which the file was downloaded. The letter then identifies the individual as the owner of the IP address, claims that the owner has infringed ACS Law’s client’s copyright and points out the legal consequences. Letters that we have seen and advised upon contain a settlement offer, whereby in return for a sum (typically around £495) ACS’ client will drop the claim.

ACS has allegedly sent claim letters to thousands of people. Concerns have been raised that many individuals may be mistakenly accused, particularly given the fact that ACS’ case typically relies on identifying an individual via an IP address. An IP address may be used by someone other than the individual to whom the IP address relates, either by someone using the individual’s computer, or by third party access to the IP address via an unsecured wifi connection or a virus. Websites have been set up to offer assistance to genuinely innocent individuals, such as http://beingthreatened.yolasite.com/.

Concerns have grown into outcry on numerous sites and forums, with ACS Law apparently being scrutinized by the Solicitors Regulation Authority. Concerns turned into a full blown attack on ACS Law when hackers obtained details from ACS’ website of over 5,300 individuals the firm was pursuing for unlicensed filesharing.

Data Breach

The disclosure of the details of the individuals’ data, if it contained personal data, would potentially be a breach by ACS of UK data protection legislation: the Seventh Principle of the Data Protection Act 1998 requires that “appropriate technical and organizational measures shall be taken against unauthorized or unlawful processing of personal data”.

The UK’s data protection watchdog, the Information Commissioner, has already expressed his concern about the situation (see interview here), and will want to establish whether ACS had put in place appropriate measures to prevent such disclosure. The Information Commissioner has the power to fine any organisation who breaches the data protection laws up to £500,000. The gravity of this situation, including in particular details of pornography allegedly downloaded by the individuals whose data has been disclosed, means that the ICO will take a particular interest in this case.

Defence

Ultimately, ACS may rely on an argument that the law firm had done everything appropriate and that even the best IT defence can’t protect against a determined hacker. This would be ironic, since many of the denials received by ACS from alleged file infringers rely on exactly the same defence.

By Rory Campbell

Asda “living dangerously” with in-store optician ads

Using an advertising campaign that intentionally mimics a competitor, and invites customers to draw a comparison between the two services may approximate “living dangerously”, but does not in itself amount to trademark infringement. In what was a disappointing outcome for Specsavers, the High Court was only willing to accept one of the three claims against the supermarket chain, Asda.

As the logo for its in-store optician, Asda chose two oval shapes indicative of a pair of spectacles. The Specsavers’ logo uses the same idea. However, whereas the ovals are positioned side-by-side in Asda’s logo, in Specsavers’ the ovals overlap in the middle. Underlining the mimicry, Asda adopted the pale green hue favoured by Specsavers as the colour for its logo. Despite these similarities the court was unwilling to accept Specsavers’ argument that the logo amounted to an infringement causing confusion.

Factors persuading the court in Asda’s favour included the fact that, since Specsavers had not registered their mark in a specific colour, the colour of the mark in question was an irrelevant issue. It was also noted that although the ovals were similar and formed an important part of the logo, this was not the dominant aspect. The court held that the wording “ASDA optician”, written inside the ovals, formed the active part, and thereby introduced a significant difference from the claimant’s brand. This meant that a ‘reasonably circumspect consumer’ would not be confused by the two logos. The evidence that Asda was intentionally “living dangerously” did not alter this conclusion.

Where Specsavers did succeed was in its claim that the strapline - “be a real spec saver at Asda” - took unfair advantage of the distinctive nature of their trademark. The court held that, wishing to establish a reputation for value, Asda had used a strapline which clearly called to mind “Specsavers” in order to gain an unfair advantage. The court dismissed Specsavers’ third claim that Asda was guilty of passing off. Since none of the marks gave rise to confusion, the element of misrepresentation that lies at the very heart of any such claim was missing.

Further reading:
Specsavers International Healthcare Ltd v Asda Stores Ltd [2010] EWHC 2035 (Ch)
http://your.asda.com/2010/8/2/judge-rules-you-can-get-spec-savings-at-asda

OFCOM Publishes Consultation Paper on Dealing with Online Copyright Infringement

by Rory Campbell

The Digital Economy Act 2010 gave Ofcom the responsibility of managing the controversial process of tackling copyright infringement via the internet.


The Act envisaged Ofcom having power to require ISPs to send warnings to subscribers infringing copyright. Failure to comply with a specific number of warnings would result in the identity of an infringing user being made available to copyright owners, who would then be able to take legal action against the infringing user.


The Act required Ofcom to draw up and enforce a code of practice describing how the system would operate, with the code being published by 8th January 2011. Ofcom published a draft code as a consultation on 1st June 2010, inviting responses by 30th July 2010. A copy of the code can be found here.


The consultation proposals include the following:

• Ofcom proposes that the code only covers larger ISPs, which Ofcom defines as fixed ISPs with more than 400,000 subscribers. This would include BT, Talk Talk, Virgin Media, Sky, Orange, O2 and Post Office. Small and medium sized ISPs would escape the remit of the code unless Ofcom receives evidence that subscribers to any such ISP are persistently infringing copyright.

• Ofcom acknowledges that it needs to create a proper system to check that any allegation against an alleged infringer is based on “credible evidence, gathered in a robust manner”. Any person accused of infringement will be able to appeal to an independent body, and Ofcom’s consultation proposes that any such person should be granted anonymity.

• The consultation proposes that once an ISP receives a copyright infringement report from a copyright owner, the ISP notifies the alleged infringer. The alleged infringer is given an easy to understand explanation of the allegations, and of the steps the subscriber can take to challenge the allegation – and to protect their network from being hijacked for the purposes of infringement.

• If an alleged infringer receives three notifications, their identity may be included in a copyright infringement list requested by the copyright owner. The copyright owner can then commence legal action against the alleged infringer.


Ofcom is clearly aware of the high temperature of the debate over the fairness of the Digital Economy Act: and it creates a future breathing space for itself by pointing out that enforcement under the Act needs to be one component in a broader approach to digital copyright infringement: “we note that [enforcement measures under the Act] were always expected to be complemented by a wider set of activity…including consumer education, the promotion of lawful alternative services and targeted legal action against serious offenders” (Ofcom consultation paragraph 1.9).


If you want legal advice on how the Digital Economy Act may affect you or your business, feel free to contact us at rory@fordelaw.com or on 028 44 33 00 23.

Forde Campbell LLP is a Northern Irish commercial law firm specializing in Media, IP and IT.

Where does your Intellectual Property come from?

A crucial issue to consider before an organisation licenses its IP is the need to check the organisation’s actual right to license the IP. Does the organisation actually own the IP? If the organisation’s product uses IP provided by a third party, has the third party entered into a licence agreement with the organisation?

Of vital importance, does that licence agreement allow the organisation to bundle the third party’s IP into the organisation’s own product and on-licence it?
The importance of this can hardly be overstated, and this is an issue frequently overlooked in any licensing transaction. The reason for its importance is two-fold:

• if the organisation (party A) licenses to a licensee (party B) IP which A itself obtained from a third party (party X), A needs to be certain that it is permitted to on-license in this way. If such on-licensing is prohibited under the terms of A’s agreement with X, or imposes terms on how X’s IP must be sub-licensed, A will be in breach of the agreement with X to the extent that it on-licenses X’s IP or fails to fulfil the conditions imposed by X on the on-licensing. In such a situation, X will be able to sue A for damages caused by the breach of contract.

• secondly, party B may negotiate terms with A which require A to warrant that it has all necessary consents to allow B to use the licensed IP, including X’s IP. B may also require a specific indemnity from A so that A agrees to compensate B for any losses suffered as a result of a legal claim that A has no right to license the IP it is providing to B.

In this situation, party A is in serious trouble if it does not have the necessary permissions from X to provide X’s IP to B. It will be in breach of warranty to B, and liable to the indemnity being triggered if B suffers a loss as a result of A’s failure to obtain the necessary permissions from X.

In this example, party A needs to take extreme care to “back-to-back” its obligations to party B with the benefits it receives from party X. A can only allow B the scope of use of X’s IP which the agreement with X allows it to on-license. Equally importantly, the extent to which A agrees to be liable to B needs to back-to-back with the extent of liability offered by X to A. For example, if X agrees to be liable up to a financial cap of £1 million for failure of its technology to work, A would be extremely unwise to offer a £5 million cap to B in relation to X’s technology. If X’s technology failed and B claimed losses of £4 million from A, A would only recoup £1 million from X.

A typical area where IP licensors overlook the terms on which they themselves have licensed IP is in the software licensing world, in particular in relation to Open Source software. This is software the source code of which is made available to the end user for free: it is therefore attractive to many developers.

Users of Open Source software frequently overlook the fact that while it may be provided for free, this does not mean that the Open Source organisations do not impose restrictions on the use of the software. For example, Open Source licences frequently require that the Open Source organisation is given some form of credit in any on-licensing by an Open Source user; alternatively, the Open Source user may be required to document any changes made to the base Open Source product. Occasionally, the libertarian ethos underpinning Open Source has encouraged users to believe that there are no restrictions on use. The trend of recent court cases, however, is to protect the interests of the Open Source organisations: in Jacobsen v Katzer (August 13th 2008, US Court of Appeals) a court not only upheld the credit and change documentation restrictions as enforceable, but added that the user’s failure to comply with them was not simply a breach of contract, but also a breach of copyright. This allowed the supplier the extra remedy of suing for copyright infringement. Licensors who use Open Source code should therefore take care that they comply with any restrictions relating to how the code should be used and on-licensed to the licensor’s licensees.