Intellectual Property Bulletin - Spring 2021

Fenwick & West LLP

In This Issue

Section 230 and the Future of Content Moderation

— Tyler G. Newby and Ethan M. Thomas

We analyze Section 230 of the Communications Decency Act—the 1996 law that provides a legal shield for internet providers from content created by their users—looking at the evolving landscape for online platforms seeking to moderate content while limiting litigation risk.

Supreme Court Expands Upon Software Fair Use in Google v. Oracle

— Stephen D. Gillespie

After a titanic 10-year court battle, the U.S. Supreme Court has sided with Google in Google v. Oracle. But while the Court determined—in a substantial expansion of the fair use defense—that it was fair use for Google to use of part of Oracle’s Java code in its Android operating system, it punted on whether the code at issue could be copyrighted. We offer a full analysis of this important ruling and its subtleties.

Quick Updates

Patent Eligibility Law: Status Quo for Now, But Is Change on the Horizon? — Christopher P. King

Sweeping Changes Proposed to the DMCA’s Notice-and-Takedown System — David L. Hayes and Diana Lock

Check(ered) Mate? — Ashleigh Armstrong

Proposed Changes to the Use of Non-Compete Agreements in New York — Esther D. Galan

Feature Articles

Section 230 and the Future of Content Moderation

By Tyler G. Newby and Ethan M. Thomas

The Communications Decency Act of 1996 (CDA) was a landmark law enacted to regulate content on the internet. The purpose of the legislation was to regulate indecent and obscene material online, but it is most relevant today for Section 230—a provision that protects online platforms from liability in a variety of circumstances involving third-party use of their services. While Section 230 is often credited with allowing the internet to flourish in the late 1990s and the early 21th century, it has been the subject of calls for amendment from across the political spectrum as courts and online platforms attempt to fit the law to the modern internet. In particular, a rash of bills in 2020 targeted the law, specifically in the context of immunity for content-moderation decisions—an application that has become more heavily scrutinized as service providers attempt to curb abusive content and critics raise concerns of censorship.

This article addresses the evolving landscape for online platforms seeking to moderate content while limiting litigation risk.

Background: The CDA and Section 230

Shortly after the CDA was enacted, it faced First Amendment challenges to its provisions that prohibited the transmission of “obscene or indecent” content to minors. The U.S. Supreme Court held the anti-indecency provision of the statute unconstitutional in Reno v. American Civil Liberties Union, but held that provision to be severable from the rest of the law, allowing Section 230 to stand.

Now, Section 230 is the principal legal protection afforded to online platforms from lawsuits over content posted by their users. It contains three provisions specifying when platforms will be immune from suit: first, in Subsection (c)(1) as a “publisher”; second, in Subsection (c)(2)(A) for the Good Samaritan removal or filtering of content; and third, in Subsection (c)(2)(B) as a provider of the technical means to restrict content.

Subsection (c)(1) states: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” It “is concerned with liability arising from information provided online,” but as stated in Barrett v. Rosenthal, “[l]iability for censoring content is not ordinarily associated with the defendant's status as ‘publisher’ or ‘speaker.’”

Subsection (c)(2) provides immunity for moderation or alleged “censorship” scenarios, stating: “No provider or user of an interactive computer service shall be held liable on account of: (a) any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or (b) any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph (1).”

Courts have interpreted Subsection (c)(1) broadly as providing immunity to online platforms, both from suits over content posted by their users and for their removal of content from their sites. In a key early decision involving allegedly defamatory messages on a message board, Zeran v. America Online, the U.S. Court of Appeals for the Fourth Circuit held that Section 230 “creates a federal immunity to any cause of action that would make service providers liable for information originating with a third-party user of the service.” “Thus, lawsuits seeking to hold a service provider liable for its exercise of a publisher's traditional editorial functions—such as deciding whether to publish, withdraw, postpone or alter content—are barred.” This immunity is generally not limited to particular causes of action, and because Section 230 preempts state law where inconsistent, Section (c)(1) is a defense to state tort and contract claims as well as federal lawsuits.

Subsection (c)(1) is not an absolute bar to litigation for third-party content on online platforms, however. In a critical decision denying Section 230 immunity, Fair Housing Council of San Fernando Valley v. Roommates.com, the U.S. Court of Appeals for the Ninth Circuit held that Section 230 did not preempt claims under the Fair Housing Act and state housing discrimination laws where a roommate-matching service required users to answer a questionnaire with criteria such as “sex, sexual orientation and whether they will bring children to the household.” The Ninth Circuit, noting that Section 230 “was not meant to create a lawless no-man’s-land on the Internet,” found that the questionnaire was “designed to force subscribers to divulge protected characteristics and discriminatory preferences”—in other words, the defendant was a “developer” of an allegedly discriminatory system because it elicited content from users and made use of it in conducting its business based on allegedly illegal criteria. The Ninth Circuit contrasted this with cases in which immunity was upheld—including where websites used “neutral tools” that “did absolutely nothing to enhance the defamatory sting of the message, to encourage defamation or to make defamation easier,” such as allowing users to filter dating profiles based on voluntary user inputs. Notably, the Ninth Circuit did apply Section 230 immunity to the “additional comments” section of users’ profiles, where users were merely encouraged to provide information about themselves; even though the lawsuit pointed to instances where users input race or religious requirements into this section, the Ninth Circuit noted that Roomates.com only passively published these comments as written, which is precisely what Section 230 protects.

Additionally, the Ninth Circuit has held that failure to warn cases are not preempted by Section 230. In Doe v. Internet Brands, the plaintiff alleged that two individuals were using a modeling website to pose as talent agents and find, contact and lure “targets for a rape scheme.” The defendant allegedly knew about these particular individuals and how they were using the website, but failed to warn users about the risk of being victimized. The Ninth Circuit determined the critical question under Subsection (c)(1) to be whether the allegations depended on construing the defendant as a publisher (i.e., whether the claims arose from the defendant’s failure to remove content from the website). The Ninth Circuit noted that, in these circumstances, the marginal chilling effect of allowing such a claim to proceed did not warrant turning Section 230 into an “all purpose get-out-of-jail-free card,” nor would it discourage “’Good Samaritan’ filtering of third party content.”

Further, in May 2021, the Ninth Circuit reversed a district court’s dismissal based on Section 230 immunity in Lemmon v. Snap. Parents of three boys ages 17–20 killed in a car accident sued the maker of Snapchat for its “Speed Filter”—an overlay users could add to photos and videos that shows their speed. The parents alleged that one of the boys opened the app shortly before the crash to “document” their speed (at one point over 123 miles per hour) and that Snap allowed this feature notwithstanding (untrue) rumors that users would receive a “reward” for reaching over 100 miles per hour in the app. The Ninth Circuit held that the negligent-design claim did “not seek to hold Snap liable for its conduct as a publisher or speaker” and “[t]he duty to design a reasonably safe product is fully independent of Snap's role in monitoring or publishing third-party content,” thus Subsection (c)(1) did not apply. Separately, the Ninth Circuit held Subsection (c)(1) inapplicable because Snap designed the Speed Filter and reward system at issue, so the claim did not rely on “information provided by another information content provider.” Though the implications of this holding are yet to be seen, the Ninth Circuit attempted to constrain it to true defective design cases; the allegations did not depend on the content of any messages actually transmitted, so this was “not a case of creative pleading designed to circumvent CDA immunity.”

The breadth of immunity provided by Section 230 has also been pared back by subsequent legislation. In 2018, largely as a response to Backpage.com prevailing on Section 230 immunity in litigation concerning sex trafficking, the Allow States and Victims to Fight Online Sex Trafficking Act of 2017 (FOSTA), was signed into law, amending Section 230 to eliminate platforms’ immunity from prosecution for violating certain state sex trafficking laws. It also eliminated platforms’ immunity from civil suits brought by victims of sex trafficking for knowingly promoting and facilitating sex trafficking. Notably, the text of FOSTA states that it does not apply to Subsection (c)(2).

Section 230 and Content Moderation

While Subsection (c)(1) was a paradigm shift in terms of making the internet a unique forum in which content could be hosted and accessed without traditional publisher liability applying to service platforms, Subsection (c)(2) has also been essential in forming the legal landscape for social media and other online spaces. Because both provisions of Subsection (c)(2) concern content removal, it has been particularly relevant in recent years as more people, including politicians and other public figures, participate in online communities. Subsection (c)(2) has not been the deciding factor for many cases to date, but disputes concerning content moderation issues are likely to proliferate.

Several courts have held that Subsection (c)(2) immunizes online platforms from liability for content removal decisions, though it is case-dependent whether such claims can survive the pleading stage. For example, this year, the U.S. Court of Appeals for the Second Circuit applied Subsection (c)(2) to affirm the dismissal at the pleading stage of claims brought against a video sharing site over the site’s removal of the plaintiffs’ videos promoting “sexual orientation change efforts.” In Domen v. Vimeo, the court noted that Subsection (c)(2) is a “broad provision” that forecloses civil liability where providers restrict access to content that they consider objectionable. The Second Circuit found that the plaintiff had not pleaded that Vimeo had acted in bad faith because there were no plausible allegations that Vimeo’s actions were “anti-competitive conduct or self-serving behavior in the name of content regulation,” as opposed to “a straightforward consequence of Vimeo’s content policies.”

Similarly, a case in the U.S. District Court for the Northern District of California, Daniels v. Alphabet, held that Subsection (c)(2)(A) barred nearly all of the plaintiff’s claims regarding removal of his videos from YouTube and alleged restriction of his account, noting that the plaintiff himself acknowledged that the defendants’ reason for removal was that the videos violated “YouTube’s Community Guidelines” and “YouTube’s policy on harassment and bullying.” The plaintiff’s conclusory assertions of bad faith were insufficient to overcome the discretion afforded by Subsection (c)(2)(A). This decision and the ruling in Vimeo demonstrate that the good-faith removal defense can be successfully raised at the pleading stage, though defendants may have more trouble doing so where plaintiffs bring more specific allegations of bad faith.

Conversely, the Ninth Circuit in Enigma Software Group USA v. Malwarebytes held that a security software company was not entitled to immunity under Subsection (c)(2)(B) at the pleading stage where the plaintiff alleged that Malwarebytes’s software blocked the installation or use of its security software for anti-competitive purposes. There, the Ninth Circuit found that the complaint plausibly alleged the companies were direct competitors. It reversed the district court’s finding of immunity and remanded the case to the district court, holding that the anticompetitive allegations were sufficient to survive dismissal at the pleading stage.

Numerous other cases have dispensed with content moderation or account removal allegations against by applying Subsection (c)(2), often in the social media context and with little analysis of the good faith requirement. Additionally, several courts have applied Subsection (c)(1) to removal decisions on the theory that removing or withholding content from a platform is a typical “publisher” decision, which is protected by Subsection (c)(1). Though this approach sidesteps the good-faith analysis built into Subsection (c)(2), there does not appear to be a consistent approach among courts regarding when to apply Subsection (c)(1) to moderation or removal decisions, and it remains to be seen how reliably courts will take this more-protective route.

Potential Changes to Section 230

Outside of the courts, content moderation has been hotly contested across the political spectrum. Generally, proposed bills have divided on party lines. Democrats have sought to protect providers’ ability to remove hate speech and offensive content while leaving open liability in the anti-discrimination context, and Republicans have sought to impose more First Amendment-like restrictions on what providers can remove.

The Senate Committee on Commerce, Science, and Transportation held a hearing in October 2020 to address Section 230 with executives from Twitter, Facebook and Google present, in which senators addressed issues ranging from political censorship to the spreading of misinformation. While Subsection (c)(2) currently protects platforms’ decisions to remove, label or restrict the spread of content they deem to be damaging in some way, some senators pressed the companies’ representatives to explain the reasoning behind the removal or restriction of various specific posts. Senator Roger Wicker (R-MS), providing the majority opening statement, acknowledged the role Section 230 played in enabling the growth of the internet but also claimed it “has also given these internet platforms the ability to control, stifle, and even censor content in whatever manner meets their respective ‘standards,’” and “[t]he time has come for that free pass to end.” He also pointed to instances of removal that he characterized as inconsistent or evincing political bias. Senator Maria Cantwell (D-WA), in the minority opening statement, focused on enabling platforms to remove “hate speech or misinformation related to health and public safety.”

In March 2021, Facebook CEO Mark Zuckerberg argued before the House Committee on Energy and Commerce that Section 230 immunity should be reduced in favor of platforms being “required to demonstrate that they have systems in place for identifying unlawful content and removing it.” His proposal contemplated a third party that would set standards for what would constitute an adequate system, proportionate to the size of the provider at issue. Additionally, Mr. Zuckerberg advocated for more transparency into how platforms decide to remove “harmful but legal” content.

Since 2020, numerous bills have been introduced that would further pare back the immunity Section 230 provides to platforms, both for removing and for failing to remove certain categories of third-party content. One example is the Safeguarding Against Fraud, Exploitation, Threats, Extremism and Consumer Harms (SAFE TECH) Act, introduced by Senators Mark Warner (D-VA), Mazie Hirono (D-HI) and Amy Klobuchar (D-MN). This bill proposes to limit immunity in cases involving, among other things, civil rights or discrimination, antitrust, stalking, harassment, intimidation, international human rights law or wrongful death. It would also make Section 230 an affirmative defense—rather than a pleading-stage immunity—and would make it unavailable to defendants challenging a preliminary injunction). Another example is the Platform Accountability and Consumer Transparency (PACT) Act, which has received some bipartisan support. This bill seeks to set certain requirements for platforms’ takedown processes and provides state attorneys general as well as the Federal Trade Commission with certain enforcement authority. Several other bills have been introduced with similar focus on stripping immunity based on the subject matter of litigation or based on the practices of the platform. The Biden Administration has not taken an official position on Section 230.

Conclusion

While Section 230 remains the predominant legal protection for online platforms moderating content in good faith, courts are beginning to engage more regularly with these issues, and recent decisions signal that defendants may have difficulty relying on Subsection (c)(2) immunity to dispose of well-pled suits at the pleading stage. Further, many cases that have been dismissed above on Subsection (c)(2) grounds may have survived under new proposed legislation. Section 230 reform may introduce uncertainty to online platforms’ litigation risk, so content providers should remain aware of the shifting landscape for this critical legal protection.

Supreme Court Expands Upon Software Fair Use in Google v. Oracle

By Stephen D. Gillespie

On April 5, 2021, after 10 years of litigation, the U.S. Supreme Court published its decision in the much-watched Google v. Oracle dispute. The Court held that use of certain “declaring code” from the Java API in the Android operating system was a fair use under Section 107 of the Copyright Act. The Supreme Court provided a detailed explication of how, in the context of the copyright in computer code, federal courts should assess the four guiding fair use factors set forth in Section 107: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Because its decision on fair use resolved the dispute before it, the Supreme Court declined to address the “copyrightability” issue raised below: whether the declaring code from the Java API is even protectable by copyright in the first place or is, instead, an unprotectable system or method of operation excluded from copyright.

Some software developers will be disappointed. Many had hoped for a definitive decision that developers are free to use third-party application programming interfaces (APIs) to ensure interoperability and for other purposes. Microsoft, for example, argued in its amicus brief that innovation in the software industry requires free and unfettered access to APIs for interoperability and that the software industry has come to rely on the principles established by a number of appellate courts holding that APIs are functional methods of operation and hence are not subject to copyright protection. By declining to address the copyrightability issue and focusing its decision solely on the fair use defense, the Supreme Court left wide discretion to judges in future cases to determine whether any given unlicensed use of third-party APIs is or is not a fair use. Because adjudication of fair use requires a case-by-case assessment of the four fair use factors, the Supreme Court left open the possibility that developers using third-party APIs can be sued for copyright infringement by the owners of those APIs, and that developers may have to incur substantial legal fees in proving that the fair use defense applies.

The Court did, however, provide a substantial expansion of the fair use defense to cases involving the use of computer code and APIs, endorsing earlier decisions from appellate courts that found in favor of fair use and providing detailed guidance regarding how to assess whether a given use of APIs should be considered a fair use. The Court’s detailed guidance should help support arguments in future cases that unlicensed use of third-party APIs is a protected fair use under Section 107.

Please visit here for more on the origins and history of the 10-year battle between Google and Oracle and the case’s path to the Supreme Court.

The Supreme Court’s Fair Use Analysis

The Supreme Court’s detailed explication of how the four guiding fair use factors set forth in Section 107 of the Copyright Act should be applied to Google’s unlicensed use of the Java APIs represents a significant expansion of the fair use defense in cases involving the copyright in computer code. As explained below, the Court endorsed the reasoning of earlier decisions from the appellate courts finding in favor of fair use in the context of reverse engineering for purposes of interoperability. In assessing “the purpose and character” of Google’s use of the Java APIs, the Court also expanded upon the meaning of what constitutes a “transformative” use. And in its assessment of “the nature and character of the copyrighted work,” the Court broke new ground in explaining the relative weight to be accorded to copyright protection for computer code and APIs relative to other works of expression, finding in particular that APIs, if copyrightable at all, are “further from the core of copyright” and should be accorded only a “thinner” level of protection.

The Court held that the fair use question is a mixed question of fact and law, and that while reviewing courts should appropriately defer to the jury’s findings of underlying facts, the ultimate question of whether those facts showed a fair use is a legal question for judges to decide de novo. That holding could help developers in future cases involving unlicensed use of third-party APIs, in that it will make it easier for the developers to win summary judgment regarding the fair use defense, rather than having to litigate all the way through a jury trial.

The Court, in Stewart v. Abend, expressed significant faith in the role of federal courts in exercising their discretion to determine whether a given use of copyrighted code is a non-infringing fair use under Section 107: “We have described the fair use doctrine, originating in the courts, as an equitable rule of reason that permits courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster.” (Internal quotes and citations omitted in all quoted instances from the Court’s opinion.)

The background of the fair use doctrine as an equitable doctrine developed by federal judges, the Court noted, “as well as modern courts’ use of the doctrine, makes clear that the concept is flexible, that courts must apply it in light of the sometimes conflicting aims of copyright law, and that its application may well vary depending upon context. Thus, copyright’s protection may be stronger where the copyrighted material is fiction, not fact, where it consists of a motion picture rather than a news broadcast, or where it serves an artistic rather than a utilitarian function.”

The Court noted that “fair use can play an important role in determining the lawful scope of a computer program copyright, such as the copyright at issue here. It can help to distinguish among technologies. It can distinguish between expressive and functional features of computer code where those features are mixed. It can focus on the legitimate need to provide incentives to produce copyrighted material while examining the extent to which yet further protection creates unrelated or illegitimate harms in other markets or to the development of other products.” “In a word, it can carry out its basic purpose of providing a context-based check that can help to keep a copyright monopoly within its lawful bounds.”

We explore below the Court’s explication of the four fair use factors in assessing whether Google’s use of the Java APIs was a fair use:

Nature of the Work

In assessing the nature of the copyrighted work for purposes of fair use, the Court emphasized that some types of expressive works should be accorded less weight than other works. In particular, citing Feist Publications v. Rural Telephone Service Company, functional works, such as computer code and especially APIs, are entitled to a “thinner” level of protection than are more expressive works. In contrast to the Federal Circuit’s criticism of the district court for having conflated issues of copyrightability with the fair use analysis, the Court encourages, or even mandates, that those issues be evaluated in considering what weight to assign to the nature of the copyrighted work in the course of assessing the fair use factors.

The Court emphasized repeatedly that the expression in computer code, and especially APIs, is “inextricably bound” with the underlying ideas or methods embodied in software code, echoing the language typically applied under the merger doctrine in assessing copyrightability under Section 102(b). It found that the declaring code is “inextricably bound together with a general system, the division of computing tasks, that no one claims is a proper subject of copyright.” The Court noted that the declaring code “is inextricably bound up with the idea of organizing tasks into what we have called cabinets, drawers, and files, an idea that is also not copyrightable. It is inextricably bound up with the use of specific commands known to programmers, known here as method calls, that Oracle does not here contest. And it is inextricably bound up with implementing code, which is copyrightable but was not copied.”

The Court held that in assessing the nature of a given work for purposes of fair use, courts should afford less weight to copyright protection for works that are functional in nature than they would for other forms of expression, such as literary works. The declaring code in the Java API “is inherently bound together with uncopyrightable ideas (general task division and organization) and new creative expression (Android’s implementing code) . . . Although copyrights protect many different kinds of writing, we have emphasized the need to recognize that some works are closer to the core of copyright than others. In our view, for the reasons just described, the declaring code is, if copyrightable at all, further than are most computer programs (such as the implementing code) from the core of copyright.” (Emphasis added)

The Court expressly rejected the views expressed by Justice Thomas in his dissenting opinion that “no attempt to distinguish among computer code is tenable when considering the nature of the work, even though there are important distinctions in the ways that programs are used and designed” and that “no reuse of code in a new program will ever have a valid purpose and character, even though the reasons for copying computer code may vary greatly and differ from those applicable to other sorts of works.” The Court also expressly rejected Justice Thomas’ view that “fair use analysis must prioritize certain factors over others,” e.g., that where the use is commercial it should almost never be considered a fair use. “We do not understand Congress,” Justice Breyer wrote for the majority, “to have shielded computer programs from the ordinary application of copyright’s limiting doctrines in this way.” By expressly rejecting the dissent’s efforts to create doubt around whether unlicensed use of APIs could ever be considered a fair use, Justice Breyer and the majority further strengthened and emphasized the vitality of the fair use defense in the context of computer code.

Purpose and Character of the Use

In assessing “the purpose and character” of Google’s use of the Java APIs, the Court emphasized that even where the alleged infringement is for a commercial purpose, where the use of the copyrighted work is transformative, that transformative purpose should weigh in favor of fair use. “In the context of fair use,” the Court wrote, “we have considered whether the copier’s use adds something new, with a further purpose or different character, altering the copyrighted work with new expression, meaning or message.”

“Commentators have put the matter more broadly, asking whether the copier’s use fulfill[s] the objective of copyright law to stimulate creativity for public illumination. In answering this question, we have used the word transformative to describe a copying use that adds something new and important.” The Court rejected the narrow view of the Federal Circuit, and the dissent, that exact copying of computer code can never be considered “transformative” for purposes of fair use, emphasizing that literal transformation of the copyrighted work is not necessary so long as the purpose and character of the use is transformative.

The Court noted that Google’s use of the Java API sought to create new products. It sought to expand the use and usefulness of Android-based smartphones. Its new product offered programmers a highly creative and innovative tool for a smartphone environment. To the extent that Google used parts of the Java API to create a new platform that could be readily used by trained Java programmers, the Court held that its use was consistent with that creative “progress” that is the basic constitutional objective of copyright itself. “These and related facts convince us that the purpose and character of Google’s copying was transformative—to the point where this factor too weighs in favor of fair use.”

The Court expressly rejected the Federal Circuit’s holding that a commercial purpose is effectively definitive in weighing whether a given use of copyrighted code can be considered a fair use under Section 107. The Court noted that “there is no doubt that a finding that copying was not commercial in nature tips the scales in favor of fair use. But the inverse is not necessarily true, as many common fair uses are indisputably commercial. For instance, the text of Section 107 includes examples like news reporting, which is often done for commercial profit. So even though Google’s use was a commercial endeavor—a fact no party disputed—that is not dispositive of the first factor, particularly in light of the inherently transformative role that the reimplementation played in the new Android system.” Based on the Court’s detailed analysis, copyright holders should no longer assume that merely reciting the commercial nature of a defendant’s use will be definitive.

As noted below, throughout its assessment of the four fair use factors, the Court returned repeatedly to its conclusion that Google’s Android platform was transformative in that it was designed for mobile devices, whereas the Java API had been designed for desktop and laptop computers.

Substantiality of the Portion Used

The Court noted that the total set of Sun Java API computer code, including implementing code, amounted to 2.86 million lines, of which the 11,500 lines of declaring code copied by Google were only 0.4 percent. “The substantiality factor will generally weigh in favor of fair use where, as here, the amount of copying was tethered to a valid, and transformative, purpose.” Google’s [legitimate] objective “was to permit programmers to make use of their knowledge and experience using the Sun Java API when they wrote new programs for smartphones with the Android platform.” “In a sense, the declaring code was the key that it needed to unlock the Java programmers’ creative energies. And it needed those energies to create and to improve its own innovative Android systems.” As with the Court’s focus on the transformative nature of Google’s use of the declaration code Java APIs, developers hoping to preserve their fair use defenses should consider how their intended unlicensed use of a third party’s APIs could have some public benefit beyond merely offering a product that competes head-on with the copyrighted work.

Market Effects

The Court held that in addition to considerations of how much money the copyright holder may have lost due to the alleged infringement,courts must consider the public benefits the copying will likely produce. Are those benefits, for example, related to copyright’s concern for the creative production of new expression? Are they comparatively important, or unimportant, when compared with dollar amounts likely lost (taking into account as well the nature of the source of the loss)? The court cited favorably the decision by the U.S. Court of Appeals for the Second Circuit in MCA v. Wilson, which called for a balancing of public benefits and losses to copyright owner when assessing the fourth fair use factor.

In balancing the public benefits of Google’s use of the Java APIs against Oracle’s potential losses, the Court emphasized the important public interest of the large community of trained Java programmers, who stood to benefit from the opportunity to apply their “accrued talents” in Java programming to the new market for mobile applications that would run on Google’s Android platform. Allowing Oracle to lock those developers onto its own proprietary Java platform, the Court reasoned, “would interfere with, not further, copyright’s basic creativity objectives.”

The Court endorsed the reasoning of earlier decisions from the appellate courts that when assessing market effects for purposes of a fair use analysis, courts should not limit their review to the potential negative impacts on the market for the original work. See, e.g., Sony Computer Entertainment v. Connectix Corporation; Sega Enterprises v. Accolade (“An attempt to monopolize the market by making it impossible for others to compete runs counter to the statutory purpose of promoting creative expression”); Lexmark International v. Static Control Components; (noting that where a subsequent user copied a computer program to foster functionality, it was not exploiting the program’s “commercial value as a copyrighted work”).

Reimplementation of a user interface, the Court noted, allows creative new computer code to more easily enter the market. By endorsing the holdings of the appellate courts in the earlier reverse engineering cases, the Court implicitly resolved any split in prior circuit court decisions in favor of those decisions holding that reverse engineering software code for purposes of interoperability should be considered a fair use. Such approving references should make it easier for future litigants to use those earlier cases in asserting the fair use defense where the facts align.

The Court concluded that the “uncertain nature of Sun’s ability to compete in Android’s marketplace, the sources of its lost revenue, and the risk of creativity-related harms to the public, when taken together, convince us that this fourth factor—market effects— also weighs in favor of fair use.”

Conclusion

The Supreme Court’s fair use analysis is likely to be seen as a watershed moment, even though it does not expressly overturn established precedent or overtly assert new legal principles. Based on the Court’s guidance, assessing fair use will involve a more nuanced analysis that involves considerations of the relative strength of copyright protection that should be accorded to the copyrighted work in question, whether the allegedly infringing use serves a new or transformative purpose, and whether the use serves some broader public interest.

The Court’s expansion of the fair use doctrine likely skews far more in favor of defendants than under prior case law. Indeed, defendants in copyright infringement cases are already seeking to benefit from the Court’s broader view of the fair use defense. For example, the Court’s decision was immediately followed (on April 23, 2021) by Warhol v. Goldsmith, in which the estate of Andy Warhol unsuccessfully asserted the fair use defense in a case brought against it over Warhol’s silkscreens of a Prince photo. There, the Second Circuit has requested briefing as to whether the Google v. Oracle decision should change its assessment of Warhol’s fair use defense. It seems clear that the Court’s decision will have implications extending far beyond software.

As noted above, by declining to address whether the declaration code in APIs are subject to copyright protection in the first place, or if instead they constitute unprotected systems and methods of operation and are excluded from copyright under Section 102(b), the Court left to the discretion of judges in future cases to determine, on a case-by-case basis, whether a given unlicensed use of a third party’s APIs is a fair use protected under Section 107. The Court’s focus on Google’s “transformative” use of the Java APIs has important implications for developers who in the future may wish to make an unlicensed use of third-party APIs. In order to preserve their fair use defenses, developers will want to ensure that any such unlicensed use is for a similarly transformative purpose and does not merely supplant the purpose of the original software. According to the Court’s guidance, developers will also have a stronger chance of maintaining a fair use defense if they can show that their use provides some public benefit beyond merely offering a product that competes with the original software.

Quick Updates

Patent Eligibility Law: Status Quo for Now, But Is Change on the Horizon?

By Christopher P. King

There have been no substantial changes to patent eligibility law or practice under 35 U.S.C. § 101 since the U.S. Patent and Trademark Office’s last guidance in October 2019. With legislative reform in Congress stalled, following are the factors most likely to alter the current status quo:

Patent Office proposal. In a letter published on March 22, 2021, Senators Thom Tillis (R-NC)—the former chair and current ranking member of the Senate Subcommittee on Intellectual Property—and Tom Cotton (R-AR) requested that the USPTO introduce a pilot program under which an examiner would defer the examination of eligibility issues for a patent application until all issues under the other sections of the patent law have been resolved. This would alter current practice of compact examination, in which the examiner evaluates all of the issues in each Office action.

The senators argue that this resequencing of the examination issues would not result in less rigorous examination of eligibility, but rather would merely defer the issue until the resolution of the other issues had brought greater clarity to the examination. Such a program, if enacted, could lower overall patent prosecution costs by eliminating the need of applicants to prematurely (and perhaps unnecessarily) address eligibility concerns. The senators argue that it would likely also reduce the total number of eligibility rejections, since eligibility concerns would in many cases already have been addressed by the time the other issues are resolved. In late April, the USPTO agreed to establish a form of the pilot for use on a voluntary basis, though without a timeline for its enaction.

Pending cert petitions. Since its landmark Alice decision in 2014, the U.S. Supreme Court has been exceedingly hesitant to revisit patent eligibility. In 2020, for example, the Court declined certiorari in Berkheimer, Vanda, Athena, Trading Technologies, ChargePoint, Aatrix, and The Chamberlain Group. (In Athena, the justices denied cert despite a split 6-6 en banc opinion from the U.S. Court of Appeals for the Federal Circuit in which all the judges essentially entreated the Court and/or Congress to provide clarity to eligibility law.)

Currently, Ariosa and American Axle have pending petitions for cert. (Fenwick is tracking these cases on our Bilski blog.) Notably, American Axle, like Athena, involved a 6-6 split in denial of en banc rehearing at the Federal Circuit, as well as a stinging dissent from Judge Kimberly Ann Moore (Chief Judge beginning May 22, 2021), who wrote, “The Supreme Court often grants certiorari to resolve certain splits that render the state of the law inconsistent and chaotic. … What we have here is worse that a circuit split – it is a court bitterly divided. As the nation’s lone patent court, we are at a loss as to how to uniformly apply § 101.” Time will tell whether even this will be sufficient to induce the Supreme Court to overcome its apparent reluctance to revisit eligibility law.

Given the Court’s track record thus far, a new eligibility decision in 2021 seems optimistic. Changes in USPTO procedure seem more likely, though even if enacted they may not go into effect until after 2021. Much also hinges on who is selected by President Biden to be the new Director of the USPTO, and there may be hesitancy from interim leadership to implement significant change in the meantime.

The Federal Circuit and § 101. Regardless of the current petitions for certiorari at the Supreme Court, the Federal Circuit continues to decide cases, the result of which is continuing evolution of § 101 jurisprudence. For example, in March, the Federal Circuit ruled on In re Stanford, invalidating claims to haplotype phase analysis. The broad reasoning of the case suggests that it may prove exceedingly difficult to convince courts that any bioinformatics inventions are patent-eligible.

Sweeping Changes Proposed to the DMCA’s Notice-and-Takedown System

By David L. Hayes and Diana Lock

On December 22, 2020, Senator Thom Tillis (R-NC), then chair of the Senate Judiciary Subcommittee on Intellectual Property, released a discussion draft of the Digital Copyright Act of 2021 (DCA) that would make sweeping changes to multiple areas of the 1998 Digital Millennium Copyright Act (DMCA). Senator Patrick Leahy (D-VT), current chair of the Subcommittee, continues to work with Ranking Member Tillis but has not announced any plans for action on the DCA. Summarized below are key revisions being suggested by the DCA to the notice-and-takedown system.

Notice and Staydown. The most significant revision would be to replace the existing notice-and-takedown system with a notice-and-staydown system. Under the DCA, an online service provider (OSP) that receives a notification of claimed infringement must ensure that any “complete or near complete copy of a copyrighted work” targeted by a notification, whether uploaded by the same user or different users, is removed from the provider’s systems and networks. This would require either a continuing search of the OSP’s systems and networks for such works or the use of an online filter.

In addition, OSPs operating in both the U.S. and Europe want U.S. law to align with the European Union’s Directive on Copyright in the Digital Single Market, which also imposes a notice-and-staydown system. OSPs could then establish one global staydown process rather than regional procedures that comply with different requirements. However, EU members are not required to implement the Directive until June 6, 2021, and the consensus is that most countries will miss the deadline.

Notifications of Claimed Infringement. The DCA specifies that complainants who submit notifications of claimed infringement for multiple copyrighted works need only identify a “non-exhaustive representative list” of the allegedly infringed works on the website. This would muddy the statute’s already unclear requirement of a “representative list.” OSPs would not know if they must investigate their systems for additional infringed works like those on the representative list.

Furthermore, the DCA would allow parties claiming that the same copyrighted work is being infringed by multiple items or at multiple locations on a single website to identify “not less than 1 such item of material and not less than 1 such location, rather than specific web addresses for each location.” This would require OSPs to search their systems for the locations of other copies of allegedly infringed works on the list when complainants do not specify in notifications the URLs for all allegedly infringed works.

Counter Notifications. The DCA would require OSPs to establish and maintain a counter-notice process, which is currently optional.

Alternative Noticing Process. The DCA would require an OSP with a public-facing website to establish and make available a procedure by which a copyright owner may enter a voluntary agreement with the provider for an alternative noticing process.

Model Repeat Infringer Policy. The DCA would require the U.S. Copyright Office to develop a model repeat infringer policy with “minimum requirements for service providers.” It is unclear why the model policy would be mandatory rather than exemplary or what requirements the model policy might impose on OSPs. Some have expressed concern that the model policy could mandate that OSPs terminate internet access to repeat infringers.

Civil Actions Against OSPs. The DCA proposes to add to the existing misrepresentation section language which could establish a new cause of action against OSPs for removal or disabling of access to material or activity.

If enacted, the above provisions, along with other changes proposed by the DCA, would add substantial obligations for OSPs to the DMCA.

Check(ered) Mate?

By Ashleigh Armstrong

On March 18, 2021, Nike filed a cancellation action at the Trademark and Trial Appeal Board against Vans’ recently granted registration on the Supplemental Register for a checkerboard pattern that goes down the sleeve of shirts, sweaters, jackets and coats. Nike argues that the registration should be cancelled because a checkerboard pattern is merely ornamental or decorative and is incapable of acting as a source identifier, and that Nike, along with numerous other brands, uses checkerboard patterns on apparel.

Vans’ application for a checkerboard pattern on the Principal Register was rejected by the examiner because the pattern was “merely a decorative or ornamental feature of applicant’s clothing, and, thus, does not function as a trademark to indicate the source of applicant’s clothing.” After unsuccessfully arguing otherwise, Vans amended the application to the Supplemental Register. Unlike the Principal Register, the Supplemental Register is for descriptive marks that are “capable” of achieving trademark status when the mark has acquired distinctiveness, or, in other words, once enough people recognize the applied-for mark as a source identifier. While a registration on the Supplemental Register is without many of the benefits afforded to marks on the Principal Register, like the presumption of validity, it may be a good decision for Vans. It allows the company to bring an infringement suit, use the registered trademark symbol and, somewhat paradoxically, can be cited by an examining attorney against future applications on either register.

A guiding principle of federal trademark law is to protect consumers from deception and confusion by requiring marks to indicate the source of the products or services. If the proposed mark is “purely ornamental or decorative” the examiner must refuse the application on either register because it doesn’t function as a trademark. TMEP § 1202.03(a). Nike’s position that a common design element, such as a checkerboard pattern, is incapable of distinguishing goods and services of one company from another because consumers are so used to seeing the design used by numerous brands, appears in line with the TTAB’s earlier decisions and the policy underlying trademark law. Both Nike in its petition and the examiner in the multiple Office actions point to many other uses of checkerboard patterns on a variety of garments to show that such this design element can’t function as a source identifier to the general consumer.

If Vans’ registration stands, it is possible that the company will attempt to register the checkerboard pattern on more items (indeed, Vans has registrations and applications for the pattern on its own pants and socks, each of which Nike has also opposed). More concerning for brand owners is how Vans would use these registrations to prevent other uses of checkerboard patterns on apparel and what a decision might mean for protecting other designs.

If this cancellation action continues, it could be late 2022 before we see a decision from the TTAB about whether a checkerboard pattern is capable of functioning as a trademark.

Proposed Changes to the Use of Non-Compete Agreements in New York

By Esther D. Galan

The Trade Secrets Committee of the New York City Bar recently published a report proposing that New York State enact a statute to regulate the use of non-compete agreements. The committee had become increasingly concerned over the rampant use of these agreements with respect to low-wage employees because of the consequences that they can have on the employment market and on employees—and because low-wage employees are less likely to be exposed to trade secrets. Currently, New York is the only state without a statute concerning trade secrets or non-compete agreements.

The committee’s report explored the history of and the national conversation surrounding non-compete agreements. Following the passage of the Defend Trade Secrets Act in 2016, the Obama White House issued a “State Call to Action on Non-Compete Agreements” that called on states to pursue best practices with respect to such agreements. Those “best practice policy objectives” included banning non-competes for certain categories of workers, improving the transparency and fairness of these agreements and incentivizing employers to write enforceable contracts. Following this, nine states enacted legislation limiting the use of non-compete agreements for low-wage workers: Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, Virginia and Washington.

Currently, New York courts will enforce non-compete agreements only where the restrictions are no greater than required to protect an employer’s “legitimate protectable interest,” they do not impose undue hardship or cause injury to the public, and they are reasonable in both duration and scope. Previously recognized protectable interests include an employer’s trade secret, an employer’s goodwill and an employer’s interest in preventing loss of an employee whose services are special, unique or extraordinary.

After conducting a systemic review of the consequences of not having statutory guidelines to govern the use of non-compete agreements, the committee recommended the adoption of a statute that would create a rebuttal presumptive prohibition on the use of non-competes for lower-salary employees. This presumption could be rebutted on the condition that “(1) the employer agrees to pay the affected employee’s full pro-rated compensation for the entire duration of any noncompetition period, (2) the agreement is found to be enforceable under any of the existing New York common law bases for enforcing a noncompete agreement and (3) the employee has full notice of both the noncompete covenant and the employer’s intention to enforce it before entering into the employment relationship.” In the committee’s view, this approach balances the commercial considerations of the New York economy and provides procedural fairness to the employee.

In light of these proposed changes, employers in New York should exercise caution in including non-compete agreements for low-wage employees who are unlikely to be exposed to trade secrets. If an employer includes a non-compete in their contract, it is important that the employee has notice of that agreement, and that the agreement is reasonable in duration and scope.

It still remains to be seen whether these proposed changes to the use of non-compete agreements will lead New York to join the other 49 states and adopt the Uniform Trade Secrets Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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