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Hotfile getting hotter: The cyberlocker site fires back at Warner Bros.

September 16, 2011 Leave a comment

By Nickolas B. Solish

This is a follow-up to “Cyberlocker sites come under the radar of copyright holders,” which ran in the Daily Journal on Aug. 19.

Striking back against its accusers, the file-hosting website Hotfile.com has brought a countersuit against Warner Bros. Entertainment alleging copyright fraud and abuse.  The complaint accuses Warner Bros. of abusing Hotfile’s anti-piracy tool by filing false copyright take-downs notices.  These notices are only to be used for copyrighted files owned by Warner Bros..  Now the Florida-based company is seeking damages from the movie giant.

The complaint comes after an earlier suit this year against Hotfile by the Motion Picture Association of America, an association of five major Hollywood studios.  The suit is based on a larger campaign by the MPAA to attack copyright abuse on cyber-locker sites.  A cyberlocker is an online storage provider that allows users to upload and share files.  Visitors to the site then can download those files for free by clicking a link.

Cyberlocker sites came under the attention of the MPAA due to a spike in traffic since the beginning of 2011.  These sites now receive more traffic than BitTorrent sites, bringing them under scrutiny by the major studios.  Hotfile recently became one of the top 100 visited websites in the world.

Hotfile’s recent suit against Warner Bros. is a counter-claim to the original MPAA action.  The counterclaim accuses Warner Bros. of “repeated, reckless and irresponsible misrepresentations to Hotfile falsely claiming to own copyrights in material from Hotfile.com.”  The complaint goes on to say that Hotfile even told Warner Bros. about these misrepresentations, but even this did not stop the false claims.

To fight copyright abuse, Hotfile provides “special rightsholder accounts” to certain copyright owners.  Warner Bros. had such an account assigned to their manager of anti-piracy Internet operations, Michael Bentkover.  The tool allowed an unlimited amount of file-takedowns by copyright holders, so long as the complainant held the copyright to the file.

Many of the files taken down by Warner Bros. were not files for which they owned copyrights.  Hotfile alleges this was a breach of the special rightsholder account agreement, which provided that when Warner Bros. reported a file, it was asserting “under penalty of perjury that [it is] the owner or an owner or an authorized legal representative of the owner of copyrights.”  Warner Bros. also represented that it had a “good faith belief” that the owner did not authorize use of the file on Hotfile.com.

Warner Bros. is accused of “willful blindness” in its use of the special rightsholder account.  The complaint points out that Warner Bros. searched for a file entitled “The Rite,” which had been uploaded to filesonic.net, not Hotfile.com.  “[B]ecause Warner apparently went to a third party search site looking for links to The Rite, it returned a page containing not only the filesonic link to The Rite but also dozens of seemingly unrelated links to other files at filsonic.com, Hotfile.com and other sites.”  Warner then “used the [special rightsholder account] to delete each of the twenty or so Hotfile links listed on that page even though . . . none appear to have any relationship to The Rite or to Warner.”  Warner Bros. is accused of deleting “hundreds if not thousands” of similar files in this manner.

Interestingly, there is speculation that Warner Bros. had a financial incentive other than preventing infringement for taking these files down.  A deal was proposed by Warner Bros. to replace files removed for infringement with links to purchase Warner-owned content.  If Warner Bros. takes down more files, they create more links to paid content sites.

The three counts Hotfile alleges are violations of the Digital Millennium Copyright Act, intentional interference with a contractual or business relationship, and negligence.  The complaint demands a jury trial and asks for compensation for lost revenues caused by Warner Bros’s actions.  Finally, the complaint asks for a permanent injunction requiring Warner Bros. to individually review every file they request to be taken down.

This suit and the original MPAA suit have the potential to greatly alter the legal landscape for cyberlocker sites on the Internet.  Hotfile’s countersuit will also clarify how much legal recourse websites have against big copyright holders under the DMCA.  A trial date has not yet been set.

Is Use of a Competitor’s Trademark for Advertising Infringement?

By Nick Solish

Originally published in the Daily Journal, Los Angeles on July 5, 2011

Suppose that you were looking for a plumber and a friend recommended Joe’s Plumbing to you.  You might type Joe’s Plimbing into Google.com’s search engine and hit enter. The first thing you see is a link for Eric’s Plumbing, who claims to be as good as Joe’s Plumbing but with much lower rates. If you hire Eric’s Plumbing instead of Joe’s Plumbing, does Joe’s Plumbing have a claim against Google for diverting a potential referral?

Advertising on Google is controlled through their AdWords service. Google’s help section explains that, “AdWords ads are displayed along with search results when someone searches Google using one of your keywords.” Advertisers can use Google’s keyword suggestion tool to generate suggested keywords with which to associate their ads. Thus, a search for a specific term will bring up a specific ad. Just as anything can be searched for on Google, any word can become a keyword for purposes of AdWords. As such, brand names and other protected trademarks can be purchased as keywords from Google AdWords.

Google’s keyword suggestion tool had been recommending “Rescuecom” to advertisers of computer repair services on AdWords. Thus, a search for “Rescuecom” would also contain advertisements for competitors of Rescuecom above and alongside regular Google search results. However, “Rescuecom” was a registered trademark. In 2006, Rescuecom brought an action against Google alleging that Google was liable under the Lanham Act for infringement, false designation of origin, and dilution of Rescuecom’s eponymous trademark. Specifically, Rescuecom alleged that Google’s placement of advertising in search results misled users into believing that competitors’ ads appearing on screen were part of a relevance-based search for Rescuecom.

Trademark law under the Lanham Act, 15 U.S.C. Sections 1114 and 1125, imposes liability for unpermitted “use in commerce” of another’s mark, which is “likely to cause confusion, or to cause mistake, or to deceive,” regarding “the origin, sponsorship or approval of his or her goods [or] services . . . by another person.” The trial court did not even reach the question of whether Google’s use was likely to cause confusion or mistake of origin because it found that Google’s actions did not constitute a use in commerce of Rescuecom’s trademark.

On appeal, the 2nd U.S. Circuit Court of Appeal, disagreed with the trial court. Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2nd Cir. 2009). Both decisions were largely governed by each court’s interpretation of the 1-800 Contacts Inc. v. WhenU.com Inc., 414 F.3d 400 (2d Cir.2005) decision, which had discussed when use of a trademarked term by an advertiser constituted a “use” for purposes of the Lanham Act. 1-800 Contacts involved an advertising program made by WhenU.com called “Save Now.” Save Now was a program that launched pop-up advertisements when users visited specific Web sites in Save Now’s index.

Unlike Google, WhenU’s software did not allow advertisers to purchase specific keywords to associate ads with. The 2nd Circuit in 1-800 Contacts also noted that Save Now only triggered ads by using the plaintiff’s Web address, not plaintiff’s protected trademark. Also, because Save Now did not publish the index of Web sites it advertised on and kept this list private, the court found that Save Now’s use of plaintiff’s trademark was not a “use in commerce” under the Lanham Act.

The trial court in Rescuecom had held that 1-800 Contacts was relevant precedent and thus, that Google’s use of the Rescuecom trademark was not a “use” under the Lanham Act. The 2nd Circuit disagreed, distinguishing 1-800 Contacts on two counts; the Web address complained of by plaintiff was not actually a protected trademark, and because of a distinction with between Save Now’s mechanism of action and Google’s.

To elaborate on the latter, while Google searches brought forth specific advertisements when specific keywords were searched for, Save Now’s pop-ups were random and not associated with specific keywords. Further, advertisers were not able to purchase keywords to trigger their advertisements using Save Now. Instead, advertisements were displayed based on general categories rather than by use of specific keywords. Save Now also did not allow for the sale of specific keywords to advertisers.

These aspects were in direct contrast with the 1-800 Contacts decision, according to the 2nd Circuit. Google was selling Rescuecom’s trademark as a keyword to competitors through the AdWords service. Likewise, Save Now does not “use or display” the trademark in 1-800 Contacts, but Google “displays, offers and sells” trademarks such as Rescuecom’s to the highest bidder, thus triggering protections under 15 U.S.C. Section 1127. The court also agreed with Rescuecom that Google’s placement of sponsored links directly above search results could lead to confusion, as Rescuecom had alleged in its initial complaint.

Google compared its keyword suggestion tool to the practice of vendors placing generic products next to name brand equivalents. However, the court was largely unpersuaded by Google’s analogy; although refusing to rule on whether Google’s use of Rescuecom’s trademark actually caused likelihood of confusion or mistake, the court did vacate the trial court’s decision and remand the case for further proceedings.

On remand, Rescuecom filed for dismissal before the trial began, claiming victory over Google in a May 2010 news release. But Rescuecom’s decision not to pursue the case on remand appears to have left some legal questions unanswered. The 2nd Circuit’s opinion, however, seems to leave room for future plaintiffs to seek redress against Google and other Web advertisers for similar trademark claims.

In a memorandum and order for Jurin v. Google Inc., 2010 U.S. Dist. LEXIS 94020, a related California case, plaintiff, the owner of the trademark “Styrotrim,” sued Google alleging that it had, through AdWords, misappropriated this trademark and generated advertising revenue while committing trademark infringement. Plaintiff also claimed that advertisements appearing on searches for Styrotrim might confuse users. Plaintiff analogized his case to Rescuecom but the court disagreed, distinguishing that decision by saying it relied mostly on the “use in commerce” portion of the Lanham Act, which was not in issue in this case.

It is unclear whether future litigation will lead to profit sharing between advertisers like Google and owners of registered trademarks sold as keywords. Altogether, the courts have yet to clarify whether the Lanham Act provides protections for owners of trademarks when those trademarks are sold as keywords to advertisers. However, future litigation will almost certainly arise in this area and the outcome will likely involve a great deal of revenue, whether it remains with the advertiser such as Google or must be paid out to the rightful trademark owners.

Nick Solish is a lawyer at Bryan Cave and recent graduate of the University of Texas. He can be contacted at nick.solish@gmail.com.

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