Published in the Richmond Times-Dispatch
May 28, 2007

Domaining the New Way to Mine Internet Riches

Have you ever typed in what you thought was a correct Web address and come instead to a site that's just a pretty picture with links to various online merchants?

While you realize you didn't find the site you were looking for, you wonder "Why would someone put up such a Web site?"

Welcome to the world of "domaining." It can be amazingly lucrative. It's also controversial and might be trademark infringement in some cases.

There are various ways to play the domaining game and, consequently, domaining sometimes is called other names, such as "domain tasting," "domain kiting" and "domain name joyriding."

The unifying theme is that domainers look for available domain names that might attract some minimum number of Web visits.

These visits could come from folks who type a domain name into the Web browser instead of using a search engine. For example, you might guess what you're looking for is at ChristianRock.com rather than using Google to search for Web stores selling such music. Such visits could be shots in the dark, or inaccurate guesses as to a particular company's Web site, or intended for a Web site where the domain name registration expired.

Regardless, any domain name that attracts can be used to earn money. You can put up advertising links and get paid when folks click on the links.

For example, Google runs an "AdSense" program where it loads ads on your Web site. Google pays you when someone clicks on the ad. This is the "Ads by Google" stuff you see on various Web sites.

Google AdSense and similar programs don't pay much, so, to earn real money from domaining, you need two things: lots of domain names that attract traffic and a low cost to obtain domain names.

Domainers use sophisticated programs to scan databases of available domain names and to register domain names that might generate traffic. Domainers construct computer algorithms to identify potentially trafficked domain names.

Sometimes domainers form their own domain name registration companies just to get better and cheaper access to the pool of dotcom domain names, which VeriSign operates. Domain name registrars that sell dot-com names, such as Register.com, pull from this common pool.

Domainers might register hundreds of thousands of domain names per month. They then monitor traffic on those domain names for a few days to see which ones attract sufficient hits.

Domainers take advantage of a rule that lets you "return" a domain name within five days of purchase and get a full refund. Thus, such domainers can register domain names for $6 each (that's what a registrar such as Register.com pays VeriSign per year for a dotcom domain name), try them out for a few days, and then turn back in the ones that don't get sufficient traffic and get a refund on the returns. It's like taking a domain name for a test drive.

Generally, domainers return the vast majority of the domains they "taste." For the ones that attract traffic, the domainer might register it permanently or reregister it for another "taste."

This is a volume business. Domainers might tie up millions of dollars with VeriSign to constantly taste large batches of domain names. Domaining has attracted sophisticated investors, such as Starbucks chairman and founder Howard Schultz, who invests in it through his venture capital firm.

While I could not find verified numbers, Bob Parsons, CEO of GoDaddy.com (a domain name registrar) contends that in May 2006, 35 million domain names were registered but only 2.7 million were purchased. The others were returned during the five-day trial period. Nearly all of those returns appear to be from domainers.

Should we permit this practice? It ties up many domain names that others might register individually to use to run businesses or for personal sites. It's made finding a clean dot-com name difficult.

On the other hand, aside from trademark concerns, domainers mostly appear to play by the rules. You can look at them as folks who find undeveloped cyber real estate and try to flip the properties with untapped value. The domainer always is willing to sell at a market price.

There are trademark concerns. What if a domainer unintentionally approximates someone's trademark? For example, what if a domainer registers McRonalds.com in a dragnet purchase without any intent to cash in on the McDonald's trademark?

It's debatable whether that violates the federal anti-cybersquatting law or the mandatory arbitration procedure (called the "UDRP") one can use to retrieve cybersquatted domain names.

Both regimes require proof of bad faith intent by the person who registers the domain name. Does such intent exist when you recklessly grab bushels of domain names without regard for trademarks?

Various big-time trademark holders have filed federal lawsuits attacking domainers who approximated their trademarks, including suits by Microsoft, Neiman-Marcus and Bergdorf-Goodman. None of these cases has produced court opinions yet.

I don't know how this will shake out, but it's a fascinating, high-stakes game to watch, albeit not fun if your business is hunting for a domain name.

By John B. Farmer

© 2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
June 25, 2007

Tips for Choosing a Sturdy Trademark

I regularly get calls from people looking to obtain a trademark registration for a product or service name. These calls often make me wish I had a time machine so I could go back and provide advice on how to pick a trademark, before the caller became financially or psychologically addicted to a mark.

You earn a trademark by using it to promote the sale of your goods or services. You don't need to register a trademark to have one. Registration just strengthens your trademark rights. Thus, businesses commonly pick trademarks without legal guidance.

Tip #1 - Don't Get Too Close. The trademark you choose isn't available just because no one else is using that exact same trademark for the same line of business. The test for whether your mark would be too close to someone else's is whether there would be a "likelihood of confusion" among consumers.

If your mark is likely to confuse consumers into believing your product or service is associated with an existing trademarked product or service offered by someone else, you're too close. While many factors go into this analysis, it starts with the similarity of the two marks and the similarity of the goods or services promoted by the marks. Being confusingly similar is trademark infringement.

Tip #2 - If Possible, Choose a Strong Trademark. A pecking order exists for the strength of trademarks. All other things being equal, choosing a trademark higher in the pecking order will allow you to keep your competitors further away from imitating your trademark:

• The strongest trademarks are fanciful trademarks - made-up words (e.g., EXXON for gasoline).
• The next strongest trademarks are arbitrary trademarks - words that have nothing to do with the product or service (e.g., APPLE for computer products).
• The next strongest trademarks are suggestive trademarks - words that suggest attributes of, but don't describe, the goods or services (e.g., CHAMPION for sporting goods).
• Next in the order of strength are descriptive trademarks - words that describe the goods or services (e.g., U.S. NEWS AND WORLD REPORT for a news magazine). Descriptive words or phrases don't become a trademark (and cannot be registered on the Principal Register of trademarks maintained by the federal government) unless and until you can prove that consumers recognize that trademark as identifying your goods or services.
• Last come generic words - words that state what the goods or services are (e.g., CAR for an automobile). Generic words and phrases can never become trademarks.

Businesses commonly pick a fairly descriptive mark and then get frustrated when the mark can't be registered or competitors can't be stopped from using highly similar trademarks. Smaller businesses often pick descriptive marks because they educate the consumer about the nature of the product or service, which lessens the need for expensive consumer education through advertising.

Picking a descriptive trademark can be a sensible business decision, but realize the downsides to doing so. There is a tradeoff between the strength of your mark and what it will cost to build consumer understanding of what the mark represents.

Tip #3 - Don't Get Attached to a Trademark Too Soon.  Once you understand the inverse relationship between trademark strength and trademark explanatory power, brainstorm a list of 5-10 mark candidates that fit your desired place on that spectrum. Then do trademark clearance research to see which ones pose the lowest risk of infringing on someone else's mark.

What constitutes good trademark clearance is a long topic for another time, but understand you have to do it. You might be able to do some preliminary clearance yourself, but ultimately you'll need to hire an attorney to get thorough and competent clearance done. Thus, don't get attached to one mark candidate right away.

Tip #4 - Can You Get a Matching Domain Name? Look to see if you can get a matching dotcom domain name. If you find one, register it immediately, plus as many phonetic variations and likely near misses as you can afford.

Think twice about using any non-dotcom domain name (e.g., ".net" or ".biz"). People reflexively type ".com," so your Web traffic and email might go elsewhere. Also, if a matching dotcom istaken, check to see if it relates to a blocking trademark that should cause you to rethink your mark selection.

If you find a great trademark that passes clearance research, be open-minded to spending a chunk of money to buy a taken domain name from a broker. But do trademark clearance research first, so you don't buy a name that a trademark owner might take away from you in litigation.

Tip #5 - Register Your Mark. You can register a mark on the federal or state level. The federal level is more expensive but also more valuable. In this Age of Google, a trademark registration for your product or service name may become the most valuable asset your business owns.

By John B. Farmer

© 2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
July 23, 2007

Court Casts Doubt on Popular Trademark Selection Strategy

Did it just get harder for businesses to obtain elegantly simple trademarks - trademarks that are one-letter or two-letter variations of descriptive words, such as "picturez" for photo printing or "goggle-u" for swim goggles? A recent decision by a federal appeals court appears to make this marketing strategy more difficult legally.

In May, the court ruled Bayer AG could not federally register ASPIRINA as a trademark for aspirin. The court upheld a decision by the federal Trademark Office that ASPIRINA is just another way of saying "aspirin."

In trademark-speak, the court held ASPIRINA is "merely descriptive" of the product, so it can't be a trademark unless and until the applicant, Bayer, can show U.S. consumers associate ASPIRINA with Bayer's product and not with aspirin in general.

The business and legal community doesn't know what to make of this decision. Opinions split into three camps.

The first camp claims the court's decision should be interpreted to mean any product name that's a barely changed version of the generic name for the product can never become anyone's trademark, because the law prohibits recognizing trademarks in generic names. In this view, because no one could ever own PICTURES as a trademark for photo printing, no one could ever own PICTUREZ as a trademark for such services either.

The second camp asserts the decision doesn't say "never" and the legal door remains open to such nearly-generic-word trademarks, but only if the product manufacturer can build and prove a connection in consumers' minds between the product name and that manufacturer's product. In this view, if Bayer can later prove U.S. consumers associate ASPIRINA with its aspirin and not just anyone's aspirin, it should have a trademark registration.

The third camp writes off this case as unique because "aspirin" is a generic word for acetylsalicylic acid in the U.S. (so it can't be anyone's trademark here) but is the trademark property of Bayer (and not generic) in many foreign countries. Some language-translation dictionaries refer to "aspirina" as being Spanish for aspirin, although Bayer claims these definitions actually refer to its trademarks.

Because the third camp dismisses this case as an oddball, it claims you still can get a trademark registration in a one-off word, like "picturez" for photo printing, without having to prove consumers already associate the one-off word with your products.

In trademark-speak, this is called "inherent distinctiveness," which means the product name doesn't just literally describe the goods, so the law will presume consumers will associate the name with a particular product.

To be a trademark, a word (or phrase) must be distinctive, meaning it must cause consumers to associate the word with a specific product or service. For example, ACURA is a distinctive word for an automobile - it refers to a specific maker - while CAR is a generic way of describing an automobile, so it can't be a trademark for automobiles.

This may sound like an esoteric debate for a lawyers' club, but it can have a big impact on business.

Many businesses, particularly small ones, go for trademarks that are close to being descriptive words or phrases but have just enough distinctiveness to be immediately registered by the Trademark Office as "inherently distinctive."

On one hand, the business wants the mark to be close to descriptive so consumers will know from the mark what the product probably is. This avoids having to spend lots of money to educate consumers as to what the product is.

If I call my photo printing service "picturez," it won't take much for you to make the connection. If I brand my service with an unrelated word like "broccoli," it will be costly to build brand understanding.

On the other hand, most businesses don't want to wait years or to spend millions on advertising to get a trademark registration. If you have a descriptive product name, like U.S. NEWS AND WORLD REPORT for news magazines, you eventually can get a trademark registration if you can prove the public associates that name with your magazine and not news magazines in general. But doing so generally takes at least five years or millions of dollars in advertising, or both.

Thus, businesses toe the line, and one way they do it is to put a minor appendage on a recognized word, like "iPhone." This federal court decision makes this marketing strategy riskier.

I'm not implying the decision is wrong. The public has an interest in not having descriptive words and phrases appropriated as the trademark property of individual businesses. Granting such trademarks effectively takes ordinary words away from safe marketing descriptions - it gums up the marketplace.

There is a tension between important intellectual property - trademarks - and keeping language usage in business unencumbered by ownership and liability concerns. In this tug-of-war, the rope just lurched a few feet away from property rights and toward free expression.

By John B. Farmer

© 2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
August 27, 2007

Independent Dealers Should be Careful in Picking Business Domain Names

This question arises often in trademark-land: A distributor or reseller of a branded product wants to use the brand name in the domain name of a Web site intended to promote sales of the product. Can it do so legally?

For example, imagine you sell used Acura automobiles. Could you register the domain name UsedAcurasForLess.com and use it to promote your inventory? How about Acura-Cars.com?

Or let's say you're a collector of Herend figurines. Could you register and use Herendoutlet.com to advertise the figurines for sale?

This situation also could arise with any store that carries a range of branded products. If a supermarket sells Hickory Farms summer sausage, could it promote its sales of that item on a Web site using the domain name HickoryFarmsGrocer.com?

A recent decision by a federal court in California provides some guidance.

First, let's define the scope of the question. It's whether unauthorized distributors and resellers can use the brand names of their wares in domain names.

By contrast, if the distributor has a contractual relationship with the manufacturer - in other words, if it's an authorized distributor - then the manufacturer can control this issue in the distributorship contract. Franchisors also have this ability to control.

From the manufacturer's point of view, it should (and often does) prohibit any use of its trademarks - its brands - except for specific uses expressly authorized in the contract. Manufacturers often either prohibit or tightly regulate the registration and use of domain names containing that manufacturer's trademarks.

What's left are folks who sell used items, collectors and sellers who don't have a contractual relationship with the manufacturer.

In the California case, a window installer, Paul Burgess, registered the domain name AnlinWindows.com and put up a Web site there to promote his business of installing Anlin windows. Burgess wasn't an authorized distributor of Anlin windows, but he was selling the real thing.

He posted a disclaimer on his Web site indicating it was not the official Anlin site and a link to the manufacturer's site - Anlin.com. Nevertheless, authorized Anlin distributors complained.

The court held Burgess became a cybersquatter after Anlin demanded in writing that Burgess cease using the AnlinWindows.com domain name. The court ordered Burgess to transfer AnlinWindows.com to Anlin.

The court also awarded Anlin $12,500 in "statutory damages." Under the federal anti-cybersquatting law, a court can award anywhere from $1000 to $100,000 per domain name to a cybersquatting victim, even if the victim can't prove monetary harm. Anlin had registered and used four domain names (AnlinWindows.com and three similar ones).

This could be an oddball case. Burgess represented himself, and that usually goes poorly. Also, Burgess offered to sell the domain names to Anlin for $100,000 during settlement discussions. Such monetary demands can be proof of an attempt to cybersquat unless handled carefully.

Yet, broadly speaking, this case stands for the proposition that an independent dealer can't use a manufacturer's trademark in a domain name if the domain name by itself conveys the impression that the site will be affiliated with the manufacturer.

The court said such a domain name can cause "initial interest confusion," meaning a consumer might believe from the domain name that the manufacturer is affiliated with the Web site even if it becomes apparent, once on the Web site, that it's unauthorized.

The court distinguished this case from the other significant decision on the issue - a 2002 case involving Beanie Babies. There, a Beanie Baby collector operated a Web site at BargainBeanies.com to sell her wares. The collector posted a notice on her site disclaiming any relationship to the manufacturer. A federal appellate court held the collector could keep and continue using this domain name to sell Beanie Babies.

In the Anlin case, the domain name essentially was the entire trademark of the manufacturer - AnlinWindows.com. On the other hand, in the Beanies case, the domain name added "bargain" to "Beanies."

While the Anlin court didn't say so, my take is it matters whether your domain name infers you are a reseller rather than inferring you are the manufacturer.

Thus, returning to the examples at the top, with the proper disclaimer, the user of UsedAcurasForLess.com has a strong chance of keeping that domain name, because it infers the site is independent. The users of Herendoutlet.com and HickoryFarmsGrocer.com have a decent chance of survival - the inference of independence is there but weaker. Acura-Cars.com looks like it crosses the legal line - some might think it's an official site.

Yet, this guidance is based on only two cases in a nascent area of the law. We need a lot more cases, a Supreme Court decision or a new statute to clarify the law completely. For now, independent sellers would be safer in picking domain names that, by themselves, send the message of independence.

By John B. Farmer

© 2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
September 24, 2007

Recent Study Confirms Enforcing Intellectual Property Rights is Expensive

A recent, annual report by the American Intellectual Property Law Association ("AIPLA") gives updated figures on how expensive it is to litigate an intellectual property case.

I worry about the relationship between the rising importance of intellectual property in our economy and how much it costs to resolve intellectual property disputes in court.

Consider this comparison. If you own a piece of real property, such as the yard your house is built on, it's fairly cheap to determine if your neighbor's new shed crosses your property line. Using a surveyor might cost around $1,000. Also, relative to other kinds of legal expenses, if your neighbor refuses to move his shed, it's fairly cheap to get a court to order the move.

But if you own a piece of intangible property, such as a patent, it may be hard to determine if your competitor's new product infringes on the technological area of your patent. According to AIPLA's statistics, the nationwide median cost to obtain a legal opinion on whether some thing infringes on a patent is $10,000.

Or, if you are the competitor, and if you want an opinion on whether the patent is valid (perhaps you think the invention has been produced before), the nationwide median cost is $13,000. If you get both an invalidity opinion plus an opinion on whether your product infringes on the patent, the nationwide median cost for the combined service is $20,000.

After analyzing the strength of your position, let's assume you feel confident your competitor has infringed on your intellectual property. How much is it going to cost in legal fees, expert witness fees and related expenses to try your case?

I compiled the following figures from the AIPLA report. These are median (not mean), nationwide litigation costs for small cases (up to $1 million at stake) and medium-sized cases ($1 million to $25 million at stake):

Discovery is the phase of the case where the parties ask written questions of each other, produce requested documents, and take depositions (oral questioning) of witnesses. It's a contentious and tedious process.

These costs vary around the country. For example, for a medium-sized patent infringement case, the median legal cost to get through discovery is $2,000,000 in New York City but only $1,500,000 in major southeastern cities.

Over 90% of cases never make it to trial. Many settle before a suit is filed, or just after filing, or after enough discovery has been conducted to value the case. Many times cases settle early because David cannot afford to fight Goliath. You have a weak settlement position if the defendant believes you don't have the cash to enforce your rights in court.

If you are willing to invest what it takes to win in court, will the financial payoff be worthwhile? AIPLA didn't couple its cost data with results data.

Nevertheless, the recovery of damages from the defendant is rare in trademark cases and sometimes happens in trade secret theft cases. In those cases, the plaintiff usually defines victory as getting the defendant to stop the harmful conduct. The legal expense is best viewed as an investment in the strength of the trademark or trade secret.

In copyright cases and patent cases, usually a winning plaintiff recovers money. Yet, in copyright cases, it's easy to spend more than what you probably will win. In patent cases, you could hit the jackpot, but these cases often are reversed on appeal, so it could be many years before you recover anything.

But can you at least get the other side to pay your attorneys' fees if you win? You almost never recover your attorneys' fees in trade secret theft cases, and it's rare that you can do so in trademark, copyright and patent cases.

I realize these figures paint a bleak picture. There are ways one can build IP rights in a way that make them strong, in hope that strength will dissuade some challengers. Also, some law firms (not mine) occasionally take potentially lucrative copyright and patent cases on a contingency fee basis. Yet, it's hard to get such firms to evaluate your case and hard to get selected for such a financial arrangement.

Many litigators call intellectual property infringement cases, particularly patent infringement cases, the "sport of kings" due to their high costs. The AIPLA data proves this out.

By John B. Farmer

© 2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
October 22, 2007

Patents are Becoming Harder to Obtain and Weaker

Over the past year, several court decisions have made it harder to obtain patents and have weakened the power of patents. Here is a summary of these recent cases:

• Obviousness Hurdle Raised - KSR v. Teleflex (2007). To obtain a patent on an invention, it must not be an "obvious" improvement or change to existing technology. This Supreme Court decision lowers the bar for what is obvious and, consequently, makes patents harder to obtain and easier to invalidate.
  
  
• Injunctions Harder to Get - MercExchange v. eBay (2006). Until this Supreme Court case, if a plaintiff proved patent infringement, it was nearly automatic that a court would grant an injunction against continued infringement. In effect, such an injunction could shut down the targeted product or service. This rule gave successful patent infringement plaintiffs the power to demand substantial monetary settlements, such as the large sum paid by Research in Motion to keep its Blackberry network operating.

This Supreme Court case rejected the presumption that an injunction should be granted and set a multi-factor test that will make injunctions less common.

• Declaratory Judgments More Available - MedImmune v. Genentech (2007). Often a patent holder will contact a party it believes may be infringing its patent and offer the target the chance to purchase a license. Previously, the target had to choose between, on one hand, possibly litigating a patent infringement claim and risking significant damages and a possible injunction and, on the other hand, paying a license fee.

Here, the Supreme Court permitted the licensee to purchase a license under protest (so the patent holder could not sue for infringement) but to still sue the patent holder for a declaration that the licensee does not need a license and can stop paying. (Such a suit is called a "declaratory judgment action.")

This decision makes it nearly impossible to offer a license to a possible patent infringement target without giving that target the right to sue to clear its product or service.  Such a lawsuit might come at a bad time for the patent holder. The patent holder might not be financially equipped to litigate.  Also, the target probably will bring the suit in its home court.

• Defensive Opinions Less Necessary - In re Seagate Technology (2007). Prior to this case, if you became aware of a patent that may cover what you do or make, you had a duty of care to determine whether you were infringing that patent. The common practice was that, if you received written notice of someone's patent rights, you hired a patent attorney to produce a written opinion that you were not infringing a valid patent (if the patent attorney could so opine).

If you didn't get such an opinion and you lost the patent infringement case, you could be found to be a willful infringer, which exposes you to higher monetary damages (up to three times actual damages) and to possibly having to pay the other side's attorneys' fees.

Under this federal appeals court decision, you are at risk for a willfulness finding only on a showing of "objective recklessness" -- continuing your activity (which was later found to be infringing) despite an objectively high likelihood that you were infringing a valid patent. Thus, a written opinion from a patent attorney will be necessary less often. Also, it will be harder for plaintiffs to recover their attorneys' fees and tripled damages.

You might still get choose to get legal advice on whether you are infringing the asserted patent in order to know whether you are at risk for an injunction and non-tripled damages.

• Overseas Copying of Software Not Covered - Microsoft v. AT&T (2007). This case will primarily impact holders of U.S. patents on software technology. Here, Microsoft created master disks containing its software, which disks it shipped overseas for copying into computers being built there. The plaintiff proved that the software was a component of a patent infringement occurring overseas. But was Microsoft liable only for the number of master disks it shipped or for the (far higher) total number of software copies made overseas using the master disks?

The Supreme Court found U.S. patent liability reached only the master disks but not the copies made overseas from the master disks overseas. This ruling tremendously reduced the damages the plaintiff could recover.

• Inducement Hard to Prove - DSU Medical v. JMC Co. (2006). When can someone be liable for inducement to patent infringement - for taking affirmative steps to cause someone else to infringe a patent?

In this federal appeals court case, the court held that, for inducement liability, one must prove the defendant either knew or should have known its actions would induce patent infringement.  It isn't good enough to prove only that the defendant caused someone else to do something that turned out to be a patent infringement. Thus, this decision makes it difficult to tag someone for inducement to patent infringement.

By John B. Farmer

© 2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
November 26, 2007

Can You Be Held Liable for Your Kid's Illegal Music Downloading?

By now, everyone knows it's copyright infringement to use peer-to-peer software, such as Morpheus, to download copies of copyrighted music. But what if your kid uses the family computer to download music illegally without your knowledge? Can a parent be held liable for the child's actions?

To my knowledge, no parent has yet been held liable. Yet, kids are not getting off the hook due to their minor status, so parents may end up having to pay for the children's illegal behavior in order to erase their children's liabilities.

There are three ways to hold someone responsible for someone else's copyright infringement, but none of them cleanly fit the typical parent-child home computing relationship. In fact, one federal court awarded attorneys' fees against a record label for trying to use theories to sue a parent.

First, you can be subjected to "vicarious liability" for someone else's copyright infringement if you have a financial interest in the infringement and you have the ability to stop it. While parents might be able to control how their kids use home computers in theory, parents don't financially benefit from their kids' unlawful downloading.

One could argue a parent has a financial interest in illegal music downloading because it keeps the parent from needing to buy CDs or iTunes downloads for the child. Yet, no court has yet addressed, much less endorsed, this tenuous theory.

Second, you can be subjected to "contributory liability" for someone else's copyright infringement if you know of the infringing activity and contribute to its commission, such as by supplying the means to infringe. If a parent knows of the illegal music downloading and lets it continue, then the parent might be on the hook under this theory.

Third, you can be subjected to "inducement liability" if you provide a tool that can be used for committing copyright infringement and encourage its use for infringement. That's how the recording industry shut down Grokster.

The only way I can see a parent getting tagged for inducement would be if the parent supplied the home computer to the child and asked the child to make some free CDs of the parent's favorite music.

In a 2007 federal district court case in Oklahoma, a collection of record labels sued a divorced mother for illegal music downloading. The mother denied she committed the acts and suggested perhaps her adult daughter or estranged husband used the home computer for illegal downloading without the mother's knowledge.

The music labels added the daughter as a defendant. Yet, once it became apparent the mother didn't do the downloading, instead of dropping the mom right away, it added claims against her asserting contributory and vicarious liability. Eventually, the record labels agreed to permanently drop those claims against the mom.

The mother didn't drop the matter, however. She asked the court to award her attorneys' fees as the winner of the case. The court found the record labels did not have a good claim against her for contributory or vicarious liability. It held that merely supplying the home computer without more didn't make the mom liable and that the mom didn't profit from the infringement. The court awarded attorneys' fees to the mom.

This decision shouldn't cause parents to be indifferent to whether their kids are downloading illegally. Record labels are nailing kids with monetary judgments for illegal downloading.

For example, earlier this month, a federal court in Georgia found a child liable for illegal downloading. The child was 13-14 at the time of the activity. The court held it could not yet decide whether the child will be considered an "innocent infringer" due to his age at the time and other facts. Yet, even if the child is an "innocent infringer," the child will be tagged for a minimum of $200 per song. If the child isn't deemed an "innocent infringer," he could in theory be tagged for up to $150,000 per song.

$150,000 per song is unlikely in any garden variety downloading case. Record labels usually will settle for far less. Still, the potential for huge liability is there. In October 2007, a federal jury in Minnesota awarded $222,000 for illegally downloading 24 songs using KaZaa -- $9,250 per song. The defendant was a 30-year-old single mother.

The record labels claimed she had downloaded 1700 songs but chose to prove only 24. Keep in mind any teenager can amass hundreds of songs in a hurry.

In the end, a parent might escape liability to the record labels for illegal downloading, but only if a parent is willing to point the finger at his child to explain how the illegally obtained songs got onto the family computer.

But what good does that do? You'll still need to hire a lawyer to defend your child, and you'll probably feel compelled to pay the judgment against or settlement with your child to clear the liability. It's better to be vigilant.

By John Farmer

©2007 Leading-Edge Law Group, PLC. All rights reserved.

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Published in the Richmond Times-Dispatch
December 24, 2007

Preserve Electronic Evidence When Things Go Bad

In small business, to avoid getting in legal trouble, there seemingly are a million things you have to worry about on top of worrying about how to earn a profit. Add to the list of worries "preserving electronic evidence when a lawsuit becomes likely."

When something happens that might give rise to litigation, you have a duty to preserve relevant evidence.

It's intuitively obvious that you shouldn't destroy tangible evidence when you foresee litigation. For example, if you shoot someone by accident while hunting, your instincts will tell you that tossing the gun in the river will get you in deeper trouble.

Yet, when a potential lawsuit arises, it may not be intuitive that your company should stop the automatic destruction of electronic records that may contain relevant evidence.

If you hire an attorney to represent your company, that lawyer should guide you through placing a "litigation hold" on destruction of relevant documents, including electronic ones.

Yet, many small and midsized businesses don't have in-house lawyers or general representation by outside lawyers, so such companies might need to take the initiative in preserving electronic documents before interaction with a lawyer.

Here are some FAQs on this issue:

Why should I care about this? If you destroy relevant electronic evidence, the court could punish you by presuming the destroyed evidence favored your opponent. In bad cases, the court could partially or totally grant victory to the other side. The court also could issue monetary sanctions against you. Thus, mishandling electronic evidence can ruin a winning case or make a bad case worse.

When do I have to worry about this? Courts are hazy on this issue. The "mere possibility" of litigation doesn't trigger the preservation obligation, but it is triggered when an event occurs that reasonably could result in litigation, regardless of whether you will be the plaintiff or the defendant.

What "electronic evidence" must I preserve? You have to preserve electronic (and non-electronic) evidence that's relevant - that tends to prove or disprove a legal claim.

In the electronic realm, such evidence could be in places such as email, instant messages, phone texts, voicemail messages, electronic versions of documents (e.g., Word documents, spreadsheets), or website content (including blogs and intranets).

It also might be in devices your company may not own, such as your employee's home computers, PDAs and mobile phones.

You probably need to preserve backup tapes and other backup media. Most backup tapes are recycled on a schedule, so you may need to stop this recycling.

As clarified by recent federal court rules changes, you need to preserve all aspects of your electronic documents. For example, electronic documents have "metadata" - data about data. For a Word document, among other things, metadata can show the document's author, the document's creation date and its last revision date. (Click File/Properties.) Emails have header information.

Thus, just saving a printout of relevant emails and other documents isn't enough. You need to preserve the electronic documents in the form in which you usually keep them, so the electronic document's functionality and metadata are preserved fully.

How do I do this? When your obligation to preserve evidence arises (see above), you must put a "litigation hold" on document destruction. You have to preserve only what might be relevant evidence.

Your primary action will be to notify all officers, directors, employees and contractors who may have custody or control over relevant evidence of what stuff must be preserved. For example, tell the key actors in your company to not delete email.

This "litigation hold" notice might get intense scrutiny in litigation, so consider hiring an attorney for advice.

How can I limit legal exposure to electronic time bombs? Create and follow a document "retention" (i.e., destruction) plan.

Whenever you destroy evidence, you face a possible legal presumption that the evidence was against your interests. Yet, this presumption doesn't apply if the destruction happened in the ordinary course of business, unless the destruction occurred after you should have reasonably anticipated litigation was coming.

For example, if your company has a policy of permanently deleting all email on the server 60 days after its sending or receipt, following such a policy might have the convenient result of wiping out a smoking-gun email before you become aware of a potential legal claim.

Crafting a document retention plan requires special care. The law may require certain kinds of records be kept for certain lengths of time. Also, the plan can do more harm than good if you fail to follow it.

Get legal advice in crafting such a plan. Such advice might shield from discovery your real reasons for creating the plan and help to craft a plan that would withstand litigation scrutiny.

By John Farmer

©2007 Leading-Edge Law Group, PLC. All rights reserved.

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