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In This Issue
Forecast For Computing: Increasingly "Cloudy" If you haven’t yet heard about "cloud computing," you soon will. Cloud computing is the next step in increasing the efficiency, flexibility, and power of information-technology (IT) systems by using hardware or software that resides somewhere other than the user’s facility–somewhere in the "cloud" created by the world’s increasingly interconnected computer systems. You may have already entered the cloud without knowing it. (One characteristic of cloud computing is that the cloud can conceal where relevant hardware and software resources are located.) For example, Amazon Web Services, Google Docs, and Salesforce.com are all cloud-based services that allow individuals and organizations to use the computer hardware and software of others. The U.S. National Standards for Information Technology defines cloud computing as "a model for enabling convenient, on-demand network access to a shared pool of configurable resources (for example networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction." A simpler concept is to think of cloud computing as an "IT utility" like electricity or natural gas. You probably don’t care where or by whom electricity is generated or natural gas is produced as long as your utility company provides the resource when you need it. That analogy is an apt one because many entities that offer cloud computing are simply selling–or, more accurately, renting–the excess capacity of their hardware and software systems just as utilities sometimes sell their excess production to each other on an as-needed basis. Having built a huge IT infrastructure to service its customers, Amazon does not need the full capacity of that infrastructure all the time and therefore can offer users fee-based access to the excess capacity. Naturally, cloud computing has spawned a number of technical terms and acronyms. The universe of cloud computing is called the "cloud stack." At the lower end of the cloud stack are providers that offer "infrastructure as a service," or "IaaS," which is also called a "cloud platform." Higher up in the cloud stack are providers that offer "software as a service," or "SaaS," and may themselves use multiple cloud platforms, even switching from platform to platform to obtain greater efficiency or lower costs. Cloud computing offers "cloud users" a number of benefits, including lower IT acquisition and maintenance costs, greater flexibility, and ease of scalability. Users of cloud computing can obtain access to powerful IT systems for a much lower investment of time and money than by acquiring such systems themselves, and they can expand or contract their access–and thereby their IT costs–as business conditions warrant. For that reason many businesses are embracing the concept, and the U.S. government is also moving in that direction. For example, the U.S. Patent and Trademark Office (PTO) recently announced that its proposed "Trademarks Next Generation" IT system for processing trademark applications and maintaining trademark registrations will be cloud-based. This initiative puts the PTO in the forefront of U.S. agencies exploring cloud computing. However, along with the benefits come certain risks. One obvious risk is security. If you don’t know where cloud-computing assets are or who operates them, how can you be certain that your data–and your customers’ data–are adequately protected from theft, misuse, or unauthorized disclosure? Another risk is compliance with applicable law. Given that the cloud is global in nature, how can a U.S.-based cloud user be confident of complying with the IT-related requirements of the Federal Trade Commission, the Health Insurance Portability and Accountability Act, the Gramm-Leach-Bliley Act, or the Sarbanes-Oxley Act? Moreover, however could such a user be confident of complying with the stringent privacy requirements of the European Union’s Data Protection Directive? One can readily see the importance of negotiating the right agreement for cloud computing. Many cloud-computing agreements are "boilerplate" that, depending on the circumstances, may not offer users enough protection. If a particular provider’s agreement doesn’t offer adequate protection and the provider is unwilling to negotiate appropriate changes, a user may need to look elsewhere. Because cloud computing is so new and is evolving so rapidly, a user needs sophisticated legal advice to avoid having what looks like a fluffy white cloud turn out to be a dark storm cloud. Starbucks' Case Against MR. CHARBUCKS Still Brewing The U.S. Court of Appeals for the Second Circuit recently revived Starbucks’ lawsuit to keep a small business from selling MR. CHARBUCKS brand coffee. The appellate court held that the trial court misapplied the statutory test for trademark dilution when it dismissed the case. The case has a lengthy history. In July 2001, Starbucks sued Black Bear Micro Roastery, alleging that Black Bear’s MR. CHARBUCKS coffee dilutes Starbucks’ famous trademarks. A family-run business in New Hampshire, Black Bear sells coffee beans in several retail outlets as well as via Internet and mail orders. The trial court found that MR. CHARBUCKS does not dilute Starbucks’ marks and dismissed the suit. Starbucks appealed. While the case was on appeal, however, Congress passed the Trademark Dilution Revision Act of 2005 (Act). The Act changed the standard for showing dilution from that of demonstrating actual dilution to that of demonstrating only a likelihood of dilution. Because of that change, the appellate court vacated the trial court’s dismissal of the suit and remanded the case for a ruling consistent with the Act. The trial court then found in favor of Black Bear on the grounds that MR. CHARBUCKS is not substantially similar to Starbucks’ marks. Once again Starbucks appealed. In December 2009, the appellate court vacated the trial court’s decision to the extent that the decision required substantial similarity between MR. CHARBUCKS and Starbucks’ marks. The appellate court held that a fixed "substantially similar" standard conflicts with the Act’s six factors for determining whether an actionable claim of dilution by "blurring" exists. One of those factors calls for a determination of the degree of similarity between the marks without expressly stating that the similarity must be substantial for an actionable claim to exist. Accordingly, the appellate court found that the trial court erred in applying the "substantially similar" standard. The appellate court did affirm the trial court’s decision that Starbucks had not established dilution by "tarnishing," which is an "association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark." The appellate court was not persuaded by the argument that MR. CHARBUCKS would tarnish Starbucks’s reputation by giving customers an image of charred, burned coffee. The court pointed out that Black Bear is promoting the MR. CHARBUCKS brand by marketing it as a high-quality coffee and not referring to it in a way that will harm Starbucks’ reputation. The case will now go back to the trial court for a new ruling on the issue of dilution by blurring. Court Hangs Up Copyright Case Over Telephone Ringtones The U.S. District Court for the Southern District of New York recently granted summary judgment that a mobile telephone’s playing of a copyrighted ringtone is not a public performance of that musical work under U.S. copyright law. Granting Verizon’s motion on the issue, the court noted that Verizon and other telephone companies already pay licensing fees to permit their customers to download copyrighted ringtones. Because those customers subsequently make only private, not-for-profit use–even if sometimes in a public setting–of the ringtones, the court held that such use does not violate the copyright owners’ rights to control public performances of their musical works and therefore does not require the payment of additional licensing fees. The American Society of Composers, Authors, and Publishers (ASCAP), which, on a compulsory basis, grants nonexclusive licenses for the non-dramatic public performance of musical works created by its members, opposed Verizon’s motion. ASCAP argued that Verizon engages in public performance of musical works when it downloads ringtones to customers. ASCAP also argued that Verizon is directly and secondarily liable for copyright infringement when its customers play ringtones on their phones. The court rejected ASCAP’s arguments, noting that because Verizon does not permit a ringtone to be played while it is being downloaded, the download itself cannot be considered a public performance. ASCAP acknowledged that, as a practical matter, Verizon’s customers cannot play ringtones while they are being downloaded but stressed that enabling the simultaneous downloading and playing of ringtones is technologically feasible. Pointing to earlier cases holding that the contemporaneously perceptible transmission of an audiovisual work to an individual customer does not violate the copyright owner’s public performance right, the court held that a telephone customer’s playing of a ringtone during its downloading still would not be a public performance of the work. The court also held that Verizon is not directly or secondarily liable for ringtone-related copyright infringement. The court first held that Verizon cannot be secondarily liable because its customers are not themselves liable. Paraphrasing an earlier decision, the court said, "'[o]ne may search the Copyright Act in vain for any sign that the elected representatives of the millions of people’ who own cellular telephones ‘have made it unlawful’ to allow that telephone to ring in a public setting." Then the court held that Verizon is not directly liable. ASCAP argued that Verizon "controls the entire series of steps that allow and trigger" mobile phones to play ringtones in public. But the court noted that the signal Verizon sends to make a customer’s phone ring is the same whether or not the customer has downloaded a ringtone. The court also noted that the customer controls whether, when, where, and how loudly a ringtone is to play and that the caller, not Verizon, initiates the multi-step process that culminates in the playing of the ringtone. Thus, the court ruled, the nexus between Verizon’s conduct and the playing of ringtones is insufficient to hold Verizon directly liable for copyright infringement. FTC Tightens Requirements For Endorsements in Advertising The U.S. Federal Trade Commission (FTC) has implemented changes to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (Guides). Last updated in 1980, the Guides are administrative interpretations of the law intended to help advertisers comply with the FTC Act. To avoid consumers being deceived or misled, the Guides require advertisers to disclose their "material connections" with endorsers. The Guides set forth principles and provide examples illustrating practices that the FTC might consider deceptive and misleading. The FTC defines "endorsement" as "any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser." The Guides confirm that a blogger or other word-of-mouth marketer may be considered an endorser if he or she receives free of charge the product being blogged about or marketed. To avoid deceiving or misleading consumers, the endorser must disclose his or her "material connection" to the sponsoring advertiser. Further, endorsements must reflect the endorser’s honest opinions, findings, beliefs, or experiences. Advertisements that feature testimonials conveying a consumer’s experience as typical when such is not the case must clearly disclose the results that consumers can generally expect. Under the prior version of the Guides, advertisements were simply required to state that the advertised results were not typical; however, such a statement will no longer suffice. The Guides also address endorsements by experts and organizations. When an advertisement represents that the endorser is an expert with respect to the message, the endorsement must have been supported by the endorser’s actual evaluation of the product. An organization’s endorsement must be reached by a process sufficient to ensure the endorsement "fairly reflects the collective judgment of the organization." Advertisers must be aware of the new Guides and their requirements. Consulting with legal counsel knowledgeable about current U.S. advertising law can help advertisers avoid inadvertent compliance problems under the Guides.
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