Laurence Kaye on Digital Media Law

E-tailing now = 7.2% of UK GDP, so make sure you mind the 'shop'

Dear reader

Well, there you have it. Today's 'Financial Times' cites a recent report from the Boston Consulting Group telling us that we are now a nation of "digital shopkeepers". Domestic online shopping, broadband access and net exports of digital goods and services made up 7.2% of UK GDP, making the 'Internet Industries' the fifth-largest contributor to GDP,  ahead of the construction, education and transport industries. About half represents e-commerce.

 But as the digital store grows bigger, so managing brand reputation oline gets more important. Social media like Blogs and Tweets are where the public voice is heard - witness the online response to the new  'Gap' logo which consigned it to instant oblivion.

Domain Names

There's no doubt that online free speech is part of the Internet's DNA. But there's an inevitable tension between that and protecting corporate reputation online.The IHATERYANAIR.CO.UK decision was interesting in this context. Nominet is the Internet registry for .uk domain names. Ryanair brought a complaint under Nominet's Dispute Resolution Service, seeking a cancellation of the 'ihateryanair.co.uk' domain name from the owner of the criticism website. For sure, ryanair is not without its critics and this site is certainly one. This complaint was successful on the sole ground that it generated income through sponsorship on the site and that, as the domain name used the Ryanair trade mark to draw people to it, the site was unfairly benefiting from Ryanair’s rights.

It was ruled that there was undoubtedly a link between the respondent's financial advantage and the respondent's use of the complainant's trade mark in (specifically) the domain name (rather than in the content of the website). The respondent only earned money because of the traffic to the website, and such traffic must have been influenced by the domain name.

Their advertising revenue from the site was about £350! The Expert’s opinion in Ryanair was that “commercial links have no place on a criticism website”.

What's also interesting is that the derogatory content of the website had no bearing on the decision. In other words, the question of whether the criticism website was defamatory was not relevant to the decision.

Legal liability for UGC

 These days, building a strong e-commerce business means engaging with the business' online community. So user generated content is now at the heart of online business. The law (E-Commerce Regulations) gives websites owners a defence against defamation claims regarding content posted by third parties which they  host. However, that immunity is forfeited if the website owner monitors the site because the defence does not apply if the owner exercises editorial control.

In Kasche v. Gray decided in July this year, the Court had to decide whether the immunity was lost if a website operator monitored some but not all of the posted content. Was the immunity lost for the whole site if the owner monitored some posts only? The Court decided "no". A online business is regarded in e-commerce law as an "information society service" and the Court decided that a single blog post could be treated as an "information society service" in isolation, so that if that post was monitored, it did not mean that the legal immunity for non-monitored content elsewhere on the site was lost.

Well, happy shopping and have a good weekend.

Laurie  Kaye

When is a sale not a sale? Answer - when it's a licence

Dear reader

If you're a regular reader of my Blog - which I hope you are! - you'll know that one of the recurring themes in my blog postings is about how new business models in the creative and technology industries are being driven by the shift from physical to digital distribution - from selling goods to licensing rights. Several recent US cases have highlighted how this shift can impact on traditional royalty structures and on re-sale rights.

On the issue of royalties, FBT Productions v. Aftermath Records  illustrates what can happen when what was regarded as secondary exploitation – licensing – at the time a deal was agreed, becomes a primary revenue stream, in this case licensing digital distribution rights for downloads to Apple.  At the heart of the dispute between Eminem’s production company FBT, and the record company Aftermath was whether licensing Apple to sell digital files of Eminem recordings constituted ‘masters licensed’ or ‘records sold’. The distinction under the agreement between FBT and Aftermath was significant. ‘Records sold’ entitled Eminem to receive between 12% and 20% of the adjusted retail price of all “full price records sold in the US” whereas FBT would received 50% of Aftermath’s net receipts on ‘masters licensed’ by them!

In fact, the US Appeal Court decided in FBT’s favour who, of course, argued that the deal with Apple was a licensing deal, carrying the higher royalty rate. It illustrates that great care needs to be taken in the use of terms such as “sale” and “licence” in the context of digital distribution deals.

There is another significant difference between selling physical goods – DVD’s, books etc – and licensing the right to use content. In the US, the ‘first sale’ doctrine, similar to the principle of ‘exhaustion of rights’ in the EU, means that when a physical good such as a book is lawfully sold on the market, the owner of the rights in that book cannot control the subsequent re-sale of that good. However, this doesn’t apply to rights licensed. You can immediately see how this can impact on the secondary market for goods. This distinction was illustrated in Vernor v. Autodesk. Here, the US Court of Appeal considered whether Mr Vernor, an ebay merchant, had the right to resell Autodesk software packages that he purchased from their customer.  Ruling in favour of Autodesk, the Court concluded that Autodesk’s original customer was a licensee and not an ‘owner of a particular copy’ of the software.  The use of the term ‘licence” in the bundled documentation together with restrictions dictating how the software could be used meant that the original customer did not have any right of re-sale to Mr Vernor in the first place.

The case yet again demonstrates how critical the use of the terms ‘licence’ and ‘sale’ can be, this time within the context of developing software for distribution and, as also highlighted here, when dealing in the secondary market for software.

The issue as to whether goods are sold or instead rights licensed is still very much a live one.  The US Court of Appeal is still yet to hear further arguments concerning ‘sale’ and licence’, this time in relation to computer games (MDY Industries v. Blizzard Entertainment) and promotional music CDs (Universal Music Group v. Augusto).

I'll be posting a more detailed analysis of the cases on my website shortly, and I'll send you a link to it in my next post.

Have a good week!

Laurie Kaye