week 9

Week 9

V. Technological Protections

A. The U.S. Digital Millennium Copyright Act

DMCA Act of 1998Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294 (S.D.N.Y. 2000)

B. Authorized Versus Unauthorized Access and Interoperable Products

Chamberlain Group, Inc. v. Skylink Tech, Inc., 381 F.3d 1178 (Fed. Cir. 2004), cert. denied, 125 S.Ct. 1669 (2005)Lexmark International, Inc. v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2005)

C. Protection for Copyright Management Information

IQ Group, Ltd. v. Wiesner Publishing, LLC, 409 F. Supp. 2d 587 (D.N.J. 2006)Kelly v. Arriba Soft Corp., 77 F. Supp. 2d 1116 (C.D. Cal. 1999)

VI. Copyright Scope and Enforcement

A. Infringement of Economic Rights

Remedies

Sections 177; 221-224, IPC; Section 3, IPC; Section 10.2, IPC; Sections 216-220, IPC; Sections 225-226, IPC; Section 231, IPC; Rule on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights (A.M. No. 02-1-06-SC)

20th Century Fox v. CA, 164 SCRA 655 (1988)Columbia Pictures, Inc. v. Court of Appeals, 237 SCRA 367 (1994)Columbia Pictures v. Court of Appeals, 261 SCRA 144 (1996)People v. Ramos, 83 SCRA 1 (1978)Serrano Laktaw v. Paglinawan, 44 Phil. 855Habana v. Robles, 310 SCRA 511 (1999) (READ THE DISSENTING OPINION HERE ALSO)Joaquin v. Drilon, 302 SCRA 225 (1999)

United States District Court,

S.D. New York.

UNIVERSAL CITY STUDIOS, INC., et al., Plaintiffs,

v.

Shawn C. REIMERDES, et al., Defendants.

No. 00 Civ. 0277 (LAK).

Aug. 17, 2000.

As Amended Sept. 6, 2000.

Motion picture studios brought action under Digital Millennium Copyright Act(DMCA) to enjoin Internet web-site owners from posting for downloading computer

software that decrypted digitally encrypted movies on digital versatile disks(DVDs) and from including hyperlinks to other web-sites that made decryption

software available. The District Court, Kaplan, J., held that: (1) postingdecryption software violated DMCA provision prohibiting trafficking in

technology that circumvented measures controlling access to copyrighted works;(2) posting hyperlinks to other web-sites offering decryption software violatedDMCA; (3) DMCA anti-trafficking provision was content-neutral as applied tocomputer program; (4) DMCA did not violate First Amendment as applied to

defendants and decryption software; (5) defendants failed to establishanti-trafficking provision was overly broad on grounds that it prevented

noninfringing fair use of movies; (6) application of anti-trafficking provisionto enjoin defendants from hyper-linking to other web-sites offering decryptionsoftware did not violate First Amendment; and (7) plaintiffs were entitled to

injunction enjoining defendants from posting decryption software orhyperlinking to other web-sites that made software available.

So ordered.

West Headnotes

[1] Copyrights and Intellectual Property 99 k 67.3

99 Copyrights and Intellectual Property

99I Copyrights

99I(J) Infringement

99I(J)1 What Constitutes Infringement

99k67.3 k. Other works. Most Cited Cases

Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking inany "technology" designed for purpose of circumventing technological measurecontrolling access to copyrighted work applied to computer code for softwarethat decrypted movies on digital versatile disks (DVDs), and was not limited to

"black box" devices. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



Decryption, by means of computer software, of encrypted movies on digitalversatile disks (DVDs) constituted "circumvention" for purposes of DigitalMillennium Copyright Act (DMCA) provision prohibiting trafficking in any

technology designed to circumvent technological measure controlling access tocopyrighted work. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



For purposes of Digital Millennium Copyright Act (DMCA) provisionprohibiting trafficking in any technology designed to circumvent technologicalmeasure effectively controlling access to copyrighted work, encryption system

used for movies on digital versatile disks (DVDs) constituted measure that"effectively controlled access" to copyrighted work, regardless of whether

40-bit encryption key on which encryption was based was weak cipher or strongencryption; technological measure would be deemed to effectively control access

to protected work so long as its function was to control access. 17 U.S.C.A. s1201(a)(2)(A).

[4] Copyrights and Intellectual Property 99 k 52


99I Copyrights

99I(J) Infringement


99k52 k. Intent or purpose. Most Cited Cases

Facts that developer of computer software program that decrypted movies ondigital versatile disks (DVDs) allegedly wrote program to further development

of DVD player that would run under open source computer operating system (OS)and that defendants who posted software on their Internet web-site for

downloading allegedly did not intend to permit or encourage infringement ofcopyrighted material were irrelevant to Digital Millennium Copyright Act (DMCA)

provision prohibiting trafficking in any technology designed to circumventtechnological measure controlling access to copyrighted work, since sole

purpose of software was to circumvent DVD encryption that protected copyrightedmovies. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



Reverse engineering exception to Digital Millennium Copyright Act (DMCA)provision prohibiting trafficking in technology designed to circumvent

technological measure controlling access to copyrighted work did not apply toInternet web-site owners who posted computer software program that decryptedmovies on digital versatile disks (DVDs), even though developer wrote program

by reverse engineering DVD encryption system, allegedly to allow development ofDVD player that would run on open source computer operating system (OS);

reverse engineering exception allowed only person who actually acquiredinformation through reverse engineering to share information with others,

exception applied only to dissemination intended to achieve interoperability asdefined in statute and did not apply to public dissemination of a means of

circumvention, and developer of software and defendants knew that decryptionsoftware would run under other OS and could therefore be used to decrypt video

files copy them onto computer hard-drive like any other computer file. 17U.S.C.A. s 1201(f).



99I Copyrights

99I(J) Infringement



Encryption research exception to Digital Millennium Copyright Act (DMCA)provision prohibiting trafficking in any technology designed to circumvent

technological measure controlling access to copyrighted work did not apply toInternet web-site owners who posted computer software program that decrypted

movies on digital versatile disks (DVDs), where software was disseminated inmanner designed to facilitate copyright infringement rather than to advance

state of knowledge of encryption technology, and there was no evidence thatdefendants made any effort to provide results of their "research" to copyright

holders. 17 U.S.C.A. s 1201(g).



99I Copyrights

99I(J) Infringement


99k53.2 k. Fair use and other permitted uses in general.Most Cited Cases

The "fair use" doctrine limits the exclusive rights of a copyright holder bypermitting others to make limited use of portions of the copyrighted work, for

appropriate purposes, free of liability for copyright infringement. 17U.S.C.A. s 107.



99I Copyrights

99I(J) Infringement



Possibility that decryption computer software for encrypted movies ondigital versatile disks (DVDs) posted by Internet web-site owners for

downloading could be used for non-infringing fair use of copyrighted materialwas not defense to Digital Millennium Copyright Act (DMCA) provision

prohibiting trafficking in any technology designed for purpose of circumventingtechnological measure that effectively controls access to copyrighted work;nothing in DMCA suggested that fair use defense was available, and it wasmatter for Congress to elect to leave technologically unsophisticated person

without means to make fair use of digitally encrypted material. 17 U.S.C.A. ss107, 1201.



99I Copyrights

99I(J) Infringement



A given device or piece of technology might have a substantial noninfringinguse, such as allowing fair use of digitally encrypted copyrighted material, butnonetheless be subject to suppression under the Digital Millennium CopyrightAct (DMCA) provision prohibiting trafficking in any technology designed for the

purpose of circumventing a technological measure that effectively controlsaccess to copyrighted work. 17 U.S.C.A. ss 107, 1201(a).



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act (DMCA) provision prohibiting "offering tothe public, providing, or otherwise trafficking in" any technology designed to

circumvent a technological measure that controls access to a copyrighted workis implicated when one presents, holds out, or makes available a circumventiontechnology or device, knowing its nature, for the purpose of allowing others to

acquire it. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



For purposes of Digital Millennium Copyright Act (DMCA), inclusion ofhyperlinks on defendants' web-site that linked to pages at other web-sites that

automatically downloaded computer software that enabled decryption of digitallyencrypted movies on digital versatile disks (DVDs), contained code for

decryption software, or offered user choice of downloading decryption softwareconstituted "offering, providing, or otherwise trafficking in" technology

designed to circumvent technological measure controlling access to copyrightedwork. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



Mere inclusion of hyperlink on Internet web-site that links to anotherweb-site containing circumventing technology, along with other content, does

not necessarily violate, regardless of purpose or manner in wich link isdescribed and thereby offered, Digital Millennium Copyright Act (DMCA)

provision prohibiting providing or otherwise trafficking in technology designedto circumvent technological measure that controls access to copyrighted work.

17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



Website owners, who included hyperlinks to web-sites created by others thatcontained computer software that decrypted digitally encrypted copyrighted

movies on digital versatile disks (DVDs), violated Digital Millennium CopyrightAct (DMCA) provision prohibiting offering to public, providing, or otherwisetrafficking in technology designed to circumvent technological measure to

control access to copyrighted work, where defendants, who had been enjoinedfrom offering decryption software at their own site for downloading, urgedothers to post decryption software on their sites in attempt to disseminate

software and requested those who posted software to inform them, so that theycould include link. 17 U.S.C.A. s 1201(a)(2).

[14] Constitutional Law 92 k 1490

92 Constitutional Law

92XVIII Freedom of Speech, Expression, and Press

92XVIII(A) In General

92XVIII(A)1 In General

92k1490 k. In general. Most Cited Cases

(Formerly 92k90(1))

Constitutional Law 92 k 1506





92k1506 k. Strict or exacting scrutiny; compellinginterest test. Most Cited Cases

(Formerly 92k90(1), 92k90(3))

All modes of expression are covered by the First Amendment in the sense thatthe constitutionality of their regulation must be determined by reference toFirst Amendment doctrine and analysis; however, regulation of differentcategories of expression is subject to varying levels of judicial scrutiny,

though in some circumstances, the phrase "protected by the First Amendment"connotes also that the standard for measurement is the most exacting level

available. U.S.C.A. Const.Amend. 1.





92XVIII(A)3 Particular Issues and Applications in General


(Formerly 92k90.1(1), 92k90(1))






92k1575 k. Books. Most Cited Cases

(Formerly 92k90.1(6))






92k1576 k. Art. Most Cited Cases





92XVIII(N) Entertainment



All modes by which ideas may be expressed or, perhaps, emotions evoked,including speech, books, movies, art, and music, are within the area of First

Amendment concern. U.S.C.A. Const.Amend. 1.




92XVIII(W) Telecommunications and Computers

92k2147 k. Computer codes, programs, software, or services. MostCited Cases


Computer code, whether source code or machine-readable object code, is ameans of expressing ideas, and, thus, the First Amendment must be consideredbefore its dissemination may be prohibited or regulated. U.S.C.A. Const.Amend.

1.






92k1516 Content-Based Regulations or Restrictions

92k1518 k. Strict or exacting scrutiny; compellinginterest test. Most Cited Cases

(Formerly 92k90(3))

Content-based restrictions on speech are permissible under the FirstAmendment only if they serve compelling state interests by the least

restrictive means available. U.S.C.A. Const.Amend. 1.






92k1511 Content-Neutral Regulations or Restrictions

92k1514 k. Narrow tailoring requirement; relationshipto governmental interest. Most Cited Cases

(Formerly 92k90(3))

Because content-neutral restrictions on speech are not motivated by a desireto limit the message, they will be upheld if they serve a substantial

governmental interest and restrict First Amendment freedoms no more thannecessary. U.S.C.A. Const.Amend. 1.






92k1497 k. Conduct, protection of. Most Cited Cases

(Formerly 92k90(3))








(Formerly 92k90(3))

Restrictions on the nonspeech elements of expressive conduct fall into theconduct-neutral category; since the nonspeech elements may create hazards forsociety above and beyond the speech elements, they are subject to regulation in

appropriate circumstances because the government has an interest in dealingwith the potential hazards of the nonspeech elements, despite the fact that

they are joined with expressive elements. U.S.C.A. Const.Amend. 1.







92k1513 k. Governmental disagreement with messageconveyed. Most Cited Cases

(Formerly 92k90(3))

The principal inquiry in determining whether a restriction on speech iscontent-neutral is whether the government has adopted the regulation because of

agreement or disagreement with the message the speech conveys. U.S.C.A.Const.Amend. 1.






(Formerly 92k1603, 92k90.1(6))

Copyrights and Intellectual Property 99 k 2


99I Copyrights

99I(A) Nature and Subject Matter

99k2 k. Constitutional and statutory provisions. Most CitedCases

Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking inany technology designed to circumvent technological measure controlling access

to copyrighted work constituted content-neutral restriction on speech asapplied to computer program that decrypted digitally encrypted movies on

digital versatile disks (DVDs); although computer code expressed programmer'sideas, it had additional, non-speech aspect in that it contained instructionsthat caused computer to perform sequence of tasks that, in the aggregate,circumvented DVD encryption, and Congress' concern in enacting DMCA's

anti-trafficking provision was suppression of copyright piracy andinfringement, not to regulate expression of ideas inherent in decryptioncomputer code. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).







A sufficiently important governmental interest in seeing to it thatcomputers are not instructed to perform particular functions may justify

incidental restrictions on the dissemination of the expressive elements of acomputer program; such a regulation will be upheld if it furthers an importantor substantial governmental interest, the governmental interest is unrelated tothe suppression of free expression, and the incidental restriction on alleged

First Amendment freedoms is no greater than is essential to the furtherance ofthat interest. U.S.C.A. Const.Amend. 1.







92k1514 k. Narrow tailoring requirement; relationshipto governmental interest. Most Cited Cases

(Formerly 92k90(3))

To satisfy the requirement that the incidental restriction on FirstAmendment freedoms is no greater than is essential to further the substantial

governmental interest, a content-neutral regulation need not be the leastspeech-restrictive means of advancing the governmental interest; rather, therequirement of narrow tailoring is satisfied so long as the regulation promotes

a substantial government interest that would be achieved less effectivelyabsent the regulation. U.S.C.A. Const.Amend. 1.











92k2148 Internet

92k2151 k. Website content. Most Cited Cases




99I Copyrights



Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking inany technology designed to circumvent technological measure controlling access

to copyrighted work did not violate First Amendment as applied to owners ofInternet web-site that made available for downloading computer softwareenabling decryption of digitally encrypted movies on digital versatile disks(DVDs) and contained hyperlinks to other web-sites that made decryption

software available; DMCA provision was content-neutral, it furthered importantgovernmental interest of protected copyrighted works stored on digital media,

and incidental restraint on expression and non-infringing fair use of encryptedmaterial was no broader than necessary to accomplish goals of preventinginfringement and promoting availability of content in digital form. U.S.C.A.

Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).











92k2148 Internet





99I Copyrights



The functionality of a computer program that decrypted digital encryptedmovies on digital versatile disks (DVDs) could be used as a proxy for the

consequences of software's use in determining the constitutionally under theFirst Amendment of the Digital Millennium Copyright Act (DMCA) provision

prohibiting trafficking in technology designed to circumvent technologycontrolling access to copyrighted works, since dissemination of the program via

the Internet carried a very substantial risk of producing virtually unstoppableinfringement of copyright; the causal link between the dissemination of the

software and its improper use was more than sufficiently close to warrant useof functionality as a proxy, since controlling the availability of the means of

infringement was critical due to the lack of any practical means of controllinginfringement at the point at which it occurred once the software was broadly

disseminated. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).











92k2148 Internet





99I Copyrights



Even if Digital Millennium Copyright Act (DMCA) provision prohibitingtrafficking in any technology designed to circumvent technological measure

controlling access to copyrighted work were deemed to be content-based becauseit regulated computer code that expressed programmer's ideas for decrypting

digital encryption of movies on digital versatile disks (DVDs), it did notviolate First Amendment as applied to decryption software that was availablefor downloading via Internet; value of free expression of decryption ideas wasoutweighed by government's interest in preventing infringement and promoting

availability of content in digital form, and there was imminent threat ofdanger flowing from dissemination of software that far outweighed need forunfettered communication of that software. U.S.C.A. Const.Amend. 1; 17

U.S.C.A. s 1201(a)(2).











92k2148 Internet





99I Copyrights

99I(J) Infringement

99I(J)2 Remedies

99k72 Actions for Infringement

99k86 k. Permanent relief. Most Cited Cases

Prior restraint doctrine did not require denial, after trial on merits, ofinjunction enjoining Internet web-site owners from making computer softwareprogram that decrypted digitally encrypted movies on digital versatile disks

(DVDs) available for downloading, and providing hyperlinks to other web-sitesthat made software available, in violation of Digital Millennium Copyright Act(DMCA) provision prohibiting trafficking in technology designed to circumvent

technological measure controlling access to copyrighted work; First Amendmentinterests served by dissemination of software were minimal because software was

predominantly functional in nature, protection of monopoly granted to copyrightowners was of constitutional dimension, broad dissemination of decryptionsoftware threatened ultimately to injure or destroy copyright holders' abilityto distribute their works in digital format, potential damages were probably

incalculable, and defendants would be in no position to compensate copyrightholders. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).



92VI Enforcement of Constitutional Provisions

92VI(A) Persons Entitled to Raise Constitutional Questions; Standing

92VI(A)9 Freedom of Speech, Expression, and Press



The overbreadth doctrine enables litigants to challenge a statute not merelybecause their own First Amendment rights are violated, but because the statute

may cause others to abstain from constitutionally protected expression.U.S.C.A. Const.Amend. 1.





92VI(A)1 In General

92k667 k. Third-party standing in general. Most Cited Cases

(Formerly 92k42(1))





92VI(A)9 Freedom of Speech, Expression, and Press



Generally, a person to whom a statute constitutionally may be applied maynot challenge that statute on the ground that it conceivably may be applied

unconstitutionally to others in situations not before the court; however, whenstatutes regulate speech, the transcendent value to all society of

constitutionally protected expression is deemed to justify attacks on overlybroad statutes, with no requirement that the person making the attack

demonstrate that his own conduct could not be regulated by a statute drawn withthe requisite narrow specificity. U.S.C.A. Const.Amend. 1.



92X First Amendment in General

92X(A) In General

92k1162 Overbreadth in General


(Formerly 92k82(4))



92X First Amendment in General

92X(A) In General

92k1162 Overbreadth in General

92k1165 k. Use as last resort; sparing use. Most CitedCases

(Formerly 92k82(4))




92XVIII(H) Law Enforcement; Criminal Conduct


(Formerly 92k1520, 92k90(3))

The overbreadth doctrine is to be employed only as a last resort because itconflicts with the personal nature of constitutional rights and the prudential

limitations on constitutional adjudication, including the importance offocusing carefully on the facts in deciding constitutional questions; moreover,the limited function of the overbreadth doctrine attenuates as the otherwiseunprotected behavior that it forbids the state to sanction moves from purespeech toward conduct that, even if expressive, falls within the scope of

otherwise valid criminal laws. U.S.C.A. Const.Amend. 1.











92k2148 Internet





99I Copyrights



Owners of Internet web-site that made available computer software thatenabled decryption of digitally encrypted movies on digital versatile disks(DVDs) failed to establish that Digital Millennium Copyright Act (DMCA)

provision prohibiting trafficking in technology designed to circumventtechnological measure controlling access to copyrighted work was overly broad,

in violation of First Amendment, even though anti-trafficking provision mightprevent technologically unsophisticated persons from copying portions of DVD

movie for noninfringing, fair use; question of whether anti-traffickingprovision affected rights of "fair use" community could not be decided withoutevidence regarding circumstances of each member of community or similarly

situated groups of members, there was no reason to assume that prospective fairusers would be deterred from asserting their rights by fear of sanctions

imposed by DMCA, and issue concerned technology that was principally functionalin nature rather than pure speech. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s

1201(a)(2).



92XXVII Due Process

92XXVII(G) Particular Issues and Applications

92XXVII(G)12 Trade or Business

92k4300 Intellectual Property

92k4302 k. Copyrights. Most Cited Cases

(Formerly 92k320.5)



99I Copyrights



Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking intechnology designed to circumvent technological measure controlling access to

copyrighted work was not unconstitutionally vague as applied to Internetweb-site owners who posted for downloading computer software that enabled

decryption of digitally encrypted movies on digital versatile disks (DVDs);web-site owners engaged in conduct clearly proscribed by DMCA and would not be

heard to complain of any vagueness as applied to others. 17 U.S.C.A. s1201(a)(2).











92k2148 Internet



Like computer code, hyperlinks on Internet web-pages, which link users toother web-pages with mere click of mouse, have both expressive and functionalelements, and regulation restricting use of links would survive First Amendment

challenge if it was unrelated to suppression of free expression, it servedsubstantial governmental interest, and promotion of interest would be achieved

less effectively absent regulation. U.S.C.A. Const.Amend. 1.



99I Copyrights



Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking intechnology designed to circumvent technological measure controlling access tocopyrighted work could be applied to allow motion picture copyright holders tobring legal action against Internet web-site owners who posted hyperlinks to

other web-sites that offered computer software that enabled decryption ofdigitally encrypted movies on digital versatile disks (DVDs); since copyright

holders could not bring DMCA actions against linked-to sites owned by thoseoutside United States, allowing actions under DMCA against those linking toother sites would achieve government's interest in protecting copyrights more

effectively than allowing only actions against web-site owners who postedcircumventing technology. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).





92k2148 Internet





99I Copyrights



Under the First Amendment, there may be no injunction against, nor liabilityfor, hyper-linking an Internet web-page to another web site containing

technology designed to circumvent a technological measure controlling access toa copyrighted work, the offering of which is unlawful under the Digital

Millennium Copyright Act (DMCA), absent clear and convincing evidence thatthose responsible for the link: (1) knew at the relevant time that the

offending material was on the linked-to site; (2) knew that it wascircumvention technology that could not lawfully be offered; and (3) created ormaintained the link for the purpose of disseminating the offending technology.

U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).





92k2148 Internet





99I Copyrights





99I Copyrights

99I(J) Infringement

99I(J)2 Remedies



Internet web-site owners could be enjoined, for violating Digital MillenniumCopyright Act (DMCA) provision prohibiting trafficking in technology designedto circumvent technological measure controlling access to copyrighted work,

from providing hyperlinks to other web-sites containing computer software thatenable decryption of digitally encrypted movies on digital versatile disks

(DVDs); DMCA did not violate First Amendment as applied to defendants, sincethey knew that encryption software was posted at linked-to sites, learned in

action brought against them by movie copyright holders that posting softwareviolated DMCA, and stated on their site that they maintained links in order to

promote dissemination of decryption software in effort to defeat effectivejudicial relief. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies



Motion picture copyright holders established sufficient threat of harm tobring action for injunction under Digital Millennium Copyright Act (DMCA)

provision prohibiting trafficking in technology designed to circumventtechnological measure controlling access to copyrighted work against Internet

web-site owners who posted and hyper-linked to computer software that enableddecryption of digitally encrypted movies on digital versatile disks (DVDs),

where plaintiffs found web-site that listed 650 movie files available fordownloading, plaintiffs' investigator downloaded between five and ten copiedmovie files, plaintiffs' expert obtained pirated, compressed copy of movie fromInternet chat-room, and listings of copied movies made sudden appearance on

Internet promptly after decryption software became available. 17 U.S.C.A. s1201(a)(2).

[38] Copyrights and Intellectual Property 99 k 83(7)


99I Copyrights

99I(J) Infringement

99I(J)2 Remedies


99k83 Evidence

99k83(3) Weight and Sufficiency

99k83(7) k. Other works. Most Cited Cases

Even if there were other computer software programs available that producedresults comparable to software made available on defendants' Internet web-site,

which decrypted digitally encrypted movies on digital versatile disks (DVDs),evidence was sufficient to show that defendants violated Digital Millennium

Copyright Act (DMCA) provision prohibiting trafficking in technology designedto circumvent technological measure controlling access to copyrighted work,

even though copyright holders did not prove that decrypted, compressed copiesof movies available on Internet were decrypted with software that defendants

made available; software defendants made available was faster, easier to use,and worked on broader range of DVDs than other decryption software, web-site

promoting compression software used for copies of movies recommended use ofdecryption software made available at defendants' site, and availability of

pirated movies on Internet dramatically increased after software available atdefendants' site was introduced. 17 U.S.C.A. s 1201(a)(2).

[39] Negligence 272 k 1568

272 Negligence

272XVIII Actions

272XVIII(C) Evidence

272XVIII(C)1 Burden of Proof

272k1568 k. Proximate cause. Most Cited Cases

Torts 379 k 145

379 Torts

379I In General

379k142 Evidence

379k145 k. Burden of proof. Most Cited Cases

(Formerly 379k27)

Where two or more persons take substantially identical wrongful actions, oneand only one of which had to be the source of the plaintiffs' injury, and it isequally likely that one inflicted the injury as the other, the burden of proofon causation shifts to the defendants, each of which is liable absent proof

that its action did not cause the injury.

[40] Injunction 212 k 1250

212 Injunction

212IV Particular Subjects of Relief

212IV(E) Governments, Laws, and Regulations in General

212k1250 k. Injunctions to enforce laws and regulations ingeneral. Most Cited Cases

(Formerly 212k85(1))

Where statutes in substance so provide, injunctive relief is appropriate ifthere is a reasonable likelihood of future violations absent such relief, and,

in cases brought by private plaintiffs, if the plaintiff lacks an adequateremedy at law.



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies



Motion picture copyright holders were entitled to injunction enjoiningInternet web-site owners from posting computer software that enabled decryption

of digitally encrypted movies on digital versatile disks (DVDs) or includinghyperlinks to other web-sites that made decryption software available in

violation of Digital Millennium Copyright Act (DMCA) provision prohibitingtrafficking in technology designed to circumvent technological measure

controlling access to copyrighted work; defendants would likely continue toviolate DMCA in absence of injunction since they were in business of

disseminating information to assist "hackers" in "cracking" various types oftechnological security systems and, after preliminary injunction enjoined themfrom posting decryption software, they linked their web-site to other web-sitesthat had posted same software, and copyright holders were unlikely to have

adequate remedy at law since actual damages would be difficult if notimpossible to prove. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies



Fact that computer software that decrypted digitally encrypted movies ondigital versatile disks (DVDs) had been widely disseminated on Internet and was

available from other sites did not preclude finding that copyright holderswould be irreparably harmed in absence of injunction enjoining defendant

web-site owners from posting decryption software or hyperlinking to other sitesthat posted software in violation of Digital Millennium Copyright Act (DMCA)

provision prohibiting trafficking in technology designed to circumventtechnological measure controlling access to copyrighted work. 17 U.S.C.A. s

1201(a)(2).



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies

99k90 Costs

99k90(1) k. In general. Most Cited Cases

Copyrights and Intellectual Property 99 k 90(2)


99I Copyrights

99I(J) Infringement

99I(J)2 Remedies

99k90 Costs

99k90(2) k. Attorney fees. Most Cited Cases

Since their action was test case raising important issues, court would notexercise its discretion to award attorney fees to motion picture copyright

holders who obtained injunction enjoining Internet web-site owners from postingcomputer software that enabled decryption of digitally encrypted movies on

digital versatile disks (DVDs) or hyperlinking to other sites that madedecryption software in violation of Digital Millennium Copyright Act (DMCA)

provision prohibiting trafficking in technology designed to circumventtechnological measure controlling access to copyrighted work; however,

plaintiffs were entitled to costs, particularly those related to excessivediscovery demands made by defendants. 17 U.S.C.A. ss 1201(a)(2), 1203(b)(4, 5)

.

*302 Leon P. Gold, Jon A. Baumgarten, Charles S. Sims, Scott P. Cooper, WilliamM. Hart, Michael M. Mervis, Carla M. Miller, Proskauer Rose LLP, New York City,

for Plaintiffs.

Martin Garbus, George E. Singleton, David Y. Atlas, Edward Hernstadt,Frankfurt, Garbus, Klein & Selz, P.C., New York City, for Defendants.

OPINION

KAPLAN, District Judge.

Contents

I. The Genesis of the Controversy 305

A. The Vocabulary of this Case 305

1. Computers and Operating Systems 305

2. Computer Code 305

3. The Internet and the World Wide Web 306

4. Portable Storage Media 307

5. The Technology Here at Issue 308

B. Parties 308

C. The Development of DVD and CSS 309

D. The Appearance of DeCSS 311

E. The Distribution of DeCSS 311

F. The Preliminary Injunction and Defendants' Response 312

G. Effects on Plaintiffs 313

II.The Digital Millennium Copyright Act 315

A. Background and Structure of the Statute 315

B. Posting of DeCSS 316

1. Violation of Anti-Trafficking Provision 316

a. Section 1201(a)(2)(A) 317

(1)CSS Effectively Controls Access to Copyrighted Works 317

(2)DeCSS Was Designed Primarily to Circumvent CSS 318

b. Section 1201(a)(2)(B) 319

c. The Linux Argument 319

2. Statutory Exceptions 319

a. Reverse engineering 319

b. Encryption research 320

c. Security testing 321

d. Fair use 321

C. Linking to Sites Offering DeCSS 324

III.The First Amendment 325

A. Computer Code and the First Amendment 326

B. The Constitutionality of the DMCA's Anti-Trafficking Provision 327

1. Defendants' Alleged Right to Disseminate DeCSS 327

2. Prior Restraint 333

3. Overbreadth 336

4. Vagueness 339

C. Linking 339

IV.Relief 341

A. Injury to Plaintiffs 341

B. Permanent Injunction and Declaratory Relief 342

V. Miscellaneous Contentions 345

VI.Conclusion 345

*303 Plaintiffs, eight major United States motion picture studios,distribute many of their copyrighted motion pictures for home use on digital

versatile disks ("DVDs"), which contain copies of the motion pictures indigital form. They protect those motion pictures from copying by using an

encryption system called CSS. CSS-protected motion pictures on DVDs may beviewed only on players and computer drives equipped with licensed technology

that permits the devices to decrypt and play-but not to copy-the films.

Late last year, computer hackers devised a computer program called DeCSSthat circumvents the CSS protection system and allows CSS-protected motionpictures to be copied and played on devices that lack the licensed decryption

technology. Defendants quickly posted DeCSS on their Internet web site, thusmaking it readily available to much of the world. Plaintiffs promptly broughtthis action under the Digital Millennium Copyright Act (the "DMCA") FN1 to

enjoin defendants from posting DeCSS and to prevent them from electronically"linking" their site to others that post DeCSS. Defendants responded with what

they termed "electronic civil disobedience"-increasing their efforts to linktheir web site to a large number of *304 others that continue to make DeCSS

available.

FN1. 17 U.S.C. s 1201 et seq.

Defendants contend that their actions do not violate the DMCA and, in anycase, that the DMCA, as applied to computer programs, or code, violates theFirst Amendment.FN2 This is the Court's decision after trial, and the decision

may be summarized in a nutshell.

FN2. Shortly after the commencement of the action, the Court granted plaintiffs' motion for a preliminary injunction barring defendants from

posting DeCSS. Universal City Studios, Inc. v. Reimerdes, 82 F.Supp.2d 211 (S.D.N.Y.2000). Subsequent motions to expand the preliminary injunction to linking and to vacate it were consolidated with the trial

on the merits. This opinion reflects the Court's findings of fact, conclusions of law and decision on the merits.

The Court notes the receipt of a number of amicus submissions. Although many were filed by defendants' counsel on behalf of certain

amici, and therefore were of debatable objectivity, the amicus submissions considered as a group were helpful.

Defendants argue first that the DMCA should not be construed to reach theirconduct, principally because the DMCA, so applied, could prevent those who wish

to gain access to technologically protected copyrighted works in order to makefair-that is, non-infringing-use of them from doing so. They argue that thosewho would make fair use of technologically protected copyrighted works need

means, such as DeCSS, of circumventing access control measures not for piracy,but to make lawful use of those works.

Technological access control measures have the capacity to prevent fair usesof copyrighted works as well as foul. Hence, there is a potential tension

between the use of such access control measures and fair use. Defendants arenot the first to recognize that possibility. As the DMCA made its way throughthe legislative process, Congress was preoccupied with precisely this issue.

Proponents of strong restrictions on circumvention of access control measuresargued that they were essential if copyright holders were to make their worksavailable in digital form because digital works otherwise could be pirated too

easily. Opponents contended that strong anti-circumvention measures wouldextend the copyright monopoly inappropriately and prevent many fair uses of

copyrighted material.

Congress struck a balance. The compromise it reached, depending uponfuture technological and commercial developments, may or may not prove ideal.

FN3 But the solution it enacted is clear. The potential tension to whichdefendants point does not absolve them of liability under the statute. Thereis no serious question that defendants' posting of DeCSS violates the DMCA.

FN3. David Nimmer, A Riff on Fair Use in the Digital Millennium Copyright Act, 148 U.PA.L.REV. 673, 739-41 (2000) (hereinafter A Riff on Fair Use

).

Defendants' constitutional argument ultimately rests on twopropositions-that computer code, regardless of its function, is "speech"

entitled to maximum constitutional protection and that computer code thereforeessentially is exempt from regulation by government. But their argument is

baseless.

Computer code is expressive. To that extent, it is a matter of FirstAmendment concern. But computer code is not purely expressive any more than

the assassination of a political figure is purely a political statement. Codecauses computers to perform desired functions. Its expressive element no moreimmunizes its functional aspects from regulation than the expressive motives of

an assassin immunize the assassin's action.

In an era in which the transmission of computer viruses-which, like DeCSS,are simply computer code and thus to some degree expressive-can disable systems

upon which the nation depends and in which other computer code also is capableof inflicting other harm, society must be able to regulate the use and

dissemination *305 of code in appropriate circumstances. The Constitution,after all, is a framework for building a just and democratic society. It is

not a suicide pact.

I. The Genesis of the Controversy

As this case involves computers and technology with which many areunfamiliar, it is useful to begin by defining some of the vocabulary.

A. The Vocabulary of this Case

1. Computers and Operating Systems

A computer is "a digital information processing device .... consist[ing] ofcentral processing components ... and mass data storage .... certain peripheral

input/output devices ..., and an operating system." Personal computers("PCs") are computers designed for use by one person at a time. "[M]ore

powerful, more expensive computer systems known as 'servers' ... are designedto provide data, services, and functionality through a digital network to

multiple users." FN4

FN4. United States v. Microsoft Corp., 84 F.Supp.2d 9, 13 (D.D.C.1999). The quotations are from a finding of fact in the Microsoft case of which

the Court, after notice to and without objection by the parties, takes judicial notice. Tr. at 1121. Subsequent references to Microsoft findings reflect similar instances of judicial notice without objection.

An operating system is "a software program that controls the allocation anduse of computer resources (such as central processing unit time, main memory

space, disk space, and input/output channels). The operating system alsosupports the functions of software programs, called 'applications,' that

perform specific user-oriented tasks.... Because it supports applications whileinteracting more closely with the PC system's hardware, the operating system is

said to serve as a 'platform.' " FN5

FN5. United States v. Microsoft Corp., 84 F.Supp.2d at 13.

Microsoft Windows ("Windows") is an operating system released by MicrosoftCorp. It is the most widely used operating system for PCs in the United States,

and its versions include Windows 95, Windows 98, Windows NT and Windows 2000.

Linux, which was and continues to be developed through the open source modelof software development,FN6 also is an operating system.FN7 It can be run on a

PC as an alternative to Windows, although the extent to which it is so used islimited.FN8 Linux is more widely used on servers.FN9

FN6. Open source is a software development model by which the source code to a computer program is made available publicly under a license that

gives users the right to modify and redistribute the program. The program develops through this process of modification and redistribution

and through a process by which users download sections of code from a web site, modify that code, upload it to the same web site, and merge the

modified sections into the original code. Trial transcript ("Tr.") (Craig) at 1008.

FN7. Tr. (Pavlovich) at 936.

FN8. Tr. (DiBona) at 994-95.

FN9. Id.

2. Computer Code

"[C]omputers come down to one basic premise: They operate with a series ofon and off switches, using two digits in the binary (base 2) number system-0

(for off) and 1 (for on)." FN10 All data and instructions input to orcontained in computers therefore must be reduced the numerals 1 and 0. FN11

FN10. THE NEW YORK PUBLIC LIBRARY, SCIENCE DESK REFERENCE 496 (1995) (hereinafter SCIENCE DESK REFERENCE); see also Tr. (Felten) at 758-59;

Hon. Shira A. Scheindlin & Jeffrey Rabkin, Electronic Discovery in Federal Civil Litigation: Is Rule 34 Up to the Task? 34 B.C.L.REV. 327,

333-35 (2000).

FN11. Tr. (Felten) at 759; Scheindlin & Rabkin, 34 B.C.L.REV. at 333-35.

"The smallest unit of memory in a computer," a bit, "is a switch with avalue of *306 0(off) or 1(on)." FN12 A group of eight bits is called a byteand represents a character-a letter or an integer.FN13 A kilobyte ("K") is

1024 bytes, a megabyte ("MB") 1024 kilobytes, and a gigabyte ("GB") 1024megabytes.FN14

FN12. SCIENCE DESK REFERENCE, at 501.

FN13. Id.

FN14. Id.

Some highly skilled human beings can reduce data and instructions to stringsof 1's and 0's and thus program computers to perform complex tasks by inputtingcommands and data in that form.FN15 But it would be inconvenient, inefficientand, for most people, probably impossible to do so. In consequence, computerscience has developed programming languages. These languages, like otherwritten languages, employ symbols and syntax to convey meaning. The text ofprograms written in these languages is referred to as source code.FN16 Andwhether directly or through the medium of another program,FN17 the sets ofinstructions written in programming languages-the source code-ultimately are

translated into machine "readable" strings of 1's and 0's, known in thecomputer world as object code, which typically are executable by the computer.

FN18

FN15. See Tr. (Felten) at 759-60.

FN16. The Court's findings with respect to the definitions of source code and object code are taken from the trial testimony of Robert Schumann,

Tr. at 258, and Drs. Edward Felten, Tr. at 738-39, 757-63, David S. Touretzky, Tr. at 1065-91, and Andrew Appel, Tr. at 1096, and the

deposition testimony of Dr. Harold Abelson, Ex. AZO at 34-37, 45-49. See also Ex. BBE.

FN17. Frequently, programs written in such languages must be transformed or translated into machine readable form by other programs known as

compilers.

FN18. This to some degree is an oversimplification. Object code often is directly executable by the computer into which it is entered. It

sometimes contains instructions, however, that are readable only by computers containing a particular processor, such as a Pentium processor,

or a specific operating system such as Microsoft Windows. In such instances, a computer lacking the specific processor or operating system

can execute the object code only if it has an emulator program that simulates the necessary processor or operating system or if the code

first is run through a translator program that converts it into object code readable by that computer. Ex. BBE.

The distinction between source and object code is not as crystal clear as

first appears. Depending upon the programming language, source code maycontain many 1's and 0's and look a lot like object code or may contain many

instructions derived from spoken human language. Programming languages thesource code for which approaches object code are referred to as low level

source code while those that are more similar to spoken language are referredto as high level source code.

All code is human readable. As source code is closer to human languagethan is object code, it tends to be comprehended more easily by humans than

object code.

3. The Internet and the World Wide Web

The Internet is "a global electronic network, consisting of smaller,interconnected networks, which allows millions of computers to exchange

information over telephone wires, dedicated data cables, and wireless links.The Internet links PCs by means of servers, which run specialized operating

systems and applications designed for servicing a network environment." FN19


Internet Relay Chat ("IRC") is a system that enables individuals connectedto the Internet to participate in live typed discussions.FN20 Participation in

an IRC discussion requires an IRC software program, which sends messages viathe Internet to the IRC server, which in turn broadcasts the messages to allparticipants. The IRC *307 system is capable of supporting many separate

discussions at once.

FN20. Tr. (Shamos) at 67-68.

The World Wide Web (the "Web") is "a massive collection of digitalinformation resources stored on servers throughout the Internet. These

resources are typically provided in the form of hypertext documents, commonlyreferred to as 'Web pages,' that may incorporate any combination of text,

graphics, audio and video content, software programs, and other data. A userof a computer connected to the Internet can publish a page on the Web simply by

copying it into a specially designated, publicly accessible directory on a Webserver. Some Web resources are in the form of applications that providefunctionality through a user's PC system but actually execute on a server."

FN21


A web site is "a collection of Web pages [published on the Web by anindividual or organization] .... Most Web pages are in the form of 'hypertext';

that is, they contain annotated references, or 'hyperlinks,' to other Webpages. Hyperlinks can be used as cross-references within a single document,

between documents on the same site, or between documents on different sites."FN22

FN22. Id. at 14.

A home page is "one page on each Web site ... [that typically serves as] thefirst access point to the site. The home page is usually a hypertext document

that presents an overview of the site and hyperlinks to the other pagescomprising the site." FN23

FN23. Id.

A Web client is "software that, when running on a computer connected to theInternet, sends information to and receives information from Web serversthroughout the Internet. Web clients and servers transfer data using a

standard known as the Hypertext Transfer Protocol ('HTTP'). A 'Web browser'is a type of Web client that enables a user to select, retrieve, and perceive

resources on the Web. In particular, Web browsers provide a way for a user toview hypertext documents and follow the hyperlinks that connect them, typically

by moving the cursor over a link and depressing the mouse button." FN24

FN24. Id.

4. Portable Storage Media

Digital files may be stored on several different kinds of storage media,some of which are readily transportable. Perhaps the most familiar of theseare so called floppy disks or "floppies," which now are 3 1/2 inch magneticdisks upon which digital files may be recorded.FN25 For present purposes,however, we are concerned principally with two more recent developments,

CD-ROMs and digital versatile disks, or DVDs.

FN25. Not too many years ago, the most common transportable storage media were 5 1/4 inch flexible magnetic disks. Their flexibility led to

their being referred to as "floppies." They have been replaced almost entirely with today's 3 1/2 inch disks, which are enclosed in hard

plastic housings and which therefore are not flexible or "floppy." The earlier name, however, has stuck.

A CD-ROM is a five-inch wide optical disk capable of storing approximately650 MB of data. To read the data on a CD-ROM, a computer must have a CD-ROM

drive.

DVDs are five-inch wide disks capable of storing more than 4.7 GB of data.In the application relevant here, they are used to hold full-length motionpictures in digital form. They are the latest technology for private home

viewing of recorded motion pictures and result in drastically improved audioand visual clarity and quality of motion pictures shown on televisions or

computer screens.FN26

FN26. Tr. (King) at 403-04.

*308 5. The Technology Here at Issue

CSS, or Content Scramble System, is an access control and copy preventionsystem for DVDs developed by the motion picture companies, includingplaintiffs.FN27 It is an encryption-based system that requires the use of

appropriately configured hardware such as a DVD player or a computer DVD driveto decrypt, unscramble and play back, but not copy, motion pictures on DVDs.FN28 The technology necessary to configure DVD players and drives to play

CSS-protected DVDs FN29 has been licensed to hundreds of manufacturers in theUnited States and around the world.

FN27. Tr. (Shamos) at 24.

FN28. Id. at 24-25.

FN29. Such devices are referred to subsequently as compliant.

DeCSS is a software utility, or computer program, that enables users tobreak the CSS copy protection system and hence to view DVDs on unlicensed

players and make digital copies of DVD movies.FN30 The quality of motion

pictures decrypted by DeCSS is virtually identical to that of encrypted movieson DVD. FN31


FN31. Tr. (Schumann) at 273.

DivX is a compression program available for download over the Internet.FN32 It compresses video files in order to minimize required storage space,

often to facilitate transfer over The Internet or other networks. FN33

FN32. Tr. (Ramadge) at 911.

FN33. Id. at 911-12.

B. Parties

Plaintiffs are eight major motion picture studios. Each is in the businessof producing and distributing copyrighted material including motion pictures.

Each distributes, either directly or through affiliates, copyrighted motionpictures on DVDs.FN34 Plaintiffs produce and distribute a large majority of the

motion pictures on DVDs on the market today.FN35

FN34. Ex. 2.1-2.34; 3.1-3.34.

FN35. Tr. (King) at 404.

Defendant Eric Corley is viewed as a leader of the computer hacker communityand goes by the name Emmanuel Goldstein, after the leader of the underground in

George Orwell's classic, 1984.FN36 He and his company, defendant 2600Enterprises, Inc., together publish a magazine called 2600: The Hacker

Quarterly, which Corley founded in 1984,FN37 and which is something of a bibleto the hacker community.FN38 The name "2600" was derived from the fact that

hackers in the 1960's found that the transmission of a 2600 hertz tone over along distance trunk connection gained access to "operator mode" and allowed the

user to explore aspects of the telephone system that were not otherwiseaccessible.FN39 Mr. Corley chose the name because he regarded it as a

"mystical thing," FN40 commemorating something that he evidently admired. Notsurprisingly, 2600: The Hacker Quarterly has included articles on such topics

as how to steal an Internet domain name,FN41 access other people's e-mail,FN42intercept cellular phone calls,FN43 and break into the computer systems*309 at

Costco stores FN44 and Federal Express.FN45 One issue contains a guide to thefederal criminal justice system for readers charged with computer hacking.FN46

In addition, defendants operate a web site located at <http://www.2600.com>("2600.com"), which is managed primarily by Mr. Corley and has been in

existence since 1995. FN47

FN36. Tr. (Corley) at 787, 827.

FN37. Tr. (Corley) at 777, 790, 795; Ex. 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.11, 1.12, 1.13, 1.14, 1.15, 1.16; 79 (Corley Dec.) P 1.

FN38. See Tr. (Corley) at 781.

FN39. Tr. (Corley) 786-87.

FN40. Id. at 787.

FN41. Ex. 1.2 (Redomega Crim, How Domains Are Stolen, 2600: THE HACKER

QUARTERLY, Summer 2000, at 43).

FN42. Ex. 1.16 (Schlork, Snooping via MS-Mail, 2600: THE HACKER QUARTERLY, Winter 1996-97, at 28).

FN43. Ex. 1.14 (Thomas Icom, Cellular Interception Techniques, 2600: THE HACKER QUARTERLY, Spring 1995, at 23).

FN44. Ex. 1.12 (nux, Fun at Costco, 2600: THE HACKER QUARTERLY, Summer 1999, at 12).

FN45. Ex. 1.19 (PhranSys Drak3, Hacking FedEx, 2600: THE HACKER QUARTERLY, Autumn 1997, at 14).

FN46. Ex. 1.19 (Agent Steal, Busted! A Complete Guide to Getting Caught, 2600: THE HACKER QUARTERLY, Autumn 1997, at 6).

FN47. Tr. (Corley) at 790; Ex. 52-54, 64, 79 (Corley Dec.) P 20; 97.

Interestingly, defendants' copyright both their magazine and the material on their web site to prevent others from copying their works.

Tr. (Corley) at 832; Ex. 96 (Corley Dep.) at 23-24.

Prior to January 2000, when this action was commenced, defendants posted thesource and object code for DeCSS on the 2600.com web site, from which theycould be downloaded easily.FN48 At that time, 2600.com contained also a list

of links to other web sites purporting to post DeCSS.FN49

FN48. Tr. (Corley) at 791; Ex. 28.

FN49. Tr. (Corley) at 791, 829, 848; Ex. 28.

C. The Development of DVD and CSS

The major motion picture studios typically distribute films in a sequence ofso-called windows, each window referring to a separate channel of distribution

and thus to a separate source of revenue. The first window generally istheatrical release, distribution, and exhibition. Subsequently, films aredistributed to airlines and hotels, then to the home market, then to pay

television, cable and, eventually, free television broadcast. The home marketis important to plaintiffs, as it represents a significant source of revenue.

FN50


Motion pictures first were, and still are, distributed to the home market inthe form of video cassette tapes. In the early 1990's, however, the majormovie studios began to explore distribution to the home market in digital

format, which offered substantially higher audio and visual quality and greaterlongevity than video cassette tapes.FN51 This technology, which in 1995 becamewhat is known today as DVD,FN52 brought with it a new problem-increased risk of

piracy by virtue of the fact that digital files, unlike the material on videocassettes, can be copied without degradation from generation to generation.FN53

In consequence, the movie studios became concerned as the product neared marketwith the threat of DVD piracy.FN54

FN51. Id. at 404, 468.

FN52. Id. at 408, 468, 470.

FN53. Id. at 404-05.

FN54. Id. at 404-05, 468-70.

Discussions among the studios with the goal of organizing a unified responseto the piracy threat began in earnest in late 1995 or early 1996. FN55 Theyeventually came to include representatives of the consumer electronics andcomputer industries, as well as interested members of the public,FN56 andfocused on both legislative proposals and technological solutions.FN57 In

1996, Matsushita Electric Industrial Co. ("MEI") and Toshiba Corp.,presented-and the studios adopted-CSS.FN58

FN55. Id. at 406.

FN56. Id. at 405-06, 471, 476-78.

FN57. Id. at 405, 470-71, 479.

FN58. Id. at 406-07, 502-04.

CSS involves encrypting, according to an encryption algorithm,FN59 thedigital *310 sound and graphics files on a DVD that together constitute a

motion picture. A CSS-protected DVD can be decrypted by an appropriatedecryption algorithm that employs a series of keys stored on the DVD and the

DVD player. In consequence, only players and drives containing theappropriate keys are able to decrypt DVD files and thereby play movies stored

on DVDs.

FN59. An algorithm is a recipe that contains instructions for completing a task. It can be expressed in any language, from natural spoken

language to computer programming language. Ex. AZO (Abelson Dep.) at 9-10.

As the motion picture companies did not themselves develop CSS and, in anycase, are not in the business of making DVD players and drives, the technologyfor making compliant devices, i.e., devices with CSS keys, had to be licensed

to consumer electronics manufacturers.FN60 In order to ensure that thedecryption technology did not become generally available and that compliantdevices could not be used to copy as well as merely to play CSS-protectedmovies, the technology is licensed subject to strict security requirements.

FN61 Moreover, manufacturers may not, consistent with their licenses, makeequipment that would supply digital output that could be used in copying

protected DVDs.FN62 Licenses to manufacture compliant devices are granted on aroyalty-free basis subject only to an administrative fee.FN63 At the time of

trial, licenses had been issued to numerous hardware and softwaremanufacturers, including two companies that plan to release DVD players for

computers running the Linux operating system.FN64

FN60. The licensing function initially was performed by MEI and Toshiba. Subsequently, MEI and Toshiba granted a royalty free license to the DVD Copy Control Association ("DVD CCA"), which now handles the licensing

function. Tr. (King) at 485-86, 510; Ex. XXY (Attaway Dep.) at 31. The motion picture companies themselves license CSS from the DVD CCA. Ex.

XYY (Attaway Dep.) at 31-32.

FN61. See, e.g., Ex. AHV ss 5, 6.2.

FN62. Tr. (King) at 450-51, 492-93; Ex. XXY (Attaway Dep.) at 61-62; Ex. AHV.

FN63. The administrative fee is one million yen, now about $9,200, for each "membership category" selected by the licensee. Twelve membership

categories are available, and one or more are selected by a licensee depending on the use which the licensee intends to make of the licensed

technology. The membership categories are: content provider, authoring studio, DVD disc replicator, DVD player manufacturer, DVD-ROM drive

manufacturer, DVD decoder manufacturer, descramble module manufacturer, authentication chip manufacturer for DVD-ROM drive, authenticator

manufacturer for DVD decoder, integrated product manufacturer, and reseller. Ex. AJB, AIZ, AOV, AOU, AOQ.

FN64. Tr. (King) at 437-38; see also Tr. (Pavolvich) at 961; Ex. BD.

With CSS in place, the studios introduced DVDs on the consumer market inearly 1997.FN65 All or most of the motion pictures released on DVD were, and

continue to be, encrypted with CSS technology.FN66 Over 4,000 motion picturesnow have been released in DVD format in the United States, and movies are being

issued on DVD at the rate of over 40 new titles per month in addition tore-releases of classic films. Currently, more than five million households in

the United States own DVD players,FN67 and players are projected to be in tenpercent of United States homes by the end of 2000.FN68

FN65. Tr. (King) at 408-09.

FN66. Id. at 409.

FN67. Id. at 417-18.

FN68. Id. at 442.

DVDs have proven not only popular, but lucrative for the studios. Revenuefrom their sale and rental currently accounts for a substantial percentage of

the movie studios' revenue from the home video market.FN69 Revenue from thehome market, in *311 turn, makes up a large percentage of the studios' total

distribution revenue.FN70

FN69. Revenue from the distribution of DVDs makes up approximately 35 percent of Warner Brothers' total worldwide revenue from movie

distribution in the home video market. Id. at 403.

FN70. Distribution in the home video market accounts for approximately 40 percent of Warner Brothers' total income from movie distribution. Id.

D. The Appearance of DeCSS

In late September 1999, Jon Johansen, a Norwegian subject then fifteen yearsof age, and two individuals he "met" under pseudonyms over the Internet,

reverse engineered a licensed DVD player and discovered the CSS encryptionalgorithm and keys.FN71 They used this information to create DeCSS, a programcapable of decrypting or "ripping" encrypted DVDs, thereby allowing playback onnon-compliant computers as well as the copying of decrypted files to computer

hard drives.FN72 Mr. Johansen then posted the executable code on his personalInternet web site and informed members of an Internet mailing list that he haddone so.FN73 Neither Mr. Johansen nor his collaborators obtained a license

from the DVD CCA.FN74

FN71. Tr. (Johansen) at 619-22, 633, 639.

FN72. Id. at 619-21, 634; (Schumann) at 246-48. Mr. Johansen testified that the "De" in DeCSS stands for "decrypt." Tr. (Johansen) at 628.

FN73. Tr. (Johansen) at 622-23, 638; Ex. 9 at SCH-000846. Mr. Johansen did not post the source code on his Web site. Tr. (Johansen) at 635.

FN74. Tr. (Johansen) at 620.

Although Mr. Johansen testified at trial that he created DeCSS in order tomake a DVD player that would operate on a computer running the Linux operating

system,FN75 DeCSS is a Windows executable file; that is, it can be executedonly on computers running the Windows operating system. FN76 Mr. Johansen

explained the fact that he created a Windows rather than a Linux program byasserting that Linux, at the time he created DeCSS, did not support the file

system used on DVDs.FN77 Hence, it was necessary, he said, to decrypt the DVDon a Windows computer in order subsequently to play the decrypted files on a

Linux machine.FN78 Assuming that to be true, FN79 however, the fact remainsthat Mr. Johansen created DeCSS in the full knowledge that it could be used on

computers running Windows rather than Linux. Moreover, he was well aware thatthe files, once decrypted, could be copied like any other computer files.

FN75. Id. at 620.

FN76. Id. at 621-22.

FN77. Id. at 621-22, 624; (Stevenson) at 214.

FN78. Tr. (Johansen) at 623.

FN79. Substantial questions have been raised both at trial and elsewhere as to the veracity of Mr. Johansen's claim. See Ex. CS, at S10006 ("Our

analysis indicates that the primary technical breakthroughs were developed outside of the Linux development groups.").

In January 1999, Norwegian prosecutors filed charges against Mr. Johansenstemming from the development of DeCSS.FN80 The disposition of the Norwegian

case does not appear of record.

FN80. Tr. (Johansen) at 626-27.

E. The Distribution of DeCSS

In the months following its initial appearance on Mr. Johansen's web site,DeCSS has become widely available on the Internet, where hundreds of sites now

purport to offer the software for download.FN81 A few other applications saidto decrypt CSS-encrypted DVDs also have appeared on the Internet. FN82

FN81. Ex. 97, 107, 126.

FN82. Tr. (Stevenson) at 217-18, 226-29; (Schumann) at 290, 338-41; (Johansen) at 641; (Reider) at 681-85. One, DOD (Drink or Die) Speed

Ripper, does not work with all DVDs that DeCSS will decrypt. Id.; Ex.CS, at S10011; Ex. 9. Some of these programs perform only a portion of what DeCSS does and must be used in conjunction with others in order to decrypt the contents of a DVD. Tr. (Schuman) at 290, 338-39. Some of

defendants' claims about these other means proved baseless at trial. See Tr. (Pavlovich) at 965-68.

*312 In November 1999, defendants' web site began to offer DeCSS fordownload.FN83 It established also a list of links to several web sites that

purportedly "mirrored" or offered DeCSS for download.FN84 The links ondefendants' mirror list fall into one of three categories. By clicking the

mouse on one of these links, the user may be brought to a page on the linked-tosite on which there appears a further link to the DeCSS software.FN85 If theuser then clicks on the DeCSS link, download of the software begins. This

page may or may not contain content other than the DeCSS link.FN86Alternatively, the user may be brought to a page on the linked-to site that

does not itself purport to link to DeCSS, but that links, either directly orvia a series of other pages on the site, to another page on the site on whichthere appears a link to the DeCSS software.FN87 Finally, the user may be

brought directly to the DeCSS link on the linked-to site such that download ofDeCSS begins immediately without further user intervention.FN88


FN84. Tr. (Corley) at 791, 829, 848; Ex. 28.

FN85. Tr. (Corley) at 829-30, 845.

FN86. Id. at 831, 845.

FN87. Id. at 829-30, 845.

FN88. Id. at 830; (Shamos) at 38. As Mr. Corley testified, the download process generally begins with the appearance of a dialog box, or

small window, prompting the user to confirm the location on the user's computer hard drive where the downloaded software will be stored. The actual download does not begin until the user provides the computer with

this information. Tr. (Corley) at 830. It is possible also to create a link that commences the download immediately upon being clicked. See

Tr. (Touretzky) at 1082-83.

F. The Preliminary Injunction and Defendants' Response

The movie studios, through the Internet investigations division of theMotion Picture Association of America ("MPAA"), became aware of the

availability of DeCSS on the Internet in October 1999.FN89 The industryresponded by sending out a number of cease and desist letters to web site

operators who posted the software, some of which removed it from their sites.FN90 In January 2000, the studios filed this lawsuit against defendant Eric

Corley and two others.FN91

FN89. Tr. (Reider) at 652.

FN90. Tr. (King) at 435, 548; (Reider) at 653; Ex. 55.

FN91. The other two defendants entered into consent decrees with plaintiffs. Plaintiffs subsequently amended the complaint to add 2600

Enterprises, Inc. as a defendant.

After a hearing at which defendants presented no affidavits or evidentiarymaterial, the Court granted plaintiffs' motion for a preliminary injunction

barring defendants from posting DeCSS.FN92 At the conclusion of the hearing,plaintiffs sought also to enjoin defendants from linking to other sites that

posted DeCSS, but the Court declined to entertain the application at that timein view of plaintiffs' failure to raise the issue in their motion papers.FN93

FN92. Preliminary Injunction, Jan. 20, 2000 (DI 6); Universal City Studios, Inc., 82 F.Supp.2d 211.

FN93. Tr., Jan. 20, 2000 (DI 17) at 85.

Following the issuance of the preliminary injunction, defendants removedDeCSS from the 2600.com web site.FN94 In what they termed an act of

"electronic civil disobedience," FN95 however, they continued to support linksto other web sites purporting to offer DeCSS for download, a list which had

grown to nearly five hundred by July 2000.FN96 Indeed, they carried a banner*313 saying "Stop the MPAA" and, in a reference to this lawsuit, proclaimed:


FN95. Tr. (Corley) at 834; Ex. 96 (Corley Dep.) at 151-53.

FN96. Tr. (Corley) at. 791; Ex. 79 (Corley Dec.) P 21; 126.

"We have to face the possibility that we could be forced into submission. For that reason it's especially important that as many of you as possible,

all throughout the world, take a stand and mirror these files." FN97

FN97. Ex. 106.

Thus, defendants obviously hoped to frustrate plaintiffs' recourse to thejudicial system by making effective relief difficult or impossible.

At least some of the links currently on defendants' mirror list lead theuser to copies of DeCSS that, when downloaded and executed, successfully

decrypt a motion picture on a CSS-encrypted DVD.FN98

FN98. Tr. (Shamos) at 36-42; (Schumann) at 272-73; 265-66 (defendants' stipulation that their web site links to other sites containing

executable copies of DeCSS).

G. Effects on Plaintiffs

The effect on plaintiffs of defendants' posting of DeCSS depends upon theease with which DeCSS decrypts plaintiffs' copyrighted motion pictures, thequality of the resulting product, and the convenience with which decrypted

copies may be transferred or transmitted.

As noted, DeCSS was available for download from defendants' web site andremains available from web sites on defendants' mirror list.FN99 Downloading is

simple and quick-plaintiffs' expert did it in seconds. FN100 The program infact decrypts at least some DVDs.FN101 Although the process is computationally

intensive, plaintiffs' expert decrypted a store-bought copy of Sleepless inSeattle in 20 to 45 minutes.FN102 The copy is stored on the hard drive of the

computer. The quality of the decrypted film is virtually identical to that ofencrypted films on DVD. FN103 The decrypted file can be copied like any other.

FN104

FN99. Tr. (Shamos) at 36-42; (Schumann) at 272-73.

FN100. Tr. (Shamos) at 39-40; see also Ex. AYZ (Hunt Dep.) at 18.

FN101. Tr. (Shamos) at 41-42; (Schumann) at 272-73.

FN102. Tr. (Shamos) at 41-42, 156.

FN103. Tr. (Schumann) at 273; Ex. AYZ (Hunt Dep.) at 26.

FN104. Tr. (Johansen) at 628; see also Ex. AZN (Simons Dep.) at 48.

The decryption of a CSS-protected DVD is only the beginning of the tale, asthe decrypted file is very large-approximately 4.3 to 6 GB or more depending onthe length of the film FN105-and thus extremely cumbersome to transfer or tostore on portable storage media. One solution to this problem, however, isDivX, a compression utility available on the Internet that is promoted as a

means of compressing decrypted motion picture files to manageable size.FN106

FN105. Tr. (Shamos) at 42; (Ramadge) at 900.

FN106. See Tr. (Shamos) at 54-56; Ex. 112-13.

DivX is capable of compressing decrypted files constituting a feature lengthmotion picture to approximately 650 MB at a compression ratio that involves

little loss of quality.FN107 While the compressed sound and graphic files thenmust be synchronized, a tedious process that took plaintiffs' expert between 10and 20 hours,FN108 the task is entirely feasible. Indeed, having compared a

store-bought DVD with portions of a copy compressed and synchronized with DivX(which often are referred to as "DivX'd" motion pictures), the Court finds thatthe loss of quality, at least *314 in some cases, is imperceptible or so nearly

imperceptible as to be of no importance to ordinary consumers.FN109

FN107. DivX effects what is known as "lossy" compression-it achieves its reduction in file size by eliminating some of the data in the file being

compressed. The trick, however, is that it seeks to do so by eliminating data that is imperceptible, or nearly so, to the human

observer. Tr. (Shamos) at 43-44; (Ramadge) at 882-98.


FN109. Defendants produced an expert whose DivX of a DeCSS decrypted file was of noticeably lower quality than that of plaintiffs' expert's DivX'd

film. The reasons for the difference are not clear. The Court is satisfied, however, that it is possible to make high quality 650 MB

DivX'd copies of many films.

The fact that DeCSS-decrypted DVDs can be compressed satisfactorily to 650MB is very important. A writeable CD-ROM can hold 650 MB.FN110 Hence, it isentirely feasible to decrypt a DVD with DeCSS, compress and synchronize it withDivX, and then make as many copies as one wishes by burning the resulting filesonto writeable CD-ROMs, which are sold blank for about one dollar apiece.FN111

Indeed, even if one wished to use a lower compression ratio to improve quality,a film easily could be compressed to about 1.3 GB and burned onto two CD-ROMs.

But the creation of pirated copies of copyrighted movies on writeable CD-ROMs,although significant, is not the principal focus of plaintiffs' concern, which

is transmission of pirated copies over the Internet or other networks.

FN110. Tr. (Ramadge) at 930.


The copies do not require resynchronization of the sound and graphics.

Network transmission of decrypted motion pictures raises somewhat moredifficult issues because even 650 MB is a very large file that, depending upon

the circumstances, may take a good deal of time to transmit. But there istremendous variation in transmission times. Many home computers today have

modems with a rated capacity of 56 kilobits per second. DSL lines, which

increasingly are available to home and business users, offer transfer rates of7 megabits per second.FN112 Cable modems also offer increased bandwidth.

Student rooms in many universities are equipped with network connections ratedat 10 megabits per second.FN113 Large institutions such as universities and

major companies often have networks with backbones rated at 100 megabits persecond.FN114 While effective transmission times generally are much lower than

rated maximum capacities in consequence of traffic volume and otherconsiderations, there are many environments in which very high transmission

rates may be achieved.FN115 Hence, transmission times ranging from three FN116totwenty minutes FN117 to six hours FN118 or more for a feature length film are

readily achievable, depending upon the users' precise circumstances.FN119


FN113. Tr. (Shamos) at 89-90, 98; (Peterson) at 865; (Pavlovich) at 943.

FN114. Tr. (Shamos) at 90; (Felten) at 772; (Peterson) at 879.

FN115. See, e.g., Tr. (Peterson) at 861, 875-76.

FN116. Id. (Shamos) at 87-88.

FN117. Id.

FN118. Id. at 77.

FN119. It should be noted here that the transmission time achieved by plaintiff's expert, Dr. Shamos, almost certainly was somewhat skewed

because the work was done late at night on a university system after the close of the regular school year, conditions favorable to high effective

transmission rates due to low traffic on the system.

At trial, defendants repeated, as if it were a mantra, the refrain thatplaintiffs, as they stipulated,FN120 have no direct evidence of a specific

occasion on which any person decrypted a copyrighted motion picture with DeCSSand transmitted it over the Internet. But that is unpersuasive. Plaintiffs'expert expended very little effort to find someone in an IRC chat room whoexchanged a compressed, decrypted copy of The Matrix, one of plaintiffs'

copyrighted motion pictures, for a *315 copy of Sleepless in Seattle.FN121While the simultaneous electronic exchange of the two movies took approximately

six hours,FN122 the computers required little operator attention during theinterim. An MPAA investigator downloaded between five and ten DVD-sourced

movies over the Internet after December 1999. FN123 At least one web sitecontains a list of 650 motion pictures, said to have been decrypted and

compressed with DivX, that purportedly are available for sale, trade or freedownload.FN124 And although the Court does not accept the list, which ishearsay, as proof of the truth of the matters asserted therein, it does note

that advertisements for decrypted versions of copyrighted movies first appearedon the Internet in substantial numbers in late 1999, following the posting of

DeCSS.FN125

FN120. Tr. (Schumann) at 334-36.


FN122. Id. at 76-77.

FN123. Ex. AYY (Reider Dep.) at 98-101; see also id. at 121-23.

FN124. Ex. 116B.

FN125. Tr. (Reider) at 661.

The net of all this is reasonably plain. DeCSS is a free, effective andfast means of decrypting plaintiffs' DVDs and copying them to computer hard

drives. DivX, which is available over the Internet for nothing, with theinvestment of some time and effort, permits compression of the decrypted filesto sizes that readily fit on a writeable CD-ROM. Copies of such CD-ROMs can

be produced very cheaply and distributed as easily as other piratedintellectual property. While not everyone with Internet access now will find

it convenient to send or receive DivX'd copies of pirated motion pictures overthe Internet, the availability of high speed network connections in many

businesses and institutions, and their growing availability in homes, makeInternet and other network traffic in pirated copies a growing threat.

These circumstances have two major implications for plaintiffs. First, theavailability of DeCSS on the Internet effectively has compromised plaintiffs'system of copyright protection for DVDs, requiring them either to tolerate

increased piracy or to expend resources to develop and implement a replacementsystem unless the availability of DeCSS is terminated.FN126 It is analogous tothe publication of a bank vault combination in a national newspaper. Even ifno one uses the combination to open the vault, its mere publication has theeffect of defeating the bank's security system, forcing the bank to reprogram

the lock. Development and implementation of a new DVD copy protection system,however, is far more difficult and costly than reprogramming a combination lock

and may carry with it the added problem of rendering the existing installedbase of compliant DVD players obsolete.


Second, the application of DeCSS to copy and distribute motion pictures onDVD, both on CD-ROMs and via the Internet, threatens to reduce the studios'revenue from the sale and rental of DVDs. It threatens also to impede new,

potentially lucrative initiatives for the distribution of motion pictures indigital form, such as video-on-demand via the Internet.FN127

FN127. Id. at 420.

In consequence, plaintiffs already have been gravely injured. As thepressure for and competition to supply more and more users with faster and

faster network connections grows, the injury will multiply.

II. The Digital Millennium Copyright Act

A. Background and Structure of the Statute

In December 1996, the World Intellectual Property Organization ("WIPO"),held a diplomatic conference in Geneva that led to the adoption of two

treaties. Article 11 of the relevant treaty, the WIPO Copyright*316 Treaty,provides in relevant part that contracting states "shall provide adequate legalprotection and effective legal remedies against the circumvention of effective

technological measures that are used by authors in connection with the exerciseof their rights under this Treaty or the Berne Convention and that restrictacts, in respect of their works, which are not authorized by the authors

concerned or permitted by law." FN128

FN128. WIPO Copyright Treaty, Apr. 12, 1997, Art. 11, S. Treaty Doc. No.

105-17 (1997), available at 1997 WL 447232.

The adoption of the WIPO Copyright Treaty spurred continued Congressionalattention to the adaptation of the law of copyright to the digital age.

Lengthy hearings involving a broad range of interested parties both precededand succeeded the Copyright Treaty. As noted above, a critical focus of

Congressional consideration of the legislation was the conflict between thosewho opposed anti-circumvention measures as inappropriate extensions of

copyright and impediments to fair use and those who supported them as essentialto proper protection of copyrighted materials in the digital age.FN129 The

DMCA was enacted in October 1998 as the culmination of this process.FN130

FN129. There is an excellent account of the legislative history of the statute. Nimmer, A Riff on Fair Use, 148 U.PA.L.REV. at 702-38.

FN130. See generally S.REP. NO. 105-190, 105th Cong., 2d Sess. ("SENATE REP."), at 2-8 (1998).

The DMCA contains two principal anticircumvention provisions. The first,Section 1201(a)(1), governs "[t]he act of circumventing a technological

protection measure put in place by a copyright owner to control access to acopyrighted work," an act described by Congress as "the electronic equivalent

of breaking into a locked room in order to obtain a copy of a book." FN131The second, Section 1201(a)(2), which is the focus of this case, "supplements

the prohibition against the act of circumvention in paragraph (a)(1) withprohibitions on creating and making available certain technologies ...developed or advertised to defeat technological protections against

unauthorized access to a work." FN132 As defendants are accused here only ofposting and linking to other sites posting DeCSS, and not of using it

themselves to bypass plaintiffs' access controls, it is principally the secondof the anticircumvention provisions that is at issue in this case. FN133

FN131. H.R.REP. NO. 105-551(I), 105th Cong., 2d Sess. ("JUDICIARY COMM.REP. "), at 17 (1998).

FN132. Id. at 18.

FN133. Plaintiffs rely also on Section 1201(b), which is very similar to Section 1201(a)(2) except that the former applies to trafficking in means

of circumventing protection offered by a technological measure that effectively protects "a right of a copyright owner in a work or a portion

thereof" whereas the latter applies to trafficking in means of circumventing measures controlling access to a work. See generally 1

MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT ("NIMMER") s 12A.03 [C] (1999). In addition, as noted below, certain of the

statutory exceptions upon which defendants have relied apply only to Section 1201(a)(2).

B. Posting of DeCSS

1. Violation of Anti-Trafficking Provision

Section 1201(a)(2) of the Copyright Act, part of the DMCA, provides that:

"No person shall ... offer to the public, provide or otherwise traffic in any technology ... that-

"(A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected

under [the Copyright Act];

"(B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work

protected under [the Copyright Act]; or

*317 "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing a technological

measure that effectively controls access to a work protected under [the Copyright Act]." FN134

FN134. 17 U.S.C. s 1201(a)(2). See also 1 NIMMER s 12A.03[1] [a ], at 12A-16.

[1][2] In this case, defendants concededly offered and provided and, absenta court order, would continue to offer and provide DeCSS to the public by

making it available for download on the 2600.com web site. DeCSS, a computerprogram, unquestionably is "technology" within the meaning of the statute.FN135

"[C]ircumvent a technological measure" is defined to mean descrambling ascrambled work, decrypting an encrypted work, or "otherwise to avoid, bypass,remove, deactivate, or impair a technological measure, without the authority ofthe copyright owner," FN136 so DeCSS clearly is a means of circumventing a

technological access control measure.FN137 In consequence, if CSS otherwisefalls within paragraphs (A), (B) or (C) of Section 1201(a)(2), and if none ofthe statutory exceptions applies to their actions, defendants have violated

and, unless enjoined, will continue to violate the DMCA by posting DeCSS.

FN135. In their Post-Trial Brief, defendants argue that "at least some of the members of Congress" understood s 1201 to be limited to conventional

devices, specifically 'black boxes,' as opposed to computer code. Def. Post-Trial Mem. at 21. However, the statute is clear that it prohibits

"any technology," not simply black boxes. 17 U.S.C. s 1201(a)(2) (emphasis added).

FN136. 17 U.S.C. s 1201(a)(3)(A).

FN137. Decryption or avoidance of an access control measure is not "circumvention" within the meaning of the statute unless it occurs

"without the authority of the copyright owner." 17 U.S.C. s 1201(a)(3)(A). Defendants posit that purchasers of a DVD acquire the

right "to perform all acts with it that are not exclusively granted to the copyright holder." Based on this premise, they argue that DeCSS

does not circumvent CSS within the meaning of the statute because the Copyright Act does not grant the copyright holder the right to prohibit purchasers from decrypting. As the copyright holder has no statutory right to prohibit decryption, the argument goes, decryption cannot be

understood as unlawful circumvention. Def. Post-Trial Mem. 10-13. The argument is pure sophistry. The DMCA proscribes trafficking in

technology that decrypts or avoids an access control measure without the copyright holder consenting to the decryption or avoidance. See

JUDICIARY COMM.REP. at 17-18 (fair use applies "where the access is authorized"). Defendants' argument seems to be a corruption of the

first sale doctrine, which holds that the copyright holder, notwithstanding the exclusive distribution right conferred by Section

106(3) of the Copyright Act, 17 U.S.C. s 106(3), is deemed by its "first sale" of a copy of the copyrighted work to have consented to subsequent

sale of the copy. See generally 2 NIMMER ss 8.11-8.12.

a. Section 1201(a)(2)(A)

(1) CSS Effectively Controls Access to Copyrighted Works

[3] During pretrial proceedings and at trial, defendants attackedplaintiffs' Section 1201(a)(2)(A) claim, arguing that CSS, which is based on a

40-bit encryption key, is a weak cipher that does not "effectively control"access to plaintiffs' copyrighted works. They reasoned from this premise that

CSS is not protected under this branch of the statute at all. Theirpost-trial memorandum appears to have abandoned this argument. In any case,

however, the contention is indefensible as a matter of law.

First, the statute expressly provides that "a technological measure'effectively controls access to a work' if the measure, in the ordinary course

of its operation, requires the application of information or a process or atreatment, with the authority of the copyright owner, to gain access to a

work." FN138 One cannot gain access to a CSS-protected work on a DVD withoutapplication of the three keys that are required by the software. One cannot

lawfully gain access to the keys except by entering into a license with the DVDCCA *318 under authority granted by the copyright owners or by purchasing a DVD

player or drive containing the keys pursuant to such a license. Inconsequence, under the express terms of the statute, CSS "effectively controls

access" to copyrighted DVD movies. It does so, within the meaning of thestatute, whether or not it is a strong means of protection. FN139

FN138. Id. s 1201(a)(3)(B).

FN139. RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, *9 (W.D.Wash. Jan.18, 2000).

This view is confirmed by the legislative history, which deals withprecisely this point. The House Judiciary Committee section-by-section

analysis of the House bill, which in this respect was enacted into law, makesclear that a technological measure "effectively controls access" to a

copyrighted work if its function is to control access:

"The bill does define the functions of the technological measures that are covered-that is, what it means for a technological measure to 'effectively

control access to a work' ... and to 'effectively protect a right of a copyright owner under this title' .... The practical, common-sense approach

taken by H.R.2281 is that if, in the ordinary course of its operation, a technology actually works in the defined ways to control access to a work ...

then the 'effectiveness' test is met, and the prohibitions of the statute are applicable. This test, which focuses on the function performed by the technology, provides a sufficient basis for clear interpretation." FN140

FN140. HOUSE COMM. ON JUDICIARY, SECTION-BY-SECTION ANALYSIS OF H.R.2281 AS PASSED BY THE UNITED STATES HOUSE OF REPRESENTATIVES ON AUGUST 4, 1998

("SECTION-BY-SECTION ANALYSIS"), at 10 (Comm.Print 1998) (emphasis in original).

Further, the House Commerce Committee made clear that measures based onencryption or scrambling "effectively control" access to copyrighted works,

FN141 although it is well known that what may be encrypted or scrambled oftenmay be decrypted or unscrambled. As CSS, in the ordinary course of itsoperation-that is, when DeCSS or some other decryption program is not

employed-"actually works" to prevent access to the protected work, it"effectively controls access" within the contemplation of the statute.

FN141. H.R.REP. NO. 105-551(II), 105th Cong., 2d Sess. ("COMMERCE

COMM.REP. "), at 39 (1998).

Finally, the interpretation of the phrase "effectively controls access"offered by defendants at trial-viz., that the use of the word "effectively"

means that the statute protects only successful or efficacious technologicalmeans of controlling access-would gut the statute if it were adopted. If atechnological means of access control is circumvented, it is, in common

parlance, ineffective. Yet defendants' construction, if adopted, would limitthe application of the statute to access control measures that thwart

circumvention, but withhold protection for those measures that can becircumvented. In other words, defendants would have the Court construe the

statute to offer protection where none is needed but to withhold protectionprecisely where protection is essential. The Court declines to do so.Accordingly, the Court holds that CSS effectively controls access to

plaintiffs' copyrighted works.FN142

FN142. Defendants, in a reprise of their argument that DeCSS is not a circumvention device, argue also that CSS does not effectively control access to copyrighted works within the meaning of the statute because

plaintiffs authorize avoidance of CSS by selling their DVDs. Def. Post-Trial Mem. 10-13. The argument is specious in this context as

well. See supra note 137.

(2) DeCSS Was Designed Primarily to Circumvent CSS

As CSS effectively controls access to plaintiffs' copyrighted works, theonly remaining question under Section 1201(a)(2)(A) is whether DeCSS wasdesigned primarily to circumvent CSS. The *319 answer is perfectly obvious.

By the admission of both Jon Johansen, the programmer who principally wroteDeCSS, and defendant Corley, DeCSS was created solely for the purpose of

decrypting CSS-that is all it does.FN143 Hence, absent satisfaction of astatutory exception, defendants clearly violated Section 1201(a)(2)(A) by

posting DeCSS to their web site.

FN143. Tr. (Johansen) at 619; (Corley) 833-34.

b. Section 1201(a)(2)(B)

As the only purpose or use of DeCSS is to circumvent CSS, the foregoing issufficient to establish a prima facie violation of Section 1201(a)(2)(B) as

well.

c. The Linux Argument

[4] Perhaps the centerpiece of defendants' statutory position is thecontention that DeCSS was not created for the purpose of pirating copyrighted

motion pictures. Rather, they argue, it was written to further thedevelopment of a DVD player that would run under the Linux operating system, as

there allegedly were no Linux compatible players on the market at the time.FN144 The argument plays itself out in various ways as different elements ofthe DMCA come into focus. But it perhaps is useful to address the point at

its most general level in order to place the preceding discussion in itsfullest context.

FN144. Def. Post-Trial Mem. at 2.

As noted, Section 1201(a) of the DMCA contains two distinct prohibitions.Section 1201(a)(1), the so-called basic provision, "aims against those who

engage in unauthorized circumvention of technological measures.... [It] focusesdirectly on wrongful conduct, rather than on those who facilitate wrongful

conduct...." FN145 Section 1201(a)(2), the anti-trafficking provision at issuein this case, on the other hand, separately bans offering or providing

technology that may be used to circumvent technological means of controllingaccess to copyrighted works.FN146 If the means in question meets any of the

three prongs of the standard set out in Section 1201(a)(2)(A), (B), or (C), itmay not be offered or disseminated.

FN145. 1 NIMMER s 12A.03[A], at 12A-15 (1999 Supp.).

FN146. See id. s 12A.03[B], at 12A-25 to 12A-26.

As the earlier discussion demonstrates, the question whether the developmentof a Linux DVD player motivated those who wrote DeCSS is immaterial to the

question whether the defendants now before the Court violated theanti-trafficking provision of the DMCA. The inescapable facts are that (1) CSS

is a technological means that effectively controls access to plaintiffs'copyrighted works, (2) the one and only function of DeCSS is to circumvent CSS,and (3) defendants offered and provided DeCSS by posting it on their web site.

Whether defendants did so in order to infringe, or to permit or encourageothers to infringe, copyrighted works in violation of other provisions of the

Copyright Act simply does not matter for purposes of Section 1201(a)(2). Theoffering or provision of the program is the prohibited conduct-and it is

prohibited irrespective of why the program was written, except to whateverextent motive may be germane to determining whether their conduct falls within

one of the statutory exceptions.

2. Statutory Exceptions

Earlier in the litigation, defendants contended that their activities camewithin several exceptions contained in the DMCA and the Copyright Act and

constitute fair use under the Copyright Act. Their post-trial memorandumappears to confine their argument to the reverse engineering exception. FN147

In any case, all of their assertions are entirely without merit.

FN147. See Def. Post-Trial Mem. at 13.

a. Reverse engineering

[5] Defendants claim to fall under Section 1201(f) of the statute, whichprovides *320 in substance that one may circumvent, or develop and employ

technological means to circumvent, access control measures in order to achieveinteroperability with another computer program provided that doing so does not

infringe another's copyright FN148 and, in addition, that one may makeinformation acquired through such efforts "available to others, if the person[in question] ... provides such information solely for the purpose of enablinginteroperability of an independently created computer program with other

programs, and to the extent that doing so does not constitute infringement...."FN149 They contend that DeCSS is necessary to achieve interoperability betweencomputers running the Linux operating system and DVDs and that this exception

therefore is satisfied.FN150 This contention fails.

FN148. 17 U.S.C. ss 1201(f)(1), (2).

FN149. Id. s 1201(f)(3).

FN150. Def. Post-Trial Mem. at 13-15.

First, Section 1201(f)(3) permits information acquired through reverseengineering to be made available to others only by the person who acquired theinformation. But these defendants did not do any reverse engineering. They

simply took DeCSS off someone else's web site and posted it on their own.

Defendants would be in no stronger position even if they had authored DeCSS.The right to make the information available extends only to dissemination

"solely for the purpose" of achieving interoperability as defined in thestatute. It does not apply to public dissemination of means of circumvention,as the legislative history confirms.FN151 These defendants, however, did not

post DeCSS "solely" to achieve interoperability with Linux or anything else.

FN151. COMMERCE COMM.REP. at 43.

Finally, it is important to recognize that even the creators of DeCSS cannotcredibly maintain that the "sole" purpose of DeCSS was to create a Linux DVD

player. DeCSS concededly was developed on and runs under Windows-a far morewidely used operating system. The developers of DeCSS therefore knew that

DeCSS could be used to decrypt and play DVD movies on Windows as well as Linuxmachines. They knew also that the decrypted files could be copied like any

other unprotected computer file. Moreover, the Court does not credit Mr.Johansen's testimony that he created DeCSS solely for the purpose of building aLinux player. Mr. Johansen is a very talented young man and a member of awell known hacker group who viewed "cracking" CSS as an end it itself and a

means of demonstrating his talent and who fully expected that the use of DeCSSwould not be confined to Linux machines. Hence, the Court finds that Mr.

Johansen and the others who actually did develop DeCSS did not do so solely forthe purpose of making a Linux DVD player if, indeed, developing a Linux-based

DVD player was among their purposes.

Accordingly, the reverse engineering exception to the DMCA has noapplication here.

b. Encryption research

Section 1201(g)(4) provides in relevant part that:

"Notwithstanding the provisions of subsection (a)(2), it is not a violation of that subsection for a person to-

"(A) develop and employ technological means to circumvent a technological measure for the sole purpose of that person performing the acts of good faith

encryption research described in paragraph (2); and

"(B) provide the technological means to another person with whom he or she is working collaboratively for the purpose of conducting the acts of good faith encryption research described in paragraph (2) or for the purpose of having

that other person verify his or her acts *321 of good faith encryption research described in paragraph (2)." FN152

FN152. 17 U.S.C. s 1201(g)(4).

Paragraph (2) in relevant part permits circumvention of technologicalmeasures in the course of good faith encryption research if:

"(A) the person lawfully obtained the encrypted copy, phonorecord, performance, or display of the published work;

"(B) such act is necessary to conduct such encryption research;

"(C) the person made a good faith effort to obtain authorization before the circumvention; and

"(D) such act does not constitute infringement under this title...." FN151

FN151. Id. s 1201(g)(2).

In determining whether one is engaged in good faith encryption research, theCourt is instructed to consider factors including whether the results of the

putative encryption research are disseminated in a manner designed to advancethe state of knowledge of encryption technology versus facilitation of

copyright infringement, whether the person in question is engaged in legitimatestudy of or work in encryption, and whether the results of the research are

communicated in a timely fashion to the copyright owner.FN152

FN152. Id. s 1201(g)(3).

[6] Neither of the defendants remaining in this case was or is involved ingood faith encryption research.FN153 They posted DeCSS for all the world tosee. There is no evidence that they made any effort to provide the results ofthe DeCSS effort to the copyright owners. Surely there is no suggestion that

either of them made a good faith effort to obtain authorization from thecopyright owners. Accordingly, defendants are not protected by Section

1201(g).FN154

FN153. Ex. 96 (Corley Dep.) at 33.

FN154. In any case, Section 1201(g), where its requirements are met, is a defense only to claims under Section 1201(a)(2), not those under Section

1201(b).

c. Security testing

Defendants contended earlier that their actions should be considered exemptsecurity testing under Section 1201(j) of the statute.FN155 This exception,

however, is limited to "assessing a computer, computer system, or computernetwork, solely for the purpose of good faith testing, investigating, or

correcting [of a] security flaw or vulnerability, with the authorization of theowner or operator of such computer system or computer network." FN156

FN155. Def.Mem. in Opp. to Prelim.Inj. (DI 11) at 11-12.

FN156. Id. s 1201(j)(1).

The record does not indicate that DeCSS has anything to do with testingcomputers, computer systems, or computer networks. Certainly defendants

sought, and plaintiffs' granted, no authorization for defendants' activities.This exception therefore has no bearing in this case.FN157

FN157. Like Section 1201(g), moreover, Section 1201(j) provides no defense to a Section 1201(b) claim.

d. Fair use

[7] Finally, defendants rely on the doctrine of fair use. Stated in itsmost general terms, the doctrine, now codified in Section 107 of the Copyright

Act,FN158 limits the exclusive rights of a copyright holder by permittingothers to make limited use of portions of the copyrighted work, for appropriate

purposes, free of liability for copyright infringement. For example, it ispermissible for one other than the copyright owner to reprint or quote a

suitable part of a copyrighted book or article in certain circumstances. Thedoctrine traditionally has facilitated literary and artistic criticism,

teaching and scholarship, and other socially useful forms of expression. *322It has been viewed by courts as a safety valve that accommodates the exclusiverights conferred by copyright with the freedom of expression guaranteed by the

First Amendment.

FN158. 17 U.S.C. s 107.

The use of technological means of controlling access to a copyrighted workmay affect the ability to make fair uses of the work.FN159 Focusing

specifically on the facts of this case, the application of CSS to encrypt acopyrighted motion picture requires the use of a compliant DVD player to viewor listen to the movie. Perhaps more significantly, it prevents exact copyingof either the video or the audio portion of all or any part of the film. FN160

This latter point means that certain uses that might qualify as "fair" forpurposes of copyright infringement-for example, the preparation by a filmstudies professor of a single CD-ROM or tape containing two scenes from

different movies in order to illustrate a point in a lecture on cinematography,as opposed to showing relevant parts of two different DVDs-would be difficult

or impossible absent circumvention of the CSS encryption. Defendantstherefore argue that the DMCA cannot properly be construed to make it difficult

or impossible to make any fair use of plaintiffs' copyrighted works and thatthe statute therefore does not reach their activities, which are simply a means

to enable users of DeCSS to make such fair uses.

FN159. Indeed, as many have pointed out, technological means of controlling access to works create a risk, depending upon future

technological and commercial developments, of limiting access to works that are not protected by copyright such as works upon which copyright

has expired. See, e.g., Nimmer, A Riff on Fair Use, 148 U.PA.L.REV. at 738-40; Hannibal Travis, Comment, Pirates of the Information

Infrastructure: Blackstonian Copyright and the First Amendment, 15 BERKELEY TECH.L.J. 777, 861 (2000) (hereinafter Pirates of the

Information Infrastructure ); Yochai Benkler, Free as the Air to Common Use: First Amendment Constraints on Enclosure of the Public Domain, 74

N.Y.U.L.REV. 354, 421 (1999);

FN160. Of course, one might quote the verbal portion of the sound track, rerecord both verbal and nonverbal portions of the sound track, and video tape or otherwise record images produced on a monitor when the DVD is

played on a compliant DVD player.

Defendants have focused on a significant point. Access control measuressuch as CSS do involve some risk of preventing lawful as well as unlawful uses

of copyrighted material. Congress, however, clearly faced up to and dealtwith this question in enacting the DMCA.

The Court begins its statutory analysis, as it must, with the language ofthe statute. Section 107 of the Copyright Act provides in critical part that

certain uses of copyrighted works that otherwise would be wrongful are "not ...infringement[s] of copyright." FN161 Defendants, however, are not here sued

for copyright infringement. They are sued for offering and providingtechnology designed to circumvent technological measures that control access to

copyrighted works and otherwise violating Section 1201(a)(2) of the Act. IfCongress had meant the fair use defense to apply to such actions, it would have

said so. Indeed, as the legislative history demonstrates, the decision not tomake fair use a defense to a claim under Section 1201(a) was quite deliberate.

FN161. 17 U.S.C. s 107.

Congress was well aware during the consideration of the DMCA of thetraditional role of the fair use defense in accommodating the exclusive rights

of copyright owners with the legitimate interests of noninfringing users ofportions of copyrighted works. It recognized the contention, voiced by arange of constituencies concerned with the legislation, that technological

controls on access to copyrighted works might erode fair use by preventingaccess even for uses that would be deemed "fair" if only access might begained. FN162 And it struck a balance among the competing interests.

FN162. See, e.g., COMMERCE COMM.REP. 25-26.

*323 The first element of the balance was the careful limitation of Section1201(a)(1)'s prohibition of the act of circumvention to the act itself so as

not to "apply to subsequent actions of a person once he or she has obtainedauthorized access to a copy of a [copyrighted] work...." FN163 By doing so, it

left "the traditional defenses to copyright infringement, including fair use,... fully applicable" provided "the access is authorized." FN164

FN163. JUDICIARY COMM.REP. 18.

FN164. Id.

Second, Congress delayed the effective date of Section 1201(a)(1)'sprohibition of the act of circumvention for two years pending further

investigation about how best to reconcile Section 1201(a)(1) with fair useconcerns. Following that investigation, which is being carried out in theform of a rule-making by the Register of Copyright, the prohibition will not

apply to users of particular classes of copyrighted works who demonstrate thattheir ability to make noninfringing uses of those classes of works would be

affected adversely by Section 1201(a)(1).FN165

FN165. 17 U.S.C. ss 1201(a)(1)(B)-(E).

The rule-making is under way. 65 F.R. 14505-06 (Mar. 17, 2000); see also <http://www.loc.gov/copyright/1201/anticirc.html> (visited July 28,

2000).

Third, it created a series of exceptions to aspects of Section 1201(a) forcertain uses that Congress thought "fair," including reverse engineering,

security testing, good faith encryption research, and certain uses by nonprofitlibraries, archives and educational institutions.FN166

FN166. 17 U.S.C. ss 1201(d), (f), (g), (j).

Defendants claim also that the possibility that DeCSS might be used for thepurpose of gaining access to copyrighted works in order to make fair use of

those works saves them under Sony Corp. v. Universal City Studios, Inc. FN167But they are mistaken. Sony does not apply to the activities with which

defendants here are charged. Even if it did, it would not govern here. Sonyinvolved a construction of the Copyright Act that has been overruled by the

later enactment of the DMCA to the extent of any inconsistency between Sony andthe new statute.

FN167. 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).

Sony was a suit for contributory infringement brought against manufacturersof video cassette recorders on the theory that the manufacturers were

contributing to infringing home taping of copyrighted television broadcasts.The Supreme Court held that the manufacturers were not liable in view of thesubstantial numbers of copyright holders who either had authorized or did not

object to such taping by viewers.FN168 But Sony has no application here.

FN168. Id. at 443, 446, 104 S.Ct. 774.

[8][9] When Sony was decided, the only question was whether themanufacturers could be held liable for infringement by those who purchased

equipment from them in circumstances in which there were many noninfringinguses for their equipment. But that is not the question now before this Court.

The question here is whether the possibility of noninfringing fair use bysomeone who gains access to a protected copyrighted work through a

circumvention technology distributed by the defendants saves the defendantsfrom liability under Section 1201. But nothing in Section 1201 so suggests.

By prohibiting the provision of circumvention technology, the DMCAfundamentally altered the landscape. A given device or piece of technology

might have "a substantial noninfringing use, and hence be immune from attackunder Sony 's construction of the Copyright Act-but nonetheless still be

subject to suppression under Section 1201." FN169 Indeed,*324 Congressexplicitly noted that Section 1201 does not incorporate Sony. FN170

FN169. RealNetworks, Inc., 2000 WL 127311, at *8 (quoting 1 NIMMER s 12A.18[B], at 12A-130) (internal quotation marks omitted).

FN170. SECTION-BY-SECTion Analysis 9 ("THE SONY TEST OF 'CAPAB [ILITY] OF SUBSTANTIAL NON-INFRINGING USES,' WHILE STILL OPERATIVE IN CASES CLAIMING

CONTRIBUTORY INFRINGEMENT OF COPYRIGHT, IS NOT PART OF THIS LEGISLATION....").

The policy concerns raised by defendants were considered by Congress.Having considered them, Congress crafted a statute that, so far as the

applicability of the fair use defense to Section 1201(a) claims is concerned,is crystal clear. In such circumstances, courts may not undo what Congress so

plainly has done by "construing" the words of a statute to accomplish a resultthat Congress rejected. The fact that Congress elected to leave

technologically unsophisticated persons who wish to make fair use of encryptedcopyrighted works without the technical means of doing so is a matter for

Congress unless Congress' decision contravenes the Constitution, a matter towhich the Court turns below. Defendants' statutory fair use argument

therefore is entirely without merit.

C. Linking to Sites Offering DeCSS

Plaintiffs seek also to enjoin defendants from "linking" their 2600.com website to other sites that make DeCSS available to users. Their request

obviously stems in no small part from what defendants themselves have termedtheir act of "electronic civil disobedience"-their attempt to defeat the

purpose of the preliminary injunction by (a) offering the practical equivalentof making DeCSS available on their own web site by electronically linking users

to other sites still offering DeCSS, and (b) encouraging other sites that hadnot been enjoined to offer the program. The dispositive question is whether

linking to another web site containing DeCSS constitutes "offer[ing DeCSS] tothe public" or "provid[ing] or otherwise traffic[king]" in it within the

meaning of the DMCA.FN171 Answering this question requires carefulconsideration of the nature and types of linking.

FN171. 17 U.S.C. s 1201(a)(2).

Most web pages are written in computer languages, chiefly HTML, which allowthe programmer to prescribe the appearance of the web page on the computer

screen and, in addition, to instruct the computer to perform an operation ifthe cursor is placed over a particular point on the screen and the mouse then

clicked.FN172 Programming a particular point on a screen to transfer the userto another web page when the point, referred to as a hyperlink, is clicked is

called linking.FN173 Web pages can be designed to link to other web pages onthe same site or to web pages maintained by different sites. FN174

FN172. Tr. (Schumann) at 275-76.

FN173. Id. at 261-62.

FN174. For example, a web page maintained by a radio station might provide a hyperlink to a weather report by programming its page to

transfer the user to a National Weather Service site if the user clicks on the "weather" hyperlink.

As noted earlier, the links that defendants established on their web siteare of several types. Some transfer the user to a web page on an outside site

that contains a good deal of information of various types, does not itselfcontain a link to DeCSS, but that links, either directly or via a series of

other pages, to another page on the same site that posts the software. Itthen is up to the user to follow the link or series of links on the linked-to

web site in order to arrive at the page with the DeCSS link and commence thedownload of the software. Others take the user to a page on an outside website on which there appears a direct link to the DeCSS software and which mayor may not contain text or links other than the DeCSS link. The user has only

to click on the DeCSS link to commence the download. Still others maydirectly transfer the user to a file on the linked-to web site such that the

download of DeCSS to the user's computer automatically*325 commences withoutfurther user intervention.

[10] The statute makes it unlawful to offer, provide or otherwise traffic indescribed technology.FN175 To "traffic" in something is to engage in dealingsin it,FN176 conduct that necessarily involves awareness of the nature of thesubject of the trafficking. To "provide" something, in the sense used in thestatute, is to make it available or furnish it.FN177 To "offer" is to present

or hold it out for consideration. FN178 The phrase "or otherwise traffic in"modifies and gives meaning to the words "offer" and "provide." FN179 In

consequence, the anti-trafficking provision of the DMCA is implicated where onepresents, holds out or makes a circumvention technology or device available,

knowing its nature, for the purpose of allowing others to acquire it.

FN175. 17 U.S.C. s 1201(a)(2).

FN176. See 2 THE COMPACT EDITION OF THE OXFORD ENGLISH DICTIONARY 3372 (1971).

FN177. See 2 id. 2340.

FN178. See 1 id. 1979.

FN179. See, e.g., Strom v. Goldman, Sachs & Co., 202 F.3d 138, 146-47 (2d Cir.1999).

[11] To the extent that defendants have linked to sites that automaticallycommence the process of downloading DeCSS upon a user being transferred by

defendants' hyperlinks, there can be no serious question. Defendants areengaged in the functional equivalent of transferring the DeCSS code to the user

themselves.

Substantially the same is true of defendants' hyperlinks to web pages thatdisplay nothing more than the DeCSS code or present the user only with the

choice of commencing a download of DeCSS and no other content. The onlydistinction is that the entity extending to the user the option of downloading

the program is the transferee site rather than defendants, a distinctionwithout a difference.

[12][13] Potentially more troublesome might be links to pages that offer agood deal of content other than DeCSS but that offer a hyperlink for

downloading, or transferring to a page for downloading, DeCSS. If oneassumed, for the purposes of argument, that the Los Angeles Times web site

somewhere contained the DeCSS code, it would be wrong to say that anyone wholinked to the Los Angeles Times web site, regardless of purpose or the manner

in which the link was described, thereby offered, provided or otherwisetrafficked in DeCSS merely because DeCSS happened to be available on a site to

which one linked.FN180 But that is not this case. Defendants urged others topost DeCSS in an effort to disseminate DeCSS and to inform defendants that they

were doing so. Defendants then linked their site to those "mirror" sites,after first checking to ensure that the mirror sites in fact were posting DeCSSor something that looked like it, and proclaimed on their own site that DeCSScould be had by clicking on the hyperlinks on defendants' site. By doing so,they offered, provided or otherwise trafficked in DeCSS, and they continue to

do so to this day.

FN180. See DVD Copy Control Ass'n, Inc. v. McLaughlin, No. CV 786804, 2000 WL 48512, *4 (Cal.Super. Jan. 21, 2000) ("website owner cannot be

held responsible for all of the content of the sites to which it provides links"); Richard Raysman & Peter Brown, Recent Linking Issues, N.Y.L.J.,

Feb. 8, 2000, p. 3, col. 1 (same).

III. The First Amendment

Defendants argue that the DMCA, at least as applied to prevent the publicdissemination of DeCSS, violates the First Amendment to the Constitution.

They claim that it does so in two ways. First, they argue that computer codeis protected speech and that the DMCA's prohibition of dissemination of DeCSStherefore violates defendants' First Amendment rights. Second, they contend

that the DMCA is unconstitutionally*326 overbroad, chiefly because itsprohibition of the dissemination of decryption technology prevents third

parties from making fair use of plaintiffs' encrypted works, and vague. Theyargue also that a prohibition on their linking to sites that make DeCSS

available is unconstitutional for much the same reasons.

A. Computer Code and the First Amendment

The premise of defendants' first position is that computer code, the form inwhich DeCSS exists, is speech protected by the First Amendment. Examination

of that premise is the logical starting point for analysis. And it isimportant in examining that premise first to define terms.

[14] Defendants' assertion that computer code is "protected" by the FirstAmendment is quite understandable. Courts often have spoken of certaincategories of expression as "not within the area of constitutionally protected

speech," FN181 so defendants naturally wish to avoid exclusion by anunfavorable categorization of computer code. But such judicial statements in

fact are not literally true. All modes of expression are covered by the FirstAmendment in the sense that the constitutionality of their "regulation must bedetermined by reference to First Amendment doctrine and analysis." FN182

Regulation of different categories of expression, however, is subject tovarying levels of judicial scrutiny. Thus, to say that a particular form of

expression is "protected" by the First Amendment means that theconstitutionality of any regulation of it must be measured by reference to the

First Amendment. In some circumstances, however, the phrase connotes alsothat the standard for measurement is the most exacting level available.

FN181. Roth v. United States, 354 U.S. 476, 483, 77 S.Ct. 1304, 1 L.Ed.2d 1498 (1957) (obscenity). See also, e.g., Sable Communications

of California, Inc. v. F.C.C., 492 U.S. 115, 124, 109 S.Ct. 2829, 106 L.Ed.2d 93 (1989) (obscenity); Bose Corp. v. Consumers Union of U.S.,

Inc., 466 U.S. 485, 504, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984) (libel, obscenity, fighting words, child pornography); Beauharnais v. People of

State of Illinois, 343 U.S. 250, 266, 72 S.Ct. 725, 96 L.Ed. 919 (1952) (defamation); Chaplinsky v. State of New Hampshire, 315 U.S. 568,

571-72, 62 S.Ct. 766, 86 L.Ed. 1031 (1942) (fighting words).

FN182. Robert Post, Encryption Source Code and the First Amendment, 15 BERKELEY TECH. L.J. 713, 714 (2000); see R.A.V. v. City of St. Paul, Minnesota, 505 U.S. 377, 382, 112 S.Ct. 2538, 120 L.Ed.2d 305 (1992)

(statements that categories of speech are "unprotected" are not literally true; characterization indicates only that they are subject to content

based regulation).

It cannot seriously be argued that any form of computer code may beregulated without reference to First Amendment doctrine. The path from idea

to human language to source code to object code is a continuum. As one movesfrom one to the other, the levels of precision and, arguably, abstraction

increase, as does the level of training necessary to discern the idea from theexpression. Not everyone can understand each of these forms. Only English

speakers will understand English formulations. Principally those familiarwith the particular programming language will understand the source code

expression. And only a relatively small number of skilled programmers andcomputer scientists will understand the machine readable object code. But

each form expresses the same idea, albeit in different ways.FN183

FN183. The Court is indebted to Professor David Touretzky of Carnegie-Mellon University, who testified on behalf of defendants, for his lucid explication of this point. See Tr. (Touretzky) at 1066-84 &

Ex. BBE, CCO, CCP, CCQ. As will appear, however, the point does not lead the Court to the same conclusion as Dr. Touretzky.

[15][16] There perhaps was a time when the First Amendment was viewed onlyas a limitation on the ability of government to censor speech in advance.

FN184 *327 But we have moved far beyond that. All modes by which ideas maybe expressed or, perhaps, emotions evoked-including speech, books, movies, art,and music-are within the area of First Amendment concern. FN185 As computer

code-whether source or object-is a means of expressing ideas, the FirstAmendment must be considered before its dissemination may be prohibited orregulated. In that sense, computer code is covered or, as sometimes is said,"protected" by the First Amendment. FN186 But that conclusion still leaves

for determination the level of scrutiny to be applied in determining theconstitutionality of regulation of computer code.

FN184. LEONARD LEVY, FREEDOM OF SPEECH IN EARLY AMERICAN HISTORY: LEGACY OF SUPPRESSION passim (1960); see also 4 RONALD D. ROTUNDA & JOHN E.

NOWAK, TREATISE ON CONSTITUTIONAL LAW s 20.5 (1999); 4 WILLIAM BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 151-52 (1769).

FN185. See, e.g., Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557, 569, 115 S.Ct. 2338, 132 L.Ed.2d 487

(1995).

FN186. Junger v. Daley, 209 F.3d 481, 485 (6th Cir.2000); Bernstein v. U.S. Dept. of Justice, 176 F.3d 1132, 1141, reh'g granted and opinion withdrawn, 192 F.3d 1308 (9th Cir.1999); Bernstein v. U.S. Dept. of

State, 922 F.Supp. 1426, 1436 (N.D.Cal.1996) (First Amendment extends to source code); see Karn v. U.S. Dept. of State, 925 F.Supp. 1, 10

(D.D.C.1996) (assuming First Amendment extends to source code).

B. The Constitutionality of the DMCA's Anti-Trafficking Provision

1. Defendants' Alleged Right to Disseminate DeCSS

Defendants first attack Section 1201(a)(2), the anti-trafficking provision,as applied to them on the theory that DeCSS is constitutionally protected

expression and that the statute improperly prevents them from communicating it.Their attack presupposes that a characterization of code as constitutionally

protected subjects any regulation of code to the highest level of FirstAmendment scrutiny. As we have seen, however, this does not necessarily

follow.

Just as computer code cannot be excluded from the area of First Amendmentconcern because it is abstract and, in many cases, arcane, the long history ofFirst Amendment jurisprudence makes equally clear that the fact that words,

symbols and even actions convey ideas and evoke emotions does not inevitablyplace them beyond the power of government. The Supreme Court has evolved an

analytical framework by which the permissibility of particular restrictions onthe expression of ideas must determined.

Broadly speaking, restrictions on expression fall into two categories.Some are restrictions on the voicing of particular ideas, which typically are

referred to as content based restrictions. Others have nothing to do with thecontent of the expression-i.e., they are content neutral-but they have the

incidental effect of limiting expression.

[17] In general, "government has no power to restrict expression because ofits message, its ideas, its subject matter, or its content...." FN187

"[S]ubject only to narrow and well-understood exceptions, [the First Amendment]does not countenance governmental control over the content of messagesexpressed by private individuals." FN188 In consequence, content basedrestrictions on speech are permissible only if they serve compelling state

interests by the least restrictive means available.FN189

FN187. Police Dept. of City of Chicago v. Mosley, 408 U.S. 92, 95-96, 92 S.Ct. 2286, 33 L.Ed.2d 212 (1972).

FN188. Turner Broadcasting System, Inc. v. F.C.C., 512 U.S. 622, 641, 114 S.Ct. 2445, 129 L.Ed.2d 497 (1994); accord, R.A.V., 505 U.S. at

382-83, 112 S.Ct. 2538.

FN189. Sable Communications of California, Inc. v. F.C.C., 492 U.S. at 126, 109 S.Ct. 2829.

[18] Content neutral restrictions, in contrast, are measured against a lessexacting standard. Because restrictions of this type are not motivated by adesire to limit the message, they will be upheld if they serve a substantial

governmental interest*328 and restrict First Amendment freedoms no more thannecessary.FN190

FN190. Turner Broadcasting System, Inc., 512 U.S. at 662, 114 S.Ct. 2445

(citing United States v. O'Brien, 391 U.S. 367, 377, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968)).

[19] Restrictions on the nonspeech elements of expressive conduct fall intothe conduct-neutral category. The Supreme Court long has distinguished for

First Amendment purposes between pure speech, which ordinarily receives thehighest level of protection, and expressive conduct.FN191 Even if conduct

contains an expressive element, its nonspeech aspect need not be ignored.FN192"[W]hen 'speech' and 'nonspeech' elements are combined in the same course of

conduct, a sufficiently important governmental interest in regulating thenonspeech element can justify incidental limitations on First Amendment

freedoms." FN193 The critical point is that nonspeech elements may createhazards for society above and beyond the speech elements. They are subject toregulation in appropriate circumstances because the government has an interest

in dealing with the potential hazards of the nonspeech elements despite thefact that they are joined with expressive elements.

FN191. See, e.g., United States v. O'Brien, 391 U.S. at 376, 88 S.Ct. 1673.

FN192. During the Vietnam era, many who opposed the war, the draft, or both burned draft cards as acts of protest. Lower federal courts

typically concluded or assumed that the expression inherent in this act of protest brought the behavior entirely within the scope of the First

Amendment. THOMAS I. EMERSON, THE SYSTEM OF FREEDOM OF EXPRESSION 82 (1970). In United States v. O'Brien, 391 U.S. at 376, 88 S.Ct. 1673,

however, the Supreme Court rejected "the view that an apparently limitless variety of conduct can be labeled 'speech' whenever the person

engaged in the conduct intends thereby to express an idea" and adopted a new approach, discussed below, to the regulation of expressive conduct as

opposed to pure speech. Accord, Spence v. State of Washington, 418 U.S. 405, 410, 94 S.Ct. 2727, 41 L.Ed.2d 842 (1974). The point for present purposes is that the presence of expression in some broader mosaic does not result in the entire mosaic being treated as "speech."

FN193. Id. at 376.

Thus, the starting point for analysis is whether the DMCA, as applied torestrict dissemination of DeCSS and other computer code used to circumvent

access control measures, is a content based restriction on speech or a contentneutral regulation. Put another way, the question is the level of review thatgoverns the DMCA's anti-trafficking provision as applied to DeCSS-the strictscrutiny standard applicable to content based regulations or the intermediate

level applicable to content neutral regulations, including regulations of thenonspeech elements of expressive conduct.

Given the fact that DeCSS code is expressive, defendants would have theCourt leap immediately to the conclusion that Section 1201(a)(2)'s prohibition

on providing DeCSS necessarily is content based regulation of speech because itsuppresses dissemination of a particular kind of expression.FN194 But this

would be a unidimensional approach to a more textured reality and entirely toofacile.


[20] The "principal inquiry in determining content neutrality ... is whetherthe government has adopted a regulation of speech because of [agreement or]

disagreement with the message it conveys." FN195 The computer code at issue inthis case, however, does more than express the programmers' concepts. It doesmore, in other words, than convey a message. DeCSS, like any other computer

program, is a series of instructions that causes a computer to perform aparticular sequence *329 of tasks which, in the aggregate, decrypt

CSS-protected files. Thus, it has a distinctly functional, non-speech aspectin addition to reflecting the thoughts of the programmers. It enables anyone

who receives it and who has a modicum of computer skills to circumventplaintiffs' access control system.

FN195. Ward v. Rock Against Racism, 491 U.S. 781, 791, 109 S.Ct. 2746, 105 L.Ed.2d 661 (1989); accord, Hill v. Colorado, 530U.S. 703, ----, 120 S.Ct. 2480, 2491, 147 L.Ed.2d 597 (2000); Turner Broadcasting

System, Inc., 512 U.S. at 642, 114 S.Ct. 2445; Madsen v. Women's Health Center, Inc., 512 U.S. 753, 763, 114 S.Ct. 2516, 129 L.Ed.2d 593 (1994).

[21] The reason that Congress enacted the anti-trafficking provision of theDMCA had nothing to do with suppressing particular ideas of computer

programmers and everything to do with functionality-with preventing people fromcircumventing technological access control measures-just as laws prohibiting

the possession of burglar tools have nothing to do with preventing people fromexpressing themselves by accumulating what to them may be attractive

assortments of implements and everything to do with preventing burglaries.Rather, it is focused squarely upon the effect of the distribution of the

functional capability that the code provides. Any impact on the disseminationof programmers' ideas is purely incidental to the overriding concerns of

promoting the distribution of copyrighted works in digital form while at thesame time protecting those works from piracy and other violations of the

exclusive rights of copyright holders.FN196

FN196. See generally Turner Broadcasting System, Inc., 512 U.S. at 646-49, 114 S.Ct. 2445 (holding that "must-carry" provisions of the Cable Television Consumer Protection and Competition Act of 1992 are content

neutral in view of "overriding congressional purpose ... unrelated to the content of expression" manifest in detailed legislative history).

These considerations suggest that the DMCA as applied here is contentneutral, a view that draws support also from City of Renton v. Playtime

Theatres, Inc. FN197 The Supreme Court there upheld against a First Amendmentchallenge a zoning ordinance that prohibited adult movie theaters within 1,000

feet of a residential, church or park zone or within one mile of a school.Recognizing that the ordinance did "not appear to fit neatly into either the'content based or the 'content-neutral' category," it found dispositive the

fact that the ordinance was justified without reference to the content of theregulated speech in that the concern of the municipality had been with thesecondary effects of the presence of adult theaters, not with the particular

content of the speech that takes place in them.FN198 As Congress' concerns inenacting the anti-trafficking provision of the DMCA were to suppress copyrightpiracy and infringement and to promote the availability of copyrighted works in

digital form, and not to regulate the expression of ideas that might beinherent in particular anti-circumvention devices or technology, this provision

of the statute properly is viewed as content neutral.FN199

FN197. 475 U.S. 41, 106 S.Ct. 925, 89 L.Ed.2d 29 (1986).

FN198. Id. at 46-49, 106 S.Ct. 925; see also Young v. American Mini Theatres, Inc., 427 U.S. 50, 71 n. 34, 96 S.Ct. 2440, 49 L.Ed.2d 310

(1976).

FN199. See Karn, 925 F.Supp. at 10 (regulations controlling export of computer code content neutral); Benkler, 74 N.Y.U.L.REV. at 413 (DMCA

"content and viewpoint neutral").

[22][23] Congress is not powerless to adopt content neutral regulations thatincidentally affect expression, including the dissemination of the functional

capabilities of computer code. A sufficiently important governmental interestin seeing to it that computers are not instructed to perform particular

functions may justify incidental restrictions on the dissemination of theexpressive elements of a program. Such a regulation will be upheld if:

"it furthers an important or substantial governmental interest; if the governmental interest is unrelated to the suppression of free expression;

and if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that *330 interest." FN200

FN200. Turner Broadcasting System, Inc., 512 U.S. at 662, 114 S.Ct. 2445 (quoting O'Brien, 391 U.S. at 377, 88 S.Ct. 1673 (internal quotation

marks omitted)); see also, e.g., United States v. Weslin, 156 F.3d 292, 297 (2d Cir.1998).

Moreover, "[t]o satisfy this standard, a regulation need not be the leastspeech-restrictive means of advancing the Government's interests." FN201

"Rather, the requirement of narrow tailoring is satisfied 'so long as the ...regulation promotes a substantial government interest that would be achieved

less effectively absent the regulation.' " FN202

FN201. Turner Broadcasting System, Inc., 512 U.S. at 662, 114 S.Ct. 2445; see also Hill, 530 U.S. at ----, 120 S.Ct. at 2494.

FN202. Ward, 491 U.S. at 799, 109 S.Ct. 2746 (quoting United States v. Albertini, 472 U.S. 675, 689, 105 S.Ct. 2897, 86 L.Ed.2d 536 (1985)).

[24] The anti-trafficking provision of the DMCA furthers an importantgovernmental interest-the protection of copyrighted works stored on digitalmedia from the vastly expanded risk of piracy in this electronic age. The

substantiality of that interest is evident both from the fact that theConstitution specifically empowers Congress to provide for copyright protection

FN203 and from the significance to our economy of trade in copyrightedmaterials.FN204 Indeed, the Supreme Court has made clear that copyrightprotection itself is "the engine of free expression." FN205 That substantial

interest, moreover, is unrelated to the suppression of particular viewsexpressed in means of gaining access to protected copyrighted works. Nor is

the incidental restraint on protected expression-the prohibition of traffickingin means that would circumvent controls limiting access to unprotected

materials or to copyrighted materials for noninfringing purposes-broader thanis necessary to accomplish Congress' goals of preventing infringement and

promoting the availability of content in digital form.FN206

FN203. U.S. CONST., art. I, s 8 (Copyright Clause).

FN204. COMMERCE COMM.REP. 94-95; SENATE REP. 21-22, 143.

FN205. Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 558, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985).

FN206. It is conceivable that technology eventually will provide means of limiting access only to copyrighted materials and only for uses that would infringe the rights of the copyright holder. See, e.g., Travis,

15 BERKELEY TECH.L.J. at 835-36; Mark Gimbel, Note, Some Thoughts on the Implications of Trusted Systems for Intellectual Property Law, 50

Stan.L.Rev. 1671, 1875-78 (1998); Mark Stefik, Shifting the Possible: How Trusted Systems and Digital Property Rights Challenge Us to Rethink

Digital Publishing, 12 BERKELEY TECH.L.J. 137, 138-40 (1997). We have not yet come so far.

This analysis finds substantial support in the principal case relied upon bydefendants, Junger v. Daley.FN207 The plaintiff in that case challenged on

First Amendment grounds an Export Administration regulation that barred theexport of computer encryption software, arguing that the software was

expressive and that the regulation therefore was unconstitutional. The SixthCircuit acknowledged the expressive nature of computer code, holding that it

therefore was within the scope of the First Amendment. But it recognized alsothat computer code is functional as well and said that "[t]he functional

capabilities of source code, particularly those of encryption source code,should be considered when analyzing the governmental interest in regulating the

exchange of this form of speech." FN208 Indeed, it went on to indicate thatthe pertinent standard of review was that established in United States v.

O'Brien,FN209 the seminal speech-versus-conduct*331 decision. Thus, ratherthan holding the challenged regulation unconstitutional on the theory that the

expressive aspect of source code immunized it from regulation, the courtremanded the case to the district court to determine whether the O'Brien

standard was met in view of the functional aspect of code. FN210

FN207. 209 F.3d 481 (6th Cir.2000).

FN208. Id. at 485.

FN209. 391 U.S. at 377, 88 S.Ct. 1673.

FN210. 209 F.3d at 485.

Notwithstanding its adoption by the Sixth Circuit, the focus onfunctionality in order to determine the level of scrutiny is not an inevitable

consequence of the speech-conduct distinction. Conduct has immediate effectson the environment. Computer code, on the other hand, no matter howfunctional, causes a computer to perform the intended operations only if

someone uses the code to do so. Hence, one commentator, in a thoughtfularticle, has maintained that functionality is really "a proxy for effects or

harm" and that its adoption as a determinant of the level of scrutiny slidesover questions of causation that intervene between the dissemination of a

computer program and any harm caused by its use.FN211

FN211. See Lee Tien, Publishing Software as a Speech Act, 15 BERKELEY TECH.L.J. 629, 694-701 (2000). Professor Tien's analysis itself has been criticized. Robert Post, Encryption Source Code and the First

Amendment, 15 BERKELEY TECH.L.J. 715 (2000).

The characterization of functionality as a proxy for the consequences of useis accurate. But the assumption that the chain of causation is too attenuated

to justify the use of functionality to determine the level of scrutiny, atleast in this context, is not.

Society increasingly depends upon technological means of controlling accessto digital files and systems, whether they are military computers, bank

records, academic records, copyrighted works or something else entirely.There are far too many who, given any opportunity, will bypass those security

measures, some for the sheer joy of doing it, some for innocuous reasons, andothers for more malevolent purposes. Given the virtually instantaneous and

worldwide dissemination widely available via the Internet, the only rationalassumption is that once a computer program capable of bypassing such an access

control system is disseminated, it will be used. And that is not all.

There was a time when copyright infringement could be dealt with quiteadequately by focusing on the infringing act. If someone wished to make andsell high quality but unauthorized copies of a copyrighted book, for example,the infringer needed a printing press. The copyright holder, once aware ofthe appearance of infringing copies, usually was able to trace the copies up

the chain of distribution, find and prosecute the infringer, and shut off theinfringement at the source.

In principle, the digital world is very different. Once a decryptionprogram like DeCSS is written, it quickly can be sent all over the world.Every recipient is capable not only of decrypting and perfectly copyingplaintiffs' copyrighted DVDs, but also of retransmitting perfect copies of

DeCSS and thus enabling every recipient to do the same. They likewise arecapable of transmitting perfect copies of the decrypted DVD. The process

potentially is exponential rather than linear. Indeed, the difference isillustrated by comparison of two epidemiological models describing the spreadof different kinds of disease.FN212 In a common source epidemic, as where

members of a population contract a non-contagious disease from a poisoned well,the disease spreads only by exposure to the common source. If one eliminates

the source, or closes the contaminated well, the epidemic is stopped. In apropagated *332 outbreak epidemic, on the other hand, the disease spreads from

person to person. Hence, finding the initial source of infection accomplisheslittle, as the disease continues to spread even if the initial source is

eliminated.FN213 For obvious reasons, then, a propagated outbreak epidemic,all other things being equal, can be far more difficult to control.

FN212. This perhaps is not as surprising as first might appear. Computer "viruses" are other programs, an understanding of which is aided

by the biological analogy evident in their name. See, e.g., Jeffrey O. Kephart, Gregory B. Sorkin, David M. Chess and Steve R. White, Fighting

Computer Viruses, SCIENTIFIC AMERICAN, (visited Aug. 16, 2000) <http:// www.sciam.com/ 1197issue/1197kephart.html>.

FN213. DAVID E. LILIENFELD & PAUL D. STOLLEY, FOUNDATIONS OF EPIDEMIOLOGY 38-41 & Fig. 3-1 (3d ed.1994); JOHN P. FOX, CARRIE E. HALL & LILA R.

ELVEBACK, EPIDEMIOLOGY-MAN AND DISEASE 246-47 (1970).

This disease metaphor is helpful here. The book infringement hypotheticalis analogous to a common source outbreak epidemic. Shut down the printing

press (the poisoned well) and one ends the infringement (the disease outbreak).The spread of means of circumventing access to copyrighted works in digitalform, however, is analogous to a propagated outbreak epidemic. Finding the

original source of infection (e.g., the author of DeCSS or the first person tomisuse it) accomplishes nothing, as the disease (infringement made possible byDeCSS and the resulting availability of decrypted DVDs) may continue to spread

from one person who gains access to the circumvention program or decrypted DVDto another. And each is "infected," i.e., each is as capable of makingperfect copies of the digital file containing the copyrighted work as the

author of the program or the first person to use it for improper purposes.The disease metaphor breaks down principally at the final point. Individuals

infected with a real disease become sick, usually are driven by obviousself-interest to seek medical attention, and are cured of the disease ifmedical science is capable of doing so. Individuals infected with the

"disease" of capability of circumventing measures controlling access tocopyrighted works in digital form, however, do not suffer from having that

ability. They cannot be relied upon to identify themselves to those seekingto control the "disease." And their self-interest will motivate some tomisuse the capability, a misuse that; in practical terms, often will be

untraceable. FN214

FN214. Of course, not everyone who obtains DeCSS or some other decryption program necessarily will use it to engage in copyright infringement, just as not everyone who is exposed to a contagious disease contracts it.

But that is immaterial. The critical point is that the combination of (a) the manner in which the ability to infringe is spread and (b) the

lack of any practical means of controlling infringement at the point at which it occurs once the capability is broadly disseminated render control of infringement by controlling availability of the means of

infringement far more critical in this context.

[25] These considerations drastically alter consideration of the causal linkbetween dissemination of computer programs such as this and their illicit use.

Causation in the law ultimately involves practical policy judgments. FN215Here, dissemination itself carries very substantial risk of imminent harm

because the mechanism is so unusual by which dissemination of means ofcircumventing access controls to copyrighted works threatens to produce

virtually unstoppable infringement of copyright. In consequence, the causallink between the dissemination of circumvention computer programs and theirimproper use is more than sufficiently close to warrant selection of a level of

constitutional scrutiny based on the programs' functionality.

FN215. See, e.g., Guido Calabresi & Jeffrey O. Cooper, New Directions in Tort Law, 30 VAL.U.L.REV. 859, 870-72 (1996).

[26] Accordingly, this Court holds that the anti-trafficking provision ofthe DMCA as applied to the posting of computer code that circumvents measures

that control access to copyrighted works in digital form is a valid exercise ofCongress' authority. It is a content neutral regulation in furtherance of

important governmental interests that does not unduly restrict expressiveactivities. In any case, its particular functional characteristics are such

that the Court would apply the same level of scrutiny*333 even if it wereviewed as content based.FN216 Yet it is important to emphasize that this is avery narrow holding. The restriction the Court here upholds, notwithstandingthat computer code is within the area of First Amendment concern, is limited

(1) to programs that circumvent access controls to copyrighted works in digitalform in circumstances in which (2) there is no other practical means of

preventing infringement through use of the programs, and (3) the regulation ismotivated by a desire to prevent performance of the function for which the

programs exist rather than any message they might convey. One readily mightimagine other circumstances in which a governmental attempt to regulate the

dissemination of computer code would not similarly be justified.FN217

FN216. As has been noted above, some categories of speech, which often have been referred to inaccurately as "unprotected," may be regulated on the basis of their content. R.A.V., 505 U.S. at 382-83, 112 S.Ct. 2538. These have included obscenity and "fighting words," to name two such categories. The determination of the types of speech which may be so

regulated has been made through a process termed by one leading commentator as "definitional" balancing-a weighing of the value of free

expression in these areas against its likely consequences and the legitimate interests of government. Melville B. Nimmer, The Right to

Speak from Times to Time: First Amendment Theory Applied to Libel and Misapplied to Privacy, 56 CAL.L.REV. 935, 942 (1968); see R.A.V., 505 U.S. at 382-83, 112 S.Ct. 2538. Thus, even if one accepted defendants'

argument that the anti-trafficking prohibition of the DMCA is content based because it regulates only code that "expresses" the programmer's "ideas" for circumventing access control measures, the question would

remain whether such code-code designed to circumvent measures controlling access to private or legally protected data-nevertheless could be

regulated on the basis of that content. For the reasons set forth in the text, the Court concludes that it may. Alternatively, even if such

a categorical or definitional approach were eschewed, the Court would uphold the application of the DMCA now before it on the ground that this

record establishes an imminent threat of danger flowing from dissemination of DeCSS that far outweighs the need for unfettered

communication of that program. See Landmark Communications, Inc. v. Commonwealth of Virginia, 435 U.S. 829, 842-43, 98 S.Ct. 1535, 56 L.Ed.2d

1 (1978).

FN217. For example, one might imagine a computer program the object of which was to teach the user a particular view of a subject, e.g.,

evolution or creationism. Such a program, like this one, would be within the area of First Amendment concern and functional. Yet a

regulation barring its use would be subject to a quite different analysis. Such a ban, for example, might be based on the content of the message the program caused the computer to deliver to the student-user

and thus quite clearly be content based. Similarly, the function-teaching-would not involve the same likelihood that the

dissemination would bring about a harm that the government has a legitimate right to prevent.

2. Prior Restraint

Defendants argue also that injunctive relief against dissemination of DeCSSis barred by the prior restraint doctrine. The Court disagrees.

Few phrases are as firmly rooted in our constitutional jurisprudence as themaxim that "[a]ny system of prior restraints of expression comes to [a] Courtbearing a heavy presumption against its constitutional validity." FN218 Yetthere is a significant gap between the rhetoric and the reality. Courts oftenhave upheld restrictions on expression that many would describe as prior

restraints,FN219 sometimes by *334 characterizing the expression as unprotectedFN220 and on other occasions finding the restraint justified despite its

presumed invalidity.FN221 Moreover, the prior restraint doctrine, which hasexpanded far beyond the Blackstonian model FN222 that doubtless informed theunderstanding of the Framers of the First Amendment, FN223 has been criticized

as filled with "doctrinal ambiguities and inconsistencies result[ing] from theabsence of any detailed judicial analysis of [its] true rationale" FN224 and,

in one case, even as "fundamentally unintelligible." FN225 Nevertheless, thedoctrine has a well established core: administrative preclearance requirements

for and at least preliminary injunctions against speech as conventionallyunderstood are presumptively unconstitutional. Yet that proposition does not

dispose of this case. FN226

FN218. U.S. v. Washington Post Co., 403 U.S. 713, 714, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971) (per curiam) (quoting Bantam Books, Inc. v. Sullivan,

372 U.S. 58, 70, 83 S.Ct. 631, 9 L.Ed.2d 584 (1963)).

FN219. See, e.g., Posadas de Puerto Rico Assoc. v. Tourism Co. of Puerto Rico, 478 U.S. 328, 106 S.Ct. 2968, 92 L.Ed.2d 266 (1986) (upholding

restrictions on casino gambling advertising); Times Film Corp. v. Chicago, 365 U.S. 43, 81 S.Ct. 391, 5 L.Ed.2d 403 (1961) (upholding local

ordinance requiring review of films by municipal officials as prerequisite to issuance of permits for public screening); Salinger v.

Random House, Inc., 811 F.2d 90 (2d Cir.) (enjoining biographer's use of subject's unpublished letters as copyright infringement), cert. denied,

484 U.S. 890, 108 S.Ct. 213, 98 L.Ed.2d 177 (1987); Dallas Cowboys Cheerleaders v. Pussycat Cinema, Ltd., 604 F.2d 200 (2d Cir.1979)

(enjoining distribution of film on ground that actresses' uniforms

infringed plaintiff's trademark). See generally LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW s 12-36, at 1045-46 (1988) (hereinafter

TRIBE).

FN220. See, e.g., Charles of the Ritz Group, Ltd. v. Quality King Distributors, Inc., 832 F.2d 1317 (2d Cir.1987) (upholding injunction

against commercial slogan on ground that slogan created a likelihood of confusion and is therefore "beyond the protective reach of the First

Amendment"); Vondran v. McLinn, No. 95-20296, 1995 WL 415153, *6 (N.D.Cal. July 5, 1995) (enjoining defendant's false and disparaging

remarks regarding plaintiff's patented process for making fiber reinforced concrete on the ground that the remarks are not protected by

the First Amendment).

FN221. See, e.g., Times Film Corp. v. City of Chicago, 365 U.S. 43, 81 S.Ct. 391, 5 L.Ed.2d 403 (upholding local ordinance requiring review by

city officials of all films as a prerequisite to grant of permit for public screening despite concerns of First Amendment violations);

Posadas de Puerto Rico Associates, 478 U.S. 328, 106 S.Ct. 2968, 92 L.Ed.2d 266 (upholding restrictions on advertising despite finding that

the advertising fell within ambit of First Amendment); Dallas Cowboys Cheerleaders, Inc., 604 F.2d 200 (enjoining distribution of film for

trademark infringement despite claim that injunction violated distributor's First Amendment rights).

FN222. 4 WILLIAM BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 151-52 (1769).

FN223. See Pittsburgh Press Co. v. Pittsburgh Com'n on Human Relations, 413 U.S. 376, 390, 93 S.Ct. 2553, 37 L.Ed.2d 669 (1973).

FN224. Martin H. Redish, The Proper Role of the Prior Restraint Doctrine in First Amendment Theory, 70 VA.L.REV. 53, 54 (1983) (hereinafter

"Redish"). See also LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW s 12-34, at 1040-41 (2d ed.1988).

FN225. John Calvin Jeffries, Jr., Rethinking Prior Restraint, 92 YALE L.J. 409, 419 (1983).

FN226. Despite the conventional wisdom, it is far from clear that an injunction necessarily is a prior restraint. Our circuit, for example,

has suggested that the prior restraint doctrine does not apply to content neutral injunctions. See e.g., Dallas Cowboys Cheerleaders, Inc., 604 F.2d at 206. At least one commentator persuasively has argued that

there is little justification for placing injunctions, at least permanent injunctions issued after trial, in a disfavored constitutional position.

Jeffries, 92 YALE L.J. at 426-34. Nevertheless, there is no reason to decide that question in this case. The following discussion therefore

assumes that the permanent injunction plaintiff seeks would be a "prior restraint," although it concludes that it would not be unconstitutional.

The classic prior restraint cases were dramatically different from this one.Near v. MinnesotaFN227 involved a state procedure for abating scandalous and

defamatory newspapers as public nuisances. New York Times Co. v. UnitedStatesFN228 dealt with an attempt to enjoin a newspaper from publishing an

internal government history of the Vietnam War. Nebraska Press Association v.StuartFN229 concerned a court order barring the reporting of certain detailsabout a forthcoming murder case. In each case, therefore, the government

sought to suppress speech at the very heart of First Amendmentconcern-expression about public issues of the sort *335 that is indispensable

to self government. And while the prior restraint doctrine has been appliedwell beyond the sphere of political expression, we deal here with something new

altogether-computer code, a fundamentally utilitarian construct, albeit onethat embodies an expressive element. Hence, it would be a mistake simply topermit its expressive element to drive a characterization of the code as speechno different from the Pentagon Papers, the publication of a newspaper, or the

exhibition of a motion picture and then to apply prior restraint rhetoricwithout a more nuanced consideration of the competing concerns.

FN227. 283 U.S. 697, 51 S.Ct. 625, 75 L.Ed. 1357 (1931).

FN228. 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971).

FN229. 427 U.S. 539, 96 S.Ct. 2791, 49 L.Ed.2d 683 (1976).

[27] In this case, the considerations supporting an injunction are verysubstantial indeed. Copyright and, more broadly, intellectual property piracy

are endemic, as Congress repeatedly has found.FN230 The interest served byprohibiting means that facilitate such piracy-the protection of the monopoly

granted to copyright owners by the Copyright Act-is of constitutionaldimension. There is little room for doubting that broad dissemination of DeCSS

threatens ultimately to injure or destroy plaintiffs' ability to distributetheir copyrighted products on DVDs and, for that matter, undermine theirability to sell their products to the home video market in other forms. The

potential damages probably are incalculable, and these defendants surely wouldbe in no position to compensate plaintiffs for them if plaintiffs were remitted

only to post hoc damage suits.

FN230. See H.R.REP. 106-216, 106th Cong., 1st Sess. (1999) ( "Notwithstanding [penalties for copyright infringement] copyright piracy

of intellectual property flourishes, assisted in large part by today's world of advanced technologies. For example, industry groups estimate

that counterfeiting and piracy of computer software cost the affected copyright holders more than $11 billion last year (others believe the figure is closer to $20 billion). In some countries, software piracy rates are as high as 97% of all sales. The U.S. rate is far lower

(25%), but the dollar losses ($2.9 billion) are the highest worldwide. The effect of this volume of theft is substantial: lost U.S. jobs, lost

wages, lower tax revenue, and higher prices for honest purchasers of copyrighted software. Unfortunately, the potential for this problem to worsen is great."); S.REP. 106-140, 106th Cong., 1st Sess. (1999)

("Trademark owners are facing a new form of piracy on the Internet caused by acts of 'cybersquatting.' "); S.REP. 105-190, 105th Cong., 2d Sess.

(1998) ("Due to the ease with which digital works can be copied and distributed worldwide virtually instantaneously, copyright owners will hesitate to make their works readily available on the Internet without

reasonable assurance that they will be protected against massive piracy."); H.R.REP. 105-339, 105th Cong., 1st Sess. (1997) (

"[C]opyright piracy flourishes in the software world.").

On the other side of the coin, the First Amendment interests served by thedissemination of DeCSS on the merits are minimal. The presence of some

expressive content in the code should not obscure the fact of its predominantfunctional character-it is first and foremost a means of causing a machine with

which it is used to perform particular tasks. Hence, those of the traditionalrationales for the prior restraint doctrine that relate to inhibiting the

transmission and receipt of ideas are of attenuated relevance here. Indeed,even academic commentators who take the extreme position that most injunctions

in intellectual property cases are unconstitutional prior restraints concedethat there is no First Amendment obstacle to injunctions barring distribution

of copyrighted computer object code or restraining the construction of a newbuilding based on copyrighted architectural drawings because the functionalaspects of these types of information are "sufficiently nonexpressive." FN231

FN231. Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property Cases, 48 DUKE L.J. 147, 210 & n. 275 (1998).

To be sure, there is much to be said in most circumstances for the usualprocedural rationale for the prior restraint doctrine: prior restraints carrywith them the risk of erroneously suppressing expression that could not

constitutionally be punished *336 after publication.FN232 In this context,however, that concern is not persuasive, both because the enjoined expressiveelement is minimal and because a full trial on the merits has been held.FN233

Accordingly, the Court holds that the prior restraint doctrine does not requiredenial of an injunction in this case.

FN232. See, e.g., Pittsburgh Press Co., 413 U.S. at 390, 93 S.Ct. 2553 ("The special vice of a prior restraint is that communication will be

suppressed ... before an adequate determination that it is unprotected by the First Amendment."); Lemley & Volokh, 48 DUKE L.J. at 200-02, 211;

see Redish, 70 VA.L.REV. at 75-83.

FN233. See Lemley & Volokh, 48 DUKE L.J. at 211-12, 215 (acknowledging that high likelihood of success diminishes risk of erroneous suppression

of protected speech).

3. Overbreadth

[28] Defendants' second focus is the contention that Section 1201(a)(2) isunconstitutional because it prevents others from making fair use of copyrighted

works by depriving them of the means of circumventing plaintiffs' accesscontrol system.FN234 In substance, they contend that the anti-trafficking

provision leaves those who lack sufficient technical expertise to circumventCSS themselves without the means of acquiring circumvention technology thatthey need to make fair use of the content of plaintiffs' copyrighted DVDs.FN235


FN235. Id. at 22.

Defendants argue also that the DMCA as applied is overbroad in that "it would prohibit defendants from posting and making programs such as DeCSS

available in any form, from English to any level of computer code." Id. The overbreadth doctrine, however, enables litigants to challenge a

statute not merely because their own First Amendment rights are violated, but because the statute may cause others to abstain from

constitutionally protected expression. Broadrick v. Oklahoma, 413 U.S. 601, 612, 93 S.Ct. 2908, 37 L.Ed.2d 830 (1973). This aspect of

defendants' argument, which in any case is an overstatement, therefore does not refer to overbreadth in the sense relevant here.

[29][30] As a general proposition, "a person to whom a statuteconstitutionally may be applied may not challenge that statute on the groundthat it conceivably may be applied unconstitutionally to others in situations

not before the Court." FN236 When statutes regulate speech, however, "thetranscendent value to all society of constitutionally protected expression isdeemed to justify 'attacks on overly broad statutes with no requirement that

the person making the attack demonstrate that his own conduct could not beregulated by a statute drawn with the requisite narrow specificity.' " FN237

This is so because the absent third parties may not exercise their rights forfear of triggering "sanctions provided by a statute susceptible of applicationto protected expression." FN238 But the overbreadth doctrine "is 'strongmedicine' .... employed ... with hesitation, and then 'only as a last resort.'" because it conflicts with "the personal nature of constitutional rights and

the prudential limitations on constitutional adjudication," including theimportance of focusing carefully on the facts in deciding constitutional

questions.FN239 Moreover, the limited function of the overbreadth doctrine "'attenuates as the otherwise unprotected behavior that it forbids the State tosanction moves from 'pure speech' toward conduct and that conduct-even ifexpressive-falls within the scope of otherwise valid criminal*337 laws....' "

FN240 As defendants concede, "where conduct and not merely speech is involved,... the overbreadth of a statute must not only be real, but substantial aswell, judged in relation to the statute's plainly legitimate sweep." FN241

FN236. Broadrick, 413 U.S. at 610, 93 S.Ct. 2908.

FN237. Gooding v. Wilson, 405 U.S. 518, 520-21, 92 S.Ct. 1103, 31 L.Ed.2d 408 (1972) (quoting Dombrowski v. Pfister, 380 U.S. 479, 486, 85

S.Ct. 1116, 14 L.Ed.2d 22 (1965)).

FN238. Gooding, 405 U.S. at 521, 92 S.Ct. 1103.

FN239. Los Angeles Police Dept. v. United Reporting Pub. Corp., 528 U.S. 32, 120 S.Ct. 483, 489, 145 L.Ed.2d 451 (1999) (quoting New York v. Ferber, 458 U.S. 747, 769, 102 S.Ct. 3348, 73 L.Ed.2d 1113 (1982)

(quoting Broadrick, 413 U.S. at 613, 93 S.Ct. 2908)).

FN240. Id. at 489 (quoting Ferber, 458 U.S. at 770, 102 S.Ct. 3348 (quoting Broadrick, 413 U.S. at 615, 93 S.Ct. 2908)).

FN241. Broadrick, 413 U.S. at 612, 93 S.Ct. 2908.

Factors arguing against use of the overbreadth doctrine are present here.To begin with, we do not here have a complete view of whether the interests ofthe absent third parties upon whom defendants rely really are substantial and,

in consequence, whether the DMCA as applied here would materially affect theirability to make fair use of plaintiffs' copyrighted works.

The copyrighted works at issue, of course, are motion pictures. People usecopies of them in DVD and other formats for various purposes, and we confineour consideration to the lawful purposes, which by definition are noninfringing

or fair uses. The principal noninfringing use is to play the DVD for thepurpose of watching the movie-viewing the images and hearing the sounds that

are synchronized with them. Fair uses are much more varied. A moviereviewer might wish to quote a portion of the verbal script in an article orbroadcast review. A television station might want to broadcast part of a

particular scene to illustrate a review, a news story about a performer, or astory about particular trends in motion pictures. A musicologist perhaps

would wish to play a portion of a musical sound track. A film scholar mightdesire to create and exhibit to students small segments of several different

films to make some comparative point about the cinematography or some othercharacteristic. Numerous other examples doubtless could be imagined. Buteach necessarily involves one or more of three types of use: (1) quotation of

the words of the script, (2) listening to the recorded sound track, includingboth verbal and non-verbal elements, and (3) viewing of the graphic images.

All three of these types of use now are affected by the anti-traffickingprovision of the DMCA, but probably only to a trivial degree. To begin with,

all or substantially all motion pictures available on DVD are available also onvideotape.FN242 In consequence, anyone wishing to make lawful use of aparticular movie may buy or rent a videotape, play it, and even copy all or

part of it with readily available equipment. But even if movies wereavailable only on DVD, as someday may be the case, the impact on lawful use

would be limited. Compliant DVD players permit one to view or listen to a DVDmovie without circumventing CSS in any prohibited sense. The technologypermitting manufacture of compliant DVD players is available to anyone on aroyalty-free basis and at modest cost, so CSS raises no technological barrier

to their manufacture. Hence, those wishing to make lawful use of copyrightedmovies by viewing or listening to them are not hindered in doing so in any

material way by the anti-trafficking provision of the DMCA.FN243


FN243. Defendants argue that the right of third parties to view DVD movies on computers running the Linux operating system will be materially impaired if DeCSS is not available to them. However, the technology to build a Linux-based DVD player has been licensed by the DVD CCA to at least two companies, and there is no reason to think that others wishing

to develop Linux players could not obtain licenses if they so chose. Tr. (King) at 437-38. Therefore, enforcement of the DMCA to prohibit the posting of DeCSS would not materially impair the ability of Linux

users to view DVDs on Linux machines. Further, it is not evident that constitutional protection of free expression extends to the type of device on which one plays copyrighted material. Therefore, even

assuming arguendo that the ability of third parties to view DVD movies on Linux systems were materially impaired by enforcement of the DMCA in this case, this impairment would not necessarily implicate the First Amendment

rights of these third parties.

*338 Nor does the DMCA materially affect quotation of language fromCSS-protected movies. Anyone with access to a compliant DVD player may play

the movie and write down or otherwise record the sound for the purpose ofquoting it in another medium.

[31] The DMCA does have a notable potential impact on uses that copyportions of a DVD movie because compliant DVD players are designed so as to

prevent copying. In consequence, even though the fair use doctrine permitslimited copying of copyrighted works in appropriate circumstances, the CSSencryption of DVD movies, coupled with the characteristics of licensed DVDplayers, limits such uses absent circumvention of CSS.FN244 Moreover, the

anti-trafficking provision of the DMCA may prevent technologicallyunsophisticated persons who wish to copy portions of DVD movies for fair use

from obtaining the means of doing so. It is the interests of theseindividuals upon which defendants rely most heavily in contending that the DMCA

violates the First Amendment because it deprives such persons of an assertedconstitutional right to make fair use of copyrighted materials.FN245

FN244. CSS encryption coupled with the characteristics of compliant DVD players also forecloses copying of digital sound files. It is not

clear, however, that this is a substantial impediment to copying sound from motion picture DVDs. A DVD can be played on a compliant player and the sound re-recorded. Whether the sound quality thus obtained would be

satisfactory might well depend upon the particular use to which the copy was put.

FN245. The same point might be made with respect to copying of works upon which copyright has expired. Once the statutory protection lapses, the

works pass into the public domain. The encryption on a DVD copy of such a work, however, will persist. Moreover, the combination of such a work

with a new preface or introduction might result in a claim to copyright in the entire combination. If the combination then were released on DVD

and encrypted, the encryption would preclude access not only to the copyrighted new material, but to the public domain work. As the DMCA is not yet two years old, this does not yet appear to be a problem, although

it may emerge as one in the future.

As the foregoing suggests, the interests of persons wishing to circumventCSS in order to make lawful use of the copyrighted movies it protects are

remarkably varied. Some presumably are technologically sophisticated andtherefore capable of circumventing CSS without access to defendants' or other

purveyors' decryption programs; many presumably are not. Many of thepossible fair uses may be made without circumventing CSS while others, i.e.,

those requiring copying, may not. Hence, the question whether Section1201(a)(2) as applied here substantially affects rights, much less

constitutionally protected rights, of members of the "fair use community"cannot be decided in bloc, without consideration of the circumstances of each

member or similarly situated groups of members. Thus, the prudential concernwith ensuring that constitutional questions be decided only when the facts

before the Court so require counsels against permitting defendants to mount anoverbreadth challenge here.FN246

FN246. Defendants argue that "there is now a full evidentiary record" and that the overbreadth issue therefore should be decided. Def. Post-Trial Mem. at 22 n. 11. With respect, the evidence as to the impact of the

anti-trafficking provision of the DMCA on prospective fair users is scanty and fails adequately to address the issues.

This is not to minimize the interests of the amici who have submitted briefs in this case. The Court simply does not have a sufficient

evidentiary record on which to evaluate their claims.

Second, there is no reason to suppose here that prospective fair users willbe deterred from asserting their alleged rights by fear of sanctions imposed by

the DMCA or the Copyright Act.

Third, we do not deal here with "pure speech." Rather, the issue concernsdissemination of technology that is principally functional in nature. The

same consideration that warrants restraint in applying the overbreadth doctrineto statutes regulating*339 expressive conduct applies here. For reasons

previously expressed, government's interest in regulating the functionalcapabilities of computer code is no less weighty than its interest in

regulating the nonspeech aspects of expressive conduct.

Finally, there has been no persuasive evidence that the interests of personswho wish access to the CSS algorithm in order to study its encryption

methodology or to evaluate theories regarding decryption raise seriousproblems. The statute contains an exception for good faith encryption

research.FN247

FN247. 17 U.S.C. s 1201(g).

Accordingly, defendants will not be heard to mount an overbreadth challengeto the DMCA in this context.

4. Vagueness

[32] Defendants argue also that the DMCA is unconstitutionally vague because

the terms it employs are not understandable to persons of ordinary intelligenceand because they are subject to discriminatory enforcement. FN248


As the Supreme Court has made clear, one who "engages in some conduct thatis clearly proscribed [by the challenged statute] cannot complain of the

vagueness of the law as applied to the conduct of others." FN249 There can beno serious doubt that posting a computer program the sole purpose of which is

to defeat an encryption system controlling access to plaintiff's copyrightedmovies constituted an "offer to the public" of "technology [or a] product" thatwas "primarily designed for the purpose of circumventing" plaintiffs' access

control system.FN250 Defendants thus engaged in conduct clearly proscribed bythe DMCA and will not be heard to complain of any vagueness as applied to

others.

FN249. Village of Hoffman Estates v. Flipside, 455 U.S. 489, 495, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982).

FN250. See 17 U.S.C. s 1201(a)(2)(A).

C. Linking

As indicated above, the DMCA reaches links deliberately created by a website operator for the purpose of disseminating technology that enables the userto circumvent access controls on copyrighted works. The question is whether

it may do so consistent with the First Amendment.

[33] Links bear a relationship to the information superhighway comparable tothe relationship that roadway signs bear to roads but they are more functional.Like roadway signs, they point out the direction. Unlike roadway signs, theytake one almost instantaneously to the desired destination with the mere clickof an electronic mouse. Thus, like computer code in general, they have bothexpressive and functional elements. Also like computer code, they are within

the area of First Amendment concern. Hence, the constitutionality of the DMCAas applied to defendants' linking is determined by the same O'Brien standard

that governs trafficking in the circumvention technology generally.

There is little question that the application of the DMCA to the linking atissue in this case would serve, at least to some extent, the same substantialgovernmental interest as its application to defendants' posting of the DeCSScode. Defendants' posting and their linking amount to very much the same

thing. Similarly, the regulation of the linking at issue here is "unrelatedto the suppression of free expression" for the same reason as the regulation of

the posting. The third prong of the O'Brien test as subsequentlyinterpreted-whether the "regulation promotes a substantial government interest

that would be achieved less effectively absent the regulation" FN251-is asomewhat closer call.

FN251. Ward, 491 U.S. at 799, 109 S.Ct. 2746 (quoting United States v. Albertini, 472 U.S. 675, 689, 105 S.Ct. 2897, 86 L.Ed.2d 536 (1985)).

*340 [34] Defendants and, by logical extension, others may be enjoined fromposting DeCSS. Plaintiffs may seek legal redress against anyone who persists

in posting notwithstanding this decision. Hence, barring defendants fromlinking to sites against which plaintiffs readily may take legal action would

advance the statutory purpose of preventing dissemination of circumventiontechnology, but it would do so less effectively than would actions by

plaintiffs directly against the sites that post. For precisely this reason,however, the real significance of an anti-linking injunction would not be with

U.S. web sites subject to the DMCA, but with foreign sites that arguably arenot subject to it and not subject to suit here. An anti-linking injunction tothat extent would have a significant impact and thus materially advance a

substantial governmental purpose. In consequence, the Court concludes that aninjunction against linking to other sites posting DeCSS satisfies the O'Brien

standard. There remains, however, one further important point.

Links are "what unify the [World Wide] Web into a single body of knowledge,and what makes the Web unique." FN252 They "are the mainstay of the Internet

and indispensable to its convenient access to the vast world of information."FN253 They often are used in ways that do a great deal to promote the free

exchange of ideas and information that is a central value of our nation.Anything that would impose strict liability on a web site operator for the

entire contents of any web site to which the operator linked therefore wouldraise grave constitutional concerns, as web site operators would be inhibited

from linking for fear of exposure to liability.FN254 And it is equally clearthat exposing those who use links to liability under the DMCA might chill theiruse, as some web site operators confronted with claims that they have posted

circumvention technology falling within the statute may be more inclined toremove the allegedly offending link rather than test the issue in court.

Moreover, web sites often contain a great variety of things, and a ban onlinking to a site that contains DeCSS amidst other content threatens to

restrict communication of this information to an excessive degree.

FN252. ACLU v. Reno, 929 F.Supp. 824, 837 (E.D.Pa.1996), aff'd, 521 U.S. 844, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997).

FN253. Richard Raysman & Peter Brown, Recent Linking Issues, N.Y.L.J., Feb. 8, 2000, p. 3, col. 1.

FN254. Cf. New York Times Co. v. Sullivan, 376 U.S. 254, 271-73, 283-88, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964).

The possible chilling effect of a rule permitting liability for orinjunctions against Internet hyperlinks is a genuine concern. But it is not

unique to the issue of linking. The constitutional law of defamation providesa highly relevant analogy. The threat of defamation suits creates the samerisk of self-censorship, the same chilling effect, for the traditional press as

a prohibition of linking to sites containing circumvention technology poses forweb site operators. Just as the potential chilling effect of defamation suits

has not utterly immunized the press from all actions for defamation, however,the potential chilling effect of DMCA liability cannot utterly immunize web

site operators from all actions for disseminating circumvention technology.And the solution to the problem is the same: the adoption of a standard of

culpability sufficiently high to immunize the activity, whether it ispublishing a newspaper or linking, except in cases in which the conduct in

question has little or no redeeming constitutional value.

In the defamation area, this has been accomplished by a two-tieredconstitutional standard. There may be no liability under the First Amendment

for defamation of a public official or a public figure unless the plaintiffproves, by clear and convincing evidence, that the defendant published the

offending statement with knowledge of its *341 falsity or with serious doubt asto its truth.FN255 Liability in private figure cases, on the other hand, may

not be imposed absent proof at least of negligence under Gertz v. Robert Welch,Inc.FN256 A similar approach would minimize any chilling effect here.

FN255. Id. at 283, 84 S.Ct. 710; Curtis Pub. Co. v. Butts, 388 U.S. 130, 155, 87 S.Ct. 1975, 18 L.Ed.2d 1094 (1967); St. Amant v. Thompson,

390 U.S. 727, 731, 88 S.Ct. 1323, 20 L.Ed.2d 262 (1968); ROBERT D. SACK, SACK ON DEFAMATION s 1.2.4 (3d ed.1999).

FN256. 418 U.S. 323, 347-38, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974).

The other concern-that a liability based on a link to another site simplybecause the other site happened to contain DeCSS or some other circumvention

technology in the midst of other perfectly appropriate content could beoverkill-also is readily dealt with. The offense under the DMCA is offering,providing or otherwise trafficking in circumvention technology. An essentialingredient, as explained above, is a desire to bring about the dissemination.

Hence, a strong requirement of that forbidden purpose is an essentialprerequisite to any liability for linking.

[35] Accordingly, there may be no injunction against, nor liability for,linking to a site containing circumvention technology, the offering of which isunlawful under the DMCA, absent clear and convincing evidence that those

responsible for the link (a) know at the relevant time that the offendingmaterial is on the linked-to site, (b) know that it is circumvention technologythat may not lawfully be offered, and (c) create or maintain the link for the

purpose of disseminating that technology.FN257 Such a standard will limit thefear of liability on the part of web site operators just as the New York Timesstandard gives the press great comfort in publishing all sorts of material that

would have been actionable at common law, even in the face of flat denials bythe subjects of their stories. And it will not subject web site operators to

liability for linking to a site containing proscribed technology where the linkexists for purposes other than dissemination of that technology.

FN257. In evaluating purpose, courts will look at all relevant circumstances. Sites that advertise their links as means of getting

DeCSS presumably will be found to have created the links for the purpose of disseminating the program. Similarly, a site that deep links to a

page containing only DeCSS located on a site that contains a broad range of other content, all other things being equal, would more likely be

found to have linked for the purpose of disseminating DeCSS than if it merely links to the home page of the linked-to site.

[36] In this case, plaintiffs have established by clear and convincingevidence that these defendants linked to sites posting DeCSS, knowing that it

was a circumvention device. Indeed, they initially touted it as a way to getfree movies,FN258 and they later maintained the links to promote the

dissemination of the program in an effort to defeat effective judicial relief.They now know that dissemination of DeCSS violates the DMCA. An anti-linkinginjunction on these facts does no violence to the First Amendment. Nor should

it chill the activities of web site operators dealing with different materials,as they may be held liable only on a compelling showing of deliberate evasion

of the statute.

FN258. Tr. (Corley) at 820.

IV. Relief

A. Injury to Plaintiffs

[37] The DMCA provides that "[a]ny person injured by a violation of section1201 or 1202 may bring a civil action in an appropriate United States court for

such violation." FN259 For the reasons set forth above, plaintiffs obviouslyhave suffered and, absent effective relief, will continue to suffer injury byvirtue of the ready availability of means of circumventing the CSS access

control system on their DVDs. Defendants nevertheless argue that they have *342

not met the injury requirement of the statute. Their contentions are afarrago of distortions.

FN259. 17 U.S.C. s 1203(a).

They begin with the assertion that plaintiffs have failed to prove thatdecrypted motion pictures actually are available.FN260 To be sure, plaintiffs

might have done a better job of proving what appears to be reasonably obvious.They certainly could have followed up on more of the 650 movie titles listed on

the web site described above to establish that the titles in fact wereavailable. But the evidence they did adduce is not nearly as meager as

defendants would have it. Dr. Shamos did pursue and obtain a pirated copy ofa copyrighted, DivX'd motion picture from someone he met in an Internet chat

room. An MPAA investigator downloaded between five and ten such copies. Andthe sudden appearance of listings of available motion pictures on the Internet

promptly after DeCSS became available is far from lacking in evidentiarysignificance. In any case, in order to obtain the relief sought here,

plaintiffs need show only a threat of injury by reason of a violation of thestatute.FN261 The Court finds that plaintiffs overwhelmingly have established a

clear threat of injury by reason of defendants' violation of the statute.


FN261. The statute expressly authorizes injunctions to prevent or restrain violations, 17 U.S.C. s 1203(b)(1), thus demonstrating that the

requisite injury need only be threatened.

Defendants next maintain that plaintiffs exaggerate the extent of thethreatened injury. They claim that the studios in fact believe that DeCSS is

not a threat.FN262 But the only basis for that contention is a couple ofquotations from statements that the MPAA or one or another studio made (or

considered making but did not in fact issue) to the effect that it was notconcerned about DeCSS or that it was inconvenient to use.FN263 These

statements, however, were attempts to "spin" public opinion.FN264 They do notnow reflect the actual state of affairs or the studios' actual views, if they

ever did.


FN263. Id. at 28-29.

FN264. See, e.g., Ex. AYZ (Hunt Dep.) at 94-104.

[38][39] Third, defendants contend that there is no evidence that anydecrypted movies that may be available, if any there are, were decrypted withDeCSS. They maintain that "[m]any utilities and devices ... can decrypt DVDs

equally well and often faster and with greater ease than by using DeCSS."FN265 This is a substantial exaggeration. There appear to be a few other

so-called rippers, but the Court finds that DeCSS is usable on a broader rangeof DVDs than any of the others. Further, there is no credible evidence thatany other utility is faster or easier to use than DeCSS. Indeed, the Court

concludes that DeCSS is the superior product, as evidenced by the fact that theweb site promoting DivX as a tool for obtaining usable copies of copyrighted

movies recommends the use of DeCSS, rather than anything else, for thedecryption step FN266 and that the apparent availability of pirated motionpictures shot up so dramatically upon the introduction of DeCSS. FN267

FN265. Id. 30.

FN266. Ex. 113.

FN267. Defendants' argument would lack merit even if there were credible proof that other circumvention devices actually exist and produce results

comparable to DeCSS. The available movies must have been decrypted with DeCSS or something else. As far as this record discloses, any such

device or technology would violate the DMCA for the same reasons as does DeCSS. In consequence, this case comes within the principle of Summers

v. Tice, 33 Cal.2d 80, 199 P.2d 1 (1948). Where, as here, two or more persons take substantially identical wrongful actions, one and only one

of which had to be the source of the plaintiffs' injury, and it is equally likely that one inflicted the injury as the other, the burden of proof on causation shifts to the defendants, each of which is liable

absent proof that its action did not cause the injury. See 4 Fowler V. Harper & Fleming James, Jr., THE LAW OF TORTS ss 101-04 (2d ed.1996).

Defendants' efforts to avoid the consequences of this common sense principle are unpersuasive. They argue, for example, that plaintiffs

may not invoke the theory unless they join as defendants everyone who may have contributed to the injury. Def. Post-Trial Mem. at 32 n. 18 (citing Ex. UZ). It would be difficult to imagine a more nonsensical

requirement in the context of this case. Where, as here, harm is done by dissemination of information over the Internet, probably by a

substantial number of people all over the world, defendants' proposed rule would foreclose judicial relief anywhere because joinder of all

plainly would be impossible in any one place, and technology does not permit identification of which wrongdoer's posting or product led to

which pirated copy of a copyrighted work.

*343 B. Permanent Injunction and Declaratory Relief

Plaintiffs seek a permanent injunction barring defendants from posting DeCSSon their web site and from linking their site to others that make DeCSS

available.

[40] The starting point, as always, is the statute. The DMCA provides inrelevant part that the court in an action brought pursuant to its terms "may

grant temporary and permanent injunctions on such terms as it deems reasonableto prevent or restrain a violation...." FN268 Where statutes in substance so

provide, injunctive relief is appropriate if there is a reasonable likelihoodof future violations absent such relief FN269 and, in cases brought by private

plaintiffs, if the plaintiff lacks an adequate remedy at law.FN270

FN268. 17 U.S.C. s 1203(b)(1).

FN269. See, e.g., S.E.C. v. Unique Financial Concepts, Inc., 196 F.3d 1195, 1199 n. 2 (11th Cir.1999) (injunction under Section 20(b) of the Securities Act of 1933, 15 U.S.C. s 77t(b), which permits an injunction

"upon a proper showing," requires "a reasonable likelihood that the wrong will be repeated"); Commodity Futures Trading Com'n v. Hunt, 591 F.2d

1211, 1220 (7th Cir.1979) (same under Commodity Exchange Act, 7 U.S.C. s 13a-1(b)); S.E.C. v. Bausch & Lomb Inc., 565 F.2d 8, 18 (2d Cir.1977)

(reasonable likelihood of future violations required under s 21(d) of Securities Exchange Act of 1934, 15 U.S.C. s 78u(d), which permits an

injunction "upon a proper showing" where person "engaged or ... about to engage in" violation of statute).

FN270. See, e.g., Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 57, 95 S.Ct. 2069, 45 L.Ed.2d 12 (1975) (injunctive relief in private action

under s 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. s 78m(d),

as added by the Williams Act, requires a showing of irreparable harm and inadequacy of legal remedies).

[41] In this case, it is quite likely that defendants, unless enjoined, willcontinue to violate the Act. Defendants are in the business of disseminating

information to assist hackers in "cracking" various types of technologicalsecurity systems. And while defendants argue that they promptly stoppedposting DeCSS when enjoined preliminarily from doing so, thus allegedly

demonstrating their willingness to comply with the law, their reaction to thepreliminary injunction in fact cuts the other way. Upon being enjoined fromposting DeCSS themselves, defendants encouraged others to "mirror" theinformation-that is, to post DeCSS-and linked their own web site to mirrorsites in order to assist users of defendants' web site in obtaining DeCSS

despite the injunction barring defendants from providing it directly. Whilethere is no claim that this activity violated the letter of the preliminary

injunction, and it therefore presumably was not contumacious, and while itsstatus under the DMCA was somewhat uncertain, it was a studied effort to defeat

the purpose of the preliminary injunction. In consequence, the Court findsthat there is a substantial likelihood of future violations absent injunctive

relief.

There also is little doubt that plaintiffs have no adequate remedy at law.The only potential legal remedy would be an action for damages under Section1203(c), which provides for recovery of actual damages or, upon the election of

the plaintiff, statutory damages of up to $2,500 per offer of DeCSS. Proof ofactual damages in a case of this nature would be difficult if not *344

virtually impossible, as it would involve proof of the extent to which motionpicture attendance, sales of broadcast and other motion picture rights, and

sales and rentals of DVDs and video tapes of movies were and will be impactedby the availability of DVD decryption technology. Difficulties in determining

what constitutes an "offer" of DeCSS in a world in which the code is availableto much of the world via Internet postings, among other problems, renderstatutory damages an inadequate means of redressing plaintiffs' claimedinjuries. Indeed, difficulties such as this have led to the presumption thatcopyright and trademark infringement cause irreparable injury,FN271 i.e.,

injury for which damages are not an adequate remedy.FN272 The Court thereforeholds that the traditional requirements for issuance of a permanent injunction

have been satisfied. Yet there remains another point for consideration.

FN271. Tough Traveler, Ltd. v. Outbound Prods., 60 F.3d 964, 967-68 (2d Cir.1995) (trademark); Fisher-Price, Inc. v. Well-Made Toy Mfg. Corp.,

25 F.3d 119, 124 (2d Cir.1994) (copyright).

FN272. See, e.g., Northwestern Nat'l Ins. Co. v. Alberts, 937 F.2d 77, 80 (2d Cir.1991) ("The irreparable injury requisite ... overlaps with the

absent lack of adequate remedy at law necessary to establish the equitable rights."); Buffalo Forge Co. v. Ampco-Pittsburgh Corp., 638

F.2d 568, 569 (2d Cir.1981) ("There must also be a showing of irreparable harm, the absence of an adequate remedy at law, which is the sine qua non

for the grant of such equitable relief.")

[42] Defendants argue that an injunction in this case would be futilebecause DeCSS already is all over the Internet. They say an injunction wouldbe comparable to locking the barn door after the horse is gone. And the Court

has been troubled by that possibility. But the countervailing argumentsovercome that concern.

To begin with, any such conclusion effectively would create all the wrongincentives by allowing defendants to continue violating the DMCA simply because

others, many doubtless at defendants' urging, are doing so as well. Were thatthe law, defendants confronted with the possibility of injunctive relief would

be well advised to ensure that others engage in the same unlawful conduct inorder to set up the argument that an injunction against the defendants would be

futile because everyone else is doing the same thing.

Second, and closely related, is the fact that this Court is sorely "troubledby the notion that any Internet user ... can destroy valuable intellectual

property rights by posting them over the Internet." FN273 While equity surelyshould not act where the controversy has become moot, it ought to look veryskeptically at claims that the defendant or others already have done all the

harm that might be done before the injunction issues.

FN273. Religious Technology Center v. Netcom On-Line Communication Services, Inc., 923 F.Supp. 1231, 1256 (N.D.Cal.1995).

The key to reconciling these views is that the focus of injunctive relief ison the defendants before the Court. If a plaintiff seeks to enjoin a

defendant from burning a pasture, it is no answer that there is a wild fireburning in its direction. If the defendant itself threatens the plaintiff

with irreparable harm, then equity will enjoin the defendant from carrying outthe threat even if other threats abound and even if part of the pasture already

is burned.

These defendants would harm plaintiffs every day on which they post DeCSS ontheir heavily trafficked web site and link to other sites that post it because

someone who does not have DeCSS thereby might obtain it. They thus threatenplaintiffs with immediate and irreparable injury. They will not be allowed tocontinue to do so simply because others may do so as well. In short, this

Court, like others than have faced the issued, is "not persuaded that moderntechnology has withered the strong right arm of equity." FN274 Indeed, *345

the likelihood is that this decision will serve notice on others that "thestrong right arm of equity" may be brought to bear against them absent a change

in their conduct and thus contribute to a climate of appropriate respect forintellectual property rights in an age in which the excitement of ready access

to untold quantities of information has blurred in some minds the fact thattaking what is not yours and not freely offered to you is stealing.

Appropriate injunctive FN275 and declaratory relief will issue simultaneouslywith this opinion.

FN274. Com-Share, Inc. v. Computer Complex, Inc., 338 F.Supp. 1229, 1239 (E.D.Mich.1971).

FN275. During the trial, Professor Touretzky of Carnegie Mellon University, as noted above, convincingly demonstrated that computer

source and object code convey the same ideas as various other modes of expression, including spoken language descriptions of the algorithm

embodied in the code. Tr. (Touretzky) at 1068-69; Ex. BBE, CCO, CCP, CCQ. He drew from this the conclusion that the preliminary injunction irrationally distinguished between the code, which was enjoined, and

other modes of expression that convey the same idea, which were not, id., although of course he had no reason to be aware that the injunction drew

that line only because that was the limit of the relief plaintiffs sought. With commendable candor, he readily admitted that the

implication of his view that the spoken language and computer code versions were substantially similar was not necessarily that the

preliminary injunction was too broad; rather, the logic of his position was that it was either too broad or too narrow. Id. at 1070-71. Once again, the question of a substantially broader injunction need not be

addressed here, as plaintiffs have not sought broader relief.

V. Miscellaneous Contentions

There remain for consideration two other matters, plaintiffs' applicationfor costs and attorney's fees and defendants' pretrial complaints concerning

discovery.

[43] The DMCA permits awards of costs and attorney's fees to the prevailingparty in the discretion of the Court.FN276 Insofar as attorney's fees are

concerned, this is an exception to the so-called "American rule" pursuant towhich each side in a litigation customarily bears its own attorney's fees. As

this was a test case raising important issues, it would be inappropriate toaward attorney's fees pursuant to the DMCA.FN277 There is no comparable reason,

however, for failing to award costs, particularly as taxable costs are relatedto the excessive discovery demands that the Court already has commented upon.

FN278

FN276. 17 U.S.C. s 1203(b)(4)-(b)(5).

FN277. See Fogerty v. Fantasy, Inc., 510 U.S. 517, 534, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994) (articulating factors relevant to fee awards under

the Copyright Act).

FN278. Universal City Studios, Inc. v. Reimerdes, 104 F.Supp.2d 334 (S.D.N.Y. 2000).

A final word is in order in view of defendants' repeated pretrial claimsthat their discovery efforts were being thwarted. During the course of thetrial, they applied for leave to take one deposition, which was granted. At

no point did they make any showing that they were hampered in presenting theircase or meeting the plaintiffs' case by virtue of any failure to obtain

discovery. They applied for no continuance. They have not sought a newtrial. And though they estimated that their case would take several weeks to

present, the entire trial was completed in six days. Indeed, in the Court'sview, the trial fully vindicated its pretrial assessment that there were, in

actuality, very few genuinely disputed questions of material fact, and most ofthose involved expert testimony that was readily available to both sides.FN279

Examination of the trial record will reveal that virtually the entire casecould have been stipulated, although the legal conclusions to be drawn from the

stipulated facts of course would have remained a matter of controversy.

FN279. The chief factual issue actually litigated at trial was the speed with which decrypted files could be transmitted over the Internet and

other networks.

VI. Conclusion

In the final analysis, the dispute between these parties is simply put ifnot necessarily simply resolved.

*346 Plaintiffs have invested huge sums over the years in producing motionpictures in reliance upon a legal framework that, through the law of copyright,

has ensured that they will have the exclusive right to copy and distributethose motion pictures for economic gain. They contend that the advent of new

technology should not alter this long established structure.

Defendants, on the other hand, are adherents of a movement that believesthat information should be available without charge to anyone clever enough tobreak into the computer systems or data storage media in which it is located.

Less radically, they have raised a legitimate concern about the possible impacton traditional fair use of access control measures in the digital era.

Each side is entitled to its views. In our society, however, clashes ofcompeting interests like this are resolved by Congress. For now, at least,

Congress has resolved this clash in the DMCA and in plaintiffs' favor. Giventhe peculiar characteristics of computer programs for circumventing encryption

and other access control measures, the DMCA as applied to posting and linkinghere does not contravene the First Amendment. Accordingly, plaintiffs are

entitled to appropriate injunctive and declaratory relief.

SO ORDERED.

S.D.N.Y.,2000.

Universal City Studios, Inc. v. Reimerdes

111 F.Supp.2d 294, 2000 Copr.L.Dec. P 28,122, 2001 Copr.L.Dec. P 28,344, 55U.S.P.Q.2d 1873

END OF DOCUMENT

© 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.

United States Court of Appeals,

Federal Circuit.

The CHAMBERLAIN GROUP, INC., PlaintiffAppellant,

v.

SKYLINK TECHNOLOGIES, INC., DefendantAppellee.

No. 041118.

DECIDED: Aug. 31, 2004.

Rehearing and Rehearing En Banc Denied Oct. 22, 2004.

Background: Garage door opener manufacturer sued manufacturer of universalremote control for patent infringement and violation of Digital Millennium

Copyright Act (DMCA). After dismissing the patent claims, the United StatesDistrict Court for the Northern District of Illinois, Rebecca R. Pallmeyer, J.,entered summary judgment in favor of defendant on the DMCA claim, 292

F.Supp.2d 1040, and plaintiff appealed.

Holdings: The Court of Appeals, Gajarsa, Circuit Judge, held that:

(1) District Court's dismissals of patent claims "without prejudice" did notdivest Federal Circuit of jurisdiction, and

(2) addressing an issue of first impression, defendant's universal transmitterthat allowed consumers to access copyrighted software embedded in

manufacturer's "rolling code" garage door openers did not violate DMCA'santicircumvention provision.

Affirmed.

West Headnotes

[1] Federal Courts 170B k 3906

170B Federal Courts

170BXIX Exclusive, Concurrent, and Conflicting Jurisdiction as BetweenFederal Courts

170BXIX(B) Particular Cases, Contexts, and Questions

170Bk3906 k. Intellectual property. Most Cited Cases

(Formerly 170Bk1137)

District court's dismissals of patent claims "without prejudice" did notdivest Federal Circuit of jurisdiction over appeal from order granting summaryjudgment on claim under the Digital Millennium Copyright Act (DMCA), where

dismissals permitted patentee to reassert its patent claims if decision inanother case were reversed by the Federal Circuit, and subsequent settlement in

that case effectively barred patentee from reasserting those claims. 17U.S.C.A. s 1201 et seq.; 28 U.S.C.A. s 1295(a)(1).


170B Federal Courts

170BXVII Courts of Appeals

170BXVII(B) Appellate Jurisdiction and Procedure in General

170Bk3252 k. Determination of question of jurisdiction. MostCited Cases

(Formerly 170Bk542)

Every federal appellate court has a special obligation to satisfy itself ofits own jurisdiction, even though the parties are prepared to concede it.


170B Federal Courts





Federal Circuit jurisdiction depends on whether the plaintiff's complaint asamended raises patent law issues. 28 U.S.C.A. s 1295(a)(1).


170B Federal Courts





For the purposes of determining Federal Circuit jurisdiction, Court ofAppeals does not differentiate between actual and constructive amendments to

the complaint; both divest Court of jurisdiction if they eliminate all issuesof patent law. 28 U.S.C.A. s 1295(a)(1).


170B Federal Courts





Dismissals with prejudice are adjudications on the merits, and notconstructive amendments to the complaint, for purposes of determining Federal

Circuit jurisdiction. 28 U.S.C.A. s 1295(a)(1).


170B Federal Courts





Whenever the complaint included a patent claim and the trial court's rulingsaltered the legal status of the parties with respect to that patent claim,

Federal Circuit retains appellate jurisdiction over all pendent claims in thecomplaint. 28 U.S.C.A. s 1295(a)(1).


170B Federal Courts





If all patent claims raised in the amended complaint were dismissed withoutprejudice, the dismissal would divest Federal Circuit of jurisdiction;

dismissals with prejudice would not. 28 U.S.C.A. s 1295(a)(1).


170B Federal Courts





Dismissals divest Federal Circuit of jurisdiction only if the parties wereleft in the same legal position with respect to all patent claims as if theyhad never been filed; dismissal of a claim with prejudice operates as anadjudication of that claim on the merits, and preserves Federal Circuit

jurisdiction. 28 U.S.C.A. s 1295(a)(1).

[9] Courts 106 k 96(7)

106 Courts

106II Establishment, Organization, and Procedure

106II(G) Rules of Decision

106k88 Previous Decisions as Controlling or as Precedents

106k96 Decisions of United States Courts as Authority inOther United States Courts

106k96(7) k. Particular questions or subject matter.Most Cited Cases

To resolve issues of substantive copyright law, Federal Circuit applies thelaw as interpreted by the regional circuits.

[10] Statutes 361 k 1111

361 Statutes

361III Construction

361III(C) Clarity and Ambiguity; Multiple Meanings

361k1107 Absence of Ambiguity; Application of Clear orUnambiguous Statute or Language

361k1111 k. Plain language; plain, ordinary, common, orliteral meaning. Most Cited Cases

(Formerly 361k190, 361k188)

If statute is unambiguous, court's inquiry is at an end; it must enforce thecongressional intent embodied in that plain wording.

[11] Statutes 361 k 1242

361 Statutes

361III Construction

361III(H) Legislative History

361k1242 k. Plain, literal, or clear meaning; ambiguity. MostCited Cases

(Formerly 361k217.4, 361k181(1))

When a syntactical analysis of statutory language does not yield asatisfactory answer with respect to the intent of the Congress, court must

employ other less satisfactory means to ascertain, as best it can, thelegislative will; in such cases, investigations of the statute's structure and

of relevant legislative history can both provide useful insights to helpconstrue the statute in the way most consistent with congressional intent.

[12] Statutes 361 k 1080

361 Statutes

361III Construction

361III(A) In General

361k1078 Language

361k1080 k. Language and intent, will, purpose, or policy.Most Cited Cases

(Formerly 361k184)

Statutes 361 k 1404

361 Statutes

361IV Operation and Effect

361k1402 Construction in View of Effects, Consequences, or Results

361k1404 k. Unintended or unreasonable results; absurdity. MostCited Cases


Policy considerations cannot override court's interpretation of the text andstructure of a statute, except to the extent that they may help to show thatadherence to the text and structure would lead to a result so bizarre that

Congress could not have intended it.



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act's (DMCA) anticircumvention provisionsestablish causes of action for liability; they do not establish a new property

right. 17 U.S.C.A. s 1201(a, b).



99I Copyrights

99I(J) Infringement



Whereas copyrights, like patents, are property, liability protection fromunauthorized circumvention under Digital Millennium Copyright Act (DMCA) merely

creates a new cause of action under which a defendant may be liable. 28U.S.C.A. s 1295(a)(1).



99I Copyrights

99I(J) Infringement


99k51 k. Nature and elements of injury. Most Cited Cases

A plaintiff alleging copyright infringement need prove only (1) ownership ofa valid copyright, and (2) copying of constituent elements of the work that are

original.



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies


99k75 k. Defenses. Most Cited Cases

Existence of a license, exclusive or nonexclusive, creates an affirmativedefense to a claim of copyright infringement.



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies


99k83 Evidence

99k83(1) k. Presumptions and burden of proof.Most Cited Cases

Under Seventh Circuit copyright law, a plaintiff only needs to show that thedefendant has used her property; the burden of proving that the use was

authorized falls squarely on the defendant.



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act (DMCA) requires a plaintiff allegingcircumvention or trafficking to prove that the defendant's access was

unauthorized. 17 U.S.C.A. s 1201(a)(3)(A).



99I Copyrights

99I(J) Infringement


99k53 Acts Constituting Infringement


Copyright laws authorize members of the public to access a work, but not tocopy it.



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act's (DMCA) anticircumvention provisionsconvey no additional property rights in and of themselves; they simply provideproperty owners with new ways to secure their property. 17 U.S.C.A. s 1201(a,

b).



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act (DMCA) did not fundamentally alter thelegal landscape governing the reasonable expectations of consumers or

competitors, did not fundamentally alter the ways that courts analyze industrypractices, and did not render the pre-DMCA history of the industry irrelevant.

17 U.S.C.A. s 1201 et seq.



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act's (DMCA) anticircumvention provisionsrequired garage door manufacturer to prove that defendant's universal garage

door remote controls circumvented manufacturer's technological measurescontrolling access without manufacturer's authority. 17 U.S.C.A. s

1201(a)(3)(A).



99I Copyrights

99I(J) Infringement



Anticircumvention and anti-trafficking provisions of the Digital MillenniumCopyright Act (DMCA) attempted to balance competing interests, and endeavored

to specify, with as much clarity as possible, how the right againstanti-circumvention would be qualified to maintain balance between the interests

of content creators and information users. 17 U.S.C.A. s 1201(a)(1, 2).



99I Copyrights



Congress' exercise of its Copyright Clause authority must be rational.U.S.C.A. Const. Art. 1, s 8, cl. 8.



99I Copyrights



In determining whether a particular aspect of the Copyright Act is arational exercise of the legislative authority conferred by the Copyright

Clause, courts defer substantially to Congress; it is Congress that has beenassigned the task of defining the scope of the limited monopoly that should begranted to authors in order to give the public appropriate access to their work

product. U.S.C.A. Const. Art. 1, s 8, cl. 8.

[26] Antitrust and Trade Regulation 29T k 524

29T Antitrust and Trade Regulation

29TVI Antitrust Regulation in General

29TVI(A) In General

29Tk522 Constitutional and Statutory Provisions

29Tk524 k. Construction. Most Cited Cases

(Formerly 265k10)



99I Copyrights



(Formerly 265k10)

Digital Millennium Copyright Act (DMCA) as part of the Copyright Act, doesnot limit the scope of the antitrust laws, either explicitly or implicitly. 17

U.S.C.A. s 1201 et seq.



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act (DMCA) granted copyright holders additionallegal protections, but neither rescinded the basic bargain granting the publicnoninfringing and fair uses of copyrighted materials, nor prohibited various

beneficial uses of circumvention technology, such as those exempted under theAct. 17 U.S.C.A. s 1201 et seq.



99I Copyrights

99I(J) Infringement



Digital Millennium Copyright Act's (DMCA) anticircumvention provisionprohibits only forms of access that bear a reasonable relationship to the

protections that the Copyright Act otherwise affords copyright owners. 17U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



A plaintiff alleging a violation of Digital Millennium Copyright Act's(DMCA) anticircumvention provision must prove: (1) ownership of a validcopyright on a work (2) effectively controlled by a technological measure,

which has been circumvented (3) that third parties can now access (4) withoutauthorization, in a manner that (5) infringes or facilitates infringing a right

protected by the Copyright Act, because of a product that (6) the defendanteither (i) designed or produced primarily for circumvention; (ii) made

available despite only limited commercial significance other thancircumvention; or (iii) marketed for use in circumvention of the controlling

technological measure. 17 U.S.C.A. s 1201(a)(2).



99I Copyrights

99I(J) Infringement



Universal transmitter that allowed consumers to access copyrighted softwareembedded in manufacturer's "rolling code" garage door openers did not violate

anticircumvention provision of Digital Millennium Copyright Act (DMCA); accessprovided by the transmitter did not facilitate the infringement of any right

protected by the Copyright Act, which authorized manufacturer's customers touse the copy of its copyrighted software embedded in the openers that they

purchased. 17 U.S.C.A. s 1201(a)(2).

*1181 Karl R. Fink, Fitch, Even, Tabin & Flannery, of Chicago, Illinois, arguedfor plaintiff-appellant. With him on the brief were John F. Flannery, Rudy I.

Kratz and Michael G. Vranicar.

Richard de Bodo, Irell & Manella LLP, of Los Angeles, CA, argued fordefendant-appellee. With him on the brief were Andra Barmash Greene, David

Nimmer, Peter Christensen and David Djavaherian, of Newport Beach, CA.

Jonathan Band, Morrison & Foerster, LLP, of Washington, DC, for amicus curiaeComputer & Communications Industry Association. With him on the brief was

Matthew Schruers.

Jennifer M. Urban, Samuelson Law, Technology and Public Policy Clinic,University of California at Berkeley School of Law (Boalt Hall), of Berkeley,

CA, for amicus curiae Consumers Union. With her on the brief was Jason M.Schultz, Electronic Frontier Foundation, of San Francisco, CA.

Before GAJARSA, LINN, and PROST, Circuit Judges.

GAJARSA, Circuit Judge.

The Chamberlain Group, Inc. ("Chamberlain") appeals the November 13, 2003summary judgment of the United States District Court for the Northern District

of Illinois ("District Court") in favor of Skylink Technologies, Inc. ("Skylink"), finding that Skylink is not violating the anti-trafficking

provisions of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. s 1201et seq., and dismissing all other claims, including claims of patent

infringement. Chamberlain Group, Inc. v. Skylink Techs., Inc., 292 F.Supp.2d1040 (N.D.Ill.2003) ("Chamberlain II "). That same court, in an earlier

ruling, denied Chamberlain's motion for summary judgment on its DMCA claims.Chamberlain Group, Inc. v. Skylink Techs., Inc., 292 F.Supp.2d 1023

(N.D.Ill.2003) ("Chamberlain I "). Chamberlain does not appeal * that denialof its summary judgment motion.

Chamberlain's claims at issue stem from its allegation that the DistrictCourt incorrectly construed the DMCA as placing a burden upon Chamberlain toprove that the circumvention of its technological measures enabled unauthorizedaccess to its copyrighted software. But Skylink's accused device enables only

uses that copyright law explicitly authorizes, and is therefore presumptivelylegal. Chamberlain has neither proved nor alleged a connection between

Skylink's accused circumvention device and the protections that the copyrightlaws afford Chamberlain capable of overcoming that presumption. Chamberlain's

failure to meet this burden alone compels a legal ruling in Skylink's favor.We therefore affirm the District Court's summary judgment in favor of Skylink.

BACKGROUND

A. The Applicable Statute

Chamberlain sued Skylink, alleging violations of the patent and copyrightlaws. Chamberlain's second amended complaint, dated March 26, 2003,

enumerated eight causes of action against Skylink, including the infringementof three patents. The matter on appeal involves only Chamberlain's allegation

that Skylink is violating the DMCA, specifically the anti-trafficking provisionof s 1201(a)(2). The District Court first denied Chamberlain's motion for

summary judgment of its DMCA claim, Chamberlain I, and then granted Skylink'smotion for summary judgment on the DMCA claim. Chamberlain II. The District

Court also dismissed all other counts.

The District Court's ruling, along with the appellate briefs that theparties and amici filed with this court, raise numerous provisions of the DMCA

for our consideration. The key provisions at issue, however, are all in s1201(a).

s 1201. Circumvention of copyright protection systems

(a) Violations regarding circumvention of technological measures.

(1) (A) No person shall circumvent a technological measure that effectively controls access to a work protected under this title....

(2) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or

part thereof, that-

(A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected

under this title;

(B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work

protected under this title; or

(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing a technological measure

that effectively controls access to a work protected under this title.

(3) As used in this subsection-

(A) to "circumvent a technological measure" means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the

copyright owner; and

(B) a technological measure "effectively controls access to a work" if the measure, in the ordinary course of its operation, requires the application of

information, or a process or a treatment, *1183 with the authority of the copyright owner, to gain access to the work.

17 U.S.C. s 1201(a).

B. The Dispute

The District Court reviewed the basic facts and the underlying technology inits dismissal of Chamberlain's motion for summary judgment. Though the

parties emphasize different aspects of the District Court's factual discussion,neither one questions its general accuracy.

The technology at issue involves Garage Door Openers (GDOs). A GDOtypically consists of a hand-held portable transmitter and a garage door

opening device mounted in a homeowner's garage. The opening device, in turn,includes both a receiver with associated signal processing software and a motorto open or close the garage door. In order to open or close the garage door,a user must activate the transmitter, which sends a radio frequency (RF) signal

to the receiver located on the opening device. Once the opener receives arecognized signal, the signal processing software directs the motor to open or

close the garage door.

When a homeowner purchases a GDO system, the manufacturer provides both anopener and a transmitter. Homeowners who desire replacement or spare

transmitters can purchase them in the aftermarket. Aftermarket consumers havelong been able to purchase "universal transmitters" that they can program to

interoperate with their GDO system regardless of make or model. Skylink andChamberlain are the only significant distributors of universal GDO

transmitters.FN1 Chamberlain places no explicit restrictions on the types oftransmitter that the homeowner may use with its system at the time of purchase.

Chamberlain's customers therefore assume that they enjoy all of the rightsassociated with the use of their GDOs and any software embedded therein that

the copyright laws and other laws of commerce provide.

FN1. Chamberlain's product, the "Clicker," interoperates with both Chamberlain and non-Chamberlain GDOs.

This dispute involves Chamberlain's Security+ line of GDOs and Skylink'sModel 39 universal transmitter. Chamberlain's Security+ GDOs incorporate a

copyrighted "rolling code" computer program that constantly changes thetransmitter signal needed to open the garage door. Skylink's Model 39

transmitter, which does not incorporate rolling code, nevertheless allows usersto operate Security+ openers. Chamberlain alleges that Skylink's transmitter

renders the Security+ insecure by allowing unauthorized users to circumvent thesecurity inherent in rolling codes. Of greater legal significance, however,

Chamberlain contends that because of this property of the Model 39, Skylink isin violation of the anti-trafficking clause of the DMCA's anticircumvention

provisions, specifically s 1201(a)(2).

The code in a standard (i.e., non-rolling code) GDO transmitter is unique

but fixed. Thus, according to Chamberlain, the typical GDO is vulnerable toattack by burglars who can open the garage door using a "code grabber."

According to Chamberlain, code grabbers allow burglars in close proximity to ahomeowner operating her garage door to record the signal sent from the

transmitter to the opener, and to return later, replay the recorded signal, andopen the garage door. Chamberlain concedes, however, that code grabbers are

more theoretical than practical burgling devices; none of its witnesses hadeither firsthand knowledge of a single code grabbing problem or familiaritywith data demonstrating*1184 the existence of a problem. Nevertheless,

Chamberlain claims to have developed its rolling code system specifically toprevent code grabbing.FN2

FN2. According to Skylink, Chamberlain introduced rolling codes to prevent inadvertent GDO activation by planes passing overhead, not as a

security measure.

The essence of the rolling code system is that the transmitted signals arebroken into fixed and variable (or "rolling") components. The entire

transmitted signal is a bit string. The fixed component serves to identifythe transmitter. The rolling component cycles through a lengthy cycle of bit

strings only some of which are capable of opening the door at any given time,ostensibly so that a burglar replaying a grabbed code is unlikely to send a

valid signal-and therefore unlikely to open the garage door.

A user wishing to set up a new transmitter for use with her Security+ GDOmust switch the opener to "program mode" and send a signal from the transmitter

to the opener. The opener stores both the fixed and rolling components of thetransmitted signal. When the user switches the opener back to "operate mode,"

the system is set and the user may operate the opener with the newly programmedtransmitter. In Chamberlain's transmitter, a computer program increases therolling code by a factor of three each time the user activates the transmitter.When the transmitted signal reaches the receiver, a program in the openerchecks to see whether the rolling code received was identical to one of the

most recently received 1,024 rolling codes (the "rear window"). If so, itwill not activate the motor. If, on the other hand, the rolling code receivedis among the next 4,096 binary signals (the "forward window"), the receiver

will activate the motor.

Not all recognized binary rolling signals are in either the forward or rearwindows. If the transmitter sends a single signal outside of either window,

the receiver will ignore it. If, however, the transmitter sends two signalsoutside either window in rapid succession, the opener will again access its

programming, this time to determine whether the two signals together comprise a"resynchronization" sequence. If the signals differ by three, the receiver

will reset the windows and activate the motor. According to Chamberlain,resynchronization accommodates the possibility that homeowners using the same

transmitter for multiple residences may transmit so many signals while out ofrange of the opener that they exhaust the entire forward window.

Skylink began marketing and selling universal transmitters in 1992.Skylink designed its Model 39, launched in August 2002, to interoperate with

common GDOs, including both rolling code and non-rolling code GDOs.FN3 AlthoughChamberlain concedes that the Model 39 transmitter is capable of operating many

different GDOs, it nevertheless asserts that Skylink markets the Model 39transmitter for use in circumventing its copyrighted rolling code computer

program. Chamberlain supports this allegation by pointing to the Model 39'ssetting that operates only Chamberlain's rolling code GDOs.

FN3. The Model 39 interoperates with at least 15 different brands and dozens of different GDO models, only a few of which include Chamberlain's

rolling code. One of the Model 39's settings interoperates only with Chamberlain rolling code GDOs.

Skylink's Model 39 does not use rolling code technology. LikeChamberlain's products, however, the Model 39's binary signal contains two

components. The first corresponds to the Chamberlain's fixed *1185 componentidentifying the transmitter, and the second simulates the effect of the

Chamberlain's rolling code. Like the Chamberlain fixed component, the primaryrole of the Model 39's identifying component is in programming; a homeowner

wishing to use a Model 39 in conjunction with a Chamberlain GDO must programthe opener to recognize his newly purchased transmitter. When the homeowner

actually uses the transmitter, it broadcasts three fixed codes in rapidsuccession. The first binary signal combines the identifying component withan arbitrary binary sequence. The second binary signal subtracts 1800 from

the first signal. The third signal adds three to the second signal. Thecombination of these three codes transmitted with every press of the Model 39

transmitter button will either cause the Chamberlain GDO to operate in responseto the first fixed code or cause the GDO to resynchronize and operate in

response to the second and third fixed codes. Chamberlain characterizes thisprocedure as a circumvention of an important security measure; a code grabber

that recorded the Model 39's three codes could later play them back andactivate a Chamberlain rolling code GDO without authorization.

These facts frame the dispute now before us on appeal. Though onlyChamberlain's DMCA claim is before us, and though the parties dispute whetheror not Skylink developed the Model 39 independent of Chamberlain's copyrighted

products,FN4 it is nevertheless noteworthy that Chamberlain has not allegedeither that Skylink infringed its copyright or that Skylink is liable for

contributory copyright infringement. What Chamberlain has alleged is thatbecause its opener and transmitter both incorporate computer programs"protected by copyright" and because rolling codes are a "technological

measure" that "controls access" to those programs, Skylink is prima facieliable for violating s 1201(a)(2). In the District Court's words,

"Chamberlain claims that the rolling code computer program has a protectivemeasure that protects itself. Thus, only one computer program is at workhere, but it has two functions: (1) to verify the rolling code; and (2) once

the rolling code is verified, to activate the GDO motor, by sendinginstructions to a microprocessor in the GDO." Chamberlain I, 292 F.Supp.2d at

1028.

FN4. According to Chamberlain, the transmitter program is registered with the United States Copyright Office as No. TX5-533-065, and the computer

program in the receiver is registered with the United States Copyright Office as No. TX5-549-995. The parties dispute whether the code used in

the program is precisely the registered code or a slight variation thereof, possibly qualifying as a derivative work. Because this appeal

is of a summary judgment favoring Skylink, however, we view all disputed facts in the light most favorable to Chamberlain, and therefore assume that all programs in question are fully protected by the copyright laws.

C. The Summary Judgment Motions

The District Court first considered Chamberlain's motion for summaryjudgment on its DMCA claim. Chamberlain I. Chamberlain sued Skylink under 17

U.S.C. s 1201(a)(2), a statutory provision that neither the Seventh Circuit norany previous District Court in the Seventh Circuit had ever considered. Todate, in fact, only the Second Circuit has construed s 1201(a)(2), and that

construction focused on First Amendment issues rather than on an application ofthe statute to case-specific facts. See Universal City Studios v. Corley,

273 F.3d 429 (2d Cir.2001) ("Corley "). The District Court therefore

correctly viewed this case as a matter of first impression, and provideddetailed analyses of *1186 Chamberlain's various arguments and Skylink's

proffered defenses.

At the end of this review, the District Court denied Chamberlain's motionfor summary judgment. Chamberlain does not appeal this denial. The District

Court, however, did refer back to its discussions numerous times in itsconsideration and grant of Skylink's motion for summary judgment, the subject

of the current appeal. In fact, the District Court's discussion of Skylink'smotion began by "assum[ing] the reader's familiarity with [its] earlier

decision." Chamberlain II, 292 F.Supp.2d at 1042. Understanding theDistrict Court's denial of Chamberlain's summary judgment motion is therefore

critical to understanding its grant of Skylink's summary judgment motion.

Chamberlain's argument, submitted in both summary judgment motions, restson its interpretation of the statute's "plain language." Chamberlain contends

first, that Skylink "primarily designed or produced [the Model 39] for thepurpose of circumventing [ Chamberlain's rolling code] technological measure

that effectively controls access to [ Chamberlain's copyrighted computerprograms]," contravening s 1201(a)(2)(A); second, that the Model 39 "has only

limited commercially significant purpose or use other than to circumvent [Chamberlain's rolling code] technological measure that effectively controls

access to [ Chamberlain's copyrighted computer programs]," contravening s1201(a)(2)(B); and third, that Skylink marketed the Model 39 "for use incircumventing [ Chamberlain's rolling code] technological measure that

effectively controls access to [ Chamberlain's copyrighted computer programs],"contravening s 1201(a)(2)(C). Chamberlain I, 292 F.Supp.2d at 1035.

Skylink submitted several defenses, arguing that: (1) the Model 39transmitter serves a variety of functions that are unrelated to circumvention;(2) Chamberlain has failed to demonstrate that its GDOs contain a computer

program protected by copyright; (3) consumers use the Model 39 transmitter toactivate the Security+ GDOs with Chamberlain's consent; (4) Skylink has notviolated the DMCA because it falls within a safe harbor provision per s 1201(f); FN5 and (5) Chamberlain's rolling code computer program does not protect a

copyrighted computer program, but instead protects an uncopyrightable process.Id. at 1035-36. Though the District Court commented on all of these

arguments, it based its rulings entirely on Skylink's third argument concerningauthorization and consent.

FN5. s 1201. Circumvention of copyright protection systems ...

(f) Reverse engineering.

(1) Notwithstanding the provisions of subsection (a)(1)(A), a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a

particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to

achieve interoperability of an independently created computer program with other programs ... to the extent any such acts of identification

and analysis do not constitute infringement under this title....

(4) For purposes of this subsection, the term "interoperability" means the ability of computer programs to exchange information, and of such programs mutually to use the information which has been exchanged.

17 U.S.C. s 1201(f). Computer and Communications Industry Association (CCIA), first as an amicus to the District Court and now as an amicus to

this court, submitted s 1201(f) as an alternative basis for finding in

favor of Skylink.

Chamberlain submitted two arguments in response to Skylink's assertion thatChamberlain authorized its customers to use the Model 39. First, Chamberlain

argued that Skylink bore the burden of proving*1187 that its behavior wasauthorized, and that Skylink's argument was therefore, at best, an affirmative

defense rather than a defect in its own pleadings. Chamberlain II, 292F.Supp.2d at 1044. Second, Chamberlain noted that it never gave consumers

explicit authorization to program competing universal transmitters into itsrolling code openers, at least in part because it never anticipated that any

competitor would crack its code. Skylink did not dispute this point, butasserted simply that in the absence of an explicit restriction, consumers must

be free to infer that they have purchased the full range of rights thatnormally accompany consumer products-including those containing copyrighted

embedded software.

In assessing the authorization issue, the District Court noted thataccording to the statute's internal definitions, "circumvent a technological

measure" means to "descramble a scrambled work, to decrypt an encrypted work,or otherwise to avoid, bypass, remove, deactivate, or impair a technologicalmeasure, without the authority of the copyright owner." Id. at 1043 (citing

17 U.S.C. s 1201(a)(3)(A)) (emphasis added by the District Court).

According to undisputed facts, a homeowner who purchases a Chamberlain GDOowns it and has a right to use it to access his or her own garage. At the

time of sale, Chamberlain does not place any explicit terms or condition on useto limit the ways that a purchaser may use its products. A homeowner who

wishes to use a Model 39 must first program it into the GDO. Skylinkcharacterizes this action as the homeowner's authorization of the Model 39 tointeroperate with the GDO. In other words, according to Skylink, Chamberlain

GDO consumers who purchase a Skylink transmitter have Chamberlain's implicitpermission to purchase and to use any brand of transmitter that will open theirGDO. The District Court agreed that Chamberlain's unconditioned sale implied

authorization. Id.

Chamberlain also argued that its web page and warranty implied restrictionson the use of competing transmitters. The District Court, however, refused to

read an implicit restriction from the mere absence of competing productsdiscussed on Chamberlain's web page, particularly given the longstandingindustry practice of marketing universal transmitters. The District Courtrejected the alleged implications of Chamberlain's warranties even more

strongly, noting that consumers are always free to forego the benefits of aproduct's warranty and to use consumer products in any way that they choose.

The District Court similarly rejected Chamberlain's reiteration of thearguments that had proved unpersuasive in its own summary judgment motion to

defend itself against Skylink's summary judgment motion.

The District Court further noted that under Chamberlain's proposedconstruction of the DMCA, not only would Skylink be in violation of s

1201(a)(2) (prohibiting trafficking in circumvention devices), butChamberlain's own customers who used a Model 39 would be in violation of s1201(a)(1) (prohibiting circumvention). The District Court declined to adopt

a construction with such dire implications. See Chamberlain I, 292 F.Supp.2dat 1039-40.

In short, the District Court concluded that because Chamberlain neverrestricted its customers' use of competing transmitters with its Security+

line, those customers had implicit authorization to use Skylink's Model 39.Because of that implicit authorization, Chamberlain could not possibly meet itsburden of proving that Skylink trafficked in a device designed to circumvent a

technological measure to gain unauthorized access to Chamberlain's *1188copyrighted computer programs. The District Court therefore granted Skylink's

motion for summary judgment on Chamberlain's DMCA claim. Chamberlain timelyappealed only the District Court's final judgment in favor of Skylink on

Chamberlain's DMCA claim, not the District Court's denial of its own summaryjudgment motion.

DISCUSSION

A. Jurisdiction

[1] Though we have jurisdiction to hear this appeal under 28 U.S.C. s1295(a)(1), that finding rests upon a detailed jurisdictional inquiry.

Chamberlain's initial complaint described "an action for patent infringementarising under the Patent Laws of the United States, 35 U.S.C. ss 271 et seq.and for copyright infringement arising under the Copyright Act, 17 U.S.C. s1201." The complaint stated four counts; three involved infringement of

Chamberlain patents. Subsequent amendments to the complaint added four morenon-patent claims. There is therefore little doubt that, both as filed and asamended, the District Court's jurisdiction "arose under" the patent laws, at

least in part.

[2] Chamberlain argues, with some justification, that this characterizationof its complaint alone is enough to confer appellate jurisdiction on this

court. According to Chamberlain, the Supreme Court's emphasis of thewell-pleaded complaint rule in determining our jurisdiction requires us to

inquire only whether the District Court's jurisdiction "arose under" the patentlaws, at least in part. See Holmes Group v. Vornado Air Circulation Sys.,

535 U.S. 826, 829, 122 S.Ct. 1889, 153 L.Ed.2d 13 (2002). Skylink does notdispute this point. Nevertheless, "[e]very federal appellate court has a

special obligation to satisfy itself ... of its own jurisdiction ... eventhough the parties are prepared to concede it." Bender v. Williamsport Area

Sch. Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986) (citationsomitted). Though both our precedent and the Supreme Court's dicta concerning

cases, such as this one, where all patent issues were dismissed and onlynon-patent issues are on appeal, support our jurisdiction, the determination is

not as clear cut as Chamberlain contends-in part because of the unusuallanguage that the District Court used in dismissing the claims other than Count

III, the DMCA claim that is the subject of this appeal.

The District Court first dismissed one of Chamberlain's patent claims, CountII, "without prejudice to Plaintiff's reasserting its '703 patent claims if the

Federal Circuit reverses Judge Conlon's decision in Chamberlain Group, Inc. v.Interlogix, Inc., No. 01 C6157." Chamberlain and Interlogix settled their

case while it was on appeal. This court then remanded the matter for "thepurpose of allowing the District Court to consider the parties' motion tovacate its judgment." Chamberlain Group, Inc. v. Interlogix, Inc., 75Fed.Appx. 786 (Fed.Cir.2003).FN6 Though the Interlogix trial court

subsequently denied that motion, Chamberlain Group, Inc. v. Interlogix, Inc.,No. 01-C6157, 2004 WL 1197258, 2004 U.S. Dist. LEXIS 9851 (N.D.Ill., May 28,

2004), that denial in no way disturbed the settlement. As a result, there isno longer any set of circumstances *1189 under which this court could "reverseJudge Conlon's decision." Chamberlain can no longer reassert Count II in any

forum. The District Court's dismissal of Count II, though styled as "withoutprejudice subject to a condition subsequent," has ripened into a dismissal with

prejudice, and therefore serves as an adjudication on the merits of Count II.

FN6. Unpublished opinions of the Federal Circuit may not be cited as precedent, but are nevertheless binding on the parties. Because of the

wording of the District Court's dismissal, this particular unpublished

opinion is critical to determining the status of Count II in the present matter.

The District Court's effective adjudication of Count II confirmed FederalCircuit jurisdiction to hear all appeals from the final judgment in this

matter, 28 U.S.C. s 1295(a)(1), by assuring that the District Court's ownjurisdiction arose in part under the patent laws. See Holmes, 535 U.S. at826, 122 S.Ct. 1889. At the time that the District Court dismissed Count II,

however, numerous other claims and counterclaims remained unresolved. Shortlythereafter, though, and subject to stipulation by the parties, the District

Court dismissed all remaining claims other than Count III, the DMCA claim:

Counts IV through VII of the Second Amended Complaint and Counts I through VII of the Amended Answer and Counterclaim are dismissed with prejudice pursuant to Fed.R.Civ.P. 41(a). Counts I and VIII of the Second Amended Complaint are dismissed without prejudice pursuant to Fed.R.Civ.P. 41(a).

The dismissal of the patent claims is without prejudice solely for the purpose of permitting the maintenance of the patent claims in the ITC investigation and nowhere else as per agreement of the parties.FN7

FN7. According to the District Court, Chamberlain also argued that it never authorized its customers to use Model 39 transmitters in a separate

action in front of the International Trade Commission ("ITC"). In the Matter of Certain Universal Transmitters for Garage Door Openers ("Matter

of GDOs"), Inv. No. 337-TA-497, 2003 WL, slip op. at 39, 41-42 (Nov. 4, 2003). The ITC's Administrative Law Judge rejected the argument. See Chamberlain II, 292 F.Supp.2d at 1044-45. That matter is the subject of

a separate appeal still pending.

Counts I, II, and VIII were the only patent claims in the Second AmendedComplaint. This broad dismissal rendered the District Court's summary

judgment for Skylink on the DMCA claim a final judgment from which Chamberlaincould appeal.

[3] Though we have never before had to consider our jurisdiction overmatters in which a trial court dismissed all patent claims using precisely thelanguage that this District Court did in dismissing Claims I, II, and VIII, ourprecedent is clear. Federal Circuit jurisdiction depends on whether the

plaintiff's complaint as amended raises patent law issues. Gronholz v. Sears,Roebuck & Co., 836 F.2d 515, 519 (Fed.Cir.1987); see also Holmes, 535 U.S. at

829 n. 1, 122 S.Ct. 1889; Christianson v. Colt Indus. Operating Corp., 486U.S. 800, 822-24, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) (Stevens, J.,

concurring); Holmes, 535 U.S. at 835, 122 S.Ct. 1889 (Stevens, J.,concurring). Where, as here, all of the patent claims in the amendedcomplaint were dismissed prior to the non-patent ruling on appeal, the

dispositive question is whether the dismissal was with or without prejudice.Nilssen v. Motorola, Inc., 203 F.3d 782, 785 (Fed.Cir.2000).

[4][5] Dismissals without prejudice are de facto amendments to thecomplaint. Gronholz, 836 F.2d at 519. For the purposes of determining

Federal Circuit jurisdiction, we do not differentiate between actual andconstructive amendments; both divest us of jurisdiction if they eliminate allissues of patent law. See id. Dismissals with prejudice are adjudications

on the merits, and not constructive amendments *1190 to the complaint.Zenith Elecs. Corp. v. Exzec, Inc., 182 F.3d 1340, 1346 (Fed.Cir.1999). Inall such cases, we retain jurisdiction to hear all appeals on all issues. See

id.

[6][7][8] Taken together, whenever the complaint included a patent claim and

the trial court's rulings altered the legal status of the parties with respectto that patent claim, we retain appellate jurisdiction over all pendent claims

in the complaint. See Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 1432(Fed.Cir.1984) (en banc) overruled on other grounds by, Nobelpharma AB v.Implant Innovations, Inc., 141 F.3d 1059 (Fed.Cir.1998) (en banc in relevant

part); Zenith, 182 F.3d at 1346; Nilssen, 203 F.3d at 785. In otherwords, if all patent claims raised in the amended complaint were dismissedwithout prejudice, the dismissal would divest us of jurisdiction; dismissalswith prejudice would not. Nilssen, 203 F.3d at 785. Neither the specific

rule under which the District Court dismissed the claims nor the wording of thedismissal alters the fundamental basis of our jurisdiction. Id. Dismissalsdivest this court of jurisdiction only if "[t]he parties were left in the same

legal position with respect to [all] patent claims as if they had never beenfiled." Id. "[T]he dismissal of a claim with prejudice operate[s] as an

adjudication of that claim on the merits," id., and preserves our jurisdiction.

Our jurisdiction in the present matter therefore hinges on whether one ormore of the District Court's dismissals altered the legal positions of

Chamberlain and Skylink vis-a-vis the dismissed claim. The Supreme Court hasdefined the difference between dismissals with and without prejudice:

The primary meaning of "dismissal without prejudice," we think, is dismissal without barring the defendant from returning later, to the same court, with the same underlying claim. That will also ordinarily (though not always) have the consequence of not barring the claim from other courts, but its

primary meaning relates to the dismissing court itself. Thus, Black's Law Dictionary (7th ed.1999) defines "dismissed without prejudice" as "removed from the court's docket in such a way that the plaintiff may refile the same

suit on the same claim," id. at 482, and defines "dismissal without prejudice" as "[a] dismissal that does not bar the plaintiff from refiling

the lawsuit within the applicable limitations period, ibid."

Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 505-06, 121 S.Ct.1021, 149 L.Ed.2d 32 (2001). This distinction is functional, rather than

semantic. Notwithstanding the District Court's semantic characterization of itsdismissal of Claim II as "without prejudice" subject to a condition subsequent

that can no longer occur, and of Claims I and VIII as "without prejudice"except in a single forum, Chamberlain is barred from reasserting these claims.

The District Court's dismissals clearly fail to meet the Supreme Court'sdefinition of "dismissal without prejudice" because they alter the legal status

of the parties vis-a-vis all of Chamberlain's asserted patent claims.Chamberlain and Skylink were not "left in the same legal position with respect

to the patent claims as if they had never been filed." Nilssen, 203 F.3d at785. We therefore have jurisdiction to hear this appeal under 28 U.S.C. s

1295(a)(1).

B. The Parties' Positions

On appeal, the parties have raised a number of issues that we must addressboth as matters of statutory construction and as they relate to the factual

disposition of this case. Chamberlain argues that *1191 "Skylink violates theprima facie requirement of anti-trafficking s 1201(a)(2)." According toChamberlain, "Skylink did not seriously dispute that the operation of its

transmitters bypasses Chamberlain's rolling code security measure to gainaccess to Chamberlain's copyrighted GDO receiver operating software, butinstead focuses on an 'authorization' defense." Given that "plain language"interpretation of the statute, Chamberlain also argues that the District Court

erred in assigning the plaintiff the burden of proving that access wasunauthorized rather than placing the burden on the defendant to prove that the

access was authorized. Finally, with the burden thus shifted, Chamberlain

argues that Skylink has not met its burden, and that the District Court's grantof summary judgment was therefore in error.

Skylink primarily urges us to adopt both the District Court's constructionand its application of its construction to the facts of this case. In

particular, Skylink urges us not to place the burden of proving authorizationon defendants, arguing that it would be tantamount to reading a new "authority"requirement into the DMCA.FN8 To resolve this dispute, we must first construe

the relevant portions of the DMCA, and then apply the statute, properlyconstrued, to the specific facts at issue.

FN8. Two amici urging us to affirm raised additional arguments that warrant mention. Amicus Computer and Communications Industry Association (CCIA) urges us to consider the import of 1201(f), which

explicitly allows circumvention for the purposes of achieving interoperability. Amicus Consumers Union (CU) urges us to consider the policy implications of Chamberlains proposed construction to consumers

and to aftermarket competitors. According to CU, Chamberlains proposed construction of the DMCA would enable copyright owners to engage in a

number of practices that would otherwise be considered copyright misuse, an antitrust violation, or a violation of state unfair competition laws.

At oral argument, Chamberlain conceded that its proposed construction would, indeed, alter virtually all existing consumer expectations

concerning the publics rights to use purchased products containing copyrighted software protected by a technological measure-effectively

confirming CUs fears.

C. Standard of Review

[9] To resolve issues of substantive copyright law, this court applies thelaw as interpreted by the regional circuits, in this case the Seventh Circuit.

See Atari Games Corp. v. Nintendo of Am., Inc., 975 F.2d 832, 837(Fed.Cir.1992). Because this matter came to us following a summary judgment,we must apply the Seventh Circuit's standard of review for summary judgments.

This standard does not differ from circuit to circuit. Fed.R.Civ.P. 56;Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91

L.Ed.2d 202 (1986). Appellate courts review summary judgment motions de novo,viewing the record and all inferences from it in the light most favorable to

the nonmoving party. Schmidt v. Ottawa Med. Ctr., P.C., 322 F.3d 461, 463(7th Cir.2003). Summary judgment is appropriate only when there is no genuine

issue as to any material fact and where the moving party is entitled tojudgment as a matter of law. Id.

Our task is essentially one of statutory construction. It is also a matterof first impression. For us to determine whether or not Skylink was entitledto summary judgment that its Model 39 universal transmitter does not violate

the DMCA, we must first determine precisely what s 1201(a)(2) prohibits. TheSeventh Circuit has considered the DMCA only once, in In re Aimster Copyright

Litigation, 334 F.3d 643, 655 (7th Cir.2003). That case involved provisionsof the DMCA other than those at issue here. To the extent *1192 that the

Seventh Circuit provided any useful guidance to our consideration of the DMCA,it can be captured in two simple sentences: "The DMCA is an attempt to deal

with special problems created by the so-called digital revolution.... The Actdoes not abolish contributory infringement." Id. As a result, there is no

binding precedent governing the substantive issues in this case. The partieshave provided numerous citations to persuasive authority from other regional

circuits and from District Courts, primarily but not exclusively UniversalCity Studios, Inc. v. Reimerdes, 111 F.Supp.2d 294, 319 (S.D.N.Y.2000)

("Reimerdes"), affd sub nom. Universal City Studios v. Corley, 273 F.3d 429(2d Cir.2001) ("Corley").FN9 The parties pointed the District Court toward

this case as well, and the District Court relied in part upon the Reimerdesanalysis in its own construction of the DMCA. See Chamberlain I, 292 F.Supp.2d

at 1036-40; Chamberlain II, 292 F.Supp.2d at 1045.

FN9. Both parties relied on the trial court's decision in this case, rather than the Second Circuit's decision, presumably because the trial

court, but not the Court of Appeals, addressed s 1201(a)(2)(A).

[10][11][12] The general methodology guiding a court's construction of astatute is well established, and is the same in the Seventh Circuit as it is in

the Federal Circuit. Compare Bethlehem Steel Corp. v. Bush, 918 F.2d 1323,1327 (7th Cir.1990), with Madison Galleries, Ltd. v. United States, 870 F.2d

627, 630 (Fed.Cir.1989). We must start with the language of the statute. SeeGwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., 484 U.S. 49, 56, 108S.Ct. 376, 98 L.Ed.2d 306 (1987). If the statute is unambiguous, our inquiryis at an end; we must enforce the congressional intent embodied in that plainwording. See United States v. Clark, 454 U.S. 555, 560, 102 S.Ct. 805, 70L.Ed.2d 768 (1982). "When a syntactical analysis of the statutory language

does not yield a satisfactory answer with respect to the intent of theCongress, we must employ other less satisfactory means to ascertain, as best we

can, the legislative will." Bethlehem Steel, 918 F.2d at 1327. In suchcases, investigations of the statute's structure and of relevant legislative

history can both provide useful insights to help us construe the statute in theway most consistent with congressional intent. See, e.g., Alexander v.

Sandoval, 532 U.S. 275, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001); Whitman v.Am. Trucking Ass'ns, 531 U.S. 457, 490, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001);

Boim v. Quranic Literacy Inst., 291 F.3d 1000, 1019 (7th Cir.2002). "Policyconsiderations cannot override our interpretation of the text and structure of[a statute], except to the extent that they may help to show that adherence tothe text and structure would lead to a result so bizarre that Congress couldnot have intended it." Central Bank, N.A. v. First Interstate Bank, N.A., 511

U.S. 164, 188, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994).

D. The Statute and Liability under the DMCA

[13][14] The essence of the DMCA's anticircumvention provisions is that ss1201(a),(b) establish causes of action for liability. They do not establish anew property right. The DMCA's text indicates that circumvention is notinfringement, 17 U.S.C. s 1201(c)(1) ("Nothing in this section shall affect

rights, remedies, limitations, or defenses to copyright infringement, includingfair use, under this title."), and the statute's structure makes the point even

clearer. This distinction between property and liability is critical.Whereas copyrights, like patents, are property, liability protection from

unauthorized*1193 circumvention merely creates a new cause of action underwhich a defendant may be liable. The distinction between property and

liability goes straight to the issue of authorization, the issue upon which theDistrict Court both denied Chamberlain's and granted Skylink's motion for

summary judgment.

[15][16][17][18][19] A plaintiff alleging copyright infringement need proveonly "(1) ownership of a valid copyright, and (2) copying of constituent

elements of the work that are original." Feist Pub., Inc. v. Rural Tel. Serv.Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991); see alsoHarris Custom Builders, Inc. v. Hoffmeyer, 92 F.3d 517, 519 (7th Cir.1996).

"[T]he existence of a license, exclusive or nonexclusive, creates anaffirmative defense to a claim of copyright infringement." I.A.E., Inc. v.

Shaver, 74 F.3d 768, 775 (7th Cir.1996). In other words, under SeventhCircuit copyright law, a plaintiff only needs to show that the defendant hasused her property; the burden of proving that the use was authorized falls

squarely on the defendant. Id. The DMCA, however, defines circumvention as an

activity undertaken "without the authority of the copyright owner." 17 U.S.C.s 1201(a)(3)(A). The plain language of the statute therefore requires a

plaintiff alleging circumvention (or trafficking) to prove that the defendant'saccess was unauthorized-a significant burden where, as here, the copyright lawsauthorize consumers to use the copy of Chamberlain's software embedded in the

GDOs that they purchased. The premise underlying this initial assignment ofburden is that the copyright laws authorize members of the public to access awork, but not to copy it. The law therefore places the burden of proof on theparty attempting to establish that the circumstances of its case deviate fromthese normal expectations; defendants must prove authorized copying and

plaintiffs must prove unauthorized access.

The distinction between property and liability also addresses an importantpolicy issue that Chamberlain puts into stark focus.FN10 According to

Chamberlain, the 1998 enactment of the DMCA "renders the pre-DMCA history inthe GDO industry irrelevant. By prohibiting the trafficking and use ofcircumvention technology, the DMCA fundamentally altered the legal

landscape.... Any analysis of practices within the GDO industry must now beundertaken in light of the DMCA." Chamberlain reiterated and strengthened this

assertion at oral argument, claiming that the DMCA overrode all pre-existingconsumer expectations about the legitimate uses of products containing

copyrighted embedded software. Chamberlain contends that Congress empoweredmanufacturers to prohibit consumers from using embedded software products inconjunction with competing products when it passed s 1201(a)(1). According toChamberlain, all such uses of products containing copyrighted software to which

a technological measure controlled access are now per se illegal under the DMCAunless the manufacturer provided consumers with explicit authorization.

Chamberlain's interpretation of the DMCA would therefore grant manufacturersbroad exemptions from both the antitrust laws and the doctrine of copyright

misuse.

FN10. Amicus CU also raised this issue in its brief to this court.

[20][21] Such an exemption, however, is only plausible if theanticircumvention provisions established a new property right capable of

conflicting with the copyright owner's other legal responsibilities-which as wehave already explained, they do not. The anticircumvention provisions conveyno additional property rights in and *1194 of themselves; they simply provide

property owners with new ways to secure their property. Like all propertyowners taking legitimate steps to protect their property, however, copyright

owners relying on the anticircumvention provisions remain bound by all otherrelevant bodies of law. Contrary to Chamberlain's assertion, the DMCA

emphatically did not "fundamentally alter" the legal landscape governing thereasonable expectations of consumers or competitors; did not "fundamentallyalter" the ways that courts analyze industry practices; and did not render the

pre-DMCA history of the GDO industry irrelevant.

[22] What the DMCA did was introduce new grounds for liability in thecontext of the unauthorized access of copyrighted material. The statute'splain language requires plaintiffs to prove that those circumventing their

technological measures controlling access did so "without the authority of thecopyright owner." 17 U.S.C. s 1201(3)(A). Our inquiry ends with that clear

language. We note, however, that the statute's structure, legislativehistory, and context within the Copyright Act all support our construction.

They also help to explain why Chamberlain's warranty conditions and websitepostings cannot render users of Skylink's Model 39 "unauthorized" users for the

purposes of establishing trafficking liability under the DMCA.

E. Statutory Structure and Legislative History

The specific statutory provision here at issue is s 1201(a)(2) of the DMCA.The structure of the DMCA follows logically from the textual provisions

distinguishing circumvention from infringement. The provisions relevant tocircumvention are all in a new chapter of the Copyright Act, Chapter 12, titled

"Copyright Protection and Management System." Violators may be subject to thenew civil penalties of s 1203 and the criminal penalties of s 1204, but they

are not necessarily liable for copyright infringement.

The Second Circuit, as a precursor to its constitutional analysis,summarized the statute's history and structure:

The DMCA was enacted in 1998 to implement the World Intellectual Property Organization Copyright Treaty (WIPO Treaty), which requires contracting parties to provide adequate legal protection and effective legal remedies

against the circumvention of effective technological measures that are used by authors in connection with the exercise of their rights under this Treaty or the Berne Convention and that restrict acts, in respect of their works,

which are not authorized by the authors concerned or permitted by law.FN11 Even before the treaty, Congress had been devoting attention to the problems

faced by copyright enforcement in the digital age. Hearings on the topic have spanned several years.... This legislative effort resulted in the DMCA.

FN11. WIPO Treaty, Apr. 12, 1997, art. 11, S. Treaty Doc. No. 105-17 (1997), available at 1997 WL 447232.

The Act contains three provisions targeted at the circumvention of technological protections. The first is subsection 1201(a)(1)(A), the anticircumvention provision. This provision prohibits a person from

circumvent [ing] a technological measure that effectively controls access to a work protected under [Title 17, governing copyright]....

The second and third provisions are subsections 1201(a)(2) and 1201(b)(1), *1195 the anti-trafficking provisions.... Subsection 1201(a)(1) differs from

both of these anti-trafficking subsections in that it targets the use of a circumvention technology, not the trafficking in such a technology.

The DMCA contains exceptions, ... [id. 1201(d),(f),(g)] ... creates civil remedies, id. 1203, and criminal sanctions, id. 1204. It specifically

authorizes a court to grant temporary and permanent injunctions on such terms as it deems reasonable to prevent or restrain a violation. Id. 1203(b)(1).

Corley, 273 F.3d at 440-41 (footnote appears as text in original; internal footnotes from original omitted).

Here, as in Corley, the primary statutory clause at issue is s 1201(a)(2) ofthe DMCA, though other subsections of s 1201 are also implicated. Unlike the

Second Circuit in Corley, which provided only enough of the statutoryconstruction to address constitutional challenges, however, we must construe

the full boundaries of anticircumvention and anti-trafficking liability underthe DMCA. We must determine the Congressional intent embodied in the statute's

language, and then enforce the correctly construed statute to the facts athand. See United States v. Clark, 454 U.S. 555, 560, 102 S.Ct. 805, 70

L.Ed.2d 768 (1982).

Because the DMCA is a complex statute creating several new causes of action,each subject to numerous exceptions, we must also ensure that our construction

makes sense given the statute's entirety. We must therefore consider brieflythe relationship among the liabilities created under ss 1201(a)(1), (a)(2), and

(b). Statutory structure and legislative history both make it clear that s1201 applies only to circumventions reasonably related to protected rights.

Defendants who traffic in devices that circumvent access controls in ways thatfacilitate infringement may be subject to liability under s 1201(a)(2).

Defendants who use such devices may be subject to liability under s 1201(a)(1)whether they infringe or not. Because all defendants who traffic in devicesthat circumvent rights controls necessarily facilitate infringement, they may

be subject to liability under s 1201(b). Defendants who use such devices maybe subject to liability for copyright infringement. And finally, defendants

whose circumvention devices do not facilitate infringement are not subject to s1201 liability.

The key to understanding this relationship lies in s 1201(b),FN12 whichprohibits trafficking in devices that circumvent technological measures

tailored narrowly to protect an individual right of the copyright owner whilenevertheless allowing access to the protected work. Though s 1201(b)

parallels the anti-trafficking ban of s 1201(a)(2), there is no narrowlytailored ban on direct circumvention to parallel s 1201(a)(1). This omission

was intentional.

FN12. "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device,

component, or part thereof, that ... [circumvents] a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof." 35 U.S.C. s 1201(b)(1) (emphasis

added).

The prohibition in 1201(a)(1) [was] necessary because prior to [the DMCA], the conduct of circumvention was never before made unlawful. The device

limitation in 1201(a)(2) enforces this new prohibition in conduct. The copyright law has long forbidden copyright infringements, so no new

prohibition was necessary. The device limitation in 1201(b) enforces the longstanding prohibitions on infringements.

S.Rep. No. 105-90 at 12 (1998).

Prior to the DMCA, a copyright owner would have had no cause of actionagainst *1196 anyone who circumvented any sort of technological control, butdid not infringe. The DMCA rebalanced these interests to favor the copyrightowner; the DMCA created circumvention liability for "digital trespass" under s

1201(a)(1). It also created trafficking liability under s 1201(a)(2) forfacilitating such circumvention and under s 1201(b) for facilitating

infringement (both subject to the numerous limitations and exceptions outlinedthroughout the DMCA).FN13

FN13. For obvious reasons, s 1201(a)(2) trafficking liability cannot exist in the absence of s 1201(a)(1) violations-much as this court has

often explained that "indirect [patent] infringement, whether inducement to infringe or contributory infringement, can only arise in the presence of direct infringement, though the direct infringer is typically someone

other than the defendant accused of indirect infringement." Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1272 (Fed.Cir.2004).

The importance of "rebalancing" interests in light of recent technologicaladvances is manifest in the DMCA's legislative history. Though the Supreme

Court has recognized that interim industrial developments may erode the"persuasive effect of legislative history," New York v. FERC, 535 U.S. 1, 23,

122 S.Ct. 1012, 152 L.Ed.2d 47 (2002), Congressional intent evident inrelatively recent legislation like the DMCA may provide useful context in

interpreting the statutory language. Though "we do not resort to legislative

history to cloud a statutory text that is clear," Ratzlaf v. United States,510 U.S. 135, 147-48, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994), we nevertheless

recognize that "words are inexact tools at best, and hence it is essential thatwe place the words of a statute in their proper context by resort to the

legislative history." Tidewater Oil Co. v. United States, 409 U.S. 151, 157,93 S.Ct. 408, 34 L.Ed.2d 375 (1972).

[23] The most significant and consistent theme running through the entirelegislative history of the anticircumvention and anti-trafficking provisions of

the DMCA, ss 1201(a)(1),(2), is that Congress attempted to balance competinginterests, and "endeavored to specify, with as much clarity as possible, howthe right against anti-circumvention would be qualified to maintain balance

between the interests of content creators and information users." H.R.Rep. No.105-551, at 26 (1998). The Report of the House Commerce Committee concluded

that s 1201 "fully respects and extends into the digital environment thebedrock principle of 'balance' in American intellectual property law for the

benefit of both copyright owners and users." Id.

The crux of the present dispute over statutory construction therefore stemsfrom a dispute over the precise balance between copyright owners and users that

Congress captured in the DMCA's language.

Defendants argue ... that the DMCA should not be construed to reach their conduct [or product] ... because the DMCA, so applied, could prevent those who wish to gain access to technologically protected copyrighted works in order to make ... non-infringing use of them from doing so.... Technological

access control measures have the capacity to prevent fair uses of copyrighted works as well as foul. Hence, there is a potential tension between the use of such access control measures and fair use, [as well as the much broader range of explicitly noninfringing use].... As the DMCA made its way through the legislative process, Congress was preoccupied with precisely this issue.

Proponents of strong restrictions on circumvention of access control measures argued that they were *1197 essential if copyright holders were to make their

works available in digital form because digital works otherwise could be pirated too easily. Opponents contended that strong anticircumvention

measures would extend the copyright monopoly inappropriately and prevent many fair uses of copyrighted material. Congress struck a balance....

Reimerdes, 111 F.Supp.2d at 304 (citations omitted). We must understandthat balance to resolve this dispute.

F. Access and Protection

Congress crafted the new anticircumvention and anti-trafficking provisionshere at issue to help bring copyright law into the information age. Advances

in digital technology over the past few decades have stripped copyright ownersof much of the technological and economic protection to which they had grown

accustomed. Whereas large-scale copying and distribution of copyrightedmaterial used to be difficult and expensive, it is now easy and inexpensive.

The Reimerdes court correctly noted both the economic impact of these advancesand their consequent potential impact on innovation. Congress therefore

crafted legislation restricting some, but not all, technological measuresdesigned either to access a work protected by copyright, s 1201(a), or to

infringe a right of a copyright owner, s 1201(b).

Though as noted, circumvention is not a new form of infringement but rathera new violation prohibiting actions or products that facilitate infringement,it is significant that virtually every clause of s 1201 that mentions "access"links "access" to "protection." The import of that linkage may be less than

obvious. Perhaps the best way to appreciate the necessity of this linkage-and

the disposition of this case-is to consider three interrelated questionsinherent in the DMCA's structure: What does s 1201(a)(2) prohibit above andbeyond the prohibitions of s 1201(b)? What is the relationship between thesorts of "access" prohibited under s 1201(a) and the rights "protected" underthe Copyright Act? and What is the relationship between anticircumventionliability under s 1201(a)(1) and anti-trafficking liability under s 1201(a)(2)?The relationships among the new liabilities that these three provisions, ss

1201(a)(1),(a)(2),(b), create circumscribe the DMCA's scope-and therefore allowus to determine whether or not Chamberlain's claim falls within its purview.And the key to disentangling these relationships lies in understanding the

linkage between access and protection.

Chamberlain urges us to read the DMCA as if Congress simply created a newprotection for copyrighted works without any reference at all either to theprotections that copyright owners already possess or to the rights that the

Copyright Act grants to the public. Chamberlain has not alleged that Skylink'sModel 39 infringes its copyrights, nor has it alleged that the Model 39

contributes to third-party infringement of its copyrights. Chamberlain'sallegation is considerably more straightforward: The only way for the Model 39to interoperate with a Security+ GDO is by "accessing" copyrighted software.Skylink has therefore committed a per se violation of the DMCA. Chamberlainurges us to conclude that no necessary connection exists between access and

copyrights. Congress could not have intended such a broad reading of theDMCA. Accord Corley, 273 F.3d at 435 (explaining that Congress passed theDMCA's anti-trafficking provisions to help copyright owners protect their works

from piracy behind a digital wall).

Chamberlain derives its strongest claimed support for its proposedconstruction*1198 from the trial court's opinion in Reimerdes, a case

involving the same statutory provision. See Reimerdes, 111 F.Supp.2d at 304.Though Chamberlain is correct in considering some of the Reimerdes language

supportive, it is the differences between the cases, rather than theirsimilarities, that is most instructive in demonstrating precisely what the DMCA

permits and what it prohibits.

The facts here differ greatly from those in Reimerdes. There, a group ofmovie studios sought an injunction under the DMCA to prohibit illegal copying

of digital versatile discs (DVDs). Reimerdes, 111 F.Supp.2d at 308. Theplaintiffs presented evidence that each motion picture DVD includes a content

scrambling system (CSS) that permits the film to be played, but not copied,using DVD players that incorporate the plaintiffs' licensed decryption

technology. Id. The defendant provided a link on his website that allowed anindividual to download DeCSS, a program that allows the user to circumvent the

CSS protective system and to view or to copy a motion picture from a DVD,whether or not the user has a DVD player with the licensed technology. Id. The

defendant proudly trumpeted his actions as "electronic civil disobedience."Id. at 303, 312. The court found that the defendant had violated 17 U.S.C. s

1201(a)(2)(A) because DeCSS had only one purpose: to decrypt CSS. Id. at 319,346.

Chamberlain's proposed construction of the DMCA ignores the significantdifferences between defendants whose accused products enable copying and those,

like Skylink, whose accused products enable only legitimate uses of copyrightedsoftware. Chamberlain's repeated reliance on language targeted at defendants

trumpeting their "electronic civil disobedience," id. at 303, 312, apparentlyled it to misconstrue significant portions of the DMCA. Many of Chamberlain's

assertions in its brief to this court conflate the property right of copyrightwith the liability that the anticircumvention provisions impose.

Chamberlain relies upon the DMCA's prohibition of "fair uses ... as well as

foul," Reimerdes, 111 F.Supp.2d at 304, to argue that the enactment of theDMCA eliminated all existing consumer expectations about the public's rights to

use purchased products because those products might include technologicalmeasures controlling access to a copyrighted work. But Chamberlain appears to

have overlooked the obvious. The possibility that s 1201 might prohibit someotherwise noninfringing public uses of copyrighted material, see, e.g.

RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, at *8,2000 U.S. Dist. LEXIS 1889, at *23, (W.D.Wash., Jan.18, 2000); Reimerdes, 111

F.Supp.2d at 323, arises simply because the Congressional decision to createliability and consequent damages for making, using, or selling a "key" that

essentially enables a trespass upon intellectual property need not be identicalin scope to the liabilities and compensable damages for infringing that

property; it is, instead, a rebalancing of interests that "attempt[s] to dealwith special problems created by the so-called digital revolution." Aimster,

334 F.3d at 655.

Though Reimerdes is not the only case that Chamberlain cites for support,none of its other citations are any more helpful to its cause. In three othercases, Lexmark International, Inc. v. Static Control Components, Inc., 253

F.Supp.2d 943, 969 (E.D.Ky.2003), Sony Computer Entertainment America, Inc. v.Gamemasters, 87 F.Supp.2d 976 (N.D.Cal.1999), and RealNetworks, 2000 WL

127311, 2000 U.S. Dist. LEXIS 1889, the trial courts did grant preliminaryinjunctions under the DMCA using language supportive of *1199 Chamberlain's

proposed construction. None of these cases, however, is on point. InLexmark, 253 F.Supp.2d at 971, the trial court ruled that the defendant's

conduct constituted copyright infringement. In Sony, 87 F.Supp.2d at 987,the plaintiff's allegations included both trademark and copyright infringement,

and the defendant conceded that its product made "temporary modifications" tothe plaintiff's copyrighted computer program. In RealNetworks, thedefendant's product allegedly disabled RealNetworks' "copy switch,"

RealNetworks' technological measure designed to let the owner of copyrightedmaterial being streamed over RealNetworks' media player either enable or

disable copying upon streaming. RealNetworks, 2000 WL 127311, at *1, 2000U.S. Dist. LEXIS 1889 at *1. The court stated explicitly that the avoidance of

the copy switch appeared to have little commercial value other thancircumvention and the consequent infringement that it enabled. Id. at *7, 2000

U.S. Dist. LEXIS 1889, at *21. In short, the access alleged in all threecases was intertwined with a protected right. None of these cases can supporta construction as broad as the one that Chamberlain urges us to adopt, even as

persuasive authority.

Furthermore, though the severance of access from protection appearsplausible taken out of context, it would also introduce a number of

irreconcilable problems in statutory construction. The seeming plausibilityarises because the statute's structure could be seen to suggest that s 1201(b)

strengthens a copyright owner's abilities to protect its recognized rights,while s 1201(a) strengthens a copyright owner's abilities to protect access toits work without regard to the legitimacy (or illegitimacy) of the actions thatthe accused access enables. Such an interpretation is consistent with the

Second Circuit's description: "[T]he focus of subsection 1201(a)(2) iscircumvention of technologies designed to prevent access to a work, and thefocus of subsection 1201(b)(1) is circumvention of technologies designed to

permit access to a work but prevent copying of the work or some other act thatinfringes a copyright." Corley, 273 F.3d at 440-41 (emphasis in original).

It is unlikely, however, that the Second Circuit meant to imply anything asdrastic as wresting the concept of "access" from its context within the

Copyright Act, as Chamberlain would now have us do. Were s 1201(a) to allowcopyright owners to use technological measures to block all access to their

copyrighted works, it would effectively create two distinct copyright regimes.In the first regime, the owners of a typical work protected by copyright would

possess only the rights enumerated in 17 U.S.C. s 106, subject to theadditions, exceptions, and limitations outlined throughout the rest of the

Copyright Act-notably but not solely the fair use provisions of s 107. FN14Owners who feel that technology has put those rights at risk, and who

incorporate technological measures to protect those rights from technologicalencroachment, gain the additional ability to hold traffickers in circumventiondevices liable under s 1201(b) for putting *1200 their rights back at risk by

enabling circumventors who use these devices to infringe.

FN14. We do not reach the relationship between s 107 fair use and violations of s 1201. The District Court in Reimerdes rejected the

DeCSS defendants' argument that fair use was a necessary defense to s 1201(a), Reimerdes, 111 F.Supp.2d at 317; because any access enables some fair uses, any act of circumvention would embody its own defense.

We leave open the question as to when s 107 might serve as an affirmative defense to a prima facie violation of s 1201. For the moment, we note

only that though the traditional fair use doctrine of s 107 remains unchanged as a defense to copyright infringement under s 1201(c)(1),

circumvention is not infringement.

[24][25] Under the second regime that Chamberlain's proposed constructionimplies, the owners of a work protected by both copyright and a technological

measure that effectively controls access to that work per s 1201(a) wouldpossess unlimited rights to hold circumventors liable under s 1201(a) merely

for accessing that work, even if that access enabled only rights that theCopyright Act grants to the public. This second implied regime would be

problematic for a number of reasons. First, as the Supreme Court recentlyexplained, "Congress' exercise of its Copyright Clause authority must be

rational." Eldred v. Ashcroft, 537 U.S. 186, 205 n. 10, 123 S.Ct. 769, 154L.Ed.2d 683 (2003). In determining whether a particular aspect of the

Copyright Act "is a rational exercise of the legislative authority conferred bythe Copyright Clause ... we defer substantially to Congress. It is Congress

that has been assigned the task of defining the scope of the limited monopolythat should be granted to authors ... in order to give the public appropriate

access to their work product." Id. at 204-05, 123 S.Ct. 769 (citationomitted) (emphasis added). Chamberlain's proposed construction of s 1201(a)

implies that in enacting the DMCA, Congress attempted to "give the publicappropriate access" to copyrighted works by allowing copyright owners to denyall access to the public. Even under the substantial deference due Congress,

such a redefinition borders on the irrational.

That apparent irrationality, however, is not the most significant problemthat this second regime implies. Such a regime would be hard to reconcile

with the DMCA's statutory prescription that "[n]othing in this section shallaffect rights, remedies, limitations, or defenses to copyright infringement,including fair use, under this title." 17 U.S.C. s 1201(c)(1). A provision

that prohibited access without regard to the rest of the Copyright Act wouldclearly affect rights and limitations, if not remedies and defenses. Justice

Souter has remarked that "[n]o canon of statutory construction familiar to mespecifically addresses the situation in which two simultaneously enactedprovisions of the same statute flatly contradict one another. We are, ofcourse, bound to avoid such a dilemma if we can, by glimpsing someuncontradicted meaning for each provision." Reno v. American-Arab

Anti-Discrimination Comm., 525 U.S. 471, 509, 119 S.Ct. 936, 142 L.Ed.2d 940(1999) (Souter, J., dissenting). Chamberlain's proposed construction of s

1201(a) would flatly contradict s 1201(c)(1)-a simultaneously enacted provisionof the same statute. We are therefore bound, if we can, to obtain an

alternative construction that leads to no such contradiction.

Chamberlain's proposed severance of "access" from "protection" in s 1201(a)creates numerous other problems. Beyond suggesting that Congress enacted by

implication a new, highly protective alternative regime for copyrighted works;contradicting other provisions of the same statute including s 1201(c)(1); and

ignoring the explicit immunization of interoperability from anticircumventionliability under s 1201(f); FN15 the broad policy *1201 implications of

considering "access" in a vacuum devoid of "protection" are both absurd anddisastrous. Under Chamberlain's proposed construction, explicated at oralargument, disabling a burglar alarm to gain "access" to a home containing

copyrighted books, music, art, and periodicals would violate the DMCA; anyonewho did so would unquestionably have "circumvent[ed] a technological measure

that effectively controls access to a work protected under [the CopyrightAct]." s 1201(a)(1). The appropriate deterrents to this type of behavior liein tort law and criminal law, not in copyright law. Yet, were we to read thestatute's "plain language" as Chamberlain urges, disabling a burglar alarm

would be a per se violation of the DMCA.

FN15. Amicus CCIA expanded on this argument in its amicus briefs to both the District Court and this court. Though the District Court found this argument at least superficially persuasive, it did not reach it. On the

facts of this case, neither can we. Because s 1201(f) is an affirmative defense, it becomes relevant only if Chamberlain can prove a prima facie

case and shift the burden of proof to Skylink.

In a similar vein, Chamberlain's proposed construction would allow anymanufacturer of any product to add a single copyrighted sentence or software

fragment to its product, wrap the copyrighted material in a trivial"encryption" scheme, and thereby gain the right to restrict consumers' rights

to use its products in conjunction with competing products.FN16 In otherwords, Chamberlain's construction of the DMCA would allow virtually any company

to attempt to leverage its sales into aftermarket monopolies-a practice thatboth the antitrust laws, see Eastman Kodak Co. v. Image Tech. Servs., 504 U.S.451, 455, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992), and the doctrine of copyright

misuse, Assessment Techs. of WI, LLC v. WIREdata, Inc., 350 F.3d 640, 647 (7thCir.2003), normally prohibit.

FN16. Amicus CU expanded on this policy implication in its brief to this court.

Even were we to assume arguendo that the DMCA's anticircumvention provisionscreated a new property right, Chamberlain's attempt to infer such an exemption

from copyright misuse and antitrust liability would still be wrong. We havenoted numerous times that as a matter of Federal Circuit law, "[i]ntellectualproperty rights do not confer a privilege to violate the antitrust laws. Butit is also correct that the antitrust laws do not negate [a] patentee's right

to exclude others from patent property." CSU, L.L.C. v. Xerox Corp., 203 F.3d1322, 1325 (Fed.Cir.2000) (citations omitted). In what we previously termed

"the most extensive analysis of the effect of a unilateral refusal to licensecopyrighted expression," id., among our sister Circuits, the First Circuit

explained that: "[T]he Copyright Act does not explicitly purport to limit thescope of the Sherman Act.... [W]e must harmonize the two [Acts] as best we

can." Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1186-87(1st Cir.1994). Our previous consideration of Data General led us to conclude

that it was "consistent with both the antitrust and the copyright laws and isthe standard that would most likely be followed by the Tenth Circuit." CSU,

203 F.3d at 1329.

[26] Because nothing in Seventh Circuit law contradicts Data General, wesimilarly conclude that it is the standard that the Seventh Circuit would most

likely follow. The DMCA, as part of the Copyright Act, does not limit thescope of the antitrust laws, either explicitly or implicitly. The Supreme

Court

has considered the issue of implied repeal of the antitrust laws in the context of a variety of regulatory schemes and procedures. Certain axioms

of construction are now clearly established. Repeal of the antitrust laws by implication is not favored and not casually to be allowed. Only where

there is a plain repugnancy between the antitrust and regulatory provisions will repeal be implied.

*1202 Gordon v. N.Y. Stock Exch., Inc., 422 U.S. 659, 682, 95 S.Ct. 2598,45 L.Ed.2d 463 (1975). No such "plain repugnancy" separates the DMCA from the

antitrust laws-unless we adopt Chamberlain's rather extreme proposedconstruction of its language. The recognition that the DMCA does not create a

new property right drives the point home even further: plaintiffs allegingDMCA liability to protect their property rights are not exempt from other

bodies of law.

Finally, the requisite "authorization," on which the District Court grantedSkylink summary judgment, points to yet another inconsistency in Chamberlain's

proposed construction. The notion of authorization is central tounderstanding s 1201(a). See, e.g., S. Rep. 105-90 at 28 (1998) ( "Subsection

(a) applies when a person has not obtained authorized access to a copy or aphonorecord that is protected under the Copyright Act and for which thecopyright owner has put in place a technological measure that effectively

controls access to his or her work."). Underlying Chamberlain's argument onappeal that it has not granted such authorization lies the necessary assumptionthat Chamberlain is entitled to prohibit legitimate purchasers of its embedded

software from "accessing" the software by using it. Such an entitlement,however, would go far beyond the idea that the DMCA allows copyright owner to

prohibit "fair uses ... as well as foul." Reimerdes, 111 F.Supp.2d at 304.Chamberlain's proposed construction would allow copyright owners to prohibit

exclusively fair uses even in the absence of any feared foul use. It wouldtherefore allow any copyright owner, through a combination of contractual terms

and technological measures, to repeal the fair use doctrine with respect to anindividual copyrighted work-or even selected copies of that copyrighted work.

Again, this implication contradicts s 1201(c)(1) directly. Copyright lawitself authorizes the public to make certain uses of copyrighted materials.

Consumers who purchase a product containing a copy of embedded software havethe inherent legal right to use that copy of the software. What the law

authorizes, Chamberlain cannot revoke.FN17

FN17. It is not clear whether a consumer who circumvents a technological measure controlling access to a copyrighted work in a manner that enables uses permitted under the Copyright Act but prohibited by contract can be subject to liability under the DMCA. Because Chamberlain did not attempt

to limit its customers use of its product by contract, however, we do not reach this issue.

[27] Chamberlain's proposed severance of "access" from "protection" isentirely inconsistent with the context defined by the total statutory structure

of the Copyright Act, other simultaneously enacted provisions of the DMCA, andclear Congressional intent. See Tidewater Oil, 409 U.S. at 157, 93 S.Ct.

408. It "would lead to a result so bizarre that Congress could not haveintended it." Central Bank, 511 U.S. at 188, 114 S.Ct. 1439. The statutorystructure and the legislative history both make it clear that the DMCA grantedcopyright holders additional legal protections, but neither rescinded the basic

bargain granting the public noninfringing and fair uses of copyrightedmaterials, s 1201(c), nor prohibited various beneficial uses of circumvention

technology, such as those exempted under ss 1201(d),(f), (g), (j). SeeReimerdes, 111 F.Supp.2d at 323.

[28] We therefore reject Chamberlain's proposed construction in itsentirety. We conclude that 17 U.S.C. s 1201 prohibits only forms of accessthat bear a reasonable relationship to the protections that the Copyright Actotherwise affords copyright owners. While such a rule of reason *1203 maycreate some uncertainty and consume some judicial resources, it is the only

meaningful reading of the statute. Congress attempted to balance thelegitimate interests of copyright owners with those of consumers of copyrighted

products. See H.R.Rep. No. 105-551, at 26 (1998). The courts must adhere tothe language that Congress enacted to determine how it attempted to achieve

that balance. See Gwaltney, 484 U.S. at 56, 108 S.Ct. 376.

As we have seen, Congress chose to create new causes of action forcircumvention and for trafficking in circumvention devices. Congress did not

choose to create new property rights. That is the choice that we haveidentified. "It is not for us to resolve the issues of public policy

implicated by the choice we have identified. Those issues are for Congress."Corley, 273 F.3d at 458. Were we to interpret Congress's words in a way thateliminated all balance and granted copyright owners carte blanche authority to

preclude all use, Congressional intent would remain unrealized.

Congress chose words consistent with its stated intent to balance two setsof concerns pushing in opposite directions. See H.R.Rep. No. 105-551, at 26

(1998).FN18 The statute lays out broad categories of liability and broadexemptions from liability. It also instructs the courts explicitly not to

construe the anticircumvention provisions in ways that would effectively repeallongstanding principles of copyright law. See s 1201(c).FN19 The courts mustdecide where the balance between the rights of copyright owners and those of

the broad public tilts subject to a fact-specific rule of reason. Here,Chamberlain can point to no protected property right that Skylink imperils.

The DMCA cannot allow Chamberlain to retract the most fundamental right thatthe Copyright Act grants consumers: the right to use the copy of Chamberlain's

embedded software that they purchased.

FN18. See also David Nimmer, A Riff on Fair Use in the Digital Millennium Copyright Act, 148 U. Pa. L.Rev. 673 (2000).

FN19. See also Recent Cases: Copyright Law, 114 Harv. L.Rev. 1390 (2001) .

G. Chamberlain's DMCA Claim

[29] The proper construction of s 1201(a)(2) therefore makes it clear thatChamberlain cannot prevail. A plaintiff alleging a violation of s 1201(a)(2)

must prove: (1) ownership of a valid copyright on a work, (2) effectivelycontrolled by a technological measure, which has been circumvented, (3) that

third parties can now access (4) without authorization, in a manner that (5)infringes or facilitates infringing a right protected by the Copyright Act,

because of a product that (6) the defendant either (i) designed or producedprimarily for circumvention; (ii) made available despite only limited

commercial significance other than circumvention; or (iii) marketed for use incircumvention of the controlling technological measure. A plaintiff incapableof establishing any one of elements (1) through (5) will have failed to prove a

prima facie case. A plaintiff capable of proving elements (1) through (5)need prove only one of (6)(i), (ii), or (iii) to shift the burden back to thedefendant. At that point, the various affirmative defenses enumerated

throughout s 1201 become relevant.

[30] The District Court analyzed Chamberlain's allegations in precisely theappropriate manner-a narrow focus on Skylink's behavior, intent, and product

within the broader context of longstanding expectations throughout theindustry. The District Court assumed that Chamberlain met the first element,

copyright *1204 ownership, and for the purposes of its summary judgment motionsaccepted Chamberlain's evidence of the second element, technological access

control. The District Court granted Skylink's motion for summary judgmentbecause Chamberlain failed to meet its burden on the fourth element, the lack

of authorization. Chamberlain emphatically contests this conclusion onappeal, though mostly by reiterating arguments that the District Court

correctly rejected.

Chamberlain, however, has failed to show not only the requisite lack ofauthorization, but also the necessary fifth element of its claim, the critical

nexus between access and protection. Chamberlain neither alleged copyrightinfringement nor explained how the access provided by the Model 39 transmitter

facilitates the infringement of any right that the Copyright Act protects.There can therefore be no reasonable relationship between the access that

homeowners gain to Chamberlain's copyrighted software when using Skylink'sModel 39 transmitter and the protections that the Copyright Act grants to

Chamberlain. The Copyright Act authorized Chamberlain's customers to use thecopy of Chamberlain's copyrighted software embedded in the GDOs that they

purchased. Chamberlain's customers are therefore immune from s 1201(a)(1)circumvention liability. In the absence of allegations of either copyrightinfringement or s 1201(a)(1) circumvention, Skylink cannot be liable for s1201(a)(2) trafficking. The District Court's grant of summary judgment in

Skylink's favor was correct. Chamberlain failed to allege a claim under 17U.S.C. s 1201.

CONCLUSION

The DMCA does not create a new property right for copyright owners. Nor,for that matter, does it divest the public of the property rights that the

Copyright Act has long granted to the public. The anticircumvention andanti-trafficking provisions of the DMCA create new grounds of liability. A

copyright owner seeking to impose liability on an accused circumventor mustdemonstrate a reasonable relationship between the circumvention at issue and a

use relating to a property right for which the Copyright Act permits thecopyright owner to withhold authorization-as well as notice that authorizationwas withheld. A copyright owner seeking to impose liability on an accused

trafficker must demonstrate that the trafficker's device enables eithercopyright infringement or a prohibited circumvention. Here, the District

Court correctly ruled that Chamberlain pled no connection between unauthorizeduse of its copyrighted software and Skylink's accused transmitter. This

connection is critical to sustaining a cause of action under the DMCA. Wetherefore affirm the District Court's summary judgment in favor of Skylink.

AFFIRM

COSTS

Each party shall bear its own costs.

C.A.Fed. (Ill.),2004.

Chamberlain Group, Inc. v. Skylink Technologies, Inc.

381 F.3d 1178, 2004 Copr.L.Dec. P 28,869, 72 U.S.P.Q.2d 1225

END OF DOCUMENT


United States Court of Appeals,

Sixth Circuit.

STATIC CONTROL COMPONENTS, INC., PlaintiffAppellant/CrossAppellee,

v.

LEXMARK INTERNATIONAL, INC., DefendantAppellee/CrossAppellant.

Nos. 096287, 096288, 096449.

Argued: March 6, 2012.

Decided and Filed: Aug. 29, 2012.

Rehearing and Rehearing En Banc Denied Oct. 26, 2012.

Background: Toner cartridge supplier brought action against laser printer andcartridge manufacturer, seeking declaration that supplier's redesigned tonercartridge microchips did not infringe manufacturer's patents. Manufacturer

counterclaimed, alleging active inducement of patent infringement. The UnitedStates District Court for the Eastern District of Kentucky, Gregory F. Van

Tatenhove, J., 487 F.Supp.2d 830, granted in part and denied in part parties'motions for summary judgment, 2008 WL 4542735, denied manufacturer'spost-trial motions for judgment as matter of law, and, 749 F.Supp.2d 542,denied manufacturer's motion for new trial on inducement claims. Parties

appealed.

Holdings: The Court of Appeals, Karen Nelson Moore, Circuit Judge, held that:

(1) Federal Circuit did not have exclusive jurisdiction to review suit;

(2) district court properly set injunction-bond amount at $250,000;

(3) supplier lacked antitrust standing on its antitrust claims against patentholder;

(4) supplier sufficiently alleged Lanham Act claim against manufacturer;

(5) supplier had standing under North Carolina Unfair Deceptive Trade PracticeAct (NCUDTPA) to maintain unfair competition and false advertising claims;

(6) issues of whether supplier's customers directly infringed patents, andwhether supplier induced that infringement, were for jury;

(7) excluding certain evidence was harmless on manufacturer's patent inducementclaim; and

(8) manufacturer's patents were invalid.

Affirmed in part and reversed and remanded in part.

West Headnotes


170B Federal Courts





Federal Circuit did not have exclusive jurisdiction to review suit betweentoner cartridge supplier and laser printer and cartridge manufacturer, and thus

Sixth Circuit appropriately exercised jurisdiction over dispute, in whichmanufacturer asserted counterclaims implicating patent law, where suit predatedLeahy-Smith America Invents Act provision regarding exclusive Federal Circuit

jurisdiction over any civil action in which party asserted compulsorycounterclaim related to patents, parties did not constructively amend

complaint, and manufacturer instead raised counterclaims ab initio and noamendment was necessary to make those claims formally part of suit. 28

U.S.C.A. ss 1291, 1331, 1338, 1367; 28 U.S.C.(2006 Ed.) s 1295.


170B Federal Courts





Patent issues raised in relation to a defense or as counterclaims areinsufficient to confer Federal Circuit jurisdiction.


170B Federal Courts





Leahy-Smith America Invents Act, providing for exclusive Federal Circuitjurisdiction over "any civil action in which a party has asserted a compulsorycounterclaim arising under ... any Act of Congress relating to patents," is notretroactively applicable. 28 U.S.C.A. s 1338; 28 U.S.C.(2006 Ed.) s 1295.

[4] Federal Civil Procedure 170A k 837

170A Federal Civil Procedure

170AVII Pleadings

170AVII(E) Amendments

170Ak835 Conforming to Proof

170Ak837 k. Issues tried by consent of parties. Most CitedCases

Constructive amendments typically occur when a specific claim is not raised,but the parties by their actions act as if they consent to making the claim a

part of the proceedings.

[5] Removal of Cases 334 k 44

334 Removal of Cases

334III Citizenship or Alienage of Parties

334k44 k. Parties entitled to remove in general. Most Cited Cases

Third-party defendants may not remove a controversy to federal court solelybecause the original defendant filed related federal claims against them.



29TXVII Antitrust Actions, Proceedings, and Enforcement

29TXVII(B) Actions

29Tk994 Injunction

29Tk996 k. Preliminary. Most Cited Cases

Patents 291 k 1891

291 Patents

291VII Patent Infringement

291VII(C) Actions

291VII(C)5 Relief

291k1874 Preliminary or Temporary Injunctions

291k1891 k. Security on granting injunction; bonds.Most Cited Cases

(Formerly 291k307)

District court acted within its discretion in setting bond amount as

$250,000 when it issued preliminary injunction to enjoin toner cartridgesupplier's sales of remanufactured cartridges in action alleging patent

inducement and misuse on part of supplier; even though supplier's chiefexecutive officer (CEO) testified that it would lose $17,463,580 if forced to

halt sales for two years, CEO never presented his underlying calculations andcross-examination revealed several assumptions underlying CEO's estimate,

including that it would take six years for supplier to regain its previousmarket position if enjoined, and court received evidence from supplier, weighedevidence against strength of patent holder's claims, which were deemed strong

at time, and accordingly raised initial bond from $75,000. Fed.RulesCiv.Proc.Rule 65, 28 U.S.C.A.


212 Injunction

212VI Bonds and Other Security

212VI(C) Actions on Bonds

212k1693 Damages

212k1696 k. Measure and amount. Most Cited Cases

Party cannot recover more than the value of the bond for injunction-relateddamages.

[8] Courts 106 k 99(1)

106 Courts

106II Establishment, Organization, and Procedure

106II(G) Rules of Decision

106k99 Previous Decisions in Same Case as Law of the Case


Issues decided at an early stage of the litigation, either explicitly or bynecessary inference from the disposition, constitute the law of the case.


212 Injunction

212VI Bonds and Other Security

212VI(A) Requirement in General

212k1658 k. Amount. Most Cited Cases

District courts have broad discretion in setting the injunction-bond amount.Fed.Rules Civ.Proc.Rule 65, 28 U.S.C.A.

[10] Federal Courts 170B k 3587(1)

170B Federal Courts


170BXVII(K) Scope and Extent of Review

170BXVII(K)2 Standard of Review

170Bk3576 Procedural Matters

170Bk3587 Pleading

170Bk3587(1) k. In general. Most Cited Cases

(Formerly 170Bk776)

Court of Appeals reviews de novo a district court's decision to dismiss acounterclaim for failure to state a claim. Fed.Rules Civ.Proc.Rule 12(b)(6),

28 U.S.C.A.



29TVI Antitrust Regulation in General

29TVI(D) Illegal Restraints or Other Misconduct

29Tk562 Refusals to Deal

29Tk563 k. In general. Most Cited Cases

To state a claim under the Sherman Act for a conspiracy to restrain trade,the plaintiff must show more than a manufacturer's unilateral refusal to deal;instead, there must be evidence that tends to exclude the possibility that theconspirators were acting independently. Sherman Act, s 1, 15 U.S.C.A. s 1.



29TVII Monopolization

29TVII(A) In General

29Tk619 Elements in General


Antitrust and Trade Regulation 29T k 621


29TVII Monopolization

29TVII(A) In General

29Tk619 Elements in General

29Tk621 k. Intent. Most Cited Cases

To bring a Sherman Act claim for the illegal monopolization of a market, the

claimant must show (1) possession of monopoly power in the relevant market, and(2) the willful acquisition or maintenance of that power as distinguished from

growth or development as a consequence of a superior product, business acumen,or historic accident. Sherman Act, s 2, 15 U.S.C.A. s 2.




29TXVII(B) Actions

29Tk959 Right of Action; Persons Entitled to Sue; Standing;Parties


Standing in an antitrust case is more onerous than the conventional ArticleIII inquiry. U.S.C.A. Const. Art. 3, s 1 et seq.




29TXVII(B) Actions



Antitrust standing is a threshold, pleading-stage inquiry, and when acomplaint by its terms fails to establish this requirement, the court must

dismiss it as a matter of law.




29TXVII(B) Actions



Antitrust and Trade Regulation 29T k 963(1)



29TXVII(B) Actions

29Tk959 Right of Action; Persons Entitled to Sue; Standing;

Parties

29Tk963 Injury to Business or Property

29Tk963(1) k. In general. Most Cited Cases




29TXVII(B) Actions



29Tk963(2) k. Causation. Most Cited Cases

District court decides whether a claimant has adequately pleaded antitruststanding by balancing five factors: (1) the causal connection between the

antitrust violation and harm to the plaintiff and whether that harm wasintended to be caused; (2) the nature of the plaintiff's alleged injury

including the status of the plaintiff as consumer or competitor in the relevantmarket; (3) the directness or indirectness of the injury, and the relatedinquiry of whether the damages are speculative; (4) the potential for

duplicative recovery or complex apportionment of damages; and (5) theexistence of more direct victims of the alleged antitrust violation.




29TXVII(B) Actions






29TXVII(B) Actions



29Tk963(3) k. Particular cases. Most Cited Cases

"Prebate program" of laser printer and toner cartridge manufacturer, which

allegedly charged lower prices, provided misleading statements that end usercommitted to license agreement when no such license agreement existed, and

cajoled end users into purchasing fewer remanufactured cartridges and returningused cartridges only to manufacturer, did not constitute anticompetitiveconduct required for toner cartridge supplier's standing for its antitrustclaims against manufacturer for conspiracy to restrain trade and illegal

monopolization of market, where supplier was not intended target of program, itwas end users rather than supplier who were manipulated by program in order to

achieve any anticompetitive effects, and supplier's injuries stemming fromprogram were mere by-product of program. Sherman Act, ss 1, 2, 15 U.S.C.A. ss

1, 2.

[17] Antitrust and Trade Regulation 29T k 963(1)



29TXVII(B) Actions




Traditionally, only claimants who are competitors or consumers within theinjured market have antitrust standing to sue; however, claimants who are not

direct players in the relevant market may nonetheless have standing if theirinjury is inextricably intertwined with the injury sought to be inflicted upon

the relevant market or its participants.




29TXVII(B) Actions




To demonstrate antitrust standing under the inextricably intertwinedexception to general rule that only competitors and consumers in the injured

market had such standing, the claimant must show that the defendantsmanipulated or utilized the claimant as a fulcrum, conduit, or market force toinjure competitors or participants in the relevant product and geographical

markets.




29TXVII(B) Actions




Toner cartridge supplier failed plausibly to allege any antitrust injurystemming from laser printer and toner cartridge manufacturer's decision to use

microchips in its cartridges and to remove its own supplier from market,precluding supplier's standing to maintain Clayton Act antitrust claims against

manufacturer; supplier made no allegations relating to any change in prices orits market share for components and microchips as result of manufacturer's use

of microchips, and manufacturer's removal of its own supplier from marketremoved direct competitor from supplier's market, thereby likely increasing

supplier's market share. Clayton Act, s 4, 15 U.S.C.A. s 15.




29TXVII(B) Actions




Antitrust injury does not arise for purposes of Clayton Act until a privateparty is adversely affected by an anticompetitive aspect of the defendant's

conduct. Clayton Act, s 4, 15 U.S.C.A. s 15.




29TXVII(B) Actions


29Tk964 k. Competitors. Most Cited Cases

Toner cartridge supplier lacked standing to maintain its Clayton Actantitrust claims against laser printer and cartridge manufacturer, alleging

that manufacturer's redesigns of microchips circumventing supplier's products,where supplier did not allege tying scheme under Sherman Act, nor any facts to

suggest that prices for parts increased as result of being illegally tied tomarket for cartridges, nor how manufacturer's redesigns decreased competitionin markets in which supplier competed, nor identity of those who did compete inrelevant markets, what their market share was, whether they were controlled by

manufacturer, what their prices were, or how their prices were affected bymanufacturer's redesigns, nor any facts to refute possible business explanation

that manufacturer updated its products for legitimate competitive reasons.Sherman Act, s 1, 15 U.S.C.A. s 1.



29TXI Antitrust Exemptions and Defenses

29Tk905 Efforts to Influence Government Action

29Tk905(3) k. Litigation; sham litigation. Most Cited Cases

Act of filing suit generally does not constitute an antitrust injury underthe Noerr- Pennington doctrine.

[23] Federal Civil Procedure 170A k 103.2


170AII Parties

170AII(A) In General

170Ak103.1 Standing in General

170Ak103.2 k. In general; injury or interest. Most CitedCases

Standing is a jurisdictional requirement that cannot be waived, and such maybe brought up at any time in the proceeding.






Only if the antitrust litigation challenged under the Noerr- Penningtondoctrine is objectively meritless may a court examine the litigant's subjective

motivation.






Toner cartridge supplier made no allegation that laser printer and cartridgemanufacturer's copyright action was objectively meritless, and thus, under

Noerr- Pennington doctrine, manufacturer's conduct in relation to that actionwas immune from supplier's antitrust suit. Sherman Act, s 1, 15 U.S.C.A. s 1.




29TXVII(B) Actions




Toner cartridge supplier did not allege any antitrust injury, precluding itsstanding to maintain its claims against laser printer and cartridge

manufacturer, seeking injunctive relief for alleged Clayton Act violations.Clayton Act, s 16, 15 U.S.C.A. s 26.




29TXVII(B) Actions

29Tk994 Injunction


Clayton Act does not authorize a private plaintiff to secure an injunctionagainst a threatened injury for which he would not be entitled to compensation

if the injury actually occurred. Clayton Act, s 16, 15 U.S.C.A. s 26.




29TXVII(B) Actions




Antitrust and Trade Regulation 29T k 995



29TXVII(B) Actions

29Tk994 Injunction


Under the Clayton Act, the only difference between a claim for equitablerelief and one for damages is that equitable relief is available at the mere

threat of antitrust injury. Clayton Act, s 16, 15 U.S.C.A. s 26.



29TII Unfair Competition

29TII(B) Actions and Proceedings

29Tk74 Pleading

29Tk76 k. Particular cases. Most Cited Cases

Toner cartridge supplier sufficiently alleged Lanham Act false advertisingclaim against laser printer and cartridge manufacturer by alleging thatsupplier had cognizable interest in its business reputation and sales to

remanufacturers and that these interests were harmed by manufacturer'sstatements to remanufacturers that supplier was engaging in illegal conduct.

Lanham Act, s 43(a)(1)(A), 15 U.S.C.A. s 1125(a)(1)(A).





29Tk64 k. Persons protected and entitled to sue. Most CitedCases

Trademarks 382T k 1563

382T Trademarks

382TIX Actions and Proceedings

382TIX(A) In General

382Tk1563 k. Persons entitled to sue. Most Cited Cases

Lanham Act claimant need not demonstrate actual losses as a result of thedefendant's misleading use of the claimant's trademarks in its advertisements,

only a likelihood of injury and causation. Lanham Act, s 43(a)(1)(A, B), 15U.S.C.A. s 1125(a)(1)(A, B).





29Tk64 k. Persons protected and entitled to sue. Most CitedCases

Lanham Act claimant has standing if the claimant can demonstrate (1) areasonable interest to be protected against the alleged false advertising; and(2) a reasonable basis for believing that the interest is likely to be damaged

by the alleged false advertising. Lanham Act, s 43(a)(1)(A, B), 15 U.S.C.A. s1125(a)(1)(A, B).



29TIII Statutory Unfair Trade Practices and Consumer Protection

29TIII(E) Enforcement and Remedies

29TIII(E)1 In General

29Tk287 Persons Entitled to Sue or Seek Remedy

29Tk290 k. Private entities or individuals. Most CitedCases

Under North Carolina law, as predicted by district court, toner cartridgesupplier had standing under North Carolina Unfair Deceptive Trade Practices Act

(NCUDTPA) to maintain its unfair competition and false advertising claimsagainst laser printer and cartridge manufacturer; amendments to NCUDTPA

standing provision expanded class of persons who could recover under NCUDTPA toall consumers. West's N.C.G.S.A. s 75-16.



170AXV Trial

170AXV(K) Trial by Court

170AXV(K)1 In General

170Ak2252 k. Advisory jury. Most Cited Cases

Advisory jury's findings are not binding retroactively.


170B Federal Courts





170Bk3605 k. Taking case or question from jury;judgment as a matter of law. Most Cited Cases

(Formerly 170Bk776)

Court of Appeals reviews de novo a district court's decision to deny amotion for a judgment as a matter of law. Fed.Rules Civ.Proc.Rule 50, 28

U.S.C.A.



170AXVII Judgment

170AXVII(E) Notwithstanding Verdict; Judgment as Matter of Law

170Ak2608 Evidence

170Ak2608.1 k. In general. Most Cited Cases

Federal Civil Procedure 170A k 2609


170AXVII Judgment


170Ak2608 Evidence

170Ak2609 k. Construction of evidence. Most Cited Cases

Renewed motion for a judgment as a matter of law following an adverse juryverdict may only be granted if, when viewing the evidence in a light mostfavorable to the non-moving party and giving that party the benefit of all

reasonable inferences, reasonable minds could come to but one conclusion infavor of the moving party. Fed.Rules Civ.Proc.Rule 50, 28 U.S.C.A.



170AXVII Judgment


170Ak2608 Evidence

170Ak2608.1 k. In general. Most Cited Cases

On a motion for judgment as a matter of law, the court will not substituteits interpretation of the evidence for the jury's, even if the court would have

reached a different conclusion.


170B Federal Courts





170Bk3606 New Trial, Rehearing, or Reconsideration

170Bk3606(1) k. In general. Most Cited Cases

(Formerly 170Bk825.1)

Court of Appeals reviews for abuse of discretion a district court's decisionto deny a motion for a new trial. Fed.Rules Civ.Proc.Rule 59, 28 U.S.C.A.



170AXVI New Trial

170AXVI(B) Grounds

170Ak2331 k. In general. Most Cited Cases

New trial is appropriate when the jury reaches a seriously erroneous resultas evidenced by (1) the verdict being against the clear weight of the evidence;

(2) the damages being excessive; or (3) the trial being unfair to the movingparty in some fashion, i.e., the proceedings being influenced by prejudice or

bias. Fed.Rules Civ.Proc.Rule 59(a), 28 U.S.C.A.


170B Federal Courts





170Bk3604 Judgment

170Bk3604(4) k. Summary judgment. Most CitedCases

(Formerly 170Bk776)

Court of Appeals reviews de novo a district court's grant of summaryjudgment. Fed.Rules Civ.Proc.Rule 56(a), 28 U.S.C.A.

[40] Patents 291 k 1600

291 Patents


291VII(A) In General

291k1597 Indirect Infringement

291k1600 k. Inducement to infringe. Most Cited Cases


Patent infringement by a third party is a necessary predicate to a patentinducement claim. 35 U.S.C.A. s 271(b).

[41] Patents 291 k 1600

291 Patents






Plaintiff can establish the first element of a patent inducement claim, thatits patent was directly infringed by the defendant's customers, either by

demonstrating specific instances of direct infringement or a finding that theaccused products necessarily infringe. 35 U.S.C.A. s 271(b).

[42] Patents 291 k 1600

291 Patents






When the plaintiff asserting a patent inducement claim can show onlyindividual instances of direct infringement, the plaintiff may recover only for

the damages from those individual acts. 35 U.S.C.A. s 271(b).

[43] Patents 291 k 1600

291 Patents






If the plaintiff asserting a patent inducement claim can show an entireclass of customers necessarily infringed, damages can be sought more broadly

across the entire class. 35 U.S.C.A. s 271(b).

[44] Patents 291 k 1552

291 Patents




(Formerly 291k226)

"Direct patent infringement" occurs when someone (1) without authority (2)makes, uses, offers to sell, sells, or imports (3) the patented invention (4)within the United States, its territories, or its possessions (5) during the

term of the patent. 35 U.S.C.A. s 271(a).

[45] Patents 291 k 1555

291 Patents



291k1554 Substantial Identity of Subject Matter

291k1555 k. In general; comparison with patent claims.Most Cited Cases

(Formerly 291k226.6)

Determining whether someone is making, using, or selling a patentedinvention, as required to support a direct patent infringement claim, requires

a finding that the patent claim covers the alleged infringer's product orprocess. 35 U.S.C.A. s 271(a).

[46] Patents 291 k 1600

291 Patents






"Literal infringement," which is a determination that a patent's claims

cover a specific device, is not enough, alone, to support a claim for patentinducement. 35 U.S.C.A. s 271(a, b).

[47] Patents 291 k 1600

291 Patents






Patents 291 k 1813

291 Patents


291VII(C) Actions

291VII(C)3 Evidence

291k1812 Presumptions and Burden of Proof


(Formerly 291k312(1.1))

In the context of a patent inducement claim, the accused device willnecessarily infringe, permitting a finding of direct infringement by a class of

customers and an inference that the inducer intended the infringement, if thecustomers can only use the defendant's products in an infringing way. 35

U.S.C.A. s 271(b).

[48] Patents 291 k 1600

291 Patents






When an accused device could be used in either an infringing or anon-infringing way, a claim of direct infringement based on necessary

infringement fails and cannot sustain an inducement claim. 35 U.S.C.A. s271(b).

[49] Patents 291 k 1848

291 Patents


291VII(C) Actions

291VII(C)4 Trial, Hearing, and Determination

291k1848 k. Questions of law or fact. Most Cited Cases


Issues of whether toner cartridge supplier's customers directly infringed onlaser printer and cartridge manufacturer's patents, and whether supplier

induced its customers to infringe those patents, was for jury in manufacturer'spatent inducement claim against supplier. 35 U.S.C.A. s 271(a, b); Fed.Rules

Civ.Proc.Rules 50(a)(1), 59(a), 28 U.S.C.A.


170B Federal Courts



170BXVII(K)3 Presumptions

170Bk3671 k. Instructions. Most Cited Cases

(Formerly 170Bk796)

Jurors are presumed to be diligent in following the precise instructionsgiven to them.


170B Federal Courts





170Bk3597 k. Trial. Most Cited Cases

(Formerly 170Bk822)

Court of Appeals reviews for abuse of discretion a district court'sdecisions to exclude certain questions at trial.

[52] Patents 291 k 1972

291 Patents


291VII(C) Actions

291VII(C)7 Appellate Review

291k1965 Scope, Standard, and Extent of Review

291k1972 k. Harmless and reversible error. Most CitedCases


Excluding potential evidence that toner cartridge supplier failed to obtainopinion-of-counsel letter specifically on issues of patent law was harmless, on

issue of whether supplier had knowledge or was willfully blind to directinfringement on part of three cartridge remanufacturers in laser printer andcartridge manufacturer's patent inducement suit against supplier, in light of

other elements for which patent holder had burden of proof but failed toestablish by a preponderance of evidence. 35 U.S.C.A. s 271(a).

[53] Patents 291 k 1613

291 Patents



291k1610 Defenses

291k1613 k. Invalidity of patent. Most Cited Cases


Patent invalidity is a defense to a claim for patent infringement. 35U.S.C.A. s 282.

[54] Patents 291 k 1102

291 Patents

291IV Patent Applications and Proceedings

291IV(D) Conclusiveness and Effect of Administrative Decisions

291k1102 k. Presumption of correctness in general. Most CitedCases


All patents are presumed valid, and the burden of overcoming thispresumption rests on the party seeking invalidity. 35 U.S.C.A. s 282.

[55] Patents 291 k 1119

291 Patents

291IV Patent Applications and Proceedings

291IV(D) Conclusiveness and Effect of Administrative Decisions

291k1116 Sufficiency of Evidence to Offset Effect of Decision

291k1119 k. Degree of proof. Most Cited Cases


Patent invalidity must be established by clear and convincing evidence. 35U.S.C.A. s 282.

[56] Patents 291 k 431

291 Patents

291II Patentability and Validity

291II(A) In General

291k431 k. Questions of law or fact. Most Cited Cases


Patent validity is a question of law. 35 U.S.C.A. s 282.

[57] Patents 291 k 1970(3)

291 Patents


291VII(C) Actions

291VII(C)7 Appellate Review

291k1965 Scope, Standard, and Extent of Review

291k1970 Particular Matters

291k1970(2) Patentability and Validity


(Formerly 291k324.55(2))

Where legal analysis rests on factual findings in a patent validity case,the reviewing court will not reverse such findings absent clear error. 35

U.S.C.A. s 282.

[58] Patents 291 k 2044

291 Patents

291VIII Design Patents

291k2042 Patentability and Validity

291k2044 k. Eligible subject matter. Most Cited Cases

(Formerly 291k15)

Design patent cannot be obtained to protect a mechanical function or coveran article whose configuration affects its utility alone.

[59] Patents 291 k 2044

291 Patents



291k2044 k. Eligible subject matter. Most Cited Cases

(Formerly 291k15)

Laser printer and toner cartridge manufacturer's design patents wereinvalid, precluding manufacturer's patent infringement claims against cartridgesupplier; design of cartridges was functional, rather than ornamental, in that

cartridges, while visible to users at some points in time, were generallyhidden from view inside printer, cartridges' design was dictated solely by

printer for which they were compatible, and cartridges' appearance had no otherrole than helping purchaser to decide which cartridge was compatible with

purchaser's printer. 35 U.S.C.A. ss 171, 282.

[60] Patents 291 k 2041

291 Patents



(Formerly 291k15)

Purpose of the statute authorizing the issuance of design patents is toencourage the decorative arts. 35 U.S.C.A. s 171.

[61] Patents 291 k 2046

291 Patents



291k2046 k. Utility. Most Cited Cases

(Formerly 291k15)

Statute authorizing the issuance of design patents contemplates not so muchutility as appearance. 35 U.S.C.A. s 171.

Patents 291 k 2092

291 Patents

291X Patents Enumerated

291k2092 k. Design. Most Cited Cases


US Patent D399,249, US Patent D458,300. Invalid.

*394 ARGUED: Seth D. Greenstein, Constantine & Cannon LLP, Washington, D.C.,for Appellant/Cross-Appellee. Steven B. Loy, Stoll KeenonOgden PLLC,Lexington, Kentucky, for Appellee/Cross-Appellant. ON BRIEF: Seth D.

Greenstein, Constantine & Cannon LLP, Washington, D.C., Joseph C. Smith, Jr.,Bartlit Beck Herman Palenchar & Scott, LLP, Denver, Colorado, William L. London

III, Static Control Components, Inc., Stanford, North Carolina, M. Miller Baker, Stefan M. Meisner, McDermott Will & Emery LLP, Washington, D.C., W. Craig

Robertson III, Mickey T. Webster, Wyatt, Tarrant & Combs, LLP, Lexington,Kentucky, for Appellant/Cross-Appellee. Steven B. Loy, Anthony J. Phelps,

Christopher L. Thacker, Stoll KeenonOgden PLLC, Lexington, Kentucky, William J.Hunter, Jr., Stoll KeenonOgden PLLC, Louisville, Kentucky, Timothy C. Meece,Binal J. Patel, Matthew P. Becker, Jason S. Shull, Michael L. Krashin, Banner &

Witcoff, Ltd., Chicago, Illinois, Joseph M. Potenza, Christopher B. Roth,Banner & Witcoff, Ltd., Washington, D.C., for Appellee/Cross-Appellant.

Before: KEITH, BOGGS, and MOORE, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Lexmark International, Inc. ("Lexmark") is a major producer of laserprinters*395 and toner cartridges for its laser printers. Other companies,

called remanufacturers, acquire used Lexmark toner cartridges, refill them, andsell them to owners of Lexmark printers at a lower cost. Lexmark developed

microchips for both the toner cartridges and the printers so that Lexmarkprinters will reject any toner cartridges not containing a matching microchip,

and over time Lexmark has patented certain aspects of the cartridges. StaticControl Components, Inc. ("Static Control") has identified how to replicate

the cartridge microchips and sells the microchips to the remanufacturers alongwith other parts to facilitate the repair and resale of Lexmark toner

cartridges.

Lexmark sued Static Control in 2002 (the "02 Action") for copyrightviolations related to its source code in making the duplicate microchips and

was given a preliminary injunction by the district court. Static Controlcounterclaimed under federal and state antitrust and false-advertising laws.

While that suit was pending, Static Control redesigned its microchips and suedLexmark for declaratory judgment in 2004 (the "04 Action") to establish that

the redesigned microchips did not infringe any copyright.FN1 Lexmarkcounterclaimed again for copyright violations and this time added patent

counterclaims against Static Control and eventually three of theremanufacturers. The two suits were consolidated into the 04 Action.

FN1. Citations to the record herein are to the 04 Action unless designated with "02R."

On appeal of the preliminary injunction, the Sixth Circuit vacated andrejected Lexmark's copyright theories. Lexmark Int'l, Inc. v. Static Control

Components, Inc., 387 F.3d 522 (6th Cir.2004) ("Lexmark I "). On remand,Lexmark successfully moved to dismiss all of Static Control's counterclaims.The case proceeded to trial, and the only issues ultimately submitted to the

jury were Lexmark's claim of patent inducement against Static Control andStatic Control's defense of patent misuse. The district judge instructed thejury that its findings on patent misuse would be advisory; the jury held thatStatic Control did not induce patent infringement and advised that Lexmark

misused its patents. Lexmark renewed its earlier request for a judgment as amatter of law and also filed a motion for a retrial, which the district court

denied. Both parties timely appealed.

For the following reasons, we AFFIRM the district court's dismissal ofStatic Control's federal antitrust claims, but REVERSE the dismissal of Static

Control's claims under the Lanham Act and certain claims under state law. WeAFFIRM the remainder of the judgment on appeal.

I. BACKGROUND

A. Factual Background

Lexmark manufactures laser printers, which require toner cartridges toprint. The market for printers and toner cartridges generally has many

players, e.g., Xerox, Epson, Hewlett-Packard, and Canon, and Lexmark's share ofthe overall printer market is less than 15%. Second Appellee Br. at 4. Eachcompany generally manufactures its printers to work with only its own style of

cartridges, and each company's cartridges will work with only its brand ofprinters. Therefore, each company typically dominates the aftermarket forcartridges compatible with its brand of printers, although the primary market

for printers is well populated.

Remanufacturers are companies that participate in the toner-cartridgeaftermarkets by acquiring used toner cartridges of all kinds of printers,

repairing and refilling them, and selling them to *396 owners of that kind ofprinter at a lower price.FN2 First Appellant Br. at 11. Lexmark also

acquires and repairs its used toner cartridges for resale. In the 1990s,Lexmark started a "Prebate" program with certain large customers whereby

Lexmark would sell new toner cartridges at an upfront discount of around 20% ifthe end user agreed to (1) a single-use license and (2) a restriction that the

cartridge be returned to Lexmark for remanufacturing or recycling and not to athird-party remanufacturer. Second Appellee Br. at 6. These terms were printed

on several notices on the outside of the toner-cartridge box, which instructedthe user that opening the box would indicate acceptance of the terms. Regular

cartridges not subject to the Prebate terms are still sold, but at a higherprice than the Prebate cartridges. According to Static Control, the price of

Lexmark toner cartridges increased following the implementation of the programbecause of reduced competition from remanufacturers. First Appellant Br. at

16.FN3

FN2. Wazana Brothers International, Inc. d/b/a Micro Solutions Enterprises ("Wazana"), Pendl Companies, Inc. ("Pendl"), and NER Data Products, Inc. ("NER") are three remanufacturers who have purchased

microchips from Static Control for Lexmark toner cartridges and were once third-party defendants to the suit. They are not parties to the appeal.

FN3. In comparison, Static Control claims that the price of Hewlett Packard toner cartridges fell during the same period because Hewlett

Packard does not employ a similar "Prebate" program and remanufacturers are able to occupy a larger share of the aftermarket for Hewlett Packard

toner.

Lexmark toner cartridges each contain a microchip that communicates with theprinter once installed. Toner cartridges that are otherwise compatible with

Lexmark printers will not function without the microchip. Lexmark obtainsthese microchips from a supplier that has allegedly agreed to sell microchipsonly to Lexmark. All Lexmark toner cartridges are initially manufactured with

the necessary microchip, but the microchip for the Prebate cartridges isspecifically designed to enforce the Prebate terms by disabling the cartridge

for future use after the cartridge runs out of toner. To use the Prebatecartridge again, the microchip needs to be replaced. To use a non-Prebate

cartridge again, the microchip does not need to be replaced unless it wasdamaged.

Lexmark eventually obtained several patents relating to its tonercartridges. At issue on appeal are nine utility patents that the

remanufacturers allegedly infringe (referred to as the "nine mechanicalpatents") and two design patents relating to seven different toner cartridges.Static Control developed a microchip that could replace the microchip on the

Prebate toner cartridges, permitting a third party to remanufacture and sellthe toner cartridge again. Static Control also sent its customers a letter,referred to as an "Anti-Prebate kit," consisting of information from Static

Control's general counsel regarding why the Prebate program is not valid underprinciples of contract law. Second Appellee Br. at 33. Remanufacturers buy

these microchips from Static Control, along with other parts. StaticControl does not manufacture, remanufacture, or sell toner cartridges of any

kind, but it is the market leader on making and selling the componentsnecessary to remanufacture Lexmark cartridges. First Appellant Br. at 11.

Lexmark, on the other hand, sells toner cartridges but does not sell any of thecomponent parts necessary to repair or remanufacture its toner cartridges,

whether Prebate cartridges or not.

B. Procedural Background

Lexmark sued Static Control in December 2002 for violations of federalcopyright * laws and the Digital Millennium Copyright Act ("DMCA"), relating to

two computer programs on its printer chips. Lexmark sought to halt StaticControl's sale of the allegedly infringing chips. Static Control responded,

ultimately counterclaiming under federal and state antitrust andfalse-advertising laws. Static Control claimed that Lexmark's Prebateprogram unlawfully excluded competition in the aftermarket for Lexmark

-compatible cartridges, reducing competition and increasing prices, and thatLexmark falsely told remanufacturers that Static Control was infringing on

Lexmark's patents. Lexmark then counterclaimed in reply, addingremanufacturers as defendants and making additional claims under the DMCA and

various state-law claims, but no patent claims.

On January 8, 2003, Lexmark received a temporary restraining order in the 02Action, and on January 24, 2003, the district court required Lexmark to post aninjunction bond of $75,000. On February 7, 2003, the district court increasedthe bond to $250,000 and extended relief for 21 days. On February 27, 2003,

district court granted the preliminary injunction. Static Control appealedboth the injunction and the bond amount, and in October 2004 the Sixth Circuitreversed the preliminary injunction, making no comment on the bond amount.Lexmark I, 387 F.3d at 551. Static Control sought rehearing on the issue of

the bond amount, which we denied in a one-sentence order. Lexmark Int'l, Inc.v. Static Control Components, Inc., No. 03-5400 (6th Cir. Dec. 29, 2004)

(unpublished order). In light of the ruling, the parties stipulated tosummary judgment against Lexmark on its DMCA claims. R. 216 (D. Ct. Order

2/23/06).

Before the Sixth Circuit ruled, however, Static Control initiated the 04Action seeking declaratory judgment under federal copyright laws and the DMCA

that its newly modified chips did not infringe Lexmark's copyrights. Lexmarkcounterclaimed raising patent infringement, DMCA violations, and tort claims,

and added three remanufacturers as third-party defendants-Wazana, NER, andPendl. Following the Sixth Circuit's remand, Lexmark moved to dismiss StaticControl's counterclaims. The district court granted the motion in September2006. During the course of the proceedings, which concluded in a jury trial,

nine of Lexmark's mechanical patents were held valid, see R. 1008 (D. Ct. Order4/24/07), and summary judgment was granted to Lexmark on its claims of directpatent infringement against Wazana, NER, and Pendl, see R. 1203 (D. Ct. Order

5/25/07); R. 1245 (D. Ct. Order 5/31/07). All three defendantremanufacturers ultimately settled with Lexmark at various points before the

verdict. The district court also granted summary judgment to Lexmark on thevalidity of its single-use license for Prebate cartridges, which the district

court concluded prevented Lexmark's patents from exhausting following theinitial sale of the Prebate toner cartridges to end users. R. 1008 (D. Ct.

Order 4/24/07).

By the close of trial, the only remaining issues were Lexmark'spatent-infringement-inducement claims against Static Control and Static

Control's equitable defense of patent misuse. Because the district court hadalready ruled on summary judgment that three of the remanufacturers directlyinfringed, the jury was asked to decide whether the unnamed remanufacturers

directly infringed as a class and whether Static Control induced any directinfringement. Because the district court determined that patent misuse was an

equitable defense, the final jury instructions indicated that the jury'sfindings with respect to misuse would be merely advisory. R. 1365 (JuryInstructions). The jury returned a verdict that Lexmark had failed *398 to

show that the remanufacturers as a class directly infringed Lexmark's patentsand failed to show that Static Control induced the direct infringement of the

three named remanufacturers, Wazana, NER, and Pendl. R. 1366 (Special VerdictFormat 1-3). The jury then advised that it found Static Control had proven bya preponderance of the evidence certain facts that supported Static Control's

defense that Lexmark misused its patents. Id. at 11-19; see also R. 1365(Jury Instructions at 35-41) (defining misuse).

Lexmark moved for judgment as a matter of law both before and after theverdict and also filed a motion for a new trial on its patent inducement claim,arguing that the evidence was sufficient to establish direct infringement by

Static Control's customers as a class and that, with respect to inducement, thedistrict court erroneously excluded evidence at trial. The district court

denied the motions. R. 1430 (D.Ct.Op.10/03/08); R. 1521 (D. Ct. Op. & Order10/28/10). The district court subsequently reversed its prior ruling that

Lexmark's patents were not exhausted in its Prebate cartridges in light ofrecent Supreme Court precedent. R. 1443 (D. Ct. Op. & Order 3/31/09). Both

parties filed timely appeals.

II. JURISDICTION

[1] The parties did not state in their initial briefs the basis for thiscourt's appellate jurisdiction. We therefore asked the parties to submitletter briefs addressing whether we have jurisdiction over this appeal or

whether the Federal Circuit has exclusive jurisdiction to review the case under28 U.S.C. s 1295. After all, the entirety of Lexmark's appeal requires us toresolve substantive issues of patent law. Static Control responds that this

court has jurisdiction; Lexmark maintains that the Federal Circuit hasexclusive jurisdiction. On review, we determine that 28 U.S.C. s 1295 does

not require that the Federal Circuit hear this case on appeal. We havejurisdiction under 28 U.S.C. s 1291.

[2][3] The Federal Circuit has exclusive jurisdiction over appeals from

final decisions of a district court "if the jurisdiction of that court wasbased, in whole or in part, on section 1338 of this title." 28 U.S.C. s1295(a)(1) (2000). Section 1338 gives federal district courts original

jurisdiction exclusive of the state courts over "any civil action arising underany Act of Congress relating to patents." 28 U.S.C. s 1338(a) (1999).

Because Congress used the phrase "arising under," the Supreme Court has heldthat patent issues raised in relation to a defense or as counterclaims are

insufficient to confer Federal Circuit jurisdiction. Holmes Grp., Inc. v.Vornado Air Circulation Sys., Inc., 535 U.S. 826, 831, 122 S.Ct. 1889, 153

L.Ed.2d 13 (2002). Congress amended 28 U.S.C. ss 1295 and 1338 in theLeahy-Smith America Invents Act to provide additionally for exclusive Federal

Circuit jurisdiction over "any civil action in which a party has asserted acompulsory counterclaim arising under[ ] any Act of Congress relating to

patents," but the amendment is applicable only "to any civil action commencedon or after the date of the enactment of this Act." Pub.L. 112-29, s 19(b),

(e), 125 Stat. 333. The law was enacted on September 16, 2011. The civilactions here were commenced well before that date; therefore, the new

provision does not apply.

At first glance, this case appears clear cut: In both the 02 and the 04Actions, the issues implicating patent law arose as counterclaims. However,

the Supreme Court has suggested-but declined to decide-that the evolvingcircumstances of a case may create a situation wherein exclusive FederalCircuit appellate jurisdiction would follow. *399Holmes, 535 U.S. at 829 n.l, 122 S.Ct. 1889 ("[T]his case does not call upon us to decide whether the

Federal Circuit's jurisdiction is fixed with reference to the complaint asinitially filed or whether an actual or constructive amendment to the complaintraising a patent-law claim can provide the foundation for the Federal Circuit's

jurisdiction."); Christianson v. Colt Indus. Operating Corp., 486 U.S. 800,814-15, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) ("We need not decide under what

circumstances, if any, a court of appeals could furnish itself a jurisdictionalbasis unsupported by the pleadings by deeming the complaint amended in light of

the parties' 'express or implied consent' to litigate a claim.").

[4] Whatever those evolving circumstances may be, however, they are notpresent in this case. Lexmark can point to no actual or constructive

amendment of either complaint. Constructive amendments typically occur when aspecific claim is not raised, but the parties by their actions act as if they

consent to making the claim a part of the proceedings. See Torry v. NorthropGrumman Corp., 399 F.3d 876, 878 (7th Cir.2005) (Posner, J.); Sunbeam Prods.,

Inc. v. Wing Shing Prods. (BVI) Ltd., 153 Fed.Appx. 703, 706-07 (Fed.Cir.2005)(unpublished opinion), cert. denied, 546 U.S. 1095, 126 S.Ct. 1085, 163

L.Ed.2d 863 (2006) (holding Federal Circuit had jurisdiction because pretrialorder that added patent issue debated by the parties constructively amended the

complaint even though not raised as a claim). Here, the patent claims wereraised ab initio by the interested party as counterclaims, and no amendment

would be necessary to make them formally part of the suit. Furthermore,Lexmark sought actually to amend the complaint in the 02 Action to add its

patent claims with the express purpose of assuring Federal Circuitjurisdiction. R. 456 (Lexmark's Mot. to Amend). Static Control objected,

and Lexmark's motion was denied. R. 649 (D. Ct. Order 1/9/07). Constructiveamendment typically requires express or implied consent of the parties, both of

which are lacking.

[5] Lexmark's best argument is that its patent counterclaims in the 04Action added new parties, and that the district court's jurisdiction over

Lexmark's third-party complaint potentially "arose under" the patent laws.Unfortunately for Lexmark, this too seems insufficient to make the case one

"arising under" patent laws. Lexmark offers no law or case addressing whethera third-party complaint can render any part of the controversy "arising under"

patent law. However, the Supreme Court in Holmes compared the "arising under"inquiry for 28 U.S.C. s 1338 to the "arising under" inquiry for original

jurisdiction under 28 U.S.C. s 1331. And we know that third-party defendantsmay not remove a controversy to federal court solely because the original

defendant filed related federal claims against them. First Nat'l Bank ofPulaski v. Curry, 301 F.3d 456, 461-67 (6th Cir.2002). Lexmark has presented

no compelling reason to treat this case any differently. The district court'sjurisdiction arose under 28 U.S.C. ss 1331 and 1367, and not under s 1338.

Therefore, we have appellate jurisdiction under 28 U.S.C. s 1291.

III. INJUNCTIONBOND AMOUNT

[6][7] Static Control appeals the amount of the injunction bond entered bythe district court when the district court issued the preliminary injunction in2002.FN4 *400 The final bond amount entered by the district court was

$250,000; Static Control sought estimated damages of over $17 million. Whenthe preliminary injunction was entered in 2003, Static Control appealed both

the injunction and the bond amount to the Sixth Circuit. We vacated theinjunction, but we made no mention of the bond. Lexmark I, 387 F.3d 522.

Static Control sought rehearing from the Sixth Circuit specifically on theissue of the proper injunction-bond amount, which we summarily denied.

FN4. Static Control concedes that "a party cannot recover more than the value of the bond for injunction-related damages." First Appellant Br.

at 25 & n.10 (citing Mich. AFSCME Council 25, Local 1640 v. Matrix Human Servs., 589 F.3d 851, 860 (6th Cir.2009)).

In November 2009, only a few days after filing its notice of appeal, StaticControl filed a Motion for Wrongful Injunction Damages in the district court,

seeking actual damages of $7-10 million, well in excess of the $250,000injunction-bond amount. R. 1473 (Static Control's Mot. to Vacate). Lexmark

opposed, arguing that the bond amount should serve as the cap on damages. R.1495 (Lexmark's Opp. to Mot. to Vacate). As late as January 29, 2010, Static

Control was imploring the district court to "recalculate the bond to reflectthe projected damages and set an evidentiary hearing to allow Static Control toprove its actual damages." R. 1503 (Static Control's Reply Mot. to Vacate at

14). After oral argument in this appeal and prompting from Lexmark, thedistrict court recently denied this motion and ordered the clerk to release the

security bond to Static Control. R. 1530 (D. Ct. Order 4/24/12). StaticControl has sent us a letter brief asking us to ignore this order because the

district court lacked jurisdiction to decide this amount following the filingof Static Control's notice of appeal, an argument which Static Control

presented in its most recent papers before the district court but not in itsinitial motion seeking the very relief it now claims the district court lacks

the jurisdiction to award.

[8] Lexmark contends that this panel should not consider this argumentbecause the Sixth Circuit necessarily rejected Static Control's claim in

declining to vacate the bond amount on the initial appeal. Static Controlargues that this issue may be considered because it was never "squarely decided

" on the first appeal. First Appellant Br. at 24 n.9 (internal quotationmarks omitted). "Issues decided at an early stage of the litigation, either

explicitly or by necessary inference from the disposition, constitute the lawof the case." Hanover Ins. Co. v. Am. Eng'g Co., 105 F.3d 306, 312 (6th

Cir.1997) (internal quotation marks omitted); see also Bowles v. Russell, 432F.3d 668, 676-77 (6th Cir.2005), aff'd, 551 U.S. 205, 127 S.Ct. 2360, 168

L.Ed.2d 96 (2007). Static Control appears to have the better of the argument,because we do not see how the prior panel's lack of commentary on the bond

amount (and subsequent decision not to rehear the appeal on the bond amount)contains a necessary inference that we found the bond amount to be proper.

Ultimately, however, whether our refusal to reconsider Static Control's appealof the bond amount constitutes the law of the case does not matter because the

bond amount was not improper.

[9] A bond amount shall be set "in an amount that the court considers properto pay the costs and damages sustained by any party found to have been

wrongfully enjoined or restrained." Fed.R.Civ.P. 65(c). District courts havebroad discretion in setting the bond amount. Div. No. 1, Detroit, Bhd. of

Locomotive Eng'rs v. Consol. Rail Corp., 844 F.2d 1218, 1226 (6th Cir.1988)."[T]he court may order a bond that does not completely secure the *401 enjoined

party or the court may decline to order a bond, if necessary for the purpose ofeffecting justice between the parties." Id. at 1227 n. 15 (internal quotation

marks omitted).

At the preliminary injunction hearing, Static Control's CEO testified thatthe company would lose $17,463,580 if forced to halt sales for two years. TheCEO testified to the overall method his company used to calculate that number,but never presented any underlying calculations. Cross-examination revealed a

number of assumptions underlying Static Control's estimate, including theassumption that it would take six years for Static Control to regain its

previous market position if enjoined. The fact that the ultimate bond amountselected by the district court was only two percent of Static Control's claimeddamages therefore carries little weight. The district court was not requiredto credit Static Control's testimony solely because Lexmark did not presentevidence to the contrary. The district court received evidence from Static

Control, weighed the evidence against the strength of Lexmark's claims, whichwere deemed strong at the time, and accordingly raised the initial bond from$75,000 to $250,000. We decline to hold that the district court abused its

discretion in setting the bond amount under these circumstances.

IV. STATIC CONTROL'S FEDERAL ANTITRUST COUNTERCLAIMS

Static Control counterclaimed in the 02 Action under ss 4 and 16 of theClayton Act, 15 U.S.C. ss 15, 26, for violations of ss 1 and 2 of the ShermanAct, 15 U.S.C. ss 1, 2, seeking damages and injunctive relief. 02R. 172 (2dAm. Answer & Counterclaim). The district court granted Lexmark's motion to

dismiss on the basis that Static Control did not have standing to bring thefederal antitrust claims for damages or injunctive relief. R. 392 (D. Ct.

Order 9/28/06).

A. Standard of Review

[10] We review de novo a district court's decision to dismiss a counterclaimfor failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).United Ass'n of Journeymen & Apprentices of the Plumbing and Pipefitting

Indus., Local No. 577 v. Ross Bros. Constr. Co., 191 F.3d 714, 716 (6thCir.1999). In reviewing a motion to dismiss, we accept all non-conclusory

allegations of fact as true and decide whether the claimant has stated aplausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129

S.Ct. 1937, 173 L.Ed.2d 868 (2009). The pleading must state "enough facts tostate a claim to relief that is plausible on its face"; failure to pleadsufficient facts will lead to dismissal of the claim. Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

B. Antitrust Standing for Counterclaims with Money Damages

[11][12] Pursuant to the Clayton Act, 15 U.S.C. s 15(a), private parties maybring private actions for violations of the Sherman Act. Section 1 of theSherman Act prohibits conspiracies to restrain trade. 15 U.S.C. s 1. "A

Section 1 conspiracy requires more than a manufacturer's unilateral refusal to

deal. 'There must be evidence that tends to exclude the possibility that the[conspirators] were acting independently.' " Watson Carpet & Floor Covering,

Inc. v. Mohawk Indus., Inc., 648 F.3d 452, 457 (6th Cir.2011) (internalcitation omitted) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.

752, 764, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984)). Section 2 of the Sherman Actprohibits the illegal monopolization of a market. *40215 U.S.C. s 2. To bring

a claim under s 2, a claimant must show " '(1) possession of monopoly power inthe relevant market; and (2) the willful acquisition or maintenance of that

power as distinguished from growth or development as a consequence of asuperior product, business acumen or historic accident.' " Tarrant Serv.

Agency, Inc. v. Am. Standard, Inc., 12 F.3d 609, 613 (6th Cir.1993) (quotingUnited States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16

L.Ed.2d 778 (1966)), cert. denied, 512 U.S. 1221, 114 S.Ct. 2709, 129 L.Ed.2d836 (1994).

[13][14][15] To bring a private claim for damages under either section ofthe Sherman Act, the claimant must first demonstrate that it has standing.

Although required in all cases, standing in an antitrust case is more onerousthan the conventional Article III inquiry. "[A]ntitrust standing is a

threshold, pleading-stage inquiry and when a complaint by its terms fails toestablish this requirement we must dismiss it as a matter of law ..." NicSand,

Inc. v. 3M Co., 507 F.3d 442, 450 (6th Cir.2007) (en banc). The districtcourt decides whether a claimant has adequately pleaded antitrust standing by

balancing five factors:

(1) the causal connection between the antitrust violation and harm to the plaintiff and whether that harm was intended to be caused; (2) the nature of

the plaintiff's alleged injury including the status of the plaintiff as consumer or competitor in the relevant market; (3) the directness or

indirectness of the injury, and the related inquiry of whether the damages are speculative; (4) the potential for duplicative recovery or complex

apportionment of damages; and (5) the existence of more direct victims of the alleged antitrust violation.

Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d 1079, 1085 (6thCir.1983) (citing Associated Gen. Contractors of Cal., Inc. v. Cal. State

Council of Carpenters ("AGC"), 459 U.S. 519, 537-45, 103 S.Ct. 897, 74 L.Ed.2d723 (1983)). No one factor controls. Peck v. Gen. Motors Corp., 894 F.2d

844, 846 (6th Cir.1990).

Static Control alleges that Lexmark conspired with unidentified microchipsuppliers and resellers of Lexmark-manufactured printers to restrain trade and

otherwise monopolize "the relevant markets," thereby reducing output,increasing prices, and maintaining Lexmark's monopoly. Static Control defines

the "relevant markets" as including three distinct but related aftermarkets forLexmark-specific products: (1) the market for Lexmark replacement toner

cartridges, (2) the market for component parts for Lexmark cartridges, and (3)the market for microchips for Lexmark cartridges.FN5 02R. 172 (2d Am. Answer &

Countercl. at PP 17-18). The allegations repeatedly refer to the "relevantmarkets" as a group when the specific facts relate only to the market for

replacement cartridges. For example, Static Control alleges that Lexmark has"an 85% share in each of the relevant markets," id. at P 18, but on closer

examination the counterclaim alleges that Lexmark competes only in the marketfor toner cartridges, id. at PP 12, 24. Static Control alleges that Lexmark's

anticompetitive chips "exclude competition, restrict output, and increaseend-user prices in the relevant markets," id. at P 47, but *403 the

counterclaim never identifies any change in competition, output, or prices inthe market for component parts or microchips as a result of Lexmark's conduct.

The only specific allegations as to price and output relate to the market for

toner cartridges. Id. at PP 50-52, 58. Therefore, although we read theallegations of the counterclaim in the light most favorable to Static Control,we must carefully consider the actual factual allegations underlying suchconclusory allegations. Twombly, 550 U.S. at 556-57, 127 S.Ct. 1955.

FN5. Lexmark argued below that the relevant market was the larger primary market for all brands of laser printer cartridges and parts, not just the aftermarket for Lexmark products. The jury in its advisory findings

sided with Static Control. R. 1366 (Special Verdict Form at 15). On appeal, Lexmark does not concede its position on the relevant market, but argues against standing using the aftermarket. Second Appellee Br. at

40.

In its counterclaim, Static Control's allegations can be categorized intofive practices by Lexmark that Static Control claims constitute anticompetitive

conduct: (1) the Prebate program; FN6 (2) using "lock-out" microchiptechnology in its printers, causing them to disable when any non-Lexmark

replacement cartridge is inserted; (3) requiring Lexmark's microchip supplierto refuse to sell replacement chips to anyone but Lexmark; (4) redesigning its

microchips specifically to render cartridges that used Static Control'smicrochips incompatible; and (5) filing the 02 Action targeting Static

Control. First Appellant Br. at 12-15; 02R. 172 (2d Am. Answer & Countercl.at PP 32, 44-46, 54-56). When the allegations are read for specificity and

plausibility, these actions target and affect the different markets indifferent ways. We therefore examine each of these alleged violationsseparately to see if Static Control has standing to pursue any of them.

FN6. Specifically, Static Control complains that Lexmark engaged in anticompetitive conduct by creating two classes of otherwise identical

cartridges, Prebate and non-Prebate, selling the non-Prebate cartridges at artificially inflated prices, falsely invoking patent rights to

prevent remanufacturers from repairing Prebate cartridges, and engaging in other threatening behavior.

1. Prebate Program

[16] Static Control alleges that the Prebate Program, through its lowerprices and misleading statements that the end user committed to a license

agreement when no such license existed, cajoled end users into purchasing fewerremanufactured cartridges and thereafter returning them primarily to Lexmark.

As a result, Static Control was also harmed because it lost profits from thedecline in sales of microchips and components for Lexmark-compatible cartridges

following the decline in sales of remanufactured cartridges. First AppellantBr. at 16.

As alleged, the Prebate Program targets only the market for remanufacturedcartridges. No part of the Prebate Program relates to the market for

microchips or components, even though the allegations support the PrebateProgram's incidental effects in the other markets. Static Control itself

states that "Lexmark specifically launched its Prebate program to intimidateand to exclude competition from remanufacturers." 02R. 172 (2d Am. Answer &Countercl. at P 33) (emphasis added). And as discussed above, although Static

Control's allegations often refer to the "relevant markets," the specificfactual allegations explain only Prebate's impact on the market for

remanufactured cartridges. For example, when Static Control alleges thatLexmark used Prebate to "effect[ ] its deliberate, unlawful, anticompetitive

intent to raise prices and exclude competition," id., we can conclude only thatthis allegation relates to the market for toner cartridges because of the lack

of any allegations that the prices were raised in other markets. Havingidentified the proper market, we easily conclude that all five of the AGC

factors are lacking with respect to the Prebate program.

*404 Although causation in the traditional sense appears properlyalleged-the implementation of the Prebate program decreased the number ofremanufactured Lexmark cartridges, which in turn decreased Static Control's

sales-Static Control fails to allege plausibly that the Prebate program wasintended to harm Static Control. As the district court correctly held, the

intended targets of Lexmark's Prebate Program were the end users and theremanufacturers, not Static Control. R. 392 (D. Ct. Order 9/28/06 at 9).Static Control asserts that these conclusions erroneously rely on factualaverments and that the district court failed to accept its facts as alleged,but Static Control itself alleges this: "Lexmark specifically launched its

Prebate program to intimidate and to exclude competition from remanufacturers."02R. 172 (2d Am. Answer & Countercl. at P 33); see also id. at P 42("Lexmark's sole purpose for deceiving end-users to believe they are

contractually bound by [the Prebate Program] is to preserve, maintain, andenhance its unlawful monopoly power in the relevant markets.").

[17][18] Static Control also fails sufficiently to identify its role in therelevant market for remanufactured cartridges. Traditionally, only claimantswho are competitors or consumers within the injured market have standing tosue. Southaven, 715 F.2d at 1086. However, claimants who are not directplayers in the relevant market may nonetheless have standing if their injury is

" 'inextricably intertwined' with the injury sought to be inflicted upon therelevant market or participants therein." Id. The "inextricably intertwined"

exception, however, is narrow. See Blue Shield of Va. v. McCready, 457 U.S.465, 483-84, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982). This exception was not

designed to give standing to claimants whose injuries are a tangentialbyproduct of monopolistic conduct in a related market. Southaven, 715 F.2d at1086. To succeed, the claimant must show that the defendants "manipulated or

utilized [the claimant] as a fulcrum, conduit or market force to injurecompetitors or participants in the relevant product and geographical markets."

Id.

Static Control must therefore have alleged that an injury in Lexmark'smarket-the market for replacement toner cartridges-is inextricably intertwined

with the injuries Static Control claims to be suffering in the market forcomponent parts and microchips. The district court rejected Static Control's

argument, because Static Control failed adequately to allege that it was"manipulated or utilized by the defendant as a fulcrum, conduit or market forceto injure competitors or participants in the relevant product and geographicalmarket." R. 392 (D. Ct. Order 9/28/06 at 10) (quoting Province v. Cleveland

Press Publ'g Co., 787 F.2d 1047, 1052 (6th Cir.1986) (internal quotation marksand brackets omitted)). "If anyone is being manipulated according to [Static

Control's] allegations, it is the end consumer." Id. at 10-11. We agree.

Static Control's counterclaim makes no mention of being used by Lexmark as afulcrum, and Static Control does not allege that it was harmed because it was

manipulated into harming the remanufacturers. Static Control on appeal arguesthat Lexmark used Static Control as a fulcrum to injure the remanufacturers by

(1) falsely telling remanufacturers that using Static Control's products wouldconstitute infringement; (2) redesigning its microchips, thus forcing Static

Control to redesign its microchips to remain compatible; (3) threatening legalaction against Static Control; (4) and suing Static Control for baseless

copyright claims. First Appellant Br. at 39. But, although these specific*405 allegations are sprinkled in various sections of the counterclaim to

support other arguments, we can find no allegations in the counterclaim thatLexmark manipulated Static Control in any way to carry out its anticompetitivePrebate Program in the market for remanufactured cartridges. "An inextricably

intertwined injury is one that results from the manipulation of the injured

party as a means to carry out the restraint of trade in the product market."Province, 787 F.2d at 1052.

Static Control's allegations establish that it was negatively affected byLexmark's manipulation of the end users into buying Prebate cartridges, but

that Static Control itself was not used as a conduit to achieve the allegedanticompetitive effect in the remanufactured cartridge market. See

Southaven, 715 F.2d at 1086 (harm from tangential effects of anticompetitiveconduct not enough to convey standing). Indeed, the allegations make very

clear that Lexmark is using the end users to obtain the desired anticompetitiveeffects, rather than using Static Control. Static Control specifically

alleges that Lexmark "fraudulently induces customers' use of Prebatecartridges" and "exploit[s] consumers' lack of information about choices in

replacement cartridges" to reduce the number of non-Prebate cartridges on themarket. 02R. 172 (2d Am. Answer & Countercl. at P 37); see also id. at P 38("Lexmark's anticompetitive exploitation of consumers' and end-users' lack of

adequate information increases prices and reduces output in the relevantmarkets.") (emphasis added). No such allegations of exploitation or

manipulation exist with respect to Static Control. The level of manipulationof the claimant-and the necessity of the success of such manipulation to

achieve the anticompetitive conduct-is simply not present in this case withrespect to Static Control. See Peck, 894 F.2d at 847.

Even if we were to consider Static Control's injury in the market forcomponents and microchips sufficiently related to the harm caused by the

Prebate Program in the remanufactured cartridges market, Static Control stilllacks standing due to its failure to satisfy the remaining AGC factors. See

Fallis v. Pendleton Woolen Mills, Inc., 866 F.2d 209, 211 (6th Cir.1989)(holding no antitrust standing despite assuming claimant was used as a fulcrum

in relevant market), abrogated on other grounds by Humphreys v. BellaireCorp., 966 F.2d 1037 (6th Cir.1992). Antitrust causation is much more limited

than Article III standing. Here, Static Control's injury is too attenuated toqualify. "[Static Control's] injury is derivative; it is simply a side effectof [Lexmark's] alleged antitrust violations." Fallis, 866 F.2d at 210.

Static Control also fails to establish the final three AGC factors, whichall relate to the directness of Static Control's injuries relative to

potentially more-direct victims. Static Control's injuries as a result of thePrebate program are clearly a "byproduct" of the alleged antitrust violation.

Province, 787 F.2d at 1053; Fallis, 866 F.2d at 211. The more-directvictims are the end users, who according to the allegations had to pay more for

their cartridges as a result of the allegedly anticompetitive conduct, and theremanufacturers, who were unable to compete in the market for

Lexmark-compatible toner cartridges after Lexmark's Prebate program undercuttheir prices and reduced supply. Although the end users may have little

incentive to sue, two of the remanufacturers raised (and ultimately settled)antitrust claims against Lexmark in the same action. R. 392 (D. Ct. Order9/28/06 at 12). Where there are more-direct victims of the anticompetitiveconduct, those victims have the standing to sue, rather than those affected

indirectly. *406 Southaven, 715 F.2d at 1087; Province, 787 F.2d at 1053-54.

The existence of this clear class of direct victims increases the danger ofduplicative recovery should Static Control be given antitrust standing to

pursue the Prebate Program and receive treble damages.FN7 Static Control mayseek only the damages from its own losses, but the concern of duplicativerecovery relates more broadly to the issue of requiring a defendant to pay

treble damages to parties both directly and indirectly injured from the sameantitrust violation. See Ill. Brick Co. v. Illinois, 431 U.S. 720, 731 n.

11, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) (discussing risk of duplicative

recovery between direct and indirect purchasers). Finally, we agree with thedistrict court that Static Control's calculation of over $18 million in damages

is speculative. R. 392 (D. Ct. Order 9/28/06 at 11).

FN7. The district court did not explicitly discuss the potential for duplicative recovery.

Static Control's argument for directness of its injury relies heavily on theSecond Circuit case Crimpers Promotions, Inc. v. Home Box Office, Inc., 724F.2d 290, 294-95 (2d Cir.1983), cert. denied, 467 U.S. 1252, 104 S.Ct. 3536,

82 L.Ed.2d 841 (1984), as does much of its argument on standing. Theplaintiff in Crimpers had standing because HBO and Showtime colluded to prevent

his tradeshow from serving as a middleman between television show producers andcable operators, which was the only alternative forum for them to communicate.Crimpers had standing because "[i]njury to Crimpers was the precisely intendedconsequence of defendants' boycott," even more than the resulting injury to the

tradeshow participants. Id. at 294. Here, the allegations of both intentand injury are less direct. The Prebate program reduced the number of

cartridges available for remanufacture, which in turn reduced the number ofmicrochips sold by Static Control to the remanufacturers. Static Control'sallegations resemble a classic case of a supplier seeking standing to recover

for indirect damages following anticompetitive conduct directed at itscustomers' market. Crimpers is simply inapposite. We agree that StaticControl lacks standing to pursue its antitrust claims as they relate to the

Prebate program.

2. Restraints on Microchips in Lexmark Printers and Cartridges

[19] Static Control also argues that the existence of microchips in thecartridges in the first place and Lexmark's exclusive distribution agreementwith its own microchip supplier are anticompetitive acts. These acts differ

from the Prebate program because they directly target the microchip market inwhich Static Control is a competitor. Although Lexmark does not compete in

the market for microchips, the allegations suggest that Lexmark uses itsinfluence to restrain trade in the microchip market in order to restrain trade

in the remanufactured cartridge market. Here, however, Static Control againlacks standing because it has failed to allege how Lexmark's actions caused any

antitrust injury.

Static Control objects to the initial creation of the "anticompetitivemicrochips," but fails to allege how the existence of a microchip requirementalone caused Static Control any injury. See 02R. 172 (2d Am. Answer &Countercl. at P 44). Static Control makes no allegations at all relating to

the change in prices for components and microchips as a result of Lexmark's useof microchips in its toner cartridges, and Static Control makes no allegationsregarding how a microchip requirement affected Static Control's share of themarket for components and microchips. Indeed, *407 Static Control fails to

allege plausibly how the creation of a microchip requirement hurt StaticControl's share of the microchip market, because without the requirement that

market would not exist. It is possible that, without the microchips, Static

Control would be able to sell more component parts, but Static Control doesnot make this allegation. Static Control has failed to allege how the

existence of a microchip requirement injured Static Control or otherwise gaveLexmark a monopoly in the related market for Lexmark component parts.

Static Control's allegations relating to Lexmark's microchip supplier'srefusal to compete with third parties fares no better. As a self-proclaimed

"leading supplier to toner cartridge remanufacturers," id. at P 30, StaticControl fails to allege how the removal of one of its direct competitors from

the components and microchips market following an exclusive distributorshipagreement with a single customer caused any damage to Static Control'sposition within those markets or profits. See New Albany Tractor, Inc. v.

Louisville Tractor, Inc., 650 F.3d 1046, 1052 (6th Cir.2011) ("Merelydemonstrating the existence of an exclusive distributorship in a market area

does not violate Robinson-Patman-or any other antitrust provision."). Ingeneral, the removal of a competitor increases (not decreases) the remaining

suppliers' market share, and Static Control has not alleged that Lexmark was aformer customer or that absent the exclusive agreement Lexmark would have

purchased from Static Control.

[20] "Antitrust injury does not arise for purposes of s 4 of the Clayton Actuntil a private party is adversely affected by an anticompetitive aspect of the

defendant's conduct." Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328,339, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990) (citation and emphasis omitted).Cases have routinely rejected claims of antitrust violations that may very well

be violations when the claimants stood to gain from the anticompetitiveconduct. Therefore, "[Static Control] cannot recover for a conspiracy to

impose nonprice restraints that have the effect of either raising market priceor limiting output." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475U.S. 574, 583, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Datagate, Inc. v.

Hewlett-Packard Co., 941 F.2d 864, 868-69 (9th Cir.1991) ( "As an existingcompetitor, [claimant] would have benefitted from any chilling of new entry

into the market. Therefore, [claimant] can claim no injury as a result ofsuch chilling.") (citation omitted), cert. denied, 503 U.S. 984, 112 S.Ct.

1667, 118 L.Ed.2d 388 (1992). Static Control has failed plausibly to allegeany antitrust injury stemming from Lexmark's decision to use microchips in its

cartridges and to remove its own supplier from the market for microchips.

3. Redesigning Microchips to Circumvent Static Control's product

[21] Once the market for microchips was created, however, the issue becomeswhether Lexmark can engage in a conspiracy to eliminate that market or stiflecompetition within that market. If Lexmark were able to maintain a monopoly

on remanufactured toner cartridges by making cartridge parts whollyunavailable, Static Control might have standing to pursue an antitrust

violation. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S.451, 463-64, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). The allegations,

however, do not sufficiently allege such behavior. Static Control does notspecifically allege a tying scheme under s 1 of the Sherman Act, as was the

case in Eastman Kodak, nor does Static Control allege any facts to suggest thatthe prices *408 for parts increased as a result of being illegally tied to themarket for cartridges. Static Control alleges that Lexmark continuously

redesigned its microchips "to exclude competitors from the relevant markets,restrict output, and increase end-user prices." 02R. 172 (2d Am. Answer &

Countercl. at P 45). But Static Control does not allege how Lexmark'sredesign decreased competition in the markets in which Static Control competes,

the market for microchips or parts. Static Control does not even identify inits pleading who competes in the microchip or parts markets, what their market

share is, whether they are controlled by Lexmark, what their prices were, orhow their prices were affected by Lexmark's redesign (or any of Lexmark's

conduct for that matter). See CBC Companies, Inc. v. Equifax, Inc., 561 F.3d569, 572 (6th Cir.2009) (holding allegations insufficient to establishantitrust injury in part due to failure to identify other market players).

The counterclaim lacks other supporting allegations such as the nature andfrequency of Lexmark's redesigns and how quickly replacement products were able

to adapt to the changes. Nor does Static Control make any non-conclusoryallegations to refute the possible business explanation that Lexmark, like most

companies, continuously updates its products over the years for legitimatecompetitive reasons. Twombly, 550 U.S. at 553, 127 S.Ct. 1955. Static

Control's allegations with respect to the microchip redesign therefore alsofail to establish antitrust standing for any cognizable antitrust injury.

4. Filing Suit

[22][23][24][25] Lexmark further correctly observes that the act of filingsuit generally does not constitute an antitrust injury under the Noerr-

Pennington doctrine.FN8 Second Appellee Br. at 47; see E. R.R. PresidentsConference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d464 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585,

14 L.Ed.2d 626 (1965). Although exceptions are made when the filing is a shamfor interfering with competition, the first inquiry for identifying sham

litigation is objective reasonableness: "Only if challenged litigation isobjectively meritless may a court examine the litigant's subjective

motivation." Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus.,Inc., 508 U.S. 49, 60, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993). We cannot say

that Static Control has plausibly alleged that the 02 Action was "objectivelymeritless." See 02R. 172 (2d Am. Answer & Countercl. at P 56). StaticControl's allegations focus solely on Lexmark's intent behind bringing the

copyright action; Static Control does not offer any allegations upon which wecan plausibly conclude that the copyright action was "objectively meritless."The Sixth Circuit's ultimate conclusion that Lexmark lacked a valid copyrightclaim is not determinative of whether the initial suit was reasonable. Prof'l

Real Estate, 508 U.S. at 60 n. 5, 113 S.Ct. 1920. We agree with Lexmark thatits efforts in federal court, as alleged, should be immune from antitrust suit.

FN8. Static Control claims Lexmark's Noerr- Pennington argument is waived as it was not raised below and was raised on appeal only in a

footnote. Third Appellant Br. at 7 n.3. However, "standing is a jurisdictional requirement that cannot be waived, and such may be brought

up at any time in the proceeding." Zurich Ins. Co. v. Logitrans, Inc.,

297 F.3d 528, 531 (6th Cir.2002).

C. Antitrust Standing for Counterclaims Seeking Injunctive Relief

[26] The Clayton Act also permits a private party to obtain injunctiverelief *409 "against threatened loss or damage by a violation of the antitrustlaws." 15 U.S.C. s 26. The district court did not distinguish between StaticControl's request for injunctive relief and its request for monetary damageswhen dismissing the counterclaim for lack of standing. See R. 392 (D. Ct.

Order 9/28/06 at 12). Static Control argues that the district courtseparately erred in dismissing its claim for equitable relief because the last

three AGC factors are inapplicable to whether a claimant has standing to seekinjunctive relief. First Appellant Br. at 51. Lexmark argues that the

standing requirements for obtaining injunctive relief are no different from thestanding requirements for obtaining monetary relief when, as here, StaticControl also seeks money damages. Second Appellant Br. at 56 ("Therequirements for antitrust standing are the same whether the antitrust

plaintiff seeks damages only or damages and injunctive relief").

[27][28] The Clayton Act does not "authorize a private plaintiff to securean injunction against a threatened injury for which he would not be entitled to

compensation if the injury actually occurred." Cargill, Inc. v. Monfort ofColo., Inc., 479 U.S. 104, 112, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986). Theonly difference between a claim for equitable relief and one for damages is

that equitable relief is available at the mere threat of antitrust injury.Because we have held that Static Control has failed to plead an antitrustinjury, we affirm the dismissal of Static Control's claim for equitable relief.See Valley Prods. Co. v. Landmark, 128 F.3d 398, 402 (6th Cir.1997).

V. STATIC CONTROL'S LANHAM ACT COUNTERCLAIM

[29] Static Control contends that Lexmark violated the Lanham Act byengaging in false advertising. Static Control alleges that Lexmark "falsely

informed customers that SCC's products infringe Lexmark's purportedintellectual property," and "misled ... customers of SCC's products that

license agreements prohibit remanufacturing Lexmark toner cartridges, when nolicense agreements actually exist," causing Static Control's customers to

believe that Static Control is engaging in illegal conduct and thereby damagingStatic Control's business and reputation.FN9 02R. 172 (2d Am. Answer &Countercl. at PP 2, 84-90). The district court dismissed Static Control's

counterclaim for lack of Lanham Act standing because Static Control lackedantitrust standing, holding that "[m]ultiple courts have held that the factors"for antitrust standing are the same as for Lanham Act standing. R. 392 (D.

Ct. Order 9/28/06 at 13) (citing Fifth and Third Circuit cases).

FN9. The Lanham Act provides: Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any

false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with

another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. s 1125(a)(1).

[30][31] Static Control maintains that the test "[i]n this Circuit" is "notthe same *410 as the ... test for antitrust standing." First Appellant Br. at53 (citing Frisch's Rests., Inc. v. Elby's Big Boy of Steubenville, Inc., 670F.2d 642, 649-50 (6th Cir.), cert. denied, 459 U.S. 916, 103 S.Ct. 231, 74

L.Ed.2d 182 (1982)). Frisch's Restaurants held that a Lanham Act claimant neednot demonstrate actual losses as a result of the defendant's misleading use of

the claimant's trademarks in its advertisements, only a " 'likelihood of injuryand causation.' " Id. at 650 (quoting Johnson & Johnson v. Carter-Wallace,

Inc., 631 F.2d 186, 190 (2d Cir.1980)). Since Frisch's Restaurants, theSecond Circuit has further described its approach, called the "reasonable

interest" approach, as finding that the claimant has standing if the claimantcan demonstrate "(1) a reasonable interest to be protected against the alleged

false advertising and (2) a reasonable basis for believing that the interest islikely to be damaged by the alleged false advertising." Famous Horse, Inc. v.5th Ave. Photo Inc., 624 F.3d 106, 113 (2d Cir.2010). We have not addressed

Lanham Act standing since Frisch's Restaurants.

Lexmark urges us to follow one of the narrower approaches adopted by oursister circuits. The Seventh, Ninth, and Tenth use a categorical test,permitting Lanham Act suits only by an actual competitor making an

unfair-competition claim. L.S. Heath & Son, Inc. v. AT & T Info. Sys., Inc.,9 F.3d 561, 575 (7th Cir.1993); Waits v. Frito-Lay, Inc., 978 F.2d 1093,

1108-09 (9th Cir.1992), cert. denied, 506 U.S. 1080, 113 S.Ct. 1047, 122

L.Ed.2d 355 (1993); Stanfield v. Osborne Indus., Inc., 52 F.3d 867, 873 (10thCir.), cert. denied, 516 U.S. 920, 116 S.Ct. 314, 133 L.Ed.2d 217 (1995).

These circuits, however, have distinguished the standing inquiry between claimsof false association under 15 U.S.C. s 1125(a)(1)(A) and false advertising

under s 1125(a)(1)(B) and do not require direct competition for claims of falseassociation. See e.g., Waits, 978 F.2d at 1108-09. Static Control's claimis for false advertising and would fail under this stricter standard, because

Static Control and Lexmark are not actual competitors.

The Third, Fifth, Eighth, and Eleventh Circuits all reference antitruststanding or the AGC factors in deciding Lanham Act standing. Conte Bros.Auto., Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221, 233-34 (3d Cir.1998)(Alito, J., authoring); Procter & Gamble Co. v. Amway Corp., 242 F.3d 539,

562-63 (5th Cir.), cert. denied, 534 U.S. 945, 122 S.Ct. 329, 151 L.Ed.2d 243(2001); Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d

985, 990-91 (8th Cir.), cert. denied, 510 U.S. 928, 114 S.Ct. 338, 126 L.Ed.2d282 (1993); Phoenix of Broward, Inc. v. McDonald's Corp., 489 F.3d 1156,1162-64 (11th Cir.2007), cert. denied, 552 U.S. 1275, 128 S.Ct. 1647, 170

L.Ed.2d 385 (2008). The Third Circuit nominally uses a "reasonable interest"approach, but applies it by looking to the five AGC factors. Conte Bros.,165 F.3d at 233-34. The Third Circuit has also rejected any distinction in

standing between the two types of Lanham Act claims. Id. at 232. The SecondCircuit's more recent cases reject the Third Circuit's conflation of the

reasonable-interest test with the AGC factors as "unnecessarily complicat[ing]the inquiry," Famous Horse, 624 F.3d at 115 n. 3, setting its approach apart.

Therefore, Lexmark's statement that the reasonable interest test and the AGCtest are not "conceptually different," Second Appellee Br. at 60, is not

correct.

Although the claimant in Frisch's Restaurants brought a claim under 15U.S.C. s 1125(a)(1)(A) for false association of trademark, not under s

1125(a)(1)(B) for false advertising, we agree with the Third Circuit's reasonedanalysis rejecting a distinction between these two types of claims *411 for

purposes of standing. Conte Bros., 165 F.3d at 232-33. Because we havealready addressed the appropriate level of standing for claims brought under 15

U.S.C. s 1125(a), even if we were to prefer the approach taken by our sistercircuits, we cannot overturn a prior published decision of this court absent

inconsistent Supreme Court precedent or an en banc reversal.FN10 Geiger v.Tower Auto., 579 F.3d 614, 622 (6th Cir.2009). Static Control has thereforesufficiently alleged a Lanham Act claim. Static Control alleged a cognizable

interest in its business reputation and sales to remanufacturers andsufficiently alleged that these interests were harmed by Lexmark's statements

to the remanufacturers that Static Control was engaging in illegal conduct.This is sufficient to state a claim under the Lanham Act. We therefore REVERSE

the district court's dismissal of this claim and REMAND with instructions toreinstate the Lanham Act claim.

FN10. Even if we were to adopt the AGC factors, Static Control's claim would not necessarily fail. Although we have determined that Static

Control failed to satisfy the AGC factors regarding its antitrust allegations, this does not necessarily mean Lanham Act standing would be

lacking. Not all of Lexmark's conduct supposedly in violation of the Lanham Act is the same as the conduct supposedly violating the Sherman

Act. In particular, Static Control alleges that Lexmark violated the Lanham Act when Lexmark falsely advertised that Static Control infringed

Lexmark's patents. Because this was not part of Static Control's antitrust allegations, the district court at a minimum should have applied the AGC factors to Static Control's allegations of false advertising directly targeting Static Control (not just the Prebate program) and its injuries in conducting the five-factor analysis.

VI. STATELAW COUNTERCLAIMS

[32] The district court dismissed Static Control's counterclaims for unfaircompetition and false advertising under North Carolina law for lack of

standing. Static Control appeals and agrees that substantively the state lawclaims all "substantially mirror" the federal claims. First Appellant Br. at

54.FN11

FN11. The district court also dismissed the state-law civil-conspiracy claim for lack of standing; however, Static Control has not raised this issue on appeal. Static Control mentioned in a footnote in its opening

brief that the district court also erred in dismissing its state-law civil-conspiracy claim. First Appellant Br. at 56 n.14. Lexmark then

pointed out the waiver, Second Appellee Br. at 62, and Static Control did not dispute the waiver or make any arguments on either waiver or the

civil-conspiracy claim in its Third Brief.

The parties dispute whether standing under the North Carolina UnfairDeceptive Trade Practices Act ("NCUDTPA"), N.C. Gen.Stat. ss 75-1, et seq.,

which is the state-law equivalent of the Sherman, Clayton, and Lanham Acts, isidentical to the standing requirements of the federal acts. The district

court held that North Carolina had not yet decided the question, and applying"North Carolina's general rule that federal case law is persuasive andinstructive in construing North Carolina's own antitrust statutes," the

district court dismissed the state-law counterclaims "for the same reasons thatit dismissed [Static Control's] federal claims above." R. 392 (D. Ct. Order

9/28/06 at 16). Static Control disagrees that the North Carolina standard isthe same.

North Carolina has held that the AGC factors "do not apply in determiningwhich indirect purchasers have standing to sue under the North Carolina

antitrust statutes." Teague v. Bayer AG, 195 N.C.App. 18, 671 S.E.2d 550, 557(2009). Static Control is a supplier rather than an indirect purchaser, but

Static Control argues that Teague supports the general proposition that NorthCarolina antitrust standing diverges*412 from federal antitrust standing.Although ruling before Teague came down, the district court rejected the

relevance of a similar case upon which Teague relied- Hyde v. Abbott Labs.,Inc., 123 N.C.App. 572, 473 S.E.2d 680, 681-82, rev. denied, 344 N.C. 734, 478

S.E.2d 5 (1996)-precisely because the present case did not involve an indirectpurchaser. Teague does not state, as Static Control suggests, that antitrust

standing under North Carolina law is generally more flexible than theequivalent federal law. We must therefore closely examine North Carolina'sdeparture from federal law on the question of standing for indirect purchasersto determine whether North Carolina would similarly depart on the question of

standing for suppliers.

In deciding to reject the federal test for standing for indirect purchasers,the North Carolina Court of Appeals examined the standing landscape when the

North Carolina statute governing standing, N.C. Gen.Stat. s 75-16, was mostrecently substantively amended in 1969. Hyde, 473 S.E.2d at 684-85 (citingIll. Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977),

and Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 88 S.Ct.2224, 20 L.Ed.2d 1231 (1968)). Because the amendments expanded the class of

persons who could recover under the Act to all consumers, and indirectpurchasers were frequently consumers, the court found it "unlikely" that thelegislature intended to exclude indirect purchasers as a class. Id. at 684.

Although acknowledging federal law as "persuasive authority" in interpretingNorth Carolina antitrust provisions, id. at 685, the court observed that most

federal circuits permitted suit by indirect purchasers in 1969 when the

amendments were passed. The Supreme Court's decision in Illinois Brick thatindirect purchasers lacked standing to bring antitrust claims was not issued

until 1977. Id. at 683.

Applying the same considerations to the circumstances at hand, we believeNorth Carolina would grant standing to suppliers such as Static Control.Prior to 1969, the law, at least in the Sixth Circuit, was that suppliers likeStatic Control lacked standing. See Volasco Prods. Co. v. Lloyd A. Fry

Roofing Co., 308 F.2d 383, 395 (6th Cir.1962) ("It is well established in thelaw that a supplier is too remote and too far removed from the direct injury to

recover damages resulting from violation of the anti-trust laws directedagainst the supplier's customer."), cert. denied, 372 U.S. 907, 83 S.Ct. 721,

9 L.Ed.2d 717 (1963). However, the Fourth Circuit had declined to say that nosupplier could bring a claim and followed what was previously known as the

"target area" test for antitrust standing. S.C. Council of Milk Producers,Inc. v. Newton, 360 F.2d 414, 418 (4th Cir.), cert. denied, 385 U.S. 934, 87

S.Ct. 295, 17 L.Ed.2d 215 (1966). The "target area" test gave antitruststanding to anyone who was within the zone of economic harm caused by the

anticompetitive conduct whose harm was proximately caused by such conduct.Id.

In ruling that indirect purchasers were not subject to the AGC factors, thecourt in Teague emphasized the differences between cases involving indirect

purchasers and those, such as AGC itself, that did not. Teague, 671 S.E.2dat 556 (rejecting analogies to AGC and other state cases applying AGC factors

to state-law claims because they did not involve indirect purchasers).However, the Hyde court independently rejected many of the concerns identified

in Illinois Brick (and later repeated in AGC ) as simply inapplicable tostate-law antitrust statutes. Hyde, 473 S.E.2d at 687-88 (addressing issuesof multiple liability, incentives to sue, and complexity of damages). Because

the state of the law in 1969 in the Fourth Circuit appears more *413 consistentwith North Carolina's reasoning in Hyde than the Sixth Circuit's position on

supplier standing in 1969, we conclude that North Carolina would not apply theAGC factors to cases like this one. As a result, Static Control's

counterclaims under state law were incorrectly dismissed for lack of standing.We REVERSE and REMAND for further proceedings on these claims.

VII. IMPACT OF JURY VERDICT ON REMAND

[33] Because we have reinstated some of Static Control's counterclaims,Static Control requests that we instruct the district court on remand to treat

retroactively the advisory jury's findings that Lexmark misused its patents asbinding jury findings. Lexmark unsurprisingly objects to this. The Seventh

Amendment provides that "no fact tried by a jury, shall be otherwise reexaminedin any Court of the United States." U.S. CONST. amend. VII. Static Controlclaims that presenting the reinstated antitrust claims now to a binding jury

would violate this prohibition because these issues were already presented onceto a jury, albeit an advisory one. Because those claims must be decided by a

jury if reinstated, Static Control suggests that the only remedy to thisproblem is retroactively to call the advisory jury's findings of fact binding,

as opposed to proceeding with a new trial before a new, binding jury.FN12

FN12. Static Control is right that if a district court erroneously dismisses a legal claim otherwise entitled to a jury determination, any

subsequent findings of fact by the judge must be vacated and the claim relitigated before a jury. Lytle v. Household Mfg., Inc., 494 U.S. 545, 552-53, 110 S.Ct. 1331, 108 L.Ed.2d 504 (1990). That procedural posture, however, is not present in this case. Nonetheless, when a

party has the right to a jury determination on an issue under the Seventh Amendment, there is ample precedent that an advisory jury does not

satisfy that requirement. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 337 n. 24, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979) ("[A]n advisory jury

... would not in any event have been a Seventh Amendment jury.").

The differences between the defense of patent misuse and affirmativestate-law antitrust claims or a Lanham Act claim notwithstanding, we decline to

deem an advisory jury's findings binding retroactively. See Hildebrand v.Bd. of Trs. of Mich. State Univ., 607 F.2d 705, 710 (6th Cir.1979) ("To convert

a trial from a jury trial to a bench trial (or vice-versa) in the middle of theproceedings is to interfere with counsel's presentation of their case and,

quite possibly, to prejudice one side or the other."); Fischer Imaging Corp.v. Gen. Elec. Co., 187 F.3d 1165, 1174 (10th Cir.1999) (rejecting argument by

claimant that advisory jury's verdict should retroactively become binding);Pradier v. Elespuru, 641 F.2d 808, 811 (9th Cir.1981) (noting significanttactical differences in litigating before an advisory jury). Although here

the tactical differences are minimal given that the change to an advisory juryoccurred when the district court gave the final jury instructions, we declineto speculate as to whether the change in the jury's instruction altered thejury's analysis of the issue Static Control now seeks to treat as binding.

Cf. Romano v. Oklahoma, 512 U.S. 1, 8-9, 114 S.Ct. 2004, 129 L.Ed.2d 1 (1994)(holding that court may not "mislead the jury as to its role in the sentencingprocess in a way that allows the jury to feel less responsible than it should

for the sentencing decision.") (internal quotation marks omitted). Wetherefore decline Static Control's request.

VIII. LEXMARK'S PATENT COUNTERCLAIMS

Lexmark counterclaimed in the 04 Action that Static Control induced theremanufacturers*414 to infringe several patents relating to Lexmark's tonercartridges. At trial, the jury determined that Lexmark had failed to meet its

burden of showing direct infringement by Static Control's customers as a classand its burden of showing Static Control induced infringement by the threenamed remanufacturers already held to be direct infringers. Following thetrial, Lexmark renewed a motion for judgment as a matter of law and filed amotion for a new trial on whether the jury's verdict was unreasonable in light

of the evidence of direct infringement by the class, which the district courtdenied. Lexmark also sought a new trial on the issue of inducement after the

district court excluded questions at trial relating to the procurement ofopinion-of-counsel letters, which the district court also denied. Lexmark

appeals these rulings, and we affirm. Lexmark also appeals an earlier rulingby the district court on summary judgment that Lexmark's design patents were

invalid as a matter of law, which we also affirm.

A. Standards of Review

[34][35][36] We review de novo a district court's decision to deny a motionfor a judgment as a matter of law under Federal Rule of Civil Procedure 50.Mike's Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 405 (6th Cir.2006).

A renewed motion for a judgment as a matter of law following an adverse juryverdict "may only be granted if, when viewing the evidence in a light most

favorable to the non-moving party, giving that party the benefit of allreasonable inferences ... reasonable minds could come to but one conclusion in

favor of the moving party." Barnes v. City of Cincinnati, 401 F.3d 729, 736(6th Cir.), cert. denied, 546 U.S. 1003, 126 S.Ct. 624, 163 L.Ed.2d 506 (2005). Judgment as a matter of law is appropriate only where there is no "legally

sufficient evidentiary basis" for a reasonable jury "to find for the[non-moving] party on that issue." Fed.R.Civ.P. 50(a)(1). We will not

substitute our interpretation of the evidence for the jury's, even if we wouldhave reached a different conclusion. Barnes, 401 F.3d at 738.

[37][38] We review for abuse of discretion a district court's decision todeny a motion for a new trial under Federal Rule of Civil Procedure 59.

Mike's Train House, 472 F.3d at 405. A new trial is warranted after a juryverdict "for any reason for which a new trial has heretofore been granted in anaction at law in federal court." Fed.R.Civ.P. 59(a). We have previously heldthat a new trial is appropriate when the jury reaches a "seriously erroneousresult as evidenced by (1) the verdict being against the [clear] weight of theevidence; (2) the damages being excessive; or (3) the trial being unfair tothe moving party in some fashion, i.e., the proceedings being influenced byprejudice or bias." Mike's Train House, 472 F.3d at 405 (internal quotation

marks and alterations omitted) (quoting Holmes v. City of Massillon, 78 F.3d1041, 1045-46 (6th Cir.), cert. denied, 519 U.S. 935, 117 S.Ct. 312, 136

L.Ed.2d 228 (1996)); see also Barnes v. Owens-Corning Fiberglas Corp., 201F.3d 815, 820 (6th Cir.2000) (new trial appropriate only if "verdict is againstthe clear weight of the evidence"). Lexmark's argument relies on the first

and third of these potential errors.

[39] We review de novo a district court's grant of summary judgment. Int'lUnion v. Cummins, Inc., 434 F.3d 478, 483 (6th Cir.2006). The moving party is

entitled to summary judgment when there is no genuine issue of material factand the issue may be resolved as a matter of law. Fed.R.Civ.P. 56(a). The

evidence on summary judgment must be construed in the light most favorable tothe non-moving *415 party. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.

When genuine issues of material fact remain, the proper course of action is tosubmit such questions to the finder of fact.

B. Evidence of Direct Infringement by Static Control's Customers as a Class

[40] Lexmark argues on appeal that the evidence established as a matter oflaw that Static Control's customers as a class directly infringed Lexmark'spatents. Lexmark seeks to overturn the jury's verdict to the contrary. To

establish a claim for patent inducement under 35 U.S.C. s 271(b), Lexmark borethe burden of showing by a preponderance of the evidence that (1) Static

Control's customers directly infringed Lexmark's patents; (2) Static Controltook active steps that induced the customers' infringement; (3) Static Control

intended the customers to take the infringing acts; and (4) Static Controlknew or willfully disregarded the risk that those actions by its customers

would constitute direct infringement. See Global-Tech Appliances, Inc. v.SEB S.A., --- U.S. ----, 131 S.Ct. 2060, 2065-67, 179 L.Ed.2d 1167 (2011).Patent infringement by a third-party is therefore a necessary predicate to

inducement to infringe.

[41][42][43] A plaintiff can establish the first element of inducement toinfringe either by demonstrating "specific instances of direct infringement ora finding that the accused products necessarily infringe." Lucent Techs.,

Inc. v. Gateway, Inc., 580 F.3d 1301, 1322 (Fed.Cir.2009), cert. denied, 560U.S. 935, 130 S.Ct. 3324, 176 L.Ed.2d 1240 (2010); see also Dynacore Holdings

Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1275-76 (Fed.Cir.2004) (citingSony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 441, 104 S.Ct.

774, 78 L.Ed.2d 574 (1984)); 5 Donald S. Chisum, Chisum on Patents s 17.04[1](2011). When the plaintiff can show only individual instances of directinfringement, the plaintiff may recover only for the damages from those

individual acts. Dynacore, 363 F.3d at 1274. If the plaintiff can show anentire class of customers necessarily infringed, damages can be sought more

broadly across the entire class. Id.

[44][45][46] Direct patent infringement occurs under 35 U.S.C. s 271(a) whensomeone "(1) without authority (2) makes, uses, offers to sell, sells, or

imports (3) the patented invention (4) within the United States, itsterritories, or its possessions (5) during the term of the patent." HERBERT

F. SCHWARTZ & ROBERT J. GOLDMAN, PATENT LAW AND PRACTICE 163-64 (6th ed.2008);see also Global-Tech, 131 S.Ct. at 2065 n. 2 ("Direct infringement has longbeen understood to require no more than the unauthorized use of a patented

invention."). Determining whether someone is making, using, or selling apatented invention "requires a finding that the patent claim covers the allegedinfringer's product or process," Markman v. Westview Instruments, Inc., 517

U.S. 370, 374, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996) (internal quotation marksomitted). The determination that a patent's claims cover a specific device is

often referred to as "literal infringement." SCHWARTZ, supra, at 174.Literal infringement alone is not enough to support a claim for inducement,

because the predicate to inducement is a violation of 35 U.S.C. s 271(a), whichrequires more than that the accused devices literally infringe. For example,

a party could not be liable for inducing infringement if an accused deviceliterally infringed a patent claim but the literal infringer had authority touse the patent or a patent had otherwise expired, thereby defeating a

determination of direct patent infringement. See, e.g., *416Aro Mfg. Co. v.Convertible Top Replacement Co., 377 U.S. 476, 483, 84 S.Ct. 1526, 12 L.Ed.2d

457 (1964) (sustaining claim for contributory infringement upon determiningthat user of patented item lacked authorization, thereby directly infringing).

[47][48] An accused device will necessarily infringe, permitting a findingof direct infringement by a class of customers and an inference that theinducer intended the infringement, if the "customers can only use the

[defendant's] products in an infringing way." Symantec Corp. v. ComputerAssocs. Int'l, Inc., 522 F.3d 1279, 1293 (Fed.Cir.2008) (reversing summary

judgment on inducement because plaintiff did not need to show specificinstances of direct infringement when defendants' product could not be used ina non-infringing way); see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster,Ltd., 545 U.S. 913, 932, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005) ( "[W]here an

article is good for nothing else but infringement, there is no injustice inpresuming or imputing an intent to infringe") (internal quotation marks and

citation omitted). When an accused device could be used in either aninfringing or a non-infringing way, a claim of direct infringement based on

necessary infringement fails and cannot sustain an inducement claim. ACCOBrands, Inc. v. ABA Locks Mfr. Co., 501 F.3d 1307, 1313-14 (Fed.Cir.2007)

(reversing jury verdict of inducement to infringe patented method because noevidence of direct infringement and accused product could be used in either an

infringing or a non-infringing way); CHISUM, supra, s 17.04 [1].

[49] Prior to the jury's verdict, the district court granted summaryjudgment to Lexmark on whether the three named remanufacturers-Wazana, NER, and

Pendl-directly infringed Lexmark's nine valid mechanical patents. R. 1245 (D.Ct. Order 5/31/07) (holding direct infringement); R. 1008 (D. Ct. Order

4/24/07 at 48-49) (holding mechanical patents valid). Lexmark had thereforeestablished the necessary predicate to inducement, but could recover only for

those three remanufacturers' infringement unless Lexmark could demonstrate thatall of Static Control's customers as a class necessarily infringed. The

question of direct infringement by Static Control's customers as a class wassubmitted to the jury, which held that Lexmark had failed to meet its burden.

R. 1366 (Special Verdict Form at 1). The district court denied Lexmark'srenewed motion for a judgment as a matter of law and also Lexmark's motion for

a new trial on this issue, finding that the evidence in support of Lexmark didnot compel a different result. The district court upheld the jury's verdictbecause "[t]hough Lexmark presented evidence of infringement by Static

Control's customers, that evidence was not so overwhelming that reasonablepeople could come to but one conclusion." R. 1430 (D. Ct. Order 10/03/08 at

9).

Lexmark argues that the district court erroneously conflated thedirect-infringement inquiry, which Lexmark must establish, with the affirmative

defense of patent exhaustion, which Static Control must establish. Lexmarkoffered as circumstantial evidence of infringement by the class the testimony

of an expert establishing that the toner cartridges remanufactured by Wazana,NER, and Pendl all literally infringed the claims present in the nine

mechanical patents. Although Lexmark offered no testimony regarding specificcartridges from other remanufacturers, Static Control has not argued or even

suggested that the unidentified remanufacturers' cartridges did not literallyinfringe at least some of the more than one hundred patent claims that coverthe original cartridges. Instead, Static Control argues that Lexmark confuses

literal infringement *417 with direct infringement, and, as the district courtheld, some of the toner cartridges could not sustain a claim for direct

infringement because they were sold domestically first, thereby exhaustingLexmark's patent rights. Third Appellant Br. at 40-41. Lexmark has conceded

that its patent rights were exhausted in the non-Prebate cartridges sold firstin the United States and certain cartridges sold to IBM customers.

Part of the problem here is that the jury instructions never defined what itmeans for a party to "directly infringe" a patent. Lexmark maintains that

when the jury was asked to decide whether Static Control's customers as a class"directly infringed," the question must have related solely to whether the

remanufactured toner cartridges as a class literally infringed, because StaticControl's sole arguments against direct infringement related to patentexhaustion, which was delineated as a separate question on the jury's

special-verdict form. R. 1366 (Special Verdict Form at 1, 4). Lexmark istheoretically correct-exhaustion of a patentee's rights is a defense to directinfringement and is not the same as establishing a non-infringing use of a

patented device, which would defeat a finding that Static Control's customersnecessarily infringed the patents. However, this distinction was never

clearly made to the jury.

Lexmark's claim fails upon closer examination of the jury's instructions.The jury instructions explicitly suggested that patent exhaustion would defeata finding of "direct" infringement, as opposed to operating only as a defense

following a showing of direct infringement:

I instruct you that there are at least two kinds of uses of microchips made by Static Control that are lawful and do not directly infringe any Lexmark patent.... The first non-infringing use of Static Control's microchips is in

the remanufacture of Non-Prebate Lexmark cartridges that were first sold by Lexmark in the United States. Static Control has no liability for active

inducement of infringement when its microchips are used in those cartridges because those cartridges may be lawfully remanufactured by anyone without

directly infringing any patent rights of Lexmark.

R. 1365 (Jury Instructions at 18) (emphasis added). The district courtthen gave the same instruction with respect to the IBM cartridges. Although

Lexmark is correct that exhaustion should be an affirmative defense,FN13 at nopoint did Lexmark object to the district court's statement that exhaustedcartridges could not "directly infringe" Lexmark's patents. See R. 1119

(Lexmark's Objections to Proposed Jury Instructions); R. 1171 (JuryInstructions Hr'g Tr.); R. 1361 (Joint Proposed Corrections to Final

Instructions).

FN13. The jury instructions later also define exhaustion as Static Control's burden, using the exact same categories of cartridges the jury

was previously instructed did not "directly infringe." R. 1365 (Jury Instructions at 25-26).

[50] Jurors are presumed to be "diligent in following the precise

instructions given to them." United States v. Tosh, 330 F.3d 836, 842 (6thCir.2003). The evidence presented by Lexmark was not so strong as to prevent

a reasonable juror from concluding that some members of the classremanufactured cartridges in a non-infringing manner, as defined by thedistrict court. With two categories of cartridges that categorically did not"directly infringe," according to the jury instructions, the jury reasonably

could have concluded Lexmark had not met its burden of showing that theremanufacturers as a class "necessarily infringed" Lexmark's *418 patents byremanufacturing exhausted cartridges. See ACCO Brands, 501 F.3d at 1313("Because the accused device can be used at any given time in a non-infringing

manner, the accused device does not necessarily infringe the [plaintiff's]patent"). Nor was Lexmark's circumstantial evidence of literal infringement

sufficient to compel a conclusion that all of Static Control's customersliterally infringed, even if this were an appropriate inquiry. Lexmark's own

expert, Dr. Reinholtz, stated that he examined remanufactured cartridges fromonly the three named companies and did not know if other companies'

remanufactured cartridges literally infringed. R. 1216 (Trial Tr. 5/25/07 at42-43). Although this may have been sufficient circumstantial evidence to

sustain a jury verdict of infringement, the evidence certainly does not compelone. As a result, Lexmark was not entitled to judgment as a matter of law or

a new trial on the issue of whether Static Control's customers directlyinfringed as a class. Barnes, 401 F.3d at 736 (holding post-trial judgment as

a matter of law improper unless "reasonable minds could come to but oneconclusion in favor of the moving party"); Owens-Corning, 201 F.3d at 821

(holding new trial improper "if a reasonable juror could have reached thechallenged verdict").

C. Excluded Evidence Relating to Intent to Induce Infringement

[51] Lexmark claims that it was entitled to a new trial on the issue ofinducement of the three direct infringers because the district court

erroneously excluded certain questions relating to opinion-of-counsel lettersat trial, rendering the proceedings unfair. We review for abuse of

discretion. FN14

FN14. Lexmark suggests on appeal that the entirety of the jury's verdict on inducement was "unreasonable and against the weight of the evidence."

Second Appellee Br. at 32. This argument, however, is briefed in the context of the excluded opinion-of-counsel letter and only further

elaborated upon in Reply. Despite Lexmark's apparent waiver of this issue, the merits of the sufficiency-of-the-evidence argument is

discussed herein due to its relevance to the opinion-of-counsel issue.

[52] At trial, Lexmark was not allowed to ask Static Control's CEOexplicitly whether Static Control had ever obtained a legal opinion regarding

potential patent or antitrust violations. R. 1269 (Trial Tr. at 108-09).Static Control objected to the presentation of evidence relating to Static

Control's failure to obtain advice of counsel, even though Static Control hadmade available to third parties advice of counsel on the issue of whether

Prebate violated contract law.FN15 R. 1269 (Trial Tr. 06/04/07 at 108-09).The district court agreed and instructed the witness not to answer. Lexmark

claims that it was "manifestly unfair" to permit the CEO to testify regardingthe procurement of exculpatory advice from counsel but not permit Lexmark "to

identify failures to procure such *419 advice as circumstantial evidence ofintent to infringe." Second Appellee Br. at 34 (quoting Broadcom Corp. v.

Qualcomm Inc., 543 F.3d 683, 699 (Fed.Cir.2008)).

FN15. Static Control's general counsel had previously obtained a legal opinion letter regarding the illegality of Lexmark's Prebate program

under principles of property and contract law. Static Control provided

this letter to its customers as assurance that "Prebate does not create any legal barrier to the purchase and reuse by others of 'prebate' cartridges." J.A. at 1280 (Letter from Static Control). The letter

from counsel stated that it "does not deal with the application of either patent law or antitrust law" to Lexmark's Prebate program. However,

despite this assertion, the letter includes a short paragraph stating that counsel "see [s] nothing in either area of [patent or antitrust] law that would raise any questions about my conclusion [and] there are doctrines in both areas of law that might well prevent the successful

adoption by any manufacturer" of a program to prevent reuse of toner cartridges. Id. at 1286.

Lexmark's argument on appeal relies heavily on Broadcom, 543 F.3d 683, aFederal Circuit case issued after trial but before the district court ruled on

Lexmark's motion. Broadcom held that "[i]t would be manifestly unfair to allowopinion-of-counsel evidence to serve an exculpatory function ... and yet notpermit patentees to identify failures to procure such advice as circumstantial

evidence of intent to infringe." Broadcom, 543 F.3d at 699. AlthoughBroadcom appears to support Lexmark's position, the district court ruled

against Lexmark, see R. 1521 (D. Ct. Op. & Order at 16-19), after readingBroadcom in the context of the Federal Circuit's prior ruling in Knorr-Bremse

Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed.Cir.2004) (enbanc), which held that it would be "inappropriate to draw a [n] ... adverse

inference from failure to consult counsel" when an accused infringer was underno obligation in the first place to obtain advice of counsel on whether it was

infringing. Id. at 1345.

We need not decide whether a party's failure to obtain an opinion-of-counselletter may ever constitute circumstantial evidence of the requisite intent toinduce infringement. Even if we assume that this evidence was wrongly

excluded, the best-case scenario for Lexmark-a negative answer to the forbiddenquestion-would not have changed the jury's verdict on this issue.

Lexmark bore the burden of establishing by a preponderance of the evidencethat Static Control had the requisite intent to induce infringement. The

Supreme Court has recently clarified that this means that the alleged inducermust intend the customers to take the acts that ultimately constituted

infringement and the inducer must know or willfully disregard the risk thatthose actions by its customers would constitute direct infringement. See

Global-Tech, 131 S.Ct. at 2065. By way of analogy, the Supreme Court compareda used-car salesman who encouraged a customer to buy a car that later turned

out to be damaged to a used-car salesman who encouraged a customer to buy a carknowing it was damaged; we fault the latter more than the former.

Lexmark correctly explains that "advertising infringing uses, instructinghow to engage in infringing uses, demonstrating infringing uses, and

recommending infringing uses is strong evidence of specific intent to cause theactions that constitute direct infringement." Second Appellee Br. at 31(citing Grokster, 545 U.S. at 936, 125 S.Ct. 2764). But, given the jury

instructions that delineated certain cartridges as non-infringing, Lexmark'sevidence needed to show that Static Control advertised, instructed, or

otherwise recommended the remanufacture of infringing cartridges, which at thetime of trial were the Prebate cartridges and the cartridges first sold outside

the United States. Lexmark's proof, however, is not compelling enough for usto find that the district court abused its discretion in upholding the jury

verdict.

Lexmark argues that it presented specific evidence demonstrating that StaticControl encouraged and instructed remanufacturers to remanufacture Prebatecartridges and cartridges first sold overseas, the two categories not deemed

"non-infringing" at trial. But the testimony primarily indicated that StaticControl encouraged and instructed its customers to remanufacture cartridges

generally and such instructions did not distinguish between foreign ordomestic-sold cartridges or Prebate cartridges. See, e.g., R. 1242 (Trial Tr.5/30/07 at 37-38) (testimony *420 from Static Control that instructions would

enable remanufacture of cartridges, including Prebate); id. at 121-22(testimony from NER that Static Control did not differentiate between Prebateand non-Prebate at tradeshows). However, Static Control offered testimonythat its instructions contained explicit warnings not to use the Static Control

chips on Prebate cartridges unless they were first sold in North Carolina afterOctober 1, 2003,FN16 and not for resale in the United States. See, e.g., J.A.at 657 (Instructions for Replacement Chip). And employees of Static Controlwere under strict instructions to repeat those conditions to any customer who

called to inquire about the microchips. R. 1285 (Trial Tr. 6/6/07 at 88-89).Although Lexmark offered testimony that there was simply no way for a

remanufacturer to distinguish between a foreign-sold cartridge and a UnitedStates cartridge just by looking at the cartridge, id. at 155, Static Control

offered testimony that the remanufacturers could determine origin by inquiringat the time of acquisition, id. at 88. The jury was best situated to weigh

the competing evidence and determine whether Static Control had the requisiteintent to induce the infringing acts. The evidence offered by Lexmark mayhave been sufficient to sustain a jury finding of inducement; however, this

evidence certainly does not compel such a finding when the jury has rejectedit.

FN16. North Carolina passed a law in October 2003 that Static Control believed made Prebate restrictions unenforceable in North Carolina. The

jury was instructed that these cartridges could not infringe. R. 1365 (Jury Instructions at 19).

The excluded question during Static Control's CEO's testimony does notchange this calculus. Lexmark inflates the significance of the exclusion.

Static Control's CEO was asked if he "ever had an outside patent attorney ...give you advice on the issue of single-use patent licenses," to which the CEO

responded in the negative. R. 1269 (Trial Tr. 6/4/07 at 94). He was thenasked explicitly whether he sought out legal counsel relating to Prebate, and

the CEO answered affirmatively that he "sought advice about prebate cartridgesthat had been either put into the landfill or were on the way to the landfill."

Id. at 95. When asked if that was all he sought advice on, he unequivocallysaid "Yes." Id. It was only when counsel later asked specifically whetherStatic Control sought advice relating to patent or antitrust law that Static

Control objected and the district court instructed the witness not to answer.Id. 108-09. And despite this exclusion in the CEO's testimony, Static

Control's general counsel was asked about and specifically discussed concernsover patent-law issues, including whether or not Static Control's actions could

constitute inducement to infringe. R. 1242 (Trial Tr. 5/30/07 at 249-50,263-65, 272-73).

Lexmark bore the burden of establishing Static Control's knowledge orwillful blindness to the underlying infringing acts. Based on the related

evidence already on the record, we cannot conclude that the jury would havereached a different conclusion had the jury been told that Static Control

failed to obtain an opinion-of-counsel letter specifically on issues of patentlaw. The exclusion of this potential evidence was harmless in light of theother elements that Lexmark failed to establish by a preponderance of the

evidence. See Bridgeport Music, Inc. v. Justin Combs Publ'g, 507 F.3d 470,481 (6th Cir.2007), cert. denied, 555 U.S. 818, 129 S.Ct. 85, 172 L.Ed.2d 29

(2008).

D. Exhaustion of Prebate Cartridges

Lexmark also challenges the district court's post-trial ruling holding thatLexmark's*421 sale of Prebate cartridges exhausted its patent rights in their

cartridges. The relief Lexmark seeks on this issue, however, is unclear.Whether the Prebate agreement prevented the exhaustion of Lexmark's patent

rights as a matter of law does not change the outcome of the jury trial,because at the time of trial the district court had ruled favorably to Lexmark

that Prebate cartridges prevented exhaustion. R. 1008 (D. Ct. Order 4/24/07).Thus, unlike the non-Prebate cartridges sold in the United States and the IBM

cartridges, the jury was never instructed that Prebate cartridges could notserve the basis for direct infringement by Static Control's customers as aclass. Nor does the question of exhaustion bear in any way on the jury's

verdict that Static Control did not induce the direct infringement by Wazana,Pendl, and NER. We therefore decline to resolve this extremely complex andunsettled question, because it would have no relevance to the outcome of this

appeal.

E. Design-Patent Invalidity

[53] The district court held on summary judgment that two of Lexmark'sdesign patents relating to the appearance of its toner cartridges-D399,249 and

D458,300-were invalid. R. 1008 (D. Ct. Order 4/24/07). Patent invalidity isa defense to a claim for patent infringement. 35 U.S.C. s 282. As a result

of this ruling, the issue of whether any party directly infringed Lexmark'sdesign patents or induced someone else to infringe was never decided. Lexmark

appeals, and we affirm.

[54][55][56][57] All patents are presumed valid, and the burden ofovercoming this presumption rests on the party seeking invalidity. 35 U.S.C. s

282; Campbell v. Spectrum Automation Co., 513 F.2d 932, 935-36 (6th Cir.1975). Invalidity must be established by clear and convincing evidence.

Microsoft Corp. v. i4i Ltd. P'ship, --- U.S. ----, 131 S.Ct. 2238, 2243, 180L.Ed.2d 131 (2011). Patent validity is a question of law. Schnadig Corp.

v. Gaines Mfg. Co., 494 F.2d 383, 387-88 (6th Cir.1974). However, where legalanalysis rests on factual findings, we will not reverse such findings absent

clear error. Id. at 388.

[58] Design patents are issued to whoever "invents any new, original andornamental design for an article of manufacture." 35 U.S.C. s 171; Schnadig,494 F.2d at 387 ("To be patentable a design must be new, original, ornamental

and nonobvious."). A design patent is not ornamental if the design servesonly functional purposes. In other words, "[a] design patent cannot be

obtained to protect a mechanical function or cover an article whoseconfiguration affects its utility alone." Kwik-Site Corp. v. Clear View Mfg.

Co., 758 F.2d 167, 171 (6th Cir.1985) (internal quotation marks and emphasisomitted) (holding design patent for rifle scope mount invalid because

configuration served solely functional purposes); Fuji Kogyo Co. v. PacificBay Int'l, Inc., 461 F.3d 675, 683 (6th Cir.2006) ("[I]f the particular designis essential to the use of the article, it can not be the subject of a design

patent") (internal quotation marks omitted), cert. denied, 549 U.S. 1252, 127S.Ct. 1373, 167 L.Ed.2d 160 (2007). An article is less likely to be

ornamental if it is not observed, and the Federal Circuit looks not just towhether the article is ever seen but whether the appearance of the article may

become a "matter of concern" at any point during the article's "normal andintended use." In re Webb, 916 F.2d 1553, 1558 (Fed.Cir.1990) (holding designof hip implants could be patented because even though not seen during normal

use the "design [was] clearly intended to be noticed during the process ofsale.").

*422 [59] The district court held that Lexmark's design patents were invalidbecause the design of Lexmark's toner cartridges was primarily functional and

"the appearance of Lexmark's printer cartridges in question are [sic] of nomatter of concern during those cartridges' entire existence." R. 1008 (D. Ct.

Order 4/24/07 at 10-11). The design of the cartridges was primarilyfunctional because the design of the printer dictated the exact design of thecartridge. Id. at 13-14 (citing Best Lock Corp. v. Ilco Unican Corp., 94 F.3d1563, 1566 (Fed.Cir.1996) (holding design of key not patentable because

dictated by function, i.e., the design of the corresponding lock)). And eventhough the cartridges may be seen at some point during their lifetime, at nopoint was their appearance a matter of concern to the end-user. Id. at 11(citing In re Stevens, 36 CCPA 1017, 1019-20, 173 F.2d 1015 (1949)).

Lexmark claims that the district court improperly shifted the burden ofproof onto Lexmark to show validity and improperly credited disputed issues of

fact in Static Control's favor. Lexmark does not dispute the generalproposition that to establish invalidity, the infringer must show "that

consumers do not consider [the patented design] to be significant." SecondAppellee Br. at 36 (quoting Int'l Seaway Trading Corp. v. Walgreens Corp., 589

F.3d 1233, 1242 (Fed.Cir.2009)). Lexmark objects to the lack of surveyevidence showing consumers do not consider Lexmark's cartridge appearance to be

a matter of concern and argues that the district court ignored the presence ofphotographs of the cartridges on the website where the cartridges were sold and

on the cartridge boxes. Lexmark argues that this determination is an issue offact subject to genuine dispute and therefore inappropriate on summary

judgment.

[60][61] The district court applied the correct standard and evaluated theundisputed facts offered by Static Control establishing that the design of thecartridges was functional and not ornamental.FN17 The toner cartridges arevisible to users at some points, but are generally hidden from view inside the

printer. Their design is dictated solely by the printer with which they arecompatible. Lexmark itself explained that the advertisements containing

photographs were primarily to assist the customer in selecting the cartridgethat was compatible with the printer they owned. R. 506 (Lexmark's Opp. to

Summ. J. at 10). The cartridges' appearance had no other role in thepurchaser's decision of which cartridge to purchase. "[T]he purpose of the

statute is to give encouragement to the decorative arts. It contemplates notso much utility as appearance." Cavu Clothes, Inc. v. Squires, Inc., 184 F.2d30, 32 (6th Cir.1950) (citing Gorham Mfg. Co. v. White, 81 U.S. 511, 524, 14

Wall. 511, 20 L.Ed. 731 (1871)).

FN17. Lexmark relies heavily on the district court's statement that "Lexmark fail[ed] to set forth any evidence," R. 1008 (D. Ct. Order 4/24/07 at 15). The district court recited at length Static Control's burden and applied it to the facts. Id. at 9-15. The district court

appears to have been emphasizing that Lexmark's suggestion that there were open issues of fact was unsupported by any actual evidence.

On appeal, Lexmark does not attempt to dispute any of these material facts,arguing instead that Static Control should have presented more evidence, suchas consumer surveys, and suggesting that the presence of photographs of the

product should be enough to create a dispute over whether appearance matters.Second Appellee Br. at 36-37. Although we make all inferences in favor of

Lexmark on this issue, Static Control has demonstrated by undisputed clear andconvincing evidence that *423 the design patents were invalid. Lexmark hasnot pointed to any genuine fact disputes that would undermine this conclusion.We therefore AFFIRM the district court's holding that Lexmark's design patents

are invalid.

IX. CONCLUSION

For the aforementioned reasons, we AFFIRM the district court on all claimsexcept the dismissal of some of Static Control's counterclaims under the LanhamAct and North Carolina state law, which we REVERSE and REMAND for further

proceedings consistent with this opinion.

C.A.6 (Ky.),2012.

Static Control Components, Inc. v. Lexmark Intern., Inc.

697 F.3d 387, 2012-2 Trade Cases P 78,027, 104 U.S.P.Q.2d 1352

END OF DOCUMENT



D. New Jersey.

The IQ GROUP, LTD. d/b/a Insurance IQ, Plaintiff,

v.

WIESNER PUBLISHING, LLC t/a Advisors Data Source and t/a it Buyers, and LisaHulac; Eric Bender; National Senior AssociatesCompany, LLC; Capital Care,

Inc.; and John Does 1100, Defendants.

No. CIV.A. 035221(JAG).

Jan. 10, 2006.

Background: Advertising service provider sued competitor for copyrightinfringement and violation of Digital Millennium Copyright Act (DMCA). Parties

cross-moved for partial summary judgment.

Holdings: The District Court, Greenaway, J., held that:

(1) neither provider's logo, nor associated hypertext link to copyrightinformation on its website, were type of "copyright management information"

protected by DMCA, and

(2) fact issue existed as to whether provider's copyright in advertisement wasvalid.

Plaintiff's motion denied; defendant's motion granted in part and denied inpart.

See also 2005 WL 3544335.

West Headnotes



92XX Separation of Powers

92XX(C) Judicial Powers and Functions

92XX(C)6 Advisory Opinions



Federal Courts 170B k 2103

170B Federal Courts

170BIII Case or Controversy Requirement

170BIII(A) In General

170Bk2103 k. Nature of dispute; concreteness. Most Cited Cases


Constitution requires that "case or controversy" be before court; judgmenton hypothetical issue is advisory, and federal courts may not render advisory

opinions. U.S.C.A. Const. Art. 3, s 2, cl. 1.



99I Copyrights

99I(J) Infringement



Trademarks 382T k 1057(1)

382T Trademarks

382TII Marks Protected

382Tk1050 Format or Components of Term or Mark

382Tk1057 Nonliteral Elements


E-mail advertiser's logo was not "copyright management information," andthus its removal before advertisement was sent out by competitor did not

violate Digital Millennium Copyright Act (DMCA); logo, being used as servicemark, was protected by trademark law, not copyright law. 17 U.S.C.A. s 1202(c)

.



99I Copyrights

99I(J) Infringement



"Copyright management information," protected by Digital MillenniumCopyright Act (DMCA) is limited to components of technological measures used to

protect copyrights in automated systems. 17 U.S.C.A. s 1202(c).



99I Copyrights

99I(J) Infringement



Neither e-mail advertiser's logo, nor associated hypertext link to copyrightinformation on advertiser's website, were "copyright management information,"and thus their removal before advertisement was sent out by competitor did notviolate Digital Millennium Copyright Act (DMCA); removed information did not

function as components of automated copyright protection or management system.17 U.S.C.A. s 1202(c).



99I Copyrights

99I(J) Infringement



Elements of copyright infringement are (1) ownership of valid copyright and(2) copying by alleged infringer.



99I Copyrights

99I(H) Registration

99k50.15 Registration

99k50.20 k. Application. Most Cited Cases

Copyright infringement plaintiff's knowing failure to advise CopyrightOffice of facts which might have led to rejection of registration application

constitutes grounds for holding registration invalid and incapable ofsupporting infringement action.

[7] Copyrights and Intellectual Property 99 k 83(3.5)


99I Copyrights

99I(J) Infringement

99I(J)2 Remedies


99k83 Evidence

99k83(3) Weight and Sufficiency

99k83(3.5) k. Certificate as prima facieproof, in general. Most Cited Cases

Copyright registration creates rebuttable presumption that copyright isvalid.



99I Copyrights

99I(J) Infringement

99I(J)2 Remedies


99k89 Judgment

99k89(2) k. Summary judgment. Most Cited Cases

Issue of material fact as to whether copyright in e-mailed advertisement wasobtained by fraud precluded summary judgment on advertiser's infringement

claim.

*588 Stanley W. Kallmann, Esq., Gennet, Kallmann, Antin & Robinson, P.C.,Parsippany, NJ, for Plaintiff IQ Group, Ltd.

* Louis J. Seminski, Esq., Landman Corsi Ballaine & Ford P.C., Newark, NJ,

Timothy P. Getzoff, Esq., Holland & Hart LLP, Boulder, CO, for DefendantWiesner Publishing, LLC.

OPINION

GREENAWAY, District Judge.

This matter comes before the Court on the Motion for Summary Judgment byDefendant Wiesner Publishing, LLC ("Wiesner") and the Cross-Motion for Summary

Judgment by Plaintiff IQ Group, Ltd. ("IQ"), pursuant to FED. R. CIV. P. 56.For the reasons set forth below, Defendant's Motion will be granted in part and

denied in part. Plaintiff's Cross-Motion will be denied.

INTRODUCTION

These motions arise in the context of a dispute between businesscompetitors. IQ and Wiesner are businesses that provide advertising services

for insurance companies: they send ads by email to insurance agents. In2003, National Senior Associates Company, LLC ("NSAC") and Capital Care, Inc.

("Capital Care"), insurance companies, both hired IQ to send advertisements.NSAC and IQ dispute who created the ad for NSAC, and thereby who is entitled to

claim authorship and hold the copyright. IQ distributed copies of ads forCapital Care and NSAC via email to insurance agents; the ads sent by IQ

displayed a graphic described by IQ as a logo. The IQ logo consists of theoutline of a capital "Q" with the outline of a lower-case "I" in the center.

Both outlines are shaded, as if in graphical relief. The ads also contained ahyperlink that, when clicked, directed the user to a page of IQ's website which

IQ claims contained copyright notices.

After IQ had distributed the NSAC and Capital Care ads, both NSAC andCapital Care hired Wiesner to distribute the ads via email. Both NSAC and

Capital Care provided Wiesner with the ads that IQ distributed. Wiesnerremoved the IQ logo and hyperlink, added new information so that responses tothe ads would go to NSAC and Capital Care, and then copied and distributed the

ads via email.

IQ subsequently applied to the U.S. Copyright Office for copyrightregistration, claiming authorship of the NSAC and Capital Care ads. IQobtained copyright registrations as of October 22, 2003. IQ then filed suit

against Wiesner, NSAC, Capital Care and other parties, stating claims for: 1)slander, libel and conspiracy to defame IQ (Count 1, against Wiesner et al.);

2) negligence in making false and damaging statements (Count 2, against Wiesneret al.); 3) breach of contract (Count 3, not against Wiesner); 4) copyright

infringement and violations of the Digital Millennium Copyright Act ("DMCA")(Count 4, against Wiesner et al.); 5) tortious interference with business

relationships (Count 5, against Wiesner et al.); and 6) copyrightinfringement and violations of the DMCA (Count 6, not against Wiesner).Subsequently, IQ conceded that it is not entitled to statutory damages for

copyright infringement related to the Capital Care ad. (Pl. Mem. Opp. Mot.S.J. 16.)

The instant motion and cross-motion for summary judgment concern the claimsof copyright infringement and violation of the DMCA. Wiesner filed a motion for

summary judgment on these issues: 1) IQ is entitled to a maximum of one awardof statutory damages for copyright infringement of the NSAC and Capital Care

ads; and 2) IQ's DMCA claims, for violation of 17 U.S.C. s 1202, should bedismissed as a matter of law. IQ filed a cross-motion for summary judgment on

these issues: 1) Wiesner has infringed IQ's copyright on the NSAC ad; 2) IQis entitled to statutory damages for Wiesner's infringement of *590 the

copyright on the NSAC ad; 3) IQ is entitled to increased statutory damages forWiesner's willful infringement of the copyright on the NSAC ad; and 4) Wiesnerviolated the DMCA, 17 U.S.C. s 1202, with regard to both the Capital Care and

NSAC ads.

ANALYSIS

I. Governing Legal Standards

A. Standard for a Rule 56 Motion for Summary Judgment

Summary judgment is appropriate under FED. R. CIV. P. 56(c) when the movingparty demonstrates that there is no genuine issue of material fact and the

evidence establishes the moving party's entitlement to judgment as a matter oflaw. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91

L.Ed.2d 265 (1986); Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1366 (3dCir.1996). In making this determination, the Court must draw all reasonableinferences in favor of the non-movant. Hullett v. Towers, Perrin, Forster &

Crosby, Inc., 38 F.3d 107, 111 (3d Cir.1994); Nat'l State Bank v. Fed.Reserve Bank of N.Y., 979 F.2d 1579, 1581 (3d Cir.1992).

Once the moving party has satisfied its initial burden, the party opposingthe motion must establish that a genuine issue as to a material fact exists.

Jersey Cent. Power & Light Co. v. Lacey Township, 772 F.2d 1103, 1109 (3dCir.1985). The party opposing the motion for summary judgment cannot rest on

mere allegations and instead must present actual evidence that creates agenuine issue as to a material fact for trial. Anderson v. Liberty Lobby,Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Siegel

Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir.1995)."[U]nsupported allegations ... and pleadings are insufficient to repel summary

judgment." Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3dCir.1990); see also FED. R. CIV. P. 56(e) (requiring nonmoving party to "set

forth specific facts showing that there is a genuine issue for trial").

If the nonmoving party has failed "to make a showing sufficient to establishthe existence of an element essential to that party's case, and on which that

party will bear the burden of proof at trial, ... there can be 'no genuineissue of material fact,' since a complete failure of proof concerning an

essential element of the nonmoving party's case necessarily renders all otherfacts immaterial." Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3dCir.1992) (quoting Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548). In

determining whether there are any issues of material fact, the Court mustresolve all doubts as to the existence of a material fact against the moving

party and draw all reasonable inferences-including on issues of credibility-infavor of the non-moving party. Watts v. Univ. of Del., 622 F.2d 47, 50 (3d

Cir.1980).

II. Defendant's Motion for Summary Judgment

A. Plaintiff's Maximum Entitlement to Statutory Damages

In the Complaint, pursuant to Count 4, IQ seeks the greater of actualdamages or statutory damages for copyright infringement. The parties do notdispute that Plaintiff has subsequently elected to seek statutory damages forcopyright infringement under 17 U.S.C. s 504(c)(1). The parties also agree

that Plaintiff is not entitled to statutory damages in regard to the CapitalCare ad. Wiesner asks the Court to determine simply whether Plaintiff is

entitled to one or multiple statutory damage awards if infringement of the NSACad is proven, under 17 U.S.C. s 504(c). Wiesner contends that only one awardof statutory damages is available under this statute. IQ does not address the

question of number in its responsive brief, which *591 argues only that it isentitled to statutory damages under 17 U.S.C. s 504(c). In the Complaint, IQ

seeks statutory damages "for each E-mail sent by the defendants in violation of17 U.S.C. s 1202," but does not quantify its request for damages under 17

U.S.C. s 504(c) as to each email. (Compl.9.) Because IQ takes no position asto how many damage awards it seeks, there may be no controversy between the

parties on this matter.

[1] Wiesner asks the Court for summary judgment on a question that isspeculative rather than the subject of a live dispute. The Constitutionrequires that a "case or controversy" be before a court; judgment on a

hypothetical issue is advisory, and federal courts may not render advisoryopinions. Herb v. Pitcairn, 324 U.S. 117, 126, 65 S.Ct. 459, 89 L.Ed. 789(1945) ("We are not permitted to render an advisory opinion.") Wiesnerimplicitly acknowledges the advisory nature of the relief sought here in

stating that this motion is "in order to assist the parties in a propervaluation of this case." (Def.'s Br. Supp. S.J. 16.)

Alternatively, issues of damages are not ready for resolution before thepredicate infringement has been determined: under 17 U.S.C. s 504, only an

infringer is liable for damages, and there has been no judgment ofinfringement.

Summary judgment on this question is denied, as the issue is not ripe forconsideration.

B. Plaintiff's DMCA Claim

Pursuant to Count 4 of the Complaint, IQ alleges that Wiesner violated theDMCA, 17 U.S.C. s 1202. The parties do not dispute that, in reproducing and

distributing the NSAC and Capital Care ads, Wiesner removed the IQ logo and the"Legal Notice" hyperlink. IQ claims that this constitutes actionable 1)removal of copyright management information under s 1202(b)(1); 2)

distribution of false copyright management information under s 1202(a)(2); 3)distribution of copyright management information knowing that the copyright

management information has been removed, under s 1202(b)(2); and 4)distribution of copies of works knowing that the copyright management

information has been removed, under s 1202(b)(3). Wiesner argues that thelogo and hyperlink cannot fall within the scope of the statute, as set out in17 U.S.C. s 1202(c), and asks the Court to rule on this as a matter of law.

The DMCA provision at issue, 17 U.S.C. s 1202(c), defines "copyrightmanagement information" in eight categories. IQ contends that the logo fallswithin category 2 ("[t]he name of, and other identifying information about, the

author of a work"), category 3 ("[t]he name of, and other identifyinginformation about, the copyright owner of the work"), and category 7

("[i]dentifying numbers or symbols referring to such information or links tosuch information"). IQ contends as well that the hyperlink falls within

categories 3 and 7, and that the hyperlink points to a website containinginformation falling within category 6 ("[t]erms and conditions for use of the

work").

Wiesner asks the Court to rule, as a matter of law, that a logo cannotconstitute copyright management information, as defined by 17 U.S.C. s 1202(c).

IQ does not argue that the logo is a name, but that it is identifyinginformation about a name of an author or copyright owner, as well as anidentifying symbol. IQ provides no legal authority for its propositions.

IQ's arguments that the logo and hyperlink are within the scope of s 1202fail for two reasons. First, as to the logo, IQ's position impermissibly

blurs the distinction between trademark law and copyright law. Second,properly interpreted, s 1202 does *592 not apply to either the logo or the

hyperlink, under these facts.

1. The DMCA in the framework of trademark and copyright law

[2] In effect, IQ asks this Court to construe the DMCA so as to allow a

logo, functioning as a service mark, to come within the definition of copyrightmanagement information which, by operation of the DMCA, would act to protect

the copyright of its owner. This construction of the DMCA would allowtrademarks to invoke DMCA provisions meant to protect copyrights. As

discussed infra, this turns the DMCA into a species of mutanttrademark/copyright law, blurring the boundaries between the law of trademarks

and that of copyright. There is no evidence that Congress intended such anextreme outcome in enacting the DMCA.

A logo, to the extent that it communicates source-distinguishing informationabout whatever it is attached to, operates as a trademark or service mark. As

IQ appears to use its logo to indicate itself as the source of the advertisingservices it provides, it would operate as a service mark. The Lanham Act

defines a service mark as "any word, name, symbol, or device, or anycombination thereof ... used ... to identify and distinguish the services of

one person, including a unique service, from the services of others and toindicate the source of the services, even if that source is unknown." 15

U.S.C. s 1127. Under this definition, the mark identifies the services so asto distinguish them from those of others, but merely indicates the source.

Looking only at the literal language of the statute, IQ's construction isnot implausible: a logo in an email, to the extent that it operates as a

trademark or service mark, could communicate information that indicates thesource of the email. It is a symbol that refers to identifying information,

so a very broad interpretation of s 1202(c) might conceivably include a logo.The problem is that this construction allows a trademark to invoke DMCAprotection of copyrights, eliminating the differentiation of trademark from

copyright that is fundamental to the statutory schemes. If every removal oralteration of a logo attached to a copy of a work gives rise a cause of action

under the DMCA, the DMCA becomes an extension of, and overlaps with, trademarklaw.

The Supreme Court cautioned against blurring the boundaries betweentrademark law and copyright law in Dastar Corp. v. Twentieth Century Fox Film

Corp., 539 U.S. 23, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003). In Dastar,Twentieth Century Fox argued for an interpretation of the Lanham Act that wouldhave established a cause of action under trademark law for "misrepresentation

of authorship of noncopyrighted works." Id. at 35, 123 S.Ct. 2041. TheCourt reasoned that this would cause an overlap with copyright law and rejected

it: "The problem with this argument according special treatment tocommunicative products is that it causes the Lanham Act to conflict with the

law of copyright, which addresses that subject specifically....Thus, inconstruing the Lanham Act, we have been careful to caution against misuse or

over-extension of trademark and related protections into areas traditionallyoccupied by patent or copyright." Id. at 33-34, 123 S.Ct. 2041. The Court

warned that disregarding the trademark/copyright law distinction "would createa species of mutant copyright law." Id. at 34, 123 S.Ct. 2041.

Here, IQ argues for an interpretation of copyright law that, similarly,would make the two legal schemes overlap. But rather than an interpretationof the Lanham Act, as in Dastar, IQ here seeks an interpretation of the DMCA

that would blur the *593 boundaries between copyright and trademark.Following Dastar, this Court rejects this argument.

Furthermore, "intellectual property owners should not be permitted torecategorize one form of intellectual property as another." Chosun Int'l v.

Chrisha Creations, Ltd., 413 F.3d 324, 328 (2d Cir.2005). Although IQ has notargued that the logo is a service mark, logos are usually considered to invoketrademark protection, not copyright protection. IQ should not be permitted to

recategorize its mark so as to invoke copyright protection.

If this Court were to recategorize the mark so as to invoke copyrightprotection, it would lead to another problem: Wiesner observes that the

original ads contained not only the IQ logo, but the logos for NSAC and CapitalCare as well. Following IQ's argument, these logos could serve as copyright

information as well. We could end up with a document with conflictingcopyright information. IQ's argument could lead to absurd results.

2. The DMCA: Statutory Interpretation of s 1202

The statutory interpretation of s 1202 is a matter of first impression, asno courts have reported cases addressing the definition of "copyright

management information." In the reported cases involving s 1202, courts havedenied application of the statute based on failure to prove the knowledge orintent requirements for violation. See Ward v. Nat'l Geographic Soc'y, 208

F.Supp.2d 429, 449 (S.D.N.Y.2002); Schiffer Publ'g, Ltd. v. Chronicle Books,LLC, 2004 WL 2583817, 2004 U.S. Dist. LEXIS 23052 (E.D.Pa.2004); Kelly v.

Arriba Soft Corp., 77 F.Supp.2d 1116, 1122 (C.D.Cal.1999).

The text of s 1202 appears to define "copyright management information"quite broadly, to the point that the section, read literally, applies wherever

any author has affixed anything that might refer to his or her name.Examination of the legislative history, as well as extrinsic sources, however,

shows that the statute should be subject to a narrowing interpretation.

[3] Law professor Julie E. Cohen has written widely on the DMCA and oncopyright management information. See generally Julie E. Cohen, Copyright and

The Jurisprudence of Self-Help, 13 Berkeley Tech. L.J. 1089 (1998). Cohenexplains that, traditionally, authors have relied on copyright law to define

and protect their legal rights. Now, however, new technologies can controlaccess to works, such that technology attached to the work itself defines andprotects the legal rights of the copyright owner. The DMCA directly protects

not the copyrights, but the technological measures that protect the copyrights.In Cohen's view, copyright management information ("CMI") is limited tocomponents of such technological measures.FN1 This central insight is

confirmed by examination of the history of s 1202.

FN1. See also Julie E. Cohen, A Right to Read Anonymously: A Closer Look at "Copyright Management" in Cyberspace, 28 Conn. L.Rev. 981, 984 (1996)

("new digital monitoring and metering technologies define the burgeoning field of 'copyright management' ").

It is frequently stated that Congress enacted the DMCA in order to implementthe World Intellectual Property Organization ("WIPO") Copyright Treaty and the

WIPO Performances and Phonograms Treaty. H.R.Rep. No. 105-551 (1998). It istrue that enactment of the DMCA brought United States copyright law intocompliance with these treaties. Id. Thus, the WIPO treaties are useful in

understanding s 1202.

The WIPO treaties mandated protection of copyright management information.*594 According to Severine Dusollier, WIPO protected CMI as part of "a double

protection for technical measures." S. Dusollier, Some Reflections onCopyright Management Information and Moral Rights, 25 Colum. J.L. & Arts 377,382 (2003). In the framework of the WIPO treaties, technical measures such as

CMI are components of automated copyright protection systems: "As digitalidentification systems and other technologies that enable the marking andprotection of works have started to develop, rightholders have feared that

these technological tools might themselves be cracked by other technologies ormachines, or that they might be easily modified or removed." Id. The WIPO

treaties, and hence the DMCA, protect CMI so as to protect the technologicalmeasures of copyright protection themselves. This echoes the understanding of

the DMCA expressed by Cohen, supra.

Although many view the DMCA as implementing the WIPO treaties, in fact, ss1201 and 1202 were drafted prior to the treaties. President Clinton

established the Information Infrastructure Task Force in 1993 with the mandateto develop comprehensive information technology policies and programs that

would promote the development of the national information infrastructure("NII"). The Working Group on Intellectual Property Rights, Intellectual

Property and the National Information Infrastructure, executive summary (1995)."The Working Group on Intellectual Property Rights was established within the

Information Infrastructure Task Force to examine the intellectual propertyimplications of the NII and make recommendations on any appropriate changes to

U.S. intellectual property law and policy." Id. The Working Group heldextensive hearings and wrote the Report of the Working Group on Intellectual

Property Rights, just cited.

Released in September, 1995, and known as the "White Paper," the Reportpresented a draft of ss 1201 and 1202, and discussed the rationale for these

sections:

Systems for managing rights in works are being contemplated in the development of the NII. These systems will serve the functions of tracking and monitoring uses of copyrighted works as well as licensing of rights and indicating attribution, creation and ownership interests. A combination of

file- and system-based access controls using encryption technologies, digital signatures and steganography FN2 are, and will continue to be, employed by owners of works to address copyright management concerns. Such security

measures must be carefully designed and implemented to ensure that they not only effectively protect the owner's interests in the works but also do not

unduly burden use of the work by consumers or compromise their privacy. And measures should be studied to ensure that systems established to serve these

functions are not readily defeated.

FN2. As explained in the Report, steganography is digital watermarking. (Id. 188.)

To implement these rights management functions, information will likely be included in digital versions of a work (i.e., copyright management

information) to inform the user about the authorship and ownership of a work (e.g., attribution information) as well as to indicate authorized uses of the work (e.g., permitted use information). For instance, information may be

included in an "electronic envelope" containing a work that provides information regarding authorship, copyright ownership, date of creation or

last modification, and terms and conditions of authorized uses. As measures for this purpose become incorporated at lower levels (e.g., at the operating

system level), such information may *595 become a fundamental component of a file or information object.

Once information such as this is affiliated with a particular information object (e.g., data constituting the work) and readily accessible, users will

be able to easily address questions over licensing and use of the work. For example, systems for electronic licensing may be developed based on the

attribution or permitted use information associated with an information object.

(Id. 191-192.)

The White Paper understood "copyright management information" to beinformation about authorship, ownership, and permitted uses of a work that is

included in digital versions of the work so as to implement "rights managementfunctions" of "rights management systems." Such systems are conceived of as

electronic and automated within the environment of a computer network.

As a model rights management system, the White Paper points to the Libraryof Congress' Electronic Copyright Management System, as described in R.E. Kahn,

Deposit, Registration and Recordation in an Electronic Copyright ManagementSystem, Proceedings of Technical Strategies for Protecting Intellectual

Property in the Networked Multimedia Environment, Interactive Multimedia Assoc.(Jan.1994). This paper describes the operation of an automated rights

management system within a computer network environment. This system wouldautomate the process of granting usage rights online, providing "automatedrights clearance ... which would accelerate permissions and royalty transfers

between users and rightsholders." Id. This could produce the "effect ofcreating an instant electronic marketplace for such information." Id.

The White Paper demonstrates that the Working Group on Intellectual PropertyRights, in drafting s 1202, understood this section to protect the integrity of

automated copyright management systems functioning within a computer networkenvironment. This interpretation is confirmed by contemporaneous commentary:

The prerequisite to enforcement on the information superhighway is the ability to discover incidents of electronic infringement and identify the

person(s) responsible. One step in this direction is the development of methods for the authentication and identification of copyrighted works transmitted over the information superhighway... The use of copyright identification information will be to no avail, however, if sophisticated infringers simply alter or destroy this information. Recognizing this

problem, the Working Group recommends, as part of its proposal to add a new chapter 12 to the Copyright Act, a provision that would prohibit and impose

criminal penalties for the fraudulent use, removal, or alteration of copyright management information.

Jessica R. Friedman, A Lawyer's Ramble Down the Information Superhighway:Copyright, 64 Fordham L.Rev. 705, 719 (1995).

The draft legislation presented in the White Paper was introduced in bothhouses of Congress immediately upon its release as the "The National

Information Infrastructure Copyright Protection Act" ("NIICPA"). See Julie E.Cohen, A Right to Read Anonymously: A Closer Look at "Copyright Management" inCyberspace, 28 Conn. L.Rev. 981, 989 (1996). As Congress developed the DMCA,

the NIICPA was incorporated into it. Sections 1201 and 1202 underwent nosignificant revision between drafting in 1995 and enactment in 1998 under

section 103 of the DMCA, Public Law 105-304.

The Congressional committees which considered the DMCA published a number*596 of reports on the Act relevant to ss 1201 and 1202. There is little

discussion, however, of s 1202. The Senate Committee Report provides thiscommentary:

Rights management information is "information which identifies the work, the author of the work, the owner of any right in the work, or information about the terms and conditions of use of the work ... which is attached to a copy of a work or appears in connection with communication of the work to the

public." Art. 12. Rights management information is more commonly referred to in the U.S. as copyright management information (CMI). The purpose of

CMI is to facilitate licensing of copyright for use on the Internet and to discourage piracy.

Copyright Management Information (CMI) is an important element in establishing an efficient Internet marketplace in copyrighted works free from

governmental regulation. Such information will assist in tracking and monitoring uses of copyrighted works, as well as licensing of rights and

indicating attribution, creation and ownership.

Under the bill, CMI includes such items as the title of the work, the author, the copyright owner, and in some instances, the writer, performer, and

director. CMI need not be in digital form, but CMI in digital form is expressly included.

S.Rep. No. 105-190 (1998). Viewed alone, this gives only a vague idea asto what copyright management information is and how it functions. It is,

however, consistent with the understanding established supra, as it emphasizesthe role of such information in facilitating licensing on the Internet,

discouraging piracy, and establishing an efficient Internet marketplace.There is nothing to suggest that the Senate Committee understood s 1202differently from the Working Group, as protecting the integrity of automated

copyright management systems functioning within a computer network environment.

Similarly, the House Committee stated: "A new 'Section 1202' to theCopyright Act is required by both WIPO Treaties to ensure the integrity of the

electronic marketplace by preventing fraud and misinformation." H.R.Rep. No.105-551 (1998). This committee report, in addressing a different DMCA

section, states: "It may, in appropriate circumstances include the absence ofcustomary indicia of ownership or authorization, such as a standard and

accepted digital watermark or other copyright management information." Id.This shows that Congress viewed a digital watermark as an example of copyright

management information.

One company that performs digital watermarking provides this definition:"digital watermarking technologies allow users to embed into audio, images,

video and printed documents a digital code that is imperceptible during normaluse but readable by computers and software." Digimarc, About Digital

Watermarking, http://www.digimarc.com/watermark/about/ (last visited Dec. 20,2005). Again, these references show an understanding of s 1202 and copyrightmanagement information as involving automated copyright management systems

functioning within a computer network environment.

The legislative history is otherwise helpful in showing how Congressunderstood the DMCA as a whole. The committee reports show that Congress

intended the DMCA to apply to "electronic commerce" and the "electronicmarketplace" (H.R.Rep. No. 105-551 (1998)) and to "digital networks" (S.Rep.No. 105-190 (1998)). Furthermore, the reports show that Congress viewed ss

1201 and 1202 together as preventing circumvention of the "technologicalmeasures" referred to in s 1201: "Subsection (a) of Section 103 *597 thus

amends title 17 to establish this new Chapter 12 to the Copyright Act toprotect against certain acts of circumvention of technological measures

employed by copyright owners to defend against unauthorized access to orcopying of their works." Staff of H. Comm. on the Judiciary, 105th Cong.,

Section-by-Section Analysis of H.R. 2281 as Passed by the United States Houseof Representatives on August 4, 1998 (Comm. Print 1998).

This interpretation of s 1202 makes sense additionally because it fits s1201 with s 1202, and with chapter 12 as a whole. The language of s 1201

expressly states that it concerns the circumvention of a "technologicalmeasure" which either "effectively controls access to a work" or "effectivelyprotects a right of a copyright owner." These two provisions are sections

within a common chapter (chapter 12, "Copyright Protection and Management

Systems") and are the two provisions covered by the remedies and penaltyprovisions of ss 1203 and 1204. Chapter 12, as a whole, appears to protect

automated systems which protect and manage copyrights. The systems themselvesare protected by s 1201 and the copyright information used in the functioning

of the systems is protected in s 1202.

This interpretation fits well with statements in the legislative historyabout the historical context of the DMCA. Congress intended the DMCA tomodernize copyright protection as a response to the development of new

technologies which both enabled new forms of copyright protection as well asnew forms of copyright infringement. As observed by Cohen and discussedsupra, traditionally, the rights of authors have been managed by people, who

have controlled access and reproduction. Through scientific advances, we nowhave technological measures that can control access and reproduction of works,

and thereby manage the rights of copyright owners and users. Section 1202operates to protect copyright by protecting a key component of some of these

technological measures. It should not be construed to cover copyrightmanagement performed by people, which is covered by the Copyright Act, as itpreceded the DMCA; it should be construed to protect copyright management

performed by the technological measures of automated systems.

[4] Under this interpretation of s 1202, this Court must determine whetherthe information removed by Wiesner from the NSAC and Capital Care ads

functioned as a component of an automated copyright protection or managementsystem. IQ has presented no evidence on this matter that creates a genuine

issue as to a material fact for trial. This Court finds no genuine issue asto a material fact and therefore Wiesner is entitled to judgment as a matter of

law.

Although the advertisements were sent via email, and thus likely copied anddistributed as part of an automated process within a computer network

environment, this does not bring the information removal within s 1202. Tocome within s 1202, the information removed must function as a component of anautomated copyright protection or management system. IQ has not alleged that

the logo or the hyperlink were intended to serve such a function. Rather, tothe extent that they functioned to protect copyright at all, they functioned to

inform people who would make copyright management decisions. There is noevidence that IQ intended that an automated system would use the logo or

hyperlink to manage copyrights, nor that the logo or hyperlink performed such afunction, nor that Wiesner's actions otherwise impeded or circumvented the

effective functioning of an automated copyright protection system.

*598 Because the IQ logo removed by Wiesner did not function as a componentof an automated copyright protection or management system, it does not fall

within the definition of "copyright management information" in 17 U.S.C. s1202(c). With regard to the IQ logo in the NSAC and Capital Care ads, Wiesner

has not violated any part of 17 U.S.C. s 1202.

IQ also claims that Wiesner violated s 1202 by removal of the hyperlink.Provision s 1202(c)(7) expressly protects links. Under this Court's

interpretation of s 1202, this Court must determine whether the informationremoved by Wiesner functioned as a component of an automated copyright

protection or management system. IQ has presented no evidence on this matterthat creates a genuine issue as to a material fact for trial. This Court

finds no genuine issue as to a material fact and therefore Wiesner is entitledto judgment as a matter of law. Because the hyperlink removed by Wiesner did

not function as a component of an automated copyright protection or managementsystem, it does not fall within the definition of "copyright management

information" in 17 U.S.C. s 1202(c). With regard to the hyperlink in the NSACand Capital Care ads, Wiesner has not violated any part of 17 U.S.C. s 1202.

Count 4 of the Complaint states a cause of action against Wiesner forviolation of the DMCA, 17 U.S.C. s 1202. This Court grants summary judgment

in favor of Defendant Wiesner on Count 4. Plaintiff's motion for summaryjudgment on Count 4 is denied.

III. Plaintiff's Motion for Summary Judgment

A. Plaintiff's Motions Regarding Copyright Infringement Under the Copyright Act

[5] Plaintiff moved for summary judgment as to infringement of the copyrighton the NSAC ad, as to its entitlement to statutory damages for this

infringement, and as to its entitlement to statutory damages for willfulinfringement of this copyright. The issues of entitlement to statutory

damages require, as a predicate, a determination of copyright infringement."The elements of a copyright infringement action are (1) ownership of a validcopyright and (2) copying by the alleged infringer." Masquerade Novelty v.

Unique Indus., 912 F.2d 663, 667 (3d Cir.1990).

[6] In response, Wiesner points to the evidence submitted by Defendant NSACin support of the claim that IQ's copyright on the NSAC ad is invalid. (Def.'s

Reply Br. 5.) "[A] plaintiff's knowing failure to advise the Copyright Officeof facts which might have led to the rejection of a registration applicationconstitutes grounds for holding the registration invalid and incapable of

supporting an infringement action." Masquerade, 912 F.2d at 667. NSAC hasargued that Alan Mott is the true author and owner of the NSAC ad and that IQobtained its registration by fraud. (NSAC Br. Supp. S.J. 13.) Wiesner points

as well to the affidavit of Alan Mott in which he declares his authorship ofthe NSAC ad. (Mott Aff. P 15.)

[7][8] IQ argues that its copyright registration is prima facie evidence ofthe validity of the copyright. While true, this does no more than create a

rebuttable presumption in its favor. Educational Testing Services v. Katzman,793 F.2d 533, 538 (3d Cir.1986). The prima facie presumption of validity does

not entitle IQ to summary judgment in the face of a genuine issue as to amaterial fact that could rebut that presumption. Wiesner has pointed outactual evidence before this Court that creates a genuine issue as to the

material fact of authorship, and thus the validity of the copyrightregistration, for trial. IQ's argument that a legal presumption operates inits favor does not *599 nullify the existence of this genuine issue as to a

material fact. Plaintiff's motion for summary judgment as to infringement ofthe copyright on the NSAC ad, as to its entitlement to statutory damages for

this infringement, and as to its entitlement to statutory damages for willfulinfringement of this copyright, is denied.

CONCLUSION

For the foregoing reasons, this Court grants Defendant Wiesner's motion forsummary judgment, pursuant to Count 4 of the Complaint, for violations of 17U.S.C. s 1202; Wiesner has not violated 17 U.S.C. s 1202. Plaintiff's motion

for summary judgment as to violations of 17 U.S.C. s 1202 is denied.Wiesner's motion for summary judgment as to Plaintiff's maximum entitlement to

statutory damages is denied. Plaintiff's motion for summary judgment oninfringement of the copyright on the NSAC ad, and entitlement to statutory

damages for any such copyright infringement, is denied.

D.N.J.,2006.

IQ Group, Ltd. v. Wiesner Pub., LLC

409 F.Supp.2d 587, 2006 Copr.L.Dec. P 29,111, 78 U.S.P.Q.2d 1755

END OF DOCUMENT



C.D. California.

Leslie A. KELLY, et al., Plaintiff,

v.

ARRIBA SOFT CORP., et al., Defendants.

No. SACV99560GLT[JW].

Dec. 15, 1999.

Owner of copyrighted images displayed on Internet web sites sued operator ofvisual search engine for copyright infringement. On cross-motions for summary

judgment, the District Court, Taylor, J., held that: (1) defendant's use ofcopyrighted images was fair use, and (2) defendant did not violate Digital

Millennium Copyright Act (DMCA).

Plaintiff's motion denied; defendant's motion granted.

West Headnotes



99I Copyrights

99I(J) Infringement



In order to show copyright infringement, plaintiff must show ownership ofvalid copyright and invasion of one of the exclusive rights of copyright

holders. 17 U.S.C.A. s 106.



99I Copyrights

99I(J) Infringement


99k53.2 k. Fair use and other permitted uses in general.

Most Cited Cases

Copyrights and Intellectual Property 99 k 83(1)


99I Copyrights

99I(J) Infringement

99I(J)2 Remedies


99k83 Evidence

99k83(1) k. Presumptions and burden of proof.Most Cited Cases

Fair use is affirmative defense to claim of copyright infringement, anddefendant carries burden of proof on the issue. 17 U.S.C.A. s 107.



99I Copyrights

99I(J) Infringement



(Formerly 99k64)

Prima facie copyright violation caused by Internet visual search engine'suse of copyrighted images from another's web sites was justified under fair use

doctrine; purpose and character of use was significantly transformative andcopyright owner suffered no market harm from use. 17 U.S.C.A. s 107.



99I Copyrights

99I(J) Infringement



(Formerly 99k64)

Internet visual search engine's display of copies of copyrighted images fromanother's web sites without copyright management information did not violate

Digital Millennium Copyright Act (DMCA); search engine users were warned aboutpossibility of use restrictions on images in its index, and were instructed to

check with originating web sites before copying and using those images. 17

U.S.C.A. s 1202(b)(3).

*1116 Steven L. Krongold, Krongold Law Firm, Costa Mesa, CA, for Plaintiffs.

Judith Bond Jennison, Perkins Coie LLP, Menlo Park, CA, for Defendants.

ORDER ON CROSSMOTIONS FOR PARTIAL SUMMARY JUDGMENT

TAYLOR, District Judge.

On apparent first impression, the Court holds the use by an Internet "visualsearch engine" of others' copyrighted images is a prima facie copyrightviolation, but it may be justified under the "fair use" doctrine. The Courtfinds that, under the particular circumstances of this case, the "fair use"*1117 doctrine applies, and the Digital Millennium Copyright Act is not

violated.

Defendant's Motion for Partial Summary Judgment on Plaintiff's First andSecond Claims for Relief is GRANTED. Plaintiff's Motion for Partial Summary

Judgment is DENIED.

I. BACKGROUND

Defendant Ditto (formerly known as Arriba) operates a "visual search engine"on the Internet. Like other Internet search engines, it allows a user to obtaina list of related Web content in response to a search query entered by theuser. Unlike other Internet search engines, Defendant's retrieves images

instead of descriptive text. It produces a list of reduced, "thumbnail"pictures related to the user's query.

During the period when most of the relevant events in this case occurred,Defendant's visual search engine was known as the Arriba Vista Image Searcher.

By "clicking" on the desired thumbnail, an Arriba Vista user could view the"image attributes" window displaying the full-size version of the image, adescription of its dimensions, and an address for the Web site where it

originated.FN1 By clicking on the address, the user could link to theoriginating Web site for the image.FN2

FN1. This full-size image was not technically located on Defendant's Web site. It was displayed by opening a link to its originating Web page. But

only the image itself, and not any other part of the originating Web page, was displayed on the image attributes page. From the user's

perspective, the source of the image matters less than the context in which it is displayed.

FN2. Defendant's current search engine, ditto.com, operates in a slightly different manner. When a ditto.com user clicks on a thumbnail, two

windows open simultaneously. One window contains the full-size image; the other contains the originating Web page in full.

Ditto's search engine (in both of its versions) works by maintaining anindexed database of approximately two million thumbnail images. These

thumbnails are obtained through the operation of Ditto's "crawler," a computerprogram that travels the Web in search of images to be converted into

thumbnails and added to the index.FN3 Ditto's employees conduct a finalscreening to rank the most relevant thumbnails and eliminate inappropriate

images.

FN3. Images are briefly stored in full on Defendant's server until the thumbnail is made; they are then deleted. Joint Stip. P 32. There is no

claim that Defendant provides any access to the full-sized images during this period.

Plaintiff Kelly is a photographer specializing in photographs of Californiagold rush country and related to the works of Laura Ingalls Wilder. He does not

sell the photographs independently, but his photographs have appeared inseveral books. Plaintiff also maintains two Web sites, one of which

(www.goldrush1849.com) provides a "virtual tour" of California's gold rushcountry and promotes Plaintiff's book on the subject, and the other

(www.showmethegold.com) markets corporate retreats in California's gold rushcountry.

In January 1999, around thirty five of Plaintiff's images were indexed bythe Ditto crawler and put in Defendant's image database. As a result, these

images were made available in thumbnail form to users of Defendant's visualsearch engine.

After being notified of Plaintiff's objections, Ditto removed the imagesfrom its database, though due to various technical problems some of the imagesreappeared a few times. Meanwhile Plaintiff, having sent Defendant a notice of

copyright infringement in January, filed this action in April. Plaintiff arguesits copyrights in the images were infringed by Defendant's actions and alsoalleges Defendant violated the Digital Millennium Copyright Act (DMCA) byremoving or altering the copyright management information associated with

Plaintiff's images.FN4

FN4. Defendant's request for judicial notice of a Nature article, and Plaintiff's objection to the request, are both inappropriate. The parties

have already included this article as Exhibit 5 to their Joint Stipulation of Facts.

*1118 II. DISCUSSION

These cross motions for summary adjudication present two questions of firstimpression. The first is whether the display of copyrighted images by a "visual

search engine" on the Internet constitutes fair use under the Copyright Act.The second is whether the display of such images without their copyright

management information is a violation of the Digital Millennium Copyright Act.

Summary judgment is proper if there is no genuine issue of fact and themoving party is entitled to a judgment as a matter of law. Fed.R.Civ.Proc.56(c). If no material historical facts are disputed, the ultimate conclusion tobe drawn on the issue of "fair use" is for the Court and not a jury. Harper &

Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 105 S.Ct. 2218, 85L.Ed.2d 588 (1985); Fisher v. Dees, 794 F.2d 432, 436 (9th Cir.1986).

A. Fair Use

[1] In order to show copyright infringement, Plaintiff must show ownershipof a valid copyright and invasion of one of the exclusive rights of copyright

holders. 17 U.S.C. s 106. Defendant does not dispute the validity ofPlaintiff's copyrights or his ownership of them. Defendant also does notdispute it reproduced and displayed Plaintiff's images in thumbnail form

without authorization. Plaintiff thus has shown a prima facie case of copyrightinfringement unless the fair use doctrine applies.

"Fair use" is a limitation on copyright owners' exclusive right "to

reproduce the copyrighted work in copies." 17 U.S.C. s 106(1). It is codifiedat 17 U.S.C. s 107, which provides:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or

phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple

copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular

case is a fair use the factors to be considered shall include-

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

[2] Fair use is an affirmative defense, and defendants carry the burden ofproof on the issue. American Geophysical Union v. Texaco Inc., 60 F.3d 913,

918 (2d Cir.1995); Columbia Pictures Ind. v. Miramax Films Corp., 11 F.Supp.2d1179, 1187 (C.D.Cal.1998) ("[b]ecause fair use is an affirmative defense,Defendants bear the burden of proof on all of its factors"). Based on an

analysis of the factors, the Court finds there is fair use here.

1. Purpose and Character Of The Use

The first factor considers the nature of the use, including whether the useis commercial or educational. This, however, does not end the inquiry.

"Purpose and character" also involve an assessment of whether "the new workmerely supersedes the objects of the original creation, or instead adds

something new, with a further purpose or different character, altering thefirst with new expression, meaning, or message; it asks, in other words,

whether and to what extent the new work is transformative." Campbell v.Acuff-Rose Music, 510 U.S. 569, 579, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994)

(citation omitted). "[T]he more transformative the new work, the less will bethe significance of other *1119 factors, like commercialism, that may weigh

against a finding of fair use." Id. at 579, 114 S.Ct. 1164.

There is no dispute Defendant operates its Web site for commercial purposes.Plaintiff's images, however, did not represent a significant element of that

commerce, nor were they exploited in any special way.FN5 They were reproducedas a result of Defendant's generally indiscriminate method of gathering images.Defendant has a commercial interest in developing a comprehensive thumbnail

index so it can provide more complete results to users of its search engine.The Ditto crawler is designed to obtain large numbers of images from numeroussources without seeking authorization.FN6 Plaintiff's images were indexed as aresult of these methods. While the use here was commercial, it was also of asomewhat more incidental and less exploitative nature than more traditional

types of "commercial use." FN7

FN5. The use in this case is commercial, but it is unusual and less serious than many other commercial uses. If, for example, Plaintiff's

images were used without authorization in advertising for Defendant's Web site, a finding of fair use would be much less likely.

FN6. The parties argue at length about the possibility of blocking the Ditto crawler from a Web site by use of a "robots.txt" file or other

methods. Defendant posted instructions on its Web site for blocking the Ditto crawler in March, after Plaintiff's images had already been

indexed. Plaintiff's Web sites have never used any of these blocking methods. Joint Stip. P 34.

The Ditto crawler has, in the past, apparently visited sites that were supposed to be blocked. Plaintiff argues this is evidence of bad faith

by Defendant and suggests the fair use defense should as a result be precluded. The record shows Defendant made efforts to correct problems

of this sort when it became aware of them, and did not act in bad faith.

FN7. Defendant also sought to promote a now-discontinued software product called Arriba Express. Arriba Express allowed users to "vacuum" an entire

originating Web site and store it on their computers simply by pointing at a thumbnail. Joint Stip. P 45-50, Exh. 18. The images would be stored

along with all content from the originating Web site. Arriba Express served a function related to that of the search engine, and Defendant's

promotion of it represents a related type of "commercial use."

The most significant factor favoring Defendant is the transformative natureof its use of Plaintiff's images. Defendant's use is very different from the

use for which the images were originally created. Plaintiff's photographs areartistic works used for illustrative purposes. Defendant's visual search engine

is designed to catalog and improve access to images on the Internet. JointStip. PP 27-29, 32. The character of the thumbnail index is not esthetic, but

functional; its purpose is not to be artistic, but to be comprehensive.

To a lesser extent, the Arriba Vista image attributes page also served thispurpose by allowing users to obtain more details about an image. The imageattributes page, however, raises other concerns. It allowed users to view (andpotentially download) full-size images without necessarily viewing the rest ofthe originating Web page. At the same time, it was less clearly connected to

the search engine's purpose of finding and organizing Internet content forusers. The presence of the image attributes page in the old version of the

search engine somewhat detracts from the transformative effect of the searchengine. But, when considering purpose and character of use in a new enterprise

of this sort, it is more appropriate to consider the transformative purposerather than the early imperfect means of achieving that purpose. The Court

finds the purpose and character of Defendant's use was on the wholesignificantly transformative.

The Court finds the first factor weighs in favor of fair use.

2. Nature of the Copyrighted Work

The second factor in s 107 is an acknowledgment "that some works are closerto the core of intended copyright protection than others, with the consequence

that fair use is more difficult to establish when *1120 the former works arecopied." Campbell, supra 510 U.S. at 586, 114 S.Ct. 1164. Artistic works like

Plaintiff's photographs are part of that core. The Court finds the secondfactor weighs against fair use.

3. Amount And Substantiality of the Portion Used

The third fair use factor assesses whether the amount copied was "reasonable

in relation to the purpose of the copying." Id. The analysis focuses on "thepersuasiveness of a [copier's] justification for the particular copying done,and the inquiry will harken back to the first of the statutory factors, for ...

the extent of permissible copying varies with the purpose and character of theuse." Id. at 586-F87, 114 S.Ct. 1164.

In the thumbnail index, Defendant used Plaintiff's images in their entirety,but reduced them in size. Defendant argues it is necessary for a visual search

engine to copy images in their entirety so users can be sure of recognizingthem, and the reduction in size and resolution mitigates damage that might

otherwise result from copying. As Defendant has illustrated in its brief,thumbnails cannot be enlarged into useful images. Defendant's Memo of P & A, at

3. Use of partial images or images further reduced in size would make imagesdifficult for users to identify, and would eliminate the usefulness of

Defendant's search engine as a means of categorizing and improving access toInternet resources.

As with the first factor, the Arriba Vista image attributes page presents agreater problem because it displayed a full-size image separated from the

surrounding content on its originating Web page. Image attributes (e.g.dimensions and the address of the originating site) could have been displayedwithout reproducing the full-size image, and the display of the full image was

not necessary to the main purposes of the search engine.FN8

FN8. The newer search engine, ditto.com, appears to lessen this problem by eliminating the image attributes page and simultaneously opening the

originating Web page along with a full-size image.

If only the thumbnail index were at issue, Defendant's copying would likelybe reasonable in light of its purposes. The image attributes page, however, wasmore remotely related to the purposes of the search engine. The Court finds the

third factor weighs slightly against fair use.

4. Effect of the Use On The Potential Market or Value

The fourth factor inquiry examines the direct impact of the defendant's useand also considers "whether unrestricted and widespread conduct of the sortengaged in by the defendant ... would result in a substantially adverse impacton the potential market for the original." Campbell, supra, 510 U.S. at 590,

114 S.Ct. 1164 (citation omitted).

The relevant market is Plaintiff's Web sites as a whole. The photographs areused to promote the products sold by Plaintiff's Web sites (including

Plaintiff's books and corporate tour packages) and draw users to view theadditional advertisements posted on those Web sites. The fourth factor

addresses not just the potential market for a particular photo, but also its"value." The value of Plaintiff's photographs to Plaintiff could potentially be

adversely affected if their promotional purposes are undermined.

Defendant argues there is no likely negative impact because its searchengine does not compete with Plaintiff's Web sites and actually increases the

number of users finding their way to those sites.

Plaintiff argues the market for his various products has been harmed.Defendant's conduct created a possibility that some users might improperly copy

and use Plaintiff's images from Defendant's site. Defendant's search enginealso enabled users to "deep link" directly to the pages containing retrieved

images, and thereby bypass the "front page" of the originating Web site. As aresult, these users would be *1121 less likely to view all of the

advertisements on the Web sites or view the Web site's entire promotional

message. However, Plaintiff has shown no evidence of any harm or adverseimpact.

In the absence of any evidence about traffic to Plaintiff's Web sites oreffects on Plaintiff's businesses, the Court cannot find any market harm toPlaintiff. The Defendant has met its burden of proof by offering evidencetending to show a lack of market harm, and Plaintiff has not refuted thatevidence. The Court finds the fourth factor weighs in favor of fair use.

5. Conclusion-Fair Use

[3] The Court finds two of the four factors weigh in favor of fair use, andtwo weigh against it. The first and fourth factors (character of use and lack

of market harm) weigh in favor of a fair use finding because of the establishedimportance of search engines and the "transformative" nature of using reduced

versions of images to organize and provide access to them. The second and thirdfactors (creative nature of the work and amount or substantiality of copying)

weigh against fair use.

The first factor of the fair use test is the most important in this case.Defendant never held Plaintiff's work out as its own, or even engaged inconduct specifically directed at Plaintiff's work. Plaintiff's images were

swept up along with two million others available on the Internet, as part ofDefendant's efforts to provide its users with a better way to find images on

the Internet. Defendant's purposes were and are inherently transformative, evenif its realization of those purposes was at times imperfect. Where, as here, a

new use and new technology are evolving, the broad transformative purpose ofthe use weighs more heavily than the inevitable flaws in its early stages of

development.

The Court has weighed all of the s 107 factors together. The Court findsDefendant's conduct constituted fair use of Plaintiff's images. There is no

triable issue of material fact remaining to be resolved on the question of fairuse, and summary adjudication is appropriate. Defendant's motion is GRANTED and

Plaintiff's motion is DENIED as to the copyright infringement claims.

B. Digital Millennium Copyright Act

[4] Enacted on October 28, 1998, the Digital Millennium Copyright Act (DMCA)implements two earlier World Intellectual Property Organization treaties.Section 1202 of the DMCA governs "integrity of copyright management

information." FN9 Section 1202(a) prohibits falsification of copyrightmanagement information with the intent to aid copyright infringement. Section

1202(b) prohibits, unless authorized, several forms of knowing removal oralteration of copyright management information.FN10 Section 1203 creates a

federal civil action for violations of these provisions.

FN9. "Copyright management information" is defined, in relevant part, as:

[A]ny of the following information conveyed in connection with copies ... of a work ... or displays of a work, including in digital form ...:

(1) The title and other information identifying the work, including the information set forth on a notice of copyright.

(2) The name of, and other identifying information about, the author of a work.

(3) The name of, and other identifying information about, the copyright owner of the work, including the information set forth in a notice of

copyright.

17 U.S.C. s 1202(c).

FN10. Section 1202(b) provides, in relevant part,

No person shall, without the authority of the copyright owner or the law-

(1) intentionally remove or alter any copyright management information,

. . . . .

(3) distribute ... copies of works ... knowing that copyright management information has been removed or altered without authority of the

copyright owner or the law, knowing, or, with respect to civil remedies under section 1203, having reasonable grounds to know, that it will

induce, enable, facilitate, or conceal an infringement of any right under [federal copyright law].

Plaintiff argues Defendant violated s 1202(b) by displaying thumbnails of*1122 Plaintiff's images without displaying the corresponding copyrightmanagement information consisting of standard copyright notices in the

surrounding text. Joint Stip. of Facts, PP 64-69. Because these notices do notappear in the images themselves, the Ditto crawler did not include them when it

indexed the images.FN11 Id. P 70. As a result, the images appeared inDefendant's index without the copyright management information, and any users

retrieving Plaintiff's images while using Defendant's Web site would not seethe copyright management information.

FN11. There was one exception-a version of the "Shasta Rainbow" image obtained by the Ditto crawler from a third-party Web site. The copyright notice for that image was incorporated into the image itself (fine print along the edge of the picture). See Joint Stip., PP 72-73. Plaintiff's

allegations of DMCA violations are inapplicable to this image.

Section 1202(b)(1) does not apply to this case. Based on the language andstructure of the statute, the Court holds this provision applies only to theremoval of copyright management information on a plaintiff's product ororiginal work. Moreover, even if s 1202(b)(1) applied, Plaintiff has not

offered any evidence showing Defendant's actions were intentional, rather thanmerely an unintended side effect of the Ditto crawler's operation.

Here, where the issue is the absence of copyright management informationfrom copies of Plaintiff's works, the applicable provision is s 1202(b)(3). To

show a violation of that section, Plaintiff must show Defendant makes availableto its users the thumbnails and full-size images, which were copies of

Plaintiff's work separated from their copyright management information, eventhough it knows or should know this will lead to infringement of Plaintiff's

copyrights. There is no dispute the Ditto crawler removed Plaintiff's imagesfrom the context of Plaintiff's Web sites where their copyright management

information was located, and converted them to thumbnails in Defendant's index.There is also no dispute the Arriba Vista search engine allowed full-sizeimages to be viewed without their copyright management information.

Defendant's users could obtain a full-sized version of a thumbnailed imageby clicking on the thumbnail. A user who did this was given the name of the Website from which Defendant obtained the image, where any associated copyrightmanagement information would be available, and an opportunity to link there.

FN12 Users were also informed on Defendant's Web site that use restrictions and

copyright limitations may apply to images retrieved by Defendant's searchengine.FN13

FN12. Through Defendant's current search engine, ditto.com, the user can no longer open a full-sized image without also opening the site where its

copyright management information is located.

FN13. Plaintiff argues Defendant's warnings are insufficient because they do not appear with the thumbnail images on the search result pages

produced by the search engine. The Arriba Vista Web site only offered a warning if users clicked on a link to its "Copyright" page. This warning

may arguably have been placed in the wrong place to deter some potential copyright infringers. But this does not necessarily mean Defendant "knew" or "should have known" for the purposes of a DMCA violation, especially

since Plaintiff offers no evidence of any actual copyright infringement about which Defendant "should have known."

Based on all of this, the Court finds Defendant did not have "reasonablegrounds to know" it would cause its users to infringe Plaintiff's copyrights.Defendant warns its users about the possibility of use restrictions on the

images in its index, and instructs them to check with the originating Web sitesbefore copying and using those images, even in reduced thumbnail form.

Plaintiff's images are vulnerable to copyright infringement because they aredisplayed on Web sites. Plaintiff has not shown users of Defendant's site were

any more likely to infringe his copyrights, any of these users did infringe, orDefendant should reasonably have expected infringement.

*1123 There is no genuine issue of material fact requiring a trial onPlaintiff's DMCA claims, and summary adjudication is appropriate. The Court

finds there was no violation of DMCA s 1202. Defendant's motion is GRANTED andPlaintiff's motion is DENIED on the DMCA claim.

C.D.Cal.,1999.

Kelly v. Arriba Soft Corp.

77 F.Supp.2d 1116, 2000 Copr.L.Dec. P 28,014, 53 U.S.P.Q.2d 1361

END OF DOCUMENT


Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. Nos. 76649-51 August 19, 1988

20TH CENTURY FOX FILM CORPORATION, petitioner, vs.COURT OF APPEALS, EDUARDO M. BARRETO, RAUL SAGULLO and FORTUNE LEDESMA, respondents.

Siguion Reyna, Montecillo & Ongsiako Law Office for petitioner.

B.C. Salazar & Associates for respondents.

GUTIERREZ, JR., J.:

The petitioner questions the application of the constitutional provision against illegal searches and seizures to raids conducted in connection with the government's anti-film piracy campaign. The main issue hinges on whether or not the judge properly lifted the search warrants he issued earlier upon the application of the National Bureau of Investigation on the basis of the complaint filed by the petitioner.

In a letter-complaint dated August 26, 1985, petitioner 20th Century Fox Film Corporation through counsel sought the National Bureau of Investigation's (NBI) assistance in the conduct of searches and seizures in connection with the latter's anti-film piracy campaign. Specifically, the letter-complaint alleged that certain videotape outlets all over Metro Manila are engaged in the unauthorized sale and renting out of copyrighted films in videotape form which constitute a flagrant violation of Presidential Decree No. 49 (otherwise known as the Decree on the Protection of Intellectual Property).

Acting on the letter-complaint, the NBI conducted surveillance and investigation of the outlets pinpointed by the petitioner and subsequently filed three (3) applications for search warrants against the video outlets owned by the private respondents. The applications were consolidated and heard by the Regional Trial Court of Makati, Branch 132.

On September 4, 1985, the lower court issued the desired search warrants.

Armed with the search warrants, the NBI accompanied by the petitioner's agents, raided the video outlets and seized the items described therein. An inventory of the items seized was made and left with the private respondents.

Acting on a motion to lift search warrants and release seized properties filed by the private respondents, the lower court issued an order dated October 8, 1985, lifting the three (3) search warrants issued earlier against the private respondents by the court. The dispositive portion of the order reads:

WHEREFORE, the Court hereby orders that Search Warrants Nos. SW- 85-024; issued against Eduardo M. Barreto of the Junction Video, etc., Paranaque, Metro Manila; SW No. 85-025, issued against Raul M. Sagullo of South Video Bug Center, Inc., etc., also of No. 5355 Pres. Avenue BF Homes, Parañaque, Metro Manila; and SW No. 85-026, issued against Fortune A. Ledesma of Sonix Video Services of San Antonio Plaza, Forbes Park, Makati, Metro Manila, be lifted.

Consequently, the articles listed in the returns of the three search warrants which could not be a basis of any criminal prosecution, now in the possession of the National Bureau of Investigation which under the law must be delivered to this Court, but which the NBI failed to do, are hereby ordered to be returned to their owners through their lawyer, Atty. Benito Salazar or his agents or representatives, against proper receipt, to be forwarded to this Court for record purposes, as proof that said properties have been returned to the possession of the rightful owners." (p. 34, Rollo)

The lower court denied a motion for reconsideration filed by the petitioner in its order dated January 2, 1986.

The petitioner filed a petition for certiorari with the Court of Appeals to annul the October 8, 1985 and January 2, 1986 orders of the lower court. The petition was dismissed.

Hence, this petition.

The main issue hinges on the meaning of "probable cause" within the context of the constitutional provision against illegal searches and seizures (Section 3, Article IV, 1973 Constitution, now, Section 2, Article Ill, 1987 Constitution.

The petitioner maintains that the lower court issued the questioned search warrants after finding the existence of a probable cause justifying their issuance. According to the petitioner, the lower court arrived at this conclusion on the

basis of the depositions of applicant NBI's two witnesses which were taken through searching questions and answers by the lower court.

Section 2, Article III of the present Constitution which substantially reproduces Section 3, Article IV of the 1973 Constitution on illegal searches and seizures provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized.

This constitutional right protects a citizen against wanton and unreasonable invasion of his privacy and liberty as to his person, papers and effects. We have explained in the case of People v. Burgos (144 SCRA 1) citingVillanueva v. Querubin (48 SCRA 345) why the right is so important:

It is deference to one's personality that lies at the core of this right, but it could be also looked upon as a recognition of a constitutionally protected area, primarily one's home, but not necessarily thereto confined. (Cf. Hoffa v. United States, 385 US 293 119661) What is sought to be guarded is a man's prerogative to choose who is allowed entry to his residence. In that haven of refuge, his individuality can assert itself not only in the choice of who shall be welcome but likewise in the kind of objects he wants around him. There the state, however powerful, does not as such have access except under the circumstances above noted, for in the traditional formulation, his house, however humble, is his castle. Thus is outlawed any unwarranted intrusion by government, which is called upon to refrain from any invasion of his dwelling and to respect the privacies of his life. (Cf Schmerber v. California, 384 US 757 [1966], Brennan, J. and Boyd v. United States, 116 630 [1886]). In the same vein, Landynski in his authoritative work (Search and Seizure and the Supreme Court [1966]), could fitly characterize constitutional right as the embodiment of a "spiritual concept: the belief that to value the privacy of home and person and to afford its constitutional protection against the long reach of government is no less than to value human dignity, and that his privacy must not be disturbed except in case of overriding social need, and then only under stringent procedural safeguards."(ibid, p. 74).

The government's right to issue search warrants against a citizen's papers and effects is circumscribed by the requirements mandated in the searches and seizures provision of the Constitution.

In the case of Burgos, Sr. v. Chief of Staff, AFP (133 SCRA 800), we defined probable cause for a valid search "as such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched." This constitutional provision also demands "no less than personal knowledge by the complainant or his witnesses of the facts upon which the issuance of a search warrant may be justified" in order to convince the judge, not the individual making the affidavit and seeking the issuance of the warrant, of the existence of a probable cause. (Alvarez v. Court of First Instance, 64 Phil. 33; Burgos, Sr. v. Chief of Staff, AFP, supra).

In the instant case, the lower court lifted the three questioned search warrants against the private respondents on the ground that it acted on the application for the issuance of the said search warrants and granted it on the misrepresentations of applicant NBI and its witnesses that infringement of copyright or a piracy of a particular film have been committed. Thus the lower court stated in its questioned order dated January 2,1986:

According to the movant, all three witnesses during the proceedings in the application for the three search warrants testified of their own personal knowledge. Yet, Atty. Albino Reyes of the NBI stated that the counsel or representative of the Twentieth Century Fox Corporation will testify on the video cassettes that were pirated, so that he did not have personal knowledge of the alleged piracy. The witness Bacani also said that the video cassettes were pirated without stating the manner it was pirated and that it was Atty. Domingo that has knowledge of that fact.

On the part of Atty. Domingo, he said that the re-taping of the allegedly pirated tapes was from master tapes allegedly belonging to the Twentieth Century Fox, because, according to him, it is of his personal knowledge.

At the hearing of the Motion for Reconsideration, Senior NBI Agent Atty. Albino Reyes testified that when the complaint for infringement was brought to the NBI, the master tapes of the allegedly pirated tapes were shown to him and he made comparisons of the tapes with those purchased by their man Bacani. Why the master tapes or at least the film reels of the allegedly pirated tapes were not shown to the Court during the application gives some misgivings as to the truth of that bare statement of the NBI agent on the witness stand. "

Again as the application and search proceedings is a prelude to the filing of criminal cases under PD 49, the copyright infringement law, and although what is required for the issuance thereof is merely the presence of probable cause, that probable cause must be satisfactory to the Court, for it is a time- honored precept that proceedings to put a man to task as an offender under our laws should be interpreted in strictissimi juris against the government and liberally in favor of the alleged offender.

xxx xxx xxx

This doctrine has never been overturned, and as a matter of fact it had been enshrined in the Bill of Rights in our 1973 Constitution.

So that lacking in persuasive effect, the allegation that master tapes were viewed by the NBI and were compared to the purchased and seized video tapes from the respondents' establishments, it should be dismissed as not supported by competent evidence and for that matter the probable cause hovers in that grey debatable twilight zone between black and white resolvable in favor of respondents herein.

But the glaring fact is that 'Cocoon,' the first video tape mentioned in the search warrant, was not even duly registered or copyrighted in the Philippines. (Annex C of Opposition p. 152 record). So, that lacking in the requisite presentation to the Court of an alleged master tape for purposes of comparison with the purchased evidence of the video tapes allegedly pirated and those seized from respondents, there was no way to determine whether there really was piracy, or copying of the film of the complainant Twentieth Century Fox." (pp. 37-39, Rollo)

xxx xxx xxx

The lower court, therefore, lifted the three (3) questioned search warrants in the absence of probable cause that the private respondents violated P.D. 49. As found out by the court, the NBI agents who acted as witnesses did not have personal knowledge of the subject matter of their testimony which was the alleged commission of the offense by the private respondents. Only the petitioner's counsel who was also a witness during the application for the issuance of the search warrants stated that he had personal knowledge that the confiscated tapes owned by the private respondents were pirated tapes taken from master tapes belonging to the petitioner. However, the lower court did not give much credence to his testimony in view of the fact that the master tapes of the allegedly pirated tapes were not shown to the court during the application.

All these factors were taken into consideration by the lower court when it lifted the three questioned search warrants. There is no truth, therefore, to the petitioner's allegation that the lower court based its January 2, 1986 order only "on the fact that the original or master copies of the copyrighted films were not presented during the application for search warrants, thus leading it to conclude that it had been "misled by the applicant and his witnesses." (p. 17, Rollo)

The presentation of the master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their possession the pirated films. The petitioner's argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns.

The application for search warrants was directed against video tape outlets which allegedly were engaged in the unauthorized sale and renting out of copyrighted films belonging to the petitioner pursuant to P.D. 49.

The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the

purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.

Furthermore, we note that the search warrants described the articles sought to be seized as follows:

xxx xxx xxx

xxx xxx xxx

c) Television sets, Video Cassettes Recorders, rewinders, tape head cleaners, accessories, equipments and other machines used or intended to be used in the unlawful reproduction, sale, rental/lease distribution of the above-mentioned video tapes which she is keeping and concealing in the premises above-described." (p. 26, Rollo)

In the case of Burgos v. Chief of Staff, AFP supra, we stated:

xxx xxx xxx

Another factor which makes the search warrants under consideration constitutionally objectionable is that they are in the nature of general warrants. The search warrants describe the articles sought to be seized in this wise:

l] All printing equipment, paraphernalia, paper, ink, photo equipment, typewriters, cabinets, tables communications/recording equipment, tape recorders, dictaphone and the like used and/or connected in the printing of the 'WE FORUM' newspaper and any and all document/communications, letters and facsimile of prints related to "WE FORUM" newspaper.

2] Subversive documents, pamphlets, leaflets, books, and other publications to promote the objectives and purposes of the subversive organizations known as Movement for Free Philippines, Light-a-Fire Movement and April 6 Movement; and

3] Motor vehicles used in the distribution/circulation of the 'WE FORUM and other subversive materials and propaganda, more particularly,

1] Toyota-Corolla, colored yellow with Plate No. NKA 892;

2] DATSUN pick-up colored white with Plate No. NKV 969;

3] A delivery truck with Plate No. NBS 542;

4] TOYOTA-TAMARAW, colored white with Plate No. PBP 665;and,

5] TOYOTA Hi-Lux, pick-up truck with Plate No. NGV 472 with marking "Bagong Silang."

In Stanford v. State of Texas (379 U.S. 476,13 L ed 2nd 431), the search warrant which authorized the search for 'books, records, pamphlets, cards, receipts, lists, memoranda, pictures, recordings and other written instruments concerning the Communist Parties of Texas, and the operations of the Community Party in Texas," was declared void by the U.S. Supreme Court for being too general. In like manner, directions to "seize any evidence in connection with the violation of SDC 13-3703 or otherwise' have been held too general, and that portion of a search warrant which authorized the seizure of any "paraphernalia which could be used to violate Sec. 54-197 of the Connecticut General Statutes [the statute dealing with the crime of conspiracy]"' was held to be a general warrant, and therefore invalid (68 Am. Jur. 2d., pp. 736-737). The description of the articles sought to be seized under the search warrants in question cannot be characterized differently. (at pp. 814-815)

Undoubtedly, a similar conclusion can be deduced from the description of the articles sought to be confiscated under the questioned search warrants.

Television sets, video cassette recorders, reminders and tape cleaners are articles which can be found in a video tape store engaged in the legitimate business of lending or renting out betamax tapes. In short, these articles and appliances are generally connected with, or related to a legitimate business not necessarily involving piracy of intellectual property or infringement of copyright laws. Hence, including these articles without specification and/or particularity that they were really instruments in violating an Anti-Piracy law makes The search warrant too general which could result in the confiscation of all items found in any video store. In fact, this actually happened in the instant case. Thus, the lower court, in its questioned order dated October 8, 1985 said:

Although the applications and warrants themselves covered certain articles of property usually found in a video store, the Court believes that the search party should have confined themselves to articles that are according to them, evidence constitutive of infringement of copyright laws or the piracy of intellectual property, but not to other articles that are usually connected with, or related to, a legitimate business, not involving piracy of intellectual property, or infringement of copyright laws. So that a television set, a rewinder, and a whiteboard listing Betamax tapes, video cassette cleaners video cassette recorders as reflected in the Returns of Search Warrants, are items of legitimate business engaged in the video tape industry, and which could not be the subject of seizure, The applicant and his agents therefore exceeded their authority in seizing perfectly legitimate personal property usually found in a video cassette store or business establishment." (p. 33, Rollo)

All in all, we find no grave abuse of discretion on the part of the lower court when it lifted the search warrants it earlier issued against the private respondents. We agree with the appellate court's findings to the effect that:

An assiduous examination of the assailed orders reveal that the main ground upon which the respondent Court anchored said orders was its subsequent findings that it was misled by the applicant (NBI) and its witnesses 'that infringement of copyright or a piracy of a particular film have been committed when it issued the questioned warrants.' Stated differently, the respondent Court merely corrected its erroneous findings as to the existence of probable cause and declared the search and seizure to be unreasonable. Certainly, such action is within the power and authority of the respondent Court to perform, provided that it is not exercised in an oppressive or arbitrary manner. Indeed, the order of the respondent Court declaring the existence of probable cause is not final and does not constitute res judicata.

A careful review of the record of the case shows that the respondent Court did not commit a grave abuse of discretion when it issued the questioned orders. Grave abuse of discretion' implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.' But far from being despotic or arbitrary, the assailed orders were motivated by a noble desire of rectifying an error, much so when the erroneous findings collided with the constitutional rights of the private respondents. In fact, the petitioner did not even contest the righteousness and legality of the questioned orders but instead concentrated on the alleged denial of due process of law." (pp. 44-45, Rollo)

The proliferation of pirated tapes of films not only deprives the government of much needed revenues but is also an indication of the widespread breakdown of national order and discipline. Courts should not impose any unnecessary roadblocks in the way of the anti-film piracy campaign. However, the campaign cannot ignore or violate constitutional safeguards. To say that the problem of pirated films can be solved only by the use of unconstitutional shortcuts is to denigrate the long history and experience behind the searches and seizures clause of the Bill of Rights. The trial court did not commit reversible error.

WHEREFORE, the instant petition is DISMISSED. The questioned decision and resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur

G.R. No. 96597-99 October 6, 1994

COLUMBIA PICTURES, INC., ORION PICTURES CORP., PARAMOUNT PICTURES CORP., TWENTIETH CENTURY FOX FILM CORP., UNITED ARTISTS CORP., UNIVERSAL CITY STUDIOS, INC., WALT DISNEY COMPANY and WARNER BROS., INC., petitioners, vs.HON. COURT OF APPEALS, TUBE VIDEO ENTERPRISES and EDWARD CHAM, BLOOMING ROSE TAPE CENTER and MA. JAJORIE T. UY, and VIDEO CHANNEL and LYDIA NABONG, respondents.

G.R. No. 97156 October 6, 1994

COLUMBIA PICTURES INDUSTRIES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORP., TWENTIETH CENTURY FOX FILM CORP., MGM/UA COMMUNICATIONS COMPANY, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and WARNER BROS., INC., petitioners, vs.HON. COURT OF APPEALS, FOX'S VIDEO, INC. and ALFREDO ONGYANGCO., respondents.

Castillo, Laman, Tan & Pantaleon for petitioners.

Herminio T. Banico, Jr. & Associates for private respondent Lydia Nabong.

Molo, Padua, Salazar, Roldan & Associates for Blooming Rose Tape Center/Ma. J.T. Uy.

R E S O L U T I O N

VITUG, J.:

On 07 April 1988, the National Bureau of Investigation ("NBI"), through its Agent Lauro C. Reyes, filed with the Regional Trial Court of Pasig(Branch 159) three applications for search warrant against private respondents Tube Video Enterprises and Edward C. Cham (ASW No. 95), the Blooming Rose Tape Center and Ma. Jajorie T. Uy (ASW No. 96), and the VideoChannel and Lydia Nabong (ASW No. 97), charging said respondents with violation of Section 56 of Presidential Decree ("P.D.") No. 49, otherwise known as the Decree on the Protection of Intellectual Property, as amended by P.D. No. 1988.

In the three applications for search warrant, NBI Agent Reyes stated under oath that the respondents had in their possession and control —

1. (p)irated video tapes of the copyrighted motion pictures/films the titles of which are mentioned in the attached list;

2. (p)osters, advertising leaflets, flyers, brochures, invoices, journals, ledgers, job order slips, delivery slips, stickers and books of account bearing and/or mentioned the pirated films with titles . . ., or otherwise used in the videogram business or activities of the defendants; sold, leased, distributed or possessed for the purpose of sale, lease, distribution, circulation or public exhibition, journals, ledgers, job order slips, delivery slips, stickers and books of accounts used in the unlawful videogram business or activities of the defendants; (and)

3. (t)elevision sets, video cassette and/or laser disc recorders, dubbing machines, rewinders, film projectors, U-matic machines, image enhancers, dubbing machines, tape head cleaners, converters, accessories, equipment and other machines and paraphernalia, materials or empty/erasable video tapes and master copies used or intended to be used in the unlawful exhibition, showing, reproduction, sale lease or disposition of videograms they are keeping and concealing in the premises abovedescribed. 1

Acting on the applications, then Regional Trial Court Judge MariaAlicia M. Austria conducted a joint hearing during which she made a personal examination of the applicant and his witnesses. Finding just and probable cause for granting the application at the time, Judge Austria issued the corresponding Search Warrants ("SW") numbered 95, 96, and 97.

Private respondents filed their respective motions to quash the three search warrants, citing as grounds therefor the following:

In SW No. 95

1. There is no probable cause nor the existence of a satisfactory fact upon which the search warrant is based;

2. The National Bureau of Investigation has no authority nor the jurisdiction to initiate the filing of suit against the defendants;

3. The confiscation of defendants' seized articles based on the questioned search warrant violated the latter's constitutional right against deprivation of properties without due process.

4. The films in question are not protected by Pres. DecreeNo. 1988 in that they were never registered in the National Library as a condition precedent to the availment of the protection secured by that decree. The complaint has acquired no right under the same.

5. The mere publication by complainant of its alleged ownership over the films in question does notipso facto vest in the right to proceed under P.D. No. 49 as that law requires official registration. Moreover, the said publication took place only after the application for the questioned search warrant. 2

In SW No. 96

1. The complainants, one Rico V. Domingo and one Rene C. Baltazar, in representation of the Motion Picture Association of America, Inc., have not proven nor established their ownership over the films listed in Annex "A" of the search warrant issued by this Honorable Court against the defendants herein.

2. The information provided by the National Bureau of Investigation agents and the representatives of the MPAA, Inc. are replete with generalities insofar as the description of the items to be concerned in violation of the provisions of Sec. 3 of Rule 126 of the Rules of Court. Their allegations as to the offense are presumptuous and speculative in violation of the same section of the Rules of Court. 3

Private respondents in SW No. 97 adopted the motions filed for the quashal of both SW No. 95 and SW No. 96.

Herein petitioners (the private complainants in the three cases), namely, Columbia Pictures Entertainment, Inc., Orion Pictures Corporation, Twentieth Century Fox Film Corporation, MGM/UA Communications Company, Universal City Studios, Inc., Walt Disney Company and Warner Bros., Inc., submitted their oppositions to the motions to quash. The movants, herein private respondents, filed their replies to the oppositions and sought, simultaneously, the release of the items seized. After a rejoinder was filed, the court a quo considered all the incidents submitted for resolution.

In a Joint Order, issued on 09 December 1988, Judge Austria defined the issues raised in the motions to quash thusly:

1. Whether or not the NBI had authority to file the application for search warrant; whether or not it is the Videogram Regulatory Board under P.D. No. 1987 which has exclusive jurisdiction to file suits against violators of said law.

2. Whether or not this Court observed due process of law before issuing the search warrants in question.

3. Whether or not search warrants Nos. 95, 96 and 97 are general warrants and therefore void.

4. Whether or not there was probable cause in the issuance of the search warrants pursuant to Section 3, Rule 126 of the 1985 Rules on Criminal Procedure and Section 2, Article III of the 1987 Constitution of the Republic of the Philippines.

5. Whether or not private complainants who are members of the Motion Picture Association of America, Inc. (MPAA for brevity) through their counsel, Atty. Rico Domingo, have sufficiently proven their ownership over the alleged pirated video tapes of the copyrighted motion pictures/films.

6. Whether or not the items seized by the NBI agents by virtue of SW Nos. 95, 96 and 97 may be ordered released to defendants. 4

Anent the first three issues, Judge Austria ruled that the NBI had the authority to apply for the search warrants; that in the issuance of the search warrants, due process of law was duly observed; and that the questioned search warrants were not general in character since the provision of law violated, i.e., Sec. 56 of P.D. No. 49, as amended by P.D. No. 1988, was clearly specified. Judge Austria, nonetheless, reversed her former stand initially finding probable cause for the issuance of the search warrants and ordered the quashal of the search warrants giving the following reasons:

1. Private complainants were uncertain of their ownership of the titles subject of the seized video tapes;

2. Complainants did not comply with the requirement that the master tapes should be presented during the application for search warrants; and

3. Private complainants cannot seek the protection of Philippine laws as they failed to comply with the deposit and registration requirements of P.D. No. 49 as amended by P.D. No. 1988. 5

Judge Austria thus ordered the return of all the items seized by virtue of the warrants.

Petitioners appealed the order of Judge Austria to the Court of Appeals, docketed CA-G.R. CV No. 22133-22135, assigning the following alleged errors:

1. The Court a quo erred in ruling that private complainants were uncertain of their ownership of the titles subject of the pirated video tapes.

2. The Court a quo erred in ordering the quashal of the search warrants on the ground that the requirement of producing the "master tapes" during the application for a search warrant, as enunciated in the 20th Century Fox case, promulgated on 19 August 1988, was applicable to the facts of the instant case which transpired on 07 April 1988, and that the same was not complied with.

3. The Court a quo erred in ruling that appellants do not have a protectable copyright under Philippine laws for their failure to comply with the deposit and registration requirements of Presidential Decree No. 49, as amended by Presidential Decree No. 1988. 6

On 31 October 1990, the Court of Appeals, through Justice Salome A. Montoya, rendered its decision sustaining petitioners' first and third assignment of errors but rejecting petitioners' second assignment of error. It, therefore, still affirmed the quashal of the search warrants.

Hence, this petition (G.R. No. 96597-99). Another decision rendered by the Court of Appeals in another case (CA-G.R. No. 20617), involving the same petitioners on substantially identical facts and issues, was also brought before this Court (G.R. No. 97156). In a Resolution, dated 06 March 1991, this Court consolidated the two petitions.

We affirm the decisions of the Court of Appeals.

This Court, in 20th Century Fox Film Corp. vs. Court of Appeals (164 SCRA 655) has already laid down the rule that a basic requirement for the validity of search warrants, in cases of this nature, is the presentation of the master tapes of the copyrighted films from which pirated films are supposed to have been copied. We quote:

The presentation of the master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their

possession the pirated films. The petitioner's argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns.


The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.

We also fully concur with the Court of Appeals when, in resolving petitioners' motion for reconsideration in CA-G.R. CV No. 22133-35, it ratiocinated thusly:

It is not correct to say that "the basic fact" to be proven to establish probable cause in the instant cases is not the "unauthorized transfer" of a motion picture that has been recorded but the "sale, lease, or distribution of pirated video tapes of copyrighted films."

In applying for the search warrants the NBI charged violation of the entire provisions of Section 56 of P.D. No. 49 as amended by P.D.No. 1988. This included not only the sale, lease or distribution of pirated tapes but also the transfer or causing to be transferred of any sound recording or motion picture or other audio visual work.

But even assuming, as appellants argue, that only the sale, lease, or distribution of pirated video tapes is involved, the fact remains that there is need to establish probable cause that the tapes being sold, leased or distributed are pirated tapes, hence the issue reverts back to the question of whether there was unauthorized transfer, directly or indirectly, of a sound recording or motion picture or other audio visual work that has been recorded. 7

With due respect to petitioners, the Court does not see a compelling reason to reexamine its previous position on the issue.

WHEREFORE, in view of the foregoing, the instant petitions are hereby DENIED for lack of merit.

SO ORDERED.

COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and WARNER BROTHERS, INC., petitioners, vs. COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO,respondents.

D E C I S I O N

REGALADO, J.:

Before us is a petition for review on certiorari of the decision of the Court of Appeals[1] promulgated on July 22, 1992 and its resolution [2] of May 10, 1993 denying petitioners motion for reconsideration, both of which sustained the order [3] of the Regional Trial Court, Branch 133, Makati, Metro Manila, dated November 22, 1988 for the quashal of Search Warrant No. 87-053 earlier issued per its own order [4] on September 5, 1988 for violation of Section 56 of Presidential Decree No. 49, as amended, otherwise known as the Decree on the Protection of Intellectual Property.

The material facts found by respondent appellate court are as follows:

Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc. (Sunshine for brevity), owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair Center, Magallanes, Makati, Metro Manila.

On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of videograms tapes in the premises above described. In the hearing of the application, NBI Senior Agent Lauro C. Reyes, upon questions by the court a quo, reiterated in substance his averments in his affidavit. His testimony was corroborated by another witness, Mr. Rene C. Baltazar. Atty. Rico V. Domingos deposition was also taken. On the basis of the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Rene C. Baltazar and Atty. Rico V. Domingo, Search Warrant No 87-053 for violation of Section 56 of PD No. 49, as amended, was issued by the court a quo.

The search warrant was served at about 1:45 p.m. on December 14, 1987 to Sunshine and/or their representatives. In the course of the search of the premises indicated in the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films owned or exclusively distributed by private complainants, and machines, equipment, television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties accomplished by the raiding team. Copy of the receipt was furnished and/or tendered to Mr. Danilo A. Pelindario, registered owner-proprietor of Sunshine Home Video.

On December 16, 1987, a Return of Search Warrant was filed with the Court.

A Motion To Lift the Order of Search Warrant was filed but was later denied for lack of merit (p. 280, Records).

A Motion for reconsideration of the Order of denial was filed. The court a quo granted the said motion for reconsideration and justified it in this manner:

It is undisputed that the master tapes of the copyrighted films from which the pirated films were allegedly copies (sic), were never presented in the proceedings for the issuance of the search warrants in question. The orders of the Court granting the search warrants and denying the urgent motion to lift

order of search warrants were, therefore, issued in error.Consequently, they must be set aside. (p. 13, Appellants Brief)[5]

Petitioners thereafter appealed the order of the trial court granting private respondents motion for reconsideration, thus lifting the search warrant which it had therefore issued, to the Court of Appeals. As stated at the outset, said appeal was dismissed and the motion for reconsideration thereof was denied. Hence, this petition was brought to this Court particularly challenging the validity of respondent courts retroactive application of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al.,[6] in dismissing petitioners appeal and upholding the quashal of the search warrant by the trial court.

I

Inceptively, we shall settle the procedural considerations on the matter of and the challenge to petitioners legal standing in our courts, they being foreign corporations not licensed to do business in the Philippines.

Private respondents aver that being foreign corporations, petitioners should have such license to be able to maintain an action in Philippine courts. In so challenging petitioners personality to sue, private respondents point to the fact that petitioners are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their attorney-in-fact, as being constitutive of doing business in the Philippines under Section 1(f) (1) and (2), Rule 1 of the Rules of the Board of Investments. As foreign corporations doing business in the Philippines, Section 133 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines, denies them the right to maintain a suit in Philippine courts in the absence of a license to do business.Consequently, they have no right to ask for the issuance of a search warrant.[7]

In refutation, petitioners flatly deny that they are doing business in the Philippines, [8] and contend that private respondents have not adduced evidence to prove that petitioners are doing such business here, as would require them to be licensed by the Securities and Exchange Commission, other than averments in the quoted portions of petitioners Opposition to Urgent Motion to Lift Order of Search Warrant dated April 28, 1988 and Atty. Rico V. Domingos affidavit of December 14, 1987. Moreover, an exclusive right to distribute a product or the ownership of such exclusive right does not conclusively prove the act of doing business nor establish the presumption of doing business.[9]

The Corporation Code provides:

Sec. 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood under the

Corporation Code, unless it shall have the license required by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain any suit in local courts.[10] As thus interpreted, any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the prescribed license but doing business in the Philippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in business in the Philippines.[11]

Statutory provisions in many jurisdictions are determinative of what constitutes doing business or transacting business within that forum, in which case said provisions are controlling there. In others where no such definition or qualification is laid down regarding acts or transactions falling within its purview, the question rests primarily on facts and intent. It is thus held that all the combined acts of a foreign corporation in the State must be considered, and every circumstance is material which indicates a purpose on the part of the corporation to engage in some part of its regular business in the State.[12]

No general rule or governing principles can be laid down as to what constitutes doing or engaging in or transacting business. Each case must be judged in the light of its own peculiar environmental circumstances.[13] The true tests, however, seem to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another.[14]

As a general proposition upon which many authorities agree in principle, subject to such modifications as may be necessary in view of the particular issue or of the terms of the statute involved, it is recognized that a foreign corporation is doing, transacting, engaging in, or carrying on business in the State when, and ordinarily only when, it has entered the State by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business, usually continuous in the sense that it may be distinguished from merely casual, sporadic, or occasional transactions and isolated acts.[15]

The Corporation Code does not itself define or categorize what acts constitute doing or transacting business in the Philippines. Jurisprudence has, however, held that the term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to or in progressive prosecution of the purpose and subject of its organization.[16]

This traditional case law definition has evolved into a statutory definition, having been adopted with some qualifications in various pieces of legislation in our jurisdiction.

For instance, Republic Act No. 5455[17] provides:

SECTION 1. Definitions and scope of this Act. (1) x x x; and the phrase doing business shall include soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or

more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in-progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Presidential Decree No. 1789,[18] in Article 65 thereof, defines doing business to include soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

The implementing rules and regulations of said presidential decree conclude the enumeration of acts constituting doing business with a catch-all definition, thus:

Sec. 1(g). Doing Business shall be any act or combination of acts enumerated in Article 65 of the Code. In particular doing business includes:

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(10) Any other act or acts which imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Finally, Republic Act No. 7042[19] embodies such concept in this wise:

SEC. 3. Definitions. As used in this Act:

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(d) the phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investors; nor having a nominee director or officer to

represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.

Based on Article 133 of the Corporation Code and gauged by such statutory standards, petitioners are not barred from maintaining the present action. There is no showing that, under our statutory or case law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as would require obtention of a license before they can seek redress from our courts. No evidence has been offered to show that petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or transact business in the Philippines.

Accordingly, the certification issued by the Securities and Exchange Commission[20] stating that its records do not show the registration of petitioner film companies either as corporations or partnerships or that they have been licensed to transact business in the Philippines, while undeniably true, is of no consequence to petitioners right to bring action in the Philippines. Verily, no record of such registration by petitioners can be expected to be found for, as aforestated, said foreign film corporations do not transact or do business in the Philippines and, therefore, do not need to be licensed in order to take recourse to our courts.

Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus Investments Code lists, among others

(1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, or by an agent of such foreign firm, not acting independently of the foreign firm amounting to negotiations or fixing of the terms and conditions of sales or service contracts, regardless of where the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. The arrangements agreed upon as to manner, time and terms of delivery of the goods or the transfer of title thereto is immaterial. A foreign firm which does business through the middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

(2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of a principal. Thus, where a foreign firm is represented in the Philippines by a person or local company which does not act in its name but in the name of the foreign firm, the latter is doing business in the Philippines.

as acts constitutive of doing business, the fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the Philippines of motion pictures or films does not convert such ownership into an indicium of doing business which would require them to obtain a license before they can sue upon a cause of action in local courts.

Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners, with express authority pursuant to a special power of attorney, inter alia

To lay criminal complaints with the appropriate authorities and to provide evidence in support of both civil and criminal proceedings against any person or persons involved in the criminal infringement of copyright, or concerning the unauthorized importation, duplication, exhibition or distribution of any cinematographic work(s) films or video cassettes of which x x x is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between x x x and the respective owners of copyright in such cinematographic work(s), to initiate and prosecute on behalf of x x x criminal or civil actions in the Philippines against any person or persons unlawfully distributing, exhibiting, selling or offering for sale any films or video cassettes of which x x x is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between x x x and the respective owners of copyright in such works.[21]

tantamount to doing business in the Philippines. We fail to see how exercising ones legal and property rights and taking steps for the vigilant protection of said rights, particularly the appointment of an attorney-in-fact, can be deemed by and of themselves to be doing business here.

As a general rule, a foreign corporation will not be regarded as doing business in the State simply because it enters into contracts with residents of the State, where such contracts are consummated outside the State. [22] In fact, a view is taken that a foreign corporation is not doing business in the state merely because sales of its product are made there or other business furthering its interests is transacted there by an alleged agent, whether a corporation or a natural person, where such activities are not under the direction and control of the foreign corporation but are engaged in by the alleged agent as an independent business.[23]

It is generally held that sales made to customers in the State by an independent dealer who has purchased and obtained title from the corporation to the products sold are not a doing of business by the corporation.[24] Likewise, a foreign corporation which sells its products to persons styled distributing agents in the State, for distribution by them, is not doing business in the State so as to render it subject to service of process therein, where the contract with these purchasers is that they shall buy exclusively from the foreign corporation such goods as it manufactures and shall sell them at trade prices established by it.[25]

It has moreover been held that the act of a foreign corporation in engaging an attorney to represent it in a Federal court sitting in a particular State is not doing business within the scope of the minimum contact test. [26] With much more reason should this doctrine apply to the mere retainer of Atty. Domingo for legal protection against contingent acts of intellectual piracy.

In accordance with the rule that doing business imports only acts in furtherance of the purposes for which a foreign corporation was organized, it is held that the mere institution and prosecution or defense of a suit, particularly if the transaction which is the basis of the suit took place out of the State, do not amount to the doing of business in the State. The institution of a suit or the removal thereof is neither the making of a contract nor the doing of business within a constitutional provision placing foreign corporations licensed to do business in the State under the same regulations, limitations and liabilities with respect to such acts as domestic corporations. Merely engaging in litigation has been considered as not a sufficient minimum contact to warrant the exercise of jurisdiction over a foreign corporation.[27]

As a consideration aside, we have perforce to comment on private respondents basis for arguing that petitioners are barred from maintaining suit in the Philippines.For allegedly being foreign corporations doing business in the Philippines without a license, private respondents repeatedly maintain in all their pleadings that petitioners have thereby no legal personality to bring an action before Philippine courts.[28]

Among the grounds for a motion to dismiss under the Rules of Court are lack of legal capacity to sue[29] and that the complaint states no cause of action. [30] Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims.[31] On the other hand, a case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest, hence grounded on failure to state a cause of action.[32] The term lack of capacity to sue should not be confused with the term lack of personality to sue. While the former refers to a plaintiffs general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality or any other general disqualifications of a party, the latter refers to the fact that the plaintiff is not the real party- in-interest. Correspondingly, the first can be a ground for a motion to dismiss based on the ground of lack of legal capacity to sue; [33] whereas the second can be used as a ground for a motion to dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action.[34]

Applying the above discussion to the instant petition, the ground available for barring recourse to our courts by an unlicensed foreign corporation doing or transacting business in the Philippines should properly be lack of capacity to sue, not lack of personality to sue. Certainly, a corporation whose legal rights have been violated is undeniably such, if not the only, real party-in-interest to bring suit thereon although, for failure to comply with the licensing requirement, it is not capacitated to maintain any suit before our courts.

Lastly, on this point, we reiterate this Courts rejection of the common procedural tactics of erring local companies which, when sued by unlicensed foreign corporations not engaged in business in the Philippines, invoke the latters supposed lack of capacity to sue. The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on considerations of public policy. It was never intended to favor nor insulate from suit unscrupulous establishments or nationals in case of breach of valid obligations or violations of legal rights of unsuspecting foreign firms or entities simply because they are not licensed to do business in the country.[35]

II

We now proceed to the main issue of the retroactive application to the present controversy of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al., promulgated on August 19, 1988,[36] that for the determination of probable cause to support the issuance of a search warrant in copyright infringement cases involving videograms, the production of the master tape for comparison with the allegedly pirated copies is necessary.

Petitioners assert that the issuance of a search warrant is addressed to the discretion of the court subject to the determination of probable cause in accordance with the procedure prescribed therefor under Sections 3 and 4 of Rule 126. As of the time of the application for the search warrant in question, the controlling criterion for the finding of probable cause was that enunciated in Burgos vs. Chief of Staff[37] stating that:

Probable cause for a search warrant is defined as such facts and circumstances which would lead a reasonably discrete and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched.

According to petitioners, after complying with what the law then required, the lower court determined that there was probable cause for the issuance of a search warrant, and which determination in fact led to the issuance and service on December 14, 1987 of Search Warrant No. 87-053. It is further argued that any search warrant so issued in accordance with all applicable legal requirements is valid, for the lower court could not possibly have been expected to apply, as the basis for a finding of probable cause for the issuance of a search warrant in copyright infringement cases involving videograms, a pronouncement which was not existent at the time of such determination, on December 14, 1987, that is, the doctrine in the 20th Century Fox case that was promulgated only on August 19, 1988, or over eight months later.

Private respondents predictably argue in support of the ruling of the Court of Appeals sustaining the quashal of the search warrant by the lower court on the strength of that 20th Century Fox ruling which, they claim, goes into the very essence of probable cause. At the time of the issuance of the search warrant involved here, although the 20th Century Fox case had not yet been decided, Section 2, Article III of the Constitution and Section 3, Rule 126 of the 1985 Rules on Criminal Procedure embodied the prevailing and governing law on the matter. The ruling in 20th Century Fox was merely an application of the law on probable cause. Hence, they posit that there was no law that was retrospectively applied, since the law had been there all along. To refrain from applying the 20th Century Fox ruling, which had supervened as a doctrine promulgated at the time of the resolution of private respondents motion for reconsideration seeking the quashal of the search warrant for failure of the trial court to require presentation of the master tapes prior to the issuance of the search warrant, would have constituted grave abuse of discretion.[38]

Respondent court upheld the retroactive application of the 20th Century Fox ruling by the trial court in resolving petitioners motion for reconsideration in favor of the quashal of the search warrant, on this renovated thesis:

And whether this doctrine should apply retroactively, it must be noted that in the 20th Century Fox case, the lower court quashed the earlier search warrant it issued. On certiorari, the Supreme Court affirmed the quashal on the ground among others that the master tapes or copyrighted films were not presented for comparison with the purchased evidence of the video tapes to determine whether the latter is an unauthorized reproduction of the former.

If the lower court in the Century Fox case did not quash the warrant, it is Our view that the Supreme Court would have invalidated the warrant just the same considering the very strict requirement set by the Supreme Court for the determination of probable cause in copyright infringement cases as enunciated in this 20th Century Fox case. This is so because, as was stated by the Supreme Court in the said case, the master tapes and the pirated tapes must be presented for comparison to satisfy the requirement of probable cause. So it goes back to the very existence of probable cause. x x x[39]

Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments of fair play, it is our considered view that the 20th Century Fox ruling cannot be retroactively

applied to the instant case to justify the quashal of Search Warrant No. 87-053. Herein petitioners consistent position that the order of the lower court of September 5, 1988 denying therein defendants motion to lift the order of search warrant was properly issued, there having been satisfactory compliance with the then prevailing standards under the law for determination of probable cause, is indeed well taken. The lower court could not possibly have expected more evidence from petitioners in their application for a search warrant other than what the law and jurisprudence, then existing and judicially accepted, required with respect to the finding of probable cause.

Article 4 of the Civil Code provides that (l)aws shall have no retroactive effect, unless the contrary is provided. Correlatively, Article 8 of the same Code declares that (j)udicial decisions applying the laws or the Constitution shall form part of the legal system of the Philippines.

Jurisprudence, in our system of government, cannot be considered as an independent source of law; it cannot create law. [40] While it is true that judicial decisions which apply or interpret the Constitution or the laws are part of the legal system of the Philippines, still they are not laws. Judicial decisions, though not laws, are nonetheless evidence of what the laws mean, and it is for this reason that they are part of the legal system of the Philippines.[41] Judicial decisions of the Supreme Court assume the same authority as the statute itself.[42]

Interpreting the aforequoted correlated provisions of the Civil Code and in light of the above disquisition, this Court emphatically declared in Co vs. Court of Appeals, et al.[43] that the principle of prospectivity applies not only to original amendatory statutes and administrative rulings and circulars, but also, and properly so, to judicial decisions. Our holding in the earlier case of People vs. Jubinal[44] echoes the rationale for this judicial declaration, viz.:

Decisions of this Court, although in themselves not laws, are nevertheless evidence of what the laws mean, and this is the reason why under Article 8 of the New Civil Code, Judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system. The interpretation upon a law by this Court constitutes, in a way, a part of the law as of the date that the law was originally passed, since this Courts construction merely establishes the contemporaneous legislative intent that the law thus construed intends to effectuate. The settled rule supported by numerous authorities is a restatement of the legal maxim legis interpretation legis vim obtinet the interpretation placed upon the written law by a competent court has the force of law. x x x, but when a doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied prospectively, and should not apply to parties who had relied on the old doctrine and acted on the faith thereof. x x x. (Stress supplied).

This was forcefully reiterated in Spouses Benzonan vs. Court of Appeals, et al.,[45] where the Court expounded:

x x x. But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil Code which provides that laws shall have no retroactive effect unless the contrary is provided. This is expressed in the familiar legal maximum lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive.The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and

hence, is unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]). The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. x x x.

The reasoning behind Senarillos vs. Hermosisima[46] that judicial interpretation of a statute constitutes part of the law as of the date it was originally passed, since the Courts construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect, is all too familiar. Such judicial doctrine does not amount to the passage of a new law but consists merely of a construction or interpretation of a pre-existing one, and that is precisely the situation obtaining in this case.

It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine and acted in good faith. [47] To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition of what had transpired prior to such adjudication.[48]

There is merit in petitioners impassioned and well-founded argumentation:

The case of 20th Century Fox Film Corporation vs. Court of Appeals, et al., 164 SCRA 655 (August 19, 1988) (hereinafter 20th Century Fox) was inexistent in December of 1987 when Search Warrant 87-053 was issued by the lower court. Hence, it boggles the imagination how the lower court could be expected to apply the formulation of 20th Century Fox in finding probable cause when the formulation was yet non-existent.

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In short, the lower court was convinced at that time after conducting searching examination questions of the applicant and his witnesses that an offense had been committed and that the objects sought in connection with the offense (were) in the place sought to be searched (Burgos v. Chief of Staff, et al., 133 SCRA 800). It is indisputable, therefore, that at the time of the application, or on December 14, 1987, the lower court did not commit any error nor did it fail to comply with any legal requirement for the valid issuance of search warrant.

x x x. (W)e believe that the lower court should be considered as having followed the requirements of the law in issuing Search Warrant No. 87-053. The search warrant is therefore valid and binding. It must be noted that nowhere is it found in the allegations of the Respondents that the lower court failed to apply the law as then interpreted in 1987. Hence, we find it absurd that it is (sic) should be seen otherwise, because it is simply impossible to have required the lower court to apply a formulation which will only be defined six months later.

Furthermore, it is unjust and unfair to require compliance with legal and/or doctrinal requirements which are inexistent at the time they were supposed to have been complied with.

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x x x. If the lower courts reversal will be sustained, what encouragement can be given to courts and litigants to respect the law and rules if they can expect with reasonable certainty that upon the passage

of a new rule, their conduct can still be open to question? This certainly breeds instability in our system of dispensing justice. For Petitioners who took special effort to redress their grievances and to protect their property rights by resorting to the remedies provided by the law, it is most unfair that fealty to the rules and procedures then obtaining would bear but fruits of injustice.[49]

Withal, even the proposition that the prospectivity of judicial decisions imports application thereof not only to future cases but also to cases still ongoing or not yet final when the decision was promulgated, should not be countenanced in the jural sphere on account of its inevitably unsettling repercussions. More to the point, it is felt that the reasonableness of the added requirement in 20th Century Fox calling for the production of the master tapes of the copyrighted films for determination of probable cause in copyright infringement cases needs revisiting and clarification.

It will be recalled that the 20th Century Fox case arose from search warrant proceedings in anticipation of the filing of a case for the unauthorized sale or renting out of copyrighted films in videotape format in violation of Presidential Decree No. 49. It revolved around the meaning of probable cause within the context of the constitutional provision against illegal searches and seizures, as applied to copyright infringement cases involving videotapes.

Therein it was ruled that

The presentation of master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their possession the pirated films. The petitioners argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns.


The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former.This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.

For a closer and more perspicuous appreciation of the factual antecedents of 20th Century Fox, the pertinent portions of the decision therein are quoted hereunder, to wit:

In the instant case, the lower court lifted the three questioned search warrants against the private respondents on the ground that it acted on the application for the issuance of the said search warrants and granted it on the misrepresentations of applicant NBI and its witnesses that infringement of

copyright or a piracy of a particular film have been committed. Thus the lower court stated in its questioned order dated January 2, 1986:

According to the movant, all three witnesses during the proceedings in the application for the three search warrants testified of their own personal knowledge. Yet, Atty. Albino Reyes of the NBI stated that the counsel or representative of the Twentieth Century Fox Corporation will testify on the video cassettes that were pirated, so that he did not have personal knowledge of the alleged piracy. The witness Bacani also said that the video cassettes were pirated without stating the manner it was pirated and that it was Atty. Domingo that has knowledge of that fact.

On the part of Atty. Domingo, he said that the re-taping of the allegedly pirated tapes was from master tapes allegedly belonging to the Twentieth Century Fox, because, according to him it is of his personal knowledge.

At the hearing of the Motion for Reconsideration, Senior NBI Agent Atty. Albino Reyes testified that when the complaint for infringement was brought to the NBI, the master tapes of the allegedly pirated tapes were shown to him and he made comparisons of the tapes with those purchased by their man Bacani. Why the master tapes or at least the film reels of the allegedly pirated tapes were not shown to the Court during the application gives some misgivings as to the truth of that bare statement of the NBI agent on the witness stand.

Again as the application and search proceedings is a prelude to the filing of criminal cases under P.D. 49, the copyright infringement law, and although what is required for the issuance thereof is merely the presence of probable cause, that probable cause must be satisfactory to the Court, for it is a time-honored precept that proceedings to put a man to task as an offender under our laws should be interpreted in strictissimi juris against the government and liberally in favor of the alleged offender.

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This doctrine has never been overturned, and as a matter of fact it had been enshrined in the Bill of Rights in our 1973 Constitution.

So that lacking in persuasive effect, the allegation that master tapes were viewed by the NBI and were compared to the purchased and seized video tapes from the respondents establishments, it should be dismissed as not supported by competent evidence and for that matter the probable cause hovers in that grey debatable twilight zone between black and white resolvable in favor of respondents herein.

But the glaring fact is that Cocoon, the first video tape mentioned in the search warrant, was not even duly registered or copyrighted in the Philippines. (Annex C of Opposition, p. 152, record.) So that lacking in the requisite presentation to the Court of an alleged master tape for purposes of comparison with the purchased evidence of the video tapes allegedly pirated and those seized from respondents, there was no way to determine whether there really was piracy, or copying of the film of the complainant Twentieth Century Fox.

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The lower court, therefore, lifted the three (3) questioned search warrants in the absence of probable cause that the private respondents violated P.D. 49. As found by the court, the NBI agents who acted as witnesses did not have personal knowledge of the subject matter of their testimony which was the alleged commission of the offense by the private respondents. Only the petitioners counsel who was also a witness during the application for the issuance of the search warrants stated that he had personal knowledge that the confiscated tapes owned by the private respondents were pirated tapes taken from master tapes belonging to the petitioner. However, the lower court did not give much credence to his testimony in view of the fact that the master tapes of the allegedly pirated tapes were not shown to the court during the application (Italics ours).

The italicized passages readily expose the reason why the trial court therein required the presentation of the master tapes of the allegedly pirated films in order to convince itself of the existence of probable cause under the factual milieu peculiar to that case. In the case at bar, respondent appellate court itself observed:

We feel that the rationale behind the aforequoted doctrine is that the pirated copies as well as the master tapes, unlike the other types of personal properties which may be seized, were available for presentation to the court at the time of the application for a search warrant to determine the existence of the linkage of the copyrighted films with the pirated ones. Thus, there is no reason not to present them (Italics supplied for emphasis).[50]

In fine, the supposed pronunciamento in said case regarding the necessity for the presentation of the master tapes of the copyrighted films for the validity of search warrants should at most be understood to merely serve as a guidepost in determining the existence of probable cause in copyright infringement cases where there is doubt as to the true nexus between the master tape and the pirated copies. An objective and careful reading of the decision in said case could lead to no other conclusion than that said directive was hardly intended to be a sweeping and inflexible requirement in all or similar copyright infringement cases. Judicial dicta should always be construed within the factual matrix of their parturition, otherwise a careless interpretation thereof could unfairly fault the writer with the vice of overstatement and the reader with the fallacy of undue generalization.

In the case at bar, NBI Senior Agent Lauro C. Reyes who filed the application for search warrant with the lower court following a formal complaint lodged by petitioners, judging from his affidavit[51] and his deposition,[52] did testify on matters within his personal knowledge based on said complaint of petitioners as well as his own investigation and surveillance of the private respondents video rental shop. Likewise, Atty. Rico V. Domingo, in his capacity as attorney-in-fact, stated in his affidavit[53] and further expounded in his deposition[54] that he personally knew of the fact that private respondents had never been authorized by his clients to reproduce, lease and possess for the purpose of selling any of the copyrighted films.

Both testimonies of Agent Reyes and Atty. Domingo were corroborated by Rene C. Baltazar, a private researcher retained by Motion Pictures Association of America, Inc. (MPAA, Inc.), who was likewise presented as a witness during the search warrant proceedings.[55] The records clearly reflect that the testimonies of the abovenamed witnesses were straightforward and stemmed from matters within their personal knowledge. They displayed none of the ambivalence and uncertainty that the witnesses in the 20th Century Fox case exhibited. This categorical forthrightness in their statements, among others, was

what initially and correctly convinced the trial court to make a finding of the existence of probable cause.

There is no originality in the argument of private respondents against the validity of the search warrant, obviously borrowed from 20th Century Fox, that petitioners witnesses NBI Agent Lauro C. Reyes, Atty. Rico V. Domingo and Rene C. Baltazar did not have personal knowledge of the subject matter of their respective testimonies and that said witnesses claim that the video tapes were pirated, without stating the manner by which these were pirated, is a conclusion of fact without basis.[56] The difference, it must be pointed out, is that the records in the present case reveal that (1) there is no allegation of misrepresentation, much less a finding thereof by the lower court, on the part of petitioners witnesses; (2) there is no denial on the part of private respondents that the tapes seized were illegitimate copies of the copyrighted ones nor have they shown that they were given any authority by petitioners to copy, sell, lease, distribute or circulate, or at least, to offer for sale, lease, distribution or circulation the said video tapes; and (3) a discreet but extensive surveillance of the suspected area was undertaken by petitioners witnesses sufficient to enable them to execute trustworthy affidavits and depositions regarding matters discovered in the course thereof and of which they have personal knowledge.

It is evidently incorrect to suggest, as the ruling in 20th Century Fox may appear to do, that in copyright infringement cases, the presentation of master tapes of the copyrighted films is always necessary to meet the requirement of probable cause and that, in the absence thereof, there can be no finding of probable cause for the issuance of a search warrant. It is true that such master tapes are object evidence, with the merit that in this class of evidence the ascertainment of the controverted fact is made through demonstrations involving the direct use of the senses of the presiding magistrate. [57] Such auxiliary procedure, however, does not rule out the use of testimonial or documentary evidence, depositions, admissions or other classes of evidence tending to prove the factum probandum,[58] especially where the production in court of object evidence would result in delay, inconvenience or expenses out of proportion to its evidentiary value.[59]

Of course, as a general rule, constitutional and statutory provisions relating to search warrants prohibit their issuance except on a showing of probable cause, supported by oath or affirmation. These provisions prevent the issuance of warrants on loose, vague, or doubtful bases of fact, and emphasize the purpose to protect against all general searches.[60] Indeed, Article III of our Constitution mandates in Sec. 2 thereof that no search warrant shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized; and Sec. 3 thereof provides that any evidence obtained in violation of the preceding section shall be inadmissible for any purpose in any proceeding.

These constitutional strictures are implemented by the following provisions of Rule 126 of the Rules of Court:

Sec. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized.

Sec. 4. Examination of complainant; record. The judge must, before issuing the warrant, personally examine in the form of searching questions and answers, in writing and under oath the complainant and any witnesses he may produce on facts personally known to them and attach to the record their sworn statements together with any affidavits submitted.

Sec. 5. Issuance and form of search warrant. If the judge is thereupon satisfied of the existence of facts upon which the application is based, or that there is probable cause to believe that they exist, he must issue the warrant, which must be substantially in the form prescribed by these Rules.

The constitutional and statutory provisions of various jurisdictions requiring a showing of probable cause before a search warrant can be issued are mandatory and must be complied with, and such a showing has been held to be an unqualified condition precedent to the issuance of a warrant. A search warrant not based on probable cause is a nullity, or is void, and the issuance thereof is, in legal contemplation, arbitrary. [61] It behooves us, then, to review the concept of probable cause, firstly, from representative holdings in the American jurisdiction from which we patterned our doctrines on the matter.

Although the term probable cause has been said to have a well-defined meaning in the law, the term is exceedingly difficult to define, in this case, with any degree of precision; indeed, no definition of it which would justify the issuance of a search warrant can be formulated which would cover every state of facts which might arise, and no formula or standard, or hard and fast rule, may be laid down which may be applied to the facts of every situation.[62] As to what acts constitute probable cause seem incapable of definition. [63] There is, of necessity, no exact test.[64]

At best, the term probable cause has been understood to mean a reasonable ground of suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the person accused is guilty of the offense with which he is charged;[65] or the existence of such facts and circumstances as would excite an honest belief in a reasonable mind acting on all the facts and circumstances within the knowledge of the magistrate that the charge made by the applicant for the warrant is true.[66]

Probable cause does not mean actual and positive cause, nor does it import absolute certainty. The determination of the existence of probable cause is not concerned with the question of whether the offense charged has been or is being committed in fact, or whether the accused is guilty or innocent, but only whether the affiant has reasonable grounds for his belief.[67] The requirement is less than certainty or proof, but more than suspicion or possibility.[68]

In Philippine jurisprudence, probable cause has been uniformly defined as such facts and circumstances which would lead a reasonable, discreet and prudent man to believe that an offense has been committed, and that the objects sought in connection with the offense are in the place sought to be searched. [69] It being the duty of the issuing officer to issue, or refuse to issue, the warrant as soon as practicable after the application therefor is filed, [70] the facts warranting the conclusion of probable cause must be assessed at the time of such judicial determination by necessarily using legal standards then set forth in law and jurisprudence, and not those that have yet to be crafted thereafter.

As already stated, the definition of probable cause enunciated in Burgos, Sr. vs. Chief of Staff, et al., supra, vis-a-vis the provisions of Sections 3 and 4 of Rule 126, were the

prevailing and controlling legal standards, as they continue to be, by which a finding of probable cause is tested. Since the proprietary of the issuance of a search warrant is to be determined at the time of the application therefor, which in turn must not be too remote in time from the occurrence of the offense alleged to have been committed, the issuing judge, in determining the existence of probable cause, can and should logically look to the touchstones in the laws therefore enacted and the decisions already promulgated at the time, and not to those which had not yet even been conceived or formulated.

It is worth noting that neither the Constitution nor the Rules of Court attempt to define probable cause, obviously for the purpose of leaving such matter to the courts discretion within the particular facts of each case. Although the Constitution prohibits the issuance of a search warrant in the absence of probable cause, such constitutional inhibition does not command the legislature to establish a definition or formula for determining what shall constitute probable cause.[71] Thus, Congress, despite its broad authority to fashion standards of reasonableness for searches and seizures,[72] does not venture to make such a definition or standard formulation of probable cause, nor categorize what facts and circumstances make up the same, much less limit the determination thereof to and within the circumscription of a particular class of evidence, all in deference to judicial discretion and probity.[73]

Accordingly, to restrict the exercise of discretion by a judge by adding a particular requirement (the presentation of master tapes, as intimated by 20th Century Fox) not provided nor implied in the law for a finding of probable cause is beyond the realm of judicial competence or statemanship. It serves no purpose but to stultify and constrict the judicious exercise of a court's prerogatives and to denigrate the judicial duty of determining the existence of probable cause to a mere ministerial or mechanical function. There is, to repeat, no law or rule which requires that the existence of probable cause is or should be determined solely by a specific kind of evidence. Surely, this could not have been contemplated by the framers of the Constitution, and we do not believe that the Court intended the statement in 20th Century Fox regarding master tapes as the dictum for all seasons and reasons in infringement cases.

Turning now to the case at bar, it can be gleaned from the records that the lower court followed the prescribed procedure for the issuances of a search warrant: (1) the examination under oath or affirmation of the complainant and his witnesses, with them particularly describing the place to be searched and the things to be seized; (2) an examination personally conducted by the judge in the form of searching questions and answers, in writing and under oath of the complainant and witnesses on facts personally known to them; and, (3) the taking of sworn statements, together with the affidavits submitted, which were duly attached to the records.

Thereafter, the court a quo made the following factual findings leading to the issuance of the search warrant now subject to this controversy:

In the instant case, the following facts have been established: (1) copyrighted video tapes bearing titles enumerated in Search Warrant No. 87-053 were being sold, leased, distributed or circulated, or offered for sale, lease, distribution, or transferred or caused to be transferred by defendants at their video outlets, without the written consent of the private complainants or their assignee; (2) recovered or confiscated from defendants' possession were video tapes containing copyrighted motion picture films without the authority of the complainant; (3) the video tapes originated from spurious or

unauthorized persons; and (4) said video tapes were exact reproductions of the films listed in the search warrant whose copyrights or distribution rights were owned by complainants.

The basis of these facts are the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Atty. Rico V. Domingo, and Rene C. Baltazar. Motion Pictures Association of America, Inc. (MPAA) thru their counsel, Atty. Rico V. Domingo, filed a complaint with the National Bureau of Investigation against certain video establishments one of which is defendant, for violation of PD No. 49 as amended by PD No, 1988. Atty. Lauro C. Reyes led a team to conduct discreet surveillance operations on said video establishments. Per information earlier gathered by Atty. Domingo, defendants were engaged in the illegal sale, rental, distribution, circulation or public exhibition of copyrighted films of MPAA without its written authority or its members. Knowing that defendant Sunshine Home Video and its proprietor, Mr. Danilo Pelindario, were not authorized by MPAA to reproduce, lease, and possess for the purpose of selling any of its copyrighted motion pictures, he instructed his researcher, Mr. Rene Baltazar to rent two video cassettes from said defendants on October 21, 1987. Rene C. Baltazar proceeded to Sunshine Home Video and rented tapes containing Little Shop of Horror. He was issued rental slip No. 26362 dated October 21, 1987 for P10.00 with a deposit of P100.00.Again, on December 11, 1987, he returned to Sunshine Home Video and rented Robocop with a rental slip No. 25271 also for P10.00. On the basis of the complaint of MPAA thru counsel, Atty. Lauro C. Reyes personally went to Sunshine Home Video at No. 6 Mayfair Center, Magallanes Commercial Center, Makati. His last visit was on December 7, 1987. There, he found the video outlet renting, leasing, distributing video cassette tapes whose titles were copyrighted and without the authority of MPAA.

Given these facts, a probable cause exists. x x x.[74]

The lower court subsequently executed a volte-face, despite its prior detailed and substantiated findings, by stating in its order of November 22, 1988 denying petitioners motion for reconsideration and quashing the search warrant that

x x x. The two (2) cases have a common factual milieu; both involve alleged pirated copyrighted films of private complainants which were found in the possession or control of the defendants. Hence, the necessity of the presentation of the master tapes from which the pirated films were allegedly copied is necessary in the instant case, to establish the existence of probable cause.[75]

Being based solely on an unjustifiable and improper retroactive application of the master tape requirement generated by 20th Century Fox upon a factual situation completely different from that in the case at bar, and without anything more, this later order clearly defies elemental fair play and is a gross reversible error. In fact, this observation of the Court in La Chemise Lacoste, S.A. vs. Fernandez, et al., supra, may just as easily apply to the present case:

A review of the grounds invoked x x x in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. They are matters of defense which should be ventilated during the trial on the merits of the case. x x x

As correctly pointed out by petitioners, a blind espousal of the requisite of presentation of the master tapes in copyright infringement cases, as the prime determinant of probable cause, is too exacting and impracticable a requirement to be complied with in a search

warrant application which, it must not be overlooked, is only an ancillary proceeding. Further, on realistic considerations, a strict application of said requirement militates against the elements of secrecy and speed which underlie covert investigative and surveillance operations in police enforcement campaigns against all forms of criminality, considering that the master tapes of a motion picture required to be presented before the court consists of several reels contained in circular steel casings which, because of their bulk, will definitely draw attention, unlike diminutive objects like video tapes which can be easily concealed.[76] With hundreds of titles being pirated, this onerous and tedious imposition would be multiplied a hundredfold by judicial fiat, discouraging and preventing legal recourses in foreign jurisdictions.

Given the present international awareness and furor over violations in large scale of intellectual property rights, calling for transnational sanctions, it bears calling to mind the Courts admonition also in La Chemise Lacoste, supra, that

x x x. Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties.

III

The amendment of Section 56 of Presidential Decree No. 49 by Presidential Decree No. 1987,[77] which should here be publicized judicially, brought about the revision of its penalty structure and enumerated additional acts considered violative of said decree on intellectual property, namely, (1) directly or indirectly transferring or causing to be transferred any sound recording or motion picture or other audio-visual works so recorded with intent to sell, lease, publicly exhibit or cause to be sold, leased or publicly exhibited, or to use or cause to be used for profit such articles on which sounds, motion pictures, or other audio-visual works are so transferred without the written consent of the owner or his assignee; (2) selling, leasing, distributing, circulating, publicly exhibiting, or offering for sale, lease, distribution, or possessing for the purpose of sale, lease, distribution, circulation or public exhibition any of the abovementioned articles, without the written consent of the owner or his assignee; and, (3) directly or indirectly offering or making available for a fee, rental, or any other form of compensation any equipment, machinery, paraphernalia or any material with the knowledge that such equipment, machinery, paraphernalia or material will be used by another to reproduce, without the consent of the owner, any phonograph record, disc, wire, tape, film or other article on which sounds, motion pictures or other audio-visual recordings may be transferred, and which provide distinct bases for criminal prosecution, being crimes independently punishable under Presidential Decree No. 49, as amended, aside from the act of infringing or aiding or abetting such infringement under Section 29.

The trial courts finding that private respondents committed acts in blatant transgression of Presidential Decree No. 49 all the more bolsters its findings of probable cause, which determination can be reached even in the absence of master tapes by the judge in the exercise of sound discretion. The executive concern and resolve expressed in the foregoing amendments to the decree for the protection of intellectual property rights should be

matched by corresponding judicial vigilance and activism, instead of the apathy of submitting to technicalities in the face of ample evidence of guilt.

The essence of intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright.[78]

A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know what works he was indirectly copying, or did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In determining the question of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute a piracy. [79] The question of whether there has been an actionable infringement of a literary, musical, or artistic work in motion pictures, radio or television being one of fact,[80] it should properly be determined during the trial.That is the stage calling for conclusive or preponderating evidence, and not the summary proceeding for the issuance of a search warrant wherein both lower courts erroneously require the master tapes.

In disregarding private respondents argument that Search Warrant No. 87-053 is a general warrant, the lower court observed that it was worded in a manner that the enumerated seizable items bear direct relation to the offense of violation of Sec. 56 of PD 49 as amended. It authorized only the seizur(e) of articles used or intended to be used in the unlawful sale, lease and other unconcerted acts in violation of PD 49 as amended. x x x.[81]

On this point, Bache and Co., (Phil.), Inc., et al. vs. Ruiz, et al.,[82] instructs and enlightens:

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People vs. Rubio, 57 Phil. 384); or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). x x x. If the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. x x x.

On private respondents averment that the search warrant was made applicable to more than one specific offense on the ground that there are as many offenses of infringement as there are rights protected and, therefore, to issue one search warrant for all the movie titles allegedly pirated violates the rule that a search warrant must be issued only in connection with one specific offense, the lower court said:

x x x. As the face of the search warrant itself indicates, it was issued for violation of Section 56, PD 49 as amended only. The specifications therein (in Annex A) merely refer to the titles of the copyrighted motion pictures/films belonging to private complainants which defendants were in control/possession for sale, lease, distribution or public exhibition in contravention of Sec. 56, PD 49 as amended.[83]

That there were several counts of the offense of copyright infringement and the search warrant uncovered several contraband items in the form of pirated video tapes is not to be confused with the number of offenses charged. The search warrant herein issued does not violate the one-specific-offense rule.

It is pointless for private respondents to insist on compliance with the registration and deposit requirements under Presidential Decree No. 49 as prerequisites for invoking the courts protective mantle in copyright infringement cases. As explained by the court below:

Defendants-movants contend that PD 49 as amended covers only producers who have complied with the requirements of deposit and notice (in other words registration) under Sections 49 and 50 thereof. Absent such registration, as in this case, there was no right created, hence, no infringement under PD 49 as amended. This is not well-taken.

As correctly pointed out by private complainants-oppositors, the Department of Justice has resolved this legal question as far back as December 12, 1978 in its Opinion No. 191 of the then Secretary of Justice Vicente Abad Santos which stated that Sections 26 and 50 do not apply to cinematographic works and PD No. 49 had done away with the registration and deposit of cinematographic works and that even without prior registration and deposit of a work which may be entitled to protection under the Decree, the creator can file action for infringement of its rights. He cannot demand, however, payment of damages arising from infringement. The same opinion stressed that the requirements of registration and deposit are thus retained under the Decree, not as conditions for the acquisition of copyright and other rights, but as prerequisites to a suit for damages. The statutory interpretation of the Executive Branch being correct, is entitled (to) weight and respect.

xxx xxx xxx

Defendants-movants maintain that complainant and his witnesses led the Court to believe that a crime existed when in fact there was none. This is wrong. As earlier discussed, PD 49 as amended, does not require registration and deposit for a creator to be able to file an action for infringement of his rights. These conditions are merely pre-requisites to an action for damages. So, as long as the proscribed acts are shown to exist, an action for infringement may be initiated.[84]

Accordingly, the certifications[85] from the Copyright Section of the National Library, presented as evidence by private respondents to show non-registration of some of the films of petitioners, assume no evidentiary weight or significance, whatsoever.

Furthermore, a closer review of Presidential Decree No. 49 reveals that even with respect to works which are required under Section 26 thereof to be registered and with copies to be deposited with the National Library, such as books, including composite and cyclopedic works, manuscripts, directories and gazetteers; and periodicals, including pamphlets and newspapers; lectures, sermons, addresses, dissertations prepared for oral

delivery; and letters, the failure to comply with said requirements does not deprive the copyright owner of the right to sue for infringement. Such non-compliance merely limits the remedies available to him and subjects him to the corresponding sanction.

The reason for this is expressed in Section 2 of the decree which prefaces its enumeration of copyrightable works with the explicit statement that the rights granted under this Decree shall, from the moment of creation, subsist with respect to any of the following classes of works. This means that under the present state of the law, the copyright for a work is acquired by an intellectual creator from the moment of creation even in the absence of registration and deposit. As has been authoritatively clarified:

The registration and deposit of two complete copies or reproductions of the work with the National Library within three weeks after the first public dissemination or performance of the work, as provided for in Section 26 (P.D. No. 49, as amended), is not for the purpose of securing a copyright of the work, but rather to avoid the penalty for non-compliance of the deposit of said two copies and in order to recover damages in an infringement suit.[86]

One distressing observation. This case has been fought on the basis of, and its resolution long delayed by resort to, technicalities to a virtually abusive extent by private respondents, without so much as an attempt to adduce any credible evidence showing that they conduct their business legitimately and fairly. The fact that private respondents could not show proof of their authority or that there was consent from the copyright owners for them to sell, lease, distribute or circulate petitioners copyrighted films immeasurably bolsters the lower courts initial finding of probable cause. That private respondents are licensed by the Videogram Regulatory Board does not insulate them from criminal and civil liability for their unlawful business practices. What is more deplorable is that the reprehensible acts of some unscrupulous characters have stigmatized the Philippines with an unsavory reputation as a hub for intellectual piracy in this part of the globe, formerly in the records of the General Agreement on Tariffs and Trade and, now, of the World Trade Organization. Such acts must not be glossed over but should be denounced and repressed lest the Philippines become an international pariah in the global intellectual community.

WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals, and necessarily inclusive of the order of the lower court dated November 22, 1988, are hereby REVERSED and SET ASIDE. The order of the court a quo of September 5, 1988 upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED, and said court is DIRECTED to take and expeditiously proceed with such appropriate proceedings as may be called for in this case. Treble costs are further assessed against private respondents.

SO ORDERED.

Narvasa, C.J., Padilla, Davide, Jr., Romero, Melo, Puno, Vitug, Kapunan, Mendoza, Francisco, Hermosisima, Jr., Panganiban, and Torres, Jr., JJ., concur.

Bellosillo, J., no part in deliberations.

G.R. No. L-25265 May 9, 1978

PEOPLE OF THE PHILIPPINES, plaintiff-appellant, vs.SOCORRO C. RAMOS, defendant-appellee, PHOENIX PUBLISHING HOUSE INC., intervenor.

G.R. No. L-25644 May 9, 1978

SOCORRO C. RAMOS, petitioner, vs.HON. PLACIDO RAMOS, in his capacity as Presiding Judge, Branch III, CFI, Manila; and the PEOPLE OF THE PHILIPPINES, represented by State Prosecutor DELIA P. MEDINA, respondents.

Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifica P. de Castro and Solicitor Sumilang V. Bernardo for People of the Philippines.

Florence D. Regalado for Socorro C. Ramos.

Sevilla & Aquino Law Office for Intervenor.

SANTOS, J.:

The above-entitled cases — the first an appeal and the second a special civil action — are decided jointly because they raise a common — issue which arose from the prosecution of a common defendant, Socorro C. Ramos, for alleged violations of the copyright law—viz, whether or not the extra day in the leap year, 1964 should be taken into consideration in the computation of the two-year period of prescription provided in Section 24 of the copyright law.

The factual and procedural antecedents follow.

On September 3, 1965, two criminal cases — No. 80006 of the Court of First Instance of Manila, Branch III, and No. 80007 also of the same Court, Branch XIV— identical in every respect, except for the fact that they pertain to different editions of the same textbook, were filed against Socorro C. Ramos, for alleged violations of Act 3134, otherwise known as the Copyright Law, as amended. The information in Criminal Case No. 80007 alleged —

That on or about July to September, 1963, in the City of Manila and within the jurisdiction of this Honorable Court, the said accused, as the proprietor aid general manager of the National Book Store, as enterprise engaged in the business of publishing, selling and distributing books, did then and there, wilfully and illegaly sell and distribute spurious and pirated copies of the high school textbook, entitled General Science Today for Philippine School, First Year, by Gilam, Van Houten and Cornista, said accused knowing that said book was duly copyrighted by the Phoenix Publishing House, Inc., and was being distributed exclusively by its sister corporation, Alemar's or Sibal and Sons, Inc. 1

On September 7, 1965, identical motions to quash 2 were filed by accused Ramos on the ground of prescription, alleging therein, inter alia, that:

xxx xxx xxx

Consequently, the delivery of the alleged offense was made as early as July 17, 1963 and all subsequent knowledge or discoveries of posterior sales and possession of said books by the respondents, including that involved in the police search of September 4, 1963 were only confirmatory of the first. Under 91 of the Revised Penal Code and in the light of the afore-quoted ruling announced in the Pangasinan Trans. Co. case, supra; the prescriptive period, therefore, commenced to run on the day after such discovery on July 17, 1963 and, accordingly, the offense has long since prescribed since under the Copyright Law, Act 3134:

Sec. 24. All actions, suits, or proceedings arising under this Act shall be originally cognizable by the Court of First Instance of the Philippine Islands and shall prescribe after two years from the time the cause of action arose.

Assuming arguendo, that the last actual sale should be the starting point of computation, again the offense charged has prescribed, since, as already pointed out, the documented evidence on this point shows that the last sale was made on August 30, 1963.

The prosecution, also in both cases, filed its Opposition to the Motion to Quash 3 raising two issues, to wit:

1. That the issue of prescription in this case can be resolved only after the presentation of evidence and hence, it is premature to raise that issue before trial

2. That, as the violation committed by the defendant was a continuing offense, the two-year prescriptive period may be counted from September 3, 1963, or one day before the search in defendants' premises , which confirmed her possession of spurious and pirated copies of the textbook in question.

The prosecution's theory is that "(T)he crime being a continuing offense, the statute of limitations begins to run from the completion of the last act or series of acts which constitute the offense, " and this last act was committed on September 3, 1963. Therefore when the information was filed on September 3, 1965, it was filed within the two-year period, albeit the last day of the prescriptive period.

Again, in both the accused filed a "Reply to Opposition to Motion to Quash." 4 She alleged that even assuming that the crime is a continuing offense, the prescriptive period should start from August 30, 1963, the date of the last invoiced sale, and not September 3, 1963, as there was no indubitable proof that she had sold copies of the questioned book on that date. Nonetheless, accused contended that even if the prescriptive period should start from September 3, 1963, as proposed by the prosecution, the two-year period was tolled on September 2, 1965. She pointed out that two years mean a period of 730 days in accordance with Article 13 of the New Civil Code, and 1964, being a leap year consisting of 366 days, the 730th day fell on September 2, 1965. Hence, "... . when the information was filed on September 3, 1965, the offense, if any, had already prescribed. "

The prosecution filed a Rejoinder 5 in both cases alleging as follow:

l. That February 28, and 29, 1964, should be regarded as one day only, and consequently, the two-year period commencing on September 3, 1963 would end on September 3, 1965;

2. That under Act No. 3326, the prescriptive period was interrupted by the filing of the proceedings in the fiscal's office;

3. That prescription would not lie in this case because the complainant never waived the right to prosecute the defendant.

Accused Ramos, also in cases, filed an Urgent Motion to Strike the Rejoinder, 6 on the ground that it was filed after the case had been submitted for resolution. She prayed that "in the event that the same should at all be considered and allowed, that the accused be notified thereof and granted reasonable opportunity to file a surrejoinder...".

It appears that the Rejoinder was admitted by both trial courts, but a Surrejoinder 7 was filed only in Criminal Case No. 80006. Here, the accused traversed the prosecution's contentions in the Rejoinder, thus:

1. Under applicable and specific provisions of Philippine law, the two-year period of prescription commencing on September 3, 1963 ended on September 2, 1965 ...;

2. The filing (of) proceedings in the Office of the City Fiscal of Manila did not interrupt the prescriptive period.

In Criminal Case No. 80007, Hon. Jesus De Veyra granted the motion to quash by an order dated October 7, 1965. 8 Pertinent portion of his order reads:

. . . . And now to the main issue - whether the crime has prescribed. In the Opposition to the Motion to Quash, the Prosecution, in its insistence on the theory of a continuing crime, admits that the two-year prescriptive period should run from September 3, 1963. This case was filed on September 3, 1965 - one day too late. Article 13, CCP provides that year shall mean a period of 365 days. This had been

applied to criminal cases (People v. del Rosario, 51 O.G., 2686). 1964 was a leap year so that when this case was filed, it was filed one day too late.

The Motion to Quash is, therefore, granted and this case dismissed on the ground that the crime has already prescribed. (Emphasis supplied.)

The prosecution appealed the above order to this Court on October 15, 1965. 9

Meanwhile, in Criminal Case No. 80006, the motion to quash was not resolved until December 23, 1965. On this date, Hon. Placido Ramos denied the motion to quash, and set the arraignment of the accused on January 12, 1966, thus —

Wherefore, finding the information to have been filed well within the statutory period of two years from the date of the last offense committed by the accused the Court denies the motion to quash.

The arraignment of the accused is hereby set on January 12, 1966 at 8:30 A.M.

The trial court refused to accept the prosecution's view that the prescriptive period should run from September 3, held instead, that the same should commence on September 4, 1963.

xxx xxx xxx

The evidence shows that on September 4, 1963, the Manila Police by virtue of a search warrant procured by the offended party, seized, among other articles, 69 copies of General Science Today for Philippine Schools, First Year, by Gilman, Van Houten and Cornista and one copy of the same textbook for Second Year (Exhibit 5). The evidence likewise shows that on September 3, 1963, the National Book Store, run and managed by the accused, sold one said textbook, Exhibit 'D' and Exhibit '2'. The mere possession by the accused on September 4, 1963 of several copies of this textbook which is the textbook alleged to be spurious and pirated, indicates that said accused was distributing or selling said textbook on September 4, 1963 . . . This being the case, it follows of necessity that the period of prescription commenced to run from September 4, 1963 and two years from this date, by excluding the first and including the last, would expire on September 4, 1965 and hence, the action, which was instituted on September 3, 1965 is well within the prescriptive period.

xxx xxx xxx

Furthermore, the trial court ignored the accused's theory on leap year:

Even if the last sale of said textbook could be considered to have taken place on September 3, 1963, Exhibits 'D' and '2', the Court is also of the opinion that the two-year period would expire September 3, 1965.

The argument that inasmuch as 1964 is a leap year the two-year period must contain 731 days, as contemplated by Article 13 of the Civil Code of the Philippines, is, in the opinion of the Court, without merits for this particular legal provision that a year is understood to be of 365 days each is applicable only in determining the number of days a year must legally contain but not for the purpose of ascertaining the period of prescription based on years. In the computation of the period of prescription, a year should be construed as the calendar year comprising the whole period from January 1 to December 31, regardless of the number of days it contains. Consequently, in this particular case, if it is considered that the last sale took place on September 3, 1963, the two-year period, following the rule exclude thefirst-and-include-the-last, will expire on September 3, 1965.

The accused filed a Motion for Reconsideration. 10 Two more pleadings were filed, 11 after which, the trial court finally denied said motion for reconsideration for lack of merit, 12 and reset the arraignment of the accused on February 24, 1966 at 8:30 A.M.

The accused thus filed with this Court this petition for certiorari, mandamus and prohibition, 13 with the following prayer:

(a) Forthwith issue, upon filing by petitioner of a bond in such amount as this Honorable Court may fix, a Writ of Preliminary Injunction restraining, enjoining and prohibiting respondents from further proceedings in Criminal Case No. 80006 of the Court of First instance of Manila, Branch III, daring the pendency of this Action:

(b) After due hearing, to render judgment in favor of petitioner and against respondents —

(1) Annulling and setting aside the Orders of the respondent Judge of December 23, 1965 (Annex 'G') denying petitioner's motion to quash, and of January 20, 1966 (Annex 'K') denying petitioner's motion for reconsideration;

(2) Ordering respondent Judge to dismiss Criminal Case No. 80006 aforesaid; and

(3) Making the writ of preliminary injunction hereafter La be issued permanent and final.

This Court on February 11, 1966, issued a writ of preliminary injunction restraining the trial Court from further proceedings in Criminal Case No. 80006. 14 Also on the same date, the two cases, G.R. No. L-25265 and G.R. No. L-25644, were consolidated.

1. In G.R. No. L-25265, the appeal, then Solicitor General Arturo Alafriz filed a four-page brief dated December 21, 1965 15 wherein he recommended affirmance of the order of 'Judge De Veyra quashing the information, and the dismissal of the appeal, for the simple reason that "the order appealed from is in accordance with law." Accused, now appellee Ramos, filed a brief dated January 21, 1966 16 reiterating her previous allegations in the lower court.

The Phoenix Publishing House, Inc., the offended party, filed a motion to intervene in this appeal, on the following grounds:

a) That the Solicitor General, instead of prosecuting the appeal, recommended its dismissal

b) That, to protect its interest, it is necessary that the movant be allowed to intervene and to submit memorandum to sustain its view that the criminal action against the accused had not yet prescribed.17

Over the opposition of the accused-appellee, this Court granted the same. 18 Accordingly, the Phoenix Publishing House, Inc. filed its Memorandum 19 wherein it alleged that the trial court erred

I. IN ACTING ON DEFENDANT'S MOTION TO QUASH WITHOUT REQUIRING THE PRESENTATION OF EVIDENCE IN SUPPORT OF THE PLEA OF PRESCRIPTION.

II. IN NOT APPLYING TO THIS CASE THE FOUR-YEAR PRESCRIPTIVE PERIOD PROVIDED FOR IN ACT NO. 3326.

III. IN NOT HOLDING THAT THE PRELIMINARY INVESTIGATION PROCEEDINGS IN THE MANILA CITY FISCAL'S OFFICE AND IN THE DEPARTMENT OF JUSTICE INTERRUPTED PRESCRIPTION.

IV. IN NOT CONSIDERING FEBRUARY 28 AND 29, 1964, AS ONE DAY FOR PURPOSES OF PRESCRIPTION.

Accused-appellee, Ramos, filed a Reply Memorandum 20 refuting intervenor's assignment of errors. Subsequent pleadings 21 focused on whether February 28, and 29 of a leap year should be counted as one day or separate days in computing the period of prescription.

2. In G.R. No. L-25644-the special civil action — the issues raised in the foregoing assignment of errors were relied upon in respondent People's Answer. 22 And, following respondent Judge Ramos' reasoning, it was contended that the period of prescription should start from September 4, 1963, and not September 3, 1963, as originally proposed by the prosecution. Furthermore, as an affirmative defense, it was alleged that the petitioner has no cause of action forcertiorari, prohibition and mandamus since Judge Ramos did not commit any grave abuse of discretion in refusing to quash the information. Respondent contended that the "(P)etitioner's remedy is to appeal the judgment of conviction rendered after a trial on the merits. " This allegation was opposed by petitioner Ramos; 23 she insisted that she had a cause of action for certiorari prohibition and mandamus. Respondent People filed a Reply Memorandum 24 disputing petitioner's allegations.

We are, thus, faced with conflicting orders of two different Branches of the Court of First Instance of Manila-one holding that the crime has prescribed, the other that it has not.

1. Now to resolve the preliminary issues:

a. On the propriety of the special civil action for certiorari and prohibition.

We find for petitioner. As We had occasion to hold in Quizon vs. Baltazar, 76 SCRA 559:

As to the contention of respondents that the denial of a motion to quash is not a ground for certiorari and prohibition, suffice it to state that to allow an accused to undergo the ordeals of trial and conviction when the information or complaint against him is patently defective or the offense charged therein has been indisputably shown to have already prescribed is unfair and unjust for which reason, procedurally, the ordinary remedy of appeal cannot be plain and adequate.

As to mandamus, We are incline to agree with respondent's allegation that "petitioner has no cause of action for mandamus which is a writ intended to control the exercise of a purely ministerial function. To quash an information is not a ministerial function," 25 However, mandamus as a remedy is a superfluity here, considering that petitioner can obtain full relief thru certiorari and prohibition.

b. On the applicability of the four-year prescriptive period provided in Act No. 3326. 26

The same is not applicable. Said Act provides:

Section 1. Violations penalized by special acts shall unless otherwise provided in such acts, prescribe in accordance with the following rules: (a)........... (b) after four years for those punished by imprisonment for more than one month, but less than two years; ... (Emphasis supplied.)

Act No. 3326 applies only if the special act does not provide for its own prescriptive period. It has no application here, where the Copyright Law provides for its own prescriptive period, viz:

Section 24. All actions, suits, or proceedings arising under this Act shall be originally cognizable by the Courts of First Instance of the Philippines and shall prescribe after two years from the time the cause of action arose.

2. Now on the main issue of prescription. The question to be resolved is the proper computation of the two-year period of prescription from September 3, 1963. Resolution of this issue hinges, in turn, on whether February 28, and 29 of a leap year, 1964, should be counted as one day, as proposed by the prosecution; or as separate days, as alleged by the defense.

This issue which was in 1965 still undetermined is now a settled matter. It was held in 1969 in Namarco vs. Tuazon 27 that February 28 and 29 of a leap year should be counted as separate days in computing periods of prescription. Thus, this Court, speaking thru former Chief Justice Roberto Concepcion, held that where the prescriptive period was supposed to commence on December 21, 1955, the filing of the action on December 21, 1965, was done after the ten-year period has lapsed — since 1960 and 1964 were both leap years and the case was thus filed two (2) days too late. Since this case was filed on September 3, 1965, it was filed one day too late; considering that the 730th day fell on September 2, 1965 — the year 1964 being a leap year.

In explaining the rationale for its holding, the Court took pains to trace the antecedent decisional and statutory bases for its conclusion, thus —

Prior to the approval of the Civil Code of Spain, the Supreme Court thereof held, on March 30, 1887, that, when the law spoke of months, it meant a 'natural' month or 'solar' month, in the absence of express provision to the contrary. Such provision was incorporated into the Civil Code of Spain, subsequently promulgated. Hence, the same Supreme Court declared that, pursuant to Article 7 of said Code, 'whenever months are referred to in the law. it shall be understood that months are of 30 days,' not the 'natural', 'solar' or 'calendar' months, unless they are 'designated by name,' in which case, 'they shall be computed by the actual number of days they have.' This concept was, later, modified in the

Philippines, by Section 13 of the Revised Administrative Code, pursuant to which 'month shall be understood to refer to a calendar month.' With the approval of the Civil Code of the Philippines (RA 386) we have reverted to the provisions of the Spanish Civil Code in accordance with which a month is to be considered as the regular 30-month and not the solar or civil month with the particularity that, whereas the Spanish Civil Code merely mentioned 'months, days or nights,' ours has added thereto the term 'years' and explicitly ordains in Article 13 that it shall be understood that years are of three hundred sixty-five days. 28

With respect to the opinion of some members of the Court that Article 13 of the Civil Code is unrealistic, the Court adverted to the proper remedy thus —

Although some justices of the Supreme Court are inclined to think that Article 13 of the Civil Code defining 'years' to mean 365 days is not realistic, the remedy is not judicial legislation. If public interest demands a reversion to the policy embodied in the Revised Administrative Code, this may be done through legislative process, not by judicial decree. 29

Finally, there is no merit in the allegation that the reckoning of the prescriptive period should start from September 4, 1963. This was the date when the police authorities discovered several pirated books in accused's store. But the accused was charged, in both Criminal Cases Nos. 80006 and 80007, with having allegedly sold anddistributed spurious and pirated copies of the textbook in question, not of illegal possession of the same. The prosecution's claim that the preliminary investigation proceedings in the Manila City Fiscal's Office and in the prosecution Division of the Department of Justice interrupted the running of the prescriptive period, is also without merit. We held in People vs. Tayco 30 that the running of the period of prescription is interrupted not by the act of the offended party in reporting the offense to the final but the filing of the complaint or information in court.

WHEREFORE, the order dated October 7, 1965 of the Court of First Instance of Manila Branch XIV in Criminal Case No. 80007 dismissing the case on the ground of prescription, is AFFIRMED. The order dated December 23, 1965 of the same court, Branch III, in Criminal Case No. 80006, is REVERSED and SET ASIDE, and the case is DISMISSED, on the ground that the crime charged therein had already prescribed. Without pronouncement as to costs.

SO ORDERED.

Barredo, Acting (Chairman), Antonio, Concepcion, Jr. and Guerrero, JJ., concur,

Fernando, J. and Aquino, JJ., took no part.

Guerrero, J., was designated to sit in the Second Division.

G.R. No. L-11937 April 1, 1918

PEDRO SERRANO LAKTAW, plaintiff-appellant, vs.MAMERTO PAGLINAWAN, defendant-appellee.

Perfecto Gabriel for appellant. Felix Ferrer and Crossfield and O'Brien for appellee.

ARAULLO, J.:

In the complaint presented in the Court of First Instance of the City of Manila on February 20, 1915, it was alleged: (1) That the plaintiff was, according to the laws regulating literary properties, the registered owner and author of a literary work entitled Diccionario Hispano-Tagalog (Spanish-Tagalog Dictionary) published in the City of Manila in 1889 by the printing establishment La Opinion, and a copy of which was attached to the complaint, as Exhibit A; (2) that the defendant, without the consent of the plaintiff, reproduced said literary work, improperly copied the greater part thereof

in the work published by him and entitled Diccionariong Kastila-Tagalog (Spanish-Tagalog Dictionary), a copy of which was also attached to the complaint as Exhibit B; (3) that said act of the defendant, which is a violation of article 7 of the Law of January 10, 1879, on Intellectual Property, caused irreparable injuries to the plaintiff, who was surprised when, on publishing his new work entitled Diccionario Tagalog-Hispano (Tagalog-Spanish Dictionary) he learned of the fact, and (4) that the damages occasioned to the plaintiff by the publication of defendant's work amounted to $10,000. The plaintiff therefore prayed the court to order the defendant to withdraw from sale all stock of the work herein identified as Exhibit B and to pay the plaintiff the sum of $10,000, with costs.

The defendant in his answer denied generally each and every allegation of the complaint and prayed the court to absolve him from the complaint. After trial and the introduction of evidence by both parties, the court on August 20, 1915, rendered judgment, absolving the defendant from the complaint, but without making any special pronouncement as to costs. The plaintiff moved for a new trial on the ground that the judgment was against the law and the weight of the evidence. Said motion having been overruled, plaintiff excepted to the order overruling it, and appealed the case to the Supreme Court upon a bill of exceptions.

The ground of the decision appealed from is that a comparison of the plaintiff's dictionary with that of the defendant does not show that the latter is an improper copy of the former, which has been published and offered for sale by the plaintiff for about twenty-five years or more. For this reason the court held that the plaintiff had no right of action and that the remedy sought by him could not be granted.

The appellant contends that court below erred in not declaring that the defendant had reproduced the plaintiff's work and that the defendant had violated article 7 of the Law of January 10, 1879, on Intellectual Property.

Said article provides:

Nobody may reproduce another person's work without the owner's consent, even merely to annotate or add anything to it, or improve any edition thereof.

Therefore, in order that said article may be violated, it is not necessary, as the court below seems to have understood, that a work should be an improper copy of another work previously published. It is enough that another's work has been reproduced without the consent of the owner, even though it be only to annotate, add something to it, or improve any edition thereof.

Upon making a careful and minute comparison of Exhibit A, the dictionary written and published by the plaintiff, and Exhibit B, written and published by the defendant, and, taking into account the memorandum (fols. 55 to 59) presented by the defendant, in which he enumerates the words and terms which, according to him, are in his dictionary but not in that of that of the plaintiff, and viceversa, and the equivalents or definitions given by the plaintiff, as well as the new Tagalog words which are in the dictionary of the defendant but not in that of the plaintiff; and considering the notes, Exhibit C, first series, presented by the plaintiff, in which the terms copied by the defendant from the plaintiff's dictionary are enumerated in detail and in relation to each letter of the alphabet and which the plaintiff's own words and terms are set forth, with a summary, at the foot of each group of letters, which shows the number of initial Spanish words contained in the defendant's dictionary, the words that are his own and the fact that the remaining ones are truly copied from the plaintiff's dictionary — considering all of these facts, we come to a conclusion completely different and contrary to that of the trial court, for said evidence clearly shows:

1. That, of the Spanish words in the defendant's dictionary, Exhibit B, which correspond to each letter of the alphabet, those that are enumerated below have been copied and reproduced from the plaintiff's dictionary, with the exception of those that are stated to be defendant's own.

Letter Words Defendant's own

"A" 1,184 231

"B" 364 28

"C" 660 261

"CH" 76 10

"D" 874 231

"E" 880 301

"F" 383 152

"G" 302 111

"H" 57 64

"I" 814 328

"J" 113 25

"K" 11 11

"L" 502 94

"LL" 36 2

"M" 994 225

"N" 259 53

"Ñ" 6 2

"O" 317 67

"P" 803 358

"Q" 84 11

"R" 847 140

"S" 746 118

"T" 591 147

"U" 107 15

"V" 342 96

"X" 6 6

"Y" 24 4

"Z" 73 17

______ _____

23,560 3,108

Therefore, of the 23,560 Spanish words in the defendant's dictionary, after deducting 17 words corresponding to the letters K and X (for the plaintiff has no words corresponding to them), only 3,108 words are the defendant's own, or, what is the same thing, the defendant has added only this number of words to those that are in the plaintiff's dictionary, he having reproduced or copied the remaining 20,452 words.

2. That the defendant also literally reproduced and copied for the Spanish words in his dictionary, the equivalents, definitions and different meanings in Tagalog, given in plaintiff's dictionary, having reproduced, as to some words, everything that appears in the plaintiff's dictionary for similar Spanish words, although as to some he made some

additions of his own. Said copies and reproductions are numerous as may be seen, by comparing both dictionaries and using as a guide or index the defendant's memorandum and notes, first series, Exhibit C, in which, as to each word, the similarities and differences between them are set forth in detail.

3. That the printer's errors in the plaintiff's dictionary as to the expression of some words in Spanish as well as their equivalents in Tagalog are also reproduced, a fact which shows that the defendant, in preparing his dictionary, literally copied those Spanish words and their meanings and equivalents in Tagalog from the plaintiff's dictionary.

The trial court has chosen at random, as is stated in the judgment appealed from, some words from said dictionaries in making the comparison on which its conclusion is based, and consequently the conclusion reached by it must be inaccurate and not well founded, because said comparison was not complete.

In said judgment some words of the defendant's dictionary are transcribed, the equivalents and meanings of which in Tagalog are exactly the same as those that are given in the plaintiff's dictionary, with the exception, as to some of them, of only one acceptation, which is the defendant's own production. And with respect to the examples used by the defendant in his dictionary, which, according to the judgment, are not copied from the plaintiff's — the judgment referring to the preposition a (to), in Tagalog sa — it must be noted that the defendant, in giving in his dictionary an example of said preposition, uses the expression "voy a Tayabas" (I am going to Tayabas) instead of "voy a Bulacan" (I am going to Bulacan), as the plaintiff does in his dictionary, or what is the same thing, that one speaks of Bulacan while the other speaks of Tayabas. This does not show that there was no reproduction or copying by the defendant of the plaintiffs work, but just the opposite, for he who intends to imitate the work of another, tries to make it appear in some manner that there is some difference between the original and the imitation; and in the example referred to, with respect to the preposition a (to), that dissimilarity as to the province designated seems to effect the same purpose.

In the judgment appealed from, the court gives one to understand that the reproduction of another's dictionary without the owner's consent does not constitute a violation of the Law of Intellectual Property for the court's idea of a dictionary is stated in the decision itself, as follows:

Dictionaries have to be made with the aid of others, and they are improved by the increase of words. What may be said of a pasture ground may be said also of a dictionary, i. e., that it should be common property for all who may desire to write a new dictionary, and the defendant has come to this pasture ground and taken whatever he needed from it in the exercise of a perfect right.

Such idea is very erroneous, especially in relation to the Law of Intellectual Property. Danvilla y Collado the author of the Law of January 10, 1879, on Intellectual Property, which was discussed and approved in the Spanish Cortes, in his work entitled La Propiedad Intelectual (page 362, 1st ed.) states with respect to dictionaries and in relation to article 7 of said law:

The protection of the law cannot be denied to the author of a dictionary, for although words are not the property of anybody, their definitions, the example that explain their sense, and the manner of expressing their different meanings, may constitute a special work. On this point, the correctional court of the Seine held, on August 16, 1864, that a dictionary constitutes property, although some of the words therein are explained by mere definitions expressed in a few lines and sanctioned by usage, provided that the greater part of the other words contain new meanings; new meanings which evidently may only belonged to the first person who published them.

Therefore, the plaintiff, Pedro Serrano, cannot be denied the legal protection which he seeks, and which is based on the fact that the dictionary published by him in 1889 is his property — said property right being recognized and having been granted by article 7, in connection with article 2, of said law — and on the further fact that said work was reproduced by the defendant without his permission.

This law was published in the Gaceta de Madrid on January 12, 1879. It took effect in these Islands six months after its promulgation or publication, as provided in article 56 thereof. The body of rules for the execution of said law having been approved by royal decree of September 3, 1880, and published in the Gaceta de Madrid on September 6, 1880 and extended to the Philippine Islands by royal decree of May 5, 1887, it was in turn published in the Gaceta de Manila, with the approval of the Governor-General of the Islands, on June 15, 1887. Said law of January 10, 1879, and the rules for its application, were therefore in force in these Islands when the plaintiff's dictionary was edited and published in 1889.

It appears from the evidence that although the plaintiff did not introduce at the trial the certificate of registration of his property rights to said work which, according to said rules, was kept in the Central Government of these Islands, and was issued to him in 1890, the same having been lost during the revolution against Spain, and no trace relative to the issuance of said certificate being obtainable in the Division of Archives of the Executive Bureau on account of the loss of the corresponding records, yet as in the first page of said dictionary the property right of the plaintiff was reserved by means of the words "Es propiedad del autor" (All rights reserved), taken in connection with the permission granted him by the Governor-General on November 24, 1889, to print and publish said dictionary, after an examination thereof by the permanent committee of censors, which examination was made, and the necessary license granted to him, these facts constitute sufficient proof, under the circumstances of the case, as they have not been overcome by any evidence on the part of the defendant, showing that said plaintiff did not comply with the requirements of article 36 of said law, which was the prerequisite to the enjoyment of the benefits thereof according to the preceding articles, among which is article 7, which is alleged in the complaint to have been violated by the defendant.

Even considering that said Law of January 10, 1879, ceased to operate in these Islands, upon the termination of Spanish sovereignty and the substitution thereof by that of the United States of America, the right of the plaintiff to invoke said law in support of the action instituted by him in the present case cannot be disputed. His property right to the work Diccionario Hispano-Tagalog (Spanish-Tagalog Dictionary), published by him and edited in 1889, is recognized and sanctioned by said law, and by virtue thereof, he had acquired a right of which he cannot be deprived merely because the law is not in force now or is of no actual application. This conclusion is necessary to protect intellectual property rights vested after the sovereignty of Spain was superseded by that of the United States. It was so held superseded by that of the United States. It was so held in the Treaty of Paris of December 10, 1898, between Spain and the United States, when it declared in article 13 thereof that the rights to literary, artistic, and industrial properties acquired by the subject of Spain in the Island of Cuba and in Puerto Rico and the Philippines and other ceded territories, at the time of the exchange of the ratification of said Treaty, shall continue to be respect.

In addition to what has been said, according to article 428 of the Civil Code, the author of a literary, scientific, or artistic work, has the right to exploit it and dispose thereof at will. In relation to this right, there exists the exclusive right of the author, who is the absolute owner of his own work, to produce it, according to article 2 of the Law of January 10, 1879, and consequently, nobody may reproduce it, without his permission, not even to annotate or add something to it, or to improve any edition thereof, according to article 7 of said law. Manresa, in his commentaries on article 429 of the Civil Code (vol. 3, p. 633, 3d ed.) says that the concrete statement of the right to literary properties is found in the legal doctrine according to which nobody may reproduce another person's work, without the consent of his owner, or even to annotate or add something to it or to improve any edition thereof. And on page 616 of said volume, Manresa says the following:

He who writes a book, or carves a statue, or makes an invention, has the absolute right to reproduce or sell it, just as the owner of land has the absolute right to sell it or its fruits. But while the owner of land, by selling it and its fruits, perhaps fully realizes all its economic value, by receiving its benefits and utilities, which are presented, for example, by the price, on the other hand the author of a book, statue or invention, does not reap all the benefits and advantages of his own property by disposing of it, for the most important form of realizing the economic advantages of a book, statue or invention, consists in the right to reproduce it in similar or like copies, everyone of which serves to give to the person reproducing them all the conditions which the original requires in order to give the author the full enjoyment thereof. If the author of a book, after its publication, cannot prevent its reproduction by any person who may want to reproduce it, then the property right granted him is reduced to a very insignificant thing and the effort made in the production of the book is no way rewarded.

Indeed the property right recognized and protected by the Law of January 10, 1879, on Intellectual Property, would be illusory if, by reason of the fact that said law is no longer in force as a consequence of the change of sovereignty in these Islands, the author of a work, who has the exclusive right to reproduce it, could not prevent another person from so doing without his consent, and could not enforce this right through the courts of justice in order to prosecute the violator of this legal provision and the defrauder or usurper of his right, for he could not obtain the full enjoyment of the book or other work, and his property right thereto, which is recognized by law, would be reduced, as Manresa says, to an insignificant thing, if he should have no more right than that of selling his work.

The reproduction by the defendant without the plaintiff's consent of the Diccionario Hispano-Tagalog (Spanish-Tagalog Dictionary), published and edited in the City of Manila in 1889, by the publication of the Diccionariong Kastila-Tagalog (Spanish-Tagalog Dictionary), published in the same city and edited in the press El Progreso in 1913, as appears from Exhibit B, which is attached to the complaint, has caused the plaintiff, according to the latter, damages in the sum of $10,000. It is true that it cannot be denied that the reproduction of the plaintiff's book by the defendant has

caused damages to the former, but the amount thereof has not been determined at the trial, for the statement of the plaintiff as to the proceeds he would have realized if he had printed in 1913 the number of copies of his work which he stated in his declaration — a fact which he did not do because the defendant had reproduced it — was not corroborated in any way at the trial and is based upon mere calculations made by the plaintiff himself; for which reason no pronouncement can be made in this decision as to the indemnification for damages which the plaintiff seeks to recover.

The plaintiff having prayed, not for a permanent injunction against the defendant, as the plaintiff himself in his brief erroneously states, but for a judgment ordering the defendant to withdraw from sale all stock of his workDiccionariong Kastila-Tagalog (Spanish-Tagalog Dictionary), of which Exhibit B is a copy, and the suit instituted by said plaintiff being proper, we reverse the judgment appealed from and order the defendant to withdraw from sale, as prayed for in the complaint, all stock of his work above-mentioned, and to pay the costs of first instance. We make no special pronouncement as to the costs of this instance. So ordered.

Arellano, C. J., Torres, and Street, JJ., concur. Carson, and Malcolm, JJ., concur in the result.

[G.R. No. 131522. July 19, 1999]

PACITA I. HABANA, ALICIA L. CINCO and JOVITA N. FERNANDO, petitioners, vs. FELICIDAD C. ROBLES and GOODWILL TRADING CO., INC., respondents.

D E C I S I O N

PARDO, J.:

The case before us is a petition for review on certiorari[1] to set aside the (a) decision of the Court of Appeals[2], and (b) the resolution denying petitioners motion for reconsideration, [3] in which the appellate court affirmed the trial courts dismissal of the complaint for infringement and/or unfair competition and damages but deleted the award for attorneys fees.

The facts are as follows:

Petitioners are authors and copyright owners of duly issued certificates of copyright registration covering their published works, produced through their combined resources and efforts, entitled COLLEGE ENGLISH FOR TODAY (CET for brevity), Books 1 and 2, and WORKBOOK FOR COLLEGE FRESHMAN ENGLISH, Series 1.

Respondent Felicidad Robles and Goodwill Trading Co., Inc. are the author/publisher and distributor/seller of another published work entitled DEVELOPING ENGLISH PROFICIENCY (DEP for brevity), Books 1 and 2 (1985 edition) which book was covered by copyrights issued to them.

In the course of revising their published works, petitioners scouted and looked around various bookstores to check on other textbooks dealing with the same subject matter. By chance they came upon the book of respondent Robles and upon perusal of said book they were surprised to see that the book was strikingly similar to the contents, scheme of presentation, illustrations and illustrative examples in their own book, CET.

After an itemized examination and comparison of the two books (CET and DEP), petitioners found that several pages of the respondents book are similar, if not all together a copy of petitioners book, which is a case of plagiarism and copyright infringement.

http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/131522.htm#_edn3



Petitioners then made demands for damages against respondents and also demanded that they cease and desist from further selling and distributing to the general public the infringed copies of respondent Robles works.

However, respondents ignored the demands, hence, on July 7, 1988, petitioners filed with the Regional Trial Court, Makati, a complaint for Infringement and/or unfair competition with damages[4] against private respondents.[5]

In the complaint, petitioners alleged that in 1985, respondent Felicidad C. Robles being substantially familiar with the contents of petitioners works, and without securing their permission, lifted, copied, plagiarized and/or transposed certain portions of their book CET. The textual contents and illustrations of CET were literally reproduced in the book DEP. The plagiarism, incorporation and reproduction of particular portions of the book CET in the book DEP, without the authority or consent of petitioners, and the misrepresentations of respondent Robles that the same was her original work and concept adversely affected and substantially diminished the sale of the petitioners book and caused them actual damages by way of unrealized income.

Despite the demands of the petitioners for respondents to desist from committing further acts of infringement and for respondent to recall DEP from the market, respondents refused.Petitioners asked the court to order the submission of all copies of the book DEP, together with the molds, plates and films and other materials used in its printing destroyed, and for respondents to render an accounting of the proceeds of all sales and profits since the time of its publication and sale.

Respondent Robles was impleaded in the suit because she authored and directly committed the acts of infringement complained of, while respondent Goodwill Trading Co., Inc. was impleaded as the publisher and joint co-owner of the copyright certificates of registration covering the two books authored and caused to be published by respondent Robles with obvious connivance with one another.

On July 27, 1988, respondent Robles filed a motion for a bill of particulars [6] which the trial court approved on August 17, 1988. Petitioners complied with the desired particularization, and furnished respondent Robles the specific portions, inclusive of pages and lines, of the published and copyrighted books of the petitioners which were transposed, lifted, copied and plagiarized and/or otherwise found their way into respondents book.

On August 1, 1988, respondent Goodwill Trading Co., Inc. filed its answer to the complaint[7] and alleged that petitioners had no cause of action against Goodwill Trading Co., Inc. since it was not privy to the misrepresentation, plagiarism, incorporation and reproduction of the portions of the book of petitioners; that there was an agreement between Goodwill and the respondent Robles that Robles guaranteed Goodwill that the materials utilized in the manuscript were her own or that she had secured the necessary permission from contributors and sources; that the author assumed sole responsibility and held the publisher without any liability.

On November 28, 1988, respondent Robles filed her answer [8], and denied the allegations of plagiarism and copying that petitioners claimed. Respondent stressed that (1) the book DEP is the product of her independent researches, studies and experiences, and was not a copy of any existing valid copyrighted book; (2) DEP followed the scope and sequence or syllabus which are common to all English grammar writers as recommended by the Association of Philippine Colleges of Arts and Sciences (APCAS), so any similarity between the respondents book and that of the petitioners was due to the orientation of the authors to both works and standards and syllabus; and (3) the similarities may be due to the authors exercise of the right to fair use of copyrigthed materials, as guides.






Respondent interposed a counterclaim for damages on the ground that bad faith and malice attended the filing of the complaint, because petitioner Habana was professionally jealous and the book DEP replaced CET as the official textbook of the graduate studies department of the Far Eastern University.[9]

During the pre-trial conference, the parties agreed to a stipulation of facts [10] and for the trial court to first resolve the issue of infringement before disposing of the claim for damages.

After the trial on the merits, on April 23, 1993, the trial court rendered its judgment finding thus:

WHEREFORE, premises considered, the court hereby orders that the complaint filed against defendants Felicidad Robles and Goodwill Trading Co., Inc. shall be DISMISSED; that said plaintiffs solidarily reimburse defendant Robles for P20,000.00 attorneys fees and defendant Goodwill for P5,000.00 attorneys fees. Plaintiffs are liable for cost of suit.

IT IS SO ORDERED.

Done in the City of Manila this 23rd day of April, 1993.

(s/t) MARVIE R. ABRAHAM SINGSONAssisting JudgeS. C. Adm. Order No. 124-92[11]

On May 14, 1993, petitioners filed their notice of appeal with the trial court [12], and on July 19, 1993, the court directed its branch clerk of court to forward all the records of the case to the Court of Appeals.[13]

In the appeal, petitioners argued that the trial court completely disregarded their evidence and fully subscribed to the arguments of respondent Robles that the books in issue were purely the product of her researches and studies and that the copied portions were inspired by foreign authors and as such not subject to copyright. Petitioners also assailed the findings of the trial court that they were animated by bad faith in instituting the complaint.[14]

On June 27, 1997, the Court of Appeals rendered judgment in favor of respondents Robles and Goodwill Trading Co., Inc. The relevant portions of the decision state:

It must be noted, however, that similarity of the allegedly infringed work to the authors or proprietors copyrighted work does not of itself establish copyright infringement, especially if the similarity results from the fact that both works deal with the same subject or have the same common source, as in this case.

Appellee Robles has fully explained that the portion or material of the book claimed by appellants to have been copied or lifted from foreign books. She has duly proven that most of the topics or materials contained in her book, with particular reference to those matters claimed by appellants to have been plagiarized were topics or matters appearing not only in appellants and her books but also in earlier books on College English, including foreign books, e.i. Edmund Burkes Speech on Conciliation, Boerigs Competence in English and Broughtons, Edmund Burkes Collection.

x x x







Appellants reliance on the last paragraph on Section 11 is misplaced. It must be emphasized that they failed to prove that their books were made sources by appellee.[15]

The Court of Appeals was of the view that the award of attorneys fees was not proper, since there was no bad faith on the part of petitioners Habana et al. in instituting the action against respondents.

On July 12, 1997, petitioners filed a motion for reconsideration, [16] however, the Court of Appeals denied the same in a Resolution[17] dated November 25, 1997.

Hence, this petition.

In this appeal, petitioners submit that the appellate court erred in affirming the trial courts decision.

Petitioners raised the following issues: (1) whether or not, despite the apparent textual, thematic and sequential similarity between DEP and CET, respondents committed no copyright infringement; (2) whether or not there was animus furandi on the part of respondent when they refused to withdraw the copies of CET from the market despite notice to withdraw the same; and (3) whether or not respondent Robles abused a writers right to fair use, in violation of Section 11 of Presidential Decree No. 49.[18]

We find the petition impressed with merit.

The complaint for copyright infringement was filed at the time that Presidential Decree No. 49 was in force. At present, all laws dealing with the protection of intellectual property rights have been consolidated and as the law now stands, the protection of copyrights is governed by Republic Act No. 8293. Notwithstanding the change in the law, the same principles are reiterated in the new law under Section 177. It provides for the copy or economic rights of an owner of a copyright as follows:

Sec.177. Copy or Economic rights.Subject to the provisions of chapter VIII, copyright or economic rights shall consist of the exclusive right to carry out, authorize or prevent the following acts:

177.1 Reproduction of the work or substantial portion of the work;

177.2 Dramatization, translation, adaptation, abridgement, arrangement or other transformation of the work;

177.3 The first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership;

177.4 Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied in a sound recording, a computer program, a compilation of data and other materials or a musical work in graphic form, irrespective of the ownership of the original or the copy which is the subject of the rental; (n)

177.5 Public display of the original or copy of the work;

177.6 Public performance of the work; and

177.7 Other communication to the public of the work[19]






The law also provided for the limitations on copyright, thus:

Sec. 184.1 Limitations on copyright.-- Notwithstanding the provisions of Chapter V, the following acts shall not constitute infringement of copyright:

(a) the recitation or performance of a work, once it has been lawfully made accessible to the public, if done privately and free of charge or if made strictly for a charitable or religious institution or society; [Sec. 10(1), P.D. No. 49]

(b) The making of quotations from a published work if they are compatible with fair use and only to the extent justified for the purpose, including quotations from newspaper articles and periodicals in the form of press summaries; Provided, that the source and the name of the author, if appearing on the work are mentioned; (Sec. 11 third par. P.D.49)

x x x x x x x x x x x x

(e) The inclusion of a work in a publication, broadcast, or other communication to the public, sound recording of film, if such inclusion is made by way of illustration for teaching purposes and is compatible with fair use: Provided, That the source and the name of the author, if appearing in the work is mentioned; [20]

In the above quoted provisions, work has reference to literary and artistic creations and this includes books and other literary, scholarly and scientific works.[21]

A perusal of the records yields several pages of the book DEP that are similar if not identical with the text of CET.

On page 404 of petitioners Book 1 of College English for Today, the authors wrote:

Items in dates and addresses:

He died on Monday, April 15, 1975.Miss Reyes lives in 214 Taft Avenue,Manila[22]

On page 73 of respondents Book 1 Developing English Today, they wrote:

He died on Monday, April 25, 1975.Miss Reyes address is 214 Taft Avenue Manila[23]

On Page 250 of CET, there is this example on parallelism or repetition of sentence structures, thus:

The proposition is peace. Not peace through the medium of war; not peace to be hunted through the labyrinth of intricate and endless negotiations; not peace to arise out of universal discord, fomented from principle, in all parts of the empire; not peace to depend on the juridical determination of perplexing questions, or the precise marking of the boundary of a complex government. It is simple peace; sought in its natural course, and in its ordinary haunts. It is peace sought in the spirit of peace, and laid in principles purely pacific.

--- Edmund Burke, Speech on Criticism.[24]

On page 100 of the book DEP[25], also in the topic of parallel structure and repetition, the same example is found in toto. The only difference is that petitioners acknowledged the author Edmund Burke, and respondents did not.







In several other pages[26] the treatment and manner of presentation of the topics of DEP are similar if not a rehash of that contained in CET.

We believe that respondent Robles act of lifting from the book of petitioners substantial portions of discussions and examples, and her failure to acknowledge the same in her book is an infringement of petitioners copyrights.

When is there a substantial reproduction of a book? It does not necessarily require that the entire copyrighted work, or even a large portion of it, be copied. If so much is taken that the value of the original work is substantially diminished, there is an infringement of copyright and to an injurious extent, the work is appropriated.[27]

In determining the question of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute piracy.[28]

The essence of intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright.[29]

The respondents claim that the copied portions of the book CET are also found in foreign books and other grammar books, and that the similarity between her style and that of petitioners can not be avoided since they come from the same background and orientation may be true. However, in this jurisdiction under Sec 184 of Republic Act 8293 it is provided that:

Limitations on Copyright. Notwithstanding the provisions of Chapter V, the following shall not constitute infringement of copyright:

x x x x x x x x x x x x

(c) The making of quotations from a published work if they are compatible with fair use and only to the extent justified for the purpose, including quotations from newspaper articles and periodicals in the form of press summaries: Provided, That the source and the name of the author, if appearing on the work, are mentioned.

A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril.[30]

The next question to resolve is to what extent can copying be injurious to the author of the book being copied. Is it enough that there are similarities in some sections of the books or large segments of the books are the same?

In the case at bar, there is no question that petitioners presented several pages of the books CET and DEP that more or less had the same contents. It may be correct that the books being grammar books may contain materials similar as to some technical contents with other grammar books, such as the segment about the Author Card. However, the numerous pages that the petitioners presented showing similarity in the style and the manner the books were presented and the identical examples can not pass as similarities merely because of technical consideration.






The respondents claim that their similarity in style can be attributed to the fact that both of them were exposed to the APCAS syllabus and their respective academic experience, teaching approach and methodology are almost identical because they were of the same background.

However, we believe that even if petitioners and respondent Robles were of the same background in terms of teaching experience and orientation, it is not an excuse for them to be identical even in examples contained in their books. The similarities in examples and material contents are so obviously present in this case. How can similar/identical examples not be considered as a mark of copying?

We consider as an indicia of guilt or wrongdoing the act of respondent Robles of pulling out from Goodwill bookstores the book DEP upon learning of petitioners complaint while pharisaically denying petitioners demand. It was further noted that when the book DEP was re-issued as a revised version, all the pages cited by petitioners to contain portion of their book College English for Today were eliminated.

In cases of infringement, copying alone is not what is prohibited. The copying must produce an injurious effect. Here, the injury consists in that respondent Robles lifted from petitioners book materials that were the result of the latters research work and compilation and misrepresented them as her own. She circulated the book DEP for commercial use and did not acknowledge petitioners as her source.

Hence, there is a clear case of appropriation of copyrighted work for her benefit that respondent Robles committed. Petitioners work as authors is the product of their long and assiduous research and for another to represent it as her own is injury enough. In copyrighting books the purpose is to give protection to the intellectual product of an author. This is precisely what the law on copyright protected, under Section 184.1 (b). Quotations from a published work if they are compatible with fair use and only to the extent justified by the purpose, including quotations from newspaper articles and periodicals in the form of press summaries are allowed provided that the source and the name of the author, if appearing on the work, are mentioned.

In the case at bar, the least that respondent Robles could have done was to acknowledge petitioners Habana et. al. as the source of the portions of DEP. The final product of an authors toil is her book. To allow another to copy the book without appropriate acknowledgment is injury enough.

WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of Appeals in CA-G. R. CV No. 44053 are SET ASIDE. The case is ordered remanded to the trial court for further proceedings to receive evidence of the parties to ascertain the damages caused and sustained by petitioners and to render decision in accordance with the evidence submitted to it.

SO ORDERED.

Kapunan, and Ynares-Santiago, JJ., concur.Davide, Jr., C.J., (Chairman), pls. see dissenting opinion.Melo, J., no part. Personal reasons.

DAVIDE, JR., C.J., dissenting opinion:

I am unable to join the majority view.

From the following factual and procedural antecedents, I find no alternative but to sustain both the trial court and the Court of Appeals.

http://sc.judiciary.gov.ph/jurisprudence/1999/jul99/131522_jdavide.htm

On 12 July 1988, HABANA, et al. filed with the trial court a complaint for infringement and unfair competition, with damages against private respondent Felicidad C. Robles (hereafter ROBLES) and her publisher and distributor, Goodwill Trading Co., Inc. (hereafter GOODWILL). The case was docketed as Civil Case No. 88-1317.

HABANA, et al. averred in their complaint that they were the co-authors and joint copyright owners of their published works College English for Today, Books 1 and 2 (hereafter CET) and Workbook for College Freshmen English, Series [1]I; they discovered that ROBLES' own published works, Developing English Proficiency, Books 1 and 2, (hereafter DEP), published and distributed in 1985, exhibited an uncanny resemblance, if not outright physical similarity, to CET as to content, scheme, sequence of topics and ideas, manner of presentation and illustrative examples; the plagiarism, incorporation and reproduction of particular portions of CET into DEP could no be gainsaid since ROBLES was substantially familiar with CET and the textual asportation was accomplished without their authority and/or consent; ROBLES and GOODWILL Jointly misrepresented DEP (over which they shared copyright ownership) "as the former's original published works and concept"; and "notwithstanding formal demands made to cease and desist from the sale and distribution of DEP, [ROBLES and GOODWILL] persistently failed and refused to comply therewith." HABANA, et al. then prayed for the court to: (1) order the submission and thereafter the destruction of all copies of DEP, together with the molds, plates, films and other materials used in the printing thereof; (2) require ROBLES and GOODWILL to render an accounting of the sales of "infringing works from the time of its (sic) inceptive publication up to the time of judgment, as well as the amount of sales and profitsderived"; and (3) to enjoin ROBLES and GOODWILL to solidarily pay actual, moral and exemplary damages, as well as attorney's fees and expenses of litigation.

In its Answer, GOODWILL denied culpability since "it had no knowledge or information sufficient to form a belief as to the allegations of plagiarism, incorporation and reproduction" and hence "could not be privy to the same, if (there were) any"; and that in an Agreement with co-defendant ROBLES, the latter would be solely responsible for acts of plagiarism or violations of copyright or any other law, to the extent of answering for any and all damages GOODWILL may suffer. GOODWILL also interposed a compulsory counterclaim against PACITA, et al. and a crossclaim against its co-defendant anchored on the aforementioned Agreement.

In her answer, ROBLES asserted that: (1) DEP was the exclusive product of her independent research, studies and experience; (2) DEP, particularly the segments where the alleged literal similitude appeared, were admittedly influence or inspired by earlier treatises, mostly by foreign authors; but that "influences and/or inspirations from other writers" like the methodology and techniques as to presentation, teaching concept and design, research and orientation which she employed, fell within the ambit of general information, ideas, principles of general or universal knowledge which were commonly and customarily understood as incapable of private and exclusive use, appropriation or copyright; and (3) her works were the result of the legitimate and reasonable exercise of an author's "right to fair use of even copyrighted materials as [a] guide." She further claimed that her various national and regional professional activities in general education, language and literature, as well as her teaching experience in graduate and post graduate education would obviate the remotest possibility of plagiarism.

ROBLES likewise suggested that any similarity between DEP and CET as regards scope and sequence could be attributed to "the orientation of the authors to the scope and sequence or syllabus - which incorporates standards known among English grammar book writers - of the subject-matter for Basic Communication Arts recommended by the Association of Philippine Colleges of Arts and Sciences (APCAS)." While the syllabus was admittedly adopted in DEP, she claimed to have treated quite differently in DEP the very ideas, techniques or principles expressed in CET such that neither textbook could be considered a copy of plagiarism of the other.

At the pre-trial conference, the parties agreed to a stipulation of facts [2] and for the court to first resolve the issue of infringement before disposing of the claims for damages. After trial on the merits, the trial court rendered its decision in favor of the defendants, the dispositive portion of which reads:

WHEREFORE, premises considered, the Court hereby orders that the complaint filed against defendants Felicidad Robles and Goodwill Trading co. Inc. shall be DISMISSED: that said plaintiffs solidarily reimburse defendant Robles for P20,000.00 attorney's fees and defendant Goodwill for P5,000.00 attorney's fees. Plaintiffs are liable for costs of suit.

IT IS SO ORDERD.[3]

Noting that the law applicable to the case was Presidential Decree No. 49, [4] the trial court found that HABANA, et al. failed to discharge their onus of proving that ROBLES and GOODWILL committed acts constituting copyright infringement. Moreover, the trial court found that "the cause of action or acts complained of [were] not covered by said decree" as Section 10 thereof barred authors of works already lawfully made accessible to the public from prohibiting the reproductions, translations, adaptations, recitation and performance of the same, while Section 11 allowed the utilization of reproductions, quotations and excerpts of such works. The trial court thus agreed with ROBLES that "the complained acts [were] of general and universal knowledge and use which plaintiffs cannot claim originality or seek redress to the law for protection" and observed that DEP and CET had the same sources, consisting chiefly of earlier works, mostly foreign books. GOODWILL's crossclaim against ROBLES, counterclaim against HABANA, et al. as well as ROBLES' compulsory counterclaim against GOODWILL were all dismissed for lack of factual and legal bases.

HABANA, et al. appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 44053. Before said court HABANA, et al., in the main, argued that the trial court totally disregarded their evidence and merely subscribed to ROBLES' arguments. The Court of Appeals, however, likewise disposed of the controversy in favor of ROBLES and GOODWILL. [5]

However, the Court of Appeals modified the trial court's decision by reversing the award for attorney's fees. It held that the good faith and sincerity of HABANA, et al. in commencing the action negated the basis therefor. Their motion for reconsideration having been denied for want of cogent reasons, HABANA, et al., instituted this petition. They claim that the Court of Appeals committed reversible error in failing to appreciate: (1) the insuperable evidence and facts admitted and proved demonstrating plagiarism or piracy and instead afforded full weight and credit to ROBLES' matrix of general, hypothetical and sweeping statements and/or defenses; (2) ROBLES' and GOODWILL's animo furandi or intent to appropriate or copy CET with the non-removal of the damaging copies of DEP from the bookstores despite notice to withdraw the same; and (3) the fact that ROBLES abused a writer's right to fair use, in violation of Section 11 of P.D. No. 49. [6] They invoke Laktaw v. Paglinawan [7] which, they theorize is on all fours with the case at bar. ROBLES contends that appeal by certiorari does not lie in this case for the challenged decision and the trial court's judgment were amply supported by evidence, pertinent laws and jurisprudence. Hence, her counterclaim for moral damages should, therefore, be granted or for us to order the remand of the case to the trial court for reception of evidence on damages. GOODWILL, on its part, stood pat on its disclaimer, with the assertion that no proof was ever introduced that it co-authored DEP or that is singly or in cabal with ROBLES committed any act constituting copyright infringement.

The core issue then is whether or not the Court of Appeals erred in affirming the trial court's judgment that despite the apparent textual, thematic and sequential similarity between DEP and CET, no copyright was committed by ROBLES and GOODWILL.

While the complaint, in Civil Case No. 88-1317 was filed during the effectivity of PA.D. No. 49, the provisions of the new intellectual property law, R.A. No. 8293, [8] nevertheless bears significance here. It took effect on 1 January 1998, but its Section 239.3 clearly states that its provisions shall apply to works in which copyright protection obtained prior to the effectivity of the Act subsists, provided, however, that the application of the Act shall not result in the diminution of such protection. Also, the philosophy behind both statutes as well as the essential principles of copyright protection and copyright infringement have, to a certain extent, remained the same.

A copyright may be accurately defined as the right granted by a statute to the proprietor of an intellectual production to its exclusive use and enjoyment to the extent specified in the statute. [9] Under Section 177 of R.A. No. 8293, [10]the copy or economic right (copyright and economic right are used interchangeably in the statute) consists of the exclusive right to carry out, authorize or prevent the following acts:

177.1 Reproduction of the work or substantial portion of the work;

177.2 Dramatization, translation, adaptation, abridgment, arrangement or other transformation of the work;

1777.3 The first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership;

177.4 Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied in a sound recording, a computer program, a compilation of data and other materials or a musical work in graphic form, irrespective of the ownership of the original or the copy which is the subject of the rental;

177.5 Public display of the original or a copy of the work;

177.6 Public performance of the work; and

177.7 Other communication to the public of the work.

The work, as repeatedly mentioned, refers to the literary and artistic works defined as original intellectual creations in the literary and artistic domain protected from the moment of their creation and enumerated in Section 172.1, which includes books and other literary, scholarly, scientific and artistic works. [11]

Stripped in the meantime of its indisputable social and beneficial functions, [12] the use of intellectual property or creations should basically promote the creator or authors personal and economic gain. Hence, the copyright protection extended to the creator should ensure his attainment of some form of personal satisfaction and economic reward from the work he produced. Without conceding the suitability of Laktaw as precedent, the Court there quoted Manresa and explained:

He who writes a book, or carves a statute, or makes an invention, has the absolute right to reproduce or sell it, just as the owner of the land has the absolute right to sell it or its fruits. But while the owner of the land, by selling it and its fruits, perhaps fully realizes all its economic value, by receiving its benefits and utilities, which are represented for example, by the price, on the other hand the author of a book, statue or invention does not reap all the benefits and advantages of his own property by disposing of it, for the most important form of realizing the economic advantages of a book, statue or invention, consists in the right to reproduce it in similar or like copies, everyone of which serves to give to the person reproducing them all the conditions which the original requires in order to give the author the full enjoyment thereof. If the author of a book, after its publication, cannot prevent its reproduction by any person who may want to reproduce it, then the property right granted him is reduced to a very insignificant thing and the effort made in the production of the book is in no way rewarded. [13]

The execution, therefore, of any one or more of the exclusive rights conferred by law on a copyright owner, without his consent, constitutes copyright infringement. In essence, copyright infringement, known in general as piracy, is a trespass on a domain owned and occupied by a copyright owner; it is violation of a private right protected by law. [14]With the invasion of his property rights, a copyright owner is naturally entitled to seek redress, enforce and hold accountable the defrauder or usurper of said economic rights.

Now, did ROBLES and GOODWILL infringe upon the copyright of HABANA, et al. by publishing DEP, which the latter alleged to be a reproduction, or in the least, a substantial reproduction of CET? Both the trial court and respondent court found in the negative. I submit they were correct.

To constitute infringement, the usurper must have copied or appropriated the original work of an author or copyright proprietor, [15] absent copying, there can be no infringement of copyright. [16] In turn, a work is deemed by law an original if the author created it by his own skill, labor and judgment. [17] On its part, a copy is that which comes so near to the original so as to give to every person seeing it the idea created by the original. It has been held that the test of copyright infringement is whether an ordinary observer comparing the works can readily see that one has been copied from the other. [18] A visual comparison of the portions of CET [19] juxtaposed against certain pages of DEP, [20] would inescapably lead to a conclusion that there is a discernible similarity between the two; however, as correctly assessed by respondent court and the lower court, no conclusion, can be drawn that DEP, in legal contemplation, is a copy of CET.

Was DEP a substantial reproduction of CET? To constitute a substantial reproduction, it is not necessary that the entire copyrighted work, or even a large portion of it, be copied, if so much is taken that the value of the original is substantially diminished, or if the labors of the original author are substantially, and to an injurious extent, appropriated. [21] But the similarity of the books here does not amount to an appropriation of a substantial portion of CET. If the existence of substantial similarities does not of itself establish infringement, [22] mere similarities (not substantial similarities) in some sections of the books in question decisively militate against a claim for infringement where the similarities had been convincingly established as proceeding from a number of reasons and/or factors.

1. As both books are grammar books, they inevitably deal with the same subjects typically and ordinarily treated by writers of such genre, [23] e.g., system of book classification, the different kinds of card catalogs and their entries, use of punctuation marks, paragraphs, the characteristics of an effective paragraph, language structure, different parts of a book, etc. These standard subjects fall within the domain of ideas, concepts, universal and general knowledge that have, as admitted by the protagonists here, been in existence for quite a long time. [24]As such, HABANA, et al. cannot demand monopoly, by way of example, in the use of the recognized library classification systems (Dewey Decimal System and the Library of Congress System), or how a book can be divided into parts (frontispiece, title page, copyright page, preface, table of contents, etc.) or to the different headings used in a card catalogue (title card, author card and subject card), since these are of common or general knowledge. Even in this jurisdiction, no protection can be extended to such an idea, procedure, system method or operation, concept, principle, discovery or mere data, even if expressed, explained, illustrated or embodied in a work. [25]

2. As found by respondent court, CET and DEP had common sources and materials, [26] such that the particular portions claimed to have been lifted and literally reproduced also appeared in earlier works, mostly by foreign authors. This is clear from the testimony of petitioner Dr. Pacita Habana:

Q Lets clarify your position Dra. Habana. When defendants test (sic) showed 10 words similar to yours, you so concluded it was (sic) copied from yours but when I pointed out to you same (sic) words contained in the earlier book of Wills then you earlier in your test in your book (sic) you refused to admit that it was copied from Wills.

A Yes, sir. We have never all 35 words were copied from there.

Q But what I am asking how could you conclude that by just similarity of 10 words of defendants words that was copied from yours [sic] and when I point out to you the similarity of that same words from the words earlier than yours (sic) you refused to admit that you copied?

A I would like to change the final statement now that in the case of defendant Robles you pointed out her source very clear. She copied it from that book by Wills.

Q So, she did not copy it from yours?

A Alright, maybe she did not copy it but definitely it is a pattern of plagerism [sic].[27]

3. Similarity in orientation and style can likewise be attributed to the exposure of the authors to the APCAS syllabus and their respective academic experience, teaching approaches and methodology. It is not farfetched that they could have even influenced each other as textbook writers. ROBLES and Dr. Pacita Habana were faculty members of the Institute of English of the Far Eastern University from 1964 to 1974. [28]Both were ardent students, researchers, lecturers, textbook writers and teachers of English and grammar. They even used to be on friendly terms with each other, to the extent that Dr. Habana admitted that ROBLES assisted the former in the preparation of her doctoral dissertation. Given their near-identical academic and professional background, it is natural they would use many expressions and definitions peculiar to teaching English grammar. It comes therefore with no surprise that there are similarities in some parts of the rival books. Indeed, it is difficult to conceive how writers on

the same subject matter can very well avoid resorting to common sources of information and materials and employing similar expressions and terms peculiar to the subject they are treating. [29]

To illustrate, an excerpt from page 21 of CET reads:

Author Card

The author card is the main entry card. It contains

1. the authors complete name on the first line, surname first, which may be followed by the date of his birth and death if he is no longer living;

2. the title of the book, and the subtitle, if there is one;

3. the edition, if it is not the first;

4. the translator or illustrator, if there is any;

5. the imprint which includes the publisher, the place and date of publication;

6. the collation composed of the number of pages, volume, illustrations, and the size of the book;

7. the subjects with which the book deals ;

8. the call number on the upper left-hand corner.

Names beginning with Mc, or M are filed in the card catalog as though spelled out as MAC, for example Mc Graw MacGraw. The same is true of St. and Saint.

While a portion of DEP found on page 18 which discusses the author card provides:

The author card is the main entry card containing:

1. the authors complete name on the first line, surname first, which may be followed by the date of his birth and death if he is no longer living;

2. the title of the book, and the subtitle if there is one;

3. the edition, if it is not the first;

4. the translator or illustrator, if any;

5. the imprint which includes the publisher, the place and date of publication;

6. the collation, composed of the number of pages, volume, illustrations, and the size of the book;

7. the subject with which the book deals; and

8. the call number on the upper-left hand corner.

Names beginning with MC, or M are filed in the card catalog considered spelled out as MAC, for example: Mcleod - Macleod. This is true also of St. and Saint.

The entries found in an author card, having been developed over quite some time, are expectedly uniform. Hence, HABANA, et at. and ROBLES would have no choice but to articulate the terms particular to the entries in an identical manner.

I thus find that the ruling of the respondent court is totally supported by the evidence on record. Of doctrinal persuasion is the principle that factual determinations of the Court of Appeals and the trial court are conclusive and binding upon this Court, and the latter will not, as a rule, disturb these findings unless compelling and cogent reasons necessitate a reexamination, if not a reversal, of the same. [30]Tested against this jurisprudential canon, to

subject the challenged decision of the Court of Appeals to further scrutiny would be superfluous, if not, improvident.

I am not persuaded by the claim of HABANA, et at. that Laktaw is on all fours with and hence applicable to the case at bar. There, this Court disposed that defendant, without the consent of and causing irreparable damage to Laktaw, reproduced the latters literary work Diccionario Hispano-Tagalog, and improperly copied the greater part thereof in the workDiccionariong Kastila-Tagalog published by defendant, in violation of Article 7 of the Law of 10 January 1879 on Intellectual Property. This Court anchored its decision on the following observations:

(1) [O]f the 23, 560 Spanish words in the defendant's dictionaryonly 3,108 words are the defendant's own, or, what is the same thing, the defendant had added only this number of words to those that are in the plaintiff's dictionary, he having reproduced or copied the remaining 20,452 words;

(2) [T]he defendant also literally reproduced and copied for the Spanish words in his dictionary, the equivalents, definitions and different meanings in Tagalog, given in plaintiff's dictionary, having reproduced, as to some words, everything that appears in the plaintiff's dictionary for similar Spanish words, although as to some he made some additions of his own.Said copies and reproductions are numerous ;

(3) [T]he printer's errors in the plaintiff's dictionary as to the expression of some words in Spanish as well as their equivalents in Tagalog are also reproduced, a fact which shows that the defendant, in preparing his dictionary, literally copied those Spanish words and their meanings and equivalents in Tagalog from the plaintiff's dictionary. [31]

Plainly, the rationale in Laktaw does not apply in this case. First, aside from an isolated accounting of the number of words supposedly usurped in a segment of DEP from CET, [32]the records do not disclose that all the words allegedly copied were tallied and that the words thus tallied were numerous enough to support a finding of copying. Second, as already conceded, while there is an identity in the manner by which some of the ideas and concepts were articulated, this prescinded from various factors already elucidated. Besides, ROBLES' testimony that she made an independent investigation or research of the original works or authors she consulted was unrebutted; [33] for germane here is the question of whether the alleged infringer could have obtained the same information by going to the same source by her own independent research. [34] ROBLES convinced the trial court and the Court of Appeals on this; thus, we are bound by this factual determination, as likewise explained earlier. Third, reproduction of the printer's errors or the author's blunders and inaccuracies in the infringing copy does not ipso facto constitute copying or plagiarism or infringement, but it is conceded that they are telltale signs that infringement might have committed. [35] However, the records do not reveal this to be the case. Fourth, the law on intellectual property violated in Laktaw was a world and time apart from R.A. No. 8293 or even P.D. No. 49. Thus, under Article 7 of the Law of 10 January 1879, the Court ruled that nobody could reproduce another person's work without the owner's consent, even merely to annotate or add anything to it, or improve any edition thereof. The more recent laws on intellectual property, however, recognize recent advancements in technology transfer and information dissemination. They thus allow the use of copyrighted materials if compatible with fair use and to the extent justified for the purpose. In particular, the new laws sanction the fair use of copyrighted work for criticism, comment, news reporting, teaching including multiple copies for classroom use, scholarship, research and similar purposes. [36] Further, the limitations of the exclusive use of copyrighted materials under Sections 10 and 11 of P.D. No. 49 in consonance with the principle of fair use have been reproduced and incorporated in the new law. [37] All told, Laktaw is inapplicable.

Fair use has been defined as a privilege to use the copyrighted material in a reasonable manner without the consent of the copyrighted owner or as a copying the theme or ideas rather than their expression. [38] No question of fair or unfair use arises however, if no copying is proved to begin with. This is in consonance with the principle that there can be no infringement if there was no copying. [39] It is only where some form of copying has been shown that it becomes necessary to determine whether it has been carried to an "unfair," that is, illegal, extent.

[40] Consequently, there is no reason to address the issue of whether ROBLES abused a writer's right to fair use with the ascertainment that DEP was not a copy or a substantial copy of CET.

WHEREFORE, I vote to DENY the petition and to AFFIRM the challenged decision of 27 June 1997 of the Court of Appeals.

[1] Original Record (OR), 10-12. The certificates of copyright registration for the three books were dated 3 August 1976, 13 October 1977 and 17 July 1973, respectively.

[2] OR, 205-206.

[3] OR, 415-435. The decision was rendered by Marvie R. Abraham Singson, Assisting Judge per S.C. Adm. Order No. 124-92.

[4] Entitled Decree on the Protection of Intellectual Property, promulgated on 14 November 1972.

[5] Per Associate Justice Artemio Tuquero, J.; with Artemon D. Luna and Hector L. Hofilena, JJ., concurring.

[6] Section 11. To an extend (sic) compatible with fair practice and justified by the scientific, critical, informatory or educational purpose, it shall be permissible to make quotations or excerpts from a work already lawfully made accessible to the public. Such quotations may be utilized in their original form or in translation.

News items, editorials, and articles on current political, social, economic, scientific or religious topic may be reproduced by the press or broadcast, unless they contain or are accompanied by a notice that their reproduction or publication is reserved. In case of musical works, parts of little extent may also be reproduced.

Quotations and excerpts as well as reproductions shall always be accompanied by an acknowledgment of the source and name of author, if his name appears thereon.

[7] 44 Phil 855 [1918].

[8] Entitled An Act Prescribing the Intellectual Property Code and Establishing the Intellectual Property Office, Providing for its Powers and Functions, and For Other Purposes.

[9] 18 C.J.S. Copyright and Literary Property 1 (hereinafter 18 C.J.S.).

[10] Similar rights were granted under P.D. No. 49, thus:

Section 5. Copyright shall consist in the exclusive right:

(A) To print, reprint, publish, copy, distribute, multiply, sell and make photographs, photo-engravings, and pictorial illustrations of the works;

(B) To make any translation or other version or extracts or arrangements or adaptations thereof; to dramatize it if it be a non-dramatic work; to convert it into a non-dramatic work if it be a drama; to complete or execute it if it be a model or design;

(C) To exhibit, perform, represent, produce or reproduce the work in any manner or by any method whatever for profit or otherwise; if not reproduced in copies for sale, to sell any manuscript or any record whatsoever thereof;

(D) To make any other use or disposition of the work consistent with the laws of the land.

[11] Section 172. Literary and Artistic Works. 172.1 Literary and artistic works, hereinafter referred to as works, are original intellectual creations in the literary and artistic domain protected from the moment of their creation and shall include in particular:

(a) Books, pamphlets, articles and other writings;

(b) Periodicals and newspapers;

(c) Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in writing or other material form;

(d) Letters;

(e) Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows;

(f) Musical compositions, with or without words;

(g) Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models or designs for works of art;

(h) Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art;

(i) Illustrations, maps, plans, sketches, charts and three-dimensional works relative to geography, topography, architecture or science;

(j) Drawings or plastic works of a scientific or technical character;

(k) Photographic works including works produced by a process analogous to photography; lantern slides;

(l) Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings;

(m) Pictorial illustrations and advertisements;

(n) Computer programs; and

(o) Other literary; scholarly, scientific and artistic works.

[12] The use of intellectual property bears a social function. To this end, the State shall promote the diffusion of knowledge and information for the promotion of national development and progress and the common good. (Section 2 of RA 8293) Further, the social interest in copyright lies in the adjustment of two objectives: the encouraging of individuals to intellectual labor by assuring them of just rewards, and by securing to society of the largest benefits of their products. The history of the concept reflects our progress in the mechanical communications, our ideas of property and the functions of the state, and our changing social ethics. 2 ARTURO M. TOLENTINO, THE CIVIL CODE OF THE PHILIPPINES 517 [1992].

[13] Supra note 7 at 864-865.

[14] See Columbia Pictures, Inc. v. Court of Appeals, 261 SCRA 144,183 - 184 [1996] citing 18 C.J.S. 90; 18 AM JUR 2D, Copyright and Literary Property; 106 (hereinafter 18 AM JUR 2D).

[15] See 18 AM JUR 2D 101 citing Weitzenkorn v. Lesser, 40 Cal 2d 778, 256 P2d 947 [1953]. The test of originality is not whether the work was entirely new, but whether it was the result of independent effort or copying. 18 AM JUR 2D 101 citing Sheldon v. Metro-Goldwyn Pictures Corp., (CA2 NY) 81 F2d 49, cert den 298 US 669, 80 L ed 1392, 56 S Ct 835 [1936]; Golding v. R.K.O. Pictures, Inc., 35 Cal 2d 690, 221 P2d 95 [1950].

[16] 18 AM JUR 2D, 104 citing Mazer v. Stein, 347 US 218, 98 L ed 630, 74 S Ct 460, reh den 347 US 949, 98 L ed 1096, 74 S Ct 637 [1953].

[17] See Dorsey v. Old Surety L. Ins. Co., (CA 10) 98 F2d 872 [1938].

[18] Abiva v. Weinberger (CA.), 62 OG 3784, 3787 [1964] citing 34 C.J.S. 34 and l7 U.S.C.A. 101;Lewis v. Kroger Co., 109 F. Supp.484 [1952].

[19] Exhibits I to 1-25 or Annexes A to AA of the Bill of Particulars.

[20] Exhibits J to J-2l or Annexes BB to WW of the Bill of Particulars.

[21] See 18 AM JUR 2D 108 citing Universal Pictures Co. v. Harold Lloyd Corp., (CA9 Cal) 162 F2d 354 [1947]; Toksvig v. Bruce Pub. Co., (CA7 Wis) 181 F2d 664 [1950]; Sheldon v. Metro-Goldwyn Pictures Corp., supra note 18.

[22] Id., citing Twentieth Century-Fox Film Corp v. Stonesifer, (CA9 Cal)140 F2d 579 [1944].

[23] Similarity of the alleged infringing work to the authors or proprietors copyrighted work does not of itself establish copyright infringement, if the similarity results from the fact that both works deal with the same subject or have the same common source. 18 AM JUR 2D 107 citing Dorsey v. Old Surety L. Ins. Co., supra note 20.

[24] Per testimony of Dr. Pacita Habana - on the system of library classification, TSN, 11 July 1989, 44-45; on the kinds of card catalogue and their entries, TSN, 11 July 1989, 56-58; on different parts of books and their definitions, 59; uses of paragraph; uses of punctuations 75-76; use of phonemes, graphemes and morphemes, 78. Per testimony of Felicidad Robles TSN, 31 August 1989, 10-22.

[25] Section 175 of RA 8293.

[26] See note 26; See Court of Appeals decision, 6.

[27] TSN, 1 August 1989, 24-26.

[28] TSN, 29 June 1989, 26 Dr. Pacita Habana entered FEU as faculty member in 1957 and left the same in 1974; TSN, 28 August 1989, 3 FELICIDAD became a faculty member of FEU in 1964 up to time the testimony was taken.

[29] See Simms v. Stanton, CC. Cal 75 F. 6 [1896].

[30] See Gobonseng, Jr. v. Court of Appeals, 246 SCRA 457, 468 [1996].

[31] Supra Note 10 at 860.

[32] TSN, 1 August 1989, 23-24.

[33] Rollo, 159; TSN, 28 August 1989, 29.

[34] See 18 AM JUR 2D 104 citing Orgel v. Clark Boardman co., (CA 2 NY) 301 F2d 119, cert den 371 US 817, 9 L ed 2d 58, 83 S Ct 31 [1962]; Eisenschiml v. Fawcett Publications, Inc., (CA7 III) 246 F2d 598, cert den 355 US 907, 2 L ed 262, 78 S Ct 334 [1957]; Toksvig v. Bruce Publishing Co., supra note 24.

[35] One of the most significant evidences of infringement exists in the presence, in an alleged infringing work, of the same errors and peculiarities that are to be found in the work said to be infringed. See 18 AM JUR 2D 107 citing Callaghan v. Myers, 128 US 617, 32 L ed 547, 9 S Ct 177 [1888]; W.H. Anderson Co. v. Baldwin Law Pub. Co., (Ca6 Ohio) 27 F2d 82 [1928]; Jeweler's Circular Pub. Co. v. Keystone Pub. Co., (Ca2) 281 F 83, 26 ALR 571,cert den 259 US 581, 66 L ed 1074, 42 S Ct 464 [1922].

[36] See Section 185 of RA 8293.

[37] See Sections 184 & 184.1 of RA 8293.

[38] See 18 AM JUR 2D 109 citing Toksvig v. Bruce Pub. Co., supra note 24; Bradbury v. Columbia Broadcasting System, Inc., (CA9 Cal) 287 F2d 478. Cert den 368 US 801, 7 L ed 2d 15, 82 S Ct 19 [1961]; Shipman v. R.K.O. Radio Pictures, Inc., (CA2 NY) 100 F2d 533 [1938].

[39] Supra note 19.

[40] 18 C.J.S. 94-94b.

[G.R. No. 108946. January 28, 1999]

FRANCISCO G. JOAQUIN, JR., and BJ PRODUCTIONS, INC., petitioners, vs. FRANKLIN DRILON GABRIEL ZOSA, WILLIAM ESPOSO, FELIPE MEDINA, JR., and CASEY FRANCISCO, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for certiorari. Petitioners seek to annul the resolution of the Department of Justice, dated August 12, 1992, in Criminal Case No. Q-92-27854, entitled Gabriel Zosa, et al. v. City Prosecutor of Quezon City and Francisco Joaquin, Jr., and its resolution, dated December 3, 1992, denying petitioner Joaquins motion for reconsideration.

Petitioner BJ Productions, Inc. (BJPI) is the holder/grantee of Certificate of Copyright No. M922, dated January 28, 1971, of Rhoda and Me, a dating game show aired from 1970 to 1977.

On June 28, 1973, petitioner BJPI submitted to the National Library an addendum to its certificate of copyright specifying the shows format and style of presentation.

On July 14, 1991, while watching television, petitioner Francisco Joaquin, Jr., president of BJPI, saw on RPN Channel 9 an episode of Its a Date, which was produced by IXL Productions, Inc. (IXL). On July 18, 1991, he wrote a letter to private respondent Gabriel M. Zosa, president and general manager of IXL, informing Zosa that BJPI had a copyright toRhoda and Me and demanding that IXL discontinue airing Its a Date.

In a letter, dated July 19, 1991, private respondent Zosa apologized to petitioner Joaquin and requested a meeting to discuss a possible settlement. IXL, however, continued airing Its a Date, prompting petitioner Joaquin to send a second letter on July 25, 1991 in which he reiterated his demand and warned that, if IXL did not comply, he would endorse the matter to his attorneys for proper legal action.

Meanwhile, private respondent Zosa sought to register IXLs copyright to the first episode of Its a Date for which it was issued by the National Library a certificate of copyright on August 14, 1991.

Upon complaint of petitioners, an information for violation of P.D. No. 49 was filed against private respondent Zosa together with certain officers of RPN Channel 9, namely, William Esposo, Felipe Medina, and Casey Francisco, in the Regional Trial Court of Quezon City where it was docketed as Criminal Case No. 92-27854 and assigned to Branch 104 thereof. However, private respondent Zosa sought a review of the resolution of the Assistant City Prosecutor before the Department of Justice.

On August 12, 1992, respondent Secretary of Justice Franklin M. Drilon reversed the Assistant City Prosecutors findings and directed him to move for the dismissal of the case against private respondents. [1]

Petitioner Joaquin filed a motion for reconsideration, but his motion was denied by respondent Secretary of Justice on December 3, 1992. Hence, this petition. Petitioners contend that:

1. The public respondent gravely abused his discretion amounting to lack of jurisdiction when he invoked non-presentation of the master tape as being fatal to the existence of probable cause to prove infringement, despite the fact that private respondents never raised the same as a controverted issue.

2. The public respondent gravely abused his discretion amounting to lack of jurisdiction when he arrogated unto himself the determination of what is copyrightable - an issue which is exclusively within the jurisdiction of the regional trial court to assess in a proper proceeding.

Both public and private respondents maintain that petitioners failed to establish the existence of probable cause due to their failure to present the copyrighted master videotape ofRhoda and Me. They contend that petitioner BJPIs copyright covers only a specific episode of Rhoda and Me and that the formats or concepts of dating game shows are not covered by copyright protection under P. D. No. 49.

Non-Assignment of Error

Petitioners claim that their failure to submit the copyrighted master videotape of the television show Rhoda and Me was not raised in issue by private respondents during the preliminary investigation and, therefore, it was error for the Secretary of Justice to reverse the investigating prosecutors finding of probable cause on this ground.

A preliminary investigation falls under the authority of the state prosecutor who is given by law the power to direct and control criminal actions.[2] He is, however, subject to the control of the Secretary of Justice. Thus, Rule 112, 4 of the Revised Rules of Criminal Procedure, provides:

SEC. 4. Duty of investigating fiscal. - If the investigating fiscal finds cause to hold the respondent for trial, he shall prepare the resolution and corresponding information. He shall certify under oath that he, or as shown by the record, an authorized officer, has personally examined the complainant and his witnesses, that there is reasonable ground to believe that a crime has been committed and that the accused is probably guilty thereof, that the accused was informed of the complaint and of the evidence submitted against him and that he was given an opportunity to submit controverting evidence. Otherwise, he shall recommend dismissal of the complaint.

In either case, he shall forward the records of the case to the provincial or city fiscal or chief state prosecutor within five (5) days from his resolution. The latter shall take appropriate action thereon within ten (10) days from receipt thereof, immediately informing the parties of said action.

http://sc.judiciary.gov.ph/jurisprudence/1999/jan99/108946.htm#_edn2


No complaint or information may be filed or dismissed by an investigating fiscal without the prior written authority or approval of the provincial or city fiscal or chief state prosecutor.

Where the investigating assistant fiscal recommends the dismissal of the case but his findings are reversed by the provincial or city fiscal or chief state prosecutor on the ground that a probable cause exists, the latter may, by himself, file the corresponding information against the respondent or direct any other assistant fiscal or state prosecutor to do so, without conducting another preliminary investigation.

If upon petition by a proper party, the Secretary of Justice reverses the resolution of the provincial or city fiscal or chief state prosecutor, he shall direct the fiscal concerned to file the corresponding information without conducting another preliminary investigation or to dismiss or move for dismissal of the complaint or information.

In reviewing resolutions of prosecutors, the Secretary of Justice is not precluded from considering errors, although unassigned, for the purpose of determining whether there is probable cause for filing cases in court. He must make his own finding of probable cause and is not confined to the issues raised by the parties during preliminary investigation. Moreover, his findings are not subject to review unless shown to have been made with grave abuse.

Opinion of the Secretary of Justice

Petitioners contend, however, that the determination of the question whether the format or mechanics of a show is entitled to copyright protection is for the court, and not the Secretary of Justice, to make. They assail the following portion of the resolution of the respondent Secretary of Justice:

[T]he essence of copyright infringement is the copying, in whole or in part, of copyrightable materials as defined and enumerated in Section 2 of PD. No. 49. Apart from the manner in which it is actually expressed, however, the idea of a dating game show is, in the opinion of this Office, a non-copyrightable material. Ideas, concepts, formats, or schemes in their abstract form clearly do not fall within the class of works or materials susceptible of copyright registration as provided in PD. No. 49.[3] (Emphasis added.)

It is indeed true that the question whether the format or mechanics of petitioners television show is entitled to copyright protection is a legal question for the court to make. This does not, however, preclude respondent Secretary of Justice from making a preliminary determination of this question in resolving whether there is probable cause for filing the case in court. In doing so in this case, he did not commit any grave error.

Presentation of Master Tape

Petitioners claim that respondent Secretary of Justice gravely abused his discretion in ruling that the master videotape should have been presented in order to determine whether there was probable cause for copyright infringement. They contend that 20th Century Fox Film Corporation v. Court of Appeals,[4] on which respondent Secretary of Justice relied in reversing the resolution of the investigating prosecutor, is inapplicable to the case at bar because in the present case, the parties presented sufficient evidence which clearly establish linkages between the copyrighted show Rhoda and Me and the infringing TV show Its a Date.[5]




The case of 20th Century Fox Film Corporation involved raids conducted on various videotape outlets allegedly selling or renting out pirated videotapes. The trial court found that the affidavits of NBI agents, given in support of the application for the search warrant, were insufficient without the master tape. Accordingly, the trial court lifted the search warrants it had previously issued against the defendants. On petition for review, this Court sustained the action of the trial court and ruled:[6]

The presentation of the master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their possession the pirated films. The petitioners argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns.


The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.

This ruling was qualified in the later case of Columbia Pictures, Inc. v. Court of Appeals[7] in which it was held:

In fine, the supposed pronunciamento in said case regarding the necessity for the presentation of the master tapes of the copyrighted films for the validity of search warrants should at most be understood to merely serve as a guidepost in determining the existence of probable cause in copyright infringement cases where there is doubt as to the true nexus between the master tape and the pirated copies. An objective and careful reading of the decision in said case could lead to no other conclusion than that said directive was hardly intended to be a sweeping and inflexible requirement in all or similar copyright infringement cases. . . .[8]

In the case at bar, during the preliminary investigation, petitioners and private respondents presented written descriptions of the formats of their respective televisions shows, on the basis of which the investigating prosecutor ruled:

As may [be] gleaned from the evidence on record, the substance of the television productions complainants RHODA AND ME and Zosas ITS A DATE is that two matches are made between a male and a female, both single, and the two couples are treated to a night or two of dining and/or dancing at the expense of the show. The major concepts of both shows is the same. Any difference appear mere variations of the major concepts.

That there is an infringement on the copyright of the show RHODA AND ME both in content and in the execution of the video presentation are established because respondents ITS A DATE is




practically an exact copy of complainants RHODA AND ME because of substantial similarities as follows, to wit:

RHODA AND ME ITS A DATE

Set I Set I

a. Unmarried participant a. same

of one gender (searcher) appears on one side of a divider, while three (3) unmarried participants of the other gender are on the other side of the divider. This arrangement is done to ensure that the searcher does not see the searchees.

b. Searcher asks a question b. same

to be answered by each of the searchees. The purpose is to determine who among the searchees is the most compatible with the searcher.

c. Searcher speculates on the c. same

match to the searchee.

d. Selection is made by the d. Selection is

use of compute (sic) methods, based on theor by the way questions are answer of theanswered, or similar methods. Searchees.

Set 2 Set 2

Same as above with the genders same

of the searcher and searchees interchanged.[9]

Petitioners assert that the format of Rhoda and Me is a product of ingenuity and skill and is thus entitled to copyright protection. It is their position that the presentation of a point-by-point comparison of the formats of the two shows clearly demonstrates the nexus between the shows and hence establishes the existence of probable cause for copyright infringement. Such being the case, they did not have to produce the master tape.

To begin with, the format of a show is not copyrightable. Section 2 of P.D. No. 49, [10] otherwise known as the DECREE ON INTELLECTUAL PROPERTY, enumerates the classes of work entitled to copyright protection, to wit:

Section 2. The rights granted by this Decree shall, from the moment of creation, subsist with respect to any of the following classes of works:

(A) Books, including composite and cyclopedic works, manuscripts, directories, and gazetteers;

(B) Periodicals, including pamphlets and newspapers;



(C) Lectures, sermons, addresses, dissertations prepared for oral delivery;

(D) Letters;

(E) Dramatic or dramatico-musical compositions; choreographic works and entertainments in dumb shows, the acting form of which is fixed in writing or otherwise;

(F) Musical compositions, with or without words;

(G) Works of drawing, painting, architecture, sculpture, engraving, lithography, and other works of art; models or designs for works of art;

(H) Reproductions of a work of art;

(I) Original ornamental designs or models for articles of manufacture, whether or not patentable, and other works of applied art;

(J) Maps, plans, sketches, and charts;

(K) Drawings or plastic works of a scientific or technical character;

(L) Photographic works and works produced by a process analogous to photography; lantern slides;

(M) Cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings;

(N) Computer programs;

(O) Prints, pictorial illustrations advertising copies, labels, tags, and box wraps;

(P) Dramatizations, translations, adaptations, abridgements, arrangements and other alterations of literary, musical or artistic works or of works of the Philippine government as herein defined, which shall be protected as provided in Section 8 of this Decree.

(Q) Collections of literary, scholarly, or artistic works or of works referred to in Section 9 of this Decree which by reason of the selection and arrangement of their contents constitute intellectual creations, the same to be protected as such in accordance with Section 8 of this Decree.

(R) Other literary, scholarly, scientific and artistic works.

This provision is substantially the same as 172 of the INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES (R.A. No. 8293).[11] The format or mechanics of a television show is not included in the list of protected works in 2 of P.D. No. 49. For this reason, the protection afforded by the law cannot be extended to cover them.

Copyright, in the strict sense of the term, is purely a statutory right. It is a new or independent right granted by the statute, and not simply a pre-existing right regulated by the statute. Being a statutory grant, the rights are only such as the statute confers, and may be obtained and enjoyed only with respect to the subjects and by the persons, and on terms and conditions specified in the statute.[12]



Since . . . copyright in published works is purely a statutory creation, a copyright may be obtained only for a work falling within the statutory enumeration or description.[13]

Regardless of the historical viewpoint, it is authoritatively settled in the United States that there is no copyright except that which is both created and secured by act of Congress . . . .[14]

P.D. No. 49, 2, in enumerating what are subject to copyright, refers to finished works and not to concepts. The copyright does not extend to an idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work. [15] Thus, the new INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES provides:

Sec. 175. Unprotected Subject Matter. - Notwithstanding the provisions of Sections 172 and 173, no protection shall extend, under this law, to any idea, procedure, system, method or operation, concept, principle, discovery or mere data as such, even if they are expressed, explained, illustrated or embodied in a work; news of the day and other miscellaneous facts having the character of mere items of press information; or any official text of a legislative, administrative or legal nature, as well as any official translation thereof.

What then is the subject matter of petitioners copyright? This Court is of the opinion that petitioner BJPIs copyright covers audio-visual recordings of each episode of Rhoda and Me, as falling within the class of works mentioned in P.D. 49, 2(M), to wit:

Cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings;

The copyright does not extend to the general concept or format of its dating game show. Accordingly, by the very nature of the subject of petitioner BJPIs copyright, the investigating prosecutor should have the opportunity to compare the videotapes of the two shows.

Mere description by words of the general format of the two dating game shows is insufficient; the presentation of the master videotape in evidence was indispensable to the determination of the existence of probable cause. As aptly observed by respondent Secretary of Justice:

A television show includes more than mere words can describe because it involves a whole spectrum of visuals and effects, video and audio, such that no similarity or dissimilarity may be found by merely describing the general copyright/format of both dating game shows.[16]

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

Puno, Quisumbing, and Buena, JJ., concur.Bellosillo, J., (Chairman), no part due to relation to one of the parties.





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