January 21, 2025
As you know, I’m interested in business development and am always looking to learn more. In search of new ideas and inspiration, I Googled “lawyer blog on business development.” Yikes!
On the bright side, one of the first things that came up was this worthy blog, which I routinely read. But after that it was pretty much a wasteland of cliched blather: Develop a network; have a personal brand (can we please retire this phrase?); maintain good relationships with clients; and, inevitably, be a thought leader! (another phrase I am so over).
Pretty empty stuff, right? If anything, I think the fact that so many people serve up the same trite advice proves that none of them actually possess a personal brand or provide thought leadership (is there an emoji for irony?). More importantly, none of these bloggers ever tell you much about how to do these things they suggest. Obviously, these people are trying to sell their services and don’t want to give away valuable advice. But why would I be confident they actually have any?
What’s more, such vague banalities make the reality of business development seem more mysterious and daunting than it actually is. So let’s see if we can simplify things with some real lessons from my own experience that I feel define the building blocks of business development.
I’ve learned that the origin point is to give serious thought to a few questions: Who are you? What exactly do you want to do? How do you want to communicate that? Who do you want to work and network with? That foundational work needs to happen before you hire a marketing, PR or social media person — or to at least take place from the get-go with any hires. I say this as someone who spent good money on a marketing consultant with bad results, partly because we hadn’t answered these questions at the start.
Perhaps the most important of those questions is, what exactly do you want to do? When I started my firm I worked on a very broad range of cases and matters, basically taking whatever came my way. Guess what? I ended up working on things I had absolutely no interest in. (I am 100% fine if I never, ever handle another ERISA matter). So why did I do it? Well duh, the idea of turning down a client for my brand-new practice was terrifying. But when I eventually started saying no, my work (and my life) became much more satisfying. I avoided cases that didn’t interest me and didn’t waste energy dealing with people I didn’t want to work with. That freed me to take on interesting cases and work with people I was happy to represent. Plus, it left me time to further refine my skills and deepen my knowledge of the substantive legal areas that I wanted my practice to focus on.
Another problem with taking on work you don’t want: Such cases lead to meeting people, like co-counsel and opposing counsel, who work in those areas. They get to like you (that’s nice!). They think of you when something comes up they could refer to you (also nice!). But then you end up with more cases you don’t want (not nice). So it becomes something of a vicious career circle.
Once you know what type of work you want to take on, the next step is determining what clients you’re open to working with. Me, I have a strict “no assholes” policy. Litigation can be a very difficult, frustrating and draining experience, and if I get even a hint that a potential client is going to vent their anger with the process on me or my team, they will need to find another firm. Likewise, if a potential client comes to me after having been fired by another attorney, I’m not taking them on — no matter how much they’re willing to pay. It’s just not worth the possible stress. Ultimately, picking who I work with and what I work on makes it easier for me to do good work, which means the clients are happier, I’m happier, and the chances that more of the work I want will come my way increases exponentially.
I have a similar attitude when it comes to my network of peers and contacts in the legal community. I associate with people I like, who I respect, and who share my general ethos. That way, when I refer potential clients to someone I trust, I know that client will be treated well. And when I get referrals from peers I know well, I have some assurance the potential client and I are right for each other.
Speaking of networks, one thing I’ve learned over the years is that having a network is a lot more than a pile of business cards from people I met at some conference and then never spoke to again. How, exactly, is that a network? To me, a network is an array of professional contacts I enjoy regularly staying in touch with (and I’m not talking about through Instagram or TikTok). Having real relationships with people helps you all grow your businesses, your knowledge and, most importantly, your joy in what you do.
And in the end, enjoying what you do is the single most important litmus test for business development, because if you’re happy in your work, you’re developing your business right.
January 7, 2025
I talk a lot about trademarks here, but do you know exactly what one is? Well, according to the United States Trademark Office, a trademark is something that “Identifies the source of your goods or services.” Put another way, it’s anything — a logo, a word, a swoosh — that tells buyers who made the merchandise on which it appears.
So, who made this stuff?
Penn State, right? No! These items were sold by a company called Vintage Brand, which insists it has every right to do so despite not being affiliated in any way with the university in State College, Pennsylvania.
Next (and obvious) question: WTF?!
Vintage Brand claimed its use of these designs and others, which were taken from (appropriately) vintage Penn State materials featuring the school’s Nittany Lion trademark, didn’t infringe on Penn State’s trademarks for a couple of reasons. First, it claimed that these Penn State designs were just there for decoration; they weren’t intended to inform consumers that the apparel and accessories were made and sold by Penn State. Vintage Brand further asserted these designs were merely functional, because they allowed people to express support for or affiliation with Penn State, and thus were not a trademark use. Finally, Vintage Brand said there was no way consumers would be confused (the central inquiry in trademark infringement) as to who made the merch because Vintage Brand’s website included disclaimers saying that it was not affiliated with Penn State (sure, everybody reads the fine print).
Unsurprisingly, Penn State did not see things this way and, in 2021 it sued Vintage Brand for trademark infringement, accusing the company of being a “serial infringer,” and seller of “counterfeit” goods. Penn State lawyers argued that consumers would mistake the fakes for official Penn State merchandise, diluting their trademarks and reducing their value and exclusivity, while also taking revenue that should have otherwise gone to the university. Other schools, including Purdue and Stanford, also sued on similar grounds, but Penn State’s case was the first to go to trial.
As the case progressed, Vintage Brand continued to insist its use of Penn State’s marks was permissible because the designs were solely ornamental and functional. While they did not dispute that their merchandise included properly registered trademarks that belong to Penn State, Vintage Brand said its designs were independently recreated from vintage artwork to celebrate nostalgia and history and that any resemblance between its designs and Penn State’s trademarks was coincidental and not likely to cause confusion among consumers.
In response, Penn State pointed out that if consumers couldn’t tell what products originated with Penn State and what products originated with Vintage Brand (or someone else) that was, pretty clearly, trademark infringement.
The judge allowed Vintage Brand’s defenses to stand and the case was tried in front of a jury in November, 2024. The jury found in favor of Penn State and, while they only awarded the school a little more than $25,000 in damages, the victory was far more valuable in the continued trademark protection it extended to Penn State and other universities that sell branded merchandise.
Seems weird there was even enough here for a judge to send the case to a jury, right? Well, there’s actually some precedent for companies successfully defending similar trademark infringement claims. This dates back to the 1970s when the National Hockey League sued a company called Dallas Cap & Emblem for selling knockoff patches of NHL team logos to sporting goods stores. Dallas Cap claimed that the emblems, when attached to clothing by consumers, were functional and served no trademark purpose. The District Court in that case agreed. Even though the District Court’s decision was overturned, the idea that logos can be functional and not identify the source of goods has continued to crop up. But, maybe Penn State’s victory here will put an end to this defense.
December 17, 2024
Of the many lawsuits media giants have filed against AI companies for copyright infringement, the one filed by Dow Jones & Co. (publisher of the Wall Street Journal) and NYP Holdings Inc. (publisher of the New York Post) against Perplexity AI adds a new wrinkle.
Perplexity is a natural-language search engine that generates answers to user questions by scraping information from sources across the web, synthesizing the data and presenting it in an easily-digestible chatbot interface. Its makers call it an “answer engine” because it’s meant to function like a mix of Wikipedia and ChatGPT. The plaintiffs, however, call it a thief that is violating Internet norms to take their content without compensation.
To me, this represents a particularly stark example of the problems with how AI platforms are operating vis-a-vis copyrighted materials, and one well worth analyzing.
According to its website, Perplexity pulls information “from the Internet the moment you ask a question, so information is always up-to-date.” Its AI seems to work by combining a large language model (LLM) with retrieval-augmented generation (RAG — oh, the acronyms!). As this is a blog about the law, not computer science, I won’t get too deep into this but Perplexity uses AI to improve a user’s question and then searches the web for up-to-date info, which it synthesizes into a seemingly clear, concise and authoritative answer. Perplexity’s business model appears to be that people will gather information through Perplexity (paying for upgraded “Pro” access) instead of doing a traditional web search that returns links the user then follows to the primary sources of the information (which is one way those media sources generate subscriptions and ad views).
Part of this requires Perplexity to scrape the websites of news outlets and other sources. Web scraping is an automated method to quickly extract large amounts of data from websites, using bots to find requested information by analyzing the HTML content of web pages, locating and extracting the desired data and then aggregating it into a structured format (like a spreadsheet or database) specified by the user. The data acquired this way can then be repurposed as the party doing the gathering sees fit. Is this copyright infringement? Probably, because copyright infringement is when you copy copyrighted material without permission.
To make matters worse, at least according to Dow Jones and NYP Holdings, Perplexity seems to have ignored the Robots Exclusion Protocol. This is a tool that, among other things, instructs scraping bots not to copy copyrighted materials. However, despite the fact that these media outlets deploy this protocol, Perplexity spits out verbatim copies of some of the Plaintiff’s articles and other materials.
Of course, Perplexity has a defense, of sorts. Its CEO accuses the Plaintiffs and other media companies of being incredibly short sighted, and wishing for a world in which AI didn’t exist. Perplexity says that media companies should work with, not against, AI companies to develop shared platforms. It’s not entirely clear what financial incentives Perplexity has or will offer to these and other content creators.
Moreover, it seems like Perplexity is the one that is incredibly shortsighted. The whole premise of copyright law is that if people are economically rewarded they will create new, useful and insightful (or at least, entertaining) materials. If Perplexity had its way, these creators would not be paid at all or accept whatever it is that Perplexity deigns to offer. Presumably, this would not end well for the content creators and there would be no more reliable, up-to-date information to scrape. Moreover, Perplexity’s self-righteous claim that media companies just want to go back to the Stone Age (i.e., the 20th century) seems premised on a desire for a world in which the law allows anyone who wants copyrighted material to just take it without paying for it. And that’s not how the world works — at least for now.
December 4, 2024
The year is drawing to a close, which means I’m looking back on the good and the bad of 2024 and trying to focus, naturally, on the good. Among the good things of 2024 are three key realizations that have helped improve my legal practice. I’m sharing because I think they can be of value to anyone starting, growing, or managing a business.
One thing that really hit home this year is that when you’re a business owner, business problems are personal problems (and vice versa). This isn’t because a personal problem means that I’m making less money or that I take every frustrating or difficult situation personally.
I, like most everyone else, enjoy doing the things I’m good at and don’t like to do stuff that feels hard or stresses me out. But, as a business owner, just because something isn’t easy doesn’t mean I can avoid dealing with it. I still have to either slog through it or go back to bed and pull the covers up over my head (I never do that but hey, technically it’s an option).
There is, however, a third and, IMHO, better option: Understand why the task is hard and figure out how to make it less hard.
As I’ve talked about before, I used to dread posting to this blog because I was sure that some anonymous Internet troll was going to get offended by something I said, scold me for getting a fact wrong or get all huffy over a misplaced comma. I became so focused on not upsetting anyone or making mistakes that I ended up churning out some pretty pedestrian content. Worse, it took me FOREVER and a day to write anything because I obsessively examined and reexamined every damn word. Unsurprisingly, this did not make it easy to regularly post new material.
Acknowledging these feelings was a huge first step in overcoming them. It enabled me to look at my fears objectively and consider if there was any actual data to support their existence (surprise: there wasn’t!). Ultimately, addressing these personal fears and starting to make more regular and compelling blog posts turned out to have huge results for my business, as this blog has measurably helped attract new clients (for which I am extremely grateful).
The second big revelation is that it’s not only okay to be choosy when taking on clients, it’s critical for my sanity and my firm’s success. For a long time, I operated as if every potential client might be my last. Irrational, to be sure, but also pretty normal. As a result, I felt like I was endangering my business and financial future if I didn’t say yes to any matter that even vaguely fit into my area of expertise. That meant ending up saddled with work that wasn’t profitable or, worse, made me miserable because I either wasn’t interested in the subject or the client didn’t value my insights, knowledge or ideas. Perfect example: Have I litigated securities fraud issues? Sure. Could I do so again? Of course. Do I want to? No! Securities fraud cases are not something I enjoy, nor will they lead to more of the cases I thrive on. In other words, while taking on cases or clients that aren’t a good fit may put money into my pocket in the short term, they don’t result in work I can excel at and people I enjoy working with. That’s where I need to focus my attention. Now, I am way more selective, and while I know that turning down work sounds a little crazy if you’re just starting your own business, it’s been a game changer for me.
Which leads to my final big discovery of the year: By saying no to things that don’t serve my firm’s (and ultimately, my own) long-term interests, I have more time to focus on doing and getting work that I DO want. My time and energy are finite resources (this is really the BIG realization) and by using them more efficiently I’ve seen rapid, tangible results in the growth of my practice. I’m happier, my clients are happier, and my family are happier. And that’s ALL good, this year and for the years to come.
November 19, 2024
If you’ve been following this blog, you’re familiar with the copyright infringement cases the New York Times and the Authors Guild have brought against OpenAI, makers of ChatGPT. So familiar, in fact, I won’t summarize these suits again. You can find a prior post about these cases here. The current dispute is interesting, at least to me (social media + law = fun for a nerd like me!) because it is another data point on how courts grapple with the blurry line between business and personal communications on social media.
Taking a step back for the non-litigators and non-lawyers in the room: In litigation, the parties must exchange materials that could have a bearing on the case. This generally covers a pretty broad range of materials and requires each party to produce all such materials that are in its “possession, custody, or control.” A party can also subpoena a non-party to the case for relevant materials in the non-party’s “possession, custody, or control.” However, where possible, it’s generally better to get discovery materials from a party instead of a non-party.
Turning back to the cases against OpenAI, the Authors Guild asked the tech company to produce texts and social media direct messages from more than 30 current and former employees, including some of the company’s top executives. It claims these communications may shed light on the issues in the case.
OpenAI has pushed back strongly. It claims that its employees’ social media accounts and personal phones are, well, personal and, therefore, not in its control. It also contends the Guild’s request might intrude on these persons’ privacy. OpenAI also rejects the Guild’s assumption that OpenAI’s search of its internal materials relevant to the case will be inadequate without its employees’ and former employees’ texts and DMs. It sniffs that the Guild should wait until it receives OpenAI’s documents before presuming as much (how rude!).
The Authors Guild has responded by pointing to OpenAI employees’ posts on X (yes, formerly Twitter) that clearly indicate they used their “personal” social media for work purposes. Same goes for their phones which, while they may not be paid for by the company, seem to have been used to text about business.
So, who’s right here? For starters, it seems pretty likely that, at least for current OpenAI employees, OpenAI could just tell people to turn over DMs and text messages. Assuming the employees don’t object or refuse, this should be enough to establish that OpenAI has “control.” The fact that it seems that OpenAI hasn’t taken this basic step before refusing to produce DMs and text messages seems like a really good way to piss off the Magistrate Judge hearing this issue, especially if the employees violated OpenAI policies requiring work-related communications to take place on devices and accounts owned by the company (it should have such policies if it doesn’t!) or if the communications were clearly within the scope of an employee’s employment. Without that basic showing, it seems likely that the Authors Guild will prevail.
If it does (or if it doesn’t) there will be more about it here!
November 7, 2024
I talk a lot here about aspects of intellectual property law. It’s an area I find pretty fascinating because it has to do with how a society encourages people to create, and the law embodies beliefs about how to accomplish that. I also talk a lot about partnership disputes which, along with IP work, forms a big part of my practice.
Sometimes, when you put two good things together you get something great (Reese’s!). Other times, though, you just get a mess. (Melted chocolate in your pocket? OK, I’ll stop now.) Often, it’s my job to sort out the issues created when partnership disagreements intertwine with intellectual property issues — specifically, who owns a company’s IP when a partnership falls apart.
In such disputes, there are a few rules that usually apply. I’ve found these are often unknown to or misunderstood by the people involved in these scenarios. So let’s run through them.
- Just because two people or a larger group didn’t formally register a company doesn’t mean there isn’t a partnership. In New York (where I primarily practice) and in other states, courts can find that people entered into a partnership even if they never filed paperwork to create a business entity. There are a range of factors that can come into play here but, in general, courts will look at whether the parties shared the business’s profits and losses; jointly managed or controlled the business; contributed money to the business; and/or whether they intended to be partners. Why does this matter? Because, during the existence of a partnership, the partners owe each other fiduciary duties, meaning they must treat each other fairly and, importantly, no individual member of the company can claim the company’s property for herself.
- Thus, even if a partner registers a partnership’s trademark in her or his name, that trademark belongs to the partnership — not to her. For example, if a business operates under or sells a product with a name and/or logo, one of the members of the business can’t take ownership of that name or logo by individually obtaining a trademark registration for it. Nor can they exclude other members of the business from using the name or logo if the partnership breaks up.
- Copyright rules are different! Generally speaking, a copyright vests in the creator, not the company. This means that if partners (either individually or together) create a work that is copyrighted or copyrightable, the copyright goes to the creator or creators, not the business. Moreover, under copyright law, transferring a copyright requires a written document, so if any owner wants to transfer a copyrighted work from themselves to the business, they need to have a document that says so.
- On a related note, just because something is created by a partner under the auspices of the business doesn’t mean it’s a “work for hire” and thus belongs to the business from the moment of its creation. Something only becomes a work for hire in two situations: (a) if it’s prepared by an employee within the scope of his or her employment; or (b) if there’s a signed written agreement stating that the material is a work for hire.
- Finally, the idea for a business is usually not protectable because, in general, ideas are not protectable intellectual property (I know, that sounds counterintuitive). Copyright law protects the expression of an idea, not the idea itself. So if you say to a friend, “Hey, we should open a business making ice cream for cats,” and your friend goes out and starts up Kitty Kreameries, you’re not entitled to any ownership of it. You have to put in the work and actually do the thing, not just think of the thing.
No one starts a business with others expecting things to turn sour. But it happens a LOT. So the overall lesson here: If you’re entering into or already in a business with others, whether you’ve formally created it or not, be aware what belongs to you and what belongs to the business as a whole so you won’t be taken by surprise if it all comes crashing down someday.
October 22, 2024
First, a disclaimer: bear with me on this one. Even though I start off with descriptions of the various offices I’ve inhabited since 2021 and my struggles furnishing them, the tale does lead to some lessons that are worth thinking about as we prepare for the inevitable onslaught of articles and emails about how to plan for 2025.
Like many people with desk jobs, I worked from home during the pandemic. It wasn’t a big deal, as I was used to meetings on Zoom and my bookkeeper, assistant, and paralegal had always been remote.
In the fall of 2021, as COVID was starting to ease, New York City decided to install a new water main outside my bedroom/office. This ensuing construction cacophony was the end of my working from home.
I moved into a private office within a small shared space that was pretty great in many ways. It had a big window, a lovely view of the Manhattan skyline and one of my neighbors was a floral designer, which meant I frequently had fresh flowers in my office. However, there were rarely any other people around, so it still felt like I was stuck in my bedroom. After that, I moved to another space with the hopes that I would have a regular officemate. Unfortunately, that didn’t work out as planned and I found myself still mostly alone every day.
About a year ago, I moved once again to my current office, which is in downtown Brooklyn. Third time is indeed the charm. There’s a nice mix of having other people around, but a door I can close when I’m on the phone or need to concentrate.
Even with this upgrade though, my actual office was pretty bleak. My furniture amounted to a junky old filing cabinet, a hand-me-down bookshelf, and a depressingly blank Zoom background. Mostly, this was because I just haven’t had time to find furniture that I like.
Recently this changed. I finally had some time to buy a new bookcase and filing cabinet. They’re quite nice and certainly a big improvement over my prior decor.
Of course, these purchases meant I had to transfer everything from the old furniture to the new. That archaeological dig unearthed a bunch of articles I had printed out and hand-scrawled notes I’d thrown in a folder to come back to later. As I read through this collection, I quickly realized almost all this material had to do, in some way, with growing a business. I soon became thoroughly engrossed in reading, stopped checking my email, let my computer go to sleep, and left my phone on the other side of the room.
It was an interesting journey through the past few years of my practice. Some of these articles and ideas were no longer relevant, as they contained ideas or advice I’d tried that didn’t work for me, or experiences I’ve subsequently written about here. But a lot of it still resonated and, as I worked my way through this stuff, it became pretty clear that there were some recurring themes. Nothing particularly earthshaking or radical, but ideas that are definitely worth revisiting. More importantly, the process — particularly being separated from my phone and other distractions — allowed me to step back and see connections that I had forgotten about or previously missed.
So what are the lessons here? First, creating a strategy for growing a business isn’t a one-and-done deal. What worked a few months ago might not work now, or could be ripe for further improvement. Through my review of this collection of material, I could see the evolution in my thinking and approach, and sort out what didn’t work, examine whether improvements were possible, and chuck the stuff that didn’t work or was no longer relevant.
In the next two-and-a-half months we’re all going to be bombarded with articles, commercials, and general blather advising us to plan for 2025, and my experience reading my articles and notes reinforced how you can’t plan for the future without assessing where you’ve been. Looking back on decisions and moves I’ve made is essential for taking stock of what works (and what doesn’t) and how to deploy resources in the future. Simply having an idea once, implementing it and never reexamining it can too easily lead to stagnation.
And what’s the best way to do this? By freeing ourselves from distraction! Stepping back from our phones and computers (and even some of the idle office chitchat I now enjoy that I missed so much during the pandemic) allows you to get new perspectives and see the connections between what you’ve done before and the results they’ve led to. Because the past is the strongest foundation we can build upon for the future.
October 8, 2024
Over the last few years there have been several cases of professional models suing “gentlemen’s clubs” (a/k/a strip clubs) for defamation. These suits involve the clubs grabbing the models’ pics off the Internet and using them on social media to promote their entertainment. (Weirdly, all of these suits are against strip clubs in New England. Draw your own conclusions.) None of this is particularly surprising. However, one current case has raised the interesting question of when the statute of limitations begins to run on defamation claims stemming from social media posts.
In this case, five models are suing Club Alex in Stoughton, Massachusetts, alleging the club used their photos in Facebook posts, creating the impression the models worked as dancers there. That’s defamation!
The club pushed back, noting that the offending posts were made between 2013 and 2015, but the models didn’t bring the lawsuit until 2021 — well after the three-year statute of limitations for defamation claims in Massachusetts had expired. On those grounds, the federal Court hearing the case initially granted the club’s motion to dismiss.
The models asked the Court to reconsider that decision. And, amazingly, the Court did!
Why would a federal judge basically admit, “ok, maybe I was wrong”? In a nutshell, here’s why: In some cases, Massachusetts (and most other states) use a “discovery rule” to determine when the statute of limitations starts to run. This avoids the unfairness of having statutes of limitations expire before a “Plaintiff knew or reasonably should have known that she may have been harmed by the conduct of another.” The models argued that this should also apply here because the vast ocean of information on social media meant they didn’t know (and couldn’t be reasonably expected to know) about the misappropriation of their images until years after the posts. What’s more, even if they had suspected misuse of the images, it’s very difficult to manually search thousands of strip clubs’ social media pages and websites, especially when search engines can’t search images without names.
Recognizing the models’ point, the District Court sent the issue to the Supreme Judicial Court (SJC) of Massachusetts — the highest state Court in that state — asking “under what circumstances, if any, is material publicly posted to social media platforms ‘inherently unknowable’ for purposes of applying the discovery rule in the context of defamation, right of publicity, right to privacy and related tort claims?”
The SJC held that, in the context of social media posts, a determination of when the statute of limitations begins to run should not be based on the date of publication, but rather “requires a fact-intensive, totality of the circumstances analysis to determine what the Plaintiff knew or should have known about the social media publication.” (It noted that this is not required where postings are widely available and readily searchable).
The SJC instructed judges faced with this issue to consider things like: “how widespread the distribution was;” whether the posting could be readily located by a search; if there is technology that could assist in locating potentially offending posts; and how widely the images are distributed and, thus, how hard or easy it is to separate authorized uses from unauthorized uses.
Here, this means that the models can continue to pursue their defamation claims against the club.
A final thought: In a way, this is the flipside of the Netflix case involving their series Baby Reindeer and the lawsuit against them by Fiona Harvey, which I wrote about here. In that case, the information on social media enabled Internet sleuths to out someone whose identity was meant to be concealed, whereas in this case, the volume of information on social media makes it more difficult to find out when someone’s persona is being used without their knowledge. Whichever way you look at it, one thing is certain: Controlling our identities (and our lives) is waaay harder than it used to be.
September 24, 2024
Almost two years ago, I wrote about LinkedIn’s suit against hiQ Labs, Inc. In that case, LinkedIn sued hiQ Labs for scraping its users’ public profiles and selling the results as part of an employee training and retention tool. There, the Court found that hiQ Labs violated the social media company’s terms of service because, as it states very clearly in LinkedIn’s user agreement, “NO SCRAPING.” (I’m paraphrasing, loudly.)
We now have a second court decision ruling against scraping — but for a very different reason than in the hiQ action.
This time, the venue is the 11th Circuit Court of Appeals and it’s that court’s second decision in the case since the dispute began in 2016. In its first decision (back in 2020) the 11th Circuit wrote: “Warning: This gets pretty dense (and difficult) pretty quickly.” That’s true! But don’t be scared. I think we can summarize it all succinctly without getting lost.
The plaintiff is Compulife Software, Inc., whose products are a database and software that allows licensees (generally, insurance agents) to compare life insurance quotes. These agents/licensees can incorporate Compulife’s products into their websites, but the public can also access Compulife’s products on its own site, www.term4sale.com.
The defendants are a group of individuals who used bots to scrape Compulife’s publicly-accessible site and database and built their own, competing insurance quote site. This group (they never actually formed a business entity) obtained the source code for Compulife’s software under false pretenses. (One of the group’s members contacted Compulife, claiming that he worked for one of Compulife’s licensees, and asked for a copy of the source code. Compulife gave it to him.) The defendants’ used this code to engineer the scraping of Compulife’s website.
Based on this, Compulife accused the defendants of violating the federal Defend Trade Secrets Act, as well as the analogous Florida Uniform Trade Secrets Act. (There were also copyright infringement claims relating to defendants’ unauthorized use of Compulife’s software, but that’s for another day). To prevail on either claim, Compulife had to establish that (1) it had a trade secret, and (2) the defendants misappropriated Compulife’s trade secret.
Initially, the District Court held that Compulife didn’t have a protectable trade secret because its entire database could be accessed by the public. However, in its 2020 decision, the Appeals Court reversed this, concluding the database was indeed a trade secret because, among other things, Compulife “goes to great lengths to secure its database” and that even though the individual, publicly-available quotes on the Compulife site were not trade secrets, Compulife’s compilation of them could be.
On this latest appeal, the main issue was whether the defendants’ use of bots to scrape Compulife’s database was misappropriation. The 11th Circuit, in addition to reaffirming its original holding that Compulife’s database was a trade secret, concluded that defendants misappropriated that secret when they used bots to “commit a scraping attack that acquired millions of variable-dependent insurance quotes.” That quantity was a key factor: As the Court wrote, “even if individual quotes that are publicly available lack trade secret status, the whole compilation of them (which would be nearly impossible for a human to obtain through the website without scraping) can still be a trade secret,” and the defendants’ use of bots to do what a human could not manually accomplish represented improper means.
The Appeals Court, however, was careful not to condemn scraping as a whole, writing “[i]t is important to note that scraping and related technologies (like crawling) may be perfectly legitimate.” (Italics from the court’s opinion).
This seems pretty straightforward particularly given defendants’ acquisition of Compulife’s code under false pretenses. However, I’m curious to see future rulings that shed more light on when scraping is legitimate and, more importantly, what factors do courts look at to determine when scraping is ok and when it’s not? Is it the sheer volume of material taken? The impact on the plaintiff’s business? Something else?
When the 11th Circuit (or another court) enlightens us, I’m sure I’ll be back to write about it.
September 9, 2024
Last week, the U.S. Court of Appeals for the Second Circuit affirmed a federal judge’s March 2023 holding that the Internet Archive’s practice of digitizing library books and making them freely available to readers on a strict one-to-one ratio was not fair use. For reasons I’ll get into below, the outcome is pretty unsurprising. It’s also worth looking at because it likely previews some of the arguments we’ll hear in the case between the New York Times and OpenAI (creators of ChatGPT) and Microsoft if (or when) that case makes it to the Second Circuit. (Quick summary of my post on the subject: The New York Times Company filed suit late in December against Microsoft and several OpenAI affiliates, alleging that by using New York Times content to train its algorithms, the defendants infringed on the media giant’s copyrights, among other things.)
First, some background. The Internet Archive is a not-for-profit organization “building a digital library of Internet sites and other cultural artifacts in digital form” whose “mission is to provide Universal Access to All Knowledge.” To achieve this rather lofty goal, the Archive created its Open Library by scanning printed books in its possession or in the possession of a partner library and lending out one digital copy of a physical book at a time, in a system it dubs Controlled Digital Lending.
Enter COVID-19. During the height of the pandemic, when everyone was stuck at home without much to do, the Archive launched the National Emergency Library. This did away with Controlled Digital Lending and allowed almost unlimited access to each digitized book in its collection.
Not surprisingly, book publishers, who sell electronic copies of books to both individuals and libraries, were not thrilled. Four big-time publishers — Hachette, Penguin Random House, Wiley, and HarperCollins — sued the Internet Archive for copyright infringement, targeting both its National Emergency Library and Open Library as “willful digital piracy on an industrial scale.”
The Internet Archive responded that these projects constituted fair use and, therefore, did not infringe on the publisher’s copyrights. To back this up, the Archive claimed it was using technology “to make lending more convenient and efficient” because its work allowed users to do things that were not possible with physical books, such as permitting “authors writing online articles [to] link directly to” a digital book in the Archive’s library. The Archive also insisted its library was not supplanting the market for the publisher’s products.
The District Court rejected these arguments, holding that no case or legal principle supported the Archive’s defense that “lawfully acquiring a copyrighted print book entitles the recipient to make an unauthorized copy and distribute it in place of the print book, so long as it does not simultaneously lend the print book.” The judge also deemed the concept of Controlled Digital Lending “an invented paradigm that is well outside of copyright law.”
In affirming the District Court’s ruling, the Second Circuit Court applied the four-part test for fair use that looks at: (1) the purpose and character of the use; (2) the nature of the copyright work; (3) the portion of the copyrighted work used (as compared to the entirety of the copyrighted work); and (4) the impact of the allegedly fair use on the potential market for or value of the copyrighted work.
The first factor — the purpose and character of the use — is broken down into two subsidiary questions: Does the new work transform the original, and is it of a commercial nature or is it for educational purposes? Neither the District Court nor the Court of Appeals bought the Internet Archive’s claim that its Open Library was transformative. The Court of Appeals held that the digital books provided by the Internet Archive “serve the same exact purpose as the original; making the authors’ works available to read.” (The Court of Appeals did find that, as a not-for-profit entity, the Internet Archive’s use of the books was not commercial.)
On the second factor, which is generally unimportant here, the Court of Appeals also found in favor of the publishers. Of greater significance is factor three, which looks at how much of the copyrighted work is at issue. Copying a sentence or a paragraph of a book length work is more likely to be fair use than copying the entire book which, of course, is exactly what the Internet Archive was doing. Again, another win for the publishers.
And arguments on factor four — the impact on the market for the publishers’ products — didn’t work out any better for the Internet Archive. Notably, the Court of Appeals found that the Internet Archive was copying the publishers’ books for the exact same purpose as the original works offered by the publisher, thus naturally impacting their market and value.
So what are the takeaways here as we look ahead to the case between the New York Times and Open AI/Microsoft?
On the one hand, OpenAI/Microsoft have copied entire articles from the Times (and the numerous other plaintiffs that are suing OpenAI and Microsoft), which will hurt OpenAI/Microsoft claims of fair use. Likewise, OpenAI/Microsoft’s fair use arguments won’t get very far if the Times can show that ChatGPT’s works are negatively impacting the market for its work or functioning as a substitute for journalism.
On the other hand, if OpenAI/Microsoft can show that ChatGPT’s output transformed the Times’ content, it may be able to prevail on fair use.
In any event, the case between OpenAI and Microsoft and The New York Times is likely to include a lot more ambiguity than in the Internet Archive matter, with the potential to result in new interpretations of copyright law with massive consequences for media and technology companies worldwide.
