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The Morton Memo - September 2011 

This issue focuses on pitfalls for the unwary.  The first article should be of interest to web designers and anyone building a website.  Copyright law is the latest area of intellectual property to go hardball.  The second article discusses a recent development that criminalizes employee computer misuse in certain instances.  The last article discusses the little known, potentially disastrous doctrine of sovereign immunity for American Indian tribes if businesses fail to address this in contracts.
The Morton Memo is for you, so kindly email me those topics of interest to you.

>> Copyright Trolls  

>> Employee computer misuse can be illegal

>> Indian Tribes are immune from lawsuits

COPYRIGHT TROLLS

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Intellectual property has become a hardball arena in recent years. For example, small businesses steal trademarks and trade secrets from each other and patent trolls file serial lawsuits extorting money from businesses. Now we have copyright trolls.

A client was recently threatened with legal action by a stock photo company.  This stock photo company sells photographs on-line for use in websites.  Typically, a website owner or developer can download and use a photo for a royalty of $5 to $10.

 My client had a stock photo on his website.  He received a demand letter from a stock photo company that had the rights to sell licenses to use this photo.   My client's website developer had downloaded this photo from somewhere (the developer was a little vague).

The stock photo company initially demanded $1,500 and threatened to take legal action if not paid.  My client discussed the matter with the stock photo company which progressively lowered its demand to around $900.

The threat of legal action was serious.  If you use a computer to download copyright protected art from a website and use it on your website, you can be liable for up to $150,000 in statutory damages, plus statutory attorneys fees, per download.  So, the potential exposure was huge, even for a lousy stock photo.

The stock photo company had an entire division devoted to collecting large fees from companies that had used its photos without authorization.  They searched the Internet with special software that looked for their photos and then checked to see if the use of the photos was authorized.  If not, then they would aggressively demand outrageous fees and threaten legal action.  Furthermore, the photos on the company's website were easily downloaded without payment of a royalty and watermarks were easy to crop out.  The company essentially had a copyright troll division searching out the unwary using their cheap photos.

 In my client's case, the photo on his website was not registered with the U.S. Copyright Office.  Since it was not registered, the stock photo company could not collect the huge statutory damages but only actual damages, in this case about $5.  My client removed the photo from his website and the stock photo company left him alone when we asked for registration information.

 Lessons:

1.   Do not use someone else's photos, pictures, videos, etc. on your website. 

2.   If you are a web developer, pay all royalties necessary for every bit of art on a website.

3.   Ask you website developer for proof of a license for all stock photos or other art on a website.  You will have to pay the price if the developer stole them.

If you have any questions about copyright law, please contact us at info@ericmortonlaw.com or (760) 722-6582.

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                                                                                                     employee computer misuse can be illegal

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It may surprise you to learn that employees can be criminally prosecuted for unauthorized and illegal use of computers and computer networks.  This is true but only if the employer has a strong and clear computer use policy.  A Federal court recently held that an employee can be criminally prosecuted if the employee accessed the employer’s computer system in order to defraud the employer. 

In U.S. v. Nosal, No. 10--10038 (9th Cir, April 28, 2011), the 9th Circuit Court of Appeals held that employees could be prosecuted under the Federal Computer Fraud and Abuse Act (the “CFAA”).

CFAA is a statute that was originally intended to allow for the criminal prosecution of hackers. In the Nosal case, three employees used their employer's computer and obtain trade secrets from the employer. The employees then quit and started their own business using the employer's information. 

The employees were prosecuted under CFAA by the U.S. Government. Their defense was that CFAA was intended to prosecute hackers who did not have authorization to enter a computer or a computer network.  They argued that they should not be criminally prosecuted because they had access to the system.  (Of course, the employer could have sued but that is less serious than a criminal prosecution). 

However, the government successfully argued that when the employees used their user names and passwords to access the employer's trade secrets, they exceeded their authorization and broke the law. 

The key to the case:  The employer had strong computer use and confidentiality policies.  All employees were required to sign agreements that identified the employer's confidential information, its sensitive nature, and clearly stated that such information was only to be used for the employer's purpose.  All of the employer's computers were restricted access and protected by passwords and user names.  So, despite their status as employees with access to the employer's computer system, the court determined that the employees were, legally, no better than hackers.

 I have had several instances of business owners who have had by employees steal confidential information.  They now have a big stick to fight back with.

 Businesses should develop clear computer use policies that forbid the use of their computers for anything other than company business, protect their computers with user names and passwords, and have their employees sign well written confidentiality agreements.  The threat of criminal prosecution is much more weighty than the threat of a lawsuit and will go farther to keep this type of theft in check.

If you have any questions, please contact us at info@ericmortonlaw.com or (760) 722-6582.

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indian tribes are are immune from lawsuits

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A little known fact is that American Indian Tribes (and their economic enterprises) can't be sued because the tribes enjoy sovereign immunity from lawsuits.  Federal and state courts do not have jurisdiction over them.  A definitive case was the Kiowa Tribe vs. Oklahoma Manufacturing Technologies.  The Kiowa Tribe defaulted on a promissory note and was sued in state court.  The lower courts found the tribe was within the jurisdiction of the state court for off-reservation economic activity.  The U.S. Supreme Court reversed and held that the tribe was immune from suit.

In recent years, Indian tribes and their casinos, in particular, have become major economic forces.  There are several Indian casinos in and around San Diego County.  Anyone contracting with them cannot enforce those contracts unless the contracts include certain provisions waiving tribal immunity.  However, the tribes can sue just like a foreign entity not subject to U.S. jurisdiction can also bring suit in U.S. courts against U.S. persons.

Anyone doing business with an Indian tribe should therefore include explicit contract terms that waive sovereign immunity and/or arbitration clauses.  Failing to address sovereign immunity in a contract can otherwise foreclose your rights to enforce it.

For more information about negotiating and writing contracts with Indian tribes, please contact us at info@ericmortonlaw.com or (760) 722-6582.

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