Wednesday, December 23, 2015

AMAZON KNOCK-OFFS: A SUCCESS STORY


I want to share a feel-good success story, but first a little background. 

Success Selling Online


The new economy has enabled mom-and-pop shops that have created their own unique stuff to sell it anywhere in the world very easily. Online retail has stripped away the capital-intensive barriers to selling unique products to everyone. Today, if you come up with a clever little gadget that solves a long-felt, common problem, then you too can market that product to practically everyone in the world almost instantly with very little effort. Everyone might not buy your product, but you can pretty easily get it in front of them.

And sometimes everyone does buy it. Sometimes you end up with a minor hit on your hands and all of a sudden, your basement side-project turns out to be a lucrative business. You are an overnight success. But success breeds imitation. If you come up with a clever little gadget that is easy to make and that becomes successful online, guess what: Other people want to steal your success.

It's an all-too-common story. Small company comes up with a really cool new gadget, starts selling online, becomes successful, and bam! There they are. Knock-offs. All over the place. Amazon's great marketplace for launching small businesses turns into a bazaar of cheap imitations from foreign companies just trying to steal the success of hard-working mom-and-pops. Why come up with your own neat new product? Just wait until someone else does the hard work and then knock it off. Easy money, right?

Amazon Knock-Offs


So now let's talk about Amazon.com. Amazon has done a great job of developing a platform that enables anyone in the world to go from online zero to hero in ten minutes or less. Anyone, anywhere in the world with a product to sell can start selling that product using Amazon's online marketplace in literally about ten minutes. That's a double-edged sword for our mom-and-pop sellers. Although it allows them to sell their cool new gadget with very little capital outlay, it also allows the knock-off artists to do the same.

So when your cool new product starts selling really well, and the knock-offs start showing up (as they inevitably will), Amazon's position is that's your problem. There are countless stories of Amazon selling knock-offs on its marketplace. Amazon's position is always the same: If you have a problem with knock-offs on its marketplace, contact the sellers. Don't bother Amazon, it's not their problem. Sure, Amazon pretends to care by recently putting up an online infringement reporting system. But Amazon doesn't take that system seriously. Why should they? As the law currently stands, Amazon is immune from responsibility for any of the products it sells on its own marketplace. That's right, Amazon doesn't care because they law says they don't have to care.

Not surprisingly, we represent quite a few companies in precisely this position. Their cool product became an online success, and then the knock-offs started showing up on Amazon. We even had a jury trial a couple months ago trying to hold Amazon's feet to the fire for this very problem. We're still fighting the good fight and hopefully, as Judge Martinez alluded to, the law will soon catch up with technology. But in the meantime, what can you do?

Fixing The Problem


Now on to the success story. There was a small company based in Texas that developed a really neat and cool household-goods product several years ago. It is the quintessential “why didn't I think of that” type of gadget. Very simple; very cool; very popular. So this company began selling them online using Amazon's marketplace. Overnight success. We're talking sales in the low millions of dollars very quickly.

So what happened next? Of course, the knock-offs showed up about a year ago. The company's sales fell off quickly to less than half what they had been. These knock offs were costing this mom-and-pop success story lots of money. These good folks were extremely frustrated because they thought they had done all the right things. They had secured patent protection for the product, both utility and design patents. They had secured federal trademark protection for their brand. Yet there they were: knock-offs. This company had spent over $80,000 to protect their product yet nothing they did could stem the tide of the knock-offs.

Out of utter frustration, the owner of this company had learned of us from our Milo & Gabby case, which has gotten some attention. She contacted me and asked if there was anything we could do to help. She was reluctant to spend even more money on lawyers after already dolling out more than $80,000 already. We spoke, and I suggested she wait and see if the efforts those other lawyers were putting forward would do anything. We promised to touch base in about two weeks.

Well about one week later, she called me back. She said that they were losing too much money every day to wait any longer. She asked if there was anything I could do that her other lawyers hadn't already done. I told her that we probably had a little more relevant experience with the problem given all we've learned over the last several years fighting this problem. She reluctantly agreed to let me take a shot at trying to help her out.

To prevent revealing client secrets, I can't provide too much detail about how we approached the problem. But what I can share is this. She paid me about $800 to work my magic, and about four days later all the knock off listings had been taken down. Literally overnight, all of them came down.

To say she was happy would be an understatement. I asked her, at the end of those four days, if they had seen any improvement in sales. I kid you not, she told me that their sales had literally doubled overnight. At the end of four days, the company's sales were already back to where they had been at their peak.

I tell this story because I firmly believe a lawyer's job is to help the client make money. If the client isn't making more money with your service than without it, you aren't doing your job. Typically, you can't draw a direct correlation between the lawyer's service and the client's success. Most often, the theory is that the lawyer's service is bearing fruit down the road. You can't see the immediate financial benefit, but a good lawyer at least hopes it's really there. So a story like this makes me very happy. I have never before represented a client for whom there was such an immediate and direct financial benefit. Bottom line, this client paid me about $800 to try and fix their problem. I did what I do, and my service to the client literally paid for itself in less than one day. That makes me feel good.

So there you have it. This feels like my own success story because I helped my client realize an immediate financial benefit that drastically exceeded the cost of my service. In my opinion, that is supposed to be every lawyer's highest ambition.

If your company is feeling the pinch of foreign knock-offs hobbling your sales, contact us and let's talk about whether we can repeat this success story.

Tuesday, December 1, 2015

How Do The New Federal Rules Of Civil Procedure Affect Your Copyright Case?

Most of you probably don't know or care much about the Federal Rules of Civil Procedure.  Unless, of course, you are a lawyer.  Like me.  Well I'm going to tell you about them anyway because if you landed on this site by searching the Internet, there are some things about the Rules you just might need to know. 

The Federal Rules of Civil Procedure are really just a bunch of rules that control how litigation proceeds in Federal Court.  Specifically, the Rules govern things like what can the other side make you turn over to them and when.  The Rules also include a whole lot of guidance on when things have to get done and how.  Bottom line, if you are in Federal Litigation and you are wondering if you can do something you want to do or how do you do it, then the Rules probably answer your question.

I'm mentioning them today because there were some recent changes to those rules that just went into effect today.  Most of the changes are very minor, but some have the potential to be very favorable.  The one that is getting the most headlines today is the one that does away with so-called form complaints.  The reason for that, most commentators say, is because it's supposed to make it harder to file a patent infringement complaint.  But the reason for that is because one of the form complaints that is being eliminated was for patent infringement and it was pretty bare bones.  But no one has really used that form anyway since Iqbal and Twombly so I don't see this change affecting anything at all, not really.

But there are a couple of other changes that might prove more interesting.  For instance, one area of substantive change in the new Rules surrounds e-discovery -- basically the ability to make a party turn over electronically stored documents.  In the past, the Rules have been very sparse on e-discovery and didn't really have much about it.  But the rules-makers have decided they need to beef that part up a bit.  Specifically, Rule 37 has been amended to make it more clear that a party has an affirmative duty to take reasonable steps to preserve electronic evidence.  This was always the law generally, but an express duty to preserve evidence has never been in the Rules themselves, only in the case law.  So the change to Rule 37 actually marks a pretty major departure from where the law was before.

And why is that?  Here's why.  Because the duty to preserve evidence before was an amorphous blob of cases and commentary and locker-room speak that was very difficult to pin down.  Spoliation -- the term used to describe a failure to preserve evidence --  has to my knowledge never been very clearly defined.  When did the duty arise?  What constituted a breach?  And most importantly, what is the punishment for spoliation?

What exactly constitutes spoliation is still very murky.  But at least the rules-makers have now created some clarity around what punishments can befall someone who has caused evidence to be lost.

Bottom line, once you have notice that you might be sued, then you have an affirmative duty to take "reasonable steps" (whatever those are) to ensure that evidence does not get destroyed.  In the context of electronic evidence, that means you have to make sure files don't get erased or deleted, basically.

But we all know that sometimes stuff just happens.  So what if some electronic evidence does get erased on your watch?  What then?  Well, the rules-makers say first it depends on whether you took those reasonable steps to preserve the evidence.  Did you back up the files?  Did you turn off an auto-clean function that keeps your hard drive nice and tidy?  If so, and something unpredictable happened (your hard drive crashed an hour after getting your first notice of a dispute, say), then there is no punishment.  It's just life.  Again, sometimes stuff just happens.

But what if you didn't take any steps to preserve the evidence?  If your answer is "I knew my hard drive automatically wipes all my deleted files once a week and I just didn't turn that off."  Well, then you might have problems.  In fact, you probably do have problems.

New Rule 37 says that the severity of your punishment depends on two things: First, how bad is the prejudice to the other side.  Second, how culpable are you for the destruction of the evidence.

First, the judge is only allowed to punish you to a degree that is commensurate with the prejudice.  In other words, if the other side isn't all that harmed without the evidence, then you aren't going to be punished too bad.  Maybe you get a $100 sanction or something. It could be worse. If you accidentally deleted an email, but it was stored on some other cloud storage anyway, then there is no harm.  Prejudice eliminated.

But if the other side is very prejudiced, then it could get worse.  Maybe the evidence that got deleted was an admission of liability by you.  Way worse prejudice; way worse punishment.  Keep reading.

Second, how bad can it get?  In the past, the ultimate sanction was an actual dismissal of your claim if you were a plaintiff, or a finding of liability if you were a defendant.  In other words, the litigation equivalent of complete defeat.  In the past, that ultimate sanction sometimes took the form of a so-called negative inference or a negative instruction. Legalese for "you lose."

In the past, what you had to do to get the ultimate sanction was very unclear.  It differed from district to district.  Lawyers trying to exploit technicalities always used the loose standard to threaten the ultimate sanction over the most trivial of circumstances.  

But as of today, there is some guidance.  Bottom line, in order for a judge to punish you with the ultimate sanction, the judge must find that you "acted with the intent to deprive [the other] party of the information’s use in the litigation."  In other words, bad faith.  If you knew about a particular piece of evidence, and you knew that particular piece of evidence would be very bad for you, so you either destroyed it or allowed it to be destroyed, then the hammer is likely to come down.  Expect very bad things.  Expect the ultimate sanction.

But, if you didn't know that there was a critical email in your inbox, but you also failed to make a back up copy of your inbox before your computer crashed three months into litigation, then you likely aren't going to get the ultimate sanction.  You'll probably get punished, but likely not with the ultimate sanction.  At least not unless the true facts reveal that you did know about that email, or you did know your computer was about to crash and did nothing about it.  Then it becomes less clear.

Why is this important to people reading this blog?  Here's why.

The typical plaintiff in a bittorrent copyright case usually makes these two arguments:
The defendant downloaded my movie illegally and it's on his hard drive.
But if it's not on his hard drive, then he must have deleted it and spoliated the evidence.
So the plaintiff argues that if it's there, you did it.  And if it's not there, you spoliated it so you should get the ultimate sanction.  In other words, either way you did it.  This is the threat that forces some people to try and settle a case that they otherwise shouldn't.  It's the proverbial need to "prove a negative." 

This new Rule 37 should provide a lot more security against plaintiffs unfairly threatening you with the ultimate sanction just because the file they say was downloaded doesn't exist on your hard drive.  First of all, if you didn't do it then it shouldn't show up anyway.  Second of all, if something did happen to your hard drive then it is now (as of today, officially) the plaintiff's burden to show that you actually caused that to happen for the purpose of an advantage in litigation.

I'm not saying that doesn't happen.  I'm sure it does.  But I am saying that the days of the ever-present threat of the ultimate sanction for minor, unintentional mistakes are over.

This does not mean go out and wipe your hard drive as soon as you get a notice from Comcast of a suit.  In fact this means the opposite of that.  If you did what you are accused of doing, and you did download the movie with bittorrent, then you better push forward with a different defense than "I didn't do it."  There are several pretty good "I did it, but . . ." defenses.  Pick one of those.  But don't delete the movie and pretend you didn't do it.  You will get caught, and you will get punished.

But if you are innocent and you just didn't know anything about the fact that your college-aged kid set up your computer to auto-defrag the hard drive once a month, then you should not be too worried.

Sorry this post is so long.  I got carried away.  Spoliation is, at bottom, a pretty easy concept.  But sometimes it just takes lots of words to explain the easy ones.

A redline version of the new Rules is embedded below, for those of you who just like to dig in to the details.