Internet Service Provider (ISP) Cox Communications Found Liable to the Tune of $1 Billion For Allowing Users to Illegally Share Music Files on Peer-to-Peer Networks

Recently, the Eastern District of Virginia upheld a music piracy jury verdict against the internet service provider Cox Communications. See Sony Music Ent. v. Cox Commc’ns, Case No. 1:18-cv-950-LO-JFA, 2020 U.S. Dist. LEXIS 105071 (E.D. Va. June 2, 2020). The jury returned a $1 billion damage award against Cox Communications who was accused of knowingly allowing subscribers to share and download infringing songs via peer-to-peer sharing platforms such as BitTorrent. Holding an internet service provider liable for the infringing acts of its users, this case sets the stage for a closely watched appeal.

Record labels, including Universal Music Group, Sony Music Entertainment, and Warner Music Group, Inc., sued Cox for enabling subscribers to illegally copy and distribute works over peer-to-peer networks. Internet service providers, such as Cox, Comcast, Verizon, and Time Warner that provide internet, telephone, and home security services to customers are generally not liable for direct infringement, but can be liable for secondary infringement if they have specific knowledge of the infringement and fail to take reasonable steps to prevent further harm to the copyrighted works. Where an ISP receives a direct pecuniary benefit from the infringing activity, it may also be vicariously liable for the infringement. In this case, the jury returned a verdict finding Cox liable for both vicarious copyright infringement and contributory copyright infringement of over 10,000 musical works, and determining Cox enjoyed a direct financial benefit from the infringement activities of its subscribers. After trial, Cox filed a Renewed Motion for Judgment as a Matter of Law and a Motion for Remittitur or, in the Alternative, a New Trial.

Siding with the record labels, the Eastern District of Virginia upheld the jury verdict, ruling there was enough evidence to hold Cox liable for illegal downloading by its subscribers. The jury found Cox failed to address the copyright infringement despite receiving information from the copyright owners about the time, place, and IP addresses responsible for illegally distributing and reproducing music files over Cox’s network. The court agreed there was enough evidence to find the technology used to detect the infringement was reliable, Cox had the right and ability to supervise the infringement committed by its subscribers, and Cox gained a financial benefit from the infringement. There was sufficient basis for the jury to find Cox liable for vicarious copyright infringement, and because Cox failed to address the specific notices of infringement, for contributory infringement as well.

The court rejected Cox’s argument that the statutory damage award was “grossly excessive,” refusing to overturn the jury’s decision to award $99,830.29 per infringed work. Among other things, the court held jurors were entitled to consider the “far-reaching adverse effects of piracy” on the entire digital media ecosystem when punishing Cox. On one hand, the court said the award was proper because some of the songs at issue covered multiple copyrights — separate musical compositions and sound recordings for the same song — however, it determined that the number of infringed works would be recalculated for this same reason, i.e. because some of the copyrights at issue cover musical compositions and sound recordings for the same song. The court stated the parties should be given the opportunity to identify overlapping copyrights and determine the exact number of distinct works that have been infringed. It is likely the $1 billion award will be reduced when musical compositions and sound recordings are combined for individual songs (reducing the number of total works), but the jury-determined $99,830.29 award per work will remain the same.

The court denied the motion for remittitur or, in the alternative, a new trial for similar reasons, finding there was sufficient evidence to support the jury’s damage award and there was no error in the jury instructions. Although the court has the authority to remit damages, the evidence of Cox’s overall conduct with respect to enforcement of the Digital Millennium Copyright Act, and how the company handled complaints of copyright infringement, supported the jury’s measure of damages.

Although it is likely that the court will reduce the $1 billion award, this was nevertheless a major victory for copyright owners – for now. Only time will tell what the Fourth Circuit will do on appeal.

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Youfit Health Clubs Files for Chapter 11 Bankruptcy in Delaware

Youfit Health Clubs filed for Chapter 11 bankruptcy this morning in the District of Delaware, docket #20-12853 MFW. The club with more than 80 locations in Alabama, Arizona, Florida, Georgia, Louisiana, Maryland, Pennsylvania, Rhode Island, Texas and Virginia, follows in the footsteps of other health clubs that have filed for Chapter11 protection in the last few months, including New York Sports Clubs and 24-Hour Fitness.

The company has had difficulties with the resignation in June of its founder, Rick Berks as well as a class action lawsuit, along with navigating the gym industry in the wake of Covid-19.

If you have a Youfit Haealth Club lease in your portfolio or if you are a trade creditor owed money, Stark & Stark’s Shopping Center Group can help. Our bankruptcy attorneys regularly represent landlords throughout the country, including the Eastern District of Missouri, District of New Jersey, Southern District of New York, District of Delaware, District of Minnesota and the Western and Eastern Districts of Pennsylvania regarding a variety of issues. Our Group has been counsel to landlords and trade creditors in the 24-Hour Fitness, GNC, Stage Stores, Modell’s, Pier 1, Art Van’s Furniture, Fairway Market, Mattress Firm, Toys “R” Us, Payless, A&P, rue21, Central Grocers and Sports Authority chapter 11 bankruptcy cases. For more information on how Stark & Stark can assist you, please contact Shareholders Thomas Onder at 609-219-7458 (tonder@stark-stark.com) or Joseph Lemkin at 609-791-7022 (jlemkin@stark-stark.com.)

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Anheuser-Busch Not Liable for False Advertising for Pointing Out to Consumers that Miller Lite and Coors Light Use “Corn Syrup”

Anheuser-Busch and Molson Coors produce some of the best-selling light beers in the United States — Bud Light, and Miller Lite and Coors Light, respectively — and regularly attack each other with witty ad campaigns. During Super Bowl LIII, Anheuser-Busch unveiled an advertisement campaign focused on the idea that Bud Light is made using rice as opposed to corn syrup. The Bud Light advertisements called attention to Miller Lite and Coors Light’s use of corn syrup as a source of sugar for the fermentation process. In response, Molson Coors advertised that its beer tastes better because of the corn syrup, which is not the same as high-fructose corn syrup used in other consumer products. Molson Coors also filed a lawsuit arguing that Anheuser-Busch violated Section 43 of the Lanham Act “by implying that a product made from corn syrup also contains corn syrup.”

Section 43 of the Lanham Act deals with false advertising and states that “[a]ny 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 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.” After Super Bowl LIII, Molson Coors filed a federal lawsuit claiming Anheuser Busch’s high-profile ads duped consumers into thinking that Miller Lite and Coors Light contained corn syrup, when in reality corn syrup is merely used as a “brewing fermentation aid” that does not end up in the final product.  Molson Coors Bev. Co. USA LLC v. Anheuser-Busch Cos., LLC, 957 F.3d 837 (7th Cir. 2020).

The district court found that Anheuser Busch’s did not violate the Lanham Act and Molson Coors appealed to the Seventh Circuit. The appellate court framed the issue as a simple one: whether the true statement made in Anheuser-Busch’s advertisements—“their beer is made using corn syrup and ours isn’t”—wrongly implies that “their beer contains corn syrup.”

Molson Coors acknowledged that both Miller Lite and Coors Light are made using corn syrup and that Bud Light is not. Molson also acknowledged that corn syrup is listed as an ingredient in both Miller Lite and Coors Light. Molson, however, insisted that the list of ingredients is not the same as what the finished product “contains.” The Seventh Circuit found that although it is possible for an ingredient list to be treated as “inputs” instead of a list of what is in the finished product, the common usage of an ingredients list equates to the constituents of the product. Additionally, Anheuser-Busch never advertised that the rival products “contain” corn syrup, but consumers could infer as much from the statements made. But the Seventh Circuit found that consumers could infer the same thing from Molson’s own ingredient list. The court could not hold that it was false or misleading for a rival to make a statement that a competitor makes about itself.

In rejecting the false advertising claims, the appeals court said Molson Coors “brought this problem on itself” by listing corn syrup in its ingredients. Whether the use of corn syrup is a bad thing is for “consumers rather than the judiciary to decide.” The Seventh Circuit ruled that Anheuser-Busch did not violate the Lanham Act’s ban on false advertising by running Bud Light ads that mocked Miller Lite and Coors Light for using corn syrup. The court noted that “[l]itigation should not be a substitute for competition in the market,” which is what Molson Coors was trying to do in this case. The court even seemed to suggest that “[i]f Molson Coors does not like the sneering tone of Anheuser-Busch’s ads, it can mock Bud Light in return.”

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New Requirements for New Jersey Employers as COVID-19 Numbers Continue to Rise

Effective November 5, 2020, New Jersey public and private sector employers will have a new set of health and safety mandates to follow if they plan to allow or require employees to perform services at a New Jersey worksite. Although many of the requirements have most likely already been adopted as best practices, failure to adhere to the requirements will now carry fines and penalties for non-compliance including, but not limited to, business closure. An employee complaint system will be implemented for violation reporting. Accordingly, all employers should be mindful of the requirements and ensure immediate implementation.

Executive Order 192 specifically provides for the following:

Physical distancing of at least six feet between all individuals or, if distancing cannot be achieved, the installation of physical barriers;

i) Employer provided masks that must be worn at all times when of at least 6 feet cannot be achieved (accommodations should be provided, if practicable, to anyone with a condition that prevents him or her from being able to wear a mask and documentation supporting the condition may be requested);

ii) Employer provided sanitizers (such as approved hand sanitizers and wipes) and the allowance of additional periods to employees for proper hand washing and sanitizing;

iii) Increased cleaning, especially for high-touch areas such as restrooms, and on common surfaces such as doorknobs and handrails. Cleaning procedures should follow guidance issued by the Centers for Disease Control (CDC);

iv) Daily health checks (such as temperature checks, symptom checks, or health questionnaires) in a manner that is left to employer discretion but must be done in accordance with guidance issued by the CDC and Equal Employment Opportunity Commission (EEOC) and not violative of laws regarding discrimination, disability or privacy (a screening must be performed before each shift for which an employee is scheduled);

v) Communication to employees of any known exposure to Covid-19 at the worksite (following all privacy laws and EEOC guidance) and thorough disinfectant of the worksite following any known exposure in accordance with CDC guidance;

vi) Any employee exhibiting symptoms must immediately be sent home.

Executive Order 192 exempts certain essential workers to the extent their job functions do not allow for compliance, such as first responders, law enforcement personnel, healthcare personnel, and public health personnel.

Additionally, it should be noted that Executive Order 192 also provides mandates regarding a company’s obligations to all individuals entering their worksite, including the requirement to provide all those entering with a mask and access to sanitizers.

Violators will be subject to fines of up to $1,000, imprisonment for up to six months, and, in some cases, businesses may be ordered to close.

Navigating the requirements imposed on businesses as a result of Covid-19 is a daunting task which has been made even more complex by the fluid nature of the pandemic. The experienced employment attorneys at Stark & Stark are here to assist you through the matrix of guidance, statutes, and executive orders.

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Freedom of Expression: Use of Humvees in Call of Duty Franchise Games Not Infringement

More than 250,000 Humvees have been built since the 1980s, making them a distinct feature of the nation’s military history over the past quarter-century. As a result, the vehicle has become a recognizable staple in military-themed movies, television shows, newscasts, and video games. According to a group of curious law professors, the Humvee has been featured in over 1,000 movies and shows. But the maker of Humvees thought the inclusion of its military vehicles in the wildly successful Call of Duty video games infringed on its trademark rights. The Southern District of New York disagreed, however, and reaffirmed that video games, such as movies and television shows, can feature real-life trademarks, such as Humvees, without infringing on the owner’s trademark. See AM Gen. LLC v. Activision Blizzard, Inc., 17 Civ. 8644 (GBD), 2020 U.S. Dist. LEXIS 57121 (S.D.N.Y. Mar. 31, 2020). Citing the First Amendment, the District Court determined the game developer could not be held liable for trademark infringement for featuring Humvees in its Call of Duty video games. Dismissing the lawsuit, the court found the video game maker had the right to use a real-life well-known military vehicle in an expressive work focused on realistically depicting modern combat and warfare.

In 1983, the United States Department of Defense contracted with AM General LLC to build the Humvee, which is still an essential vehicle for military operations not only in the United States but in over 50 countries. In the past, AM General has granted licenses to companies looking to use the Humvee trademark in connection with a wide variety of products, including video games, movies, and television series. Activision Blizzard Inc. developed the first-person shooter series Call of Duty, which is “characterized by its realism, cinematic set-pieces, and fast-paced multiplayer mode.” Selling over 130 copies, the Call of Duty games depict Humvees in various ways—sometimes the vehicle is mentioned in dialogue and can be seen in the background, and other times players can assume control of a Humvee. Additionally, Humvees are used in trailers and strategy guides for the games. Activision also licensed a toy company to manufacture toys related to the game, two of which are vehicles with distinctive Humvee elements.

AM General sent Activision a cease-and-desist letter objecting to the use of Humvees in games and toys. After Activision released another game in the series containing Humvees, AM General filed lawsuit for trademark and trade dress infringement. Activision argued its use of the Humvees was non-infringing free speech in an expressive work.

Courts have traditionally interpreted the Lanham Act to avoid suppressing protected speech under the First Amendment when the defendant’s product is artistic or expressive. The Rogers test has been used by courts to allow “artistic or expressive works to make use of trademarks under most circumstances without facing liability under the Lanham Act.” See Battle of the Empires: Permissive Trademark Infringement in Creative Works. Under this test, the “balance [between trademark interests and First Amendment speech interests] will normally not support application of the [Lanham] Act unless [the use of the trademark] has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless [the use of the trademark] explicitly misleads as to the source of the content of the work.” In the Second Circuit, this test is applicable to any work of artistic expression.

The Rogers test is a two-prong inquiry. Under the first prong, the court determines whether the use of the trademark has any “artistic relevance to the underlying work whatsoever. This is not a rigorous inquiry, and in fact, if “the contested use has [any] artistic relevance, the court must proceed to the second prong of the test. The second prong considers whether the use “explicitly misleads as to the source or the content of the work.” A “finding of likelihood of confusion must be particularly compelling to outweigh the First Amendment interest.” The evaluation of misleadingness is subject to the Polaroid factors, which assess consumer confusion. In cases where there is a “persuasive explanation” that the use of the trademark was an “integral element” of artistic expression, courts have found the artistically relevant use outweighs a moderate risk of confusion. An “integral element” is one that “communicate[s] ideas—and even social messages,” either “through many familiar literary devices (such as characters, dialogue, plot, and music” or “through features distinctive to the medium (such as the player’s interaction with the virtual world).”

Applying the Rogers test, the Southern District of New York found the use of Humvees in Call of Duty had artistic relevance – actual vehicles used by the military created a realistic and lifelike gaming experience. Amplifying, the court found the use of Humvees in the video game “easily met the artistic relevance requirement” by giving players “a sense of a particularized reality of being part of an actual elite special forces operation and serv[ing] as a means to increase specific realism of the game.” Therefore, the use of Humvees served an artistic purpose and had artistic value.

Relying on the Polaroid factors, the court found the use of Humvees was not explicitly misleading. In balancing the factors — strength of the plaintiff’s mark, degree of similarity, proximity of the products, bridging the gap, evidence of actual confusion, good faith, quality of defendant’s product, and consumer sophistication —the Southern District found the inclusion of Humvees in the game was not misleading and did not give rise to consumer confusion as to the source of the game (i.e., no one would think Call of Duty was made or sponsored by the maker of Humvees).

The court granted summary in favor of Activision who presented a persuasive explanation regarding the Humvee use as an “integral element” of the artistic expression—“the uses of Humvees in the Call of Duty games enhance the games’ realism.” The judge proclaimed “[i]f realism is an artistic goal, then the presence in modern warfare games of vehicles employed by actual militaries undoubtedly furthers that goal.”

This ruling in favor of freedom of expression was not so much legally groundbreaking as it was the latest to reaffirm that video games, like movies and television shows, can feature real-life trademarks that have artistic value to the work without paying for a license. To hold otherwise would allow private companies to dictate and limit others’ artistic expression and creative free speech giving trademark owners a “monopoly over reality.”

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When Will I Get My Inheritance?

As they say, the only two certainties in life are death and taxes. At some point we will all mourn the loss of a loved one. Once the mourning is completed, questions may arise whether the decedent had a last will and testament under which you might be a beneficiary. If so, the question may then become when might you receive your inheritance. This question is frequently raised, however, the answer is not as simple as some might believe.

If a last will and testament is located, the first step would be for the named executor to seek to admit to probate the decedent’s last will and testament. Provided this process goes smoothly, there are many things which must be accomplished prior to distributions being made to beneficiaries of the estate. What is required prior to distributions being made depends upon the complexity of the estate, which entails the type of assets the decedent had, as well as their status.

In general, after being appointed as executor of the estate, this individual must first identify all assets of the decedent and seek to gather or marshal them. This process can be quite simple, or can be complex, depending upon the nature of the assets of the decedent. Once the assets of the decedent are properly identified and marshalled, the executor can move to the next step.

The executor should retain a professional to determine what the potential estate taxes would be once the assets of the estate are marshalled and identified. At this point, it is often suggested that the executor make a preliminary tax payment to the state and federal governments concerning the probable estate taxes. This will give the executor more time to complete the necessary estate tax returns without the possibility of impairing a penalty.

Now, assets of the estate are still not ready for distribution. The next thing the executor must do is make sure that current debts and obligations of the decedent are paid from available assets within the estate. This may consist of a one-time payment to satisfy a debt, or monthly or yearly payments concerning other obligations of the decedent. The executor should have a good working spreadsheet of the assets of the estate, as well as information concerning the obligations of the estate. Once these expenses are identified and under control, the executor may look to the next step.

At this point, the executor may seek to make an interim distribution to the beneficiaries of the estate. What this means is that the beneficiaries would receive a part of their bequests under the Will, however, not the entire amount. The executor would maintain an appropriate hold back to satisfy any potential future state and federal taxes of the estate. Typically, these partial distributions are for 50% or less of the entire balance which a party might receive as their bequest.

After the partial distributions are made, the executor will continue to wind down the estate to ensure that all debts, obligations, and appropriate state and federal taxes are paid. Once this is completed and appropriate tax waivers are received, the executor will prepare an accounting to be reviewed by all beneficiaries of the estate. Once the accounting is reviewed and approved, the final distributions can be made. When a beneficiary receives a final distribution they must sign a form which requires them to return any part of their bequest should tax liabilities of the estate arise in the future. This is a typical form and is signed by any beneficiary when they receive a bequest under an estate. As such, a beneficiary should not be alarmed by having to sign such a form.

The above blog provides a brief outline as to what occurs prior to distributions being made under an estate. The process differs for each estate depending upon the value and complexity. Should a beneficiary of an estate have any questions, they should consult with competent counsel.

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Phase 3 of NJEDA Small Businesses Emergency Assistance Grant Program

On October 14, 2020, the New Jersey Economic Development Authority (“NJEDA”) announced Phase 3 of the NJEDA’s Small Business Emergency Assistance Grant Program. Pre-registration for eligible businesses for Phase 3 funding opens TODAY (October 19, 2020) and can be done on NJEDA.com.

Overview:

Phase 3 sets aside $70 million dollars for restaurants and micro-businesses, including nonprofits and home-based businesses with 50 or fewer full-time employees.

33% of the pools of funding will be directed to support entities in the above categories that are located in a census tract that was eligible to be selected as a New Jersey Opportunity Zone. The NJEDA is partnering with five leading marketing agencies to coordinate strategic outreach to these targeted communities. Tara Dowdell Group, Medina=Citi, Brand Enchanting Media, and The Setroc Group, in partnership with Park Circle Technologies, were selected to support these outreach efforts based on their established connections to diverse communities across the state. All four firms are minority-, woman-, or veteran-owned.

Funding:

Phase 3 increases the amount of funding available to businesses. Grant awards will be calculated based on the number of full time employees.

• Micro-businesses with 5 or fewer full-time employees and sole proprietorships will receive $5,000;
• Businesses with 6-25 full time employees will receive $10,000; and
• Businesses with 26-50 full time employees will receive $15,000.

The amount of the grant increases for businesses that are restaurants (NAICS code 722). Businesses in this classification with:

• 5 or fewer full-time employees and sole proprietorships will receive $10,000;
• 6-25 full time employees will receive $15,000; and
• with 26-50 full time employees will receive $20,000.

To maximize the funding businesses’ receive, grant awards will be based on the peak full time employee count from a businesses’ past six quarters of WR-30 filings.

Funding to be fully disbursed as quickly as possible upon approval of grant application

Use of Funds:

Businesses must use the funds from the Program for reimbursement of lost revenue as a result of business interruption caused by COVID-19. Businesses may not use a grant for capital expenses.

Eligibility:

Businesses that were approved for grant funding under Phase 1 or Phase 2 of the Small Business Emergency Assistance Grant Program will be eligible for Phase 3 funding. Funding received in Phases 1 or 2 will not affect the award sizes these businesses are eligible to receive in Phase 3 (except to the extent prior grants reduced the business’s unmet need).

Eligible businesses must have a physical commercial location in the State of New Jersey (e.g., an office, a physical point of sales, a warehouse, manufacturing facility, etc.), and home-based businesses must be located in New Jersey. All non-profit entities organized under Internal Revenue Code section 501(c) will be eligible, with the exception of organizations whose primary activity is political lobbying.

Prohibited businesses include, but are not limited to: gambling or gaming activities; the conduct or purveyance of “adult” (i.e., pornographic, lewd, prurient, obscene or otherwise similarly disreputable) activities, services, products or materials (including nude or semi-nude performances or the sale of sexual aids or devices); any auction or bankruptcy or fire or “lost-our-lease” or “going-out-of-business” or similar sales; sales by transient merchants, Christmas tree sales or other outdoor storage; and, any activity constituting a nuisance; or any illegal purposes.

The CEO/equivalent officer of each eligible business must self-certify that the business:

• Was in operation on February 15, 2020 (consistent with the federal Paycheck Protection Program implemented by the Small Business Administration);
• Will make a best effort not to furlough or lay off any individuals from the time of application through six months after the end of the declared State of Emergency on March 9, 2020 (Businesses that have already furloughed or laid off workers from the time of application must make a best-effort pledge to re-hire those workers as soon as possible) – any material breach of its best efforts certification may result in the NJEDA seeking repayment of the grant;
• Has been negatively impacted by the COVID-19 declared State of Emergency on March 9, 2020 (e.g., has been temporarily shut down, has been required to reduce hours, has had at least a 20 percent drop in revenue, has been materially impacted by employees who cannot work due to the outbreak, or has a supply chain that has materially been disrupted and therefore slowed firm-level production); and
• Has a material financial need that cannot be overcome without the grant of emergency relief funds at this time (e.g., does not have significant cash reserves that can support the business during this period of economic disruption).

In addition, an eligible business must show evidence, at the time of application, that the business is registered to do business in the State of New Jersey, is in good standing with the New Jersey Department of Labor and Workforce Development, and meets the requirement by the Division of Taxation in the Department of Treasury to ensure that the applicant does not have tax debts due to the State. Evidence may be presented in the form of a certification by the applicant, subject to repayment if the certification is not correct.

Each eligible business may submit one application per Employer Identification Number (EIN) and, businesses with multiple locations but only one EIN will be limited to one application (under the sole EIN).

Finally, additional eligibility requirements may apply, which will be based on any applicable Federal requirements related to the Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, and may include, but not be limited to, a restriction on duplication of benefits that could exclude potential applicants that have already received Federal assistance, as well as a requirement that the applicant further demonstrate that it has had negative impacts from COVID-19.

Application Process:

To streamline the application process, the NJEDA is requiring all applicants to pre-register online. Applications will become available on a rolling basis following the pre-registration period. Pre-registered applicants will need to return to complete an application based on the following schedule:

• Restaurants – 9:00 a.m. on Thursday, October 29, 2020
• Micro businesses – 9:00 a.m. on Friday, October 30, 2020
• All other businesses, excluding restaurants and micro businesses – 9:00 am on Monday, November 2, 2020

Applications for each category will be open for a period of one week and will be accepted on a first-come, first-served basis.

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Divorce Rates and COVID-19

With divorce rates spiking, some couples want to know their options for separating in 2020.

All relationships involve a degree of conflict—and it’s normal to argue more during stressful times. From worrying about your health and the health of your loved ones to facing increased financial uncertainty, all of the classic marital stressors have been amplified by the events of 2020.

For some couples, pandemic friction has involved a few more fights about the laundry or the savings account. For others, lockdown has exposed issues that run deeper and offered ample time for reflection, leaving them to wonder about their options for pursuing separation during the pandemic.

Covid’s Impact on Relationships

Relationship counselors consistently rank financial stress, boredom, disagreements about parenting, and arguing about household chores as the most common sources of relationship trouble.

With many couples stuck in the house, homeschooling children, and facing added financial uncertainty, it should come as no surprise that the coronavirus pandemic is placing additional strain on relationships that were already struggling.

Additionally, support systems have become more difficult to access. Venting to friends over coffee or spending a night out on the town just isn’t an option right now. If you’ve been using these outlets to manage stress—or, perhaps, to avoid dealing with deeper problems—-you may find yourself suddenly in the position of having to confront your difference head on.

It’s no surprise that given this, many marriages have reached their breaking point.

Although the recognition of real, substantive problems in a marriage can be a sobering moment, it is also a necessary and hopeful turning point on the road to a healthy future. One of the pandemic’s brighter spots may be that it may prompt a refocusing on values and on what really matters, clarifying when the healthiest and wisest path forward for two people involves separation.

The Pandemic and Divorce Rates

The evidence that the pandemic might lead to an uptick in divorce rates came early this year.

By April, the interest in divorce had already increased by 34% in the US, with newer couples being the most likely to file for divorce. In fact, a full 20% of couples who had been married for five months or less sought divorce during this time period, compared with only 11% in 2019.

Some predict a continuation of this trend, anticipating that divorce rates will increase between 10% and 25% in the second half of the year.

One way of understanding this timeline is through the collective disaster response curve, a model charting the phases through which a community moves in the wake of trauma. The curve shows increased energy and a sense of community cohesion in the period of time immediately following a disaster —it’s the “We’ll get through this together!” phase of disaster response. After a few weeks, the energy wears off, and disillusionment and depression can set in. During this period, couples may begin to struggle.

Experts also observe that when people are experiencing greater stress from sources external to a relationship, they struggle more to problem-solve within their relationships, and may inadvertently take out this stress on each other.

In the most serious cases, tensions can lead to violence, and 2020 saw a 9% increase in outreach to the National Domestic Violence Hotline compared to the same period last year. If you are experiencing domestic violence, there’s help just a phone call away with the National Domestic Violence Hotline here.

Can I still get divorced during the pandemic?

If you’re wondering whether or not you can still get divorced with everything going on, the answer is yes. Deciding to end a marriage is never easy, and with the pandemic altering the rhythms of life, it may feel particularly daunting. But there are many options to start the divorce process in 2020, and finding which path is best for you and your family is essential.

New Jersey courts are fully operational and handling most things virtually. Additionally, there are other options outside of the courts, including mediation, arbitration, and collaborative divorce.

If you are considering divorce and unsure how to proceed, contact Stark & Stark to learn more about your options.

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Permissive Infringement: Use of Trademarks in Creative Works Offers First Amendment Protection from Lanham Act Liability

After the debut of hit show Empire, record label Empire Distribution asserted trademark infringement counterclaims against Twentieth Century Fox Television, who sought a declaratory judgment that its television show and associated music releases did not violate Empire Distribution’s trademark rights. In Twentieth Century Fox TV v. Empire Distribution, Inc., 875 F.3d 1192 (9th Cir. 2017), the Ninth Circuit affirmed the district court’s finding that the First Amendment protected Fox’s use of the name “Empire” for an expressive, creative work and ancillary works. In doing so, the appellate panel reaffirmed First Amendment protection for use of marks in creative works where the use of the mark bears some artistic relevance to the underlying work and does not explicitly mislead consumers.

Founded in 2010, Empire Distribution is a record label that records and releases albums in the urban music genre, which includes hip hop, rap, and R&B. In 2015, Fox premiered Empire, a dramatic television series about a fictional New York based hip-hop record label, and the storylines that revolve around its inception, founding members, executives, and artists. The show features songs in every episode, some of which are original, and Fox contracted with Columbia Records to distribute the music in the show under the Empire brand. After receiving several threatening letters from Empire Distribution about Fox’s use of the “Empire” name, Fox filed a declaratory judgment action seeking a determination that its Empire show, its associated music releases, and affiliate merchandise did not violate Empire Distribution’s trademark rights. Empire Distribution counterclaim for trademark infringement, unfair competition, and false advertising. The fight centered on whether Fox’s creative work, which utilized the protected name and trademark of Empire Distribution, was exempt from the Lanham Act as a First Amendment expression.

When it comes to First Amendment protections for trademark use, the discussion must start with the test expounded by the Second Circuit in Rogers v. Grimaldi, 875 F.2d 994, 999 (2d Cir. 1989). Courts generally apply the Rogers test in determining whether an expressive work runs afoul of the Lanham Act where “the public interest in avoiding consumer confusion outweighs the public interest in free expression.” Pursuant to Rogers, use of another’s trademark or protected identifying material in an expressive work does not violate the Lanham Act unless the use “has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless it explicitly misleads consumers as to the source or content of the work.”

Analyzing the first prong, the Ninth Circuit found Fox used the word “Empire” for artistically relevant reasons because the show was set in New York, the Empire State, and its subject matter is a music and entertainment conglomerate. The court rejected Empire Distribution’s contention that for a use to have an artistic relevance it must refer to the owner’s mark, in this case Empire Distribution, holding that supporting the themes and geographic setting of the work was sufficient to satisfy the first prong of the Rogers test, which simply requires minimal relevance.

Turning to the second prong, the Ninth Circuit found Fox’s use of the title Empire did not explicitly mislead consumers. Absent an “explicit indication,” “overt claim,” or “explicit misstatement” that causes such consumer confusion, the second prong of the Rogers test will be satisfied. Since Empire did not mislead consumers into believing it was produced or created by Empire Distribution, the Court affirmed the lower court’s grant of summary judgment in favor of Fox.

Tucked away in the Ninth Circuit’s decision is the acknowledgment that not only is an expressive work protected from trademark infringement liability if it passes the Rogers test, but also are similarly branded ancillary promotional activities and commercial products based on the expressive work. So as long as the attendant commercial use is auxiliary to the expressive work and not explicitly misleading, it falls within the protective umbrella. Thus, Fox can sell Empire branded CDs, t-shirts, and music, as well as put on and promote Empire concerts without infringing on Empire Distribution’s “exclusive” rights to use the Empire name in conjunction with those goods and services. Although the Ninth Circuit’s decision may be a significant victory for Fox and other creators of expressive works, brand owners will likely see this decision as a setback to trademark enforcement and an expansion of the Rogers test. With bated breath, we anticipate how other courts apply and expound on Rogers in light of the Ninth Circuit’s decision, and whether the Supreme Court will weigh in on the topic.

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Strike 3 Saga: Turning BitTorrent Downloads Into A Copyright Infringement Settlement Machine Part 3

Balancing Individual John Doe Defendants’ Privacy Rights With Strike 3’s Right to Pursue Its Copyright Infringement Claims

Digital piracy on peer-to-peer networks can have severe financial consequences for copyright holders. As one member of Congress put it:

Under U.S. law, stealing intellectual property is just that—stealing. It hurts artists, the music industry, the movie industry, and others involved in creative work. And it is unfortunate that the software being used—called “file sharing,” as if it were simply enabling friends to share recipes, is helping create a generation of Americans who don’t see the harm. [1]

As digital pirates increasingly use BitTorrent and other peer-to-peer networks to share media, copyright holders have pressed the courts for recourse.  To combat losses from peer-to-peer file sharing, copyright holders have filed a spate of lawsuits against infringers in federal courts across the country. See, e.g., BMG Rights Mgmt. (US) LLC v. Cox Commc’ns, Inc., 881 F.3d 293, 298-99 (4th Cir. 2018); Killer Joe Nevada, LLC v. Does 1-20, 807 F.3d 908, 910 (8th Cir. 2015); Dallas Buyers Club, LLC v. Madsen, 2015 U.S. Dist. LEXIS 148445 at *1 (W.D. Wash. Nov. 2, 2015) (noting that the action is “one of 13 practically identical cases filed” alleging BitTorrent users’ infringement of the movie Dallas Buyers Club).

These suits are not without controversy: many involve “copyright trolls” who buy up copyrights to adult films and then sue masses of unknown BitTorrent users for illegally downloading pornography. [2]

Peer-to-peer networking involves a “decentralized infrastructure whereby each participant in the network . . . acts as both a supplier and consumer of information resources.” [3] In other words, “peers” download content from fellow peers, while leaving their own folders of digital content available for others to download. One type of peer-to-peer networking involves the BitTorrent protocol, in which a file is broken up into smaller pieces from various peers and then reassembled upon completion of a download. With BitTorrent, “each user is both downloading and uploading several different pieces of a file from and to multiple other users.” [4] Peer-to-peer networks like BitTorrent are “ideally suited for sharing large files, a feature that has led to their adoption by, among others, those wanting access to pirated media, including music, movies, and television shows.” [5]

BitTorrent is a system designed to quickly distribute large files over the Internet. Instead of downloading a file, such as a movie, from a single source, BitTorrent users are able to connect to the computers of other BitTorrent users in order to simultaneously download and upload pieces of the file from and to other users. To use BitTorrent to download a movie, the user has to obtain a “torrent” file for that movie, from a torrent website. The torrent file contains instructions for identifying the Internet addresses of other BitTorrent users who have the movie, and for downloading the movie from those users. Once a user downloads all the pieces of that movie from the other BitTorrent users, the movie is automatically reassembled into its original form, ready for playing on the recipient’s device.

Strike 3 hires forensic investigators to tap into BitTorrent and track the uploading and downloading of the hash files that comprise its copyrighted adult film works.  Using specially designed software and tools, the investigators can ascertain when an IP address is used to download all of the hash files for a complete movie.  The investigators then continue to monitor that IP address for months or years until the number of tracked downloads triggers Strike 3 to take legal action (usually more than 20).

When John Doe’s IP address is named in a complaint, John Doe is none the wiser until he/she receives a letter from his/her Internet Service Provider (“ISP”) (such as Comcast, Verizon, AT&T, Time Warner, etc.) informing John Doe of a subpoena the ISP received directing it to reveal John Doe’s name and address to Strike 3.  Thus, John Doe is forced to deal with a lawsuit alleging illegal downloading of pornographic materials even though Strike 3 does not yet have any actual proof that John Doe – as opposed to some other individual with access to John Doe’s Wi-Fi – was the internet user who actually downloaded Strike 3’s films.

This of course implicates privacy concerns and the potential for reputational harm of an innocent John Doe being named in or associated with a salacious lawsuit.  That is why courts insist on anonymity and protective orders to protect a John Doe’s privacy while still allowing Strike 3 to obtain the information it needs to prosecute its case.

In balancing John Doe Defendants’ privacy interests with Plaintiff’s right to pursue those who anonymously violate its intellectual property rights, many courts find that entry of a limited protective order strikes the right balance between Strike 3’s interests and individual defendants’ misidentification and invasion of privacy concerns.  See, e.g., Manny Film LLC v. Doe Subscriber Assigned IP Address 50.166.88.98, 98 F. Supp.3d 693, 696 (D.N.J. 2015) (granting expedited discovery but directing the internet service provider to provide the internet subscriber with a copy of the order and a copy of the subpoena received from the plaintiff and upon receipt of the order and the subpoena, granting the internet subscriber twenty-one (21) days to quash the subpoena or move in the alternative for a protective order. Further, the court ordered that the ISP shall not provide any responsive information to the plaintiff until the latter of the expiration of twenty-one (21) days or resolution of any motion to quash or for a protective order); Strike 3 Holdings, LLC v. Doe, 2019 U.S. Dist. LEXIS 168379, at *7 (D.N.J. Sept. 30, 2019) (declining to issue a protective order but permitting the plaintiff to proceed anonymously); Strike 3 Holdings, LLC v. Doe, 330 F.R.D. 552, 556-57 (D. Minn. 2019) (entering a comprehensive, multifaceted protective order to aid in protecting privacy interests and limit risks of embarrassment and misidentification); Malibu Media, LLC v. Doe, 2013 U.S. Dist. LEXIS 189452 at *2 (D.N.J. Aug. 19, 2013) (limiting the scope of a pre-Rule 26(f) conference subpoena to a subscriber’s name and address); Voltage Pictures v. Doe, 2013 U.S. Dist. LEXIS 155356, at *9-10 (D.N.J. May 31, 2013) (granting leave to serve subpoena requesting only the name, address, and media access control address associated with a particular IP address).

[1] Privacy and Piracy: the Paradox of Illegal File Sharing on Peer-To-Peer Networks and the Impact of Technology on the Entertainment Industry: Hearing Before the S. Comm. on Governmental Affairs, 108th Cong. 10-14 (2003) (statement of Sen. Levin); see also id. at 1-2 (statement of Sen. Boxer) (asserting that “downloading copyrighted works is theft” and “is a real problem”).

[2] Glacier Films (USA), Inc. v. Turchin, 896 F.3d 1033, 1035 (9th Cir. 2018).

[3] Columbia Pictures Indus., Inc. v. Fung, 710 F.3d 1020, 1024 (9th Cir. 2013).

[4] Fung, 710 F.3d at 1027.

[5] Id. at 1025; see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 919-20 (2005).

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N.J. Prompt Pay Act and Piercing the Corporate Veil

In a recent appellate decision, the court discussed the N.J. Prompt Pay Act, a fraudulent inducement claim and piercing the corporate veil with regard to a subcontractor’s claims against a general contractor. In finding in favor of the sub-contractor, the court applied the N.J. Prompt Pay Act and a fraudulent inducement claim in order to pierce the corporate veil of the contractor who had declared bankruptcy.

In this matter, the subcontractor had properly completed its work and said work had been approved by the contractor, thereby triggering the N.J. Prompt Pay Act. Thereafter, the contractor certified to the general manager that it paid the subcontractor for the concrete work, even though it had not paid the subcontractor. Shortly thereafter, the contractor filed for bankruptcy and it sought the protection of the bankruptcy court against any claims brought by the subcontractor.

During the course of the bankruptcy proceedings, the bankruptcy court pierced the corporate veil of the contractor and allowed the subcontractor to seek reimbursement directly from the principals of the corporation. The court explained that the principals of the contractor had fraudulently induced the subcontractor to enter into the agreement, and moreover, that said funds were due to the subcontractor pursuant to the terms of the N.J. Prompt Pay Act. As a result of this decision, principals of the general contractor became personally liable for the payment of the judgment, and moreover, the award of counsel fees and costs that were granted to the subcontractor. This decision clearly highlights how strong the New Jersey Prompt Pay Act is and how it can be utilized for a subcontractor to obtain the relief it seeks.

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Strike 3 Saga: Turning BitTorrent Downloads Into A Copyright Infringement Settlement Machine Part 2

Appellate Courts Recognize Strike 3’s Ability to Meet Standard for Early Discovery to Obtain John Doe Defendant’s Name and Address

While some bullheaded District Court judges have stopped Strike 3 in its tracks by denying its request for early discovery, most appellate courts to have considered the issue find that Strike 3’s allegations of copyright ownership and illegal downloading of their works by an identifiable IP address are enough to permit Strike 3 to discover the IP address owner’s name and address.

Federal Rule 26(d)(1) generally prohibits parties from seeking discovery “from any source before the parties have conferred as required by Rule 26(f).”  Further, Rule 26(d) does not set a standard for determining when expedited discovery should be permitted.  District courts possess broad discretion in managing the discovery process and may expedite or otherwise alter its timing or sequence. In re Fine Paper Antitrust Litig., 685 F.2d 810, 817 (3d Cir. 1982) (“matters of docket control and conduct of discovery are committed to the sound discretion of the district court”). Absent guidance from the rule itself, courts faced with motions for leave to serve expedited discovery requests to ascertain the identity of John Doe defendants in internet copyright infringement cases often apply the “good cause” test.

Good cause exists where the “need for expedited discovery, in consideration of the administration of justice, outweighs the prejudice to the responding party.”  Malibu Media, LLC v. John Doe, 2016 U.S. Dist. LEXIS 32445 *1 (D.N.J. Mar. 14, 2016). Under the good cause test, whether to permit expedited discovery is decided by considering the totality of the circumstances and the balancing of the interests of the plaintiff and defendant.

A non-exclusive list of factors courts typically examine in conducting the good cause analysis include:

(1) the timing of the request in light of the formal start to discovery;

(2) whether the request is narrowly tailored;

(3) the purpose of the requested discovery;

(4) whether the discovery burdens the defendant; and

(5) whether the defendant can respond to the request in an expedited manner.

Other courts have offered related but different factors for consideration, including:

(1) the plaintiff’s ability to make out a prima facie showing of infringement,

(2) the specificity of the discovery request,

(3) the absence of alternative means for obtaining the information sought in the subpoena,

(4) the need for the information sought in order to advance the claim, and

(5) the defendant’s expectation of privacy.

[See Strike 3 Holdings, LLC v. Doe, 329 F.R.D. 518, 521 (S.D.N.Y. 2019) (citing Arista Records, LLC v. Doe 3, 604 F.3d 110, 119 (2d Cir. 2010).]

It is a first principle of federal civil procedure that litigants are entitled to discovery before being put to their proof.

In conducting any discovery inquiry, the Third Circuit has suggested that district courts risk reversal if their rulings will make it impossible for any party to “obtain crucial evidence[.]”  See In re Fine Paper Antitrust Litig., 685 F.2d at 818 (quoting Eli Lilly & Co. v. Generix Drug Sales, Inc., 460 F.2d 1096, 1105 (5th Cir. 1972)) (“[the Third Circuit] will not upset a district court’s conduct of discovery procedures absent ‘a demonstration that the court’s action made it impossible to obtain crucial evidence'”).  After all, it is a first principle of federal civil procedure that litigants “are entitled to discovery before being put to their proof.” Bennett v. Schmidt, 153 F.3d 516, 519 (7th Cir. 1998).

The legal standard requires, however, that where well-pled factual allegations exist, courts should “assume their veracity” at the pleading stage.  Alston v. Parker, 363 F.3d 229, 233 n.6 (3d Cir. 2004) (cautioning that courts should permit “discovery before testing a complaint for factual [as opposed to legal] sufficiency”).  It is well settled that a pleading is sufficient if it contains “a short and plain statement of the claim showing that the pleader is entitled to relief.”  Fed. R. Civ. P. 8(a)(2).  The focus, therefore, is not on whether the plaintiff will ultimately be able to prove each of the alleged facts in the complaint, but simply whether, if such facts are later proven to be true, the plaintiff has stated a legally actionable claim.

In a Strike 3 Holdings case brought in the District of New Jersey, the District Court reversed the Magistrate Judge’s denial for early discovery (Strike 3 requested permission to serve a subpoena on an ISP to obtain the name of the owner of the IP addressed alleged to have been used to download Strike 3’s videos) holding that Strike 3’s allegations that it owned the rights to films that the named John Doe Defendants pirated on particular dates and times using an identifiable IP address were sufficient to allow for early discovery.  See Strike 3 Holdings, LLC v. Doe, 2020 U.S. Dist. LEXIS 114598, at *11-14 (D.N.J. June 30, 2020).  The Magistrate Judge had based its decision on seven considerations:

1. Strike 3 bases its complaints on unequivocal affirmative representations of alleged facts that it does not know to be true;
2. Strike 3’s subpoenas are misleading and create too great of an opportunity for misidentification;
3. the linchpin of Strike 3’s good cause argument, that expedited discovery is the only way to stop infringement of its works, is wrong;
4. Strike 3 has other available means to stop infringement besides suing individual subscribers in thousands of John Doe complaints;
5. the deterrent effect of Strike 3’s lawsuits is questionable;
6. substantial prejudice may inure to subscribers who are misidentified; and
7. Strike 3 underestimates the substantial interest subscribers have in the constitutionally protected privacy of their subscription information.

But, the Magistrate Judge erred in not accepting Strike 3 allegations as true and presuming that just because Strike 3 had not yet obtained evidence to link the IP address owner to the alleged infringement it could not do so in the future after obtaining relevant discovery.  Plaintiff is not required to sufficiently establish the John Doe Defendant did the infringing at the pleading stage, rather Plaintiff must only allege facts that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.  See Blakeslee v. Clinton Cty., 336 F. App’x 248, 250 (3d Cir. 2009) (“Use of John Doe defendants is permissible in certain situations until reasonable discovery permits the true defendants to be identified”).  Relying on Third Circuit precedent, the District Court re-affirmed that meritorious claims must be permitted to proceed even if a plaintiff cannot adduce all the necessary facts at the outset, including the identity of the Defendant.

Because Strike 3 sufficiently stated a viable claim of copyright infringement against the identified IP addresses and its placeholder-defendant subscribers, Strike 3 is entitled to discovery to further assist it in identifying the underlying wrongdoer.  Any consideration of the merits of Strike 3’s claims before permitting discovery to identify the placeholder-defendants, including whether Plaintiff has sued the correct Defendants, would be inappropriate at the pleading stage.

Finally, because the requested early discovery (name and address of IP subscriber) was narrowly tailored (requesting no more than would be required to identify the relevant individual) and there did not exist an alternative means for legally obtaining this crucial information, the District Court joined a growing number of other courts in finding good cause existed for Strike 3’s request to serve a subpoena to obtain the name and address of the John Doe owner of the IP address.

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Supplemental Guidance Regarding the Proxy Voting Responsibilities of Investment Advisers

The Securities and Exchange Commission’s (“SEC”) Supplement to Commission Guidance regarding Proxy Voting Responsibilities of Investment Advisers (“Guidance”) became effective on September 3, 2020. Additionally, the SEC final rules governing Proxy Advisors (“Amendments”), intended to improve the accuracy and transparency of information provided by proxy advisory firms, will go into effect on November 2, 2020 with a required compliance date of December 1, 2021, for certain provisions and full compliance by the 2022 proxy season. The Guidance and the Amendments are part of the SEC’s continued efforts to promote transparency, accountability and disclosure to investors during the proxy voting process.

In previous guidance, the SEC discussed how an investment adviser’s (“adviser”) fiduciary duty and Rule 206(4)-6 under the Advisers Act are related to an adviser’s exercise of its voting authority on behalf of its clients and provided examples to help the adviser comply with its obligations related to proxy voting. The previous guidance is now supplemented based upon the SEC’s ongoing review of the proxy voting process and the Amendments. The SEC expects that the Amendments will provide issuers, among other things, with access to the proxy advisory firms’ recommendations in a timely manner and will allow issuers to share any additional information with shareholders that may be material to their voting decisions. Proxy advisory firms, as a condition of their reliance on Rules 240 14a-2(b)(1) and (b)(3), must also develop policies and procedures that are reasonably designed to provide advisers and other clients with a mechanism by which they can be reasonably learn of the additional information before making proxy voting decisions.

The Guidance is intended to:

1. Assist advisers in determining how to consider any additional information that will become more readily available as a result of the Amendments; and
2. Address the disclosure obligations and considerations that may arise when advisers use proxy advisory firms, electronic vote management systems or other voting execution services for voting proxies.

Pre-Population of Voting Proxies

Since pre-population and automated voting occur before the submission deadline for proxies to be voted at a shareholder meeting, advisers that pre-populate clients’ votes now have an obligation to determine whether an issuer plans to file or has already filed additional soliciting materials reflecting its views regarding the voting recommendations. This should be done as part of an adviser’s reasonable due diligence into matters on which it votes. Some steps that an adviser could take to demonstrate that it is making voting determinations in a client’s best interest include, but is not limited to:

• Review the policies and procedures to determine whether they are reasonably designed to address circumstances where the adviser becomes aware that an issuer intends to file or has filling additional soliciting materials with the SEC after the adviser has received the proxy advisory firm’s voting recommendations but before the submission deadline;
• Determine whether the proxy advisory firm may obtain non-public information about how an adviser will vote clients’ proxies and then review all agreements with the proxy advisory firm to determine whether the agreements will permit the proxy advisory firm to use that non-public information in a manner that would not be in the best interest of the adviser’s clients; and
• Determine whether policies and procedures are reasonably designed to address the adviser’s disclosure obligations.

Disclosure Obligations

Advisers are required, as part of its duty of loyalty to clients, to make full and fair disclosure of all material facts relating to the advisory relationship including, material facts related to the exercise of its proxy voting authority. Advisers that use automated voting should disclose:

• The extent of the adviser’s use of automated voting and under what circumstances it will use automated voting;
• How the adviser’s policies and procedures address the use of automated voting when the adviser becomes aware that an issuer intends to file or already filed additional soliciting materials with the SEC regarding a matter to be voted on prior to the submission deadline for proxies to be voted at the shareholder meeting; and
• Sufficient and specific information which will provide a client with enough information to understand the role of the automated voting in the adviser’s exercise of its voting authority and to provide informed consent to the use and scope of automated voting.

The Amendments and the Guidance, in part, are focused on ensuring advisers act “in a manner consistent with their fiduciary obligations” and that they provide investors with enough information to make informed decisions when voting proxies. The new requirements could impact an adviser’s continued use of electronic proxy voting and the use of proxy advisor voting firms due to the Amendments and the corresponding anticipated increased cost of compliance. If your firm is engaged in voting proxies on behalf of your clients (either directly or via the use of a proxy voting vendor), then Stark and Stark is available to help you evaluate your proxy voting process and assist you with meeting your obligations under the Guidance.

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Enforceability of Arbitration Clauses in a Construction Contract

In a recent matter before the appellate division, the Court discussed the enforceability of an arbitration clause in a construction contract where the clause did not contain a waiver of the right to file a state court action, nor a waiver of the right of a trial by jury. Furthermore, the court also reviewed the enforceability of the clause due to the fact that the font was less than 10-point print, and thus, was very difficult to read.

The Court explained that the arbitration clause was unenforceable since it lacked the required waivers with regard to the right to file a state court action, and the right to a trial by jury. Such waivers are mandatory and must be included in order for an arbitration clause to be found enforceable by the Court.

The court further explained that the clause lacked the mutuality of assent, because it was less than 10-point font, and thus, was not easily discernable. This issue of legibility adds yet another pitfall for drafters of contracts to avoid. Gone are the days of fine print which may be dispositive. Instead, the Court explained that any such material provision must be clearly legible. As such, all contractors must be aware of this ruling and should carefully review their agreements in order to correct any such potential issues.

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Strike 3 Saga: Turning BitTorrent Downloads Into A Copyright Infringement Settlement Machine Part 1

D.C. Circuit Reverses District Court’s Denial of Strike 3’s Request for Early Discovery to Obtain Identity of Subscriber of IP Address Allegedly Used to Illegally Download Strike 3’s Adult Videos

The D.C. Circuit recently revived one of thousands of copyright lawsuits filed by an adult film studio, Strike 3 Holdings, overturning the lower District Court Judge who declined to allow Strike 3 to engage in early discovery sharply criticizing the film studio plaintiff for using the courts as an ATM. See Strike 3 Holdings, LLC v. Doe, No. 18-7188 (D.C. Cir. 2020). The three-judge appellate panel, however, ruled that the judge erred in refusing to grant Strike 3’s request to subpoena an internet service provider in order to identify the name and address of a John Doe subscriber of an IP address allegedly used to illegally download Strike 3’s films using BitTorrent.

The case is one of over 3,000 lawsuits Strike 3 has filed since 2018. The suits target John Doe owners of IP addresses, seek to subpoena internet service providers to identify the name of the John Doe owner, then typically settle out of court. Taking issue with the salacious nature of Strike 3’s copyrighted works, the volume of identical lawsuits filed by Strike 3, and the playbook pattern that typically results in settlements and case dismissals, the District Judge refused Strike 3’s request for early discovery to obtain the name of the John Doe defendant: “Armed with hundreds of cut-and-pasted complaints and boilerplate discovery motions, Strike 3 floods this courthouse (and others around the country) with lawsuits smacking of extortion,” Judge Lamberth of the District Court wrote. “It treats this court not as a citadel of justice, but as an ATM. Its feigned desire for legal process masks what it really seeks: for the court to oversee a high-tech shakedown. This court declines.” Concerned with the potential for misidentification and Strike 3’s inability to allege with any certainty that the John Doe subscriber is the one who downloaded the videos, as opposed to a neighbor, a spouse, a household member, or a visiting friend, the District Court found that Strike 3’s need for the subpoenaed information was outweighed by the “potentially-noninfringing defendant’s right to be anonymous”—a privacy interest the court found especially weighty given the “particularly prurient pornography” at issue, and therefore dismissed the complaint without prejudice.

In reversing, the Circuit Court concluded that Strike 3’s well pled complaint for copyright infringement entitled it to discover the name of the John Doe subscriber associated with the IP address Strike 3’s investigators determined was used to illegally download dozens of Strike 3’s adult videos.

To avoid expensive appeals and recalcitrant judges, Strike 3 has moved its settlement mill to Miami-Dade County in Florida. Rather than file hundreds of lawsuits against individual IP addresses, Strike 3 has recently taken advantage of Florida’s “Pure Bill of Discovery” procedure, which allows a litigant to obtain a court order for the production of information or documentation, which may then be used in a later lawsuit. Pure Bills of Discovery have traditionally been used to investigate fraud, to inspect and preserve evidence, and to obtain pertinent documentation. Generally speaking, a Pure Bill Of Discovery can be used by a person or entity to obtain information from another prior to filing a lawsuit on the merits.

Therefore, in one fell swoop Strike 3 can obtain an order allowing it to subpoena ISPs to turn over the identities of the owners of hundreds of IP addresses. No more wayward district court decisions and constantly fighting over Strike 3’s entitlement to pre-answer discovery in individual federal lawsuits. When John Does fight back by moving to quash the subpoenas or challenge the Florida court’s jurisdiction, Strike 3 will dismiss that defendant’s IP address from its Pure Bill of Discovery suit and file an individual suit in John Doe’s home state. So far, Strike 3’s new litigation strategy seems to be paying off as the settlement continue and the cost savings (filing fees, motion fees, etc.) stack up.

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