In this edition #19…

November 19, 2010

Dr Melissa de Zwart takes a fascinating look at the world of online games and claims of internet addiction.  Dr de Zwart surveys the media reportage of this phenomenon and looks at the recent US case of Smallwood v NCSoft Corporation where the plaintiff claimed $3million in damages for injuries including severe emotional distress and depression as a result of playing Lineage II.


Are you addicted? Online games and internet addiction

November 19, 2010

By Dr Melissa de Zwart

The dangers posed by online games is a favourite topic of the mainstream media. The US Supreme Court is currently hearing the case of Schwarzenegger v. Entertainment Merchants Association (click here for transcript), concerning the Constitutional validity of the Californian law banning the sale of violent video games to minors.

In addition to the matter of violent content, the media focuses on the horror stories of babies left to starve to death while their parents are busy raising a virtual baby online; the young man who died after enduring a long gaming stint during which he refused the leave the console for 50 hours (click here) and the zombie-like teenagers who don’t sleep, playing World of Warcraft all night long.

But what is the truth about online gaming? Is it truly addictive? And, if so, does it make gamers a danger to others, such as the Otaku panic in Japan in the late 1980s suggested? Do game providers owe a duty to potential customers to warn them of the risk of psychological addiction?

A case currently before the US Courts may give us some of the answers to these questions.

Smallwood v NCSoft Corporation

In October 2009, Craig Smallwood filed a Complaint against online game provider NCSoft in the US District Court, District of Hawaii, alleging that ‘as a direct result of using Lineage II [an online game created and operated by NCSoft and its affiliated companies] and Defendant’s acts and omissions, he has suffered extreme and serious emotional distress and depression, he has been unable to function independently, he has suffered psychological trauma, he was hospitalized, and he requires treatment and therapy three times a week.’ Smallwood claimed $3 million in damages. (Click here for filings)

Smallwood had played Lineage II using three accounts for over 20,000 hours during the period 2004-2009. This level of play, averaging 11 hours per day, left him unable to function in his daily life. Smallwood stated that he ‘experienced great feelings of euphoria and satisfaction from persistent play.’ During this time he claimed that he ‘became psychologically dependent and addicted to playing Lineage II.’ He also claimed that, despite being banned from the game, he continues to experience a compulsive urge to play the game.

At the time of bringing the action Smallwood had been banned from the game due to allegations that he had been involved in Real Money Trade (RMT) in breach of the game rules.

Smallwood claims that had he been warned about the trauma he would experience as a consequence of his addiction and subsequent exclusion, he would not have commenced playing the game and invested so much time and money in it.

The original Complaint had a troubled progression through the Court, due to problems with the drafting of the pleadings, and particularly the issue as to whether Smallwood was an unrepresented (‘pro se’) litigant, or had in fact received significant legal help in drafting his claims. Judge Kay determined that Smallwood had received assistance from legal counsel, but that rather than striking his pleadings, he would not liberally construe them as would normally be done for a pro se party.

In summary, Smallwood claimed that he ‘would not have bought and played Lineage II if he had been aware that he would be subjected to the dishonesty and unfairness described above, or that he would become addicted to the game.’ The specific legal claims related to misrepresentation/deceit, unfair and deceptive practices, defamation/libel/slander, negligence, gross negligence, intentional infliction of emotional distress, negligent infliction of emotional distress, and punitive damages. The Court ultimately dismissed all of the claims except for those in defamation, negligence, gross negligence and negligent infliction of emotional distress.

In assessing the Defendant’s Motion to Dismiss, the Court had to determine whether or not there was a certainty that under existing law (the law of Hawaii) ‘no relief can be granted under any set of facts that might be proved in support of the plaintiff’s claim.’

Validity of the User Agreement

NCSoft sought to dismiss Smallwood’s claims on a number of grounds. Most relevant for our purposes are that Smallwood’s claims are limited by the terms of the Lineage II User Agreement to the $65 account fees paid by Smallwood for the preceding six months. Smallwood opposed enforcement of the terms of the User Agreement on the basis that it not relevant to consider the terms of the User Agreement and that it had not been sufficiently relied upon in his Complaint, effectively disputing the authenticity of that Agreement. In addition, he claimed that as a ‘click wrap agreement’ it should be declared void and unconscionable. The Court rejected all of these arguments in that Smallwood himself had referenced the User Agreement a number of times in his Complaint.

The Court determined that the validity of the Agreement and the limitation of liability clause would be determined under the specified law of the Agreement, ie the law of Texas. A number of decisions of the Texas Courts had upheld the validity of clickwrap agreements. Therefore the Court held that the relevant agreement was valid. In particular, Smallwood ‘had notice of the User Agreement, was required to affirmatively agree to it by clicking “I agree”, and had an opportunity to cease playing Lineage II if he disagreed with it.’ The Court held that Smallwood ‘repeatedly reaffirmed his acceptance of the User Agreement by continuing to play’. Furthermore, and most damningly (and surprisingly) was the fact that Smallwood actually claimed to have read the User Agreement and relied upon it framing his claims.

As noted above, the User Agreement contained a limitation of liability clause. However, the Court held that this clause could not, according to principles of general law, exclude liability with respect to willful or fraudulent behaviour or gross negligence.

A ‘Fair Game’?

With respect to the allegations of fraud the Court held that the claim had not been pled with the required specificity. Smallwood’s claims with respect to fraudulent misrepresentation were as follows, that NCSoft had falsely represented that:

  • the three-month automatic payment plan was for the Plaintiff’s benefit, when in fact it was a means to retain the Plaintiff’s money after he was banned. Smallwood claims that there was also a secret strategy to force players to invest more money by moving to the new game ‘Aion’;
  • Lineage II was ‘a fair game’. In particular, Smallwood asserted that the Lineage Game Masters did not enforce the game rules fairly;
  • Lineage II was a safe product, in particular that there was ‘inadequate advice to plaintiff as to “taking breaks” from play, but not disclosing that lengthy breaks in play were necessary to avoid addiction to the game;
  • ‘botting was not allowed, when in fact, it was rampantly obvious during plaintiff’s game play but nothing was done about it’.

However, none of these claims were supported by sufficient detail regarding who made such misrepresentations, where or when they were made.

The only allegation for which sufficient detail was provided was the claim by Smallwood that the reason for banning him from the game was ‘phony and fraudulent’. Importantly, Smallwood alleged that he relied upon NCSoft’s actions to his detriment ‘by investing his time and money playing the game.’ The Court rejected this claim on the basis that Smallwood could not have relied upon his investment of time and money to his detriment once he had been banned from playing the game. The claims in negligent misrepresentation and unfair and deceptive trade practices were also dismissed for lack of specificity.

Defamation

Further, Smallwood brought a claim in defamation, claiming that he was ‘falsely accused of being involved in real money transfers’ and that such statements were published to other players to his detriment. The Court found that this claim was sufficiently stated but as the claim for defamation was based upon negligence, damages were limited under the terms of the User Agreement.

Negligence

Smallwood’s claims in negligence and gross negligence were based on the allegation that NCSoft ‘acted with negligence in designing, developing, manufacturing, inspecting, testing, marketing, advertising, promoting, selling, distributing, maintaining, revising, servicing, administering, and overseeing Lineage II’.

The Court found that Smallwood had stated a claim in both negligence and gross negligence, with damages potentially being limited under the Service Agreement (not with respect to gross negligence).

Intentional Infliction of Emotional Distress

Smallwood’s claim for the intentional infliction of emotional distress was dismissed on the grounds he had not pled facts supporting a claim that the relevant act was ‘outrageous’ as required under Hawaiian law. However, the Court was prepared to entertain a claim on the basis of negligent infliction of emotional distress.

In order to bring a claim on this basis, as a general rule under Hawaiian law there must be a physical injury to the plaintiff or another person or property. In this case, Smallwood claimed that he ‘suffered extreme and serious emotional distress and depression’ and as a consequence was ‘unable to function independently in usual daily activities such as getting up, getting dressed, bathing, or communicating with family and friends.’ This also resulted in Smallwood being hospitalized for three weeks and needing therapy three times a week. This is sufficient to constitute a physical injury. Again, if successful on this claim the Plaintiff’s damages would be limited by the User Agreement in case of negligence, but not in the case of gross negligence.

Conclusions

As this was a motion by NCSoft to dismiss Smallwood’s Complaint, the matter will now go ahead for a full hearing of the issues with respect to defamation, negligence, gross negligence and negligent infliction of emotional distress.

Recent discussions in the media have also focused on the question of whether internet addiction, and particularly addiction to online games, should be recognized as a classifiable mental disorder. Some of these discussions have highlighted the question, also at the core of the Smallwood case, of whether game providers should provide warnings to users about their addictive qualities. Others take the view that the internet, and particularly games such as EverQuest and World of Warcraft, satisfy a basic human need for achievement and conquest.

For many players, the online game is their place of socialisation and engagement, this social element is often lost in media critiques of the lonely socially isolated gamer. It is important in any consideration of the impact of online games, that the positive elements are not lost in the sensationalized focus on the negative.


In this edition #18…

November 1, 2010

Katy Barnett examines the tragic death of Tyler Clementi – an American college student who committed suicide after his sexual encounters with a man were broadcast on the Internet by classmates.  In the United States, the classmates have been charged with invasion of privacy and there are talks as to whether “bias” charges be added. Ms Barnett examines whether the acts of the classmates could found a civil or a criminal action in Australia and whether a penalty enhancement for “bias” is available under Australian law.

In “Storm in a Contour Bottle?”, Amanda Scardamaglia examines a new battle in the cola wars. Coca Cola are suing Pepsi for infringement of their curvaceous bottle trade mark. The case brings up interesting issues in the complex area of “shape” marks.

Jake Goldenfein reports on New York Law School’s “un-conference”. A new type of forum designed to encourage wider participation and IP activism. 


Invasion of Privacy in the Internet Age – Australian law and the Clementi case

November 1, 2010

By Katy Barnett

“Many of the problems for privacy which were identified in the 1980s are now enlarged, or altered, by the development of the Internet. The speed, power, accessibility and storage capacity for personal information identifying an individual are now greatly increased. Some of the chief protections for privacy in the past arose from the sheer costs of retrieving personal information; the impermanency of the forms in which that information was stored; and the inconvenience experienced in procuring access (assuming that its existence was known). …These practical safeguards for privacy largely disappear in the digital age.”

Michael Kirby, ‘Privacy in Cyberspace’ (1998) 21 University of New South Wales Law Journal 323

1. The Tyler Clementi case

The tragic case of Tyler Clementi raises questions about online technologies and the reach of privacy law. Briefly, Tyler Clementi was a freshman at Rutgers University in New Jersey. In September this year, his roommate, Dharun Ravi, and another dormmate, Molly Wei, were alleged to have placed a hidden camera in Clementi and Ravi’s room. They then proceeded to film Clementi’s sexual encounter with a man and stream it on the web, and attempted to film and stream another encounter.

Ravi allegedly publicised the streaming on his Twitter account, and invited friends to watch the footage on iChat. Posts by Clementi indicate that he reported Ravi to a dorm adviser when he discovered what had happened. Tragically, on 22 September 2010, Clementi threw himself off George Washington Bridge in an apparent suicide.

Ravi and Wei have been charged with invasion of privacy. However, there are questions as to whether the law is up to dealing with this kind of case, as CNN reports:

New Jersey prosecutors were determining Friday whether additional charges, including bias, may be brought against Ravi and Wei.

”The initial focus of this investigation has been to determine who was responsible for remotely activating the camera in the dormitory room of the student and then transmitting the encounter on the internet,” Middlesex County Prosecutor Bruce J. Kaplan said.

”Now that two individuals have been charged with invasion of privacy, we will be making every effort to assess whether bias played a role in the incident, and, if so, we will bring appropriate charges,” Kaplan said in a statement.

What is clear, though, is that the Rutgers case has reignited debate over cyber incivility and whether tougher privacy laws are needed in a technologically advanced age when anyone can instantly disseminate information about another person with relative ease.

Newark attorney Henry Klingeman, who used to be a federal prosecutor, said that in many cases, it’s unlikely that anyone would serve significant jail time on invasion of privacy charges like Ravi and Wei are facing. He said federal laws are stronger, but most cases are tried in state courts.

Gathering or viewing sexual pictures without consent is a fourth-degree crime, and broadcasting them is a third-degree crime.

“State laws treat it like a nuisance, like graffiti on a street,” Klingeman said.

Bias laws deal with hate-crimes on the basis of race, sexual orientation and the like. The New York Times notes:

Though bias charges are generally hard to prove, lawyers and civil rights experts said that New Jersey has one of the toughest state laws on hate crimes. Its so-called bias intimidation law allows prosecutors to lodge separate charges and seek greater penalties against anyone who commits a crime against someone because of the victim’s sexual orientation. The law does not specify that the crime be violent.

Instead, these lawyers said, it was more likely that prosecutors would pursue bias charges.

Robert A. Mintz, a criminal defense lawyer in Newark and a former federal prosecutor, said, “What prosecutors will be looking at is whether this is a prank that had gone horribly wrong, or whether this was an orchestrated scheme to intimidate the victim based on his sexual orientation.”

Mr. Mintz said that prosecutors would likely review the students’ e-mail and Twitter messages, read any essays or blog entries, and interview friends about what they might have said. “If there’s an accumulation of circumstantial evidence, that can be very powerful,” he said.

If the students are charged and convicted of a hate crime, they could face up to 10 years in prison, instead of 5 years for the privacy charge alone. …

However, I want to focus on Australian law in this post. Specifically, I want to consider how the law would deal with this if a similar event occurred in Australia. There are three things I want to look at: whether the conduct would be tortious under Australian law, whether it would be a crime, and whether there would be any ‘hate crime’ additions to sentence. I will address each of these questions in turn.

2. Australian civil laws on observing, communicating and recording private material

The Commonwealth Privacy Act 1998 (Cth) primarily deals with obligations of privacy over information on the part of government organisations and large corporations, not individuals, and thus it does not cover a situation such as that faced by Clementi.

Similarly, the Victorian Charter of Human Rights and Responsibilities recognises a right to privacy in Article 13, stating that a person has a right not to have their personal privacy, family, home or correspondence unlawfully or arbitrarily interfered with. The Charter also prohibits unlawful attacks on a person’s reputation. However, the Charter only covers the acts of public authorities, not private persons.

Therefore, any tort of invasion of privacy must be established at common law. However, as I have noted in a previous post, Australia’s tort of invasion of privacy is at best, nascent. The High Court in ABC v Lenah Game Meats has made obiter comments concluding that Victoria Park Racing v Taylor does not preclude the development of a tort of invasion of privacy in Australia. Some lower courts have since recognised an action for invasion of privacy.

  • In Grosse v Purvis, Senior Judge Skoien of the Queensland District Court used the plaintiff’s criminal action against the defendant for stalking as a peg on which to hang a civil action, stating that since Lenah Game Meats, there was “a civil action for damages based on the actionable right of an individual person to privacy”;
  • In Doe v ABC & Ors, Hampel J of the County Court of Victoria found the ABC liable for equitable breach of confidence and for breach of privacy for identifying a victim of a sexual assault in a radio broadcast. (The case settled before an appeal was delivered);
  • In 2008, the ALRC released a report on privacy law in which it recommended enacting laws to protect people from wrongful abuses of privacy;
  • Also in 2008, in Giller v Procopets, the Victorian Court of Appeal applied breach of confidence law to a situation which bore some similarity to the present one. Neave JA (with whom Maxwell P agreed) of the Victorian Court of Appeal canvassed the possibility of a tort of breach of privacy, but did not find it necessary to decide the issue. Breach of confidence was sufficient to protect the plaintiff’s interest in that case; and
  • In August 2010, the Victorian Law Reform Commission released the Surveillance in Public Places: Final Report in which it suggested that there should be two new statutory torts, one which deals with misuse of private information, and one which deals with intrusion upon seclusion (See Recommendation 22). Click here for summary.

Possibly someone in Clementi’s position could establish a cause of action based on breach of confidence, as the Clementi case bears some similarity to Giller v Procopets, where the defendant showed videos of himself and the plaintiff engaging in sexual intercourse to the plaintiff’s friends and family, and attempted to show her employer (a more detailed post on the case here).

A majority of the Victorian Court of Appeal found that he was liable for breach of confidence, and that she was entitled to aggravated damages for mental distress suffered as a result of that breach. Ashley JA dissented on a variety of issues, finding that while there was a breach of confidence, mental distress falling short of psychiatric injury was not compensible.

Giller v Procopets follows in the footsteps of English case law, which has increasingly been developing to protect privacy interests because of the operation of the European Convention on Human Rights, particularly Article 8. The disclosure of the video to others would trigger the action in breach of confidence. But it is arguable, perhaps, that the filming itself should give rise to liability for breach of privacy, regardless of whether there was disclosure.

There seems no doubt that the conduct of Ravi and Wei was a wrongful invasion of Clementi’s privacy. Indeed, applying Grosse v Purvis, an Australian judge could hang any civil action on a probable breach of various criminal provisions. The only question is whether such a tort is well-enough established to cover this kind of situation. It is precisely a case such as Clementi’s which shows the need for a tort of invasion of privacy. However, presently there is a gap in the law regarding cases where individuals breach the privacy of other individuals, and misuse private information.

The VLRC’s report on surveillance is particularly pertinent. In paragraphs 7.130 – 7.134, the VLRC says:

The second cause of action should deal with what is often referred to as intrusion upon seclusion or spatial privacy. This cause of action is primarily concerned with the use of a surveillance device, often surreptitiously, to view parts of a person not open to public gaze or to monitor conduct that a person believes to be private. Although this cause of action has not yet been developed by the courts in New Zealand and the UK, it may emerge in time because there can be serious invasions of privacy without any publication of personal information.

The act of intruding upon a person’s seclusion or invading their private space is in itself objectionable conduct. Whether a person had an entitlement to seclusion is best determined by the application of an objective test rather than by relying solely on the views of the person to whom the information relates. This approach means that the tribunal should consider values and attitudes widely held throughout the community before deciding whether the plaintiff had a reasonable expectation of privacy. Examples of the sort of things about which a person could have reasonable expectations of privacy are intimate parts of their body that are clothed and conversations that appear to be taking place well out of the earshot of others.

The gist of this cause of action is the intrusion upon a person’s seclusion or private space. Whether the intrusion is unacceptable is best determined by the application of an objective test rather than by relying solely upon the views of the person seeking seclusion. Again, this approach means that the tribunal should consider values and attitudes widely held throughout the community before deciding whether the conduct was highly offensive. Examples of the sort of behaviour that could fall within this cause of action because the intrusion upon seclusion was highly offensive to a reasonable person include engaging in ‘upskirting’ on public transport or covertly listening to a conversation between people sitting on an isolated park bench.

Both examples in the previous paragraph involve criminal conduct. Although the wrongdoer may be prosecuted for a criminal offence, there is no civil cause of action open to a person harmed by conduct of this nature. An action for breach of statutory duty is not available in these cases because of the limited reach of that cause of action.

The VLRC also recommends that Victoria adopt a tort of misuse of private information. The VLRC’s suggestions should be acted upon precisely so that a Clementi-like situation would give rise to recourse in the civil law if it occurred here.

The US already has a tort specifically dealing with intrusion upon seclusion, as outlined in §652B, Restatement (Second) of the Law of Torts (1977). Similarly, it also has a tort of publicity given to private life, as outlined in §652D of the same Restatement. Presumably Ravi and Wei are likely to have breached both of these torts.

In addition to a tort of invasion of privacy, the US also has a well-established tort of intentional infliction of mental suffering. In Giller v Procopets, Neave JA also thought that such a tort was possible, but did not find it necessary to decide on the facts of the case before her. Maxwell P thought that there was nothing to preclude Australian law developing a tort of intentional infliction of mental suffering. Maxwell P noted that there is already a tort of intentional infliction of injury in Wilkinson v Downton, and thought that it was appropriate to extend that tort to mental harm. Ashley JA found that the plaintiff would not have been able to recover in tort for something less than recognised psychiatric injury. So there is a possibility that someone who deliberately films an intimate act with an intent to embarrass or humiliate a roommate may be sued for intentional infliction of mental distress if US law was to be adopted in Australia, but at the moment, it remains a mere possibility.

3. Australian criminal law on observing, communicating and recording private material

In most Australian states, it is an offence to take photos of the genital and anal region in circumstances where the person who is being photographed could not reasonably expect to have been photographed. I will use Victoria as my example. Section 41A(1) of the Summary Offences Act 1966 (Vic) provides:

A person must not, with the aid of a device, intentionally observe another person’s genital or anal region in circumstances in which it would be reasonable for that other person to expect that his or her genital or anal region could not be observed.
Penalty: 3 months imprisonment.

Section 41B(1) covers visual capture of images of intimate images:

A person must not intentionally visually capture another person’s genital or anal region in circumstances in which it would be reasonable for that other person to expect that his or her genital or anal region could not be visually captured.
Penalty: 2 years imprisonment.

Finally, s 41C of the same Act provides that it is an offence to distribute such images:

A person who visually captures or has visually captured an image of another person’s genital or anal region (whether or not in contravention of section 41B) must not intentionally distribute that image.
Penalty: 2 years imprisonment.

Each section has a note which states ‘[t]he reasonable expectation test is an objective one-what would a reasonable person in the position of the person being observed have expected. Section 41D sets out the defences to the offences under ss 41B and 41C.

It is suggested that conduct such as Ravi and Wei’s would likely form an offence under ss 41A(1), 41B(1) and 41C, as they observed images of intimate moments between Clementi and another man with the aid of a device, they captured those images and they intentionally distributed it.

Conduct such as that undertaken by Ravi and Wei would also be a breach of  s 7(1) of the Surveillance Devices Act 1999 (Vic), which provides that person must not “knowingly install, use or maintain an optical surveillance device to record visually or observe a private activity to which the person is not a party, without the express or implied consent of each party to the activity.” Section 11(1) provides that a person must not knowingly communicate or publish a record of a private conversation or private activity that has been made as a direct or indirect result of the use of a surveillance device. Each of these offences may be penalised by, at maximum, a 2 year imprisonment sentence, a fine, or both.

The Racial and Religious Tolerance Act 2001 (Vic) also criminalises certain ‘hate crimes’. However, as the name of the Act suggests, it deals with only racial and religious intolerance. Thus, s 24 establishes that serious racial vilification is an offence, and s 25 establishes serious religious vilification is an offence. Both are punishable with imprisonment for 6 months, a fine or both. Clearly, conduct such as that which Clementi suffered would not be covered by either of these provisions. It is still unclear why Ravi and Wei allegedly undertook the actions that they did, but if it was a hate-crime, it was likely to be so on the basis of sexual orientation, not race or religion. In any case, vilification offences are never prosecuted in Australia because they occupy an uncomfortable middle ground between anti-discrimination law and criminal law.

Then the question is whether the potential sanctions imposed by the criminal law would be enough to punish conduct such as Ravi and Wei’s which resulted in a person committing suicide, and potentially constituted a hate-crime.

4. Australian hate-crime additions?

As noted above, if Ravi and Wei’s conduct is proven to be a hate-crime, then under New Jersey law this may result in an increased jail sentence. In some Australian states, there are provisions which may result in harsher penalties for hate crimes. The regimes vary from State to State (for a comprehensive survey, see Gail Mason, ‘Hate crime laws in Australia: Are they achieving their goals?‘ Paper presented at Sentencing Conference 2010, Canberra, 6 – 7 February 2010).

Victorian law now gives discretion to judges to deal with hate-crimes in sentencing (as does s 21A(2)(h) of the Crimes (Sentencing Procedure) Act (NSW) and s 6A of the Sentencing Act (NT)). Section 5(2) of the Sentencing Act 1991 (Vic) has recently been amended to insert sub-section (daaa), which states that a judge must have regard to “whether the offence was motivated (wholly or partly) by hatred for or prejudice against a group of people with common characteristics with which the victim was associated or with which the offender believed the victim was associated.” As Mason notes at 6:

The power conferred on the sentencing court is discretionary and although such an aggravating factor must be taken into account, the court is not required to increase the sentence if such a motive is established…

This is in contrast with penalty enhancement regimes such as those in the US which require higher sentences if certain motives are established. Western Australia is the only Australian State to have enacted US-style penalty enhancement provisions in relation to offences of assault, serious bodily harm and the like committed “in circumstances of racial aggravation” (see eg ss 313, 317, 317A, 338B and 444, Criminal Code Act 1914 (WA). This would not cover hate-crimes on the basis of sexual orientation.

5. Conclusion

The Australian law which would deal with a Clementi-like situation is presently uncertain in the case of tort law. As the VLRC has noted, there is a gap in the law where private individuals are concerned, and the legislation is patchy, applying to some entities more than others. The criminal law provisions are scattered. There may be a chance that the sentence would be increased if the crime was hate based, but this is at the discretion of the judge. I very much hope that a situation like this does not happen in Australia, but I fear that with modern technology such invasions of privacy will only increase. The law needs to move swiftly to play catch up.

Katy Barnett is a Lecturer and PhD candidate at the University of Melbourne Law School. She also blogs at skepticlawyer.com.au

(return to the top of this edition)


Storm in a Contour Bottle? – The Coca-Cola Company v Pepsico Inc & Ors VID 876/2010

November 1, 2010

By Amanda Scardamaglia

The Coca Cola Company (‘Coca Cola’) has recently brought proceedings against Pepsico Inc, its Australian holding company Pepscio Australia Holdings Pty Ltd and Schweppes Australia Pty Ltd as the manufacturer and distributor of Pepsi and Pepsi Max (‘the Respondents’). In the Statement of Claim dated 14 October 2010, Coca Cola alleges the Respondents have been selling Pepsi and Pepsi Max products in glass bottles that have the same characteristic shape and silhouette as the Coca Cola ‘Contour Bottle’, infringing their intellectual property rights. The case raises a number of interesting issues concerning the often fraught area of shape marks, some of which will be raised here.

Facts

Coca-Cola is the registered owner of a number of Australian trade marks that depict its famous Contour Bottle, which were included in the Statement of Claim and shown in Figure 1.  The Contour Bottle is a hallmark of Coca Cola’s branding – with its pinched in waist shape and silhouette distinguishing Coca Cola’s products from other sodas on the market.  Coca Cola has built a strong reputation in the Contour Bottle through significant promotion and marketing and claims that it has sold its Coke and Coca Cola products in the Contour Bottle since 1916 in the United States and since at least 1938 in Australia.

Figure 1: Coca Cola Contour Bottle Trade Marks

In May 2010, Coca Cola became aware that the Respondents were selling Pepsi and Pepsi Max in glass bottles similar to their Contour Bottle.  Images of those glass bottles, as featured in the Statement of Claim are depicted in Figure 2.  Coca Cola demanded that the Respondents refrain from what it said was unlawful conduct.  The Respondents refused.  In response, Coca Cola initiated these Federal Court proceedings.

Figure 2: Alleged Infringing Pepsi and Pepsi Max Glass Bottles

It’s not the first time Coca Cola have sought to enforce their rights with respect to the shape of its Contour Bottle.  Many will recall the 1999 case Coca-Cola Co v All-Fect Distributors Ltd, where Coca Cola successfully brought trade mark infringement proceedings against the manufacturer of a cola flavoured confectionary product which took the form of the shape of its Contour Bottle.  Although ‘… a total impression of similarity [did] not emerge from a comparison of the two marks …’ Black CJ, Sundberg and Finkelstein JJ found that the ‘… idea suggested by the mark is more likely to be recalled than its precise details …’ such that consumers might be caused to wonder about the source of the confectionary products as a result.  Coca Cola will no doubt seek to rely on this decision, although, as the following summary of the present claim demonstrates, there are some critical points of difference between the two disputes.

The Claim

Typical of most trade mark disputes, Coca Cola has brought a three pronged claim against the Respondents, namely:

1.       Trade mark infringement under section 120(1) of the Trade Marks Act 1995 (Cth) (‘TMA’).

2.       Breach of sections 52 and 53 of the Trade Practices Act 1974 (Cth) (‘TPA’).

3.       Passing off.

As to the trade mark infringement claim, Coca Cola allege the Respondents have been using the particular bottle shape for its Pepsi and Pepsi Max products within the meaning of use in section 17 of the TMA and that the bottle shape is substantially identical with or deceptively similar to Coca Cola’s trade marks so as to constitute trade mark infringement under section 120(1) of the TMA.

Coca Cola also claims the Respondents have engaged in conduct which is misleading or deceptive or is likely to mislead or deceive in breach of section 52 of the TPA.  It further claims the Respondents have falsely represented that they are authorised or have approval or are associated with Coca Cola in breach of section 53 of the TPA.

Finally Coca Cola claims the Respondents have passed off its products as Coca Cola products, or licensed Coca Cola products.

As a result of this conduct, Coca Cola claims it has suffered unspecified loss and damage and seeks to have the Court restrain the Respondents from continuing to sell its products in the said glass bottles.

With respect to the trade mark infringement claim, there are two issues that will likely dominate proceedings.

1.       The first is the issue of use as a trade mark, which is likely to be raised in the Respondents’ defence, which is yet to be filed.

2.       The other issue which will obviously present itself is the question of deceptive similarity.

Issue 1: Use as a Trade Mark

It is a requirement of registration that the sign, defined under section 6 of the TMA, must be used or intended to be used to distinguish goods or services, consistent with the definition of a trade mark under section 17 TMA.  This implies that, with respect to shape marks, merely adopting a particular shape will not amount to trade mark use.  And, in the same way that descriptive terms will not normally be registrable as a trade mark because they will fall foul of the use requirement, functional or utilitarian shapes will not be registrable as trade marks if they do not also serve the secondary purpose of distinguishing those goods from the goods provided by others.  Of course, the corollary of the requirement of use for registration is that in context of trade mark infringement; there is a requirement that the alleged infringer has used a sign that is substantially identical or deceptively similar sign to distinguish its goods from other goods.

The use requirement can be particularly problematic in relation to shape marks in both the registration and infringement contexts, since all physical things take the form of some shape.  Would a consumer, on seeing a product for the first time, think that the shape of the product is a trade mark, that is, an indicator of origin?

In the Statement of Claim, Coca Cola allege that the bottle shape used by the Respondents ‘… would be perceived by consumers in Australia as possessing the character of a brand for distinguishing the Infringing Products from other beverage products.  …’ and  ‘… have used the bottle shape of the Infringing Products and the silhouette of that bottle shape as a trade mark within the meaning of ss 17 and 120(1) TMA.’

The Respondents will have to address this point in their defence.  They will likely argue that their Pepsi and Pepsi Max glass bottles are not being used as a trade mark within the meaning of the TMA and thus their conduct does not constitute trade mark infringement.

Potential Defence

In doing so, the Respondents may argue that the glass bottle it has used does not function as a trade mark because the shape it has adopted is functional.

Furthermore, the shape adopted is but one of a number of features on its Pepsi and Pepsi Max products preventing it from functioning as a trade mark.  That is, the Respondents would argue that the addition of the ingrained wave pattern on the glass bottle and the use of its other distinctive Pepsi and Pepsi Max marks all have the combined effect of diluting the significance that might have otherwise attached to the shape of its glass bottle and that any distinctiveness that the shape has acquired was likely attributable to its use alongside the other distinguishing trade marks and indicia.  As a consequence, it is possible that consumers, on seeing Pepsi and Pepsi Max products for the first time, would not think that the shape of its glass bottle was a trade mark, distinguishing its products from other manufactures, as Coca Coca alleges.

There are a couple of important shape mark cases that are on point and may be relevant here for the purposes of determining whether the shape of the Respondents’ glass bottle constitutes use as a trade mark.  The first is the well known Philips v Remington case, where Philips failed to establish trade mark infringement of its triple head shaver shape mark because there had been no use of the trade mark by Remington.  The issue of use was also raised more recently in the 2009 case Guylian v Registrar of Trade Marks although in the context of an application to register the shape of a seahorse for use with respect to chocolates.  Although it is not possible to go into the details of these cases here, suffice to say the Respondents may be able to draw on these cases and in particular the Guylian case favourably.

Issue 2: Substantially Identical With or Deceptively Similar

The question of whether the Pepsi and Pepsi Max glass bottle is substantially identical with or deceptively similar to Coca Cola’s trade marks will also be hotly disputed.  It is unlikely that a Court would determine that the marks were substantially identical comparing the two marks side by side and noting their similarity.  The question of deceptive similarity is more contentious.

It is at this point that the present dispute differs from Coca-Cola Co v All-Fect Distributors Ltd.  Here the alleged infringer is Coca Cola’s main rival, which has established its own distinct reputation in the cola market, the same market in which Coca Cola operates.  The question as to whether consumers would be caused to wonder about the source of the Respondents’ products is therefore  more tenuous here than it was in Coca-Cola Co v All-Fect Distributors Ltd, given the level of consumer savviness and the strongly held preference most consumers hold for either Coca Cola or Pepsi products.

Conclusion

However the Respondents decide to frame their defence, the use issue is likely to comprise a key aspect of this dispute and it will be interesting to see what the Court will make of this, if the matter goes to hearing.  Similarly, the question as to substantial identity and consumer confusion will also be an interesting point of argument in this battle of the cola giants.

So where to from here? Well, the Respondents will have to file their defence shortly, with the matter due for a directions hearing next week.  This is definitely one to watch with interest.

Amanda Scardamaglia is a Teaching Fellow and PhD Candidate at the University of Melbourne Law School.

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New York Law School’s Intellectual Property “Un-conference” 2010

November 1, 2010

By Jake Goldenfein

An unconference is not the opposite of a traditional conference, but rather a platform for greater participant contribution within the traditional conference structure. The agenda is established by the attendees as the as the program progresses, enabling a more reflective discussion on the key themes of the event. On the 24th and 25th of September, the New York Law School’s Institute for Information Law and Policy held the world’s first intellectual property unconference – ‘Innovate/Activate’ – on the theme of activism within the IP community. The unconference platform mirrored the growing focus of much IP research, the emergence and re-conceptualisation of participant created content (or user-generated content), by facilitating IP activists to showcase their projects as well as including panel discussions on IP activism within patent, international development, the arts, and digital culture.

The keynote speakers were Amy Kapczynski from UC Berkeley, Lea Shaver from Hofstra Law School, and Niva Elkin-Koren from the University of Haifa. Kapczynski became an AIDS\HIV activist as a law student and campaigned for international IP laws to more equitably reflect the fact that 90% of AIDS sufferers lived in the developing world. In 2001 her campaign resulted in Yale and Bristol-Myers Squibb pledging not to enforce the patent on the HIV drug d4T, substantially lowering the annual cost of AIDS treatment.

Shaver teaches IP and international law, and also worked on ‘access to knowledge’ while a fellow of the Yale Law School Information Society Project. That work intermingled IP, human rights and international development and focused on broadening the concept of innovation ro include information diffusion.

Elkin-Koren‘s research focuses on the growing disconnect between digital culture, digital development and intellectual property regulation, as well as how legal institutions facilitate private and public control over the production and dissemination of information. She writes extensively on the effects of cyberspace on the economic analysis of law, and is increasingly interested in the open content movement.

Speakers discussed IP activism as a combative reaction to the transnational and collaborative nature of incumbent interests that move IP in the ‘wrong’ direction, as well as a response to the transformative nature of information society in terms of economies. When questioned what could be done farther in IP activism the speakers suggested increasing the output of open source technologies to enhance user control, challenging the ideology that markets are the only mechanism to create and distribute information, and developing civil rights frameworks to contemplate access to information.

Apart from the keynotes, various panel Sessions covered a wide range of topics with diverse presentations on issues related to IP activism including reform of IP regulation and strategies, the interaction of innovation systems, and technological progress facilitating access to knowledge. There were some standout speakers. For example, Derek Slater, a senior policy analyst at Google discussed the difficulties, and need to reconceptualise, licensing in the on-line environment. A powerful example was contrasting the ease of obtaining a compulsory licence to create a phonographic recording of a song written by another artist (cover song), against the requirement to obtain a non-compulsory synchronisation licence to upload a video (on YouTube) of somebody performing that song. He also discussed the YouTube ‘content ID’ system which performs rights management for the 24 hours of footage that is uploaded to the website every minute. The system allows content owners to upload their material to a repository which is compared to footage available on the YouTube website. If uploaded content is matched with footage on the content ID database the owners are given the option of removing the content or monetising it through advertising. Content ID is an excellent example of digital content registries preventing infringement while enabling greater distribution and monetisation of material.

Another standout was Laura DeNardis of the Yale Law School Information Society Project who discussed the embedded values and politics of internet ‘protocols’. Her research examines the political infrastructure associated with the fundamental coding and standards setting of the internet. She eloquently explained the influence of commerce and politics intrinsic to the governance of creating the most fundamental elements of cyberspace. She describes how the production of technical architecture remains entrenched in the private realm and argues for increased transparency and democratisation.

Holding an unconference on IP activism reflects the growing participation of the broader IP community in shaping future IP regulation, and hopefully spawns future projects that re-examine the role of intellectual property in innovation and digital culture.

Jake Goldenfein is an LLB graduate from the University of Melbourne Law School.

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