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Principles Of Tort Law And The Persistent Need For Common law Judgment In Ip Infringement Cases | SQE1 – SQE2 Practice Books

PRINCIPLES OF TORT LAW, AND THE PERSISTENT NEED FOR COMMON-LAW JUDGMENT IN IP INFRINGEMENT CASES

Jay Dratler, Jr.
I. Introduction: Basic Principles of Tort Law …………………………. 23
II. Proximate Cause and Least-Cost Avoiders …………………………. 27
III. Culpability ……………………………………………………………………. 36
IV. Conclusion ……………………………………………………………………. 39

I. INTRODUCTION: BASIC PRINCIPLES OF TORT LAW

As lawyers, judges and law professors reach retirement age, there is little that we remember of our first-year course in torts. The cases we studied, our professors’ personalities—even the psychological trauma of the first pointed Socratic question directed at us—all are lost in the mists of time.

Yet some things remain. Among them are the name and facts of Palsgraf v. Long Island Railroad Co., one of the most memorable cases in all of American common law. A great judge, Benjamin Cardozo, penned the majority opinion.

The facts of Palsgraf stick in our minds because Judge Cardozo helpfully outlined them in his very first paragraph. Two men rushed to catch a moving train. One made it easily. The other, carrying a nondescript package covered in newspaper, teetered near the open door.

A guard held the door open and reached out to steady him, causing the package to fall on the rails. The package turned out to contain fireworks, which exploded. The resulting shock wave “threw down some scales at the other end of the platform, many feet away.” The falling scales injured the plaintiff, who sued the railroad for negligence.
These odd facts—a law professor’s bizarre hypothetical come to life— survive the passage of time and stick in memory.

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…Yet time and custom have distorted Judge Cardozo’s opinion. We
remember the case as one about proximate cause. Indeed, casebooks (at
least in my student days) used Palsgraf to introduce us to that element of
torts. Judge Cardozo, however, apparently thought the case was about
duty and culpability, to which he devoted nearly all of his opinion.6
Cardozo wrote that there could be no duty to plaintiff unless the
risk of injury to her was reasonably foreseeable.7
In other words, the
railroad owed the plaintiff no duty unless its employee could reasonably
foresee the danger to her and so was culpable in failing to avoid it.
Only in dictum, in his penultimate paragraph, did Judge Cardozo
address (and dismiss) the issue of proximate cause, writing “[w]e do not
go into the question now.”8
That issue, he opined, was really a matter of
damages: the remedy, not liability.9
Yet, over the years his opinion has
become a symbol of the very thing he did not decide. Today we no
3. Palsgraf, 162 N.E. at 99.
4. Id.
5. Id.
6. See id. at 99-101.
7. If no hazard was apparent to the eye of ordinary vigilance, an act innocent and
harmless, at least to outward seeming, with reference to [the plaintiff], did not take to
itself the quality of a tort because it happened to be a wrong, though apparently not one
involving the risk of bodily insecurity, with reference to some one else.
Id. at 99.
[T]he orbit of the danger as disclosed to the eye of reasonable vigilance would be the
orbit of the duty. One who jostles one’s neighbor in a crowd does not invade the rights
of others standing at the outer fringe when the unintended contact casts a bomb upon the
ground. The wrongdoer as to them is the man who carries the bomb, not the one who
explodes it without suspicion of the danger. Life will have to be made over, and human
nature transformed, before prevision so extravagant can be accepted as the norm of
conduct, the customary standard to which behavior must conform.
Id. at 100.
8. Id. at 101.
9. See id. Perhaps Judge Cardozo took this tack to blunt the argument of his colleague on
the bench, who insisted that tort law already recognized damages as remote as a child’s loss of a
parent’s income or a spouse’s loss of consortium. See id. at 102-03 (Andrews, J., dissenting).
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longer consider proximate cause an element of remedy alone; it has
become an element of the tort. Right and remedy are now inextricably
intertwined, as befits a legal system that tries to provide no right without
a remedy.
Although bizarre, the simple facts of Palsgraf are worlds away
from the technological complexity of the Internet, on-line file sharing,
and Web-spread pornography. But the fundamental things apply. In a
world where corporations are still legal abstractions and liability
necessarily falls ultimately on people,
10 we are reluctant to impose tort
liability without evidence of proximate cause and culpability.
Infringement of intellectual property (IP) is just a kind of tort. The
“duty” to respect IP falls on the entire world, independent of contract
and privity—a breadth of application characteristic of torts. Yet, duties
must have their limits. They cannot extend so far outward that tendrils
of unforeseen and unforeseeable liability infiltrate every part of our
complex, interdependent economy.
Judge Cardozo wrestled with how far along a railroad platform
liability for dropping a package containing dangerous but hidden items
should extend. Just so, courts today must decide how far out on the web
of Internet commerce infringement liability must extend. Their
decisions inevitably involve proximate cause.
Insofar as culpability is concerned, IP infringement cases differ
from other tort cases in one important respect. Primary or direct
liability for infringement has always been a strict-liability offense,
independent of culpability and the infringer’s intent or state of mind.11
10. When a corporation pays a judgment, its loss has an immediate effect on shareholders and
managers. If the loss is large enough—or if a damage or injunctive remedy forces changes in
products, services, or procedures—it may eventually affect employees, suppliers and customers. If
the loss is large enough to render the corporation uncompetitive and cause plant closings, it may
ultimately affect even “innocent” citizens of the surrounding community. A judgment that impairs
the Internet’s operation may affect not only the value of the greatest tool for human communication
yet invented. It may also affect the free market in goods and services, much of which is electronic
today, and even the functioning of democracy itself.
11. See infra note 18 (copyright); JAY DRATLER, JR. & STEPHEN MCJOHN, INTELLECTUAL
PROPERTY LAW: COMMERCIAL, CREATIVE, AND INDUSTRIAL PROPERTY, § 2A.03 (ESP.
INTRODUCTION) [hereinafter, Dratler & McJohn IP] (patents: describing how infringement depends
only on “reading” the claims and assessing technological equivalents, not the alleged infringer’s
intent). The statement is less fully accurate for unlimited-term intellectual property—trademarks
and trade secrets—than for the limited-term property mentioned in our Constitution, namely, patents
and copyrights. Culpability does enter the trademark-infringement calculus in assessing the alleged
infringer’s good or bad faith, but only as one of eight of more factors in a multifactor analysis. See
Dratler & McJohn IP, supra at § 10.01[2], [3][g]. In trade-secret law, culpability affects judicial
assessment of “improper means” in acquiring, using or disclosing the trade secret, i.e.,
misappropriation. See Dratler & McJohn IP, supra at § 4.03[2] (introduction), [5][c]. It also
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Yet, secondary liability—contributory infringement, inducement liability
and vicarious liability—is not so limited. As court after court has
addressed novel issues of secondary liability, it has fallen back on the
tried and true notion of culpability.12 The Supreme Court itself did so in
creating a cause of action for intentional inducement of copyright
infringement out of whole common-law cloth.13
Even the struggle to reconcile culpability with the strictness of
direct liability is not new. Judge Cardozo wrestled with the very same
question in Palsgraf. For him, the difficulty was reconciling the notion
of culpability with the fact that negligence was and is a non-intentional
tort.14 His decision earned a place in law school casebooks by creating a
modified version of culpability for cases of negligence: failure to
recognize and avoid foreseeable harm.15 By introducing the notion of
foreseeability, Judge Cardozo recognized the non-deliberate nature of
negligence but avoided the unfortunate consequence of unlimited
liability for remote and unpredictable harm. His decision has come to
stand for a simple but very general principle: prudential judicial
reluctance to let liability extend too far.
This short paper attempts to show how courts can build—and are
building—a rational jurisprudence of secondary liability for IP
infringement upon the foundation of these two great common-law
principles of tort law: proximate cause and culpability. Besides this
introduction (Part I), the paper has four sections. Part II discusses the
notion of proximate cause and its application to cases assessing liability
for IP infringement. It also explores a modern, economic test for
affects ultimate outcomes through the “smell test”—a non-black-letter judicial sensitivity to
culpability that judges seldom acknowledge explicitly but that nevertheless permeates trade-secret
law. See Dratler & McJohn IP, supra at § 4.03[5][c]. Yet in no case does liability for direct and
primary intellectual property infringement depend upon culpability to that extent that it does for
intentional torts or negligence.
12. See generally JAY DRATLER, JR., CYBERLAW: INTELLECTUAL PROPERTY IN THE DIGITAL
MILLENNIUM § 5A.03[1], [2] [hereinafter Dratler Cyberlaw]. See also infra Part IV.
13. See Jay Dratler, Jr., Common-Sense (Federal) Common Law Adrift in a Statutory Sea, or
Why Grokster was a Unanimous Decision, 22 SANTA CLARA COMPUTER & HIGH TECH. L. J. 413,
418-29 (2006) [hereinafter Dratler, Statutory Sea].
14. See Palsgraf, 162 N.E. at 100-01.
15. See Palsgraf, 162 N.E. at 101.
If the harm was not willful, [the plaintiff] must show that the act as to him had
possibilities of danger so many and apparent as to entitle him to be protected against the
doing of it though the harm was unintended. Affront to personality is still the keynote of
the wrong.
Id. In light of his contribution to legal theory, we perhaps can excuse Judge Cardozo’s use of the
masculine general—the customary grammatical form at the time—in discussing a case in which the
plaintiff was a woman.
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proximate cause: the concept of least-cost avoider. Part III discusses
the principle of culpability in cases of secondary liability and how to
reconcile it with the traditional strictness of primary liability. Part IV
concludes with some observations about how decisions based on the
probable consequences of alternative legal rules (Dare I say, “policy”?),
still lurking in this obscure, nerdy field of IP, might some day re-emerge
to give the common law new life.
II. PROXIMATE CAUSE AND LEAST-COST AVOIDERS
One of the most important cases on proximate cause in cyberlaw
was not about secondary liability at all. In Religious Technology Center
v. Netcom On-Line Communication Services, Inc. (Netcom),16 the first
issue was direct and primary liability for copyright infringement. The
plaintiff had sued two Internet service providers for copying and
broadcasting over the Internet (publicly displaying) infringing material
that a Usenet user had posted on a bulletin-board service.17
From a doctrinal perspective, the case was simple, clear and sound.
Electronic equipment that the defendants had set up, owned and operated
had made and transmitted innumerable, exact copies of the infringing
material over the Internet. Black-letter copyright doctrine then treated
(and still treats) direct copyright infringement as a strict-liability offense,
independent of intent.18 So the fact that defendants did not even know of
the infringement until notified or served with process did not matter.
Based on black-letter copyright law, the copyright infringement claim
presented an open and shut case.
Yet the district court was uncomfortable. It wriggled and squirmed,
finding a “volitional” element in direct copyright infringement,19 despite
strict liability, but failing to explain convincingly how “volition” differs
from “intent” or “state of mind.” It analogized the defendants to persons
16. Religious Tech. Ctr. v. Netcom On-line Commc’n. Servs., Inc., 907 F. Supp. 1361 (N.D.
Cal. 1995).
17. See id. at 1365-66.
18. See generally Dratler Cyberlaw, supra note 12 at § 5A.02 (introduction). The two
leading cases are Buck v. Jewell-La Salle Realty Co., 283 U.S. 191, 198-99 (1931) (hotel proprietor
that “tuned in on” commercial broadcast for commercial purposes “necessarily assume[d] the risk
that in so doing he may infringe the performing rights of another”), and De Acosta v. Brown, 146
F.2d 408, 410, 411-12, 63 U.S.P.Q. (BNA) 311 (2d Cir. 1944), cert. denied, 325 U.S. 862 (1945)
(upholding infringement liability of allegedly “innocent” publisher who relied on infringing author’s
impressive research and contractual warranties of original work).
19. Netcom, 907 F.Supp. at 1370 (“Although copyright is a strict liability statute, there should
still be some element of volition or causation which is lacking where a defendant’s system is merely
used to create a copy by a third party”).
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setting up general-purpose copying machines, which others may have
used to copy unknown and possibly infringing items;20 but it failed to
consider that a special statutory amendment protected only libraries from
such liability, and then only under special conditions.21
Having exhausted legal sophistry and semantics, the court got down
to the real reason why it rejected the plaintiff’s theory of direct liability.
That theory, it wrote,
would create many separate acts of infringement and, carried to its
natural extreme, would lead to unreasonable liability. . . . It would also
result in liability for every single Usenet server in the worldwide link
of computers transmitting [the infringing] message to every other
computer. These parties, who are liable under plaintiffs’ theory, do no
more than operate or implement a system that is essential if Usenet
messages are to be widely distributed.22
In other words, the theory that every operator of every node on the
Internet independently “caused” the infringement by allowing infringing
copies to pass through its system would have extended liability too far
and impaired the economic viability of the Internet. Somewhere, Judge
Cardozo was smiling.
The Netcom Court also addressed secondary liability for copyright
infringement. In its view, the lens of secondary liability was a better one
with which to examine the case.23
Yet the law of secondary liability complicated the picture, for it
involved two separate tests, each with two parts. A defendant was liable
for contributory infringement if he (1) knew or should have known of
the infringement and (2) made a material contribution to it.24 He was
liable for vicarious infringement if he (1) had the right and ability to
control the infringement; and (2) derived a direct financial benefit from
it.25 The Netcom Court found that the ISPs, which had charged users
only general monthly fees, independent of what the users viewed or
downloaded, derived no direct financial benefit from the infringement.
Therefore it granted the defendants summary judgment on the vicarious
20. See id. at 1369.
21. See 17 U.S.C. § 108(f).
22. Netcom, 907 F.Supp. at 1369-70.
23. See id. at 1369 (“Although some of the people using the machine may directly infringe
copyrights, courts analyze the machine owner’s liability under the rubric of contributory
infringement, not direct infringement”).
24. See Dratler Cyberlaw, supra note 12, at §5A.03[2][b][i].
25. See id. at § 5A.03[2][c].
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liability claim.26 But for purposes of contributory infringement it found
that the plaintiff’s notice had given the defendant knowledge of the
infringement, and there were triable issues of material contribution, i.e.,
whether the defendant could have stopped the infringement by policing
material going through its network and eliminating infringing items.27
The threat of liability posed by trial on that issue caused the Internet
industry to seek protection from Congress, which later adopted Section
512 of the Copyright Act.28
Both the issue that the Netcom Court set for trial (material
contribution for contributory infringement) and the undecided element of
vicarious liability (right and ability to control the infringement) could
just as well have been framed in terms of proximate cause. In both
instances, the underlying factual issue was whether the primary
defendant had the practical ability to police the millions of messages
passing through its systems every day and remove infringing ones,
without incurring excessive cost or shutting down access by innocent
parties.29 If it had that ability and had failed to stop the infringement, its
failure could have been viewed as the proximate cause of the third
party’s infringement and therefore an independent tort. In each case, the
court refused to decide the factual point by summary judgment.
The Tiffany case30 was similar, although it involved trademark law.
There the famous jewelry company sued eBay, the on-line electronic
auctioneer, for (inter alia) allowing too many third parties to sell
counterfeit Tiffany jewelry through its service.31 As the court described
it, eBay had mounted a huge (and hugely expensive) effort to preclude
sales of infringing and illegal items through its service generally.32
Tiffany had been one of the leading users and beneficiaries of that effort.
Applying the Supreme Court’s legal standard for contributory
infringement of trademarks,33 the court held that Tiffany “had failed to
26. See Netcom, 907 F.Supp. at 1376-77.
27. See id. at 1373-75.
28. 17 U.S.C. § 512 (entitled “Limitations on liability relating to material online”).
29. There was evidence that the only practical means of shutting down the infringing
transmissions was to deny access to the Internet to a bulletin-board system with 500 paying users,
499 of whom were presumed innocent. See Netcom, 907 F.Supp. at 1366, 1376-77, & 1371 n.17.
30. Tiffany Inc. v. eBay, Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008).
31. See id. at 469.
32. See id. at 476-479.
33. See id. at 502 (applying the non-inducement prong of the Inwood test for contributory
infringement: “continu[ing] to supply [a] product to one whom [the defendant] knows or has reason
to know is engaging in trademark infringement” (quoting Inwood Laboratories, Inc. v. Ives
Laboratories, Inc., 456 U.S. 844, 854 (1982))). The Tiffany Court rejected a laxer (“reasonably
anticipate”) standard of the Restatement, reasoning that the Supreme Court had rejected it in
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prove that eBay continued to supply its service to sellers whom eBay
knew to be selling actual counterfeits.”34
But here again the court could have reached the same result more
easily by applying the universal tort doctrine of proximate cause. As the
court described in elaborate detail,35 both parties had made considerable
effort to curtail traffic in counterfeit Tiffany products by third-party
sellers on eBay. But Tiffany had had little more than the equivalent of
one full-time employee36 doing policing and had generated 284,139
notices of infringement.37 For its part, eBay had responded to virtually
every notice by removing the auction listing for the infringing item,
refunding sellers’ fees, and, in many cases, reimbursing buyers of
counterfeit products.38 For over a year, the parties had cooperated
amicably to curtail infringement of Tiffany’s trademarks through eBay’s
auction services.39
As the court itself noted,40 the crux of the dispute was eBay’s
refusal to comply with Tiffany’s demand that eBay automatically
remove any seller’s listing of five or more Tiffany items, or any amount
of silver Tiffany items, even before receiving evidence that the items
were counterfeit. The court found insufficient evidence that eBay’s
failure to follow these proposed rules permitted any more infringement
than the considerable effort that eBay already took.41 It also found
evidence that Tiffany’s proposed rules would be overinclusive, i.e.,
would prevent some eBay sellers from selling legitimate merchandise.42
Based on these factual findings, the court could have held that eBay’s
failure to follow these rules was no proximate cause of the third parties’
infringement.
The Ninth Circuit’s decision in Perfect 10 v. VISA43 was another
missed opportunity to clarify the law of proximate clause in the digital
age. There an on-line purveyor of copyrighted images of feminine
Inwood. See Tiffany Inc., 576 F. Supp. 2d at 502-03 (rejecting the standard of Restatement (Third)
of Unfair Competition § 27 (1995)).
34. Tiffany Inc., 576 F. Supp. 2d at 491.
35. Id. at 486-93.
36. See infra note 70 and accompanying text.
37. See Tiffany Inc., 576 F. Supp. 2d at 489-90.
38. See id. at 478-79.
39. See id. at 481-83.
40. See id. at 482-83.
41. See id. at 481-83, 488-90.
42. See id. at 487-88.
43. Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 793 (9th Cir. 2007).
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pulchritude44 sued a credit card association for facilitating, through its
credit-card transactions, on-line sales by foreign pirates of infringing
copies of its images.45 Over a dissent by Judge Kozinski, the two-judge
majority found no secondary liability, reasoning (in essence) that
liability for bankers whose payment systems played no part in selecting
or distributing the infringing images would extend too far.46
The majority focused on the technological mechanics of the
infringing enterprises. Nowhere did the infringing images flow through,
or even touch, the defendants’ computer systems, which were used only
to verify cardholder status and facilitate payment.47 Unlike Google,
which the same court had found potentially liable in a separate case
brought by the same plaintiff,48 the defendants did not even help users
select the infringing images.49 So by analogy and distinction (which are
the proper approach in this federal-common-law field), the majority saw
insufficient causal nexus to justify liability.
But in this respect the majority failed to consider the bigger picture.
As Judge Kozinski repeatedly emphasized in dissent,50 the decision was
a judgment on the pleadings, so the plaintiff’s allegations had to be taken
as fact. The plaintiff had alleged that the infringers could not continue
their piracy without the aid of online payment by credit card.51 It had
claimed that stopping credit-card payment for infringing images would
shut traffic in them down.52 Furthermore, many of the infringers were
44. There was apparently no assertion that the plaintiff’s images constituted “soft,” let alone
“hard,” pornography. It described its digital wares, without apparent objection, as “tasteful
copyrighted images of the world’s most beautiful natural models.” Id.
45. See id. at 792-93.
46. See id. at 796-800 (contributory infringement: no material contribution); id. at 802-06
(vicarious liability: no right or ability to control the infringing activities).
47. See id. at 796-97 (material contribution); id. at 803-04 (right and ability to control
infringement).
48. See Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701, 729 (9th Cir. 2007) (“Google
could be held contributorily liable if it had knowledge that infringing Perfect 10 images were
available using its search engine, could take simple measures to prevent further damage to Perfect
10’s copyrighted works, and failed to take such steps”).
49. See Visa, 494 F.3d at 797 (distinguishing Perfect 10 v. Amazon for purposes of material
contribution); id. at 805 (same for right and ability to control infringement).
50. See id. at 810-11, 812 n.7, 816 n.12, 810-21 (Kozinski, J., dissenting). See also id. at 813
(“At the pleadings stage, we must accept plaintiff’s allegations that credit cards are indispensable to
the operation of the Stolen Content Websites, and that these websites would be forced out of
business without them”).
51. See id. at 815 (discussing contributory infringement); id. at 819-20 (discussing vicarious
liability). See also id. at 813 n.8 (“The majority’s prognostication as to what ‘might’ happen in the
future leaves open the likelihood that it will not happen, and positively admits that there are no
viable alternative payment mechanisms today”).
52. See id. at 819-20.
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foreign and beyond the jurisdiction of U.S. courts, and it seemed that
stopping on-line payment was the only practical way to shut the foreign
infringers down.53 Finally, the plaintiff alleged that the defendant, which
had a general rule against serving “illegal” enterprises,54 and which in
fact had used that rule against illegal offshore online gambling, profited
mightily by declining to assert the same rule against the massive and
deliberate copyright infringement for profit at issue here.55 The
allegations suggested that the defendants’ failure to invoke that rule was
not just a “but for” cause—but a key contributing cause—of the
continuing infringement.56
As Judge Kozinski pointed out,57 one or more of these allegations
might have failed at trial, but the very purpose of a trial was to test them.
In affirming dismissal of the claims on the pleadings, the majority took a
narrow approach reminiscent of its similar technology-based analysis in
Grokster.
58 There the Ninth Circuit had focused primarily on the lack of
a centralized index for infringing material that defendants could control;
it had given short shrift to defendants’ methodical, deliberate and
successful plan to take over Napster’s 50-million-plus deliberately
infringing users after copyright litigation had put Napster out of
business.59 The Supreme Court repudiated that failure to see the big
picture, inventing a new, “inducement” theory of secondary liability in
the process.60
53. See id. at 817-20 (“After all, how many consumers would be willing to send a check or
money order to a far-off jurisdiction in the hope that days or weeks later they will be allowed to
download some saucy pictures?”).
54. See id. at 717-18 & n.13. See also id. at 824 (“Credit cards already have the tools to
police the activities of their merchants, which is why we don’t see credit card sales of illegal drugs
or child pornography”).
55. See id. at 820.
Read fully and fairly, the complaint alleges that defendants are not merely passive
providers of services available on equal terms to legal and illegal businesses alike; they
are actually in cahoots with the pirates to prop up their illegal businesses and share their
ill-gotten gains. If this is not vicarious infringement, nothing is.
Id.
56. See id. at 816 (“Defendants know about the infringements; they profit from them; they are
intimately and causally involved in a vast number of infringing transactions that could not be
consummated if they refused to process the payments; they have ready means to stop the
infringements”).
57. See id. at 818 n.15, 824.
58. See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 380 F.3d 1154, 1158-60 (9th
Cir. 2004), vacated and remanded, 545 U.S. 913 (2005).
59. See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 924, 939-40
(2005); see also Dratler, Statutory Sea, supra note 13, at 430 (discussing Grokster).
60. See Grokster, 545 U.S. at 936-37, 941.
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Perfect 10 v. VISA suggests how fundamental things like proximate
cause might simplify and rationalize the federal common law of
secondary liability for IP infringement. In coming to their divergent
conclusions, the majority and dissent had to wrestle with two distinct
elements of two separate theories of liability (contributory infringement
and vicarious liability)—four elements in all. The result was prolix
opinions with highly repetitive analysis of the same alleged facts under
different legal theories.61
Yet, two of those headings were little more than proximate cause
dressed up in fancy jargon. After all, what is “causing, inducing or
materially contributing” to infringement (the second element of
contributory infringement) but causing it? And when a defendant had
“the right and ability to control infringing activity” but failed to do so,
what has it done but cause the infringement?62 Aren’t these elements
really little more than proximate cause in disguise?
Psychology teaches us that tedious repetition produces boredom,
failing attention and incomprehension, rather than clarity. Wouldn’t it
be clearer and better to treat the central issue—proximate cause—
explicitly and under its own heading, rather than discuss it several times
using slightly different jargon each time?
If the common law of secondary liability returned to the
“fundamental things” of tort law like proximate cause, three good things
might follow. First, the courts might cut the burden of analysis (and the
length of their opinions) by a least a factor or two. Second, they might
clarify the law by focusing more intensely on the central matter of
inescapable judgment: whether a causal nexus is strong enough on the
facts of the case to justify liability.
No formula or form of words can ever capture or constrain that
judgment call. As Judge Hand once said of the line between idea and
expression in copyright law, “Nobody has ever been able to fix that
boundary, and nobody ever can.”63 That’s why human judges, not
computers, decide legal cases.
Third and finally, a broader approach to the common-law issue of
proximate cause would permit courts to take into account the sort of
economic analysis that grew up naturally in the law of negligence.
Among them is the powerful principle of the least-cost avoider.
Especially in our age of increasingly limited resources, it makes sense to
61. See supra notes 46, 47, 51 (discussing Visa).
62. See supra note 55 (discussing Visa).
63. Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930).
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place the burden of avoiding harm—whether to persons or protected IP
interests—on the person who can bear that burden at the least cost. That
goal implies viewing the party who could have avoided the direct
infringement at the least cost as the proximate cause of it. The doctrine
is peculiarly appropriate for intellectual property cases, which involve no
death, personal injury, or pain and suffering.
Already this principle has a pedigree in IP law. In one of the two
cases most often cited for the rule that direct copyright infringement is a
strict-liability offense, the Second Circuit addressed the defense that the
publisher of an infringing biography had relied on the author’s assertions
of non-infringement.64 The court rejected that defense, holding in effect
that the publisher, whose business was to deal with authors and potential
infringement, was the least-cost avoider.65
The courts could have decided both of Tiffany and VISA on the
same basis. In Tiffany, defendant eBay maintained two expensive online programs to curtail infringement, a notification program and a
follow-up program.66 It had made an enormous investment in these
programs, devoting an annual budget of up to $20 million to “trust and
safety” generally, and maintaining 200 employees to police infringement
alone.67 It had developed a “fraud engine” to detect improper activity—
an on-line software-hardware technology costing $5 million per year in
research and development and employing over 13,000 search rules,
including searches for 90 different Tiffany-related keywords.68 Tiffany
was a principal beneficiary of those programs, which helped eBay
remove 70-80% of infringing listings that Tiffany reported within twelve
hours and 75% within four hours.69 In comparison, Tiffany itself had
made only “modest” investment in policing the marketplace,
maintaining only 1.15 to 1.6 full-time equivalent employees, who
Tiffany admitted could not police the necessary volume of eBay sales on
weekdays, let alone on the weekend.70 Tiffany had failed to sue any
infringer directly, even known “Power Sellers,” because it preferred to
sue eBay and make eBay do the heavy lifting instead.71
64. De Acosta v. Brown, 146 F.2d 408 (2d Cir. 1944), cert. denied, 325 U.S. 862 (1945).
65. De Acosta, 146 F.2d at 410-12 (“[T]he protection accorded literary property would be of
little value if it did not go against third persons, or if, it might be added, insulation from payment of
damages could be secured by a publisher by merely refraining from making inquiry”).
66. See Tiffany Inc., 576 F. Supp. 2d at 476-79.
67. See id. at 476.
68. See id. at 476-78, 491.
69. See id. at 478-79.
70. See id. at 484-85.
71. See id. at 488-89 (requests to suspend allegedly infringing sellers).
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Although neither the Tiffany majority nor the dissent ever quite said
so explicitly, the implication was clear: Tiffany was the least-cost
avoider. It might have substantially reduced infringing activity with
comparatively little extra expense. Under those circumstances, to
require eBay to do even more, while Tiffany was doing relatively little,
would have violated basic principles of proximate cause and produced
economic waste.
In VISA, the principle of least-cost avoider could have been even
stronger. The plaintiff’s allegations suggested that interrupting online
credit-card payments was not just the best way, but the only practical
way, of stopping infringement. Many of the direct infringers operated
abroad, beyond the reach of U.S. law. While corresponding foreign law
might have made foreign legal action possible in theory, the mobility
and guile of infringing businesses abroad made it impracticable. A
pirate needed no more than a laptop, a high capacity disk drive, and
access to the Internet to run a highly profitable business of selling
infringing images. He did not even need a server system; he could
continue his piracy (and move its locus around at will) by uploading his
infringing images and payment software to any one of thousands of
Internet-connected server systems available on line, worldwide. Under
these circumstances, there appeared to be no practical way of stopping
the piracy other than stopping on-line payment.
Without that remedy, plaintiff’s right to quiet enjoyment of its
copyright became illusory, in violation of the sacred principle of AngloAmerican law: no right without a remedy. As for the least-cost avoider,
the credit card systems in VISA may have been not just the least
expensive avoiders, but the only practical ones.
Before we close this discussion of proximate cause, an additional
observation is in order. Two of the cases mentioned in the invitation to
this Forum—Glenayre72 and Quanta Computer73—involved the
venerable doctrine of patent exhaustion, i.e., the so-called “first sale”
doctrine in patent law.74 The doctrine, which is over 150 years old, is
72. Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851 (Fed. Cir.), cert. denied, 549 U.S. 1030
(2006).
73. Quanta Computer, Inc. v. LG Elecs., Inc., 128 S. Ct. 2109 (2008).
74. See Glenayre Elecs., Inc., 443 F.3d at 863-64 (applying doctrine indirectly to corroborate
holding that patentee that had sued and recovered damages for manufacturer’s unauthorized making
and sale of patented products could not also recover separately for their use by manufacturer’s
customer); Quanta Computer, Inc., 128 S. Ct. at 2117-18, 2121-22 (holding that the “authorized
sale of an article that substantially embodies a patent exhausts the patent holder’s rights and
prevents the patent holder from invoking patent law to control postsale use of the article[,]” even if
the patent covers only a method).
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entirely judge-made, i.e., entirely federal common law.75 It rests
primarily on the common law’s ancient antipathy to restraints on the
alienation of chattels, for it prevents users of and traders in patentprotected goods from having to look up the chattels’ patent pedigree
before every sale or use.76
But the first-sale doctrine can also be viewed as a corollary of the
doctrine of proximate cause. Downstream users of patent-protected
products—especially those several sales removed from the patentee—
are simply too remote from direct harm to the patentee’s interests to
enmesh them in litigation, especially when the patentee could avoid the
harm at much lower cost just by extracting a suitable royalty from the
manufacturer and first seller. It would make no sense, for example, for
the holder of a patent on a special kind of screw to allow it to be made
and sold freely, but to seek royalties or damages from every product
made using the patented screw, even by people who might be unaware
that subassemblies they buy on the open market contain it.
III. CULPABILITY
The second fundamental thing that has stood the test of time in tort
law is culpability. The Supreme Court reminded us of this point in
Grokster.
77 There it developed, out of whole common-law cloth,78 a new
“inducement” theory of secondary liability for copyright infringement.79
The Ninth Circuit had excused the technological successors to Napster’s
well-known peer-to-peer file-sharing service from secondary liability.80
In so doing, that court had focused on the defendants’ lack of a
centralized index to infringing material and their consequent absence of
See also Glenayre Elecs., Inc., 128 S.Ct. at 2115 (“The longstanding doctrine of patent exhaustion
provides that the initial authorized sale of a patented item terminates all patent rights to that item”).
See generally, 2 JAY DRATLER, JR., LICENSING OF INTELLECTUAL PROPERTY, § 7.05 [hereinafter,
Dratler Licensing].
75. See supra note 74.
76. See Dratler Licensing, supra note 74, at § 7.05, page 5-6.
77. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).
78. For a complete discussion why both Sony and Grokster were federal-common-law
decisions, and not examples of applying or interpreting statutes, see Dratler, Statutory Sea, supra
note 13, at 418-35, n.37.
79. See Grokster, 545 U.S. at 936 (“For the same reasons that Sony took the staple-article
doctrine of patent law as a model for its copyright safe-harbor rule, the inducement rule, too, is a
sensible one for copyright. We adopt it here . . .”).
80. See Grokster, 380 F.3d at 1154, 1157-60, vacated and remanded, 545 U.S. 913 (2005).
See also supra text accompanying notes 57-60.
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knowledge of or control over infringing material.81 But the Supreme
Court saw the bigger picture: evidence of the defendants’ deliberate and
premeditated encouragement and exploitation of deliberate infringement
by 50 million Napster users after Napster’s demise.82
The Supreme Court’s decision in Grokster reminded us of three
important things. First, except in the field of patents, where general
statutory provisions exist,83 the field of secondary liability for
intellectual property infringement is largely a matter of federal common
law. Within the interstices of the governing federal statutes, courts are
free to find their way on a case-by-case basis, just as the Grokster Court
itself did in announcing a new theory of inducing infringement of
copyright.
Second, the Court reminded us that human culpability—the
wellspring of legal liability since time immemorial—still applies in the
age of bits, bytes and blogs. Complex technologies may have controlled
or influenced consequences, but in the end it was we human beings who
created them, owned them, operated them and (on occasion) abused
them. Only by holding people responsible (sometimes through the legal
abstractions from which they profit) could we hope to reduce the
incidence of abuse.
As yet—and for the foreseeable future—no technology is selfgenerating and self-operating. Even if it were, we could still hold its
designer or initiator responsible. The human hand behind the machine is
what we must govern to achieve a just society.
Finally, the Court reminded us that, although patent and copyright
infringement may have been strict-liability defenses, secondary liability
for another’s infringement depends upon a defendant’s culpability or
state of mind.84 As the Grokster Court itself held, inducement liability
depends on a purposeful or deliberate state of mind.85 That is the highest
81. See Grokster, 380 F.3d at 1163-64 (no material contribution, hence no contributory
infringement); id. at 1165-66 (no right and ability to control, hence no vicarious liability).
82. See Grokster, 545 U.S. at 937-40.
83. See, e.g., 35 U.S.C. § 271(b) (inducing infringement); 35 U.S.C. § 271(c) (contributory
infringement). Cf. 35 U.S.C. § 271(f) (special vicarious liability for supplying essential components
of patented invention for use abroad); 35 U.S.C. § 271(g) (special liability for importing products of
patented process).
84. For a more complete discussion of this point, see Dratler Cyberlaw, supra note 12, at §
5A.03[2], [3].
85. See Grokster, 545 U.S. at 936-37 (“one who distributes a device with the object of
promoting its use to infringe copyright, as shown by clear expression or other affirmative steps
taken to foster infringement, is liable for the resulting acts of infringement by third parties”)
(emphasis added). See also id. at 924 (each defendant “clearly voiced the objective that recipients
use [its products] to download copyrighted works, and each took active steps to encourage
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38 AKRON INTELLECTUAL PROPERTY JOURNAL [3:23
level of culpability in the Model Penal Code’s hierarchy of purposeful,
knowing, reckless and negligent states of mind.86
Contributory infringement depends upon the next level, knowing of
the infringing activity.87 Although the black letter law of vicarious
liability does not mention any state of mind,88 some level of culpability
necessarily inheres in its two explicit elements taken together. If you
derive a direct financial benefit from someone else’s infringement and
have the right and ability to control it but don’t, aren’t you at least
reckless or negligent in failing to stop it? Doesn’t the motive of
financial benefit suggest a venal motive perhaps even higher than mere
recklessness?
Applied explicitly, the fundamental thing of culpability could have
helped resolve the difficult cases we have discussed. The facts of
Tiffany make it hard to discern an iota of culpability on defendant eBay’s
part. Not only had eBay not been reckless or negligent; it had spent
millions and devoted a substantial part of its work force and corporate
structure to stamping out infringement. Its compliance group and
programs worked efficiently and effectively, although perhaps not
precisely as Tiffany might have liked. In comparison, Tiffany itself did
relatively little. It didn’t even bring individual suits against the worst
“Power Sellers” of infringing items, preferring to place the burden and
cost of policing the marketplace on eBay. These facts refuted, not
proved, eBay’s culpability.
Assessing human culpability also helps us analyze the difficult
issue of first impression in VISA. There VISA and its member banks
made a business of providing quick, easy and cheap payment services
through credit cards, including online services. The infringers used
those payment services to create highly successful piratical businesses
outside the legal and practical reach of U.S. copyright law. According to
the complaint, the only viable way to stop them was to deprive them of
those payment services, and doing so would shut them down. VISA and
its banks had been notified of the infringement, which involved only a
few of their millions of payment-service customers, and they could have
stopped it. Yet they refused to take action to stop the illegal activity, as
their own rules required, although they had done so successfully with
illegal offshore online gambling. Finally, VISA and its members got a
infringement”) (emphasis added); id. at 940 (after summarizing evidence: “The unlawful objective
is unmistakable”).
86. See MODEL PENAL CODE § 2.02(2).
87. See supra note 24 and the accompanying text (citing Dratler Cyberlaw).
88. See supra note 25 and the accompanying text (citing Dratler Cyberlaw).
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cut—a stated percentage—of the price of every illegal sale of a
copyrighted image, in the form of credit-card processing fees. In a
seminal case on secondary liability, a similar percentage interest was
among the Second Circuit’s reasons for imposing it.89
Under these circumstances, does not VISA have some culpability
for the piracy? Is it not at least reckless or negligent in failing to stop it?
The issue here was not the technology or the flow of bits and bytes, as
the Ninth Circuit’s majority surmised, but the perennial ebb and flow of
humans beings’ responsibility for the natural consequences of their acts.
IV. CONCLUSION
Over the past two decades, American judicial analysis has turned
increasingly rigid, formalistic and mechanical. In constitutional law, we
look compulsively to our Framers’ “original intent,” as if we could see
in the vanishing (and disputed) mists of the eighteenth century a clear
blueprint for applying venerable principles to conditions that our
Framers never could have imagined. In the field of intellectual property,
we try to freeze common-law decisions like Sony into an abstract quasistatutory rule that any technology used to infringe copyrights is
acceptable as long as it has substantial non-infringing uses.90 In
assessing secondary liability, we petrify common-law precedents like
Shapiro, Bernstein & Co.
91 into two-part tests that take on a life of their
own, as if they were statutes passed by Congress, which they most
decidedly are not.
We seek a mechanical formula for every case, as if we hope some
day to program computers to replace judges. Yet the more formulaic we
try to make our jurisprudence, the more our decisions paradoxically
become prolix, tedious and inaccessible to nonspecialists in IP, let alone
the general public. We are receding from the goals of clarity,
consistency and comprehensibility at an increasingly rapid rate.
Solomon did not decline to split the baby based on a four-part test.
He did not require twenty pages of reasoning to reach his decision. He
89. See Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 308 (2d Cir. 1963)
(imposing vicarious liability upon department store for concessionaire’s sales of bootleg records
where store reserved right to supervise and dismiss concessionaire’s employees and took 10-12 %
of its sales revenue as concession fee).
90. Both practical and jurisprudential problems arise when courts receive abstract statements
of the holdings of precedents as if they were statutory prescriptions adopted by Congress after
hearings, investigation and due democratic deliberation. See Dratler, Statutory Sea, supra note 13,
at 422-29.
91. Shapiro, 316 F.2d at 308 (2d Cir. 1963).
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40 AKRON INTELLECTUAL PROPERTY JOURNAL [3:23
used wisdom, insight into human motivation, an ability to foresee
consequences and common sense—things that today fall under the
collective heading of “good judgment.” No doubt Solomon, were he to
have encountered claims of secondary IP infringement, would have
based his decisions on fundamental things like culpability and proximate
cause.
I am not for a moment suggesting that we dispense with reasoned
decisions or precedent. Nor am I suggesting that the courts ignore the
language of statutes when statutes apply. What I am suggesting is that
we let the common law be the common law again. That includes making
federal-common-law decisions when statutory language provides no
answers. It does not include pretending that abstract statements of the
holdings of federal common-law precedents is statutory language,
entitled to the same deference (and subject to the same rigidity of
application) as language adopted by the people’s representatives.
So I wish that Congress would adopt a simple one-sentence statute
to govern all of secondary liability for infringement of intellectual
property (other than patents, which have their own special statutory
rules92). That sentence would read as follows: “A person is liable for
another’s infringement if that person’s acts are a proximate cause of the
infringement and that person is culpable for it.”
If Congress did that, we might see judicial opinions focus on what
really matters, rather than abstractions ripped out of context from
precedent, whose authors never intended them to apply so broadly.
But of course Congress will do no such thing. If it tried, the
lobbyists and ideologues would commandeer the simple, one-sentence
bill. Before they let go, it would have become many pages of
gobbledygook, just like Section 512 or 1201 of the Copyright Act.93
So we had better not even whisper that Congress should try. Our
only hope is for courts, over time, to reacquire the habit of building
federal common law case by case, with an eye toward the general
principles of tort law that have served the common law well for
centuries.
92. See supra note 83. Other forms of IP also have some special rules, but they are mostly
limited to particular factual situations. See, e.g., Lanham Act § 32(2), 15 U.S.C. § 1114(2) (special
limitations on secondary liability for trademark infringement of printers, publishers, domain-name
registrars, and makers of technologies for blanking undesired portions of audiovisual works).
93. For a rant on how lobbyists turned simple, basic principles into the statutory monstrosities
of Sections 512 and 1201 of the Copyright Act, see generally Dratler, Cyberlaw, supra note 12, at
§§ 3.02, 6.01[5], 6.07[2].
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There may be some hope in that regard. Whatever else it may be
doing in constitutional law and fields remote from IP, the Supreme Court
has done much in recent years to abjure rigid formalism and restore
federal common law in the field of IP. In Sony and Grokster, the Court
showed us how common-law reasoning could create a legal standard
(“substantial noninfringing use”)94 or a whole new legal theory (inducing
infringement) out of whole cloth, while operating in the interstices of
federal statutes that provided no other basis for decision. In eBay, Inc. v.
MercExchange, L.L.C., the Court directed us back to the old commonlaw calculus for injunctive relief, repudiating a mechanical rule that
injunctions nearly always issue to stop infringement.95 And in cases like
Festo96 and MedImmune v. Genentech97 the Court repudiated the Federal
Circuit’s rigid formalism, respectively, in assessing technological
equivalents in patent law and in accepting claims for declaratory
judgments under Article III.
Not only are the Supreme Court’s recent opinions in IP clear
repudiations of formalism and literalism and ringing endorsements of
flexibility and the common law; they are also, by and large, the shortest,
clearest and easiest to appreciate of the Supreme Court’s work product
over the last several years.98 And they are so despite IP law’s notorious
abstractness and difficulty.
Perhaps IP law’s general nerdiness, obscurity and lack of direct
political consequence leaves judges free to act like judges. No matter
94. See Dratler, Statutory Sea, supra note 13, at 421-22 n.37.
95. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 395 (2006) (“[T]he decision
whether to grant or deny injunctive relief rests within the equitable discretion of the district courts,
and . . . such discretion must be exercised consistent with traditional principles of equity, in patent
disputes no less than in other cases governed by such standards”). See generally, Jay Dratler, Jr.,
eBay’s Practical Effect: Two Differing Versions, 2 AKRON INTELL. PROP. L.J. 37-40 (2008).
96. Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 737-38 (2002)
(rejecting Federal Circuit’s formalistic rule that any amendment to any patent claim creates a
complete bar to applying the doctrine of equivalents to amended claim elements, and opting for a
more flexible rule).
97. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 S. Ct. 764, 774 & n.11, 777
(2007) (rejecting Federal Circuit’s formalistic conclusion that courts lack Article III jurisdiction
over a patent licensee’s declaratory-judgment challenge to a licensed patent when the license is
unbreached, and repudiating the “reasonable apprehension of suit” rule on which that conclusion
was based).
98. For discussion of a counterexample from the difficult field of detainee treatment, see Jay
Dratler, Jr., A Brief Lament on Hamdan, 5 & n.11 (Univ. of Akron Legal Studies Research,
Working Paper No. 06-14, 2006), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=913822 (noting that the Supreme Court’s various opinions collectively
subsumed over eight times the length of our entire Constitution, including amendments and obsolete
provisions).
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how decisive or path-breaking, an IP ruling rarely brings public or
political outcry. So judges can apply the fundamental things without
fear of political lynching.
If I am right in this conclusion, then maybe IP law can serve as a
temporary reservoir for the true spirit of our judicial system and our
common law. Maybe some years hence, when the political storms have
subsided, that spirit will emerge from its hidden reservoir in IP and
create a beneficent general infection, restoring our “least dangerous
branch” to its former power and glory.

 

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