Guide Through the Legal Jungle

Defaming the Houseguest

A Guide Through the Legal Jungle Trivia Question

In 1995, the National Examiner newspaper ran a headline relating to the O.J. Simpson murder trial entitled “COPS THINK KATO DID IT!”. The headline may have suggested that the police suspected Brian “Kato” Kaelin, Simpson’s infamous houseguest, of murdering Nicole Brown Simpson and Ronald Goldman. However, the actual story which appeared in the paper seventeen pages later discussed Kaelin’s alleged perjury. Kaelin sued the paper for defamation.  In whose favor did the court ultimately rule?

1. Kaelin, because the headline was based on mere conjecture and hearsay, and not on any factual allegation.


2. Kaelin,because the headline could falsely convey to readers that Kaelin had been accused of the murders.


3. The newspaper, because all news reporting is protected by the First Amendment.


4. The newspaper, because Kaelin was in fact accused of perjury by investigators and truth is an absolute defense to defamation.

Sometimes Only the Attorneys Win the Lawsuit

Although my entertainment practice focuses on transactions and not litigation, I do read many court opinions from entertainment and intellectual property lawsuits as research for my books and just as a means of keeping up-to-date on the changing legal landscape. While it’s likely true that transactional attorneys prefer to negotiate rather than sue, there are just some lawsuits that are lose-lose all around and do not need to reach any courtroom.

Case in point. I was perusing the court opinion in Webloyalty.com,Inc. v. Consumer Innovations, LLC, a 2005 case from a Delaware federal court. Both the plaintiff, Webloyalty, and the defendant, Consumer Innovations, operate similar membership discount program businesses that they advertise online. Consumer Innovations (CI) used a promotional sell page and an online banner that were clearly copied from Webloyalty (one of CI’s drafts of the sell sheet still had Webloyalty’s phone number in the text). That’s copyright infringement. But CI refused to come clean and instead “lied about using the Webloyalty material in their depositions and at trial”.

Judges aren’t fond of liars in their courtrooms. For that reason, CI not only lost the case but was also ordered to pay statutory damages as well as Webloyalty’s attorney fees and costs. But Webloyalty still ended up in the “hole” financially. Here’s why:

Another Victory for the First Sale Doctrine

The First Sale Doctrine (“FSD”) is an exception to the copyright owner’s exclusive distribution right. Under the FSD, the owner of a lawfully made copy of a copyrighted work may sell or otherwise dispose of that copy without the authorization of the copyright owner.

Manufacturers sometimes try to defeat the FSD by distributing the good under a license agreement. Under this licensing approach, the manufacturer argues that (i) it has not transferred ownership of the good but instead has only granted a limited right to use the good and (ii) therefore, the FSD does not apply.

Before a new music CD is released for sale to the public, record labels often create and distribute promotional CDs to radio stations and other music industry professionals. UMG, like many other record labels, try to prevent the subsequent re-sale of their promotional CDs by labeling them “for personal use only” and “resale or transfer prohibited”.

UMG filed a copyright infringement lawsuit against Troy Augusto who had obtained second-hand and was selling on eBay promotional CDs. Augusto won. The court decided that UMG's distribution of promotional CDs to the music industry professionals qualified as a sale or as a gift, not as a license. Therefore, the music industry professionals could legitimately transfer the CDs to Troy Augusto who could in turn legally sell them on eBay.

In a similar recent case involving the software industry, a federal court decided that Timothy Vernor owned second-hand copies of AUTOCAD software and could  rely on the FSD to sell the software on eBay. 

Class Action Lawsuit Filed Against Amazon.com

In my blog posting, Changes Afoot in the Publishing Industry, I discussed amazon.com’s new requirement that publishers use BookSurge, an amazon.com-owned subsidiary, for the printing of all print-on-demand books offered directly through amazon.com.

Print-on-Demand printing, or POD for short, is a method of printing by which you print one book at a time.  See Part Two of the blog series on the The Ins and Outs of Self-Publishing for more information on the business aspects of POD printing.

Many publishers are upset about amazon.com’s action.