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The Mishpat-Update #21

Welcome to the twenty first issue of the weekly Mishpat Update, Law 
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In this issue:

1. Introduction
2. Keyword advertising and trademarks
3. Cyberlaw news and updates


1. Introduction

I would like to welcome the 39 new subscribers who joined the list this

This week's feature article describes a recent ruling in Playboy v.
Netscape and Excite, and explains the practice of keyword advertising,
and the trademark problems it raises. There are many more interesting
cyberlaw updates in the news section.

July's Mishpat Award winner will be announced in next week's issue. If
you run a law related web site, and would like to apply for August's
award, fill out the application form at

The Mishpat Update archive (issues 1-19) are available at:

Feel free to use any of the material, or forward the newsletter to a
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2. Keyword advertising and trademarks

As our longtime readers might remember, in Mishpat Update #3 we
discussed a lawsuit Playboy filed against Netscape and Excite
for allegedly infringing Playboy's trademarks. 

Playboy, that has a rich history of fighting (not always successfully)
over internet trademark issues, wanted Excite's search service and
Netscape's portal (which was powered by the Excite's database at the
time, currently Netscape is using the Open Directory Project and search
engine 'Google') to stop selling banner advertising placement for the
search term "playboy" to Playboy's competitors. 

Playboy's claim was that Excite is selling the term "playboy" and
"playmate"  to its web and magazine competitors such as 'Penthouse'.
Playboy argued that its name has been sold with the willful intent of
being linked to the ads.

* What 'keyword specific' advertising is all about *
Search engines and directories sell word specific banner advertising.
This means that the banner advertisement you will see on your search
results page is connected to the search terms you entered (if the
portal managed to sell that phrase to an advertiser). For example:
searching yahoo for "international law" gave me a banner on the search
result page, pointing to ; searching for "buying flowers"
brought up a search page with a banner for
(note: these are banner advertisements showed, not the search results).
Selling word specific banners is a profitable practice for the portals
because it is considered targeted advertising (If a visitor searches
for "buying flowers" an ad for an online  flower shop is considered
targeted because it is relevant to that visitor's needs). Targeted
advertising raises the cost that the advertiser pays per impression
(visitor viewing the banner) and is therefore profitable to the portal
that gets a higher revenue for the same number of page views.

Most of the portals don't sell search result placement (where the site
will be ranked on the search result page), only banner advertising.
However sells search result placement (site owners pay
for high ranking for specific search phrases). In Goto's words (from
their "get listed" section):  " is the only search engine where
you can actually determine your placement within the search results.
What's more, you only pay when we deliver targeted traffic to your
site." That means GoTo search results are affected by advertising.

* The Ruling *
All parties agreed on the fact that Excite sold banner ads on search
results pages for the terms "playboy" and "playmate". Playboy claimed
that was an infringement of its trademark rights. Excite claimed it was
a legitimate use of those terms.

Declining Playboy's request for a preliminary injunction, Judge Stotler
of the U.S. District Court in Santa Ana, California, essentially found
that although Playboy had trademarks for "Playboy" and "Playmate," it
did not have a monopoly on the use of the generic English words
"playboy" and "playmate". Playboy had not shown that Excite's keying of
an ad to the word "playboy" was necessarily a commercial "use" of
Playboy's trademark -- a requirement that must be met before a
trademark infringement lawsuit can proceed. 

More important, Judge Stotler ruled that even if Excite had used
Playboy's trademarks, that use would not have been improper. Trademark
infringement generally occurs when a company uses another's trademark
in a way that is likely to cause confusion about the source of a
product or service. But Judge Stotler said that Playboy offered no
evidence that consumers would be sufficiently confused over the
relationship between Playboy and a banner ad for a pornography site. 

Judge Stotler characterized banner ad keying as similar to the
placement of a truthful ad next to the trademark of another which is a
routine practice offline. 
If a driver who was looking for a fast-food restaurant saw a billboard
for a known burger restaurant and pulled off the highway, and next to
it he saw another sign next door to the restaurant that read: 'Better
Burgers: 1 Block Further.' "Assuming that the same entity owns the land
on which both the burger restaurant and the competitor's billboard
stand, should that entity be liable to the burger restaurant for
diverting the driver?" asked Judge Stotler. "That is the rule Playboy
Enterprises contends this court should adopt." 

A lawyer for Playboy said the company would appeal to the United States
Court of Appeals for the Ninth Circuit.

The Playboy case is not the only lawsuit challenging keyed banner ads
on Excite's search results. Three subsidiaries of the Estee Lauder
Companies Inc. filed suit against Excite and an online seller of
cosmetics 'The Fragrance Counter Inc.' The Lauder companies objected to
having Fragrance Counter's banners appear on Excite's search results
for "Estee Lauder." This practice is more problematic than the Playboy
case, since "Estee Lauder" isn't a generic English phrase. 
It should also be noted that other portals, such as Lycos, have
policies regarding the use of trademarks in keyword targeted

You can read more comments on this case at the New York Times online
(free registration required):

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3. Cyberlaw Updates

Each week Mishpat-Update brings you the latest news about
online and computer law, with links to the full reports available
on the web.

* New anti spam laws in Australia and Italy *
The Austrian parliament has passed an amendment to the
telecommunications law that makes it illegal to send bulk advertising
e-mail without the recipient's prior consent. Similar legislation in
Italy entered into force 21 June. The use of fax, robot telephone
systems and e-mail require prior consent of the recipient in Italy.,1087,6_167101,00.html

* Online liquor battle *
It began with a seemingly simple request to U.S. Congress from Mothers
Against Drunk Drivers: outlaw the sale of alcohol to minors over the
Internet. But the issue has erupted into a battle between major liquor
distributors and small wineries and breweries. On a vote of 22 to 9,
The House Judiciary Committee approved a bill that would give states
the authority to prosecute companies that violate their liquor sales
laws. Under the proposal, states could take out of state companies to
federal court if those companies made shipments that violated
restrictive laws. That means the states could prosecute companies that
ship alcohol to minors, or to people who live in so called "dry areas",
where alcohol sales are not allowed. 
Groups representing small wineries and breweries say the new
legislation keeps them from using the Internet to break into the
national market. They say that in many states, state licensed
wholesalers control what products can be sold, making it difficult for
upstarts to get to consumers.

* NSI fights cybersquatters *
Network Solutions Inc. (NSI) announced a new pre-payment model
requiring domain name seekers to pay for their .com during online
registration. The current invoice system will no longer be available
to most customers when the new policy is fully implemented in
September. NSI expects the move to minimize speculator abuses, where
individuals register Web addresses and take the names off the market
but never pay the bill. The speculators then try to sell the name to
the highest bidder.,1087,3_166751,00.html

* HP wins Inkjet patent suit *
Hewlett-Packard Co. (HP) won a  million patent and trademark
infringement lawsuit against Nu-kote International Inc., a provider of
inkjet printer refiller cartridges. A federal jury in California, ruled
that refill products manufactured by Nu-kote infringed upon three HP
patents and three HP trademarks, and that certain Nu-kote packaging
contained false and misleading statements.,3700,2300930,00.html

* Internet gambling raises class action lawsuits *
Plaintiffs' lawyers have launched a series of federal class actions
aimed at holding the high rollers of the credit card industry
responsible for the online gambling losses of consumers. Filed in
Alabama and Wisconsin, the complaints accuse major credit card
companies and banks of flagrantly violating state and federal laws by
collecting debts incurred as a result of illegal Internet gambling.

* SEC says that Internet free stock offers are illegal *
The U.S. Securities and Exchange Commission (SEC) has recently begun
issuing warnings about free stock deals, which are promoted by e-mail.
Companies give away free stock (which is not yet public) as a
promotional stunt. In the past year several startups have tried to lure
visitors to their sites with promises of free shares that supposedly
can be traded on the stock markets in the future, hoping to cash in on
the Internet stock mania. Email messages give instructions on how to
sign up for shares of stock. After a user signs up for stock, a
referral code is given; when another person signs up using that
referral code, the first person typically gets additional stock. SEC
spokesman Duncan King said that the technique is out of bounds partly
because such offers aren't regulated, even though the offers are just
promotional tools, "if stock is involved, you can't do it.",6061,2297000-2,00.html

The SEC won cease and desist orders against four companies that were
illegally offering "free stock." None of the companies had registered
for stock offerings as required by federal law. Though the companies
took no money from investors, they lured customers into providing their
names and email addresses with the ultimately unfulfilled promise of
free stocks. Normally, when companies try to raise money from the
public stock markets, they register their shares with the SEC. Without
registration, those shares can't be traded on the public stock markets.

* Bible code case will be decided by Israeli law *
Michael Drosnin, whose book "The Bible Code" has made best seller lists
around the world, was sued by an Israeli company called Torah Soft
Ltd., when he allegedly failed as agreed, to mention the company in the
first edition of the book. Drosnin apparently offered to mention the
company in forthcoming editions, but that offer was rejected. In The
Bible Code, Drosnin posits that that coded messages are imbedded within
the five books of the Torah, including predictions of future events.
Those messages, Drosnin said in his book, can be discerned by looking
at the Torah in Hebrew and plucking letters from the text at specified
intervals. Decoding the books was performed by computer software, which
could split the text into the required intervals.
The main issue before Supreme Court Justice Ira Gammerman was whether
Israeli or New York law should apply. Drosnin is a New Yorker, and The
Bible Code was published by Simon & Schuster, a New York publishing
house. Justice Gammerman decided that the case's "center of gravity" is
in Israel because the alleged agreement was the result of Mr. Drosnin's
contacts with Torah Soft's main shareholder, Rabbi Spielberg, in the
state of Israel. The judge also said that all of the work undertaken by
the Rabbi and Torah Soft took place in Israel. The ruling is
significant because unlike the American law, there is no statute of
frauds in Israeli law that would require a written contract for
provisions that cannot be carried out within one year.

* Microsoft sues over software piracy *
Microsoft is continuing its aggressive bid to sink software pirates,
and filed suit against multiple computer retailers across the U.S. The
complaints target several companies that allegedly distributed
counterfeit license agreements for Office 97 and, to a lesser extent,
Windows 95.,4586,2301779,00.html

* Open Access war continues *
The U.S. Federal Communications Commission (FCC) plans to go to court
to say regulation of cable Internet access is a national issue, not a
local one - a position that essentially supports AT&T's stance against
cable open access. FCC chairman William Kennard said his agency would
file a brief in a recent Portland, Oregon court case, that has opened
the door for local regulation of cable networks. The agency's position
would essentially support AT&T in its battle against America Online
(AOL) and GTE, which contend that they should be allowed to use cable
networks for their own subscribers. 
At issue is the fight by ISPs to gain access to cable companies'
high speed networks. Today, most cable companies require their Internet
subscribers to use an affiliated ISP, such as Excite@Home or Road
Runner. AOL and GTE say this gives cable companies virtual monopoly
power over broadband connections. Yet Kennard said he has deliberately
pursued a hands off approach to open access to encourage firms to
continue to build new high-speed networks. But recent local regulators'
decisions have undermined this strategy, he added.

A 9 to 2 vote by San Francisco's Board of Supervisors approved the
transfer of Tele-Communications Inc.'s cable franchise to AT&T. The
board declined to force AT&T to open up its lines to Internet access
rivals like AOL. In offering a bland resolution of support for open
access to broadband Internet access, the board avoided taking a strong
stand. Indeed, the final wording of the resolution diluted what
otherwise was expected to have been a much sharper declaration. San
Francisco is waiting upon the ultimate verdict in the Portland case,
which is being appealed. If Portland wins, San Francisco reserved the
right to take a second look at the access debate.,6061,2302946-2,00.html

Comcast Corp. sued in U.S. federal court to stop Broward Florida county
from forcing cable companies to open their high speed Internet access
systems to competitors. The board of commissioners of Broward County,
which is just north of Miami, approved an ordinance on July 13
requiring owners of coveted cable lines to open up access to Internet
service providers at wholesale like prices. Comcast charged in the suit
that the county violated the federal Communications Act by adding
unlawful requirements to the company's cable franchise agreement. It
said the ordinance was vague and unconstitutional and violated due

* Paul McCartney bootleg online *
Former Beatle Paul McCartney previewed one of the track he's recorded
for his upcoming album on the BBC about two weeks ago. That one and
only play was captured by some bootleggers (makers of unauthorized
music copies), who promptly put it up on the Internet. Several radio
stations took it off the Web and began playing it on the air.

* Listserver alleged defamation goes to court *
DMG Enterprises Inc. has filed suit against association management
software rival Advanced Solutions International Inc., for allegedly
posting false information about DMG on an industry association
Listserver. The complaint alleges that ASI President and CEO Robert
Alves sent e-mail messages to 600 members of the American Society of
Association Executives (ASAE) who are on its technology section
Listserver. In the e-mail messages, Alves allegedly made false
statements about DMG's acquisition of another association software
firm, Smith Abbott & Co. in Baltimore, and about the Y2K readiness of
its software. Alves denied the allegations.

* U.S. DOJ studying Microsoft brake up *
The U.S. Justice Department (DOJ) is looking into different options if
the court were to rule against Microsoft in the antitrust trial. The
Justice Department has contacted at least two technology investment
banks, wanting an analysis on how the breakup of the software giant
would affect the market.

* Online divorce in Britain *
More than 300 British couples have downloaded divorce documents since a
service offering a chance to divorce with just a few clicks on the
Internet, was launched last week by a company called Desktop Lawyer.
The company was promoting the 80 Pound (126 US dollars) service as a
cheap and quick way to obtain an uncontested divorce, compared to going
through a firm of solicitors, which would cost around 631 dollar. 
The service begins with a visit to the company's Web site to answer
questions online. Desktop Lawyer's program then drafts all the legal
documents and gets them ready for downloading. Religious groups reacted
furiously to the service, saying it removed any chances of

* Compaq sues Emachines *
Compaq Computer filed suit against the low cost PC manufacturer
Emachines and its South Korean parent companies. The suit alleges
Emachines and Trigem Computer, Trigen's American affiliate, and Korea
Data Systems infringed on 13 Compaq patents. "Compaq's law suit seems
to be aimed at stopping Emachines, which has been growing rapidly in
the United States" Trigem executives said in a written statement.

* Online gambling looses in New York *
The New York state Supreme Court ruled that a casino with servers in
Antigua (in the Caribbeans) violates U.S. law if it accepts wagers from
state residents. New York State attorney general Eliot Spitzer's
Internet and Investor Protection bureaus were investigating Suffolk
County, New York based casino WIGC. WIGC argued that it was
not subject to New York state gambling laws because its servers 
are located in Antigua. 
Supreme Court Justice Charles Edward Ramos ruled: "It is irrelevant
that Internet gambling is legal in Antigua. The act of entering the bet
and transmitting the information from New York via the Internet is
adequate to constitute gambling activity within New York State ... The
Internet site creates a virtual casino within the user's computer
terminal, therefore WIGC broke state and federal gambling laws,
including the Federal Interstate Wire Act. "

* Former employees arrested for computer break-in *
Two former employees of Interactive Connections were arrested on
charges of breaking into its computer system and stealing secret
business plans. According to the complaint, the alleged crime occurred
after the defendants' employment at Interactive Connections ended. The
defendants allegedly entered Interactive's computer system and copied
various proprietary files and software belonging to Interactive and then 
transferred the information to various computers that the two men 

* SEC will shut down non Y2K compliant brokers *
The U.S. Securities and Exchange Commission (SEC) approved new rules
that will allow it to shut down non Y2K compliant brokerage firms.
Firms have until Aug. 31 to complete their year 2000 projects, but
unprepared firms will have until Nov. 15 to show they are year
2000 compliant.

* Intel sues EMI for a "parasitic" lawsuit *
Intel sued EMI Group North America for malicious prosecution relating
to a 1995 patent infringement claim the tiny company carried all the
way to the U.S. Supreme Court before losing. Intel's suit seeks .5
million in addition to unspecified punitive damages, alleging that
EMI's "parasitic" infringement suit was designed to "coerce Silicon
Valley companies to make payments simply to avoid the risk,
uncertainty, burden, and expense of litigation." 
EMI, a Delaware based company, sued Intel in federal court on its home
turf for patents that cover a method for fabricating metal oxide
semiconductor transistors. Two months later, officials from both
companies met, and Intel allowed EMI's expert to review blueprints for
designing its chips, according to today's suit. EMI bought the patents
from another company. The expert "confirmed that the Intel parts which
EMI had analyzed did not infringe the patent" at issue in the suit,
Intel attorneys argued. "EMI was thus left in a situation where it had
brought a lawsuit on grounds which clearly and admittedly were
erroneous." Despite the meeting, however, EMI said it would not drop
the claims unless Intel paid it  million, Intel's suit alleges.

If you know of any cyberlaw updates, please send them to

That's all for this time,
see you next week

Yedidya M. Melchior 

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