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Facebook Ruling Splits Courts Over Liability Shield Limits for IP

Sept. 28, 2021, 4:32 PM

A Third Circuit ruling reviving a right of publicity lawsuit against Facebook Inc. raises fundamental questions about a federal liability shield for social media platforms.

The decision calcified what had been an implicit circuit split on whether Section 230 of the Communications Decency Act shields platforms from liability for user violations of state IP laws, including right of publicity laws. The section exempts online platforms from liability for user action, but doesn’t apply to intellectual property-related claims.

The U.S. Court of Appeals for the Third Circuit on Sept. 23 directly refuted a 2007 Ninth Circuit ruling, in which that court had held that the provision excluding IP claims from platforms’ Section 230 immunity only left them unprotected from federal IP claims.

The Third Circuit’s Karen Hepp v. Facebook ruling, if widely adopted, could open substantial liability for platforms under varying laws from 50 states governing the right of publicity and other intellectual property.

“It would be easier to establish a prima facie case that would survive a motion to dismiss than it would with other doctrines that are more rigorously defined,” intellectual property law professor Eric Goldman of the University of Santa Clara said of publicity rights claims. “Courts may open up doors for lawsuits that would ordinarily be shut down by Section 230.”

The Third Circuit also stepped into a debate over how exactly to define “intellectual property,” particularly in Section 230. It held publicity rights—at least as defined by Pennsylvania law—clearly fall under the IP umbrella. But attorneys say the legal definition isn’t necessarily clear-cut.

“We have this term people throw around, ‘intellectual property,’ and nobody knows what it means,” intellectual property attorney Naomi Jane Gray of Shades of Gray Law PC said. “So nobody knows what this statute means, and that’s problematic.”

The potential confusion over varied state laws on IP, along with the power the decision would give to states to decide what Section 230 does and doesn’t exempt, puts the decision’s interpretation of Congress’ intent on shaky ground, some attorneys said.

There’s a good chance Facebook asks for a rehearing by the panel or in front of the full circuit, and perhaps appeals to the Supreme Court, lawyers said. The case, which drew competing friend-of-the-court briefs, could become another flashpoint over the increasingly contentious Section 230.

“Given platforms’ national, even international reach, it’s very problematic for them to have a differing set of liability standards on this question,” said Gray, who also is president of the nonprofit Copyright Society. She added that it would lead to plaintiffs forum-shopping for states with favorable laws.

Implicitly Federal?

The Ninth Circuit decision Perfect 10 Inc. v. CCBill LLC held that Section 230 only meant to create an exception to its liability shield for federal intellectual property law. It cited the difficulty resulting from online platforms to apply 50 different state laws to content from countless users.

But a month earlier the First Circuit at least implicitly came to the opposite conclusion in Universal Communication Systems, Inc. v. Lycos, Inc. Most district courts that have weighed the question since rejected CCBill’s interpretation, Goldman said.

The Third Circuit majority noted that despite that rejection, the “disarray” predicted by Facebook and backers hasn’t materialized. But in a dissenting opinion, Judge Robert E. Cowen said there had been no circuit split until now, as the First Circuit in 2007 “assumed without deciding” the exception included state IP law.

The Ninth Circuit itself said in CCBill that it didn’t create a split because neither party in Lycos addressed the question, so the First Circuit “seems to have simply assumed.”

The Third Circuit majority said the plain language of the statute clearly indicates the exception included state law. Congress distinguished between state and federal law elsewhere in Section 230, but not in the exception.

“It would be bizarre to have a federal law that says ‘states decide what is in our immunity statute or not,’ depending on whether the state decides the right of publicity is intellectual property or not,” intellectual property attorney Andrew P. Bridges of Fenwick & West LLP said. “I think there’s another way to deal with it. Federal law should never defer to state law.”

Bridges has written friend-of-the-court briefs for Facebook in different cases.

Podcast: Republicans and Democrats have wildly different ideas about reforming Section 230.

The majority correctly read the statute and decided the case, intellectual property attorney Erik Belt of McCarter & English LLP said. The ruling also effectively rebutted claims that it would wreak havoc on the internet, he added.

“I think that the majority addressed that when it noted other rulings it followed that happened 10 years ago. The same argument was made back then,” Belt said. “It hasn’t blown up the internet.”

VIDEO: Section 230 of the 1996 Communications Decency Act, made the web a haven for free speech and free expression and gave rise to big tech companies like Google, Facebook and Twitter. Critics say it has also made the internet a breeding ground for trolls, sexual predators, misinformation, and censorship.

What is IP?

Belt also backed the court’s subsequent conclusion that publicity rights are intellectual property.

The court weighed conflicting definitions in legal dictionaries among other factors and deemed it a property right, with trademark rights a “striking” analogy, he said. It noted that Pennsylvania requires an investment in a persona that has commercial value to sue for right of publicity violation.

“Your right to publicize yourself is a property right,” Belt said. “Right of publicity claims are very similar to trademark, Lanham Act unfair competition-type claims.”

But some states do treat the right of publicity as a privacy right, which is closer to its original roots, Goldman said.

“It’s just not credible. It’s not the way publicity rights have been developed or enforced,” Goldman said of the Third Circuit’s reasoning. “It’s especially not true in other states that don’t have the qualifiers Pennsylvania does, where you have to have invested in your image and reputation.”

The boundaries of the definition of intellectual property vary even within the IP law community.

The Electronic Frontier Foundation, in a brief backing Facebook, said the IP clause in the Constitution governed only patent and copyright, much more clearly defined assets than a right of publicity. Others suggest much broader definitions.

The definition also varies in different sections of federal law. The bankruptcy code, for example, doesn’t include trademarks in its definition, but does include trade secrets. Meanwhile, Congress, in the 2016 Defend Trade Secrets Act, explicitly said it “shall not be construed to be a law pertaining to intellectual property.”

Goldman said the DTSA insert could be interpreted as a direct refutation of CCBill, and at least displays the legal ambiguity of the term—and therefore the decision.

“If you think intellectual property is a rigorous term, OK. But if it’s ambiguous, the textualist approach doesn’t answer the question very well,” Goldman said.

That leaves it to the courts to divine the implicit intent of Congress.

“If Congress had paid a little more attention, it would have in retrospect been wise to clarify,” Gray said. “But that’s not always how the sausage gets made.”

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editor responsible for this story: Keith Perine at kperine@bloomberglaw.com

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