Welcome to Skilled in the Art. I'm Law.com IP reporter Scott Graham. Here's what's cracking today:

• Timely advice about the IP perils of working from home and/or taking live events virtual.

• Williams-Sonoma says Amazon's imagery algorithms are infringing its copyrights.

• Some reaction from Monday's Federal Circuit dissents from denial in Arthrex.

• An ITC ALJ has all the details of how an EV battery maker hid evidence of trade secret misappopriation.

As always you can email me your feedback and follow me on Twitter.

The IP Perils of Working Virtually

It seems as if almost all work, leisure and business in America has moved online in the last couple of weeks. It brings with it a whole set of challenges, ranging from how do I keep my kids out of my web conference to how do I know when it's time to stop working?

Ed Klaris of Klaris IP thinks there's another challenge that's being largely overlooked: Doing work or transacting commerce virtually raises issues around IP rights and royalties. "The fact that [so many] people are now virtual for the first time, they need to be educated a little bit about the rules of the road," says Klaris, who's thought about the issue not only as an IP attorney, but also someone who's operated a virtual law firm for the last five years.

Here are highlights from our quick conversation earlier today:

Q: So there are different IP considerations when, say, a teacher is conducting a class by Zoom as opposed to when they do it in person?

A: Most of what copyright covers, whether live in a classroom, live in a music hall or live at an event, the same rules would apply online. However, once you're online, it becomes much easier to track, it becomes much easier to identify the violators and to communicate with them. So it's definitely an issue to look out for if you are a company, you are an individual, an educator who is using someone else's copyrighted material.

The same sort of defenses also apply. A classroom where you're using excerpts of a poem, or photographs of some artwork, those are all IP, but in the educational space there are defenses like fair use. The same fair use defense would apply live as it does virtually.

If you think your students may be recording—many of them are using Zoom, but students can [also] record on QuickTime for example—they should not take the material that's used in the class and use it for themselves, because they don't have a license to do so.

All of that comes up much more in the virtual space than it does in the live classroom space.

Q: Let's say I work as an entertainer. Suppose I'm moving my concert or my theater production online. Similar kinds of issues there?

A: Yeah. There is a requirement to license both a live event and a virtual event. The licensor would need to know what kind of event is being licensed. If something was cleared to be a live event and it's now switching to virtual, there's a whole new clearance process that needs to happen.

Q: Is that a matter of dotting I's and crossing T's, or can those licenses be more difficult to negotiate?

A: It really depends. Music licenses can be easy if it's just a live event. They can be quite expensive and hard if it's broadcast out into the internet. It depends on whether you're controlling your audience. It also matters whether these licensors are capable of licensing it to you. They may have already granted the exclusive streaming right [to someone else], but they were licensing you an event right.

Q: You've mentioned that museums and galleries are switching to virtual tours.

A: That's a really interesting topic. Because the museums and galleries—they don't always understand what their responsibilities are. Oftentimes, they think that just by purchasing the painting, the sculpture, the physical object, they are capable of filming that image or sculpture for a virtual showing.

But ownership of the physical object is very different than ownership of the copyright. The artist keeps the copyright. Unless the buyer gets a license from the copyright owner to put the work online, or to show it to lots of people, then they are violating the copyright of the owner. That is something that many, even sophisticated buyers don't really know.

That issue arises also with virtual reality—VR experiences where you can feel like you're in a museum. You have to have a license from the copyright holder to be able to do that. You can't just say, "Well, it looks just like our art gallery. Therefore I'm gonna let people have a VR experience of what they otherwise could do live."

Q: So it sounds like in the near future, we might have some copyright litigation springing up, given how fast people are making these transitions.

A: That's exactly right. If the copyright holders decide they should benefit from all of the live streaming of exhibits and events, and they believe the people who are conducting those are getting some sort of an economic benefit—or even if they're not getting an economic benefit, the copyright holders can still sue for statutory damages that can be as much as $150,000 per infringement.

Williams-Sonoma: Amazon Algos Are Infringing

There's a long-running debate in IP Land as to whether machines can "author" copyrighted works, be they rap lyrics, paintings or novels.

Williams-Sonoma and Amazon.com are on the cusp of a test case about whether intelligent machines can infringe copyrights.

Williams-Sonoma (WSI) asked U.S. Magistrate Judge Alex Tse last week for permission to add copyright claims to its dispute with Amazon, which already includes claims related to trademarks plus design and utility patents.

After a year of discovery, WSI's Orrick, Herrington & Sutcliffe lawyers say they've determined that Amazon isn't entitled to the DMCA safe harbor available to online service providers who play a passive role in posting user content.

Previously WSI had thought that third-party sellers were responsible for uploading infringing images of WSI products to Amazon's "fake Williams Sonoma storefront," as WSI calls it. But it turns out that Amazon creates an internal catalog of Williams-Sonoma product images, "then Amazon, via its algorithms, selects which of the images in its catalog to display on the product detail pages in the Amazon marketplace," WSI alleged in a motion Friday for leave to supplement its complaint.

"This editorial control, and Amazon's role in the selection and display of copyrighted images via its algorithms, constitutes the volition required for direct copyright infringement and renders Amazon ineligible for safe harbor protection under the DMCA," states the motion, which is signed by Orrick partner Diana Rutowski.

WSI notes that Amazon was granted safe harbor status in a 2004 case on the ground that it didn't preview products prior to listing, edit product descriptions, suggest prices, or otherwise involve itself in sales. Although the precise nature of the algorithms now used by Amazon are confidential and redacted from Friday's filing, WSI insists it's enough to meet the standard of "volitional conduct" established by Ninth Circuit case law.

"If an Amazon employee were composing these product pages from the submissions by third-party sellers, there is no doubt that Amazon would be liable for direct copyright infringement when that employee copied and displayed photographs in this unauthorized fashion," states WSI, which is also represented by Orrick partner Annette Hurst and others.

Amazon is represented by Mark Lemley and Daralyn Durie of Durie Tangri. We don't know Amazon's response yet, though Williams-Sonoma is offering a preview of coming attractions. WSI says Amazon opposes amending the complaint on the grounds that "1) the deadline to amend passed in June 2019, 2) WSI has known about its copyrighted photos on Amazon for some time."

I expect we'll be hearing a lot more from Amazon in the coming weeks.

Will PTO Roll the Dice on Arthrex?

Over dissenting votes, the Federal Circuit decided that it's sticking with its Arthrex decision on the PTAB and the the appointments clause. I had a roundup here yesterday.

Paul Hastings partner Igor Timofeyev noted that we already had seen pieces of the dissents in panel opinions from Judges Timothy Dyk and Todd Hughes over the last few months. "Reading the dissents in Arthrex felt like watching a long-awaited blockbuster after having seen extended 'spoiler' previews," Timofeyev says.

He points out that the PTO now faces a hard choice over whether to seek certiorari. "While the Justices may side with the argument that the APJs are not principal officers under the Appointments Clause, there is also a risk they may think severability of the removal provisions is not appropriate and halt IPRs altogether until Congress enacts a legislative fix," he says via email.

Most intriguing to me was the absence of any debate around the PTO's No. 1 issue: waiver. The PTO has argued to anyone who'd listen that only those litigants who raised the appointments clause issue directly with the PTAB should be entitled to new hearings. The Federal Circuit has rejected that argument at the panel level. In all of the various concurrences and dissents from denial Monday, the word "waiver" appears only once: in a footnote to Judge Kathleen O'Malley's concurrence.

Latham Finds Buried Treasure for Battery Maker

Last month I mentioned that Latham & Watkins had won an initial determination of default, contempt and sanctions in a high-stakes ITC battle over electric vehicle battery trade secrets.

The International Trade Commission has now made public a redacted version of ALJ Cameron Elliot's 135-page order addressing SK Innovation Co.'s spoliation of evidence. It is a doozy.

LG Chem and SKI are Korean-based competitors, with LG the more established player and SKI growing rapidly. SKI won a contract to produce battery cells for Volkswagen in 2018 and is working on a 2 million-square-foot manufacturing plant in Commerce, Georgia, that is slated to employ 2,000 workers.

LG alleges that SKI has fueled its growth with more than 80 former LG employees, many of whom brought trade secrets with them. According to LG, some of its (now former) employees have gone so far as to identify the trade secrets they intended to misappropriate on their CVs. A Deloitte consultant even cautioned SKI in 2018 that its recruiting from "the L company" had become so well known that search firms weren't responding to its requests any more, per Elliot's order.

LG grew fed up last year and, on April 8, warned that it would take "all possible legal action" if SK didn't cut it out. Three weeks later LG sued in the ITC, seeking to block SKI from importing battery products, components and materials into the United States.

In September, SK produced a spreadsheet that was located in the electronic recycling bin of an LG-turned-SKI employee. It listed some 1,000 "extracted" documents based on keywords such as "competitor," "LG," LG Chem and "L Company" in their titles. The documents "can be misleading due to their titles if accessed externally," the spreadsheet indicated. Metadata showed it had been created April 12, four days after LG Chem had sent its cease-and-desist letter.

SKI argued that it had understood LG Chem to be threatening litigation under Korean law, which does not involve an obligation to preserve documents. Nevertheless, Elliot ordered SKI to produce "all relevant and discoverable information" and explain why evidence had been destroyed.

Further forensic testing found that on April 15, an SKI employee sent an email stating, "Be sure to delete this email after confirming and handling it. The files below could be misunderstood and require a response. If you do not really need a document, please delete it, and, if you do need it, please be sure to delete the company name from the title and content."

The attached documents had titles such as "LG Chem Battery Business 2018 First Half Year Results Report," "Lateral Open Recruitment Weekend Schedule Inquiry (L Company)," and "Competitor [redacted] information."

Another post-suit email instructed: "Delete every material related to the rival company from every single individual's PC, mail storage archives and team rooms. ASAP. … PCs may even be subject to seizure and examination. Delete this email after completing this directive."

Eventually, SKI turned up 74 more spreadsheets listing documents that had been ordered deleted. LG Chem demanded further searches based on that data, but SKI said doing so wasn't possible by the Oct. 20 deadline Elliot had imposed.

All of this led to devastating findings of fact. "The evidence recounted above shows SKI deliberately sought to gain LG Chem proprietary information through the interviews and subsequent employment of LG Chem personnel, and then, after receiving that information, distributed it amongst its teams with the instruction to use the information for their own work," Elliot concluded.

Though SKI disputes that finding, "the problem is that SKI has prevented development of a complete factual record through its intentional and culpable destruction of documents," Elliot wrote.

The judge allowed that "in retrospect," the demands imposed by his discovery order "may appear strict and exceedingly burdensome." But, he said, "it cannot be overemphasized that at the time of the order, SKI had not yet revealed—not to me, to LG Chem, or to the Staff—that 74 other spreadsheets beyond the [original] had issued across its organization, even though SKI personnel had known that fact for months."

Consequently, "default is the only appropriate remedy here," Elliot concluded. "LG Chem's ability to pursue its case and my ability to oversee a fair and timely investigation on the merits have been significantly prejudiced. The evidence overwhelmingly shows this prejudice was the result of acts committed with bad faith, with the intent to create this exact impairment."

Latham's team for LG Chem was led by partners Bert Reiser, David Callahan, Gabriel Gross and Jeffrey Homrig, along with counsel Joseph Lee and Sarah Gragert.

SKI has petitioned to the full ITC to review Elliot's order. Its Covington & Burling team, led by partner Sturgis Sobin, says SKI "regrets the loss of documents" and acknowledges it might be fair for Elliot to draw some adverse inferences. But default is too severe a remedy, particularly because some of the conduct Elliot documented took place before LG Chem's suit was filed, SKI argues in a March 3 petition signed by Sobin.

SKI also warns of the extraordinary stakes in play. "The U.S. automotive industry is on the cusp of a major transition to electric vehicles as part of a broader effort to combat climate change—a transition that is wholly dependent on a sufficient supply of EV batteries," SKI states. LG is trying to "stop or slow competition in the U.S. domestic market that it is facing from SK's superior battery technology," and auto makers who build cars in the U.S. are "deeply concerned about their ability to meet their EV production targets without adequate supplies of high performance EV batteries."

That's all from Skilled in the Art today. I'll see you all again on Friday.