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When Gator Corp. was founded in 1998, the Redwood, Calif., company billed itself as a vehicle for consumer choice. Gator offered consumers a free “digital wallet.” This wallet conveniently remembered usernames, passwords, addresses, credit card numbers, and the like, so that consumers would not have to fill in this information each time they wanted to buy something online. In exchange, consumers agreed to accept ads on their computer screen. In those days of anything-goes business plans, there was little about Gator’s strategy that seemed odd or improper. Other companies were offering similar services. The notion that the Web was a consumer-driven medium was widespread. For a while Gator’s concept was popular. By December 1999, six months after the launch of its service, the company said it had more than 1 million registered users. Seven months later it had received nearly $60 million in financing. Gator’s backers were hardly small-time investors. Among them were U.S. Venture Partners, a Menlo Park, Calif., venture capital firm that was the lead investor for such companies as Sun Microsystems and Check Point Software Technologies. Other investors included Scott Cook, founder of Intuit Inc., and Andy Bechtolsheim, a founder of Sun Microsystems. “Gator has tremendous potential,” U.S. Venture Partners partner Magdalena Yesil said at the time. “It resolves one of the most basic chores of online commerce.” That was then. This is now: Last June several media powerhouses, including Dow Jones & Co., The New York Times Co. and Washington Post Co., sued Gator in the U.S. District Court for the Eastern District of Virginia for trademark and copyright infringement, unfair competition and unjust enrichment. They are asking for more than $46 million in damages — an amount that, under the Virginia Business Conspiracy Act, can be trebled. Gator’s offense, in the view of these companies, is that it overruns the media companies’ Web sites with pop-up ads, advertisements that suddenly appear over the Web page a user is viewing. Gator will often sell a pop-up ad to the direct competitor of a Web site. An ad for Gator client Travelocity.com, a discount travel site, for example, popped up on Concierge.com, a travel Web site owned by plaintiff CondeNet Inc., according to the complaint. An ad for HotJobs.com appeared on plaintiff Dow Jones’s CareerJournal.com site, the complaint says. The digital wallet service that Gator offers to consumers — eWallet, as it’s named — is actually a wolf in a gator’s clothing, according to the publishers. Gator is “a parasite” that takes “free rides on the valuable intellectual property rights” of others, the companies wrote in the complaint. The media companies won the first round. In July, Judge Claude Hilton preliminarily enjoined Gator from serving pop-up ads on the plaintiffs’ pages without their consent. A trial is scheduled to start later this month. Gator’s business has seemingly not been slowed by the injunction. According to the company, revenue grew by one-third in the third quarter of 2002, the 11th consecutive quarter of growth. The company says it has 80 Fortune 1000 customers, and 25 million consumers have downloaded its software. According to Gator, The New York Times has even used Gator to place its ads on the sites of other plaintiffs in the case. In court papers, the Times said it hired an advertising agency, which paid Gator to place ads on the Times behalf. When the Times discovered its ads were appearing over sites without the site publisher’s permission, the company halted the practices, court papers said. To defend itself, Gator has hired an impressive lineup of legal talent, including Michael Barta, a partner in the Washington, D.C., office of Houston’s Baker Botts, and Janet Cullum, the head of litigation at Palo Alto, Calif.’s Cooley Godward. Barta is a general litigator whose past clients include crime novelist Patricia Cornwall and the estate of former President Richard Nixon. Cullum is a well-known trademark lawyer who successfully represented eBay Inc. in a court battle with Bidder’s Edge Inc., a site that let users search for items across multiple online auction sites. EBay wanted to keep Bidder’s Edge out of its auction site. Cullum won the case on a controversial trespass theory. The media companies have turned to Terence Ross, a partner in the D.C. office of Los Angeles’ Gibson, Dunn & Crutcher. “Gator is selling advertising on Web pages not owned by them, doing it without authorization, and then pocketing the profits from those sales,” says Ross. While Gator’s business model is certainly aggressive and seemingly designed to engender ill will, it’s less clear that it is unlawful. Gator does not actually copy, alter any of the media company’s pages, or use any of its marks. It simply places an ad on top of those pages. “The issue is whether the user or publisher controls his or her computer screen,” one of Gator’s lawyers says. Ross responds that Gator violates copyright law because it alters the publishers’ intended appearance of their sites and because the company is effectively creating an unauthorized derivative work — the Web site superimposed with a pop-up ad. The ads also violate the Lanham Act — the federal trademark law — because Web viewers may falsely associate the publisher’s site with the ads served by Gator. In the media companies’ complaint, the plaintiffs paint a picture of just such a potentially damaging scenario: “Imagine, for example, if a Gator Corporation pop-up advertisement for a flight-training school appeared over a story about the September 11th tragedy,” the complaint says. “Gator Corp.’s pop-up advertising scheme undermines the Plaintiffs’ efforts to coordinate advertising and content to avoid such an embarrassing conflict.” Neither Gator nor its lawyers would talk to IP Law & Business for this story, agreeing only to answer written questions. In its answers and in news releases, Gator says that its software simply opens a new window on top of the viewed page, much as an instant messenger program might open on top of any page being viewed when a message arrives. “The lawsuit’s suggestion that the plaintiffs’ Web sites must remain in full view on a consumer’s computer screen, without any other windows ever being displayed in the foreground, is absurd,” a Gator press release said in July. “This flawed logic means that any software application that automatically displays information in a separate window — including ad-supported products like AOL Instant Messenger, ICQ and Yahoo! Messenger and fee-based products like Norton Utilities and Microsoft Outlook — would be illegal.” “The plaintiffs seek to turn [the Internet] on its head, shift control from the user to IP holders, by turning Windows/Internet environment into an infringement machine,” says Scott Primark, Gator’s general counsel. “This is a frontal attack on consumer rights.” This conflict actually began brewing long before this lawsuit was filed. In August 2001 lawyers for the Interactive Advertising Bureau, a trade association that represents companies that sell online advertising, including some of the plaintiffs in this suit, announced it would ask government regulatory agencies to take action against Gator. At the time, Gator was replacing banner ads approved by Web site publishers with Gator clients’ banner ads. The IAB threats prompted Gator to file a suit against the association. Three months later, the two sides tabled legal action and reached a confidential agreement. Apparently, the IAB members, including many of the plaintiffs in this case, misunderstood the settlement to mean that Gator would no longer put ads of any kind on their sites, Ross says. But early in 2002, they began seeing pop-up ads appear, and gradually these became more frequent. Then, in the spring, Gator published a white paper specifically offering ad placement opportunities on Web sites published by The New York Times and The Wall Street Journal. “At that point, everything just snowballed,” Ross says. The media companies’ lawsuit isn’t Gator’s first. In 2002 WeightWatchers.com sued rival DietWatch.com for using Gator to deliver ads to visitors of its site. In June, Judge John S. Martin Jr. of federal court in Manhattan granted WeightWatchers a permanent injunction barring DietWatch from serving ads on its site and ordered it to pay $25,000 in damages. Ross handled that case for WeightWatchers. More recently, United Parcel Service sued Gator in federal court in Atlanta, contending that the company is placing unauthorized pop-up ads on its site, including ads for rival Federal Express. UPS is seeking an injunction and unspecified damages against Gator. (Alston & Bird and King & Spalding are representing UPS, and Kilpatrick Stockton is representing Gator.) In November, Six Continents Hotels Inc. and Inter-Continental Hotels Corp. sued Gator, also in Atlanta, claiming copyright and trademark infringement, unfair competition, and computer trespass. (Alston & Bird again is handling the plaintiffs’ case; Gator’s lawyers had not made a court appearance at press time.) Finally, Extended Stay America Inc., a chain of hotels offering long periods of occupancy, sued Gator in federal court in Spartanburg, S.C., on similar grounds, and Gator has sued ESA for declaratory relief in federal court in San Jose, Calif. ESA makes an interesting claim about Gator’s business in its court papers. A company can buy a pop-up ad campaign for $25,000 or more, according to ESA’s complaint, and it can avoid having Gator sell pop-up ads on its own site. The cost of the protection from pop-up ads, according to the suit, is upward of $50,000. The plaintiffs in these cases — especially the publishers — like to paint the battle with broad brush strokes. Publishing Web sites — especially free, news-oriented sites — is expensive, they say. That cost needs to be recouped. “If Gator were to succeed, we would see the end of free content online.” Ross says. “And that would be a major blow to the Internet.” Ultimately, the case comes down to a question of control. How much control do publishers have over their Web sites? The plaintiffs believe they have full authority over the appearance and layout of their Web pages, much as they do over their printed newspapers. Gator argues that the beauty of the Internet is that it lets users decide how and what they want to view. If users consent to pop-ups by downloading Gator software, Gator says, then the law shouldn’t interfere. This month the control is in the court’s hands.

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