False advertising, hubris edition

Lifelock is being sued over its claims to protect consumers' personal information from fraudulent misuses, and part of the plaintiffs' story is that the founder ought to have known his service didn't work because people had successfully used his Social Security number, which he advertises to show the effectiveness of the service, to obtain drivers' licenses and, in one case, a $500 payday loan.

Another interesting point about the dispute is that there are multiple consumer lawsuits (putative class actions) and one lawsuit by Experian, the credit bureau, which alleges that Lifelock "deceiv[es] consumers about the breadth of its protection and abus[es] the system for attaching fraud alerts to credit reports." Experian takes the position that Lifelock is repeatedly "crying wolf" and fraudulently putting fraud alerts on credit reports whether there's been any attempt at fraud or not. As I understand it, the underlying problem is that, in most states, consumers aren't legally entitled to tell the credit bureaus that they don't want any credit offers approved--so if you want to preempt the possibility of identity theft, a fraud alert is the only way to do it. Naturally, concerned consumers--and third-party services relying on economies of scale--use fraud alerts to partially compensate for the inability to put a freeze on their credit.

Experian claims that Lifelock's strategy violates the Fair Credit Reporting Act, which requires consumers to place fraud alerts themselves, and only when they believe they're at imminent risk of identity theft. More on Experian's claims:

Experian alleges that these services can be obtained for free by any consumer, and that Lifelock misleads its customers by implying that one must pay for them. Experian also questions whether LifeLock even has the legal right to request the fraud alerts, which Experian maintains are meant to be placed only by individuals who have a reasonable suspicion that fraudulent activity has occurred on their accounts. Experian also complains that the hundreds of thousands of fraud alerts which Lifelock has placed on behalf of customers have caused enormous damage by requiring Experian to send mandatory written communications to each and every one of those customers.

According to Experian's lawsuit, at least one Lifelock ad claims that the company's services make it virtually impossible for identity thieves to strike, but that fraud alerts are only effective against those particular types of fraud that require accessing a credit report. In other words, says Experian, Lifelock cannot protect against such forms of identity theft as an undocumented worker using someone's Social Security number to obtain a job; or against unauthorized use of a credit card.

Does Experian have standing to make all these claims, which may harm consumers but don't necessarily damage Experian directly? (It has alleged both Lanham Act and California unfair trade practices counts.) Since Lifelock argues that Experian is just suing in order to harm a competitor in the market for credit monitoring services, it would seem to fall within the Lanham Act's standing requirements, at least if we limit Phoenix of Broward to its facts.

See also: a skeptical take on the benefits of Lifelock in the context of this lawsuit.

Anticompetitive copyright claim survives; anticompetitive trademark claim does not

Designer Skin, LLC v. S & L Vitamins, Inc., No. CV 05-3699-PHX-JAT (D. Ariz.)

The court’s order does an admirable job making short work of the ridiculous claim that using keywords to truthfully indicate that one has a trademark owner’s product for sale causes initial interest confusion. The court emphasizes that confusion requires deception, and even if consumers who search using plaintiff’s trademark for indoor tanning products go to the defendant’s resale site first instead of the plaintiff’s, once there they are offered exactly what they were looking for, along with alternatives; there’s nothing confusing there. Plaintiff’s alternate argument that there was initial interest confusion as to source or sponsorship failed for lack of any evidence, which is the right result because plaintiffs can always claim that consumers perceive that any use of a mark must be authorized; this theory swallows up every exception and limitation on trademark law, and they exist for good reasons. The court wisely rejected Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), which had found initial interest confusion on nearly identical facts.

Unfortunately, the court’s wisdom deserted it when it came to the copyright infringement claims, similarly anticompetitive in that they were plainly asserted to interfere with defendant’s lawful resale of plaintiff’s products. Since plaintiff had only registered the “dimensional artwork” related to its products, the court refused to consider any claim unrelated to the “electronic renderings that appear on [plaintiff’s] website and in its marketing materials.” (As an initial matter, it’s not clear to me that “dimensional artwork” is the same thing as “electronic renderings”—if the plaintiff registered the label, the creative elements of a photo or drawing of the label wouldn’t be covered by the registration, and §113(c) would allow defendant to reproduce images of the label.)

Defendant argued that it didn’t copy, just took photos of the underlying products, but the court found that was a genuine issue of material fact, so it turned to the fair use defense. The court found: (1) defendant’s use was indirectly commercial and “minimally transformative at best,” weighing slightly against fair use; (2) the “electronic renderings” created by plaintiff’s graphic designer, were creative, though they were produced for functional, advertising purposes and were published on the internet, with the net result that this factor also weighed slightly against fair use; (3) the use involved copying of the entire image, which weighed against fair use; and (4) the most important factor weighed heavily in favor of fair use, because there was no market for images of the tanning products, only a market for the tanning products themselves—the defendant’s use “has not caused any market harm, and nor could it, regardless of how widespread its use might be.”

Barton Beebe has found that courts rarely engage in a mechanical tallying of the fair use factors, but this case is an exception: “with three factors weighing against fair use (although two only slightly) and only one weighing in favor of it (albeit the most important one),” the court rejected the fair use doctrine—not even leaving it as a matter for the jury, which I find quite surprising. Instead, the jury would only be asked to consider whether there was actual copying. (If plaintiff isn’t entitled to statutory damages, query what the appropriate measure of damages might be—a reasonable licensing fee? In a world without a market for the images, the reasonable licensing fee is a phantom. I suppose the cost of having new photos taken would represent defendant’s gain from copying, so that’s what I’d go with.)

Matthew Sag discusses a better analysis in another case by the same plaintiff here.

Compounding the error, the court allowed plaintiff’s unfair competition claim to proceed. Though it had dismissed the trademark claims, because plaintiff’s unfair competition count was “based on the alleged infringements of its intellectual property rights,” and because the copyright claim survived, the court also preserved the unfair competition claim. But this is plain error; a state-law cause of action based on copyright infringement is exactly what §301 preempts.

We built this empire for you

Tom the Dancing Bug gives us the League of Public Domain Properties, on the model of the League of Extraordinary Gentleman, but with a little more Larry Lessig.

AdWords Daily Budget is actually monthly budget: false advertising claim proceeds

CLRB Hanson Industries, LLC v. Google Inc., 2008 WL 2079200 (N.D. Cal.)

This putative class action centers on AdWords. Google moved for partial summary judgment on its practice of charging AdWords customers up to 120% of their “Daily Budget,” when the average “Daily Budget” was never exceeded over the course of a month. Google’s statements about AdWords included:

(1) Customers can “[f]ully control [their] ad budget”;

(2) If an AdWords customer accrues clicks that would result in charges of more than 20 percent above a customer’s Daily Budget in a single day, the AdWords system provides an overdelivery credit;

(3) If an ad campaign accrues clicks that would result in charges exceeding more than the number of days in the month multiplied by the customer’s Daily Budget, the AdWords system provides an overdelivery credit at the end of the month.

The court had previously determined that the AdWords agreement was a valid contract. Though “Daily Budget” might imply a daily limit, Google makes clear that the daily budget is not the daily limit in a variety of ways. Daily Budget is the first definition in the AdWords Glossary, and it says:

On any single day, the AdWords system may deliver up to 20% more ads than your daily budget calls for. This helps make up for other days in which your daily budget is not reached. However, you’ll never be charged more than your average daily budget over the course of a month. For example: if your daily budget is $10 and the month has 30 days, you might be charged up to $12 on any single day but your monthly charges will never exceed $300.

Google’s FAQs said the same thing in several logical places. Any customer who investigated the meaning of “Daily Budget” would quickly figure it out. Google disclosed its practice of charging up to 120% of a “Daily Budget” in a way that was “equally as prominent and accessible” as its definition of “Daily Budget.” Thus, the 120% charge is not, in and of itself, a breach of contract, at least when done to make up a prior shortfall.

The court noted in a footnote, however, that it might be a breach of contract for Google to over-serve and charge 120% on one day and then “intentionally” under-serve and undercharge a customer on another day. Google explains the practice as a way of smoothing out uneven search demand across different days, so if it tinkers with the supply that might be a breach.

The court found that triable fact issues remained on whether Google breaches the AdWords contract for “(1) customers running short-term ad campaigns, for less than one month; (2) customers running longer ad campaigns, where the final month of their campaign is a partial month; and (3) customers who pause their campaigns.” There might be a breach if those customers were charged more than their Daily Budget multiplied by the number of days in the campaign. (The implication here is that, absent a change in the contract, Google can’t start off strong and count every delivery—Google only gets to count an overdelivery if there’s been a previous underdelivery.)

Plaintiff also brought California Unfair Competition Law claims based on Google’s practice of calculating charges using a monthly budget, while advertising a daily budget. The standard is whether a reasonable consumer would be misled, even if a statement is true. “A clearly disclosed term or practice is not likely to deceive a consumer,” though there may be unfair competition even without a breach of contract.

Google’s evidence of disclosure included a screen shot showing the “Specify your daily budget” screen from AdWords from “the 2002 period,” which clearly stated: “Your actual daily charges may fluctuate by 20% because of changing search volume, but the maximum you will spend in a 30-day calendar month should be no more than 30 times your daily budget.” But Google didn’t provide the exact dates, nor evidence that plaintiffs actually saw that signup page. Plaintiff’s representative testified that plaintiff first signed on to AdWords in 2002, and that Google’s practice wasn’t clear to it until it received emails in March 2005.

So, the question was whether a reasonable consumer would have been misled into suffering injury by being charged up to 120% of her Daily Budget on a single day. Plaintiffs’ evidence suggested that “Daily Budget” could reasonably be interpreted as a daily maximum. Google has said: “You have complete control over how long you participate in AdWords, and you control the maximum you want to spend per day”; “You have complete control over how much you spend and how you spend it. You choose the maximum cost-per-click (CPC) and the daily budget that fit your advertising goals”; “You also control your overall spending by setting a daily budget (how much you want to pay per day). ... If your daily budget is lower than the recommended amount, Google will deliver your ads evenly throughout the day to keep your clicks at or below your daily budget.” A reasonable consumer could have been misled into thinking that the Daily Budget was the maximum charge for any given day, unless Google’s practice would have been apparent to an ordinary consumer. Google didn’t have enough evidence that its disclosure was “so prominent that a reasonable consumer would necessarily view it. Instead, the disclosure is located well within the AdWords Agreement, a document over 100 pages long.”

There were also triable issues of fact on actual injury from relying on the alleged misrepresentation. One argument is that the system could result in “overexposure” on certain days, which could create difficulties in “meeting demand and maintainting customer satisfaction.” (Comment: Really? Do people run the same search so many times per day that they’d see the same ad and be “overexposed”? And the meeting demand/customer satisfaction argument may look good now, but if I were Google, I’d grab onto this as one reason why class treatment is inappropriate, since that’s absolutely the kind of individualized issue that courts like to use to deny certification.)

Reverse passing off claim fails as false advertising

Landrau v. Solis-Betancourt, -- F.Supp.2d --, 2008 WL 2091125 (D.Puerto Rico)

Some background here. The court found that the homeowners initially contracted with Solis-Betancourt to design a renovation, then decided to build a new house. The homeowners gave defendant Solis a “rough conceptual sketch” of the configuration of the new house, and then they worked together to refine it. After that was done, the homeowners hired Landrau and her firm. The homeowners gave Landrau a sketch of the new home, though there’s a factual dispute over whether Landrau was aware of Solis-Betancourt’s involvement at this point.

More basically, the parties disputed who was the “creative force” behind the architectural design. Solis maintained that Landrau was only hired to provide “technical working drawings” necessary to get building permits. There was evidence that Solis reviewed and modified Landrau’s drafts; modified the building authority-approved plan; and continued working on the project after the permits were issued, whereas Landrau did not. Landrau, however, introduced evidence that both she and the construction manager believed that Solis was only responsible for interior design or decoration, not architecture, and that the design changes during construction were merely “cosmetic.” (These details of the factual dispute make clear that Dastar precludes this claim under §43(a)(1)(A). The “creative force” question is precisely the kind of reverse passing off claim the Court meant to preclude unless it could successfully be pled as a false advertising claim.)

As is often the case, the practicalities of business trumped legal certainty: Landrau didn’t have a signed written contract. She sent the homeowners a letter with a fee proposal and an attached American Institute of Architects form contract which discussed architectural services. But the homeowners didn’t sign the fee proposal or the form contract. The parties dispute whether there was an oral agreement to the contract.

The court first asked whether this was a §43(a)(1)(A) or §43(a)(1)(B) claim, because the plaintiffs’ arguments were ambiguous. (a)(1)(A) covers “false representations concerning the origin, association or endorsement of goods or services (‘false association’ or ‘false designation of origin’); and (a)(1)(B) covers false advertising. Plaintiffs didn’t specify, but did call their claim one for “reverse palming off.” This, the court concluded, occurs “almost exclusively” under (a)(1)(A). In addition, plaintiffs failed to allege that the reverse passing off occurred in commercial advertising or promotion, as required for (a)(1)(B). The court declined to credit plaintiffs’ “revisionist history” in which they’d implicitly alleged that the Architectural Digest article was commercial advertising. Nonetheless, it analyzed the false advertising claim on the merits, as plaintiffs desired (plaintiffs having presumably realized their unsurmountable Dastar problem with respect to (a)(1)(A)).

The unsurmountable problem with a false advertising claim here was different: commercial advertising or promotion. The Architectural Digest article was not commercial speech. It proposed no commercial transaction. Solis-Betancourt didn’t pay AD for the article. Though a partner in Solis-Betancourt proposed that AD do an article on the house, and Solis-Betancourt may have hoped to attract clients (and may have succeeded in doing so) as a result of the article, that’s not enough to make the article commercial speech. The court quoted Croton Watch Co., Inc. v. National Jeweler, 2006 WL 2254818 (S.D.N.Y. Aug.7, 2006): “A plaintiff cannot adequately plead a violation of the Lanham Act by simply alleging that defendant caused a journalist to write the article, the content of which plaintiff finds objectionable.”

Architecture and Morality

Interesting case from last year I just happened upon:

Landrau v. Solis Betancourt, --- F.Supp.2d ----, 2007 WL 5173642 (D. Puerto Rico)

In every issue, Architectural Digest profiles several design projects, heavily illustrated. “Each article credits its author, the photographer whose images illustrate it, and the architect and/or interior designer of the featured property.” Paul Sherrill, a partner at the architecture and design firm bearing the name of Solis-Betancourt, wrote to AD describing the firm’s work at the Puerto Rico home of two of the defendants, Ramirez-de-Arellano and Del Valle. Sherrill stated that the firm had developed the architecture and interiors.

AD picked the house and sent Sherrill its standard Design Credit Information form and an Authorization for Publication letter for the homeowners. Solis-Betancourt completed the forms, stating that it was the designer and architect, and that Sherrill should also be credited. The authorization from the homeowners specifically stated they were authorized to allow the magazine to publish photos of the house. When AD’s photographer took more pictures, AD asked Solis-Betancourt to complete fact and credit sheets for each photo indicating the authorship and source of the artwork and furniture shown. The article ultimately included 9 photos, 7 of them interior shots. It didn’t include the architectural plans or discuss the architectural design in great detail. It credited Solis-Betancourt as the architect and interior designer.

Landrau then wrote to AD claiming that her firm, Garcia & Landrau, was the actual architect. Solis-Betancourt responded that Garcia & Landrau had been contracted to expedite working drawings in order to obtain building permits, but “only after he and the client had firmly developed a program, design, and aesthetic direction for the project.” He stated that Garcia & Landrau had been hired for technical skills, and was not consulted on aesthetics and design. Thus, AD declined to print a retraction.

The court refused to dismiss the Lanham Act claims against Solis-Betancourt. The first argument was standing: Solis-Betancourt claimed there was no direct competition between architecture and interior design. But precedent doesn’t require direct competition, only a reasonable interest in being protected against false advertising. (The court didn’t distinguish between claims under §43(a)(1)(A) and (a)(1)(B), which is par for the course in false attribution claims.) In any event, the allegation that Solis-Betancourt holds himself out as an architect would be sufficient to establish competition.

The court relied on Smith v. Montoro, 648 F.2d 602 (9th Cir.1981) (“[I]t is clear that appellant, as one in the business of providing his talents for use in the creation of an entertainment product, is uniquely situated to complain of injury resulting from a film distributor’s misidentification of appellant’s contribution to the product.”). (Side note: public.resource.org has a lot of court cases, which is making linking easier!) The interesting thing about that is that Smith can’t possibly survive Dastar, and the opinion doesn’t discuss Dastar. On the other hand, the instant case may be the kind of reverse passing off case that does survive Dastar, if the physical origin of the architecture is misattributed. But is this case really about physical origin?

For similar reasons, the court rejected Solis-Betancourt’s argument that plaintiffs hadn’t shown any protectable interest or secondary meaning in their work, and thus there could be no likely confusion. The old Smith rule is that improper credit is a false designation of origin, full stop. The only relevant consumer confusion is confusion about who’s responsible; consumers don’t need to care or recognize either of the parties’ names as having trademark meaning. Thus, it was sufficient for plaintiffs to allege that they actually created the architectural design; that Solis-Betancourt falsely designated the design’s origin (this is what makes it sound like a Dastar-barred claim, because it’s the physical embodiment of the design that the AD article covered; on the other hand, as we’ll see, there’s no allegation of copying here); that the designation confused consumers who would then seek out Solis-Betancourt instead of plaintiffs; and that plaintiffs therefore suffered harm.

The copyright claims against Solis-Betancourt, however, failed. Plaintiffs made an obviously frivolous Visual Artists Rights Act (VARA) claim; the Architectural Works Copyright Protection Act (AWCPA) allows photos of a building; and in any event there was no allegation that Solis-Betancourt took any pictures or copied the plans or the design. But what the court referred to as “state law copyright claims” were not preempted. This is entirely mysterious—of course state law copyright claims are preempted. What it seems to have meant is that state law moral rights claims aren’t preempted to the extent they cover subject matter that isn’t covered by VARA. Once again, Dastar throws that reasoning into question, given that the Dastar Court reasoned that allowing a reverse passing off claim for attribution would conflict with the Copyright Act.

AD was more successful in fending off plaintiffs’ claims. Solis-Betancourt is the one who (allegedly) engaged in reverse passing off. AD relied on his representations, but didn’t advertise the project as its own. There was therefore no infringing conduct, not even a possibility of contributory infringement, because AD lacked any knowledge of the infringement. The court rejected plaintiffs’ claim that AD had a duty to investigate who was the architect on the project.

The Copyright Act claims also failed because the AWCPA, as noted above, specifically allows photos of architectural works taken if the building is located in or visible from a public place, and there was no allegations that the building was not in a public place.

Get the lawsuit started: Farm-raised pink salmon case continues

Farm Raised Salmon Cases, 2008 WL 2070612 (Cal. App. 2 Dist.)

This class action alleges that defendants sold artificially colored farm-raised salmon to consumers without disclosing the artificial coloring. The California Supreme Court held that the FDCA didn’t preempt the claims. The case was remanded for consideration of whether plaintiffs stated a claim and whether the primary jurisdiction doctrine applied: did the FDA or the California Department of Health Services get the first crack at the dispute, as the trial court had held?

Under the primary jurisdiction doctrine, a claim may be stayed to allow an agency the chance to resolve some or all of the issues. It’s appropriate when the claim requires resolution of issues within the special competence of an administrative body. The doctrine is best applied when administrative action would allow courts to take advantage of administrative expertise and would ensure uniform application of regulatory laws. Courts should also consider the adequacy of an administrative remedy and the cost and delay to litigants from using the doctrine. If the issues are of a type ordinarily resolved by courts, an administrative agency has no particular expertise, and the applicable regulations aren’t complex, the doctrine doesn’t apply.

The court of appeals concluded that applying the doctrine was an abuse of discretion. The applicable regulations “expressly and unequivocally” require the disclosure of artificial coloring agents. Determining whether the salmon contained artificial colors and whether the labels failed to disclose that fact is not complex and doesn’t require administrative expertise. To the contrary, those are ordinary fact questions. Nor does the FDA provide an administrative procedure to deal with these precise questions; in fact, the FDA itself can only enforce its misbranding authority by filing suit in court.

Further, the court of appeals concluded that plaintiffs alleged a violation of the CLRA (Consumer Legal Remedies Act), which prohibits unfair or deceptive acts or practices and is, by statute, to be liberally construed. The CLRA specifically prohibits “Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have.” Liberally construed, displaying farm-raised salmon that was artificially colored to resemble wild salmon without disclosing the artificial coloring amounts to a “represent[ation]” that the salmon had the same origin and characteristics as wild salmon.

Contract doesn't defeat consumer protection claim

DeAngelis v. Timberpeg East, Inc., -- N.Y.S.2d --, 2008 WL 1969676 (N.Y.A.D. 3 Dept.)

Timberpeg advertised “Timber Frame Homes.” After plaintiffs attended a Timberpeg open house, they met John S. Shafer and John H. Shafer. Both Shafers and a Timberpeg manager told plaintiffs that the Shafers were authorized Timberpeg representatives, and experienced and specially trained Timberpeg builders. Plaintiffs were led to believe that Timberpeg would be involved in the design and construction of their home, supervising the Shafers. Based on these statements, plaintiffs signed an order form containing a limited warranty. The form stated that Timberpeg was merely a supplier of design plans and didn’t guarantee the Shafers’ work. However, plaintiffs claimed that even after they signed, Timberpeg assured them that it would conduct on-site visits and otherwise monitor the construction.

As you can guess, things didn’t work out so well. Plaintiffs ultimately fired the Shafers and hired another contractor to complete the construction.

Plaintiffs’ claims for deceptive practices and false advertising under New York’s General Business Law required allegations of consumer-oriented acts or practices that were materially deceptive or misleading and that caused injury. The test was whether defendants’ representations or omissions were likely to mislead a reasonable consumer under the circumstances. The court found that plaintiffs’ allegations satisfied those requirements. Timberpeg’s ads in a regional magazine, flyers, and open houses touted a “package” of products and services that would produce a completed Timberpeg home. This was consumer-oriented conduct, and Timberpeg’s representations were adequately alleged to be false and misleading.

Timberpeg argued that the contract plaintiffs signed contained a merger clause and specifically disclaimed liability for the performance of the representative who assembled the home. But that doesn’t defeat claims under the General Business Law based on deceptive business practices or false advertising. Moreover, the standard for misleadingness takes into account the reactions of “the ignorant, the unthinking and the credulous who, in making purchases, do not stop to analyze but are governed by appearances and general impressions” (citations and quotations omitted).

The court agreed, however, that plaintiffs’ common-law fraud claim failed. The Timberpeg order form, though insufficient to defeat the statutory claims, disclaimed any agency relationship with Timberpeg representatives and contained a merger clause as well as other limiting language. This prevented any claim of justifiable reliance, as required for fraud.

Once again, we see that statutory consumer protection law is powerful, and quite distinct from the common-law fraud actions with which commercial speech absolutists reassure us when arguing for eliminating the 20^th century’s consumer protection measures.

Incomplete FDA records doom Lanham Act claim

Alpharma, Inc. v. Pennfield Oil Co., 2008 WL 1990783 (D. Neb.)

Alpharma alleged that Pennfield falsely advertised that its animal antibiotic (a feed additive), which contained bacitracin methylene disalicyclate and was marketed as Pennitracin MD 50-G, was approved by the FDA for various uses. In earlier proceedings, the court dismissed Alpharma’s complaint on the ground that the FDA was the proper forum, but the Eighth Circuit reversed. Whether Pennitracin had been approved by the FDA for particular indications is a question courts can resolve by interpreting agency publications in the Federal Register and the CFR, whereas whether it should be approved is for the FDA to decide.

The facts are, to put it mildly, complicated. A summary that skims over numerous details and proceedings: the FDA has long worried about the effects on humans of antibiotics added to animal feed to improve productivity. Because the FDA’s records are incomplete, it’s not entirely clear that Pennitracin (under a different name) was approved under the rules that sort of govern the situation. (Sort of, because the regulations have been halfway updated since 1976, the last major revision, but the crossreferences haven’t, leading to some incoherence, and because the FDA is considering changing everything again.)

Pennfield submitted 1969 labels and other evidence to the court and to the FDA that strongly suggested, but did not establish beyond peradventure, that FDA had approved the drug. (The label essentially tracks the labeling of approved drugs from that time.) Pennfield’s predecessor engaged in extensive negotiations with the FDA, which allowed it to market the drug using the claims that were then approved for bacitracin methylene. As a result of an earlier Alpharma lawsuit against the FDA, the FDA opened a notice-and-comment procedure based on the confused factual and regulatory situation, in which Alpharma participated, but the FDA ultimately declined to act on Pennfield in particular, though it suggested that the entire animal-feed antibiotic field would soon face some broad regulatory changes.

The court found that these facts entitled Pennfield to judgment as a matter of law. Given that the FDA itself admits “there exists considerable confusion with respect to the historical facts of Pennfield’s or its predecessors’ approval,” the fact that the FDA may now consider its prior approval may have been erroneous or improvident was not relevant. The FDA, “properly or not,” approved Pennitracin by the time Pennfield put it on the market. The FDA’s use of a notice and rulemaking procedure showed that the FDA believed that Pennfield had an expectation “deserving of due process protection.” Moreover, through all this, the FDA never told Pennfield to stop marketing Pennitracin. Even if Pennfield didn’t have real approval, it was entitled to rely on the FDA’s representations during the 1990s that Pennitracin was approved.

Thus, Alpharma’s falsity and misleadingness claims failed.

good fences make good lawsuits?

Futuristic Fences, Inc. v. Illusion Fence Corp., 2008 WL 1908471 (S.D. Fla.)

The plaintiffs compete in the market for ornamental fence panels. A former ornamental fence panel maker, Jova, sold Illusion panels of a certain design. Jova sold Futuristic its manufacturing equipment, allowing Futuristic to make the Jova design. Illusion owns a design patent. Illusion fence panels are only sold in Florida, while Futuristic panels are sold in Florida and, through distributors, nationally and internationally.

Illusion sent four C&D notices to Futuristic distributors alleging infringement of the design patent. Futuristic responded by suing. The court granted summary judgment on noninfringement. The remaining claims were unfair competition and false advertising.

Illusion argued that it hadn’t taken any action affecting interstate commerce. The court handily rejected that claim. Nonetheless, the Lanham Act claims failed. They were based on Futuristic’s argument that Illusion’s C&D letters contained knowingly false misrepresentations of patent infringement. The court applied the ever-popular Gordon & Breach test to see whether Illusion’s letters were advertising or promotion covered by the Lanham Act.

The court was guided by Avery Dennison Corp. v. ACCO Brands, Inc., Case No. 99-1877, 2000 WL 986995 (C.D.Ca. Feb.22, 2000), which involved a false advertising counterclaim to a trademark infringement suit. In that case, the court found that the plaintiff’s C&D letter was not commercial advertising or promotion. In particular, “(1) the central message of the letters was the plaintiffs belief that its legal rights were being violated and that it did not want the recipients to continue that violation; and, (2) the purpose of the letter was not to influence the recipients to only buy the company’s goods; rather, the letter sought to inform customers of the alleged infringement and to stop the recipients from promoting or publishing the other company’s goods.”

Futuristic argued that this case was different because Illusion sent its C&Ds before filing suit and threatened to sue the recipients. The court found that these distinctions didn’t matter. The letters were not marketing and sales tools, but an attempt to protect perceived legal rights. Though Illusion was wrong, it wasn’t trying to sell Illusion products. The court found this reasoning particularly applicable because Illusion held an issued patent. The court analogized to the rule that C&D letters don’t confer personal jurisdiction over the sender; they serve an important social purpose in resolving disputes without litigation, and principles of fair play allow a patentee to inform others of its patent rights without subjecting itself to a foreign jurisdiction. Moreover, a warning is required to alleged infringers in order to receive a damage award.

Thus, the court concluded, a patentee has an apparently absolute “right to send cease and desist letters for the purpose of discontinuing allegedly infringing activity without subjecting the patentee to liability under the Lanham Act,” though the court said that its holding was not that a C&D could never be commercial speech. The court noted that there was no evidence that Illusion “asked its attorneys to send the letter for the purpose of discouraging the recipients from buying [Futuristic] fence panels or to encourage the recipients to purchase the fence panels only from [Illusion].” (One must wonder, however, what other purpose the letter would serve than to “discourag[e]” the recipients from buying Futuristic fence panels.)

Art, copying, and YouTube

Virginia Heffernan’s column in the New York Times Magazine has many, many fascinating elements. Pixels at an Exhibition is about a curated exhibit of videos from YouTube. Artists were asked to select pieces from YouTube to illustrate the potential of internet video for art. So here’s the first IP note: the artistry here was in selecting works—choosing what to copy. As Heffernan puts it, the idea is that “artists could use YouTube, like a supply store, slag heap or rag-and-bone shop.” (Did the exhibit get the clip creators’ permission to publicly perform the works? There’s no indication it did.) There’s a bunch of art-world condescension here—a distinction between the raw and the cooked that denies the possibility that art is already on YouTube—but it’s coupled with the thought that selection alone is enough to convert the raw materials into art, which seems like a step beyond Duchamp’s Ready-Mades (which were not conventionally understood to be expressive works before selection) and Pop Art (which generally involved some sort of creation of a new copyrightable work, even if the techniques employed were not necessarily advanced).

But there’s more. Here’s Heffernan’s description of what she considers the best selections:

The shrewdest contributor to the show is the video artist Sue de Beer. De Beer’s first choice of clip is inspired: the final scene from “The American Soldier,” Rainer Werner Fassbinder’s 1970 film. ...

The person who originally uploaded the Fassbinder clip to YouTube was evidently drawn to the song on the soundtrack (“So Much Tenderness”) and framed the clip as a music video. But de Beer finds other significance in it. The threadbare print, the (mostly) immobile camera and the institutional quality of the set suggest a surveillance video. Indeed, one of de Beer’s other YouTube selections shows actual surveillance footage from the 1999 shooting at Columbine High School. She’s pressing the connection. Taken together, the Fassbinder and Columbine images are a good reminder that since 1970, when “The American Soldier” appeared, documentary audiences have had considerable practice reading surveillance and evidentiary images. With Columbine scenes and murders of all kinds playing on thousands of screens in the YouTube googolplex — the Saddam Hussein execution, the shooting of a police officer in New Hampshire — the Fassbinder scene comes to seem like one of them. Just as primitive artifacts placed in the context of high modernism seem to anticipate it, or interpret it, so a vintage film clip set online amid the YouTube flotsam can take on entirely new meaning.

Sounds a lot like transformative purpose, doesn’t it? I’ve been a harsh critic of the use of “transformative” to mean “fair” in fair use cases, but I will admit I’ve lost that battle, and courts have decided that it’s transformation of purpose rather than transformation within the four corners of the work that matters. So here, the Fassbinder clip becomes, within the YouTube context, something other than it was originally. But wasn’t it transformative compared to the original work, then, before De Beer plucked it out and gave it her imprimatur?

Continuing:

De Beer also chose a video that shows the fashion designer Coco Chanel pricklishly fielding interview questions in unsubtitled French while smoking in the middle of her ornate drawing room. It’s moving and even unnerving to see a clip like this liberated from commentary. Even five years ago, you’d never have encountered it except in a documentary about fashion or feminism, where its significance would be assigned by pedantic talking heads. On YouTube, the strange tableau takes on a life of its own. Chanel can’t settle down; she fairly squirms and won’t take a seat in her own house. Similarly uncomfortable-looking is the dancer in de Beer’s final choice, “Footworkin,” an amateur video that shows a living-room dancer flapping and kicking to “My Funny Valentine.” Behind the dancer is a wilted bouquet of foil balloons, whose muted shine recalls the gilded mirror behind Chanel. De Beer draws bright lines with her curatorial choices, proposing connections between disparate images and showing how video clips are reincarnated by the format and community of YouTube.

Courts have often spoken of transformative purpose as proven by the commentary surrounding a copied work. Here, Heffernan suggests, the absence of commentary itself invites the audience to interpret the clip in new ways, especially juxtaposed to other fragments that are not formally part of the same work but are experienced in the same time and place (or “place,” if you will). Later, Heffernan insists that one must watch the entire set of De Beer’s selections, not just choose from them.

Heffernan’s logic makes sense to me, but it does suggest that transformative purpose faces the same tensions that transformativeness did when it meant transformation of the work itself—in the latter case, the tension is embodied in the derivative works right, which allows copyright owners control of (certain) transformations of their works, while here we will be fighting over the “purpose” of the original. Fassbinder, for example, might have an argument that his film already participated in a cultural dialogue over surveillance, violence, and performance.

And Heffernan, writing from a nonlegal perspective, has a limit to what she’ll accept as transformative:

Ronay is … a victim of YouTube. Unlike de Beer, whose rarefied selections make heavy demands on the viewer, Ronay approaches video through search terms, which means he encounters only videos that have been rigged to be found by someone with his interests. What’s more, the videos are prepackaged as proof of a paranormal realm, and that’s no different from how he employs them; he offers no new purpose for the clips.

A final note about IP practice: despite the statement in the print edition that the videos can be watched at the NYT site, the links from Heffernan’s article go straight to YouTube. Under Remeirdes, I’m not sure that gets the Times off the hook for contributory infringement (inducement, anyone?), but then again the Times has a pretty good fair use-squared case—reporting on art that at least purports to transform the underlying works.

Institutional Review Boards and misattribution

The Institutional Review Blog, in which I have a certain interest, regularly catalogs the failings of IRBs with respect to history and allied disciplines. Now it reports on the damage IRBs do to participatory research, and one story in particular stood out to me:

Elwood enlisted non-scholars as "community map makers" in a participatory project. Though these map makers were, in effect, co-authors, her IRB wanted their names stripped from the maps. (333) Eventually, the authors agreed to remove the names from maps printed in academic publications. Thus, the IRB denied the map makers credit for their work.

The IRB forced the researcher to commit what would, in other countries, be a moral rights violation. I'm no fan of attribution rights, but that's because I think ethics should be brought to bear on the problem. The IRB here acted not to further ethical behavior but to suppress it, and that's a shame.

(There's also an interesting reference to a researcher who "had to have [her] friends sign confidentiality and copyright agreements as [she] served them a cup of tea and a biscuit in [her] home.")

The slogan you deserve

“The Change You Deserve,” the new GOP slogan, was also a slogan for Effexor, an antidepressant drug, though it seems to have been abandoned (the thechangeyoudeserve.com website is inactive, and the FDA sent a warning letter about some of the marketing surrounding the slogan). Here’s the Huffington Post on the slogan:

Its common side effects are very much in keeping with the world the House Republicans have striven to build: nausea, apathy, constipation, fatigue, vertigo, sexual dysfunction, sweating, memory loss, and - and I swear I am not making this up – “electric shock-like sensations also called ‘brain zaps.’”

Its less common side effects are equally awesome in their appropriateness.

And when the Food And Drug Administration reviewed the ad copy that included the tagline, “The change you deserve,” it took issue with Wyeth Pharmaceuticals, which manufactures Effexor, saying that the company made “unsubstantiated superiority claims.” Sounds like the GOP have picked an ironically accurate tagline for their efforts!

Democratic lawmakers were no less gleeful. The Washington Post reports:

House Majority Leader Steny Hoyer (D-Md.) called reporters into his office. “Democrats, not drugs, is what the American people need,” he said. He flashed the Effexor side effects on a large flat-screen television. “Nausea, up to 58 percent,” Hoyer said. “Actually it’s higher than that for Republicans.”

For House Republicans, the diagnosis is obvious: They are suffering from Election Anxiety Disorder.

…. And Hoyer didn’t even mention the warning label, which states that patients should be watched to see if they are “becoming agitated, irritable, hostile, aggressive, impulsive, or restless.”

This is an example of a second-comer’s use doing harm to the second-comer. Rather than free riding, which doesn’t seem to have been the GOP’s intent at all, the slogan can easily be tarred with inappropriate connotations. Reciprocally, though this use is clearly not actionable dilution, it’s easy to see how it could harm the brand—Effexor’s been dragged into a political battle that really has nothing to do with it, and the side effects that provide political ammunition might not seem so funny (or so bad) if one were actually treating depression.

100 percent and then some: Pom Wonderful denied preliminary injunction

Pom Wonderful LLC v. Purely Juice, Inc., 2008 WL 2019560 (9th Cir.)

Pom Wonderful alleged that Purely Juice falsely advertised its pomegranate juice, made from concentrate, as “100% pomegranate juice” with “no added sugar or sweeteners.” The court of appeals affirmed the denial of a preliminary injunction. Along with questions about FDA regulation, there was conflicting evidence about the facts—apparently different varietals (who knew pomegranates had varietals?), farming practices, and processing methods might affect the lab tests for additional sweeteners. The conclusion that neither side had shown the actual facts made a full trial on the merits necessary.

The court also concluded that the balance of hardships favored the defendant, since granting a preliminary injunction would remove Purely Juice from the marketplace. Given FDA regulations, Purely Juice couldn’t just remove the ads from its label and continue on. Without sufficient evidence that Pom Wonderful’s business was irreparably suffering, the balance of hardships was an independent reason to deny preliminary relief. Pom Wonderful argued that the district court failed to address the public interest, but (1) there were no health risks shown from Purely Juice’s advertising, even if false, and (2) likelihood of success on the merits of a false advertising case itself indicates which way the public interest lies; here it is just unclear.

(This is probably something to take up with the FDA, but really: how can something be “100% pomegranate juice” and also have added ingredients? Is it like Lake Wobegon, where all the juices are above 100%?)

Damn Right We Changed It

Michelle Koenig-Schwartz has begun Project: Canadian Club - Your Mom Had Groupies

While I was out for a run recently, I saw a new ad for Canadian Club Whisky. The campaign is called “Damn Right Your Dad Drank It,” and features photos of white men doing manly things circa the Seventies.

…. Apparently, the only people invited to the Canadian Club Club are White Males, Ages 18-30, women and people of color need not apply. …. None of this women’s lib, civil rights, limp-wristed liberal bullshit that men are expected to follow these days. ….

Adding insult to injury, visitors to the site are invited to “Put your own dad (or yourself or your friends) into one of our Damn Right ads. It’s downright easy to do, and when you’re done you can download your ad and send it to your friends.” This Ad Maker is where I got the idea for the following project: I was going to remake the ads, but with women.

….As I was working on my version of the Canadian Club ad, I thought, “Hey, wouldn’t it be great if lots of people made new versions of the ad, just like Canadian Club intended, but replacing all the men with women that they find inspiring or influential or whom they love?”

….Put in photos of your own mom, make up new catch phrases, anything at all. Maybe at the end we can send what we have created to Canadian Club and show them how much potential business they’ve lost by not making even one ad catering to women.

Among others, trancer21 took up the challenge, connecting it to her participation in fandom—she took up the call to “do what it is that we [femslashers] do best.” (Femslash is a term for fanworks that feature female/female romantic or sexual relationships, while slash can, depending on the user, refer to any same-sex pairing or to male/male pairings.) She added: “The ‘Your Mom Wasn’t Your Dad’s First’ was just *begging* to be slashed.”

Here are a few of my thoughts:

1. Canadian Club would be unlikely to have the same success that Michelob had against the “Michelob Oily” fake ad, despite the fact that these fake ads are arguably more initially confusing, requiring some inspection to distinguish them from genuine Canadian Club ads. Not only have courts tilted substantially toward parody in subsequent years; not only does the purely noncommercial distribution of the ads call into question the applicability of trademark law at all and preclude any dilution claim; but these ads inarguably target Canadian Club’s insulting campaign, rather than being a general satire of environmental degradation.
2. Fanwork creators look at all culture as subject to debate and rewriting. Interpretive and creative skills learned from popular entertainment slide seamlessly into political and social critique outside an entertainment context (though of course they exist there, too).
3. Canadian Club attempted to enable “user-generated content” by allowing some remixes. But the authorized remix site only wants/expects certain people to play, following certain rules, coloring inside the sexist lines. This is a great example of why licensed remixes do not equate to creative freedom.
4. The project explicitly hopes to engage Canadian Club and change the advertiser’s behavior. I raise my glass to you, Michelle Koenig-Schwartz, and hope that Canadian Club gets the point.

Comparative ads trigger advertising injury coverage

Harleysville Mutual Ins. Co. v. Buzz Off Insect Shield, L.L.C., -- S.E.2d --, 2008 WL 1945784 (N.C. App.)

In early 2005, S.C. Johnson sued Buzz Off, a seller of insect-repellent clothing, in federal court, alleging trademark infringement, false advertising, and related claims. IGT, a second defendant, was added to the case after some procedural maneuvers. In 2006, Harleysville sought a declaratory judgment in state court that insurance policies it issued to IGT didn’t provide any coverage in the underlying suit, or in the alternative that Erie, a different insurance company, was on the hook for defense and damages costs. IGT, unsurprisingly, cross- and counterclaimed for a declaration that one or both of the insurance companies had a duty to defend and for a finding of bad faith breach of the duty to defend, while Erie made the same arguments about Harleysville that Harleysville had made about it.

An insurer’s duty to defend is broader than its duty to pay damages; the duty to defend is measured by the facts alleged in the pleadings. The drafting of the complaint isn’t key; the question is whether the facts alleged disclose a possibility that the insured is liable for something covered by the policy. Doubts are resolved in favor of insureds.

Here, IGT was insured for advertising injury. Advertising injury was defined to include publication of “material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services” and infringement of another’s copyright, trade dress or slogan in an ad.

S.C. Johnson’s complaint alleged that Buzz Off and IGT made false claims through Buzz Off’s website and the websites of its partners. One such claim specifically named S.C. Johnson’s OFF! Deep Woods product; the rest was directed to all skin-applied insect repellants, a market in which S.C. Johnson leads.

The court found that these allegations were sufficient to create a possibility that IGT was liable for a covered act, triggering a duty to defend. False negative comparisons would come within the disparagement provision.

The dissent found that S.C. Johnson’s allegations fell within a quality/performance exception, which stated that coverage didn’t apply to advertising injury “arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your ‘advertisement’.” However, the crux of S.C. Johnson’s claim was that IGT’s ads disparaged S.C. Johnson’s products, not that IGT’s goods failed to conform with IGT’s statements of quality or performance.

The dissent, by contrast, focused on the positive claims that S.C. Johnson alleged were false. S.C. Johnson mainly targeted Buzz Off’s claims for its own “Insect Repellent Apparel.” Buzz Off claimed that its clothing reduced or eliminated the need to apply insect repellent and that its clothing was superior to topical insect repellents, in part because of the “hassle” of applying “messy” insect repellents. S.C. Johnson also attacked Buzz Off’s claim that the insect-repellant properties of its clothing lasted through 25 washes, and that those properties came from “a version of a natural insecticide.”

The false comparisons at issue, the dissent concluded, were allegedly false and misleading because they overvalued Buzz Off’s products, not because they undervalued S.C. Johnson’s. While the dissent has a point, to me this just highlights the odd way advertising injury policies are worded—false comparative advertising has pretty much the same effects whether the claim is “X is better than Y” or “Y is worse than X.” In any event, the dissent concluded, the claims at issue fell into the failure to perform exception. Even if some of the Buzz Off statements (possibly those regarding DEET, a component of S.C. Johnson’s products) could be interpreted as disparaging, that wasn’t what S.C. Johnson complained about.

That reasoning is in a bit of tension with the idea that the plaintiff’s pleading shouldn’t entirely control if the alleged facts disclose the possibility of coverage, but the dissent did note that complaints often include background information to give context to a dispute, and categorized the ads here as mere background, to the extent that they contained negative implications about S.C. Johnson products.

Because the positive claims about Buzz Off are so tightly intertwined with the negative statements/implications about S.C. Johnson, I think this is foreground rather than background, and thus that the majority has the better of the argument. The exclusion for failure to meet advertised quality should apply to absolute claims; relative claims inherently put competitors’ goodwill at risk. As other Lanham Act cases have pointed out, a consumer who is disappointed with a product sold by a comparative claim may conclude that all the products in the relevant category are bad—after all, if the best one didn’t work, what chance have the others? This conclusion—that comparative ads should be treated as potentially harming the plaintiff, not just as potentially helping the defendant—resolves the “better than”/“worse than” disparity mentioned above, and comports with the cases cited by the dissent, some of which rejected insurance coverage when the advertiser’s claims were all positive and noncomparative.

Industry standards don't define terms for false advertising purposes

Wayne-Dalton Corp. v. Amarr Co., 2008 WL 1930786 (N.D. Ohio)

The parties make garage doors. Both are members of a trade association, DASMA, which has voluntary safety standards. One of the standards tests for “pinch resistance” as the door moves on its track. Plaintiff alleged false advertising of pinch resistance. Because the court viewed “pinch resistant” as an ambiguous statement, and because plaintiff had no evidence of actual deception, the court granted defendant’s motion for summary judgment. Moreover, the court found laches: plaintiff had constructive knowledge of the ads for over two years before suing, and couldn’t meet its burden of overcoming a presumption of laches.

The court denied plaintiff’s motion for reconsideration. Plaintiff relied on arguments that defendant’s doors failed to meet DASMA’s standard, but that alone wasn’t enough to establish the meaning of “pinch resistant” in the market. Plaintiff also argued that a jury should be allowed to decide what pinch resistant means, but Sixth Circuit precedent holds that the court should determine ambiguity of a statement as a matter of law; whether facts exist to justify the statement is a question of fact for a jury.

Metatags are nominative fair use; lack of damages defeats other claims

Syncsort Inc. v. Innovative Routines International, Inc., 2008 WL 1925304 (D.N.J.)

The parties compete to sell sorting software for UNIX computers. Syncsort’s is called SyncSort UNIX and IRI’s is called CoSORT. Users write scripts to get each piece of software to sort data in various ways. Syncsort publishes a reference guide on writing scripts in the SyncSort language and grammar. Syncsort claims that the guide is a trade secret. With the assistance of (among other things) existing user scripts, IRI developed a product, SSU2SCL, to translate basic scripts from SyncSort UNIX to CoSORT, allowing users to switch products. (Shades of Lotus v. Borland—which is why I presume Syncsort swiftly dropped its copyright claim.)

At some point, IRI used “syncsort” as a metatag, because it offered converters for SyncSort mainframe and UNIX paramaters, though it’s since removed the metatag.

The main claim was that IRI used Syncsort’s trade secrets. IRI initially contended that it hadn’t used any proprietary information to develop its translator, but it turned out that the developer actually possessed a copy of Syncsort’s reference guide obtained from a Brazilian distributor. The trade secret claim survived IRI’s motion for summary judgment.

Syncsort also alleged false advertising and trademark infringement. The false advertising count was based on IRI’s statements that it had “the fastest sort software available for UNIX environments,” “the world’s fastest, and most widely licensed, commercial-grade sort package for UNIX systems,” “the world’s first, fastest, and most widely licensed open systems sorting package and extract-transform-load (ETL) accelerator,” and “the fastest (and most scalable) sort product available for the UNIX systems, period.” IRI counterclaimed for various business torts.

Syncsort ran into trouble on the issue of damages. For trade secret, it was required to show that IRI’s misappropriation was a but-for cause of its damages—not just that the converter was created using trade secrets, but also that the converter resulted in lost business or revenues. The court agreed that Syncsort lacked sufficient evidence of this—Syncsort could show that it lost business to IRI generally, and that consumers considered the converter a valuable feature, but not that the converter was a but-for cause of people choosing or switching to IRI. Thus, the court granted summary judgment on the issue of damages. (I’m a bit surprised. Evidence that a number of consumers considered the converter valuable seems like it should create a jury question; I would chalk this result up to a general trend in the federal judiciary to tell businesses not to expect any help from courts in fighting competitive battles except in very rare circumstances. See also what happens to the counterclaims, below.)

Syncsort’s tortious interference with contract claim also failed. Syncsort argued that its contracts, which prohibited customers from disclosing “any information related to the Software,” were breached when IRI acquired job control scripts from Syncsort customers. But reverse engineering the SyncSort UNIX language from customer scripts is not a misappropriation of trade secrets. As I understand it, the court concluded that therefore, any interference with the contracts was not tortious. Moreover, for the same reasons Syncsort couldn’t show trade secret damages, it couldn’t show damages here, so the court granted summary judgment to IRI.

On the false advertising claim, the court again used damages to dismiss the claim. Syncsort argued that showing actual falsity would obviate the need to show actual reliance by consumers. But, the court held, that’s the rule for injunctive relief, not damages. Without any evidence of actual customer reliance or deception, the court granted summary judgment to IRI.

On trademark infringement, the court noted that the issue was initial interest confusion. In the court’s view, the IIC doctrine is motivated by a concern