Friday, December 09, 2016

Copyright question of the day, Colting edition

Frederik Colting and his partner have a new line of books, KinderGuides, which are children's versions of classics like On the Road and Breakfast at Tiffany's.  Fair use?


Tuesday, December 06, 2016

Fifth Circuit reverses multimillion-dollar antitrust verdict based on false advertising, remands

Retractable Technologies, Inc. v. Becton Dickinson & Co., No. 14-41384, 2016 WL 7046601, -- F.3d – (5th Cir. Dec. 2, 2016)

Regardless of the merits, courts don’t want plaintiffs bringing false advertising claims as antitrust claims.  Thus, they have imposed a number of empirically dubious, essentially random preconditions to treating false advertising as an antitrust violation; it is basically impossible for any plaintiff to show that all of the preconditions apply.  My usual approach is to say “the antitrust claims failed because they were antitrust claims,” but here the jury awarded RT treble damages for an antitrust claim based mostly on BD’s false advertising, so I’m going to say more.  This judicial hostility is enough to make me wonder whether antitrust law could be revived merely by making treble damages optional rather than mandatory, as they are in false advertising.

BD and RT are competitors in the market for safety syringes. A jury awarded $340 million (after trebling) against BD for its alleged attempt to monopolize the United States safety syringe market in violation of § 2 of the Sherman Act. The jury also found BD liable for false advertising under § 43(a).  The court of appeals reversed and vacated on §2, necessitating a remand for redetermination of whether disgorgement was now appropriate (given the disappearance of the antitrust damages) and whether injunctive relief should be reconsidered.

There are four main products in the safety syringe market: shielding needles, pivoting needles, sliding sleeve needles, and retracting needles, each of which is appropriate in specific hospital, clinical, or office settings. BD produced all four types and was also the major manufacturer of conventional syringes. RT’s principal product was the VanishPoint retractable syringe, which had a fixed, albeit retracting needle.  This protects against accidental injections but doesn’t work for other hospital and clinical uses.

In 2002, about five years after RT introduced the VanishPoint, BD created its own retractable syringe, the Integra. BD’s Integra suffered from design flaws such as leaking and failing to deliver a full dose of medicine. RT outsold BD in the retractable syringe sub-market: BD had a 1/3 share of the market, while RT’s market share was 2/3. By 2010, in the “relevant product market” for all safety syringes, BD’s market share was 49%, Covidien 30%, Smiths 10%, and RT 6%.

RT sued BD in 2001 for antitrust violations and product disparagement (based on the same advertising issues litigated here). The suit settled in 2004 and BD paid RT $100 million, with the parties releasing claims “which accrued on or at any time prior” to the agreement’s signing.

Three years later, RT filed the instant suit alleging patent infringement and antitrust and Texas common law violations. The district court tried the patent case first, and rendered judgment for RT (including “a mere $5 million in damages”) based on two BD versions of the Integra. On appeal in 2011, the Federal Circuit upheld the judgment only as to one model, which BD then removed from the market.

The non-patent claims continued.  RT argued that BD: monopolized and attempted to monopolize the markets for hypodermic syringes, safety needles and syringes, IV catheters, and safety IV catheters in violation of § 2 of the Sherman Act; excluded RT from these markets in violation of the Clayton Act §§ 1 and 3; violated the Lanham Act; and violated coordinate Texas law (later dismissed).

RT’s evidence “emphasized BD’s contract practices that allegedly foreclosed competition by offering customers sole source contracts, loyalty discounts, and market share rebates.” RT also invoked BD’s false advertising, patent infringement, and unfair competition.  The court submitted twelve separate antitrust interrogatories to the jury covering four liability theories—monopolization, attempted monopolization, contractual restraint of trade, and exclusive dealing—each relevant to three products—safety syringes, conventional syringes, and safety IV catheters. Antitrust damages went to the jury on two bases—“anticompetitive contracting damages” (for each product) and “deception damages” (only safety syringes). The Lanham Act false advertising claim went to the jury on representations that BD produced the “world’s sharpest needle” and its syringes have “low waste space.”

The jury held BD liable only for attempted monopolization in the market for safety syringes. It rejected all damages for “anticompetitive contracting,” but found that RT suffered “deception damages” over $113.5 million, and it found liability on all the misrepresentations.  The district court trebled the damages, added statutory attorneys’ fees, declined on equitable grounds to award disgorgement of profits for BD’s false advertising, and enjoined BD.

To prevail on an attempted monopolization claim, a plaintiff must show: “(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.”  BD didn’t challenge specific intent, and the court of appeals assumed that (3) was satisfied, meaning that BD had market power in the relevant US market for safety syringes.

The jury verdict “significantly narrowed the factual predicate for potential antitrust liability” by rejecting RT’s claims about exclusionary contracting practices by BD. BD offered the testimony of over a dozen purchasers of safety syringes that BD’s practices did not foreclose their ability to choose among competing products. Thus, the monopolization claim had to rest on three types of “deception”: patent infringement; two persistent false advertising claims; and BD’s alleged “tainting the market” for retractable syringes in which it alone competed with RT.

Exclusionary conduct must not only impair rivals’ opportunities but also not further competition.  “If the conduct has no rational business purpose other than its adverse effects on competitors, an inference that it is exclusionary is supported.”  But not all unfair conduct violates §2, and even aggregating a bunch of unfair competitive practices doesn’t turn into legally predatory conduct for §2 purposes unless it’s especially egregious. As the Supreme Court has said, “[e]ven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or ‘purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.’ ”

Patent infringement isn’t a basis for imposing antitrust liability, since patent infringement is actually procompetitive (patent law conflicts with antitrust law to an extent). 
False advertising: BD falsely advertised throughout the period under litigation that BD needles were the “world’s sharpest” (a proxy for patient comfort) and had “low waste space” (allowing more medicine to be dispensed from the syringe), and that BD’s data proved the claims.  By about 2003, BD’s tests began to show that competitors were equalling or surpassing BD needles on sharpness, and it didn’t change its ads.  Likewise, while the claim “lower waste space” than RT’s needles (the only competitor) was true when made, BD’s tests in 2003, 2005, and 2008 showed that the waste space measurement was no longer accurate. BD removed the inaccurate measurement from some materials but not from all, and showed erroneous waste space comparisons on its website. BD also applied the false claim to customer-specific comparative spreadsheets, and imbedded it in a “cost calculator” that sales representatives could use to demonstrate how much money customers would allegedly save with Integra syringes. Some distributors and resellers continue to use BD’s false claims in their promotional materials.

The bar to calling false advertising an antitrust violation is high because—um, because courts don’t like antitrust claims.  Previously, the Fifth Circuit said that sales pitches “may have been wrong, misleading, or debatable,” but they were all “arguments on the merits, indicative of competition on the merits,” as opposed to, say, bribes.  If a competitor loses out on a debate on the merits, the “natural remedy would seem to be an increase in the losing party’s sales efforts on future potential bids, not an antitrust suit.”  Similarly, the Seventh Circuit rejects Sherman Act claims based on false advertising because of what the court here called “traditional free speech principles”: “If [a competitor’s statements about another] should be false or misleading or incomplete or just plain mistaken, the remedy is not antitrust litigation but more speech—the marketplace of ideas.” False advertising “hardly ever operates in practice to threaten competition” because it “simply ‘set[s] the stage for competition in a different venue: the advertising market,’” and the victim can advertise right back to expose the dishonest competitor and “turn the tables.”  “Far from restricting competition, then, false or misleading advertising generally sets competition into motion.”  Also, it’s hard to determine whether falsity induced reliance, “or whether the buyer attached little weight to the statements and instead regarded them as biased and self-serving.” The latter was more likely where, as here, the relevant consumers were sophisticated, and though RT had surveys about materiality of sharpness & waste space, “not a single buyer’s representative came forward to testify to a purchase motivated by the ‘world’s sharpest needle’ and ‘lower waste space’ claims.”

Pause to note that the empirics are all against this: corrective advertising, especially by an inherently-less-credible-because-self-interested competitor, is unlikely to fix all the damage of false advertising.  [Now that we’re post-truth, is this problem worse?  Or is it not a problem because no factual claim would be believed in the first place?]  Also, the First Amendment doesn’t protect false or misleading commercial speech; if it did, it would threaten the Lanham Act even more than the Sherman Act, but the same Seventh Circuit that said “the remedy is more speech” accepts Lanham Act false advertising claims.  Similarly unpersuasive are the claims about reliance and materiality, which we consider ordinary matters capable of factual proof in the Lanham Act context (and which the jury found were proven here).  If the court were serious about its arguments, it wouldn’t allow Lanham Act false advertising claims either.  This is about the remedy, not the right, and it would be a lot more honest to admit that.

Still, the court here says, the broader point is that there’s a difference between business torts, which harm competitors, and “truly anticompetitive activities,” which harm the market. So an antitrust plaintiff has to show that a competitor’s false advertisements had the potential to eliminate, or did in fact eliminate, competition.  “RT may have lost some sales or market share because of BD’s false advertising, but it remains a vigorous competitor, and it did not contend that BD’s advertising erected barriers to entry in the safety syringe market.”

Moreover, there were no facts showing that BD’s ads in fact harmed competition, because RT remained dominant in the retractable syringe sub-market, selling up to 67% of all retractable syringes. Further, competition within the overall safety syringe market—particularly between BD, Covidien, and Smiths—remained robust. Some customers increased their purchases of RT syringes after being shown BD’s erroneous “waste space” comparisons.

“Tainting the market”: this theory was that BD produced flawed Integra retractable needles during the years covered by this litigation in order to persuade purchasers that all retractable syringes—including those of RT—were inherently unreliable, until RT’s patent expired and BD could take over the market.  The beginning of this theory had some record support, but the rest was illogical and incoherent (why would BD destroy its own future market?); even if true, the last part wasn’t anticompetitive, because “it is precisely the type of activity to be expected from competitors when valuable patent rights expire.”  The flaws in Integra needles, while apparently real, didn’t prevent them from getting 33% of the market, while RT’s market share increased and its sales nearly doubled. 

Bye-bye antitrust claim.

Lanham Act claim: BD sought judgment as a matter of law based on the affirmative defenses of res judicata and laches. The district court was correct that res judicata didn’t bar the claim because RT didn’t release claims for conduct post-settlement, and there was no indication that RT was on notice before the 2004 settlement that BD would continue to utilize the “sharpest needle” and “waste space” comparative advertisements in sales pitches and marketing materials.  

Laches: Without opining on the right statute of limitations to borrow, the court of appeals found that the district court didn’t abuse its discretion in concluding BD suffered no undue prejudice. “BD obviously knew from the parties’ just-concluded litigation that RT objected to the needle sharpness and waste space claims, and BD had every reason to know that its ongoing advertisements of the same claims, which continued through 2011, were inaccurate.”

Disgorgement under the Lanham Act: Also reviewed for abuse of discretion.  In the Fifth Circuit, willfulness isn’t required, but courts consider: “(1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.”  Even if disgorgement is appropriate, a plaintiff “is only entitled to those profits attributable” to the false advertising.

There was no clear error in the district court’s conclusion that at least some portion of BD’s profits were attributable to the false advertising. There was an expert witness’s opinion that $7.2 million in profits—netting to $560,000 after deductions for costs and expenses—could be attributable to the waste space advertisements. Nor was there clear error in the finding that BD had the intent to confuse or deceive by continuing to use advertisements it knew were false. Anyway, willfulness is not a prerequisite.

The district court declined to impose disgorgement because RT was adequately compensated by a $340 million antitrust award. This required remand “for a thorough re-weighing of the remaining factors and the entirety of the record to determine whether and how much profit BD should disgorge to compensate for the Lanham Act violations.”  The court cautioned that, in assessing sales diversion, “speculative and attenuated evidence of diversion of sales will not suffice.”

BD finally objected to the injunction requiring BD to “notify customers, distributors, and other market participants” that it “wrongfully made false and misleading advertising claims” in its “needle sharpness” and “waste space” advertisements. BD didn’t object to bans on use of the relevant advertisements or to required implementation of a training program to instruct employees and distributors not to use the old marketing materials.  Given that the district court’s order suggested that injunctive relief was granted to remedy antitrust violations, it was an abuse of discretion.  “It remains theoretically possible, while bearing in mind that equitable relief is normally appropriate only in the absence of an adequate remedy at law (i.e., money damages), that a viable injunction might still be an appropriate remedy for the Lanham Act violations.”  So remand on that too.


Monday, December 05, 2016

Mardi Gras bead dogs live

At least the trademark registration does.  Remember the Mardi Gras bead dog case, Nola Spice, in which the PTO accidentally accepted a Section 15 incontestability statement during the pendency of an appeal of an order cancelling the mark, even though the notice of suit was on file?  The PTO rescinded the acceptance after I blogged about it, but there's really nothing in place preventing other mistaken acceptances.

I was writing a bit about incontestability and I decided to check in on the bead dogs.  The district court ordered the marks cancelled in 2012--an order reflected in the form it sent to the PTO in 2012.  The court of appeals affirmed in April 2015.  After remand, the district court dismissed the case with prejudice that same month.

As of today, the marks still show as live in TESS and TSDR.

What went wrong, and can it be fixed?  I can think of a couple of possibilities for improvement, but I seek the input of registration experts.  I see why it makes sense to have the form for filing and resolving a TM case be the same.  ("Report on the Filing or Determination of an Action Regarding a Patent or Trademark," FYI.)  But is there some way they could be entered differently into the system depending on whether they were about filing or determination?  That could make it easier to flag the ones that need attention for human review, like this one.  How does the patent side do this?  Are there better mechanisms for catching cancellations ordered by a court?  I know they're rare, but that very rarity may mean that getting it right isn't resource-intensive once a proper procedure is in place.

Do most courts send a separate order along with the Report?  If so, do most courts know that the PTO wants them to do that?  I can't imagine that this order from an Article III court is not effective even if merely transmitted in the Report.

Just to look at another notable case, I looked at the TSDR history of the Louboutin red sole, Reg. No. 77141789.  A couple of observations: (1) No Notice of Suit Incoming (which is how they display regardless of whether they're about filing or resolution) showed up for the underlying litigation that led to the partial cancellation of the Louboutin mark.  I understand that this failure is not uncommon, though I'm also interested to learn of others' experiences.  (2) Because this was a partial cancellation, the parties in the underlying litigation engaged in some dispute over how the PTO should implement the 2nd Circuit's mandate, which seems likely to be unusual.  (3) The Second Circuit did forward notice of its order separately, and it's marked as "paper correspondence incoming" in TSDR.  I'm not sure if that's standard for cancellation orders, since most don't come from courts of appeal.  More information or thoughts would be appreciated.

Friday, December 02, 2016

... and the Best Title of the Year award goes to Mark Lemley


Mark A. Lemley 


Stanford Law School

November 30, 2016

Update re: DMCA re-registration

I have updated my original post to include the information that the Library of Congress, not the CO, set the password requirements, and to add a rant about how re-registration should not be a thing.

Failing to disclose refund policy does not make price claims literally false

First Data Merchant Services Corp. v. SecurityMetrics, Inc., --- Fed.Appx. ----, 2016 WL 7010889, No. 15-2301, No. 15-2364 (4th Cir. Dec. 1, 2016)

Lower court opinion discussed here.  The court of appeals affirmed the district court’s rejection of the parties’ claims against each other that were at issue on appeal (a major issue of settlement interpretation was not appealed).  First Data and SecurityMetrics are in the Payment Card Industry (PCI). In the PCI, issuers supply payment cards to consumers and collect amounts due; acquirers clear and settle payment card transactions on behalf of merchants; and processors facilitate the communication and settlement of payment. Some PCI providers outsource certain functions to third-party vendors. First Data is an acquirer and processor. SecurityMetrics is a third-party vendor.

The PCI Data Security Standard to help protect against credit card theft and fraud is universal, but the payment card brands each have different requirements for demonstrating or validating compliance with the standard. Acquirers, such as First Data, can impose noncompliance penalties and fees on merchants. Acquirers often rely on third-party vendors, such as SecurityMetrics, to validate merchants’ compliance.

The parties used to work together, with First Data listing SecurityMetrics as its preferred data compliance vendor in all communications with certain merchants. First Data charged merchants a PCI compliance fee and then paid SecurityMetrics for its compliance services on behalf of the merchants. When First Data decided to offer its own compliance service, it ordered SecurityMetrics to cease communication with its merchants; SecurityMetrics alleged First Data had breached their contract and stopped sending its weekly data feed. 

On appeal, SecurityMetrics argued (among other things) that First Data’s advertisements violated the Lanham Act. Some promotional materials stated that First Data merchants would have to pay First Data’s compliance fee regardless of whether the merchant also used a third-party compliance vendor, whereas First Data actually provided refunds to merchants who used third-party compliance vendors.

The challenged First Data ads said:

If you choose to use a third-party vendor for PCI DSS compliance services, you will need to contract with and pay that vendor directly. In addition to your alternate vendor’s charges for PCI DSS compliance services, you still will need to pay the Compliance Service Fee charged to you by your merchant services provider. The Compliance Service Fee is not affected by your choice to use a third-party vendor.* * *

If First Data’s PCI compliance services are contractually available to you, you will be charged an applicable annual compliance fee for those services, regardless of whether you use them or utilize the services of some other third-party PCI compliance services vendor. If you utilize the additional services of a third party vendor, you will pay that third party vendor’s charges for those fees in addition to First Data’s annual compliance fee.

The court of appeals agreed that these statements were ambiguous, not literally false.  It was undisputed that merchants had to pay a fee to First Data regardless of whether or not they paid a third party for the same services.  SecurityMetrics alleged that, in practice, First Data would refund a merchant that complained about being double charged.  But failing to state that a refund  might be available was not literally false.  By one reading, the service fee would change because of First Data’s refund policy.  But another reading was that, “because First Data’s refund policy was discretionary and not automatic, the advertisement is true on its face.” A customer who didn’t ask for a refund wouldn’t get one.  This wasn’t false by necessary implication, and there was no evidence of deception.


As for tortious interference claims, the court upheld the exclusion of recorded calls and emails from customers who cancelled contracts with SecurityMetrics as hearsay.  The evidence of causation, “why the merchants decided not to renew or sign a contract,” was relevant but inadmissible.  SecurityMetrics argued for admitting the calls and emails under the state of mind exception, since they were offered only to prove “what customers believed and why they did what they did.” “However, unless the statements are also offered for the truth of the matter asserted—that the merchants canceled their contracts with SecurityMetrics because of First Data’s misconduct—these customer statements do not show causation.”  [I have to admit, I don’t grasp this distinction.  Thoughts from people with more experience with evidence?  This seems like the kind of evidence routinely admitted in trademark cases.]

Saving people, suing things: TM lawsuit over -hunter suffix continues

Kenyon v. Clare, No. 16-cv-00191, 2016 WL 6995661 (M.D. Tenn. Nov. 29, 2016)

Sherrilyn Kenyon sued Cassandra Clare alleging trademark/copyright violations arising from Clare’s books, the “Shadowhunter Series”; this opinion addresses only trademark claims, where a motion to dismiss proves fruitless (though state law unfair competition was dismissed as time-barred under a one-year statute of limitations).

Kenyon published the “Dark-Hunter Series,” a series of books, short stories, and other original material and alleged that she owned the trademark rights to certain marks, such as “Dark-Hunter,” “Dream-Hunter,” and “Were-Hunter.” Kenyon used “dark-hunter.com” to promote her series and provide additional content regarding the Dark-Hunter world. Kenyon also produced several television commercials and videos, as well as a variety of Dark-Hunter merchandise, such as a line of collectible dolls, clothing, coloring books, jewelry, and novelty items.

In 2006, Clare began marketing a work that allegedly incorporated one of Kenyon’s Dark-Hunter trademarks as the name of one of Clare’s protagonists. At Kenyon’s demand, Clare replaced the term with “Shadowhunters.” Clare and her publishers allegedly assured Kenyon that “Shadowhunters” would be used solely for the name of Clare’s protagonists and that they would not expand the use of the “Shadowhunters” term or adopt it as a trademark.

A few years later, Clare’s publisher printed approximately 100,000 copies of a Shadowhunters book, mistakenly referring to the story’s protagonists as “Darkhunters” instead of “Shadowhunters” on the back cover. Kenyon demanded a correction and a recall.  Clare’s publisher destroyed some of the mislabeled books, but refused to recall the books already in stores or sold. These books allegedly led to confusion in the marketplace, where some purchasers thought that Clare was one of Kenyon’s pennames.

Recently, Clare began using the website domain name “shadowhunters.com” to promote her novels, which the website describes as “Cassandra Clare’s Shadowhunters.” A related movie, “Mortal Instruments: City of Bones,” was released in 2013 and was primarily promoted and discussed through the use of the term “Shadowhunters.” Clare also wrote a television series, titled “Shadowhunters: The Mortal Instruments,” which was released in 2015 and promoted on “shadowhunterstv.com.” Also in 2015, Clare released redesigned book covers that printed the words “A Shadowhunters Novel” along the right side or bottom of the covers.

Kenyon alleged that the books were similar, which enhanced confusion.  They were allegedly “promoted, discussed, and celebrated in similar online forums and at similar conventions”; shared similar themes, origin stories, and target audiences; used “shadow” (Kenyon’s “creed and tagline” said: “We are Darkness. We are Shadow. We are Rulers of the Night. We are the Dark-Hunters.”); and had similar visual representations.

The court refused to find laches on the trademark claims on the pleadings, even though Kenyon learned about the alleged infringement in 2006.  Without evidence about the reasonableness of the delay or evidence of prejudice, a ruling on laches was inappropriate.

Clare also argued that, as a matter of law, there could be no confusion between the marks because the proper author’s name is on the cover of her books, and that Kenyon couldn’t hold a “trademark monopoly” on the word “hunter” in the supernatural creative works context. Having the author’s names on the books wasn’t dispositive, because likely confusion extends beyond point of sale confusion.  Plus, Kenyon’s claims went beyond just the books to TV shows, movie, and merchandise.  And there wasn’t sufficient evidence to resolve whether Kenyon was wrongfully seeking a “trademark monopoly” for any –hunter suffixed word in the field of supernatural creative works; she did allege secondary meaning and confusion.


There’s a lot of room here for thinking about First Amendment constraints on trademark claims brought against expressive works.  Rogers, by its terms, doesn’t apply to title v. title contests, but this isn’t exactly a title v. title contest, more franchise v. franchise, and also the Second Circuit’s later Cliffs Notes decision points out that First Amendment principles should also affect analysis of title v. title claims, given that authors have expressive interests in naming and that interest doesn’t disappear when another author is the plaintiff.

Ugly facts doom "Life is Beautiful" infringement claim: fraud on the PTO bars claim

Amusement Art, LLC v. Life Is Beautiful, LLC, 2016 WL 6998566, No. 14-cv-08290 (C.D. Cal. Nov. 29, 2016)

Defendant LIB hosts the Life is Beautiful festival in Las Vegas. In developing the festival’s style, founder Rehan Choudhry collected digital images from Google searches related to his concept, which included artwork created by Thierry Guetta, aka Mr. Brainwash, including the phrase “LIFE IS BEAUTIFUL.”  Choudhry hired a graphic designer to develop the festival’s logo; the result was a heart made of splattered paint. The first festival was held in the fall of 2013, and repeated annually, featuring music, food and alcohol tastings, public speakers, and art exhibitions and installations.

festival logo

Example of Mr. Brainwash art using Life is Beautiful

Amusement Art licenses IP produced by artist Thierry Guetta. Guetta’s his first solo art exhibition in 2008, entitled “Life is Beautiful,” followed by six other exhibitions using that name through 2012.  In some of his artwork, Guetta incorporates phrases such as “Life is Beautiful.” In mid–2013, a common acquaintance introduced LIB to Guetta’s business associates and encouraged the two parties to consider possible collaboration.  But an in-person meeting a year later went badly.  After further discussions, Amusement Art sued for trademark and copyright infringement of “Life is Beautiful” and Guetta’s “splashed paint heart designs.”

Between 2011 and 2012, Amusement Art filed eight ITUs for “Life is Beautiful” covering paints, electronics and accessories, jewelry, paper goods and printed matter, rubber goods, leather goods, housewares and glassware, and textiles. AA executives filed Statements of Use, under penalty of perjury, asserting that AA had actually used the phrase “Life is Beautiful” as a trademark to sell approximately 257 categories of goods within the application classes. AA also submitted pictures of various goods with “Life is Beautiful” sales tags attached to them. In September of 2014, one month before suing, AA also filed an application for Life is Beautiful” for festival and community events.

When LIB determined that AA didn’t actually sell many of the goods on which it obtained registrations, it told AA that it was going to seek cancellation on the basis of fraud on the PTO. AA surrendered eight of the registrations, but retained its 2014 registration in connection with festivals and art events.

LIB argued that all of plaintiffs’ “Life is Beautiful”-based trademark claims were barred by unclean hands.   This requires clear and convincing evidence “[1] that the plaintiff’s conduct is inequitable and [2] that the conduct relates to the subject matter of [Plaintiff’s] claims.”  The inequitable conduct here was fraud on the PTO in claiming use.  AA argued that there was no evidence that its statements were made knowingly or with intend to defraud the PTO.

Fraud on the PTO in acquiring a patent can give rise to an unclean hands defense.  Similar logic bars recovery in trademark.  Cancelling a registration for fraud requires: “(1) a false representation regarding a material fact; (2) the registrant’s knowledge or belief that the representation is false; (3) the registrant’s intent to induce reliance upon the misrepresentation; (4) actual, reasonable reliance on the misrepresentation; and (5) damages proximately caused by that reliance.” The parties didn’t dispute that the statements of use submitted by AA were material false statements nor that the PTO reasonably relied on those misrepresentations.

As for knowledge and intent elements, “no rational jury could credit Plaintiffs’ claim that the false statements were innocent mistakes in light of the extent of the deception.”  AA filed eight separate registrations representing use on hundreds of categories of goods.  There was no evidence that AA mistakenly believed it actually sold most of the claimed goods.  Instead, AA argued that the executives who filed the applications were not native English speakers and that they filed the applications without the assistance of an attorney. “This explanation is implausible given that Plaintiffs have lived in the United States and spoken English for over 30 years and have also affirmed that they have filed trademark applications across the world.”  But the bigger problem was that AA didn’t explain the several “deceptive” photos submitted with the applications showing goods staged with “Life is Beautiful” tags though these goods were never actually sold.
 
specimen for sculpture

specimen for banners

specimen for handbags

first specimen for tape

second specimen for tape

Further, no reasonable jury could find that reliance on these false representations didn’t cause damage:

By falsely securing the registration of marks that they never used and then later suing LIB on the basis of those marks, there is no question that Plaintiffs have harmed LIB. But the more pervasive harm in this case is the cost imposed on a public that relies on the integrity of the [trademark] system…. Instead of furthering the Lanham Act’s goal of fostering competition in the marketplace, Plaintiffs attempted to secure a monopoly over most plausible uses of the phrase “Life is Beautiful” without actually investing any resources into developing the goodwill of their brand. Plaintiffs falsely claimed ownership over the mark in eight classes of goods covering nearly 250 specific items. In doing so, Plaintiffs may have chilled potential competitors from entering the marketplace and developing their own brand identifications across an array of goods. To put into perspective the extent of the fraud, Plaintiffs registered the mark in nearly one–fifth of all possible classifications, asserting use in goods as varied as food coloring, watch boxes, beach umbrellas, cleaning sponges, talking children’s books, and crime scene tape. In fact, after eliminating trademark classifications that would plainly be inapplicable to the phrase at issue or Plaintiffs’ business, the court could identify only four or five additional classifications in which Plaintiffs could have even conceivably registered this mark. While it is difficult to measure after the fact the precise magnitude of the harm of Plaintiffs’ actions, the court concludes that there is no triable issue whether Plaintiffs’ acted inequitably.

[Note that the specimen of use for sculpture at least raises issues of use as a mark v. ornamental use that really should have gotten more attention, while the specimen for “banners” doesn’t show the claimed mark at all!  The PTO is supposed to look at the specimen to make sure it shows use as a mark/to see issues that couldn’t have been resolved without a specimen … like whether the specimen shows the mark at all.  The specimen first shown for tape was initially refused, correctly, for mere ornamentality, and then AA submitted a revised specimen, so the examiner there got it right.]

Unclean hands also requires that the inequitable conduct “relates to the subject matter of [Plaintiff’s] claims.” AA argued that this requirement would only apply if “the plaintiff has engaged in precisely the same type of conduct about which it complains,” to wit, infringement.  Nope, fraud on the PTO in procuring the right asserted counts; “the relevant inquiry is ‘not [whether] the plaintiff’s hands are dirty, but [whether] he dirtied them in acquiring the right he now asserts, or [whether] the manner of dirtying renders inequitable the assertion of such rights against the defendants.’ ” AA dirtied its hands in acquiring at least eight of the registrations asserted against LIB.

There was a closer question as to the registration of the phrase “Life is Beautiful” in connection with exhibitions and festivals, which Plaintiffs filed shortly before filing suit.  This registration was the subject of cancellation proceedings before the PTO, but AA hadn’t surrendered it, and there was evidence of actual use with at least some claimed categories of goods/services.  Still, the fraud barred all of AA’s infringement claims.  The earlier filings potentially deterred competitors in hundreds of categories.  After that, AA became aware of LIB’s use in a category AA had yet to claim; it filed another application in that category; then it sued.  Under the circumstances, unclean hands applied.

Unclean hands also requires balancing the equities of the plaintiff’s and defendant’s wrongdoing.  Here, that weighed in LIB’s favor.  AA attempted to profit off its fraud “both by deterring competitors and by subjecting Life is Beautiful to the present litigation,” undermining “the sanctity of a trademark registration system that relies on parties truthfully representing which marks are bona fide source identifiers and which are not.”  AA’s weak trademark infringement claim didn’t offset that claim.

Indeed, the determination that AA didn’t actually use “Life is Beautiful” as a mark “would be fatal to any claim for trademark infringement of the ‘Life is Beautiful’ mark, and provides an alternative ground for resolving that issue.”  LIB argued that AA’s use was merely ornamental, just one of several positive phrases Guetta used in his artwork under the mark “Mr. Brainwash.”  LIB contended that use of the phrase as the title of an art show or as a mark on the back of canvasses didn’t qualify the phrase as a mark.

AA responded by asserting that its registration “constitutes prima facie evidence of the validity of the registered mark and of [Plaintiffs’] exclusive right to use the mark on the good and services specified in the registration.” But where one party has presented evidence rebutting a claim to a trademark, the registration is “merely evidence ‘of registration,’ nothing more.”  Given LIB’s evidence that AA’s mark was not actually a source identifier and that the majority of the marks at issue were fraudulently obtained, the presumption of validity alone was not sufficient to avoid summary judgment.

Although AA surrendered eight registrations, LIB still wanted summary judgment on its counterclaim for cancellation, to avoid any attempt by AA to file new statements of use and reassert the same infringement claims.  Before the TTAB, an attempt to surrender rather than face judgment would require the written consent of every adverse party to the proceeding, in order to prevent the creation of mootness and evasion of a judgment to which the adverse party was entitled.  That logic also applied here. 

“Without an entry of judgment, there is nothing to stop Plaintiffs from refiling their marks after the conclusion of this litigation, and once again fraudulently deter potential competitors from entering the marketplace or subject Defendants to renewed trademark infringement actions.”  True, “an ‘actual controversy’ must exist not only ‘at the time the complaint is filed,’ but through ‘all stages’ of the litigation.” Already, LLC v. Nike, Inc., 133 S. Ct. 721, 726 (2013). But “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued, and thus “a defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.”  If AA had no intention of fraudulent refiling, judgment would cause little harm, while giving LIB “substantial assurance” that it could build its business. Thus, the court granted the cancellation counterclaims.

The court also granted summary judgment on AA’s trademark infringement and copyright infringement causes of action based on an image of a “splashed painted heart.” For the first two years of the Life is Beautiful festival, LIB used a painted heart design as the logo; that image can still be seen in connection with the festival on social media.
 
Guetta heart
First, LIB argued that AA didn’t use the heart design as a mark, but rather as an ornamental element in works and on merchandise. The court found that corporate representative Deborah Guetta’s testimony constituted an acknowledgement that the heart design didn’t function as a mark; she said the image was a “copyright image” and not a “trademark image.”  Even crediting AA’s explanation that she was referring to registration, there still was no factual issue here.  The heart design would require secondary meaning to be protected as a mark, and the limited use here—also described by the court as “sporadic use of the mark in Guetta’s artwork”—was insufficient, despite a statement by one of LIB’s employees that the image was a logo.

Copyright infringement: LIB argued that they hired a designer who independently created the design. Even assuming the designer had access to AA’s heart, there was no substantial similarity. “Where the image at issue is ubiquitous, the copying must be exact.”  Plaintiffs argued that one AA employee couldn’t tell the difference (which really wasn’t the right interpretation of his statement), and that the fact that both parties used similar heart images along with the phrase “Life is Beautiful” supports a finding of substantial similarity.

No rational jury could find the two heart designs “virtually identical”:

Guetta’s heart is largely a monochromatic faded red while LIB uses at least two shades of two colors—red and purple—to depict their heart. Guetta’s heart is composed of a much more dramatic splash of plaint with splatters reaching across the canvas, compared to LIB’s more controlled drip pattern on the heart. Moreover, Guetta’s heart looks like a handmade image with no smooth portions in the heart outline, while LIB’s looks like it may have been computer–generated with extended smooth lines for several portions of the heart’s outline.


Finally, use in connection with “Life is Beautiful” didn’t support a finding of substantial similarity. The court didn’t like this “additive approach” to determining whether the images “actually in dispute” were themselves substantially similar. LIB also identified a logo from an uninvolved third party that also uses the phrase “Life is Beautiful” with a splattered heart design, “suggesting that such coincidences can occur without any further meaning.” 
unrelated design

Thursday, December 01, 2016

DMCA agent re-registration process removes one annoyance, adds another

Apparently one no longer has to provide a fax number to have a complete agent designation, which is good news.  (Welcome to the 21st century!)  But take a look at this password requirement:

Anyway, consider this your reminder: DMCA agent re-registration is now a thing.

Update: The CO assures me that this password requirement came from the Library of Congress, not from the CO itself.  That's useful information and I apologize for directing my ire so directly at the Office, though I have to say I'm still not thrilled about the requirement to re-up every three years, which is exactly the kind of formality that we got rid of elsewhere in copyright because it rewards the strategic exploitation of screw-ups.  Since we've already seen copyright trolling around sites without perfect DMCA compliance, this database seems like an invitation for trouble.

So, kudos again for removing the fax requirement!  But the Office never explained why renewal was so important for DMCA agents.  The concern for updated information could be satisfied by, say, an email every three years suggesting that people check to make sure the information is accurate, and if it was no action need be taken.  That's how my domain name maintenance notices work.  I'm pretty sure that every site with an agent designation would be willing to pay $60 at the outset instead of $6 for more certainty that screwing up a calendar, or having an outdated credit card on file, wouldn't itself destroy DMCA protection.

Wednesday, November 30, 2016

New edition, Goldman & Tushnet, Advertising and Marketing Law

Eric Goldman has posted all about it, including an overview and links for where you can get your own fresh copy.  Eric did the heavy lifting on getting this out, and I really appreciate it.  I also am personally satisfied with the revised disclosure materials, which incorporate recent FTC activity and the DC Circuit's AMI decision applying Zauderer to all mandatory factual disclosures.

Tuesday, November 29, 2016

Reading List: Legal Amateurism

Legal Amateurism, Annelise Riles

 Abstract:
 Academics in the humanities and social sciences have often remarked upon the “amateuristic” quality of the analytical tools used by legal scholars. Rather than dismiss this quality out of hand, this paper approaches “legal amateurism” as a practice of knowledge production that can be studied ethnographically. The type of academic work produced by legal scholars expresses a unique relationship between scholarship and practice that bears the imprint of both the Formalist and Realist legal traditions. A certain degree of amateuristic scholarship, especially if it pertains to topics outside of one’s immediate area of expertise, provides legal professionals with a space for thought, reflection, and play – elements that are experienced as sorely lacking in today’s fast-paced, highly technological world. While amateur, non-monetized work can be a way to accrue symbolic capital or demonstrate a certain level of privilege, it also offers legal professionals the opportunity to refresh and renew their commitment to their own work and the legal profession more generally. Drawing on examples from the eccentric scholarship of John Henry Wigmore, as well as the drafting of technical documents in a Japanese bank, this paper argues that a certain aesthetic of amateurism lies at the heart of what it means to be a legal professional today.

ABA Blawg 100/Hall of Fame

I’ve made the ABA Blawg Hall of Fame, as well as the Blawg 100, which is very nice.  I believe it’s in part a reward for persistence, as I’ve been at this since 2003 (though I only got serious in 2005), making the blog older than my children.  A number of other interesting IP blogs made the list, including Hall-of-Famer Eric Goldman; check it out!

Monday, November 28, 2016

TM question of the day, high heel edition

We know that Louboutin's red sole mark is only valid as applied to shoes with contrasting uppers.  So, do these shoes infringe?  (In case it's hard to tell, I'd describe the sole color as a fairly bright pink.)  Do they dilute?
pink, white, silver
If they can dilute, could a different but also unusual-for-soles color dilute?  Wouldn't any unusual and contrasting color make consumers think of Louboutin?
white with--dare I say--Tiffany blue contrasting sole

Breakfast break: energy claims not misleading by US standards

Spector v. Mondelēz International, Inc., 178 F.Supp.3d 657 (N.D. Ill. 2016)

Mondelēz makes belVita Breakfast Biscuits and Breakfast Bites. Spector allegedly bought packages of Breakfast Biscuits in reliance on the package representations of “NUTRITIOUS STEADY ENERGY ALL MORNING”:
 

The relevant graphic uses a clockwise arrow representing a four-hour period of time between 8 a.m. and noon:


The Breakfast Bites icon is similar, but contains the phrase “4 hours”:


The back of the Breakfast Bites box states that a single serving is “[a] nutritious start to a busy morning,” which is “a nutritious, convenient, on the go breakfast choice that contains slow-release carbs from wholesome grains to help fuel your body for 4 hours”:


Spector alleged that this was misleading, in that it portrays the products as “perfect for an ‘on-the-go’ lifestyle due to their being ‘portable.’ ” However, th products actually provide four hours of nutritious steady energy only if they are combined with a serving of low-fat milk. The disclosures on the Australian website for belVita allegedly showed that “Defendant fails to state in its United States advertising that the purported studies on which Defendant claims to rely require that the Products be consumed with at least a serving of low-fat milk in order to obtain the benefits Defendant touts.”

The back of the Breakfast Biscuits box, which repeats the claim of four hours of “nutritious steady energy all morning” while suggesting that Breakfast Biscuits be “enjoy[ed]...as part of a balanced breakfast with a serving of low-fat dairy and fruit,” allegedly conveyed that milk was optional.

Pleading a violation of the Illinois Consumer Fraud Act requires a plaintiff to satisfy Rule 9(b).  The fundamental defect here was that Spector pled no facts, such as personal experience or third-party studies, showing that the products don’t provide “nutritious steady energy” as promised.  Spector’s allegation of falsity was merely conclusory. 

Spector argued that the studies cited by Mondelēz on its Australian website were sufficient to form the basis of a plausible claim that the “nutritious steady energy” claim was actually false because the Australian website supposedly said that a glass of milk was required.  Under Illinois law, “[l]ack of substantiation is deceptive only when the claim at issue implies there is substantiation for that claim, i.e., if defendants had claimed something along the lines of ‘tests show that [the product in question] is [ ] effective ....” Here, though, the products’ packaging didn’t imply there was substantiation for the “nutritious steady energy” claim.  [I disagree—in the modern world, a health or nutrition claim is a scientific claim, especially when quantified for “four hours,” and necessarily implies some degree of scientific substantiation.]

Further, while the Australian website did imply the existence of substantiation for the “nutritious steady energy” claim, Spector didn’t allege she ever saw the substantiation claim on that website and thus she couldn’t have relied on it.  But she was using the Australian substantiation as evidence that the US package was false, not as something she relied on.  Mondelēz argued that, because Spector herself made the studies part of the complaint, the court could examine them, but the court found merit to Spector’s point that she was citing the description of the studies, not the studies themselves.  So the court proceeded without evaluating the study data.

The Australian website allegedly claimed that “belVita Breakfast biscuits† provide carbohydrates that are continuously and gradually absorbed and released throughout the morning,” with the † leading to the statement, “belVita Breakfast plus a glass of low-fat milk,” below this chart:



Although these disclaimers were repeated multiple times, the court found it clear that they didn’t say that “one must consume the Products with low-fat milk in order to achieve four hours of energy.” “The actual statements do no more than refer to the fact that milk was consumed with the Products in the cited studies.” Plaintiff confused correlation with causation. This was not enough to rise to the level of plausibility under Twiqbal, especially since her claims sounded in fraud.  “In the context of this case, the Court concludes that Plaintiff must do more than allege ‘the neutral facts necessary to identify the transaction.’”  This was necessary to protect Mondelēz from the stigma of fraud.  Further Illinois courts are “always watchful that the Act not be used to transform nondeceptive and nonfraudulent omissions into actionable affirmations.” An omission is actionable only “where it is employed as a device to mislead.”

Also, Spector lacked a relevant injury under ICFA.  Although she alleged a financial injury—she wouldn’t have bought the products or paid as much for them had she known the truth—that wasn’t enough under ICFA.  Illinois cases established that a plaintiff who alleges deceptive advertising about the effectiveness of a product has not suffered an injury if she “believed the [product] [was] effective and never complained to anyone that [it] did not work.” Spector never alleged that she didn’t get four hours of steady energy.

The same defects doomed her claims for breach of express warranty and unjust enrichment.


Fourth Circuit rejects attempt to control references to expert services with IP

File under "we need a federal anti-SLAPP law."

Devil’s Advocate, LLC v. Zurich Am. Ins. Co., No. 15-1048, 2016 WL 6871905, --- Fed.Appx. ---- (4th Cir. Nov. 22, 2016)

John W. Toothman is a lawyer and the founder of Devil’s Advocate, a consulting firm that provides expert testimony about the reasonableness of legal fees. In 2008, Zurich became embroiled in a coverage dispute in Texas state court.  In 2010, a lawyer representing, contacted Toothman about serving as an expert witness in the case. Toothman responded by email, indicating his availability and attaching a copy of a blank form billing agreement, his resume, and additional information about Devil’s Advocate’s services. The Billing Agreement left blank spaces for fee terms; nobody at Zurich signed it.  After a further request, plaintiffs proposed a fee of “2.1% of the gross amount of the fees we would review and report upon,” and stated that the proposal was “preliminary, prior to our engagement and full review of available information.” 

Zurich didn’t accept the proposal but told Toothman that, because the deadline for designating experts had passed, Zurich needed leave of court to designate him as an expert witness, which was a condition precedent to Zurich’s acceptance of the proposal. In several emails, Toothman indicated that he knew he had not yet been retained.  Toothman ultimately sent an estimate of nearly $70,000 and an invoice for half that amount; Zurich denied ever agreeing to its terms.

Toothman then took the position that “[payment of the full fee was triggered when Zurich designated me as its expert on December 3, 2010.” Zurich withdrew its request for leave to designate him as an expert witness in the Texas litigation. Plaintiffs responded by suing Zurich, alleging claims of breach of contract, unjust enrichment, conversion, unauthorized use of name, trademark infringement, and copyright infringement.  None of these worked, in the district court or on appeal.

Unjust enrichment: no sufficient allegation of actual benefits conferred on Zurich.  Plaintiffs knew that Zurich was submitting their materials to the court, and that getting court approval was a condition precedent to getting plaintiffs hired.  The assertion that the mere use of their names would promote a better settlement was “wholly speculative” and anyway not realized by Zurich because it withdrew its motion to designate Toothman as an expert before settling the Texas litigation.

Unauthorized use of Devil’s Advocate’s corporate name and Toothman’s personal name. Virginia Code § 8.01-40(A), in pertinent part, says:

Any person whose name, portrait, or picture is used without having first obtained the written consent of such person, or if dead, of the surviving consort and if none, of the next of kin, or if a minor, the written consent of his or her parent or guardian, for advertising purposes or for the purposes of trade, such persons may maintain a suit in equity against the person, firm, or corporation so using such person’s name, portrait, or picture to prevent and restrain the use thereof; and may also sue and recover damages for any injuries sustained by reason of such use. ...

But a corporate entity is not a “person” for purposes of the Virginia statute. And Toothman’s name wasn’t used for advertising purposes, defined as “a publication which, taken in its entirety, was distributed for use in, or as part of, an advertisement or solicitation for patronage of a particular product or service.”   Use in a court filing or email to opposing counsel isn’t advertising or use in the course of business; we are unable to discern what additional legal services Zurich could have intended to solicit.”

Trademark infringement: time-barred under Virginia’s two-year statute of limitations for fraud.

Copyright infringement: first, plaintiffs’ proposal lacked substantial similarity to the designation Zurich filed in Texas, an inquiry that could be made at the motion to dismiss stage.  The proposal discussed “Appellants’ conflicts, Toothman’s familiarity with the parties involved, his academic and professional experience, an overview of the billing structure, and some observations on the Texas litigation.” In terms of extrinsic similarity, the expert designation “generally summarizes the subject matter on which Zurich’s two experts would testify without specifying the material about which either intended to opine.” There was “little if any similarity,” and likewise it was “implausible that any intended audience could view these two documents as intrinsically similar.”

Zurich also didn’t infringe the copyright to Toothman’s resume; its use was fair under Bond v. Blum, 317 F.3d 385 (4th Cir. 2003).  The material was factual; Zurich’s use “was not for profit or in a traditionally commercial sense”; the amount taken didn’t interfere with any legitimate purpose copyright exists to serve; and there was no interference with a market because there was no market for Toothman’s resume as such.

Breach of contract: there was no meeting of the minds.

Conversion of name and reputation: a plaintiff can’t show the necessary element that the defendant wrongfully exercised dominion or control over property, thereby depriving plaintiff of its possession, where he consented to the use of the property.  The facts indicated Toothman’s implied consent: “Toothman knew that, in order to obtain permission to designate him as an expert, Zurich needed to disclose his name to the court and opposing counsel, and he permitted such disclosure.”