Thursday, June 22, 2017

Copyright Office issues 1201 report

Available here.  It's a lot to go through, but on first inspection they seem to be trying to address persistent problems, though in the main not by accepting the advice that participants had for them (like scheduling 1201 exemption proposals in a way that makes sense for law school clinics, and performing administrative factfinding rather than treating this as an adversarial procedure where the Office's role is to adjudicate).  One immediate thought: even if the goal of making it possible to participate in the rulemaking without counsel were achieved, that won't help if the exemptions continue to get ever more complex, so that you need counsel to use them.

Wednesday, June 21, 2017

Slightly cooler take on Tam

I will have some more thoughts in Tam in a forthcoming amicus brief arguing that dilution is unconstitutional.  I think this was about the least harmful affirmance the Court could have written, though for precisely that reason it leaves a lot up for grabs.  Right now, I will just say a few things: (1) It is now even harder to distinguish between content- and viewpoint-based regulation.  I thought that disparagement should be deemed content-based but not viewpoint-based because it was impossible to identify a disadvantaged “side”—whereas even in Rosenberger, one could identify a set of religious perspectives that were excluded from university funding.  I don’t think there’s a distinctive subset of disparaging perspectives in the same way.  (Justice Kennedy’s rejoinder, that this logic would allow bars on criticizing any government official, is particularly silly: because not everyone is a member of the category “government officials,” that’s not a level playing field at all.  Everyone is a member of the category “persons,” Eric Trump notwithstanding.  Marty Lederman talked a bit about this issue at Balkinization.)  But how this plays out in non-tarnishment/disparagement situations remains to be seen.

(2) The opinion for four Justices rejecting the “government program” argument is hard for me to understand. It’s true to say that most of the decisions on which the government relied almost all involved cash or their equivalent, but the opinion does a poor job of explaining why that matters.  The main argument is: well, fire and police protection are services too, and you couldn’t deny them to users of disparaging marks.  The answer to which—completely unaddressed in the opinion—is “that’s what unconstitutional conditions doctrine is for.”  Denying trademark registration because a trademark is disparaging is a far cry from denying police protection to the user of the mark.  Also, the opinion distinguishes two non-money subsidy cases involving unions by saying they were very different.  That’s nice … why?  The opinion’s language suggests a kind of speech/conduct distinction (“lawmakers chose to confer a substantial non-cash benefit for the purpose of furthering activities that they particularly desired to promote but not to provide a similar benefit for the purpose of furthering other activities”), but not a very persuasive one, unless—again—we do an unconstitutional conditions analysis.

(3) I’m glad the Court didn’t say anything about the relationship between unregistrable marks and §43(a) protection, and highlighted that it was not doing so. While I believe that the issue deserves resolution one way or another, this was a poor vehicle for the question because so much else was going on.  (But here’s a question: after this decision, can the common law engage in the viewpoint discrimination entailed in denying registration to immoral/disparaging marks by denying common law protection to such marks, as a number of states at least arguably do?)

Monday, June 19, 2017

Court approves conjoint analysis to determine damages in consumer class action

Morales v. Kraft Foods Group, Inc., 2017 WL 2598556, No. CV14-04387 (C.D. Cal. Jun. 9, 2017)

Plaintiffs alleged that they were misled by Kraft’s use of the term “natural cheese” on its “Natural Cheese Fat Free Shredded Fat Free Cheddar Cheese,” bringing the usual statutory California claims. The court previously certified a California class.  Here the court partially decertifies the class but rejects Kraft’s challenge to plaintiffs’ expert, who performed a conjoint analysis to try to determine the incremental value to consumers of “natural.”

Dr. Anand V. Bodapati has been a Professor of Marketing at the UCLA Anderson School of Management since 2000, teaching “Marketing, Consumer Psychology, Consumer Behavior, and Statistical Methods for making inferences from data on how consumers respond to product offerings, pricing, advertising, and other marketing activity in the marketplace.”  He surveyed California buyers of Kraft shredded cheese, presenting them choices between images of (a) the marketplace offerings of some leading manufacturers, (b) Kraft’s shredded fat free cheddar cheese product as it was offered in the marketplace with the “natural cheese” label, and/or (c) a digitally altered image identical to the Kraft image except without the “natural cheese” label. Each respondent chose between options 14 times, with price differences between the products ranging from $0.80 to $4.50, randomly assigned.  The survey results showed that 26% of consumers would pay more than $1 extra for a product with the “natural cheese” label, and 12% would pay more than $2 extra for such a product. Bodapati concluded that, on average, customers would be willing to pay $0.747 more for a product with that label.

Kraft marshalled several experts in response.  Key challenges: (1) Was the proper group surveyed?  Kraft argued that its fat free cheese product was a niche product, so surveying all shredded cheese buyers was inappropriate.  The court found that this didn’t justify exclusion.  Bodapati explained why he chose Kraft shredded cheese buyers—he didn’t have any reason to believe that the value of “natural” would differ as between fat free and non-fat free buyers, and he didn’t want to make the study more arduous.  Also, some of the evidence Kraft cited indicated that consumers varied—its category review indicated that fat content was only the third most important factor cited by consumers, while the use they intended and the form of the cheese were more important; the review also said that “[c]onsumers buy more than one health segment for different uses, household members and taste preferences.” Thus, the markets didn’t seem that distinct.

Kraft then argued that the survey was irrelevant because it didn’t calculate damages.  The survey calculated the value to consumers, which was relevant to damages.  Kraft contended that a price premium theory was the only allowable model for false advertising damage, and conjoint analysis couldn’t be used. The court disagreed. Dourts frequently admit evidence based on a conjoint analysis.

Additional challenges to survey methodology could be addressed on cross.  Though the experts disagreed about whether conjoint analysis could be used to compare products with only one nonprice attribute, Bodapati testified that “having one attribute only is good for the conjoint analysis in the sense that it reduces cognitive overloading and thereby increases the fidelity of the decision making.”  As for whether the survey telegraphed its purpose to respondents, Bodapati explained that respondents’ attempts to pick the “right” answer weren’t worrisome to him because, in conjoint analysis, there is no “right” answer. He also testified that he elected not to show the back of the packaging out of a concern for verisimilitude—how consumers actually understand the products.  And he didn’t provide a none of the above option because, he said, conjoint analysis works without that.  These and other criticisms went to weight, not admissibility.

Decertification: willingness to pay can measure restitution damages, but under California law restitution  is confined to restoration of any interest in “money or property, real or personal, which may have been acquired by means of such unfair competition.” But the conjoint analysis provided only evidence of loss to the plaintiffs, not of gain to Kraft. While injunctive relief was still possible, the court decertified the Rule 23(b)(3) class and sought additional briefing on whether the class would be re-certifiable under Rule 23(b)(2). This was possible because, under California law, deception and materiality need not be proved as to every member of the class. Bodapati’s report and testimony showed a triable issue as to materiality under the CLRA.

Will B&B preclusion become typical?

Buzz Seating, Inc. v. Encore Seating, Inc., No. 16-cv-1131 (S.D. Ohio Jun. 16, 2017)

This case suggests that B&B is quite a broad decision, despite some cautionary statements in the Court’s opinion—you can avoid B&B preclusion if you sell goods other than those in the refused registration, but otherwise, watch out. 

Buzz, a maker of office chairs under the mark FLITE, sued Encore, which also makes an executive chair under the mark FLITE for trademark infringement and related claims. They allegedly advertise in the same publications, attend the same trade shows, and hire the same dealers and  sales representatives.

Encore applied to register FLITE for “Office furniture, including chairs” in 2011; Buzz opposed and filed its own application in 2013.  The TTAB sustained Buzz’s opposition because the marks were identical and the goods and channels of trade were legally identical (describing Buzz’s use as “for stacking or side chairs”).  Instead of appealing, Encore abandoned its first application and filed for a concurrent use application, allowing use in 24 states and concurrent use by Buzz in Ohio.  Buzz sued, and Encore answered and counterclaimed seeking a declaration of noninfringement and an order directing the PTO to reject Buzz’s application.

B&B preclusion applied to likely confusion, given that Encore had already argued before the TTAB that “there is no likelihood of confusion because Buzz Beating’s FLITE stacking chairs are vastly different from Encore’s FLITE executive chairs, are not sold to the same customers, and do not compete in the marketplace.” Encore argued that the TTAB considered only whether the broad category of goods identified in its application were likely to cause confusion, but here it was arguing that the specific executive chairs actually sold under the FLITE mark are not likely to cause confusion when compared to Buzz’s side chairs. But B&B says that preclusion will apply “[i]f a mark owner uses its mark in ways that are materially the same as the usages included in its registration application.”  The description of the class of goods encompassed the specific goods, executive chairs, Encore was selling, and thus there were no material differences between the usage identified in the application and actual usage.  Comment: under this reasoning, it’s hard to see why B&B wouldn’t always demand preclusion in this posture. 

The court pointed out that the TTAB already rejected this nonconfusion argument; Encore to told the TTAB that its chairs were “premium executive chairs sold to corporate customers for use  behind a desk or in a conference room,” and that “a person purchasing a stacking chair such as [Buzz Seating’s] Flite chair would not buy an executive chair and vice-versa.”  Of course, a “crucial” fact in the TTAB’s rejection was that Encore didn’t limit its identification of goods to executive chairs, but the TTAB also held that the differences didn’t avoid a likelihood of confusion, because the question was not whether the chairs would be confused but rather whether there’d be source confusion, and the evidence showed that executive chairs and side chairs were closely related, and sold by the same dealers or distributors to the same customers.  Indeed, Buzz sold both executive chairs and side chairs, and used the same mark at least once.

Even if the court found the differences material under B&B, Encore’s claim would still be barred under claim preclusion, because the issue could have been raised before the PTO.  Encore offered to limit its identification of goods, but the TTAB found it had done so too late.  And this holding further expands B&B—if one can imagine limiting the registration in a way that avoids likely confusion, one should have done so already.  Thus, the noninfringement counterclaim was dismissed.

The court declined to rule on Encore’s counterclaim about priority of registration because it doubted it had jurisdiction over a registration issue for a registration that had yet to issue; the court sought more briefing.

The court also struck affirmative defenses that concerned the same issues, including Encore’s abandonment defense, but it did not strike the defense that Buzz hadn’t used Flite, or made more than de minimis use, in certain regions of the US and that therefore Encore was the senior user in those regions.  The TTAB held that Buzz could succeed in its opposition without proving priority of use on a state-by-state basis, as long as there was prior use in the US, and thus the TTAB didn’t resolve that priority question. 

Friday, June 16, 2017

TM question of the day, we all scream edition

I'm reasonably sure Joy ice cream cones aren't not owned by the owner of rights in Pepperidge Farm goldfish or Teddy Grahams, so how should we think about these suggestions on the back of the package?

Thursday, June 15, 2017

Failure to plead with particularity dooms supplement false advertising claim

Nutrition Distribution, LLC v. New Health Ventures, LLC, 2017 WL 2547307, No. 16-cv-02338 (S.D. Cal. Jun. 13, 2017)

Nutrition Distribution sued New Health for false advertising of supplement products containing various “Selective Androgen Receptor Modulators (“SARMS”)” such as “Ostarine.” After New Health moved to dismiss, Nutrition Distribution filed a proposed amended complaint for false advertising (and RICO violations, of which no more will be said), based on New Health’s sale of products containing Dimethazine (“DMZ”).  Applying Rule 9(b), the court denied leave to amend on grounds of futility and dismissed the complaint.

The court first found that the proposed complaint wasn’t futile as barred by the primary jurisdiction doctrine.  The basic claim was that New Health’s failure to disclose DMZ’s health effects was misleading.  This claim doesn’t depend on whether DMZ is “safe” or not.  Instead, it is about misleading consumers through lack of disclosure; determining misleadingness doesn’t require the FDA’s technical and policy expertise (as Pom Wonderful indicated).

Nutrition Distribution also sufficiently pled that DMZ was a controlled substance because it is derived from, and structurally similar to, Methastorone—a chemical already deemed to be an anabolic steroid under federal law.  However, New Health’s alleged failure to disclose that DMZ is banned by anti-doping organizations was legally insufficient because it wasn’t an actionable omission. Under the Lanham Act, omissions are only actionable if they render affirmative statements false or misleading, and Nutrition Distribution didn’t identify any such statements, only claims that New Health’s product was “hands down the strongest anabolic Pre-Workout on the market today!” and “an extremely potent, high-intensity, high-stimulant and highly anabolic pre-workout concoction.”

Likewise, pleading that New Health  “purposely made false and misleading descriptions of fact concerning the nature, characteristics and qualities of its DMZ products by ... failing to disclose their status as controlled substances and failing to disclose the overwhelming clinical evidence that such products pose extreme health risks” was insufficient to plead a misleading advertisement with particularity.  The same was true with the initial complaint.

Fair use is the fifth season in Jersey Boys case

Corbello v. DeVito, No. 08-cv-00867 (D. Nev. Jun. 14, 2017) 

One reason fair use jurisprudence can be frustrating is that it has become the place to store many conclusions that the defendant didn't copy enough of what was protectable in the accusing work to infringe.  Because the de minimis doctrine is itself so tiny (without good reason), and because courts are so reluctant to say that nothing protectable was copied, judges reconsider those issues in the multifactor fair use test, and unsurprisingly the fact of minimal copying of expression leads to favorable findings on the other factors.  I would still favor a more robust standard for finding copying so that we didn't have to waste so much time on the other factors, some of which (as the court here notes) may not be appropriate when the issue is minimal copying.

Corbello is the widow and heir of Rex Woodard, who assisted Tommy DeVito in writing his unpublished autobiography Tommy DeVito — Then and Now, telling the story of his career with the musical group The Four Seasons. Woodard and DeVito tried to find a publisher for the book, and provided an outline to actor Joe Pesci to explore adaptation to a screenplay. But nothing worked out, given waning interest in The Four Seasons.  DeVito falsely represented that he was the sole author, and used the work to develop the screenplay for Jersey Boys, a hit musical.  After lots of back and forth, a jury found defendants liable for infringement, found that there was no fair use, and found that 10% of the success of the play was attributable to infringement of the work.

During trial, the court stated it believed that defendants were entitled to a directed verdict on the fair use issue but did not want to risk a retrial in the case of reversal.  True to its word, the court here explains why, though fair use is often a jury question, the record here entitled defendants to judgment as a matter of law.

Market effect was the most important, so the court started there. Before the play debuted, the work had no market value, as various people had tried to get it published from 1990-2005, to no avail because of lack of public interest.  Any profit potential today is almost certainly because of the play, which itself was over half musical performance by running time, and the remainder of which used less than 1% of the work.

Factor one: Commercial use weighed against a finding of fair use.

Factor two: The biographical, factual nature of the work favored fair use. The unpublished status of the work would ordinarily disfavor fair use, but here the publication of (small parts of) the work did not diminish its value by preempting plaintiff’s right of first publication.  The reason the work hadn’t been published was that it was unpublishable, despite years of effort, creating an atypical situation in which there was no deliberate choice to withhold the work from the public. Thus, the biographical nature of the work predominated, favoring fair use.

Factor three: After discounting similarities due to unprotectable elements of the work, the jury was permitted to consider 12 similarities between the work and the play. The amount of protectable, creative material potentially copied in relation to the work as a whole was less than 1%.  The extent of the similarity was minimal, as two examples indicate: a discussion about the song title and subject matter “Walk Like a Man” had very similar dialogue, though with different characters and tone. “Assuming the jury believed the dialogue was not a historical recounting but a creation of DeVito and Woodard—a finding that is unlikely and perhaps not even permissible given the Work’s claim of historical accuracy—the closely copied dialogue consists of about 65 words.”  Similarly, the work said, “[T]he Beatles come to represent a whole social movement. We never aspire to be more than entertainers,” and the “social movement” line was “arguably protectable as original expression beyond bare historical fact.”  The play said,  “We weren’t a social movement like the Beatles. Our fans didn’t sit and put flowers in their hair and try to levitate the Pentagon.…”  And so on.

At most, the jury could have found about 145 creative words to have been copied, whether as dialogue or creative descriptions of events, or about 0.2% of the approximately 68,500 words in the work.  This factor strongly favored fair use, if the “heart” of the work wasn’t infringed.  Here, the “heart” of the work was unprotectable facts.  “Woodard’s writing style, which is the only aspect of the Work producing protectable elements, although necessary to production of the Work, was not the heart of the Work.”  A biographer’s writing style could maybe be the “heart” of a biographical work “in an extreme case, for example where the facts of the subject’s life were already known to the reader or mostly uninteresting but where a highly skilled writer celebrated for his wit and commentary had written the biography.”  (I just finished Patricia Lockwood’s Priestdaddy, which I think would qualify easily.)  But that wasn’t the case here. There was no evidence that there was any market for Woodard’s writing in and of itself; the attraction was the historical information he had to convey.

The court considered transformation separately, and found both a change of purpose and a change of character.  Purpose changed when the script, most of which wasn’t from the work, was incorporated into musical performances in order to entertain, whereas the purpose of the work was primarily to inform, to vindicate DeVito’s perspective, and to reveal hidden truths. Even if the purpose of the play were primarily to inform, the play would still have a different character because it incorporated DeVito’s “singular” perspective “into a more complete and balanced description of events based on competing perspectives of all four band members.”  In fact, the play was structured around this concept, with the four key characters each in turn narrating the play from their own perspectives during the Spring, Summer, Fall, and Winter portions of the play.  The Four Seasons, get it?  This additional creative expression was significantly transformative.

Thus, the first factor weighed against fair use “as in any typical case of commercial use,” the second factor weighed in favor of fair use, the third factor weighed “heavily” in favor of fair use, the fourth and most important factor weighed heavily in favor of fair use, and the transformative use “diminishes the significance of the sole factor weighing against fair use.”  To permit a finding of no fair use based solely on commerciality, when the other factors including transformativeness favored fair use, “would be to impermissibly treat the first factor as conclusive” and would hinder copyright’s purposes with respect to biographical works.

If this were overturned on appeal, the court would still grant a new trial on the issue of an implied nonexclusive license and on the damages award.  The jury’s verdict on the contribution of the copying of protected elements of the work to the play was against the clear weight of the evidence. The 12 similarities considered by the jury constituted approximately 0.4% of the playscript, which itself accounted for less than half of the play’s running time, the rest of which was music. Assuming that the music accounted for roughly half of the play’s success, a finding of 10% implied that the few words copied from the work accounted for roughly 20% of the success of the play attributable to the dialogue. Although the jury’s job is not to make a strict, mathematical calculation, the verdict must be supported by sufficient evidence, and it wasn’t.  There was instead substantial evidence that many additional elements contributed to the worldwide success and profits of the play, including the additional inventive material in the script; the stagecraft; the use of music; the employment of world-renowned writers, directors, and producers; and advertising and promotion efforts. 

Wednesday, June 14, 2017

Long review: of land (and other) registration

Benito Arruñada, Institutional Foundations of Impersonal Exchange: Theory and Policy of Contractual Registries: This books only significant weakness is the extremely dry and abstract way in which its written; theoretically it is extremely helpful in explaining the special functions of property registries.  At the core, a registry allows public knowledge of who owns what.  This enables third parties to understand who has the power to transfer property, encouraging the ability to contract with strangers.  When a registry or other similar publicity mechanism (the law of agency is his prime example, along with the corporate form) is in force, then it is possible to switch from the common-law rule of nemo dat to a rule that protects the interests of bona fide purchasers without notice (BFPs).  In other words, the true but unrecorded/unpublicized owner in a case of a transfer to a BFP by a perfidious agent, or by a perfidious land seller, is no longer protected by a property rule entitling her to the return of the wrongly transferred property, but instead by a contract rule entitling her to damages from the wrongdoer. 

If principals want a property rule, they must publicize their claims.  Contract rules that favor acquirers are then applied only when property owners consent, or are deemed to consent, to them by appointing agents or by not using the recording system.  The registry therefore serves as an enabler of modern, impersonal transactionsnot the nightwatchman-state, but the recorder/register state as a key foundation of a well-functioning free market where the system substitutes for trust based on personal knowledge.  Unless registration or recordation is required, one always has a choice about keeping information private, but subject to risks of losing property to good-faith purchasers without notice.  Reciprocally, these improved mechanisms for assessing risk enable the end of debtors prisons and the allowance of personal bankruptcy, as the harsh consequences of never releasing a person from individual liability become less important to incentivize performance when creditors know which assets they can attach.

The books historical comparisons provide some color.  When Arruñada discusses the use of symbolic marking to claim ownership, he mentions its use on valuable movables such as livestock, automobiles, and books, but also for spouses, with the wedding ring used to give notice of marital status.  Also, in ancient Athens, a slab (horos) could be posted on the land itself, to be removed only by releasing the encumbrance”—the horoi included a statement of the nature of the horos as security and often the creditors name and amount of the debt.  Arruñada identifies this as one of the first systems to enable use of land as collateral without transferring ownership or possession to the lender.  Later, I was fascinated by the initial reaction to public company registries (a prerequisite for limited liability) in France, when judges in Paris failed to understand the advantages of impersonal transactions and insisted that traders must know their trading partners.

Arruñada draws a number of provocative lessons from this basic framework, including that policies directed at formalizing land title may not be appropriate, or pro-development, in countries lacking other preconditions for impersonal transactions such as a functioning, neutral judiciary for enforcement of contracts.  Registries and recorders (distinguished because the former evaluates the quality of the claim, and the latter simply records all claims that meet its formal standards) are expensive, and not always worth the costs.  They may be necessary, but they arent sufficient for a modern economy.  Arruñada argues that public demand for registries is the best signal of their appropriateness (meaning that subsidizing them to spur development is probably a bad idea), and thus that recording should generally be voluntary, especially in the early stages.  Attempts to formalize titling have often foundered when people stop recording transactions after the initial, subsidized formalization, and Arruñada believes that owners arent underestimating the value of title but rather title suppliers are overestimating it.

To work, registries have to be independent of all the parties involved.  This means that the state is the appropriate manager, assuming it is not corrupt.  And registries must be public or at least open to potential third parties.  But Arruñada, in classic libertarian mode, tells us that registries have inherent limits because theyre run by public organizations (he advocates performance-based pay to combat this tendency, which seems odd given his acknowledgement of the role played by private short-termism in the 2008 crisis), and because they reduce transaction costs, thus threatening the livelihoods of lawyers, notaries, and other people involved in the conveyance process, who often succeed in fighting registries politically.  Among other things, Arruñada doesnt like professional monopolies, such as requirements to have lawyers or notaries involved in land transactions; he contends that sufficiently well-functioning registries can substitute for them, especially when backed up by the ingenuity of the private sector, which will offer services that help owners navigate the registries.  (Cf. Deborah Gerhardts work on the role of lawyers in trademark registration applications.)

Arruñada argues that one should not see local forms of property, ones that rely on personal transactions, as mere customary versions of impersonal property regimescustomary regimes cannot easily be adapted into impersonal regimes.  Even developed market economies, he argues, often have outdated law that treats personal exchanges as the rule and impersonal ones as the exception, to the detriment of impersonal exchanges.  As for less developed market economies, their local legal orders cant support transactions outside of the localitythe very thing that makes them legitimate as between locals makes them biased when a local and an outsider transact.  One example: in urban Ecuador, having a man in a household makes land harder to sell than when female-only households try to sell; he posits that this is because buyers fear that [male-present households] might be able to claim the land back.  At the same time, those households can rent more easily, because they rely on self-enforcement and men are (expected to be) more violent. 

Arruñada advocates that titling programs therefore should be targeted at communities with weak informal legal orders and young communities.  The big difference in who resists law supporting impersonal transactions, he says, is that in less developed economies its general social or economic classestribal chiefs, the nobility, land tenants, and current debtors”—while in more developed economies its the professionals who specialize in providing palliative services to facilitate impersonal exchangemainly lawyers and conveyancers who draw up formal documents.  These are presented as artisan solutions, whereas impersonal exchange requires industrial, mass-produced contracts, default contract rules, and registries.  Thus, colonial powers such as France and the United Kingdom in Africa, as well as the United States in the Phillipines, introduced land registration in their colonies while keeping more traditional systems of privacy and recordation in their homelands. Apparently, colonies had stronger bureaucracies and weaker professions.  But professionals arent the only ones to blame; so is simple legal inertia and path-dependency.

Solutions should be situational: markets need institutions that match their scope.  Another example: Cattlemen in the US West could enforce their rights locally, but needed government intervention to make branding effective because cattle were traded across long distances; they thus pressured government to create brand registries, to ban driving unbranded cattle from a range, and to regulate and inspect cattle sales.  Thus, a larger market requires larger authorities, which may constrain local jurisdictions through common rules (which also sounds like a description of the evolution of international trade).  For land, this often also means introducing a numerus clausus that nullifies or degrades some customary and communitarian property rights.

Without political authority, private parties may try to develop institutions to do nearly the same thing, such as networks involving collective responsibility (usually among ethnic groups, for example with small groups of borrowers in microcredit schemes) or private registries (as with the US mortgage market).  Collective responsibility, however, relies on personal ties that tend to weaken just as trade and development increase.  And partipants in the US mortgage market developed MERS, which purported to be a national registry but didnt impose sufficient controls to actually track things.

Arruñadas arguments about the 2008 crisis were the weakest part of the bookhe blamed it on the fact that the United States has poor institutions for publicly recording land transactions. They are plagued by the obsolete design of public recording offices, the poor incentives of the bureaucrats in charge of them, and the vested interests of conveyancers and title insurers. I would not have put those entities in the list of top ten causes.  The lack of a legal mandate to record a transaction in the name of the owner definitely was a problem, but I find it hard to blame the clerks for that.  Later, he says that the crisis was at least partly caused by bad incentives and poor performance by MERS and the mortgage industrys members, as well as their apparent oblivion of the judicial and political risks ever remaining on the enforcement of home foreclosures against apparently weak parties. [L]ocal courts took a narrow legalistic position against MERS in order to protect local intereststhose of borrowers. 

I can only read that last part as suggesting that contributors to the crisis were that (1) judges might actually enforce the law as written, and (2) politicians might object to massive foreclosures (although in fact they mostly intervened to foam the runway for the banks, with individual homes/homeowners playing the role of bubbles crushed to protect the bank-plane and its investor-passengers).  But neither (1) nor (2) helped start or worsen the crisis; financialization and the ultimate end of the rise of home prices did thatand by the way, the more foreclosures there are, the lower home prices go.  Speeding foreclosures would not have restored the banks to health because there would still be no one to sell the homes to at inflated prices.  Arruñada frames anti-MERS rulings as conflict between local and wider legal orders, respectively, supporting local and wider markets, without considering whether MERS actually supported wider markets or merely wider rent extraction.

Arruñada also notes that registration is hard to make complete.  Among other things, tax authorities resist having to record/risking destruction of their interests, people who benefit from complex systems like lawyers have an incentive to press for protection of unrecorded interests, and judges may feel the pull of equity (what Carol Rose calls the problem of crystals and mud). Arruñada also cautions that the government may want to use the register as a useful database for other things: enforcement of land use regulation substantially increased in Spain after a 1986 law ordered the land registry to check for building licenses as a requirement for registration.  But tax authorities have different incentivesthey want a complete register of ownership when it might not be efficient to do that.  Similarly, Arruñada is a bit worried about making registries completely public, as opposed to available only to people with a good reason to ask, because of the possibility of big data aggregation (hes not really clear on what harms he thinks might follow, but I guess we can all insert our own). 

Arruñada likes registries that are financed by user fees and that allow the administrators to keep any surplus (subject to personal liability for problems).  Fixed salaries lead to sluggishness, because Homo Economicus.  (Except that he does believe in deferring compensation by paying below market in early years on the jobthis would motivate people with a lower subjective discount rate to self-select for the job; such people are likely to be relatively averse to fraud; so Homo Economicus has varying exogenous preferences.)  But it doesnt often work that wayinstead public sector jobs pay relatively low salaries, and then with more experience workers may leave for the private sector, fully trained, leading to increased risks of agency capture.  To solve these problems, Arruñada advocates linking pay to performance and funding the registry through user fees that cant be raided by the larger government.

Arruñada also points out that effective registries need to identify individuals in order to make them legibleimpersonal trade requires being able to figure out how reliable the counterparty is, whether through public enforcement or using palliatives based mainly on private records of reputational assets.  (So, seeing like a state may be also inherently seeing like an impersonal economy.)  Still, enforcing contract rights through public means requires an independent, effective judiciary, which is often unavailable.  So, Arruñada reasons, identification of individuals may be most important in countries without such a judiciary, to allow private parties to keep records of reputations.  In fact, if its hard to foreclose on a family farm but easy to penalize a reputation in private records of a default, developing credit records for individuals might often be a more viable strategy than allowing them to use their assets as collateral, especially for the poor, because even when they have such assets, enforcing repossession after debtor default is often impossible for an outsider.  Titling systems may thus not be that helpful in increasing access to credit; banks remain more interested in salary and other income streams, which implies that better enforcement of contract rights might be more useful than better definition of real property rights. 

Likewise, developing or reforming contractual registries should occur before or along with developing courts.  Right now, for example, Indias land administration services are highly corrupt, making their records unreliable; judges naturally will not predictably rely on them.  This uncertainty, in itself and whatever the prevalence of corruption, considerably reduces the value of the registered information for transacting parties.  In fact, judges are a key target of registry reform: the register should be reliable enough for judges to have confidence in it, because the weight judges give the registry will ultimately determine its value to market participants.  Unfortunately, Arruñada says, current titling projects often focus only on registry filers and not on the understandings and interests of third parties like judges.

Arruñada ends on a rather sour note, pointing out that governments have struggled for almost a thousand years to make real property registries reliable, and though most countries have now been running property and company registries for more than a century, only a few have succeeded in making them fully functional, as shown by the fact that in most countries adding a mortgage guarantee to a loan does not significantly reduce its interest rate.

Though he doesnt talk about trademarks, Arruñada does make some claims about patent registration as analogous to a first registration for land.  Publicity provides for those whose rights are affected by the grant to challenge it.  Like land conveyancers, patent lawyers gain from bad granting decisions that increase demand for litigation.  However, patents are more uncertain in terms of legal enforcement because judges can invalidate them.  This makes sense to Arruñada because of the possibly incomplete nature of initial patent examination.  Unfortunately, the PTOs political masters seem to hold a mistaken assumption as to its main users, wrongly believing that the PTO must serve only patent applications and not the public.  Thus, (pre-AIA) the PTO had turned into a de facto recording system, not a true registry, even though the presumption of validity was still being afforded.  The resulting uncertainty generates litigation and provides a paradigm of registry mismanagement by showing how registration systems can be transformed into recordation through poor decisions.  Cheaper registration means more litigation later.  Arruñada advocated stronger incentives for examiners, giving more weight to variable compensation and introducing examiners liability for mistaken decisions, which he also thought would reduce the length of the examination period.  Query whether the fixes actually attempted by the AIA would meet his approval.

I havent tried to recast the books insights in terms of trademark registration, which (like patent granting) is supposed to be a type of true registration system, involving examination to avoid conflict with other rights.  Trademark registration is voluntary, and looks to remain so, indicating that there may be no evolution towards requiring recording/registration when there are good enough reasons to protect unrecorded interestsbut of course that makes the register less reliable.  There might be an interesting comparison between the Supplemental and Principal Register in terms of the ability to choose between land registration and land recording, as was possible in Cook County until 1997apparently rightsholders with more valuable land self-selected into the registration system.  Relatedly, Arruñada argues that legal palliatives often offer versions of one system inside the other: recordation systems often provide a simplified judicial procedure to clear title , a solution to underassurance of the most valuable land. Conversely, registration systems usually allow some kind of inexpensive filing with lesser, or provisional, legal effects. [Possessors are often allowed] to enter their claims in the register so that they are automatically upgraded to ownership if nobody has opposed them after a certain number of years. 

As between the two types, Arruñada concludes that at least in Europe registration, which is more reliabile at establishing priority of claims, outperforms recordation due to lower prices for mortgages, which result from faster and safer repossession.  There are regions in France and Italy that have registries, while the other regions have recording systems, and apparently both French and Italian authors consider registries superior but attempts to expand them have failed.  Registries, though they require substantive examination, also have lower legal transaction costs/needs for lawyers and conveyancers assistance than recording systemsthe cost of conveying real property is roughly halved.  (I really wonder whether this holds up with trademarks, where the boundaries are very hard to fix without legal interventionEurope is closer to a recording system, but are its legal transaction costs any lower?)  Consistent with his general leave-demand-to-the-market orientation, however, Arruñada says that doesnt mean that a system that spends less on registration and more on private due diligence is necessarily inefficient; it depends.

false advertising claim based on (c) ownership not preempted, court rules

Carter v. Pallante, 2017 WL 2506419, No. 16 C 6786 (N.D. Ill. Jun. 9, 2017)

Tollie Carter has sued Maria A. Pallante (now acting Register Karyn Temple Claggett) in her capacity as the Register of Copyrights, as well as ARC/Conrad Music and related companies. The present motion dealt with Carter’s allegations that the publisher defendants infringed his copyrights in certain songs by selling unauthorized licenses to third parties, who in turn publicly performed the songs.  Carter’s father and uncle were songwriters; Carter is the heir of their copyrights; they assigned rights in many songs to ARC, but Carter asserted rights in the renewal terms/terminated transfers.  Despite this, Carter alleged that the publisher defendants “represented to numerous third parties it could license—and did license to those third parties—the performance rights and other rights to [Carter’s songs],” and collected royalties for doing so.

Carter gets a very favorable set of results, predicated in part on the court’s misunderstanding of the difference between copyright rights and individual copies.  The court found that Carter had plausibly alleged direct infringement of the distribution right by alleging unauthorized licensing. But the distribution right is not the “distribution right” right, and licensing performance and other rights is not a distribution “by sale or other transfer of ownership, or by rental, lease, or lending.”  Nor did Rule 8 require Carter to specify who the third parties are, which songs were licensed, or when the licenses were sold.  This is what discovery is for.  The same analysis held for his claims of contributory and vicarious infringement (which I would have found correctly pleaded, unlike the direct infringement claims).  Any time-barred claims could be figured out on factual development.

DMCA §1202 CMI claim: Again, a favorable result.  First, the DMCA doesn’t require any relationship with digital distribution or internet commerce, just the provision of false copyright management information with the intent to facilitate infringement. And “Carter unmistakably alleges that false copyright information was conveyed with copies of the work by way of the licensing agreements he claims the Publisher Defendants entered into with third parties.” Comment: And here the court’s initial misunderstanding compounds itself: the license agreements didn’t necessarily physically convey copies of the works, only the right to make/perform copies of the works.

The court did find many of Carter’s state law claims preempted; it seems to me that all of them should have gone.  Unjust enrichment was easy: the alleged conduct was the same as the alleged infringing conduct. Failing to pay royalties/licensing revenues is not an extra element in the absence of a contract between the parties.

Deceptive trade practices under state law: The IUDTPA lists “pass[ing] off goods or services as those of another” and “caus[ing] likelihood of confusion or of misunderstanding as to the source ... of goods” as deceptive trade practices.  Generally, reverse passing off claims are preempted.  If third parties are misled by the defendants’ misrepresentations and take licenses from them instead of Carter, that’s Copyright Act territory.  However, the court accepted Carter’s argument that the publisher defendants “could have” misrepresented that they owned the copyrighted songs in advertising material without infringing copyrights to the songs.  Comment: But the whole point of advertising would have been to exercise the rights of the copyright owner—this is silly, even if the Copyright Act lacks the “offer to sell” language in the Patent Act.  See also Dastar; if the claim would be precluded under Dastar, as it would according to many courts, it should likewise be preempted when asserted as a state-law claim.  Separately, to the extent that most states—I believe Illinois among them—interpret their trademark laws to be in pari materia with federal law, the Dastar holding should apply on the merits to block the claim.

Because making misrepresentations about a copyrighted work in advertising, “short of licensing the copyrighted works at issue or taking any other action in connection with a copyright owner’s exclusive rights” isn’t among the exclusive rights in §106, the claim wasn’t preempted.  Comment: There’s also a deeper conflict here—at a minimum, the mention of “authorize” in §106 covers secondary liability, which is properly pleaded even on my interpretation.  The advertising is inherently bound up with the authorization, even if the authorization isn’t completed until someone agrees.

Tortious interference: again, this was based on the publisher defendants’ claims that they could license the songs, not qualitatively different from the alleged infringement. Carter alleged that there was an extra element of false representations, but (1) that isn’t an element of a tortious interference claim, and (2) that doesn’t create a difference in kind from copyright infringement, “because the false statements of ownership at issue were part and parcel of selling an unauthorized license in order to deprive Carter of a business opportunity.”  Comment: How is this consistent with the false advertising holding?  Just because the statements may have been made in “advertising” doesn’t mean they weren’t fundamentally connected with the thing being sold.

Oh, the Lawsuits You'll Lose! Court rejects TM claim against Seuss/Trek mashup, signals (c) likely to go too

Dr. Seuss Enters., L.P. v. Comicmix LLC, 2017 WL 2505007, No. 16cv2779 (C.D. Cal. Jun. 9, 2017)

Plaintiff owns the rights to Seuss’s Oh, the Places You’ll Go! (Go!).  Defendants created a Kickstarter for Oh, the Places You’ll Boldly Go! (Boldly), which combines aspects of various Dr. Seuss works with “certain characters, imagery, and other elements from Star Trek, the well-known science fiction entertainment franchise created by Gene Roddenberry.” Boldly’s copyright page both states that “[t]his is a work of parody, and is not associated with or endorsed by CBS Studios or Dr. Seuss Enterprises, L.P.”

On the copyright claim, the court found that the only issue where material facts would be necessary to resolve the fair use question was market harm.  The sole allegation of market harm was alleged usurpation of licensing opportunities.

In the Ninth Circuit, “an allegedly infringing work is typically viewed as transformative as long as new expressive content or message is apparent,” even without comment on the original, though “the degree to which the new user exploits the copyright for commercial gain—as opposed to incidental use as part of a commercial enterprise”—affects the overall balance of this factor.  The court rejected defendants’ argument that Boldly was a parody, which is a question of law.  Boldly was more appropriately labeled a “mash-up.”  Mash-ups can be parodies when they juxtapose the underlying works in such a way that it creates “comic effect or ridicule,” but here “Boldly merely uses Go!’s illustration style and story format as a means of conveying particular adventures and tropes from the Star Trek canon.”

Despite that, Boldly was “no doubt transformative” by creating a “completely unique work” (!!) from the two disparate worlds of Dr. Seuss and Star Trek.

Go! tells the tale of a young boy setting out on adventure and discovering and confronting many strange beings and circumstances along his path. Boldly tells the tale of the similarly strange beings and circumstances encountered during the voyages of the Star Trek Enterprise, and it does so through Go!’s communicative style and method. Go!’s rhyming lines and striking images, as well as other Dr. Seuss works, are often copied by Boldly, but the copied elements are always interspersed with original writing and illustrations that transform Go!’s pages into repurposed, Star-Trek–centric ones.

Commerciality weighed against defendants, but on balance this factor favored fair use.  Factor two: not terribly significant, but the fact that the work was previously published and highly successful weighed in favor of fair use, so the factor as a whole tilted only slightly in the plaintiff’s favor. Factor three didn’t weigh against defendants: many aspects of Go! and other Dr. Seuss works were used, but none in their entirety. “Nor does Boldly copy more than is necessary to accomplish its transformative purpose”:

The final image comparison in Plaintiff’s Complaint is illustrative. Plaintiff’s work depicts two similar-looking, fanciful “Zax” creatures arguing in the middle of a desert, with footprints to mark their arrival. Boldlytakes the same desert landscape and footprints, and in the fanciful creatures’ place puts two similar-looking beings of seemingly Vulcan descent—one of which is drawn in the same position as his Dr. Seuss counterpart and one of which is transformed from the Dr. Seuss creatures’ aggressive stance into a contemplative pose—deep in the midst of playing some type of alien board game.  Additionally, Boldly’s text reveals that the two Vulcan creatures are, in fact, the same person, unlike Go!’s distinct “North-Going” and “South-Going” Zaxes. Boldly therefore transforms the argumentative Zaxes and their corresponding depiction into a cloned Vulcan matching wits with himself over an alien boardgame. One Vulcan is positioned almost identically to his Zax counterpart to “conjure up” the Dr. Seuss work, while the other Vulcan is drawn anew and a board-game added in order to fully accomplish the work’s overall transformative purpose.

Market effect: defendants are at a disadvantage in this procedural posture, given plaintiff’s allegations that it commonly licensed its works.  Thus harm could be presumed at this stage, though that was neutralized some by Boldly’s lack of substitution due to its transformativeness.  “Boldly’s market relies on consumers who have already read and greatly appreciated Go! and Dr. Seuss’s other works, and who simultaneously have a strong working knowledge of the Star Trek series. It is therefore unlikely that Boldly would severely impact the market for Dr. Seuss’s works.”

Ultimately, “if fair use was not viable in a case such as this, an entire body of highly creative work would be effectively foreclosed,” though each case must be analyzed on its own merits.  The court decided that defendants couldn’t win on this issue as a matter of law—though its discussion suggested that it might be hard for plaintiff to develop actual evidence of market harm.

Trademark and unfair competition claims were based on (1) the title Oh, the Places You’ll Go!; (2) “the stylized font” used in Dr. Seuss’s books; and (3) “the unique illustration style of the characters and backgrounds” of Dr. Seuss’s books.

Defendants argued for the application of Rogers v. Grimaldi as a matter of First Amendment doctrine.  Plaintiff argued that Rogers itself required a determination of consumer confusion, but that’s not so. There was no question that use of the alleged trademarks was relevant to Boldly’s artistic purpose: the point was to be a mash-up, so “Go!’s title, font, and Dr. Seuss’s illustration style must be employed to evoke Go! and the other Dr. Seuss works here at issue.” Nor did Boldly explicitly mislead as to source or content.  Aside from changing the cover imagery and title to invoke Star Trek characters and the famous, split-infinitive opening line, Boldly “explicitly announces on its cover that it is authored not by Dr. Seuss but instead ‘by David Gerrold & Ty Templeton.’” The copyright page even includes an explicit disclaimer that “[t]his is a work of parody, and is not associated with or endorsed by CBS Studios or Dr. Seuss Enterprises, L.P.”

Defendants didn’t like Rogers, attacking its inflexibility, but the Ninth Circuit thinks that’s the point (quoting Brown v. EA):

[A] balance need not be designed to find each of the sides weightier with equal frequency. The language in Rogers is clear. “[T]hat balance will normally not support application of the [Lanham] Act unless the [use of the trademark or other identifying material] has no artistic relevance to the underlying work whatsoever....” The Rogers test is applicable when First Amendment rights are at their height—when expressive works are involved—so it is no surprise that the test puts such emphasis on even the slightest artistic relevance. “Intellectual property rights aren’t free: They’re imposed at the expense of future creators and of the public at large,” and the Rogers test applies when this expense is most significant.

However, Rogers explicitly incorporates an exception for “misleading titles that are confusingly similar to other titles.” Thus, Rogers didn’t justify dismissing claims related to the alleged trademark in Go!’s title.

Fortunately, nominative fair use was there to beam defendants out of danger.  Plaintiff argued that this couldn’t be decided on a motion to dismiss, but it can.  Defendants satisfied each element of the test.  Plaintiff argued that the third factor (do nothing else to cause confusion) required an assessment of likely confusion, but the Ninth Circuit has clearly indicated that nominative fair use replaces the usual multifactor test. The third factor does not analyze likelihood of confusion, but instead simply requires “that the user do ‘nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.’ ” Plaintiff’s allegations of willful trading on Dr. Seuss’s goodwill didn’t matter—“a defendant may intend to or willfully use a mark without any desire to explicitly mislead consumers.”  Allegations of a deliberate intent to deceive the public were “no more than [a] conclusion[ ]...not entitled to the assumption of truth.”