Thursday, December 27, 2007

Catering to a lawsuit

Lewis v. Marriott Int’l, Inc., --- F.Supp.2d ----, 2007 WL 4442785 (E.D. Pa.)

The Third Circuit is presently considering how to analyze false celebrity endorsement claims under the Lanham Act – the standard multifactor infringement test doesn’t work well in analyzing endorsement, but §43(a)(1)(B) false advertising analysis might not be right either. This case raises the issue in passing, but unsurprisingly leaves much undecided.

Lewis was the executive chef at the Downtown Courtyard by Marriott in Philadelphia until 2005, when he left to start his own business. After his departure, Marriott allegedly continued to use his name in materials used to sell wedding packages. He alleged false advertising in violation of the Lanham Act, violation of his Pennsylvania statutory right of publicity, and common-law claims for his right of publicity and right of privacy.

The court easily found that the “in commerce” requirement was satisfied since out-of-staters might plan a wedding at a major hotel like the Marriott. Marriott also argued that an essential element of the claim was that Lewis’s name is a valid mark, and that this was not properly alleged. Though the claim was styled as one for false advertising, the court treated it as a trademark issue, requiring a showing of secondary meaning before a name could be protectable. The court found the complaint sufficient, because it alleged that Lewis was well known as a chef, caterer, and event planner in the Philadelphia area, and added other specifics.

For the same reason, the court refused to dismiss the statutory claim, which covers natural persons whose names or likenesses have commercial value and are used for “any commercial or advertising purpose” without written consent – the complaint properly alleged that Lewis’s name had commercial value. As for the common-law publicity claim, the court opined that commercial value might not even be an element; commercial benefit to the defendant would suffice. Marriott argued that the common-law privacy claim based on misappropriation had been superseded by statute, as held in Facenda v. NFL Films, Inc., 488 F.Supp.2d 491, 513-14 (E.D. Pa. 2007). The court, however, disagreed, because the statute said nothing expressly about replacing common-law claims. Thus all Lewis’s counts survived the motion to dismiss.

Thursday, December 20, 2007

Facebook fraud

Nine West Development Corp. v. Does 1-10, filed Aug. 24, 2007 (S.D.N.Y.)

I held on to this complaint after Susan Scafidi posted it, because the facts are so fascinating (in a tawdry way). Essentially: The Does feigned a Nine West foot model search on Facebook, soliciting women to join their groups and submit pictures of their faces, their bodies, and their toes.

The Does used email addresses such as ninewest.audition at gmail (which should have been a signal for the wary – but not everyone is wary). About 400 people joined the first fraudulent group by July 2007; Nine West got Facebook to send the group members a fraud alert when it discovered the group’s existence. (The complaint says Facebook deleted the group in June 2007, but I think there’s some timeline error because that comes after the July events alleged.)

In August 2007, another fake Nine West audition group popped up, garnering about 226 members by mid-month. Facebook’s legal counsel agreed that, because of the public safety concerns involved, Facebook would provide individual notification about the reason for deleting the group, though it usually doesn’t explain such deletions. But Facebook didn’t reveal information about the creators of the groups.

Nine West sued for trademark infringement, false designation of origin, federal and state dilution by tarnishment, and state-law deceptive trade practices/false advertising.

The obvious problem is whether any of these causes of action can apply if the deceptive Does were operating only for their own perverted gratification, rather than for commercial purposes. I’m willing to accept that pretending to offer services in the ordinary market – here, the market for modeling services – ought to count under these (hopefully unique) facts. But bad conduct makes bad law; using Nine West’s name in a noncommercial context should not, as a rule, subject the user to the risk of trademark etc. liability. And that’s so even if the noncommercial context is highly objectionable – e.g., the L.L. Bean sex catalog case.

Of course, as with other incidents, the point of filing the suit is probably to get Facebook – not a named defendant – to hand over identifying information. Whether the defendants could ultimately be held liable to Nine West (I think the Does obviously have committed torts against any women who sent in pictures or contact information) is in many ways irrelevant as a practical matter.

The principle of principal: mortgagee sues to pay faster

Jefferson v. Chase Home Finance, 2007 WL 4374410 (N.D. Cal.)

Jefferson refinanced his home in 2003. His promissory note gave him a right to prepay principal, provided he told the holder in writing that he was doing that (and provided that he was otherwise current); if not, the holder could apply his prepayment to accrued and unpaid interest on the prepayment amount. His deed had similar terms. Chase began servicing his loan, and provided him with a payment coupon at the bottom of each monthly statement that said “Please designate how you want to apply any additional funds. Undesignated funds first pay outstanding late charges and fees, then principal.”

In 2004, Jefferson called Chase to see how he could make occasional prepayments. There’s a dispute over what various customer service representatives (CSRs) told him, but apparently the first one told him any prepayment would be used to pay principal, and didn’t mention any special requirements. Jefferson therefore set up automatic $167 monthly payments with his bank, and also continued to pay regular monthly principal and interest.

When Jefferson received his monthly statement, he was surprised to find that his additional payment was not applied to principal, but had been placed in “suspense.” A CSR told him he needed to make a written request to apply his extra payment to principal. He therefore sent a letter stating: “... [I] formally request that Chase Bank apply each individual monthly payment of $167 to the principal of loan # [ ] beginning with the January 2005 payment. Each $167.00 payment will be made in addition to the standard monthly payment and should be applied to the principal of the loan immediately upon receipt.”

Chase responded with a letter stating “[w]e have received your request to apply the amount of $167.00 each month to the principal balance of your loan. Your account has been noted.” Nonetheless, Chase failed to apply the prepayments to the loan principal. After a lot of back-and-forth, Chase credited most of the payments to principal, but not all on the date they were received, and each new payment gets routed to “suspense.”

Chase maintained that it told Jefferson early on that he couldn’t use his automatic bill payment feature to prepay, because the check sent by the bank doesn’t state how it needs to be applied. Chase claimed that its practice is to apply additional payments to principal only if they’re specifically designated as principal payments, because many borrowers send in multiple undesignated partial payments each month to add up to a regular monthly payment. If Chase processed such payments as prepayments, those borrowers would end up with insufficient funds for the next monthly payment.

Jefferson sued for violation of California’s Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law. He argued that his claims were based on Chase’s misrepresentations about how it would credit payments: “[u]ndesignated funds first pay outstanding late charges and fees, then principal,” and so on.

Chase argued that Jefferson’s claims were preempted by the National Bank Act and OCC regulations, which provide that national banks can make real estate loans notwithstanding various state law limits, including repayment schedules and loan servicing. The court rejected this preemption argument.

OCC regulations state that a national bank may make real estate loans without regard to state law limitations regarding, among other things, “Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in ... billing statements ... or other credit-related documents,” and also generally preempt state regulations that conflict with the federal scheme. There is a savings clause for regulations “to the extent that they only incidentally affect the exercise of national banks’ real estate lending powers.” There is no presumption against preemption, because of the history of significant federal presence in the banking field, and regulations can preempt as well as federal legislation can.

But Jefferson argued only that Chase misrepresented how it would apply prepayments, in violation of state law. Such laws of general application merely require all businesses, including banks, to refrain from misrepresentation and abide by their contracts. They do not impair a bank’s ability to lend, and their effects on banks are only incidental. A long line of California cases holds that consumer protection laws of general application are not preempted by federal banking law. The bank can choose how to operate, but it can’t mislead consumers about how it does so. Thus, Chase can service or process loans, and write its repayment coupons, without specific state regulation – but it can’t misrepresent its terms. Cases finding preemption were distinguishable, because they were ultimately based on state laws specifically regulating banking (predatory lending, deposit-taking, etc.).

In dicta, the court commented that a general claim that a lending practice is “unfair” – that it’s unethical, harms consumers, and the harm outweighs its utility, under California law – “may well be preempted,” because it requires an individual analysis of the lender’s acts untethered to any rule of general application. But that wasn’t Jefferson’s claim – he argued that Chase acted unlawfully (deceptively) and unfairly (in systematically breaching its contracts). Such obligations apply to all businesses.

Specifically, Jefferson’s CLRA claim alleged that Chase represented its services had characteristics or benefits they lacked; advertised services with intent not to sell them as advertised; and represented that a transaction conferred or involved rights, remedies or obligations which it did not have, all violating specific provisions of law.

Chase argued that none of its statements were likely to deceive. Though its practice is to put separate undesignated payments in suspense, Chase claimed that its payment coupons’ statement that “[u]ndesignated funds first pay outstanding late charges and fees then principal” was accurate because the phrase “obviously” applies only “to payments made with the coupon” itself, and/or when borrowers “are including additional funds with their single monthly mortgage payment check.” The court disagreed; the language was not so limited, and was consistent with Jefferson’s deed of trust, which was also unqualified about the order of payment.

Chase then argued that Jefferson didn’t allege reliance and couldn’t have been deceived, because the note itself clearly stated that he needed to designate his payments (“When I make a prepayment, I will tell the Note Holder in writing that I am doing so”), and because CSRs repeatedly told him that he would have to designate his payments as principal prepayments in writing, and could not use his bank to send the payments electronically.

The court found that Jefferson’s declaration did implicitly allege reliance. (He denies Chase told him that he couldn’t use the automatic payment function.) He declared that he continued to send in payments and was told he’d have to send a written request “despite” the payment coupon representation – that was enough to raise a triable issue of fact on reliance.

Jefferson’s false advertising law claims were easier, because he didn’t need to show actual deception, only likely deception. Chase argued that its monthly statements to existing customers weren’t ads or “statements to the public” covered by the law. The representations were made to consumers, in documents “likely to induce them to send their money to Chase,” and California courts have construed statements made to people about their loans as advertising within the scope of the false advertising law. This, and Jefferson’s unfair competition claims, survived summary judgment for now.

So did his conversion claim, because he alleged that Chase was bound by its representations to credit the prepayments to his principal balance immediately, and by keeping the funds in suspense, Chase interfered with his possession of the funds. Chase argued that Jefferson failed to inform Chase in writing that his payments should go to principal. But he did so; he just didn’t attach the writing to each check, but nothing in the note required attachment.

Wednesday, December 19, 2007

Lions and lawsuits and bulls, oh my

Red Bull GmbH v. RLED, LLC, 515 F.Supp.2d 641 (M.D.N.C. 2007)

Red Bull has copyright registrations on two versions of the “Red Bull Product Statement”:

RED BULL Energy Drink • Improves performance especially during times of increased stress or strain • increases endurance • improves concentration and increases reaction speed • stimulates the metabolism and helps to eliminate waste substances from the body. Red Bull's effects have been recognized by professional athletes, stressed students, busy managers, and long distance drivers around the world. Not recommended for children.

RED BULL Energy Drink • Improves performance, especially during times of increased stress or strain • increases endurance • increases concentration and improves reaction speed • stimulates the metabolism.

Defendants make Roaring Lion energy drink. A job ad they placed stated that Roaring Lion was founded by original Red Bull staff who took the recipe and started their own company. Defendants' website states that Roaring Lion:

† Increases performance, especially during times of stress or strain

† Improves endurance

† Improves concentration and reaction speed

† Activates the metabolism

The bottle label says the same things, with the last two switched and using “increased stress” instead of just “stressed.”

The Roaring Lion website also contains metadata including the words “red bull.” Visible portions of the site claim that Roaring Lion has the same ingredients in the same quantities as Red Bull and that Roaring Lion provides the same benefits.

The court declined to dismiss Red Bull’s copyright infringement claims on a motion to dismiss, because Roaring Lion’s fair use defense – that it is fair use to quote a competitor’s product claims in a comparative advertising campaign -- is an affirmative defense that may be raised on a motion to dismiss only if it appears on the face of the complaint, and a fair use defense is by its nature fact-specific. Does that mean if Red Bull sues me for reporting on the case, we have to go to summary judgment? I would hope not.

I have screen captures of the European Roaring Lion website and a Red Bull site; it seems to me that a legitimate factual issue is whether it’s fair to describe Roaring Lion’s use as comparative, rather than just copying, so I don’t think the court’s result was wrong on this issue. But if Roaring Lion were to say, “Red Bull claims ‘X,’ and we can deliver the same benefits,” I would hope a court would say that was fair use as a matter of law.

Other questions go to the very tiny size of the work at issue and the possibility of merger of idea and expression, especially given that Roaring Lion did change order and verbs.

Red Bull also sued for state and federal false advertising and unfair competition/passing off, including unfair competition for using the Red Bull name in website metadata. Again, the court refused to dismiss the metadata claim, despite defendants’ argument that they were engaging in mere nominative/referential use. The court refused to dismiss this portion of the case because Red Bull had alleged that the use causes likely confusion. (Of course, metadata use that isn't coupled with confusing website content doesn’t cause likely confusion, but that’s not really a matter for a motion to dismiss.) Perhaps trademark use would have been a better defense, since that is a matter of law, at least in the Second Circuit.

Advertising injury: allegedly willful substitutions trigger duty to defend

Orlando Nightclub Enterprises, Inc. v. James River Ins. Co., 2007 WL 4247875 (M.D. Fla.)

This case concerns the duty of an insurer to defend an insured nightclub, which was sued by Red Bull for selling Rockstar to customers who specifically requested Red Bull (an energy beverage often mixed with vodka). Red Bull sued the nightclub for Lanham Act violations and state-law unjust enrichment, unfair competition, and deceptive and unfair trade practices. The claims all incorporated allegations that the nightclub’s conduct was intentional.

The nightclub had an advertising injury policy that excluded injury caused “with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury.” The insurer argued that the factual allegations trumped the requirements of the causes of action alleged, and thus that it therefore had no duty to defend. The nightclub responded that liability could attach on these claims without any showing of knowledge, even though knowing conduct was alleged.

To my surprise, there are a handful of cases accepting the insurer’s argument. But the court here, after reviewing a large number of cases, sided with the majority: the duty to defend is triggered when the duty to indemnify might ultimately attach. If the nightclub were found liable, but only strictly so, there’d be a duty to indemnify; thus there is a duty to defend. Given that it would be an extremely unusual complaint that omitted an allegation of knowledge, a contrary ruling would get insurers off the hook in almost every advertising injury case, which is surely not what insureds anticipate when they buy advertising injury coverage.

Tuesday, December 18, 2007

Smoke and mirrors: tax-free cigarettes aren't

Gristede's Foods, Inc. v. Unkechauge Nation, 2007 WL 4232778 (E.D.N.Y.)

Gristede’s sued the Unkechauge for their cigarette-selling practices. Specifically, the defendants allegedly sold untaxed cigarettes to non-tribe members in stores, over the internet, through telemarketing, and using print ads, creating an illegally discounted market. Gristede’s alleged RICO claims, which the district court refused to dismiss for complicated RICO reasons, false advertising in violation of the Lanham Act, and related state-law claims.

The false advertising claim was based on ads touting “tax-free” or “cheap” cigarettes. New York law imposes two cigarette taxes on all cigarettes it has the power to tax: the sales tax and the use tax, the latter of which must be paid by any person who uses (possesses, retains, etc.) cigarettes in the state for which the sales tax has not been paid.

New York has no power to tax cigarettes sold to tribal members for their own consumption. But on-reservation sales to non-Indians are taxable. There’s a dispute over how to collect these taxes; the burden of collecting the sales tax is on wholesalers, but the state tax department has allowed wholesalers to sell cigarettes untaxed to tribes, without requiring an accounting to ensure that the untaxed cigarettes are only sold to reservation Indians. Regardless, the law is clear that non-reservation consumers are in fact liable for the tax. It’s a misdemeanor to willfully fail to pay the tax or attempt to evade it.

The ads for “tax-free” cigarettes, the court held, may be false advertising if they lead consumers to believe they need not pay any taxes. The defendants’ motion to dismiss the Lanham Act and state-law false advertising claims was denied. As for the state-law claims, an element is an affect on the public interest. The court found that harm to the public was clearly present if the allegations are true: defendants would be defrauding the state of tax revenue and inducing consumers to violate the law, exposing them to criminal fines. Gristede’s unfair competition claims, however, failed because Gristede’s didn’t allege misappropriation of its own labors and expenditures. Likewise, unjust enrichment claims failed because defendants didn’t enrich themselves from a relationship between themselves and Gristede’s – the connection is simply too attenuated.

These shadows keep on changing

Allen v. Ghoulish Gallery, 2007 WL 4207923 (S.D. Cal.)

Previous discussion here. Plaintiff and defendant sell “changing portraits” – antique photos that appear to change into a spooky creature or ghost when the viewer shifts position. Plaintiff’s website opened in 2003, defendant’s in 2004. Plaintiff sued for copyright infringement, false advertising, and related business torts; defendant counterclaimed for false advertising, trade libel, and related business torts.

Plaintiff registered his copyright in 2004. The registration certificate lists the title of the audiovisual work as “Haunted Memories Changing Portraits Website,” but there was no certified copy of the contents of the website. Plaintiff gave the court a CD-ROM, claiming it was a duplicate of the CD-ROM submitted to the Copyright Office, but couldn’t authenticate it as such. Thus, the court held, plaintiff was not entitled to the statutory presumption of validity. (Comment: This is not an area of procedure with which I’m familiar, and I suppose this is a practical result, but it still seems a little odd.) In any event, plaintiff was able to establish by his testimony and by use of the Wayback Machine that a series of images appeared on his website as it existed in December 2004, which his copyright covered.

But that wasn’t good enough to show infringement. Plaintiff claimed copyright protection in the fonts of his business name and his tag line, various background images, the pictures in his changing portraits, the frame image he used around the pictures, the use of mini-biographies for his characters, and the use of “Little” for child characters. Though the selection, coordination and arrangement of the website was original, the court found that defendant hadn’t infringed any original elements. Specifically, the font used in the business name was commonly used in the “Haunt Industry” in which both parties participate, and is in the public domain; the font used in the tag line was off-the-rack, as were other page elements such as a “Buy It Now” button. The use of “Little” for children is not original, nor did plaintiff show that he created the background images. He created the mini-biographies, but defendant didn’t copy those.

The frame image came from a frame plaintiff bought from an art supply store; he photographed it and used it on his site. The court assumed that his “efforts” were enough to qualify for copyright protection, but the frame itself is commonly used to display scary photographs, and not a proper subject for copyright protection. (I find this analysis mysterious; effort, sweaty or not, can’t create copyright protection in the US, but if his photo were copyrightable, then the key question is whether defendant copied that photo, not whether the frame itself is commonly used. The court noted that defendant’s frames were different.)

There was still a question of whether defendant copied protectable selection, coordination or arrangement. The court found no substantial similarity; using the extrinsic test, the similarities were only general – the same fonts for the company name and taglines; links running on the left side of the pages; framed portraits on both sites have similar matting. But the color schemes were different (mostly black with white, green, purple and yellow versus black with earth tone, blue, orange, and different shades of green and yellow) with different backgrounds. The layouts also differed somewhat, and the characters in the portraits were all different. Finding no substantial similarity objectively, the court also found none subjectively.

Plaintiff alleged that defendant falsely advertised that his Ghoulish Gallery had been in business since the 1990s; disparaged plaintiff’s business; and fabricated customer feedback on his own site. Defendant counterclaimed for unfair competition in copying plaintiff’s business, buying to capture internet traffic intended for defendant’s, and advertising that he is the "originator" of haunted changing portraits. Another mystery: defendant didn’t counterclaim for cybersquatting: that would have been a pretty obvious clean kill. Regardless, both domain names now resolve to the same place.

However, as with the earlier opinion, the court analyzed these as false advertising claims, beginning with the requirement of commercial advertising or promotion, here defined as “1) commercial speech; 2) by a defendant who is in commercial competition with plaintiff; 3) for the purpose of influencing consumers to buy defendant's goods or services.” Thus, the court ruled, disparaging remarks weren’t commercial advertising or promotion; nor was “redirecting [] internet traffic.” (That seems wrong. Disparaging commercial speech doesn’t have to connect all the dots to be a sales pitch, albeit an indirect one.)

Plaintiff’s complaint against defendant’s claim that the Ghoulish Gallery had been in business since 1995 was more successful. The court didn’t find defendant’s substantiating evidence credible. This was a literally false claim, at the top of the main page of the website. The court found it material because there were only four competitors in the market, and a customer deciding among them, “all else being equal,” would likely go with the one that had been in business since 1995 instead of the one that had only been around since 2003.

The court presumed actual deception and reliance, and thus awarded $2500 in damages and an injunction.

Defendant challenged plaintiff’s statements, “I’ve had a good run these past two years as the ORIGINATOR of Spooky Changing Portraits based on antique photo images” and “Let there be no confusion. ‘Haunted Memories Changing Portraits’ was the first to take antique photographs, create scary transforming images, and offer them as a successful line of products. NOBODY was in this business selling this particular product before I was. I can PROVE IT with facts, not with hot air! I would never make this claim if it were not true!” Though the concept of changing portraits is more than a century old, there was no evidence that anyone made them with antique photos before plaintiff did, so the counterclaim failed, proving again that proper qualification is an advertiser’s best friend.

Various other allegations of dirty deeds fell short of justifying relief on either side.

The court concluded that the following statement was “not sufficiently factual to be proved right or wrong”: “This individual asks potential customers to believe him when he alleges that he was the first. Yet in the previous sentence, he admits that his company was launched in 2003. The Ghoulish Gallery was started in 1992--a full twelve years earlier! One has to wonder what else someone like this might be lying about? The quality of their work? Their return policies? Perhaps even their customer feedback? ... From this one example alone, you should be able to determine who is being honest with their customers and who is not.” Plaintiff also couldn’t show special damages; it seems to me that the statement is plainly defamatory in that it attacks plaintiff’s honesty, which would obviate the need to show special damages. "He's lying about X. What else is he lying about?" is a pretty classic defamatory accusation.

Defendant then counterclaimed for defamation based on plaintiff’s post on a public message board accusing him of “hypercompetitiveness,” which he suggested “resembles a diagnosable mental disorder.” The evidence before the court suggested that the audience for the posts basically thought “a pox on both their houses” – both sides had become irrational; the readers didn’t think plaintiff’s post made a factual claim. The court, weirdly, treated this in the abstract: the statement that hypercompetitiveness resembles a diagnosable mental condition was insufficiently factual to be proven right or wrong, as was the statement that defendant was hypercompetitive. In context, it was opinion, but context is pretty important.

Saturday, December 15, 2007

Future of Entertainment podcast on fan labor

Highly recommended (mp3) for covering some of the really difficult issues, including gender and class, surrounding attempts to monetize fan productions and attempts by fans to resist monetization. I don't want fanworks to keep us poor, but I also fear commercialization and I don't think that monetization would make very many of us very much money -- it doesn't make many professionals very much money.

The OTW is an attempt to carve out a noncommercial infrastructure for fanworks. Outside the OTW, there is room for indirect commercial benefit -- people who use fanworks as a talent showcase, the way some people get hired to work on video games on the strength of mods they've done for other games -- and for critical transformative works sold in the conventional market, like The Wind Done Gone. Our challenge is to recognize all this hybridity as the healthiest overall environment for creativity, acknowledging the value of professionals and of amateurs.

Other panels and video available at the conference website.

Proskauer on FDA preemption

A recent Proskauer alert analyzes two recent Lanham Act false advertising cases reaching different results on FDA preemption. Axcan Scandipharm Inc. v. Ethex Corp., 2007 U.S. Dist. LEXIS 77876 (D. Minn. Oct. 19, 2007), found no preemption of Lanham Act claims alleging false statements about generic equivalence, bioequivalence, etc. Photomedex, Inc. v. RA Med. Sys., Inc., 2007 U.S. Dist. LEXIS 79846 (S.D. Cal. Oct. 29, 2007), by contrast, found that there could be no Lanham Act claim based on an “FDA Approved” ad where the argument was that the FDA had only approved an earlier version of a medical device, not the current marketed version.

Courts try very hard with this problem, but the extent of FDA regulation varies so much that it is difficult to use one case to predict another.

Friday, December 14, 2007

If you can make it anywhere, you can make it here: foreign famous marks in NY

ITC Ltd. v. Punchgini, Inc., --- N.E.2d ----, 2007 WL 4334177 (N.Y.)

The Second Circuit certified two questions to the New York Court of Appeals. That court concluded that New York does have a common-law unfair competition claim, but that doesn’t include the famous/well-known marks doctrine. Except insofar as it actually does: read on!

ITC has operated the Bukhara restaurant in New Delhi since 1977; in 2002 and 2003, it made Restaurant magazine’s list of the 50 best restaurants in the world. ITC opened or franchised Bukhara restaurants in several locations around the world, but only a few of them survived – in Singapore, Kathmandu, and Ajman. ITC opened a Bukhara in NYC in 1986 and then registered Bukhara for restaurant services. The restaurant closed in 1991, and a Chicago cousin’s franchise (b. 1987) was cancelled in 1997.

In 1999, defendants, who had worked at ITC’s New Delhi Bukhara (one had also worked in NYC Bukhara), opened Bukhara Grill. The Bukhara Grill “features many of the New Delhi Bukhara’s signature dishes-- which showcase the cuisine of the Northwest frontier region of India--and replicates many of its particular design elements.” One defendant described the Bukhara Grill in the press as “quite like Delhi’s Bukhara,” commenting that “[t]he food is similar ... and the waiters too are dressed in similar Pathani suits.”

Five other restaurants in the US use Bukhara in their names, as well as more than 20 unaffiliated Bukhara restaurants worldwide, including one in South Africa that sells prepackaged foods and owns

ITC objected to Bukhara Grill in 2000 (at which time defendants’ counsel asked for proof of use of the mark in the US), and again in 2002, but only filed suit in 2003. The district court found that ITC had abandoned its mark in the US, and held that ITC was not protected under state law by the well-known marks doctrine based on its use of the mark outside the US. Even if the well-known marks doctrine was valid in New York, ITC hadn’t met its minimum requirements.

The Second Circuit affirmed the holdings on the federal issues, but certified the state-law questions to the New York Court of Appeals.

Certified Question No. 1: “Does New York common law permit the owner of a famous mark or trade dress to assert property rights therein by virtue of the owner’s prior use of the mark or dress in a foreign country?”

The court reframed the question as whether a famous foreign mark constitutes property or a commercial advantage protected from unfair competition under New York law. New York recognizes two theories of common-law unfair competition: palming off and misappropriation. Prior New York cases often cited as “famous marks doctrine” cases were based on misappropriation – it’s unfair to appropriate the results of the skill, expenditures and labor of a competitor. In fact, the court held, those cases did not adopt a well-known marks doctrine, but simply applied the general unfair competition law, where the defendants had misappropriated plaintiffs’ goodwill in famous names to themselves. Those cases stand for the proposition that, “for certain kinds of businesses (particularly cachet goods/services with highly mobile clienteles), goodwill can, and does, cross state and national boundary lines.”

Thus, the answer to the first question is “Yes,” but “we are not thereby recognizing the famous or well-known marks doctrine, or any other new theory of liability under the New York law of unfair competition.” But when a business has goodwill in New York, that’s a form of property or commercial advantage the law will protect, whether the business is domestic or foreign.

Certified Question No. 2: “How famous must a foreign mark or trade dress be to permit its owner to sue for unfair competition?”

Actual goodwill in New York is a requirement. Otherwise another’s use in New York takes nothing away from the plaintiff. At a minimum, New York consumers must “primarily associate the mark with the foreign plaintiff” (citing, interestingly enough, the foundational dilution case Allied Maintenance Corp. v. Allied Mechanical Trades, Inc., 42 N.Y.2d 538, 545 (1977)). Relevant factors include: defendant’s intentional association of its goods/services with those of the plaintiff, “such as public statements or advertising stating or implying a connection with the foreign plaintiff”; direct evidence, such as consumer surveys; and evidence of actual customer overlap. Deliberate copying is an independent prerequisite. Only if that is established can plaintiffs proceed to show that the relevant consumer market “primarily” associates the mark at issue with plaintiff’s restaurants.

This doesn’t address head-on the difficulties of recognizing a well-known marks exception to the US’s use-based system, but it does seem to impose a higher standard than secondary meaning for protection, and by directing attention to defendants’ market it means that foreign fame alone will not justify protection. ITC sounds like it’s out of luck, given the district court’s factual findings about the lack of fame of the Bukhara mark in New York.

Pentium puffing

Barbara's Sales, Inc. v. Intel Corp., --- N.E.2d ----, 2007 WL 4200855 (Ill.)

Intel engaged in “a massive worldwide advertising campaign touting the high performance of its ‘Pentium 4’ microprocessor.” Plaintiffs, disappointed in the chips’ performance, filed a class action in Illinois. Basically, they argued that Intel’s implicit and explicit representations of superiority over the Pentium III were false. There was substantial debate over the difference between the chips; some analysts argued that the Pentium 4 was a mere marketing move (“marchitecture”), with no actual performance advantages and perhaps some disadvantages (slower at some common office applications on older operating systems; excessive heat and power usage; memory deficiencies). Intel disagreed with these criticisms.

The basic message plaintiffs challenge was at the core of Intel’s billion-dollar marketing campaign: “4 is better than 3.” “Better” and “best” are used repeatedly in the marketing materials; one expert elaborated that Intel positioned the Pentium 4 as its “best,” Pentium 3 as “better,” and Celeron as “good.” The named plaintiffs saw various ads, but don’t remember specifics except that they relied on the idea that Pentium 4 was faster than Pentium III. Intel suggested that people rely on many factors to choose a computer. (Right, but when I paid mumblety-mumble more for my dual 2.0 gig processors on my desktop, that was a pretty discrete decision; the best/better/good spectrum, with attendant price distinctions, makes Intel’s argument unconvincing.)

The state supreme court ruled that Illinois law applied to a class of Illinois consumers – not really a difficult conclusion, it seems to me, but the court reviewed a number of conflict of laws principles and cases to get there.

The court then ruled that class certification was improper, agreeing that the implicit representation that “Pentium 4” was the best and fastest on the market was nothing more than puffery. Comment: Fastest? That’s not puffery; the court then collapses the representation to “best” in order to get where it’s going. Basically, the court summarizes the marketing campaign as conveying the message “best,” and says that summary was puffery. Well, except that there was a whole marketing campaign underlying it, giving reasons for “best” (like, say, “fastest”); every marketing campaign could be summarized that way. But because the plaintiffs can only identify “Pentium 4” as the statement communicated to the entire class, the court ruled, that’s just the same as the puffing “best.”

The court elaborated: No reasonable consumer would rely on “Pentium 4” as the sole basis for a purchase. (As the sole basis for paying more for a computer than one with a Pentium III? As a computer purchaser, I find the latter decision completely plausible. Also, materiality generally doesn’t require sole causation.) Anyway, “4 is better than 3” is just an implicit representation, not an affirmative one, and thus wasn’t made to the class as a whole. Representations about performance and speed aren’t necessarily what “best” meant or implied. “Best” could have just meant cheaper, smaller, more reliable, etc.

damages for unregistered works

In re: Literary Works in Electronic Databases Copyright Litigation (2d Cir. Nov. 29, 2007)

I’m very late on this, so I will only say a few things: The majority suggests that a court might not have the power to enjoin the infringement of unregistered copyrights; and that even if it does have that power where a defendant has engaged in a “pattern of infringement,” the relief has to be directed towards the plaintiff’s copyrights, not others’. It might not have much relevance to the YouTube/Viacom litigation – but it might. Certainly it is another piece of evidence for the growing digital divide between copyrighted works that are “really” copyrighted in that their big owners can enlist automated and nonautomated enforcement against unauthorized copying or modification and works that aren’t.

And relatedly, the dissent points out that the result of invalidating the settlement in this case is that owners of copyrights in unregistered works go from getting a lot less than owners of copyrights in registered works to getting nothing at all (and, not incidentally, making sure that gaps in the digital archives remain dark). Given that registration costs more than actual damages would be worth, the chances of mass registrations to join a more limited lawsuit are not worth calculating. Even assuming that the limitations period was tolled while owners of unregistered works were putative class members, that period now restarts, and soon enough the remaining liability will simply disappear, leaving nothing behind but a bunch of bitterness and holes in the digital version of the paper of record.

I find this hard to see as a victory for anyone, though I find the majority’s statutory analysis more persuasive than the dissent’s. In my ideal world, the defendants would have filed a defensive class action – creating other big jurisdictional problems, but at least letting them plug up the holes in the digital record. Though I hope the holes close on their own as digital archives switch to images of the original pages, which at least should be deemed equivalent to microfilm and thus protected by the compilation copyright owner’s privilege to republish.

Thursday, December 13, 2007

Solove's Future of Reputation

I received a complimentary copy of Dan Solove’s entertaining The Future of Reputation: Gossip, Rumor, and Privacy on the Internet in return for a promise to post a public review. This isn’t a summary, just thoughts inspired by the book, which contains a number of thought-provoking examples of reputational harms that are possible on the internet.

The book is about conflicts between privacy, free speech, openness, and control of one’s own information and reputation. Because the internet scales so easily, small pieces of information can get spread to millions of people, with consequences quite different from the ones that ordinarily follow “public” disclosure to, say, ten or twenty people. People pile on, turning even ordinary social sanctions for misbehavior into a virtual pillory, and mockery replaces empathy.

As many reviewers note, the strength of the book is that it acknowledges the paucity of easy answers, but that can also be frustrating.

A side note: Solove classifies LiveJournal as a profile-based social networking site, not a blogging site, which I consider a mistake: LJ is more profile-driven than Blogger, certainly, and the friends list is a key element, but that’s largely because of the content that shows up on one’s friends list – profile alone isn’t all that interesting, and it’s hard to keep friends without routinely providing entertaining content. LJ is actually a fabulous example of a hybrid form of social networking software that is doing interesting things with control over who can see what information, and possibly disturbing things like restricting the ability to search interests on the basis of content – certain “bad” terms can’t be searched on at all.

In any event, Solove identifies the problem of reputation as that scraps of information can be insufficient to judge a person fairly, but we do judge anyway. This is not, as he suggests, a problem specific to people; it exists for products too. It’s a general information processing problem: we can’t possibly use all the relevant information, we are easily distracted by irrelevant information, and we can’t sort relevant from irrelevant very well. False advertising law has a set of tools for dealing with this, but they’re crude, and they only work in limited domains where it’s possible to control the key actors (advertisers). Still, even though it’s hard to imagine an easy translation of advertising regulation to protecting the ability of the Star Wars Kid to have a life that’s defined by other things than Star Wars, it might be worth thinking about how we decide what information about products is so helpful that it must be provided or so unhelpful that it must be suppressed.

Solove advocates, tentatively, moving the essentially absolute immunity of ISPs provided by Section 230 against non-IP tort claims to something more like notice-and-takedown under the DMCA. Given how easily notice and takedown can be abused, and how rarely posters challenge notices (which must seem very high-stakes indeed to nonlawyers), I am unenthusiastic about this idea unless the procedure was made very transparent and the penalties for ISPs were pretty limited.

Solove suggests penalties for abusers of a notice regime, but that only helps if you are willing to fight the abuser in court. Notice can be problematic with copyrighted works, but the rationale for notice is even less compelling with allegedly defamatory or privacy-invasive statements – an ISP can be informed that something is mean, but that really isn’t the same thing as notice that a statement is defamatory, and the valid insight behind section 230 is that ISPs simply can’t investigate truth or falsity claims even when they are on notice of a dispute. (Solove writes of his own experience with an apparently defamatory comment: he suspected it was untrue, but that apparently wasn’t based on any investigation. What standard does he believe should apply?) Recently on one of my discussion lists various suggestions have been made about lifting anonymity as a remedy for abusive speech, with no further sanction except the social consequences; that’s worth exploring.

Alternatively, perhaps a simplified procedure for going to court and getting a declaration of untruth could ramp up the formality on the complainant’s side enough to justify a notice-and-takedown regime. But the DMCA is a weak enough model for copyright; it should not be extended without significant revamping. (I complain about 230, but my main problem is that ISPs shouldn’t get to claim First Amendment speaker status along with immunity from responsibility for any speech they choose to carry. I’d resolve the incongruity by not according ISPs special First Amendment status, not moving significantly away from 230. Or perhaps ISPs should have to choose: either they are not speakers, and have no First Amendment rights of their own and no responsibility for the speech they carry, or they do adopt and endorse the speech they carry, and thus should be subject to secondary liability in appropriate cases.)

Organization for Transformative Works website launches

I've been critical of the way copyright fair use doctrine has of late tended to merge "transformative" and "fair," which denigrates uses that aren't transformative. At the same time, I'm a huge supporter of fan fiction, art, and other works created in celebration and criticism of popular cultural artifacts, whether within copyright or not. I'm therefore thrilled to be involved in the Organization for Transformative Works, whose website is now live.

Ethan Zuckerman has a great post about the OTW, which has a number of wonderful projects in the works, including a journal and the Archive of Our Own for hosting fanworks in a noncommercial context. I see the OTW as an important part of a public conversation about how to treat copyrighted works, similar to the work done by AU's Center for Social Media on fair use guidelines for documentary filmmakers, along with other great work by the EFF, Stanford's Fair Use project, and, among others.

Wednesday, December 12, 2007

Vodka under the bridge

Russian Standard Vodka (USA), Inc. v. Allied Domecq Spirits & Wine USA, Inc., --- F.Supp.2d ----, 2007 WL 4145277 (S.D.N.Y.)

Plaintiffs, who sell Imperia vodka, sought a declaratory judgment that their aspersions on the “Russian” nature of defendants’ vodka (Stolichnaya, aka Stoli) did not violate the Lanham Act or state law. Plaintiffs also brought affirmative false advertising/false designation of origin and related state law claims.

Imperia’s marketing emphasizes its Russian heritage: it’s distilled, filtered, bottled, labeled, and sold in Russia. “Vodka is Russian,” the campaign says. Plaintiffs allege that Stoli also claims a Russian “character,” though “essential processes” in its production take place in Riga, Latvia. (Query whether the difference is material to American consumers. Indeed, query whether American consumers can articulate the relationship between Latvia and Russia.)

At a 2005 press conference, plaintiffs stated that Imperia was “a truly authentic Russian vodka of the highest quality.” Defendants then sent a letter stating that plaintiffs’ PR campaign implied that Imperia was the only authentically Russian vodka; the letter continued that false statements about a competitor’s product constitutes false advertising. Nonetheless, after receiving the letter, plaintiffs publicly stated that Stoli “is not truly Russian” and “[i]f Stolichnaya vodka comes from Latvia rather than Russia ... they should be proud of their Latvian heritage.” Defendants then issued a press release indicating that it would explore its legal remedies “in due course.” Defendants then brought a challenge to plaintiffs’ claims with the National Advertising Division of the Better Business Bureau (NAD). The NAD investigation was in its final stages when plaintiffs sued. NAD stopped its investigation, but would resume it if the lawsuit were stayed.

The court found that, even under the relatively relaxed standard of MedImmune, there was no actual controversy over past statements about Stoli, because defendants affirmatively waived their right to sue over those statements. But the threat of legal action over future conduct was enough to create an actual controversy, because plaintiffs intend to say negative things about Stoli’s authenticity in the future.

Nonetheless, the court stayed the case for thirty days pending the outcome of NAD’s investigation, in order to encourage private dispute resolution. “[A]llowing the NAD, a highly reputable institution, to provide its expert view on Stoli’s authenticity as a Russian vodka would be extremely useful in resolving remaining claims in the complaint … [and] would allow it to set advertising standards for the industry on an important issue.”

The court did dismiss plaintiffs’ unjust unrichment claim. The argument was that, by falsely advertising Stoli’s Russian character, defendants misappropriated plaintiffs’ goodwill. As the court pointed out, this logic has a serious chronological flaw. Stoli has been sold in the US since the 1960s; Imperia arrived in 1995. Stoli’s goodwill is its own.

Comparative advertising without the comparison?'s RSS feed is behaving rather badly. I therefore saw Slate's homepage, which has this ad:
The banner reads "Don't give up on Vista." Or at least it does at first; I saw it and thought that was an interesting ad tactic by Microsoft, especially on a site that used to be owned by Microsoft.

As it turns out, however, the ad is not for Microsoft at all, as the presence of the Mac guys on the lower right (which I initially missed) indicates. The ad lights up: "Don't give up on Vista." It's cute, as the Mac ads are. But I wonder how many people thought it was a bad Microsoft ad, not a good Apple ad.

Sunday, December 09, 2007

Reputation economies, Panel IV: Ownership of Cyber-Reputation

Moderator: Eddan Katz

John Clippinger: He’ll play Polyanna. Tech is facilitating rapid learning about the consequences of lack of privacy, as we see with Facebook. The internet is/should be edge-oriented, with the locus of control in the individual. He has been working on a framework for interoperable and separable identities. Then people can aggregate info from profiles into a metanetwork. The project – “Higgins” – is making its way into the commercial sphere.

Commercial entities fear privacy breaches – they don’t want to be targets of hackers. The vendor wants to know what you want, not who you are. If it doesn’t have to store your address/other info, why would it?

Eric Goldman: As general counsel of ePinions, faced many of these issues years ago. Here he focuses on one problem: ePinions needed a product catalog, which means that products needed to be identified uniquely and persistently, just like people.

There is an uncomfortable interplay between IP and reputation systems. IP can be used to suppress the flow of important and valuable information. Herein of taxonomies: classification schemes, to direct commentary at the appropriate product and direct searches to the right results. IP can hinder this if people claim proprietary rights in product catalogs. Catalog provision is an active business, but inefficient – some of which is due to IP.

Cases claiming copyright in part numbers attached to products have been attempts to suppress competition by preventing ads for interoperability; they also create risks for those publishing a catalog. So far, the courts have rejected such claims, but the issue is far from over. The ADA case allows rights over a catalog to control secondary offerings.

Even if there’s no copyright in a single number, other IP rights can still be asserted: if you scoop it from the plaintiff’s servers, there’s trespass to chattels, contract, robots.txt, CFAA, and related state law claims. Claiming rights over catalogs (1) requires wasteful duplication of investment and (2) creates different catalogs, making it harder for consumers to map from A to B and creating isolated islands of consumer opinion.

Solution: government involvement! There should be nonexcludable freely available product catalogs: the ISBN as the flagship example.

Another solution: sites like ePinions are not entitled to trademark’s first sale doctrine because they’re not selling the goods. They need clear rights to host reviews and offer a taxonomy even though they’re commercial entities, otherwise TM owners will cherry-pick and get rid of negative reviews. Possibilities: (1) categorical safe harbor; (2) innocent printer/publisher exception (that doesn’t stop cherry-picking though, just leaves the provider subject to notice and takedown); (3) categorical exemption for commercial referential trademark uses.

Question from Frank Pasquale: he worries about distorted search engines/databases. If one is sponsored by Sony, should Panasonic get to put an asterisk/link on its results?

Goldman: He won’t agree to that. But if you did want to do it, a universal ID would make that easier.

Sutor: RFID is making this a real issue right now.

Bob Sutor: The number of reputation formulas is unbounded, but we can pick contexts. If we’re lucky, we can get it down to 5-8 ways of representing people.

Standards become important when information leaves one provider’s domain or application – inside, it doesn’t matter. So standards and privacy are inherently intertwined. The problems are not from what information is available but from who can do what with it. Unfortunately, security tends to be the last thing people think of – build the neat tools first, then worry about privacy later.

There are two extremes: hyper-structure, as with the semantic web, or PageRank/informal tagging (which tends to work pretty well). People have not generally marked up web pages systematically, but we do have a lot of information about people and objects, whether volunteered in profiles or inferred/computed. This means the semantic web might start to be relevant.

Mozelle Thompson: Who gets to set the standards, under what conditions? Market participants will seize on opportunities to game the system.

Consumer perspective: Ownership is irrelevant; control is key.

Facebook gives a nod to offline connections. Proxies: people view their data as representations of themselves. People consider security as an issue of how much risk a company is willing to expose them – its customers – to.

Privacy is not binary. It’s not that more information is bad, less information is good. People are becoming more strategic in their uses. They expect sites to tailor themselves to specific users, and thus presume that the site has access to some information. It’s not a top down relationship but horizontal – people are disclosing information to reach other people, not for the benefit of the marketers.

Government’s task: give people management tools. Neither government nor business has educated people on how to use tools and how to use judgment, not just knowledge.

European regulation emphasizes self-determination – the ability to withhold information -- but this is difficult when people voluntarily provide info to social networking services. At the same time hands-off US regulators are beginning to recognize that people may lack sufficient information to make rational choices. There is thus a de facto convergence between the US and EU approaches.

Rebecca Tushnet: If you were to look at my Blogger profile (not that there’s reason to do so) you’d see a picture of me. But on my personal journal, my user icon is an image of Wonder Woman. Why? (Why not?) It says something about who I am, or who I want to be, online. We identify ourselves to ourselves and others by what we consume: favorite books, movies, brands, cars – all the Apple and Dell logos I see by looking out into the audience. Like my Margaux Lange pin, we are all made out of others’ faces.

This is reduced to its most abstract form in online interest lists/profiles, as shown on social networking sites. LiveJournal, with which I am most familiar, has implemented interest filtering – it can stop you from searching for particular interests. This has implications for ownership of reputations – IP owners could assert rights to control who gets to announce affiliation with them. Attempts to control references to TMs, or uses of copyrighted works as part of a person’s self-definition, can threaten established user reputations. A DMCA notice could literally take my face away from me.

Something that hasn’t been said about the Star Wars Kid at this conference: the interested party we haven’t heard about is Lucasfilm. The Star Wars Kid, and the remix videos starring him, affect the brand’s reputation as well. And Lucasfilm would probably have a better chance than the Kid of getting those remixes taken down!

Reputations, that is, raise the same IP problems as user-generated content generally does. Reputations can be based largely on use of others’ IP.

Examples (and I should say that these are differentially vulnerable to IP claims): Linking – popular bloggers can become popular by being good at sorting and identifying others’ works. This is great in that editors finally get some respect, of a sort. But copyright owners have been willing to claim rights against linking.

Fan videos/mashups: the creators get credit for their creative editing skills. But they’re hostage to DMCA notices – if a video is taken down, the poster loses all the comments, ratings, and other reputational benefits, and even if it pops back up again elsewhere the accumulated “merit” ratings from others are lost.

Likewise, eBay sellers can lose their accounts, including years of feedback, if they’re reported for selling counterfeit goods. If they are selling counterfeits, that’s fine, but there are manufacturers who take the position that any resale is unauthorized, and that’s a problem.

Benkler and others see blogs and other forms of user-generated content as the capillaries of the internet. IP claims have the potential to work as a tourniquet, cutting off the upward flow of information. (Related to this is the question of whether everyone on the internet wants to be part of a greater body. Maybe I don’t want to be a finger; maybe I want to stay in a subcommunity. This might be especially likely if my subcommunity is exposed to IP claims if it does become more visible.)

Congratulations to the organizers on an interesting and provocative conference. I’m not sure the “ownership” panel really came together, but the parts were pretty interesting.

Reputation economies, Panel III: Reputational Quality and Information Quality

Moderator: Laura Forlano

Urs Gasser: Quality is very hard to define, especially as we move from harder measures to softer ones (like Cyworld’s kindness, karma, and sexiness). Context makes this even more difficult – Amazon asks whether a review was helpful or not, but we might disagree on helpfulness. Calls for a taxonomy of informational quality, including syntactic (data), semantic (meaning), and pragmatic (effects). Then we can consider the full range of tools for dealing with quality. Possibilities: market-based approaches (pricing, incentives); social norms; platform design (using insights of social signaling research); substantive and procedural roles of law (in guaranteeing privacy or due process).

Information quality conflicts can’t be avoided. They can only be managed. Each regulatory approach has costs. A general limit is the contextual and subjective nature of human information processing and decisionmaking. Reputation is used by humans, which means the output is uncertain! Teens have known extra cognitive biases, but even adults have limits on what they can process, which makes reputation systems limited in what they can achieve.

Ashish Goel: He focuses on protecting social networks against anti-social behavior like spam, badmouthing, quid pro quo reviews, ballot stuffing by sockpuppets, and spurious comments to increase ranking on social sites like Yahoo! Answers. Anonymity and automation increase the scope of the problem. Given the large number of content generators, small merchants, and first-time transactions, reputation is a critical problem. It is computationally intractable to detect collusion via back-scratching, link farms, etc.

Then why do search engines work so well? Because their heuristics are not in the public domain. He found that ranking reversals (where a better result appears after a worse result) create an arbitrage opportunity for users, if users can profit from identifying the reversal. For Amazon, better recommendations mean more purchases, providing a way to attribute revenue to users; for Google, it’s a little harder to translate in ways that Google could reward users for improving rankings, but could be done – and must be done, he argues, because startup search engines are promising to share the wealth.

Ranking mechanism: users would place positive and negative tokens on result entries, with limits on the net weight of tokens place (so you couldn’t just keep giving positives). He has a detailed model that I won’t go into. It seems like an interesting idea, though I wonder if the switching costs for most people will overwhelm the potential rewards. People give up money potentially available to them through coupons, mail-in rebates, and other reward systems all the time; if we’re just talking about pennies – with the potential of negative rewards, even – how do you convince them to use it?

Darko Kirovski: We need to define reputation before we can have it! Example of new system enabled by reputation: person-to-person lending online. Reputation can be quantified: the system has 9.28% average return, with 1-2% closing fee, 0.5-1% annual fee. 2.7% or 5+% default rate (disagreement because the business is early and default rate is likely to go up). At 3% default rate and 1.5% fees, the return is 4.78% in the first year and 5.78% thereafter; the risk can be compared to bank CDs and bonds. There is money to be made in figuring out how to reduce the default rate, using reputation.

How does fraud happen? It’s simple and it’s usually the seller. Generate a new identity, build reputation by commiting sound transactions and fabricating transactions. Offer attractive merchandise at great low prices, then disappear.

Forlano: Can critical reviews on Amazon generate money for Amazon?

Goel: If they improve the recommendation engine. If you rate four books highly and one very low, you are still selling books for Amazon. (This reminds me of the debate in copyright theory over whether the ability to write critical reviews without the copyright owner’s consent actually increases the market for reviewed works. I think this is a just-so story. It wasn’t clear to me what Goel’s model shows about critical reviews on their own, or whether it compares to a model in which only positive reviews are shown.)

Question: How do you deal with the problem of subcommunities in a reward-for-rating system? I shouldn’t get penalized for hating Harry Potter.

Goel: It’s not a commentary on you as a person. The fact is, you might just not be a very good reviewer in the sense that your reviews don’t help Amazon make money.

Question: Will computers ever beat human judgment given the limits on the latter?

Kirovski: A computer can never predict whether fraud is going to happen. But the computer might be able to tell you that, given the fees this guy has paid on eBay so far, if you bid $500 he won’t be able to walk away with a profit (if he’s a fraudster), but if you bid $3000 he could. So a computer could at least tell you that, and then you could decide whether to take a greater risk. The computer could even tell you what the likelihood is, based on past transactions, that this particular transaction is fraudulent.

Mari Kuraishi: Runs GlobalGiving, which collects donations for various projects around the world. There are upstream reputation issues (picking projects) which they have currently under control, with a closed system for picking and verifying projects. But once picked, how do you evaluate them within the system? She needs rating to avoid paradox of choice for donors; she needs the project leaders to build reputations that will be useful to them in their work. But how qualified are people to evaluate project leaders? Does a donor have useful information about the social circumstances of a project?

Current rankings depend about 40% on how well the project leaders report back, and about 60% on success in fundraising. It’s crude, but it’s what they can measure. Donors can also submit reviews of the project leaders’ reports.

There is a low response rate to the reports, in spite of above-industry opens and clickthroughs: 98% of reports were delivered to 1391 donors, 35% were opened, and 18% clicked through – 250 donors saw reports. So there may be implementation difficulties, or it may simply be unclear to donors what their relationship to the project is, which deters them from commenting.

Comments on the site range a lot from insightful to … not. What is feedback for? (1) Communal sharing: other people want for you what you want for yourself, as with Amazon ratings where people want to help you pick the right books. (2) Authority ranking: don’t mess with me. (3) Exchange: if you scratch my back, I’ll scratch yours. GlobalGiving doesn’t fit neatly into these. A donation is a public good, and donors are often separated by vast physical, cultural, even language differences from project leaders. People don’t know what to say because they don’t know why they’re saying it.

Experiments in ranking: use of upstream networking by having project leaders recommend other project leaders; pledging support required before having full rights on the site; downstream use of project leaders’ connections with each other, as with micro-elites.

Vipul Ved Prakash: Discussed difficulties of filtering spam: filters have to move fast, they have to have some self-correction, and they have to collaborate; spammers are collaborating against them, and spammers are geeks who’ve gone over to the dark side, so they are hard to fight. Prakash describes a trust-based reputation system: email recipients who are known to make good decisions about what’s spam.

Saturday, December 08, 2007

Reputation economies, Panel II: Privacy and Reputational Protection

Moderator: Michael Zimmer

Alessandro Acquisti: He’s been researching user privacy preferences on Facebook. Read his position paper – people will disclose potentially embarrassing information in fairly open spaces, including photos of themselves drunk and behaving badly. Why?

The very people who post pictures of themselves in their underwear may object to Facebook’s new contextual ads. There are contrasting, coexisting needs for privacy and for fame; even bad publicity sometimes satisfies. Also, control – bad information is not so embarrassing if we are the ones who hand it out. In economics, this is a matter of signaling. It may be reputation-enhancing in some circles but reputation-diminishing in others.

Studies on willingness to pay v. willingness to accept: people assign different values to their personal information depending on whether they’re focusing on protecting it or revealing it. You can get different decisions in offering people an anonymous $10 gift card or an identified $12 card, based on the endowment effect and framing of options.

Danielle Citron: Malevolent crowds are denying women in particular the benefits of their online reputations, and the online environment accelerates the problems by removing some of the traditional checks on harassing behavior. (Read her position paper for discussion of the social psychology literature on how anonymity in crowds liberates people to express aggression.) Individuals who write under female pseudonyms are 25 times more likely to receive sexually threatening comments than individuals who write under male pseudonyms.

How to diffuse dangerous group behavior? (1) Fear of getting caught, especially when group leaders reinforce that fear; (2) perception of need for victims; (3) difficulty organizing. Online, the accelerants are present, but none of these inhibiting factors. This dynamic is not self-correcting, as some things might be (as elaborated by Benkler).

William McGeveran: The privacy panel is often the “sky is falling” panel. We want to make sure that the internet is a space that everyone can take advantage of; if privacy concerns interfere with that, that’s a problem. Here, he wants to talk about reputational piggybacking.

Web 1.0 was devoted to profiling users to find better ways to address them directly: to sell to them. Data was being collected massively, but basically for the collector to use in its dealings with the collectee. The 2.0 shift is towards selling not just attention but endorsement. Entities want to use your reputation to promote their offering to others, not just to you. Facebook, of course. Netflix; others who try to sell either to others in your network or others who “look like you” in some way. (This is the flipside of my presentation, which is more about the perspective of the owners of the properties being promoted or disparaged in this process.)

The piggybackers have incentives to get you to transmit your preferences as widely and as often as possible. Of course there’s a tragedy of the commons problem – if everyone piggybacks, it loses effectiveness. The piggybackers also want to do this seamlessly – so they go for opt-out solutions, and create problems of consent and privacy. (And here he makes me think about manufacturing consent – when we talk privacy, we usually talk about consent as something manifested privately between contracting parties. But now our consent has been used in a new way, to create public opinion. Not just manufactured, but advertised.)

Daniel Solove: People are writing about their private lives (and others’ private lives) – the blogosphere is mostly personal, only a smaller part political. This creates persistent records so that people can’t escape a moment that has come to live in infamy. And a lot of these people creating these potentially embarrassing records are young. It should not be impossible to escape the shackles of our past.

The law can’t do everything, but can operate as an incentive to shape norms and to push people to work problems out informally. Privacy torts exist, but are weak and insufficient incentive for online responsibility. We need a viable threat of lawsuits to create better incentives.

Traditional notions of privacy have been binary: public/private. If information is somehow revealed to others, it’s no longer private. But that’s not really true: information is usually somewhere in the middle, as are places. Buying medication in a drugstore: that’s a public place; we still don’t expect high-res photos of our names and prescriptions to be posted online. If we don’t do something to protect that middle ground, it will be lost.

In England, there is a tort of confidentiality (ours is much more limited). If an ex-spouse or ex-friend reveals your secrets, they can be liable.

Control: Dr. Laura Schlessinger’s nude photos, taken by a lover decades ago – she wanted them gone, but was unable to control their dissemination. But the voyeur website that posted them successfully asserted rights against republication – copyright was stronger than privacy! It is possible for the law to give rights to control that are stronger than privacy currently is (though he thinks copyright goes too far).

Jonathan Zittrain: Various horror stories of privacy and persistent reputation. Qatar shares one IP address, and one bad apple got that IP address banned from Wikipedia for a while! These automated/semiautomated systems for determining reputation have powerful effects; Cyworld, popular in Asia, has nontransparent rating systems that effectively train people to behave.

Zittrain finds it fascinating that search engines generally respect robots.txt. This is a norm that addresses a potential problem, and it works pretty well through voluntary compliance. It would be great to have more advanced tagging – “I don’t want this widely distributed” or something like that. A gentle opt-out – this might be embarrassing if it got passed around widely – could be a helpful extension of the robots.txt success.

He also likes the idea of reputational bankruptcy, or at least something like eBay’s system in which more recent data counts for more in a reputation. IP addresses have reputations that attach for far too long, because they shift: we should be able to flush the cache.

Web 2.0 can mean UGC, or it can mean a shift of computing cycles from the desktop to the web. The aggregators who do that create new points of control that could be salutory for privacy/control: Google Maps reserves the right to stop your mashups of maps for any reason. Facebook can control how Facebook Apps uses sensitive personal data – it’s extra control, but possibly useful. (As long as Google and Facebook behave as we the public want them to!) Google now allows subjects of news stories to add comments – this is a promising development.

Question: some of these things require technical ability. Does this increase the digital divide? Also (perhaps contradictorily) are there architectural techniques for improving norms, e.g. for anti-harassment?

Citron: Section 230 fosters irresponsibility and discourages the development of such tools.

McGeveran: Sometimes technical and industry customs can help, though not in the situations Citron is talking about.

(But isn’t that part of her point? That is, the differential impact of various technical innovations gets played out on real human beings. Robots.txt is awesome for Yale and the New York Times. Less so for people whose concerns are harassment. Reference to robots.txt is sort of like looking for your keys under the lamppost because that’s where the light is, unless we can brainstorm other ways to use it that aren’t obviously useless (“no-harass.txt”).)

ETA: McGeveran thinks that softer solutions, like asking nicely for material to be taken down, can work in certain circumstances, especially if you can ask an intermediary. Formalized procedures for doing so might help.

Solove: We can’t have lawsuits over everything anyone says. But law can help shape norms. Maybe a limited cutback on 230 would be to remove immunity from sites that abuse 230 by being set up precisely to take advantage of it and soliciting gossip. (Wow, do I not like that idea. “Abusing” an immunity -- that would get litigated every time.)

People are sometimes nasty. The best way to protect against that is to keep your information away from them.

Zittrain: Some of the viral nature of this is people, not tech. People like watching the Star Wars Kid. Mashup culture makes these practices more acceptable (not clear to me whether he was speaking normatively or descriptively) – data is data, anything is input. An ability to remind people of the human dimension, to hear from the people who are in the photos or took the photos, would be really helpful. Maybe the viral takeup of Star Wars Kid wouldn’t have happened if the Star Wars Kid had had an ability to attach a statement about what he wanted early on in the process. (A special kind of digital attribution right?) That’s the utility of a CC license: it expresses preferences that travel with the digital content.

But such preference statements can’t stop the bad apples, like the people who harassed Kathy Sierra. (I’m interested in this statement – implicit seems to be that a reminder of her humanity wouldn’t have mattered – and I agree, though it might have mattered early on to some of the jerks who piled on her. The reason this statement troubles me, though, is that it seems at least consistent with a “men will be men” attitude – we can think about how to help Star Wars Kid, but Kathy Sierra is just out of luck? Not all problems can be solved by technology, but I don’t think we ought to accept that internet affordances can’t work even on bigots.)

Zittrain continues, in response to a question: Something just as basic as “ask me first” might have a shot at shaping norms.

Reputation economies

Reputation Economies Symposium at Yale Panel I: Making your name online!

Moderator: Laura DeNardis: Online, this panel might look different: the audience could rate the panelists, remix them, etc. The moderator could allow the panelists to pay for placement; there would be ads.

Michel Bauwens: His P2P Foundation wants to understand P2P dynamics in every area of social life. Key feature: Self-organized; structures arise from individual choice.

Emerging models: (1) sharing content, for self-directed reasons – there are weak ties among sharing communities; platforms like Google offer the ability to share the content because individuals can’t do it themselves. Most of the people in those systems are not there for monetary reasons. And there is a risk of crowding out nonmonetary incentives if you integrate revenue-sharing mechanisms (Benkler). Monetizing a sharing economy is a wrong.

(2) Commons-oriented production. People working on common product, e.g., Linux or Wikipedia. They have to engage with each other. Instead of using proprietary platforms, they use something like an NGO. The NGO creates an infrastructure with enough viscosity to sustain the project without monetizing it. (Comment: I see media fandom, where fans create fiction, videos, art, etc. based on popular shows, books, and movies, as having strong “engagement” features because in practice fanworks reflect on and engage with each other, and of course fans provide each other feedback. This is true even though Bauwens would categorize fanworks, hosted by corporate platforms fans don’t own, into (1) – the Organization for Transformative Works is an attempt to give fanworks a protected infrastructure to keep it from corporate appropriation.)

(3) Crowdsourcing: partial integration of P2P dynamics into the corporate value chain.

Rishab A. Ghosh: Economically, reputation is information about goods/people that is not encapsulated in the price. The formalization of the market price mechanism is missing in informal economies, which hinders decisionmaking, entirely separate from issues of incentives. How do you decide which open source project you want to devote your time to? This exists in formal economies too because price doesn’t encapsulate everything of relevance to your decisions.

“Exchange rates” of reputation: the bigger you are, the better of a deal you get – Linus Torvalds gets more than twice as much reputation than a programmer who does half as much useful work. (This is detailed quite intriguingly in Ghosh’s position paper.)

We need better ways to segregate reputation, so that the very best Provencal restaurant in town doesn’t get overall bad ratings because most people just don’t like Provencal food. Online reputation systems today tend to treat reputation as a single objective fact, but reputation is subjective and we need to figure out how to handle this context-sensitivity.

Auren Hoffman: The amount of data being collected on you is growing rapidly. It’s been growing every year. The rate of growth is not slowing. The number of actors collecting data is also growing hugely – it’s not just the government, as in 1984. Opt-in systems never reach critical mass. Opt-out gets critical mass and high adoption rate quickly – everyone wants in on Doubleclick and Experian’s databases. Benefits of opt-out: readily accessible credit, microtargeting (less spam), cookie-enabled websites. Consumers so far have made this bargain. The problem is these exponentially increasing curves are hurting privacy, and users are starting to rebel.

Hoffman proposes a new bargain – he thinks it will either be consumer-driven or government-imposed. Three components: (1) you should be able to find and know your data wherever it exists – no one should know more about you than you do; (2) you should own it, and be able to opt out either totally or selectively; (3) you should be able to share your data – move it to any service you want.

Moderator: we’ve heard a lot about the negatives of this shift to peer reputation. What are the positive aspects?

Ghosh: Reputation is essential to everything we do – as more decisions get made without the information provided by market pricing, reputation is more important. It’s just not now being implemented by mechanisms that work the same online as offline.

Hoffman: Reputation is contextual – Bill Clinton can be a good leader and a bad husband. Yale has a good reputation, unless you’re from Harvard. Reputation is overall an unsolvable problem. Only chunks of it can be measured well – the FICO score is good at saying how likely you are to pay back borrowed money, but nothing else.

Bauwens: We’re used to kinship groups. New mechanisms allow affinity-based groups to get larger and to trust one another in ways they couldn’t before – traveling to a strange city to stay on a stranger’s couch. (Fandom again!) What doesn’t work, and maybe shouldn’t, is going from one’s slashdot reputation to one’s eBay reputation. There’s a danger of a lowest-common-denominator effect if too much linkage of reputation occurs. If you use everyone’s rating, you get the worst overall. But if you look at what the people you most admire have been liking, you do better. (Bauwens contrasts digg to here.)

Hassan Masum: Problems of information overload – how much information can we stand? Why do we think reputation is important – to enable distributed collaboration, to complement mass media POV, to search through masses of information, to feed our egos, to enable us to decide with whom to transact, or what?

How do we aggregate trust when it’s weighted, subjective, asymmetric, and context-dependent? (Asymmetry is an excellent, excellent point. I keep thinking that everyone here should look at LiveJournal’s friends mechanism; with filters, even mutual “friends” can implement asymmetric interest/trust in one another, though if you’re filtered out of an entry you won’t know about it unless you’re informed through other means. Trust is implemented by each individual through LJ filters, but usually not expressed to others; even the people on a journaler’s filter can’t see who else is on it with them – it’s a blogging BCC.)

Audience: would you rather be highly rated by a small group of peers, or the world at large? Are there areas in which we’re all experts? (Democracy?)

Exemplars: What would it take to pick the most useful voices? Amazon is trying a most useful negative/most useful positive review system, which sounds promising.

How does creation time and number of creators affect reputation? Realtime (chat) v. long-term (book, blog); solo (writing/programming) v. collaborative.

Beth Noveck: Reputation is not simply about risk (managing identity, authentication, offline/online distinctions). People have real economic opportunities to create value by working with strangers. Increasingly, online reputation isn’t the product of the individual alone, nor is it the product of the service provider by eBay, but it’s the collective product of the members who did the rating. It is those sharing communities that should decide the rules about the disposition of one’s reputation online.

Reputation can depend on specific transactions in a marketplace – the Amazon model. Limitations: you get sockpuppets, or you can’t succeed without already having transactions. There’s the Linked-In model of social connections, which depends on your friends participating in the network. There’s the resume model: just put it out there – but again that depends on who you are.

How do individuals without extensive experience in a particular community establish reputation and shore up their promises? How do they guarantee themselves? You need reliable sanctions for defection. How can we enable different social groups to coalesce into bonding groups, providers of insurance? (I’m not sure how this would work. As discussed above, being a good knitter doesn’t mean you’ll be a good eBayer, so how would your knitting circle vouch for you?) Assurance from micro-elites, backed up by real financial teeth, is the way to go.

In discussion, Noveck elaborated (and she's also written an article, as she notes in her position paper): she's interested in ways of bonding performance, say likelihood of showing up and having a good attitude on an assignment. General reputation -- the social interactions that are common subjects of gossip -- is less amenable to bonding.