Friday, August 28, 2009

FTC and Trudeau split decision

Federal Trade Commission v. Trudeau, 2009 WL 2615822 (7th Cir.)

In a mixed ruling, the court of appeals upheld a contempt finding against Trudeau, the infomercial marketer, but remanded on the issue of sanctions. As the court stated, “For over a decade, Trudeau has promoted countless ‘cures’ for a host of human woes that he claims the government and corporations have kept hidden from the American public. Cancer, AIDS, severe pain, hair loss, slow reading, poor memory, debt, obesity--you name it, Trudeau has a ‘cure’ for it.” An FTC consent decree ultimately banned Trudeau from appearing in infomercials for any products, except for books, provided that he did not “misrepresent the content of the book.”

The FTC claimed that Trudeau’s infomercial for The Weight Loss Cure “They” Don’t Want You To Know About misled consumers “by describing a weight loss program that was ‘easy,’ ‘simple,’ and able to be completed at home, when in fact it was anything but. The program requires a diet of only 500 calories per day, injections of a prescription hormone not approved for weight loss, and dozens of dietary and lifestyle restrictions.” Though Trudeau claimed that the diet would enable consumers to eat anything they wanted, the diet in the book actually requires strict limits for the rest of the dieter’s life. The district court agreed with the FTC and ordered Trudeau to pay $37.6 million and banned him from appearing in any infomercials, even for books, for three years.

Trudeau has a history of misrepresentations, in which he persisted after multiple FTC actions, which was why the consent decree was so broad.

Trudeau argued that he was merely quoting from the book, which describes the diet as “easy to do,” and also states that dieters in the final phase can eat “anything you want, as much as you want, as often as you want.” But cherry-picking phrases didn’t accurately portray the overall content, and the consent order prohibited misrepresented misrepresenting content. Among many other things, the diet couldn’t, as advertised, be completed at home because of a requirement that dieters inject themselves with hGC (human choronic gonadotropin), a prescription medication not approved for dieting, and though he claimed “nothing is restricted” the diet had 50 restrictions, including eating only organic food and avoiding fast food/chain restaurants.

The FTC requested reimbursement for consumers, or at least disgorgement of profits from the books, and additional deterrent measures against future contempt. Trudeau disputed that consumers suffered any harm, and that anyway he should only be required to disgorge the money he received for appearing in the infomercials. Conveniently, that sum was zero because he’d sold his rights and agreed to do the infomercials for free, receiving only royalties from retail sales, which he argued couldn’t be tied to the infomercials “despite the big, gold sticker on the cover of the book which reads, ‘AS SEEN ON TV.’”

The district court found the FTC’s top figure too Draconian, but was far less impressed with Trudeau’s arguments. It ordered him to pay over $37.6 million and, given his prior willingness to flout court orders, determined that only a complete ban on infomercials for three years would achieve compliance.

The court of appeals upheld the contempt finding because there was no abuse of discretion. The requirements for contempt: clear and convincing evidence of significant violation of an express and unequivocal command of a court order. Cherry-picking phrases that actually appear in the book can still misrepresent its content. (See also: To Serve Man.) The consent decree wouldn’t be very much use if it merely prohibited misquotation. “Content” refers to substance—“essential meaning.” “When people buy books, they purchase the author’s ideas, as expressed through an amalgamation of many individual statements. They don’t purchase select quotes …. So it’s possible to accurately recount specific statements in isolation but still completely misrepresent the ‘content’ of the book by allowing consumers to infer that the quotations are indicative of the content, when in fact they are not.” And that’s just what Trudeau did:

[I]n the infomercials, Trudeau fails to mention a single aspect of his weight loss protocol. He never talks about the 500-calorie-per-day limitation, the colonics (or water enemas), the organ cleanses, the 100% organic diet (which the book even acknowledges is “next to impossible”), or any of the other dietary or lifestyle restrictions that the book says dieters “must” adhere to. … [D]ieters are left with either convincing their doctor to prescribe hCG off-label or traveling to a foreign country, as Trudeau did, to get the drug. But only after the infomercial viewer spends the money to buy the book does he or she learn any of this.

The court further noted that hCG risks serious adverse reactions, and that the infomercial says that no exercise is required while the book says it’s highly recommended, even during the phase where the dieter is supposed to be eating 500 calories a day.

Trudeau argued that “easy” was mere subjective opinion. In many circumstances, the court acknowledged, “easy” would be mere puffing. But bragging about the relative ease of a product is not per se puffery. Puffery’s safe harbor depends on lack of materiality: the fact that no reasonable person would rely on it. “Given the large number of weight loss programs on the market, we think a reasonable person would rely on statements about the relative ease of the program being marketed.” Subjective, comparative terms can still deceive. A program of drugs and a restricted and rigorous diet is not “easy” compared to any number of other available weight loss programs. Moreover, the puffery argument missed the point, which was about the overall message of the infomercials and not single quotes.

“Through a repetitive mosaic of vague, glowing statements, Trudeau creates an image of a safe, simple, inexpensive way to shed pounds without exercise or dietary restrictions.” But that’s not what’s in the book. He never mentions hCG injections, instead touting a “miracle all-natural substance” that is “easy to get”—“you can get it anywhere”—and that is the “[s]afest, most effective way to lose weight on Planet Earth.” The court was particularly troubled by the safety claims given the serious possible side effects, and of course hCG can “hardly [be picked up] at the corner store.” Worse, Trudeau reinforces the “easy” message with comments such as “this substance, combined with a few other little things in the protocol, triggers the hypothalamus gland” (emphasis added). Comment: I find it interesting that the court recognizes, however glancingly, that consumers can reasonably rely on vague and flattering statements, which is not something that puffery doctrine is willing to admit even though it's patently true.

Even assuming that part of the pitch was mere puffery, the infomercials are “loaded” with other patently false statements, such at the “at home”/“you don’t have to go to a clinic” claims. The book instructs that the injections have to be under a doctor’s supervision and that a licensed colon therapist must perform all colonics. Dieters would at least have to go to the doctor’s office.

Likewise, the “nothing is restricted claim” is false. The book does say that, but its very next statement—omitted from the infomercials—is “The only caveat is only eat 100% organic food.” And there’s more in the book: “No food produced by publicly traded companies. No fast food or food served in regional or national chain restaurants. No corn syrup. No artificial sweeteners. No trans fats. No MSG. No food prepared in a microwave. No farm-raised fish.” (Most nonfarmers would probably lose weight were they able to follow those rules—because they’d be starving. Also, what's up with publicly traded companies? Private holdings are less fattening?)

The quotations were deceptive, misleadingly incomplete. Without more details, consumers “are led to believe that Trudeau’s statements are more than just his beliefs; they appear as objective facts.” Plus, Trudeau also outright lied. For example, in one infomercial, he claimed that the regime described in the book was “not a diet, not an exercise program, not portion control, not calorie counting, ... no crazy potions, powder or pills....” But not a word was true. Among the book’s “MUST”s: “eat only 100% organic food, walk an hour a day, eat six meals per day, eat only 500 calories per day for up to 45 days, drink organic raw apple vinegar cider, and take probiotics, krill oil, Vitamin E, digestive enzymes, and Acetyl-L Carnitine.”

Trudeau did much worse than Lane-Labs in arguing that he diligently tried to adhere to the decree. He argued that the infomercials were no different from previous Natural Cures infomercials, to which the FTC had not objected and thus implicitly blessed, and also complained that the FTC never warned him before filing its contempt complaint, even though it had seen the infomercial 8 months earlier. The FTC’s lack of objection to Natural Cures infomercials was largely irrelevant, certainly not enough to trigger estoppel against the government. Trudeau’s reasonable reliance on his experience with Natural Cures ended when he began making false statements about Weight Loss Cures.

The 8-month delay between first airing and the contempt petition was also unimportant. The FTC knew about the infomercials by January 2007 but only got its copy of the book in March, perhaps because the book hadn’t yet been published when the infomercials started running. The enforcement division concluded its review in July, and then it took a couple of months for the bureaucracy to autorize the contempt action. That’s not prolonged and inexcusable, as required for laches against the government. And despite Trudeau’s careful framing of the issue, there was no evidence he provided the FTC with a manuscript or some other means to speed up the review process, nor that he stopped airing the infomercial after the contempt petition was filed.

The amount of the sanction had to be remanded, though. The final $37.6 million figure might ultimately be correct, but the district court didn’t provide enough information about how it was calculated, whether it will be returned to consumers, and what will happen to money left over after restitution. The court of appeals did reject Trudeau’s arguments that he was entitled to greater procedural protections, such as jury trial and a beyond-a-reasonable-doubt standard, for setting the award, because a compensatory award—such as the one the district court said it was making—is civil contempt, not criminal contempt. But this distinction makes it important to ensure that the award is in fact compensatory, thus the remand for improved detail.

Likewise, to ensure compensation, the court order should specify that the FTC “must use the funds to reimburse book purchasers.” Trudeau should be forced to put the money in escrow or in the court’s registry and allow the FTC to access and disperse those funds to reimburse consumers and to cover the costs of reimbursement. The court did reject Trudeau’s argument that any order should require excess money to be returned to Trudeau. Civil contempt sanctions can be based on unjust enrichment, even if that exceeds victims’ losses. But the court expressed no opinion on whether a return-to-contemnor provision would be appropriate.

Finally, the court agreed that the three-year ban on infomercial appearances was erroneous because it failed to give Trudeau an opportunity to purge his contempt by complying with the underlying order not to misrepresent his books. Civil contempt must either compensate those harmed by the contemnor’s violation or coerce the contemnor to stop the violation. Other sanctions are criminal and require criminal process. The infomercial ban is not compensatory, so it needs to be coercive, which the court found a closer question. Trudeau can’t produce deceptive infomercials if he can’t produce infomercials at all. But there must be an opportunity to purge the contempt, allowing the contemnor to perform some affirmative complying act. Here, Trudeau could have some sort of conversion experience about what “They” want you to know and he’d still be barred from infomercials.

The FTC argued that the infomercial ban was simply a modification of the earlier consent order, but the court never explicitly granted the FTC’s motion to modify, and treated the ban like a contempt sanction. If a modification was at issue, then the parties needed the opportunity to debate it. The district court, on remand, could modify the consent order, fashion a coercive remedy, or even impose a criminal sanction, provided it follows the proper procedures for its choice. (Hard to see how the contempt at issue in an infomercial ban could be purged—what would affirmative act could Trudeau take?)

(Side notes: (1) The distinctive, casual but professional 7th Circuit style is on display here in Judge Tinder’s opinion. I wish it would spread further. (2) “Contemnor” is such a great word. We’ve even had a Contemnor-in-Chief now.)

Thursday, August 27, 2009

FTC loses substantiation case because of good faith

FTC v. Lane-Labs USA, Inc. (D.N.J. Aug. 11, 2009)

Liability under the Lanham Act and the FTC Act is strict. What about liability under a FTC consent order requiring the advertiser to have scientifically reliable substantiation for its claims? Here, the district court found no violation of the consent order on what seem to me to be overstated grounds.

Lane-Labs made claims for a calcium product and a male fertility enhancer. Of particular note, among the representative claims for the calcium product were that AdvaCAL has been “clinically shown to be three times more absorbable than other calciums”; it’s “absorbed three times better than typical calcium carbonate/coral calcium supplements”; and it’s the “only” calcium that can increase bone mineral density. The FTC’s expert had previously been employed by Lane-Labs. The study he conducted compared absorbability of calcium between AdvaCAL and Citracal, another supplement. His study concluded that while AdvaCAL was absorbable, it was inferior to Citracal by 20%. The district court thought that he had unreasonable standards for what counted as scientific substantiation, but did not in any way criticize the results of this study.

The court found that the case was a battle of the experts, and credited defendants’ (current) experts over the FTC’s. The FTC’s calcium expert agreed that AdvaCal was a good source of calcium, and its fertility expert opined only that the active ingredient was not proven (also that it might be risky and that he therefore wouldn’t use it). Neither testified, the court concluded, that the products generated a health risk.

The court considered that Lane-Labs did what it was supposed to do: sought expert advice before relying on scientific articles, rather than making claims out of thin air. The court was concerned that laypeople should not have to do more than can reasonably be expected. This seems to be a new standard. So if a company is headed by a layperson, it can make broader and less reliable claims than Pharmacia can? The underlying idea, that one ought to be able to rely on peer-reviewed studies, is not at all crazy, but the court doesn’t seem very concerned about advertisers’ self-serving bias when they decide which evidence to rely on and which to discount, despite what happened in this very case.

The court concluded that various misstatements conceded by Lane-Labs had “slipped through the cracks,” but overall “the impression created by Defendants’ advertisements is that both supplements are good products that will most likely help the people who take them.” I didn’t realize that general impressions were all that was evaluated. The court was satisfied that the products were “good” and “could have the results advertised.”

The court was also concerned that Lane-Labs had, in compliance with the consent order, submitted its marketing materials to the FTC for years and only a few years ago gotten notified of the FTC’s intent to seek monetary penalties. “[T]o tell Defendants that their efforts were not good enough years after not advising them of any compliance issues is disengenuous and is highly relevant to the inquiry into whether Defendants should have done something different in the first instance.” The court, however, claimed not to be relying on a laches theory in rejecting the FTC’s claims. Still, because Lane-Labs obtained scientific evidence that experts said could be relied upon and were never told otherwise, it would be “fundamentally unfair” to find them in violation of the consent order now.

What I find especially interesting is that there is no suggestion in the opinion that there was a whit of evidence supporting the false comparative claims, and defendants had a study in hand concluding that their product was inferior. By the court’s own logic, that was the best evidence they had, and they should not have been making comparative claims even if they hoped that the evidence before them was wrong.

Wednesday, August 26, 2009

Recent reading: piracy as creativity

One of the most interesting pieces I've read in a while: Lawrence Liang, Piracy, Creativity and Infrastructure: Rethinking Access to Culture

Liang argues that Western low-protectionists haven't fully appreciated the relationship between piracy, access, and creation, and that while proponents of remix culture have too readily condemned pure copying, the Access to Knowledge folks have focused their discourse too much on medicines and medicinal (educational) knowledge, rather than access to sources of pleasure, which are also part of human rights. He writes:

One way in which the ‘copyright infringer’ is rescued from the accusation of being an illegal pirate is through an act of redemption, for instance by showing that their acts of infringement actually result in an increase in creativity, and this is often done through doctrines such as the idea of transformative authorship. But then what happens to entire realm of non transformative authorship or the ‘Asian piracy’ which does not necessarily transform but merely reproduces ceaselessly using cheap technologies? How do we read this account of the public domain? While one can understand that Lessig would have to be careful about the ways in which he pitches a reform of copyright law within the context of the US, it is also a little difficult not to miss the linkages in [his condemnation of commercial Asian piracy] to older accounts of illegality in which Asia, where many of accounts of the urban experience in Asia and Latin America have been narrated in terms of its preponderant criminality and illegality. This for instance is particularly true, not merely in the context of the colonial imagination, but also in the ways that cities and everyday life in Asia is understood. While the US has always narrated itself through the tropes of constitutionalism and the rule of law, the crisis arrives, when all of a sudden, the very language of criminality and illegality that accounts for much of the world arrives home in the form of the criminalization of students downloading music… .

[C]onventional criticisms of piracy are premised on narrow ideas of creativity, because of their exclusive focus on the question of authorship and content to the exclusion of infrastructure.. . .

Liang reminds us that creation comes in stages, as Julie Cohen has done: future authors depend on access to a landscape of creative works even if they do not directly and immediately transform those works:

There is currently a lot of excitement about the contemporary art scene in China, and indeed it seems to be the flavor of the month in the global art circles. There are thousands of people who are lining up to join art schools, and one of the Chinese curators had this to say “When you can buy a Tarkovsky film for a dollar, you will obviously produce many more artists”.

The existence of contemporary art and other forms of cultural production are always predicated on the material conditions of the life of its practitioners.. . .

And he ends with a fabulous call to recognize pleasure as a need worthy of recognition for all people:

[O]ne of the problems of piracy seems to lie in the fact that it is associated more with the world of pleasure and desire than ‘pure needs’. In this segment, I will attempt to examine the intersection between the world of desire, subjectivity and the experience of piracy.

Let me begin with an interesting story, which is a typical example of interventions in the field of the digital divide. An NGO in Bangalore that works in the field of Information and Communication Technologies for Development (ICT4D) was conducting a workshop on accessing the internet for the information needs of rural women trainers. The facilitator guided the women through the basics of the internet, on accessing information relevant to their work ranging from rural credit to women’s health. The training was highly appreciated, and all the women volunteers seemed to be enjoying themselves fiddling with the computer and exploring the internet. At the end of the training, when the NGO started cleaning up the computers including the history and the cached copies, they were a little aghast to find that most of the women volunteers had been surfing pornography, and a range of pornography at that. So while the trainers were holding forth eloquently about the real information needs of the poor, the poor were quite happy to access their real information needs.

Being good in business is the most fascinating kind of art


Tuesday, August 25, 2009

Scariest headline I've seen in a while.

In the future, everyone will monetize their 15 minutes. Google, what happened to "don't be evil"? Is this the world you really want to live in?

Best Twilight-related merchandise ever.

NSFW. It's a sex toy; it sparkles. Some of the promo text:

The Vamp [has] a deathly pale flesh tone reminiscent of the new moon's glow. ... Don't be surprised if this toy seduces you, its long sleek shaft and deliciously ridged head calling to you in the twilight. ...

Don't let this eclipse pass into the breaking dawn, place your order today.

Dilution? What mark is being used? Is this really any different from the Twilight-related merchandise on Etsy?

Monday, August 24, 2009

LaunchCast victory affirmed

Quote of the Day: “Whatever the etiology of the Copyright Office’s inability to make up its mind, we find the Copyright Office efforts here of little help.” Arista Records, LLC v. Launch Media, Inc., No. 07-2576-cv (2d Cir. Aug. 21, 2009) (holding that LaunchCast is, as a matter of law, not interactive for purposes of the digital sound recording performance right licensing regime).

Also: finally an explanation of how LaunchCast works. I used to love that service until poor customer relations drove me away. (In fact I think my first blog post was about Launch.) Thoughts: 1. Based on personal experience, I strongly believe that Launch at inception selected songs to play very differently than Launch does now. 2. The current method seems to mean that rating a song you like decreases your chances of hearing it again any time soon. 3. Which goes along way towards explaining why I cancelled my subscription and now use iTunes, vids, friends and music blogs to find new music. All I ever wanted was an explanation for why you kept playing me country songs, Launch!

Sunday, August 23, 2009

Litigation privileges and false advertising

Pactiv Corp. v. Perk-Up, Inc., 2009 WL 2568105 (D.N.J.)

Plaintiffs sued defendants for various claims centered on a patent for sealable food containers sold under the mark VERSAtainer. Defendants (the main one, Kari-Out, is both a customer and a competitor: it redistributes the VERSAtainer to various clients and sells its own food containers) counterclaimed for false advertising, trade libel, tortious interference, etc. Basically, defendants alleged that plaintiffs began treating defendants badly, making it impossible for them to compete with other redistributors, and approached defendants’ customers and offered to sell directly to them at steep, short-term discounts. Also, they alleged that plaintiffs’ patent and trade dress lawsuits were objectively baseless, used to crush competition, including by notifying customers of the lawsuit. Plaintiffs also allegedly falsely told customers that Kari-Out had a large outstanding debt with plaintiffs and that Kari-Out didn’t have and wouldn’t be able to sell relevant products.

In a move I must admit confused me, plaintiffs moved to dismiss on grounds of protection under New Jersey’s litigation privilege. I didn’t think a state-law privilege of this sort could defeat a federal claim, but the court held that the filing of the complaint was protected by the litigation privilege. The court went on to note that federal law shields a patent holder from liability for publicizing its patent in the marketplace, unless objective and subjective bad faith is shown. “A patentholder’s privileged right to make statements about potential infringement of his patent and federal prohibition of unfair competition does not conflict because patents publicized in bad faith do not further the purposes of patent law.” Here the counterclaims had trouble with Twombly: although they alleged that the infringement claims were objectively baseless, defendants failed to provide any facts suggesting that plaintiffs actually gained the alleged knowledge of noninfringement or that discovery would reveal evidence of knowledge. (So we get the standard complaint about Twombly: those facts the court wants seem to be the kind of things uniquely known to the target of the allegations and hard to specify in advance of discovery.) Thus, the allegations of bad faith publicity were not sufficient to survive a motion to dismiss.

As for the rest of the false advertising claims, plaintiffs alleged that the statements were true at the time they were made: Kari-Out owed them money and they weren’t going to continue shipping product to Kari-Out until the debt had been satisfied. The court found that the remaining false advertising counterclaim, the trade libel counterclaim, and the tortious interference claim survived the motion to dismiss. Defendants sufficiently alleged that the statements were made to enough customers that Kari-Out lost sales and goodwill, and that customers were left with a harmful false impression.

Game, set, affirmance

Marcinkowska v. IMG Worldwide, Inc., 2009 WL 2562745 (Fed. Cir.)

Marcinkowska, a former pro tennis player, has a patent for a dual surface for a sport event/game. She sued defendants for infringement as well as Lanham Act violations based on their staging of a tennis match in Spain on a dual-surface court, “The Battle of the Surfaces.” The Battle featured the then-top-ranked grass player, Roger Federer, against the then-top-ranked clay player, Rafael Nadal. (Nadal won.)

The court of appeals affirmed the dismissal of the claims against an Argentine ad agency on jurisdictional grounds. Against IMG, the court affirmed the dismissal of the patent claims because US patent law isn’t extraterritorial and IMG didn’t make, use, sell, or offer for sale the subject matter of the patent, even though (1) its globally accessible website promoted the Battle, used pictures of the hybrid tennis court, promoted ticket sales in the United States, and enabled the download of photographs and videos of the match and (2) IMG controlled and was paid for the broadcast rights to the Battle in the US and promoted its services using images from the Battle. The court of appeals agreed that these allegations stretched the definition of “use” too far. The hybrid tennis court wasn’t used in the US; it was used in Spain, and that use was broadcast in the US.

The Lanham Act claims also failed. They were based on the section of the Battle website stating “the idea for the hybrid court ‘began with an idea by Pablo Del Campo, president of Del Campo Saatchi & Saatchi.’” According to the court of appeals, “United States Patents and Trademarks do not protect ‘ideas’--they protect novel, nonobvious, and useful inventions and marks associated with goods or services.” There was no false advertising of any “name, description, or origin” of Marcinkowska’s goods or services in the US. This is all a bit confusing, given that (1) the court previously classified her claim as arising under §43(a)(1)(B), thus it’s not a trademark claim; and (2) the Lanham Act explicitly covers misstatements about one’s own goods and services—i.e., the Battle—as well as misstatements about others’. Of course, using standard doctrine, Dastar plus §43(a)(1)(B)’s materiality/competition requirements dispose of this claim equally quickly, but I’d classify this case as an example of persistent confusion about the relationship between trademark and false advertising law.

Saturday, August 22, 2009

Friday, August 21, 2009

Ambusch marketing

Beer cans in college towns using college colors. The story notes that some colleges have complained on trademark grounds, because trademark law now is so expansive that teams can credibly claim an exclusive right to remind people of themselves. Whether from legal or PR fears, Anheuser-Busch says it will pull any campaign if a college formally protests. The real concern, which isn't about confusion, is that college students will be induced to consume more beer because of the free-riding on the warm fuzzy feelings associated with the teams. One concerned editorial in a school newspaper even warned of tarnishment if an LSU student did something dumb with a school-colors beer in hand. (Because I'm sure there'd be no effect on the school's reputation if the student did something dumb with a regular beer in hand.)

A representative of the University of Texas is quoted in the story saying that she wasn't concerned about the campaign because the colors were different enough to be distinguished. Well, that, and perhaps that longhorn is already out of the barn?

Wednesday, August 19, 2009

iPhone apps: cash cow or anticommons?

Apple exercises a lot of control over its App Store, raising various issues. But other people would like a piece of that pie (no pun intended) as well, including transit authorities. The latest story involves NY's MTA, which is in the process of negotiating a license with the developer of StationStops. To his credit, the developer insists that the license must be for extra benefits--easy, secure updating of the data--rather than access to the data themselves, since those are by nature public facts. He's blogging the entire thing, which the MTA would probably prefer he not do, but I like a lot.

"All natural" case not at all preempted

Holk v. Snapple Beverage Corp., -- F.3d – (3d Cir. Aug. 12, 2009) Holk brought a putative class action against Snapple for misrepresenting its drinks as “all natural” when in fact they contained high fructose corn syrup, made from processed cornstarch. (Snapple has since been reformulated to contain sugar.) Snapple removed under CAFA, and the district court dismissed the complaint on implied preemption grounds. (There were other falsity claims, but “all natural” is the only one left.) The court of appeals reversed. The District Court reasoned that the FDA had issued comprehensive regulations governing the labeling and naming of juice drinks, balancing the various interests. As the FDA has acknowledged, “[t]he word ‘natural’ is often used to convey that a food is composed only of substances that are not manmade and is, therefore, somehow more wholesome.” But the FDA never defined “natural.” Still, the District Court found, the “FDA has in fact contemplated the appropriate use of the term,” as indicated by its definition of “natural flavor” and an informal policy regarding use of the term “natural.” Thus, the FDA so thoroughly occupied the field that Congress couldn’t have intended to leave the states room to act. Moreover, the court deferred to the FDA’s expertise; if the FDA, with all its scientific expertise, hasn’t yet set rules for “natural,” then a court shouldn’t do so. The court of appeals began with a presumption against preemption, since health and safety issues, including food and beverage labeling, are traditionally within the province of state regulation. Snapple argued that a century of federal regulations rebuts the presumption, but the Supreme Court has already rejected that argument.

The court then found that Snapple had waived its express preemption argument with respect to “all natural.” In a footnote, it suggested that the FDA apparently considers high fructose corn syrup a sweetener and not a flavoring, which would mean that the portion of the statute on which Snapple relied would be inapplicable anyway. Moreover, that statute, §343(k), is a disclosure requirement: it establishes what companies must put on a label. Holk was arguing about what marketing messages companies can’t put on labels when they use high fructose corn syrup, which is “an important distinction.”

Snapple next argued field preemption. But NLEA, the main relevant federal labeling law, declares that courts may not find implied preemption based on any of its provisions (though it allows courts to find implied preemption based on other sections of the FDCA). So Snapple argued that the pre-NLEA FDCA “broadly addressed labeling and the misbranding of food and beverage products,” and that the FDA has promulgated “exhaustive” regulations for juice in particular. Finally, Snapple argued, the FDA has addressed high fructose corn syrup and found it to be “natural.”

Holk replied that the issue isn’t juice, but food and beverage labeling, and that the NLEA’s anti-preemption provision would have been purposeless if the FDCA already occupied the field.

The court of appeals agreed: “It does not appear that Congress has regulated so comprehensively in either the food and beverage or juice fields that there is no role for the states.” Indeed, there is a tiny preemptive provision specific to juices, which means that Congress recognized the existence of state laws regulating beverages generally and juice products specifically, but apparently chose not to preempt more broadly. The case for preemption is weaker when Congress has recognized dual schemes but has decided to tolerate whatever tension is created. Moreover, the FDA has stated in the past that it doesn’t intend to occupy the field of food and beverage labeling, or the field of juice product regulation. Finally, the court of appeals was reluctant to find field preemption based solely on the comprehensiveness of federal regulation; the Supreme Court has repeatedly held that the mere existence of a federal scheme, even a comprehensive one, doesn’t itself imply preemption.

Finally, Snapple argued conflict preemption, which occurs when either compliance with both regimes would be impossible or when state law stands as an obstacle to Congress’s purposes. Snapple took the position that the FDA has a policy on the use of the word “natural” and that Holk’s lawsuit undermined that policy by adding additional conditions.

Holk rejoined that there are no federal requirements in place defining “natural,” and that even if she won her claim, Snapple wouldn’t be required to take specific corrective action.

The first question was whether there were any federal requirements regarding “natural.” Not every agency action counts as conflicting “law.” Courts look for a relatively formal administrative procedure, tending to foster the fairness and deliberation that should justify deference. This principle had to be applied to the FDA’s “informal policy,” announced in 1991 when it noted that it was considering defining “natural.” At that time, the FDA stated, “[T]he agency has considered “natural” to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there. For example, the addition of beet juice to lemonade to make it

pink would preclude the product being called ‘natural’” (emphasis added).

The court of appeals concluded that this policy statement was not entitled to preemptive effect. First, the FDA ultimately declined to adopt a formal definition of “natural,” even after soliciting comments about the use of the term and recognizing that it’s an important term for consumers subject to misleading use, “[b]ecause of resource limitations and other agency priorities.” A decision not to regulate is consistent with leaving matters to the states. The FDA declared that it would continue to adhere to its informal policy, but that lacks preemptive weight; the informal policy was not subject to notice and comment and was derived without the benefit of public input.

Nor did the FDA appear to consider all the comments received—one comment suggested that restrictions on “natural” could raise First Amendment concerns, but the FDA considered this issue moot in light of its decision not to proceed with a formal definition. There were still “many facets of the issue that the agency will have to carefully consider if it undertakes a rulemaking to define the term ‘natural.’” Thus, the informal policy lacked the indicia of fairness and deliberation required for judicial deference.

Snapple nonetheless argued that preemption was appropriate because the FDA has enforced the informal policy, telling some manufacturers to remove the term “natural” from certain labels. That’s not enough. “[T]he deficiencies inherent in the process by which the FDA arrived at its policy on the use of the term ‘natural’ are simply too substantial to be overcome by isolated instances of enforcement.

The court also rejected Snapple’s argument that a favorable 2008 letter from an FDA official was entitled to weight—it too was not part of any formal rulemaking or adjudication, but was in response to a question from interested parties. “As a result, there is no conflict in this case because there is no FDA policy with which state law could conflict.”

Lanham Act doesn't cover competition with customers

Harold H. Huggins Realty, Inc. v. FNC, Inc., 2009 WL 2449888 (N.D. Miss.)

“Plaintiffs are real estate appraisers who provide appraisal reports to mortgage lenders as part of the process of originating mortgage loans. Defendant FNC also provides services and products to mortgage lenders, including a web-based service called AppraisalPort, which allows mortgage lenders to request written appraisals from appraisers and ‘allows appraisers to transmit information ... contained in appraisal reports, to lending institutions....’”

Plaintiffs alleged that FNC misrepresented that it didn’t have access to the appraisal data that passed through AppraisalPort and that it wasn’t building a database from that data. They sued for false advertising, conversion, misappropriation, and related claims.

The court found that plaintiffs had constitutional standing under the Lanham Act, but not prudential standing. The Fifth Circuit test requires assessment of 1) the nature of the plaintiff’s injury; 2) the directness or indirectness of the asserted injury; 3) the proximity or remoteness of the party to the alleged injurious conduct; 4) the speculativeness of the damages claim; and 5) the risk of duplicative damages or complexity in apportioning damages.

The nature of the plaintiffs’ injury was not at the core of what Congress sought to redress in the Lanham Act—commercial interests harmed by a competitor’s false advertising, specifically the diversion of business. The injury here was not competitive: the misrepresentations were directed at plaintiffs as potential consumers of AppraisalPort, “not against them in a competitive capacity,” and consumers don’t have standing to sue under the Lanham Act. Likewise, under the second factor, the ultimate loss of business alleged when lenders use FNC’s database instead of a tradiational appraiser isn’t directly attributable to the challenged conduct.

The third factor “arguably” weighed in favor of standing, given that, on the facts alleged, it was very hard to figure out who else would be in a position to sue other than clients-turned-competitors.

Factors four and five are about damages, and the court found that the damages claim was speculative and created risks of duplication/apportionment. Each plaintiff would need to show that FNC used the data it submitted through AppraisalPort to build FNC’s database, that a lender subsequently needed information on that property and opted to use the database instead of an appraisal, and that the lender would have chosen the plaintiff instead of another appraiser in the absence of the database; this last bit is “simply too tenuous” to support standing.

Lanham Act claim dismissed. Under current standing doctrine (and where is that textual basis in the Act, again?) some false advertising just can’t be redressed under the Lanham Act.

FNC also argued that the fraud-based claims should be dismissed for failure to plead with sufficient specificity. The court agreed, but dismissed without prejudice to allow plaintiffs to meet Rule 9(b)’s heightened requirements.

Tuesday, August 18, 2009

Trade name infringement as false advertising

Hunters Friend Resort, Inc. v. Branson Tourism Center, L.L.C., 2009 WL 2450281 (W.D. Mo.)

Hunter’s Friend (apostrophe present in text, but not in caption) sued defendants for copyright infringement, trademark infringement, false advertising, and related torts under state and federal law. The parties rent and/or sell condos in Branson, Missouri, and operate competing websites. Plaintiffs alleged that defendants copied pictures of properties and descriptive texts from plaintiffs’ sites and put them on defendants’ own sites, replacing plaintiffs’ contact information with defendants’ and misleading consumers. Allegedly, when plaintiffs’ representatives called defendants and asked about plaintiffs’ properties, defendants told them that defendants couldn’t make reservations for those properties, or that plaintiffs didn’t have any properties available, and then directed them to defendants’ own properties.

The copyright claim was dismissed because plaintiffs failed to allege they had a registration for the photos and text.

Defendants argued that they didn’t mislead consumers because their representative told a person posing as an interested customer that “Branson Tourism Center doesn't make reservations for Treehouse Condo Rental but they do have a beautiful place just across the road with the same great location.” But plaintiffs also alleged that another representative said that plaintiffs didn’t have any units available. Anyway, the allegation of copying pictures and text, but changing the contact information, states a claim under §43(a)(1)(A). (I sense a Dastar problem with framing the issue that way, but don’t disagree that a claim has been stated.)

Plaintiffs also alleged a violation of §43(a)(1)(B). Defendants argued that they told potential customers they couldn’t make reservations for plaintiffs’ properties, but plaintiffs nonetheless alleged a misrepresentation of the nature and characteristics of both parties’ services: defendants allegedly falsely directed plaintiffs’ potential customers to contact defendants.

Here we have trade name infringement as false advertising. Query whether (a)(1)(B) adds any bite, given the usually greater ease of success for trademark infringement claims. Perhaps if we consider the pictures/descriptions on the website to be false statements instead of misleading ones (false by necessary implication?), a (a)(1)(B) violation would actually be easier to make out than a multifactor confusion analysis. But probably not, since the same considerations leading us to sort this into the “falsity” box would also point heavily in the plaintiff’s direction in the confusion analysis.

First Amendment fails to justify dismissing false advertising allegations

Franklin Fueling Systems, Inc. v. Veeder-Root Co., 2009 WL 2462505 (E.D. Cal.)

A relatively routine motion to dismiss where there seems to have been a relatively serious, but unsuccessful, effort by defendants to import general First Amendment standards into commercial speech law.

In 2000, California required most gas stations to upgrade vapor recovery systems over a ten-year period. In order to comply, these Enhanced Vapor Recovery (EVR) and in-station diagnostics (ISD) systems need to be certified by California’s Air Resources Board (ARB). Franklin bought rights to the ARB-certified Healy EVR. Veeder-Root has a competing ARB-certified EVR system and an ISD; a later Veeder-Root EVR using a substantially cheaper carbon canister was also certified.

Franklin alleged that prior to Veeder-Root’s certification, its Healy System had 100% of the market, which dropped to 95% through early 2009. It claimed that Veeder-Root distributed false marketing materials including statements that (1) one in four (22%) of Healy Systems failed, and (2) that an ARB investigation had concluded that problems with the Healy System were triggering alarms on the Veeder-Root ISD, causing the Veeder-Root ISD to shut down dispensers (and increasing site maintanence costs).

Apparently, gas station owners began reporting problems when they were using Veeder-Root ISDs and Healy EVRs. But the problem, Franklin alleged, was with the Veeder-Root ISDs, which shut down all a station’s fueling dispensers when false alarms occur frequently and thus require a technician to reset the system; other ISDs didn’t have that problem. After a number of complaints, the ARB allegedly did begin an investigation, but warned both companies not to publicize statements about cause until it completed its work. Though it hasn’t reached a formal conclusion, it has released a PowerPoint with tentative findings.

Franklin alleged that it had suffered significant losses, including a reduction in market share from 95% to 75%-50%, resulting in the loss of millions of dollars.

Veeder-Root challenged the sufficiency of Franklin’s pleadings, making the usual claims that its statements were opinion and puffery, not fact, and arguing that its statements were true, as witness the information released by ARB. That last is not appropriate for a motion to dismiss, and the opinion/puffery arguments were equally weak given the specific claims alleged.

Similarly, Franklin’s trade libel claim survived. Franklin sufficiently alleged that (1) Veeder-Root disparaged the quality and performance of the Healy system by falsely stating that ¼ failed and that the Healy system caused the false alarms; (2) the falsity was knowing and with reckless disregard for truth; (3) it was intentionally distributed to customers; and (4) Veeder-Root knew or had reason to know this would damage Franklin, and special damage did occur.

Veeder-Root argued that its statements were privileged under the First Amendment and California law. While opinion is fully protected, falsifiable facts aren’t (subject to the other requirements, of course), and so the First Amendment argument failed. Nor were the statements protected by a competition privilege. California recognizes such a privilege against liability for inducing a third person not to enter into a prospective contractual relation with a business competitor, as long as the actor doesn’t use improper means or illegally restrain competition. Trade libel is, however, an improper means.

So too with Franklin’s state-law false advertising claim, which covers both false and misleading statements. California law treats puffery similarly to federal law. Veeder-Root argued for First Amendment protection because its statements raised issues of public concern. But one may not “immunize false or misleading product information from government regulation simply by including references to public issues.” Kasky v. Nike, Inc., 27 Cal.4th 939, 966. The allegedly false or misleading product information at issue was still actionable. Franklin’s unfair competition and intentional interference with prospective economic relations claims also survived.

Monday, August 17, 2009

When is descriptive use not descriptive?

Lettuce Entertain You Enterprises, Inc. v. Leila Sophia AR, LLC, N.D. Ill. (June 8, 2009)

I love this case because it hits one of my fascinations, the overlap between nominative and descriptive fair use. If only I could find a picture of the sign! Watch while a use that is concededly in most any sense not descriptive is, correctly, nonetheless deemed fair use. (Bill McGeveran could use this case to bolster his argument that we’ve put too many bells and whistles on TM fair use doctrine, obsessing over categories rather than over whether liability would make any sense; on the other hand, the court had little trouble sorting this particular case into a reasonably plausible category.)

Lettuce Entertain You (LEYE) owns a number of LETTUCE marks for restaurants and catering services. None of its restaurants uses Lettuce in the name, but it uses various LETTUCE-containing websites, vanity phone numbers, and reward cards. It uses “Lettuce” as a version of “let us” in various ways.

LEYE sued defendants for infringement based on a planned restaurant, Lettuce Mix, and the sign defendants had erected at the planned location. Defendants covered the “Lettuce mix” sign with a banner reading “Let us be!” with the words “Name pending ….” below in a smaller font, with an image of a head of lettuce on either side.

The only issue decided was whether that sign infringed. The court decided this as a descriptive fair use. (Though I think this is a descriptive/nominative use, there is arguably a doctrinal reason to stick with descriptiveness: some of LEYE’s marks are incontestable and nominative fair use is not a specifically listed defense to incontestability; however, courts have used nominative fair use to find no confusion as a matter of law, so that’s not a huge barrier to applying the doctrine to incontestable marks.)

To win, defendants had to show that (1) they weren’t using the phrase as a service mark, (2) they were using the phrase in good faith merely to describe their services, and (3) the phrase was in fact descriptive of their services. Put like that, the test sounds difficult for defendants here to meet, especially (3) but the court read the defense functionally.

First, defendants weren’t using LEYE’s mark as a service mark. This assessment depends on both intent and effect (except as we’re about to see there’s no real assessment of effect; as Mark McKenna has pointed out, there’s a choice here between an infinite regress to confusion analysis and a judicially imposed rule that something is not serving as a mark).

“Plainly,” they aren’t using the banner as a service mark. “Let us be” and its associated images doesn’t identify defendants as the source of services “or the uniqueness of a restaurant.” Instead, the banner communicates that LEYE is trying to stop defendants from using their choice of restaurant name. LEYE conceded that the wordplay was an intentional effort to draw attention to the controversy, but considered it free riding on LEYE’s marks because potential customers would “inevitably stop in to learn the story of the dispute.” (Note: I do not think “free riding” means what they think it means.) The court rejected the argument that an intent to profit indirectly from drawing attention to the lawsuit—even if that’s what was going on—constituted use as a service mark. Plenty of non-mark uses can be profit-oriented and attention-getting. One 7th Circuit case held that the use of “I LOVE YOU” by a radio station, though profit-oriented, was used to describe the station’s qualities (apparently the station loved its city very much) and not as a mark.

So: “By ‘Let us be!’ Tehrani means, ‘Hey, Lettuce Entertain You, leave us alone!’ Furthermore, by parodying LEYE’s regular use of LETTUCE as a pun for ‘let us,’ Tehrani also expresses his opinion that LEYE’s enforcement of its mark is an unjustified attempt to appropriate a generic term.”

On to good faith: this requires a subjective inquiry, but the parties agree on defendants’ subjective purpose: “not to describe his restaurant but to express protest of LEYE’s aggressive action against Tehrani’s intended use of the word ‘Lettuce’ as a service mark” (emphasis added). The court didn’t seem to notice that, in context, that sentence could have used a little unpacking; it’s good faith for these purposes, anyway. Aside from that, the combination of images and text “must be descriptive of restaurant services.” Again, sounds a little difficult for this particular use. But descriptive terms impart information directly about the services. The question is whether the use “conveys a meaningful message” other than the secondary meaning claimed by the plaintiff. If so, the plaintiff can’t appropriate a common phrase and prevent others from using it descriptively.

Put that way, the banner is descriptive—not exactly of restaurant services, but of this particular conflict. “Let us be” may evoke LEYE, but it also immediately conveys a message to LEYE. “Even if potential customers viewing the banner do not know or learn of the dispute, it is clear at first glance that the banner is being used to communicate a message of protest.”

The banner may stay; the parties may continue to litigate the restaurant name.

Bonus picture: another nominative/descriptive "fair and balanced" use. I have a bunch of these I use in class.

Friday, August 14, 2009


Recent acquisition: ad for Crazylegs shaving gel from 1972, before the successful right of publicity claim against it. I'm working on collecting more privacy-related materials to expand my IP Teaching Resources Database, but this was more a whim; my library found the ad on eBay.

Thursday, August 13, 2009

Transformertive use

Thanks to Zach Schrag for the picture and the post title.

What sweetens a legend most?

Kremers v. The Coca-Cola Co., 2009 WL 2365613 (S.D. Ill.)

Plaintiffs sued for consumer fraud as putative class representatives, and Coca-Cola removed to federal court. They alleged that Coca-Cola markets Coke using the terms “classic” and “original formula,” but Coke is currently sweetened with high fructose corn syrup (HFCS), not sucrose from sugar cane or sugar beets, as was true from 1886 until about 1980.

In 1980, cost drove Coca-Cola to switch to HFCS. In 1985 came the New Coke disaster and subsequent resumption of pre-New Coke Coke, now labeled as “Classic” or “original formula.”

Plaintiffs moved for partial summary judgment on the meaning of “classic” or “original formula,” which Coca-Cola argued had no unitary meaning. The court agreed with the parties that the terms were not mere puffery. Rather, they served a key purpose: differentiating Classic Coke from the reviled New Coke. “From here on out, however, matters grow decidedly more murky.” (Insert your own beverage joke here.) The court found plaintiffs’ argument that classic/original formula could only mean sucrose-sweetened implausible, because from 1980 to 1985 Coke was sweetened with HFCS. Nor could the court endorse Coca-Cola’s argument that classic/original formula had no popularly-understood meaning; as Coca-Cola itself recognized, those terms are widely understood to denote the pre-1985 formula.

The court dropped a footnote on the true “original” formula, flavored with the leaves of the coca leaf plant, but noted that it was unlikely that anyone would expect that formula.

Analogizing to the similarly worded Lanham Act, the court found that the meaning of an ad for purposes of a false advertising claim is a question of fact. Punt to the trier of fact! Cross-motions for summary judgment denied.

Long-delayed Facenda post

Facenda v. N.F.L. Films, Inc., --- F.3d ----, 2008 WL 4138462 (3rd Cir.)

This case saddens me (disclosure: I used to work at Debevoise, NFL’s counsel, though not within the time period covered by this case), but I really should blog about it, even most of a year later. John Facenda was a Philadelphia broadcasting legend. His voice was “distinctive,” “recognizable,” “legendary,” and even known as “the Voice of God.” Before his death in 1984, he provided the voiceover for many NFL Films productions that showed highlights of football games, some of which were branded as featuring “the Legendary Voice of John Facenda.”

NFL Films used portions of Facenda’s voiceover work in a cable TV show, “The Making of Madden NFL 06,” which was about the video game Madden NFL 06. “Making of” was 22 minutes long, shown on the NFL Network 8 times in the 3 days before the video game’s release. It was entirely positive about the game and included sequences comparing the video game to the actual NFL environment, extolling its realism. It used recordings of three sentences read by Facenda: “Pro Football, the game for the ear and the eye”; “This sport is more than spectacle, it is a game for all seasons”; and “X’s and O’s on the blackboard are translated into aggression on the field.” This makes up 13 seconds of the film, and the excerpts were chosen to underscore the authenticity of the video game to the NFL experience. Facenda’s voice was digitally filtered to sound more like a part of a computer game.

Facenda’s estate sued for false endorsement and violation of his right of publicity. The court of appeals remanded for trial on the Lanham Act false endorsement claim and affirmed the grant of summary judgment in the estate’s favor on the right of publicity claim.

Facenda signed a contract granting NFL Films “the unequivocal rights to use the audio and visual film sequences recorded of me, or any part of them ... in perpetuity and by whatever media or manner NFL Films ... sees fit, provided, however, such use does not constitute an endorsement of any product or service.” (I’d think that “does not” was declaratory, not limiting—that is, the use wouldn’t give NFL Films the right to claim that Facenda endorsed the product incorporating the recordings. Otherwise the rights NFL Films got would seem to be hostage to varying consumer perceptions—which was exactly what happened here, and yet not something I’d think they’d have wanted to agree to. It just goes to show: all contracts are written badly.)

Various emails suggest that the TV program was a promotion, referring to it as the “Madden Promo” or “the Advertisements” in actors’ release forms. But many NFL Films executives also testified that the program was a documentary.

The Third Circuit treats false endorsement as a violation of §43(a)(1)(A). A plaintiff must therefore show ownership of a legally protected mark, use of which by the defendant causes confusion as to sponsorship or approval.

The NFL argued that the program was a work of artistic expression subject to heightened First Amendment protection, in which the altered version of Facenda’s voice had an artistic role in making the point that Madden NFL was connected to the NFL’s history. The program, it claimed, was more than a commercial proposal because of its informational value as a documentary on how the video game was made and how popular it was. And even if it had promotional aspects, they were inextricably intertwined with artistic and informational elements, making the program as a whole fully protected.

The court agreed with Facenda’s estate that the program was commercial speech. The court thought it was like an infomercial: it focuses on one product, all positively, with a clock at the end displaying the number of days until the video game went on sale. It was broadcast eight times in three days right before the release, like an ad for a film. It focuses on a single video game, and the NFL had a commercial motive to run it. Without deciding whether to apply Rogers v. Grimaldi outside the context of titles, the court found that this wasn’t a close case: this was an ad.

Once we’re in commercial speech territory, the Lanham Act doesn’t pose much of a First Amendment problem, because it’s only violated when consumers are likely to be misled or confused.

The standard confusion factors had to be tailored to false endorsement claims. Usually, the test involves comparing the marks of two goods, but that’s an “uncomfortable fit” for false endorsement, which asks whether one party used the other’s mark to falsely imply endorsement. “Rather than protecting its mark with respect to a particular product, the Estate seeks to reserve the exclusive right to grant or deny permission to those who wish to use Facenda’s voice to promote unspecified products in the future.” (Put that way, sounds like a pretty big extension of trademark law, doesn’t it? Not confusion over anything in particular, but confusion—or permission—in the air. Kind of like right of publicity law, except with extra pretense that we care about confusion.)

So the district court modified the Third Circuit factors to ask about (1) the level of recognition that the plaintiff has among the segment of the society for whom the defendant’s product is intended; (2) the relatedness of the fame or success of the plaintiff to the defendant’s product; (3) the similarity of the likeness used by the defendant to the actual plaintiff; (4) evidence of actual confusion; (5) marketing channels used; (6) likely degree of purchaser care; (7) defendant’s intent in selecting the plaintiff; and (8) likelihood of expansion of the product lines. The court of appeals agreed with this approach, adding in consideration of the length of time the defendant employed the allegedly infringing work before any evidence of actual confusion arose. This reformulation applies only to false endorsement claims.

The Estate lacked survey evidence (or even anecdotal evidence) of likely confusion, but that’s only one factor among eight, not required, the way it would be if we were proceeding under regular §43(a)(1)(B) precedent. Survey evidence is “expensive and difficult to obtain,” so we don’t always want to penalize plaintiffs for its absence. (But we do want to penalize false advertising plaintiffs?) Plus, actual confusion would be especially hard to show here because the program aired only eight times on NFL Network, to which many households lack access. (So doesn’t that make confusion less likely? On the other hand, aren’t the consumers who do subscribe and watch particularly likely to know who Facenda was, so shouldn’t they have evinced confusion if they were confused? See below.)

The NFL argued that it would be better to distinguish between expressly and impliedly false endorsements, and require evidence that consumers received an endorsement message for impliedly false endorsements. But that’s a §43(a)(1)(B) approach, and this is §43(a)(1)(A). Here’s a quick quiz: identify the statutory language that justifies an explicit/implicit distinction for false advertising and not for trademark infringement/false endorsement. The court says that the difference is in the statutory language “likely to cause confusion,” which is only part of §43(a)(1)(A). I call logic error. Oh, and the case law also differs. (As my work in progress and the parallel work of Mark McKenna and Mark Lemley shows, this is because trademark law used to be limited, such that things like materiality were inherently part of a trademark case; trademark law cast off its moorings and started finding confusion everywhere, but false advertising law didn’t.) Plaintiffs can bring false endorsement claims under either head, but they don’t have to. And now they never will.

As applied to the case at bar, the court first had to deal with the standard release that Facenda signed allowing the NFL to use its recordings as it sees fit, provided “such use does not constitute an endorsement of any product or service.” “The Making of Madden NFL 06” is commercial—it’s an endorsement—so the district court found that it wasn’t within the release.

But wait: Doesn’t the use of Facenda’s voice have to be an endorsement before it falls outside the scope of the release? Yes, the court says. But, if the estate makes out its false endorsement claim, then the use of his voice is an endorsement.

I have to admit, I read the statement in the release as a declarative statement, showing that there’s no such thing as a well-drafted contract; in any event, I sincerely doubt either party wanted to make the application of the contract turn on whether a court ultimately found likelihood of confusion as to endorsement. (Watch carefully, too, about what the likelihood of confusion here is supposed to be. The Voice of God is dead; so who’s endorsing? If consumers were likely to believe that Facenda gave permission for his voice to appear in the program, is that within or without the scope of the release?)

After all that, genuine issues of material fact remain. For example, the NFL’s intent: executives testified that they thought they had the right to use the sound clips, because they thought they were making a documentary. The district court apparently disbelieved this testimony, based on internal emails speaking of the show as “promot[ing]” the videogame, but it still wrongly made a credibility judgment. It’s also disputed whether any consumers received an endorsement message, since there was no evidence of this, though an expert witness whose business is providing live celebrities for ads testified that viewers would “probably” believe that there was “an affiliation” between Facenda and the game.

The court also disagreed with other aspects of the district court’s analysis. The district court found that the marketing channels factor favored the Estate, because the NFL Network is the channel most likely to attract viewers who’d recognize Facenda’s voice. But the marketing channels factor doesn’t ask about audience recognition, which is a question of strength. It asks whether the defendant used marketing channels in which the plaintiff’s endorsements are likely to appear. Likewise, the expansion of product lines factor doesn’t focus on future opportunities for the defendant to use the plaintiff’s image, as the district court suggested. Instead, it asks whether the plaintiff plans to endorse a product that competes with a defendant’s product, or if the defendant plans to launch a new product that competes with a product the plaintiff already endorses. (Given the description of the Estate’s endorsement claims above—that it seeks the abstract right to endorse—how can this factor ever favor a defendant?)

Likely confusion is a question of fact, and so the presence of genuine disputes on some factors suggested that the case needed to go to trial.

Now, on to the formal right of publicity under Pennsylvania state law. If Facenda’s name or likeness has commercial value and is used for any commercial or advertising purpose without permission, then his right has been violated. A deceased person has rights for thirty years after death. Given the conclusions above, the NFL violated his right of publicity because the program was commercial.

The NFL’s key argument was copyright preemption. The sound clips come from copyrighted productions of NFL films, and Facenda’s voice was fixed read copyrighted NFL scripts, making the clips derivative works of the scripts. The NFL was sampling itself, and has a copyright in the result. The Estate’s claim seeks to block the NFL from exercising its exclusive rights to reproduce, etc. works in which it owns the copyright.

Now we’re into the express preemption/conflict preemption morass. For the Copyright Act’s express preemption provision to apply, a state right must be equivalent to an exclusive right under copyright. But some courts apply an “extra element” test: if a state right is only violated by something beyond what a copyright infringement claim would require, there’s no equivalence. The Pennsylvania right of publicity statute requires a showing of commercial value, which is an extra element. (This is just further confirmation of the incoherence of the extra element test. Intent isn’t an extra element; after that the caselaw descends into anarchy. Suppose that Pennsylvania granted somebody rights in works in which the word “damn” is used—a subset of all works, like the subset of works containing identities with commercial value. Extra element? Such a test might work in a world in which not every work was copyrighted—we could ask “does the claim depend on the existence of a copyrighted work, or could it exist even if the thing in which the allegedly infringing use is embodied was not a copyrighted work?” But we can’t do that now.)

There’s a second question: was Facenda’s voice within the subject matter of copyright? (Asking this question is even weirder, but it really just serves to highlight that what is at issue here is conflict preemption, not express preemption.) The Ninth Circuit has held that a voice isn’t copyrightable. Facenda’s distinctive voice can be fixed in a tangible medium, but it can’t be divorced from his identity. (Ah, metaphysics. Believe in it? Hell, I’ve seen it!)

So now we move to the real issue: conflict preemption. The right of publicity clashes with exploitation of a copyright. Facenda collaborated with the NFL to create the sound recordings at issue. Copyright owners have an interest in being safe from suits from performers who agreed to appear in their works. But copyrights aren’t absolute. There could be conflict preemption if state laws tried to take works out of the public domain or interfered with the production of sound-alike sound recordings, which federal law specifically allows. But that doesn’t mean that the right of publicity always gives way to copyright, especially when there’s a contract involved.

Nimmer proposes a distinction between use for the purpose of trade and expressive works, with conflict preemption applying only to the latter. (Makes you wonder why ads are protected by copyright at all. Take that, Justice Holmes!) State law has a role in regulating trade practices, but not in regulating expressive works. Using this division, the NFL loses.

Nimmer also has things to say about contracts: “courts should examine the purpose of the use to which the plaintiff initially consented when signing over the copyright in a contract.” Where the parties collaborated to create a copyrighted advertising product, conflict preemption is likely to be appropriate. But if they didn’t collaborate specifically to create advertising content, then conflict preemption is probably inappropriate. If defendants go beyond the scope of their licenses but still stay within the same basic use, then contract remedies may be appropriate, but conflict preemption prevents a publicity claim. Under this reasoning, the NFL also loses: instead of using an existing work, the NFL took sports commentary and “transmuted it into part of a pitch for a computer game.”

The NFL argued that Facenda’s remedy should be contractual, but the court of appeals held that he also retained his tort remedy. “While performing artists should have the burden of reserving publicity rights when contracting away any rights under copyright law they might have, we hold that Facenda successfully bore that burden here and preserved his state-law right-to-publicity claim.”

The court of appeals cautioned that the right of publicity should be cabined to avoid granting performers rights beyond commercial ads, in order to preserve standard arrangements in the recording and movie industries. But “[i]n the endorsement context, an individual’s identity and credibility are put directly on point,” making ads “special” in the way they implicate individual identity. (Do you think that sampling also implicates a musician’s identity? The court footnoted that “listeners are probably less likely to assume that the sampled musician vouches for or approves of a new creative work that samples her work than consumers are likely to assume that an individual’s presence in an advertisement reflects an active choice to endorse a product.” It’s a good thing that courts are such good predictors of consumer belief; note also how the supposedly non-confusion-based right of publicity turns out to have a confusion-based justification. I’m not actually opposed to that last bit—it’s the only credible basis for a right of publicity—but talking about the specialness of identity rings a little hollow when in the end the only credible claim of harm depends on confusion.)

Comment: the core reason this case is so frustrating is that, in all the multifactor tests, the court loses sight of the basic problem: if the allegation is that use equals likely confusion—which the court specifically acknowledges with its reference to “confusion in the air”—we’re no longer paying attention to “confusion over what?”

And really, confusion over what? That it’s Facenda’s voice? That Facenda (who’s dead) endorsed the game? That Facenda permitted the use? It’s the last that we end up inferring under current doctrine. But the standard source confusion factors, no matter how modified, are extremely ill-suited to determining whether consumers think there was permission, even if permission were the same thing as endorsement. Think of consumer sophistication: the only way consumer sophistication might factor into the confusion inquiry is sophistication about the law governing use of celebrity identity; sophistication about football, or videogames, or anything else, is useless to consumers in making this determination, if they even bother to think about it at all.

Wednesday, August 12, 2009

Extraterritoriality: Lanham Act applies to German marketing

NewMarkets Partners LLC v. Sal. Oppenheim Jr. & CIE S.C.A., --- F.Supp.2d ----, 2009 WL 2251311 (S.D.N.Y.)

Tatara and Mathes, former World Bank employees, formed NewMarkets to engage in a joint venture with CAM, a German investment group. The joint venture would manage investment funds in new private equity markets. CAM was to invest money and NewMarkets would contribute its principals’ reputations, experience, investment model, and contacts. The parties had agreements covering confidential information and exclusivity. While the joint venture prepared a prospectus containing the plaintiffs’ proprietary investment model, they never received any investments.

Among other things, Plaintiffs alleged that defendants improperly used their draft prospectus to prepare private placement memoranda of their own to market two German funds, falsely identifying Tatara, Mathes, and NewMarkets as involved in fund management; using their names and experience without permission; and misappropriating their fund model.

The court found that plaintiffs had adequately pled false advertising. The private placement memoranda were advertising materials, and allegedly literally false. Moreover, the memoranda repeatedly emphasized plaintiffs’ names, experience, and access, suggesting that consumers might think those things important.

There was a question of extraterritorial application. Courts in the Second Circuit apply the Vanity Fair factors: (1) whether the defendants’ conduct has a substantial effect on United States commerce; (2) whether the defendant is a United States citizen; (3) whether there exists a conflict with trademark rights under foreign law. These factors must be balanced, but two out of three must be present to find that the Lanham Act applies.

Plaintiffs alleged a plausible substantial effect on US commerce—their inability to market their own fund due to the false statements. “As the recent economic turbulence has demonstrated, no segment of the United States economy is more global than finance. Since money flows almost indiscriminately across borders, false statements concerning Plaintiffs in a private placement memorandum in Germany could plausibly and substantially affect commerce in the United States.” (Note the “plausibility” language there—welcome to Lanham Act jurisprudence, Iqbal v. Ashcroft! I guess we’re going to learn a lot about what federal judges think is plausible in interpreting ads.)

Defendant CAM is a German corporation, but one with a substantial presence in the US, including an American subsidiary and an America-based joint venture with plaintiffs; it also consented to American jurisdiction to resolve conflicts relating to the joint venture. Thus it counts as a US citizen for these purposes.

Finally, the court found no substantial conflict with foreign law. Defendants’ experts contended that German securities law would prevent the defendants from rescinding the private placement memoranda, one of the experts also stated that such memoranda are subject to German unfair competition law. So while a broad injunction could cause a conflict, damages or a limited injunction could be available.

The unfair competition claim also survived, even though it wasn’t a traditional trademark claim (because NewMarkets allegedly lacks secondary meaning). The claim wasn’t for misappropriation of trade name, but for a course of conduct including forming a “sham” partnership to gain access to plaintiffs’ ideas, names, and business plans in order to compete with plaintiffs. Misappropriation can apply even when there’s no violation of trade secret law or misappropriation of ideas. (Defendant Oppenheim was dismissed, though, for failure to allege sufficient involvement.)