Wednesday, December 30, 2009

This is why I'm pop

DJ Earworm has released a mashup of this year's top 25 songs, in video and mp3. I think it's the best yet, and actually says something about trends and the specific songs in the way that they interact with one another. Zeitgeist with a beat.

(OK, the post title's a couple of years behind, but it's better than anything from this year.)

Formulaic: store brand mostly wins a round in formula battle

PBM Products v. Mead Johnson Nutrition Co., 2009 WL 5090862 (E.D. Va.)

Previous discussion. PBM complained that Mead Johnson had renewed its false advertising in a 2008 mailer “falsely stating that only Mead Johnson’s Enfamil ® LIPIL® has two fats, DHA ... and ARA ..., which Mead Johnson calls ‘LIPIL®.’” Both PBM’s store brand formula and Mead Johnson’s Enfamil LIPIL have the same levels of the lipids at issue and obtain them from the same supplier, which is the only FDA-approved source. Still, the mailer states, “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development,” and uses a graphic with a blurry/clear image of a duck to the same effect. The smaller-type footnotes this disclose that the comparison is between Enfamil LIPIL and Enfamil without DHA and ARA. The next page says “En-Fact: Enfamil LIPIL’s unique formulation is not available in any store brand.”

Mead Johnson argued that PBM’s false advertising claims were barred by a broad 2007 settlement in a trade dress case between the parties. But the claim regarding the 2008 Mailer could not have been brought then because it did not yet exist. Mead Johnson also argued laches. The Lanham Act has no express limitations period, so courts borrow analogous state periods for purposes of assessing laches; here, the court chose Virginia’s action for fraud, which has a two-year statute of limitations. Mead Johnson argued that many of the key statements were repeated from its 2006 mailer, of which PBM was aware.

Laches requires (1) lack of diligence by the plaintiff and (2) prejudice to the defendant. On prejudice, Mead Johnson argued that it had used the challenged ads extensively in its marketing and spent hundreds of millions of dollars linking its product to these claims. The court agreed with PBM, however, that while the 2008 mailer might contain similar language pieced together from earlier ads, it made “stronger and more direct arguments related to the efficacy of store bought infant formula than prior Mead Johnson ads.” This “new tone and point” meant that PBM did not delay unduly after being wronged. In context, the mailer was designed to “[c]reate uncertainty” about the benefits of store brand formula; evidence that the campaign decreased sales of store brands also showed that the 2008 mailer was different from prior ads.

With that out of the way, Mead Johnson’s argument that the Lanham Act claim couldn’t succeed on the merits was also rejected, because it depended on the idea that PBM’s survey failed to distinguish laches-protected claims from laches-unprotected claims. Thus, whether the claims were literally or impliedly true or false presented material factual issues. And even without proof of consumer deception, PBM had enough evidence to go to trial on intentional deception, an alternate means of proving falsity. In a footnote, the court also left open the possibility of finding, after trial, that the mailer was literally false.

PBM’s state law commercial disparagement claim, however, failed because Virginia recognizes only palming off and misappropriation as unfair competition.

Sunday, December 27, 2009

Interest-free credit card offer triggers finance charges and lawsuit

Davis v. Chase Bank U.S.A., N.A., 650 F.Supp.2d 1073 (C.D. Cal. 2009)

A brief note: the credit card practice alleged here is so ridiculous, so obviously out of tune with any rational understanding of the promised card benefits, that one might think that it was the result of incompetence—thoughtless application of a standard sharp-dealing but not ordinarily fraudulent bank-favoring rule to a particular reward that conflicted with that rule. And Occam’s Razor favors incompetence over evil in the regular case. But given (1) the range of ways credit card issuers have found to exploit consumer vulnerabilities and their active adoption of new ones to evade regulations, (2) the fact that the underlying bank-favoring rule (apply your payment in the way that produces the least reduction in indebtedness for you and the most profit for us) is already ethically shaky, and (3)—most of all—the reality that the loss of the promised benefit here would be extremely hard to detect by any consumer who carried a balance, as most do, I simply can’t find it in my heart to offer Chase the benefit of the doubt. Not that incompetent execution of exploitation would be an excuse, but I do wonder: did whoever decided to do this laugh?

So here’s what happened in this potential class action under California law: Chase offered a Circuit City credit card. Among the benefits of the card was an interest- and payment-free period to pay off the balance on certain promotional purchases. “For example, a Circuit City Rewards Card promotional item offered to customers in 2006 states in large writing: ‘No interest! No payments! For six months when you spend $499 or more. For 90 days when you spend $299 or more.’; and ‘It is easy to take advantage of this offer! When you make a purchase with your Circuit City credit card, present this certificate to the store associate to scan.’”

In fact, it was allegedly not so easy as that. “[A]ll payments made by the consumer on his or her regular monthly statement are given priority of payment to the promotional item, even if not yet billed and even if not due for many months.” That is, payments were allocated to purchases not yet due and owing, rather than purchases accruing interest. As a result, rather than having more time to pay off these promotional purchases, customers have less.

Here, the plaintiff bought a TV set in March 2006 for $2000 from Circuit City using his rewards card. Chase treated the item as a promotional purchase, with no interest and minimal payment until January 2008. Before the TV, Chase billed him for purchases made between January 14 and February 13, 2006. Based on his monthly statements, the plaintiff believed that he wouldn’t be assessed a finance charge if he paid his monthly billing in full, or that if he paid in part his finance charge would be based only on the remaining balance. Thus, if he paid the full amount due on March 10 by March 10, he wouldn’t get a finance charge. In fact, he paid his February statement in full.

He was therefore surprised to find that, though he’d paid his statement ahead of time and in full, he was assessed $77.25 in finance charges, because his entire payment was applied against the $2000 promotional purchase, payment for which was not due and which had not yet appeared on his bill. (This is the part that scares me. I autopay, to avoid missing deadlines or changes in deadlines, but that doesn’t keep me safe from this bit of business.) The plaintiff alleged similar charges in at least two other situations.

The terms and conditions did say: “You authorize us to allocate your payments and credits in a way that is most favorable to or convenient for us. For example, you authorize us to apply your payments and credits to balances with lower APRs (such as promotional APRs) before balances with higher APRs.” The plaintiff argued that this language shouldn’t be read to include “interest free” purchases which have no APR and which are not posted to his monthly account balance. (I suppose, because these are banks, we are also going to have to ignore the general rule that fine print can’t take back explicit promises that are the focus of the advertising.) The agreement stated that no payment would be due on promotional purchases until the end of the promotional period, and that finance charges on a promotional purchase wouldn’t be added to the account balance unless and until the promotional purchase wasn’t paid in full by the end of the specified time period.

Chase initially moved to compel arbitration and enforce a class action waiver. This was denied; the arbitration clause was unconscionable under California law.

The plaintiff alleged violations of the CLRA and the unfair competition law, as well as breach of contract and breach of the implied covenant of good faith and fair dealing. Chase argued that the National Bank Act preempted the non-breach of contract claims, while the plaintiff responded that these were laws of general applicability with only an incidental effect on bank operations. I won’t bore you with the details, but the court found that the CLRA claims weren’t preempted, the UCL claims were preempted in part, and the breach of implied covenant claim wasn’t preempted. While state law regulations requiring specific disclosures in credit card ads, for example, would be preempted, the general duty to avoid deception is broader and not preempted.

However, the UCL claims were preempted to the extent they challenged the allocation of payments apart from the way the allocation interacted with deceptive advertising. The court was unclear on exactly what the plaintiff was challenging with respect to allocation alone, but the allocation itself is made sacrosanct by the NBA. To the extent that the plaintiff alleged that the allocation violated the UCL because it contradicted the ads or the contract, though, those claims are not preempted. In those claims, he wasn’t trying to get Chase to abandon specific contract terms, only to get Chase to stick to its promises.

Chase also argued that the complaint failed to state a claim because the plaintiff didn’t allege reliance or harm, and because its ads say nothing about allocation of payments. The court found sufficient allegations of reliance, and a sufficiently well-pled claim. “Although Plaintiff’s allegations preclude him from arguing that he relied on the advertising campaign in purchasing the item that was subject to the promotional purchase (and therefore limit his damages accordingly), the Court finds his allegations regarding his payment choices after Chase treated his purchase as a promotional payment sufficient to state a claim at the pleading stage.”

Chase also argued that the complaint failed to state a claim for breach of contract or breach of the implied covenant of good faith and fair dealing, because the contract didn’t promise to allocate payments in the manner the plaintiff expected. Chase’s promotional offer provided only that the promotional balance would be “interest free,” not that other balances would not be subject to finance charges; further, nothing in the contract said that Chase wouldn’t allocate payments to the promotional purchase first. (So, let’s be completely clear: if you don’t put the card in a block of ice after your promotional purchase, you must pay for your purchase immediately or you get hit with exactly the same finance charges that would have been assessed on a nonpromotional purchase. I suspect many of us would find this relevant information in deciding whether to take advantage of the offer, and also in deciding whether to use the card after--or, as these facts show, before--using the card to make nonpromotional purchases.)

The plaintiff noted that Chase allocated his payment to amounts that were not yet due or owing, and hadn’t appeared on his statement. He also argued that the contract defined “interest free” offers as exempt from Chase’s payment allocation powers. The court found that he’d stated a claim. The contract interpretation issue could not be resolved on the briefs.

Saturday, December 26, 2009

Organic v. USDA organic

All One God Faith, Inc. v. The Hain Celestial Group, Inc. 2009 WL 4907433 (N.D. Cal.)

Plaintiff does business as Dr. Bronner’s Magic Soaps. Dr. Bronner’s markets certain of its soaps as USDA-certified organic or made with organic, in compliance with the USDA’s National Organic Program (NOP) standards. Defendants (a whole bunch of them) make and sell soap and related personal care products labeled organic, in direct competition with Dr. Bronner’s. Dr. Bronner’s argued that these products aren’t organic as the term is understood by consumers because “the products are made from conventional agricultural material rather than organic material, contain ingredients made from petrochemicals, contain petrochemical compounds, and/or are preserved with synthetic petrochemical preservatives.”

Defendant Ecocert certifies products, including some of the other defendants’ products, as organic based on its own standards; Dr. Bronner’s alleged that Ecocert’s certifications were inconsistent with consumer expectations and in some cases violated its own standards. Ecocert counterclaimed that Dr. Bronner’s misleads consumers by labeling its products as USDA-certified but not separately listing sodium hydroxide as an ingredient, even though it uses sodium hydroxide to saponify organic oils.

Dr. Bronner’s initially sued in state court raising state claims; the complaint was dismissed for lack of standing, at which point Dr. Bronner’s refiled under the Lanham Act and the defendants removed.

By statute, the USDA is authorized to implement the NOP and create national standards for the marketing of certain agricultural products as organically produced. Those products, if labeled “organic,” must be certified as meeting the requirements of the regulations by a USDA-accredited certifying agent. There is a National List of approved and prohibited ingredients that may or may not be permitted in the production, handling, and processing of organic products. The statute provides that “no person may affix a label to, or provide other market information concerning, an agricultural product if such label or information implies, directly or indirectly, that such product is produced and handled using organic methods, except in accordance with this chapter.” There is no private cause of action to enforce the statute or its implementing regulations. The USDA accepts complaints regarding alleged misuse of “organic,” but only the USDA may sue under the statute.

The law defines the term “agricultural product” as “any agricultural commodity or product, whether raw or processed, including any commodity or product derived from livestock that is marketed in the United States for human or livestock consumption.” Dr. Bronner’s argued that the USDA has consistently applied the law and the regulations only to food; it has said that “[t]he ultimate labeling of cosmetics, body care products, and dietary supplements ... is outside the scope of these [NOP] regulations.” In May 2002, the USDA issued a policy statement that, because such products may contain agricultural products, producers could but need not seek NOP certification. In 2004, however, the USDA reversed course and denied even voluntary participation in the NOP; this lasted for a couple of months, and then the USDA went back to its previous voluntary participation stance.

In 2008, the USDA reconfirmed that participation was voluntary, but that personal care product producers and sellers couldn’t falsely state or imply that their products were USDA-certified, stating that “USDA has no authority over the production and labeling of cosmetics, body care products and personal care products that are not made up of agricultural ingredients or do not make any claims to meeting USDA organic standards. Cosmetics, body care products, and personal care products may be certified to other, private standards and be marketed to those private standards in the United States.”

The first question the court discussed was exhaustion of administrative remedies: a person adversely affected by actions taken by the USDA can appeal such an action. Though the USDA expressly declined to impose NOP standards on personal care products, Dr. Bronner’s was not excused from the exhaustion requirement.

The court also considered the primary jurisdiction doctrine, which is a prudential doctrine allowing agencies the first bite at certain apples within their expertise. Given the USDA’s conclusion that it lacks authority over personal care products labeled organic, Dr. Bronner’s argued that the doctrine was inapplicable, but the court disagreed: the USDA has asserted jurisdiction over such products in other ways, such as by allowing them to seek NOP certification. Dr. Bronner’s argued that its claims didn’t require resolution of an issue of first impression or a particularly complicated question that Congress committed to a regulatory agency, but simply required comparing consumer understanding to what defendants’ products actually contained. The court found that, while Dr. Bronner’s might be able to assert this type of straightforward Lanham Act claim, the complaint as amended is premised on violations of the USDA framework.

Relatedly, the court was sympathetic to defendants’ arguments that resolution of the Lanham Act claim would require a court to interpret and apply statutes and regulations exclusively within the jurisdiction of the USDA. “While Plaintiff’s opposition papers carefully craft an argument that potentially could sustain a viable Lanham Act claim without reference to the NOP standards, Defendants note correctly that the [complaint] itself is replete with references to and regulatory history of the NOP, its definition of ‘organic,’ and its standards for labeling organic products.” Thus, the complaint as written was an attempt to get the court to do what the USDA repeatedly refused to: enjoin defendants for selling “organic” products that don’t meet USDA standards. (I should note that I think that the NOP would be an important background fact shaping consumer expectations, such that a properly-framed complaint would only be intelligible with reference to the NOP, but that doesn’t mean the court would need to interpret the NOP, only assess its effects on consumer expectations, which are likely to be significant.) Following this reasoning, the court gave Dr. Bronner’s leave to amend.

YSL Beaute, one defendant, argued that the complaint should be dismissed for failure to state a claim regardless, because it sells cleansing milk and purifying foaming cleanser, rather than liquid soaps as Dr. Bronner’s does, and thus does not directly compete. The court agreed that the allegations were too conclusory to state a claim. Dr. Bronner’s didn’t allege that its products could be found in the same store or even the same state as YSL Beaute’s, and an inference of direct competition was unwarranted just because they’re both cosmetic and both labeled organic; other defendants’ products were allegedly typically sold in the same sections, and often on the same shelves, of the same retail outlets. (This is an example of differences in what counts as a reasonable inference based on different life experiences. I’m not exactly a high-volume cosmetics consumer, but even I shop in multiple stores, including department stores/specialized makeup stores as well as the Whole Foods.)

Finally, the court dismissed Ecocert’s counterclaim, because it was premised on an alleged violation of a USDA regulation, but finding a violation would force the court to interpret regulatory language beyond its authority, and, independently, Ecocert failed to allege likely injury from Dr. Bronner’s allegedly false advertising. NOP regulations require an ingredient list to include any substance still present in the final commercial product as consumed, but sodium hydroxide is simply used in saponification and only glycerin remains in the final product. The USDA has recently proposed requiring listing ingredients used in saponification even when not present in the finished product, but that’s just a proposal.

The court also granted Ecocert leave to amend to correct the defects, including the lack of specific allegations or factual contentions of harm.

No speedy resolution for Mach 1 claims by Yeager

Yeager v. Cingular Wireless LLC, -- F. Supp. 2d --, 2009 WL 4730913 (E.D. Cal.)

Previous discussion. Cingular used Chuck Yeager’s name in a press release, “Cingular Wireless Announces Enhanced Emergency Preparedness Program for 2006 Hurricane Season,” which discussed Cingular’s MACH1 and MACH2 mobile command centers. The fifth paragraph stated: “‘Nearly 60 years ago, the legendary test pilot Chuck Yeager broke the sound barrier and achieved Mach 1. Today, Cingular is breaking another kind of barrier with our MACH 1 and MACH 2 mobile command centers, which will enable us to respond rapidly to hurricanes and minimize their impact on our customers,’ de la Vega said.” There’s no picture of Yeager, nor do the headline or headings mention his name. The press release doesn’t offer any specific products or services for sale, nor does it state that Yeager endorses Cingular or codefendant AT&T.

The person who wrote the release testified that one of the reasons for the press relase was to create positive brand associations. He noted the connection between the acronym MACH and MACH for the sound barrier, and wrote the press release “to make an association between breaking the sound barrier and breaking new barriers of disaster preparedness.” Yeager alleged that his name was used to capitalize on his reputation and image, and as a “hook” to entice audiences to read about defendants’ services. He sued for right of publicity, Lanham Act, and related claims.

Cingular argued that the First Amendment barred Yeager’s claims. Rights of publicity must be balanced against the public interest in news: a tenuous connection between unauthorized use of name or likeness and the matter of public interest can remove First Amendment protection. And no balancing is required for commercial speech. (Which is inconsistent with Central Hudson, but when was the last time that bothered a court in a right of publicity case? The quoted case, also, is Hoffman: when a defendant uses “an aspect of the celebrity’s identity entirely and directly for the purpose of selling a product,” such use does not “implicate the First Amendment's protection of expressions of editorial opinion.” Remember that “entirely and directly”—the court won’t.)

First, the court concluded that the press release was commercial speech. It’s true that at the core of commercial speech is speech that does no more than propose a commercial transaction. But informational publications that refer to or promote a specific product, without a proposal to engage in commercial transactions, present a closer question. Bolger v. Youngs Drug Products Corp., for example, involved an informational pamphlet found to be commercial speech though it didn’t specifically name the speaker’s product. Here, the central theme of the press release was how Cingular’s emergency preparedness program enhances its wireless services; the release mentioned its name as a service provider dozens of times. And the focus was not on emergency preparedness generally, but on Cingular’s wireless service in emergencies. Given that part of the purpose of the release was to create positive associations with the AT&T, there was an underlying economic motivation. None of these facts is “necessarily dispositive,” but as a whole the release was commercial speech. Cingular argued that the release was newsworthy, because it reported on matters of public interest. But Yeager’s name and accomplishments were used to attract attention to unrelated wireless services. Indeed, the use of his name was “carefully crafted” as part of a brand promotion strategy. So even if the publication was in the public interest, the use of his name doesn’t contribute significantly to that interest—it was just window-dressing. Summary judgment on the First Amendment defense denied.

Cingular additionally raised an incidental use defense. The contours of this defense are not well-defined in California. “The rationale underlying this doctrine is that an incidental use has no commercial value, and allowing recovery to anyone briefly depicted or referred to would unduly burden expressive activity.” Incidental use is determined by the role that use of a name or likeness plays in the main purpose and subject of the work at issue—mere mention isn’t enough, nor is publication for purposes other than taking advantage of the plaintiff’s reputation. But even if the mention is brief, if it stands out prominently or enhances the marketability of the defendant’s product or service, then the use isn’t incidental.

Here, Yeager’s identity is unique and non-fungible because he’s the one associated with breaking the sound barrier for the first time, and the use of his name links Cingular’s tech to his name and accomplishments. This was a use that might help to pique the interest of a newsman deciding whether to follow up on a press release. Therefore, it uniquely enhanced the marketability of Cingular’s service. So no summary judgment on that defense either.

On to Yeager’s false endorsement claim under the Lanham Act. The court also denied summary judgment on that. Yeager is a public figure with a strong mark, and a jury could find an intent to imply endorsement. Though there’s little relationship between the parties’ services, and scant evidence of actual confusion (Victoria Yeager testified that she received phone calls “regarding confusion” over endorsement, though the court found her testimony somewhat vague), Cingular wasn’t entitled to judgment as a matter of law.

Cingular also failed to win summary judgment on nominative fair use. The parties didn’t dispute factor (1) (necessary to use Yeager’s name to identify him) or (2) (no more use of his identity than necessary to identify him), but focused on (3), “the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.” The court recharacterized this element as considering “the likelihood of consumer confusion regarding endorsement because of defendant’s conduct”—which, of course, converts nominative fair use into a defense that’s redundant with lack of confusion. Conclusion: “Where a celebrity’s name is used in a commercial, there are triable issues of fact regarding whether such use implies endorsement.” (Note the equivocation here between “commercial,” meaning “ad,” and “commercial speech.”) This is the teaching of Abdul-Jabbar, involving the use of a basketball player’s name in a conventional 30-second TV spot: because the “use of celebrity endorsements in television commercials is so well established by commercial custom,” a jury might find an implied endorsement through the defendant’s use of the plaintiff's name. “While not featured in a television commercial, the deliberate, closely-tied analogy in a press release directed to create positive associations with defendant’s product is sufficient to raise a triable issue of fact regarding implied endorsement.” The court again referred to the testimony about calls inquiring into whether Yeager had endorsed AT&T.

Wednesday, December 23, 2009

From the archives

Georgetown's excellent law librarians just dug this up for me: an ad for Maxwell's, the video rental store found liable for violating the public performance right in Columbia Pictures Industries v. Redd Horne, 749 F.2d 154 (3rd Cir. 1984), by renting movies to be viewed in in-store viewing rooms. Text: “To introduce you to the enjoyment of home video movies, Maxwell’s would like you to try a showcase promotional screening. Come to Maxwell’s and rent any of the 21 private showcase rooms, which hold 2 people comfortably. You pay only for the rental of the showcase room. You have free use of Maxwell’s entire library of video films…. See as much as you like—segments of several films or watch a full length movie…. If you already own a video unit and buy a tape from Maxwell’s your showcase rental fee is deducted from the price of the tape…. Free popcorn and assorted soft drinks are provided for your pleasure while visiting Maxwell’s!”

I just wanted to show this off--another great addition to the Georgetown IP Teaching Resources Database (interested? contact me!). However, if anyone can explain to me why home rental is not also public performance under Nimmer's logic, adopted by the court ("If the same copy of a given work is repeatedly played by different members of the public, albeit at different times, this constitutes a public performance."), I would be quite intrigued.

Can word marks be functional?

Autodesk, Inc. v. Dassault Systèmes SolidWorks Corp., 2009 WL 4756469 (N.D. Cal.)

(Side note: 2009 seems to be the year courts decided to routinely put pictures in their decisions to aid understanding, recognizing that the technology now easily accommodates this. I approve of this development!)

Autodesk sued SolidWorks for federal and state trademark and related claims. Autodesk is a leader in computer-aided design (CAD) software. AutoCAD software is used to create and simulate designs by architects, engineers, manufacturers and others. AutoCAD, which dates from 1982, and other Autodesk applications create and store files in the DWG file format with a .dwg extension.

Autodesk alleged that it had used the DWG name as a word mark, not just a file extension, since 1982. It has used a logo with DWG on its website, product packaging, and computer file icon; uses include “DWG Unplugged,” the RealDWG software library, and similar tools allowing competitors to license the use of its DWG file format.
Since 2006, Autodesk has used the tagline “Experience It Before It’s Real.”

Since March 2007, plaintiff has used an orange frame outline on its software DVD cases and marketing materials for its Autodesk Inventor product.


SolidWorks is a competing CAD software company. Its software includes a reverse-engineered form of the .dwg format. Autodesk alleged that SolidWorks engaged in misleading marketing to confuse design professionals about its programs’ compatibility with AutoCAD. SolidWorks has released products named DWGeditor, DWGgateway, DWGseries, DWGviewer, and DWGnavigator, which are also used in defendants’ domain names. SolidWorks has sought federal registration for DWGeditor and DWGgateway; the court noted that related proceedings are currently stayed before the TTAB—Autodesk is trying to cancel the DWGeditor registration and opposing the DWGgateway application. SolidWorks also uses the AutoCAD word mark on its websites. Finally, its websites and marketing materials feature a design allegedly combining the “real” element of the RealDWG mark and tagline with the Autodesk Inventor trade dress.

In previous proceedings, the court dismissed a false advertising claim against SolidWorks’ statement that its product “unique capability helps you maintain file and design process compatibility, win business, and save time--all while avoiding expensive AutoCAD upgrade costs or subscription fees” as nonactionable puffery and dismissed the trade dress claim with leave to replead. After Autodesk’s first amended complaint, SolidWorks counterclaimed for false advertising and declaratory judgment on the ownership of the DWG mark. The parties then stipulated to the dismissal of all state law claims.

SolidWorks argued that DWG was generic and/or functional, and that Autodesk wasn’t the senior user.

DWG is unregistered, putting the burden on Autodesk of proving nongenericness. SolidWork’s key arguments were that DWG was, even before Autodesk adopted it, a generic term referring to drawings, and that genericide has occurred because Autodesk let others use DWG without interference. Therefore, DWG denotes a file type/format—a “what” rather than a “who.” Autodesk countered with arguments that consumers associate DWG with Autodesk. The court denied summary judgment because of multiple genuine issues of material fact.

The court did grant summary judgment rejecting SolidWorks’s functionality defense. Functionality generally doesn’t apply to word marks—how could a word mark in general be essential to the use or purpose of an article or affect its quality? The use of .dwg as a file extension is functional, but Autodesk disavows any ownership of “any even arguably functional use of DWG,” including its use as a file extension. Thus, Autodesk claims no monopoly over .dwg.

Comment: I think this is a huge limit, and might properly preclude most if not all of Autodesk’s claims once elaborated. In the foundational Kellogg case, the the right to make the functional article necessarily extended to the right to depict on the box what was in the box, even though pictures on the box are also trade dress. Cf. Traffix, holding that the right to use a functional design allowed the defendant to make that design obvious to consumers, even though it would not have interfered with functionality to cover it up. The right to use .dwg, if it is to be competitively useful, must allow extensive use of that letter sequence, even in a competing trademark.

The court, however, thought that functionality was not the right concept for word marks, because work marks have no functionality dictated by manufacturing efficiencies or utilitarian advantages. Word-functionality cases have been limited to computer programs where the use of the word is essential to compatibility, but Autodesk isn’t targeting such uses here. Autodesk isn’t trying to bar interoperability, but rather only use of the word mark DWG in a way that “improperly” associates the parties’ products. “Defendant has failed to explain how consumers would be denied any benefit of its product if plaintiff were to have exclusive nonfunctional use of DWG as a word mark.” Remaining concerns, similar to those in my comment above, can properly be addressed by fair use, on which more soon.

Comment: I think this is mostly true, but note how the modern concept of “use as a mark,” in which whether there is use as a mark is often determined by consumer reaction, creates a roadblock. This is especially true in the Ninth Circuit, which essentially gutted KP Permanent on remand. So, imagine Nabisco arguing that the picture on the Kellogg box served as a trademark—consumers perceived it as an indicator of source for Kellogg’s products. It would likely be true today at least that consumers perceived that particular picture of shredded wheat as an indicator of source. Absent some sleight-of-hand on trademark use, which most but not all courts would engage in, fair use would lose its ability to protect advertising of functional features.

What about priority of use? Both parties submitted evidence on their respective claims to be the senior user, leaving genuine issues of material fact.

On to trade dress: SolidWorks argued that the combination of an orange frame design, “Experience It Before It’s Real” slogan, and RealDWG trademark did not constitute protectable trade dress. The court found that the amended complaint sufficiently defined the asserted trade dress, including claiming the orange frame as inherently distinctive and source-identifying. Autodesk alleged that it uses a video marketing campaign combining the orange frame with the “real” element of RealDWG and its slogans. And it alleged that the SolidWorks real logo attempts to trade on Autodesk’s goodwill.

The court was skeptical that a commonplace shape like the rectangle could be inherently distinctive, whether alone or as a background for a word mark, even when combined with the color orange. In fact, Autodesk’s evidence showed that it had used a rectangular frame in different colors and different sizes and proportions; even if it had used one size and color, that wouldn’t convert an ordinary orange rectangle “from a common geometric element to one inherently indicative of plaintiff.” Autodesk needed to rely on secondary meaning.

Likewise, “real” in ordinary text didn’t seem to be inherently distinctive. In the CAD context, “real” is a commonplace term: it’s the point of CAD technology, to get a real-world visual image of a design. Moreover, Autodesk only used this combination twice, for a couple of seconds, in video clips. “This is not enough to allow the combination to be monopolized by one competitor and denied to all others.” (At least without secondary meaning.)

Autodesk didn’t have survey evidence of secondary meaning and sought to rely on its evidence of use and advertising over time, along with intentional copying, to establish acquired distinctiveness. Use and advertising, however, must stress the alleged trade dress prominently to justify an inference that secondary meaning exists. Here, Autodesk’s ads don’t stress or feature the orange frame, or the frame in combination with “real,” in any way that could establish secondary meaning. The presentation of the orange frame wasn’t consistent, and Autodesk offered no data about how extensive its ads using the claimed elements even were, instead offering only exemplars without frequency/geographic scope evidence. Especially given Autodesk’s use of many other different colored rectangles and geometric designs, the orange frame is simply a graphical feature of the package/program and wouldn’t generate secondary meaning.

Nor had Autodesk offered sufficient evidence of intentional copying. At most, SolidWorks knew of the similarity between the parties’ dresses; the evidence tilted more to the conclusion that SolidWorks assessed the similarities and found them insubstantial. Thus, SolidWorks won summary judgment on the trade dress claims.

Fair use: The sin alleged here was of “overemphasizing” the AutoCAD and Autodesk marks. Though SolidWorks also asked the court to find no likely confusion using the Sleekcraft factors, the Ninth Circuit has caselaw saying that once the defendant raises nominative fair use, that test replaces the Sleekcraft test, because it’s better at evaluating likely confusion in nominative fair use cases. I don’t quite see how that makes Sleekcraft “inapplicable”—if there were a material issue of fact on nominative fair use, but no such issue under Sleekcraft, the defendant should win, right? But it’s probably true that in a real nominative fair use case it makes sense to do nominative fair use first, and that, as here, where the parties directly compete, Sleekcraft wouldn’t do better for the defendant.

Naturally enough, everyone agreed on the first prong: you need to use the marks to refer to Autodesk and its products. But there were material issues on whether SolidWorks had used more of the marks than necessary and “whether such use suggests sponsorship or endorsement.”

(The latter of which is not really the test, of course. New Kids requires that the defendant do nothing else, other than use the mark in reasonable quantities, to suggest sponsorship or endorsement. Factor three of New Kids is not a mini-confusion test incorporating Sleekcraft; if it were, it would make defendants worse off than they are under Sleekcraft, as the Ninth Circuit has clearly stated that the burden is on a defendant to establish nominative fair use, while the plaintiff has the burden of establishing likely confusion. Even if the Ninth Circuit has undercut the specific holding of KP Permanent to the point of irrelevance, it should be guided by the Supreme Court’s observation that a defense that’s harder for the defendant to establish than baseline nonliability is pointless. That this application of New Kids is so consistently bungled by courts is the best argument for the Third Circuit’s reconfiguration of nominative fair use, though I myself think that, properly understood, the Ninth Circuit’s test works better precisely by using the three factors to create an unrebuttable presumption that confusion is unlikely.)

Summary judgment denied on the second and third New Kids factors.

Autodesk alleged false advertising in the following statements: (1) “DWGgateway is the first free data translation plug-in that lets AutoCAD users work easily with DWG files created by any version of AutoCAD software,” (2) “save DWG files to any version of AutoCAD software,” and (3) “open, edit, and share DWG data more effectively with others.” SolidWorks contested falsity, materiality, damage, and puffery as to (1) and (3).

An earlier order held that, on the pleadings, (1) and (3) appeared to describe specific testable characteristics. But it was summary judgment time now. “Work easily” on its own might be subjective and unmeasurable, but in context it could be viewed as referring to specific and testable characteristics—working with files coming from “any version” of AutoCAD. And there’s some evidence that SolidWorks’s product doesn’t work with every version of AutoCAD. Because this statement could induce reliance, it’s not puffery, at least for purposes of avoiding summary judgment.

But (3), “more effectively,” was too generalized and vague to be actionable. Effectiveness is a highly subjective standard that could mean a lot of things. The court then found that there were triable issues on the falsity and materiality of (1) and (2).

SolidWorks counterclaimed for false advertising in a Jonnie Real cartoon ad. (Collection of Autodesk comics here. It’s possible that these are funny if you use CAD software, but I make no promises.) Autodesk claimed that it only made vague claims of superiority upon which no reasonable consumer would rely, while SolidWorks argued that it was the butt of an implication that using its product would produce dangerous defects; the ads refer to a company called “Won’tWorks” and involve a roller coaster and bicycle, two recent components in SolidWorks ads.
The court agreed that these were general superiority claims, not specific verifiable allegations of what might happen with a competitor’s dimensioning. Absent more specific claims such as that the differences were verified by testing, whether something is a “real” risk or provides “real” interoperability depends on a consumer’s belief about what “real” means. The court distinguished a case involving arguably similar claims on a warning sticker—the context of a warning sticker is different from an exaggerated cartoon: “A consumer would not rely upon a cartoon with an implicit message of hyperbole.”

Tuesday, December 22, 2009

License to infringe?

Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories Ltd., 2009 WL 4857605 (S.D.N.Y.)

Plaintffs, who make fancy modular jewelry, sued a lot of defendants in their roles as licensors for contributory trademark infringement and related claims, alleging that they supplied rights to the licensor defendants’ own IP to manufacturers and distributors of products that directly infringed on plaintiffs’ trademark.

Plaintiffs’ jewelry is “composable”: made of individual links of stainless steel or gold that can be filled/replaced with decorative designs or semiprecious stones. This allows customers to create unique, personalized jewelry. Plaintiffs alleged that H.E.R. and other supplier defendants made and distributed counterfeit links packaged with Nomination’s trademark, constituting direct infringement. Plaintiffs also sued fifteen entertainment and media companies for contributory infringement (and related torts), for licensing their own intellectual property rights to famous characters (e.g., SpongeBob Square Pants, Betty Boop, Popeye, Super Mario Brothers) to the supplier defendants, who manufactured the counterfeit links depicting these characters and sold them in packaging that used the Nomination mark.

Plaintiffs alleged that the licensor defendants knew or should have known that they were contributing to the infringement. Furthermore, by the end of 2005, plaintiffs notified many, but not all, of the licensor defendants that H.E.R. was using their respective intellectual property to infringe upon the Nomination trademark, and the licensor defendants allegedly ignored plaintiffs’ request to cooperate with their investigation.

Under Inwood Labs, “a manufacturer or distributor [who] intentionally induces another to infringe a trademark, or ... continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement ... is contributorially responsible for any harm done as a result of the deceit.” The allegations here were of knowing continued supply, not inducement. But it’s not immediately clear how the test applies to defendants who don’t supply the “product” itself, but some service or other assistance to the direct infringer. Many courts have considered the extent of control and monitoring exercised by such a defendant over the infringer’s means of infringement.

Here, the licensor defendants “supplied an ancillary service or benefit that is alleged to have increased the desirability of the underlying product” rather than manufacturing or distributing the infringing product. So, did plaintiffs adequately allege direct control and monitoring of the bracelet links used to infringe the plaintiffs’ mark? Plaintiffs alleged that the licensor defendants are sophisticated companies with careful monitoring programs for their licensees. But that refers to the care they take with their own marks, and doesn’t mean that they monitor and control the manufacture and distribution of the supplier defendants’ counterfeit bracelets. Mere allegations of contribution to the infringement by knowing participation are just the type of conclusory allegations the Supreme Court rejected in Iqbal. “Although participation in the development, promotion and sale of the counterfeit bracelets would, if true, likely equate to direct control and monitoring, Plaintiffs have not stated any factual allegations as to how the Licensor Defendants have done so.”

Further, the licensor defendants argued that plaintiffs failed to adequately plead knowledge of direct infringement. And the court agreed. Even the pleading that plaintiffs notified “many” of the licensor defendants of the infringement fails to specify which ones, nor did it allege that they continued to provide their own marks to the supplier defendants after receiving notice. Thus, the contributory infringement claims were dismissed.

A similar fate awaited the claims of deceptive acts and practices/false advertising, which under NY law has a required public interest element, generally based on health or safety concerns. The majority view is that infringement claims are generally not cognizable without an injury to the public over and above the ordinary injury from infringement. That was the only injury alleged here. And because this argument covers both licensor and supplier defendants, the court sua sponte dismissed the same claims against the supplier defendants.

The court did, however, grant plaintiffs leave to replead the contributory infringement claims if they could allege non-conclusory facts showing monitoring/direct control over the bracelet links, as long as they could also allege knowledge or reason to know of the infringement.

Say it ain't so, Clark!

Superman licensed to internet gambling service. And they worry that our Clark Kent/Lex Luthor fan fiction is tarnishing ...

Monday, December 21, 2009

Comment on Trademark Law's Theory of Harm

I have a brief comment on Mark McKenna's excellent new piece in the Iowa Law Review, Testing Modern Trademark Law's Theory of Harm, both available now at the law review's website.

Saturday, December 19, 2009

Cancer testimonials

NYT story on claims by cancer centers: According to the FTC, it won't apply its endorsement rules to ads for cancer centers, further increasing the gap between what a medical institution can say and what a drug or device manufacturer can say--sometimes about the same equipment/treatments. I find it hard to imagine that the general substantiation requirement doesn't apply to hospital ads, though the story says it doesn't.

How (some) copyright owners think

Exclusive Rights has an intriguing post, puzzlingly titled On actively encouraging fan infringement and commercial success (Put a Ring on It). It argues persuasively that in some circumstances copyright owners not only tolerate certain types of remix but actively encourage it. The puzzling thing--okay, the oxymoronic thing--is the label "infringement" for that. When a copyright owner induces copying or the creation of derivative works, I had always thought we called that "licensing." The license may well be implicit, but it's still a license. (Compare the RIAA's rhetoric about putting one's CD collection on one's mp3 player--they say that it "won't usually raise concerns" though there's no right to do so; they want to have the right to object, which is to say they want to be able to pull the license.) When we're at the point of calling authorized uses infringing because that increases copyright owners' perceived freedom of movement, we are really down the rabbit hole.

(I have also, of course, set aside the fair use issues and the question whether the copyright owner could actually assert rights to stop all the uses the post mentions.)

Thursday, December 17, 2009

A different take on the attention economy

I've written about attribution and credit before; Terri Senft has a very interesting essay excerpt up about how those concepts play out for teens, especially teen girls.

Wednesday, December 16, 2009

Consumer protection hypo of the day

Consumer buys HDTV from online retailer, has unsatisfactory experience, returns HDTV and posts unfavorable review online. Retailer contacts consumer, offers compensatory hard drive (retail value $100-150), asks consumer to change bad review to five-star review.

Questions: (1) Assuming the consumer changes the review and doesn't disclose that he received a hard drive for doing so, have the consumer and the retailer violated the FTCs endorsement guidelines? (2) What should the retailer have said to the consumer about changing the review, following best practices? (3) Assume that the consumer promised to change the review in return for the hard drive, but then decides that the service was so bad that he wants to leave the review in place. What does contract law have to say about this agreement, given the public policy reflected in the Guidelines?

CFP: Law & Humanities Junior Scholars

Georgetown University Law Center, Columbia Law School, University of Southern California Center for Law, History & Culture, and UCLA School of Law invite submissions for the eighth meeting of the Law & Humanities Junior Scholar Workshop to be held at Columbia Law School in New York City on June 4 & 5, 2010.

PAPER COMPETITION:

The paper competition is open to untenured professors, advanced graduate students and post-doctoral scholars in law and the humanities; in addition to drawing from numerous humanistic fields, and welcomes critical, qualitative work in the social sciences. Between five and ten papers will be chosen, based on anonymous evaluation by an interdisciplinary selection committee, for presentation at the June Workshop. At the Workshop, two senior scholars will comment on each paper. Commentators and other Workshop participants will be asked to focus specifically on the strengths and weaknesses of the selected scholarly projects, with respect to subject and methodology. Moreover, the selected papers will then serve as the basis for a larger conversation among all the participants about the evolving standards by which we judge excellence and creativity in interdisciplinary scholarship, as well as about the nature of interdisciplinarity itself.

Papers should be works-in-progress between 10,000 and 15,000 words in length (including footnotes/endnotes), and must include an abstract of no more than 200 words. A dissertation chapter may be submitted but we strongly suggest that it be edited so that it stands alone as a piece of work with its own integrity. A paper that has been submitted for publication is eligible so long as it will not be in galley proofs or in print at the time of the Workshop. The selected papers will appear in a special issue of the Legal Scholarship Network; there is no other publication commitment. The Workshop will pay the travel expenses of authors whose papers are selected for presentation.

Submissions (in either Word or Wordperfect, no pdf files) will be accepted until January 8, 2010, and should be sent by e-mail to:

Center for the Study of Law and Culture
culture@law.columbia.edu
Columbia Law School
435 W. 116th Street
New York, N.Y. 10027

Please be sure to include your contact information. For more information: Tanisha Madrid, 212.854.0692 or culture@law.columbia.edu. The full text of the Call for Papers is available at: http://www.law.columbia.edu/center_program/law_culture/lh_workshop.

Sunday, December 13, 2009

Nominative use of Hogwarts?

Op-ed in the NYT: the author recounts numerous instances of colleges (or college tour guides, at least) comparing themselves to Hogwarts. Use in commerce? Fair use?

Thursday, December 10, 2009

Tuesday, December 08, 2009

If you build it, they will gripe

Cleary Building Corp. v. Dame, 2009 WL 4506414 (D. Colo.)

Cleary sued Dame over a website Dame operates attacking Cleary’s performance in building a building for Dame, and some related nasty comments. Dame succeeded in getting the trademark-related claims kicked out on the pleadings—a rare but encouraging result, even though the court accepted the bare allegation that the Cleary marks are famous, a result I’m not sure survives an Iqbal challenge.

Anyway, the allegations: Dame contracted with Cleary for the construction of a 50' x 100' x 18' 8" post frame building. Construction began in December 2008, then halted for the holidays. In January 2009, the relationship soured, and Dame refused to allow Cleary access to the construction site until Cleary agreed to address his concerns. Despite various negotiations, Dame refused to allow Cleary to do a final walk-through and correct remaining problems.

By May 2009, Dame was advertising his building for sale online, with links to myclearybuilding.com. The site used Cleary’s blueprint plans, including at least one Cleary mark, as a background to the opening page. (Actually, it’s a pretty cute graphic design, in my opinion.) He also posted a link to the website on a bulletin board where others were discussing the quality of Cleary products. “Readers accessed photographs of the Dame Building and commented that, while some defects were merely cosmetic, Cleary Building’s installers appeared to have done a ‘poor job’ overall and that the roof attachment was ‘horrible.’ After viewing the pictures on the Dame Website, one reader suggested that Dame ‘get a lawyer,’ while another opined that ‘Unless you live in the desert and never get rain or snow the roof will give you fits until you finally replace it.’”

Cleary further alleged false or misleading statements about Cleary and the Dame Building appeared on the website, for example that Cleary “declared the project finished.”

Dame didn’t move to dismiss the defamation, trade disparagement, and breach of contract claims, so the court didn’t analyze them.

Cybersquatting: The court found that “myclearybuilding.com” was confusingly similar to the Cleary word mark. But ACPA requires a bad faith intent to profit. Cleary argued that the following allegations were sufficient: Dame posted false and misleading statements about Cleary; the website apparently misrepresented the number of times it had been accessed; Dame used the domain name to attempt to gain an unfair advantage in negotiations; and Dame offered to remove the site if Cleary met Dame’s demands.

Even drawing all reasonable inferences in Cleary’s favor, the court found that Dame was making a noncommercial/fair use of Cleary’s marks. The exhibits to the complaint demonstrated that the site was nothing more than a gripe site: Dame was telling his story. “This is a valid exercise of free speech rights, and not the type of harm that the ACPA was designed to protect.” Moreover, ACPA directs courts to consider the registrant’s intent to divert consumers by creating a likelihood of confusion; here confusion is not plausible. There’s no disclaimer, but it’s clear from the screen shot that the site is about Dame’s experiences with Cleary. Confusion over source, sponsorship, or affiliation would simply be unreasonable.

What about Dame’s use of the site as bargaining power? ACPA also directs courts to consider a registrant’s offer to transfer the domain name for financial gain, when the registrant hasn’t used the domain name for the bona fide offering of goods or services. But use of a domain name as a bargaining chip isn’t an offer to sell, and anyway here Dame offered to remove the site, not sell it. In the end, the ACPA factors are “given to courts as a guide, not as a substitute for careful thinking about whether the conduct at issue is motivated by a bad faith intent to profit.” The paradigmatic harm of cybersquatting on hundreds of domain names in order to sell them to mark owners wasn’t alleged. The ACPA claim was dismissed.

The trademark claims also failed, because Cleary didn’t state a plausible claim that Dame used Cleary’s mark “in connection with any goods or services.” Instead, the mark was used in connection with his opinion about Cleary’s goods and services. Even accepting that Dame advertised his building with ads that included links to the site, and that the site uses Cleary’s marks and contains false/misleading statements about Cleary, that’s insufficient. The use of the trademark was separated from any goods or services offered for sale; the site doesn’t even link to the online ads. This was “too roundabout and attenuated” a connection. Trademark rights shouldn’t be used to quash discussion about trademark owners.

The dilution claim also requires commercial use, and Cleary’s pleading was equally insufficient on that count.

The court then dismissed the §43(a)(1)(A) claim for the same failure to allege commercial use, and then §43(a)(1)(B) for the same reason, which I will pickily point out should have been a failure to allege competition/commercial advertising and promotion.

The court found that it had diversity jurisdiction because, based on Dame’s own representations, the site had been accessed a substantial number of times and damages for defamation were potentially very large. But the state common law trademark infringement and statutory unfair and deceptive trade practices had to be dismissed anyway, the latter because Colorado law requires that to be liable a defendant must act in the course of its business, which means “regular commercial activity.” Dame was selling “ONE used post frame building” (allcaps in original! A judicial first?) and thus does not fall within the scope of the law.

Sunday, December 06, 2009

State claims not preempted but Lanham Act claims precluded in gas case

VP Racing Fuels, Inc. v. General Petroleum Corp., 2009 WL 4282124 (E.D. Cal.)

Plaintiff, a seller of street-legal 100 octane racing fuel, sued for federal and state false advertising claims based on alleged misrepresentations of the octane rating of defendant’s racing fuel. Defendant distributes racing fuel under the Sunoco brand; plaintiff argued that it sold 97 octane fuel as 100 octane. Plaintiff alleged that it collected samples of defendant’s product from ten fueling stations in California, and lab tests showed that none were 100 octane; they tested at 97 octane or below. Defendant argued that the claims were preempted by the Petroleum Marketing Practices Act and that plaintiff failed to plead fraud with particularity.

Preemption: Defendant argued that the PMPA doesn’t have a private right of action, and that the FTC has exclusive authority to enforce its provisions. States have traditionally regulated petroleum products, though, creating a presumption against preemption. The PMPA regulates the testing and disclosure of octane ratings, in accordance with FTC guidelines. Each entity in the distribution chain must certify the octane rating to the next recipient, based either on its own determination or certification from its distributor. Each retailer must display the octane rating clearly and conspicuously. Initially, the PMPA had a broad express preemption clause preempting state laws unless they were “the same as” the PMPA. In 1992, Congress amended the law to allow states to provide for any remedy or penalty with respect to any law permitted by the preemption clause. The intent was to allow the states more authority to enforce the law, given that an investigation found that 9% of a nationwide sample in 1988 was mislabeled by at least half an octane point, which is considered a significant violation. And the feds had failed to test or enforce octane compliance since 1981. Result: so long as state law is not different from or in addition to PMPA requirements, it can be used to enforce the PMPA and is not preempted.

So the question was whether plaintiff’s state law claims were “the same as” PMPA’s requirements. The UCL prohibits unlawful, unfair, or fraudulent acts or practices along with false or misleading advertising. The “unlawful” provision borrows violations of other laws, turning a violation of the underlying law into a per se violation of the UCL. Though the PMPA has no private right of action, plaintiff isn’t trying to bring a PMPA action, but a UCL claim. The 1992 amendment allows states to do this sort of thing.

Defendant argued that the UCL isn’t “the same as” the PMPA. But the UCL doesn’t attempt to set stricter standards, only to enforce the federal standard. Because it adopts the underlying law for purposes of the action, the UCL is “the same as” the PMPA here. There’s also no implied preemption or field preemption.

What about the false advertising claim under California’s FAL? Defendant argued that a ban on false advertising isn’t the same as the PMPA. But plaintiff is complaining about intentional misrepresentation of octane level, which is unlawful only if the advertiser knows or should know of the falsity or misleadingness. Defendant argued that under the PMPA a distributor need not know the actual octane level and may rely on the refiner’s certified octane level. Here, though, plaintiff is alleging that defendant engaged in misleading or false advertising, not certification or display of the octane rating.

The PMP doesn’t regulate the act of advertising petroleum products, so there is no preemption. The legislative history states: “This rule of construction is not, however, intended to authorize intentionally deceptive or misleading identification of automotive gasoline. Such would be the case if the trademark to be utilized were ‘100 Octane’ and this trademark were to be utilized to identify automotive gasoline with an octane rating of less than 100 under the statutory definition.”

What about preclusion (not preemption, though often called that) of the Lanham Act claim? When two federal statutes conflict, the more specific prevails. The court found that this result was required here, barring the Lanham Act claim. The specific provisions of the PMPA allow the distributor to rely on a supplier’s certification. Because knowing falsity isn’t a prerequisite to a §43(a) violation, a defendant could be complying with the PMPA and still falsely advertising under the Lanham Act. Thus, the Lanham Act claim was “preempted.” (Compare the results for Lanham Act cases about false patent markings—the courts manage the tension between the regimes by requiring a showing of intentional falsehood, and preserving Lanham Act claims in that subset of cases. I’m not sure why this couldn’t have been done here, especially given the result on the state law claims.)

In federal courts, California consumer protection claims have to be pled with particularity, even though they need not be in state courts. The court found the complaint sufficiently well-pleaded under the “fraudulent” and “unfair” prongs of the UCL, though not the “unlawful” prong because the only legal violation alleged was the Lanham Act. (Apparently the court forgot what it said about the relationship between the UCL and the PMPA at the beginning of the opinion.)

The false advertising claims under the UCL and the FAL failed, however, for want of factual allegations about the key element of “some type of advertising statement” by defendant. These claims were dismissed with leave to amend.

Charbucks case bounced back for third round

Starbucks Corp. v. Wolfe's Borough Coffee, Inc., --- F.3d ----, 2009 WL 4349537 (2nd Cir.)

The Second Circuit generally likes dilution, at least when Judge Leval isn’t around, and in this case it cut back on one of the most powerful limits on dilution: the requirement that an accused mark be substantially similar to the plaintiff’s mark before dilution could be found. Also, and relatedly, this case marks the first significant articulation I can recall of a difference between state and federal dilution claims. Stuck with precedent about the similarity requirement, the court of appeals nonetheless went with a broader balancing test for federal dilution.

As we all know, Starbucks is big and famous. Wolfe’s does business as Black Bear, a small business that sells coffee via mail order, the internet, and a limited number of New England supermarkets. In 1997, Black Bear began selling a dark roasted blend, Charbucks Blend, and later Mister Charbucks. The Charbucks Blend package showed a picture of a black bear above BLACK BEAR MICRO ROASTERY in large font, with the large slogan “You wanted it dark … You’ve got it dark!” Mister Charbucks had Black Bear’s name on it, a picture of a man walking, and the slogan “Roasted to the extreme … for those who like the extreme.”

Starbucks demanded that Black Bear stop using the Charbucks marks, but Black Bear declined. Its principal testified: “[m]y main objection was that basically this was a large corporation coming at me and saying, telling us what to do, and, oh, by the way you're going to pay for it, too.... [S]ome of the requests that they were making were really off the wall.”

At trial, Starbucks introduced the testimony of Dr. Warren Mitofsky, “a scientist in the field of consumer research and polling.” Based on his telephone survey of 600 consumers, he concluded that consumers associated “Charbucks” with “Starbucks,” and that the connections made were negative.

Black Bear won the trial; Starbucks appealed, and by then the TDRA had passed, so the Second Circuit remanded for further proceedings, and also commented that it wasn’t clear that New York dilution law was coextensive with federal dilution as amended. The parties being in agreement that no further evidentiary submissions were required, they briefed the issues and the district court again ruled for Black Bear. Starbucks appealed again.

Federal dilution law includes a six-factor test: (1) degree of similarity between the marks; (2) degree of famous mark’s inherent/acquired distinctiveness; (3) extent of famous mark’s substantially exclusive use; (4) degree of recognition of famous mark; (5) junior user’s intent to create an association with the famous mark; (6) actual association.

First, the court of appeals found no clear error in the district court’s finding that the Charbucks marks were “minimally similar” to the Starbucks marks. As presented to consumers, Charbucks is part of either “Mister Charbucks” or “Charbucks Blend” in packaging with Black Bear’s name “in no subtle manner,” and the packaging also makes clear that Black Bear is a New Hampshire “Micro Roastery.” The images, color, and format differ from those of Starbucks. On the Black Bear website, the dissimilarity between the marks is still evidence because of Black Bear’s domain name, blackbearcoffee.com, and other products such as T-shirts and mugs displaying the Black Bear mark.

It’s unlikely that Charbucks will appear to consumers outside this context, since it appears only on the packaging and the website, unlike the fish-shaped crackers at issue in Nabisco v. PF Brands, which might have been separated from their boxes. It was not clearly erroneous for the district court to find that the Mister prefix and Blend suffix lessened the similarity between the marks. The court of appeals rejected the argument that Charbucks was the only term of note, because Mister and Blend were generic and/or too weak to serve a brand-identifying function.

The district court then concluded that dissimilarity alone was enough to defeat the blurring claim, and anyway weighed strongly against Starbucks. The court of appeals concluded that the first conclusion was error, and the district court may have placed “undue significance” on similarity in determining likely dilution. The existence of some, even “not substantial,” similarity between the marks may be sufficient “in some cases” to show likely dilution by blurring. Substantial similarity is not a requirement for federal dilution. (Well, so much for resolving cases on summary judgment. And that’s too bad, given how sensible the original rule was and how consistent with the articulated rationale for dilution in the legislative history—think of all the classic dilution examples given by Congress, all of which weren’t just substantially similar but identical.)

The Second Circuit’s prior substantial similarity requirement, the court of appeals reasoned, “can likely be attributed to the lack of guidance under the former federal statute and the existence of a ‘substantially similar’ requirement under state dilution statutes, which were better defined.” But the TDRA lists six nonexclusive factors, and it doesn’t use the words “very” or “substantial” in connection with the similarity factor. (There are lots and lots of trademark cases finding that failure on one of the key factors—mark similarity and product relatedness are the classic ones—is alone fatal to a trademark claim, even though the test is multifactor. If one concedes that at a certain point dissimilarity alone would be fatal—imagine similarity that was merely “both marks are English words”—then I don’t see why courts can’t easily conclude that substantial showings have to be made on key factors. The court’s reasoning, though, is good evidence for Bill McGeveran’s claim that courts are increasingly engaging in mechanical rather than common-law methods of interpreting the trademark statute.)

Under the TDRA, one of the factors is the “degree of similarity” between the marks, which “does not lend itself” to a requirement of substantial similarity. If there were a substantial similarity requirement, the significance of the remaining five factors would be “materially diminished” because they’d have no relevance without substantial similarity. (Of course, (2) and (4)—degree of distinctiveness and extent of recognition—are always going to favor the famous mark if it is in fact famous, so their significance is pre-diminished, or I suppose pre-enhanced. The various factors are not all of equal weight, and the statute does nothing to suggest that they are. By adopting a common-law type multifactor test, I would argue, Congress accepted the history of trademark multifactor tests, which do typically weigh certain factors more heavily than others, both formally and, as Barton Beebe has shown, empirically.)

The court of appeals concluded that the district court’s error likely affected its view of the other factors in analyzing the blurring claim. Indeed, the district court erred on evaluating the remaining two disputed factors: (1) intent to create an association and (2) evidence of actual association. The district court determined that Black Bear intended to associate Charbucks with Starbucks, but that Black Bear didn’t act in bad faith. But the intent element of the blurring statute doesn’t require bad faith; intent to create an association alone favors a finding of likely dilution.

As for actual association, 3.1% of 600 consumers surveyed responded that Starbucks was a “possible” source of Charbucks, and 30.5% responded that Starbucks was the first thing that comes to mind when they heard the name Charbucks. The absence of confusion, to which the district court referred, has no probative value in the dilution analysis. Thus, the federal dilution by blurring claim was remanded.

Tarnishment requires reputational harm: linkage to products of shoddy quality, or portrayal in an unwholesome/unsavory context such that it won’t serve as a wholesome identifier of plaintiff’s product. Starbucks argued that Charbucks evoked the image of bitter, over-roasted coffee; 30.5% of those surveyed immediately associated Charbucks with Starbucks, and 62% of them indicated they’d have a negative impression of Charbucks.

The court of appeals was unpersuaded. A mere association between Charbucks and Starbucks, plus a negative impression of Charbucks, is insufficient to establish likely dilution by tarnishment—nothing there shows that the consumer would view the junior mark as harming the reputation of the famous mark. The more relevant question (and one can sense why Starbucks didn’t ask it) is how Mister Charbucks/Charbucks Blend would affect positive impressions of Starbucks coffee. “We will not assume that a purportedly negative-sounding junior mark will likely harm the reputation of the famous mark by mere association when the survey conducted by the party claiming dilution could have easily enlightened us on the matter.” In fact, the court speculated, Charbucks might even strengthen the positive impressions of Starbucks by contrast—it brings to consumers’ attention the fact that Starbucks has no “Char,” and therefore of the two, Starbucks might be more attractive. “Juxtaposition may bring to light more appealing aspects of a name that otherwise would not have been brought to the attention of ordinary observers.”

Starbucks argued that “Charbucks” is already a pejorative term for Starbucks coffee (a risky tactic—in Hormel, the Second Circuit was willing to find SPAM pre-tarnished) and thus causes negative associations. The court of appeals disagreed. Although the term was once used pejoratively during the “coffee wars” in Boston, Black Bear wasn’t propagating that negative meaning, but is redefining it for a positive image for its own line. Consistent with Black Bear’s intent to profit, the coffee is “[v]ery high quality. It's our life. We put everything into it.” This won’t harm Starbucks’ reputation. The fact that Charbucks is marketed as high-quality is inconsistent with the concept of tarnishment. (Would the Second Circuit be willing to make the same finding about high-quality porn?) Product similarity may affect blurring, but it also undercuts tarnishment.

What about parody, as in the Chewy Vuiton case? Black Bear can’t qualify under the statutory parody exception because it’s using Charbucks as a designation of source for its own goods. The Second Circuit held that, even if it were to follow the Chewy Vuiton case and hold that parody can defeat a dilution claim against a source-indicating use, that wouldn’t help Black Bear.

Here, Black Bear’s use is, “at most, a subtle satire” of Starbucks as a reference to Starbucks’ dark roast, but that’s not a clear enough parody to qualify for the Fourth Circuit rule. The owner testified, “[t]he inspiration for the term Charbucks comes directly from Starbucks’ tendency to roast its products more darkly than that of other major roasters.” By using that term for its own high-quality, darkest-roated product, Charbucks is “promoted not as a satire or irreverent commentary of Starbucks but, rather, as a beacon to identify Charbucks as a coffee that competes at the same level and quality as Starbucks in producing dark-roasted coffees.” Therefore, it wouldn’t effect an increase in public identification of the Starbucks mark with Starbucks. (Isn’t this logic in contradiction with the tarnishment analysis above?)

Black Bear sustained its victory on state dilution. State law doesn’t require fame, and its multifactor test (invented, by the way, by the Second Circuit) is different from the TDRA’s multifactor test. Most important here, New York requires “substantial” similarity. (Further on that “by the way”: the Second Circuit’s multifactor test for NY dilution is “(i) the similarity of the marks; (ii) the similarity of the products covered; (iii) the sophistication of the consumers; (iv) the existence of predatory intent; (v) the renown of the senior mark; and (vi) the renown of the junior mark.” New York Stock Exchange, Inc. v. New York, New York Hotel LLC, 293 F.3d 550, 558 (2d Cir. 2002). Is there a relevant word beginning with ‘s’ missing from (i)? Or is it not missing at all, because it doesn’t need to be there to be part of the caselaw?) Given that the district court didn’t clearly err in finding lack of substantial similarity, the state law claim failed.

Likewise, the court of appeals upheld the finding of no liability for infringement/unfair competition. Though the Starbucks marks are strong and the goods are similar, with no gap to bridge, that’s not enough. Bridging the gap is irrelevant and shouldn’t favor Starbucks when the parties compete directly. (I take this to mean that identicality of goods already makes the similarity of goods factor weigh as strongly as it can in the plaintiff’s favor, and to then add in bridging the gap would be double-counting. That there is no gap to bridge hardly seems irrelevant in the abstract. But mostly the fact that we need to angst so much about how to deal with the identical-goods situation suggests that the multifactor test, despite the Second Circuit’s hopes, is always at risk of becoming mechanical and detached from its underlying objective. It’s also confirmation of Mark McKenna’s argument that things went bad in trademark when courts decided that they’d use the multifactor test for everything, even competing-goods cases.)

The court of appeals rejected Black Bear’s argument that the extreme strength of the Starbucks marks should weigh against likely confusion, because the (mechanical) rule is that strength favors the plaintiff. True, a strong mark can weigh against likely confusion where the defendant’s mark is a clear parody and there’s widespread familiarity with the parody, as when the parodist is a Muppet. But Charbucks is at most, familiar only to the New England region and some consumers on the internet. “More importantly, Charbucks is not a ‘clear parody’” because it’s on a directly competing product.

On the rest of the factors, there was no clear error except on the sophistication of consumers. For example, Starbucks’ telephone survey--which found that 3.1% of respondents named Starbucks as a possible source of Charbucks, plus greater levels of association with Starbucks and with coffee--was insufficient because it didn’t present Charbucks in the context in which Black Bear uses it. (Also, 3.1% is a ridiculously low level of confusion, even more so given the tentativeness of the question—a “possible” source?) Also, Starbucks couldn’t produce any evidence of actual confusion, and eleven years of coexistence without confusion is a “powerful indication” of no likely confusion, given that Black Bear has sold about $7000 annually of Charbucks.

Nor was Black Bear’s intentional reference to Starbucks problematic. The only relevant intent is intent to confuse, which is considerably different from an intent to copy. The district court isn’t required to draw an inference of bad faith from deliberate copying where there’s evidence to the contrary. Black Bear has always taken the position that “Char” and the different trade dresses prevented confusion, and indeed as a small, local business, its owner testified that association with a large corporation “would be very bad for us.” Thus, the district court’s conclusion on intent was reasonable.

On quality of goods, Starbucks argued that the high quality of both parties’ products should favor a confusion finding, but when goods or services of equal quality compete, the quality factor “cuts both ways.” (The Second Circuit should just en banc this to get it out of the test. It’s a useless factor in modern trademark law, whatever its utility when tarnishment mattered to a confusion finding; a footnote in this opinion gestures in that direction, pointing out that it’s not clear why inferiority of goods/services has anything to do with likely confusion as we currently understand it.)

Finally, the district court concluded that ordinary consumers were unlikely to mistake Charbucks for Starbucks, whether or not they were “highly discriminating.” Starbucks argued that its customers are not sophisticated and generally make quick, casual purchasing decisions about low-cost goods. The court of appeals agreed that the district court was wrong to weigh this factor against Starbucks—it was basically anticipating its overall weighing of the factors, not making an independent finding about sophistication—but that wasn’t enough to change the outcome. It’s true that case law associates the purchase of low-cost goods in a supermarket with low sophistication. But price alone isn’t determinative of consumer care. Because there wasn’t much evidence before the district court on this factor, the court of appeals declined to give it much, if any, weight.

Given that the district court erred in weighing bridging the gap in Starbucks’ favor, and didn’t screw up too badly on the rest, the court of appeals “a fortiori” affirmed the ultimate conclusion of no likely confusion.