it's ok to assume that cybersquatting caused damage

Migliore & Associates, LLC v. Kentuckiana Reporters, LLC, No. 3:13–CV–315–H, 2013 WL 5323035 (W.D. Ky. Sept. 20, 2013)

This is a cybersquatting and Lanham Act case that I only noted because of its illustration of the ways in which judicial common sense under Iqbal/Twombly disproportionately favors certain causes of action.  Lisa Migliore Black and her company sued competing court reporting company Kentuckiana for registering lisamigliore.com and redirecting it to Kentuckiana’s own website.  The court found that ACPA didn’t require pleading actual damages as an element of the claim, that statutory damages of up to $100,000 might be available, and that plaintiffs adequately alleged plausible injury—Kentuckiana’s possible profits, to which Black would be entitled as one category of damages—from the redirection.  “Plaintiffs’ inability to verify whether and to what extent Kentuckiana profited from its actions or how many—if any—customers were diverted is immaterial at this early stage of litigation.”  Likewise, the §43(a) claim was plausible.

But Kentuckiana argued that there was a general standing problem: though the complaint alleged that Kentuckiana attempted to attract users, plaintiffs didn’t allege that any actual traffic or customers had been diverted.  True, Article III requires an “actual or imminent, not conjectural or hypothetical” injury as one of the “irreducible constitutional minimum[s]” of standing.  But at the pleading stage, “general factual allegations of injury resulting from the defendant’s conduct may suffice.” Before discovery, plaintiffs’ inability to identify whether any business was diverted or any consumers were confused wasn’t material.  The injury was still plausible.

No reasonable person could believe it's just butter

Simpson v. Kroger Corp., No. B242405, 2013 WL 5347881 (Cal. Ct. App. Sept. 25, 2013)

Simpson sued Kroger and Challenge Dairy for selling allegedly mislabeled products combining butter with canola oil or olive oil.  Simpson argued that the products couldn’t lawfully be labeled “spreadable butter with” the other oils, at least without making the other oils more prominent.  The court found that California’s butter labeling law wasn’t identical to federal labeling requirements and was therefore preempted.  (As it turns out, Congress barred the FDA from establishing a standard of identity for butter, and specified how it wanted butter defined—once again, the history of the regulatory state could be told through the lens of dairy regulation.  There’s no standard of identity for butter combined with canola or olive oil, leaving this product governed by the general regulations that require foods to bear their common names/the common names of their ingredients.)  The court rejected Simpson’s argument that a state law that was “substantially” identical to federal law wasn’t preempted.  Only identical laws survive preemption.

Though Simpson’s Sherman Law claims weren’t preempted, that didn’t help her, because as a matter of law no reasonable consumer would’ve been misled by the labels.

The court included various images of the products at issue, e.g.:

 

Where “butter” is used on the label, the other oils are also on the panel, albeit in smaller type.  The basic FDA rule is that “[t]he common or usual name of a food, which may be a coined term, shall accurately identify or describe, in as simple and direct terms as possible, the basic nature of the food or its characterizing properties or ingredients.”  Defendants argued that these labels complied, and Simpson responded that “butter” was overly prominent on the packages.  The court disagreed: The top and side labels clearly identified any reasonable consumer of the contents.  “No reasonable person could purchase these products believing that they had purchased a product containing only butter.”

another fruit seller sued for selling preserved fruit packaged as fresh

Brazil v. Dole Food Company, Inc., No. 12–CV–01831, 2013 WL 5312418 (N.D. Cal. Sept. 23, 2013)

Brazil is a California consumer who “cares about the nutritional content of food and seeks to maintain a healthy diet.” He alleged that he bought 8 misbranded Dole products, and identified 30 substantially similar products.  The allegedly false claims included “natural,” e.g., one product used “All Natural Fruit” even though it contained ascorbic acid, citric acid, malic acid and added flavors, which weren’t natural.  He also challenged “fresh,” which FDA regulations state means raw and not frozen or subjected to any form of thermal processing or any other form of preservation. The regulations also require that foods that have undergone particular forms of processing be labeled as “canned” or “pasteurized” if they are packaged and sold in a manner that “suggest[s] or impl[ies] that the article is other than a canned food,” as when foods are packaged in glass or plastic instead of metal cans.  He argued that Dole products labeled “fresh taste” had been subject to various forms of thermal and chemical processing, and that products packaged in plastic or glass didn’t disclose that they were “canned,” in spite of the fact that they underwent processing that the FDA considers equivalent to canning.  (Shades of a recent Lanham Act case!)

The court found that Brazil could bring claims based on products he didn’t buy that were substantially similar, but not claims based on statements he didn’t view.  As to the former, “where, as here, a plaintiff claims that he was misled by the improper use of the term ‘all natural’ on Dole Mixed Fruit in Cherry Gel, the injury he suffers as a result of that misrepresentation is not meaningfully distinguishable from the injury suffered by an individual who is misled by the use of the term ‘all natural’ on Dole Mixed Fruit in Black Cherry or Peach Gel.”  All the other products he identified were just different flavors or varieties of the products he purchased and used identical representations to those on the products he bought; that sufficed. 

But the court rejected Brazil’s argument that he didn’t need to view website statements in order to have standing to challenge them.  He contended that statements made on websites whose addresses appear on a product label are incorporated into the label as a matter of law, and that misstatements on the website therefore made various blueberry products misbranded and illegal to sell as a matter of law.  His claimed injury was therefore that he bought “illegal” products.  The court doubted that this was enough to establish causation for Article III purposes.  “While Defendants’ website statements may violate federal law by virtue of the FDA’s position that website statements may be incorporated into a product’s labeling by reference, it is far from apparent how this regulatory violation could have caused Brazil to purchase Defendants’ products when he neither saw the allegedly offending statements nor relied on them in deciding to purchase Defendants’ products.” Anyway, even if that theory passed Article III, it wasn’t enough under California’s consumer protection laws, which do require reliance when the underlying misconduct alleged is fraudulent.  And his theory was inconsistent with Proposition 64’s enhanced standing requirements for UCL claims.

Many of Brazil’s claims did survive Rule 9(b) by identifying the particular representations and regulations at issue, specifying why Dole’s representations allegedly violated the regulations, and stating why a reasonable consumer would be misled by the violations.  Brazil didn’t need to spell out the regulatory violations associated with each unpurchased product “with the same degree of exhaustive detail,” because that would be cumbersome and redundant.

Some of the claims were preempted, but others weren’t.  The fact that Dole allegedly sold misbranded products without disclosing the misbranding wasn’t deceptive/actionable in itself, since no regulation required such disclosure (despite Brazil’s attempt to argue that a general disclosure provision in the regulations, mandating disclosure of material facts, did so require).  There was no authority “to support the counterintuitive proposition that a product’s label must disclose the fact of its own illegality.”

The court also declined to dismiss nationwide class claims on a motion to dismiss, without more fact-specific analysis.

Website footer still isn't CMI; short phrases still unprotectable

Personal Keepsakes, Inc. v. Personalizationmall.com, Inc., No. 11 C 05177 (N.D. Ill. Sept. 24, 2013)

Previous discussion, with pictures. PKI makes gift items personalized with poetry verses, sold at its website poetrygifts.com.  Defendant Techny is a competitor and alleged copyright infringer/violator of the DMCA’s copyright management information (CMI) provisions.  Techny allegedly copied PKI’s poems on competing products: Techny’s “Petite Poetry Gift,” “To Our Ring Bearer,” “To Our Flower Girl,” and “On Your Confirmation Day” all contain language from PKI’s works.  Techny moved to dismiss claims related to “On Your Confirmation Day” gifts. Techny argued that the disputed phrase wasn’t copyrightable because it was too common, unoriginal, and short.  The registration at issue said the title of the work was “Personal Keepsakes,” and the claimant characterized the work as an “Entire Collection of Poems.” The relevant portion was an excerpt titled “On Your Confirmation Day” which reads:

GOD BLESS YOU ON YOU [sic] CONFIRMATION DAY

May the strength of the Holy Spirit be with you, guiding you every day of your life.

On Techny’s website, “My Confirmation Day” (available for an engraved class picture frame) reads: “‘When you send forth your Spirit, they are created, and you renew the face of the earth’ – Psalm 104:30 May the strength of the Holy Spirit be with you, guiding you every day of your life.”

The verse was too common and unoriginal to receive copyright protection.  “May the strength of the Holy Spirit be with you,” was “of a kind” with the common blessings “May the strength of the Lord be with you,” “May the Lord be with you,” or “God be with You,” which are “widely used and decidedly not original.”  A Google search on “may the strength of the lord be with you” produced about 10,800 results, and “may the strength of the holy spirit be with you” produced about 476 results on Google.

This was particularly true given that the phrase was so brief.  Short phrases and expressions aren’t copyrightable.  “The allegedly copied portion of the collection of poems here is a single sentence of two short phrases; it is perhaps long enough to be copyrightable if it were original, but there is not an appreciable amount of original text presented here.”  Thus, other cases finding short phrases protectable (note: wrongly decided) were inapposite, because they involved originality and at least minimal creativity (“E.T. Phone Home” and “You might be a redneck if . . . [punchline]”).  In light of the phrase’s generic nature, the copyright infringement claim was implausible, and PKI’s assertion of validity didn’t change matters.  As Techny pointed out, the registration was for an entire collection of poems, which is prima facie evidence of validity of the entire collection, but that didn’t help PKI show that it owned “May the strength of the Holy Spirit be with you, guiding you every day of your life.”  (PKI somewhat misleadingly redacted all but the “poem” at issue in the copy of the certificate of registration it used—six pages of text with 20 titles.)

Techny’s alternative argument was lack of substantial similarity after unprotectable elements had been filtered out.  The court agreed. Although the phrases were identical, substantial similarity requires an ordinary observer to conclude that the protectable elements of the plaintiff’s work were copied. “Here, when the portion of the expression at issue that is not copyrighted, or could not properly be copyrighted, is set aside, there is virtually nothing of PKI’s allegedly protected work left to compare with Techny’s version for substantial similarity.”  Indeed, even given Techny’s conceded access, the unoriginality of the phrase rebutted an inference of copying.

Separately, PKI alleged that Techny violated the DMCA by removing the CMI, such as the www.poetrygift.com website name and associated copyright notice, from PKI’s poems and substituting its own CMI on pages selling the allegedly infringing products and Techny’s general website terms and conditions, which claimed copyright over the site contents.

Techny argued that the material it allegedly removed or altered was not CMI.  PKI’s claims were based on (1) the www.poetrygift.com name, (2) the titles of the works, and (3) the copyright notice on every page of the website. As the predecessor judge held, though, “Poetrygift.com cannot be CMI . . . because the copyright registrations attached to the complaint show PKI, not poetrygift.com, as the owner of the copyright.”  The website was at best an indicator of the seller, not a statement about copyright status: “Amazon.com does not suggest that Amazon owns copyrights with respect to every product it sells.”  Nor could the titles be CMI because the registrations didn’t list the titles of the works as they appeared on PKI’s website.  CMI is supposed to inform the public, but if someone searched the poem’s title, the search would fail because the title of the work is not “On Your Confirmation Day” etc. on the registration. “Allowing a plaintiff to make out a DMCA claim based on alleged CMI that does not link up in any way to the copyright registration is an invitation to unfair litigation against parties who have tried to tread carefully to avoid copyright infringement.”

Also, the court agreed with other courts that have held that “a defendant must remove the CMI from the ‘body’ or the ‘area around’ the work to violate DMCA.”  This is consistent with the statutory text, which requires CMI to be “conveyed” with the copyrighted work.  Simply printing information somewhere on the website won’t suffice.  The only alleged CMI was on the website, not on the poems or phrases themselves, and thus no CMI was removed.  “Such a rule prevents a ‘gotcha’ system where a picture or piece of text has no CMI near it but the plaintiff relies on a general copyright notice buried elsewhere on the website.”

The false CMI claims failed for the same reason: PKI alleged that Techny posted a notice attributing copyright ownership in the infringed works to giftsforyounow.com or some other website(s) as the copyright claimant. But that copyright notice wasn’t close to the poem.  It was in the website footer at the bottom of every page and thus not “conveyed with” the poems. The notice claims some IP rights in the website, not ownership of a copyright on all its products.

PTO empirical data: US and UK

Special Session: Policy Perspectives on Trademark Data

Alan Marco, USPTO

TM case files are already publicly available.  Data from assignments.  One of roles of gov’t is to provide public goods, and open data is really important there.  Patent application information is coming, as are similar tailored data sets (time series of applications by technology).

Assignments: involve choices.  Main involve assignment of assignor’s interest (generic, change of ownership, e.g., inventor to employer); merger; security interest agreement; license; name change; correction; other.  Patent form: electronic choices are different than on the paper form.  You can write in whatever you want. Tried to create categories out of the answers, but full text is in the data.

Trading a patent/TM might be an indicator of value—those that have changed their name a lot or made corrections aren’t necessarily more valuable, but merger/security interest/license is some indication of commercialization/use. TM: 4 million property-level transactions; patent: 4 million post-grant.

Banks demanded rights to blue oval logo used by Ford as security for $23 billion loan.  Can Ford put up its goodwill as collateral? Is the mark valuable separated from goodwill?  Security interest recordation happens quickly; merger etc. may not.  No incentive to tell TM office until it’s time to renew the mark, since only the owner can take action at the PTO. So different actions have different recordation lag.  Ford recordation happened on the day it was executed. Real growth in security interest filings: more common than change of ownership.  Are they recording more or is this actual growth? We think this reflects actual trend to assign security interests in marks, in large part because banks as assignees have significant incentive to record.

In patents, similar overall trend though security interests don’t outpace change of ownership.  8-12% marks are involved in some type of recorded transaction each year, not counting release of security interest.  That’s a lot!  Patents, it’s 4-8% depending on how you define it—similar trend, lesser magnitude.  Big banks are big players: Bank of America 15%, JPM Chase 10%, Wells Fargo 10%.  New specialization in valuing brands for purposes of security interest.

Assignment and renewal are both value correlates. But part of this correlation may be artificial, based on incentives to assign.  If you want to renew a TM, only the owner can do that, so assignment is required.  So someone who doesn’t bother to renew might not bother to assign. 

So what?  Deals not primary drivers of IP value, but this is a signal.  More liquid and robust market for IP; valuation is getting better. Collateral use shows that trading/licensing isn’t the only way to get value.  Secondary markets: take some lessons from mortgage-backed securities (MBS). Financial firms have a great idea: If underwriters are writing insurance contracts for the banks, maybe that can be packaged into a security!  A lot of people he talks to in IP are talking about that with excitement.  Trading with perfect liquidity.  That worked out not so well in MBS.  An IP bubble?

Nicola Searle, UKIPO

TM lookalikes: a case study of what happens with TM research.  “Fast moving consumer goods” (FMCG) markets: food, cleaning, personal care products.  Sold by a third party, looks similar to brand owner’s product.  Head & Shoulders example.  80s: lookalike bottles in one shape; H&S changes shape and then so do lookalikes. 

Massive tension between brand owners and supermarkets.  Brand owners may not like going after major or even only customers.  UK: supermarkets have advance notice of packaging changes; Belgium: only 6 months notice allowed, by statute.  Many times the packages aren’t actually infringing.  Other goods/services can be involved—books with similar covers, singers who look like other singers.

Idea is that entrance of lookalike affects supplier’s market share.  Claim: affects innovation—lower returns to marketing/packaging innovation if it’s copied easily.  Not much reasearch in this area because it’s difficult to do.  DG Enterprise 2011 report found lookalikes didn’t affect market share or introduction of new products.  Did find that Spain was different, where lookalikes were relatively new.  Lookalikes may increase size of market instead.  Another argument: wasteful repackaging/innovating done just to avoid lookalikes.

Competition: use of advance notice to one’s own advantage.  Category colors: if a particular soap has a particular color, should other soaps be allowed to use that color?  Monopoly concerns, esp. when design is functional.  Consumer concerns: industry purports to represent consumers.  Could increase choice; could increase confusion.  What are the actual consequences?  Finally, signalling: used in a loose matter when we talk about TM.  Need a better definition; the idea that lookalikes confuse brand signals.

Research: brand owner interviews; consumer survey; sales analysis.  Industry-based surveys are open to a lot of manipulation, reflected in existing literature.  Looked for evidence of consumer mistakes, perception of common origin, perception of quality based on similarity to national brand.

Classic case in UK: Puffin v. Penguin—Penguin biscuits were copied and Puffin was the knockoff; lost the case because too close.  It was challenging to get participation from supermarkets.

Surveys demonstrating confusion don’t show economic impact.  Brand owners can be happy with consumer surveys—they tend to use them themselves in product development.  Eye tracking tech—track how much longer the eye lingers—but that doesn’t tell you about economic impact or why consumers end up choosing what they choose.

Sales analysis: people wouldn’t share confidential sales data; not enough to draw proper conclusions.

Overall: equivocal. A small, but statistically significant lookalike effect leading consumers to believe that similar looking products have similar characteristics and similar origin. Roughly equal numbers of consumers feel disadvantaged by a mistaken purchase as advantaged.  (If you don’t feel oppressed, are you really oppressed?)  You can’t say they cancel each other out.  Substantial majority had deliberately purchased a lookalike and found the experience advantageous.

Limited evidence that lookalikes spur brand innovation.  Not found that lookalikes directly cause brand owners to make changes to packaging.  Sales showed an association between an association between a reduction in sales of the brand leader and an increase in sales of the lookalike in a limited number of product categories. 

We end up with big question marks on data, actual impact of lookalikes. 

Q: does copying allow copycats to raise their prices?

A: no evidence.  Supermarket own-brand copies and independent copycats exist.

Q: what impetus?

A: her private impression: stakeholder pressure.  Had suggestions for new legal right/extension of TM.

Q: conclusions might question the validity of trade dress law, since they’re so inconclusive.

Another commenter’s perspective: private right of action allows it to be addressed case by case, instead of squeezing it all into the same category.  (RT: This risks big false positive errors though!)

Another comment: benefit of private right of action is unclear—if the problem is supermarkets, then there are collective action problems.

A: Ireland has a private right of action, not used much. Either it’s just used as a threat, or it’s not used at all. 

Asda’s big line is “chosen by you.”  The whole idea is that they have lookalikes, at lower prices, and thus provide consumer value.  Surveyed consumers about opinions and also asked them to look at products.  People with more experience with the product were less likely to be confused.

Comment: mistake that leads to satisfaction could keep consumers switched/lead to repeat purchase of the copy—take business away.

Q for Marco: does increased securitization distort incentives to patent/register TM?

A: it is a way to monetize. For the most part, in this sector, they need debt financing to produce—mostly manufacturers. And it’s a portfolio, including other intangibles not just marks. 

PTO empirical data, TM applications

Deborah R. Gerhardt, UNC School of Law (with Jon McClanahan), Do Trademark Lawyers Matter?

Generally similar publication rate by filing basis, 75-80% range, but ITU registration rate is much lower than all the others, which are generally high.  82% of attorney represented applications publish, with only 60% pro se.  Sample of inexperienced applicants who filed two applications, one pro se and one with counsel: 79% went to publication with a lawyer, 61% without.  61% went to registration with a lawyer, 47% without.  So that can’t show causation but it does show correlation.

Experience also matters a lot. Pro se applicants who file fewer than 10 have 57% success rate, whereas 30 or more the rates are 81% success without lawyers and 83% without.  However, these repeat player pro se applicants are often not really pro se—e.g., American Greetings.  There may be a paralegal filing the application, but there is in house counsel.

85% of population are either the least experienced pro se applicants or the most experienced lawyers. 88% of lawyers fell into the 30 or more category, while over 80% of pro se fell into the fewer than 10 category.

Similar patterns hold on impact on publication after office actions are filed; the difference between the categories becomes bigger. 

Key takeaways: Lawyers aren’t essential, but correlated with success. Success increases at every experience level. Most applicants fell into two categories—least experienced pro se and most experienced lawyers.  Experienced counsel were far more successful. Might be masking other causes, but very strong correlation.

Discussant: Kirsten L. Apple, USPTO

One implication: justification for increased PTO support for pro se applicants—particularly need more guidance on how to address an office action. 

Questions: do lawyers matter in other areas?  Patents, mechanic’s lien, child custody.

In terms of causality, interviews/surveys might suggest what drives people to file or not.

Regressions: year, publication, foreign/domestic, year, opposition, etc.  Families/related marks, class.  Business data—size of business, business description.  Are attorneys used for more valuable marks?  Literature exists on what makes a patent valuable, including renewals—could use data to identify valuable marks.

McClanahan: we did look at emailed office actions, which are supposed to be more informal, and 40% succeeded after that—many of them simply give up.

(RT: Are we sure that’s a bad thing?  Maybe the examiner was right!  Yesterday it was all about deadwood!)

Q: look at pendency—time to publication/issuance. That tells you that the office action was a quick issue, like a bad specimen of use.  That might pick up nuances. 

Q: see this as an access to justice issue.  What kind of counsel can we give—pilot program with law school clinics, with a “rocket docket” for examination, helping people apply for TMs.

Alexander Krasnikov,George Washington University, Impact of Influential Trademark Cases on Trademark Application Activity

Explosion of applications and registrations in recent years.  What are determinants of firms’ decisions to apply for TMs?  Lack of integration of TM research with other domains, especially innovation & tech management/marketing.

Premise: TM applications reflect firm branding activities and may be linked to marketing strategies.  External shocks: law/litigation tend to expand TM boundaries, e.g. Taco Cabana’s elimination of secondary meaning requirement for trade dress.  Propertization/privatization trend might also lead to increased trademark activity. 

Focus on protection and registration of design elements of TMs, such as shape or color.  Looked at impact of Qualitex and TrafFix.  Looked at applications, divided into classes of companies by number of applications on the theory that the response to litigation is likely to vary with firm size and scope.  Average annual number of applications per firm/family, in design code 26 per firm/family, color applications.  Class 1: 70,000 firms, 1.3 million applications, 300,000 configuration applications, 1600 color applications.  Class 4 (bigger firms): 1400 firms, 670,000 applications, 122,000 configuration applications, 1000 color applications.  Note that configuration applications are a significant percentage, in the 20% range.

Findings: Qualitex is significant at a TM family analysis.  Might increase overall registration activity at brand but not firm level. TrafFix had negative effect on firm and family registrations.

Discussant: Graeme Dinwoodie, Oxford University

The cases at issue could be framed differently; this helps us assess whether we’re surprised by the results.  How typical/atypical cases about shapes and colors are likely to be compared to word marks.  The idea that Qualitex might spur color registrations and TrafFix wouldn’t is intuitive.  Qualitex resolved a circuit split on registrability/protectability of color alone—seen as liberalization, so positive effects unsurprising. But other parts of Qualitex were important: requirement of secondary meaning, which was important to Wal-Mart: a more neutral/not pro-registration result.  TrafFix must be taken in combination with Wal-Mart as a signal that the Court wanted a contraction of product design—a strong message, taken very seriously by most courts. Again, this makes the result unsurprising.  Hasn’t seen TrafFix’s caveat that ornamental designs can be registered used in very pro-registrant ways.  TrafFix arguably dampened TM registration on two distinct classes of marks—patent extension cases (e.g., drug shape cases), which TrafFix killed, and toughening up functionality even without a patent.

Suspicion is that what’s going on in shape cases is not classical branding strategy, but rather sub silentio design protection given the lack of sui generis/adequate design patent protection, which affects whether you should think of design TMs as branding or rather as design protection/patent extension.  Qualitex suggests that in a global marketplace, color and shape may become real branding mechanisms, but many litigated cases don’t look like that.  Useful information: how many cases/applications also involved a patent. 

So other forms of legal protection for design might matter; doesn’t seem to have been much change in copyright or design patent in the relevant 1995-2000 period.  But protection of marks is often a decision made after the fact.  Another option: §43(a), unregistered trade dress. So whether application activity would reflect litigation activity is unclear.  IP as a portfolio of rights as a way of achieving objectives.

Other bumps in the road during that period: a reform of functionality law in 1998 that arguably made registration more useful for product designs to shift the burden of proof.

PTO empirical workshop, keyword buys

Stefan Bechtold, ETH-Zurich

Trademarks, Triggers, and Online Search

Google policy change allowing more ads on TMs.  Navigational search: allowing 3d party ads may divert consumer attention to 3d party websites, making search harder—bad for TM owners and consumers? (RT: how do you know that it’s bad for consumers, and not consumers exploring alternatives? The TM owner’s site is usally first in the organic results, so it’s right there if they want it.)

But for nonnavigational search, allowing 3d party ads may be good for TM owners if it increases the amount of useful information.

Empirical data from France and Germany: categorizing over 140,000 different searches.  Idea: if someone enters only TM as search term, more likely that this is a navigational search.  TM + some other word, likelihood that this is nonnavigational is higher.  Number of words also matters (e.g., iPhone + model number)—lower is more likely navigational.  Change over time—if someone consults the search engine again, how do they change their search?  Likelihood that it’s nonnavigational is higher if they add more words and vice versa.  Results: Likelihood of visiting TM owner’s site within 10 minutes increased (+14.7%, 80% of sample) for nonnavigational searches after Google’s policy change, whereas for navigational searches it decreased (-9.2%).

Shift focus of debate from consumer confusion to consumer behavior.  A full allocation of property rights to TM owner is not necessarily optimal for TM owner.

Discussant: Amanda F. Myers, USPTO

Dynamic nature of TM—making consumers use TM in new or previously unexplored ways. Owners and nonowners can deploy them.  Empirical work can turn a legal argument on its head.  (RT: I don’t get it.  The legal argument (at least in the US) is about confusion.  Evidence of consumer behavior is not evidence of confusion.  It’s not even evidence of dilution, in the sense of changing the signal of the mark.  As with cognitive models of dilution, empirical work can give TM owners new means of defining what “harms” them, but agreeing that this is a harm is a normative move beyond the empirical data.)

Query whether French and German attitudes towards brands differ.

Bechtold: information on actual purchase behavior isn’t observable from data because of privacy concerns.  (Cut off part of the URL.) So we can’t consistently observe whether someone goes to a shopping cart.  Duration/time on site—we are exploring this more, but the data are noisy and we aren’t clear why.

Q: why not observe the order of visit and only judge the first visit after the search?

A: it’s on our list to check.

Q: could still classify websites that allow purchase and websites that don’t (e.g. Blackberry).  Might see differential impact.  Another comment: might see that someone goes to Amazon to buy the thing—that’s not a diverted sale from the TM owner.

A: that’s a manual classification issue.

Q: concern would be that if someone searches on Samsung, then goes to buy some other phone elsewhere, then back to Samsung to buy an accessory/peripheral.  (What kind of problem or difference does that represent?  I think Bechtold’s answer was something like that—that this is probably too granular.)

Q: effect of autocomplete?

A: can’t observe that, can only observe url.

Q: what about searches with multiple TMs?  Amazon + Blackberry.

A: we used the first brand named.

Q: might be able to get category information—someone who goes to BMW then to Google Maps might be looking at a dealer, whereas someone who goes to another car company is still continuing the search.

A: how can we identify navigational search if a TM has multiple meanings including non TM meaning.

Q: we’re thinking about classifying Apple etc.—though in Germany/France, more plausible it’s used as a TM.  Often marks we studied didn’t have generic meanings in the languages, but we are trying to figure out if we have a sufficient number of marks to control for this.

David Franklyn, University of San Francisco School of Law & David Hyman, University of Illinois College of Law, Trademarks as Keywords

Study in US, given over 100 keyword lawsuits worldwide, lots of articles & CLE. Judicial “casual empiricism,” initially focusing on diversion rather than confusion.  Assumption was that search terms reflected search goals.  Assumed consumer knowledge of labeling and architecture.  E.g., 9^th Cir. assumed consumers could distinguish paid from organic/algorithmic results, and were therefore less likely to be diverted.  (My thoughts here: Reasonable consumer is a legal construct, not a completely empirical creature.  Many theories make this a feature, not a bug: you should learn that some uses of TMs are not authorized, because of the needs of competition/free speech.)  Assumption that use of term in ad text was more likely to confuse/divert.  So are consumers confused?  Are they even diverted, if they are using TM as an entry point into a general search on the category at issue?

Wanted to determine searchers’ knowledge of search engine labels/architecture: algorithmic results are unlabeled, and you’re supposed to be able to figure out by negative implication that they’re not paid.  Google changed from “sponsored links,” which they studied, to “ads.” 

Research questions: how often are TMs bought as keywords, and who is buying them?  Why do consumers use TMs as search terms?  Are consumers actually confused, and if so is it TM confusion, consumer protection confusion (unawareness of what’s advertising), or some other type of confusion?  Asked respondents about actual results pages.

Vendor of TM products and competing products: paid 27%, unpaid 3%; TM owner: 13%/44%; vendor of TM products only, 6%/3%; collateral information and sales opportunity vendor, 24%/3%, vendor of competing products only, 6%/3%.  When TM owners are present, they are often at the top—30% of the top paid links.

What do consumers look for and expect to find when they click on a link?  Products bearing that brand name only, 65% looking for the product/45% expect to find that brand name only.  Products bearing that brand name and similar competing brand names, 34% looking and 39% expecting.  Complicates the account that people are only interested in the TM and anything else is diversion.  (RT: Many TM owners would want to argue that this is still diversion—taking away the “earned” benefits of being “top of mind.”)

Asked them to ID source of links—paid, unpaid, Google’s special marketing team (control), don’t know.  Less than half were right about the paid links being paid, and only 51% were right about the algorithmic results being unpaid.  People who were younger did better, but not impressive.

Are consumers paying attention to labels?  Asked which of these labels they’d seen—sponsored links, sponsored results, ads, commercial ads—49% answered “sponsored results” as a time that Google hadn’t used that in a year, while 46% said “ads,” 33% claimed to have seen the unused control “commercial ads.”  (RT: I don’t find this surprising or disturbing in any way. They mean the same thing. People translate to synonyms all the time.  It’s a standard result in the memory research—if you show people synonyms/words with similar meanings they think they’ve seen them in previous word lists.  There are a significant minority who didn’t remember seeing anything, and that’s an important number.)

Paid results—whether this was a competitor or not.  About half of people correctly ID’d the reason a link was present was that it was paid; 15% thought it was Google’s special marketing team (the control); 14% thought that there was an authorization relationship.  Not sure was 21% (over and above the people who were obviously guessing).

Was it fair/appropriate for the paid link to appear against Mercedes?  Direct competitor: yes, 35%, no, 39-40%; Gorgeous Luxury Vehicles (which might be selling the Mercedes too): yes, 44% and no 32%.  25%: don’t know.

Consumer ignorance, obliviousness, and indifference is pervasive—consumers aren’t going to police this.  (RT: Which also suggests something about major components of brand value ….)  Armchair empiricism is wrong.  Consumer goals and expectations are heterogenous.  Consumer knowledge of search architecture and labeling is limited.

Hard to make a strong case for TM likely confusion (source, sponsorship, affiliation), but plenty of other types of confusion.  14% is low for a TM case—also note that there isn’t a TM control, that is a link that should clearly be deemed unaffiliated.  Competitors don’t seem to buy TMs all that often, and consumers don’t seem to have a big preference to click on them, so it’s hard to see a substantial amount of confusion. Big question: does anything here translate to consumer harm?  Rational ignorance is often ok; people have other things to do than understand Google’s architecture.

Future of TM: whether free riding rationales should make more of a difference in TM law?  FTC has communicated on the issue of search result presentation. 

Discussant: Carolina Castaldi, Eindhoven University of Technology

Bringing the consumer into the debate.  Results: maybe no worries, since consumers don’t seem to have expectations to disrupt/may even appreciate alternatives.  Key variable: type of product consumer is looking for.  Study here: Mercedes—durable good, high risk purchase, effort in searching is likely to be higher.

A: we did test some other products, though not in the study where we asked people to look at actual search pages.  Defense of looking for the real consumer as opposed to the construct of the consumer in the law.  (I’m actually a big fan of this, despite my cautionary words above—which boil down to looking at the tradeoffs; we always need to ask “compared to what?” when we try to set a standard, because averting confusion of any kind has costs, and the authors are well aware that we need to ask whether we can do anything to reduce confusion below a certain level as well as what the costs are.)  Reminder that eBay tested whether it needed to buy its own marks on Google, and it didn’t—for famous brands, it doesn’t make economic sense to defensively purchase a TM to keep competitors away.  Followup paper will explore the economics of defensive purchasing.  Not a TM infringement issue, but has arisen because of the dynamics of search. 

We didn’t come out convinced that a prohibition on sale/purchase of TM as keywords was justified, nor did we feel that the current TM regime mapped well onto the consumer protection issues.  FTC requires clear and conspicuous differentiation between paid and unpaid results, and it hasn’t been effective or enforced.  Supermajorities of respondents said the difference wasn’t clear, and said they’d click less on paid ads if they knew.  This is not a TM problem.  Using likely confusion doctrine, through initial interest confusion, to capture various forms of consumer protection/anti-free riding ideas—and that isn’t a good idea.

Suing competitors v. suing Google?  Compare to memo from tobacco lawyers: aggressive posture on discovery—the way we win is not by spending all of RJR’s money but by making the other son of a bitch spend all of his.  This may be Google’s strategy. We are working to unseal the record on Rosetta Stone.  American Airlines succeeded in backing Google down very early on, but that’s about it.  There’s also something going on with Starbucks.  Hard to see a value proposition in suing Google, or most competitors.  (The authors disagree on this.)

Q: how many people thought that the pages were ad-free?

A: appreciable number of people get both the two paid regions wrong.  Surveys in the UK as well.  In our new surveys, you select an answer while looking at the relevant part of the page, and 30% are still not saying it’s an ad.  Our hypothesis is now that you can’t fix it, because of learned behavior over where we think the relevant regions are.  In the beginning there were no ads on the top, and they gradually put them on the top, then gradually increased the number of ads on the top, then gradually changed the shade of the ad box shading, and gradually shrunk the size and decreased the contrast on the “ad” disclosure.  And then they added in Google Shopping, which nobody understands.

In reaction to Bechtold’s comments: search is more dynamic than what we could test. Ultimate test would be simulation, asking people to perform a search/decision task.  They go back and forth and see something interesting and go off.  We tried to ask people how they would behave, but self-reported knowledge isn’t as good as observational.  Ben Edelman has tried to simulate, with mixed results.  Goals are ambiguous, but (lack of) knowledge of search page is robust; whether that leads to ultimate confusion in a TM sense is very open to question.

USPTO Workshop on Empirical Studies of Trademark Data

Amy Cotton, USPTO, The Use Requirement in U.S. Trademark Law

Use: 1(a), actual use; ITU 1(b)—priority date is filing date, while use is required for registration.  Basis: interstate commerce clause.  Paris: 44(d)—priority date is foreign filing date; 44(e) priority date is US filing date; no use required until 5/6 year.  Basis: treaty obligation.  Madrid, §66, priority date is filing date of international application unless Paris priority is claimed. No use requirement until 5/6 year.  Basis: treaty obligation.

1870 and 1876 Acts had ITU provisions, part of what was struck down in the Trademark Cases.  1953, ex parte British Insulated Callender’s Cables: Paris Convention: we interpreted it to mean that use in commerce couldn’t be required, but national treatment gets confusing.  If we treat foreigners and Americans equally, failing to require allegations of use in commerce treats foreigners better.  Came up with crazy fiction that foreigners have to allege use somewhere, even if not in US, because of the nature of a TM (a symbol that is used to distinguish goods/services).  Thus we can require specimens of use and mode of use, even if not use in commerce.  But you use the specimens to show use in commerce! 1955: changed our mind, no use required by foreigners under the treaty.  1963: another flip flop.  And then another.

So what does national treatment require?  Commentators involved in Paris negotiations insisted that national treatment means that you have to require use of foreigners, because that’s equal treatment.  Other interpretations did violence to the nature of a mark. 

US and 13 other countries signed the Trademark Registration Treaty in 1973, but it blew up at home.  It would have allowed US intent to use as well as foreign nationals; cancellation for nonuse couldn’t commence for three years after, though damages would be limited.  Died because of US industry opposition.

SCM v. Langis, DC Cir. 1976: when you have 44(d) priority—application in Canada for Lemon Tree mark, filed in US claiming Canadian filing date—do you need specimens of use? Didn’t have them in Canada or in US.  What does 44(d) grant—constructive use date or constructive filing date that could be defeated by use?  US company had used mark between foreign filing date and US filing date.  Usually, actual use would defeat filing date—but DC Circuit said no.  Actual use can’t defeat the foreign filing date.  Thus, you end with the conclusion that use isn’t required at all for §44 applicants.

At that point, US businesses quickly recognize the inequality of the use requirements for registration, and ITU for US applicants gets off the ground.  Waiting to file until you have use is really constraining.  First US owners came up with the idea of “token” use to let them file applications.  No one was really happy with that, but we did it anyway to defeat the unfairness. But foreigners were allowed registration without use, and that finally tipped industry into accepting ITUs.  Were still wary/concerned about warehousing, impoverishing language, need to file oppositions to discourage pursuit of contested marks—Cotton suggests that these feared consequences, including more litigation, did in fact arise.  Attempts to eliminate warehousing/deadwood by limiting registration term to 10 years instead of 20, other limits.

American use system has three drivers: constitutional jurisdiction; nature of a mark; policy goal of eliminating deadwood. Global TM system demanded a middle ground/bridge between systems; ITU appeared to be that middle ground. But the specificity of the ID of goods/services is fundamental to figuring out whether there’s a bona fide intent.  Bona fide intent must be challengeable to be real/meaningful; specific IDs allow objective measurement of business plans/ability to launch these goods/services.  So ITU can’t be in a vacuum.  We get criticized for specificity requirements, but they’re a feature of our history.

Roundtable discussion (including discussion of stuff I missed earlier while teaching):

Graeme Dinwoodie, Oxford University

Use/registration isn’t a binary when it comes to deadwood.  TRIPS: you can have a modified use-based system, and a modified registration system, but nobody is pure any more.

Defense of European system: private actors must be alert and defend their own interests, not rely on the TM authority.  Philosophy of European system frames what’s considered a worthy reform. At CTM level, attempt to create a new market reality with a single market—arguably pushes Euro. system to be even more cavalier about use, in the name of free movement.

Reforms considered/rejected to reduce clutter in EU: OHIM doesn’t require intent to use for a CTM or ETM.  UK Office may be enforcing ITU through bad faith ground for denying registration, even if there’s no separate ITU ground.  Another possibility: require affidavit of use for renewal. This was also rejected as inconsistent with international trends—vehement language.  Another option: reduce grace period before abandoment from 5 years to 3.  Also rejected, opposed by TM bar.  Max Planck study: concluded that only small percentage of registered marks are unused; he thought that this number was unrealistically low and their methods of calculation are a bit dodgy (Google searches).

Deadwood problem isn’t simply a function of how many marks are on the register.  Clutter is also a function of size of each mark. 

Do you have to use the mark in all countries?  If you don’t you’re effectively imposing deadwood on the rest of the countries.  Recent ECJ decision: it might be enough in one context but not in others. If you push marks to CTM level and not national level, you create many problems of scope. Deadwood concern might justify demanding standard at European level and less at the national level. This also relates to free movement of goods/creation of unified market.  From that perspective, we want to encourage CTMs.  Ave. # of classes applied for in Europe is one class bigger than in Europe.  Restricting that would restrict size of deadwood.

Biggest mistake in last 10/20 years in European TM was move to prohibit national offices from engaging in ex officio relative registrability inquiries.  Deadwood isn’t a problem if marks are valid. A series of invalid/unused marks is a problem, and relative grounds for refusal is a good way of dealing with that but Europe’s moving to probhibit it.

Barton Beebe, NYU School of Law

Partial to US tradition/nature of mark as giving us a use requirement. Trademark is part of the broader law of unfair competition.  But we do give nationwide priority from local use upon registration.  This creates a hybrid system, and some of the same problems as in Europe—rights in distant territories without use, subject to Dawn Donut principle limiting injunctive relief until registrant is likely to enter the market. Cotton’s presentation gives him new respect for Dawn Donut.

Stuart Graham, Georgia Tech and USPTO

Discussed massive TM dataset now available, showing significant shifts in behavior post-ITU.

Dinwoodie: maybe enhanced fee shifting would produce better results than substantive changes.

Cotton: fees are really hard to get out of TTAB—slows things down a lot.

Georgetown Law is hiring clinical faculty in IP/technology law

Clinical Faculty Position at Georgetown Law

Georgetown Law invites applicants for a full-time tenure-track or tenured clinical faculty appointment.  At least five years of practice experience and two years of clinical teaching experience are strongly preferred. Georgetown is especially interested in candidates who wish to teach a transactional or regulatory clinic with an intellectual property or other technology focus. We are also interested in clinicians who wish to teach human rights, public policy, federal legislation, or school-to-prison clinics. Notwithstanding these priorities, we welcome applicants in other substantive areas. 

Applicants should have a record of excellence in practice and a teaching and academic record that demonstrates the potential for superb clinical teaching and scholarly achievement. Georgetown Law is an equal opportunity employer committed to a diverse faculty, staff, and student body. We encourage applications from women, minorities, persons with disabilities, and others whose background, experience, and viewpoints contribute to the diversity of our institution.

Interested persons should send a resume, references, and subject area preferences to hennink at law.georgetown.edu.

Copyright question of the day

Senator Cruz, of course, has immunity for anything he says in speech and debate.  But is C-SPAN at risk for broadcasting his rendition of Green Eggs & Ham?  Are other news outlets for reporting on the story? 

NY cracks down on fake reviews

The NYT has the story:

“What we’ve found is even worse than old-fashioned false advertising,” said Eric T. Schneiderman, the New York attorney general. “When you look at a billboard, you can tell it’s a paid advertisement — but on Yelp or Citysearch, you assume you’re reading authentic consumer opinions, making this practice even more deceiving.”

Circumventing consumers' skepticism about ads can help credibility--which is why regulators don't like it.

Design patent, not so comfy

My eyes widened when I saw the design patent at issue in a recent case where the Federal Circuit held that the district court was wrong to grant summary judgment on obviousness and functionality of lined slippers. The Protecting Designs blog has the story and pictures.

 





I'm baffled by how anyone could look at that and see anything but a basic fur-lined slipper. What on earth is the standard?

"Grand Total" isn't deceptive when additional charges are immediately disclosed

Harris v. Las Vegas Sands L.L.C., No. CV 12–10858, 2013 WL 5291142 (C.D. Cal. Aug. 16, 2013)

Harris sued Sands for the usual statutory California claims.  He stayed at the Palazzo Resort Hotel and Casino, and received a bill $44.80 bigger than he expected, due to two separate “resort fee” charges of $22.40, which he thought were optional based on use of certain goods or services.  He’d booked the room through the Palazzo website, which, as part of the booking process, lists a variety of prices on the “Check Rates” page.  These prices don’t include a resort fee or taxes. From that page, visitors can click “Reserve Now.”  The reservation page lists the “Reservation Total,” “Total Room Tax,” and the “Grand Total” in 8.5–point font. Immediately below the Grand Total, a separate line reads, in 7–point font: “ *Total does not include applicable daily resort fee of $20 plus tax.”  Likewise, the ticky box for “I accept the Terms & Conditions” has a hyperlink that leads to a separate page stating, inter alia, that “[r]ates do not include applicable daily Resort Fee of $20 plus tax .” Thus, Harris saw on his “Reserve Now” page:

Reservation Total: $368.00

Total Room Tax: $44.16

Grand Total: $412.16

*Total does not include applicable daily resort fee of $20 plus tax

His reservation confirmation email reflected his payment of $412.16 and included the same language.  (Note that while Harris loses, this is the kind of conduct that regularly leads to regulation. While extremely careful visitors might notice that the “Grand Total” is nothing of the kind, plenty of people will blow past it—even reasonable consumers can’t pay attention to absolutely everything—and, faced with the charge later, will simply accept it, even if the amount might have changed their decisionmaking earlier.  The Palazzo has a sales advantage over hotels whose grand totals truly reflect every charge, contributing to a “market for lemons.”  And strikingly, they didn’t charge his credit card the true price—waiting instead for checkout to add in the fee, when it was far too late for him to notice and perhaps change his plans.)

The court first found that Harris had standing to seek injunctive relief on behalf of a class, even though he now knows the truth and won’t get fooled again.  Construing standing more narrowly would bar federal courts from enjoining false advertising under the California consumer protection laws, and that’s dumb.  The very existence of the class action creates a kind of “tension” with standing doctrine, and because some class members don’t know what Harris now knows, he had standing to ask for injunctive relief for the same injury he suffered.  He also had standing to challenge the practice as applied by a separate hotel also owned by defendants; “[a[ny relevant differences between the experience of visitors booking at the Palazzo and the Venetian would be addressed more appropriately in an assessment of typicality and adequacy of representation in the context of a class certification motion.” 

However, the website wasn’t false or misleading as a matter of law.  A reasonable consumer would’ve seen the disclosure.  Harris argued that the “Grand Total” was false or misleading because it wasn’t the grand total.  But defendants explicitly disclosed the existence and amount of the resort fee and that tax would be charged on it.  The disclosure was directly beneath the “Grand Total” and above more information that consumers had to examine to verify the purchase.  It wasn’t “tucked away inconspicuously,” and was repeated in the email Harris received.  “Seven point font is certainly readable to someone who is otherwise able to read the 8.5 point font that made up the rest of the text.”

While the terms “Grand Total” followed by a caveat expressed next to an asterisk might not be as explicit a phrase as “Grand Total Not Including the $20 Resort Fee and Taxes You Will Be Charged Upon Checking Out,” the hotel’s phraseology and word placement would need to be taken completely out of context to be misunderstood or considered false, as the Palazzo’s website says almost exactly the same thing, but on two lines instead of one. The asterisked caveat notifies the consumer that the “Grand Total” is not entirely grand.

(What the court doesn’t get at is why the Grand Total isn’t grand—the misleading nature of the separation.  It would be very interesting to get a consumer survey on this, though the real problem here is exploitation of cognitive limitations—including the phenomenon that once a consumer has decided to pay $X for something, it appears more attractive, since we hate regretting our choices; an increase to $X+20 may not be rejected even though the consumer wouldn’t have chosen to purchase at the $X+20 price initially.)

Harris’s even less persuasive argument was that “applicable” does not mean mandatory.  But in the ordinary meaning of the word, it does, at least as far as Harris was concerned.  Just as businesses aren’t entitled to choose which laws are applicable to them, consumers aren’t entitled to choose which fees are applicable to them: “all applicable fees apply, and the hotel, and the related tax authority, decide which fees are applicable.”

Welcome to Night Vale: the gift that keeps on giving potential exam questions

On sale now!  See 36 USC 309.  Also check out the podcast--you won't be sorry.

multiple ingredients defeat consumer's supplement falsity claim

Toback v. GNC Holdings, Inc., No. 13–80526–CIV, 2013 WL 5206103 (S.D. Fla. Sept. 13, 2013)

Toback sued GNC over its TriFlex products, allegedly falsely advertised as promoting joint health and function.  He cited numerous studies allegedly demonstrating that two ingredients, glucosamine and chondroitin, are ineffective for that purpose. He also alleged that he bought TriFlex Vitapak and was deceived in violation of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). The court granted GNC’s motion to dismiss.

First, despite some federal district court cases to the contrary, the court ruled that Rule 9(b) didn’t apply.  FDUTPA was enacted to provide remedies for conduct outside the reach of traditional common law torts like fraud, so the complaint didn’t sound in fraud and didn’t require Toback to plead causation with particularity.  Though Florida courts haven’t defined a clear causation standard under FDUTPA, federal courts have held that causation exists when the alleged misrepresentations would have deceived an objectively reasonable person.  Toback successfully pleaded facts suggesting that the representations at issue would have deceived reasonable consumers.

Further, the court found that Toback alleged more than lack of substantiation (though the court noted that it was unclear whether FDUTPA would preclude a lack of substantiation claim).  Instead, Toback affirmatively alleged that studies showed the relevant ingredients ineffective.  However, Toback’s standing was limited to claims about TriFlex Vitapak, not other TriFlex products.  In the 11^th Circuit, at least one named plaintiff must have Article III standing for each class subclaim.  This doomed the complaint, because the Vitapak had other components that allegedly contributed to its efficacy.  Toback argued that the “alchemy of adding some other ingredients to the glucosamine and chondroitin” in TriFlex products wouldn’t “miraculously” render the products effective, and that the Vitapak didn’t work for him.  That wasn’t enough, because of the many other ingredients in the Vitapak: cutch tree extract, Chinese skullcap root extract, methylsulfonyl-methane, white willow bark extract, fish oil, and other substances.  (Ah, a roadmap for continuing to make unfounded claims, as long as you stay one ingredient ahead of the studies.  Thanks, DSHEA!)  Thus, the allegation that the Vitapak as a whole didn’t function as advertised was only speculative.  The allegation that the product didn’t work for him was too conclusory to help.

technical regulatory violations could plausibly deceive consumers

Gustavson v. Wrigley Sales Company, 2013 WL 5201190, No. 12–CV–01861 (N.D. Cal. Sept. 16, 2013)

Gustavson alleged that she’d bought various Wrigley and Mars products after reading and relying on their labels, which were allegedly misbranded.  The court first rejected the general preemption arguments: she alleged that defendants’ conduct violated the FDCA, avoiding express preemption.  But she wasn’t suing to enforce the FDCA, but California law; she had a cause of action because California could’ve imposed the exact same regulations even if the FDCA didn’t exist.

However, a few of her claims were preempted for being not identical to federal requirements.  Of more general interest: the court used FDA warning letters to show that, at least for purposes of surviving a motion to dismiss, the claims were consistent with the FDA’s own interpretations of its regulations.  (The issues were (1) whether the terms “source” and “found” characterized the level of nutrients within the FDA’s meaning of characterizing a nutrient, and the warning letters said yes, and (2) whether the use of the term “flavanol” was unregulated when flavanol is an antioxidant and “antioxidant” is regulated; the court found it plausible that the regulation would still govern when “a food product’s label refers to the antioxidant by its precise name, rather than by a generic umbrella term.”)

The court also dismissed claims based on statements on Wrigley’s website that its sugar-free gums are “low calorie.” Though Gustavson argued that websites are part of a product’s labeling, based on another warning letter, that warning letter was based on the fact that the accused label included a URL for consumers to visit.  No such allegations were present here.

The court also applied the primary jurisdiction doctrine to one set of claims: that Wrigley misstated the serving size for sugar free breath mints.  Given longstanding FDA analysis indicating that the serving size for such mints was in need of changing, and actual proposals to change it on the regulatory agenda for 2013, the court thought it better to wait, though the current standard was clear (and thus there was no express preemption; Gustavson alleged that Wrigley was in violation of the current standard and Wrigley didn’t really dispute that).  Even this was a “close question,” and the court didn’t bar any other claims.  The other issues in the case weren’t novel or especially complex, and they were really about false advertising rather than science.

On to standing (of course): Defendants argued that Gustavson didn’t plead injury or plausible reliance, and the court disagreed.  Defendants contended that regulatory violations alone can’t cause economic injury, and that it wasn’t plausible that Gustavson was deceived into buying the products as a result of any misstatements; the alleged violations were simply too “arcane” to mislead a reasonable consumer.

At this stage, however, the court found Gustavson’s allegations sufficient for standing.  She specifically alleged reliance on the statements to buy the products, which meant she alleged a loss of money.  Whether a practice is actually deceptive is usually a question of fact that can’t be resolved on the pleadings.  She might or might not be able to prove that reasonable consumers would have been misled, but “neither Rule 8(a), nor the Supreme Court’s decisions in Twombly and Iqbal require a plaintiff to prove her case the moment she files her complaint.”  Plausibility isn’t probability, and her allegations weren’t so improbable as to be implausible.  “While Defendants seem to believe that what is or is not misleading to a reasonable consumer is a matter of self-evident common sense, that question is actually all but impossible to answer in the abstract.”

However, her allegations that defendants made unlawful “health” claims on various websites were too vague to survive.  The warranty claims were also dismissed, as were allegations against Mars based on Wrigley’s products and allegations against Wrigley based on Mars products; the allegations that defendants were engaged in a common scheme were too vague and conclusory, and the parent-subsidiary relationship between Mars, Inc. and Wrigley was insufficient, standing alone, for liability.

branding via employee appearance isn't commercial speech

U.S. Equal Employment Opportunity Commission v. Abercrombie & Fitch Stores, Inc., No. 11-cv-03162 (N.D. Cal. Sept. 3, 2013)

I’m blogging this case because it has interesting TM/branding implications.  The EEOC sued A&F for firing Khan (also a plaintiff) because she wanted to wear a headscarf as part of her religious observance.  The court granted summary judgment on liability to Khan and the EEOC and rejected A&F’s undue hardship and First Amendment defenses, both based on its claimed need to use its employees as part of the “brand.”

A&F employees who work in the stock room and on the sales floor to restock merchandise are called “Impact” or “Part Time Impact” employees.  “Models” work on the sales floor.  A&F has a “Look Policy” regulating employees’ appearance.  Employees have to wear clothes similar to those sold in A&F stores, but they aren’t required to wear A&F clothing.  The Look Policy banned headgear at the relevant time.  It also requires employees to wear specific types of shoes—flip-flops, Converse sneakers, or Vans sneakers—and bans facial hair and clothing with obvious logos from non-A&F stores.  (Just for the record: were the court to accept A&F’s claims that employees’ appearance is part of the store branding, it would seem that Converse and Vans would have potential trademark/false endorsement claims.  As an exercise for the reader: how should such claims be resolved?)

A&F’s marketing strategy “seeks to create an ‘in-store experience’ for customers that conveys the principal elements and personality of each Abercrombie brand.”  This in-store experience is the “primary vehicle for communicating the spirit of each brand.” “[S]ales associates . . . reinforce the aspirational lifestyles represented by the brands” and “are a central element in creating the atmosphere of the stores.”

Khan initially wore her headscarf for several months without a problem, but when a higher-level employee inspected the store, she was fired.  (A&F later offered to reinstate her and accommodate her by allowing her to wear it.)  A&F didn’t dispute that the plaintiffs established a prima facie case of a violation of Title VII, but argued that it couldn’t reasonably accommodate Khan without undue hardship.

Undue hardship requires something more than a de minimis cost—it’s not just any hardship. “Hypothetical or merely conceivable hardships cannot support a claim of undue hardship.”  Employers shouldn’t make assumptions about untried accommodations; undue hardship requires proof of actual imposition or disruption. 

Taking a page from branding theory generally, A&F argued that it didn’t need to show economic harm or offer proof with specificity or exactitude.  Instead, it sought to rely on testimony from numerous employees, who testified that, based on their “personal experiences,” compliance with the Look Policy is key to Abercrombie’s success and/or that deviations from the policy “detract from the in-store experience and negatively affect [the] brand.”  A&F argued that the Look Policy was at the heart of its business model, so any accommodation requiring a deviation from the policy threatened its success.

The court was unimpressed.  “[T]he evidence fails to show: (i) that Khan’s wearing of a hijab during her four months of employment had a negative effect on sales, the brand, or any customer’s experience; nor (ii) any tracking or correlation between Look Policy deviations, including wearing a hijab, and a negative impact on sales.”  A&F’s offer of reinstatement was also inconsistent with a claim of hardship.  Plus, A&F had granted almost 80 Look Policy exceptions since 2005, including (i) allowing male employees to grow facial hair or wear a yarmulke or baseball cap; (ii) allowing female employees to wear visible jewelry (including a cross) or a long skirt that was inconsistent with the store’s look; and (iii) granting more than 16 exceptions for headscarves since 2006. 

A&F offered only “unsubstantiated opinion testimony of its own employees” to support its claim of undue hardship.  The witnesses’ personal beliefs weren’t linked to any credible evidence.  Khan had been at A&F for four months before she was thrown out, and A&F failed to offer any evidence showing a decline in sales at that store, customer complaints or confusion, or brand damage linked to the hijab.  The employee who fired her testified that the hijab violated the Look Policy regardless of how much or little time Khan spent on the sales floor and regardless of whether it distracted customers. 

The court was also not persuaded by A&F’s argument that accommodation would threaten the “core” of its business model.  A&F’s witnesses testified that they believed that deviations from the Look Policy harmed sales or customer experiences, but couldn’t provide concrete reasons such as reports, surveys, or complaints.  Two sales executives testified that A&F doesn’t specifically examine the effect of the Look Policy on sales.  (Maybe because it’s actually creepy ideology rather than reality-based?)  Specific instances referenced by employees were speculative and purely subjective.  One person testified that the Palo Alto store had “Look Policy issues,” but that with training on the policy, “sales increased dramatically over time.”  But the Look Policy was only one of many problems.  The same was true of other stores identified as having Look Policy problems.  This testimony provided “only a tenuous, potential connection” between the Look Policy and undue hardship, as “other” store issues contributed to declining sales, rather than the required “actual imposition or disruption.”  “Abercrombie must provide more than generalized subjective beliefs or assumptions that deviations from the Look Policy negatively affect the sales or the brand.”  Here, A&F didn’t raise a triable issue of hardship, much less undue hardship, from allowing Khan to wear her previously unobjectionable hijab.

A&F recast its defense in the language of the First Amendment: its Look Policy was part of its branding, and thus constituted commercial speech.  The court turned to the usual tests for commercial speech, but they’re really red herrings—designed to separate commercial speech from noncommercial speech.  The real question here, as the court ultimately recognized, is whether the Look Policy is speech at all.  As many theorists, notably Fred Schauer and Robert Post, have pointed out, there are plenty of communicative activities (including some involving words) that we never think rise to the level of speech at all.

The court didn’t buy that A&F employees were “living advertisements” for the brand and therefore their appearance was commercial speech.   Plaintiffs responded that, first, PTI employees were essentially stockroom employees, not “living advertisements.”  Second, A&F wasn’t advertising a particular product: employees weren’t required to wear A&F.  The court agreed.  “‘[R]epresenting the brand’ does not equate to being a ‘living advertisement,’ particularly where the employees’ responsibilities consist of ensuring shipments are complete, folding clothing, and placing/replacing clothing on the floor.”  Thus, a PTI employee’s appearance didn’t promote a particular product, nor did it propose a commercial transaction.  (The court did not opine on the use of this defense as to Models, aka “impact” employees who stay out on the sales floor and who are required to be handsome and good-looking.)