Friday, February 24, 2017

Bridging the Gap Between the Federal Courts and the U.S. Patent and Trademark Office

Boston University Journal of Science and Technology Law Symposium

Sorry, guys, I did not follow the patent panels.



Panel III: Trademarks
Rebecca Tushnet, Fixing Incontestability: The Next Frontier

Incontestability is a nearly unique feature of American trademark law, with a unique American implementation.    Even if a symbol is merely descriptive and lacking secondary meaning, incontestability means that federal law will treat the symbol as if it were functioning as a mark.  This is a powerful protection, given that descriptive terms lacking secondary meaning are otherwise free for all competitors to use, and that competitors are likely to have good reasons to do so—after all, the symbol describes relevant features of the product or service.  Although competitors retain the defense of descriptive fair use, this defense is difficult to prove and often requires at least extensive discovery .

Given the power of incontestability, one might think it would be carefully granted.  Unfortunately, claims of incontestability are not subject to substantive examination at the PTO.  Moreover, because incontestability has specific legal requirements that may be unfamiliar to lawyers who aren’t trademark specialists, it’s simple for negligence alone to produce invalid incontestability filings, which then appear on the Register and may distort decisionmaking, both by competitors and by courts. 

Worse, and of particular relevance to this Symposium, courts may misunderstand either the prerequisites for or the meaning of incontestability, allowing trademark claimants to assert rights that they don’t actually have.  Courts even appear to be inconsistent about meeting their statutory duty to notify the PTO about the filing and conclusion of all actions concerning registered trademarks, which has implications both for validity in general and for incontestability in particular.  Competitors, many of them likely to have little in the way of sophisticated trademark advice, are in an even worse position to evaluate the validity of incontestability.

In the last two years, several legally significant cases—including one that went to the Supreme Court on apparently mistaken premises—were complicated by unwarranted Section 15 approvals.  I’ll talk about one, but my paper discusses a few others. 

The most striking example of apparently mistaken incontestability comes from B&B v. Hargis.   This case has a complicated procedural history, and it went to the Supreme Court in 2015 on the question of whether preclusion applies to TTAB rulings in subsequent infringement litigation.  The Supreme Court answered in the affirmative, at least for some situations.  That result makes the stakes of registration higher, and reinforces the need to have the register reflect reality.  However, the course of the B&B case itself reveals trouble with the accuracy of incontestability claims.  B&B registered SEALTIGHT for fasteners in 1993 and then sued Hargis for infringement in 1998, relying on its registration.  In 2000, Hargis proved at trial that SEALTIGHT was descriptive without secondary meaning for fasteners.  Yet neither the district court, nor the court of appeals that affirmed the ruling, ordered the PTO to cancel the registration, despite that registration’s invalidity.   Meanwhile, Hargis filed a petition to cancel B&B’s mark, which proceeding was suspended pending the resolution of the infringement lawsuit. 

When the infringement lawsuit was resolved in favor of Hargis, Hargis attempted to amend its cancellation petition to add the ground of invalidity on the basis of mere descriptiveness, but the TTAB denied the motion to amend because by that point B&B’s registration was more than five years old, and thus could no longer be challenged on mere descriptiveness grounds.   B&B subsequently renewed its registration in 2003, and filed a Section 15 affidavit in 2006 claiming that the requirements for incontestability had been satisfied.   (As a reminder, those requirements include that there be no pending challenge to the validity of the mark, or successful and final challenge to validity.) 

Hargis applied for a registration of its own, which was rejected by the TTAB on grounds of likely confusion with B&B’s registered mark.  After filing for incontestability, B&B sued Hargis again in 2006, and the court of appeals found that preclusion from the first trial didn’t apply because of the change in the mark’s circumstances from contestable to incontestable.  Then, after the Supreme Court decision, the court of appeals found that preclusion from the TTAB ruling did apply, meaning that Hargis was an infringer. B&B, that is, filed an affidavit claiming that there had been no final decisions adverse to its ownership of the SEALTIGHT mark, after losing an infringement case on the ground that it did not own a protectable mark.  Then it parlayed that affidavit into a decade of new litigation, including a successful TTAB opposition and a duplicate infringement suit, having precluded its opponent’s previously successful defense. 

Hargis contributed to the debacle by not seeking an order  cancelling B&B’s trademark registration upon its initial victory.   But this too was almost certainly a function of the relative exoticism of registration practice to ordinary trial lawyers : It is not necessarily obvious to non-registration specialists that a final order from an Article III court finding a claimed trademark to be merely descriptive needs to be followed up by another order from the court directing the PTO to cancel the registration in order to have preclusive effect. 

This comedy of errors ended in further farce when B&B failed to renew its registration during the pendency of the Supreme Court litigation.  As a result, the registration expired.  The trial court then held that, without the incontestable registration, B&B was once again bound by the earlier trial result finding that it had achieved no secondary meaning and thus no protectable mark.  All of this could have been stopped much earlier if either the PTO had possessed sufficient information to see that the statutory requirements for incontestability had not been met or the courts had understood those statutory requirements and independently examined whether they’d been satisfied.

There are other recent examples with similarly tortured histories.  And one recent Sixth Circuit court case apparently had no understanding at all of incontestability, deeming it applicable to a mark that had been cancelled (and then subsequently registered by the same party, but not for five years).

General unfamiliarity with incontestability probably explains why many parties who would benefit from pointing out erroneous incontestability designations fail to do so.  The cases I have found are examples that turned up in my research fortuitously; they were not produced from any attempt to determine how often problems with Section 15 affidavits occur.  Moreover, each case appears to involve courts that didn’t pay detailed attention to, and were almost certainly unfamiliar with, the legal prerequisites for incontestability.  If a Section 15 affidavit is mistaken (whether or not knowingly false), then the requirements of Section 15 haven’t been met, and thus courts should not accord the affected registration an irrebutable presumption of distinctiveness. But it is a disturbing fact that the error has been repeated multiple times by different courts in case-dispositive ways, including in a case that made it all the way to the Supreme Court and through two trials. 

What might we do?  Changes to the process for Section 15 affidavits similar to those already underway for Section 8 renewal filings could help registrants avoid the kinds of inadvertent errors that may well have underlain these cases.  Fundamentally, while a mark that has become incontestable cannot be challenged on the ground that it lacks secondary meaning, it should be possible for challengers to identify marks that never satisfied the statutory prerequisites for incontestability. Specifically, possessing secondary meaning isn’t itself a prerequisite for incontestability.  But lack of a pending challenge or final successful challenge to validity is.  A mark that was in fact subject to such a successful or pending challenge, therefore, has not satisfied the statute and is not entitled to the cloak of incontestability.

Nor should courts be precluded by the statute from asking the relevant questions about incontestability.  Incontestability is for marks that have satisfied all the requirements thereof, not just for marks that happen to have a Section 15 affidavit on file—should be the same.  As the Second Circuit court commented in a very slightly different context, it would be a “perverse result” if the use of “recording—a ministerial act—[was transformed] into a mechanism for conclusively defeating allegations ... challenging the legality of the assignment.”   So too with the ministerial act of accepting a Section 15 affidavit, or counting the years a registration has been on the record.

The PTO has discovered significant overclaiming through random audits of renewal filings.  Although incontestability is rarer than mere renewal, the cost to the public of a single faulty incontestability designation may be higher than the cost of a single extra goods or services designation, given the ability of a registrant to use incontestability as leverage in disputes and the ongoing confusion in the courts about the effect of incontestability on a mark’s strength.

Small steps could prevent many of these mistakes in the first place.  The PTO has made changes to the standard declaration that an applicant signs under penalty of perjury when filing a trademark application or renewal. Instead of a traditional block of text, the form now presents a separate series of clauses with check boxes next to each statement.  The applicant should now more readily understand that it must claim use, or intent to use, the mark on every good or service it lists in the application.  Similar measures could improve incontestability by making the requirements of Section 15 more salient.  For example, the affiant could be required to check a box, yes or no, about whether there are any pending or resolved cases involving the mark.    If the answer is yes, the form could ask the affiant to provide more information.  Alternatively, the affiant could be required to list all proceedings, pending and terminated, involving any challenge to the validity or ownership of the mark in question, and state the status or outcome of the proceeding with respect to the mark.   Random audits of trademarks for which the PTO has received a “Notice of Suit Incoming” could also improve the situation, assisting the PTO and registrants in determining when the register needs to be updated to reflect reality.

Likewise, the PTO’s proposal to institutionalize random audits of trademark maintanence filings could be expanded to a percentage of Section 15 affidavits, at least to the extent of having examiners run a Westlaw search and check whether any pending cases appear in TSDR and then, if the trademark appears to be the subject of litigation, asking the trademark owner to explain why the cases aren’t relevant.  The PTO could also consider a similar procedure for verifying incontestability if a question arises, making a more formal practice of the correction it made in response to my blog post on one such case.

Most registrants who provide incorrect information are not determined to distort the register.  Negligence and ignorance are bigger problems.  It is therefore worth giving more detailed cues about the statutory requirements for a Section 15 affidavit to affiants at the moment those cues are most needed. 

Trademark attorneys can improve their procedures as well.  Registration counsel is sometimes, but not always, litigation counsel.  When lawyers discuss renewals and Section 15 affidavits with their clients, they should take care to ask about whether there is any pending litigation or PTO proceeding involving the mark, not just whether the client is still using the mark and wants the registration renewed.

The courts also have a role to play.  Under current rules, notices should be sent to the PTO about pending cases involving registered trademarks.   In theory, the plaintiff should file the relevant form with its complaint, and the clerk’s office should pass the form on to the PTO.  These forms are then recorded by the PTO and become part of the formal record for the registration at issue.  The form should be filed again, with appropriate updates indicating the outcome, when the case is terminated.

If a mark’s record is complete, then it will be a simple matter to identify whether further inquiry is required to evaluate whether the requirements for incontestability have been met.  Although the notification process is already in place, experience indicates that compliance is spotty: many litigated cases involving registered marks never show up in the registration record.  For example, the highly significant case Christian Louboutin S.A. v. Yves Saint Laurent America Holding, Inc.,  which involved a partial cancellation of Louboutin’s red sole mark for its shoes, never showed up in the PTO’s records until correspondence between the parties about how to implement the partial cancellation order.  If litigators and clerks’ offices around the country became more aware of the problem, the records could be improved.  I have a research project ongoing to figure out where the notice of suit falls through the cracks and whether there are steps that the PTO or clerks’ offices could take.

Similarly, it would be beneficial to improve judicial understanding of the requirements for incontestability.  Even though courts do not evaluate whether an incontestable mark has secondary meaning, they can and should evaluate whether incontestability was properly secured. 

Fundamentally, no one should be made better off by providing inaccurate information to the PTO.  Unfortunately, it is currently possible to benefit from doing so. Incontestability offers low-hanging fruit for improving the accuracy of the trademark register and the courts’ understanding of what registration means.

Q: petition to cancel incontestability as a possible solution?

A: good idea.  Similar to a random audit; I’m more interested in things that the PTO could do in the absence of congressional help.

Q: patent cases—it’s second entry in the docket in the federal district court; why is it not showing up in the PTO’s records.  Also, why require act of PTO to make it incontestable?

A: The form might be in all the TM dockets in federal district court—the gap may be between the dcts and the PTO, and I want to find out where that gap is.  I neglected to talk about the fact that no act of the PTO is necessary to make incontestability apply in cancellation proceedings, which is what happened to Hargis.  We could do the same with incontestability for litigation purposes, but the incontestability filing may be our only chance to get TM owners to look at this and see whether they actually meet the requirements, so I’ve now talked myself into wanting to keep the affidavit—and maybe to expand it to the cancellation context.

Alex Roberts: Your proposals are conservative; what would you do if you could rewrite the law?

A: I might keep incontestability as part of a more substantive approach to registration. That said, I’d want to have clear requirements for substantive examination that the prerequisites had been satisfied.

Christine Farley, American University Washington College of Law, No Trademark—No Problem: About Belmora, cert petition pending.  Today is the day it was distributed for conference.  Flanax: Bayer had no rights; Belmora didn’t look too good as a copier. 

Person’s: strict territoriality (CAFC); Grupo Gigante, famous marks (9th Cir.); Punchgini, no such exception to territoriality for famous marks even if it would be a good idea (2d Cir.).

4th Circuit discussion was unsophisticated and didn’t engage w/territoriality at all; TTAB discussion was much more nuanced and understanding of the waters in which it was wading.  TTAB knew: territoriality is definitely a hurdle and TM rights arise solely from use in commerce in the US.  Case law didn’t address whether Bayer’s use in Mexico would be enough for a claim, but they decide to extend the law—unlike Person’s, there was a reputation in the US, and Belmora was exploiting that reputation.

Why didn’t Bayer act earlier?  They probably didn’t think they had a successful claim to bring, until there was enough advertising to act on. That’s reflected in the kind of petition/complaint they filed—named 3 different int’l treaties as basis of claims, one of which Mexico wasn’t even a signatory to.  Also, series of TTAB decisions granting Bayer’s motion to amend again and again until everything was gone but misrepresentation of source based on the goodwill that flowed across the border. 

TTAB 2000: found for a TM owner with no registration in the US and allowed them to cancel under a little-known treaty (Belmont); again in 2008, Cuban coffee company used same path; in 2009, the claim was unsuccessful b/c there was a requirement to pay a fee to a Bureau that didn’t exist to take advantage of Inter-American treaty.

Why is the TTAB willing to go out on a limb?  She thinks it’s standing.  TTAB requirement: real interest.  TTAB in Belmora: “petitioner has shown that it has an interest in protecting its Mexican FLANAX mark”—a relatively low standard. But SCt just addressed this under the Lanham Act §43—Lexmark asked claimants to focus on zone of interests protected by the statute.  You’d think there’d be no basis for adjudicating a dispute w/o a use in commerce. Maybe that should inform how the standing requirement is being addressed.  

Given the outcome, you should go from TTAB petition to EDVA to 4th Circuit.  The TTAB stuff is very significant, because this can throw open the doors to a wider set of claims.

Arti Rai: The TTAB standing requirement: why is there a requirement for an administrative agency?

A: Because the Act says any person who would be damaged.  TTAB has said Lexmark standard doesn’t cover its proceedings--§43(a) is different, but the “damaged” language is the same.

RT: zone of interests: people protected by §2 that don’t have commercial interests.

A: treaty obligations—obligated by treaty to protect state emblems and well-known marks, maybe that’s w/in the zone of interests in the Lanham Act.

Stacey Dogan: whether the interests at issue in a cancellation proceeding may be distinct from infringement?  TTAB as protecting integrity of the Register, for example by barring registration of deceptive marks. 

A: it’s still the same priority battle in both cases.  Becomes confusing to have a different standard/answer at the TTAB.

Q: curious about unfair competition aspect.  Seems strong rationale for protecting rights of foreign user w/famous mark even w/o use in the US.

A: goodwill is the reason to protect.  There might be a public policy in favor of this, but there has to be some rationale, and the 4th Cir. simply deleted territoriality instead.

Alexandra Roberts, University of New Hampshire School of Law, Trademark Failure to Function

What do we talk about when we talk about use as a mark? Relative size, color, distinctive font, stylization, prominent placement in TM spot, set off by itself, use of TM or ®, all caps or initial caps.  Lee et al. study: consumers are likely to perceive most non-generic terms as TMs when they are in the right “place” on the package.  Even w/o distinctive font, 70% said “Wonderful” was a brand name when it was large and placed right.  Smaller, lack of prominence—much less likely to say it looks like a brand name.  Small: 33% brand name; small and placed along the bottom edge of the package: only 27% said brand name.

Maybe best way to think about this is ex parte v. adversarial.  Applicant sought to register icon of toilet for call devices used in hospitals.  Refused.  Spectrum, in colors, but used in a sentence—TTAB rejected even though it’s not just for a word mark; it was a design/composite mark using color.  Still not using it as a mark/fails to function.


In re Chemical Dynamics (Fed. Cir. 1988): applied to register dropper and droplet, not full image.  The court (and PTO) said you aren’t using that separately, it’s part of the whole mark—no separate commercial impression.  Often the applicant can file a new specimen to rebut a failure to function refusal.  In re Eli Lilly (TTAB 2015). Statement: “syringe contains a solution of Trulicity™ or placebo.”  Just plain text, part of sentence.  TTAB says: this is inherently distinctive; distinctiveness creeps into use as a mark analysis. 

Ex parte failure to function: administrative expertise—examiners do this every day; but: limited guidance/tools for identifying failure to function v. tons of tests, factors for distinctiveness.  Lists in TMEP of what might fail to function; language is super tautological: does it look like a TM?  Not actually that helpful!  Doctrine creep: mixing use w/use in commerce, inherent distinctiveness, acquired distinctiveness, functionality. Ex parte = closed universe of evidence for applicant’s specimen. Atty can manipulate that by working w/client to generate a specimen that looks trademarky.  Examiners have incentive to work quickly—they have a quota.  There’s also an ITU handicap: a huge # are filed on ITU basis; initial application occurs w/o specimen. We expect the review of the specimen won’t be as thorough—may even be completed by paralegal and not examining atty, so will sail through w/o anyone really examining function as a mark.

Adversarial proceeding: open universe of evidence; context is cancellation, infringement, priority; divergent guidance/tools for identifying failure to function; doctrine creep is similar; greater resources but less expertise.  More nontraditional marks--§43(a) unregistered trade dress.  Rights defined around/against opponent. 


Starting to code cases: a lot of overlap w/other use issues and w/distinctiveness.

Blast from the past: pleading falsity based on scientific claims

Biolase, Inc. v. Fotona Proizvodnja Optoelektronskih Naprav D. D., No. CV 14-0248, 2014 WL 12579802 (C.D. Cal. Jun. 4, 2014)

A rare case applying the Second Circuit's ONY case and perhaps suggesting why that case wasn’t a blockbuster.  Biolase and Fotona sold lasers used in dentistry. Jeff Jones used to be Biolase’s CEO, and Keith Bateman used to be Biolase’s VP of Sales. They were fired in 2007; Jones then founded and became CEO of T4Med, and Bateman became Executive VP. T4Med was a sub-distributor for Lares, which was a distributor for Fotona.

Biolase alleged that Fotona and T4Med used false and misleading advertising to get customers to switch from using Biolase dental lasers to Fotona dental lasers by claiming Fotona’s lasers are safer, faster, more precise, and less painful than Biolase’s lasers. Defendants allegedly represented that these advertising claims are based on independent scientific articles, but the articles are written by Fotona affiliates and published in a journal established by Fotona. Only one of the authors  disclosed their affiliation with Fotona.  Biolase also alleged that defendants made false and misleading oral statements, including that Biolase’s technology was faulty and worthless, and that Biolase’s management was incompetent.

The court dismissed the complaint.  Some of the statements at issue were puffery: Fotona’s “... patented VSP (Variable Square Pulse) technology ... maximize[s] patient safety ...,” “QSP (Quantum Square Pulse) ... allows for exceptionally fast laser drilling speed with unmatched efficiency and precision,” and “Fotona’s patented QSP (Quantum Square Pulse) mode allows the laser to ablate more efficiently and with greater precision.”

There were nonpuffing, measurable statements: “Up to 20 W[atts] of Er:YAG laser power provide an exceptionally wide range of fast, safe and effective treatment options,” and Fotona’s laser has “superior clinical results.” However, the court found these statements non-actionable because they restated scientific research.

Under Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134 (9th Cir. 1997), allows a false advertisement claim where a plaintiff alleges that the tests supporting the challenged claim “are not sufficiently reliable to permit one to conclude with reasonable certainty that they established the claim made.” Biolase alleged that defendants’ advertising statements were based on “junk science,” and were unreliable.  But ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2nd Cir. 2013), affirmed a district court’s decision to grant a motion to dismiss Lanham Act claims because the advertising statements were based on accurate descriptions of conclusions from peer-reviewed scientific journal articles. 

Statements in journals themselves aren’t actionable; then the question was whether advertising statements “based on research published in scientific journal articles” were actionable. ONY concluded that the answer was no, absent allegations “that the promotional materials misstated the article’s conclusion” or “distorted [the] article’s findings.”  The same logic applied here.  The tests in Southland Sod Farms were distinguishable because they were done by the company doing the advertising, and weren’t studies and conclusions published in peer-reviewed scientific articles. “A Southland Sod Farms type claim is appropriate for Courts to decide, but attacking the validity of experiments and conclusions published in peer-reviewed scientific journal articles is better done in the scientific, not legal, realm.”  For example, Biolase alleged that the articles’ conclusion that Fotona’s laser has a higher absorption of water at room temperature was misleading because dental lasers are not used at room temperature. But Biolase didn’t allege that the study didn’t actually find a higher absorption of water at room temperature.  [Note this—it will become important in the next iteration, showing the way to plead around ONY.]

Also, the court commented that, to the extent that T4Med’s statements accurately represented the published studies’ findings, it was questionable whether a substantial segment of the sophisticated target audience would be deceived, “since dentists would likely be educated enough to see the alleged weaknesses in the studies.”

The defamation claim failed for lack of sufficient specificity about who made the allegedly defamatory statements, where they made them, when they made them, or to whom they made them.

Biolase, Inc. v. Fotona Proizvodnja Optoelektronskih Naprav D. D., 2014 WL 12577153, No. 14-0248 (C.D. Cal. Sept. 15, 2014)

Biolase amended its complaint and tried again, with greater success.  Here, Biolase alleged that the published article at issue was “based upon and presents fraudulent data, and contains several false statements,” and that the article’s conclusions didn’t support claims of any clinical advantages. Further, Biolase alleges that the Journal of Laser and Health Academy, where the article was published, was controlled by Fotona and not peer-reviewed, though JLHA’s website states that it is an “international peer reviewed journal.”

To rebut the court’s earlier concern that sophisticated dentists wouldn’t be confused, Biolase alleged that “dentists are not usually introduced to or trained in lasers ... in dental school, and so lack sufficient expertise to understand the differences and details of laser technologies.” It also alleged a statement by T4Med’s CEO that “only a small percentage of dentists use lasers to perform dental procedures.” “Based on these allegations, it is plausible that dentists would be deceived by false advertising concerning lasers.”


As for the ONY problem, here, Biolase alleged that the article’s data were fraudulent and that it didn’t support defendants’ superiority claims. The court had “concerns” with the fraudulent data allegations, but the other allegations stated a plausible claim. Biolase alleged that defendants falsely advertised its lasers as safer than, faster than, and clinically superior to Biolase’s lasers, and that there were “no scientific studies, experiments, or other evidence” supporting these claims.  The JLHA article on which defendants relied “never clearly concludes that Defendant’s lasers are safer than, faster than, and clinically superior to Biolase’s lasers, nor did Defendants show that the article supports such statements.”  Indeed, Biolase alleged that at least some of the tests reported in the article were performed in settings inapplicable to clinical use.  For example, the article’s conclusion that defendants’ laser required less energy and time to cut tissue was allegedly based on testing at a temperature not seen in clinical uses.  ONY avoided. 

Craigslist credit scam by affiliate leads to FTC action

Federal Trade Commission v. Credit Bureau Center, LLC, 2017 WL 680344, No. 17 C 194 (N.D. Ill. Feb. 21, 2017)

I think Eric Goldman will see a §230 issue here. The FTC sued CBC, Michael Brown, Danny Pierce, and Andrew Lloyd seeking a permanent injunction and equitable relief for violations of section 5(a) of the FTC Act, the Fair Credit Reporting Act (FCRA) and associated rules, and the Restore Online Shoppers’ Confidence Act (ROSCA), which regulates negative option offers.

CBC does business as eFreeScore.com, Creditupdates.com, and FreeCreditNation.com.  It has one member/owner who is also the sole employee, Brown; it uses independent contractors for sales, marketing, customer service, and accounting.  CBC offers online credit scores and credit monitoring services to consumers. Brown claimed that there were two primary lines of business: (1) offering credit monitoring solutions directly, and (2) offering credit monitoring solutions through an affiliate marketing program to consumers.  This case concerns (2).  CBC hired affiliates or affiliate networks to attract consumers and drive traffic to its websites in return for commissions.

CBC hired Revable Network LLC, which was owned and run by Pierce, to perform affiliate marketing. Pierce hired Lloyd, who established and ran a fraudulent advertising campaign: he posted Craigslist ads purporting to offer attractive rental properties:

When a consumer responded to one of these ads, Lloyd replied by impersonating the owner or manager of the purported rental property—which did not actually exist—and inviting the consumer to take a tour of the property. Visiting the property, however, was conditioned on the consumer first obtaining his or her credit report.  The phony landlord letter included a link that Lloyd identified as a credit report service. When the consumer clicked on the link, she would arrive at a landing page that showed an offer from CBC for a free credit report and credit score. When the consumer signed up, she received a free credit score but was also enrolled in CBC’s credit monitoring service, which carried an automatic monthly charge of twenty to thirty dollars.

From December 2014 to January 2017, Pierce and Lloyd generated over 146,000 sales for CBC, representing at least $6.8 million for CBC, which paid Pierce approximately $2.3 million, of which Lloyd received $1.9 million.

CBC and Brown conceded that Pierce and Lloyd defrauded customers but denied any involvement or knowledge of the fraud.  The court found that the FTC was likely to succeed in showing that Pierce and Lloyd CBC’s agents.  To bind a principal, the “agent must have either actual authority, apparent authority, or the principal must ratify [the agent’s] actions.” “[R]atification requires that the principal have full knowledge of the facts and the choice to either accept or reject the benefit of the transaction.” Ratification can be shown through circumstantial evidence, “including long-term acquiescence, after notice, to the benefits of an allegedly unauthorized transaction.”

Pierce and his affiliate network had express authority to use ads to direct traffic to CBC’s websites, and Pierce was permitted to delegate that work to others.  “Pierce was fully aware of Lloyd’s fraudulent advertisements from the inception of Lloyd’s Craigslist campaign. Pierce was directly involved in aspects of Lloyd’s mailing campaign, such as giving Lloyd his approval to continue mailing advertisements.”  And there was evidence that CBC and Brown were involved in the Lloyd/Pierce marketing campaign, including instructions from Brown to increase or decrease the level of traffic to its website depending on CBC’s needs.  Perhaps enough to overcome Eric Goldman’s objections:

Another text message indicates that Brown, on behalf of CBC, directed Pierce to change the content of the landlord letter that directed consumers to its website. Specifically, Brown advised Pierce to change the wording of the offer made in the landlord letter in order to reduce complaints of phishing against CBC, saying, “Please change your template to say something [like] don’t email me the report just print it out.”

This was enough to show express or implied actual authority, and there was also a likelihood of success on the ratification pathway to agency, which I predict Eric Goldman will not like at all.  Of the over 10,000 recorded calls in the 60-day period preceding the filing of the lawsuit, at least 87 calls were marked in CBC’s call logs under the disposition, “Cancellation—[Craigslist] Post.” Brown also testified that in 2015 he read a complaint about a fraudulent advertisement that traced back to Craigslist, “asked for more information on the matter, did not receive the information, but simply stopped investigating.  He also admitted that in July 2016, the BBB informed him that CBC had a pattern of complaints regarding fraudulent Craigslist advertisements. CBC had the ability to trace any particular BBB complaint to the responsible affiliate, but didn’t do that or take any other remedial action.  Brown tried to claim that CBC’s customer service center was never directed to advise Brown about complaints in specific or in general.  At the hearing, Brown “seemed to change course, saying that some types of complaints were to be ‘escalated’ to him, but he was vague on what these were.” The court found a reasonable likelihood that the FTC would show that “CBC hid its head in the sand and deliberately avoided knowledge of complaints so that it could keep raking in the benefits of Lloyd’s and Pierce’s activities.”

Brown was also individually liable given his direct participation/control and actual/constructive knowledge, which can be shown by “reckless indifference to the truth or falsity of such misrepresentations, or an awareness of a high probability of fraud along with an intentional avoidance of the truth.”  Brown had the ability to control Pierce and Lloyd’s marketing activities; CBC’s tracking system monitored sales and refunds per affiliate and it had the power to deactivate an affiliate at any point in time. Although Pierce and Lloyd had their own custom landing page, CBC had authority to modify it; Brown also had the ability to control the volume of traffic generated by Pierce and Lloyd to CBC’s websites and the content of Lloyd’s ads.

“Brown either read BBB complaints regarding the fake advertisements or deliberately or at least recklessly ignored them.” When he received three complaints from the BBB, Brown wrote back, “It’s our policy that once we identify a pattern of potential abuse we disable the offending party which we have done.” But he testified that he looked at only two of the complaints, and he made no effort to search CBC’s internal tracking system to find out which affiliate(s) were responsible. Brown’s establishment of and dealings with CBC’s customer service center “seemed geared toward preventing knowledge of fraud-based complaints from filtering up to him.” And his texts suggested “some level of knowledge on Brown’s part” of the deceptive conduct.

FCRA: the websites failed to prominently disclose that free credit reports are available under Federal law at: AnnualCreditReport.com, as required by law. Brown and CBC were directly responsible for the content of the website.

ROSCA: ROSCA outlaws negative options without clear and conspicuous disclosure of all material terms before obtaining a consumer’s billing information and without express informed consent before the consumer’s card/account is charged.  The CBC landing pages made bold, large-type offers: “Get Your Free Credit Score and Report as of [Date].” The consumer was required to provide her credit card information for a $1.00 refundable charge.  Just below the credit card entry, in smaller, fainter print, the websites state: “When you place your order here you will begin your membership in eFreeScore.com. You will be billed $1.00 today and start your trial membership. After your 7-day trial period you will be charged $29.94 every month.”  The FTC was reasonably likely to show that this disclosure didn’t disclose all material terms and obtain informed consent; CBC’s offer didn’t actually describe the membership.


CBC alleged that no injunction should issue because of harm to its allegedly untainted line of business offering credit monitoring services directly.  But there was a serious concern about the receiver’s ability to obtain restitution—it had gotten approximately $2.1 million from CBC, but consumer damages might be as high as $6.8 million. Also, following entry of the TRO, Brown transferred over $40,000 to a newly formed company, Credit Data Center LLC, as well as $150,000 to his attorney (held in the attorney’s trust account). Although CBC argued that many of its customers actually wanted the credit monitoring service that they signed up for, it didn’t provide the receiver with usable information that would allow anyone to determine whether this was true.  And the receiver couldn’t distinguish the allegedly separate line of business “due to the state of CBC and Brown’s accounting records,” so there was no way to figure out what was untainted.  The public interest, including preserving funds for consumer redress, outweighed the private interests cited at stake, unless defendants offered a workable method to separate and preserve a legitimate line of business.

Re:Create features fan vidders for fair use week

See (and watch!) here.  Lim's Marvels is my favorite of her work, but her editing is generally flawless.  I find it a particularly good example for fair use week because of the way it shamelessly panders to the female gaze, all the way through, no longer making us look for scraps.

Court won't hear false advertising and contributory liability claims based on tinnitus credentialing

Academy of Doctors of Audiology v. International Hearing Society, 2017 WL 679354, No. 16-13839 (E.D. Mich. Feb. 21, 2017)

IHS held a training program on tinnitus care in Orlando, Florida, stating that it would provide a “Tinnitus Care Provider Certificate” to people who completed the program and passed an examination. Before the program was held, plaintiff ADA sued for false advertising. The court dismissed the complaint on standing and other grounds.

According to ADA, hearing health care is provided mainly by doctors; audiologists; and hearing aid dealers/specialists.  Doctors can treat tinnitus, which is the phenomenon of hearing sound when no sound is present—the classic “ringing in the ears.”  According to the CDC, nearly 15% of the general public experience some form of tinnitus. Twenty million people have chronic tinnitus, while 2 million have extreme and debilitating cases. More than 99% of tinnitus is subjective, audible only to the patient, while under 1% is objective—sounds usually produced by the body’s circulatory and somatic systems. There’s no scientifically validated cure, but tinnitus can be treated, including by sound generation systems and hearing aids.  The treatment can be complex, and tinnitus can also be a sign of other problems.

Audiologists provide clinical services related to identifying and preventing hearing loss and related impairments, and can also provide treatment for tinnitus.  Since 2007, audiologists entering the profession have been required to have the degree of Doctor of Audiology, usually requiring four years of postgraduate education, including a clinical externship; past practice generally required a two-year Masters degree or a Ph.D. in Hearing Sciences.  

In Michigan, as in many other states, dealers can be licensed if they’re graduates of an accredited high school or secondary school, have served as a salesperson under a licensed dealer for two years, and pass a written examination.  Outside of North Carolina, dealers aren’t licensed to treat tinnitus.  Sound masking devices incorporated into hearing aids are regulated by the FDA, and can only be sold on the prescription or order of a licensed practitioner—and outside of North Carolina, only doctors and audiologists can order such use.

IHS is a Michigan nonprofit with about 3000 members, a large number of whom are dealers. ADA is a nonprofit dedicated to audiology, though the complaint didn’t allege facts about the professions or educational backgrounds of ADA’s own members, or what services ADA’s members provide to their patients. 

ADA challenged IHS’s intended “Tinnitus Care Provider Certificate.”  Although the program description advised participants to check what are permitted practices as to tinnitus care under their state licensure, IHS intended to issue the Certificate to to qualifying dealers regardless of whether they were licensed to provide tinnitus care.  ADA alleged that, outside of North Carolina, the Certificate would falsely or misleadingly convey to the public that the dealer holding it was legally permitted to provide tinnitus care.  Further, ADA alleged that the program wouldn’t provide dealers with sufficient knowledge and skill to provide appropriate tinnitus care, so the Certificate would falsely or misleadingly indicate competence to provide tinnitus care.

ADA also brought claims for contributory false advertising under the Lanham Act, alleging that IHS would be responsible for dealers’ misleading display/advertisement of Certificates, as well as a claim under Michigan’s Consumer Protection Act and the common law of unfair competition.

IHS challenged ADA’s constitutional standing.  ADA argued that, on its own behalf, it would suffer harm “in the form of costs to respond to the audiology profession and the public about Dealers beginning to offer tinnitus care with the Certificate to Dealers,” but this resource-diversion theory wasn’t alleged in the complaint.  ADA also argued that it had representative standing, which required it to show that 1) its members would otherwise have standing to sue in their own right; 2) the interests it seeks to protect were germane to its purpose; and 3) neither the claim asserted not the relief requested required the participation of the individuals in the lawsuit.

ADA’s claim failed at the first part: it didn’t properly allege that individual members would have standing.  The complaint alleged that the public would be harmed by poor care, and that ADA’s members would be harmed by the diversion of tinnitus care patients to dealers holding the Certificate.  However, the complaint didn’t allege that ADA’s members directly compete with dealers in the hearing healthcare industry; 2) didn’t allege that ADA members would suffer competitive injury; and 3) didn’t allege that ADA’s members would suffer a loss of business customers or a loss of financial revenue.  Lost sales would only result if the number of licensed members available exceeded the amount of services sought/if there was actual competition for tinnitus patients, which wasn’t alleged. The court wouldn’t assume facts not alleged, and IHS argued the contrary, given that “the need for devices and other non-medical management for the approximately 30 million American tinnitus sufferers outweighs the number of licensed audiologist and hearing instrument specialists available to provide such care and relief.”

ADA also failed redressibility, because enjoining the issuance of the Certificates would do nothing to prevent any dealers who attended the Dec. 2016 program from advertising their completion thereof.  They could advertise “the very substance of what the Certificates would presumably say” even if the requested injunction issued.

Separately, the Michigan Consumer Protection Act claim had to be dismissed because that law covered only consumer purchases, not business seminars.

The common-law unfair competition claim was treated like the Lanham Act claim, which also failed.  First, ADA failed the Lexmark zone-of-interests/proximate cause test.  Even if ADA could bring suit in a representational capacity under Lexmark, a theory of which the court seemed skeptical, it couldn’t succeed here for failure to actually allege that its members would suffer a competitive injury.  There was also a “solid argument” that ADA didn’t allege proximate cause: its injury didn’t “flow directly” from IHS advertising.

Moreover, ADA didn’t identify sufficient falsehoods.  The two things consumers would allegedly be misled about were (1) non-North Carolina dealers being legally permitted to provide tinnitus care, and (2) the same being competent to do so based on advertising acquisition of the Certificates.  Because the certificates at issue hadn’t yet been drafted, “ADA has not alleged any specific statement that is likely to lead anyone to conclude that there is ‘legal permission’ or ‘competence’ to provide” tinnitus care. Moreover, false advertising claims based on allegations of implied government approval aren’t allowed, because they interfere with regulatory enforcement: the Lanham Act can’t be used to indirectly enforce other government regulations.  The true harm, in ADA’s view, was provision of tinnitus treatment by dealers, but that’s not the concern of the Lanham Act; moreover, the complaint didn’t even allege that it was illegal for dealers outside North Carolina to provide treatment—“the real issue here is that most state statutes are silent as to whether or not Dealers can provide tinnitus care.”

As for the allegedly false implication of competence, that’s a nonfactual opinion.


Sealing the deal—and here’s the only part of the ruling I find really shaky—the court held that ADA couldn’t sue for contributory false advertising after Lexmark; contributory trademark infringement is ok but not contributory false advertising.  The court didn’t explain why; Lexmark’s statutory analysis is directed at language that applies to §43(a)(1)(A) and even to §32.  But the court here declined to join Duty Free America, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248 (11th Cir. 2015), recognizing such a claim.

Wednesday, February 22, 2017

Reading list: aesthetic nondiscrimination and fair use

 Brian L. Frye, Aesthetic Nondiscrimination & FairUse,  3 Belmont L. Rev. 29 (2016)
ABSTRACT
While courts do not consider the aesthetic value of an element of a work in determining whether it is protected by copyright, they do consider the aesthetic value of the use of a copyrighted element of a work in determining whether that use is a fair use. This asymmetry improperly and inefficiently discriminates in favor of copyright protection and against fair use. Moreover, the fair use transformativeness inquiry discriminates against marginalized authors, because courts are less likely to appreciate the aesthetic value of their uses of copyrighted works.


Courts should apply the aesthetic nondiscrimination principle to both copyright and fair use. In other words, “transformative” should just mean “different,” and courts evaluating a fair use claim should simply ask whether the use changes the copyrighted work in any way, including context, and should not ask whether that change is substantial or valuable. While this would substantially narrow the scope of the derivative works right, it would almost certainly increase social welfare by encouraging the production of derivative works without materially affecting the incentives to create works of authorship.

Tuesday, February 21, 2017

State law can't protect uncopyrightable design for useful article

Ultraflo Corp. v. Pelican Tank Parts, Inc., No. 15-20084 (5th Cir. Jan. 11, 2017)

A nice citation for the proposition that §301 preemption covers both copyrightable and uncopyrightable matter. Ultraflo argued that Pelican engaged in unfair competition by misappropriation claim by stealing Ultraflo’s drawings showing how to design valves and then used them to make duplicate valves. Ultraflo argued that its claim escaped preemption because its valve design, when separated from the drawing itself, was uncopyrightable. But “copyright preemption prohibits state interference with Congress’s decision not to grant copyright protection just as much as it protects a decision to provide protection.”

The drawings of the valves were copyrightable; they were the basis of a copyright infringement claim rejected by the jury below. But the misappropriation claim was based on copying the valve design, not copying the drawings. The valve design was either a useful article or an idea, and not copyrightable, but preemption covers more than copyrightable works; §301 preempts state protection for works within copyright’s subject matter, including useful articles, whether or not they are copyrightable. “[S]cope and protection are not synonyms.” The court noted that “the exclusion of useful articles from copyright protection is a corollary of the idea-expression dichotomy”; allowing state-law protection for useful articles would undermine their deliberate exclusion from the federal scheme. 

Was plaintiff claiming a right equivalent to that granted by copyright?  The Copyright Act doesn’t grant the owner of a drawing of a useful article to control the making of the useful article—but preemption is more general than just what would infringe copyright.  “The question is not whether state law provides a right identical to federal copyright law, but whether state law provides a right akin to those ‘within the general scope of copyright as specified by section 106’” (emphasis added).  And the exclusive rights generally include the right to make derivative works.  Indeed, §113(b), by making clear that the owner of the copyright in technical drawings can’t prevent making the articles, “recognizes that such derivative use may otherwise be protected by the copyright laws.”  The key issue was not the rights Congress actually provided but “the type of rights it has the power to confer. Withholding a particular right is part of the balance Congress struck between the need for copyright incentives and the value in public access to ideas.”  The exclusion also protected the patent/copyright line.


Unfair competition by misappropriation lacked the necessary extra element to escape preemption.  Sweat equity, use against a competitor, and intent don’t count as extra elements.

Gun gag rule case provides good overview of post-Reed First Amendment doctrine

Wollschlaeger v. Governor, No. 12-14009 (11th Cir. Feb. 16, 2017)

The court of appeals at last mostly overturns Florida’s Firearms Owners’ Privacy Act (FOPA), after several false starts.

The AMA “encourages its members to inquire as to the presence of household firearms as a part of childproofing the home and to educate patients to the dangers of firearms to children,” as does the American Academy of Pediatrics and the American Academy of Family Physicians. But, in 2011, “the Florida Legislature learned that a pediatrician in Ocala had reportedly told a mother that she would have to find a new physician for her child due to her refusal to disclose information about firearm ownership in the family home.” The doctor said he asked all his patients so he could provide safety advice, and that he asked similar questions, such as whether there was a pool in the home. “The mother felt that the question ‘invaded her privacy,’ but the record is silent as to whether she ultimately answered the questions posed to her about firearms.” The legislature also learned of “five other incidents in which patients complained that doctors and medical professionals had asked unwelcome questions or made purportedly improper comments regarding their ownership of firearms.” Two anecdotes involved claims that disclosing firearm ownership was a Medicaid requirement.

As a result, the legislature enacted FOPA, which contained record-keeping, inquiry, anti-discrimination, and anti-harassment provisions. The record-keeping provision states that a doctor or medical professional “may not intentionally enter any disclosed information concerning firearm ownership into [a] patient’s medical record” if he or she “knows that such information is not relevant to the patient’s medical care or safety, or the safety of others.” The inquiry provision states that a doctor or medical professional “should refrain from making a written inquiry or asking questions concerning the ownership of a firearm or ammunition by the patient or by a family member of the patient, or the presence of a firearm in a private home” unless he or she in “good faith believes that this information is relevant to the patient’s medical care or safety, or the safety of others.” The anti-discrimination provision states that a doctor or medical professional “may not discriminate against a patient based solely” on the patient’s ownership and possession of a firearm. The anti-harassment provision states that a doctor or medical professional “should refrain from unnecessarily harassing a patient about firearm ownership during an examination.”

The relevancy standard means that doctors can’t ask all their patients, or all their patients’ parents, whether they own firearms or have firearms in their homes, as part of a standard intake questionnaire. As the panel opinion in this case concluded, such inquiries (and record-keeping) are appropriate only if the doctor or medical professional has “some particularized information about the individual patient, for example, that the patient is suicidal or has violent tendencies.” Violations of these provisions are “grounds for disciplinary action,” punishable by a fine of up to $10,000 per offense, a letter of reprimand, probation, suspension, compulsory remedial education, or permanent license revocation.

The court had little trouble finding these to be content-based limits on speech; even the anti-harassment provisions primarily targeted questions or advice, not conduct. “[A]nti-harassment laws, insofar as they regulate speech based on content, are subject to First Amendment scrutiny.” Under Reed, such rules are normally subject to strict scrutiny even assuming they are viewpoint-neutral. But even under Sorrell’s heightened but not strict scrutiny, FOPA’s record-keeping, inquiry, and anti-harassment provisions failed.

The state argued that the First Amendment wasn’t implicated because any effect on speech was merely incidental to the regulation of professional conduct. This argument relied on Justice White’s argument, in concurrence, that when people are exercising judgment with respect to a particular client, they’re “engaging in the practice of a profession” and the speech is “incidental to the conduct of the profession.” See Lowe v. S.E.C., 472 U.S. 181, 232 (1985) (White, J., concurring in the judgment). Justice White proposed that regulations of so-called professional speech receive only rational basis review. See Thornburgh v. Am. College of Obstetricians & Gynecologists, 476 U.S. 747, 802 (1986) (White, J., dissenting). By contrast, laws purporting to regulate a professional who does not have a “personal nexus” to a particular client and who is merely speaking generally would receive heightened scrutiny.

Applying Justice White’s framework to licensing requirements is different from applying a law restricting what license holders can say on a given topic in practicing their profession. The Ninth Circuit has also adopted Justice White’s approach in upholding a California law prohibiting mental health practitioners from providing sexual orientation change efforts therapy to children under the age of 18. See Pickup v. Brown, 740 F.3d 1208, 1225–29 (9th Cir. 2013) (as amended on rehearing). However, the Ninth Circuit held that the law didn’t restrict what the practitioner could say or recommend to a patient or client, and thus the law “regulate[d] conduct” even though it covered the verbal aspects of SOCE therapy. The court here expressed “serious doubts” about whether Pickup was correctly decided, because it’s dubious to ever characterize speech as conduct (really? What about “I promise to give you this car if you give me your money”?). But anyway, Pickup was distinguishable on its facts, and recognized that “doctor-patient communications about medical treatment receive substantial First Amendment protection.”

By contrast, Conant v. Walters, 309 F.3d 629 (9th Cir. 2002), struck down a federal policy which threatened doctors with revocation of their DEA prescription authority if they recommended the medicinal use of marijuana to their patients. This was content- and viewpoint-based regulation in violation of the First Amendment; it lacked the requisite “narrow specificity.”

The Supreme Court has never adopted or applied Justice White’s rational basis standard to regulations which limit the speech of professionals to clients based on content, but instead has sometimes applied heightened scrutiny to regulations restricting the speech of professionals. See, e.g., Legal Servs. Corp. v. Velazquez, 531 U.S. 533, 542–48 (2001) (law regulating attorneys violated the First Amendment because it limited “constitutionally protected expression” and “alter[ed] the traditional role of the attorneys”); N.A.A.C.P. v. Button, 371 U.S. 415, 438–44 (1963) (law regulating organizations’ provision of legal services violated the First Amendment because the state had not advanced any substantial regulatory interest to justify the prohibition). As Button said, “a State may not, under the guise of prohibiting professional misconduct, ignore constitutional rights.” Given that, the plurality opinion of three Justices in Planned Parenthood of Southeastern Pennsylvania v. Casey, 505 U.S. 833, 884 (1992), upholding a risk-notification requirement for doctors performing abortions, didn’t support the use of rational basis review here:

If rationality were the standard, the government could—based on its disagreement with the message being conveyed—easily tell architects that they cannot propose buildings in the style of I.M. Pei, or general contractors that they cannot suggest the use of cheaper foreign steel in construction projects, or accountants that they cannot discuss legal tax avoidance techniques, and so on and so on.

Under heightened scrutiny under Sorrell, government “must show at least that the [provisions] directly advance[ ] a substantial governmental interest and that the measure[s] [are] drawn to achieve that interest. There must be a ‘fit between the legislature’s ends and the means chosen to accomplish those ends.’” “[u]nlike rational basis review, th[is] . . . standard does not permit us to supplant the precise interests put forward by the State with other suppositions.” The Supreme Court has noted that “[t]he quantum of empirical evidence needed to satisfy heightened judicial scrutiny of legislative judgments will vary up or down with the novelty and plausibility of the justification raised.” Nixon v. Shrink Missouri Gov’t PAC, 528 U.S. 377, 391 (2000). Six anecdotes and nothing more was insufficient, in a state with more than 18 million people, to show that the state’s concerns were “real, [and] not merely conjectural,” and that FOPA provisions “will in fact alleviate these harms in a direct and material way.”

The state’s interest in protecting Floridians’ Second Amendment rights was a substantial government interest, but: (1) The legislature had no evidence that doctors had infringed those rights, because as private actors they can’t do so. (2) Florida makes it a misdemeanor to fail to secure firearms that are then obtained or possessed by minors without supervision, which means that questioning patients is consistent with state policy and not inconsistent with the Second Amendment. (3) The record-keeping, inquiry, and anti-harassment provisions didn’t advance any anti-interference with gun goals in a permissible way, since some patients don’t object to questions and advice about firearms and firearm safety, “and some even express gratitude for their doctors’ discussion of the topic.” In “the fields of medicine and public health . . . information can save lives.” Sorrell. Doctors, therefore, “must be able to speak frankly and openly to patients.”

The state’s interest in protecting patient privacy was also substantial. But patients can simply refuse to answer any questions about firearms; the state didn’t explain why that protection wasn’t enough. The chilling effect of disclosure and record-keeping was already limited by Florida law’s existing protection for medical records, and there was no evidence of improper disclosures about firearms. While the appellate panel said that there was a danger of hacking, theft, or some other intrusion, the legislature didn’t rely on this rationale and the state couldn’t rely on it now.

The state’s interest in ensuring access to health care without discrimination or harassment was also substantial. (Talk about ideological drift. I guess it all depends on what you want to be free from discrimination about.) The non-anti-discrimination provisions, though, weren’t well tailored for that. If the issue were threats to end the physician-patient relationship or to refuse treatment if questions about firearm ownership were not answered, then the legislature should’ve barred doctors from ending professional relationships with patients who decline to answer questions about firearm ownership, as a less speech-restrictive alternative. But FOPA does the opposite: medical professions can end a relationship over a refusal to answer.

The state also argued that there was a significant power imbalance between doctors and their patients, who are in a vulnerable position. But, for adults, “the Supreme Court has never used a vulnerable listener/captive audience rationale to uphold speaker-focused and content-based restrictions on speech.” (Citing Snyder v. Phelps, 562 U.S. 443 (2011).) And patients have the right to refuse to answer questions. “There is nothing in the record suggesting that patients who are bothered or offended by such questions are psychologically unable to choose another medical provider, just as they are permitted to do if their doctor asks too many questions about private matters like sexual activity, alcohol consumption, or drug use.” The fact that a few felt coerced and harassed can’t sustain broad content-based regulations of this sort; listening to speech you don’t like is the price of freedom.

Finally, the state argued that it needed to regulate the medical profession in order to protect the public. This is obviously true in the abstract. But the state “must do more than simply ‘posit the existence of the disease sought to be cured.’” Given that “injuries are the leading cause of death and morbidity among children older than one year, adolescents, and young adults,” the AMA and the American Academy of Pediatrics both recommend that doctors and pediatricians ask patients about firearm ownership, and educate them about the related dangers. “There is no claim, much less any evidence, that routine questions to patients about the ownership of firearms are medically inappropriate, ethically problematic, or practically ineffective.” Nor was there any evidence that the result was “bad, unsound, or dangerous medical advice.” Two of the six anecdotes on which the legislature relied were false claims about Medicaid coverage—but the obvious solution to that would be to ban false claims. (Citing commercial speech doctrine.)

The anti-discrimination provision was a little different, since it banned discrimination “against a patient based solely” on his or her ownership and possession of a firearm. On its face, that wasn’t speech-based. The court upheld the anti-discrimination provision “by construing it to apply to non-expressive conduct such as failing to return messages, charging more for the same services, declining reasonable appointment times, not providing test results on a timely basis, or delaying treatment because a patient (or a parent of a patient) owns firearms.” So limited, there was no First Amendment problem.

Judge Marcus concurred, writing separately to challenge the vagueness of the anti-harassment provision, given its prohibition on “unnecessarily harassing” a patient. “Reasonable doctors are … left guessing as to when their ‘necessary’ harassment crosses the line and becomes ‘unnecessary’ harassment -- and wrong guesses will yield severe consequences.” In general, harassment has an understandable meaning, and anti-harassment laws can be further understood through context and formal definitions. But “the State takes the plain word and renders it incomprehensible by appending a wholly nebulous adverb,” which was particularly difficult because “we expect doctors to doggedly exhort unhealthy patients to exercise more, eat less, or stop smoking, even when such admonishments may ‘annoy persistently.’”

The state tried to limit the scope of the provision by saying that a doctor operating in good faith would be fine, but that was inconsistent with the plain text of the statute, which provided a good faith defense for the inquiry provision, but not for the harassment provision. “[W]e cannot find clarity in a wholly ambiguous statute simply by relying on the benevolence or good faith of those enforcing it.” Plus, “a disgruntled patient is likely to disagree with his doctor about precisely how much harassment is truly necessary,” and a complaint can have severe consequences for doctors’ careers even if it’s not upheld. “Doctors deserve more notice before they are subjected to these consequences.”

Judge Wilson concurred (joined in part by Judge Martin), arguing that strict scrutiny and not intermediate scrutiny should apply. This was more than content discrimination—it targeted a particular viewpoint. “Content-based restrictions on speech are permitted only when they fall within a few historic and traditional categories, such as obscenity or defamation,” and doctors’ truthful speech wasn’t such a category, which would have to be based on “a long (if heretofore unrecognized) tradition of proscription.” [As to “proscription,” this is surely true—but a long history of heavy regulation does exist.]

The Supreme Court hasn’t squarely addressed the appropriate level of protection for professional speech; this regulation was different from cases in which the state had a valid interest in regulating a specialized profession. “Proscribing access to a profession is entirely different than prohibiting the speech of an entire group of professionals.” Other regulations don’t prohibit truthful speech within the scope of the profession. [But! All the work here is done by “truthful.” Who decides what’s truthful or misleading? For ordinary malpractice, a jury does under ordinary, nonconstitutionalized tort standards. I would say there’s a strong argument that a tradition of regulation exists to validate this treatment, even under Stevens.]

The concurrence also expressed doubts about the anti-discrimination provision, because “the anecdotes of discrimination that motivated the Act all stemmed from speech, and “it strains credulity to imagine scenarios in which this Act will be used to punish only conduct, and not speech…. Doctors may be hesitant to inquire about firearm ownership, as inquiries are strong evidence of a discriminatory motive.” Given the safety interests at issue, “we cannot afford to silence these voices.” With the harassment provision gone, the state might now use the discrimination provision to punish “harassing” conduct. However, anti-discrimination provisions against discriminatory conduct don’t generally violate the First Amendment, so Judge Wilson ended up concurring.

Judge Pryor concurred (joined by Judge Hull) to remind everyone that he loves the Second Amendment. That fundamental right could provide the substantial government interest in protecting Floridians from discrimination on the basis of their exercise of their right to bear arms. But, Judge Pryor reasoned, an anti-gun legislature could have enacted laws banning doctors from promoting gun ownership as a health and safety measure. [Of course, query whether any hypothetical universe is plausible in which doctors trained in medicine and statistics would do so.] Anyway, governments have in the past politicized the practice of medicine. [See also: abortion regulation, though I don’t think Judge Pryor minds that.] “If anything, the doctor- patient relationship provides more justification for free speech, not less.”

Judge Pryor’s parade of horribles is also quite interesting, insofar as it suggests that he thinks that antidiscrimination laws might be more broadly constitutionally vulnerable, especially to the extent they cover proselytization by a doctor:

Without the protection of free speech, … [t]he state could stop a surgeon from praying with his patient before surgery or punish a Christian doctor for asking patients if they have accepted Jesus Christ as their Lord and Savior or punish an atheist for telling his patient that religious belief is delusional.… [T]he First Amendment ensures that doctors cannot be threatened with state punishment for speech even if it goes beyond diagnosis and treatment.

An activist state might punish a doctor for “advising” a patient about sex-reassignment surgery, drugs, alcohol, or tobacco; advocating for universal health care, against Obamacare, against abortion [he doesn’t suggest a doctor couldn’t be punished for advocating for abortion], for vaccination [could a doctor be punished for advocating against vaccination? Note that this is a variant of “is malpractice as a tort vulnerable to First Amendment scrutiny?”]; for abstinence or safe sex, for organ donation or surrogacy or terminal care; or “explaining the risks or benefits” of a vegan diet or of playing football.

Other constitutional rights don’t need “protection” from private speech, only from government infringement. “That the government may not establish a religion, or ban handguns, does not suggest that private individuals may not start a church or give away their guns.” If Florida can do this, other legislatures could identify different rights—specifically, equality rights—as justifications for suppressing students’ unpopular views about race, religion, or sex.

Judge Tjoflat dissented, decrying the flattening of levels of scrutiny apparently encouraged by Reed. He fully agreed that the inquiry, record-keeping, and anti- harassment provisions were content-based regulations of speech specifically targeting medical professionals, and that rational basis review didn’t apply.

Special scrutiny for content-based regulations is based on the fear “that the Government may effectively drive certain ideas or viewpoints from the marketplace” altogether, or that its acts may be based on “hostility—or favoritism—towards the underlying message expressed.” (By contrast, content-neutral regulations get intermediate scrutiny because they rarely raise such core First Amendment concerns.) However, the language of the “free market” for ideas has “effectively constitutionalized the market-based ideology underlying neoliberalism,” which “effectively obliterates the classic distinction between heavily-protected political speech and other, lesser forms of expressive activity, like consumer spending,” and Judge Tjoflat expressed his discomfort with “constitutionalizing any particular ideological framework.”

Before Reed, the test for content neutrality was “‘whether the government has adopted a regulation of speech because of disagreement with the message it conveys. The government’s purpose is the controlling consideration.’” A regulation would be content neutral as long as it “serves purposes unrelated to the content of expression” even if the regulation imposed incidental effects on particular speakers or messages. Reed seemed to work a sea change, expanding the universe of “previously permissible regulations now presumptively invalid,” because the government’s indifference to the message or content-neutral justification no longer mattered.

Judge Tjoflat thought that “the First Amendment does not require such rigorous interventionism,” and that existing First Amendment doctrine could cabin Reed in ways better than watering down strict scrutiny—the other temptation, as Justice Breyer likewise cautioned. Instead of formalism, Justice Breyer’s balancing approach corresponded with Judge Tjoflat’s understanding: we should focus on the values underlying the reasons for the categories. Thus, we ask “whether the regulation at issue works harm to First Amendment interests that is disproportionate in light of the relevant regulatory objectives…. The more directly a challenged regulation impinged on speech without adequate reasons for doing so, the higher the level of constitutional scrutiny applied to the law.”

Thus, content-basis in the Reed sense shouldn’t automatically trigger strict scrutiny. It merely indicates “a heightened possibility that the government seeks to impermissibly favor a particular viewpoint, or otherwise lacks adequate justification for legislative action.” The alternative is widespread, unnecessary invalidation of reasonable laws. Under this approach, Judge Tjoflat would apply only intermediate scrutiny, because Florida was only regulating “a very specific part of the relationship between medical professional and patient,” rather than speech to the public or speech that the doctor hadn’t determined was relevant to the patient’s medical care, safety, or the safety of others. The connection to medical care meant that the regulation didn’t interfere with core First Amendment values.

The idea of “professionals” “presupposes the existence of a code of behavior and some element of state control over that code in order to ‘safeguard[] the interests of the public who partake in . . . professional services.’” Moreover, medical professionals are fiduciaries who typically possess “superior knowledge, expertise, experience, and stature in relation to the client that inherently places the professional in a position of superior leverage and influence.” State regulation is thus necessary “to protect patients from the significant potential abuse that exists both within a specific fiduciary relationship and more broadly within the medical profession itself.” Thus, the state can regulate the professional’s speech “on matters relevant to the provision of appropriate medical care”; this regulation deserved intermediate scrutiny given the longstanding tradition of government regulation in this area. (Citing Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447 (1978) and Planned Parenthood of Se. Pa. v. Casey, 505 U.S. 833 (1992) (joint opinion)).


Under that standard, Judge Tjoflat would have sustained the law. “[T]he Act merely codifies the commonsense conclusion that good medical care does not require inquiry or record-keeping regarding firearms when unnecessary to a patient’s care … and that good medical care never requires the discrimination [against] or harassment of firearm owners.” All the law required was “an individualized, good faith judgment of the necessity of speech related to firearm ownership to provide competent medical care to a patient.” 

Reading list: poetry and copyright norms


Abstract:

Intellectual property grants artificial monopolies to authors, and this practice has long been justified as an economic bargain necessary to encourage new authors. However, many creative communities thrive without intellectual property protection. These communities have been described as intellectual property’s negative spaces. This Note navigates those negative spaces by the light of the contemporary poetry community’s efforts to discourage thieving and encourage transformative copying. The community does so though there is little money in poetry, and thus little to animate an economic justification for intellectual property protection. Observing how one community considers intellectual property without an economic underpinning will help the legal community make informed decisions as intellectual property continues to navigate the creative sea of changes of the twenty-first century.

Monday, February 20, 2017

Seen in Cambridge

Is this really a Pop Tart?

The trademark part of ASTM v. PublicResource.org

American Soc. for Testing & Materials v. Public.Resource.Org, Inc., No. 13-cv-1215 (D.D.C. Feb. 2, 2017)

The copyrightability/fair use issues are serious and arguable here, but I’m going to focus on the trademark analysis, because unlike the copyright analysis it’s incoherently wrong.  Public Resource made copies of ASTM standards incorporated into various laws.  ASTM sued for copyright infringement and trademark infringement; the court granted summary judgment to ASTM on both claims.

PR argued that posting the standards infringed ASTM’s trademark. The court thought Dastar didn’t bar this because there was an “independent” basis for the infringement claim: “Defendant distributed standards online bearing Plaintiffs’ registered trademarks and logos,” confusing people as to the origin of the copies.  But that doesn’t work.  Compare the Slep-Tone cases in the 7th and 9th Circuits: you can’t get around Dastar by incorporating a trademark into your copyrighted work, because that would create a perpetual copyright over the unmutilated work. The presence of the Universal “roaring lion” at the beginning of a movie cannot keep Universal movies out of the public domain; likewise, ASTM’s trademark interest in its name and logo cannot prevent it from being correctly identified as the producer of a work on which it uses that name and logo.  (Also, depending on the circuit, mere distribution on the internet might not be “use in commerce,” contrary to the court’s conclusion here.) 

The court also rejected PR’s first sale argument because these were copies, and “Defendant’s quality control standards in reproducing Plaintiffs’ standards were outside of Plaintiffs’ control and below that sufficient to deem the standards it distributed ‘genuine.’”  ASTM didn’t have to show a defect in the copies, only that it couldn’t exercise quality control.  PR’s quality control “resulted in missing or inverted pages and typographical errors in numerical values or formulas.”

Then, the court found confusion likely on the theories that (1) ASTM authorized PR’s posting, and (2) ASTM produced the PDF and HTML versions of the standards PR posted.  PR argued that, under Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924), its disclaimer was enough to inform consumers that it repackaged or changed the original.  But “the disclaimer in that case stated clearly that the distributor was not connected with the producer and that the producer’s product was merely a constituent part of the distributor’s new product,” whereas PR’s initial disclaimer was:

In order to promote public education and public safety, equal justice for all, a better informed citizenry, the rule of law, world trade and world peace, this legal document is hereby made available on a noncommercial basis, as it is the right of all humans to know and speak the laws that govern them.

The court found that this didn’t mention PR’s creation of the reproductions, PR’s lack of authorization, that the reproductions were reproductions (what else would they be?), “and can hardly be called disclaimers at all.”  Even if the PDFs looked like scans, that wouldn’t help a consumer determine whether PR or ASTM created the scan.  (Why on earth would they care?)  PR’s later disclaimer was instituted after the litigation began and the court didn’t analyze whether it would avoid confusion.

Although there was no evidence of actual confusion, the court found this “nearly as black-and-white a case as possible” because PR “intentionally created a copy that is meant to appear identical, including use of Plaintiffs’ trademarks.” A consumer might download that standard for free from PR “without knowing that it is not created by the Plaintiffs and may contain missing pages or typographical errors leading to inaccurate values for measurements.”  And here’s the problem: that “it.”  What is the “it” at issue?   The court clearly cares about the similarity of the content, not the source identification, but trademark law is not about content, and Dastar should make it impossible to argue that trademark infringement occurs merely from correctly copying content.

The court then rejected PR’s nominative fair use defense by taking a “one from column A, one from column B” approach to the different circuits’ tests.  It started with the 9th Circuit version, requiring PR to show “that its use of Plaintiffs’ trademarks was necessary to describe their standards; that it only used as much of the marks as was reasonably necessary to identify the standards; and that it has not done anything to suggest sponsorship or endorsement by the Plaintiffs or to inaccurately describe the relationship between the parties’ products.”  (citing  Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144, 154 (4th Cir. 2012)). But then: “Nominative fair use by a defendant makes it ‘clear to consumers that the plaintiff, not the defendant, is the source of the trademarked product or service’” (citing Century 21 Real Estate Corp. v. Lendingtree, Inc., 425 F.3d 211, 220 (3d Cir. 2005)), a case that adopts a different version of the test).  


And finally, “if Defendant’s use is nominative fair use, it would not create ‘confusion about the source of [the] defendant’s product’” (citing Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 102 (2d Cir. 2010) (alteration in original), a case that doesn’t actually apply any particular test, just announces a conclusion that means that nominative fair use isn’t a defense or a separate test: You don’t need a defense if your use doesn’t cause confusion; outside of the Second Circuit the nominative fair use test therefore substitutes for the usual confusion factors, because those factors work really badly in cases of referential use (e.g., similarity of the marks will always be identical if there’s a reference).  Just to confirm that the court isn’t treating nominative fair use as a defense, it concludes “because the court has already determined that consumer confusion as to the source of the trademarked standards is likely, the nominative fair use defense is inapplicable and the court need not assess each of the Rosetta Stone factors” (emphasis added)  That is, of course, exactly why nominative fair uses need to be treated differently.  Even in the Second Circuit version, there's a need to consider the nominative fair use elements along with the other factors!

Friday, February 17, 2017

GM's defeat device is almost by definition fraudulent omission

Counts v. General Motors, LLC, No. 16-cv-12541, 2017 WL 588457 (E.D. Mich. Feb. 14, 2017)

Plaintiffs sued GM for deceptive advertising, breach of contract, and fraudulent concealment claims under the laws of thirty states based on GM’s alleged installation of a “defeat device” in the 2014 Chevrolet Cruze Diesel, which results in significantly higher emissions when the vehicle is in use compared to when it is being tested in laboratory conditions.  The court declined to apply the primary jurisdiction doctrine or find the claims preempted by the Clean Air Act, but did give GM some victories.

GM argued that the plaintiffs lacked Article III standing because they didn’t allege a concrete and particularized injury and because they brought claims arising under the law of states where none of the named plaintiffs reside or bought their vehicle.  GM characterized their claims as arising from alleged environmental harms and violation of government standards, but plaintiffs alleged a standard overpayment theory: if they’d known the truth about the defeat devices/the actual emissions levels, they wouldn’t have bought the supposedly “clean diesel” vehicles or would have paid less for them, especially given that GM charged more for the diesel model than a comparable gas model.  GM argued that this higher price came from the increased power and fuel efficiency that diesel engines feature.  The court agreed with the plaintiffs.

Plaintiffs plausibly pled deceptive behavior.  The complaint detailed “numerous studies and reports from European authorities finding that GM vehicles are noncompliant with European emission regulations, despite meeting those regulations when tested in laboratory settings.” It also alleged that plaintiffs’ own tests of a Cruze found that emissions were significantly higher than represented. Though plaintiffs did not specifically allege that the Cruze they tested was the 2014 diesel model, they plausibly alleged that GM’s vehicles share common designs, including engines; “common sense compels the conclusion that GM does not start anew each time it designs a vehicle.”

Nor did plaintiffs have to show reliance to show Article III standing:

The clean diesel features of the Cruze were an important component of the vehicle, as evidenced by GM’s advertising campaign which featured the clean diesel system. That system elevated the apparent value of the vehicle. Even if Plaintiffs did not specifically choose the Cruze because of its clean diesel system, they paid more for the vehicle because it included the system. If the system did not actually provide any value to the vehicle, then Plaintiffs suffered financial injury through overpayment regardless of whether they relied on GM’s alleged misrepresentations.

Turning to the fraudulent concealment claims, they had to be pled with particularity, even though they were omission-based.  However, particularity demands different things in different contexts.  “If a plaintiff’s theory for relief involves a failure to act, then requiring the plaintiff to specifically identify the point in time when the defendant should have acted may be unduly burdensome. … [T]he difficulty of obtaining proprietary GM information or pinpointing the point in time when a fraudulent omission occurred will be taken into account.”

Here, the complaint sufficiently alleged with particularity facts showing that GM fraudulently concealed or misrepresented that the functionality and effectiveness of the Cruze’s “clean diesel” system was substantially lower than a reasonable customer would expect, given the representations made in GM’s advertising campaign. Further, where omissions are at issue, showing reliance means showing that the facts deliberately withheld would be material to a reasonable consumer.

GM argued that the ad claims plaintiffs cited were mere puffery.  The more general a statement is, the more likely it is to be puffery. But numbers alone aren’t enough, if they’re still not believable.  GM’s statements about the “high-quality” and “safety” of its vehicles were inherently subjective and couldn’t form the basis of a fraud action, nor could “Turbocharged Clean Diesel” nor statements regarding cleanliness, “more efficient combustion,” and improved “performance.”  

Indeed, even claiming that the “turbocharged engine in Cruze Clean Turbo Diesel [sic] generates at least 90% less nitrogen oxide and particulate emissions when compared to previous-generation diesels” and that “Cruze Diesel emissions are below strict U.S. environmental standards” was nonactionable, because it wasn’t quantifiable by itself.  The purported comparison to previous-generation diesels wasn’t specific enough—did it mean past GM diesel vehicles, all diesel vehicles, or all diesel vehicles from before a certain date?  [This is ridiculous nitpicking.  A reasonable consumer might not have formed an opinion about the exact meaning, but could reasonably presume that there was a generally understood industry meaning, especially in combination with percentages and specific named pollutants.]  The court seemed to think it was important that no competitor was named (even though identifying a competitor is exactly when we might be able to rely on competitor suits to backstop consumer suits), nor was there a specific assertion that the claim was based on testing.  “One might argue that some type of testing is implicitly assumed by the language [indeed one might!], but the advertisement’s level of generality further supports a finding of puffery.”  The court thought it would be hard to prove the falsity of this claim, because the complaint included no data about the level at which “previous-general diesels,” however defined, produced emissions. And the Cruze might simultaneously produce more emissions than expected when being driven and still produce, in total, 90% less emissions than previous-generation diesels.

The final affirmative representation at issue was that “Cruze Diesel emissions are below strict U.S. environmental standards.” But a lawsuit against GM for producing a vehicle that produces emissions in noncompliance with EPA regulations would be preempted by the CAA.


On the other hand, fraudulent concealment, instead of affirmative misrepresentations, was adequately alleged.  A duty to disclose can arise under the laws of some states where there’s exclusive knowledge of a defect or active concealment of that defect.  The very nature of the “defeat device” suggests active concealment: “The only plausible purpose of such a device is to create the appearance of low emissions without the reality of low emissions,” and GM couldn’t reasonably argue that plaintiffs could have found out about it before buying.  Both common-law and statutory consumer protection claims based on omissions thus survived.