Monster un-mash: no class action for YouTube plaintiffs

Football Ass'n Premier League Ltd. v. YouTube, Inc., --- F.Supp.2d ----, 2013 WL 2096411 (S.D.N.Y.)

Interesting not just because of the intersection of class actions and copyright, but because neither side apparently had the incentive to clarify matters with respect to statutory damages, thus enabling some sloppy language, though nothing that ought to make a difference to this case.

The court began by suggesting that this case was a “Frankenstein monster posing as a class action” (citing Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 572 (2d Cir.1968) (Judge Lumbard, dissenting from remand)).

The putative class consists of every person and entity in the world who own infringed copyrighted works, who have or will register them with the U.S. Copyright Office as required, whose works fall into either of two categories: they were the subject of prior infringement which was blocked by YouTube after notice, but suffered additional infringement through subsequent uploads (the “repeat infringement class”), or are musical compositions which defendants tracked, monetized or identified and allowed to be used without proper authorization (the “music publisher class”).

The plaintiffs claimed that there were at least thousands of members in the repeat infringement class, and hundreds in the music publisher class.  (Let me pause here and note that everything about statutory damages that follows would make much more sense if the class definitions had involved works registered before the infringement began or within three months of publication; it is hard for me to imagine that this would’ve changed the size of the class very much except perhaps as to foreign works, since commercially significant US works tend to be timely registered and foreign owners generally either register in timely fashion or they don't, since late registration is pointless for them.  Of course plaintiffs probably want a lot of non-US works in the class—but overall then, it probably would’ve been to their benefit to point out that many non-US works in the class wouldn’t be eligible for statutory damages.  The idea of eligibility for statutory damages might seem to make damages calculations easier and thus class treatment more acceptable, but here I don’t think that adds much, given that individualized damages calculations are often acceptable if a class is otherwise valid.)

Ahem.  Okay: plaintiffs didn’t explain how the worldwide members of the class would be identified, how they’d prove ownership, or how they’d prove YouTube’s awareness of infringement, which is important given YouTube’s general DMCA protection.  Given the number of clips on YouTube, “[t]he suggestion that a class action of these dimensions can be managed with judicial resourcefulness is flattering, but unrealistic.”  (Of course, neither will individual actions get much of anywhere, even if the individual is Viacom.)

In general, “copyright claims are poor candidates for class-action treatment.”  Though of course the elements of infringement/secondary liability are the same across works, the issues “must be resolved upon facts which are particular to that single claim of infringement, and separate from all the other claims.”  Aggregation therefore doesn’t simplify dispute resolution.  Plus, the economic need to aggregate that often justifies class actions isn’t as significant because “the availability of statutory damages is designed to give litigation value to each individual case.”

Going through the class certification factors in Rule 23(a), the class wasn’t just numerous, but so numerous that joinder was impracticable.  “While one can often phrase questions of law or fact in ways that make them ‘common’ to the class, in this case one can do that only at a level of generality which is useless in practical application.”  Common questions there might be, but common answers couldn’t be found because of dissimilarities within the proposed class: in particular, whether the copyright owner’s notice was sufficient to permit YouTube to identify and take down the infringing material, along with other defenses like fair use.  Other issues: validity and ownership of the copyright; whether the party asserting a claim is authorized to do so; amount of damages; substantial similarity and fair use.  These were all too individualized.  “One piece of music is unlike another, and is untouched by what infringes the other.”  Under Dukes, “the few truly common issues, which largely pertain to the defendants' conduct, do not predominate over individual issues.”

This also meant there was no typicality.  “By their very nature, copyrightable works of art are each unique, and what infringes one work will probably have no effect upon another.”  (Even exact wholesale copying?  Those are special snowflakes!)  Each claim had individual issues of ownership, infringement, fair use, and damages.

Nor was Rule 23(b) satisfied.  A class action would be inferior because it would “compress into one mammoth proceeding a universe of individual claims, each with its particular facts, issues and (in many cases foreign) law, much better handled in separate cases where each can receive individual attention.”  The fear of expense was mitigated by statutory damages, and in any event “the unique nature of each work and of its infringement cannot be obliterated by its inclusion in a sea of other claims, and the defendants are entitled to contest each of them.”  As for the individual questions of ownership, assignment, waiver, and fair use (or fair dealing, I presume), they’d be “better handled in the jurisdictions (often foreign) in which they arise, rather than thousands of miles away.”

Nor did the proposed subclasses help any.  The first was the repeat infringement class, for works that are or would be registered or didn’t need registration (i.e., foreign works), whose owners submitted takedown notices but suffered subsequent uploads that could’ve been blocked by screening tools.  The second was the music publisher class, for those who owned/controlled musical works that were tracked, monetized, or identified by YouTube, “including because YouTube identified a sound recording of the composition using its text-based or audio-fingerprinting screening tools,” whose works weren’t authorized.

As for the repeat infringement class, YouTube just wasn’t obligated by §512 to screen for repeat uploads; plaintiffs were bound by the Viacom holding to that effect, as they were parties to that appeal.  That left “little or nothing” to the repeat infringement class, who at most would still need to litigate their individual issues.  Plaintiffs’ implication that compliance with a takedown notice was a tacit concession of infringement ignored §512, which made clear that a takedown was no such thing and contemplated counternotification.

And for the music publisher class, even if §512 were overcome, there’d still be all those issues of ownership—“under the applicable foreign law in the instances of foreign plaintiffs”—lack of authorization, fair use, and nature and amount of damages, depending at least in part on registration timing.  “Plaintiffs say that the burden is much simpler for this class than in the usual case, because of the special business characteristics of the class definition, and that may be so. But the showing must still be made, and one plaintiff's will be different from another's.”  So there was no typical claim that could provide common answers, only a “diverse and unmanageable aggregation of individual claims, better dealt with separately.”

Plaintiffs also sought certification of two issues: whether defendants had the right and ability to control infringing activity on their website and received a direct financial benefit attributable to that activity, and whether defendants' unilateral syndication of clips to third parties was “by reason of the storage at the direction of a user.” These were dealt with in Viacom, and not to plaintiffs’ advantage.

Large Wells Fargo judgment reinstated

Via the Consumer Law & Policy Blog.  Previous coverage of the legal response to Wells Fargo's reprehensible practices here (9th Circuit) and here (earlier district court opinion).  More from me likely next week, post-grading.

$40 million award against Skechers

Skechers will pay $40 million for its unsubstantiated claims that its funny-shaped shoes improved fitness and health.  Via the Trademark Blog.

To Save Everything, Click Here

Evgeny Morozov, To Save Everything, Click Here: The Folly of Technological Solutionism: Morozov’s excellent first book, The Net Delusion, established him as a major critic of internet eschatology, particularly the utopian brand. His latest book attempts to expand on that critique, sometimes successfully and sometimes not.  For a sample mostly taken from the book, here’s Morozov on why we shouldn’t be sanguine about using technology to “improve” incarceration.   A good sampling of Morozov’s work is available online; I would recommend avoiding his debate with Farhad Manjoo in Slate, where Morozov mostly ignores legitimate hits (he attacks generalizations like “the internet” but himself has no trouble criticizing “Silicon Valley”) in favor of snide near-ad hominems.

Morozov wouldn’t be surprised that I, as an internet reviewer (“ordinary people don’t write reviews for the same reasons as professional critics; they are mostly interested in reviewing their own experience, not in making sense of a given work”), can’t improve on Kevin Driscoll’s take in the LA Review of Books, which has some very smart things to say about Morozov’s critiques of “solutionism” (social issues as problems with a fixed solution rather than approaches that have to be negotiated and compromised on) and internet-centrism. For a rather harsher view, there’s Tim Wu, who is attacked in the book and understandably annoyed; his criticisms are not unwarranted.

Morozov is a skeptic not just of whether Silicon Valley’s big promises can be carried out but, more importantly, whether they should be. Friction, lack of transparency, inefficiency, and so on are not just hinderers of efficiency, but crucial parts of human self-definition and autonomy; politics isn’t politics if it’s not messy and a bit hypocritical. Compromises and imperfections can be good, not bad; politics can’t be improved the same way that market transactions can be—if all interactions could be win-win, we wouldn’t have politics. “Try telling [an Amazon] shopper that not all of his or her desires can be satisfied because someone else has equally compelling interests and those have to be taken into account as well; the market simply doesn’t work that way.”

And the consumerist mentality that solutionists bring to political challenges leads to disappointment and disgust with “politics,” when it should lead to a rejection of solutionism: “Most public institutions should not be held to the same standards as their private counterparts because their mission is to provide goods and services that markets cannot or should not provide.” More generally, inefficiencies, hypocrisies, and the existence of crime “might be problematic in some limited sense, but they do not necessarily add up to a problem worth solving—any more than having a soccer match that lasts for ninety minutes rather than an eternity and features twenty-two people instead of everyone at the stadium is a problem to be solved.”

Relatedly, the “frictionless” solutions promoted by techno-utopians often don’t solve the problems they purport to, and they don’t solve them in particular ways reflecting existing political and social inequalities. For example, biometric identification technologies turn out to have particular trouble with certain racial groups, and fingerprint scanners have difficulty with people in certain working-class occupations--not that this is anything new, as Morozov is at pains to point out.  (An example related to my own field is the way in which visual communications technology is bound up in whiteness: Richard Dyer, "Making 'White' People White, in The Social Shaping of Technology, eds. Donald MacKenzie and Judy Wajcman (noting that, among other things, videotape quality was evaluated by how well it displayed a blank, pale orange signal called "skin" that was supposed to match white skin); Brian Winston, A Whole Technology of Dyeing: A Note on Ideology and the Apparatus of the Chromatic Moving Image, Daedalus, Vol. 114, No. 4 (Fall, 1985), pp. 105-123 (discussing how, at every stage, film development was guided by how it did at showing white skin).)

For another example of solutionism, massive online open courses, Morozov notes, as many others have, that what they offer isn’t individual contact with an expert (even a grad student) but rather something else, and they don’t exist in a political vacuum: “In promising almost immediate and much cheaper results, they can easily undermine support for more ambitious, more intellectually stimulating, but also more demanding reform projects.”

Algorithms to recommend books to you have their biases, but that’s nothing compared to the dangers of algorithms that predict crime based on current circumstances (including poverty and racism that mean that crimes are committed and detected in particular ways). And design that simply prevents the possibility of crime also often prevents the possibility of civil disobedience, an important driver of social change: “Sometimes being caught with marijuana in one’s pocket is better than being prevented from putting it there, simply because an arrest is likely to generate media attention and trigger a public debate about drug laws.” But he’s always context-sensitive, and not dismissive of all better living through technology—anti-drunk-driving technology might be a good idea even if other technological interventions aren’t.

I was reminded of Morozov’s critique of big data solutionism by this bit in Slate about how facts can change their meanings when you have more context:

Marti Barletta, a consultant in marketing to women, told me one of the reasons women have gained a reputation for caring about frivolous details is because they do so much research. By the time they arrive at dealerships, they’ve already logged countless hours online finding cars that satisfy their main criteria. Now, they’re picking through minutiae—what, precisely, makes the Nissan Maxima better than the Toyota Camry? (Could it be the number of cup holders?) These questions, Barletta says, contribute to an impression among salesmen that women care mostly about the little stuff.

This is a good example of the point that “data-driven solutions” can’t ever be entirely data-driven: you always need a theory.

Morozov also constantly emphasizes that people construct technologies. There’s nothing inevitable about the configuration of “the internet,” or “Facebook” or “Google” for that matter. Facebook could limit the number of ads it shows; Google could write different algorithms. As Tarleton Gillespie insightfully noted, Twitter’s algorithm for picking trending topics favors breadth (many groups using the same hashtag) over depth (a united group using the hashtag a lot), which is a political design choice that can be contested. When we focus on current numbers, such as monitoring how much water we consume, we may be motivated to take individual action but we don’t understand or consider the complex systems of overall water consumption, and we aren’t challenged to think of how we might get a different set of numbers—Morozov wants our technologies to confound and challenge us.

This is an important reminder, but it leads Morozov to be highly critical of activist discourses around things like SOPA/PIPA/ACTA’s “don’t break the internet” advocacy, and here (like many of his reviewers) I think he somewhat misses the mark. Very few of the leaders, and I suspect very few of the followers, of the anti-SOPA/PIPA/ACTA protests believed that http and IP addresses and the like would disappear under SOPA/PIPA/ACTA etc. Rather, they believed that key features of the internet they knew and liked would be hampered if not destroyed. The “internet” that existed, they thought, would be similar to the “Medicare” that would exist if what we now call Medicare were replaced by a voucher system. It’s fair game in such a debate to say that “Medicare” would be destroyed by such a change; it’s even fair game to say that “marriage” would be destroyed by extending it to women who want to marry women, even if that’s a dumb argument on its own merits. Yes, of course we should often question definitions, where much of the important rhetorical work is getting done, and Morozov is right to point that out—but many of the people he accuses really do know that already, and have made it pretty clear that they do.

(He’s particularly unfair, it seems to me, to Jonathan Zittrain, whose The Future of the Internet and How to Stop It comes under attack for internet-centrism and quixotic desire to keep the internet in a single state forever. E.g., Morozov says “to claim that Apple—one of Zittrain’s culprits—is bad for innovation because it’s bad for ‘the Internet’ is like claiming that ‘the Internet’ is bad for innovation because it’s bad for the telephone. Well, it might have been bad for the telephone—but when did preservation of the telephone become a lofty social goal?” Yet a significant chunk of Zittrain’s book is devoted precisely to addressing questions of when we can say a technological configuration/change in the direction of greater or lesser centralized control is a good thing. Zittrain isn’t entirely successful, I think, but by failing to acknowledge his explicit attempts to grapple with Morozov’s points, Morozov makes it seem as if Zittrain were silly or hypocritical, and himself ends up fighting a straw man. This ungenerosity isn’t unique in the book. Later, for example, Morozov suggests that those who favor market transactions trading private data for material benefits as mutually beneficial must also therefore approve torture “provided the prisoners ‘strike the right deal’ and are well compensated,” whatever that might mean.)

Morozov is at his best discussing tradeoffs and political reactions to technology: greater access to information can be manipulated by governments just like other new forms of power can be, and if—which is not yet established—there is a link between the two, he’s right that it’s not clear that the “local politics in Bahía Blanca [Argentina] [should] make sacrifices so that a fifteen-year-old in Palo Alto can remix cat videos without going to jail.” He doesn’t want that fifteen-year-old to go to jail, but he also doesn’t want arguments for that remixer’s protection to prevent any tinkering with technologies to make them “safer,” for some politically chosen definition of safer, especially since private parties and nondemocratic states are willing to tinker anyway.

Some have found his attack on extreme self-monitoring technologies and technologists, who are really outliers, to be a bit much, but I really liked his point (again, not new, but well made) that there is a deep political problem with proposing self-monitoring as the solution to the barrage of advertising and subsidies that keep us eating terrible, unhealthy food: “yes, some of us might find ingenious engineering solutions to resist insidious marketing, but in all this celebration of modern technology, shouldn’t we also do something about the marketing itself? …. [P]olitical action all but disappears; rather than reforming the system, we just tinker with ourselves and tend to our reservoirs of willpower the way Swiss bankers tend to their vaults.” But Morozov also hates “nudging” via technical or legal structures, even though that’s pretty much the opposite of the individualistic solutions he condemns, because he wants us all to think deeply, and exhaustingly, about all our politically relevant choices, which is to say basically all of them, though he talks most about energy consumption.

Probably Morozov’s most effective assault is on the concept of “openness” as an unqualified good. Because of preexisting political struggles, “open” data will be used in politically inflected ways—for example, maps that visualize crime statistics across different neighborhoods could help improve police effectiveness, but they could also devalue properties and make people living in dodgy neighborhoods to be less willing to report crimes. Openness has feedback effects.

Likewise, digitization of land records in India, in an attempt to empower the weak, may have benefited the rich and powerful by exposing which occupants lacked formal title despite being morally and even legally owners. Morozov advocates for context-specific solutions—here, accepting other methods of proving title such as old family photos or maps along with official land titles, or selectively limiting access to land records so that people with “no obvious need” to see them can’t do so. Information, he argues, should be “collected and distributed in full awareness of the social and cultural complexity of the institutional environment in which it is gathered. Sometimes preserving the social relations that enable that environment to exist … might require producing data that is only half transparent or half accessible …. [D]emocracy thrives on compromise and the art of reconciling seemingly irreconcilable interests.” And it’s hard to disagree with that last point, whatever excesses are in the rest of the book.

New article: Performance Anxiety

Performance Anxiety: Copyright Embodied and Disembodied, J. Copyright Soc.:

The primary economic and cultural significance of copyright today comes from works and rights that weren’t contemplated by the Framers of the Constitution’s Copyright Clause. Performance—both as protected work and as right—is where much of copyright’s expansion has had its greatest impact, as new technologies have made it possible to fix performances in records and films and as cultural change has propelled recorded music and audiovisual works to the forefront of the copyright industries. Yet copyright has never fully conceptualized performance, and this has led to persistent confusion about what copyright protects.

One key problem of performance from copyright’s perspective is how to identify the creative elements that make a work of performance original and protectable, as distinguished from elements that make it a work (a fixed artifact). A major variant of this question involves authorship: who is sufficiently responsible for a work of performance to be deemed its author, and thus its default owner? In a world where works require dozens and even hundreds of people to complete them, this question will often be difficult to answer while both respecting creativity and recognizing economic imperatives. Another set of questions involves whether there are ways to recognize performers’ creative contributions without contributing to copyright’s bloat, and how to assess claims of infringement in a performance context when the alleged copying isn’t exact. This article addresses these puzzles of performance, arguing that manageability rather than creativity is generally the basis for the rights allocations and distinctions copyright law makes. The recent controversy over the film Innocence of Muslims, along with other instances in which subjects of audiovisual works claimed copyright in those works, demonstrate the limited role played by creativity in copyright law.

foisting blame on subcontractor not actionable by subcontractor under the Lanham Act

Nationwide CATV Auditing Services, Inc. v. Cablevision Systems Corp., 2013 WL 1911434 (E.D.N.Y.)

Nationwide sued Cablevision for breach of contract, false advertising under the Lanham Act, unfair/deceptive trade practices, and other torts.  The court dismissed most of the claims.

Nationwide provides installation and maintenance services to consumers on behalf of cable providers, including Cablevision for a while.  Their agreement required Nationwide to engage in employment screening and to not allow any individual to perform contract work unless the screening was acceptable.  Nationwide hired Francisco Sanchez after such a screening, which revealed nothing of concern, and had him perform work for Cablevision, using the “Optimum Cable” badge, uniform and vehicle signage required by Cablevision.  Shortly thereafter, law enforcement investigated a report from a Cablevision customer that Sanchez had stolen jewelry from the customer’s home while performing work for Cablevision.  Nationwide notified Cablevision of the investigation, stopped Sanchez from performing further contract work, and performed a second background check, which again raised no concerns.  Cablevision agreed that Sanchez could again perform contract work.

Nationwide significantly increased its workforce and bought additional vehicles based on Cablevision’s promise to provide additional contract work, but then police responded to a reported burglary and pulled over a van with “Optimum Cable” signs on the doors.  Sanchez and two others were inside; they were arrested and charged with seven burglaries, and Sanchez was also charged with the earlier burglary.  Various news reports identified him as a Nationwide employee.

Nationwide alleged that Cablevision tried to foist the blame on Nationwide, publicly announcing that it was immediately suspending work with Nationwide “which provides a limited amount of work, only in Suffolk County, NY, pending a complete and thorough investigation.”  Cablevision failed to disclose that it had earlier specifically authorized Nationwide to permit Sanchez to return to work after the accusation of the earlier burglary, and that Cablevision's employees, not Nationwide's, had serviced some of the customers who had allegedly been burglarized.

Nationwide subsequently disclosed its screening materials for Sanchez and its other employees; Cablevision representatives allegedly assured Nationwide that Nationwide had done nothing wrong and couldn’t have anticipated Sanchez’s alleged crimes any more than Cablevision could have. However, they were instructed to terminate Nationwide’s contract as a PR strategy.  Then, Cablevision allegedly worked with a Nationwide competitor, AWS, to hire away most of Nationwide’s employees, using the confidential information Nationwide had provided to Cablevision as part of the investigation.  Cablevision terminated its contract with Nationwide for failure to conduct adequate background checks, an allegedly pretextual reason.

The court dismissed the breach of contract claim to the extent it was based on termination of the contract and on alleged promises to provide additional contract work, leaving some claims based on disputed equipment charges/withholding of remittances for work Nationwide performed.

The court also dismissed the state-law unfair and deceptive trade practices claim.  Though Cablevision’s statement that it was suspending Nationwide was true, Nationwide alleged that it was misleading because it “impl[ied] that Cablevision ‘had effectively eliminated the risk of burglaries by cable technicians bearing its marks and logos on their vehicles and uniforms by terminating its contract with Nationwide,’ when in fact Nationwide had nothing to do with the thefts and the termination of Nationwide did nothing to protect the consumers who were the intended audience for Cablevision's false claim.”  The court found that Nationwide provided only speculation about what consumers inferred from the statement, and that was insufficient to survive a motion to dismiss.  Cablevision “made clear that it was conducting an investigation and did not claim to have provided all relevant information concerning the burglaries.”  The information that Nationwide contended should have been included in the statement—whether Nationwide serviced the allegedly burglarized customers--was known to Nationwide, making it a nonactionable omission, and “Nationwide was free to publicize that information if it believed that it was relevant to consumers or would mitigate the damage to its reputation.”

Even if the statement was misleading, Nationwide failed to allege that it harmed consumers or the public interest.  Allegations of consumer confusion—here, confusion over whether the risk of burglaries by cable technicians using Cablevision trademarks—are generally insufficient consumer harm under NY GBL §§ 349 & 350.

Unfair competition is a broad tort under New York law, but not this broad. It requires misappropriation of the fruit of a plaintiff’s labors, but not all commercial unfairness qualifies.  Nationwide alleged unfair competition based on Cablevision’s alleged misappropriation of its employee-related information, and its requirements that Nationwide employees performing contract work omit any reference to Nationwide and use only Cablevision’s service mark.  (Nationwide also alleged that Cablevision’s suspension statement was unfair competition because it caused Cablevision’s own activities to be mistaken for Nationwide’s activities, but since it wasn’t false or misleading it couldn’t be unfair competition.)

But Nationwide’s bare allegation that the identities of its employees were “confidential and proprietary” was not sufficient to withstand a motion to dismiss. Mere inducement of an at-will employee to join a competitor isn’t actionable absent dishonest means or a scheme designed solely to produce damage.  Neither were alleged here.  Given that Cablevision terminated Nationwide, it was true to tell the employees that their only option for continuing to perform work for Cablevision was to leave Nationwide and join AWS.  The parties’ agreements didn’t designate employee identity as confidential, and Nationwide offered no other reason that this information should be considered proprietary.

As for the allegations about required use of the Optimum service mark, the contracts required all contractor vehicles to prominently display both the Cablevision sign and the contractor’s name and address.  “Nationwide cannot complain of confusion caused by its failure to prominently display its name on its vehicles.”  Nor did Nationwide explain how the alleged consumer confusion caused by the use of the Optimum service mark on employees’ badges and uniforms caused it any of the injuries it alleged.

The court also dismissed the Lanham Act claim because Cablevision’s statement wasn’t literally false, nor was it likely to mislead or confuse consumers based just on Nationwide’s speculation.  Regardless, it wasn’t commercial advertising or promotion, which in the Second Circuit requires (1) commercial speech, (2) for the purpose of influencing consumers to buy defendant's goods or services, and (3) disseminated sufficiently to the relevant purchasing public.  The touchstone is that “the contested representations are part of an organized campaign to penetrate the relevant market.” While Nationwide alleged widespread public dissemination, that was insufficient; the statement wasn’t part of an organized campaign, but at most an isolated disparaging statement, which had to be addressed (if at all) by state-law causes of action.

The court also dismissed Nationwide’s negligence, breach of fiduciary duty, unjust enrichment, civil conspiracy, and prima facie tort claims.

A whiter shade of rhodium

Torres v. JC Penney Corp., Inc., 2013 WL 1915681 (N.D. Cal.)

Plaintiffs filed a putative class action for violations of the CLRA, UCL, and FAL based on defendants’ failure to disclose to consumers that the jewelry they advertise as “white gold” and “sterling silver” is coated with rhodium, which wears off. The wear reveals the underlying color of the jewelry, which is an “undesired yellow, off-white or dingy grey color.” Consumers can restore the jewelry's original “shiny white” appearance by re-coating the jewelry at their own expense.

Plaintiff Rojas bought an engagement ring from JCPenney for over $1000 and gave it to plaintiff Torres.  It was sold as “white gold,” without disclosure of the rhodium coating, the underlying color, or the vulnerability to wear. Rojas and Torres had the ring re-coated “more than once” in the past year to restore its original white color.  Plaintiff Kerner similarly bought jewelry advertised as “sterling silver,” without disclosure that the items were coated with rhodium, or that the coating would wear off “to reveal a layer of copper or nickel that is applied to the sterling silver core to make the rhodium coating adhere more easily to the jewelry.”  Plaintiffs alleged that if they’d known the truth, they wouldn’t have bought the jewelry or would have paid less for it.

Defendants moved to dismiss on the basis that they were protected by safe harbors under the FTC Guides, the National Sampling Act, and a provision of California law adopting the National Sampling Act. California’s safe harbor doctrine precludes an unfair competition claim when the legislature has permitted certain conduct or considered a situation and concluded no action should lie.  To forestall such a claim, another provision of law must actually bar the action or clearly permit the conduct.

Defendants argued that the FTC Guides allowed them to advertise an item as gold or sterling silver without disclosing a rhodium coating as long as the amount of other metals in the item diddn’t exceed the permissible tolerances set out in the National Stamping Act (NSA): three parts per thousand for gold and four parts per thousand for sterling silver.  The court disagreed, for two reasons: first, the Guides aren’t legislation or regulations, as required for the application of the safe harbor doctrine, but rather merely interpretations designed to provide public guidance, not created by a formal rulemaking process.  Second, defendants didn’t show that the Guides clearly permitted the failure to disclose.  Rather, they stated that it was unfair/deceptive to misrepresent the presence of gold or silver if it didn’t meet the NSA’s permissible tolerances.  This wasn’t permission for nondisclosure; at best, it didn’t make the nondisclosure unlawful.  But there’s a difference between not making an activity unlawful and making that activity lawful. The same analysis applied to the NSA itself and California law incorporating it.

With that out of the way, the court found that the plaintiffs had pled their claims with the requisite particularity.  Failure to disclose can be actionable under the CLRA if the defendant had a duty to disclose, which requires at least one of: (1) a fiduciary relationship with the plaintiff; (2) exclusive knowledge of material facts not known to the plaintiff; (3) active concealment of a material fact from the plaintiff; or (4) partial representations with suppression of some material fact.  The court found that plaintiffs pled (2)-(4).  Plaintiffs plausibly alleged that the rhodium coating wasn’t visually discernible to them at the time of purchase and that defendants had exclusive access to the specifications of the jewelry; they plausibly alleged active concealment because neither the ads nor the sales staff provided any information about the rhodium coating; and they plausibly alleged partial representations based on statements that jewelry was “14kt white gold” or “sterling silver,” without mentioning the rhodium coating.

Similar reasoning preserved the UCL claims under all three prongs: unlawful, unfair, and fraudulent.  The court rejected defendants’ arguments that alleged violations of the FTC Act can’t ground a UCL claim because there’s no private cause of action under the FTCA.  The UCL provides a cause of action for violations of other laws, and the FTCA doesn’t itself bar private enforcement of its provisions.  And of course the FAL claims also survived.

Remington Steel: false advertising, but not TM infringement, from false identities

General Steel Domestic Sales, LLC v. Chumley, 2013 WL 1900562 (D. Colo.)

General Steel sued defendants, including Chumley and his company Armstrong Steel, for trademark infringement, unfair competition, and false advertising.  After a trial, the court rejected the infringement claims but found that defendants had engaged in false advertising.

General Steel had a registered trademark for its logo, the outline of a building with “General Steel Corporation” in it, and also on the word mark “GENERAL STEEL CORPORATION.”  General Steel and Armstrong compete to sell prefabricated steel buildings.  These range in size and purpose and cost from $10,000-$200,000.

General Steel has spent over $50 million in marketing, mostly on radio ads, from the late 1990s.  It also has a history of some adverse court decisions on consumer protection issues, which are available to consumers online, as were other negative comments even before Chumley’s activities detailed here. General Steel’s sales peaked in 2002 and then steadily declined; its principal attributed the decline to a case arising out of the Colorado AG’s complaint.

Chumley worked as a salesperson for General Steel for about 9 months and left disgruntled.  He then moved to another competitor, Olympia Steel, and sent an obscene email to General Steel employees under a mocking pseudonym, and created/directed the creation of a porn website falsely attributed to a General Steel employee.  He then moved to Colorado to open an Olympia office, but then created the defendant business entities, doing business as Armstrong, which sold its first building in April 2009.

Chumley used Google AdWords to target General Steel, e.g.: “General Steel buildings – Steel framed buildings | Armstrong Steel ... Checkout [sic] various Armstrong Steel buildings – Building frames for your general steel buildings like commercial steel buildings, industrial steel buildings. www.armstrongsteelbuildings.com/steel-metal-building-frames.php.”  He was also involved in issuing a number of internet press releases and articles using false claims to publicize Armstrong’s capabilities.  Some of the articles used quotes from a fictional person, “J.P. Remington, III, V.P. of International Affairs for Armstrong Steel.” One falsely claimed that Armstrong established an “enrichment program . . . benefit[ting] the less fortunate children of the Middle East” by helping to rebuild schools in Iraq. It also claimed that it had been required to “postpone international deliveries by one month to meet rising demand here in the U.S. for their steel buildings.” Chumley’s email address sent emails purporting to be from Remington. Chumley blamed a former employee for writing the emails and false articles, but the court didn’t find this credible.

In 2010, Armstrong characterized itself as “one of the largest pre-engineered steel building manufacturers in North America,” and stated that “Armstrong Steel is a leading manufacturer of pre-engineered steel buildings and conventional metal buildings for commercial, industrial and religious building projects.” Its website described Armstrong as “the leader in metal buildings and steel metal buildings.” Chumley testified that Armstrong sold approximately seventy buildings from the time of its founding through April 2010.

The 2010 website also said that “[e]ach piece of steel we fabricate is representative of our experience, know-how and cutting-edge technology,” but Armstrong did not fabricate any steel at that time. Likewise, the website stated that Armstrong had an “onsite, environmentally-controlled painting facility” which “applies the finishing touches to every piece of your steel building structure without adding cost to your metal building project,” but Armstrong didn’t have an on-site painting facility, nor was the claim “[o]ur facilities utilize laser precision engineering” true.

Searching “general steel” on Google in February 2010 would likely have produced the sponsored ad: “General Steel Buildings www.ArmstrongSteelBuildings.com Price Your Building Online Or Let Us Do It. Guaranteed Lowest Prices!”  By June 2010: “General Steel Buildings Price an Armstrong Steel Building Online in Minutes Or Let Us Do It. www.ArmstrongSteelBuildings.com,” or, just before the lawsuit commenced, “Don’t Buy General Steel Without Pricing Armstrong First. Price a Steel Building in Minutes! www.ArmstrongSteelBuildings.com,” “Before You Buy General Price Armstrong Steel First Guaranteed Lower Prices! www.ArmstrongSteelBuildings.com,” and “General Steel v Armstrong www.ArmstrongSteelBuildings.com Don’t Buy a General Steel Building Without Pricing Armstrong First!”

Once the lawsuit started, Chumley doubled down on the “General Steel” ad campaign, expanding it to Bing and Yahoo because defendants were “in litigation over it” and “may as well maximize.”  Later, the search engines told Armstrong to stop using “General Steel” in its ad copy.

Then, Armstrong began directing visitors to its home page to a webpage entitled “May the Best Building Win.” The page continued, “Compare the Two Finest Buildings on the Market Today and Let Reputation and Price Be the Deciding Factors!” General Steel’s corporate logo was on the left and Armstrong’s corporate logo was on the right.  Then purported features were listed.  Armstrong claimed for itself a “40 year paint warranty,” “40 year wall panel warranty,” “35 year roof panel warranty,” and “Stainless Steel Fasteners.”  However, Armstrong customers didn’t receive any warranty documents. Plus, both parties provided steel fasteners for a premium, making that comparison false (by necessary implication).  Additional text invited customers to compare the two, and there was a small print disclaimer of any affiliation between the two.

In September 2011, additional language was added using “general steel” in an unusual way, e.g., “Armstrong will Research, Plan and Price your General Steel Materials Construction Project,” “There are a number of reasons why customers turn to us with their multi purpose metal building and general steel buildings project development needs,” and numerous other references to “general steel buildings.” The additional language also included the claim that Armstrong fabricated steel, which it doesn’t.

There was also a website, generalsteelscam.com. Chumley denied that he operated the site, but WIPO ordered the transfer of the site to General Steel based on a complaint filed against Chumley, who admitted to submitting large amounts of content to it. The trial evidence didn’t establish that the content was false, but the court found that his activity on the site indicated that Chumley was committed to damaging the reputation of General Steel.  Plus, the court found, Chumley wrote and posted articles online that purported to have been written by two high-level General Steel personnel.  The articles supposedly written by one, Jeffrey Knight, indicated that he was the webmaster of generalsteelscam.com (and some also said that he was the CEO/owner of General Steel).  Many of the articles indicated that the website allowed customers “who have been ripped off by General Steel” to document their complaints.

The court first analyzed General Steel’s trademark claims based on Armstrong’s use of “General Steel Buildings” or “general steel” in AdWords ad copy, as a paid keyword, and in website text.  The court found that Colorado’s unfair competition law was not broader, at least for these purposes, than the Lanham Act. 

Defendants argued that “General Steel” wasn’t a valid mark. The court disagreed.  The registration was prima facie evidence of validity; Armstrong argued that this was only limited to the full logo. But “General Steel” was the most salient feature of the registered logo mark, and the presumption of validity extended to the words as well.  Armstrong didn’t produce evidence rebutting that presumption.  Moreover, General Steel showed secondary meaning even though it wasn’t required to do so.  Its over $50 million on marketing, using mostly radio ads that by their nature didn’t include the logo, were evidence that it had created an association in people’s minds.  Indeed, General Steel was the third most searched term in the metal building industry after generic searches for “steel buildings” and “metal buildings.”  

 

Armstrong’s own use of the term showed widespread awareness of General Steel’s strength.  “[I]f Armstrong considered itself a seller of ‘general steel’ buildings, it would not have issued advertisements instructing consumers not to buy ‘general steel,’” but instead used the term to catch potential customers’ attention. Likewise, if “general steel” were a descriptive term, Chumley wouldn’t have created a website called generalsteelscam for a business he was in.  Instead, the site described itself as “a worldwide online consumer reporting Web site and publication that allows customers who have been ripped off by General Steel to file and document complaints about General Steel Buildings ….”

Armstrong presented no credible evidence that “general steel” was a descriptive term for the parties’ products.  Its own use of “general steel” on its website “demonstrates an attempt to embed search terms in website text, often with awkward results.”  But that merely emphasized its targeting of General Steel.  The only other documents using “general steel” in that way were the internet articles for which the court found Chumley responsible.

Turning to confusion, the court found no likely confusion despite defendants’ misleading behavior.  (Here, the availability of false advertising as a separate cause of action may well have prevented a distortion of trademark to encompass techniques that are in themselves legitimate.) 

The court began with the use of “General Steel” and “general steel” in AdWords text.  Product similarity and marketing strategies weighed in favor of finding confusion, and of course the similarity of the marks was strong, despite the absence of General Steel’s logo and of the word “Corporation.”  However, this use didn’t establish an intent to create confusion.  Instead, as demonstrated by the creation of other sites maligning General Steel, the campaign was designed to create contrast, as illustrated by use of the phrase “Don’t Buy General Steel.”  

Still, some ads showed an intent to confuse, supporting General Steel’s initial interest confusion argument.  The court “suspect[ed] that certain customers may well have been lured to Armstrong’s website believing they were heading to General Steel’s.”  They could have easily left, but Armstrong potentially benefitted from General Steel’s goodwill by retaining initially confused customers.  But suspicion of initial interest confusion is not enough; proof is required.  There was no evidence at trial of actual confusion.  Though actual confusion isn’t required, its absence still weighed against finding likely confusion.

Moreover, the degree of care used by consumers “greatly diminishes any initial advantage Armstrong might have gained from improperly drawing people to its website.”  Steel buildings are expensive, complicated, and require a thorough consideration of available options before purchase.  This decreased the likelihood “that a customer’s choice would be significantly impacted by stumbling across one company’s website before another’s.”  Thus, General Steel failed to show likely confusion from the use of “general steel” in ad copy.  (Citing Toyota Motor Sales, U.S.A., Inc. v. Tabari, 610 F.3d 1171, 1179 (9th Cir. 2010) (“[R]easonable, prudent and experienced internet consumers . . . . skip from site to site, ready to hit the back button whenever they’re not satisfied with a site’s contents. They fully expect to find some sites that aren’t what they imagine based on a glance at the domain name or search engine summary.”)).

The court noted that Armstrong’s language on its website in September 2011 could potentially have confused a consumer: “Armstrong will Research, Plan and Price your General Steel Materials Construction Project,” and numerous other references to “general steel buildings.”  “Nevertheless, this language appeared on a website devoted to contrasting Armstrong with General Steel. In that context, the references are more likely to appear discordant rather than to confuse potential customers as to the source of the product.”  The use of “general steel” as a supposedly generic term was intended to further Armstrong’s SEO, bringing it higher in organic results for “general steel.” 

 

But this, and Armstrong's keyword buys, weren’t enough to show initial interest confusion.  “Although the appearance of a link in a results list may enhance the likelihood that a user will view the associated page, the user must still make an affirmative decision to select the link. In addition, the connection between the search term entered and the appearance of an advertisement is too attenuated to suggest an actual affiliation between the two.”  Given the maturity of internet advertising, it’s much less likely that potential customers, especially sophisticated business customers interested in buying steel buildings, would believe that two companies known to compete were actually affiliated just because of the appearance of an ad.

In an argument Eric Goldman will love, the court rejected General Steel’s assumption that “potential customers entering the term ‘general steel’ into a search engine are searching exclusively for that company, as opposed to executing a broader search for all companies selling similar products.”  Given the latter possibility, an overly restrictive rule on keyword buys would destroy the value of search engines.  Many of the actual uses of “general steel” in website text “occurred either in the context of a clear comparison or in a context that, while puzzling, was unlikely to confuse consumers as to source.”

Further, even assuming that the few ads that didn’t starkly contrast the parties were enough to support a trrademark claim, there was no basis for an injunction, since the AdWords campaign was discontinued after General Steel contacted the search engine companies, who required Armstrong to remove the terms from his ads.   “[E]ven assuming Armstrong desired to reinstitute the advertisements, plaintiff fails to demonstrate that it would be possible to do so or that plaintiff would lack an adequate remedy.”  (Is this the first time a court has relied on search engine trademark policies to deny relief?)

Matters improved substantially for General Steel when the court turned to the false advertising claims, for reasons you can probably guess from the facts above.  The court found that most of the challenged claims were literally false: that Armstrong was a manufacturer that fabricates steel buildings; that it used an on-site environmentally controlled painting facility and laser precision engineering; that it engaged in charitable endeavors and had significant international demand for its products; that it provided pregalvanized steel and steel fasteners as standard features and that General Steel did not; and that it provided “general steel buildings” and “general steel construction” (note the interesting use of false advertising as essentially a cause of action against genericide by a competitor).

However, Armstrong’s advertising of a generous warranty wasn’t literally false even though it didn’t provide customers with warranty documents.  There was no evidence that it had disclaimed warranties, wrongfully denied claims under an existing warranty, or otherwise altered the terms of existing warranties. Even without specific warranty documents, there was no evidence that Armstrong’s representations were insufficient to create a binding and enforceable warranty.

Also, the court disagreed that Amstrong had actionably overstated its size and status in the industry, for example by referring to itself as “the leader in metal buildings.” “Leader” was nonactionable puffery.  (Citing David A. Hoffman, The Best Puffery Article Ever, 91 Iowa L. Rev. 1395 (2006)).  The greater the buyer’s expertise or the wider the audience, the more likely it is that a statement is puffery.  (The “wider audience” thing makes zero sense, but it doesn’t matter here.)  “Leading” is like “best”: on its own, too vague for objective evaluation.  General Steel didn’t provide a concrete definition of the term against which to measure Armstrong’s claim.  “Given the relative sophistication of individuals seeking to purchase steel buildings, the size of the audience targeted by internet advertising, and the placement of these claims within lengthy paragraphs extolling the unspecified virtues of Armstrong, there is no evidence that any consumer did or would interpret these claims as anything more than puffing.”

Finally, General Steel didn’t show that Armstrong’s claim to be an “OEM manufacturer” was false.  Armstrong’s witnesses testified that an OEM manufacturer “is an entity that designs, but does not manufacture, the components of the products it sells, and that Armstrong employs engineers to design the components of its steel buildings.” The court found this testimony credible, and General Steel didn’t provide evidence that the term did or would mislead consumers.

On the literally false claims, no evidence of actual confusion was necessary.  Separately, the court found an intent to deceive, also allowing the court to presume that deception occurred.  Armstrong’s deceptive intent was evidenced by “its persistent use of deceptive means to undermine General Steel’s reputation.” Chumley’s instruction to “maximize” the use of General Steel’s name because Armstrong was already in litigation indicated its determination to target General Steel.  (Why is targeting General Steel not just ordinary competition, as compared to the other things Chumley did?)  After discovery closed, Armstrong expanded its comparison page to include lots of references to “general steel buildings” and “general steel construction”; Chumley contributed content to the website generalsteelscam.com and falsely attributed articles he published online to General Steel officers, “indicating his commitment to damaging General Steel’s reputation.”

Some circuits have also presumed materiality in cases of literal falsity, but the 10^th Circuit hasn’t ruled on the issue, so the court evaluated materiality separately.  The court found materiality as to the literally false statements except for statements that Armstrong engaged in charitable endeavors and had significant international demand for its products.  (Also interesting, because statements about a company’s ethics and popularity seem at least potentially material to me, but there doesn’t seem to have been direct testimony about that; note too that the claim to provide “general steel buildings” was found to be material, though I’m not quite clear why.)

Armstrong argued that there was no evidence of injury.  The court agreed as to ads that concerned only Armstrong’s own products without reference to General Steel, since General Steel failed to present evidence that it lost customers, revenue, or goodwill, or was otherwise harmed by Armstrong falsely claiming to possess on-site painting or laser engineering facilities.  The trial evidence showed that General Steel’s sales began to decline seven years before Armstrong entered the market, driven by the broader economic downturn and the Colorado AG’s action against General Steel.

However, the court presumed that Armstrong’s literally false comparative advertising injured General Steel.  Even when a presumption of injury applies, a plaintiff still needs to provide an evidentiary basis showing actual harm to obtain money damages.  The three false statements made in comparative advertising (that Armstrong was a manufacturer that fabricates steel buildings; that it provided pregalvanized fasteners and General Steel didn’t; and that it provided “general steel buildings” and “general steel construction”) as part of a pattern of willful deception presumptively injured General Steel.  But because General Steel didn’t provide an evidentiary basis for the extent of its injury, it could only seek injunctive relief and disgorgement of profits.

Happily for General Steel, those were both available.  As for injunctive relief, loss of goodwill/control over reputation is generally considered irreparable, and a plaintiff has no adequate remedy at law where, as here, a factfinder couldn’t quantify the extent of injury and remedy it through money damages. Plus, Armstrong’s pattern of willful deception indicated a likelihood of future harm absent injunctive relief. The other factors also supported an injunction.

Disgorgement is available under theories of unjust enrichment and deterring future willful violations.  It’s most appropriate when damages are otherwise nominal, though actual damages remain relevant, especially given the remedy’s punitive nature and the risk of a windfall.  Willfulness is necessary but not sufficient for disgorgement.

The court based its willfulness finding on the following: the major search engines stopped Armstrong’s use of General Steel’s name in its ads, but Armstrong nevertheless issued new ads falsely comparing itself to General Steel and falsely stating that it provided “general steel” buildings.  It continued to disseminate its false ads even after General Steel’s WIPO claim against the scam website, “showing that enforcement proceedings are not sufficient to deter Armstrong from disseminating false advertising.”  This pattern of willful deception betrayed a conscious desire to benefit from falsity, supporting disgorgement.

Likewise, the level of certainty that Armstrong benefited from its unlawful conduct favored disgorgement, since Armstrong’s rising profits and persistent use of falsity showed that it derived a commercial benefit from the falsity.  And it deliberately singled General Steel out as its targeted chief competitor.  Armstrong generated the vast majority of its leads through internet sales, “indicating the importance of webpage design and internet advertising to its sales.” 

The disgorgement award was limited according to the limited scope of the established violations.  To determine profits, a plaintiff must only prove defendant’s sales, and defendant must prove all costs or deductions claimed: profits are presumed to be the result of the unlawful activity and the defendant bears the burden of showing which, if any, of its total sales are not attributable to the unlawful activity.  Some degree of speculation is allowed, particularly when it’s necessary in part because of defendants’ poor recordkeeping.

The trial evidence showed that Armstrong earned a net profit of $583,037 in 2009 and $649,232 in 2010, but these were conservative figures because they were based on Armstrong’s own financial statements “without taking into account the possibility that Mr. Chumley diverted profits by improperly charging personal expenses to the company.”  Armstrong didn’t show evidence that its earnings were due to other, non-violative conduct.  Its comparative ads lasted at least 18 months, from mid-August 2010 to mid-February 2012.  But there was no credible evidence at trial of its 2011 or 2012 earnings, so the court awarded its prorated profits during the 4½ month period in 2010 when it was engaging in false comparative advertising: $243,462.  General Steel was also given leave to seek attorneys’ fees and costs.

copyright infringement doesn't confer personal jurisdiction; other unfair trade practice issues remain

Shell v. American Family Rights Ass'n, 899 F. Supp. 2d 1035 (D. Colo. 2012)

In yet another demonstration of the fact that there is no field so small that vicious battles can’t break out within it, Shell sued defendants (including AFRA, of which she was initially a cofounder) for using or copying her proprietary information—mostly the contents of her website—and for related torts.  The parties participate in the market for services and information for families involved with child protection services; Shell operated a website at profanejustice.org and claimed copyright over every article, paper, and document published on the site.  She licensed her materials, and created a training program based on her trade secrets.  Attendees at her seminars were required to sign a noncompete/nondisclosure agreement before receiving the training or training materials.  Some of the defendants attended her training program, and, as relevant here, Shell alleged that defendant Swallow took and used the noncompete/nondisclosure form and proprietary information without permission.

The court first found that it lacked personal jurisdiction over defendant AFRA.  Though AFRA had members in Colorado and websites “advertised” by AFRA were (available?) in Colorado, that wasn’t enough, absent a showing that these activities were different than those conducted in the other 49 states in which AFRA allegedly had members.  Even if AFRA members/a Colorado affiliate amounted to purposeful direction of AFRA’s activities to Colorado, Shell didn’t allege any connection between those activities and her alleged injuries.  Shell’s harms arose from publication of her copyrighted works on various websites, but she didn’t show that the websites specifically targeted a Colorado audience, engaged in commercial or other significant transactions with Colorado residents, or otherwise were connected to Colorado.

Shell argued that her Colorado residency meant that her harm manifested in Colorado.  But the 10^th Circuit requires that the forum state be a focal point of the tort, and residence in the forum state, meaning that harm is suffered there, doesn’t alone establish personal jurisdiction over a defendant who hasn’t purposefully directed activities at the state.  The mere fortuitity of Shell’s Colorado residence didn’t establish specific jurisdiction over AFRA.

The court went on to address numerous other issues, including Shell’s Lanham Act claims against several defendants.  Shell averred that defendant Swallow published a number of defamatory statements about Shell, and that the statements were advertisements, but the complaint had nothing more than conclusory allegations that Swallow engaged in commercial activities.  At most, Swallow allegedly posted comments disparaging Shell and accusing her of criminal/fraudulent conduct.  This might state a claim for defamation, but didn’t plausibly allege that Swallow was advertising her own product or service.  Thus, the Lanham Act false advertising claim was dismissed.

Likewise, the state-law unfair trade practices claim against Swallow failed.  The complaint alleged that Swallow improperly obtained and disseminated materials from Shell’s training seminar and published unfavorable comments about her on the internet.  There were no allegations that Swallow engaged in an unfair trade practice in connection with Swallow’s own “business, vocation, or occupation,” as required, or that her conduct has had a significant impact on the public as consumers of Shell's goods or services. 

Similarly, the Lanham Act claim against defendant Henderson was dismissed.  The complaint didn’t allege nonconclusory facts to show that Henderson advertised anything, was in commercial competition with Shell, or made any statement in order to induce consumers to buy his goods or services.  In fact, the crux of Shell’s suit was that she offered her materials and training in exchange for a fee, but that defendants made them available for free. These activities may have caused Shell financial harm, but didn’t amount to commercial activity by Henderson.

Shell noted that AFRA in the past promoted and advertised her materials when she was a member of the board; offers brochures for anyone to print; publicizes its positions on child welfare issues; and promotes itself as an organization.  But none of that amounted to the sale of a product or service.  What she called advertisements were “merely disparaging statements about her, apparently posted online or communicated person to person.”  

None of the statements were specifically attributed to Henderson, nor were they made in connection with any effort by him to sell a competing product or service.  The only conduct specifically attributed to him was his creation of AFRA interactive online groups, used to exchange information, to “offer AFRA fund raising items,” and to promote AFRA as an organization.  She identified insulting and allegedly false comments posted on those groups and elsewhere by other people, and her disagreement with Henderson’s advice on child welfare issues.  But while those facts might support a defamation claim against the speakers, they didn’t plausibly suggest that Henderson made any false statements in connection with commercial advertising of a competing product or service. (Henderson allegedly made two statements, apparently in communications to other AFRA directors, that he thought Shell had “Alzheimer's or what ...” and that Shell “even went so far as offering to fabricate a sexual harassment case against me because I used to end my phone conversations with the Christian ‘I love you.’”)  Thus, the claim against him was dismissed without leave to amend. 

However, the unfair trade practices claim against Henderson survived.  Henderson was allegedly the founder, board member and former president of AFRA who maintained the AFRA website and set up interactive discussion groups, and he allegedly posted Shell's materials without consent and made nasty comments about her on these sites.  Reading the complaint most favorably to Shell, “because of Mr. Henderson's leadership role in AFRA, the allegations could plausibly suggest that his conduct was in the course of his business, vocation or occupation.”  Publishing Shell’s materials without consent or attribution and disparaging her professional reputation could plausibly be considered an unfair trade practice.  (Dastar?)  The complaint alleged that the market for Shell’s services and materials was affected by this conduct, injuring her financially.

Reading list: Koppelman on free speech

Andrew Koppelman, Veil of Ignorance: Tunnel Constructivism in Free Speech Theory, 107 Northwestern U. L. Rev. 647 (2013) (citations omitted):

Pornographers, Nazis, and other transgressors of the sacred thus form a stable alliance with civil libertarians. This valorization of “sponsoring study-abroad sojourns in the land of fire and brimstone” is peculiar. Most “cultures do not train souls for the ironic contortionism that liberal subjectivity calls for.” Rather, most of the world’s population “cannot hear certain things without wanting to hit somebody.” Free speech is a distinctive cultural formation, and those who would maintain it had better know what it is that they are maintaining.

There’s also a discussion of copyright and the First Amendment.

Twitter as new frontier in appropriation art?

This person is slowly tweeting every line of The Great Gatsby, in between other tweets.  Discuss.

Another twist on music licensing: the re-recording

Slate's story on re-recordings notes that record contracts often drive the practice, leaving musicians with little incentive to disclose the differences, even when the results aren't the same as the beloved version the listener heard lo these many years ago.  Interesting advertising questions result, especially if the versions are often mislabeled, as the author contends.

Revised, lower Kellogg settlement receives preliminary approval

Dennis v. Kellogg Co., 2013 WL 1883071 (S.D. Cal.)

Previously, the 9^th Circuit rejected a settlement of claims about Kellogg's alleged misrepresentations of the benefits of its sugary breakfast cereals for kids because the settlement had the wrong cy pres beneficiaries and suggested the fees were excessive.  Dennis v. Kellogg Company, 697 F.3d 858, 869 (9th Cir. 2012).  Here, the court preliminarily approved a renegotiated settlement, while expressing some concerns about it.  The original settlement had a $2.75 million cash fund for distribution to class members on a claims-made basis; Kellogg distributing $5.5 million of food products to charities to feed the indigent; Kellogg refraining from using the challenged representations in ads for three years; and approximately $2 million in attorneys' fees and costs, for about $10-10.5 million total.  The 9^th Circuit reversed the final settlement approval order because benefiting the indigent, as the cy pres award would do, “has little or nothing to do with the purposes of the underlying lawsuit or the class of plaintiffs involved.”

The revised settlement had a $4 million cash fund for distribution to class members on a claims-made basis, any remaining balance of which will be distributed equally among Consumers Union, Consumer Watchdog, and the Center for Science in the Public Interest.  Kellogg would also refrain from using the challenged representations in ads for three years.  “Minus attorneys' fees of up to 25% plus costs as well as approximately $550,000 in claims notice and administration costs, the cash value to the class totals approximately $2-2.5 million.”

Preliminary approval is nonfinal, but not a rubber stamp: a judge must ratify both the propriety of certification and the fairness of the settlement.  As before, certification was proper given that the elements were reasonably shown to be satisfied.  The one hesitation was the dramatic decrease in value to absent class members “while the requested attorneys' fees and incentive awards appear unaffected.”  If not further addressed at final approval, these concerns could result in a finding of inadequate representation.

Because the court can’t fully assess many fairness factors before notice and an opportunity for objection, it doesn’t have to conduct a full fairness appraisal before preliminary approval.  It only needs to look whether the settlement itself discloses grounds to doubt its fairness or other obvious deficiencies.  The proposed settlement here “appears to fall within the range of possible approval, as it appears to be the product of arms-length negotiations by experienced counsel, was reached after considerable litigation and discovery into the asserted claims, and provides considerable cash recovery and injunctive relief.”  Moreover, the court was satisfied that the cy pres recipients, “each a well-established and well-regarded consumer protection organization,” satisfied the 9^th Circuit’s rule that appropriate cy pres recipients in this false advertising case should be “organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising.”

However, the original settlement had about $8.5 million in value to the class, while the cash value here dropped to $2-2.5 million.  The court wanted answers to its questions: “How did mere identification of proper cy pres recipients result in such a severe drop in the value of the class's claims? How is it that the value to the class dropped approximately 75%, while requested attorneys' fees appear nearly constant? These concerns are especially troubling given the Ninth Circuit previous admonishments to the parties over both illusory dollar values and excessive attorneys' fees.”  This was not enough to defeat preliminary approval, but the court ordered the parties to fully address those concerns in the final approval briefing and hearing.  (I suspect the real answer involves Kellogg’s increased willingness to litigate to prevent money from going to CSPI etc., but it will be interesting to see what the briefs say.)

IPKat on trademark bullying

Discussing an example.  Also of interest is this bit, from which I'd remove the word "British": "[explanatory note: it is a well-established tradition, almost bordering on a legal duty, for British journalists to confuse trade marks and copyright at least once in every published news item]."

Failure to attach full ads renders complaint implausible

Fink v. Time Warner Cable, --- F.3d ----, 2013 WL 1859141 (2d Cir.)

By failing to specify the content of the allegedly deceptive ads, plaintiffs failed to plead a plausible claim for relief under NY and California consumer protection law.  Time Warner allegedly misleadingly described its Road Runner internet service as providing an “always-on connection” at a “blazing speed” that is “up to 3 times the speed of most standard DSL packages and up to 100x faster than dial-up” and the “fastest, easiest way to get online.”  Plaintiffs alleged that, in fact, Time Warner’s network management techniques decreased the speed of access of certain high-bandwidth internet applications.

A court may determine as a matter of law that an allegedly deceptive advertisement would not have misled a reasonable consumer, as required.  Here, the record didn’t contain the allegedly deceptive ads, and their precise formulation and context was pivotal.  The court of appeals asked the plaintiffs to supplement the record, and they identified a single ad dated nine months after they filed suit, which contained only one of the four alleged misstatements (up to 3 times the speed of most standard DSL packages and up to 100x faster than dial-up).  Given that the complaint purported to quote the offending ad verbatim, it should have been easy to produce.  Time Warner, meanwhile, submitted an ad printed from the internet less than a week after it received the initial complaint, which contained at least three of the alleged misstatements, “closely accompanied by multiple disclaimers and explanatory language, including the statement, ‘[a]ctual speeds may vary.’”

The primary evidence in a consumer fraud case based on advertising is the advertising itself, and context is crucial since, “under certain circumstances, the presence of a disclaimer or similar clarifying language may defeat a claim of deception.”  Plaintiffs can’t misquote or misleadingly excerpt the language of an ad and survive a motion to dismiss (which suggests that plaintiffs must attach ad texts to complaints before discovery, or at least that defendants will demand that they do so from now on; I wonder what that means for pleading the net impression of an ad, which is the key factual issue).  The allegations of the complaint were “materially inconsistent with the sole advertisement Plaintiffs have submitted” and therefore lacked facial plausibility.

In addition, the statement in the ad plaintiffs submitted couldn’t support their claims, because the phrase “up to” would lead a reasonable consumer to expect that speeds could be less than the advertised speeds.  Plaintiffs conceded that “up to” was not a guarantee of the top speed

Still, plaintiffs argued that the parties’ disagreement about what documents would be relevant showed that how a reasonable consumer would react was a factual issue whose resolution would be premature on a motion to dismiss.  The court disagreed: “this puts the cart before the horse. Plaintiffs brought this lawsuit, and purported to do so based upon the specific text of a specific advertisement. They should not need discovery to tell them exactly what that advertisement said.”  (I sure hope future plaintiffs have eidetic memories!)