It's a bus, it's a boat, it's Super Duck!

Super Duck Tours can use that name, the First Circuit recently ruled, despite the existence of Boston Duck Tours, because “duck tours” is generic. Check out the Super Duck Tours site and consider whether the defendants might have other IP problems. (It might help to have the sound on.)

Disclosures as substantive regulation

I have argued that regulating commercial speech and regulating commercial conduct are often intertwined, making application of the full force of the First Amendment to commercial speech a mistake in a post-New Deal world. I think this is most evident when it comes to disclosures. Slate's take on New York's new requirement of calorie disclosure on fast food menus provides a good example:

The law may have the salutary effect of getting restaurants to change their ways. Nonas uses the example of Starbucks, which has reacted to the debate over menu labeling by switching its default milk from whole to 2 percent. Margo Wootan, director of nutrition policy for the Center for Science in the Public Interest, said getting restaurants to change what they serve can be just as important as getting customers to change what they order. "Maybe McDonald's will rethink whether a large shake really needs to have 1,200 calories," she said. "Could people be happy with a 900-calorie shake?"

Cryptoxin, one of my favorite cultural analysts, linked to this post about Oliver Laric’s green-screened “remix” of Mariah Carey’s video for Touch My Body, in which everything except Carey has been edited out, apparently inviting other people to add a background in—much like Stephen Colbert’s green-screen challenges. Is this transformation by subtraction, like Garfield Minus Garfield? FourFour speculates that the video might be a comment on egocentrism or phoniness—I take it that the argument would be something like: Carey is supposedly inviting someone to touch her body, but it’s really all about viewing her, and the green-screen reveals the fundamental emptiness and lack of human relation in her proposition. Rhizome’s Marisa Olson has further analysis:

[Carey] sings, "If there's a camera up in here then it's gonna leave with me when I do. If there's a camera up in here then I best not catch this flick on YouTube." Naturally, this is exactly what Laric is hoping will happen--and no doubt Carey herself. ... The key point made by removing the superfluous imagery from the video's 5,000 frames is that, with her "come hither" gestures and the invitation "touch my body," Carey's certainly asking for it.

The comments take up the sexual-assault implications of “asking for it.” While I agree that Olson’s take has troubling politics—it invokes the trope that a woman who chooses to be sexually active with one man is therefore public property for anyone else—that’s nothing new in transformative fair use.

But what’s the “it” Carey is asking for? Here we have to deal with the distinction between image and body—no matter what strange or degrading things people do with the green-screen footage, they won’t be making Carey herself do anything. I must disagree with the Rhizome commenter that celebrities can control their public presentation and reception in the ways that they, and all other human beings, are entitled to control their physical bodies.

Here’s a portion of Olson’s response to the initial criticism:

I do think that Carey's lyrics (and video) invite sexual fantasy, but my article doesn't say that she is asking to be violated, it says that she's asking to be remixed. Of course, the slippage between the two that you identify is what's so interesting.

In an interview with Laric, he told me that he noticed that the video takes-on an increased sexual tone when all but Carey is masked out. He was interested in how this first-person invitation to "touch my body" could be construed as an invitation to remix the visage of her body (and/or the voice emitted from it), particularly given (a) the implicit link to digital culture embodied by both the lyrics and video, and (b) the fact that the remix is now such an important part of the media ecology of pop culture.

…. Discussions of why a remix is or isn't violent are interesting, as they get to questions of the status of the digital reproduction. Are we remixing a person or "just" her image, and what's the difference ... ? Carey's image was already manipulated before it came to us. In the interview with Laric, he pointed to a segment in the original video in which the shape of a cup becomes distorted as a result of distorting the footage to make the singer standing behind the cup appear slimmer. So this is already not her. If you listen closely, I believe there is also a question as to whether all of the voiced parts of the song are her, so the audio issue adds another layer to the phenomenological question of the brute force of the remix.

The original commenter responded that, while remix might be legitimate, it was especially problematic to blame Carey for the remix, as if she were doing something that was a special invitation here. This is something I find very interesting in certain discussions of transformative fair use, such as the rationale the Court of Appeals gave in the Wind Done Gone case, where transformation comes from bringing out something that “really was” present in the original all along. The commenter suggested that the remix, rather than challenging the construction and exploitation of celebrity, merely participated in it—a charge that can often be laid against unauthorized transformations. This is part of why it’s so dangerous for courts to assess literary and artistic merit. Reasonable people can readily disagree about the critical direction of a reworking, and about the line between exploitation and criticism.

It's a cookbook!

I’ve been thinking about Gricean implicature—I think more people should use Gricean analysis in interpreting advertising claims. For example, Pirate’s Booty uses the slogan “Good for You.” The founder claims that the phrase “Good for You” on a bag of Tings (eight grams fat) isn’t “so much a claim as a congratulation: ‘You bought this bag — well, good for you!’ In [conversation with NYT columnist Rob Walker], he stuck with this, pointing out that the product contains no MSG and no preservatives, and therefore the buyer deserves a pat on the back for choosing a snack that’s not so bad ….”

As Walker’s commentary indicates, this “explanation” doesn’t pass the laugh test. It’s a slimy equivocation, and I suspect that better attention to Grice would help more people appreciate why.

Post title courtesy of Zachary Schrag; explanation here.

Auto-replace and derivative works

Apparently some subscribers to AP's news feeds use auto-replace on the stories for ideological reasons before publishing them, for example changing "Democratic Party" to "Democrat Party." This is dangerous when the automatic substitutions convert "gay" to "homosexual." Well, dangerous or hilarious. Visual evidence here. But I had to wonder whether these changes violated the American Family Association's contract with AP. I couldn't find a public version of AP's contract, but given the history of AP wires and their dissemination to multiple news outlets, I imagine that some modifications are allowed. Independent of the contract, I doubt that auto-replace creates a derivative work, because the automatic nature of the changes lacks the necessary creativity. Is it too much to analogize to Judge Kozinski's pink-screener?

Disclosure, affirmative misrepresentation, and preemption

New York v. Applied Card Systems, Inc., --- N.E.2d ----, 2008 WL 2519797 (N.Y.)

New York’s AG sued various credit card providers for violations of New York’s consumer protection laws. Defendants argued that the federal Truth-in-Lending Act (TILA) preempted the claims that they engaged in fraudulent and deceptive credit card offers. The NY Court of Appeals (New York’s highest court) disagreed, though it held that res judicata from a prior nationwide class action settlement precluded the AG from recovering certain restitution.

Defendants targeted consumers with sub-prime credit. Basically, the AG argued that they misrepresented the credit limits that consumers could obtain from it and failed to disclose the effect its origination and annual fees had on available credit. They told consumers they were preapproved for a credit limit “up to” $2500 or $1000, though disclosed that the actual limit could be as low as $350—the average limit was $400. They explained that upon approval clients would incur a $100 account origination fee and a $50 annual fee, but their explanation that this would reduce available credit was, in the court’s words, “oblique.” These initial charges depleted the available credit for some consumers by 40% or more.

There were similar problems with marketing “secured cards” (secured by savings accounts, with a $10 monthly maintenance fee) with “no late fees*” and “no collections calls*,” where the asterisks were pretty significant. Likewise, defendants promoted a credit insurance program that didn’t deliver the promised benefits in New York and its $35 yearly cost was hard to avoid because the opt-out was confusing and hard to find. Defendants also marketed a “re-aging” service, which allowed banks to avoid writing off delinquent accounts by agreeing on a series of payments, but they didn’t explain that overlimit fees would continue to accrue, and those fees and previously imposed late fees would be due at the end of the re-aging process.

Moreover, the AG’s petition also discussed defendants’ late fees, finance charges, balance calculation method, and lack of any grace period for payments. TILA requires these all to be disclosed in any credit card solicitation, but the AG claimed that many consumers were unaware of how charges and penalties based on these terms were assessed, trapping unwary consumers in a “vicious cycle of pyramiding debt.”

In the Allec case, the California Superior Court approved a nationwide class action settlement for conduct predating January 1, 2002—only 12 New York members of the class opted out. The New York trial court applied res judicata to those claims, but rejected the TILA preemption argument. Based on evidence including more than 200 complaints and affidavits from defendants’ former collection employees, it found that defendants “repeatedly and persistently” engaged in fraud, deception, and false advertising. It enjoined defendants from such acts in the future and awarded over $9 million in restitution, damages, and penalties, an amount reduced somewhat on appeal.

The Court of Appeals affirmed. Applying a presumption against preemption, it held that New York could regulate false advertising without running afoul of TILA’s preemption provision relating to credit card applications and solicitations: “The provisions of [portions of] this title shall supersede any provision of the law of any State relating to the disclosure of information in any credit or charge card application or solicitation which is subject to the requirements of section 1637(c) of this title or any renewal notice which is subject to the requirements of section 1637(d) of this title, except that any State may employ or establish State laws for the purpose of enforcing the requirements of such sections.” 15 USC § 1610 [e].

The defendants argued that §1610(e) preempts every state law relating to the disclosure of information in any credit card solicitation. The AG responded that its claims were based on affirmative deception, not disclosure. The Court of Appeals agreed. TILA doesn’t preempt any state law that “could potentially touch upon any credit information that respondents might choose to include in their credit card applications and solicitations.” Rather, it preempts state laws relating to “disclosure of information” in applications and solicitations “subject to the requirements of section 1637(c).” Thus, preemption is limited to laws that “purport to alter the format, content, and manner of the TILA-required disclosures and those that require credit issuers to affirmatively disclose specific credit term information not embraced by TILA or Regulation Z [implementing TILA].” Because New York’s consumer protection law doesn’t require any disclosure, but does require businesses to refrain from fraud and false advertising, it’s not preempted.

Specifically, the misleading statements about potential credit limits, initially available credit, secured card benefits, credit insurance coverage, the benefits of re-aging, and the like were not disclosures “subject to the requirements of 1637(c),” which only requires the disclosure of APR, grace period, balance calculation methods, and certain fees. “Section 1610(e) preempts only those state laws that relate to the format, content, manner, or substance of the TILA-required disclosures.” The AG’s petition did refer to consumers’ unawareness of the information contained in the disclosures, but the AG didn’t contest the adequacy of defendants’ TILA disclosures and obtained no relief relating to those terms. Nor did the deceptive material “relat[e] to” the disclosure of such information sufficiently to trigger preemption. Defendants are only barred from affirmative misrepresentations about credit terms that currently aren’t regulated by TILA or Regulation Z.

Defendants argued that Congress intended to create a uniform system of disclosure in credit card applications. But the AG’s victory here doesn’t force them to change their disclosures or to affirmatively disclose any additional credit terms. Any indirect economic influence on their solicitation practices isn’t enough to overcome the presumption against preemption. Defendants’ position “assumes that Congress intended the TILA disclosures to provide consumers’ sole protection against credit card companies’ fraudulent and deceptive marketing practices.” The Court of Appeals believed that the limited nature of the preemption provision, and the legislative history, refuted that position. The Conference Report, for example, contemplated that state enforcement agencies could obtain settlements requiring disclosures beyond those required by TILA, which “stands in marked contrast” to the dissent’s claim that Congress intended to “cut off and fully supplant” all state regulation. More broadly, the legislative history was clear that state unfair competition and deceptive practices statutes would still apply to credit card solicitations and applications.

Proposed amendments to Regulation Z would require disclosure relating to some of the practices challenged by the AG here, such as the effect of fees and security deposits on an applicant’s credit limit. And proposed Regulation AA would simply prohibit some of the substantive practices at issue here, such as charging fees and security deposits that constitute a majority of a consumer’s credit limit. Since those amendments aren’t yet enacted, they have no preemptive effect, but they do justify the inference that TILA and Regulation Z don’t currently cover these practices.

Turning to res judicata, the court determined that the AG was in effect in privity with the consumers bound by the California class action settlement, even though the AG had not received notice and even though the AG (and 30 states’ AGs as amici) argued that this was an example of class action abuse—a class action settled at rock-bottom prices to preclude further, more properly valued claims. To the extent that the AG sought relief in the form of restitution for pre-January 1, 2002 claims, he was covering ground already covered by the settlement, which was a final and binding judgment and which had been determined to satisfy consumers’ claims. Though restitution is about making consumers whole, settlement class members “have already compromised their entitlement to a full-measure of make-whole relief in a proper judicial forum.” Respect for the validly entered judgments of other states required application of res judicata.

However, the AG could still seek restitution for people not bound by the settlement and for time periods not covered. And the claims for injunctive relief, civil penalties, and costs were untouched. Moreover, the AG might be able to obtain disgorgement, which is a remedy distinct from restitution.

Justice Read dissented, arguing that the history of TILA amendments revealed an ever-increasing scope of preemption, and that the majority’s interpretation returned to an earlier version of TILA in which only “inconsistent” state regulations, rather than all state regulations, were preempted. In other words, Read argued that TILA occupied the field, except that states could bring proceedings to enforce TILA.

The textual argument focused on §1610(e)’s language “The provisions of [TILA] shall supersede any provision of the law of any State relating to the disclosure of information in any credit or charge card application or solicitation which is subject to the requirements of section 1637(c) or any renewal notice which is subject to the requirements of section 1637(d).” Read argued that “which is subject to the requirements of section 1637(c)” modified “credit or charge card application or solicitation,” not “disclosure of information” as the majority seemed to believe.

However, the majority’s analysis doesn’t depend on what “which is subject …” modifies. The question is whether New York’s consumer protection law “relat[es] to the disclosure of information” in a solicitation or application. If it is true that there is a relevant difference between affirmative misrepresentation and disclosure, or failure to disclose, then New York’s law doesn’t relate to the disclosure of information and isn’t preempted.

Read also recounted the evolution of TILA over time, arguing that Congress ultimately abandoned a ban on requirements inconsistent with TILA in favor of a comprehensive system of requirements so that difference, rather than inconsistency, was enough to find preemption of a state regulation. A state may simply not use its consumer protection laws “to impose additional or different cost-of-credit disclosure on a creditor.” The majority, Read argued, allowed a “patchwork scheme” that ignored potential federal policy reasons not to mandate a particular disclosure that a state considers beneficial.

Again, this doesn’t address head-on the majority’s claim that affirmative misrepresentations are relevantly different. As to that, Read argued that the distinction was evanescent, especially given that TILA preempts state regulations that “relate to” disclosures, and “relate to” is a broad term. The only way for defendants to “dispel the complained-about ‘overall impression’” and comply with the injunction would be to change the form and content of its solicitations—that is, to make different disclosures. Neither the AG nor the majority explained how else defendants might eliminate the misrepresentations. (They could, of course, choose to stop offering such terms—given the intertwined concerns of form and substance here, as recognized in proposed Regulation AA, that might be the right result.)

In the end, Read concluded, “Congress essentially decided that the benefits from a uniform, nationwide regime for disclosure under the aegis of the Board outweighed any loss of protection to consumers under state law.” Thus, the AG’s good intentions, and the federal government’s arguable poor stewardship under TILA, were insufficient to override the Supremacy Clause’s mandate.

Note: for excellent continuing coverage of consumer credit issues, the Credit Slips blog is the place to go.

Is it false to make your competitor's service worse and then say you're better?

NetQuote, Inc. v. Byrd, 2008 WL 2552871 (D. Colo.)

Previous coverage. Prior summary:

NetQuote operates a web site that allows individuals to submit information about themselves and their insurance needs. NetQuote sells that information to insurance brokers and agents, who then contact the individuals with an insurance quote.

NetQuote sued MostChoice, a competitor, and Brandon Byrd, its employee. NetQuote alleged that MostChoice employed Byrd to pretend to be individuals interested in insurance quotes. He thus submitted hundreds of false inquiries to NetQuote’s web site, knowing that NetQuote’s clients would receive bad information that could not lead to a sale. NetQuote’s clients complained about the bad information, and some ended their relationships with NetQuote. To add false advertising to injury, MostChoice advertised itself as having superior accuracy and reliability in insurance referrals compared to NetQuote.

Defendants admitted that Byrd made at least 394 fake submissions. MostChoice also counterclaimed for “click fraud” under Georgia law.

NetQuote’s Colorado fraud claim required a knowingly false representation of material fact, made to a person who didn’t know the falsity with the intention that the victim act on it, and resulting damage. Defendants moved for summary judgment on the ground that NetQuote couldn’t show reliance or proximate cause. The court disagreed.

On reliance, defendants argued that NetQuote often receives bad leads, and issued $150,000 in credits to customers for bad leads before Byrd started his attacks. Thus, NetQuote can’t rely on the content of the leads it receives. NetQuote responded that its reputation depends on selling high-quality leads, and the court agreed that summary judgment was inappropriate on this ground.

Defendants then argued that reliance was impossible because no human at NetQuote read Byrd’s submissions; they were just distributed electronically. The court continued to disagree—reliance by a computer is possible. But there was a question whether the reliance was justifiable. Colorado law was not clear on whether this was a requirement of a fraud claim. NetQuote’s director of technology development testified that the system filtered out false names like Mickey Mouse, dubious key sequences like asdfg, and fictitious area codes. Defendants argued that this was an insufficient filter because it only avoided obvious errors.

The court found a question of fact (which I think is generous—given NetQuote’s product, the burden should have been on defendants, conceded bad actors, to identify a more intensive identity verification that would still be cost-justified and that would have screened out Byrd’s fakes). Justified reliance doesn’t require a perfect filtering system. NetQuote took affirmative steps to limit false leads. Normally, the justifiability of reliance is a question of fact, and it’s so here.

Likewise, on proximate cause, NetQuote submitted evidence that a large number of bad leads played a substantial role in its loss of two major accounts, as well as some local accounts, and that it spent $128,000 in employee time to suss out and stop Byrd’s conduct. Under Colorado law, proximate cause is generally for the jury. Here, NetQuote’s evidence was sufficient to defeat summary judgment.

Here’s a tidbit: one of the major clients reported that it received 476 leads from NetQuote; 421 were called, and 95 were unworkable/fake. The 325 workable leads had resulted in no sales. Defendants argued that the 325 unproductive leads showed that the fake leads had negligible impact on the client’s rate of sales, destroying the causal connection between Byrd’s acts and NetQuote’s loss of the account. But NetQuote presented testimony that, when agents tried to use the leads, they found a very high number of wrong leads, and this started in the first week of the operation. Given that agents were compensated partly on a commission basis, they were reluctant to pursue weak leads, and so they only worked on NetQuote leads at the end of the day, further diminishing their chances of success even when the information was valid. So the poor results on true leads might also be traced to the fake leads.

Separately, general notions of restitution allowed NetQuote to seek compensation for employee time spent dealing with Byrd’s fakery. Showing the chutzpah of a parricidal orphan, defendants argued that NetQuote shouldn’t be able to recover for that time because it received a benefit—it upgraded and improved its lead filtering system, hardening it against future assaults. The court modestly held that any benefits NetQuote received could be subtracted from its damages. I suspect law-and-economics theorists would have more to say about this; my own intuition is that, if NetQuote only invested in an upgraded filtering system because of the high rate of fake leads, the fact that its system is better now does nothing to decrease its damages. If Byrd had tortiously crashed into NetQuote’s delivery van, leading NetQuote to buy a new van that, because it was newer, had more and better features than the old van, that wouldn’t mean Byrd did NetQuote a favor.

On tortious interference with contract, defendants argued that they were protected by the competitor’s privilege, and that they didn’t intend to cause any customer to terminate a contract with NetQuote. Under Colorado law, a competitor may induce a third party to end a contract terminable at will if the act doesn’t employ wrongful means and is otherwise lawful. But there was a genuine issue of material fact over whether defendants’ conduct was fraudulent, which would be wrongful means. On intent, defendant MostChoice’s chair testified that he hired Byrd to reverse engineer NetQuote’s customer list by submitting bogus leads, apparently to get the names of agents who then followed up on the leads, and he did in fact have his employees contact NetQuote’s customers. This was, unsurprisingly, enough to avoid summary judgment.

NetQuote’s Lanham Act claim concerned MostChoice’s website ad copy claiming that its leads were “Better Than NetQuote Leads.” The court earlier rejected a puffery defense. Defendants moved for summary judgment on the ground that NetQuote had no evidence of consumer confusion. But the court adopted the rule from other circuits that, if MostChoice’s conduct was intentionally deceptive, NetQuote would be relieved of the burden of showing direct evidence of consumer confusion. MostChoice could, however, rebut any presumption of confusion caused by intentional deception.

Here, NetQuote argued that intentional deception could be inferred from MostChoice’s efforts to submit over 3,500 false leads to NetQuote. Byrd was hired to submit false leads for 20-30 hours a week over 9 months. The court agreed that a reasonable juror could find that MostChoice intended to harm NetQuote’s lead quality, making its acts intentionally deceptive.

There’s an understandable conceptual step skipped here: Were MostChoice’s leads better quality than NetQuote’s leads, either in their Byrd-degraded state or in their “natural” state? If MostChoice’s leads were better, for whatever reason, then the claim is not false, which may be why NetQuote wasn’t arguing literal falsity. But failure to disclose MostChoice’s interference with NetQuote’s leads isn’t the usual kind of nondisclosure that creates misleadingness: No matter the cause of the quality of NetQuote’s leads, it’s still the case that they have that quality, and clients could be disappointed by it. It may well be true that disclosing MostChoice’s interference would leave most clients unwilling to contract with an entity that invests in degrading its competitor’s product. But then we have a nondisclosure claim—and a difficult one to prove, since nondisclosure is rarely actionable.

The real issue is that MostChoice took action to make its claim true, but if true, it was true only because MostChoice deliberately harmed the quality of NetQuote’s service. Ordinarily, a competitor may take action to make its claims true—by, for example, designing its product specifically to achieve better results on some metric than the competing version. We would never say that the resulting claim “X delivers superior battery life to Y” was false just because X didn’t disclose that the superiority was the result of design choices, even though those design choices may well mean that Y performs better on some other, unadvertised metric. On the other hand, this is the unusual case where the challenged acts degraded the competitor’s service rather than improving the advertiser’s, and I can hardly fault the court for wanting to grant a remedy. I do think tortious interference might be a better fit, though.

NetQuote did have a separate argument for literal falsity, based on a different claim that MostChoice advertised that it obtained all its leads “from people who visit the site,” but had purchased leads from LeadCo, a third-party aggregator. MostChoice’s CEO testified that MostChoice had only done so for a short period, and NetQuote had no evidence that MostChoice purchased leads during the time it made the challenged claim on its site, so its claim based on that statement didn’t survive.

MostChoice counterclaimed under Georgia law for “click fraud,” based on NetQuote employees’ acts in clicking on MostChoice ads for which MostChoice paid per click, without any intention of using MostChoice’s service. NetQuote employees allegedly did this 25 times from October 2004 through August 2005, and 27 times from January 2007 through September 2007.

The court held that there was no reason to think Georgia recognized a tort of “click fraud.” Even if Georgia did so, there was no evidence NetQuote engaged in misrepresentation. Its employees occasionally clicked on MostChoice’s ads to see what services it was offering as part of their practice of checking out what the competition was doing on Google, Yahoo! and other search engines. MostChoice’s CEO agreed that it was not fraudulent to click through from a search engine to look for information on the site without ultimately filling out an application. There was no evidence that NetQuote’s clicks “were prompted by some illicit purpose,” so NetQuote secured summary judgment in its favor on this claim.

Falsity, sincerity and implication

Mark Spottswood, Falsity, Insincerity, and the Freedom of Expression, 16 William & Mary Bill Of Rights Journal 1203 (2008)

This thoughtful and useful article argues for greater constitutional protection for false but sincerely held claims as valuable in themselves, not merely in order to provide breathing room for truthful speech. By contrast, false and insincere statements do not promote overall truth.

I don’t fully buy the insincerity argument: though there are through-and-through fraudsters, often people who tell lies believe that they are telling a larger truth—see, e.g., the existence of WMDs in Iraq and whether the US tortures. If sincerity is a pointer to the existence of an important debate on which we should inform ourselves, then I have difficulty saying that sincerity in the ultimate belief–e.g., should we be in Iraq?—shouldn’t count.

More generally, I do not understand the idea that lies deprive listeners of autonomy while truths (or sincere falsehoods) don’t. Whether true or false, a nonperformative statement leaves it to the listener to act, though we can often predict how particular statements will influence action. At the very least, the concept of “autonomy” used to make this claim contains an implicit definition of autonomy as freedom from manipulation by liars that turns the proposition “lies harm autonomy but non-lies don’t” into a tautology. I can, and do, define autonomy differently. And indeed, Spottswood slides from lies to manipulation (“An individual’s dignitary interest in speaking his mind cannot extend to the willful manipulation of others.”)—but one can manipulate with the truth, or with statements lacking any truth value, as well—e.g., “I will sell you this tasty banana for $.79” or “the quicker picker-upper.” The clever manipulator takes advantage of general features of human psychology, like our tendency to feel obligations when we perceive we’ve been given a gift (free with purchase!), but then again so does the liar, who must make her lie plausible to let it do its work.

I’m always glad to see Gricean implicature applied to legal issues. (Richard Craswell’s recent article in the Virginia Law Review is another good example; my colleague Greg Klass has a response to Craswell up at SSRN.) Spottswood argues that we can use implicature to help manage the gradients between true and false, and sincere and insincere claims, since we can look at ordinary rules of implication in context to assess the likelihood of misunderstanding or deception.

Unfortunately, I can’t share Spottswood’s optimism with respect to the truth-promoting benefit of false but sincere speech when it comes to commercial speech. I should note that he points out that the question of a corporate entity’s sincerity may be a difficult one—in fact, his focus on sincerity might be thought to support the proposition that a corporate speaker has no freedom of speech rights in itself, and any protection for commercial speech must be derivative of the audience’s interest in hearing truthful claims. Since his argument is not that sincerity is a moral value but that sincerity prompts a valuable search for factual proof and disproof, however, he might well contend that the audience’s interest is coextensive with “sincere” corporate speech, however defined.

He argues that false but sincere commercial speech should receive the same constitutional protection as true commercial speech. He points out that, for example, winemakers are currently prohibited by the ATF from making health claims for wine without significant qualifications, despite growing evidence in favor of such health claims. This is a fairly standard argument about regulatory mistakes in assessing truth—sincerity works here as a limit on the kinds of commercial speech that should get heightened protection.

He also accepts that “local” falsehoods might be so harmful that they should be regulated regardless of sincerity. The classic example involves the safety of drugs—though he argues for compelled disclosure of the regulator’s position, rather than suppression of the drugmaker’s own claims. I think this baby-splitting is doomed to failure; research on disclosures makes pretty clear that consumers simply won’t read that far. See, e.g., Paula Fitzgerald Bone & Karen Russell France, Policy Makers’ Paradigms and Evidence from Consumer Interpretations of Dietary Supplement Labels (showing that the presence of a disclaimer like the one Spottswood advocates has no effect on consumers’ beliefs about (1) the first-order claim made by the advertiser or (2) whether a regulatory agency has evaluated and approved the advertiser’s claim).

Spottswood’s overall argument depends on the idea that it is the contest over the truth of a false claim that improves overall knowledge—not the false claim itself. Spottswood emphasizes the role of credibility in assessing competing truth claims. But research reveals, for example, that people forget source before they forget an assertion, so that even an incredible source can create false beliefs a few days down the line, and, paradoxically, refuting a false claim can increase audiences’ belief in that claim. Likewise, ad repetition can create belief when there was initially disbelief, and ads can change attitudes towards products without adding any new information (see the work of Scott Hawkins).

Spottswood also discusses the epistemic benefits for nonexperts of learning that experts disagree, but does not in my opinion adequately account for the biased ways in which disagreement gets presented in the media, which—when it actually features factual disputes—tends to put one position against the other as if all disagreements were of equal credibility and featured roughly equivalent evidence on both sides. Moreover, with respect to commercial speech in particular, I’m not sanguine that people will learn about factual disputes in helpful ways. Who disputes the claims of supplement purveyors? Spottswood mentions Consumer Reports, but not many consumers subscribe, and competing supplement makers have few incentives to attack the level of scientific evidence for supplements generally, even if they have incentives to evaluate competitors’ claims to purity. It comes down to intermediaries: do we have reason to think that the actual level of confidence among experts will be adequately communicated?

Along with my skepticism about the correctability of false (though sincere) commercial speech, I am dubious of reinstating any fault-based line in advertising regulation. We moved away from fraud in consumer protection to a more strict liability scheme for good reasons; clever defendants can regularly at least create doubt about their actual beliefs. I doubt that the costs of a sincerity defense are worth the benefits, at least in the area of commercial speech regulation, which is where it would likely be the most important—given that the other area of speech regulation in which falsity routinely matters is defamation, where sincerity is already pretty important.

The sweet smell of injunctive relief

Here's news on the latest round in the Splenda wars. The pictures above show infringing Giant packaging and noninfringing Safeway packaging.

McNeil Nutritionals, LLC v. Heartland Sweeteners LLC (E.D. Pa. June 26, 2008)

McNeil sued Heartland for making packaging for its generic sucralose that was too similar to McNeil’s Splenda packaging. The district court initially handed Heartland a comprehensive victory; the Third Circuit reversed in part, finding that as a matter of law the likelihood of confusion factors weighed in favor of McNeil as to certain versions of the private-label packages, so that on remand the district court would have to consider whether injunctive relief was appropriate as to those versions. The district court, following instructions, granted the requested relief, noting that the packages at issue have been redesigned to be less like the Splenda packaging but that substantial inventory ($340,000) of the old versions remains.

Given that McNeil had, by appellate mandate, a likelihood of confusion, the court only had to evaluate the other elements of the claim—starting with the distinctiveness of the trade dress at issue and its nonfunctionality. The images of sweetenable food and coffee on the packaging, the court held, were descriptive rather than suggestive, given that other producers use similar images to communicate the message that the product was a sweetener. However, the court also found persuasive Second Circuit precedent that packaging choices are almost unlimited, and thus typically packaging trade dress will be inherently distinctive. It’s the combination of standard and descriptive elements that is likely to be inherently distinctive overall.

Notably, though Wal-Mart distinguished packaging from product design, this rationale is exactly the same rationale as that provided for holding product designs inherently distinctive. I don’t think it holds up much better here. The outcome is that the inquiry will hinge, not on the protectability stage, but on the multifactor likelihood of confusion test, so that a packaging design with no secondary meaning might still sometimes prevail.

Anyway, Splenda’s trade dress—the combination of pictures, colors, labeling, and layout, including the product name’s prominent placement on the package surrounded by a distinctive white cloud—was therefore inherently distinctive. The court rejected Heartland’s arguments that the trade dress was merely a combination of standard design elements. It distinguished other cases finding trade dresses not inherently distinctive, because they were mere variations on customary designs, as fact-specific. Before Splenda, the particular color scheme at issue was not used in the sweetener marketplace.

In any event, McNeil showed secondary meaning because of Splenda’s spectacular success in the market. McNeil’s evidence of success was general, and Heartland argued that the advertising and promotion didn’t aim at increasing recognition of the packaging, as opposed to the brand name. But the court reasoned that it could consider more than only “look for” or other trade-dress-focused ads. “It seems illogical to conclude in the context of a product packaging trade dress case that just because McNeil’s advertisements do not contain language saying ‘Look for Splenda in this packaging,’ they are not probative of secondary meaning. … [A] Splenda package has been featured in nearly every Splenda television commercial and print advertisement.” In addition, other factors, including the length of use and the fact that Heartland copied Splenda’s packaging, supported a finding of secondary meaning.

Likewise, the packaging was nonfunctional. Heartland argued that the use of yellow, photos of food and beverages, and the size and shape of the packages were functional. But the trade dress was the overall appearance of the product, not individual elements. McNeil wasn’t arguing for a ban on the use of yellow, pictures of food and beverages, or a particular size and shape.

The context of this case, where the gestalt issue of likely confusion has been decided by a different decisionmaker than the one considering functionality, highlights the ways in which this "overall appearance" rule creates some interesting conceptual problems. Assuming that the color, photos, and size and shape are in fact functional, McNeil can’t stop anyone from using them. But it is inarguably the case that the confusing similarity here is largely—if not entirely—based on the combination of color, photos, and (probably to a lesser extent) the size and shape. That will regularly be the case when courts refuse to filter out functional elements of trade dress from their confusion analysis. So one who wishes to copy all the functional elements of the Splenda trade dress may have to stay further away from the nonfunctional elements of the trade dress, whatever they are. (What are they? The court doesn't say. The absence of other identifiable trade dress elements that Heartland copied is one reason, I suspect, the court focused so much in its earlier opinion on the presence of house marks on the Heartland products. The presence of a house mark is arguably all that's needed to prevent unfair competition when there's a right to copy the rest of a configuration.)

What about the other parts of the test for injunctive relief? Trademark infringement risks loss of control of reputation and potential damage to goodwill, which is regularly treated as irreparable injury, even without actual damage. Without considering eBay (and I’m not suggesting it should have!), the district court relied on 1950s Third Circuit precedent that likely confusion leads to the “inescapable conclusion” that there’s irreparable injury.

On hardship to Heartland, Heartland’s alleged lost sales would not constitute irreparable harm, because such losses are compensable by money damages and are taken into account by the bond posted by the plaintiff. The public interest is in not being confused, so essentially automatically favors the plaintiff who’s shown a likelihood of confusion. As a result, the injunction issued.

Propaganda: sauce for the goose edition

Michael Arrington, of TechCrunch, writes in The A.P. Has Violated My Copyright, And I Demand Justice:

As far as I can tell, the Associated Press is sticking by its ridiculous and unlawful assertion that "direct quotations, even short ones" are copyright infringements and result in lawsuit threats and DMCA takedown notices.

… [N]ow the A.P. has gone too far. They've quoted twenty-two words from one of our posts, in clear violation of their warped interpretation of copyright law. …

Am I being ridiculous? Absolutely. But the point is to illustrate that the A.P. is taking an absurd and indefensible position, too. So I've called my lawyers (really) and have asked them to deliver a DMCA takedown demand to the A.P. And I will also be sending them a bill for $12.50 with that letter, which is exactly what the A.P. would have charged me if I published a 22 word quote from one of their articles.

(I should probably note that I mean "propaganda" as a neutral term. Arrington's move is concededly not meant to assert actual legal rights, but rather to point out that the A.P. itself depends on the system of free quotation for news purposes. The move to claim rights over tiny quotes--and even the response that such use is fair use rather than not even rising to the level of copyright infringement--is dangerous for reasons Justin Hughes explores in Size Counts (or Should) in Copyright Law, 75 FORDHAM LAW REVIEW 575 (2005). I do wonder whether Arrington's lawyers can ethically file such a DMCA notice, under either the DMCA or general principles governing lawyers' conduct.)

230 protects another review site; Lanham Act claims also fail

Eric Goldman points to Nemet Chevrolet Ltd. v. ConsumerAffairs.com, Inc., 1:08CV254 (E.D. Va. June 18, 2008) and the related CMLP page with links to source documents. ConsumerAffairs is a website that hosts third-party consumer reviews of various products and services, including Nemet’s. Nemet sued ConsumerAffairs for defamation, tortious interference, and Lanham Act false advertising claims based on bad reviews posted by consumers. Section 230 got rid of the first two claims quite easily.

Nemet also brought claims under §43(a)(1)(A) and (B). The court held that Nemet lacked standing as a matter of law no matter how the Lanham Act claim was framed. Among other things, this follows the unfortunate trend of using “standing” as a catchall for failed claims, which is problematic because sometimes (though not here) it substitutes for actual factfinding. Here, the “standing” problem was that the parties weren’t in competition—what courts would formerly have called a failure to properly allege that the allegedly false claims appeared in “commercial advertising or promotion.”

Of course, you might be wondering, “Since when is competition a requirement for trademark infringement? That went out of style a century ago!” Or you might be wondering, “Doesn’t §230 also knock out the false advertising claim, which is not an intellectual property claim?” Good questions; sadly, the second isn’t answered by the opinion at all.

To answer the first question, it might help to know that the §43(a)(1)(A) claim was that the name “Consumer Affairs” diverts consumers by making them think that defendant is some sort of official or governmental body, which is also the basic gist of the §43(a)(1)(B) claim. So Nemet wasn’t making the standard false endorsement/affiliation trademark claim that disgruntled plaintiffs make against internet critics. It was just making a §43(a)(1)(B) claim that for some reason (§230?) it packaged as (a)(1)(A) as well. The court therefore held that the alleged harm is not the type of harm the Lanham Act seeks to prevent, given that the parties don’t compete. It applied the Conte Bros. standing test, and for once I don’t mind so much. The (a)(1)(A) problem is that Nemet doesn’t own any relevant marks or otherwise have any connection to any false association/affiliation with a consumer affairs agency. This is more of a real standing problem than most “standing” challenges these days.

Even if Nemet had standing, the court continued, its unfair competition claim would fail as a matter of law. Here the court proceeded as if Nemet had brought a false endorsement claim and relied on the unrelatedness of the parties’ goods and services, which is a bold move on a motion to dismiss. Unrelatedness can’t really justify dismissal as a matter of law without some other policy concern in play—here, protecting critics. At the very least, it’s not “unrelatedness” in general that justifies dismissal, but the unrelatedness of the specific service—providing consumer reviews—to any product or service reviewed.

Likewise, and getting to the better reason for dismissing the false advertising claim, the court found that even if Nemet had standing it couldn’t show the necessary competition to make defendants’ statements count as “commercial advertising or promotion.”

As for inquiry into whether §230 bars false advertising claims, that will have to await another day.

Stealth marketing of medical services on YouTube

This NYT feature on doctors who give consumers incentives to post doctor-created ads as their own contributions to YouTube raises some important advertising law questions, intertwined with the ethical ones.

LAST September, Michelle Wilder left Dr. Emil W. Chynn of Park Avenue Laser armed with ... a DVD of her Lasek surgery ....

Her viewing pleasure was not Dr. Chynn’s only concern. He hoped Ms. Wilder would be so thrilled with her results that she would post the 10-minute video on YouTube, along with his credentials, a link to his Web site, and a rave review.

As an incentive, Dr. Chynn offered either a free Botox injection worth $400 or a $100 discount on the $5,000 Lasek operation ....

First of all, nothing in the article indicated that consumers actually produce the ads themselves. ("Some have been produced by marketing companies like Spore Medical or SalemGlobal Internet both of which began offering video packages in the last year, while others have been videotaped and edited by a staff member.") At the very least, the ads are subject to standard regulations on endorsements and testimonials, and they should be disclosed as ads. Moreover, some of the testimonials are actually false, in clear violation of the law (see sec. 255(a), "Endorsements must always reflect the honest opinions, findings, beliefs, or experience of the endorser"):

A Benjamin was enough to silence one dissatisfied patient, who asked to remain anonymous because he is still undergoing treatment for an operation he had done about six months ago. Never mind that the video went up almost immediately, before he had time to heal, he said. “Regardless of whether I’m happy — that’s not going to stop me from posting,” he said. “It’s money in my pocket.”

As it turns out, he isn’t satisfied with his results, but he hasn’t taken down his glowing endorsement.

An ethicist asks, “If a patient voluntarily surrendered their privacy by having their procedure filmed and posted in trade for a financial cut on a service, what’s wrong with that?” The FTC, however, takes a different view.

Lawyer's banquet

Everyone needs something to do when traveling; what I do is look for IP issues. This image of a Rolling Stones album and song name, along with the name of the Rolling Stones themselves, appears in an ad in the May 2008 issue of SkyMall. Given cases like Yeager, how much money would the makers of this iPod case have to spend to defend against a Lanham Act claim for false endorsement by the Rolling Stones? Let's not even start on the copyright claim over the album cover.

consumer confusion in the under-3 set?

An anecdote, for whatever it’s worth: when my 33-month-old son saw me take Goodnight Bush out of the mailer, he said, “That’s my book!” When I explained that it wasn’t Goodnight Moon and we compared the two side-by-side, he said, “They match!” Then he insisted that I read him Goodnight Bush, though he soon lost interest. I don’t think his reactions are all that significant in terms of consumer confusion, given that a kid familiar with Goodnight Moon is unlikely to (a) be the purchasing agent or (b) be in the market for a second copy.

(Keep an eye on the Georgetown IP Teaching Resources RSS feed for a couple of scans for comparison purposes. Also, the news & reviews section on the official site, linked above, appears carefully culled for litigation purposes, focusing on the repetition of “political” and “parody.” Here’s hoping it works!)

I found some of the “goodnights” bitterly funny—my favorite was the blank page “goodnight air” changed to “goodnight allies.” The Twin Towers are alphabet blocks; Jesus rides a toy dinosaur for “goodnight evolution.” All in all, it’s more satire than parody, to the extent that one can tell the difference, though it does highlight the surrealism of the original Goodnight Moon as well.

Authorship, authenticity, advertising and ownership

Societe Civile Succession Richard Guino v. Beseder Inc., 2008 WL 2463770 (D. Ariz.)

The Societe moved for reconsideration of the court’s earlier ruling awarding defendant Jean Emmanuel Renoir $45,000 in lost profits for its false advertising counterclaim. See earlier discussion here: basically, the Societe advertised some Renoir-Guino works as originals. The court sustained the jury’s verdict that they were inauthentic and/or unauthorized, and that this was false advertising.

The court considered the motion under Rule 59(e), as a motion to alter or amend the judgment. Such motions are rarely granted—only when something has unexpectedly changed or gone so badly wrong that a manifest and critical error needs correcting. The Societe argued that a dispositive element of a false advertising claim was missing—it didn’t own any of the falsely advertised sculptures at issue in the case.

The court believed that, whether or not the Societe owned the sculptures, false statements about them could ground a false advertising claim. But the Societe argued that “commercial advertising” under the Lanham Act requires that a statement must be made “for the purpose of influencing consumers to buy defendant’s goods or services.” Coastal Abstract Service, Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734-35 (9th Cir. 1999) (emphasis added). However, the district court held, this language was merely adopted from a Fifth Circuit case, not discussed, and there was no reason to think the 9^th Circuit meant to restrict false advertising claims “solely to instances where false statements are made to influence consumers to buy the accused’s own products.” In fact, other 9^th Circuit cases make clear that a false advertising claim may be based either on statements about one’s own products or about another’s products; it is sufficient if the statement is made for the purpose of influencing consumers not to buy a competitor’s products. Thus, there was no manifest error of law or fact, even if the Societe didn’t own the sculptures.

This seems like fancy footwork on everyone’s part. The court’s ruling is certainly reasonable given the procedural context, but it bucks the trend on standing, which is how these competition issues are usually resolved these days (rather than by the weird test for what counts as “commercial advertising”). For the same reasons, the Societe’s argument seems like a different way of making the same argument that it wasn’t in competition with the defendants that it already lost before.