5-Hour Energy survives preliminary injunction motion

Hansen Beverage Co. v. Innovation Ventures, LLC, 2008 WL 4492644 (S.D. Cal.)

Hansen makes Monster and other energy beverages. Innovation makes the “5-Hour Energy” 2-ounce “energy shot.” In four years, it has made over $150 million in profits. Monster comes in 16-ounce and larger sizes, but Hansen intends to release a small-size product to compete in the energy shot market. Hansen sued for false advertising based on the name “5-Hour Energy” and claims that the product gives “hours of energy now” with “no crash later.”

Hansen argued literal falsity; its expert declared that 5-Hour Energy didn’t, and couldn’t, produce any measurable amount of energy for five hours, with energy defined scientifically and not as an “energized feeling.” Hansen further argued that energy must mean physical, biomechanical energy because of the necessary implication of the picture on the bottle, a person running on top of a mountain, and other pictures in ads of people performing physical activities. Further, any energized feeling doesn’t last five hours. Defendant’s website has a graph purporting to show that only 57.7% of users reported five or more hours of energy. Moreover, 24% of users experienced some sort of “crash,” in contradiction to “no crash later.”

Defendant’s expert opined that a product can boost “energy” without calories, including by using caffeine, taurine, and vitamins as found in 5-Hour Energy. Consumers perceive that they are getting energy. Other products, including Hansen’s own Diet Red Energy product, are called “energy drinks” even without calories. According to one clinical study, the average energy boost experienced by users was 4.92 hours; the bottle warns that “individual results may vary.” Moreover, most users don’t experience a crash, defined as an energy dip below the energy level experienced prior to drinking the beverage.

Given the dispute over the definition of “energy” and related claims, the court found that Hansen hadn’t met its burden of showing literal falsity for purposes of a preliminary injunction. As a result, the other preliminary relief factors tilted against Hansen. The court also found that Hansen’s delay in bringing suit—the product’s been on the market for four years—weighed against preliminary relief. Hansen’s president indicated that he learned of the claims one month before filing suit. But Hansen’s awareness of the energy shot market, in which 5-Hour Energy is a market leader, “must have” predated the lawsuit by “at least several months.” Once again, big companies are not allowed to delay very long—weeks matter.

Killer sofa, tarnished Xbox?

Thanks to an eagle-eyed student, I present here an ad showing a classic couch potato: generic chips, generic soda, non-generic Xbox. Tarnishment? (Under state law, because there’s no use as a mark for the defendant’s own goods and services here, even aside from nominative fair use.) Maybe the use is justified because it’s simply too hard to mock up a recognizable “generic” gaming system, given that there may be no such thing.

Rocket man

A guy towed a 25-foot rocket labeled “Viva Viagra” through Manhattan last month, and got sued by Pfizer for doing it. He argues that he didn’t mean to cause confusion, he’s just a satisfied customer, but the fact that he was doing it to promote his ad agency—whose business plan is unclear, and whose website incorporates other people’s trademarks as if they were advertising with the agency—may give him trouble because it makes him into a commercial user. Query: what would be the best defense for a pure, noncommercial Pfizer fan who did the same thing?

Jilted consultant's false endorsement claim fails for want of standing

Ott v. Ingenix, Inc., 2008 WL 4459411 (E.D. Wash.)

Ingenix helps state agencies develop fee schedules. At one point, Ingenix employed Ott as its Director of Research and Database. Ott left amicably and served as a paid consultant. While he was consulting for Ingenix, the company submitted bids to several agencies, listing Ott as a consultant. Ott alleged that he allowed his name to be included in the bids only on the condition that he be hired when the bids were successful. Montana awarded a project to Ingenix, but Ingenix didn’t hire Ott for it.

Ott sued for false representation of sponsorship or approval under §43(a)(1)(A). Ingenix challenged his standing, invoking decisions on prudential standing from other circuits. But Ott wasn’t using §43(a)(1)(B) to allege a competitive injury; he was alleging false association. Thus, he needed only to allege commercial injury based on the deceptive use of a trademark or its equivalent, a less demanding standard. However, Ott failed even that standard, because he disclaimed any allegation that his professional identity was equivalent to a trademark or that there had been any harm to his reputation. Thus, he lacked standing.

Interestingly, this rationale suggests that parties alleging initial interest confusion lack standing unless they actually compete: the court reasoned that Ott wasn’t alleging actual harm to his reputation, quoting the Restatement (Third) of Unfair Competition for the proposition that false association can harm reputation or good will when a purchaser is dissatisfied with the advertiser’s goods or services. There couldn’t be actual harm because Ott didn’t participate in delivering the services, so dissatisfaction couldn’t hurt his reputation. Similarly, if confusion dissipates before purchase, a plaintiff’s goodwill couldn’t be at risk. Standing is now such a powerful weapon for defendants that I expect to see it migrate more aggressively into §43(a)(1)(A). If false advertising plaintiffs have to allege specific, concrete stories of harm, then reflexive invocation of harm by trademark plaintiffs seeking to apply virtually identical statutory language shouldn’t suffice either.

Phoenix of Broward standard claims another victim

Furniture "R" Us, Inc. v. Leath Furniture, LLC, 2008 WL 4444007 (S.D. Fla.)

Plaintiff, doing business as Furniture Power, sued defendants, which ran Modernage Furniture Store and Planned Furniture Promotions (PFP), which promotes furniture sales at struggling stores. Furniture Power alleged that defendants misled the public when it advertised a “going out of business” sale, for which new furniture was procured, and artificially hiked retail prices to deceive customers into believing they were getting a better deal. The ads used these phrases: "Going Out of Business," "It's a total liquidation!" "Prices Slashed," "Huge Savings," "No Reasonable Offer Refused!" "Wall-to-Wall Savings!" "Must Sell It All," and "Nothing Held Back! Everything Goes!"

PFP argued that plaintiff lacked standing against it because it isn’t a direct competitor. However, parties not in direct competition may still have standing under Phoenix of Broward. Though the court was skeptical of the complaint’s allegations that the false ads deceived consumers and diverted them to defendants’ stores, it found that they sufficed to allege Article III standing.

Prudential standing, however, was a separate issue. The Phoenix of Broward test asks:

(1) Is the injury of a type that Congress sought to redress in providing a private remedy for violations of the [Lanham Act]?

(2) How direct or indirect is the asserted injury?

(3) Is the plaintiff proximate to or remote from the allegedly harmful conduct?

(4) How speculative is the damage claim?

(5) What are the risks of duplicative damages or complexity in apportioning damages?

(1) focuses on the Lanham Act’s aim: protecting commercial interests that can be harmed by a competitor’s false advertising and preventing diversion of reputation and goodwill. The complaint properly alleged harm to a commercial interest by way of customer diversion under this factor.

On (2), directness counsels in favor of standing when false advertising influences customers to choose defendant’s product over plaintiff’s. The court found the causal chain more attenuated here, because plaintiff alleged (1) false claims about liquidation, (2) false claims about price discounts, and (3) lost sales. But there was no “but for” allegation that the ads diverted consumers from plaintiff as opposed to from one of the many other furniture stores in the area. (Really? This doesn’t seem any more attenuated than any other false advertising claim in a market not dominated by a duopoly.) Thus, the second factor counseled against prudential standing.

Here, we see modern standing doctrine turning the false advertising provisions on their head: they were originally understood to cover statements about the advertiser’s own product, and false statements about competitors weren’t covered in some circuits, such that amendment was required to confirm the availability of that type of claim. But under this new interpretation of standing, it’s much, much harder to proceed against a false statement about the advertiser’s own product. Also of note: the court pointed out that this factor is similar to materiality. Except that the materiality of these allegedly false claims shouldn’t be judged as a matter of law on a motion to dismiss. In fact, materiality is often the type of thing one would want some evidence about; moreover, price claims are generally considered material, and the FTC considers the specific claims at issue here actionable if false. (For a suggestion to the contrary, see here.)

For (3), proximity, the question is whether there’s some other damaged group with a competitive interest that would be better positioned and likely to sue. This factor favored standing.

For (4), speculative damages—well, this one’s almost always going to favor the defendant, especially when we’re talking about a general consumer product rather than a small, concentrated market where single purchases have large dollar values (that is, cases in which the Lanham Act is a lot more useful than a tortious interference claim). And so it did here. Plaintiff’s allegations of lost profits were too speculative to help it here. Though lost profits are available under the Lanham Act, a jury would have to speculate to figure out how many customers chose not to shop at plaintiff’s store because of these ads, as opposed to choosing not to shop there for other reasons. (The court spoke of speculation about whether customers would have gone to still other furniture stores, but that can’t be right: it doesn’t make sense to assume that defendants’ ads would have diverted customers from plaintiff’s store to a third store. For purposes of analyzing plaintiff’s lost profits, non-party stores are irrelevant.) Likewise, plaintiff’s claim for defendants’ profits would also require speculation, because it would be hard to determine what revenues derived from false advertising and what were legitimate.

Again, we can see how the so-called standing test is really about kicking plaintiffs out of court. Except in the rare cases in which there’s a duopoly and every single advertising claim of note is false, these factors always favor defendants, requiring specificity at the pleading stage that is virtually impossible to provide even after a trial on the merits. There’s a reason that profit recovery generally involves burden-shifting when plaintiffs show an entitlement to profits; infringing defendants have the burden of showing what profits didn’t derive from their unlawful acts. But using standing to kick cases out means that defendants never have to face that rule in the first place.

Finally, because every competitor in the market could sue, there was a risk of duplicative damages and apportionment would be complex.

The court considered this a close call, but similar to Phoenix of Broward, which found no standing.

NYT on new food origin labeling regulations

Compliance is, it appears, spotty, at least for now, and the story highlights the law's limitations as well as the market forces that induce greater compliance by certain businesses whose consumers are attentive to country of origin.

Politics and publicity

Found on fivethirtyeight.com, this ad for John McCain has an explicitly misleading endorsement. I guess it's a good thing for the campaign that political speech is very hard to regulate, even when IP enters the picture.

Grouping prevails in multistate consumer class action

In re Pharmaceutical Industry Average Wholesale Price Litigation, --- F.Supp.2d ----, 2008 WL 4368945 (D. Mass.)

A rare victory for consumer protection class actions, accepting subclasses. Here’s the opinion from the benchmark bench trial finding liability under Massachusetts consumer protection law. (It seems quite obvious that the court’s initial finding of liability is important in certifying the class; the court is convinced that there is a wrong here, and denying a remedy is harder under those circumstances.) Here’s the FAQ from a website dedicated to the litigation. Here’s an AstraZeneca website about the related consumer settlement over Zoladex.

Plaintiffs moved to certify two nationwide classes under more than thirty state consumer protection laws. The basic claim, in extremely simplified form: drugmakers AstraZeneca and BMS “grossly inflated” the prices of certain doctor-administered drugs by misstating their Average Wholesale Prices (AWPs) in industry publications. Because insurance and Medicare reimbursement was based on AWPs, doctors could make a lot of money by prescribing the right drugs, pocketing the difference between the AWP and what they actually paid. Drug companies therefore manipulated and “marketed the spread” to influence doctors’ decisions, while successfully insisting that their contracts with doctors remain confidential. Doctors apparently sometimes said that AWP stood for “ain’t what’s paid.”

Not only did this stiff the reimbursers, it meant that doctors had distorted incentives in making what one might think ought to have been purely medical decisions, and the drug companies knew it. Given the serious conditions treated by the drugs at issue, including cancer, patients were unlikely to ask for different drugs or to switch doctors based on copayment costs, further reducing price-based competition. Even once reimbursers eventually learned that AWPs bore little relationship to actual prices, regulations and laws specifying use of AWP took time to change, meaning that the distorted payments continued for a while.

Though the published AWPs were fictitious, most knowledgeable insiders knew this. Some spread was generally considered tolerable as compensation for underpayments to physicians for other services. Plaintiffs’ expert at the bellwether trial concluded that a spread of more than 30% was unreasonable, and a number of the drugs at issue exceeded that spread—one BMS spread was over 1100%.

The two classes at issue were (1) the Third-Party Payor MediGap Supplemental Insurance Class (the “Medigap Class”), under 31 states’ laws; and (2) the Consumer and Third-Party Payor Class for Medicare Part B Drugs Outside of the Medicare Context (the “Non-Medicare Class”) under 39 state’s laws. The court certified (1) and certified (2) for claims under statutes that didn’t require proof of reliance. This corresponded with the Massachusetts classes certified for the bellwether trial, which resulted in victory for plaintiffs (on appeal).

At the bellwether trial, the court found that AstraZeneca’s published AWP for Zoladex was inflated by from 40-169%, and that this was unfair and deceptive. Similarly, it found liability for BMS for five drugs (out of six at issue). The “mega-spreads” of several hundred percent and more were “shocking” and on their own showed unfairness and deception sufficient to impose liability under Massachusetts law. The court found scienter: defendants knew that third-party payors and the government didn’t understand the extent of the mega-spreads between AWPs and true costs, and they also knew that laws and contracts locked the payors into an AWP-based payment scheme. Further, they knew the “devastating impact” the mega-spreads had on “old and sick patients required to make co-payments they could ill afford.” They helped some needy patients with subsidies. But they didn’t give a damn about the spiraling drug costs to the third-party payors and the government.

Class certification requires (1) numerosity; (2) common questions of law or fact; (3) typicality; (4) adequate representation. Rule 23(b)(3) certification further requires the court to find that common questions predominate and that a class action is superior to the alternatives. Courts are encouraged to conduct rigorous inquiries into these issues, as the court did in conducting the bellwether trial—along with presiding for seven years over this multi-district litigation. It was thus in a good position to predict how key issues would play out.

Defendants argued that (1) differences in state consumer protection statutes would make managing a class action overwhelmingly difficult; (2) these same differences prevent a finding of predominance; and (3) the claims involve individualized determinations on scienter, reliance, causation and damages.

Plaintiffs proposed to create a common denominator standard for the various state laws, a sort of Esperanto: an intent to deceive jury instruction requiring plaintiffs to prove fraud, which they argued would constitute a violation of most, if not all, state unfair trade practice standards. The fate of Esperanto was the fate of this proposal (minus William Shatner).

The court agreed that garden-variety fraud would violate most state consumer protection laws, and found it a tempting idea. But defendants argued that this would violate the due process rights of absent class members who could recover under less stringent standards. (Yeah, I’m sure defendants are really concerned about those absent class members. And I’m sure it’s really a plausible alternative to have thousands of individual lawsuits.) The court agreed that due process required attention to varying state standards. This is not an academic dispute, because in the bellwether trial plaintiffs proved deception only in some years, while prevailing more broadly under the unfairness standard.

In the alternative, plaintiffs proposed grouping to deal with state-law differences on particular matters. As the court noted, “[w]hile numerous courts have talked-the-talk that grouping of multiple state laws is lawful and possible, very few courts have walked the grouping walk.” It’s plaintiffs’ burden to show how grouping would work.

Here, the relevant laws are little FTC acts, which usually follow one of three statutory models: (1) a prohibition of unfair methods of competition and unfair/deceptive acts or practices; (2) a ban on “false, misleading, or deceptive acts or practices”; and (3) a list of specific trade practices deemed unlawful. Twenty-six states defer to FTC interpretations of the FTCA. Plaintiffs proposed eight groups of states. The court accepted three, and excluded some states with unique laws (Indiana and Wisconsin), but held open the possibility of certifying a separate statewide class and remanding to the appropriate district court.

Then, despite the similarity of language in the groups, defendants argued that state-by-state interpretive differences required rejection of the class. Reliance: many state laws require reliance, and third-party payors had different levels of knowledge and sophistication with respect to AWP. Thus, individual fact issues would predominate in states where plaintiffs are required to establish reliance. In fraud cases, many courts have rejected class actions on this ground. For the Medigap class, this was all beside the point, because the third-party payors were contractually required to pay all or part of a Medicare beneficiary’s copayment, which was statutorily based on the AWP: reliance is contractual and knowledge is irrelevant.

For the non-Medicare class, the reliance analysis is different. Based on the bellwether trial, the court found that the typical third-party payor didn’t know about the existence of the mega-spreads because manufacturers took careful steps to preserve the secrecy of the spreads. But information began to spread, and the typical third-party payor did know by 2001. Between then, knowledge varied significantly. Thus, the court declined to certify the non-Medicare class under the laws of states requiring reliance. (And only consumer members of the proposed class were allowed under Michigan and Missouri laws, because those states don’t cover purchases for business/commercial purposes; the same is true in Oregon, but Oregon consumers were also excluded because of that state’s reliance requirement.) The court identified a number of states where reliance is not required, including states in which a general showing that a reasonable consumer would have relied on the representation suffices without individualized showings of reliance. Because California law is in a state of flux, the court declined to certify the non-Medicare class under California law.

Defendants also argued that scienter requirements vary, implicating predominance and manageability. However, most of the variance centers around the scienter requirement for omissions. Plaintiffs have two theories: knowing and intentionally false misrepresentations of AWP, and unfair creation of mega-spreads. Thus, the varying standards do not pose insuperable management issues; the court can ask the jury specific questions.

Punitives: The standards have similar wording (and in fact are increasingly constitutionalized) and should not cause jury instruction problems.

Causation: Defendants argued that individualized fact issues predominate in causation analysis, given that many third-party payor learned that AWPs were false but nonetheless continued to use them as a benchmark. Blue Cross Blue Shield of Massachusetts, for example, continued to use AWP as its pricing benchmark even after Congress abandoned it for Medicare. It was worried that it would either lose network providers or push patients into more-expensive hospitals if it pressed for lower AWPs on doctor-administered drugs.

For the Medigap class, contractual obligation also removes individual factual issues on causation/knowledge. For the non-Medicare class, the argument had more force. However, the court concluded that defendants were conflating reliance with causation. The undisputed evidence was that, before 2005, third-party payors didn’t have access to the confidential pricing data necessary to calculate an alternative price even if they knew about the spread. Thus, knowledge wouldn’t have allowed them to change the price unilaterally. Medicare itself took 3 years to develop an alternative because of the complexity of simultaneously increasing prices for doctors’ services. If AWPs had been lower, plaintiffs in both classes would foreseeably have paid less. Thus, individualized fact issues on causation do not predominate.

Defendants argued that the states vary substantially in statutes of limitations, and their interpretations of the discovery rule, fraudulent concealment, equitable tolling, and equitable estoppel. This could be important because the most sophisticated third-party payors should have known about the pricing issues by 1997; the court looked at the effect on states with longer statutes of limitations than Massachusetts’ four years. The court agreed that separate trials would be necessary for third-party payors with special knowledge (those that operated an HMO or specialty pharmacy) in order to determine when the statue of limitations began running; such issues “took a huge amount of time and resources during the bellwether trial.” Thus, the court declined to certify classes for time periods beyond the relevant state statutes of limitations.

Defendants also asserted other possible affirmative defenses, but the court found them “poorly brief[ed].”

Defendants also argued that damages would be individualized, but the court considered that a “red herring,” because AWP was virtually universal. Atypical exceptions could be carved out individually if necessary; individuating damages is rarely determinative where liability is subject to common proof.

With all that out of the way, commonality and numerosity were easy (there are more than 11,000 third-party payors nationwide, plus consumers). Typicality and adequacy were also present, though the court did dismiss certain representatives on individual grounds. The court found that the common issues predominated, and that class treatment was superior to the alternatives. With respect to the “extent and nature” of the litigation, the court described this case as “the seven years’ war.” It’s “hard-fought, costly multidistric litigation” involving “a highly complex system for reimbursement for drugs and some of the finest lawyers in the country.” The court now has unique experience with “these Kafka-esque and opaque drug pricing issues.” A national class action is superior to dividing up this “monster” case and certifying thirty-plus separate class actions, which would require the same plaintiffs, defendants, experts and fact witnesses to traipse all over the country trying the same issues under substantially similar standards.

Another consideration was class members’ interests in individually controlling the prosecution of separate actions. The approximately 11,000 third-party payors include many small plans without the resources to litigate. There are some big third-party payors like Aetna, Cigna, and BC/BS, but in the court’s experience with this and other litigation, those third-party payors that prefer to control their own litigation tend to opt out and litigate or settle independently, leaving the smaller plaintiffs to fend for themselves.

Nonetheless, the court conceded that manageability will be difficult and that reasonable minds could differ about the carve-up-the-monster option, allowing individual federal judges to interpret the law of their host states. But, having closely studied the statutes and gained an understanding of the factual issues, the court still concluded that a multi-state class action was superior.

Finally, defendant AstraZeneca raised a 7^th Amendment challenge to the bellwether trial methodology, which the court adopted after denying without prejudice plaintiffs’ motion to certify national classes. AZ argued that if the national class were certifiable in 2005, then denying certification but conducting a bellwether trial “structurally infringed” on AZ’s right to have a jury’s factual determinations control the Massachusetts class action.

The court called this argument “fundamentally flawed.” Given that the Massachusetts law provides equitable relief, it’s well established that the judge can find facts. Moreover, the Manual for Complex Litigation supports the idea of bellwether trials.

Pa. consumer class action requires reliance

Hunt v. United States Tobacco Co., 538 F.3d 217 (3d Cir. 2008)

Hunt’s putative class action alleged that the defendant (Smokeless) engaged in anticompetitive behavior, artificially inflating the price of its smokeless tobacco by at least 7 cents a can more than an efficient market would have charged. The misconduct allegededly included theft and concealment of competitors’ distribution racks and ads (!) as well as disparaging and false statements about competitors’ products. In a lawsuit by a competitor, a jury found Smokeless liable for the underlying antitrust violations. Hunt claimed that consumers relied on a presumption that they were paying prices set by an efficient market.

The court of appeals held that a private plaintiff alleging deceptive, rather than fraudulent, conduct under Pennsylvania’s Uniform Trade Practices and Consumer Protection Law must prove justifiable reliance. Because Pennsylvania courts have consistently required justifiable reliance, not simply a causal connection between misrepresentation and harm, the court of appeals rejected the district court’s reasoning that the consumer protection law was to be construed liberally and should not require plaintiffs to prove all the elements of common-law fraud. Because Hunt’s complaint lacked such an allegation of justifiable reliance, the case was remanded for a ruling on leave to amend.

Daily dilution dose

While I was in New Orleans, I saw the sign for the Junior League of New Orleans’ thrift store, Bloomindeals. At least that’s how I read the sign. On the JLNO’s website, it’s typed Bloomin’DEALS, for what I expect are the obvious reasons, and the logo on the website puts a space between Bloomin and Deals. Sufficient to avoid dilution?

A different Bloomin’deals in North Carolina.

Tulane IP conference, part 6

Raizel Liebler, Political Economy and Intellectual Property of User-Created Content

She’s concerned with the way creators lose ownership and control, particularly of user-generated content. Host companies like YouTube are worth a lot of money. People who create the content aren’t receiving monetary value for it.

Perhaps that’s not what users are looking for. Perhaps they seek recognition. But we know they’re not getting compensation. Some of the UGC may be low-quality or pirated. And the contributions of the site in structuring the site are valuable in their own right. But in the end, the site’s value comes from UGC.

Owners of distribution means, and owners of original works, often take extreme measures to protect their works/sites. LiveJournal’s Strikethrough incident: LJ, a blogging platform, received pressure from allegations that “child pornography” was present on the site. Instead of informing users and groups, LJ just did a keyword search and removed journals that contained targeted words. There was no way for people to retrieve or back up their journals. Some materials LJ removed were indeed related to child pornography, but they also deleted a discussion group on Nabokov’s Lolita and support groups for survivors of sexual assault. There was ultimately some restoration of the journals, but the site’s relationship with users was badly damaged.

Where do we go from here? As users become economically significant producers, we need to think about these kinds of disputes. What happens when the site goes down or changes its model? Traditional IP models don’t fully address this type of interaction between users and platforms. (Comment: I’ve written about this type of issue in Power Without Responsibility.) Companies are unlikely to change their ToS. Is partial user-ownership a solution? Contributing content ought to give you a share of some type in the property.

My thoughts: The work of Viviana Zelizer on the social meaning of money is incredibly important here. Money is funny stuff; I don’t want UGC to keep us poor, but maybe there’s a way to manage a gift economy that interpenetrates a monetary economy that works without assimilating everything to the market. I have some initial thoughts in User-Generated Discontent.

Comment: Worth looking at whether value of sites like YouTube comes from aggregation. You would never be able to sell a 20-second video on your own; the market attaches some value to aggregation. (My reaction: on the other hand, we don’t say that iTunes contributes so much of the value that it should be the only one who gets paid.)

Comment: The issue here is surplus allocation. We don’t have to pay users because they are empirically contributing UGC for free. But YouTube doesn’t need the entirety of its billions in market valuation. If it’s relatively cost-free to reallocate, maybe we should, but there’s no efficiency story either way; it’s distributional and moral.

Wendy Seltzer: Are there info problems that make this seemingly voluntary exchange unfair? That is, do users not recognize how valuable their contributions are? Do they not understand how they might want to reassert control over their contributions in the future? (A privacy/control concern.) Otherwise we might expect users to react by moving away from these services.

A: There are costs in moving info that make it hard to move away (especially when a site is characterized by network effects).

Comment: Part of copyright owners’ argument against YouTube is that YT doesn’t make it easy to find how many copies of a work there are. Forced disclosure of value added to the aggregate might be of interest—how do my 100 hits compare to the aggregate of all hits? (I’m not as sure this will be helpful, given the whole long tail business; it’s precisely because the whole is greater than the sum of its parts that it’s hard to value.)

Comment: The moment there’s a formal financial relationship with users, that changes the whole tenor of the fair use argument for UGC.

A: She agrees, but we’re dealing with two separate types of YT uses. Some are arguably fair use. Others are user-posted content which doesn’t need a fair use claim. (I think there’s probably a spectrum, but the point is still valid.) She is interested here in non-fair use UGC. (Hmm. Doing something to monetize non-fair use UGC could make the fair use problem even worse, by making fair uses even harder to profit from; if one were required to signal whether one was offering non-fair use UGC before seeking to monetize, that might also make it a lot easier to find and threaten arguable-fair use UGC.)

Alina Ng, Authorial Rights in the Copyright System

Are rights things to be tolerated in a utilitarian system? It’s impossible to calibrate them in utilitarian terms.

Her proposal: conceptualize copyright as a natural right, but not a Lockean or Hegelian right. We should base author’s rights on creativity, not something tolerated to promote progress. When we base author’s rights on the fact of creation, we naturally put in limitations to those rights. For example, Locke’s proviso of as good and enough left over for others, and a prohibition on waste.

What follows: separation of economic rights and authors’ rights. No separation between idea and expression; what is creative ought to be protected. Less emphasis on the market.

Harold Bloom says: As a society, we are what we read. Literature is at the core of the human.

Q: What do you want us to do? You want moral rights, and what else? Rewarding creativity sounds like increasing copyright for really creative works. (Hm, seems to me that to speak of “rewards” is already to leave Ng’s paradigm.) That’s still ultimately economic, and recognition of merit doesn’t get you very far without more money. (Again, only if all you care about is money.) Also, if a really creative author should get more, who’s going to judge?

A: This is not a suggestion of moral rights. She is trying to get us to stop thinking in economic terms. There’s a moral dimension to creativity.

Q: Can you talk more about works of greater quality?

A: We may need more Shakespeare. A moral obligation on the author to create works that are better for society. Maybe a work ought to be beneficial before it should be protected. Denying copyright to immoral works? That might encourage their proliferation, with a deleterious effect on society, so she hasn’t come to any conclusions.

My Q: How does the idea/expression collapse play out? If I copy your great new idea for a reality show, but the expression is different, would you be able to succeed in your natural-rights-based copyright claim?

Ted Sichelman, Game Theory, Quantum Mechanics, and Intellectual Property

Key assumption of classical game theory applied to law: rights are binary. In a two-party game, each party is trying to decide whether to build, copy, or license. If the parties can’t communicate before the game starts, we can model the decision once we assign values to the costs, benefits, and risks of losing a lawsuit over copying. Meanwhile, IP has a deadweight loss. (His initial model assumes that the parties lack information about the value consumers place on the good and that they can’t engage in price discrimination.)

When there are no IP rights, the classical public goods problem means no product is built: they both refuse to accept the consequences of being copied, which would drive the price down to marginal cost (which he assumes is zero, which shouldn’t fit for a physical product, but I don’t think it much affects the overall analysis). With IP rights, a product is built but there’s rent dissipation and deadweight loss.

In quantum game theory, you can have probabalistic rights, and you can also entangle the parties. If you apply quantum mechanics to the prisoner’s dilemma, you can get mixed-strategy solutions. Some people have applied this to the public goods problem, solving free rider problems through quantum entanglement (punishing each person for illegal downloads). The problem is that entanglement depends on the existence of a quantum computer.

Others have discussed probabilistic patent rights as a way to reduce deadweight losses. Here’s the new model: the government comes in and weakens patent rights so they’re only infringed x% of the time. Government is a third-party player that changes players’ choices. He is working on ways for players to effect probabilistic rights, e.g. by designing around a patent. Result: players will have incentives to engage in non-classical strategies, a mixed strategy of licensing and building. If they both build and the patent’s bad, that’s actually good for society because then they can both compete and cut down on deadweight loss (whereas if they both built and the patent were valid, there’d be loss from the useless building of one party and the product would sell at a higher price). Turns out if patents are valid 80% of the time under his assumptions, they both build about 69% of the time, and only 3% of the time do you get no product at all.

Weaker rights can actually create better results, though rights that are too weak don’t work: the weaker they are the more often you fail to get a product at all.

Implications: provide an alternative explanation for cooperation—e.g., ex post licensing. Also can affect the way we consider uncertainty. Uncertainty increases costs ex post, but may have ex ante advantages. Weakening rights in a fuzzy way can eliminate deadweight loss and spur innovation.

Caveats: don’t weaken rights too much. We also need to take account of follow-on inventions, who might be affected by weakened rights. Also multiple players, transaction costs, and other inefficiencies.

Q: If uncertainty can benefit, would adding additional period of time to patent life also add benefit because of uncertainty over present expected value?

A: Ayres and Klemperer (1999) discuss this argument. If it were a 100% right, it would just increase deadweight loss. But if a competitor may risk copying, it will reduce deadweight losses through competition.

Q: I thought that the uncertainty of litigation meant that this was the world in which we live, adding a probabalistic element to any outcome. An attorney will tell you “you have an 80% chance of winning this case.” What is the difference between error costs and probabalistic rights?

A: There may be an ex post difference where courts and parties don’t spend a lot of time trying to get the “right,” answer, admitting that there is no right answer. But behavior is pretty much the same. It just might affect how much we want to work on reducing uncertainty in claim construction, for example.

Q: How does behavioral economics play into this? Your story: If parties are rational, the extremes are moderated by the fact that rights are probabalistic. Behavioral economic story: predictable deviations from perfect rationality moderate the extreme outcomes.

A: There is some testing that asks how students behave in these games and asks if they behave consistently with quantum predictions—it may be a different way of expressing the point.

Tulane IP conference, part 5

A popular meme: the enclosure movement in England is like the increasing rights granted by copyright. Why look at historical analogies? To gain useful information about the current problem. So we want to be sure we know what happened in the historical event and its normative value, in order to translate to a current prediction. E.g., the Munich analogy: negotiating with an expansionist dictator did not prevent WWII, therefore we should not negotiate with a current expansionist dictator.

The enclosure analogy: 15^th-18^th c. England. According to the standard analogy: there was a lot of land held in common by the public/village. Then large landowners, with the assistance of Parliament, appropriated these lands to themselves, forcing villagers off their lands to become industrial workers. Similarly, large copyright owners are expanding copyright ownership into the public domain, with bad results—the public is being unjustly deprived of public property.

Both sides of this analogy are mistaken. But if you fix both mistakes, there’s still an analogy to be made.

Starting with copyright: What is the public domain, and what does it mean to enclose it? Traditional view: whole works are like cows, either roaming the public domain or fenced in by owners. (I really don’t think this is the traditional view. Pam Samuelson has done a great job mapping the public domain in this sense.) Restoring foreign works does expand the fenced-in area. But that’s not a huge deal in the overall scheme of things, and it’s almost never cited as harm to the public domain. Anticircumvention, term extension, contracts, etc. take priority over harms in the standard account.

What about expanding the idea of enclosure to diversion? Works are newly born (like cows) and those that would in the past have been born into the public domain are instead born into enclosure. Similar to the idea that water is diverted from public use to private. Diversion at the front-end. New categories of protected works: architecture, boat hulls, semiconductor chips, software; also the elimination of formalities.

For the most part, the works poured into the enclosed area are not by large copyright owners; they always registered their works and observed the formalities. So these aren’t analogous to the property of large landowners. (And they would have been protected by common-law copyright pre-1978.) So there’s not much that’s been diverted as a result of decreased formalities. (Comment: Google would probably beg to differ, as would a number of other defendants.)

Term extension also prevents flow into the public domain on the back end. But that’s not like drying up the flow of water into a lake. Works don’t evaporate. (Comment: Unless they’re on fragile materials, like early films, or older books, or computer media that is now obsolete.) It’s just a failure of an expected benefit to materialize.

One response to his argument thus far: you’ve got the wrong definition of public domain. Scholars have proposed different definitions that don’t rely on whole works. But that doesn’t mesh well with the spatial analogy, because every part of every work is subject to a fair use claim, putting all works into the public domain. This makes the public domain no longer two-dimensional, but a mathematical set of uses that are not subject to copyright owner’s rights. Yochai Benkler: enclosure is a change in law that moves certain uses from public domain to owners’ rights. Defined this way, you have de jure and de facto (chilling effect) enclosure.

Basic point: these effects aren’t as big as they’re usually described, though you can definitely point to uses that are no longer legal. On balance, the case for enclosure is much weaker than the analogy typically portrays it. What’s really going on is a conflict over long-term practices carried out in the shadow of the law. Interestingly, the history of land enclosure turns out to be very similar. What happened in England was not an appropriation of land held by peasants in the name of large landowners. Land ownership didn’t change, but use rights disappeared. These use rights had never been recognized by law but had been exercised anyway. So he’d propose reorganizing the enclosure analogy, looking for causes rather than lessons. The English property system was reorganized because of technological advances making land more valuable to the landowners because food could be produced for export; similarly here, consumers’ uses now conflict with the realm in which large businesses are active.

Comment: You put a thumb on the scales by using 15^th-19^th centuries in England and then starting the copyright analysis in 1976, since the changes from original copyright were pretty strong by 1909.

A: He spends some time in the paper on the proper timeframe. 18^th-19^th centuries were when Parliament started helping large landowners out. For copyright, you have to limit the timeframe to avoid wrapping in other developments. Copyright didn’t exist in 1708, so anything greater than zero was a huge expansion. Likewise, if you start in 1909, you have lots of changes—new technology, the development of a mass consumer market that made copyright more valuable. (Comment: except that those are exactly the things Boyden says about land enclosure. They may not be reversible, but they don’t make the analogy any less analogous.)

Q: Why make analogies at all?

A: Taken up a bit in the paper. It’s always artificial; rhetorical value may exceed the payoff.

Elizabeth Winston, The Role of the Public in Enforcing Patent Law: Qui Tam Actions and False Marking

False marking has almost no legislative history. Its language has changed little since 1842. It’s the only qui tam action available under the patent law, and it’s punitive in its basis. Early decision: a quasi-criminal character, thus requiring strict construal. Very few cases about false marking since 1842.

The marking has to be false and done in order to deceive the public. The fine is $500 for each offense.

In order to be properly marked, it’s not enough to label something “patented.” You have to add the number of the patent. If it can’t be done on the article (e.g., method patents), you still have to affix to the packaging or use some other way to communicate patent status. False marking also requires that the patentee or someone under the patentee’s control did the marking.

How to be false? If the item doesn’t read on the patent. If a court later construes the patent so that the item doesn’t read, and you continue to mark, that’s false. One court even holds that marking after losing a Markman hearing can be false. You might have an application that didn’t mature and you optimistically label your product patented; such labeling is false. If the patent has expired—a Solo paper cup, currently being litigated in Virginia. If product is specifically marked patented, but it’s really the method of producing it that’s patented, that’s false. Sometimes when extraneous patents are present: company owns 15 patents and lists them on every item produced no matter what.

Biggest issue: is there an intent to deceive the public. Oversight isn’t sufficient. Given the abuse inherent in a qui tam action, where the plaintiff doesn’t need to have been harmed, we need some limits, and intent to deceive is the one we’ve chosen.

Why ban false marking? Allowing marking with expired patents would disrupt the balance between private and public rights. The public should be able to rely on patent numbers rather than having to examine whether a patent is expired (etc.). The false marking externalizes the risk of a determination of patent status, increasing the cost of determining what’s covered by patents and hindering progress.

So why so few actions? The caselaw is broken. The statutory language is open-ended, but courts don’t have a theory. It’s really hard to prove intent to deceive. And courts don’t award $500 per false marking. They simply don’t do it. So it’s economically inefficient to sue.

Interpretation could solve it. The statute says “per offense,” but doesn’t define an offense. Nor does it say who must prove bad intent.

First recommendation: shift the burden of production on intent. Go with an objective recklessness standard. Patent law has already done this in Recido (sp? I’m not a patent person). Impose a burden that’s shiftable. If you know your patent’s expired, you are likely to be engaging in false marking. If you decided to mark your unpatented item as patented, shift the burden to you to show no intent to deceive.

Second: per offense: Patent litigation takes $650,000 for a case worth less than a million; patent counsel bill at over $250/hour. Current law: base marking fine on number of decisions made to mark, which usually turns out to be one. We need to increase economic recovery. Her proposal: do it per article, but allow courts to reduce it based on the culpability of the false marker. Measure culpability by measuring materiality. If it’s a less experienced consumer, patents may have more of an effect; customers for a very expensive specialized machine are more likely to do the research. Look at the variety and the extent of the false marking, the extent of the potential harm, and the extent to which false marking can add to market-excluding power.

Q: Why would consumers care?

A: They may still be harmed—that’s why we have qui tam statutes. (Comment: this is why I think that materiality might not be helpful. False marking is a drag on the system overall, but it’s hard to find individual consumers, or even individual competitors, who are directly harmed. If it’s regulatory, then we should probably pay less attention to materiality than we do in false advertising.) The burden and the risk should be on the patentee; intent can control for things like uncertainties in the scope of the patent.

I ended up going to another panel, but I enjoyed the historical account of newspaper practices and economics given in the paper by Bob Brauneis, Transformation of Originality, which argues that newspapers contributed to the development of the exclusion of facts from copyright’s coverage due to strategic decisions at the time that some form of IP protection became desirable for them.

Tulane IP conference, part 4

Mary LaFrance, Lost in Translation: Comparing the Trademark Status of Abbreviations and Foreign Words

TM protection for abbreviations of generic or descriptive terms. What determines whether such abbreviations are protectable? Can they be inherently distinctive? 1997 case: WSI for Welding Services Inc., held generic when spelled out. So what about WSI? There are acronyms, which can be pronounced like words (e.g., LASIX), and mere initialisms, which aren’t. The vast majority of litigated cases involve initialisms.

In some circuits, the chances of getting TM protection are much better if your abbreviation has a meaning that is not necessarily connected to the products. POLY: held by 2d Circuit to be distinctive for polyethelene pitchers. Double entendre with a woman’s name: Poly Pitcher, which sounds like Molly Pitcher. Still, most of us would probably recognize Poly as short for polyester or something like that and consider it descriptive. BEARS: held arbitrary even though it’s an acronym for British European American Racing Series, a descriptive term for motorcycle racing; since it sounds like an animal, it’s arbitrary.

Most cases come from the CCPA, and they mostly make sense. Modern Optics: CV, standing for “continuous vision,” a type of trifocal lens. The term was highly descriptive, but CV isn’t itself descriptive, for lack of evidence that CV was a generally recognized term for the phrase. As a general rule, initials aren’t descriptive unless they’ve become generally understood as representing descriptive words such that they’re synonymous with the phrase. The burden is thus on the opposer. Example of term barred on this rationale: IM for instant messaging. (Query whether rise of netspeak makes lots more initialisms recognizable and thus descriptive.)

TTAB has pretty consistently followed this approach. Sometimes, though, they conflate the issue of genericism with that of secondary meaning, looking to whether an initialism has secondary meaning and then skipping genericism. Outside the TTAB and the Federal Circuit, analysis has been less clear-cut. SDNY: several courts have held initials inherently descriptive, because letters of the alphabet are available to everyone. But TMs don’t have to be original, and words from a dictionary can be arbitrary applied to particular goods/services. And yet that’s influenced courts in a number of other circuits. (I wouldn’t say it’s the dictionary that makes availability important—it’s the competitive need of others to use the initials, which they might do for convenience or shorthand.) The Ninth Circuit has said initials are inherently descriptive, especially when derived from a corporate name. Anheuser-Busch has had difficulty protecting the AB mark. (I think there’s something to this, considering the inherently limited number of short initials available—look at the competition to get an attractive three-letter code for the stock tickers, or the value of three-letter domain names. The concern isn’t so much that another business will want to use WSI, but perhaps Brown’s Welding Services Inc. will want to use BWSI, for perfectly good reasons.)

LA for low alcohol: the 7th Circuit rebuttably presumed the initials descriptive, because they stood for a descriptive phrase. That’s the opposite of the Modern Optics presumption. Almost the same facts in the 8th Circuit, which went the other way on LA for low alcohol, treating it as suggestive. (I think context is important here: this isn’t a TM on a business name or a full product name; TM protection is being used to sue other products bearing other house marks, e.g., Labatt’s LA. And that to me raises special competitive concerns.)

Foreign words raise similar issues of translation: how likely are ordinary consumers to translate the foreign word into its equivalent? Initialisms are also about translation: will a consumer think that WSI means “some company that provides welding services” rather than “a particular company that provides welding services.” Unfortunately, the foreign equivalents cases are also kind of confused, because people’s translation capacities and tendencies differ. Most courts ask whether an “appreciable number” of consumers would translate. Issues of international comity are also highly influential, but those policy considerations don’t affect initialisms.

Blue Ribbon & Cordon Bleu are not equivalent, because they convey a different commercial impression. Commercial impression is a potential way to navigate the abbreviation cases.

Bob Brauneis: Isn’t the issue one of assessing competitor need, esp. with new products or services in which the abbreviation may well become the new reference, but we’re not sure yet.

LaFrance: One court raised this possibility.

Brauneis: The concern is not whether a term is statically descriptive, but dynamic: descriptiveness provides a testing period of several years, precluding registration/protection very early on when we’re just uncertain about what will happen. So he’s partial to the 7th Circuit at least when a product is new. If you want TM protection, just prove secondary meaning—the rule is not a bar to TM protection.

Zahr Stauffer: In the TM relation, the abbreviation refers to the signifier. It’s a horizontal reference, not a reference to the signified. Is that the same as the foreign equivalents situation?

LaFrance: Increasingly, she thinks that foreign equivalents have little to offer, except for the idea of commercial impression.

Lisa Ramsey: This raises questions about the Abercrombie spectrum itself. Maybe Abercrombie just doesn’t cover the questions that we need to be asking. (Like product design, perhaps?) Courts may be concerned about control of language/letters. Given that rights extend beyond verbatim copying, treating these marks as inherently distinctive gives some pretty broad rights.

LaFrance: In that light, it’s really interesting that the TTAB standard is so applicant-favorable, since their treatment is what determines whether a mark can become incontestable, and incontestability gets rid of any future descriptiveness challenges.

Laura Heymann: This may be a way to explore ways in which consumers make meaning. The TM holder creates many initials, but IM is a term adopted, perhaps even created, by consumers. Compare: Coke, VW Bug, ACE, FedEx, Mickey D’s.

Brauneis: Also related are abbreviated prefixes/suffixes: iPod, eTrade.

Stauffer: Also ask whether the abbreviation replaces the original mark: Kentucky Fried Chicken is gone, replaced by KFC.

LaFrance: Very few cases seem to involve such an evolution.

Brauneis: Companies often move to initials in new countries: Kentucky Fried Chicken means nothing in China; Hennes & Mauritz sounds germanic, but H&M moved easily into new markets.

Lisa Ramsey, Free Speech and International Obligations to Protect Trademarks

The US and other nations can protect free expression without violating trade obligations, such as the Paris Convention and TRIPs. Those agreements have some built-in flexibilities and free speech protections. Moreover, nations deserve deference in balancing trademark and free expression.

In the US, courts protect speech by interpreting TM narrowly or interpreting exceptions broadly, and many people argue that courts should be even more active in doing so. Here’s the risk: someone would argue, as they have occasionally suggested with respect to copyright’s fair use, that these broad interpretations violate our obligations under the three-step test.

TRIPs: our obligations are much more flexible than you might think, especially in trademark. Members have discretion in implementation in all areas, as Dinwoodie has argued, and the TM-specific provisions provide extra flexibility. Dinwoodie has suggested a “new federalist” approach—the ability to experiment with different ways of protecting IP. There’s a general consensus that expression matters, even if there are different ways of thinking about free speech.

In close cases, therefore, WTO should defer to speech-protective standards. She doesn’t advocate WTO adoption of rules for when speech should trump trademark. Unlike national courts, the WTO is unlikely to come up with speech-protective standards on its own; panels are not necessarily representative of speech-protective backgrounds. So authority to make law should rest with the individual countries.

What about a law of user’s rights? Exemptions for news reporting, comparative advertising. The concern: if we have that, then panels will treat that as exclusive. So any move in that direction should specify that it’s a nonexclusive list.

Examples of specific changes: She’s argued that TM shouldn’t protect descriptive terms. The Paris Convention allows countries to protect descriptive terms, but doesn’t actually require it. What about dilution? It’s arguable that dilution protection isn’t required, because protection for well-known marks is different than dilution. There is a Joint Recommendation suggesting that dilution is required, but the WTO could treat that as non-binding. Moreover, the well-known marks requirement covers uses “in the course of trade,” which would allow a trademark or commercial use requirement. “In the course of trade” is a known phrase in Europe and other nations, and she’s investigating that now. A robust commercial/trademark use requirement could legitimately be used to protect speech.

TRIPs says members can provide limited exceptions, such as descriptive use of a mark, provided that such exceptions take into account the interests of the mark owner and third parties. This is much more flexible than the copyright exceptions provision. So even if you don’t believe that the provision for rights allows a TM use requirement, you could find it in the exceptions provision, because a TM use requirement respects the mark owner’s interest and benefits third parties.

Q: It’s important to distinguish between international lawmaking and lawmaking by WTO panels; shares your concerns about WTO panels, which are focused on trade and not speech. That makes incorporation of the Paris Convention into TRIPs problematic, because Paris was directed at different concerns. But it’s also important to remember that the US fetishizes speech.

Australia, for example, has no explicit dilution protection; it protects speech differently, by more narrowly defining the scope of the rights. Australia does have a TM use requirement.

Ramsey: That divergence is particularly true with respect to commercial speech. But there are a variety of ways even in the US to take speech interests into account, narrow definition being one of them. (My take on this: the US fetishizes free speech in part because we’re litigious; the First Amendment defense is often useful in fighting a case that should never have been brought and likely wouldn’t have been in other countries.)

Comment: Thinks it unlikely that WTO panels want to make rules; they will avoid making rules as much as they can and try to limit the number of issues they resolve. The members wouldn’t tolerate much activism of that sort by the panels. There’s also been some discussion of free speech issues in the context of GI protection. The US and Australia are not happy with European demands over GIs, and free speech has been one of the arguments. Even if marks aren’t generic, the ways in which Europe is proposing to regulate would harm free speech. (I’m guessing she’s talking about bans on using terms such as ‘like’ and ‘style’ and comparative advertising restrictions.)

McGeveran: You’re not theoretically opposed to international rules; your argument is practical: good rules are unlikely to emerge from the WTO from this configuration of national interests.

Ramsey: Yes, she believes rules are better than standards at the national level, but not at the international level if they’re likely to be restrictive. She’s concerned about the likelihood that any rule-like exceptions will be interpreted to exclude other limitations.

Comment: It’s also much easier to change a national list of enumerated exceptions than an international list. But a list of enumerated exceptions, plus a catch-all that’s drafted to make clear that the provision is actually a standard with a list of representative examples, could be a good idea.

Tulane IP conference, part 3

Michael Grynberg, Things are Worse than We Think: Trademark Defenses in a Formalistic Age

Underlying premise: more TM defenses would be good. But courts have less leeway than you might think. People who don’t do TM say that the Lanham Act specifies defenses and you can’t just add them. People who do TM refer to TM’s rich common-law history and point out that courts make stuff up all the time (e.g., DMCA elements of circumvention like “assisting somehow with infringement”).

Congress allowed courts to run with ambiguous language in the Lanham Act and amended it to endorse broad interpretations of TM rights. Meanwhile, formalism has become dominant as a matter of judicial, especially Supreme Court, interpretation. Moseley and KP Permanent relied on the statutory language; Dastar went about defining “origin” with reference to the statute.

Well, what about Wal-Mart? Isn’t that the epitome of results-oriented reasoning? This is a harder case. But it can be fit into a formalist narrative as a contextualist ruling: modern textualists are no longer strict constructionists; it’s always appropriate to look to a broader legal context. They derive a rule based on the surrounding context of §43(a), from the treatment of non-inherently distinctive marks. Then they make a judgment call, after having taken the text as far as they can.

Incontestability defenses are largely closed; Congress has ratified that understanding by amending §33(b) to add defenses.

More interesting: §43(a) defenses. As a matter of practice, new defenses are occasionally recognized. But how? When courts apply interstitial reasoning, they borrow from state law or use principles of general law. You rarely see federal courts just making stuff up.

So what’s the result? Definitional moves—nominative fair use is about uses that are definitionally unlikely to cause confusion; product designs are about uses that are presumptively unlikely to identify source. It’s largely a move to work within the likelihood of confusion standard.

But then the 3rd Circuit gets nominative fair use in Century 21, where they say that nominative fair use is a true defense. But on what ground did they say that? There’s no basis for them to say that it is a true defense. The Third Circuit took conduct that, in its terms, was statutorily enjoinable but refused to find liability. That’s the difficulty with any attempt to create a new affirmative defense.

He likes materiality as a possible defense. There might be no Article III standing if there’s no injury in fact from materiality.

Inherent problem with his approach: it’s very hard to get around a materiality claim on pleadings or summary judgment. You can imagine that good lawyers can construct arguments that the confusion does matter (the claim would be that a use harms brand value—e.g., Balducci, where the court credits consumer survey evidence stating that consumers might be less likely to purchase Michelob). Plaintiffs can get around defensive doctrines based on likelihood of confusion.

Rebecca Tushnet, Running the Gamut from A to B: Federal Trademark and False Advertising Law

I gave a bit of a retread of an earlier presentation. I added in some discussion of what TM should learn from false advertising, in particular that implications matter. In nominative fair use and other situations, courts and commentators often argue that they are making an empirical judgment: consumers can’t be confused by a truthful statement of the relationship between the parties.

This is a conceptual mistake, neglecting implicature. Example from Richard Craswell: you ask me for the nearest gas station. I give you an address. My answer implies, because we assume that I’m being truthful, complete, and helpful, that (I believe that) the station there is actually open, because unless you have specified otherwise I ought to infer that you would like to buy some gas for your car.

There are good reasons to deny the relevance of some implications, especially when they will not be received by or important to many members of the audience, but it is analytically insufficient to stop at the dictionary meanings of a string of words. False advertising law says that clever use of innuendo doesn’t protect a false advertiser; we protect consumers precisely when they need it most, when it would require a lot of effort to discern that what appears to be promised isn’t. Examples: save “up to 85%” on home heating when that would basically only be true if your house had big holes knocked in the side. Mylanta Night Time Strength, which didn’t explicitly say that it lasted all night but sold millions of bottles because that’s how people understood it; etc.

We can endorse nominative fair use and other defenses, but not because of the formalist divide between explicit and implicit meaning. We should think of them in terms of policy objectives and because of error costs: certain kinds of implications are so unlikely, and so outweighed by the value of other explicit or implicit information conveyed by the same statement, that we should just have a rule allowing such statements and not conduct an individualized inquiry into confusion.

Eric Goldman, Economics of Reputational Information (Oversupply Problems)

Reputational information is info about an actor’s past performance that helps predict future performance: unmediated (recommendation letters, student evaluations, word of mouth) and mediated (credit scores, GPAs, investment ratings, consumer ratings on Amazon). We’re awash in reputational info, and the trend line is up.

Unmediated reputation is idiosyncratic: my taste in movies will affect how likely it is I’ll like a particular movie; it’s often based on small data sets (I’ve seen a relatively small number of movies); it has high transaction costs to find and transmit. And it’s hard to police against shills. There are few boundaries for how we write recommendation letters. Most job reference letters are negotiated with employees; we don’t know what deal underlies each one.

Therefore, there’s a trend for mediated reputation, which solves a number of these problems. A mediator can aggregate opinions and individual ones will average out. Editorial filtering can manage the information glut. And the mediator may have incentives to manage the database and engage in data-correction. (I’m not sure Goldman is right about this—it might not be worth it to sort it out if so much of the pile is okay. In fact, that’s often the premise of aggregation, see Everything is Miscellaneous. Google does not go back and fix badly scanned pages from its Book Project.)

Problems with mediated reputation: People may misinterpret data as possessing faux precision/may ignore the margin of error. Outputs may be insufficiently granular, one-size-fits-all. US News & World Report scores offer generic rankings, but they don’t help determine what’s right for a particular student. We have no idea what’s under the hood—the editorial filtering/algorithm may be opaque: Google’s PageRank; credit score calculations. Data sources may not be credible, or credibility may be hard to assess, as when users are shills. People try to game known algorithms, like people merging their credit reports with others with higher scores. People attack review systems, e.g. Spore on Amazon. There’s a risk the mediator may move to pay-for-play, selling more favorable treatment. And error-correction can distort the database.

There are wildly divergent regulatory approaches: sometimes people can complain and remove information (credit reports) and sometimes there’s no way to force a mediator to act (§230). If errors are easy to report, negative information will be wrongly purged; if they’re hard to remove, then negative information will wrongly remain.

Which of these weaknesses can be left to market solutions, and which deserve regulatory intervention? Goldman is struck by regulatory divergence, and asks whether we can learn from differences. His bias is always the market, because of incentives to correct bad data.

Bill McGeveran, Endorsement, Identity, and Social Marketing

Background: word of mouth is the holy grail of marketing. Social networks are big and exciting. They still don’t make any money, though, and nobody knows how they will make the expected giant buckets.

Thus, the introduction of Facebook ads, particularly Beacon. People didn’t like the disclosure; it’s creepy and even seriously invasive for friends to learn about your purchasing/rating information. A guy whose significant other found out via Facebook feed that he’d bought a diamond ring on Overstock is the lead plaintiff in one of two class action suits. But these suits are hard to plead.

Information quality is a consideration: we don’t know why people buy products (for themselves, for others). Also spamification: each individual message may have an impact, but an ocean compromises the usefulness of all such marketing messages and even swamps the good stuff from the wealth of networks. Third, a Warren & Brandeis discomfort over loss of control. But American privacy law is so focused on sensitive information that mostly it doesn’t help here.

What about TM/false advertising claims? There’s an advertising message of endorsement. But that’s also hard to sustain. Most people have no TM rights. Consumer protection/regulatory responses might be appropriate. What about right of publicity? Seems like there’s a claim. The chief privacy officer of Facebook disagrees; and neither pending lawsuit makes an appropriation claim. Why not? Because Facebook argued consent. (I don’t think that would help with NY law, at least, and I’d think a NY class would be appropriate.)

Within 5-6 weeks, Facebook moved to opt-in: “tell your friends” option.

Without a European data privacy model, privacy won’t help. But publicity rights might be useful with a careful enough understanding of consent. We do want “tell a friend” to be available.

Counterarguments against regulation: is it too much propertization? Are there free speech objections? It’s commercial speech, so that shouldn’t be a problem. (Comment: I am dubious. If it’s truthful speech, it has a lot of protection unless we appeal to concepts of property; privacy isn’t going to cut it these days.)

Bernstein: Beacon was visible, which allowed the market to react. But regulation may be more important when the effects don’t slap you in the face.

McGeveran: agrees, but there are many things that Facebook could do that would be less transparent.

Comment for Goldman: there’s also an adverse selection problem: people who care lots may be more likely to comment (whether lovers or haters). With recommendation letters, it may be that nice professors get more recommendation requests.

Goldman: Statistics show that love/hate are more common than the nuanced middle, but it’s not clear whether love is a better or worse spur than hate.

Q for Goldman: How do you count individual blogs, etc.—is that mediated/unmediated? They don’t necessarily expect people they don’t know to be interested.

Goldman: Blogs are a great example of where a search engine may act as a mediator, but for other people the interaction may be unmediated (subscribers). Facebook and MySpace are aggressive editors of their sites, like credit reporting agencies manage their databases. They may allow lots of choices but they’re not passive technology providers.

Q for Goldman: Some situations you discuss don’t fit neatly into your description of reputation info (predicting past performance). Movie reviews aren’t about future performance, but about potential reactions to encountering that very same product. Evidence law struggles with the extent to which past performance can indicate future action. Would like to see clearer definition of the categories; movie reviews are easier to use because we know the variables and the performance is over. There’s more uncertainty in evaluating future performance based on grades, or a grade.

Seltzer: The information may not be transparent, because consumers aren’t thinking about motivations for ratings. Could we try to flush out more information about ratings before regulation?

Goldman: eBay has its own incentives to make the feedback form useful, and those incentives have worked really well. People trust the data enough to make purchases.