Wednesday, March 22, 2017

Reading list: new governors of online speech

Harvard Law Review, Forthcoming

Abstract
Private online platforms have an increasingly essential role in free speech and participation in democratic culture. But while it might appear that any Internet user can publish freely and instantly online, many platforms actively curate the content posted by their users. How and why these platforms operate to moderate speech is largely opaque.

This Article provides the first analysis of what these platforms are actually doing to moderate online speech under a regulatory and First Amendment framework. Drawing from original interviews, archived materials, and leaked documents, this Article not only describes how three major online platforms—Facebook, Twitter, and YouTube—moderate content, it situates their moderation systems into a broader discussion of online governance and the evolution of free expression values in the private sphere. It reveals that private content moderation systems curate user content with an eye to First Amendment norms, corporate responsibility, and at the core, the economic necessity of creating an environment that reflects the expectations of its users. In order to accomplish this, platforms have developed a detailed system with similarities to the American legal system with regularly revised rules, trained human decision-making, and reliance on a system of external influence.


This Article argues that to best understand online speech, we must abandon traditional doctrinal and regulatory analogies, and understand these private content platforms as systems of governance operating outside the boundaries of the First Amendment. These platforms shape and allow participation in our new digital and democratic culture. They are the New Governors of online speech.

Iconic movie scene allows copyright but not TM claim against multimedia installation

Harold Lloyd Entertainment, Inc. v. Moment Factory One, Inc., No. LA CV15-01556, 2015 WL 12765142 (C.D. Cal. Oct. 29, 2015)|

Another blast for the past—I would really like to know more about the Westclip algorithm, but I can’t complain too much about the magic machine that brings new knowledge straight to my inbox.

HLE sued Moment for copyright infringement and false designation of origin based on HLE’s copyright in the 1923 silent film Safety Last, starring Harold Lloyd.  “The film’s closing scene features its principal character, played by Harold Lloyd, dangling from the hands of a large clock.”  Moment’s multimedia work, the “Time Tower,” included a video of a man dangling from the hands of a large clock.  The final chase/climb scene in Safety Last is about seven minutes long; Lloyd dangles from the clock for about a minute. HLE licensed the Clock Scene for use the films Back to the Future and Hugo for scenes in which a character dangled from the hands of large clock.
 
Lloyd scene

Comparison from complaint

screenshot from video of installation

The Time Tower video is 87 minutes long, with 14 distinct segments.  One segment is “Silent Movie,” lasting nearly three minutes; it features a man climbing a building past various characters, “including a knight in shining armor, a monster reading a newspaper, a conductor and a socialite.” As part of various shenanigans, the climbing man grabs the hands of a clock that is on the outside of the building, and hangs from them for about 10 seconds.  The scene was allegedly called the “Harold Lloyd tower theme” in pre-production stills. HLE alleged that numerous consumers were expressly and explicitly deceived and confused into believing that Moment’s products and/or services were affiliated with Harold Lloyd and HLE.

Moment argued that there couldn’t be substantial similarity between Safety Last, a 73-minute film, and the Time Tower video, because of the small amount of time where similarity existed.  But the court found obvious similarities in the two scenes, and that was enough to avoid a motion to dismiss, because if what has been copied is qualitatively important, a fact finder can find substantial similarity and HLE alleged that the scene at issue was “one of the most iconic” images in cinema.  Fair use also couldn’t be resolved on a motion to dismiss, including questions of transformativeness and market  harm.

However, false designation of origin/false endorsement claims failed because of Rogers.  (Or Dastar?The Time Tower video was an expressive work; the use of Lloyd and the alleged clock scene “trademark” had at least some artistic relevance, since the scene was “a tribute to the silent era.” Any reference to “one of the most iconic images in cinema” was artistically relevant to a tribute to silent movies.

And there was nothing explicitly misleading about the use.  HLE argued that the Time Tower video and the website including pre-production stills referring to the scene at issue as the “Harold Lloyd tower theme” were misleading.  But neither had any explicitly misleading content. There was no direct reference to Lloyd, and use of a mark alone isn’t explicity misleading; to hold otherwise would render Rogers a nullity.


This result also doomed the UCL and common law unfair competition claims.

Marketing method and display are functional, nondistinctive trade dress

AMID, Inc. v. Medic Alert Found. U.S. Inc., No. H-16-1137 (S.D. Tex. Mar. 16, 2017)

American Medical ID (AMID) sued MedicAlert Foundation United States for trade dress and copyright infringement. The parties compete in the market for medical-identification jewelry. One of their marketing techniques is sending unsolicited mass-mailed countertop displays with tear-off pads attached to doctors’ offices. “Both companies include a letter to each doctor’s office explaining what to do with the enclosed display and the importance of patients wearing medical-identification jewelry.”  I’m just going to pretend that the court said that AMID “registered its copyright” in its letter.  There, that feels better.  AMID also claimed that unsolicited mailing of countertop easel displays was a protected marketing method and that its countertop display was protected as trade dress that MedicAlert infringed

It all started when a former AMID marketing manager, Justin Noland, resigned from AMID and went to work at MedicAlert. MedicAlert hadn’t mailed unsolicited countertop displays to doctors’ offices for the previous six years, but resumed the mailings after Noland began working there.  

In July 2015, AMID complained to MedicAlert that Noland had violated his noncompete agreement with and confidentiality obligations to AMID, and that MedicAlert had made a “virtual carbon copy” of AMID’s display.  In August, MedicAlert responded that it wouldn’t fire Noland because the noncompete clause had already expired, and noted that MedicAlert would “remain mindful of all the operating boundaries concerning marketing materials between our two companies . . . .” MedicAlert didn’t agree to recall, stop using, or change the MedicAlert marketing displays or other marketing materials.  AMID responded in early September, mostly proposing a marketing partnership.  AMID sued in April 2016, making nearly 11 months between when AMID allegedly first saw the MedicAlert displays on the MedicAlert website and when it sued.  The court denied a preliminary injunction, despite finding a likelihood of success on the merits of the copyright claim.

The display method/display itself were not registered.  AMID claimed they were inherently distinctive.  Abercrombie doesn’t work well for non-word marks.  We know more about what can’t be inherently distinctive—color, product design—than what can.  Erring on the side of caution, as instructed by Wal-Mart, the court here found the claimed trade dress to be on the “product design” side, rather than product packaging, thereby requiring secondary meaning.

AMID proposed a number of different versions of its claimed trade dress.  After the PI hearing, AMID alleged rights in a “Marketing Plan and Scheme” that included:

a.         unsolicited mass-mailing to doctor and other professional offices of display;
b.         an easel display with integral order forms;
c.         real jewelry facsimiles in the upper portion of the display;
d.         an introductory letter;
e.         a see-through cardboard cover over the jewelry with one medal visible; and
f.          a clear mailing wrapper.

It also alleged rights in the “[p]ackaging as received by the professional office of the mailed [d]isplay,” and the “display as used in the professional offices,” specifically:

a.         an easel display having three panels on the front portion of the display;
b.         a top panel, followed by a larger central panel with real jewelry facsimiles followed by an order form on the lower portion of the display; and
c.         an order form pad below the central panel taking up approximately 2/3 of the display face with photographs of jewelry on the face of the order form.
 
AMID package

AMID display at Publix

display comparison

MedicAlert package

As the court noted, one cannot “coherently define exactly what the trade dress consists of and determine whether that trade dress is valid and if what the accused is doing is an infringement” until after the claimant submits the “discrete elements” making up the its claimed trade dress. AMID’s final version included for the first time “the proportion of space taken up by the order form pad, photographs of jewelry, and the number, position, and size of the panels.”  The court commented that it wasn’t clear at what point changing the definition of the claimed trade dress would require an amended complaint.  Without precise boundaries, determining infringement—and determining what a competitor could and couldn’t do without entering a courtroom—is very difficult.  The court referred to Wal-Mart’s instructions “to be cautious about applying vague, litigation-friendly tests for inherent distinctiveness,” and noted that AMID has changed its marketing materials over the years, helping to create a “moving target.” 

AMID’s witness claimed that all the variations shared a “family look,” but her testimony about what meant “was elastic and expansive.” She claimed that 80 percent of the displays distributed since 2012 had this “family look.” The court wasn’t clear which the other 20% were.  AMID used “displays with clearly different shapes, sizes, text size and font, color, artwork, layout, and materials,” and some didn’t contain any of the elements AMID identified as defining its trade dress. Thus, AMID failed to define its trade dress with sufficient clarity or consistency. 

Plus, erring on the side of caution as instructed, the court classified this ambiguous trade dress as product design, requiring secondary meaning for protection.  AMID argued that its trade dress was “akin” to product packaging, but AMID’s products are bracelets or dog tags and the purported trade dress didn’t “package” the actual jewelry AMID sells.  It was in the middle of the packaging and design spectrum.

AMID also failed to show secondary meaning.  Four of the claimed seven trade-dress elements were packaging designed to be removed by a doctor’s staff before putting it out for potential buyers (or doctors) to see.  AMID argued that these elements were seen by the “gatekeepers”—the staff in the medical office who make the decision to place the display on a counter visible to the “end users,” the patients.  The court commented that “[i]t stretches current law to analyze [gatekeeper staff] as the relevant consumer in the secondary-meaning inquiry.” Doctors might also be gatekeepers in deciding whether to place the display in their waiting room or whether to recommend medical-identification jewelry.  Ultimately, gatekeeper recognition couldn’t determine secondary meaning, because gatekeepers weren’t consumers of medical-information jewelry. “The parties have not cited cases in which a court found protectable trade dress, when, as here, most of the purported trade-dress elements are never seen by members of the buying public.”

Plus, the secondary meaning evidence was lacking as to consumers, especially given the many variations in displays AMID had used over the years.  MedicAlert put on a consumer survey finding negative secondary meaning—that is, 35.3% of the test group and 39.8% of the control group associated the two displays they saw with one company.  In the test group, 3.2% identified MedicAlert as the source of the display they saw, while 5.4% of the control group did.  Similar results obtained for a test of whether “Medical IDs Save Lives!” had attained secondary meaning.  AMID’s criticisms of the survey were unavailing, especially given that the survey properly targeted people who’d bought/were likely to buy medical identification jewelry.

Another survey found that 23.3% of the doctor-respondents currently displayed advertising or promotional literature from both AMID and MedicAlert; 58.5% didn’t currently display either; and the remainder were roughly split.  There was no evidence from this survey that either party’s marketing materials were replacing the other’s.

Annoyingly, the court quoted the line that “evidence of intentional copying shows the strong secondary meaning of [a product] because ‘there is no logical reason for the precise copying save an attempt to realize upon a secondary meaning that is in existence,’” right before it started in on functionality (which it found here).  But still, there was circumstantial evidence of intent to copy given Nolan’s employment and the resumption of mass mailings.  (The court did say that intent to copy was more relevant to infringement than to protectability in the first instance.)

Finally, the trade dress was functional and AMID didn’t meet its burden to show nonfunctionality.  Under the first TrafFix test, a feature is functional when it “is essential to the use or purpose of the article or if it affects the cost or quality of an article,” and it’s essential “if it serves any significant function other than to distinguish a firm’s goods or identify their source.” If the feature is functional under this definition, there is no need to consider competitive alternatives.

Evidence of functionality included that displays using an easel design and attached pad with tear-off sheets are covered by utility patents and are commonly used. Attaching sample products to countertop displays was also commonplace, and attached samples had to be placed so as not to make the display fall over. The combination of functional features wasn’t configured in a nonarbitrary manner.

And finally: there was no showing of irreparable harm, given AMID’s delay in seeking relief even after calling the display “an extreme knockoff” and expressing “great concerns about the use of those [displays] in the marketplace.”  AMID’s 2015 correspondence didn’t demand that MedicAlert stop distributing the displays or remove the display from its website.

The copyright infringement claim fared better.  The transmittal letter that introduces a healthcare professional to AMID’s marketing materials is “the first thing a healthcare professional sees on opening the display package.”  The court found “obvious” similarities, including virtually identical text at the bottom as well as overall look and other content.
 
AMID letter

MedicAlert letter

“While MedicAlert had a long history of using displays in its marketing campaigns up to 2009, MedicAlert has presented no evidence that it used a letter until the mailings sent after Noland arrived.”  However, there was still no irreparable harm, given AMID’s delay and MedicAlert’s cessation of its use of the similar letter.


The court declined to dismiss a common-law unfair-competition claim based on misappropriation of “valuable business methods, marketing plans, confidential know-how and proprietary information,” not rising to the level of trade secrets.

Monday, March 20, 2017

Who's responsible for allegedly false, concealed endorsement deals?

Woodard v. Labrada, 2017 WL 1018307, -- F. Supp. 3d ---, No. 16-00189 (C.D. Cal. Mar. 10, 2017)

I discussed this case before.  Woodard alleged misrepresentations about the effectiveness of weight loss supplements, specifically the Labrada Garcinia Cambogia Dual Action Fat Buster and Labrada Green Coffee Bean Extract Fat Loss Optimizer. 

Naturex makes Svetol, the active ingredient in the Fat Loss Optimizer.  Naturex allegedly dvertised Svetol as the “most studied and proven green bean extract,” and attributed its effectiveness to “100% premium Robusta beans” processed to yield a “high concentration of key chlorogenic acids.” InterHealth makes SuperCitrimax, the active ingredient in the Dual Action Fat Buster, and allegedly claimed “maximum stability, solubility, bioavailability, and efficacy” as well as “60% all natural HCA derived from the Garcinia Cambogia fruit.”

Labrada allegedly advertised the products as “clinically proven” “FAT BUSTERS” with “ZERO BINDERS, ZERO FILLERS, AND ZERO ARTIFICIAL INGREDIENTS.” Plaintiffs alleged that these claims were deceptive because the supplements contained artificial ingredients. For example, SuperCitrimax was allegedly a synthetic form of hydroxycitric acid.  Plaintiffs further alleged that defendants misrepresented the quantity of active ingredients in the products, the origin of the ingredients (“Made in the USA”), and the overall quality of the products. Labrada allegedly cited “peer reviewed, published” scientific studies on the labels to claim that the products “support significant weight loss.” But one such study was later “retracted by the authors after data was found to be falsified.” [So, essentially, the food is lousy and the portions are too small.]

Dr. Oz allegedly fraudulently promoted the Labrada products on his show by misrepresenting his affiliations with the brands he allegedly endorses. (E.g., he said: “I’ve warned everybody that I’m not going to mention specific brands, but I do want to go through exactly what I would look for. You’re going to look on that list of ingredients. There should be ZERO FILLERS. There should be ZERO BINDER, ZERO ARTIFICIAL INGREDIENTS...”)  He allegedly had undisclosed paid spokespersons for InterHealth and Naturex on his show to promote the products; he told his viewers that his guests were doctors or scientists, but they lacked such credentials. Dr. Oz allegedly referred to the retracted study when touting the magic of the Green Coffee Extract as a weight-loss aid to his viewers. He also described it as a “good quality” study during the Senate Hearing on “Protecting Consumers from False and Deceptive Advertising of Weight-Loss Supplement Products.”  Various media defendants allegedly aided Dr. Oz by concealing his endorsement arrangements, in violation of anti-payola rules, helping him to exploit the trust consumers place in “America’s Doctor.”

The court found various claims adequately alleged against some of the defendants, but not Sony.  EMV, a company responsible for “facilitating strategic partnerships between Dr. Oz, like endorsements, collaborations, speaking engagements, and equity deals, etc.” was sufficiently targeted by the pleadings.  Its website stated: “Our goal is for Dr. Oz to forge a direct and authentic connection between you and your demographic,” to create an “alliance” that “will ensure brand integrity, large scale awareness, and continued financial growth.” This allowed a plausible inference that EMV played a direct role in causing Dr. Oz’s affirmative misrepresentations to be disseminated to the consuming public, and that EMV aided and abetted Dr. Oz in concealing the endorsement deals. “It is plausible that any prudent business partner or representative of Dr. Oz that solicits endorsement deals on his behalf would be charged with the knowledge that Dr. Oz’s repeated disavowals of such endorsement deals constitute a breach of duty to those harmed by such representations.” Thus, the complaint plausibly alleged that EMV participated in fraud, either intentionally and directly or negligently and contributorily.  Indeed, the existence of a special duty to consumers, as required for a negligent misrepresentation claim, could plausibly be inferred from EMV’s profiting from Dr. Oz’s endorsement deals.  “[W]ithout individuals justifiably relying on Dr. Oz’s recommendations or representations, EMV would have nothing of value to offer to potential clients.”

Allegations of Sony’s direct participation were lacking, but not allegations as to media defendants ZoCo and Harpo, which “either provided substantial assistance to, aided and abetted, employed, entered a joint venture and/or were involved in a civil conspiracy with Dr. Oz, and either one of the Labrada Defendants or the Supplier Defendants.”  ZoCo produces the Dr. Oz Show and manages its website.  An archived page of the website allegedly displayed the Svetol trademark along with statements made by a spokesperson for Naturex; this was sufficient to allege that ZoCo “promotes and markets the Labrada products (and/or their proprietary active ingredients) across the United States.” An agency relationship could also plausibly be inferred from Dr. Oz’s @ ZoCo business email address at the pleading stage. There was a plausible inference that ZoCo “directly participated in the tortious conduct, had actual knowledge that Dr. Oz was breaching a duty to consumers, and provided substantial assistance to Dr. Oz and his co-defendants in this endeavor.”

The complaint did not, however, sufficiently allege Harpo’s direct liability. Harpo is ZoCo’s parent company; the allegations did make it plausible that Harpo could be vicariously liable for ZoCo and Dr. Oz’s tortious conduct as a principal. Harpo was plausibly in a position to directly control the acts of its agent, Dr. Oz, since Harpo holds and produces copyright, “creates and develops original TV programming,” and “control[s] any broader joint venture/web project with Dr. Oz.”  “As the alleged holder of the intellectual property rights to The Dr. Oz Show, one can reasonably infer that Harpo stands to gain the most from using the show as a subliminal advertising platform for deceptively marketed weight-loss supplements.”


Sony and Harpo agreed “to collaborate on a website and digital extensions” where Sony was to “provide marketing, legal/business affairs, finance, and other back office services.” That wasn’t sufficient to allege Sony’s direct involvement in the web marketing. There was also a distribution agreement stating: “Harpo will control any broader joint venture/web project with Dr. Oz but Harpo acknowledges Sony’s strong interest in partnering on a Dr. Oz branded new media venture and will discuss with Sony in good faith meaningful opportunities to participate.” The complaint didn’t sufficiently allege that Dr. Oz’s fraudulent promotion of the Products fell within the partnership’s business activities, or that Sony and Harpo “had equal rights to direct and govern the conduct of each other” with respect to the promotion or content of The Dr. Oz Show. Likewise, aiding and abetting/conspiracy allegations as to Sony were insufficient, even assuming Sony provided financial or marketing assistance to The Dr. Oz Show.  “[S]ubstantial assistance is insufficient for fraud without actual knowledge.” 

allegedly false generic claims not actionable, but contributory liability possible

Concordia Pharm. Inc., S.À.R.L. v. Winder Laboratories, LLC, 16-CV-00004 (N.D. Ga. Mar. 15, 2017)

Concordia makes Donnatal to treat irritable bowel syndrome and acute enterocolitis.  (There’s related litigation that ended badly for the defendant there.)  Concordia’s predecessor had conditional approval for ANDAs for Donnatal tablets and elixir, which had become necessary when the FDA was required to retrospectively evaluate previously approved drugs.  Concordia alleged that it was the only company legally permitted to market PBA (phenobarbital and belladonna alkaloid) products. 

Winder makes generic drugs; Steven Pressman owns Winder.  In 2013, Winder began plans to manufacture a generic version of Donnatal to be marketed by a third party, Method, under the name Me-PB-Hyos. After Me-PB-Hyos was listed on several drug databases, Concordia sued in the Western District of Virginia.  Defendants here were dismissed from that litigation for lack of jurisdiction, and they subsequently took steps to begin production and marketing of a generic version on their own.  In 2016, Winder listed B-Donna and Phenohytro pharmaceutical products with the FDA and subscription pharmaceutical drug databases, including Medi-Span and First DataBank.  B-Donna was removed from the FDA website but remains listed with the drug databases.  Health care professionals, insurers, payers, and pharmaceutical manufacturers use the drug databases to determine whether generic substitutes are available for brand named products. Pharmaceutically equivalent products are “linked” in the drug databases. The B-Donna and Phenohytro products were submitted with labels and package inserts indicating that they contained the same active ingredients, in the same amounts, and in the same dosage forms as Donnatal products, and were thus linked. The labels and package inserts also indicated that the B-Donna and Phenohytro products had been reviewed and classified by the FDA.

The court declined to be bound by the false advertising reasoning in Concordia Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC, 2016 WL 1271082, No. 3:14CV00016 (W.D. Va. Mar. 29, 2016).  As to the claim of literal falsity in claims about FDA review and classification, those were precluded by the FDCA.  Concordia’s theory of liability was that statements that B-Donna and Phenohytro were reviewed and classified by the FDA and that Phenohytro was indicated for certain uses were false.  Their falsity depended on the meaning of the word “drug” in an FDA regulation. That is, once a “Drug Efficacy Study Implementation notice on a prescription drug” has been published in the Federal Register, the FDA requires all labeling to include “an appropriate qualification of all claims evaluated as other than ‘effective.’”  Donnatal includes such language in its packaging and inserts because of a 1975 DESI notice classifying Barbidonna (the former name) tablets and elixir as “possibly effective.”  If “drug” means “specific producer’s product,” then a similar claim for B-Donna and Phenohytro would be false.  But if “drug” means “specific combination of active ingredients in particular strengths and dosage amounts,” as defendants contended (which seems more plausible at first glance), it would be true.  The FDA hasn’t set forth its interpretation of “drug” in this context, and the court declined to interpret the FDCA/the DESI notice without letting the FDA weigh in first. 

Pom Wonderful didn’t prevent this result.  There, falsity could be determined independent of FDA regulations. Here, finding defendants’ statements to be false would require an interpretation in the first instance of FDA regulations under the FDCA.

Second: Concordia alleged that defendants falsely claimed that B-Donna and Phenohytro were FDA-approved and substitutable for Donnatal, including by listing them in the drug databases in such a way as to produce linkage with Donnatal. The “FDA-approved” claims were precluded, as above. For the rest, the court did not accept that including the active ingredients, their strengths, and their dosages in the promotion materials provided to the drug databases constituted false or misleading advertisements.  The argument was that the databases took accurate information and improperly linked the parties’ products; this wasn’t enough.

Contributory false advertising: This theory is recognized in the Eleventh Circuit.  (Important note: the court didn’t discuss “commercial advertising or promotion.”  If the databases aren’t engaging in “commercial advertising or promotion” of their own products when they distribute the information, how can they be violating the Lanham Act to create a primary violation allowing for secondary liability?  If the answer is that the database providers are engaged in commercial advertising because of the promotional interests of the data-submitters, that seems a bit worrisome for any reporter who reports out positive promotional information from a commercial source.  If drug databases aren’t engaged in commercial advertising or promotion when they distribute the linkage information, though, then plaintiffs will have to find some tort that isn’t limited to commercial advertising or promotion to challenge any resulting falsehood.  If I were defendants, I’d seek some clarity on this—and maybe an amicus from the drug databases, which stand here accused of primary liability for violating the Lanham Act even if un-sued at present.)

Anyway, once direct liability is established, the plaintiff has to allege that the defendant contributed to the conduct by acting with “the necessary state of mind—in other words that it intended to participate in or actually knew about the false advertising.” In addition, the plaintiff has allege that the defendants “actively and materially furthered the unlawful conduct—either by inducing it, causing it, or in some other way working to bring it about.”  The court found that this had been properly alleged, since the result of the database’s linkage was the misleading implication that defendants’ products were “FDA-approved ‘generic’ products that are therapeutically equivalent or A-rated to and/or substitutable” for Donnatal.  Literal truth can still be misleading. 

The court rejected defendants’ preclusion argument, which was that the FDA requires them to include the active ingredients, their strengths, and their amounts in the advertising material sent to the drug databases.  FDA requirements/authorizations aren’t a ceiling on the regulation of drug labeling, since “Congress intended the Lanham Act and the FDCA to complement each other . . . .”

Trademark infringement: Defendants argued that there was no use in commerce, and that any likelihood of confusion was prevented by the indication on the Medi-Span listing that B-Donna is labeled by Winder.  But use in commerce is broad enough to cover listing on the databases without any sale.  And Concordia properly alleged likely confusion at the motion to dismiss stage.  Donnatal was at least suggestive, and not used by other parties, making it strong.  (But the part of the marks that overlaps, donna, has to be at most descriptive of belladonna derivatives.)  Concordia also alleged sufficient similarity between the marks (the court didn’t break that down further) and the products/sales channels, as well as an intent “to exploit the reputation and success of DONNATAL.”

As to labeling Winder as the supplier, that wasn’t enough at the motion to dismiss stage.

The common-law unfair competition claim was preempted because it was equivalent to the precluded direct false advertising claim above. The Georgia Uniform Deceptive Trade Practices Act was analogous to § 43(a), so the trademark-related claims survived and not the false advertising claims.

Unjust enrichment: The “essential elements of the claim are that (1) a benefit has been conferred, (2) compensation has not been given for receipt of the benefit, and (3) the failure to so compensate would be unjust.”  Concordia alleged sufficient facts to state a claim: “Defendant gained a benefit by copying Plaintiff’s DONNATAL labels for use with B-Donna and Phenohytro, thus saving Defendant the time and resources needed to create its own.”  [There is simply no way this is not preempted by §301 of the Copyright Act.  Courts have held time and again that unjust enrichment claims are preempted when they’re based on copying of this sort.]

Additionally, Concordia alleged that being linked in the databases consituted unjust enrichment.  [If they’d been FDA-approved generics for a non-grandfathered drug, would it constitute unjust enrichment?  If not, why not?  This gets to the difficulty we often have in defining “unjust” enrichment or “unfair” competition as distinct from fair free riding.]


Tortious interference: Concordia failed to plead more than the conclusory allegation that, “[u]pon information and belief, Defendants’ wrongful and intentional conduct has caused third parties to discontinue or fail to enter into anticipated relationships with Plaintiff.” This wasn’t enough

Bud Light Lime-a-Rita not deceptive despite not being so light after all

Cruz v. Anheuser-Busch Cos., LLC, No. 15-56021, --- Fed.Appx. ----, 2017 WL 1019084 (9th Cir. Mar. 16, 2017)

Cruz sued Anheuser-Busch for the usual California claims, alleging that the labels on cartons containing cans of “Rita” malt beverages, including Lime-a-Rita, are misleading by using the word “Light,” because the products contain considerably more calories and carbohydrates per ounce than other Budweiser products.  The majority found that no reasonable consumer would be deceived into thinking that “Bud Light Lime Lime-a-Rita,” which the label calls a “Margarita With a Twist,” is a low-calorie, low-carbohydrate beverage or that it contains fewer calories or carbohydrates than a regular beer. It is was clear from the label that the beverage wasn’t a normal beer: the label calls it a “Margarita With a Twist,” and pictures a bright green drink, served over ice, in a margarita glass.

The majority concluded that a reasonable consumer might compare “Bud Light Lime Lime-a-Rita” either to (a) a hypothetical product “Budweiser Lime-a-Rita,” made with Budweiser instead of with Bud Light, or (b) a tequila margarita. The hypothetical Bud product would contain more calories and carbohydrates than the Bud Light Lime-a-Rita, while a tequila margarita typically contains at least as many calories and carbohydrates as a “Bud Light Lime Lime-a-Rita.”  


Judge Christen dissented, reasoning that a reasonable consumer would naturally compare Bud Light Lime Lime-a-Rita with Bud Light Lime. But Bud Light Lime has far fewer calories and carbohydrates. Judge Christen didn’t think a reasonable consumer would hypothesize a nonexistent beverage or compare a malt beverage to tequila.  Thus, she would have found that reasonable consumers could be misled by the “light” label.

Keyword ad case based on failure to disclose connections fails

Novation Ventures, LLC v. J.G. Wentworth Co., LLC, 2016 WL 6821110,  No. CV 15-00954 BRO (C.D. Cal. Feb. 1, 2016)

Novation factors structured settlements: it buys the right to receive scheduled future payments from settlement recipients who do not wish to or cannot wait years for their annuitized payments; it has a market share of no more than 7%. Its competitor J.G. Wentworth is, along with its subsidiaries, “by far the largest participant in the factoring of structured settlements,” with a market share of about 75%.  In 2011, J.G. Wentworth bought its largest competitor, Peach Holdings, and they own and control the “Olive Branch Funding” brand.  Given regulatory barriers to entry, there are only a handful of companies competing in the business.

Novation alleged antitrust and Lanham Act claims based on the idea that J.G. Wentworth “advertises and presents itself to the public using (at least) three distinct brand names (JG Wentworth, Olive Branch Funding, and Peachtree)” without advising consumers that those brands are “all controlled and coordinated by the brands’ common owner and manager: The JG Wentworth Company.” This, Novation alleged, served to “systematically corrupt and frustrate [the] competitive bidding process.” Novation alleged that comparison shopping was a key determinant of the price sellers received, and that sellers typically used search engines to do this.

Novation alleged that the top three paid search listings have “strategic importance,” because “most people ‘click through’ on slots one through three of search results only.”  Further, Novation alleged that most sellers get no more than two bids; relatively few seek three or four.  (Given the sums of money at stake, it’s interesting that the search is so limited—each negotiation with a potential provider takes time and effort, and that short-term cost seems to outweigh the possible long-term benefits, which are probably unclear at the outset to the consumers.)

In addition, Novation alleged that defendants violated Google’s internal policies against “double-serving” ads, that is, buying more than one search result to be shown in response to any given query.  Consumers allegedly believed that they were getting distinct results, “especially if each APPEARS to be different by virtue of common visual cues and labels such as trademarked name, brand, phone number, and logo.”  By coordinating their brands’ bidding, defendants allegedly “consistently grab two and often three of the top three search listing results on many of the keywords used by consumers searching for structured settlement buyers.” This behavior “crowds out competitors and/or drives up the cost of being in second or third position in any given search ranking, making it more difficult and expensive for Novation to be found by potential customers looking for genuinely competing offers.”

The court held that Novation failed to allege antitrust injury because they didn’t allege how the deceptive conduct prevented consumers from clicking on the third link, e.g., the “www.annuity.org/Cash-Out/” to Annuity that showed in several exhibits; Novation brought no claims against Annuity.  Since consumers were free to choose whether to click on an ad, and could also use whatever search terms they wanted, there was no harm to consumer choice, especially since Novation could use TV ads or radio to compete.  And other competitors could and did bid for the top ad positions.

Novation also failed to state a false advertising claim. There were no literal falsehoods; the only falsity came if a consumer searched “who competes with Peachtree Financial” or “who competes with JG Wentworth.” The real argument was that when three ads were displayed for ‘JG Wentworth’ and ‘Peachtree Financial’ and ‘Olive Branch Funding,’ reasonable consumers would believe that these were separate companies competing to provide the service advertised.  Though likely confusion is often a question of fact, it isn’t always so.  In the keyword advertising context, it turns on what the consumer saw on the screen and reasonably believed.  The court found that the ads were clearly labeled as ads and didn’t explicitly describe the others as competitors.  Even if reasonable consumers would be aware of Google’s internal advertising policy (the court’s recitation suggests a hint of skepticism about that), there was no plausible likelihood of deception “where the relevant reasonable consumer would exercise a heightened degree of care and precision, where the purchase price of the transactions range from $5,000 to $1,000,000 (or more),” and the consumer might even have an advisor.  No reasonable factfinder could find likely confusion.

Novation Ventures, LLC v. J.G. Wentworth Co., LLC, 2015 WL 12765467,  No. CV 15-00954 (C.D. Cal. Sept. 21, 2015)

Earlier version of the complaint, also dismissed.  Defendants’ failure to disclose common ownership wasn’t a false statement; simple failure to disclose doesn’t violate the Lanham Act because not saying anything “is neither ‘false’ nor a ‘representation.’ ”  Nor was it plausible that the ads were misleading.  Toyota v. Tabari held that internet consumers “fully expect to find some sites that aren’t what they imagine based on a glance at the domain name or search engine summary.... [C]onsumers don’t form any firm expectations ... until they’ve seen the landing page—if then. This is sensible agnosticism, not consumer confusion.” The “ad” label made deception even less plausible.


Nor did the allegations support a trademark infringement claim.  Novation argued that defendants’ use of their own marks “ ‘caused confusion,’ ‘mistake,’ and has ‘deceived’ thousands of persons … ‘as to the affiliation, connection, or association’ of JG Wentworth with ‘Olive Branch Funding’ and ‘Peachtree Financial.’ ”  But that wasn’t a trademark infringement claim.  Novation suggested that defendants infringed Novation’s marks by using keyword meta tags.  However, there was no allegation that defendants’ ads or links “incorporate plaintiff’s marks in any way discernable to internet users and potential customers.” Thus, no reasonable factfinder could find a likelihood of confusion here. 

Friday, March 17, 2017

Blast from the past: another keyword ad case where TM won't work

Int’l Payment Servs., LLC v. Cardpaymentoptions.com, Inc., NO. 2:14-cv-02604, 2015 WL 12656280 (C.D. Cal. Jun. 5, 2015)

Old decision, popped up in Westclip.  Plaintiff has a registration for ELITEPAY GLOBAL for its merchant payment solutions equipment, services and training business in the credit card processing industry.  CardPaymentOptions.com doesn’t provide credit card processing services, but does get paid for running ads from processors.  CPO has a review page using IPS’s logo under the heading “ElitePay Global Review.” The review is written by the website owner; it rated IPS with a “C-” grade or 1.875 out of 5 stars, and there were also more than 40 negative comments or reviews about IPS’s services (hello section 230), as well as links other credit card service processors.  In addition, CPO bought keyword ads for “ElitePay Global.”

Although summary judgment is usually disfavored in trademark cases, nominative fair use can allow it.  IPS’s services weren’t readily identifiable without use of the mark, and there was no substitute for it in defendants’ AdWords campaign. Nor was the use more than necessary, even though the mark was used over 50 times on CPO’s webpage.  CPO was talking about IPS; such referential uses are exactly what the nominative fair use doctrine is designed to allow.  As for the AdWords campaign, there was no evidence that defendants’ link regularly appeared above IPS’s website in search results, meaning there was no genuine issue about whether the use was more than necessary.

Finally, there was no suggestion of sponsorship or endorsement, given the bad grade and associated negative comments and reviews. The court rejected IPS’s argument that “there is no such thing as bad publicity.” Likewise, the use of the mark in AdWords and CPO’s webpage path (www.cardpaymentoptions.com/credit-card-processors/elitepayglobal/), didn’t actively claim affiliation with or sponsorship by IPS. The Ninth Circuit has held that “[o]utside the special case of trademark.com, or domains that actively claim affiliation with the trademark holder, consumers don’t form any firm expectations about the sponsorship of a website until they’ve seen the landing page,” and that “[s]o long as the site as a whole does not suggest sponsorship or endorsement by the trademark holder, ... momentary uncertainty does not preclude a finding of nominative fair use.”


Some false advertising-related state law claims survived, but the court declined to exercise supplemental jurisdiction over them.

All in the game: misleading tennis racquet endorsements don't support class certification

Ono v. Head Racquet Sports USA, Inc., No. CV 13–4222, 2016 WL 6647949 (C.D. Cal. Mar. 8, 2016)|

Ono sued Head for deceiving the public “into believing that top-ranked professional tennis players actually used [Tour–Line Racquets] during competition,” bringing the usual California claims. Although  he failed, the allegations—which seem to be substantially uncontested by Head—are of the kind that often draw FTC scrutiny, and the FTC doesn’t have the same problems that putative class representatives do.  The FTC does not like misleading endorsements, and Head would be well advised to read the extensive guidance it has offered on the topic, particularly about the endorser’s actual use of the endorsed product.

A press release issued by Head in April 2013, for example, stated that “[Andy] Murray was winning a thrilling match with his HEAD YouTek IG Radical,” that Richard Gasquet was “playing with his HEAD YouTek IG Extreme,” that Tommy Haas was using the HEAD YouTek IG Prestige, and it also mentioned “Maria Sharapova, who swings her new HEAD YouTek Graphene Instinct[.]”Another release from 2011 stated that Novak Djokovic “changed to his new YouTek IG Speed MP at the start of the season” and “Maria Sharapova showed tremendous performances with her brand-new YouTek IG Instinct MP[.]” Ono alleged that “professional tennis players whom Head pays to endorse specific models actually play with different tennis rackets—custom-made rackets that are not available to the general public or older models that have been discontinued or are sold at steep discounts—but which have been painted to look like the latest models that Head sells to the general public[.]”

The court found commonality, but not predominance. Head argued that most of its ads didn’t claim that an athlete used a specific racket.  The court commented that most of Ono’s claims about Head’s ads were supported by the record, which included more than 60 pages of press releases claiming that various professional athletes use specific Tour–Line Racquets in their professional matches. When the Senior Category Manager for Head’s tennis division was asked why Head did that, he answered “it’s always been that way.” Head provides lists to retailers that include “the player and the racquet that they are endorsing or playing with,” even if they weren’t playing with it in professional matches, and even without any knowledge of whether a player is or isn’t using it. Head’s president testified that players’ custom raquets are painted to look like standard Tour-Lines sold to the public, and,. in response to a question about whether that was “dishonest,” he simply said, “it’s inaccurate.”

Further, there was evidence that Head decisionmakers “knew that certain customers care a lot about what racquets their tennis idols use, and the evidence suggests that Head intended to maintain the ‘inaccuracy’ described in the preceding paragraph.” One 2009 employee email discussed Andy Murray’s use of a racquet with a different number of strings than the racquet Head claimed he used: “[i]t just makes it look like he is really not using the racquet we say he is and when this starts getting around on the message boards, it will not help our cause.... [P]eople like to have the same racquet (especially he [sic] techy-geeks) and we are making it impossible.” Another employee email: “[o]ne of our concerns, of course, is that now those serious players that want to play with what our pros play with will doubt they get the chance to play the actual Djokovic racquet.” A manager: “I am aware that players do not play with the retail version and I have no problem with that but we should have tried to make this as invisible to the public as we could, especially on a new series.”  Cf. Endorsement Guidelines, § 255.1(c) (“When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given. Additionally, the advertiser may continue to run the advertisement only so long as it has good reason to believe that the endorser remains a bona fide user of the product.”).

Head’s target market for the Tour-Line could, in its own words, be described as “die-hard tennis freak[s]…. They play competitively 5 to 7 times a week and follow the game religiously. They know what’s going on and who’s who in the international Tennis scene and ... are mainly influenced by their player idols, coaches and other players at their age and level of play.”

Head’s key argument was that its ads were varied and diverse, and “[m]ost do not include the allegedly false claim at the heart of this dispute—that a professional athlete used a specific racket in competition play.” Much of the advertising featuring professional endorsements “explain[s] the type of player each racket line or model is designed for and/or encourages consumers to visit the website to choose a racket best suited for their needs.” E.g., “The new YouTek IG Speed is specially designed for the needs of players like Novak Djokovic. It offers a stiffer feel for hard hitters with a long, fast swing style.”  The ads didn’t say which specific variant a player is using, or that they’re using a variant available to the public.  Also, Head argued that the reach of its marketing efforts was relatively limited. “Between 2009 and 2013, it placed print ads in two publications circulated to tennis teaching professionals, four tennis publications circulated to consumers …, and some tennis tournament programs; banner advertisements on tennis-focused websites; television advertisements on the subscription-only Tennis Channel; and press releases on its own website, the majority of which have been viewed 59 to 118 times or less in the United States.”

Even if the ads didn’t claim that an athlete used a particular racket in competition, a jury could find that the ads were nonetheless misleading “because reasonable consumers would understand them to mean that professional tennis players are using racquets that Head makes available to the general public.”  Minimal ad exposure also didn’t defeat commonality, which was a question of whether the advertising itself was materially misleading.  Head’s survey witness Hal Poret also conducted a survey in which only six percent of respondents answered “both that endorsement of a racket by a professional tennis player would be a factor in their decision and that they believe[d] from [a sample] ad[vertisement] that Andy Murray plays with the identical version of the racket sold to the public.” Of those who called endorsement an important factor, only 1.5% believed that Andy Murray used the racquet in question.  Still, variations in what class members might have believed or desired didn’t defeat the “relatively minimal showing required to establish commonality,” especially given that some elements of the California claims can be satisfied “without individualized proof of deception, reliance, and injury.”

Still, the case foundered on predominance, for the reasons largely given above.  Likely deception isn’t automatically a classwide question.  Ono failed to show that it was reasonable to assume that all, or even most, of class members were exposed to the allegedly deceptive ads, “and thus the question of exposure would have to be resolved on an individual rather than classwide basis.”  Even if Head’s target super-fans were more likely to be exposed than other people, the class definition wasn’t just super-fans.

Even painting racquets used in pro tournaments didn’t necessarily expose consumers to the deceptive practices.  There was no evidence that Tour’s customers generally watch tennis tournaments, or that they’d notice or be able to determine the model used by a pro on TV or even live. There was no evidence of an extensive decades-long campaign that might be used to infer exposure.

Nor was it reasonable to find that materiality and thus reliance could be litigated with common evidence.  While Head may have targeted its marketing at a segment of the population, there was no evidence that the target consumers were the actual consumers. “It would therefore be inappropriate for the court to presume that Head’s knowing that ‘tennis freaks’ would likely regard celebrity use of racquets as important is the same as Head’s knowing or having reason to know that purchasers of Tour–Line Racquets are similarly influenced.” [This strikes me as wrong: the reason that we infer deception from intent to deceive is that the fact that the seller thinks its representation will help sell its products is good evidence that it will do so; sellers who tout only unappealing features rarely last.]  Ono responded to Head’s survey evidence only by arguing that “those consumers who have purchased or are likely to purchase a tennis racket” in the price range of Tour–Line Racquets weren’t “representative of Head’s target Tour Consumer,” but the court already rejected Ono’s reliance on the target consumer.


In addition, “[e]valuating materiality using common evidence would be particularly challenging in this case due to the different representations regarding different racquets by different celebrity tennis players. While some press releases say outright that a certain professional player plays with a particular Tour–Line Racquet model, other advertisements merely link a player with a particular racquet silo [sub-brand], or describe a particular player’s style of play.”  Each would require separate deception analysis.  Also, the extent of deceptiveness varied—some pro players used racquets very similar to the models available at retail, and others used custom frames that differed more significantly.  Although Ono contested whether these sub-brands were designed for players like the respective endorser, that was a different misleadingness argument than the one about whether the endorser actually used the racquet.

Slingbox's addition of ads wasn't deceptive

In re Sling Media Slingbox Advertising Litig., 202 F. Supp. 3d 352 (S.D.N.Y. 2016)

Plaintiffs sued Sling under California law, and in the alternative under the consumer-protection laws of forty-seven other jurisdictions, including under New York General Business Law § 349, based on Sling’s addition of ads to its Slingbox service allowing consumers to watch their home TVs from internet-connected devices. In late 2014, for the first time, Sling began adding its own ads “after product startup,” as well as “alongside streamed ... content.” Plaintiffs were unhappy and sued for deceptive failure to disclose that ads would be added.

Although the EULA said the agreement was governed by California law, that didn’t give Slingbox purchasers outside of California the right to bring California consumer-protection claims. New York plaintiffs had to proceed under GBL § 349.  This requires the plaintiff to show a consumer-oriented act or practice that is deceptive or materially misleading, as well as injury.  There were no affirmative misstatements alleged. Omissions are actionable “where the business alone possesses material information that is relevant to the consumer and fails to provide this information.” But plaintiffs failed to plead facts sufficient to make it plausible that Sling possessed knowledge of a plan to disseminate advertising at the time they purchased their Slingboxes.


Nor did the complaint sufficiently allege materiality. According to the complaint, consumers buy Slingboxes to: (1) watch live or recorded programming that they have already purchased from a cable or satellite provider; (2) on another device; (3) anywhere in the world.  The complaint didn’t allege facts about the Sling ads—how often they show up, can they be skipped or otherwise avoided, etc. The complaint didn’t even allege that, at the time of purchase, plaintiffs knew they were getting an ad-free experience.  Finally, there were no allegations of actual injury, and adding ads “may be beneficial, detrimental or of no consequence based on consumers’ personal tastes, likes, or dislikes.”  Plaintiffs argued they wouldn’t have bought the Slingboxes or would have paid less for them if they’d known the truth, but that isn’t enough under New York law.  Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 56, 698 N.Y.S.2d 615, 720 N.E.2d 892 (1999) (stating consumers who buy a product that they would not have purchased absent deceptive conduct, without more, have not suffered injury).

Thursday, March 16, 2017

failure to caption music/songs doesn't make "close captioned" label misleading

Anthony v. Buena Vista Home Entertainment Inc., 2016 WL 6836950, No. 2:15–cv–09593 (C.D. Cal. Sept. 28, 2016)

Plaintiffs, who are deaf or hard of hearing, alleged that defendants sold (1) DVDs enclosed in packaging with language advertising the DVDs as subtitled, (2) movies advertised as captioned, and (3) movies or TV shows advertised as subtitled via online streaming services. However, the movies and TV shows were in fact not fully subtitled, specifically lacking subtitles for music and song lyrics, which are often used to explain the premise or theme of a movie or TV show, and can sometimes be crucial to developing a plot (e.g., musicals). They brought the usual California claims as well as a claim for violation of California’s Unrah Civil Rights Act.  The court found that plaintiffs failed to allege that reasonable consumers would be deceived; “whether such content should include subtitled song lyrics is quite distinct from whether consumers expect it to.”  Plaintiffs might have hoped that industry practice would change, but plaintiffs even alelged that “the practice of not subtitling song/music lyrics is frustratingly widespread,” and they each purchased or rented “numerous DVDs” in which the content “including music lyrics, was not subtitled or captioned.”

Plaintiffs argued that they were a particularly susceptible audience, and therefore the ads had to be measured by the impact they’d have on members of that audience instead of by the effect on reasonable consumers. But such a standard applies “to audiences who are known to be particularly susceptible to advertising, such as small children, not vulnerable audiences in general.” Plaintiffs didn’t explain why they would be more susceptible to persuasive advertising than any other reasonable consumers.

For the same reasons, plaintiffs failed to adequately allege reliance.  Also, plaintiffs alleged that they didn’t have any choices about whom to buy from, since only defendants produced captioned versions of their movies or shows.  “In effect, the Plaintiffs are conceding that they would buy or rent the products even without full captioning and subtitling, as there are no better alternatives available to them.”

Also, and worryingly in a broader sense, the court found that plaintiffs’ warranty claims failed because they didn’t allege either a “sale” or a “consumer good” as required by the Beverly–Song Act. The claims involved the video content of the DVDs, streaming services, or live movies, and the court concluded that it was this content that would have to be “sold” to be subjected to the act. But title to the content remained in the copyright owner; “[t]he consumer may purchase title to the physical DVD, but only purchases a license to view the expressive content.”  Thus, there was a sale as to the physical DVD, but not as to the DVD content. The same analysis meant there was no “consumer good” at issue.

The Unruh Act claims failed for want of alleged intentional discrimination.

The court also found that California’s anti-SLAPP law applied, given that captioning of videos is protected speech.  Plaintiffs argued that they were challenging the advertising, not the absence of captions as such. But the “principal thrust” of the warranty and Unruh Act claims was “clearly the captions and subtitles themselves, not the labeling on the box,” since the warranty claims were based on allegations that the movies and shows didn’t meet the particular needs of the deaf and hard of hearing community because they weren’t fully subtitled. “Such claims stem from the captions themselves, as changing the labeling would not ensure that the movies and shows met the needs of the Plaintiffs as stated in the Complaint.”  Nor would a labelling change provide plaintiffs with the relief they sought under the Unruh Act.

Although the argument that the false advertising claims involved purely commercial speech rather than protected content carried more weight, it still failed, because the ads were acts “in furtherance of the Defendants’ right of free speech and are in connection with a public issue.”  The commercial speech exemption to the anti-SLAPP law doesn’t apply to actions against “any person or entity based upon the creation, dissemination, exhibition, advertisement, or other similar promotion of any dramatic, literary, musical, political, or artistic work, including, but not limited to, a motion picture or television program....”  


Because plaintiffs’ claims were legally insufficient and unsubstantiated, the court granted defendants’ motion to strike under the anti-SLAPP law.

Wednesday, March 15, 2017

Not with a bang but with a fastener

B&B Hardware, Inc. v. Hargis Indus., Inc., --- F. Supp. 3d ----, 2017 WL 957548 (E.D. Ark. Feb. 16, 2016)

I mentioned this development a while back, but it’s now getting into the federal reporter, which is good so that people don’t misunderstand what ultimately happened.  As for background, “[s]uffice it to say that the twenty-plus year dispute ended in another jury verdict and judgment for defendant Hargis Industries,” and the court here rejected B&B’s various arguments for extending the agony.

A jury found for B&B and against Hargis on B&B’s claims for federal trademark infringement, false designation of origin, and unfair competition. The jury found for Hargis on B&B’s claim of unfair competition under California law, and for Hargis on its counterclaims for false advertising and false designation. The jury also found that Hargis’s infringement was not willful, and that B&B engaged in fraud on the PTO to obtain incontestability status. The court then granted judgment for Hargis given the fraud finding.

For the fraud on the PTO claim, the jury was required to find (1) a material misrepresentation or the failure to disclose material information (2) made with the intent to deceive.  The court explained:

Hargis’s position at trial was that Larry Bogatz, B&B’s president, misled the PTO – and thus committed fraud – by signing a declaration in support of his incontestability petition. That declaration required Bogatz to declare that B&B had not received a final decision on the merits adverse to its claim of ownership of the trademark that affected its right to register that mark. Of course, B&B cannot reasonably dispute that Bogatz’s declaration was false: the 2000 jury verdict found B&B’s mark to be merely descriptive and devoid of secondary meaning which, under the law, means the mark could not be registered.

B&B argued that the TTAB knew about the 2000 verdict and thus couldn’t have been misled by Bogatz’s statement, and that Bogatz had no intent to deceive because he was acting on counsel’s advice. True, the TTAB referred to the 2000 verdict in its correspondence, but that’s a different office, and the PTO doesn’t engage in substantive examination of an incontestability affidavit.  There was no reason to think that the PTO considered the 2000 verdict and still awarded incontestability.  (Implicitly, since it’s the courts that are supposed to engage in substantive review, it’s the court of appeals that screwed this one up when it held that B&B’s incontestability meant it was no longer bound by the 2000 verdict by failing to determine whether B&B had actually qualified for incontestability, rather than simply filing an affidavit correct in form.)

As for reliance on counsel, the jury was free to reject Bogatz’s testimony about his intent and reliance on counsel, especially given that the jury was permitted to draw a reasonable inference of intent “considering the timing of the declaration occurring mere weeks before filing a new lawsuit, the witnesses’ testimony about their interactions in the past, and Bogatz’s admitted knowledge of the 2000 jury’s findings.”

B&B also argued that the jury’s verdict was inconsistent in finding for B&B on the trademark infringement and false designation of origin claim, and against B&B on the unfair competition claim under California law. But the verdict wasn’t inconsistent given the extra element of damage to B&B under California law. Relatedly, the jury’s finding that none of Hargis’s profits were attributable to Hargis’s infringement was fine.  Under the instructions, the jury’s starting point was Hargis’s total profit; then, the jury could deduct all or a part of profit “attributable to factors other than use of the trademark.” “ Hargis presented testimony from several of its customers to explain that the customers’ motivation for purchasing Hargis products was not connected with the Sealtite name – thus, not connected with the allegedly infringing trademark – but rather other characteristics such as customer service experience and quality of product.”

B&B then argued that collateral estoppel didn’t bar the action, as the court ruled after the jury’s fraud on the PTO finding.  In 2000, a jury found that B&B’s mark was descriptive without secondary meaning, and there was no need to proceed to a confusion analysis.  When B&B filed the instant lawsuit, it alleged new circumstances—the incontestability.  “[E]ssentially, B&B is given a ‘pass’ on the first element – the element that doomed its prior case – and allows a jury to consider the second.”  Incontestability was the “significant intervening factual change” that rendered collateral estoppel inappropriate. But fraud on the PTO removed the benefits of incontestability, downgrading the mark to “the same status it had when the jury rendered its verdict in 2000,” meaning that there was no more reason to give B&B its second bite at the apple.

B&B argued that the TTAB did not apply issue preclusion in its own proceedings, so the court shouldn’t here. The court didn’t see the point of that argument, especially since the court proceedings were about the first element of an infringement case, protectability, whereas the TTAB rulings were about confusion. Nor was B&B entitled to disgorgement of Hargis’s profits, even if we assumed that it won its infringement claims.  B&B couldn’t show that the jury was wrong to find Hargis’s infringement to be not willful—Hargis obviously had notice of the registration, but that is not necessarily enough, especially given “the ongoing litigation repeatedly finding no infringement and the fact that the two companies engaged in different markets.”  And disgorgement is discretionary, not mandatory; also, it depends on unjust enrichment/compensation theories rather than on a penal justification, and the evidence that B&B didn’t lose sales from infringement was therefore relevant.


Judgment for Hargis on its counterclaims was also appropriate.  “[I]t is clear the jury accepted Hargis’s argument that B&B copied photos, text, or size and weight charts from Hargis’s website and posted them to B&B’s website as B&B’s fasteners.” Hargis then suffered injury when it had to engage experts and fight B&B’s activity. 

Monday, March 13, 2017

Seen around town

Sufficient alteration + disclaimer to avoid trouble for this former BP franchisee?
"This is not BP Gas," above covered-over BP star
Krackjack biscuits--any trouble from Cracker Jack if you import these from India?  Does it matter that other versions of the package present them as Krack Jack, two words?

How green was my tractor accessory? John Deere defeats aesthetic functionality defense for color scheme

Deere & Co. v. FIMCO Inc., No. 15-CV-105 (W.D. Ky. Mar. 8, 2017)      

Deere sued FIMCO for infringing on Deere’s green and yellow color scheme on agricultural equipment.  Deere has three green and yellow registrations: (1) the ‘103 Registration is from 1988 and covers green and yellow “agricultural tractors, lawn and garden tractors, trailers, wagons, and carts,” specifically those with green bodies/frames and yellow wheels; (2) the ‘576 Registration is also from 1988 and covers green and yellow “wheeled agricultural, lawn and garden, and material handling machines”; and (3) the ‘095 Registration is from 2010 and covers “tractor-towed agricultural implements,” including, among others, “fertilizer spreaders” and “nutrient applicators” with green bodies and yellow wheels. Deere also alleged common law trademark protection of its green and yellow color combination.

FIMCO makes lawn and garden sprayers, its main source of business, along with a smaller line of agricultural equipment, including towed agricultural sprayers and nutrient applicators, which FIMCO offers in multiple colors, including green and yellow. Deere sought to enjoin FIMCO’s use of green and yellow for sprayers and wheeled agricultural equipment, and its use of yellow tanks or wheels in connection with wheeled agricultural equipment having green vehicle bodies. 
 
screenshot from complaint
Here, the court rejected FIMCO’s functionality argument and several others, but allowed some elements of FIMCO’s defenses to proceed.

First, the court declined to exclude testimony from Deere’s expert, William Shanks, an investigator at Marksmen, “a private investigation firm that focuses on intellectual property investigations.”  Shanks summarized his investigation as follows:

Over several weeks in June 2016, I spoke with a total of 20 salespeople at different dealership locations, and with 18 of those 20 salespeople, I said something very close to the following: “I always thought [or assumed] that yellow/green farm equipment was made by . . . .” or “I always thought [or assumed] that the yellow/green coloring looked like . . . .” I would not finish the sentence, but would pause, to see if the sales personnel would finish the sentence. Each time I raised this unfinished sentence (18 of 18 times) the salesperson responded to my partial sentence and pause by stating promptly either “John Deere” or “Deere.”

He thus opined “that salespeople at dealerships that sell FIMCO’s agricultural equipment perceive the green and yellow colors on agricultural equipment as associated with Deere, or at a minimum, recognize or believe that people generally associate such colors with Deere.” Shanks presented himself in the role of “an employee of a film production company that wanted to rent or purchase agricultural equipment for a movie” so that dealers would “perceive[] [him] as someone not well- versed in that equipment, so the salespeople would be more inclined to educate [him] about the equipment than to assume [he] knew about it already.” He used “candid conversations” instead of “an interrogation or formal survey” in an effort to “ensure that the respondents felt comfortable enough with me to use their own words and give me their truthful, candid opinions.” He “offered an open- ended statement so people would feel free to fill in the gap however they wanted, instead of acting on a prompt or specific question from me.”

The court found that FIMCO’s criticisms went  to weight, not admissibility.  Shanks’ “twenty years of experience as a private investigator for an intellectual property investigation firm, which has often involved developing personas, conducting investigations, eliciting candid responses, and evaluating the results of such investigations, qualifies him to testify as to his opinions in this case.”  Would his testimony be “based on sufficient facts or data” and “the product of reliable principles and methods,” as the FRE require?  FIMCO argued that dealers would give different, less specific answers to a “random layman” than they would to a “true purchaser or shopper” and that it was likely that respondents were making “guesses . . . as to what they thought Shanks’ film producer character, as a completely uninformed, uneducated consumer, would think Shanks meant to finish the statement with. . . . Shanks’ [u]nfinished [s]tatements clearly lobbed for the respondents an answer going to what company most prominently features green and yellow on its agricultural equipment.”  But “errors in survey methodology are more properly directed against the weight a jury should give the survey, rather than overall admissibility,” and these problems were mere “technical inadequacies.”  

Nor would his testimony be inadmissible hearsay: “evidence of the state of mind of persons surveyed is not inadmissible as hearsay.” “Here, Shanks phrased his questions to dealers as inquiring into what they always ‘thought [or assumed]’ about the colors green and yellow on agricultural equipment” (emphasis added because of factual mistake).  The Court was satisfied that “experts in Shanks’ field would reasonably rely on this kind of data in forming opinions.”

Comment: When I think about how hard real surveys struggle to get attention paid to them, this result makes me sad.  Shanks explicitly induced salespeople to read his mind and complete his sentence with what they thought he thought.  The problem isn’t that Shanks is in the courtroom instead of the salespeople—he can testify to their present mental impressions—it’s that he isn’t testifying to the salespeople’s present mental impressions of what they thought, but rather what they thought he, as a novice, would be thinking.  After [gulp] years of teaching, even I can anticipate a number of standard student responses, and fill them in once a student starts down some particular path.  That doesn’t mean that the student is correct or that I think the way the student thinks; it means I’ve seen the argument before and I know what it sounds like.  Nothing in his report is evidence of what dealers or ordinary customers think.

Deere also failed to exclude five FIMCO expert witnesses qualified by their years of experience in the industry.  However, they lacked the expertise to testify about likely confusion as an ultimate issue, rather than about their own experience, because surveys are what proves likely confusion.  [And Shanks apparently did a “survey,” albeit one without controls, which alone would ordinarily have been enough to exclude a real survey in the modern era.] As McCarthy says, “A survey expert has conducted a scientific test and asked questions of potential buyers: other experts have not,” and thus “expert who has not conducted such a survey must articulate and describe some other reliable methodology that forms the basis for the conclusion that confusion is or is not likely in this case.” FIMCO’s witnesses didn’t offer reliable methodologies sufficient to offer the blanket opinions that “[t]here is no actual or likely confusion by U.S. consumers.”

However, FIMCO’s witnesses could testify about their own experiences with their customers throughout their careers, as well as “subsidiary factual questions, such as … the sophistication of buyers and the degree of care buyers typically exercise when making a purchasing decision of these kinds of goods or services.” For example, one witness testified, “reliably in the Court’s view, that he based [his] opinion on ‘[t]he price difference. The farmer is either looking for self-propelled that doesn’t compete because it’s a 300, $400,000 sprayer self-propelled sprayer versus a $50,000 or less sprayer.’”  Even though they did no separate research before forming their opinions, that went only to weight.

On to substance: in terms of fame, Deere claimed fame since 1923, or at the latest 1950.  Deere’s advertising expenditures were $34,000 in 1903 (roughly 1.1% of total company expenditures), $1.59 million in 1948, $5.4 million in 1957 (roughly $46.3 million today), and $75.3 million in 2015. Since the 1920s, it has advertised in color, clearly depicting its yellow and green color scheme, and often referred to this color scheme as the “John Deere Colors.” Its US sales have been extensive throughout its history, beginning in 1905, reaching $299.7 million in 1950 (roughly $3 billion today) and $29 billion today, and many of those sales were of products using the color scheme.  Deere’s archivist cited a 1923 article published in Implement & Tractor Trade Journal, discussing an upcoming convention at which a “Model Store” would be featured for agricultural dealers to see, which said that “[t]he glassed-in front is painted in the Deere colors, green and yellow.”  A novel, originally published in 1950 as Reluctant Farmer, also discusses a new wagon “painted the bright John Deere green and yellow” and a “side-delivery rake” painted “the usual bright John Deere green and yellow.” A Smithsonian.com article from 2011 called “Happy Birthday, John Deere!” begins with the following statement:

Unless, like my husband, you hail from a place like Nebraska, where it is  common knowledge that Farmall tractors are candy apple red, New Hollands’ are royal blue and Allis Chalmers are orange, I suspect that John Deere tractors, with their kelly green bodies and bright yellow hubcaps, are the only ones that are instantly recognizable.

Deere also surveyed members of the general public, 153 out of 156 of which identified a tractor bearing the yellow and green colors as being a Deere brand. Deere also has registrations for its color scheme, but those were not obtained until 1988 and 2010, long after the years in which Deere alleges its mark became famous—and long after FIMCO began using the colors.  The court found that the issue of when Deere’s colors became famous was a genuine issue of material fact.  “[T]he mere fact that Deere’s use of yellow and green were referenced in 1923 and 1950 is insufficient, at this stage, to say that 1923 or 1950 are the years Deere’s mark became so ‘widely recognized’ so as to make it famous for dilution purposes. Indeed, our sister courts have stated that ‘general media assertions and acclamations of fame are not strong evidence’ of fame because fame for trademark dilution purposes ‘is not proven through the words of trade publication articles declaring it so.’”

FIMCO alleges that, through its alleged predecessor in interest, JDD, it used green and yellow on its agricultural equipment from “either [19]32 or [19]38 forward.” The problem was that FIMCO couldn’t prove that JDD was its predecessor in interest, since the only evidence was from the current owner, Kevin Vaughn, who testified to his childhood memories from 1966 when, in his understanding, his father took over JDD’s assets out of bankruptcy.  [One might think that this is one reason we have laches, but the courts have been very hesitant to find laches in trademark cases, though perhaps once the court gets around to likely confusion Deere’s apparent inability to find real confused consumers over the past half century might matter.]  This evidence couldn’t be presented in admissible form, so FIMCO was left to its own start date in 1966, when it started to use the green and yellow colors.

Functionality: basically, FIMCO couldn’t prove that, even assuming that a desire to match equated to competitive necessity, the desire to match couldn’t be satisfied with either yellow or green, perhaps with black or gray; Deere limited its claims to the yellow and green combo.  Deere & Co. v. Farmhand, Inc., 560 F. Supp. 85 (S.D. Iowa 1982), aff’d, 721 F.2d 253 (8th Cir. 1983), found aesthetic functionality in the color green in similar circumstances, but (1) Deere clearly claimed only the combo this time, (2) the case predated Qualitex and Traffix (which I think is a bad argument because Breyer cited the case specifically in his discussion of aesthetic functionality in Qualitex) and didn’t apply the modern test.  “It may present a different question if Deere sought to completely prohibit all use of the color green or all use of the color yellow, as was the case in Farmhand.”   Trademark rights in one color “may differ from trademark rights in a combination of colors.”  [See also Louboutin.] 

Anyway, since Farmhand, courts have rejected claims based on a mere desire to match, because that’s not an aesthetic purpose “wholly independent of any source-identifying function.”  [I think that interpretation equivocates about independence. The desire to match, given a previous purchase of durable equipment, is independent of source-identifying function; it would apply no matter which brand of tractor the buyer had.  The matching color is related in a but-for sense to the choice of Deere, but I don’t think that source-identifying function should be deemed a proximate cause of the choice of matching equipment.]  Testimony that half of customers wanted their equipment to match, and half of those would change a purchase over that requirement, wasn’t convincing to the court—which I find a bit perplexing, since functionality has never required a showing that every single customer thinks there’s no alternative; 25% is a pretty significant chunk of a market.  But the broader point that the color combo wasn’t shown to be necessary to match is still a good one.

FIMCO’s laches defense failed because it couldn’t prove privity with JDD, which had received C&Ds in 1944 and 1963, as did its implied license defense. However, there was a genuine dispute of material fact as to acquiescence and estoppel. FIMCO put in a lot of evidence that its products would have been visible to Deere representatives at farm shows for years before 2011, when Deere allegedly discovered them.


The court also rejected FIMCO’s arguments about the scope of Deere’s registrations as covering yellow tanks/other aspects of FIMCO’s products; the question was not what the registrations covered but whether confusion was likely.  There were also some issues with incontestability—whether Deere made/sold all the items listed in the registrations continuously.  (Among other things, the ‘576 Registration includes “sprayers”; the court wasn’t persuaded by FIMCO’s argument that Deere didn’t sell trailed sprayers because it did sell self-propelled sprayers.)  Mostly there were genuine disputes of fact.