Recent reading

Fan Fiction and Fan Communities in the Age of the Internet, eds. Karen Hellekson & Kristina Busse: You’ve got to read Textual Poachers to do fandom studies. This collection is an instant essential on that level, for anyone interested in what it means to base a creation on a specific preexisting work, which is to say anyone interested in transformative use. Every essay taught me something. The main focus is on fandom as a community, which means that all its works are in some sense communally authored even though individual attribution also remains important. The other strand running through the pieces is the idea of using literary theory (or performance theory, see below) instead of the usual sociological approaches to studying fans -- treating fan creations as texts that can usefully be analyzed not just as expressions of resistance or cooptation, but as works of authorship and art.

Francesca Coppa’s history of fandom and later essay about the relevance of performance studies are alone worth the price of admission. Fan fiction as theatrical performance, explaining the genre’s focus on bodies and on repetition with a difference – this is an idea so brilliant that it seems obvious once she lays it out. As a bonus, she can really write. As copyright law has expanded to regulate more and more things that can be done with texts other than make identical copies of them, turning a "work" into an abstract thing that is never fully realized in any specific physical instance (see Julie Cohen's forthcoming Creativity and Culture in Copyright Theory on this), copyright looks more and more like a theory of performance, in the sense that each replication of a "work" is a link in a chain, each of which reflects on the others. Copyright scholarship could thus benefit from Coppa's approach. I've drawn on Coppa's work, and Sonia Katyal has a relevant piece that applies Austinian theories of performative language to copyright and slash fan fiction, but there's more to be done.

Aside from Coppa’s contribution, there are several other suggestions for a general term for forms of writing, like fan fiction, that claim interpretive power without authority and without closing off the possibilities for other contributions to the same set of texts. This includes Abigail Derecho’s fascinating “archontic,” which she offers in an essay that traces the history of rewriting as a women’s history of writing, sometimes literally in the margins. Many essays focus on fans’ use of Livejournal to post fiction and the interactions between readers and writers, texts and revisions, public and private, fact and fiction, and other traditionally opposed binary relations that Livejournal in particular and fan culture in general tend to undermine. The diversity of fandom will continue to increase, and maybe historical and critical perspectives can give some guidance on how fans can deal with the ever-increasing circles of fannish influence. One big binary that was largely unaddressed in the volume, and definitely deserves copyright scholars' attention, is the commercial/noncommercial divide, which has long been part of the fannish narrative of why it's okay to write fan fiction. Today, third parties like Livejournal, and occasional fans, are monetizing and commercializing "user-generated content" that consists of unauthorized derivative works. How should we deal with that? If the other binaries aren't sacred, why should this one be?

Skydiving without standing

Skydive Arizona, Inc. v. Quattrochi, 2006 WL 2460595 (D. Ariz.)

Plaintiff’s trademark and false advertising claims are based on defendants’ websites, which allegedly misrepresent defendants as “Arizona Skydiving,” “Skydiving Arizona,” “Skydiving Arizona Center,” “Tuscon Skydiving Center,” and “Skydive Flagstaff,” when in fact defendants operate no such facilities. In addition, defendants allegedly falsely claim that the “Skydiving Arizona” facility is “the busiest skydive center serving Arizona” and runs “multiple turbine aircraft.” Defendants allegedly have similar websites for Phoenix, Tempe, Scottsdale, Mesa, Gilbert, Yuma and Flagstaff. Plaintiff claims that Defendants have sold “certificates” to Arizona residents with false claims that the certificates are redeemable at Plaintiff’s facility, and that defendants have made false and misleading statements concerning their relationship with Plaintiff.

After dismissing individual defendants for lack of personal jurisdiction, the court addressed certain allegations against the corporate defendants in the complaint.

Part of the complaint alleges that the defendants copied copyrighted photographs from the website of a well-known Arizona skydiving videographer and used those photos to misrepresent their services. The photos include a picture of a group of skydivers at plaintiff’s facility, but defendants used the picture on several of their websites, labeling it as a photo of defendants’ experienced staff. Plaintiff alleges that this occurred on websites for several states, and also alleges that defendants similarly copied photos, text, graphics, layout, and design from another, Canadian website, using the copied materials to advertise fictitious sites in 17 states. Moreover, defendants allegedly posted false testimonials from supposed customers on multiple sites. In addition, plaintiff alleges that, when a Tennessee skydiving facility owner died, defendants called the phone company and had the 1-800 number changed so that it would be forwarded to their telemarking center.

The court ruled that these allegations don’t cover conduct with direct bearing on the plaintiff. Plaintiff doesn’t operate outside Arizona, so the non-Arizona sites can’t harm it. (Unless the various sites combine to create the impression of a respectable nationwide business that’s a better bet than a local operator, though that might be hard to prove.) Because plaintiff couldn’t show that these false statements diverted business from it, it had no standing to challenge them under the Lanham Act. Plaintiff has no brief to defend the reputation of the skydiving industry generally, even if defendants’ practices make the whole industry seem shady. As a result, the court struck these specific allegations from the complaint.

A couple of comments: Dastar is one reason not to treat wholesale copying as false advertising, though of course if the defendant copies statements that aren’t true when applied to itself, it’s engaging in false advertising. It seems to me that these allegations may still bear on defendants’ intent to confuse (in the case of the 1-800 number) or to misrepresent. Intent can weigh against a defendant as part of the multifactor confusion test, and courts occasionally take it into account in false advertising cases. For similar reasons, if liability is established, the scope of defendants’ acts may bear on damages, though the Lanham Act doesn’t provide for punitive damages. Would state-law claims help here?

The Dork Tower on Copyright in Characters

GMs beware: check your EULAs, or you could end up like this!

What we as a country really value

Working on a book chapter on trademark and free speech, I came across an argument for the dilution cause of action that I really don’t buy: “Rare characters like James Bond are national treasures; as such they should not be free for all to use.”

Um, as opposed to Abraham Lincoln or the American flag? Also, isn’t James Bond a foreigner of some sort, and thus not our national treasure? Talk about cultural imperialism …

Cite: Kristen Knudsen, Tomorrow Never Dies: The Protection of James Bond and Other Fictional Characters Under the Federal Trademark Dilution Act, 2 Vand. J. Ent. L. & Prac. 13 (2000).

Your Second Life ... as a celebrity impersonator

This Washington Post story on artists performing concerts in the game Second Life is intriguing because it doesn't distinguish authorized performances (Suzanne Vega, Regina Spektor) from unauthorized (a group of fans dresses as U2 and plays their music). The DMCA should protect the game company from copyright liability for the tribute band, but does the CDA cover right of publicity claims? Smart money says yes, but courts could still find no violation by the Second Life tribute band by finding that, even if the right of publicity is an intellectual property right and thus not subject to the CDA's protections for ISPs, fan-generated celebrities aren't being used for commercial advantage and thus don't fall within the scope of the law. I haven't seen any discussion of this so far, though I'm not completely up to date in the literature on virtual worlds.

New FDA preemption decision in Celebrex litigation

In re Bextra and Celebrex Marketing Sales Practices and Product Liability Litigation, 2006 WL 2374742 (N.D.Cal.)

Judge Breyer is handling this multidistrict litigation, consisting of putative class actions arising from the marketing and sale of Celebrex. Non-steroidal anti-inflammatory drugs ("NSAIDs") have been widely used for pain relief for several years. NSAIDs, however, pose a risk of gastrointestinal toxicity, which results in thousands of deaths every year. Pfizer developed Celebrex, a NSAID known as a COX-2 inhibitor, with the hope that it would have fewer gastrointestinal side effects than traditional NSAIDs. Pfizer marketed Celebrex both to consumers and to medical professionals as a solution to chronic pain.

Plaintiffs allege that Celebrex’s marketing was deceptive because Pfizer (1) suppressed data showing the cardiovascular risks associated with the use of Celebrex; (2) falsely claimed that the use of Celebrex had fewer gastrointestinal side effects than traditional NSAIDs; and (3) falsely claimed that Celebrex provided superior pain relief and safety over traditional NSAIDs. Celebrex was a very successful drug, accounting for billions in sales, at a price premium that was an order of magnitude greater than the price of traditional NSAIDs. Plaintiffs allege that, had Pfizer not falsely advertised Celebrex, they would have purchased equally effective and less expensive drugs. The putative class seeks to represent all U.S. end-payors, including consumers and third-party payors who bought or paid for Celebrex not for resale, from December 1, 1998 until now.

Plaintiffs have four claims: (1) RICO; (2) state consumer protection laws; (3) unjust enrichment; and (4) breach of warranty. Pfizer argued that all these claims were preempted by the FDCA and the FDA’s regulatory authority, and made other arguments as well. This opinion addresses only preemption.

The FDA required Celebrex to be marketed in accordance with its approved label, which included a warning for aggravated hypertension but did not otherwise warn of cardiovascular risks. The FDA had access to study results that might have raised a red flag, but the agency didn’t act. Plaintiffs allege, however, that Pfizer also had results that would have reinforced the concerns raised by that study, and that the FDA would have taken the problem more seriously had Pfizer not concealed this until 2001.

In 2001, an FDA Advisory Panel reviewed the cardiovascular risks of Vioxx and Celebrex. The result was a requirement of a new warning on the Vioxx label, but the FDA specifically determined that the overall rate of serious adverse cardiovascular events for patients taking Celebrex was no higher than in patients taking other NSAIDs, and the FDA-approved revised label reflected this. In 2005, the FDA concluded that the benefits of Celebrex outweigh the risks in appropriate patients and therefore Celebrex should remain on the market as a prescription drug, but ordered Pfizer to include a black boxed warning on the Celebrex label that highlights the potential increased risk of serious adverse cardiovascular events.

Back when the FDA first approved Celebrex, it warned Pfizer that "any promotional activities 'that make or imply comparative claims about the frequency of clinically serious GI events compared to NSAIDs or specific NSAIDs will be considered false and/or misleading....' " In 2005, the FDA required an upgrade in the GI toxicity warning on the label to a black box warning that NSAIDs, including Celebrex, “cause an increased risk of serious gastrointestinal adverse events including bleeding, ulceration, and perforation of the stomach or intestines, which can be fatal.”

How to apply preemption principles to the complaint? The complaint alleges that Celebrex’s marketing was unlawful because it didn’t disclose increased cardiovascular risk. Essentially, plaintiffs argue that Pfizer should have included an additional warning not rquired by the FDA on the Celebrex label and advertising.

Many courts have held that “failure to warn” claims don’t conflict with FDA regulations and are therefore not preempted, as FDA requirements impose only minimum standards. Other courts, however, have found preemption, at least where the FDA actually considered and rejected a similar warning.

The FDA recently issued a preamble to a Final Rule on labeling that reversed its longstanding position on preemption. The FDA now "believes that State laws conflict with … Federal law when they purport to compel a firm to include in labeling or advertising a statement that FDA has considered and found scientifically unsubstantiated." The FDA expressly disagrees with those cases that have held that state-law failure to warn claims are not preempted. The FDA has ultimate authority over a label, so the manufacturer can’t change it without permission. Moreover, the FDA’s label is both a floor and a ceiling. Additional disclosures of risk information can make a manufacturer liable under the FDCA if the additional statement is unsubstantiated or otherwise false or misleading. (Has anyone ever heard of the FDA telling a manufacturer that it’s disclosing too many risks?)

The FDA was concerned that additional disclosures could, instead of protecting patients, confuse the benefit/risk profile necessary to make informed judgments about drug use. And such disclosure requirements would be imposed by nonexpert judges and juries, often on behalf of a single individual or group without consideration of others’ interests. The result would be defensive labeling, which could result in underuse of good drugs. (Ah, the old Type I/Type II error problem. If the FDA is certain it doesn’t make many mistakes approving beneficial drugs, then it’s wise to worry about underuse.)

The court determined that the preamble was entitled to deference. Following the Supreme Court in Geier, the court found that Congress delegated implementing authority to the FDA; the subject matter is technical; and the relevant history and background are complex and extensive. The agency is uniquely qualified to understand the likely impact of state requirements. Plaintiffs argued that a preample isn’t a regulation or even an interpretive rule, but the court held that it was enough of an expression of agency opinion to justify deference. True, the consistency of the FDA’s position matters, and FDA used to hold that its standards were minimum ones rather than both minimum and maximum. In fact, in 2000, when the FDA published the proposed drug rule (the rule to which the preemption preable is attached), it took a no-preemption position. The change came in 2001, after a change in administration, when the FDA began to submit pro-preemption amicus briefs. But changing position after executive branch change is not inherently illegitimate, and the FDA’s position has been consistent since then.

The FDA's view is that a claim is preempted if the FDA determined that the warning the plaintiff seeks to impose is not supported by the evidence before the FDA. The FDA does not have to expressly determine that the warning would be false and misleading, although the FDA has suggested that an unsubstantiated statement is indeed false and misleading. (Of course, the DC Circuit’s First Amendment jurisprudence has been very hostile to this position when it’s actually used to regulate claims, for example on supplements, as opposed to being used defensively by drug companies. But, presumably, the logic behind the DC Circuit’s rule means there are also First Amendment problems with imposing liability for failure to warn. But Pfizer doesn’t want to make that argument if it can rely on less sweeping preemption claims.)

The allegation that Pfizer withheld material cardiovascular risk data from the FDA does not change the preemption analysis. The court pointed out that “[t]he law is well established that a claim premised on a drug manufacturer's failure to provide data to the FDA is preempted.” Thus, the cardiovascular risk claims were all preempted.

Pfizer also argued for preemption of the other theory of liability, that Pfizer falsely claimed that Celebrex had fewer GI complications than other NSAIDs and was more effective. Pfizer noted that the FDA requires drug companies to submit all advertising to the FDA's Division of Drug Marketing, Advertising, and Communications ("DDMAC"). DDMAC reviews the advertisements for compliance with the FDCA and FDA regulations on advertising, and has the authority to require a company to stop running a particular advertisement or to run a corrective promotion.

And how well does that work out? Money quote from DDMAC's director:

"We get complaints from consumers and physicians who call us up and say, 'Tom, how can you allow that TV ad to be on?'" Abrams says. "They're flabbergasted when we say, 'We didn't approve it before it went on TV.' Often, we're seeing it at the same time as the American public. DDMAC has limited resources and we use our limited resources as effectively as we can to do our job."

DDMAC usually takes long enough to act that many campaigns are over before DDMAC objects. DDMAC has been notably quiescent for the same period of time that the FDA has argued in favor of preempting state-law failure to warn claims. And the Washington Legal Foundation has a policy of responding to every DDMAC letter that issues on First Amendment grounds, just to show the antiregulatory flag.

Still, Pfizer submitted its challenged Celebrex advertisements to DDMAC and, with a few exceptions, the DDMAC did not object. According to Pfizer, this is necessarily equivalent to a FDA determination that the ads are accurate and strike a fair balance between the benefits and risks of Celebrex. Therefore, any claim that such ads were deceptive conflicts with the FDA's determination and are impliedly preempted.

The court was correctly unwilling to take preemption that far. There was no record evidence that the FDA actually reviewed all the submitted ads, let alone that FDA review means a determination that the ad isn’t misleading. The FDA’s silence on whether false advertising claims should be preempted was also significant in comparison to its position on failure to warn claims.

Pfizer also argued that particular ads identified in the complaint are consistent with the FDA-required label and therefore any claims based on those advertisements are preempted. Plaintiffs' claims, however, are that the ads implied that Celebrex is superior to other NSAIDs because it causes fewer gastrointestinal symptoms, a claim which the FDA expressly determined would be false and misleading. Given that Pfizer was arguing that its ads did not imply GI superiority or greater efficacy and were thus not misleading as a matter of law, the court was unwilling to make a determination at this stage of the case.

Last, Pfizer argued that the FDA, not a court or a jury, should initially decide whether Pfizer's ads are misleading because plaintiffs' claims fall within the "primary jurisdiction" of the FDA. The primary jurisdiction doctrine applies to issues within the special competence of an administrative agency, and allows courts to route threshold decisions to that agency. The court easily rejected this argument. The issue isn’t whether Celebrex has fewer GI complications than other NSAIDs. The FDA already determined it doesn’t. The issue is whether Pfizer falsely claimed that Celebrex was superior, and courts and juries routinely decide false advertising cases.

With failure to warn off the table, false advertising may be increasingly important in pharmaceutical cases, even as issues of reliance and causation make consumer protection class actions difficult to maintain. (Third-party payors may have an easier time aggregating claims, as long as they have standing.) In another judicial system, one might expect a probabilistic or “fraud on the market” theory to emerge, but I hardly expect it will in these times.

Music for Cyberprofs

The Pet Shop Boys have a solid new album, including the song Integral, which is about the proposed British national ID cards. It doesn't hurt my enjoyment that this is good old-fashioned PSB. The album is available through iTunes.

Riffing on the post title, here's a not-very-good fan video on YouTube that uses Integral as music for Cybermen. (And another, slightly better, but still under-edited.)

The long tail

Chris Anderson, The Long Tail: Why the Future of Business Is Selling Less of More: Full disclosure – I got a copy of the book free by promising to review it.

Anderson is responsible for a meme that's gone way too far, the long tail of niche markets. If you read the original Wired article, you probably know most of what this book covers about using cheap storage and transmission to deliver specialized content to audiences who share some blockbuster tastes but also want their own idiosyncratically customized music, etc. collections. Note the subtitle, which is important to the focus of the book’s argument: There's gold in that thar Long Tail, Anderson argues, a vast untapped potential for making money, the way Netflix and iTunes are doing.

My natural inclination is to think of media fandom as a long tail, providing exactly the customized versions of Superman and Lex Luthor that I want to see. Anderson only mentions in passing the problems of intellectual property that arise when lots of new people start making stuff, often out of bits and pieces of preexisting stuff. He sees copyright as a licensing barrier that will be overcome by smart businesses in order to provide us all with the contents of the celestial jukebox, but that’s probably not true for things like fan fiction and fan videos. Copyright owners are more likely to license pure reproduction cheaply than to license the right to create new works. Fan fiction, art and videos can be perceived as threatening to the brand even if the copyright remains strong. Moreover, although Anderson is aware that lots of the new content is noncommercial, he assumes that his audience wants to monetize that, either by serving as an intermediary to link producers with consumers or by licensing their own content. Thus, he doesn’t necessarily have much reassuring to say to those out on the long unauthorized, noncommercial tail.

Anderson can be sloppy in matching cause and effect in his enthusiasm for finding long tails everywhere and simultaneously insisting that they’re tailiest on the internet. He discusses a well-known study about the effect of variety on consumers’ choices and satisfaction with their ultimate selection, a study that’s considered in more detail in The Paradox of Choice (excerpt; is it tragic irony or poetic justice that the 8th Google result for “paradox of choice” was a video lecture by the author on Google Video?). Basically, researchers offered jam samples and coupons at a specialty food store, either with six unusual flavors or twenty-four unusual flavors. Sixty percent of shoppers stopped to taste at the larger display, and only forty percent at the smaller. But wait! Thirty percent of shoppers who sampled one of six bought a jar, while only three percent bought from the one of twenty-four array. On the internet, this paradox of choice turns into the “tower of Babel” objection that choice overwhelms and confuses us.

Anderson points out that sorting and filtering mechanisms are a good fix, but he often speaks as if their use has to be online, where you can get recommendations and reviews. To him, the “problem on the supermarket shelf” is that jam just sits there, categorized by the retailer and mute about its characteristics other than those the producer puts on the label. But a page before knocking the supermarket shelf, he noted that his own supermarket carries more than 300 varieties of jam. Something other than user reviews and filtering is producing that, probably including most shoppers’ ability to ignore exotic jams unless they have a specific desire to try one. Maybe retailers are irrational, but maybe they benefit from 300 jam varieties even if jam producers don’t, as long as the variety drives consumers to the store (see the 60% versus 40% result above) where they can be convinced to buy other things, as Eric Goldman is investigating. Anderson doesn’t try to explain how his supermarket grew a long tail.

Still, the meme is incredibly productive: There’s a long tail even in media fandom. The Yuletide Rare Fandoms challenge is an instance of the long tail, where decreased costs of communicating and coordinating mean that fandom now tries to provide a story that only one person might want to read for each person who participates. And the thing about the Long Tail is you get moved down it by also having (relatively) popular tastes – if you weren't in media fandom in some way already, you likely wouldn't know about Yuletide. The new information economy is one in which people’s top choices are shared but our overall preferences are unique. We help each other find customized mixes by recommending and rating items we have in common.

An important implication is that if you’re trawling through a general category of content, whether it’s movies or even action movies, more of what you see may be not your thing, because there is so much variety. The promise of the long tail is that, when you do find your thing, it will be much closer to your heart than the best you could have done in a world with less variety. But people are complex and consumption is always relative, so the path to realizing that promise may be a difficult one.

Anderson doesn’t engage with issues of positional consumption or the sense of loss that this fragmentation really does engender (even though I agree it’s a good thing overall). He’s a bright but not a deep thinker, as indicated by this entry on his blog, where he misunderstands what Andrew Keen says about how Anderson's predestination theory of technological development is like Marxism as an accusation that Anderson is a "commie or a hippie." Though Keen is a conservative for whom an analogy to Marxism is equivalent to a knockout blow, he's not redbaiting. He's arguing that Anderson's faith in a market shaped by lots of individual, unguided, unedited choices shares the same excessive faith in human nature that was supposed to produce communist utopia. Anderson does cite Marx for the idea that everyone should be able to produce what they want without being locked into an identity – I can herd sheep in the morning and paint pictures at night without being a “shepherd” or a “painter.” Anderson, like Marx, has faith that people with the resources and leisure to create will do so even without monetary rewards.

NB: I'm a lot closer to Anderson than Keen in most of my biases. I also have faith in the creative impulse independent of market incentives. Keen is prone to anti-intellectualism, as when he complains that Henry Jenkins and Yochai Benkler write incomprehensible prose because he – who isn't in either of their fields – doesn't understand it. I found the quoted paragraph of Jenkins perfectly comprehensible. And while I won't claim that Benkler is easy to read, The Wealth of Networks is a major synthesis of thought on law and the information society. It is particularly silly for Keen, who attacks the fragmentation of knowledge and touts the value of sustained in-depth thinking found in books, to criticize a book because he can't understand the title of the next-to-last chapter. He didn't make it 50 pages into the near-500-page work of social theory. That's like saying a college-level anatomy text is bad because, hey, I have a body so I ought to understand the next-to-last chapter as soon as I crack it open. Anyway, given that intellectuals like Benkler are prime examples of people who create for nonmarket reasons, it’s probably not surprising that Keen doesn’t like them much.

Keen is right that Anderson is a booster rather than a theorist. The Long Tail is a book of examples and not a theoretically sophisticated argument about technological determinism. If you want an assessment of the likelihood of transformation of the market given technical possibilities versus legal constraints, read Benkler's book, particularly Chapters 11 & 12. (Benkler also does a careful job on the “paradox of choice” objection discussed above.)

The long tail idea does not claim that everyone has something interesting to say, for blockbuster values of "interesting." Everyone has something interesting to say to her friends and family – I'd happily listen to my dad's thoughts on Veronica Mars even though they're not unique and I wouldn't be interested in the same thoughts from a stranger. Long tail technologies like Livejournal and Blogger allow everyone to be famous to 15 people. Peer production doesn't mean that professionally produced content will disappear or even lose its grip on top-ten lists. It means that lots of people will share some favorites but their fifth, sixth, etc. choices will differ wildly. Individual amateurs are not generally that important; amateurs together are significant.

Latest round of the heartburn wars: not about Nora Ephron

AstraZeneca LP v. TAP Pharmaceutical Products, Inc., 2006 WL 2338144 (D. Del.)

AstraZeneca sought a declaratory judgment that its “Better is Better” campaign for Nexium, which has now been discontinued (see remnant here), was not false or misleading under the Lanham Act. TAP, producer of Prevacid, counterclaimed and demanded a jury trial. (The court found that TAP wasn’t entitled to a jury trial because its damages evidence had been excluded and its only remaining available relief was an injunction.)

Nexium and Prevacid treat acid reflux with a similar method of action. The “Better is Better” campaign ran for half a year, late 2004 to early 2005, and included two TV commercials, print ads, website materials, and a pamphlet. The basic claim: “recent medical studies ... prove Nexium heals moderate to severe acid related damage in the esophagus better than the other leading prescription medicine.”

TAP didn’t contest the reliability of the two studies on which AZ relied, which showed a difference of 12.7% and 4.9% in healing damage at eight weeks compared to Prevacid (86.6% versus 73.9% and 82.4% versus 77.5%), with greater improvements the more severe the damage was. Rather, TAP argued that the ads conveyed several false and misleading messages: (1) Nexium is better for symptom relief, (2) Nexium is clinically better, when it’s only marginally better at healing, and the statistically significant difference is clinically meaningless, and (3) Nexium is better for everyone, when only a small minority of patients have “moderate to severe” damage.

The court rejected most of the parties’ challenges to each other’s experts, holding that they went to the weight of the evidence rather than its admissibility, for example TAP’s testimony about the difference between statistical and clinical significance. TAP offered survey evidence, which AZ sought to discredit. Dr. Thomas Dupont did two surveys, one based on a TV commercial and the other on internet advertising.

Claims (1) and (3) (better for symptoms/better for everyone): Based on combined responses to general (paraphrase: What did the ad say?) and specific (Did the ad say Nexium is better? What is it better at doing?) questions, Dupont concluded that 71.1% of respondents took away a message that Nexium provides superior symptom relief, while 32.1% understood that Nexium was better at healing damage. A final closed-ended question allowed respondents to choose whether the ad said Nexium was better than other medications for symptom relief, healing damage, both, or neither (and a don’t know option). In response to that question, 20.8% of respondents said Nexium was only better at healing damage to the esophagus, 15.8% said it was better only at treating symptoms of acid reflux disease, and 62.5% said it was better for both. Dupont, however, stated in his report that this last question was only included as a precaution, in case the answers to the open-ended questions were ambiguous. He felt that question six may have been either suggestive, overly complex, or both, and that the question was unnecessary because the answers to the open-ended questions were clear.

The internet survey included a question assessing materiality and its closed-ended question dealt with whether Nexium was better just for people with moderate to severe damage or for some other group. Before the close-ended question was asked, 11.2% of respondents who viewed the test ad said something about moderate to severe damage, while no respondents who viewed the control ad made such a statement. Dupont stated that these results "don't help us a lot in understanding whether or not consumers understood the limitation on the claim being made in the ad." In other words, it’s possible that more people understood the limitation on the claim than just 11%. In response to the closed-ended question, 38.5% of test cell respondents said that only people with moderate to severe damage to the esophagus were healed better by Nexium. However, 38.3% of control cell respondents, which did not contain the words moderate to severe, gave the same response. TAP’s rebuttal expert therefore opined that these questions should be excluded from the analysis. She believed that many respondents were merely guessing.

Perhaps unsurprisingly, similar percentages of test and control subjects indicated that the ad they saw would influence their purchase decision; very few gave the specific reason that Nexium heals damage better. But, of course, the real action is in the difference between the open- and closed-ended questions. The court agreed that the closed-ended questions prompted meaningless responses, and without the closed-ended questions it was impossible to interpret the answers to the open-ended ones. At most, all you can say is that at least 11% understood the limitation to moderate/severe damage, and somewhere between 0% and 89% were misled. Thus, the internet survey was excluded because it lacked probative value.

Independent of all this, AZ argued that a consumer could properly conclude that Nexium is superior overall because it’s superior in healing moderate to severe esophagal damage. TAP responded that there’s an established rule that a claim that’s only true with respect to a subset of patients is false when presented as an unqualified claim. But the court found that no such rule exists. My reaction: there are cases going both ways. The most logical way to divide them is to say that, if the subset is a small fraction of the total consumer population (people whose fatigue comes from iron deficiency rather than other factors, to take an example of a false claim once made for Geritol) or if the consumer can readily whether she’s a member of the subset (people who have migraines rather than normal headaches), unqualified claims that relate only to the subset are false. If the consumer could easily be a member of the subset and isn’t likely to find out, it can be worth trying the product and thus the unqualified claim isn’t explicitly false. If most people with heartburn don’t know the extent of their esophagal damage, then the court’s conclusion fits with prior cases. Given that Nexium is still useful for people outside the subset – unlike Geritol for people whose fatigue is from thyroid deficiency, say – it’s reasonable for consumers to conclude that, all other things being equal, Nexium is better because it’s better for moderate to severe damage.

Claim (2) (statistically significant versus clinically significant): TAP argued that Nexium’s statistical advantage over Prevacid was not clinically or therapeutically significant, and thus claiming an advantage was literally false. The court rejected this argument. The cases on which TAP relied involved situations where there was affirmative evidence that the difference touted by the defendant had no clinical significance. In Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharma Co., 129 F.Supp.2d 351 (D.N.J.2000), the defendant’s product was stronger in vitro than other products on the market, but in vivo results consistently indicated that greater strength didn’t improve efficacy in the body. Likewise, in Castrol, Inc. v. Quaker State Corp., No. 91 Civ. 8517(CSH), 1992 WL 47981 (S.D.N.Y. Mar.2, 1992), the defendant proved its product was faster flowing than other products, but tests of engine wear (which was the claim at issue) showed that faster flow, if anything, made things worse. Here, the studies on damage healing were relevant to consumer use.

One can imagine a case in which a statistically significant result was clinically irrelevant, though it might be hard to fit into current Lanham Act jurisprudence. For example, a rigorous enough study could decisively prove that Medication A is effective in 1% more patients than Medication B, or works on average one hour faster. Especially if Medication A is more expensive or has greater side effects, I find it hard to imagine doctors thinking that Medication A is clinically better. Now, expense and side effects are technically unrelated to efficacy and so ordinary Lanham Act law wouldn’t consider them in evaluating the truth of efficacy claims, but if the issue is what doctors would actually recommend, then perhaps we should take them into account.

Anyway, the court found that the clinical significance issue was really better addressed in evaluating implicit falsity. I’m not sure I buy that, because I find it hard to imagine why advertisers would ever make claims about statistical significance except to lead consumers to conclusions about clinical significance, which meets the standard for “necessary implication.”

TAP tried to bolster its argument with FDA regulations that state that an ad may be false if it uses the concept of statistical significance to support a claim that hasn’t been demonstrated to have clinical significance. The court rejected this, because the FDCA isn’t privately enforceable. (Again, while plaintiffs do have to show violations of the Lanham Act, not just the FDCA, the FDA’s regulations reflect the idea above – that there’s a necessary implication when an advertiser makes claims of statistical significance, especially to a lay audience – and probably should be usable as evidence in support of this conclusion.)

Because AZ was entitled to summary judgment on the literal falsity claim and the internet implicit falsity claim, all that was left was the TV implicit falsity claim, and of that, only the theory tested in the TV survey, that the ads falsely conveyed the idea that Nexium was better at treating all the symptoms of acid reflux, not just better at healing damage. The court stated in a footnote that TAP couldn’t rely on results from one medium to show falsity in another medium. Without further explanation, this is unconvincing – if the claim is the same, why should it make a difference whether the delivery mechanism was TV, radio, internet, or Pony Express? Perhaps, however, the TV ad copy was sufficiently different to justify this conclusion; otherwise it’s a needless restriction on the ability of plaintiffs to challenge a modern multichannel advertising campaign.

Given that the court already excluded TAP’s damages expert, the only issue remaining is the falsity of a discontinued ad campaign, so the court ordered the parties to conference, presumably with an eye towards dismissal.

Playboy, call your lawyers

This NYT story by Kurt Eichenwald is as disturbing as his first piece on child exploitation online. What struck the IP lawyer in me was the name and logo for one site he discussed, Playtoy Entertainment. With a one-letter difference in name and a disgusting business model, Playtoy has got to be a good candidate for at least a tarnishment claim. Perhaps the appalling nature of the services -- sexualized photos of very young, clothed children -- makes confusion unlikely, but I imagine there are a lot of judges out there who'd happily buy tarnishment. (I did not visit the Playtoy website because, frankly, I'm a little worried about the legal consequences of doing so. I don't know if there are disclaimers of affiliation with Playboy, or if the site's existed openly long enough to provide an equitable defense.)

As for the main topic of the article, Amy Adler has done very interesting work on the problem of child pornography law and the evasions it invites.

Heightened pleading and "advertising or promotion"

MPC Containment Systems, Ltd. v. Moreland, 2006 WL 2331148 (N.D. Ill.)

Plaintiff alleged a potpourri of state and federal claims against defendants, but this opinion addressed only defendants’ motion to dismiss plaintiff’s Lanham Act unfair competition claim.

Plaintiff designs, manufactures and installs containment systems, including storage tanks for water and fuel. Defendant John Moreland and his son, defendant Lawrence Moreland, were plaintiff’s employees/independent contractors for about twenty years, until October 2005. John was an executive VP whose duties included design of tanks as well as sales and bid preparation, including those for tanks made specifically for the U.S. Air Force, plaintiff’s largest customer for the last five years. Lawrence also worked on the manufacture of the Air Force tanks.

Given that this is a lawsuit, you can guess what comes next: working in secret, John and Lawrence established a competing business. Among other things, plaintiff alleges that, while they were still employed by plaintiff, they made false representations while promoting their product, disparaged plaintiff’s tanks, and caused a likelihood of confusion over plaintiff’s sourcing or sponsorship of the Moreland tanks. As a result, plaintiff lost a $7 million contract.

Defendants argued that the complaint alleges misrepresentations to a single customer, which can’t be “commercial advertising or promotion,” to which my reaction is: When the “single customer” is the U.S. Air Force, your claims to it constitute commercial promotion.

But that didn’t matter, because the court sua sponte decided that the complaint fails to meet the heightened pleading requirements of Rule 9(b). The court raised the issue because heightened pleading for fraud is required not only to provide adequate notice, but also to address “the sufficiency of the claims that fall within the context of misrepresentations made ‘in commercial advertising or promotion.’”

I’m highly dubious, since the court doesn’t explain what it needs to know other than that the parties compete and defendants were talking about their products to a big customer. But, according to the court, though plaintiff adequately alleged who, what, and where, it failed to provide the when and the how. It alleged that misrepresentations occurred before John & Lawrence stopped working for it, but since that period was over two decades long, that doesn’t provide adequate notice. (One would hope this can be fixed with an amended complaint; also, it hardly seems to intersect with the concern for whether defendants were engaged in commercial promotion.) Plaintiff also failed to specify the method used to communicate the misrepresentations, which is necessary to figure out whether they’re within the scope of the Lanham Act using the Gordon & Breach multifactor test for “advertising and promotion.”

Again, I’m not clear why this is so. Gordon & Breach determined that even fully First Amendment-protected journal articles could be used as advertising, and thus advertisers using them subjected to the Lanham Act if the articles were presented to potential customers to sway purchasing decisions, so I cannot figure out what the problem could be. Both oral and written materials (not to mention images!) can be false advertising under the Lanham Act; plaintiff is clear that only one customer was targeted; what could come out differently in the test depending on the method used to communicate? There could be potential differences in how one treats oral statements – some courts give oral statements more leeway in a puffery analysis, though I think that’s a mistake when the speaker has sufficient organizational status that s/he can be expected to know the truth – but that doesn’t seem like the appropriate focus of a motion to dismiss.

Solicitations dressed as invoices can violate California law

Rierson v. Meritplan Insurance Co., 2006 WL 2338162 (Cal. App. 4 Dist.)

Plaintiff alleged that, in a scheme to take advantage of another insurer’s exit from the California home insurance market, defendants sent insurance policies, along with solicitations for insurance that were disguised as invoices for money already due, to her and 74,000 other similarly situated homeowners. First defendants sent an unsolicited policy, then bills and requests for payments; then they cancelled the policy for nonpayment prior to the end of its effective date, and sent an additional bill for coverage prior to cancellation; this last bill, plaintiff paid. (Did they threaten her credit?) This, she claimed, violated both specific provisions of California law prohibiting false invoices and general tort and consumer protection law. The trial court dismissed almost all of plaintiff’s claims, but the court of appeals reinstated some.

The court of appeals agreed that the defendants’ conduct didn’t violate California law about letting consumers keep unsolicited merchandise or services, because insurance policies aren’t either. Because plaintiff properly alleged a violation of Civil Code § 1716, however, her claims for unjust enrichment, unfair competition, and false advertising were also resurrected to the extent they tracked the violation of the law. That provision bars solicitations that are designed to look like bills or invoices and requires prominent, conspicuous disclosures for solicitations. The trial court had ruled that, because defendants actually provided insurance, they weren’t engaged in the fraudulent conduct the law was designed to stop, but the court of appeals pointed out that the abuses justifying the enactment of that provision had included invoices for “directories” that the sellers actually provided. It’s not the failure to deliver the goods, but the fact that the solicitation deceptively pretends to be carrying out a previous agreement, that the law targets.

The decision also addresses what’s necessary to plead damages for purposes of the law; plaintiff adequately alleged damages in the form of higher premiums as a result of the policy cancellation, effort investigating the invoices, and inflated premiums for defendants’ policies.

How a Republican reads the New York Times

This is an interesting example of a parody by a competitor. Somehow, I doubt the Huffington Post would lose an infringement or dilution case.

Here's a thought: Is this filter the same as Judge Kozinski's pink(o)-screener?

Law & Order: Special Letters Unit

Sesame Street does Law & Order. The official Sesame Street website describes it as a parody, but apparently at least some of the actors are participating, Dick Wolf is using it to sell the real L&O to reporters and little kids, and it seems to be "authorized" even though it makes fun of the signature chunk-chunk. Copyright owners won't authorize parody, eh? (Or perhaps that should be "A?")

ISO update

In a previous post on First Act, the primary seller of musical instruments at big-box retailers, I asked whether First Act could claim it had been disparaged by negative references to the quality of "musical instruments sold at big-box retailers," since it dominates that sales channel. In today's New York Times, a seller of used flutes states:

“You can go to a big discount store and buy a brand new flute for a hundred bucks, but the child will be very frustrated because the sound won’t be as good as her neighbor’s,” she said. “And six months later? It breaks.”

Human beings can recover for defamation when their identities are recognizably invoked, and false comparative advertising claims have proceeded when the advertiser used the term "the leading brand" or a recognizable silhouette but not the product name. I am unaware, however, of cases extending that principle to advertising that mentions a sales channel occupied by only one seller. In theory, it seems that such a claim would be as valid as the claims against other indirect but unambiguous references.

Copyright and education

The Berkman Center at Harvard has a great new white paper on copyright and education. Of note are the case studies -- I was particularly interested in the one on film professors' use of circumvention to teach effective film classes and the one on George Mason University's Center for History and New Media (visit the CHNM here for some great new tools in teaching). There are signs of hope in the white paper's identification of people in the educational community who are willing to take risks to share information and promote learning, though it's depressing that such things should be risky.

As close as we're going to get to Harry Potter meeting fantasy baseball

The Recruitment of Harry Potter. Given the recent fantasy baseball case's reliance on the idea that baseball stats are facts in the world, would it be legitimate to have a fantasy Quidditch league? And, now that I think of it, does the capitalization imply that Quidditch is a trademark, like Bertie Bott's Every Flavor Beans? Quidditch sure seems like a generic term. Maybe we need an article on Harry Potter and the Fundamentals of IP.

Recent reading: Search engine liability

Frank Pasquale, Rankings, Reductionism, and Responsibility. This provocative piece argues for regulation of search engines to require them to allow a right of response when a negative result for a particular person (or product?) is very high-ranked, as well as a due process-type right to an explanation when a site's ranking goes sharply down.

Though Pasquale occasionally hints at a consumer protection rationale, he focuses on the harms to the targets of searches rather than on the interests of searchers in getting balanced or accurate information. Current law, by contrast, requires plaintiffs to claim some sort of consumer harm. That's unlikely to be a winning strategy, since I have a hard time imagining Google losing users from full disclosure: "We mostly use an algorithm to rank results, but occasionally we intervene to combat what we, in our sole discretion, consider attempted manipulation of the rankings, and also we may change rankings to fulfill other objectives such as avoiding lawsuits." As with coupon settlements, such disclosure might improve Google's credibility with the few people who notice it, rather than decreasing its user base.

Noncompetitor nailed on false advertising claim

Illinois Tool Works, Inc. v. Chester Brothers Machined Products, Inc., 2006 WL 2191982 (N.D. Ill.)

Plaintiff makes pneumatic nailers and staplers with a distinctive orange color, which it has registered for pneumatic and gas-powered hand tools, namely nailers and staplers. Apparently plaintiff uses a variety of trade names on the nailers and staplers, with the orange color being a common feature.

Defendant does business as “Pneu-Fast” and sells nails. Its ads use a photo of a pneumatic nailer bearing the color orange and the name “Pneu Fast.” (The website currently has a picture in which the nailer is orange, but the name isn’t visible.) Plaintiff sued for trademark infringement, false designation of origin, and false advertising.

As to the false advertising claim, the defendant won its motion to dismiss; the parties aren’t competitors, which means a Lanham Act false advertising claim is unavailable. For these purposes, defendant’s ads aren’t “commercial advertising or promotion.” That's a silly way to put a standing objection, since the ads quite obviously are commercial advertising, but that’s how the test goes. Thus the coordinate state law claim went as well, as did a false designation of origin claim in which plaintiff forgot to allege the interstate commerce element.

Roundup Ready is lawsuit ready

Monsanto Co. v. Syngenta Seeds, Inc., 2006 WL 2247094 (D. Del.)

Syngenta sued Monsanto for antitrust violations, specifically monopolization of the markets for glyphosate-tolerant corn (GA21 corn) traits and European corn borer-tolerant corn (Bt-Xtra) traits, and attempted monopolization of the foundation corn seed market. Monsanto counterclaimed that Syngenta misappropriated Monsanto’s GA21 event (“event” is apparently the term of art here). GA21 corn is commercially known as Roundup Ready corn, familiar to patent types; it tolerates a leading non-selective herbicide, allowing growers to spray that herbicide over the entire crop without damaging it.

Monsanto licensed a number of seed companies, including Garst and Golden Harvest, to develop corn hybrids from crossing a GA21 corn line with another line. In 2004, Syngenta acquired Garst and Golden Harvest, including their inbred corn lines containing the GA21 event. In 2005, Syngenta offered GA21 hybrid corn seeds under the name Agrisure GT.

Monsanto counterclaimed for reverse passing off and false advertising under the Lanham Act, as well as violations of the Deleware Deceptive Trade Practices Act. The issue is whether Syngenta made false or misleading statements of fact about the origin of its “product,” and therefore what that product is, the seed (which is not produced by Monsanto) or the GA21 trait (which has its origin in Monsanto). As you might expect, after Dastar the answer is fairly clear: the product is the seed, and thus Syngenta hasn’t engaged in reverse passing off.

Dastar left open the prospect of false advertising claims based on intellectual “origins.” Monsanto alleged various false statements of fact, including statements about Syngenta’s rights to the GA21 event, Monsanto’s authorization of Syngenta, and Syngenta’s independent creation of Agrisure GT. The court refused, however, to let Monsanto merely plead around Dastar. If Syngenta were to give the impression to consumers that its seed was “quite different” from Monsanto’s seed, there would be a valid false advertising claim. Monsanto’s allegations here, however, merely relate to statements regarding the origin of the seed or of the GA21 event, not the “nature, characteristics [or] qualities” of the corn seed. The statement that Syngenta is the origin of the seed isn’t false, and it follows from Dastar that Syngenta doesn’t have to give credit to Monsanto. Since Monsanto’s claims all boil down to reverse passing off, they’re not valid false advertising claims.

This is an aggressive but not unusual interpretation of Dastar. Dastar could have been read to allow pleading around more easily, as long as there were allegations of materiality (usually the missing component in pre-Dastar claims based on insufficient credit) and perhaps explicit, rather than implicit, claims. But by and large, lower courts have read Dastar expansively.

Interestingly enough, some of Monsanto’s state law claims survived. The passing off/likely confusion claims were dismissed because Delaware law follows the same substantive standards as the Lanham Act (pre-Dastar precedent, but allowing divergence would have created ugly preemption issues). However, the court declined to dismiss Monsanto’s allegations that Syngenta falsely represented that its goods or services were of a particular standard, quality, grade or model. Here, the different wording of the state law seems to have saved Monsanto’s false advertising allegation.

Grand Theft Trademark?

E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., --- F.Supp.2d ---, 2006 WL 2258336 (C.D. Cal.). Trademark Blog discussion here.

Plaintiff does business as the Play Pen Gentlemen’s Club, an adult-oriented entertainment business at the eastern edge of downtown Los Angeles. Defendant makes and sells Grand Theft Auto: San Andreas (GTA: San Andreas). One of the locations players can visit in the game is the “Pig Pen,” a strip club, located in at the eastern edge of downtown “Los Santos,” corresponding to Los Angeles. Plaintiff therefore sued for violations of §43(a) and coordinate state law (logo and trade dress infringement and unfair competition). Plaintiff lost.

The parties sniped over whether GTA games are known for “parody” or simply “irreverent humor” (this, I take it, means that shooting people and brutalizing prostitutes in the game is good, point-earning fun). The court, following 9^th Circuit precedent, holds that the presence of parody is a matter of law for the court to decide.

Los Santos mimics the look and feel of actual Los Angeles locations. Neighborhoods are filled with cartoon-style liquor stores, ammunition dealers, casinos, pawn shops, tattoo parlors, bars, and strip clubs, etc. Brand names, business names, and other aspects have been changed to fit the overall Los Santos look-and-feel. The game includes a disclaimer stating that the locations are fictional, but the artists who animated San Andreas used reference photographs of the corresponding areas, and the artists who drew the Pig Pen used pictures of the Play Pen and various other East L.A. locations to design the Pig Pen. The artists made changes because they weren’t seeking to recreate a realistic L.A. but rather a fictional city that “lampooned” the seedy underbelly of L.A. The artists agreed, however, that they didn’t choose “Pig” to parody strip club patrons or because they found pigs funny.

The court set forth a number of differences between the overall look of the clubs and differences in the parties’ markets; concluded that both strip club consumers and video game consumers are relatively sophisticated in that they know what they want; and noted defendant’s consumer survey showing essentially no confusion.

It then rejected the nominative fair use defense. In order to avail itself of this defense, the defendant must in fact be talking about the plaintiff, and the defendant argued that it was depicting and mocking strip clubs in general, rather than the plaintiff. I can see situations where a user ought to be able to pick a particular instance of a general type and then distort that in order to mock the overall category, so I’m not thrilled with this outcome – but see next paragraph.

The court’s nominative fair use analysis is in some tension with the court’s simultaneous conclusion that the game was entitled to extra leeway in the confusion analysis because of First Amendment concerns. The court found that the Pig Pen has artistic relevance to the game’s “twisted, irreverent” image of urban L.A., and thus the borrowing of plaintiff’s trade dress and mark was connected to the artistic design of the game. If the Pig Pen isn’t the Play Pen, I’m not quite sure how the first half of that sentence connects to the second, unless the point is that the borrowed elements were also quite common (the court had found that images of nude women in strip club logos, “totally nude” in strip club ads, awnings, and even the association of strip clubs with “play pens” were all common elements). The court rejected claims that the Play Pen wasn’t recognizable enough to justify commentary and that there could be no commentary because defendants didn’t copy the full trade dress.

Because there was artistic relevance and defendant didn’t make any explicit misrepresentations about the Play Pen, defendant prevailed. The court suggested that, given that the Pig Pen is hidden in the game, deception is less likely than it was in Rogers v. Grimaldi or Mattel v. MCA Records, where titles were involved. Given the extent of product placement in video games these days, I’m not sure that distinction is justified – the court cites false advertising cases noting that a representation on materials hidden in the package can’t affect a purchase decision, but on the trademark side courts have been willing to recognize post-sale confusion and harm to a plaintiff’s goodwill in similar circumstances. That’s not to say the decision was wrong – it’s plainly right – but basically the court overthought the whole thing, as a perusal of the very long opinion will show.

Gone in 60 Milliseconds slides

Since I've had a few requests, here are the slides from my recent presentation, showing three different kinds of "tragedies of the commons" in branding.

Defamation watch

Croton Watch Co, Inc. v. National Jeweler Magazine, Inc. 2006 WL 2254818 (S.D.N.Y.)

Plaintiff sued defendants, Teslar (a competing watch maker) and National Jeweler Magazine over a story the magazine ran that was allegedly planted by Teslar. Teslar and plaintiff previously entered into a consent judgment resolving Teslar’s lawsuit against plaintiff for trade dress infringement. Based on Teslar’s press release, the magazine then ran a story indicating that a judge had “ruled” that plaintiff infringed Teslar’s trade dress, which included a picture with a caption that made it look like plaintiff had counterfeited Teslar’s watch (including Teslar’s word mark). Plaintiff sued for false advertising and defamation.

The court agreed that plaintiff hadn’t stated a claim for defamation because the report was substantially true. Moreover, defendants were also entitled to dismissal because of New York’s “single instance exception” to defamation, which holds that disparaging a single instance of professional conduct is not defamatory per se. Because anyone can make a single error, the law presumes that charging an individual with a single dereliction in connection with his or her trade doesn’t necessarily charge him or her with general incompetence and isn’t actionable unless special damages are pleaded and shown. Here, selling 116 units of the watch was a single violation, and didn’t charge plaintiff with general lack of character, and plaintiff failed to plead special damages.

The Lanham Act claim failed, unsurprisingly, because the story wasn’t commercial advertising or promotion, even if it was run for an improper purpose.

Fantasy (baseball) doesn't violate the right to publicity

C.B.C. Distribution & Marketing, Inc. v. Major League Baseball Advanced Media, L.P., 2006 WL 2263993 (E.D. Mo.)

Prof. Patry has discussed the preemption aspects of this decision allowing a fantasy baseball website to use players’ names in connection with their statistics. It is indeed a long opinion, finding against Major League Baseball on almost every theory advanced. A couple of points of note: the court relied on video game regulation cases to hold that fantasy baseball’s interactive nature supported First Amendment protection for the uses, which provide an engaging “education in baseball.” The court also rejected the argument that the fantasy baseball games were commercial speech. (Even if the court had agreed with MLB, Central Hudson might have required fairly vigorous protection for fantasy baseball games, since their use of players’ names and statistics was neither false nor misleading.) Finally, the court rejected the argument that the plaintiff-counterdefendant was bound by an earlier license that stated it would have no rights to use players’ identities after the license expired, mainly on public policy grounds protecting free dissemination of factual information, a result with possibly broad significance.

McDonald's is lovin' it: Burger King franchisee lacks Lanham Act standing

Phoenix Of Broward, Inc. v. McDonald's Corp., --- F. Supp. 2d ----, 2006 WL 2147645 (N.D. Ga.)

Beginning in 1995 and continuing until 2001, McDonald's ran games, such as the "Monopoly Game at McDonald' s," "Hatch, Match and Win," and "Who Wants to be a Millionaire Game." Each game had low-, mid-, and high-value prizes. Generally, there were two opportunities to win a $1 million grand prize: (1) by obtaining the $1 million instant winner game piece, or (2) by collecting certain game pieces. McDonald's extensively advertised and promoted each of the games it offered to the public, allegedly representing that all customers had a fair and equal opportunity to win all of the offered prizes. The ads also listed the odds of winning specific prizes.

Allegedly, the games led a lot of people to eat at McDonald’s who wouldn’t otherwise have done so. In early 2000, the FBI began investigating and informed McDonald’s that there were problems with the randomness of the distribution of game pieces, but McDonald’s continued to advertise the games as if everyone had an equal chance to win high-value prizes.

In 2001, the government announced that since at least 1995, certain of McDonald's promotional games had been compromised by a criminal ring led by the director of security at the company McDonald’s used to operate the games. He diverted at least $20 million in high-value prizes from McDonald's games by embezzling game pieces and distributing them to a network of "winners." About 45 people ultimately pled guilty to charges of conspiracy and mail fraud.

Consumers filed several class-action lawsuits against McDonald's alleging consumer fraud, negligence, and unjust enrichment. In 2002, McDonald's settled these lawsuits by, among other things, agreeing to implement a $15 million instant giveaway involving 15 $1 million prizes.

Plaintiff, a Burger King franchisee, sued on behalf of itself and all similarly situated Burger King franchisees, over 1,100 of them. Its only claim was false advertising under the Lanham Act. It argued that McDonald’s conduct was intentional and/or reckless, justifying treble damages as well as disgorgement of the profits associated with sales generated by the fixed games.

No proof of intent or willfulness is required under the Lanham Act. It’s a strict liability cause of action. Still, this is the first identified Lanham Act case about advertising that was false or misleading due to the felonious conduct of third parties.

McDonald’s sought dismissal on three grounds: (1) lack of prudential standing, (2) criminal conduct is an intervening cause preventing McDonald’s from being liable, and (3) plaintiff failed to plead with the particularity required by Rule 9(b).

McDonald’s argued that plaintiff lacked prudential standing even if it had constitutional standing. The Eleventh Circuit hasn’t addressed the issue. Some circuits have a bright-line rule: the plaintiff has to be a competitor and has to allege competitive injury. The Third and Fifth Circuits have adopted a less categorical multi-factor test, based on the Supreme Court's test for antitrust standing, that focuses on the protection of commercial interests and the prevention of competitive harm. The district court chose to follow the approach of Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221 (3d Cir.1998) (opinion by then-Judge Alito), which assesses five factors: "(1) the nature of the plaintiff's alleged injury, (2) the directness or indirectness of the asserted injury, (3) the proximity or remoteness of the party to the alleged injurious conduct, (4) the speculativeness of the damages claim, and (5) the risk of duplicative damages or complexity in apportioning damages."

Conte Bros. involved retailers who sought to sue manufacturers of products that competed with those the retailers sold. The present case is the currently-rare instance where the defendant wants a multifactor test to apply, since plaintiff plainly has standing under the competitor/competitive harm rule. Really, if we’re going to have standing requirements additional to injury, this test should only be used when there isn’t a traditional competitive relationship but there might still be reason to employ the Lanham Act; Conte Bros. depends on a background assumption that competitors enjoy standing and the only question is how much further that extends. (I think the statute doesn’t limit standing whenever there’s injury, so I’m an extremist on the topic, but I don't think you have to be to think that the district court fundamentally misunderstood the standing test.)

(1) Was this the type of injury Congress sought to redress in providing a private remedy for false advertising? The Lanham Act has two aims: vindicating commercial interests harmed by false advertising, and securing to businesses the advantages of reputation and goodwill by preventing their diversion from those who’ve created them to those who haven’t. Though Congress wasn’t thinking about criminal conduct by third parties, this factor weighed in favor of standing. The parties unquestionably compete, and good faith isn’t a defense to liability.

Still, the weight of this factor is weak, since the ads at issue didn’t tout McDonald’s products or services or disparage those of Burger King. The ads focused on the odds of winning high-value prizes. They didn’t harm Burger King’s good will or reputation; if there’s been any harm, it’s been to McDonald’s reputation. The court here imports a consideration of materiality – because the ads weren’t about products or services, they might not have affected goodwill.

That’s wacky reasoning. Plaintiff alleges – persuasively – that McDonald’s offered to give away prizes to get people to buy its food, and that the offers succeeded even though the games were rigged. That’s materiality, a conclusion supported by the general rule that whatever an advertiser focuses on in an ad is material, since advertisers don’t ask people to buy based on irrelevant characteristics. McDonald’s reputation suffered when the scheme unraveled, but that doesn’t erase the competitive harm done – disclosure didn’t sell any Burger King burgers -- and there’s certainly no evidence at this stage of the case that McDonald’s has lost the competitive advantage it gained over the course of the games. The class action settlements were designed to improve McDonald’s goodwill by offering new prizes, so I can’t see how that fixes things for Burger King.

Factor (2) looks at whether defendant’s conduct directly affected the plaintiff or the market in which the parties participate. Even if customers would have eaten at Burger King, instead of McDonald’s, had they known that “a few of the high-value prizes” in particular games were unavailable, that requires plaintiff to prove a complex causal chain, so it weighs only moderately in favor of prudential standing. Again, I’m not sure how this causal chain is any different from that in a standard false advertising claim. Except in cases of outright fraud, the defendant has usually only exaggerated the superiority of its product, which still provides some of the advertised benefits. Purchasers often have other reasons to buy than ads, but the ads still matter – especially in a case like this, which offered time-limited and therefore highly salient reasons to go to McDonald’s right then. Consideration of the difference between advertised and actual benefit belongs in a materiality assessment, not standing.

(3) Plaintiff’s proximity to the injurious conduct. The court considered whether there’s an identifiable class of people whose self-interest would normally motivate them to vindicate the public interest, diminishing the justification for allowing a more remote party to act as a private attorney general. There’s a better group here, which is the customers who were denied the chance to win prizes. Again: not unique, since the harm of false advertising can only work through deluded and diverted customers. This test is just plain ill-suited for a standard false advertising claim between competitors like this one. Mark McKenna’s paper on how courts have let the consumer harm rationale for the Lanham Act overwhelm its original focus on producer harm, to the detriment of the law, seems particularly relevant here. (Note also that the only reason courts initially denied standing to parties who were harmed by false advertising, but who weren’t direct competitors, was that the Lanham Act focuses on protecting competitors and not consumers; this case stands that rationale on its head – and shakes the loose change out of its pockets.) Another relevant consideration: given how hard it is to get class certification for a consumer protection class, since many courts find that issues of individual causation and reliance preclude certification, it’s unlikely that there is a group that could successfully vindicate the public interest. The fact that McDonald’s decided not to fight the class action should not blind us to the reality that, with increasing barriers to consumer class actions, only competitors have enough of an interest to litigate.

(4) The court found that the speculativeness of the damages weighs heavily against standing. Since the conduct at issue ceased, damages are all that’s at issue. Given that the fraud only affected some of the prizes, the number of fast food competitors of McDonald’s, and the difficulty of figuring out what percentage of customers would have gone to Burger King instead absent the false advertising about the high-value prizes, damages would be speculative at best. This is the most persuasive argument of the bunch, and probably could have been accepted using a more standard assessment of whether plaintiffs could prove they themselves were harmed.

(5) Likewise, the court found that risk of duplicative damages weighed heavily against standing. If the court found that Phoenix had standing, every competitor could bring a copycat suit, and because damages are so speculative, the risk of broad and overlapping damages is great. This illustrates a general point about Lanham Act standing, which is that it’s hard to prove in competitive markets; oligopolistic markets allow more lawsuits.

Result: no standing, no need to address the other arguments. Look, maybe McDonald's has already suffered enough, but this is a very bad reason to dismiss plaintiff's claim. Logically, any false advertiser in a moderately competitive market could argue against standing on the same grounds -- consumer lawsuits to redress consumer injury are always possible, even if they haven't been brought -- and convert questions about measuring damages into an absolute bar to suit.

Tags:

• falseadvertising
• standing

Sauna trauma revisited

Sunlight Saunas, Inc. v. Sundance Sauna, Inc., 2006 WL 2088324 (D.Kan.)

After the court denied summary judgment on most of plaintiff’s claims, discussed here, the case of the dueling sauna claims proceeded to trial.

The jury found Sundance liable for $2,500 actual damages and $150,000 punitive damages for defamation under Kansas law; liable for $1.00 actual damages for false advertising and $1.00 actual damages for false description under the Lanham Act; and not liable for cybersquatting under the Anticybersquatting Consumer Protection Act (as well they should have; that ACPA claim was bad!). On the counterclaims, the jury found Sunlight liable for $1.00 actual damages for false advertising in violation of the Lanham Act. Defendants moved for judgment as a matter of law on the claims they’d lost; the court denied the motion.

Sundance was founded by a former Sunlight employee who was bitter and said that he’d devote “unbelievable resources” to dissolve Sunlight. Sunlight made some claims about its saunas that weren’t true; at www.sunlightsaunas-exposed.com, Sundance accused Sunlight of lying. Sundance’s accusations went a bit beyond the established untruths and included some inflammatory (no pun intended) statements about the safety of Sunlight’s heating elements.

After the website went up, sales decreased, Sunlight had to lower its prices, and more sales were cancelled. Sunlight’s sales director testified that customers were agitated and asked numerous questions, including: "Are your heaters toxic?;" "Am I going to get Alzheimer's disease from using your heaters?;" "How do I know you're not going to go out of business?;" "Is my house at risk from a fire hazard if I buy your sauna?;" and "Where can I get more information about your company so I can feel better about working with you?" The sales director testified that she never tried to calculate actual damages and in fact she characterized them as "impossible to quantify." This was sufficient evidence to justify the damage award for defamation by accusations of “lying.” (It sounds like it wasn’t the defamation – the accusations of lying – but the product disparagement – the accusations of flaws in the saunas – that was the problem, and since Kansas doesn’t recognize business disparagement, I’m not sure the court’s right here. But given that the disparagement was necessarily entwined with the defamation, maybe it’s justified.)

The jury, bizarrely, found that Sundance engaged in false description by using the Sunlight trademark on the “exposed” website in violation of § 43(a)(1)(A) of the Lanham Act, and thus awarded $1.00 actual damages. How this could possibly be a false designation of origin is beyond me, since no one could have thought this was an official or authorized Sunlight site. The court held that, regardless of the degree of care exercised by purchasers, Sundance wasn’t entitled to judgment as a matter of law because of the “strong” evidence on the other factors (name similarity, malicious intent to harm Sunlight, and shared marketing channels). This is a case in which application of the standard confusion test produces ridiculous results, and the court (and jury) let the multifactor test obscure common sense. I don’t really understand how the jury got this wrong when it managed to reject the ACPA claim.

Double vision: revised ad still false, not contemptuous

Johnson & Johnson Vision Care, Inc. v. CIBA Vision Corp., 2006 WL 2128785 (S.D.N.Y.)

J&J sued CIBA over promotional materials for CIBA’s launch of its O2OPTIX contact lenses. J&J received a permanent injunction against certain claims of oxygen transmissibility and consumer preference, and sought to have CIBA held in contempt for violating that injunction.

The original order enjoined CIBA from stating, on the basis of its consumer preference study, that 75% of the participants in that study preferred O2Optix over Acuvue Advance. So CIBA claimed, based on that study, that “75% of lens wearers selected O2Optix over Acuvue Advance,” and added an asterisk explaining that 33% of the patients who selected O2Optix and 40% of the patients who selected Acuvue Advance chose a favorite at random. After J&J squawked, the court issued a further order clarifying and enforcing the first order, prohibiting any claim using the word “selection” or like words. (Seriously, CIBA, who thought that the revised ads were okay? The court used the word “selected” in its own description of the study, but the court was paying much more attention to nice details than consumers can be expected to do.) Despite the violation, the court refused to find CIBA guilty of contempt because CIBA was trying to comply with the order.

The rest of the opinion refuses CIBA’s motion for partial summary judgment dismissing J&J’s accounting and attorneys’ fee demands. In the Second Circuit, attorneys’ fees are only awarded if there is bad faith or fraud. Likewise, the Second Circuit allows an accounting of defendant’s profits only upon a showing of bad faith as well as a “general right to damages.” A footnote points out that the 1999 amendment of the Lanham Act authorizing recovery of profits raises a question as to the continuing viability of Second Circuit precedent requiring willfulness, since the amendment specified a willfulness requirement for profits in cases of dilution, but did not change the language of the provision governing §1125(a). Even accepting that bad faith is required, fact issues remained.

Another ruling of note was that the court declined to exclude a survey by CIBA’s expert purporting to show that the false advertising didn’t harm Acuvue Advance’s reputation among the eye care professionals to whom the ads were disseminated. The ads went out in fall 2004 and the survey was in June 2005 and relied on the subjects’ memories of the ads. The court concluded that the survey was not as probative as a contemporaneous survey, but might still assist the fact-finder on the issue of causation.