Qualified immunity, videotape, and copyright

Today's decision in Scott v. Harris, as Marty Lederman writes, involves the majority's interpretation of videotape recorded by the police cars involved in the chase that left the plaintiff paralyzed. The Supreme Court has, rather unusually, put the videotape up on its website and suggests that readers of the opinion watch the tape for themselves.

There is a minor copyright hook here: assuming that there is an author (on which more presently), the videotape is copyrighted -- the exclusion for government works in the US covers only works of the federal government -- and putting the whole thing up on the Court's website infringes the copyright owner's rights. The copyright owner in footage of Reginald Denny's beating -- surely at least as newsworthy -- has successfully sued news organizations who broadcast that footage without paying. But, given that the Court asks us to evaluate the tape for ourselves so that we will understand its legal analysis, there's a strong fair use argument. You don't have to trust the Court's judgment if you can look for yourself. Because the legal analysis requires assessing the entire context of the car chase, copying the entirety of the relevant events is necessary to the use -- thus, an analysis that in litigated cases (e.g., Nuñez v. Caribbean International News Corp., 235 F.3d 18 (1st Cir. 2000)) has so far only covered photographs should also extend to other media. Moreover, though states can own copyrights, the reason they put cameras on police cars has nothing to do with copyright's incentive structures and everything to do with recording events for later oversight. This affects both the type of work (factual) and the market analysis (not really operative even if there is a market for footage of police chases).

Of course, many of these considerations apply in the average substantial similarity case. Courts have included black-and-white pictures of accused works, and sometimes accusing works, in prior opinions. Given available technology, they should consider going further. Why shouldn't an opinion include relevant excerpts of plaintiff's and defendant's works, of whatever medium? Those of us who teach IP know that words on the page are essentially useless for helping students understand the substantial similarity inquiry for non-literary works. If writing about music is like dancing about architecture, and if the judicial enterprise requires a public attempt to justify and explain decisions, then copyright cases in which substantial similarity or transformativeness are at issue should routinely set forth the relevant evidence, even when that evidence does not consist of words.

/end rant.

One could also ask whether there was any authorship at all in the footage, since no human chose camera angles or anything else we conventionally associate with authorship in film. At most, a human was involved in editing -- selecting which footage was relevant to the dispute. But that might not have risen to the necessary originality, if everyone would have agreed about the relevant time period, as seems likely; deciding where to start and where to stop within a minute or so is not particularly creative.

More important than the copyright angle, though, is the extent to which the Supreme Court treated video as transparently providing access to truth. Jessica Silbey has written an excellent article on the subject of film as evidence/film as unmediated truth. Given what the Court said in this case and the attention devoted to the issue of interpretation by the dissent, as well as the spread of video cameras throughout public places, her article will only increase in relevance over time.

A historian's take on Google Books

Google may be neglecting quality control in its hurry to get out in front of the pack. Digitize in haste, repent in leisure? Thanks to Zachary Schrag for the link.

MIT's Media in Transition: Authorship and Attribution

I went to a good panel this morning at MIT's Media in Transition conference, The Name of the Author. I am increasingly interested in attribution as a substitute for monetary compensation and control in copyright, and the panel offered some nonlegal perspectives that also had direct relevance for me as an academic blogger.

Andy Dehnart, The Death of the Link: Does Attribution Still Matter?

Dehnart suggested that linking is a dying art, despite its centrality to conceptions of the internet. There are different forms of copying. Outright theft, often for splogs/spam blogs or plagiarism – people copying others’ diary entries as their own. RSS feeds and aggregators also detach content from source, though there is some attribution left. People also copy and paste, sometimes with attribution and sometimes without – for the former, sometimes to allow people to read content without registering at, say, the NYT website. And sometimes people copy and put in a link that is just the word “source,” which can be pretty unclear. Sometimes people get the source wrong – A links to B, C links to A and credits A.

Motivations: theft, desire to share, laziness (technological uncertainty with linking), lack of permanent links, failure to care about sources (the mistaken idea that Wikipedia and scholars are all the same), the idea that giving credit decreases your own contribution (apparently a common attitude among students), social media technologies that allow people to detach things from sources (YouTube, which allows both linking and embedding; embedding is cool and exciting but also removes attribution information unless you click through). Results: people may not care about source or have a distorted idea of the source. Dehnart told a great anecdote about someone who copied something from his blog, but when contacted angrily denied that she would ever copy without attribution because she had copied from an email from a friend rather than directly from the blog.

Problems: denial of attribution, inability to update or correct information in the original, denial of ability to evaluate or discuss others’ work in context. (If you’re discussing a A’s post in B’s blog, your conversation is unlikely to influence the larger discussion of A’s point.) News gets out and has no attribution associated with it – he gave the example of a spoiler for Dancing with the Stars that he first reported, but then AP picked up without attribution to him. Verifiability deteriorates, and it's even more problematic when verifiability and credibility are detached from one another. Are journalistic ethics decaying because of interaction with blogs? The original source, and the ability to question it, are lost.

Kim Middleton, Pseudonymous Blogging and New Functions of Authorship

Is there a crisis in scholarly publishing? There’s a vicious circle of collapse of monographs and inability to sell monographs, which makes it much harder for scholars to (a) get hired/tenured and (b) write things that speak to specialists as opposed to generalists. What should authors themselves, as opposed to institutions, do in response?

Academic blogs are discussing what defines an academic and what they’re allowed to write. Both the academic blogosphere and the AAUP are concerned with the same things, but bloggers are considering how their identity is linked to their scholarship. So what about people who blog under pseudonyms/pseuds? Pseudonymity is always suspect because it threatens accountability and authority; it affects the reader’s ability to trust the author. Pseuds can help us stay safe as writers, but pseudonymity also threatens the academy – one’s name is built upon one’s writing. Writing by unidentifiable authors, who refuse authority, responsibility and identity but still claim to participate in academic discourse, destabilizes the system.

Blogging isn’t the answer to the publishing crisis, but pseudonymous blogs operate as a new way to publish ideas that is as yet undertheorized as to the connection between pseudonymity and the academic enterprise. The academic blogger creates a persona to write, expanding available writing practices – including both subjects of writing and subjects who write.

Middleton discussed the Chronicle of Higher Education blowup involving “Ivan Tribble” (a pseud!) who posted an article saying he’d never hire a blogger because of the risk s/he’d air departmental dirty laundry. In this account, there’s an injunction against creating a written record that shows that you are a person beyond your disciplinary boundaries, whether or not your thoughts are analytic or scholarly. This climate has made academic blogs less playful and less willing to experiment, according to some.

The response by those who sympathize with Tribble's concerns: rhetoric has consequences, and if you write a lot about your body people may judge you as a narcissist. The broader questions: What narratives of identity are institutionally sanctioned? Is it possible to challenge governing concepts of scholarly identity with new concepts of blogging identity?

One specific response to Tribble by Bitch, PhD: this is why I don’t blog under my real name. She takes the threat really seriously, and also considers the pseud “not a real name.” Her critique focuses on committee members as bad readers of blogs, misunderstanding how a scholar can be a person as well. Theoretically these people on the hiring committee read for a living, but blogs aren’t their texts. Is it any wonder bloggers use pseuds? Tribble also thinks it’s okay to publish pseudonymously in the Chronicle – certain kinds of authority allow you to be pseudonymous without consequence.

(My thought: several of these applicants may have been hurt by the somewhat bizarre convention that our resumes have an "interests" or "hobbies" section; we are and have been for decades in the midst of cultural ferment about to what extent our professional selves should be seen to be "whole persons," even as it is impossible for anyone to present as a "whole person" in any one context, especially the academic one.)

The development of a critical insider stance: Bitch, PhD places herself within the academy, but wants to stay outside as well, and the pseudonym allows both. The pseud develops cultural capital of its own – it is not interchangeable with the real name even though it refers to real life.

A final observation: academic blogging talks more about the process of research and less about the outcome than previous forms of academic writing. So we can learn more about what goes on behind the curtain – the constraints on real academic lives, the operations of power within the academy. This is not obviously good or bad, just different.

Virve Sarapik, Signification and Naming

Sarapik discussed the role of titles in art as serving related purposes to the artist’s name, allowing distinction and interpretation, though numerous schools have deemphasized the relevance of titles. Thus, the prevalence of “untitled” works of art. Naming is an exercise of power over the object, but also a recognition of the object as one of importance.

Risk Aversion and Rights Accretion in IP Law

James Gibson has a recent piece in the Yale Law Journal analyzing the role of licensing markets in expanding IP rights, comparing copyright, trademark and patent. I have a brief response here (PDF here), focusing on limiting doctrines in trademark that cut off consumer-perception-based feedback loops. Wendy Gordon also responds.

Back to the disclaimer: DirecTV wins round against Time Warner

Time Warner Cable, Inc. v. DirecTV, Inc., 2007 WL 1138879 (S.D.N.Y.)

Time Warner sued DirecTV for false advertising under state and federal law. This time, it failed in its attempt to enjoin comparative advertising about the high definition (HD) services available from DirecTV and “cable.” DirecTV’s ads at issue recreated a scene from Back to the Future, in which Christopher Lloyd, in character as Doc Brown, announces that DirecTV has “all the best channels, and soon they’ll have three times more HD capacity than cable!” The court found that “best channels” was nonactionable puffery, and that Time Warner failed to disprove DirecTV’s evidence that it would have three times more HD capacity by the end of 2007, which was “soon.”

The only questionable part of the decision, and one that might often be cited by defendants, involved the ad’s graphic “Starting at $29.99/mo. Everyday price.” The court found this unproblematic, because the small print in the revised commercial states that HD programming – which is, of course, the subject of the commercial – carries an additional fee on top of the quoted price. Given that the commercial is focused on HD offerings and that you can’t get HD from DirecTV for $29.99/mo., I would be willing to find “starting at” deceptive, but the court concluded that, with the small print disclaimer, the ad as a whole was nondeceptive because “starting at” indicated that higher prices were also part of the offer and “the existence of a disclaimer of some sorts is clearly visible at the bottom of the screen.”

The first part of that is much more persuasive than the second – a disclaimer “of some sorts”? How is a consumer supposed to know it’s a disclaimer about price? The court doesn’t contend – nor does anyone, really – that consumers actually read such disclaimers. The court distinguishes a prior case finding a disclaimer ineffective when it’s inconspicuously located or in such fine print that readers tend to overlook it. Here, by contrast, the disclaimer isn’t inconspicuously located, because it’s clearly visible at the bottom of the screen. But that’s not a distinction! The point of “clear and conspicuous” is that consumers should perceive the disclaimer as part of the ad message. Merely being aware that there is a disclaimer, about something or other, is not the same as understanding the ad claim as modified by the fine print.

Side note: When I watched Heroes online (and if you aren't watching the series, you should be), all the ads were for DirecTV, and they were pretty aggressive. A couple of them had the snooty announcer say that hooking up a HDTV to cable was like putting cheap gas in a Ferrari, which seemed like an interesting trademark problem in itself and also signalled that DirecTV is not backing down from its comparative claims, despite TWC’s demonstrated willingness to sue. Sometimes aggressive ads are worth it as a business decision – especially since the Lanham Act doesn’t allow for punitive damages.

New keyword/use in commerce decision

Eric Goldman blogs so I don't have to! A couple of other points: (1) The court suggests some suspicion over whether the plaintiff actually has a valid mark in "Dating Ring," the term at issue, because there doesn't seem to be much evidence of use. (None in Google Images that I found, though plaintiff's website is at trademarkjewelry.com, which along with some of the text of the site suggests some sort of claim of right over the concept of rings exchanged between dating couples. Here's an interesting side question: defendant's petition for cancellation of plaintiff's registration has been suspended during the court case. Given how aggressive the TTAB has become on what counts as fraud on the PTO in a registration application, should a district court resolving a challenge to the validity of a registration apply the same standard? That might not be an issue here, since the issue appears to be whether plaintiff used the mark at all rather than using it on all the goods listed in the registration, but I do wonder.)

In any event, in the course of refusing to dismiss the ad text-based trademark claims, the court several times suggests that the plaintiff could be subject to sanctions if he lacks a valid mark or if he is ultimately unable to show that defendant used his mark in the text of its ads.

(2) Eric thinks that the court didn't understand what broad-matching was, but I saw no evidence of incomprehension -- the court seemed pretty clear that the reason Zales' website returned results for "dating ring" was that it did its best to find a match, in this case by returning results for "ring." The French might disagree, but returning results based on the generic portion of a mark can't be actionable under any theory I've seen a US court embrace.

Developments in deception: state-level activity

Julie Brill, assistant AG, Vermont: The primary focus in the states has been in the financial markets. Also telemarketing, payola, internet issues, privacy, pharmaceuticals, and tobacco. She won’t talk about cases that brought by private attorneys on behalf of the states, though there is interesting lead paint litigation in Ohio and Rhode Island.

In 2004, Spitzer charged Marsh & McLennan, the nation’s largest insurance brokerage firm, with deception. Allegations: Marsh steered clients to insurers who’d paid Marsh to do so, despite Marsh’s claims to be neutral. There were also antitrust issues – allegations of deceptive solicitation of rigged bids when in fact the prices had been fixed. Marsh agreed to pay $850 million in restitution, reform practices, and establish compliance procedures. 8 Marsh executives were charged criminally; many trials are still pending.

AIG also settled with NY, DOJ, and SEC, agreeing to pay $1.6 billion, change procedures, and apologize. Other brokers were also investigated. States involved included NY, CT and IL. Aon, the second largest insurance broker, agreed to $190 million in restitution. Willis, the third largest, paid $50, and Gallagher $27 million. Recently, the 3 state AGs filed another suit. Likewise, several other states got involved against insurers, charging everything from bid rigging to improper accounting. Total payments by insurers to date: over $402 million.

Now: sources of income, including contingent commissions, have to be disclosed to clients. There’s now a prohibition on paying contingent commissions where the insurance lines represent more than 65% of the market. In Nov. 2006, the AGs announced that 65% rule has been reached in several lines, which has caused a hullaballoo in the insurance industry.

Student loans: undisclosed financial arrangements between colleges and banks that loan to students. Watch for more investigations! Colleges list lenders as preferred, but fail to disclose that this is because the lenders pay – sometimes up to 1.5% of the loan amount, and sometimes they pay loan officers, not just the college. The implicit representation is that this is the best deal, but it’s not. Also, 90% of students take out loans with the college’s preferred lender, so it’s a significant label and a potentially significant source of income for the college.

NY is asking colleges to sever ties with lenders when this has the potential to mislead students and compromise the college’s ability to help students find the best rate. Minnesota has taken the position that disclosure is the remedy when the preferred lender pays the college. State AGs are also issuing student loan guides to inform students. This is an $85 billion/year industry, so it’s a big deal.

NY filed suit against Education Finance Partners in March – it has revenue sharing arrangements with over 60 major colleges and universities, failing to disclose that the colleges got paid. EFP used the school’s logos, mascots, etc. in various promotional materials. Seven universities have settled, promising to return $3.27 million to students. Citibank and Sallie Mae have agreed to pay $4 million to educate college-bound students about loan issues. A new code of conduct will ban gifts to university personnel, require disclosures, and ban staffing of university call centers – some of the lenders would actually answer the phone “X University.”

Unsuitable annuities/living trusts marketed to the elderly: 20 companies have been sued by 6 states, alleging defendants use phone calls and mail deceptively to sell financial products promising returns of more than double or triple available with CDs with no risk. “Qualified” customers are passed on to agents who come to the consumer’s home and sell various products including equity-indexed annuities with large surrender charges – many times this is a person’s retirement nest egg, and causes huge hardship. All 10 lawsuits are still pending, so they’re being fought vigorously.

Subprime lending: In Jan. 2006, 49 states and DC settled with Ameriquest over alleged deceptive practices, such as pressuring appraisers to inflate values to increase loans; misrepresenting key terms to borrowers like interest rates, prepayment penalties, fees and costs, etc.; and discouraging consumers from asking questions. Ameriquest agreed to pay $295 million to 240,000 consumers nationwide, about 1/3 of their customer base, a minimum of $600 each. Various injunctive provisions: ending incentives to salespeople to include prepayment penalties in contracts, overhauling disclosures, etc. Ameriquest also paid $30 million in penalties to the states.

Other state activities include: suing phony mortgage rescue operations; shutting down subprime lenders in financial collapse; restitution to minorities improperly steered into subprime markets – this is an important case settled by NY recently against Countrywide Home Loans. A number of state AGs are seeking legislative corrections – front and back end fixes to avoid deception in initial subprime loans and then to help consumers out if they get in trouble with the loan.

Rent to own: Rent-A-Center, largest rent to own business, entered into a consent judgment with California over misrepresentation of the true costs of ownership. There were also a lot of alleged misrepresentations about “Club” membership. Result: restitution and penalty.

Preemption is a big deal: The feds have tried to preempt state regulation of financial markets, as in Watters v. Wachovia. The states filed an amicus arguing they could oversee non-banking subsidiaries of national banks. The Supreme Court sided with the OCC and the banks, holding that the National Bank Act preempted state authority. She expects congressional fallout, though not necessarily in the direction of increasing state regulatory authority; perhaps there will be a move to increase federal authority over consumer protection.

Telemarketing: 16 states sued over phony “free trial” membership programs in Trilegiant; Chase Bank was also a defendant. There was a settlement with millions in restitution and civil penalties, as well as changed practices.

Likewise, states are focused on those who assist telemarketers, such as check processors. In Nov. 2005, 5 states settled with check processor Amerinet, which processed debits and unsigned demand drafts on behalf of telemarketers. There was at least an 80% chargeback rate, so consumers clearly felt deceived; regulators argued that Amerinet should have known that this was illegitimate. Amerinet agreed not to process unsigned demand drafts and high-risk products.

Payola: What’s old is new. The payments were more cleverly disguised this time, as the record companies paid for operational expensive, hired “independent” promoters, and did other things to increase airtime. Sony, Warner, and Universal settled, making payments to nonprofit entities that will distribute the money to consumers. One of the nation’s leading radio chains continues to litigate.

DRM: Sony’s rootkit problem. The problems: the DRM was cloaked, created security vulnerabilities, and risked damage to computers if removed. Even in some cases when the consumers declined the EULA, the program was still loaded. 15 states and the FTC investigated. CA, TX and FTC obtained consent judgments, and 13 other states obtained assurances of discontinuance. Payments of $5.75 million were made to the states. Remedies: disclosure in the future.

Washington and NY have taken the lead on litigation on deceptive internet schemes, including adware, spyware, and malware. Washington has a specific spyware law, unlike most states, and has filed 5 lawsuits. Allegations include: phony operating systems warnings; sending a program that monkeys around with internet browsers, then advertising that the senders can fix the problem; installing aggressive popups that demand payment for internet services. One settlement so far.

NY has also settled with 3 major online advertisers, Priceline, Travelocity, and Cingular Wireless, who installed adware through Direct Revenue. The settlements required them to monitor their business partners to avoid the problems in the future.

Paypal: 28 states investigated Paypal for improper disclosures and collection practices. First, Paypal froze consumer accounts when there was a dispute with Paypal. Paypal also charged bank accounts when consumers thought they were using credit cards. Paypal also claimed to provide additional protection through using Paypal, even though the protections were the same as for using a credit card. Settlement: better disclosures, plus $1.7 million to the states for costs.

Pretexting: California obtained a $14.5 million civil settlement over false pretenses used to access phone records. $13.5 million will be used to create a privacy law enforcement fund. Also lots of corporate governance reforms for HP. There’s a lot of other pretexting litigation going on. 5 states have sued in 10 different proceedings against companies offering to sell individual phone records obtained by pretexting. The litigation is still pending. There are also AG calls for new legislation. The FCC is implementing new regulations to require password protection and opt-in for consumers.

Pharmaceuticals: 30 states got a consent judgment in January with Bayer over its marketing of Baycol, a cholesterol-lowering drug. Baycol carried a greater risk of certain serious muscular diseases than other statins. Bayer learned of this risk through postmarketing adverse events; Bayer properly filed reports with the FDA, but didn’t notify doctors or consumers. The settlement requires various reforms, including registering clinical studies, not making false/misleading claims, and paying the states $8 million. Baycol was withdrawn 3 years after it was introduced.

Tobacco: Vermont v. RJR over Eclipse, a “potentially reduced exposure product.” She expects a lot of discussion over PREPs as part of the debate over giving the FDA more authority over tobacco. Eclipse heats, but doesn’t burn, tobacco – it can heat it up to 800 degrees. Ads claimed reduced harm – the next best choice for smokers who worry about their health other than quitting. “May present less risk of cancer, chronic bronchitis, and possibly emphysyma.” No claim to decreased risk of cardiovascular disease or decreased risk from use during pregnancy. The current litigation concerns consumer perception, substantiation, and unfairness (does it discourage people from quitting?). What level of substantiation is required? Do you need human exposure or evidence of reduction in disease outcomes? 9 states are assisting Vt. in the litigation, which is scheduled for trial in late 2007. What Congress & the FDA will do is anyone’s guess.

Christie Grimes, Kelley Drye, presenting for August Horvath: Private sector highlights. Grimes noted instances in which Lanham Act claims were difficult because of a lack of competition between plaintiff and defendant, such as GTFM v. Universal Studios (the clothing brand Fubu sued over the fake brand Bufu in the movie How High) and Bradley v. Google (disgruntled AdWords customer), or issues of materiality, such as Clauson v. Eslinger (do consumers care about the identity of a movie producer?).

State UDAP litigation: Gerber Graduates for Toddlers. It is a “fruit juice snack.” The principal display panel had pictures of various fruits (or fruit-like products), “naturally flavored,” made with “real fruit juice and other all-natural ingredients.” In fact, they’re made of corn syrup, sugar, and white grape juice from concentrate. A federal court in C.D. Cal. determined that this wasn’t deceptive under California state law. “Fruit juice snacks” is true, and there’s no specific representation of fruitiness – though the plaintiffs pointed out that the package doesn’t depict even one white grape among the other fruits. The crux of the court’s decision: the consumer can determine the ingredients from the side panel. A reasonable consumer wouldn’t be deceived. (Then why do they make those claims on the box?)

ABA Section on Antitrust Law, Developments in Deception

Lesley Fair, FTC Bureau of Consumer Protection, Dealing with Deception: An FTC Staff Perspective: A personal take. The majority of cases she’ll talk about were settlements, which did not involve admissions of liability.

Five primary priorities: health claims; marketing and kids; promotional promises; spyware, spam, and data security; and remedies and enforcement.

A recent ad challenged by the FTC: Mother’s Day ad for Q-Ray bracelet claiming pain relief. Consumer testimonials: it was a miracle, the pain went away. Result: a redress order of at minimum $15 million, with an $87 million maximum. The FTC takes redress in deceptive health claims seriously. Likewise, deceptive weight loss claims are a priority – settlements with Xenadrine, CortiSlim, and TrimSpa resulted in $20 million in redress. Another: One-a-Day WeightSmart, which claimed to speed up the metabolism. The FTC alleged lack of substantiation. Result: $3.2 million civil penalty. Of special concern was that One-a-Day had already settled a deceptive claims case not too long ago. When the FTC has an order in place, the enforcement division will look closely to make sure the company at issue has put controls in place for future advertising.

Another example: HeightMax, a “supplement” aimed at adolescents or their parents to increase height. A perfect storm of what’s likely to attract staff attention. Result: $1.9 million penalty.

Marketing to kids: There have been some good self-regulatory efforts in the area of kids, ads and obesity. The recent settlement over Grand Theft Auto: San Andreas raises an interesting issue of industry self-regulation, since GTA received an “M” rating even though it had a game-within-a-game called “Hot Coffee.” What consumers didn’t know was that there was substantial sexually explicit content. Players couldn’t view it in the normal course of the game, but average 13-year-olds could unlock it. The presence of this unrated content changed the rating, and the FTC alleged that it would have been material to consumers, including parents. This was a use of §5 to deal with a hot issue – ratings only work if people abide by them. (NB: Take Two, the makers of GTA, would plainly disagree with this account of the facts, and point out that the settlement didn’t involve any admission of liability.)

The FTC also recently settled with Xanga, where approximately 1.7 million accounts were opened in violation of COPPA. The company asked the screener questions and still allowed these accounts when people answered that they were under 13. Result: $1 million civil penalty, the largest COPPA penalty to date.

The FTC also has an education role – OnGuard Online is an educational site for kids and parents. Kids can play “Buddy Builder” to understand the benefits and risks of social networking, IM, and the like.

Promotional practices: Gift cards have been a big issue of late. The FTC proceeded against K-Mart over its gift card with lots of fine print. After 24 months of nonuse, a $2.10/month service fee would be deducted “from your account in arrears” until the card was used or depleted. That is, at 24 months, K-Mart applied the service fee retroactively for 24 months – an instant hit of over $50. The FTC alleged that was deceptive, and recently settled with K-Mart. Likewise, the FTC recently settled with the restaurant chain that includes the Olive Garden, Red Lobster, etc. There was a dormancy fee, not retroactive and disclosed on the back of the card, but it was in 5-point type. The Red Lobster card was clear plastic. The FTC alleged failure of “clear and conspicuous” disclosure. The respondents also allegedly provided consumers with table tents etc. that served as gift card order forms, so they didn’t have the opportunity to read that 5-point disclosure even if they’d wanted to. Moreover, there was a concern because people only used the gift cards after they’d already eaten dinner and incurred charges – there could be additional consumer embarrassment and injury.

Other problems: sometimes the disclosures are not on the card but on the plastic that surrounds the card, which many gift-givers remove as part of the giving process. That’s also a practice on which the FTC frowns.

Spam, Spyware, & Data Security: FTC now has a guide for businesses on protecting personal information. (1) Take stock: know what you have. (2) Scale down: do you need to keep years-old info on file? (3) Lock it. (4) Pitch it. (Securely.) (5) Plan ahead with attorneys and tech folks if you have a breach. The guide is designed to be read by nonlawyers. The FTC also has a kit to protect consumers from identity theft: Talking About Identity Theft: A How-To Guide.

Commercial email. YesMail: the company’s own spam filter filtered out many consumers’ “unsubscribe” messages. The FTC alleged a violation of CAN-SPAM and got a $50,000 civil penalty. Find out from your clients what methods they use to honor unsubscribe requests! Make sure there are timely responses!

Other pernicious cases – Cleverlink: spam offering to let recipients date lonely wives. The company didn’t include an explicit content label, and hijacked third parties’ computers to send their email. Though the FTC didn’t allege it, apparently the woman depicted was not in fact a lonely housewife, either. A $400,000 civil penalty under CAN-SPAM.

Spyware: MediaLoader case. “Download this adorable free screensaver of an animated teddy bear and his holiday dreams. Brought to you by Joystick Savers …” Once people (often kids) downloaded this, it changed their homepage, tracked their internet use, altered their browser settings, impaired their computer performance, disabled their spyware blockers, and pelted them with adult popup ads. There is a parallel criminal investigation along with the civil proceeding.

Remedies and enforcement: “Biggest FTC redress amount ever” has occurred in 8 different categories in the past year, from do-not-call to COPPA to deceptive invention promotion to order violations to ChoicePoint’s data security penalty. Million-dollar redress and civil penalties have risen substantially.

Also, in addition to suing advertisers, the FTC has sued affilates, payment processors, and others involved in a deceptive transaction – the FTC rarely sues single entities any more, but names lots of parties, including corporate officers. When it comes to doing business with someone else, trust but verify. Do not ignore red flags from partners.

ABA Section on Antitrust Law, Panel on Product Promotion and Disparagement by Consumers: private speakers

Darren Bowie, assistant general counsel for advertising etc. at AOL: Encourages people to visit the Word of Mouth Marketing Association website, which he finds useful to identify types of WoM marketing, including creating “evangelists” who might not even be paid.

Nonpecuniary compensation is a huge deal: tchotchkes or other incentives. The FTC punted on that in its opinion letter. As Engle said, it would be fact-dependent. Traditional FTC precedent asks whether it would be material to the consumer, which may depend on the value of the tchotchke. If it’s an iPod, that’s probably material. You need to train your marketing folks that the rules do apply to these new practices; WOMMA’s ethical guidelines are a good starting point.

Affiliates: now a big deal for the FTC and the states who may hold you responsible for the acts of affiliates or subaffiliates. You should consider putting something in your contracts about complying with specific guidelines, like WOMMA’s.

Social networking: MySpace, Facebook, Second Life, etc. As many of 48% of marketers are going to use social networking this year. Many companies have their own pages on MySpace. AOL owns space in Second Life. Issues: substantiation; privacy/information collection; Children’s On-line Privacy Protection Act. Also: refer-a-friend features and their relationship to CAN-SPAM -- the FTC says that refer-a-friend has to comply with CAN-SPAM if the feature’s purpose is commercial and if there’s compensation of any kind, including nonpecuniary, or if the company affirmatively urged the sender to refer-a-friend.

There is lots of law enforcement scrutiny in the social networking space, including from the FTC and the states, especially surrounding children and age verification. Budweiser recently launched BUD TV, and they had a fairly robust age verification mechanism looking at drivers’ license records, but state AGs didn’t think that was adequate and sent a very nasty letter. There are also relevant state legislative proposals that would require parental consent before people under 16 could join.

Q: How can you avoid fraud by a 14 year old kid?

A: It’s a big problem. The FTC has specified certain procedures under COPPA. Some states feel that more is required, or should be for the 13-16 group for whom COPPA doesn’t apply. No one has a perfect solution. The Progress & Freedom Foundation has a recent report; the states haven’t figured out what to require. It would be a good business model for a company that solved the problem.

Continuing, what about product promotion by consumers? Consumers can talk up your product or trash it. There have been actions against bloggers for posting unfavorable information – more than 50 by corporations and individuals. One recently went to trial and resulted in a verdict for the plaintiff, a lawyer who’d been defamed by a former client. There are a lot of legal issues, including procedural issues: a court in Pennsylvania recently refused to require Yahoo! to disclose the identity of anonymous posters before the plaintiff made a prima facie showing of defamation. It’s important for companies to monitor what’s going on in the blogosphere.

Q: What do you do with a consumer who’s a loose cannon, making false/misleading statements?

A: You need to make a business decision about taking action – it could lead to more publicity. If a consumer were to get hold of a trade secret, you might have to act.

John Villafranco, partner, Kelley Drye Collier Shannon: Blogging dos and don’ts.

By late 2006, 8% of Fortune 500 companies were blogging. There’s no doubt that regulators and competitors are monitoring your blogs. You need to make a clear decision on whether the compnony will sponsor and/or host a blog, or several, and what the objectives are. Just because other competitors are doing it doesn’t mean you should. Are you prepared to keep it current? There’s nothing worse than a stale blog.

You need to implement a clear policy on employee blogs, especially senior employees. What type of conduct is acceptable? How will the company respond to troublesome postings?

Chances are, many of your employees already have blogs. Make sure you know what your employees are saying about your company, and that they’re abiding by company policy. One guy talked about what it was like to work at Google day to day; he meant it for friends and family, but it became more popular than that (60,000 visitors/day). His superiors were concerned, and initially asked him to remove some information they considered sensitive; then he was fired. He believes it was directly or indirectly related to the blog.

Train employees on how to comply with all applicable laws and corporate policies before they blog. (Good luck on the securities laws!) It’s no different than any other medium.

Disparaging statements about competitors are a favorite pastime on blogs, and both regulators and competitors will be watching, so keep an eye out for that too. When possible, avoid negative postings about competitors. Train employees to post content that’s unlikely to trigger tort suits and, if it’s factual, content that can be substantiated. If you can’t say it in an ad, you shouldn’t say it on the blog. (Comment: some Lanham Act cases have distinguished between formal and informal communications in determining the extent to which a reasonable consumer would treat a statement as factual or puffing.) Frequently, in a defamation action, the plaintiff will go after the company as well as the employee.

Individual employee disputes are also often aired on employee blogs, and you should try to intercept and resolve it internally. This is a real liability trap!

Be mindful of IP and train your employees on requirements, including fair use.

Compliance with security disclosure laws if they apply to your business. Watch out for failure to include appropriate cautionary language when you make a forward-looking statement. Watch out for material nonpublic information.

Monitor postings periodically to ensure compliance with the policy, and take actions against noncompliance (for example, when Microsoft was embarrassed by photos of Macs arriving on a Microsoft loading dock). Retraining can be a solution, not just firing.

Consider how a corporate blog will affect the company’s discovery and document retention obligations. You need a method to archive material.

Assign authors and identify responsibilities before launching the blog. For some companies, this is a full-time position.

Don’ts: Jessica Cutler’s blog Washingtonienne about her many affairs in DC. This resulted in the firing of the blogger who made Cutler’s blog popular and a defamation lawsuit against Cutler.

Don’t hire bloggers to say great things about your products or services without ensuring disclosure. A blog about people who slept in RVs in Wal-Mart parking lots turned out to be Wal-Mart-backed, and generated a lot of bad publicity.

Don’t allow employees to vent personal grievances; don’t permit them to publish trade secrets or patentable information – this requires training since they might not know what that is.

Before disciplining or firing employees for inappropriate postings, make sure you have a clear policy. Sun, IBM and Yahoo! all have excellent corporate policies that are easily modelled.

Q/Comment: Cyberspace/multimedia insurance is now available. The insurance policy is itself a good guide to the due diligence you should be doing.

ABA Section on Antitrust Law, Panel on Product Promotion and Disparagement by Consumers: government speakers

This panel wasn't really about the advertised topic (which is a little bit amusing, given the consumer protection focus) because, I think, practicing lawyers are not as concerned about statements by real consumers as about related issues, particularly promotional statements that don't disclose the marketer's involvement.

Mary Engle, Associate Director of Advertising Practices, FTC: For the most part, the FTC isn’t concerned with user-generated content. Where the FTC is concerned is when something appears to be UGC but is in fact sponsored or put out by a marketer itself. (Ironically – or not, really – yesterday’s NYT film blog included this story about stealth marketing by HBO.)

Commercial Alert filed a petition with the FTC on buzz/word of mouth marketing. Is this deceptive? The FTC’s staff opinion letter indicated that the Commission already has endorsement and testimonial guidelines that apply. If consumers are endorsing products for pay, that’s a material connection that consumers would want to know about, and that must be clearly disclosed. We bring a certain amount of skepticism to an ad, and the source affects the weight or credibility of a claim.

These principles apply to word of mouth marketing, a MySpace profile, a blog, a YouTube video, etc. Advertisers are trying to catch consumers off guard, but then the consumer may not understand who is speaking. There are good reasons to do this – cutting through clutter, going to where the eyeballs are, taking advantage of UGC – but it’s still got to be clear that you’re running an ad. This goes back to an older issue the FTC addressed, where ads looked like newspaper editorials. Magazines and newspapers adapted to that rule and now it’s common to see the “ad” disclosure; it’s the same in new media. Sony’s website: all I want is a PSP – it appeared to be a couple of fans, but really it was a marketing tool. People quickly figured out that it was fake, but that’s an example of something that shouldn’t have been done in the first place.

The Commission is looking for good cases in the area, and would be happy to hear from “snitches” who have good leads. Competitor complaints are a major source of investigative leads in all areas, and she invites emails on this topic.

Disclosure needs to be made, but the manner is up to the company and its agents. Still, it has to be clear and open, not fine print.

What about using kids or teens to buzz about products? That presents special circumstances – whether something is deceptive is considered from the child’s POV, not the adult’s. Disclosures have to be sensitive to the sophistication of the recipients.

Q from Darren Bowie: How does disclosure here relate to the FTC’s position on product placement, which many people consider to be advertising?

A: The FTC has said you don’t need to disclose during the TV program that Tide paid for placement on Desperate Housewives, because we didn’t think it would be material to consumers to know that the advertiser paid v. the producer/writer’s judgment that placement would add reality to the show, particularly in the context of fiction. For American Idol, we thought that it was obvious paid placement and wouldn’t cause deception. But if the housewife is shown using Tide to get out an awful stain (of what kind, she didn’t specify), P&G would be responsible for substantiation.

Q: So what if a teen just wears a “Drink Coke” shirt, like a product placement?

A: We haven’t thought about that expressly. She isn’t sure – nothing is being said, no claim is necessarily being made. (Isn’t there a representation that the individual chose, of his/her own free will, to wear that shirt because it was cool?)

Q from audience: Advertisers sponsor discussion forums on their websites, and maybe they waive membership fees (for good reviewers, anyway) – how does that work?

A: Is the company screening out negative reviews?

Q: Maybe. The expectation is that reviews will be positive, and the only compensation is free use of the website.

A: We have thought about noncash compensation, like coupons or free samples. There’s little empirical data on whether that’s a material connection, but some research suggests that when someone’s paid in cash v. gift, it creates different expectations about performance. Cash = a perception of work. Candy = a social market. What people are willing to do differs – they don’t care as much about how much they get as a “gift” in social markets, but they do correlate amount of work to amount of cash. This suggests a difference in materiality. (Translating that to materiality for other people requires several logical steps, though I do think they’re logical – the real issue is whether consumers will understand the ways in which cash and gifts both, though differently, distort ordinary judgment. If your “good friend” Coke gives you gifts, you may be a more committed salesperson than you’d be if your employer Coke paid you – and yet other people may not discount your advice even if they know about the gifts, whereas they would discount your advice if they thought of you as a paid shill. So gifts could be a cheap and effective way of distorting consumers’ communications. Robert Cialdini’s book Influence has some great discussion of the ways in which we fail to understand the psychological effects of “gifts.”)

Another answer from a panelist: Putting things on your website may be different, especially if you screen out negative reviews. You may expose yourself to a backlash or even legal risks if you take off negative information that you let people post.

Q: What about recent research by Lowenstein et al. that says that disclosing conflicts of interest (in investment advice, as I recall) tends to increase consumer trust and yet increase biased advice, making matters worse?

A: She isn’t familiar with the research. The goal is to inform consumers. Information overload is something the FTC deals with all the time.

Justin Brookman, Internet Bureau, NY AG’s office: His opinions are his own, not the AG’s. The Internet Bureau was created in 1999, and pursues any illegal activity on the internet, but mostly goes after false advertising and deceptive practices. He was concerned about the DMCA’s effects on ordinary consumers – both 512’s notice and takedown, which can harm user speech like Wendy Seltzer’s about the NFL’s copyright claims, and 1201’s anticircumvention ban, which hampers security testing of things like Sony’s CD copy protection schemes.

So the AG is very pro-consumer speech. One concern: license agreements that ban negative reviews and product testing. These should be void as against public policy, yet lots of companies include these provisions. They aren’t necessarily acting in bad faith. No one likes to be criticized or thinks criticism is fair; they may wish that benchmarking be done by different standards. NY’s position is that it’s not for the criticizee to decide when criticism is fair, and even putting the provision in your license agreement is unconscionable and subjects you to liability under NY law. NY went after McAfee for its anti-benchmarking contract, which even misrepresented that testing was illegal under federal law. This is an area where NY will continue to be active, especially as UGC becomes more important. Some companies are becoming more reasonable – IBM says you have to test the latest version of our software and disclose your methodology. He’s not sure that’s good enough, but it’s definitely better than the earlier versions.

Q: Does it matter whether the license term is disclosed before purchase? Does it make a difference whether a business is purchasing versus a typical consumer?

A: As to the first question, unconscionable terms are not valid no matter how well disclosed. As to the second, it’s not a big area for the AG – the AG’s purview is practices that affect lots of consumers. His instinct is that companies too have free speech rights, but the case is less compelling (at least if it’s individually negotiated, and not a blanket term).

Q: What is the allegation? Unfairness or unconscionability?

A: The NY AG doesn’t have unfairness jurisdiction. But telling someone they can’t criticize software, implying that it’s illegal to do so and would create a breach of contract, is itself deceptive.

Q: Most people don’t read those terms at all. Is there a solution to that?

A: It’s always been an issue. We’re bringing these actions to prevent boilerplate from taking over the world.

Q: Are you applying the reasonable consumer or the fool’s test?

A: NY has the fool’s test (what would confuse the gullible consumer), but the AG tries to be reasonable in practice. If only 1-2 consumers would be fooled, we’re unlikely to expend resources.

ABA's IP Hot Topics: Copyright and trademark

Mary Innis, Loeb & Loeb: Discussing various examples relating to Anheuser-Busch, she pointed out that keyword buys may change the analysis compared to traditional delivery of information – a TV spot that lures you in by seeming to be about Bud but then turning into a Miller commercial might be a legitimate parody, but the same ad triggered by the keyword “Bud” might amount to initial interest confusion. Or, if you think that’s okay, a Miller ad that parodies Battlebots might be a fine TV ad, but if cued by the keyword “Battlebots” might suggest source or sponsorship. (The actual ad, which prompted a lawsuit from Battlebots, is really funny, by the way.)

What about branded entertainment, especially when the sponsor has influence over the show content, such as Sears with home improvement shows? Should that be treated as fully noncommercial speech, or subject to various consumer protection/trademark/right of publicity claims? Innis argues that it depends on consumer perceptions, including consumer perceptions about whether the products depicted are performing as they really would if purchased.

The next frontier: user-generated content. Example: The VW “suicide bomber” ad – it went around the world very quickly, despite the fact that VW didn’t create it. VW received a bunch of complaints because people thought it was an authorized “edgy” campaign. It was really by two guys starting their own ad agency, using it as a marketing tool. There was a criminal action in Germany under Germany’s antiterrorism law – the guys ultimately apologized.

Jeff Cunard, Debevoise & Plimpton: A whirlwind copyright tour, starting with the biggest case of the year, Viacom v. Google. Legislative reconsideration of the DMCA safe harbors is out of the question, despite all the complaints of copyright owners and all the business models that have developed in (or supposedly in) the safe harbors. UMG v. MySpace alleged that user-designed pages included third-party music, videos and photos; a federal suit alleges direct and secondary infringement. UMG argues that the “storage” safe harbor isn’t applicable because MySpace is doing a lot beyond storage – an argument also made in Viacom. The case continues, though a California state law count was dismissed as preempted. UMG is litigious; it sued two other video sharing sites, one settled and one in discovery.

Cunard also suggested that the CCBill court was actually quite rigorous in enforcing the boundaries of the safe harbors -- many activities relating to processing credit card transactions didn't fall within the safe harbors -- which could be relevant to the UMG/Viacom arguments. At the same time, the court demanded a high level of “red flag” knowledge and a high level of policing by content owners.

Viacom: a key issue is whether there was direct infringement of the reproduction, display and performance rights. If there was, then substantial noninfringing uses are irrelevant. (But not, I think, the safe harbor – as I said on Thursday, the 512(c) safe harbor speaks of infringement that occurs “by reason of” user-directed “storage,” which isn’t one of the exclusive rights of the copyright owner, and I think that it must cover all infringing acts that result from user-directed storage as long as the OSP otherwise complies with the 512 requirements.) Also, there are questions of vicarious liability – direct financial benefit? There’s a YouTube case ahead of Viacom, Tur d/b/a L.A. News Service v. YouTube (C.D. Cal.). Tur’s complaint is not that well pleaded, but briefs have been filed, offering a preview of the Viacom arguments.

Google is also having a rough time outside the US – a Belgian court found Google News infringed several French- and German-language newspapers. This has implications for Google Book Search, given that other countries don’t have fair use doctrines. There is a pending suit in France. Google may be in a “let’s make a deal” mode, given its settlement with Agence France Presse over display of headlines/photographs. This allows Google to use more content than it otherwise could.

And of course the Perfect 10 case is the most anticipated case for the next few months. (I have toyed with the idea of a “Google Law” course. Naturally, we’d start with Cyberspace and the Law of the Horse and Lessig's response, and go from there.)

Google is very excited by Bill Graham because the Second Circuit cites Kelly, but it’s only for the proposition that displaying works in a smaller size for a different purpose can be fair use, which Cunard considers quite different from copying full books and displaying snippets. (Disclosure: D&P represents the publishers in the Google Book Search litigation.)

Blanch v. Koons, Cunard thinks, is more important because of its essential disregard of the earlier Koons cases. It says something significant about asking permission – if there are no other bad faith acts, and if it’s a fair use, no permission need be sought.

Cunard also had some harsh words for the recent Cablevision decision about Cablevision’s on-demand remote DVR services. Who is engaging in the act of copying or display? That’s the key question here as well as in user-generated content cases. Judge Chin found that Cablevision was the one perfoming the relevant acts, but his analysis was not strong. Cunard also cautioned that it was important to distinguish the remote DVR from other products like the Slingbox, which have generated threats but not yet lawsuits. Which rights are implicated? Are there multiple private performances, or public performance?

Another case: XM Satellite Radio’s XM + MP3 device – is this an infringing “download”? The ad: “Hear it. Click it. Save it.” Is it like a tape recorder or a download? The court, unsurprisingly, held that the XM service was not covered by AHRA, which is a dead letter.

Another hot topic, less sexy but important to many, many copyright owners: termination of transfers, an increasingly relevant issue and incredibly complex. Litigation over John Steinbeck’s works gives a foretaste of what’s to come.

Administratively: For the first time, the Copyright Office defined a DMCA exemption by the class of users entitled to circumvent, which is a big development.

Legislatively: Another bill from Rep. Boucher, addressing – among other things – statutory damages for most secondary liability, eliminating them except where a reasonable person couldn’t have believed the conduct lawful. Not much chance of enactment, but still likely to prompt discussion.

Hottest topics in practice: licensing v. “sales.” Every content owner now wants to be in the licensing business, tethering content to DRM and creating short-term use models. This is linked to the future of DRM. After the rootkit fiasco, Sony isn’t using DRM, and EMI just announced it wouldn’t (at least if you pay). Apple has been encouraging this, though some think this is about protecting Apple from pressure on interoperability. We’ll see more action on this in the coming year.

Chief Judge James R. Spencer, E.D. Va.: Spencer thinks Perfect 10 v. Google is likely to be affirmed, because the district court’s result is a reasonable attempt to set comprehensible rules, which judges love, especially when the technology is difficult for judges to understand. (It wasn’t clear to me that he was also endorsing the thumbnails result, but given what he said next he might well have been.) And of course licensing deals are great because judges never met a settlement they didn’t like.

Deceptive privacy policy leads to multimillion Lanham Act award

CollegeNET, Inc. v. XAP Corp., 2007 WL 927946 (D. Or.)

Previous discussion here. After a jury trial, CollegeNET won a patent infringement claim, as well as its Lanham Act false advertising claim. The jury awarded $4.5 million in damages. The court rejected XAP’s argument that the Lanham Act claim was barred by laches, accepted the jury’s award of damages, refused to award extra recovery of XAP’s profits, and found that CollegeNET was entitled to attorneys’ fees because XAP’s conduct was willful.

Some background: CollegeNET and XAP each allow high school students to apply online for admission to colleges and universities. While CollegeNET charges each school for each student application, XAP offers its services to schools free. XAP makes its money in part from the sale of students’ personal data, submitted in their online applications, to “state agencies, departments of education, student-loan guarantee authorities, and commercial-lending institutions such as banks.”

XAP’s privacy policy promises that personal data isn’t released to third parties “without the user's express consent and direction.” At all relevant times, students using XAP were asked an “opt-in” question when creating certain types of accounts: “Are you interested in receiving information about students loans and financial aid?” XAP treated a “yes” answer as “express consent and direction,” and forwarded the student’s personal information to its partners for a fee.

The court found clear and convincing evidence that XAP didn’t inform students that a “yes” answer was “express consent and direction,” though it could have included such clarifying language. Further, XAP chose not to do this because it was a “bad idea” that would result in fewer opt-ins and lower revenues. Indeed, “XAP intended its privacy-policy statements to lull students into a false sense of security regarding the privacy of [their] personal information.” Though there was no direct evidence that students were actually deceived, the court found that there was a presumption of deception arising from XAP’s bad faith, and that XAP “knew its deception substantially increased the number of students who answered ‘yes’ to the opt-in question.”

CollegeNET’s expert testified that it suffered $35 million in damages, assuming that all XAP’s college applications included the opt-in feature. The evidence, however, showed that only 15% of the applications had an opt-in. The jury verdict of $4.5 million is slightly less than 15% of CollegeNET’s claimed damages, which the court found appropriate. (It also noted that, under the statute, its only discretion was to increase the damages to the extent that they didn’t fully compensate CollegeNET; there is no corresponding discretion to reduce damages.) XAP’s profits from applications with the opt-in question were $2.5 million. Given that the Lanham Act aims at compensation, not penalty, the court found that disgorgement of XAP’s profits on top of the damages would be inappropriate. Despite avoiding this extra hit, XAP is still on the hook for what’s likely to be substantial attorneys’ fees as well as the $4.5 million in damages.

My question: was the opt-in question really deceptive? Just because XAP knew that it would get fewer opt-ins if it made opt-in sound more alarming doesn’t mean that students were deceived by the actual representations at issue. What could they have thought they were agreeing to when they said they wanted to receive information about student loans and financial aid? I’m surprised that, without direct or survey evidence of deception, the court found not just deception, but willful deception. Eric Goldman may have further thoughts, given his background in privacy policies.

Recent Developments in TM Law, ABA IP conference

Commissioner Lynne G. Beresford, USPTO Developments: Filings have been up about 9-10% each of the last two years. 96% are filed electronically. The paper Official Gazette is going to disappear! But the online search engine will improve to compensate.

Judge Sams, TTAB update: 11% more appeals and 40% more oppositions than last year – projections show a continual but slower rise in appeals in oppositions, corresponding with an increase in TM applications. The Board hopes to keep up the increase in precedential opinions.

Recent cases: Fraud on the PTO – whether in declaration of use or renewal application. Standard Knitting v. Toyota (TTABlog): applicant sought TUNDRA for automobiles, while opposer used TUNDRA and TUNDRA SPORT for various clothing items. Applicant petitioned for cancellation for failure to use on certain listed items in the application and statement of use. Fraud occurs when the applicant knowingly makes false material misrepresentations of fact, proven with clear and convincing evidence. Fraud wouldn’t occur if the statement was made with a reasonable and honest belief in its truth. In Tundra, the opposer wasn’t using the mark on most, if not all, of the children’s clothing listed in the application. The opposer claimed the persons signing the statement didn’t understand what “use in commerce” meant, but the court found that this was not a reasonable misunderstanding but a disregard for the law.

Similarly, THE SIGN case (TTABlog) – opposer alleged fraud with respect to the majority of services listed in the application. Applicants claimed misunderstanding of requirements of US trademark law for use in commerce, given that they owned an Australian registration for the same mark and that they were representing themselves before the PTO. Nonetheless, the TTAB granted summary judgment to opposer, finding the facts similar to Medinol, the source of the current muscular fraud doctrine. The timing of the misrepresentation, whether before or after registration, was not important. The applicants, prior to the filing of the notice of opposition, had repeatedly alleged use in commerce of the mark in the US. Their belief about Australian rights was insufficient because there was an obligation to investigate fully the relevant facts before signing an application.

One more new case: ELLE BELLE cancellation for the mark registered for a variety of women’s, men’s, and children’s clothes. The registrant claimed use on all the items, but the petitioner alleged that there was no use on men’s or children’s clothes, and only on half of the listed women’s clothes. The registrant alleged there was a miscommunication between itself and its attorney, aided by the fact that the registrant’s primary language was Punjabi. The board granted relief based on fraud – the claims were clear and unambiguous, and the registrant and its attorney shared a duty to verify the application. This is the board’s most recent run at fraud, but he can guarantee it won’t be the last.

Susan Upton Douglass, Fross Zelnick, Madrid Protocol Filings:

The Protocoal allows for filings for an international registration (IR) based on a home country application or registration. You don’t file directly, but with your PTO, specifiying the countries where you want protection. The home country PTO certifies the application as meeting the minimum requirements, and forwards it to WIPO’s International Bureau (IB) for review. The PTO looks for conformity between the international application and the underlying application/registration. If there are problems, the IB sends a letter of irregulatrity to the applicant and the PTO, which must be answered in 3 months or the application expires. There are various deadlines used to get priority dates.

Each contracting party examines the application per local rules, and issues office actions to the applicant, practices that vary from country to country. Under Madrid, there is a deadline of 12 or 18 months to issue a final refusal to register or a notice of possible opposition; otherwise, the registration is deemed to be granted. The IR lasts 10 years from the date the application is received in the home country, if the home country PTO sends it on within two months, or if later, 10 years from the date of receipt at the IB.

Effective in the US Nov. 2, 2003, but not much used here. As of March 27, 2007, our PTO has received over 35,000 requests for extension of protection, which is when a foreign company or individual files a request with WIPO. But these are classes, and most filings are for more than one class, so it’s really about 27,000 marks.

9,054 international applications have been received by the USPTO for certification to WIPO’s International Board (IB). 494 international applications have been rejected for certification.

72 countries are current members of the Madrid Protocol. For 2006, the US ranked third in filings in the Madrid system, with 3,148 filings (applications, not classes, 8.6% of total filings), yet this is a tiny percentage of US filings abroad.

Key features: dependence on the basic mark. For a period of 5 yeaars from the date of the IR, the IR is dependent on the application/registration that formed the basis of the IR. “Central attack” feature causes all registration s granted on the IR to fail if the basic mark is cancelled, successfully opposed, or lapses in the 5 year term – the PTO is supposed to notify the IB about this. If you negotiate a settlement with another party and drop a class, that’s forwarded to other countries too.

However, the holder has 3 months from date of cancellation of the IR to file directly with the contracting parties to transform the registrations into national registrations, which allows you to keep your priority date but pay all the fees and start over, including finding a local agent.

Advantages: cost savings on filing fees, unless there are major problems or a central attack. Large savings on assignments and other title changes and renewals. Time savings due to deadlines in contracting parties, though there’s no deadline for the IB to issue the IR.

Disadvantages: central attack/dependency; she doesn’t recommend filing based on an application, because too many bad things could happen. If you have an existing, longstanding registration and you want a new color scheme or class of goods, this would be a good use of Madrid. Other problems: Assignment of IR may be made only to nationals of Protocol Countries, which excludes Canada and Latin America. Also, for US filers, IRs and REPs are narrower in protection than would be allowed under national rules – “books in the field of travel” rather than “books.” In the CTM, you can get “books.” Clients would often rather have broader protection. Also, no amendment of the mark is permitted. If you change the order of your mark – word mark before logo when application was logo before word mark – the USPTO will accept that, but Madrid won’t.

More disadvantages: Incoming REPs risk attack on the ground of fraud on the PTO due to overclaiming of goods/services or use of class headings per local country rules. An application that lists a large number of products generally includes a lot of “garbage” from the US perspective – is it fraudulent ab initio? Douglass would like to say no, but can’t be sure.

Separately, IB correspondence is not specifically addressed to any person in the company, doesn’t contain deadlines on the cover sheet, sometimes refers only to the IR number without the mark or the holder’s name, and file cannot be reconstructed if IB correspondence is lost in the mail! Also, there are docketing issues for Sec. 8/71 filings – the timing is different, and there is no IR grace period whereas the US has one.

New provision in US law: if there’s a split of mark ownership, a registration can be divided into separate registrations, each with a new registration number but original registration and priority dates. This creates special IR problems.

Siegrun Kane, Morgan & Finnegan, Back to the Future with the 2006 Trademark Dilution Revision Act: The TDRA puts us back where we thought we were with the 1995 Act, protecting the value of the uniqueness of plaintiff’s mark without showing likely confusion. Except that niche market fame is gone.

If you are a famous fish in a small pond, look to a state likely dilution statute. If you are not quite famous, look to a state statute that doesn’t require fame – some require “extremely strong” or “truly distinctive,” though one case held that sTRANGEmUSIC for concert recordings wasn’t distinctive enough for dilution protection – there were plenty of “strange music” sites on the internet. Practice point: check the internet, Lexis and Westlaw.

Kane predicts increased importance of intent, now listed as a specific blurring factor. When a mark is arbitrary, there’s often no good reason to copy it – e.g., Viagra copied by Triagra. By contrast, Century 21 lost a case against Century for insurance, when the parent company had used Century for a long time; this case was reconsidered under the TDRA and the defendant still prevailed.

Kane cited Lardashe and Spa’am as tarnishing uses (though noted that the Second Circuit disagreed about Spa’am). She identified the “Be Prepared” Girl Scouts case as the earliest use of the First Amendment to fend off a tarnishment claim,
and then pointed out that “we’ve come a long way,” such that Barbie is now the poster girl for the First Amendment defense, because of the Barbie Girl case. (All this really brings up the IP/Gender connection.) If you are a cultural icon, you may be skewered by the First Amendment – as Food Chain Barbie was.

Exclusions: the exclusions include any noncommercial use, which is the same thing as anything protected by the First Amendment. (Comment: !! Further proof that trademark lawyers live – with the long-time assistance of courts, I should say – in a different world than the rest of us concerned with regulations of commercial speech.) Also nominative and descriptive fair use.

Chewy Vuitton case: the issue on appeal is whether the exclusions apply, because the defendant is using “Chewy Vuitton” as its mark.

Copyright: Issues of First Impression in the Courts

I spent the morning at the ABA’s Section on IP Law’s annual conference, getting updates on copyright law. Rather than provide a detailed recap, I wanted to follow up on a thought sparked by Rob Kasunic’s presentation on Bill Graham Archives v. Dorling Kindersley, the Grateful Dead case. In Bill Graham, the Second Circuit held that not every use is entitled to a fee even if a market exists, which seems right but also inconsistent with the various CCC/course packet cases. Why wasn’t this use one that was entitled to a fee?

I wonder whether there’s a lurking copyright misuse issue in Bill Graham that led the court to reject the plaintiff’s claim of market harm even though (1) there is in general a market for licensing images in the high-end picture books Dorling Kindersley produces, and (2) the plaintiff actually participates in the licensing market. In this particular case, plaintiff didn’t ask for the (customary) fee. Rather, it asked for a reciprocal grant of rights so that it would be able to produce and sell CDs and DVDs of Grateful Dead concerts in its archive. Plaintiff is presently involved in litigation – against, among others, the Grateful Dead – about its sales and streaming of archival concert footage. Essentially, plaintiff was trying to leverage its copyright rights in the posters to gain control over other, unrelated works – asking for something the copyright laws don’t entitle it to get. Though the court doesn’t discuss plaintiff’s licensing demands in its legal analysis, perhaps they affected the court’s perception of the legitimacy of its market effect argument.

J. Michael Keyes, of K&L Gates, also gave a neat talk, making the point that §1202’s provisions on “copyright management information” are arguably the most overlooked portions of the DMCA; we are just beginning to see cases about what constitutes CMI and what constitutes its removal.

As for what I said, I speculated about the treatment of visual and sculptural works as “facts” rather than expression when they are created through industrial processes such as molding, following the facts of Conwest Resources v. Playtime Novelties (earlier discussion here). In an era of computer-assisted design and 3D printers, we may expect more such cases where even works that seem to fit into traditional copyright categories may not be products of “authorship.”

I also talked about Dastar’s creeping imperialism. Copyright is, of course, generally the beneficiary of that imperialism, in the sense that courts don’t limit copyright in order to protect trademark’s coherence (though see IQ Group v. Weisner Publishing for an interesting variant where the court’s refusal to create a “mutant copyright law” led it to refuse to treat a trademarked logo as CMI for purposes of §1202). The issue for copyright practice is whether pendent state-law claims for varieties of unfair competition will be pervasively preempted, as the logical consequence of analysis like that in Antidote v. Bloomsbury (discussed here).

NYT story about Equal v. Splenda battle

In which I'm quoted. I like Merisant's lawyer's description of people misunderstanding Splenda as "magic sugar." That's the kind of phrase that can help win a case. Until I began reading the business reporting on this case, I wasn't aware of the Sugar Institute's separate lawsuit against Splenda. There have also been various consumer lawsuits claiming deception over the Splenda-sugar relationship, but as I understand it most have gone nowhere, which isn't surprising given the high standards applied to consumers these days -- competitors have a much better shot at winning. Which, I must say, seems odd, given that the ideology of the modern Lanham Act is that competitors are proxies for consumers harmed by false advertising.

Wheel of ... litigation

IGT v. Alliance Gaming Corp., 2007 WL 911773 (D. Nev.)

The parties are competitors in the market for computerized gaming machines, specifically "wheel of fortune" type machines. IGT sued defendants (collectively Bally) for patent infringement. Defendants counterclaimed for declarations of invalidity, noninfringement, and unenforceability, as well as antitrust violations and false advertising based on IGT’s allegedly fraudulent acts in receiving its patents and claiming on its website that Bally was an infringer of those patents.

Usually, it’s difficult to maintain a false advertising claim based on a competitor’s statements about IP violations. The exception, which applied here, is when the relevant consumers are sophisticated businesses that can be expected to pay attention to allegations of patent infringement. The remaining hurdle is that courts generally impose an intent requirement – indeed, a bad faith requirement -- not otherwise present in the Lanham Act, in order to allow people to make good-faith but mistaken claims about patent validity. Bally avoided summary judgment on this issue, because of disputed factual issues about what IGT knew about the validity of its patents when it issued a press release claiming that it filed a patent infringement case to “stop [Bally] from misappropriating IGT’s patented innovations.” Given the factual issue on bad faith, Bally could also take advantage of the presumption that intentional deception actually deceives the public.

Another potential issue is whether press releases count as “advertising or promotion”; again, at least with sophisticated consumers, it’s likely that they do. Indeed, Bally submitted evidence that it received numerous concerned inquiries as a result of the press release and lost at least one order for 100 machines. Given that patent owners can pursue end-users of infringing devices, Bally’s customers were right to be concerned. IGT did, however, win summary judgment on Bally’s intentional interference with prospective economic advantage claim, because there was no evidence IGT knew about this particular lost order.

Microsoft sued for "Vista Capable" sticker

Machines labeled "Vista Capable," it turns out, could only run Vista Basic, which is missing a number of features of Vista Premium. Ad materials for Vista Premium made the distinction, but the basic "Vista Capable" stickers on lower-end machines didn't. Microsoft's position: We tried really hard to tell people what the differences were.

Nothing sues like an Electrolux

Imig, Inc. v. Electrolux Home Care Products, Ltd., 2007 WL 900310 (E.D.N.Y.)

If you sue a competitor for false advertising for telling people that your products infringe its IP rights, you can expect some IP counterclaims. And that’s what happened here.

Imig copied two Electrolux models, the Sanitaire models 866 and 899, as the Perfect P101 and P102, having them produced in China. Of relevance here, Electrolux makes vacuum cleaners similar to the 866 and 899 as “private label” machines sold by other parties under their own brand names. After Electrolux allegedly said nasty things to distributors, Imig sued, and Electrolux counterclaimed for trade dress infringement, false comparative advertising, and copyright infringement based on copying of Electrolux’s Owner’s Guide.

Copyright infringement was easy: Imig’s Chinese manufacturer copied the owner’s guide wholesale. Imig denied that it knew of or was involved in the creation of the infringing owner’s guide, but the court found that irrelevant because Imig met the standards for vicarious infringement. From the way the court describes the situation, it seems that the reproduction occurred overseas, raising a Subafilms-type issue of whether one can be vicariously liable under US law for authorizing conduct that doesn’t violate §106. But what about the distribution right? Wouldn’t Imig be directly liable for distributing the guides in the US regardless of its role in violating the reproduction right? Maybe the details of how the vacuums and their manuals got to the US made Imig a vicarious infringer of the distribution right, too.

Imig also made various unsubstantiated comparative and absolute statements about the motor life and strength of Perfect vacuums in its ads. Electrolux conducted independent testing disproving those statements (also, Imig’s “tests prove” claims were wrong, since the tests it conducted didn’t prove the claims) and thus prevailed on its false advertising counterclaims under federal law. The court denied summary judgment on the New York false advertising counterclaims because Electrolux hadn’t shown evidence of injury as required. Imig did not attempt to defend the truth of its statements, arguing instead that it had ceased to disseminate them. Legally, this was a slam dunk, but it shouldn’t be discounted that Electrolux had to conduct extensive and possibly expensive testing to prove its case.

As for Electrolux’s allegedly false statements, Imig charged that Electrolux had told people throughout the industry that the Perfects “infringed on the Sanitaires and that anyone who purchased the Perfects would be sued along with Imig.” Electrolux used affidavits and depositions from every individual identified by Imig denying that they heard such statements from Electrolux. One person claimed that he’d heard those statements from his customers and other sources, but didn’t identify Electrolux as the source. The court thus granted Electrolux summary judgment on the false advertising and related claims. (It’s worth noting that Imig could be right that any claim of infringement would be false, given the court’s ruling on the trade dress issue. But there would still remain an issue of whether bad faith was required and present.)

Trade dress infringement dominated the case, which provides a nice illustration of the three principles I tell my students are key in §43(a) trade dress cases: (1) the plaintiff’s ability to select and define elements of its claimed trade dress based on what it is that the defendant copied; (2) the key role of functionality and the tensions between refusing to protect functional features and protecting overall nonfunctional dress; and (3) the role of word/house marks in fending off confusion. Because of the factual uncertainty surrounding issues of protectability and confusion, the court denied summary judgment to both parties.

Electrolux claimed protection for six elements of its design, including the shape and color of the base, the on/off switch, and the height adjuster, as well as the font, writing, and position of the writing on the bag. Imig conceded that the overall combination of elements wasn’t essential to the use or purpose of the vacuums. The court thus asked whether the particular combination of features had a measurable effect on the cost or quality of the vacuums, and found conflicting evidence. Electrolux primarily argued that alternative designs were feasible, meaning that there’d be no competitive detriment to protecting its trade dress. The court disagreed that this was the sole test after Traffix.

Essentially, the court conflated protectability with protection: “[T]he fact that a competitor could manufacture a comparable product with a different design has minimal bearing on the question of whether the product design for which protection is sought is inextricable, in the mind of the consumer, with identification of the product's source.” The court correctly pointed out that protection for nondistinctive designs, like protection for functional designs, would grant monopoly rights in the underlying product – but I can’t see how that makes a nondistinctive design unprotectable as a result of functionality doctrine.

Despite this confusion, the court proceeded to analyze whether Electrolux had demonstrated secondary meaning. The flexibility §43(a) grants in defining trade dress is offset by barriers in proving that the selected features are responsible for any consumer perception about source. Here, Electrolux submitted a survey in support of its claims; 118 of 157 respondents identified one or more of the six relevant features as signifying that the tested vacuum was a Sanitaire. But none identified all six, let alone the combination. Indeed, two-thirds cited the red color as their reason for identifying the Sanitaire. The court gave no probative weight to the survey because it didn’t demonstrate “the symbolic function of the product design, overall, with respect to the source of the product.” Because Electrolux submitted no other evidence on distinctiveness, factual issues remained. (Is this right? Shouldn’t Imig have been able to get summary judgment in the absence of other evidence of distinctiveness?)

Assuming Electrolux could show nonfunctionality and distinctiveness, there were issues over likely confusion. On the strength of the mark, Electrolux’s private label line of vacuums virtually identical to the Sanitaires was important. “The more that the market is populated with vacuum cleaners designed like the Sanitaires, the less likely consumers will be to associate the Sanitaires' trade dress with a single source. The strength of the Sanitaires' trade dress is diluted accordingly.” (Could Electrolux flip the relevance of this point? If consumers think that Electrolux makes private label brands, isn’t it possible that they’d think that the Perfects were private-label productions despite the differing word marks? Or is that a competitive strategy we don't want to support with the protections of trademark law?)

On to the other confusion factors: There were clear similarities between the Perfects and the Sanitaires, but the court refused to find the overall impression of the two confusingly similar as a matter of law. The two key points were the different colors (red v. dark blue or black) and the different brand names on the fronts of the bases. This was insufficient to justify summary judgment for Imig – consumers might expect that the same source would make a product in multiple colors, and the label “Perfect” might not be sufficient to distinguish the Perfects from the better-known Sanitaires – but it was enough to require a factfinder’s resolution.

Given that the vacuums were designed and marketed for commercial use, the market could have more discerning consumers than average. Actual confusion evidence – which Electrolux didn’t have – would be highly probative.

On good faith, there was no dispute that Imig deliberately copied some Sanitaire features; Imig’s patent counsel commissioned a patent search to see if it was free to copy the appearance, and perhaps also the mechanics, of the Sanitaires. Yet there was also no evidence of intent to deceive consumers. Given Imig’s comparative advertising, arguably there was a clear intent to distinguish the products.

Quality, that strange leftover factor that never favors a defendant, was also in issue because Imig’s vacuums suffered significant quality problems; several customers returned all purchased vacuums, and Imig accepted 40% of the Perfects as returns. But, as the court pointed out, there was no indication of any source confusion – people complained directly to Imig, and made their returns to Imig.

As to consumer sophistication, the court declined to speculate in the absence of any evidence about the relevant market or the consumers therein.

My feeling is that Electrolux got a pass on its trade dress claims because of Imig’s false advertising, copyright infringement, and general chutzpah in suing Electrolux. If this had just been a trade dress case, Imig should have prevailed on summary judgment.