Another attempt to make a market for every use

Paul Levy posts here on Fox's attempt to argue that, because it's willing to run commercials to accompany any video excerpt online, there's no such thing as online fair use. This is a circular argument worth resisting; criticism shouldn't need to generate ad revenue for Fox.

Catholic IP roundtable

Catholic U IP roundtable, ably organized by Beth Winston. A very nice size, with papers at a stage that rewarded discussion.

Adam Mossoff, GMU: The intersection of IP and the administrative state, of increasing interest over the past 10 years. IP rights as regulatory entitlements. These are the arguments of modern-day Progressives: long intellectual history of IP as administrative grant. Indeed, IP was key to legal realists writing about property (F. Cohen, M. Cohen, fellow travelers like Hand). Of course they succeeded: we’re all legal realists now; property is a bundle of sticks, and the central stick is the right to exclude.

Conceptual and normative arguments both relied on IP to make the legal realist argument. Normatively: by defining property in terms of right to exclude, the law could avoid the “thingification” of property and the labor/natural rights theory of property, aka the Lockean theory. Cohen argued that Lockean theory was incoherent, because value followed from the state’s grant of the right and not vice versa. He relied on a single example: trademark. The value of the TM depends on the court’s willingness to grant an injunction against other uses. But for a court’s decision, “Coke” as a TM would be worthless because in the public domain. Value is consequence of law/property label, not antecedent. Thus, a property case is about whether a right to exclude ought to be granted, not some transcendental value.

Might be right, but this is a special case: words. But he used TM to generalize about property generally, including land. Mossoff thinks this is a mistake. There’s a subtle shift in two senses of “value.” First, normative: a value is something you pursue because it’s good (for you). Second, economic: synonymous with wealth. In the critique of Locke, Cohen assumes value is wealth. But Locke doesn’t agree; he thinks value is something that’s good for people—productive activities like building houses and fermenting wine. This gives labor its normative significance, because natural law commands self-preservation.

Cohen makes the same mistake as others he criticizes: he thingifies value into dollars, which only circulate in the market as the result of state grants of property rights.

Today: these battles are still important as we discuss patent reform and PTO’s patent rules. Shouldn’t take the Legal Realist conventional wisdom for granted. TM etc. aren’t necessarily purely regulatory entities in service of greater policy goals.

My somewhat incoherent thoughts: Not sure Cohen’s critique is right even for TM, as Mossoff describes it; things in the public domain can have lots of value, like generic terms: too much value to propertize. (James Boyle’s work on the special status of information in both constituting markets and being the object of market transactions, particle and wave both, making all theories break down, may be relevant.) Can we distinguish “exclusion value added by law” from “value that will be pursued regardless of law”? And does this bring Lockean theory closer to an incentive based theory?

Mossoff: Cohen agrees that there can be propertyless value and valueless property. Both Cohen and Locke agree that law provides certainty, adding value to whatever exists before. Cohen’s mistake is to conflate the effect of certainty with the existence of the value as such.

I also wonder to what extent it matters that Lockean theory doesn’t match up with current theories of natural right used to justify IP, since Locke is writing about a stateless society; once scarcity exists and most goods are allocated, and there isn’t “enough and as good” for the rest of us, then doesn’t Locke have many fewer answers for anyone?

Mossoff: Philosophical debate about the status of the Lockean proviso—Waldron et al. have compellingly argued that the proviso isn’t a normative requirement, but just a hypothetical. Locke moves into discussing civil society and never mentions the proviso again; once you move to civil society, he believes that there’s a virtuous cycle so that everyone lives better—the proviso no longer operates, but fortunately it’s good for everyone.

Zahr Stauffer, Virginia: She’s interested in sponsored/integrated content, including product placement, video news releases, and the like. Products may even be integrated into storylines. Ellen Goodman has attacked product placement as harmful in various ways, including harm to public discourse. Consumer advocates and writers’ guilds are agitating for reform. Stauffer disagrees that there’s a problem in need of regulation.

Communications Act of 1934: all material aired in exchange for consideration have to be disclosed at the time of broadcast. Disclosures are often buried. Free- and low-cost goods/services have been exempted as of 1950—e.g., a single free record to the radio station.

1963: a language of rights emerges in the FCC opinions: consumer has a “right” to know by whom he’s being persuaded. This is a shift from an affirmative duty of disclosure, imposed by Congress, to what the FCC now seems to consider a consumer’s right. But there’s no mode of enforcing that right or standard for evaluating consumer deception. Congress didn’t intend a right for consumers. Congress would have been satisfied by constructive notice, but the FCC is talking about something more like actual notice.

The legal regime is outdated; it relies on a structure of advertisers-broadcasters-consumers, concerned with exchanges between advertisers and broadcasters that are invisible to the consumer. But advertisers and broadcasters are increasingly merged because of consolidation. Alec Baldwin on 30 Rock talks about coming up with a GE oven—GE says it had nothing to do with the script, but chose to ran ads on the show to inform consumers that the oven was real. NBC is a subsidiary of GE. Not implausible that Tina Fey chose a GE oven for corporate synergy reasons. Sponsorship disclosure laws don’t adequately anticipate the problems of consolidation, though antitrust might. (Why can’t disclosure follow either separate corporate entities or consumer understanding? If people wouldn’t necessarily know that GE and NBC are the same, disclose it.)

Reforms should go towards less regulation. We should focus on the point of origin: the actual sponsors. It’s low-cost for them to make information available about who they sponsor. Cisco and Ford brag about their successful product placements. Embedded ads may be annoying, but the medicine is worse than the sickness. Embedded ads lower cost of production, improve production values, increase smaller players’ access to markets, and improve access to information.

Chris Newman: Never understood the consumer harm issue. Payola: do consumers assume DJs select songs based on expertise? Strange notion of fraud. (Except research shows that apparent popularity spurs further popularity; I do find it plausible that we expect, and even deserve to be able to expect, DJs to select music for non-pecuniary reasons.)

Stauffer: People are on notice when they walk into a grocery store that they’re being sold to, but they might not be when they listen to the non-advertising portions of the ads. Playlists may have gotten more corporatized because of a fear of payola laws, which allowed lesser-known bands to get on the air. In general, we should focus on educating consumers to recognize when they’re being sold to rather than stopping the integration of commerce and art, which may produce better art.

Kristin Osenga: Focus on claim construction in patents. Cases turn on language—for example, one last year turned on the meaning of “between,” and 3 Federal Circuit judges disagreed about the meaning. If what claim construction is about is interpreting ordinary words, maybe we need to put claim construction in the context of ordinary conversation. She wants to apply Gricean implicature (yay!). Conversation is a cooperative enterprise, so we can assume various things.

Others have looked at applying Grice to statutory interpretation: is a statute part of a conversation between legislatures and courts? How does statutory conversation differ? Statutory conversation isn’t always cooperative, which requires changes in the maxims. Is a patent a conversation? Yes. (1) A conversation between inventor and PTO during prosecution. (2) A conversation between patent and public, which looks more like a statute. How do these conversations differ from everyday speech and how can the maxims help us interpret patents?

(1) Like everyday conversation, PTO/patent conversation is bilateral, because there’s back and forth, unlike a statute which just speaks to the public. But it’s a structured, rule-based, strategic conversation. The inventor wants to say as little as possible and stay as vague as possible. (2) The patent is unilateral conversation to the public.

Maxim of quantity: the PTO regulates how much you have to say. Maxim of quality: this is strategic; prophetic examples are allowed when you don’t know what you’re saying is true. Etc.

Canons of construction actually line up quite nicely with the Gricean maxims, and may get more oomph by showing that they have a basis in reality.

Josh Sarnoff, AU: Does Grice have something to say about when rules of construction are triggered (broad, narrow, etc.)? How do you know what context you’re in? Seems to be in tension with the rule that the inventor can be his own lexicographer. Also, what happens when multiple audiences exist at once? Historically, doctrine looked at what a competitor would think. Or the PHOSITA. Or the judge?

Osenga: Multiple audience problem happens in regular speech. Inventor-as-lexicographer isn’t a big problem because that happens explicitly: it’s a clear part of the conversation, not implied.

Bob Brauneis, GW: Grice isn’t normative; he’s asking how people manage to communicate in spite of the paucity of normal speech. Aren’t you flipping that into normative mode? Then it’s about choosing the values we want to promote, e.g. what level of cooperation we think is appropriate between a patentee and the general public. Maybe we could posit a fiduciary duty, or an arms-length transaction.

Osenga: She’d hoped to go normative, but she wonders if Grice provides support for what we already do as a descriptive matter. Though it’s a strategic conversation, she wants to build some cooperation in.

Stauffer: Skeptical about the possibility of driving ambiguity out. Sometimes we intend ambiguity.

Osenga: In patent law we intend too much ambiguity, and that’s bad for boundaries.

Thomas Folsum: Google Book Search: both sides find this a simple case: simple case of wholesale copying; simple case of doing exactly what Google already does—copying and indexing and snippeting works. If it’s simple on both sides, do we just pick which we like better? None of the existing analogies works well, any more than it does in TM. What kind of laws are good for this place that is cyberspace? What we need are facts, thin on the ground in decided cases and avoided because of the settlement here.

Note that the settlement doesn’t protect the libraries if they give the books to putative competitors: this settlement is a small price to pay to keep competitors out of the market forever.

Wendy Seltzer: Cyberspace facts change pretty quick, though.

Folsum: Yes. But we may be able to pick out useful factors from the facts we see.

Schwabach on fan fiction

Aaron Schwabach, The Harry Potter Lexicon and the World of Fandom: Fan Fiction, Outsider Works, and Copyright, 70 University of Pittsburgh Law Review, No. 3 (forthcoming 2009)

The good: Contains the best public account of Larry Niven and Marion Zimmer Bradley’s interactions with fan fiction that I’ve read. Also makes the obvious but oft-missed point that objecting to fan fiction does nothing to protect pro authors from accusations of infringement: “many successful works of fiction become the subject of lawsuits claiming that some other author’s idea was stolen, and the works on which these claims are based are rarely fanfic.” Indeed, I’d go further: fans are much less likely to assert claims, because (1) by definition, they like the underlying work, and (2) they have much more reason to fear losing their own authorship status, see, e.g., Anderson v. Stallone.

The bad: Misunderstands live-action vidding as a subset of anime music video; relatedly, reads “Closer” as if it were intended as parody; relatedly, misattributes “Closer” in the name of a person who posted it on YouTube (the vidders’ names appear in the vid itself). Francesca Coppa has written about the history of vidding and how that history is being written out of existence for various reasons; Henry Jenkins called attention to the context of “Closer” and what happened to make people outside media fandom see it as a parody. With luck, the published version will correct these errors in the late sections of what is a generally helpful addition to the literature.

Geographically deceptive advertising?

German engineering--isn't. As the NYT points out, that's hardly the worst thing about those awful VW ads. But it's the most false!

Future of Music policy day

How will the new administration affect music? Learn more here. The date: Feb. 11, at the National Geographic.

FDA jurisdiction and dismissal without prejudice

Schering-Plough Healthcare Products, Inc. v. Schwarz Pharma, Inc., 2009 WL 151573 (E.D. Wis.)

Schering-Plough sought an amendment to an earlier judgment in this false advertising case concerning statements about defendants’ Polyethylene Glycol 3350 Powder for Oral Solution laxatives. The court initially dismissed the Lanham Act claim with prejudice and the state-law claims without prejudice, and here it amended the judgment to turn it into a dismissal without prejudice.

Basically, defendants marketed their product as “prescription only,” while Schering-Plough had the exclusive right to market the same drug over the counter. Schering-Plough thus alleged that it was false to label the drug as “prescription only.” Defendants argued that the “prescription only” label was required by the FDA, which had approved their ANDAs based on the initial NDA, which was for a prescription-only drug.

Schering-Plough argued that, because the court had determined that the Lanham Act claim was unripe, Schering-Plough argued that the appropriate resolution was a dismissal without prejudice. If and when the FDA determines that defendants’ drugs are misbranded, Schering-Plough could refile. The defendants responded that the court already decided the claim on the merits: the FDA approved and required the label, precluding a private cause of action.

The court clarified that its dismissal was not merit-based, but dependent on the FDA’s inaction. Once the FDA takes an official position on proper labeling, the court can defer to that. If the FDCA wholly precluded a private cause of action, then an FDA ruling would be irrelevant. Defendants argued that, even if the FDA does act, Schering-Plough will still have no claim: either the drugs will have to be pulled from the market as misbranded but there will be no retroactive claim for false advertising, or the label is ok and there’s no false advertising claim. The court held that it need not determine the merits of Schering-Plough’s claim (here, retroactivity of any FDA determination) to decide that the dismissal should be without prejudice.

Credit where credit's not due? Consumer suit reinstated

Hauk v. JP Morgan Chase Bank USA, -- F.3d --, 2009 WL 153236 (9th Cir.)

Hauk opened a Chase credit card account in June 2003. In October 2004, Chase sent him a balance transfer offer with a 4.99% teaser APR for any transferred balances. The offer said Chase could impose an increased rate if Hauk made a late payment to Chase or any other creditors. Hauk transferred a $10,200 balance, and on his October statement, Chase gave him the promotional APR. But the next month, Chase applied a 28.74% APR, resulting in a $241.60 finance charge. Hauk called and Chase told him he lost eligibility because of a late payment he’d made to another creditor three months before he accepted Chase’s balance transfer offer. In July 2004, he’d made a final mortgage payment one day after the 30-day grace period, and the servicer HCF reported that his account was 30 days delinquent to Experian, a credit reporting agency.

Hauk sued for violation of TILA and California’s false advertising law. The court of appeals affirmed the dismissal of the TILA claims—Chase’s disclosure was adequate—but reversed on the state law claims.

Essentially, Hauk argued that it was misleading for Chase to offer him a teaser rate and then yank it based on facts it knew or should have known at the time it made the offer; indeed, Hauk argued that he could reasonably believe that only late payments made after accepting the offer would trigger the increased rate. Chase argued that it didn’t know about the July 2004 payment, but Hauk’s evidence about what Experian recorded, and about Chase’s use of Experian’s services in August and September 2004 before making him the offer, was sufficient to create a fact issue on that point.

Complying with TILA didn’t provide Chase a total safe harbor, only protection from a state-law suit based on allegations that Chase’s disclosure was insufficient. But the issue here was different: Hauk alleged that Chase took action at odds with the rules it had disclosed by imposing a higher APR based on Hauk’s pre-offer record. If Chase knew or should have known about Hauk’s earlier late payment before offering him the teaser rate, TILA would be no shield. And then Hauk might be able to show a violation of California law, because (1) assertion of a contractual right that doesn’t actually exist can be an unfair business practice, and (2) a reasonable consumer might have been deceived into thinking that Chase wouldn’t hike the rate based on a late payment it already knew about when offering the low rate.

On remand, the court of appeals noted, the district court might decline to exercise supplemental jurisdiction, because the federal claims were out of the case.

Judge Patel shrugged: Rearden v. Rearden

Rearden LLC v. Rearden Commerce, Inc., 2009 WL 102075 (N.D. Cal.)

Interesting case because of the fight over “use in commerce” and the total absence of the personal name rule. Rearden LLC (Rearden) sued Rearden Commerce (RC) for trademark and trademark-esque claims, including cybersquatting.

Stephan Perlman (here’s an interview) founded Rearden Steel in 1999 as the first of several affiliated Silicon Valley companies. The Rearden companies are “technology incubators and artistic project production companies.” In 2004, for example, Rearden incubated Ice Blink Studios LLC, an art and design studio that helped make several motion pictures. Rearden also developed the Moxi Media Center, a multifunction set-top box for TVs. Today, there are four Rearden entities: Rearden LLC, which provides resources for new ventures; Rearden Productions LLC and Rearden Studios LLC, which specialize in HD and animated movie production services; and Rearden Properties LLC, which rents space to the other three. Rearden has registered trademarks for REARDEN STUDIOS and the logo and some pending ITUs (the descriptions of services in which are as long as I ever hope to see).

Rearden has about one hundred employees total, and operates various websites. As an incubator, Rearden provides new ventures with funding, management, and infrastructure support, “including office space, personnel, equipment, information technology infrastructure, insurance, administrative and travel services, benefits, marketing, and intellectual property advice.” Sometimes Rearden contracts with third parties to provide this support.

RC is also based in Silicon Valley. It created a web-based technology, the Rearden Personal Assistant, which links subscribers (professionals and businesses) to an online market where they can find business and travel-related services from over 130,000 companies, including American Airlines, Hertz, Hilton, and WebEx. Along with travel and web conferencing, the services offer event tickets, dining reservations, and shipping. For businesses, RC’s Rearden Services Console allows administrators to control travel and procurement for their employees.

Rearden contested RC’s trademark applications before the PTO, but they were nonetheless approved. (As far as I can tell, they’re all ITUs and no registrations have actually issued.)

One key issue was whether Rearden had used REARDEN in commerce sufficiently to give it trademark rights. Use of a service mark requires the mark to be used or displayed in the sale or advertising of services, which services are rendered in commerce. However, the totality of circumstances can also establish a right to a mark, as long as the use is sufficiently public to identify or distinguish the marked services in an appropriate segment of the public.

Rearden has used REARDEN in connection with commercial transactions, including “(1) plaintiffs' securing of $67 million in funding for Rearden Steel Technologies in 2001; (2) plaintiffs' payment for incubation services provided to Ice Blink Studios in 2004; and (3) plaintiffs' receipt of $12.5 million in revenue for the sale of a minority interest in an incubated start-up in 2007.” “Rearden” is also used to identify plaintiffs in many news articles.

Nonetheless, the court found “[n]otably absent” any evidence that Rearden marketed any products or services to consumers using the Rearden name. Instead, the Rearden companies only incubate Perlman’s ideas and no one actually pays Rearden to have their ideas incubated. Rearden’s counsel claimed only that other people could come to Rearden. (I don’t get it. If other people ultimately buy the incubated companies, then isn’t that a service? A completely internal use of a term within a company might not be a use in commerce, and I don’t think the fourth Rearden entity, the one that just rents to the others, is using the mark in commerce, but the others all seem to participate in the larger economy. See, e.g., this listing for Rearden Studios.) “If the Rearden entities merely use the name amongst themselves but do not market any good or service under the name, the fact that they have consistently used the name does not necessarily mean that it has been used in commerce.”

However, the court assumed that Rearden had raised a triable issue of fact on use as a mark and turned to a confusion analysis.

The notable thing about the confusion analysis was that the court considered the Rearden marks “plainly not generic or descriptive,” probably because RC didn’t disagree for reasons of its own. Yet right after saying that, the court noted, “Rearden is an actual family name,” which should have triggered the long-established rule that personal names are considered descriptive and are only protectable upon a showing of secondary meaning, regardless of whether there’s anyone with that name actually involved in the company. Instead, the court considered REARDEN suggestive, because “Rearden” and “Rearden Steel” “invoke an image of entrepreneurial success to the many businesspeople familiar with Ayn Rand’s Atlas Shrugged.” Perhaps this familiarity justifies a departure from the rule, but I'm surprised the rule wasn't even mentioned.

Anyway, after that holding, the rest of the analysis is unsurprising. The services only overlap at a high level of abstraction; their customer bases differ (note here my point about use in commerce: the court said that Rearden targets “corporate buyers interested in capitalizing or purchasing an incubated company,” and it surely uses Rearden in interacting with them); word similarity was high but the logos were different; everybody uses the Internet, so that doesn’t count as overlapping marketing channels; the services are expensive and the consumers are sophisticated; and there was insufficient evidence of bad intent.

As for actual confusion, Rearden cited a number of instances of “(1) confusion by authors of trade publications; (2) confusion by organizers of the Web 2.0 Expo trade show; (3) confusion by plaintiffs' vendors; (4) confusion by plaintiffs’ legal representatives and auditor; and (5) miscellaneous incidents of confusion.” In each case, the court determined, the error was mechanical—there was confusion over the parties’ names or “affiliation,” but not over the source of products or services. Plus, these incidents involved vendors or industry insiders, not prospective customers. In a footnote, the court noted that the Ninth Circuit hasn’t approved of finding actionable confusion among investors, vendors, and suppliers in the absence of consumer confusion, even though other courts have done so. Only two incidents involved confusion among consumers; one of RC’s customers expressed confusion as to which “Rearden” it contracted with after it received a subpoena in this case, and the other involved Rearden receiving misdirected emails for RC. These, the court determined, showed confusion over the parties’ names, not over the source of the parties’ services. Bottom line: At least with expensive or sophisticated products, courts are often willing to dismiss “directory error”-type confusion, where there’s simply a mistake about who the allegedly confused person is trying to reach or talking about, as when the phone directory gives you the number for Delta Dental rather than Delta Airlines. With the misdirected emails in particular, the court thought that senders likely erroneously typed @rearden.com when they should have typed @reardencommerce.com.

Thus, RC won summary judgment on the infringement claims, though the cybersquatting claims remained, based on RC’s registration of some domain names that bear a strong resemblance to the names of plaintiffs’ businesses.

VitaminWater lawsuit

Via Mark McKenna:

Coke Sued for Fraudulent Claims on Obesity-Promoting “VitaminWater”:

The Coca-Cola Company has been served notice of a class action lawsuit filed over what the Center for Science in the Public Interest (CSPI) says are deceptive and unsubstantiated claims on its VitaminWater line of beverages. Coke markets VitaminWater as a healthful alternative to soda by labeling its several flavors with such health buzz words as "defense," "rescue," "energy," and "endurance." The company makes a wide range of dramatic claims, including that its drinks variously reduce the risk of chronic disease, reduce the risk of eye disease, promote healthy joints, and support optimal immune function.

In fact, according to CSPI nutritionists, the 33 grams of sugar in each bottle of VitaminWater do more to promote obesity, diabetes, and other health problems than the vitamins in the drinks do to perform the advertised benefits listed on the bottles.

….

VitaminWater contains between zero and one percent juice, despite the full names of the drinks, which include "endurance peach mango" and "focus kiwi strawberry," and "xxx blueberry pomegranate acai," among others. A press release for the "xxx" drink claims its antioxidants makes the drinker "last longer" in some unspecified way; in any event, it has no blueberry, pomegranate, or acai juice, nor do the others have any cranberry, grapefruit, dragon fruit, peach, mango, kiwi, or strawberry juice.

What do consumers think about descriptive terms?

Empirical work in trademark is sadly limited. Here’s a really provocative piece that uses consumer perception studies to argue that Abercrombie is just as bad at assessing the actual distinctiveness of word marks as Wal-Mart thought it was for trade dress.

Thomas R. Lee, Abercrombie Unveiled: A Theoretical and Empirical Analysis of Trademark Distinctiveness

Abstract:

The word mark taxonomy established in Abercrombie is a longstanding tenet of doctrinal orthodoxy. Lawmakers have so oft restated the Abercrombie classes and so consistently rehearsed the theoretical grounds that undergird them that it no longer occurs to us to question their premises. But there are good reasons-both pragmatic and theoretical ones-to question the Abercrombie system.

…. Our empirical studies show that Abercrombie rests on an erroneous assumption about the predominant impact of semantic word meaning. So long as the word is used in an "average" trademark use context, a word mark's semantic meaning is shown to be overshadowed by the non-linguistic, contextual markers that establish its distinctiveness as a source indicator.

Where advertising law and IRBs collide

(That is, my field of research and my husband's.)

NYT: Fitness Isn’t an Overnight Sensation

Carl Foster, an exercise physiologist at the University of Wisconsin, La Crosse, was amused by ads for a popular piece of exercise equipment. Before-and-after photos showed pudgy men and women turned into athletes with ripped bodies of steel. And it all happened after just 12 weeks of exercising for 30 minutes three times a week. Then there was the popular book, with its own before-and-after photos, promoting a program that would totally change your body in six weeks with three 20-minute exercise sessions a week.

… “We said: ‘Wait a minute. You can’t change yourself that much,’ ” Dr. Foster said. So he and his colleagues decided to experiment. Suppose they recruited sedentary people for a six-week exercise program. Would objective observers notice any changes in their bodies?

… The volunteers were men, age 18 to 40 (the university’s human-subjects review board looked askance at having women photographed and rated like that). And they were sedentary. “These were people who were just sort of dumplings,” Dr. Foster said.

Results were not surprising. The subjects rated themselves more highly than anyone else rated them, and female panelists rated the subjects lower than the male subjects or panelists rated them. But, over all, the subjects’ ratings barely changed, if at all, after their exercise program. And neither did objective measures, like weight or percentage of body fat, or waist size or the size of the bicep or thigh.

… Dr. Mark Tarnopolsky, an exercise researcher at McMaster University in Hamilton, Ontario [said] that although he does not think the before-and-after photos in ads are doctored, most people will not change so markedly no matter how hard or long they work. “I believe they are taking the top one or two people out of thousands,” Dr. Tarnopolsky said.

If the ads clearly disclose in text that their results are unusual, and they really do feature the one or two people who succeed using the advertised program, they probably follow current FTC guidelines. But maybe the guidelines themselves are too lax.

Two posts

Side by side in my Google Reader:

C. Edwin Baker, The Future of News, Part One-- The Problem (Balkinization)

"We Ain't Seen Nothin' Yet": Jack Driscoll on Community Journalism (Part One) (Confessions of an Aca-Fan) (which starts with a discussion of the quote "now anyone with a computer is a newspaper")

Things I think while preparing for Property

Reading the past three years of the Credit Slips blog backwards (1) is depressing and (2) makes me appreciate Elizabeth Warren's (and the others', including my colleague Adam Levitin's) self-restraint in not spending all day yelling WE TOLD YOU SO! The comments from 2006 and 2007 arguing, in response to main posts, that there was no real subprime problem at all are quite something.

More on Obama and the right of publicity

Salon story featuring a shocking array of Obama memorabilia. The lead is the best: the Obama dildo. The site, which uses a logo that's not much more different from Obama's than the new Pepsi campaign logo, calls it "the official Obama pleasure toy" and features (fake) endorsements from McCain, Palin, Bush, Cheney, and Joe the Plumber (expect the latter's lawsuit any moment now). Which just goes to show: sometimes even "official" wouldn't mislead a reasonable consumer.

Hybrid vigor revisited

Paduano v. American Honda Motor Co., -- Cal.Rptr.3d --, 2009 WL 57806 (Cal. App. 4 Dist.)

Class action from 2007 discussed here. Paduano bought a new 2004 Honda Civic Hybrid in 2004 (as, incidentally, did I) and subsequently became disillusioned with its fuel efficiency, which was about half of the EPA fuel economy estimate disclosed on the federally mandated new car label (47 mpg city/48 mpg highway). As required by federal regulations, the label also said that “ACTUAL MILEAGE will vary with options, driving conditions, driving habits and vehicle[’]s condition.”

After a Honda dealership employee told him that driving conditions affect hybrids’ fuel efficiency more than conventional cars’ fuel efficiency, and that he’d get better mileage only if he “significantly altered” his driving habits, Paduano asked Honda to buy the car back from him. Honda refused and Paduano sued for breach of warranty and false advertising. (On a personal note, I’ve been trained to drive differently simply by watching the mileage bar on my car. Indeed, if all cars had mileage indicators and not just speed indicators, I suspect we’d see an improvement in fuel economy simply because of the human impulse to maximize what is measured. Unlike Paduano, I didn’t mind being trained by my car. As for mileage, these days I get roughly 42 mpg on good tanks, 30 in the cold making mostly short trips.)

Honda argued that the federal Energy Policy and Conservation Act (EPCA) preempted all Paduano’s claims, and that the claims lacked merit in any event. The trial court granted summary judgment in Honda’s favor; the appellate court affirmed as to the warranty claims, but reversed on the false advertising claims.

Paduano said that he’d read and relied on statements in Honda’s ad brochure before buying.

In his first year of ownership, Paduano took the car to several Honda dealerships to find out how to get better mileage, and he was told that the engine needed a break-in period, described variously to him as 3000, 5000-10,000, and 7500 miles. In fact, a Honda representative testified in deposition, no such break-in period is required. Another dealership employee told Paduano that to get EPA-level gas mileage, a driver must drive in a specialized manner that would be difficult to do on the highway and would create a driving hazard. He called Honda’s customer service line and was told that Honda had received many complaints about mileage, and a representative told him that both Honda and Toyota had approached the EPA to change the mileage rating to make it more accurate.

Honda argued that EPCA’s regulation of fuel estimate disclosures preempted all Paduano’s claims. EPCA, and associated EPA & FTC regulations, are designed to help consumers compare vehicles’ fuel economy. The law thus defines “average fuel economy” and “average fuel economy standard,” and specifies that “fuel economy” means the average mpg as determined by the EPA. The law tells the EPA to establish testing and calculation procedures for this purpose. And every car maker must attach a prominent label on each new car disclosing, among other things, its fuel economy. The law provides that the required disclosure does not establish a warranty under federal or state law. The law’s preemption provision bars states from imposing laws or regulations “related to fuel economy standards or average fuel economy standards” that are not identical to the federal rules.

The majority held that Paduano’s warranty claims failed, because they were based on the idea that Honda warranted that his car would achieve at or near EPA-estimated mpg. But the EPA estimate isn’t a warranty, and Honda didn’t make any other warranty.

The false advertising claims, by contrast, presented triable issues of fact. Paduano’s allegations focusing on a Honda sales brochure prominently featuring “51 MPG” didn’t state a claim, because the brochure clearly disclosed this was the top estimate for a manual transmission, whereas the same estimate for an automatic was 48 mpg.

But the brochure also stated, “Just drive the Hybrid like you would a conventional car and save on fuel bills,” as part of an answer to the question “I never have to plug it in, right?” The brochure also told customers that they didn’t need to do “anything special” to get “terrific gas mileage.” A factfinder could determine that these statements were misleading, given Paduano’s evidence that superior mileage requires driving differently. Along with the allegations above, Paduano alleged that a Honda representative told him that hybrids are “more dramatically affected by outside influences such as air conditioning, driving habits, windows up/down, and vehicle load than normal combustion engines.” Moreover, Honda didn’t tell him that short trips penalize hybrid efficiency as compared to regular cars.

Honda pointed out that “Just drive the Hybrid like you would a conventional car, while saving on fuel bills” was in the context of an answer to a question about plugging the car in, addressing a different misconception. But the court thought that this statement doesn’t seem to refer to the fact that one need not plug in the car when not driving, and the reference to saving on fuel bills wasn’t responsive to the posed question. (I agree, it’s infelicitous. As a factfinder, though, I’d probably find that the context sufficiently constrained the meaning of the claim.)

There was also a separate question, “Is there anything special I have to do?” to which the answer was “You just have to love saving money and getting terrific gas mileage.” That, the court held, implied (I might even go with necessarily implied) that the driver need not do anything special as compared with driving a conventional car. (So the real question is: what counts as special? I’m not sure how that interacts with the fact that mileage is better on longer trips, for example.) Honda didn’t show that its claims couldn’t mislead a reasonable person as a matter of law.

And Paduano also had the advantage of the oral representations alleged: “[Y]ou cannot drive in a normal manner in order to get the mileage,” by which the Honda representative meant “[a]ccelerating with the flow of traffic, stopping with the flow of traffic, accelerating as by law you're supposed to [do] to get on the highway, being at highway speed at the time that you're entering the first lane.” Paduano alleged that the Honda employee told him “You can’t do any of those [usual] things” if you want to get better mileage. (I consider this misleading, but maybe not in a way that helps Paduano. You definitely don’t get the best mileage if you’ve got the pedal to the floor or if you’re constantly stamping on the brakes, but isn’t that true of conventional cars too? You get the best mileage by accelerating and decelerating smoothly. Once you’re at speed, you do fine with a hybrid. And what Paduano defines as “stopping with the flow of traffic” I probably define as “not paying attention until you have to slam on the brakes”; if you take your foot off the gas in order to slow down rather than hit the brakes, you get excellent mileage.)

The more that I think about it, the more this case resembles McNeil-PPC v. Pfizer, the dental floss case from SDNY, where the key question was what it meant to “floss”—did it mean to floss correctly, or to floss the way most people actually floss, which is to say badly. Does “driving normally” mean “driving wastefully”? If it does, then Honda’s statements were probably misleading. Otherwise, probably not. (Does it matter that most hybrid customers are likely to be driving the hybrid to make a statement about fuel economy?)

The majority concluded that Paduano’s evidence could be found to show that one might have to drive the hybrid “in something other than the usual manner of driving a conventional vehicle” in order to obtain near-EPA estimated fuel economy. Honda also admitted the existence of other, similar complaints, which is further evidence that its claims might have been misleading.

Paduano also testified that he relied on the claims, making out a necessary element of his false advertising case.

The remaining question was whether the false advertising claims were preempted. Honda argued that Paduano was trying to claim that Honda violated California law by repeating the EPA fuel economy estimates. The majority rejected this characterization. It applied a presumption against preemption, especially given California’s interest in consumer protection. California’s false advertising law was not an expressly preempted “law or regulation related to fuel economy standards.” Enforcing the law wouldn’t in any way impose fuel economy requirements on Honda.

Nor was Paduano’s claim attempting to impose an expressly preempted disclosure requirement that differed from federal standards. Honda argued that Paduano’s claim depended on the idea that disclosing the EPA mileage estimate by itself is deceptive unless accompanied by additional disclosures. However, that wasn’t Paduano’s argument. Instead, Paduano alleged that Honda voluntarily made additional assertions beyond the EPA mileage disclosures. (That does seem to raise a causation issue. Would Paduano really have relied on the extra claims, but not relied on the EPA mileage? Maybe; I suspect it’s generally understood by most car buyers that EPA estimates, even for conventional cars, are a bit wonky.) The majority thought this case was similar to Altria Group, Inc. v. Good, in which the Supreme Court found that state-law false advertising claims against cigarette makers weren’t preempted by federal regulation of cigarette labeling. A general rule creating a duty not to deceive doesn’t directly interfere with labeling requirements.

Further, implied preemption was no barrier. Given the express preemption provision in EPCA, implied preemption was less of a concern. But Honda argued that if Paduano won, it would have to make additional, even contradictory, disclosures to protect itself from expectations created by the EPA estimates. But the court thought that Honda’s claims went beyond required disclosures and made claims about the manner of driving. If Paduano wins, Honda would simply have to stop making claims about how to obtain high fuel economy. Indeed, the EPA sticker specifically says actual mileage will vary “depending on how you drive an maintain your vehicle,” but Honda’s brochure suggested that driving habits didn’t matter.

And if the EPA estimates allow consumers to make an apples-to-apples comparison, then misleading claims about how to achieve greater fuel economy interfere with the aims of federal law.

One judge dissented in part on the ground that the false advertising claims should also have been preempted. Judge O’Rourke argued that if Paduano won, Honda would be required to disclose more than the EPA estimates, thus impermissibly interfering with the federal regime.

Even without preemption, though, the dissent would have found the statements at issue nothing more than nonactionable puffery. The statements in the Honda brochure were not the type on which a reasonable consumer could be expected to rely; only 0.7% of Honda Civic Hybrid owners in California complained about gas mileage. (Courts often hold that deceived consumers rarely bother to complain, so absence of evidence is not evidence of absence, but perhaps with an expensive item like a car complaints should be more common.)

Anyway, the dissent reasoned, the claim that driving a hybrid in ordinary fashion will save on fuel “is true and basically definitional” because at times the gas engine will shut off, saving fuel, and because the electric motor adds power while accelerating. Paduano admitted in deposition that any car’s mileage would decrease with aggressive driving. The dissent thought that the majority’s theory—that the brochure could mislead people into thinking they could drive a car “normally” and still get EPA-level mileage—depends on consumers’ reliance on the EPA estimates. But of course, a claim based on EPA estimates is not actionable. (I think this is pretty close to my question about causation: would the EPA estimates alone mislead the same consumers who were, let’s assume, misled by the additional statements?)

Puffery protects claims that are either vague or highly subjective. In other car cases, courts found the following statements to be puffery: “the Samurai handles differently than any ordinary passenger car”; the Suzuki 4x4 has “all the goodies of 4-wheel drive”; antilock brakes are “99 percent more effective than protective systems” and “[a] driver is 100 times more likely to benefit from a vehicle’s crash-avoidance capabilities (such as anti-lock brakes) than from its crash-survival capabilities (such as air bags).” Statements about “terrific” mileage without doing anything “special” were, to the dissent, “nebulous, nonspecific assertions” similar to those other puffs. A comparison to an unspecified conventional car is not falsifiable, not informative, and therefore not actionable.

I'll huff and I'll puff and I'll take your house away

In court, Countrywide says its ads are ‘puffery’

For the basic idea behind this MSNBC story, note the subhead: “Defending lawsuit, mortgage company mocks loan modification assurances” (emphasis added).

In marketing, advertising and testimony before Congress, Countrywide Home Loans has said repeatedly that it is working hard to modify the mortgages of financially strapped borrowers caught up in the subprime meltdown. But in a New Hampshire court, attorneys for the lending giant are singing a different tune, describing such assurances as “mere commercial puffery.”

Saying the modification offers are “only Countrywide’s vague advertisements,” attorneys for the lender are asking the court to throw out a lawsuit alleging breach of good faith, fraud, negligence and misrepresentation, which was filed on behalf of a family that was refused a loan modification by the California-based company.

The ads and the congressional testimony said the same things—“we can help you!” to quote a Countrywide website. The ads are commercial speech; what about the congressional testimony? (I actually think the answer to that question isn’t that important, because we do have the ads. But the testimony may bear on the puffery defense; even if a Representative is not a reasonable person, Countrywide’s statements in multiple venues might affect whether a reasonable person would perceive that a factual claim had been made.)

Via David Welkowitz

"organic" outside the grocery store

The NYT reports on difficulties determining what makes a mattress "organic" or "natural."

NYT on mortgage prevention scams

Plenty of false advertising around, including blatant copying of legitimate websites.

Obama and the right of publicity

I'm quoted in this Guardian story, which has some entertaining links.

False advertising's greatest hits

From Lydia Pinkham to Airborne. Via Frank Pasquale.

AALS Section on IP Law

Liability for Intermediaries Under Copyright and Trademark Law

Peter Menell: Indirect liability is part of a larger system: law, technology and markets. The goals of the system: promote creativity, free speech, privacy. Markets take care of it when possible—ringtones, for example, where copyright hasn’t given way at all; a cellphone provider can control ringtones even though people won’t pay 1/3 of the price to iTunes for the same song.

Politics and norms can also be used to control behavior. A levy would solve current problems but create new ones, like freedom of speech. The benefit of tort type remedies is their dynamism, evolution. Recent cases have helped markets figure out what to do: look at video (Hulu), Google Book Search: creative solutions prodded by risks of liability.

Mark Bartholomew: He starts from trademark, which is based in common law. Question: why do we want Iago punished more severely than Othello? Mental state; facilitation of murder; agency/trust relationship betrayed. The cases are sometimes divorced from a philosophical grounding: when is it just to hold someone accountable for another’s misdeeds? Basic concerns are with vicarious (relational) and contributory (blame/fault plus contribution to bad act) liability. These standards are applied differently depending on the tort; it’s much easier to win secondary liability in copyright than TM. For vicarious liability, relationships that can create liability are construed more narrowly in TM. As for contributory, courts are hesitant to infer knowledge in TM. The Supreme Court has endorsed this. But why?

Mark Lemley: The flipside: justification for safe harbors and the oddity that the safe harbors differ across fields. Safe harbors are justified because the internet turns retail interactions into wholesale. Vicarious/contributory liability were developed with the assumption of particular individualized acts. The internet involves billions of automated transactions among people the alleged contributory infringer never meets. Running the internet should not lead to liability, and safe harbors allow the internet to survive these doctrines. That said, by accident there’s a bizarre patchwork of safe harbors. If the case doesn’t involve IP/child pornography/housing discrimination, you’re absolutely immune under 230, even if you’re aware of and encouraging illegality, regardless of whether there’s an alternative identifiable defendant.

Then there’s the DMCA for copyright for those entities that existed in 1998 that Congress knew about. Viacom case: Viacom alleges you don’t get the safe harbor unless you are not secondarily liable, which is actually not an impossible reading of the statute. The DMCA is also vague about things like what a repeat infringer is, so YouTube errs on the side of banning users even when their content is unquestionably fair use but draws repeated (wrong) complaints.

There are statutory safe harbors for electronic information in TM, though very few people know this. No money damages; injunction only if it wouldn’t affect the operation of the intermediary’s business. For other IP, no safe harbors (patent, right of publicity in First Circuit).

This regime is nonsense. There is no good economic argument for different safe harbors for different regimes. Also it misleads people: ordinary folks tend to assume the DMCA applies to everything. Leads to strategic gaming, where people convert TM/defamation claims to copyright and abuse notice and takedown. It’s not a model other countries can follow. This is bad because the rest of the world doesn’t get the internet; they’ll hold ISPs liable for having unpopular speech or copyrighted materials on their systems. They’ll even criminally prosecute ISPs. For the US to have a moral position, we need to get our own house in order.

Lemley likes the TM model: less absolute than 230.

Me: I’m very interested in eBay v. Tiffany as an indicator of the way the wheels are coming off. The court says multiple times that it’s not engaging in cost-benefit analysis, but then pretty much does. It says that eBay isn’t required to have VeRo, but then uses VeRo to explain why eBay isn’t liable. Like many courts, as Barton Beebe has shown, it ultimately cares a lot about intent. Intent is probably here to stay. But in the past, good faith and efficacy were pretty tightly linked: massive infringement was a good sign that you were operating in bad faith, and bad faith has been considered a good sign that infringement is likely to take place. eBay marks the moment that the court has to decide which matters—if eBay is proceeding in good faith, but there’s still a lot of counterfeiting, which wins? Answer: good faith, filtered through some idea of best practices. But because we’re confused about things like what good faith means, it’s not explicitly on the table that this depends on a judgment that, if eBay can’t operate without a high level of counterfeiting of certain items, then the social benefit of eBay trumps the harm of counterfeiting.

Fred Yen: The conflict between cost-benefit analysis and intent/culpability—when the two diverge, which do we pick?

Bartholomew: The trend is towards more focus on fault, less on instrumentalism. eBay explicitly rejected a cheapest cost avoider standard. Grokster emphasized mental state. Vicarious liability is different, and doesn’t worry about blame. Rather, it’s imposed instrumentally because of some social value. Vicarious liability is becoming less important in TM—few successes in recent years—B thinks this is good. It’s dangerous for courts to handicap tech futures; courts are good at analyzing fault/blame.

(As Mark Lemley was about to point out, I think this elides knowledge/intent: what counts as bad faith? Knowledge alone can be use to infer fault.)

Lemley: Disagrees fundamentally with the conclusion. Courts are going to fault, but that’s wrong. Bad intent is a concept that makes no sense divorced from a view of what we want to prohibit: intent to do what? We use intent to substitute for a principle of legal fault. Infinitely malleable: everybody’s got an intent to free ride. Look at Grokster: the Court says there are three components to its bad intent: (1) Grokster hoped to make money (but a footnote says that’s not enough); (2) it didn’t filter (but a footnote says that’s not enough); (3) it internally considered, but on advice of counsel did not run, an ad touting the availability of infringing material. The exact same company with the same business plan, but initially better advised, wouldn’t be subject to liability (comment: if you believe the Court—maybe Grokster was going down one way or another—but that still proves that the current law’s a mess). That makes no sense. We can ban the business model or accept it, but subjective state of mind and effects are different. (Comment: again, I think that tech may have separated state of mind and effects further than in the past.)

Menell: Grokster is braindead because the Court was so concerned about avoiding Sony. Safe harbors are a political and democratic way of dealing with tech, but legislatures are not good at ongoing oversight. Different safe harbors may be appropriate for different IP regimes; patent’s staple article doctrine deals with patent-specific antitrust concerns.

As for eBay, VeRo seems pretty good, different from Napster. We want ISPs to try hard: this seems to be what’s going on in the recent Veoh case. eBay and Veoh are going beyond the call of duty, so courts are pragmatically evaluating good behavior even in the safe harbor context.

Me: But that’s scary! It means the safe harbor isn’t safe. VeRo and video screening become the new baseline.

On Lemley’s point: I agree that “intent to do what?” is the key question, but I believe it could actually be answered better. If we did answer that in a way other than “free ride,” which I agree is a terrible answer, then we could manage a fault-based standard. Aimster’s cost-benefit analysis isn’t necessarily better, because courts aren’t all that good at it.

Lemley: You can’t run an internet business without reckless indifference to the possibility that someone’s rights are being violated somewhere. So you need some cost-benefit analysis to figure out what an acceptable state of mind would be.

The panel’s consensus seemed to be that doing the analysis in big chunks, not granular, as in Aimster, is probably the best way to protect innovation/future tech.

Menell: Punt to institutional choice. Who will be making the cost benefit analysis? In tort courts assess technology all the time. (Comment: I see a connection here to preemption arguments increasingly made by defendants in cases where the FDA, FDIC, etc. have regulatory authority over the subject matter.)

The challenge now is layering safe harbors on top of the common law. YouTube is trying to avoid a safe harbor loss and thus overscreens. Third party organizations like the UDRP might do human screening. Effective screening leaves Viacom happy. The devil is in the details.

Lemley says this is expensive, but big rewards require big risks. You’ll need a significant legal staff. This is just a cost of doing business, and Google has the resources for it.

(Comment: Holy open source catastrophe, Batman! Bram Cohen does not have a significant legal staff, so bye-bye Bittorrent and whatever might have come after.)

We should also change the measure of damages so the risk is lower. Every company needs to find a balance with its lawyers.

Bartholomew: Intent in criminal law is a very high standard. We don’t want that in secondary liability; it’s impractical/manipulable. Nimmer gives a quick checklist of how to avoid Grokster liability. But we can still pay attention to knowledge, objectively. The more we pin down what direct infringement is, the easier it will be to decide secondary liability.

In criminal law, the intent standard requires the purpose of causing the commission of the crime, but there’s also a very low contribution standard: any act that helps/approves, like applauding or babysitting for the criminal. Bartholomew proposes using knowledge with a higher material contribution standard. Courts haven’t looked enough at causation.

Sharon Sandeen: There’s an existing model in trade secret in the UTSA: third parties are liable based on actual knowledge/reason to know of infringement. The nature of the IP affects what people can know. People are less likely to know trade secret status versus patent status, which they can search.

Lemley: Outside IP, it’s considered bizarre that knowledge of the legal status of the property is an element; intent to do an act is usually key.

Bartholomew: Likes the idea of continuum, depending on tech. An exact reproduction has a more concrete relationship to knowledge, but if you rely on remix contributions, the situation is different. (Comment: and which is YouTube?)

Kathy Strandburg: Is this one of the internet differences? We’re clear on what we don’t want elsewhere, but we are less sure about the underlying harm online.

Me: I think the internet makes more salient that we don’t always know what the harm is. It is simply more credible to believe that people would copy mp3s for free that they’d never, ever buy—a zero price is different in its effects on behavior from a pirate’s lower-than-legit price—so we can debate the magnitude of the harm. Likewise, the dirty little secret of eBay was that a big reason that a lot of “counterfeiting” was left over even after VeRo was that the customers were perfectly happy to get “Tiffany” jewelry on the cheap. Tiffany says, and the law agrees, that this is a harm, but there’s a big group of people who disagree.

Lemley: this is a version of the retail/wholesale problem.

Menell: Cablevision tried to separate the two—the copyright owners claimed they didn’t want to investigate whether it was fair use for individuals to use the remote recording service. But that’s part of copyright’s path dependence. O’Connor wrote in a memo for Sony that timeshifting wouldn’t be fair use if she thought people were skipping commercials. Menell thinks this is sensible, because that’s how we funded the business model. But now DVRs are morally acceptable. We’ve lost the ability to see the direct relation between institutions and creativity. Maybe we should tax DVRs.

Lydia Loren: She worries about raising the bar. If we talk about weighing Google’s screening in its favor, that creates barriers to entry: are we sure we want to impose them? Menell’s comfortable with pretty high barriers.

Lemley: Yes. In theory, if entry imposes social costs, they should be internalized, but people tend to overstate costs and understate benefits of new tech/markets. This is why safe harbors are better than Posner evaluating Aimster.

Menell: Is more agnostic. He can imagine very different institutional arrangements with ongoing evaluation of tech. Google Book Search creates an extreme barrier to entry, but it’s doing quickly what ASCAP took 20-30 years to do, and ASCAP created a lot of wealth. Copyright maybe worked better in an earlier era.

Markets surprise you—see ringtones. Guitar Hero/Rockband: kids pirate like crazy, but pay $3/4 to play along with a song.

Mark McKenna: DVR moves us from ads to product placement. It’s a question of whether content owners ought to have to adapt. Usually without force they won’t. TV won’t go away; it will change.

Menell: We’re creating distance between creator and consumer because of artificial price support with product placement. That’s not the art of a democratic society.

Me: At this point I have to say something: that’s not the only way you get creative content! There’s lots of creativity going on now, enabled by the very technologies Menell wants to shut down, and it’s odd to hear him talk about these technologies as anti-democratic.

Menell: Copyright and patent are about spurring investment. Some types of content are best supported by copyright—this was true of music until the last decade and it’s still true of movies (comment: for how long?). Professional creators are still the main influences on our kids and in culture. A guaranteed revenue stream is a way to get quality. (Comment: please define quality! I’m actually pretty sympathetic to this argument—I love plenty of Hollywood product—but that’s a preference, and not one unshaped by my surrounding culture; it is not an absolute measure of quality.)

Yen: Should there be uniformity across torts?

Bartholomew: Based on a conception of fault: is it worse to infringe a trademark or a copyright? Neither—we should take care of differences at the remedial stage. Vicarious liability is different: we should ask when a social problem exists such that we need to expand liability.

Me: Eugene Volokh makes an interesting point: there are variations in the knowledge required for underlying torts, such as whether the original speaker knew (or was recklessly indifferent) about falsity of a defamatory statement. The ISP is going to have a real problem assessing some of these, so the pressure will be to over-remove even if the safe harbor is supposed to be pretty nuanced.

Lemley: Vicarious liability has definitely expanded in copyright over the past two decades. Direct financial benefit has become indirect, or even a hope of future profit, and the right and ability to control has come to mean the ability to shut down the entire system. This is a big move from master/servant.

Uniform statutory safe harbors are different from the underlying standard. We should definitely ask what the importance is of being able to sue the secondary transmitter. If you can find the defamer, the need to sue the ISP may be reduced. Also, ease of implementation is an issue that needs working through.

McKenna: Courts have paid no attention to contributory versus vicarious; they’ve bled into each other. There is a danger of siloing IP from other torts: we’ve taken doctrines from tort wihtout their nuances.

Lemley: As a patent person, he’s noticed that when a case makes it to the Supreme Court, the fact that there’s a specialized rule for IP doesn’t seem to mean much.

Bartholomew: the expansion of vicarious liability in copyright is bad and was done in ignorance of its pedigree in tort law.

Lisa Ramsey: Copyright works may also have TM protection: this is an argument for uniformity.

Strandburg: Uniformity in IP might be the wrong question. Where do we need professional involvement? That might lead to nonuniform rules.

Lemley: If we build it, he worries we’ll reify existing categories. In 1995, we would have thought that the recording industry required professionals.

Me: I would take that in a different direction: eBay is subject to different employment laws, etc. than My Auction Site and its one employee. We might consider that, or we might reject that because one person can do so much more damage on the internet.

Delay proves monstrously fatal

Hansen Beverage Co. v. Vital Pharmaceutical, Inc., 2008 WL 5427601 (S.D. Cal.)

Hansen produces Monster energy drinks and other energy beverages, including the Hit Man “energy shot.” Vital makes REDLINE Power Rush! 7-Hour Energy Boost, a 2-ounce energy shot. Monster sued, alleging that Vital’s ads claiming “7 Hours of Pure Energy,” “7 Hours of Sustained Energy,” and “No Crash” were false.

The court found that Monster’s loss in an earlier case it brought precluded Monster’s argument that it was entitled to a presumption of irreparable harm (upon a finding of falsity). The court then found a factual dispute over falsity. Most generalizable finding: Monster’s delay in suing weighed against a preliminary injunction. Power Rush had been on the market since September 2007, and Monster sought the PI in September 2008. Monster argued that it only had reason to sue after discovering the falsity of the claims and investigating the market in July and August 2008. Nonetheless, the court took this as a concession that Monster knew about Power Rush for “at least several months” before suing, “regardless of its reasons for delay” (emphasis added). This bore against a finding of irreparable harm because it showed that Monster didn’t think Power Rush was a serious threat to its business for almost a year after it entered the market. Delays in requesting a PI, “whether for months or years,” tend to negate irreparable harm.

AALS: Art Law

Comic Art and the Law

Susan Scafidi, Fordham: She's interested in media that aren’t part of the traditional art world—quasi-outsider status and its effects on legal issues.

Ted Adams, IDW Publishing: Business approach to the law: spend as little money on legal as possible. Ideally: use consistent forms, for example when licensing creator-owned property.

IDW does Transformers, Dr. Who, CSI, and other big media properties, and thus doesn’t have leverage to require use of his own forms; he does have to use lawyers to check out those forms. From CBS’s perspective, it’s their boilerplate, nearly take it or leave it; ask for 15 changes, maybe get 3-5. The deal has a standard format: advance against a guaranteed royalty. Licensor wants as much upfront as possible, naturally. Royalty is paid on wholesale revenue ($1.60 of $3.99 cover price). No payment of royalty until the advance earns out, then paid royalties quarterly. At some point, if the guarantee hasn’t been reached, IDW has to cut a check for the rest. Has no in-house counsel.

Creator-driven titles are very different. As opposed to existing media properties with extant fanbases, unless the creator has a big built-in audience, the market opportunity is small. Comic shops are risk averse; they buy on a nonreturnable basis. IDW pays a page rate. IDW can also sell creator-driven material in other media. Because of its success, it’s swamped with possible content, and in the driver’s seat on the deal. Tries to sell feature rights, TV rights, etc.—sometimes to the same people it was licensing rights from, like CBS. With few exceptions, IDW wants business control though the creator gets to participate financially; the creator does not get to put the kibosh on a potential movie. IDW is represented by CAA in Hollywood.

Copyright/IP issues: They did a Transformers AU at the turn of the century in which Mark Twain appeared as a character; needed advice on any necessary rights. Likewise with comic book biographies of presidential candidates.

Jeff Trexler, Pace: Superman and corporate ethics.

Siegel & Shuster didn’t make much money off of their creation; the fact that they spent decades impoverished has been called comics’ original sin. They spent decades trying to get the Superman and Superboy rights back on various grounds, largely unsuccessfully, until last year when a court ruled that the Siegel heirs successfully reclaimed a share of the rights to Action Comics #1. Thousands of pages of court records.

Interesting tidbit: somebody else (Russell Keaton) drew a previously unpublished Superman origin story. In the 1970s, Siegel felt like a failure while DC was making millions; he sent a few pages to his daughter in hopes they’d be worth something. They were unpublished secret origins of Superman from 1934. There’s a picture of a little boy hugging a ship—but he is hugging a time machine, not a rocket machine—we’d screwed up the future Earth so badly that a scientist sent his son back in time.

By contract, Siegel & Shuster sold the character rights to Superman and agreed to a work for hire contract for future work, for $130. The popular story is that they couldn’t sell the story for years, and sold it because they were desperate. Siegel says they were given an offer in 1935, but didn’t sell it then because the real money seemed to be in newspaper comics, not comic books. Also, they didn’t trust the initial offeror. Detective Comics seemed more credible and fair later. They also (claimed they) thought that DC was only getting first serial rights.

Superman initially takes on bad businessmen and corrupt orphanage controllers. But he doesn’t make money off of superheroing; for that, he needs a day job. (Like many an artist?) Early on, in Action Comics #6, the Phony Superman, some slick comes in and claims to handle all the rights to Superman. Superman himself isn’t getting a nickel, and this theme of economic exploitation comes through a bunch of the comics. In about 10 years, they decide to challenge DC Comics’ ownership, and they lose spectacularly: they lose and their names are stripped from the books.

Changes later, as DC is shamed in the mid-70s: (1) The names get back on the book. (2) Even if an artist is doing work for hire, there’s a sense that the physical art is the artist’s. Claims to inherent right of the artist to get the art back—an “inalienable” right, now part of the standard contract. (3) Licensing rights are now well-known by creators. And this shows up in Action Comics in the 1980s when Superman gets a lawyer who handles his licensing and his tort liability. (That’s a flexible lawyer!)

Many complications in film rights/ownership. See the current Watchmen controversy.

Reflections on comics, art, and corporate ethics: (1) Art as something profoundly personal and creative: corporate practice should reflect the idea that comic art is profoundly personal (interesting to say this about Alex Ross, for example, who is working from Siegel and Shuster’s beginnings—I totally agree, by the way). (2) Art is representational and metaphysical, beyond physical laws, like Superman himself: it’s a profoundly human aspiration to go beyond our limits. Art’s liberation is its danger; like the corporation, art goes beyond what the human can do. (3) Art/comics are a time machine: we send things through time to each other. Our planet is in peril; we can’t send our kids back to the past, but we can plan for the future in terms of corporate responsibility.

Marc Greenberg, Golden Gate:

Comics, Courts and Controversy: The Cases of the Comic Book Legal Defense Fund

Intro note on “graphic novel” as controversial term, mainly used for marketing, but also helpful because it encompasses a broader range of material than traditional comics. A graphic novel is a sequential story told with both art and text. (See also $3.99 versus $19.95.) Another useful term: sampler, with excerpts from multiple stories.

Legend Comic Book Store in Rome, Georgia: Halloween 2004, a kid gets a 2-page excerpt from a graphic novel, The Salon, as part of a sampler. Amazon.com describes the storyline: modernists discover a stash of blue absinthe that allows drinkers to travel inside painters and may be a clue to the demonic force that’s been killing avant-gardists. One of the pages of the sampler features naked Picasso, having been interrupted while masturbating. There’s a lot of sexuality in the graphic novel, but the sampler just has 4 panels of nudity. The boy’s father filed a police complaint. The comic store owner, Lee, admits it was a goof; the sampler shouldn’t have been given to a 9-year-old. He was arrested and charged with distributing obscenity to a minor, possible sentence 21 years in prison.

CBLDF steps in to defend; the prosecution dismisses most of the counts. Then the prosecution dismisses the entire case, on the ground that it wasn’t the 9-year-old who got the book, but his 6-year-old brother. So they refile the case. Then the prosecution dismisses again, and refiles again. By now it’s Nov. 2007; CBLDF has found Lee has a prior conviction for selling to an adult, and files a motion in limine, which is granted. At trial, the prosecutor alludes to the conviction in the opening statement; mistrial granted. April 2008, prosecution gives up. $100,000 in defense costs.

New battle: Christopher Handley and the PROTECT Act; Handley faces criminal penalties for possessing manga. Some manga is pretty explicit. Handley is a collector who orders from Japan. Postal inspector has gotten a warrant, fearing obscenity, and they arrest him. 1200 books seized, along with 7 computers. CBLDF is a special consultant to the case. This is possession for personal use in his own home, which has profound implications for comic book collectors and avant-garde art enthusiasts in general.

Defense moves to dismiss, and court finds two sections of PROTECT Act unconstitutional because they don’t require an obscenity finding, whereas two sections do and can go to trial. What about Stanley v. Georgia, which says possession of obscene material in the home doesn’t violate the law? The court says there’s no defense because Handley is charged with receiving the material and he was arrested before he got home. How then do you get the protected material to your home? (My answer: you make it, obviously.)

Finally, a tax case: Paul Mavrides cocreates the Fabulous Furry Freak Brothers, and the Cal. Board of Equalization took the position that when he finished the panels of the comics and sent them to the publisher a commercial sale had taken place and he had to pay sales tax. He took the position that a writer sending a manuscript in wouldn’t be taxed; finally the Board agreed with him. That’s a preview of the CBLDF’s work.

My presentation:

Comic art is troublesome for courts because it is in many ways uncanny, boundary-crossing, which is related to its culturally fraught status. Comic art combines text and images, and courts have very different relationships to text than to images.

With texts, courts feel both expert and worshipful: text is transparent; courts have many tools to interpret it; and when it comes to free speech claims, courts are reluctant to condemn texts because, having a sense of how words operate, courts believe that words alone rarely do harm.

Thus in Whorley, the recent 4^th Circuit child porn case, the dissenter objected that text-only emails shouldn’t be prosecutable as obscene because of First Amendment principles, but reasoned separately on the images, relying on statutory interpretation to exclude anime from the scope of the statute. The dissenter said, “[t]he ability to consider and transmit thoughts and ideas through the medium of the written word is an attribute unique to humans.” (Representational drawing, by contrast, is widely practiced in the animal world.)

To the dissenter, the text of the emails contained protected ideas, according to the dissent, but there was no sense that the images might have done so as well. “Imagining” and “fantasy” were words the dissent used about the texts, but those terms are equally applicable to drawings; giving them different levels of First Amendment protection needs some other justification. Visual art, I suspect, seems to many people be more than fantasy, closer to an act.

With images, courts are more deeply divided against themselves, because images do not readily translate into the kinds of manipulable words with which courts are so comfortable. So we see two reactions: first, treating images as mystical in their operation on human minds.

We think that images and words bear different relations to true reality. So, in McEwen, the Australian case about Simpsons porn, the judge concluded that “all persons depicted in written works are necessarily imaginary” because their images exist only in the reader’s mind, whereas an image can present an actual person or an imaginary one. This collapses images of people (whether on paper or in the viewer’s mind) into the real people themselves.

This magic-spell quality of images is a major component of obscenity law, but it’s also apparent in copyright discussions of substantial similarity. Substantial similarity in the visual field just is; there is no way to break it down or describe it. Similar things happen in music, but it seems that courts are much more willing to accept testimony about musical components than about visual components. And this is related to the second reaction: treating images as, fundamentally, less important than words, because their impact is gestalt-like, irreducible to words. Again, obscenity is a good example, but I think copyright’s willingness to tell artists to express themselves differently is also implicated here: there’s no sense that there is an expressive harm in telling an artist that s/he has to do something significantly different from Steinberg’s New Yorker’s eye view of the world.

Bringing it back to comics, I think comics make for hard cases because of the image/word conflict. They aren’t novels, so they don’t get understood as high-status and transparently meaningful. They aren’t pure visual art, so they don’t get the insulation of the transcendant power of nonverbal art. They are halfbreeds and they get treated as such, especially when a court is focused on the issue of profit.

Doe v. TCI is a terrible case in many ways, but what I want to focus on here is the way in which the Missouri SCt used the test it set out, which was: “If a product is being sold that predominantly exploits the commercial value of an individual's identity, that product should be held to violate the right of publicity and not be protected by the First Amendment.” And somehow the court found that Spawn was predominantly an exploitation of Tony Twist, even though he was a minor character. The court was implicitly defining a subset of Spawn as the product. Speculating, might have it been aided in this definition by an image of comics as not really art? The court referred neither to the plot of Spawn nor to its visuals, neither of which bear any relationship to Tony Twist the hockey player. Likewise, the analysis may have been complicated by the rise of transmedia storytelling in which the boundaries of a particular narrative are very hard to define, so the uncanniness of comic art may be the prototype for things to come.

Of course there’s a directly contradictory comics case, Winter v. DC, decided under California law using the transformativeness test. But is transformativeness a better test for comic art, or just a different test?

Let me contrast Doe v. TCI to a hypothetical I use in class: Brian Michael Bendis’s portrait of Woody Allen, which I use because Allen has won some significant right of publicity cases and also because it’s a standard portrait, done in charcoal, that seems therefore to fall right within the Saderup boundaries for what violates the right of publicity in California.
So, can Bendis sell his prints of Allen? Bendis makes a particular artistic claim: drawing Allen helps him understand Allen’s art. Should we defer to the visual artist on this point? I’d like to say we should, but I’m not at all confident that a court would. And if a court would, is it because Bendis has use words to explain his visual art, the way Jeff Koons finally did?

Another example of the way that mixed forms like comics distort legal analysis comes from McFarlane v. Gaiman: Mixed media get special treatment in joint authorship, favoring the user of words over the visual artist. Judge Posner was explicit that “mixed media” such as comic books and motion pictures were to be treated separately, because the “author/writer” figure might just tell the artist what to do in such an abstract way that his contribution wouldn’t be copyrightable alone, and then the artist might just comply in such a noncreative way that his contribution wouldn’t be copyrightable, but the result would be copyrightable and so that result would be silly. The “nature” of the comic book writer’s contribution is not copyrightable because the result is a joint product, comprising the contributions of the writer, the penciler, the inker and the colorist.

One wonders exactly what kind of motion picture or comic book Posner was imagining, entirely composed of scenes a faire components that together were more than that. In the specific case, there was no contention by anyone that the drawings were stock or otherwise uncopyrightable; if the artist had just done a painting of Cogliostro, it would have been copyrightable without any of Gaiman’s character-building behind it. Peter David might produce a full script for a comic book, but that doesn’t make Neil Gaiman’s suggestions to the artist copyrightable just because writers can make specific contributions.

Posner clearly distinguishes words and images, favoring the former in several ways. He distinguishes the Sam Spade case because “the description of a character in prose leaves much to the imagination, even when the description is detailed,” whereas that’s not true of visual images. Take a look at some images of Cogliostro—yeah, nothing left to the imagination there.

Posner says, ignoring generations of Star Trek and other audiovisual media fans, “A reader of unillustrated fiction completes the work in his mind; the reader of a comic book or the viewer of a movie is passive. That is why kids lose a lot when they don’t read fiction, even when the movies and television that they watch are aesthetically superior.”

So, Posner concludes, the stock character description provided by Gaiman became copyrightable when he was drawn and named and given speech. Gaiman’s contribution, however, made Cogliostro a character and not a drawing. Gaiman’s contributions were “quite equal” to McFarlane’s, according to Posner, even though they were just ideas. When there’s a conflict between words and artwork, words get priority, even when they’re stereotypical, just because they’re words.

Solutions? Possibly none, other than turning judges into art critics, which has problems of its own. We can’t expect the law to treat comics better than the culture at large does.

Lemley: What explains our different views of text and images? Is there a way to distinguish comics from more representational images (photos)?

Me: Not sure we can say—we can talk about brain scans, but I don’t think it gives us much help to say that the brain processes images differently. It’s cultural, and there are a lot of cultural anxieties about literacy bound up in things like Posner’s reaction.

Greenberg: The art world distrusts comics because they have text—consider it a lower form of art. (This gets to my uncanny/hybrid point.)

Ann Bartow: Consider how technology treats text and images differently. Computer screening for text is much more advanced than for images—screening for images often looks at the words surrounding the images to figure out whether to screen it out.

Trexler: recommends Barbara Stafford’s work on the philosophy of texts v. images. Reformation idea: use of icons by Catholic church was accused of manipulating people. Text was more intellectually trustworthy; images were for children. You still see this idea when comics are defended as gateway drugs to text.

Adams, in response to Q about whether transmedia licensing means that the derivative works right is justified as an incentive: Artists have been sophisticated about licensing across media for decades—Siegel & Shuster knew what they wanted; Bob Kane actually got it. When someone enters into a work for hire agreement to make a comic, they usually know what they’re doing.

My thought: Trexler emphasized the extent to which an artist is doing something intensely personal, whereas Adams emphasized the extent to which s/he is participating voluntarily in a larger business structure. These are both true, and we don’t have good ways to talk about the ways in which an X-Men fan can be producing personal art even though s/he didn’t create the characters.