Friday, April 30, 2010

The future of journalism conference

Future of Journalism: Unpacking the Rhetoric, liveblogged by the Stanford Center for Internet & Society if you want a different take from mine, or if you just want notes from my panel, where vigorous debate kept me from taking many notes.

Panel #1: Tenet = Professional journalism must be saved.

Moderator: Ann Grimes, Stanford University: What does “professional journalism” mean? Freedom of the press belongs to those who own one, said AJ Liebling; but now many of us do, so many people think that anyone can be a journalist. Is that true? Standards of ethics: primary purpose is to inform people and enable them to make judgments. Bring independent scrutiny bear to the forces in power, including government. Avoid impropriety/conflicts of interest or appearances thereof. Truth and accuracy. Present all sides fairly. Correct mistakes promptly and prominently. Respect the rights of people involved in the news. Persons publicly accused should be given opportunities to respond; promises of confidentiality should not be given lightly and should be honored.

Panelists: Phil Bronstein, San Francisco Chronicle

Value of professional journalism is specialization in information collection & presentation. Trained to be skeptics in the extreme. Know how to go beyond opinion, solve mysteries. Use data to create something more useful. Free press produces results, which is why people in power fear investigations. You need an organization willing to spend millions of dollars defending its reporters against, say, Bush administration investigations, or claims by the Catholic church when the sex abuse investigations go on. Wikileaks did a great job getting & posting the Iraq shooting video, but you need contextualization from folks like Mark Bowdoin. Wikileaks is not yet proved sustainable; we don’t have a replacement for professional journalism. Jefferson deplored the state of newspapers in his time, but still lauded their necessity. (Newspapers are the worst form of journalism except for anything else that’s been tried?)

Grimes: Can networked production take the place of the existing system?

Dan Gillmor, Arizona State University: No one is talking about deleting professional journalism; we’re moving into an ecosystem that is much more diverse and in the end much healthier for reasons that biologists would explain about ecosystems: monocultures are dangerous. Rather than collapse, what he sees is birth/growth. We are going to lose some things we’ve had, at least temporarily. But the accountability in journalism that people talk about was never even close to pervasive. We may have a better chance of getting accountability at many levels. Baseball analogy: we’re at the top of the second inning. So concern about what we’re losing must be balanced with recognition of opportunity.

Joan Walsh, Salon: It’s not either/or. The business model may be dying, but we have some ideas. Salon broke a number of stories, including ones on Walter Reed—arrogant mainstream media (Washington Post) thinks it doesn’t need to credit other sources.

John Nichols, The Nation: Can’t figure out what a professional journalist is. Journalist is a person who finds out something other people might not want you to know. Platform superiority debates are just silly.

Whether you’re going to have journalism for the past century has been defined by whether it’s going to help a rich guy make money. So we have ads or other forms of begging for money. Problem: the ads have left the field. Smartest people in the world go around trying to figure out how to get the last remaining dollars from the papers, TV, etc. The notion that the ads can come back is absolutely comic. Must construct post-commercial journalism.

Jefferson & Madison weren’t excited about a commercial media system. Jefferson prefers newspapers to government, but he has a reason: we need different voices so that citizens can govern themselves, as opposed to Europe where the rich have always controlled the poor. So the Founders massively subsidized journalism, with postal subsidies worth $34 billion in today’s dollars; 90% of the postal system was newspapers. This produced diversity, democracy, dissent: subsidy went to everybody, including dissenters. Virtually every other developed country does something like this; we’re the only ones clinging to a commercial media system. Britain spends $80/person, Canada $27/person, and those are the stingy ones. The most free countries in the world, ranked by the Economist, are the places with the highest journalism subsidies. Commercial media is also most free in countries with the greatest media subsidies: Scandinavian countries, etc. If you wait around for a rich guy to give you journalism, you will have neither journalism nor democracy.

Gillmor: Nichols is right about the republic, but disagrees about subsidies, which have gone largely to creating media institutions in a market where there are high barriers to entry because of infrastructure. The equivalent subsidy: build out broadband everywhere and let other people light it up—like postal system and roads. But does not want to let the government pick winners. And we will have some ad-based models still. Would much rather see subsidy for laying the groundwork and letting others build from that.

Bronstein: expresses worry about the single big favor that journalism had, the antitrust exception, which was a disaster in terms of allowing consolidation.

Walsh: It always comes back to rich guys, in the nonprofit sector or the government—because it’s the government allocating the money (not the taxpayers—us—paying for it).

Nichols: The money just isn’t there in many of the creative, hopeful models we see. We use the word “subsidies” because it scares people. But we have subsidies right now, all over. $400 million, a tiny amount, to community/public broadcasting in small towns. When we talk about subsidies, there are all sorts of ways to do it: supercharting public broadcasting ‘til we at least get to Canada’s pathetic levels. Supporting the generation of young journalists—Write for America, sending journalists into underserved communities to work with public radio etc. There are lots of models around the world that are working now for vibrant democracies. It’s about barriers to entry, yes, but the entry he’s worried about is putting food in journalists’ mouths. Why take 90% of solutions off the table and wait for the rich guy?

Bronstein: worries that subsidy would stifle innovation.

Nichols: we agree that the models are exciting, but what they are generally having trouble answering is the question of where the money will come from, and you seem to agree. Isn’t worried about stifling journalism with subsidies; it’s the lack of money that stifles—we see the press doing lousy jobs all over. We need radical solutions. If you put democracy on hold—wait around until we figure out what to do—that’s a problem.

Bronstein: recall that journalism was solidly blue-collar for most of the twentieth century, deeply underpaid. And now we’re used to being solidly middle-class. We’ve been detached from reality in several ways. We’re going to have to become blue-collar workers, perhaps in the extreme. And at the same time the professionalism needs to be higher.

Q: Copyright previously supported the marketplace of ideas through the exchange of tangible goods. With digital media, the creative products are public goods; people expect them to be free. Subsidies might be a different way of funding; the demand/interest is there, but people don’t pay on a per unit basis. What role for copyright?

Nichols: Gene Baker (sp?) has a great idea—giving every citizen a voucher to direct at any source s/he wants, in return for making the information public domain a day after publication. Buy out of copyright up-front rather than hoping to get money back over long time. That’s just one subsidy notion.

Walsh: we are trying lots of experiments: partnering with nonprofits, raising money for specific projects, getting people to give us money (I am actually one) because they love us (and because they/I want to read Salon without the ads) even without a pay wall.

Nichols: St. Petersburg Times model: a trust owns the paper. Profit-seeking but not necessarily profit-making: sustaining itself at a low profit.

11:15 a.m. – 12: 45 p.m. Panel #2: Tenet = Information wants to be free.

Moderator: Anthony Falzone, Stanford Law School

Me: I’m here as a pointy-headed legal academic and amateur journalist on matters IP-related. When I was given the title of this panel, I only agreed to come on if I could attack it. Information doesn’t want to be free. Information doesn’t want to be in chains. Information doesn’t want anything. People want things, and shape institutions to do those things. Reifying information will do us no good and may do us damage, especially when “information” may not be the best way to describe what we want from our institutions.

People can get and retransmit the news really easily. They can put the news up on their blogs and run ads on their blogs or run ad-free blogs; either way, they may provide enough news that people don’t click through to the original reporting website. If people had gone to the original website, they might have clicked on the ads, making some money for the site operator and thus contributing to the payment of actual reporters. This kind of copying looks like “free riding,” and so one impulse is to say that there ought to be a law: a right of original reporting entities to prevent others from copying their reporting, at least from a little while. In its present incarnation this is known as misappropriation, specifically misappropriation of hot news. There are proposals to modify the doctrine by adding some new rights too.

Holmes dissenting in INS v. AP, “Property, a creation of law, does not arise from value, although exchangeable--a matter of fact.”

Why I am cautious about property rights as remedies for the problems of journalism: rights aren’t value. We’ve seen this already in the news business with NYT v. Tasini. Tasini won a copyright infringement claim, under current law, such that the NYT’s business practices for the years since 1978 with respect to freelance articles were determined to have been infringing. What the plaintiffs wanted: continued presence in the database, with continuing royalty. But having a copyright right didn’t help them with that, because no law required the NYT to keep their infringing articles in the database, and in fact the ordinary consequence of an infringement finding would be removal. The database was sufficiently valuable without the freelance articles, and the presence of the articles in the database conferred benefits on many freelancers—so the NYT was actually able to propose a different trade: you waive your copyright claims against us and we’ll keep your articles in the database. And the fact that this was a rational deal for many individuals illustrates the challenge: you can have a right, but it won’t matter if the person you want to pay you for that right doesn’t value it as much as you do. Settlement even now contemplates a one-time payment and continued presence in the database, without royalty.

Same pattern in photographers’ litigation against Google Books: photographers want to be in the settlement and get continuing royalties. But Google thinks the database is sufficiently valuable without them: proposes not to put pictures in the books made available under the settlement unless the publisher owns the rights. Again, it’s clear that no extension of copyright is required to give the photographers the rights. The problem is lack of economic power.

If the problem is monopoly, leading to the Hobson’s choice of “be in our index for free or be out,” then that’s what legal reform should address. But even if Google turns into a common carrier, it’s still going to be hard to tell Google to pay—we don’t generally make our common carriers pay for the traffic they carry. So Google is still free to say that it will either index your news or it won’t.

A related concern is that, now that everyone’s producing information, it is extremely difficult to target a right in information that would help the institutions we think of as news organizations without substantial inefficiencies in other areas.

Already, we’ve seen that sports organizations and an investment bank have been key hot news plaintiffs: these allies suggest the challenge of constraining rights and the problems with the fit between propertization of information and survival of newspapers as we know them. The NBA is happy to see itself as a competitor to the NYT, as is the investment bank—an example often used of a real threat is the Acorn pimp guy, who is even kind of a journalist and would likely be happy to use hot news to constrain who can report on him. An example from patent: NPEs, using patents not really as intended but nonetheless as allowed by the law. People are really, really good at thinking of business models that depend on leveraging legal rights, even when those lead to overall inefficiencies.

Information doesn’t want to be free: but putting a price on it may just leave a lot of it on the shelf.

Alan Murray, Wall Street Journal: Pro journalism is in jeopardy. Economic dilemma not unique to journalism. Marginal cost of distribution is zero, so the neoclassical pricing model doesn’t work. Erroneous decision made 15 years ago by ad-fat organizations to give news away free. Most people now realize internet ads only won’t work, and maybe shouldn’t—advertisers are interested in audience, not quality journalism. But unfortunately people are giving away too much free. It will be a jarring change to use a pay wall, and until then professional journalism is in jeopardy.

Josh Cohen, Google News: Digital distribution has challenges all over, agreed. Nature of the content. He thinks the decision wasn’t just not to charge—competitive advantage in means of distribution. Buffalo: one source of Washington/foreign coverage. The internet blew the doors off of that little monopoly model. Pay walls, when there are other sources a click away and maybe with better information, are hard to maintain. Local monopoly (cross-subsidization) is now gone. Some publishers, like WSJ, can do a pay wall, but you need to provide unique value.

Falzone: there were certainly glory days for newspapers. What made them glorious? Is free content the only thing causing problems? If not, then we need multiple solutions.

Cohen: We need to discuss aggregation/indexing—there is a difference between showing a link and copying a whole article.

David Marburger, Baker Hostetler: To get the news to you, TV station has delivery costs even without journalists: transmitter; FCC license (which is hard to come by), other capital costs. Same with newspaper, which has unions running presses and delivering papers by truck. Far exceed journalistic costs. Cleveland Plain Dealer had 450 journalists last year, then fired about 150. Online, you don’t have those capital costs—can’t you compete with news organizations all over the country? We aren’t seeing digital journalism running the institutional press out of business that way because it doesn’t make money. All the competitors see they can take whatever the NYT puts online and rewrite the best stuff very inexpensively and put it out in the marketplace at the same time, competing with them for advertisers and readers. I can trade on their reliability. It will drive them out of business. The reason you don’t see 300 journalists being hired is that there’s no point in investing in creating one’s own reliability brand. That’s why there’s an enormous influx of online news websites that don’t originate much of their own news. Virtually no influx of originators of news with variety and range of the WSJ. There is an influx of non-news originators who deal in news content. But they compete against each other driving down ad rates, so it’s not worth it. (This is not consistent with my experience, but maybe I am missing this incredible proliferation of news sites that don’t originate any of their own news. And I do read Slate’s Slatest.)

Cohen: Overly simplistic to say that there’s a WSJ and a bunch of free riders. Underestimates innovation. There are some rewriters out there, but also innovation. Ad rates are lower, but there are a number of different causes, including greater measurability v. smoke & mirrors over how ads were priced in the past. Other causes: classifieds, 40% of revenue.

Murray: if you could through legal means put aggregators out of business, it wouldn’t have much effect on ad rates. Advertisers can find cheaper ways to find audience than via quality journalism. Also, the Plain Dealer puts its stuff online for free, which means there’s no incentive to compete anyway, even without the aggregation. WSJ shows people pay for valuable and unique content, even when subject to aggregation. We have 1 million subscribers.

Marburger: billboards used to be nondigital. If every billboard is digital, ad rates go down. Supply and demand: oversupply of ad space.

Then we fought and I didn’t get much down. Maybe the liveblog would be of use.

Cohen advocated reimagining the format of news, reaching readers in new ways—allowing contributions, rejiggering the website so it’s a fundamentally different experience than the printed paper.

Marburger: so I have an innovative format and it attracts readers, people will see that I’m getting readers. If the law allows other people to simply lift it, why won’t they do it?

Cohen: innovation is broader than the idea. (What’s the “it” being lifted?)

[cue more fighting]

Google News delivers a billion clicks to news sites a month—gets value from news sites, but also gives value to them.

Murray: it’s hard for any one of us to say we’ll pull out unilaterally. If a bunch of us do, then Google may have to rethink its willingness to pay.

Second Circuit reverses Salinger, applies eBay

Pretty much what it says on the tin. Some nice language about the public's independent First Amendment interest in receiving expression, which is especially important in transformative use cases. The Organization for Transformative Works submitted an amicus brief in support of reversal along with the ALA and other free speech organizations.

Revealing source of private label product may be misappropriation

Guidance Endodontics, LLC v. Dentsply International, Inc., 2010 WL 1608949 (D.N.M.)

Guidance is a small endodontic-equipment company, and Dentsply is both a competitor and a supplier. Dentsply is allegedly one of the largest firms in the field; its competitive products include obturators (for filling holes in teeth), files (for cutting away parts of teeth), and ovens (for warming some obturators to make the filling material malleable), which are used in root canal surgery.

Guidance uses the trademark OneFill for its obturators, which must be heated before use. Dentsply’s obturator is called ThermaFil. Other competitors use the names SuccessFil and Quick-Fill (an example of the general rule that marketers prefer descriptive terms to arbitrary/fanciful ones).

In 2008, the parties entered into a manufacturing and supply agreement whose contours are contested. Allegedly, Dentsply agreed to manufacture all Guidance’s proprietary products and Guidance agreed to purchase all its requirements for such products from defendants. The supply agreement allowed Guidance to use the OneFill mark. It allegedly required defendants to make files or obturators that were improvements or successor products of similar design to the Guidance files or obturator, as long as Guidance presented specifications.

The defendants alleged that Guidance represented to them that Guidance wouldn’t attempt to trade off their goodwill in the dental community, nor would Guidance market its products for use with Dentsply/defendants’ products, nor would it tell its customers that defendants manufactured the Guidance products, though the court noted that the supply agreement doesn’t contain any of these representations.

Defendants eventually refused to supply obturators on the ground that Guidance had violated the supply agreement and the Lanham Act by doing things like telling people that defendants made Guidance’s products and saying that Guidance obturators were the same as ThermaFil obturators. The parties couldn’t work things out, and this suit followed.

The Lanham Act counterclaims were based on the first version of Guidance’s marketing materials, including a brochure promoting the full Guidance line, a 2-page mailer marketing the EndoTaper files, and two versions of a 2-page mailer marketing the OneFill obturators. Though Guidance has revised the materials, there is still some “offensive” language—reference to a “Thermal Filling Obturator”—in the current mailer. Guidance also advertised OneFill, its heated obturator, as “the Best Thermal Filling Obturator System in the World.” It’s the same obturator as Densfil and Thermafil.

Anyway, the court found a triable issue on the Lanham Act false advertising counterclaims, but only as to two statements. The complained-of statements were (1) OneFill is the “World’s Best Thermal Filling Obturator;” (2) OneFill is the “Best Thermal Filling Obturation System in the World;” (3) “EndoTaper Complete is the best Endo System in the World;” (4) “EndoTaper is the Best NiTi File System in the World;” (5) “[n]ow you can treat every case better, quicker and safer with EndoTaper;” and (6) EndoTaper “files can be used like ProTaper F1 to F5 or used in a Crown-Down like ProFile, GT, Endo Sequence, or K3 to create the perfect canal shape more efficiently and easier than any other file system.” However, Guidance admitted that EndoTaper does not always create the perfect canal shape.

As you might imagine, puffery was a key defense. Context matters to determining puffery, as does the relative expertise of the speaker and the listener. The size of the audience is another factor: “the larger the audience the more likely it is that the statement is puffery.” (This thought has to be taken with a grain of salt, like most ads—given that the Lanham Act covers only advertising or promotion, interpreted to require reasonably wide distribution, there’s no reason to presume that mass advertising is nonfactual just because it’s mass, though that may have an impact on whether specific language in an ad should be understood in a technical or a general sense.)

Anyway, the first four statements were puffery; the last two were “probably not,” presumably meaning that Guidance could still argue puffery to the factfinder. The first four are all “best in the world” claims, the “quintessence of puffery” given that “[w]hether one thing or another is the ‘best’ is a normative assessment that involves weighing potentially infinite and sometimes immeasurable factors.” Likewise, these statements were made in marketing materials, “wherein a seller is expected to cast his wares in the best possible light to tempt consumers to buy his product rather than any other.” (Again, I’m not sure how to square this factor with the “advertising or promotion” limitation—perhaps the idea is that if a sales pitch is supposedly individualized, involving interaction with a human salesperson who promises that some product or service is the “best,” there may actually be an implied factual representation that the salesperson has considered the customer’s specific needs, in which case “best” might be nonpuffery. But it doesn’t seem that factual statements should become less factual merely because they’re widely disseminated.)

Guidance’s consumers are relatively sophisticated and should have substantial experience with endodontic products. “Finally, because these statements were made in advertising, the audience is about as large as it can be under the circumstances.” (See above.) In combination with the “distinctly subjective” nature of the term “best,” this reinforced the court’s conclusion on puffery.

The fifth and sixth statements also involved superlatives: EndoTaper was “better, quicker and safer” and EndoTaper “files can be used like ProTaper F1 to F5 or used in a Crown-Down like ProFile, GT, Endo Sequence, or KS to create the perfect canal shape more efficiently and easier than any other file system.” The court found the matter sufficiently close that the counterclaims should not be dismissed as a matter of law. A reasonable consumer might believe that “more efficiently,” “easier,” “quicker,” or “safer” could be true, and these attributes are also potentially testable. In fact, a consumer might believe that tests had been done, though defendants alleged that Guidance had no testing to back up its claims.

Because defendants alleged literal falsity, they did not need to provide evidence of actual confusion.

The court also denied summary judgment on defendants’ counterclaim for infringement of their Thermafil mark. Defendants have an incontestable trademark in Thermafil, which was apparently registered without proof of secondary meaning (though if the mark is suggestive, then its incontestability is somewhat meaningless, since incontestability is about precluding invalidation on grounds that the mark is merely descriptive). It is widely recognized in the trade, as Guidance knew when it adopted the term “Thermal Filling” for its marketing materials.

The court found that, while the confusion factors weighed in Guidance’s favor, that weight was not so heavy as to take the issue from a jury. On similarity specifically, the similarities between Thermafil and “Thermal Filling Obturator” and “OneFill Thermal Filling Obturator”—used in Guidance’s advertising materials—needed to be assessed by the jury. There were substantial differences in number of words/length, leading to differences in sound; but there was also substantial overlap, and similarities are generally to be weighed more heavily than differences. This factor wasn’t a slam dunk for either party. Nor were the remaining factors enough help to allow Guidance to win summary judgment. (Surely descriptive fair use is a viable defense here; even if the portmanteau Thermafil is (barely) suggestive, “thermal filling” seems a quite succinct description of what it is that a heat-activated obturator does.)

Likewise, there was a factual issue on defendants’ common-law unfair competition claim. The court first considered whether New Mexico would recognize common-law unfair competition, given its pervasive statutory scheme for regulating deceptive practices. In the end, the court allowed the common-law claims based on false advertising to proceed. (I always wonder: Why do people argue these claims, only to conclude that they stand or fall based on the resolution of the statutory claims? If everyone agrees the standard is identical, why are the lawyers and courts spending the resources on such repetition?) The court found that the New Mexico Trademark Act preempted common-law trademark claims, but then interpreted the counterclaim as asserting a statutory trademark infringement claim identical with the Lanham Act claim.

New Mexico also has a statutory dilution cause of action for marks famous in the state. Guidance got summary judgment because Thermafil wasn’t sufficiently famous. Defendants didn’t submit evidence about the fame of the mark in the New Mexico endodontic market; and in any event there was no reason to think that New Mexico, which uses federal law as persuasive authority, would recognize niche fame.

Defendants lacked standing under the state-law Unfair Practices Act claim, because they weren’t consumers of Guidance’s products, and only consumers are intended to be protected by the law. (Though the court’s section heading suggested that they could get injunctive relief; I’m not sure what happened there.)

The court further held that defendants had raised a factual issue on their claim for “misappropriation of reputation, goodwill, intangible trade values, and standing in the dental community.” New Mexico, the court held, would follow the Restatement (Third) of Unfair Competition, which provides for a misappropriation cause of action in certain circumstances.

The misappropriation was that Guidance told its customers that Guidance products were repackaged Dentsply/etc. products. “Repackaged” is the court’s term; the counterclaims say that Guidance “[told] potential customers and existing customers that Dentsply/TDP made the Products and that the Products were the same as Dentsply/TDP’s products, and [ ] market[ed], promot[ed], and [sold] the Products for use with systems offered for sale by TDP.” One of defendant’s witnesses testified, “Not only have they not taken reasonable efforts [to avoid disclosing the terms of the Supply Agreement], but they have overtly gone to their customers and misappropriated the image of Dentsply and told customers that these products are manufactured by Dentsply. … [T]hey took the opposite of reasonable efforts on the confidentiality agreement, and disclosed this.” Defendants took the position that Dentsply has an excellent reputation, and that Guidance misappropriated Dentsply’s brand without paying for that right in the agreement.

The court thought that this testimony could establish that Guidance used defendants’ name for purposes of trade without consent, as barred by the Restatement.

What about nominative fair use? There doesn’t seem to be any contention that Guidance was saying anything untrue; on these facts, it’s a reseller, and resellers generally get to say what it is that they have to sell—no matter how good the reputation of the manufacturer is. In fact, we usually think that resellers who tell the truth about what they have to sell enhance efficiency. Defendants make the products, but don’t want people to know that they do, a not-unknown situation in private label manufacturing more generally. Is this interest in misleading consumers about what products defendants make one that we want to allow trademark/unfair competition law to support? (Shahar Dilbary has a paper related to this.) How can it be misappropriation to tell the truth? Shouldn’t breach of contract, if any existed, be the only remedy?

On your radar: false claims of legal compliance actionable

American Traffic Solutions, Inc. v. Redflex Traffic Systems, Inc., 2010 WL 1640975 (D. Ariz.)

The parties compete “for contracts with state and local governmental entities to provide photographic traffic enforcement service” using both competitive bidding and direct negotiations. They offer radar units, which are regulated by the FCC to prevent interference with radio frequencies. Some radar units need FCC certification before they may lawfully be operated. From 1999 through 2008, Redflex’s units required, but lacked, FCC certification.

ATS argued that Redflex knowingly failed to comply with FCC regulations and falsely advertised its services to obtain government contracts, misrepresenting its compliance with applicable laws and approval by the International Association of Chiefs of Police (IACP). Its standard contracts promised to comply with applicable laws; its proposals generally promoted its ability to use its systems legally, its compliance with applicable laws, and the lack of legal risk to entities using its services. Some proposals also promoted IACP certification; there was conflicting evidence over whether this implied FCC certification. Redflex promoted its uncertified radar units at six trade shows and issued press releases about recently awarded contracts without mentioning its noncompliance.

ATS didn’t pursue contracts with 23 of the 36 entities about which evidence was submitted. ATS decided not to submit proposals to 11, while 12 negotiated directly with Redflex. The court held that, though the parties are the two principal competitors in the feild, ATS lacked standing as to the 11 instances in which ATS didn’t pursue a contract. ATS argued that its decision was caused by Redflex’s conduct, with testimony from its executives asserting that they would have bid for those contracts had they known that Redflex lacked FCC-certified radar units. The court held, however, that this wasn’t a “causal connection” between Redflex’s conduct and ATS’s ability to compete. A plaintiff who “independently decides not to participate” in a market can’t show a discernibly competitive injury. (I’m not sure why, other than disbelieving the executives, one could conclude that there’s no causation. The testimony seems like a story about but-for causation. Perhaps there’s some thought that there’s daylight between Redflex’s allegedly false advertising with respect to FCC certification and ATS’s knowledge about the lack of certification, which could have been acquired in other ways than being exposed to (and being misled by) Redflex’s ads.)

The court rejected Redflex’s argument that ATS should have exhausted available administrative remedies for protesting bids before invoking the Lanham Act. ATS wasn’t contesting the validity of the contracts.

Next, the court limited ATS’s claims using “commercial advertising or promotion.” A reasonable trier of fact could conclude that disseminating contract proposals to eleven governmental entities was promotion in the industry. (Why so limited? The question is whether Redflex was engaging in commercial advertising or promotion. That question is answered by looking at the scope of Redflex’s promotions—even if it wasn’t in competition with ATS, it was still, from what I can tell, making the same claims to many more entities. Damages may be limited to those eleven, but that’s not the same thing.)

However, some statements weren’t made for the purpose of influencing a purchase. The terms of the executed contracts were therefore not advertising or promotion.

Redflex next argued that it didn’t make any specific claims about FCC certification or affirmative statements that its services complied with applicable laws. The actual language used in its proposals “includes repeated references to legality, compliance, and the absence of negative legal judgments and legal risk resulting from defendant’s services.” A reasonable factfinder could find these statements false.

Redflex contended that statements about compliance with applicable laws are just lay statements of legal opinions, not statements of fact. But if there is a clear and unambiguous rule, there can still be falsity. Likewise, Redflex’s statement about future compliance in one proposal was potentially actionable, because statements of future intent can be false in the absence of a good faith belief in their truth. There was conflicting evidence about what Redflex knew at the time it made the statement.

Likewise, there were triable issues about whether a photograph and statements promoting IACP certification were misleading, the photograph becaues it showed a unit that had once been FCC-certified (but apparently was so no longer).

The court further noted that “deliberately false or misleading statements are presumed deceptive” even in the absence of comparative advertising. (Actually, literally false statements are presumed deceptive, deliberate or not; as with the 5th Circuit’s ruling in Pizza Hut, the court is confusing materiality with deception, and the confusion produces a less sensible rule—literally false statements are presumed deceptive because people are presumed to believe things said flat-out to them, at least when those things are factual.) The court found a triable issue on the presumption of deception because there was evidence that Redflex sought FCC certification at the same time it claimed it was unaware of the relevant regulations. Redflex’s own evidence was that officials wouldn’t have allowed Redflex to use noncompliant equipment, which suggested that they believed Redflex intended to comply with applicable laws.

Then the court turned to materiality, rehashing the question whether deliberately deceptive statements are presumed material. The court answered no, not in the absence of comparative advertising. (Essentially, the court is moving the presumptions one up the chain. What is unclear about this result is what the court thinks the difference is between false and misleading claims. In the ordinary Lanham Act case, a plaintiff who shows falsity is not required to provide evidence of consumer perception/deception, whereas a plaintiff who alleges misleadingness is required to do so. If, as the court here apparently held, showing literal falsity does not excuse a showing of actual perception/deception in the absence of evidence of intent, then what purpose does the distinction between falsity and misleadingness serve?) Following the 1st Circuit, the court said it wouldn’t presume that consumers are influenced by immaterial statements whether or not they were made with deceptive intent. (Which isn’t quite the same thing—the question is whether we presume intentionally deceptive statements are material, not whether we presume that immaterial statements were material. Also, what exactly does it mean to have an intentionally deceptive immaterial statement? Are there a lot of those? E.g., “some celebrity you’ve never heard of likes this product,” except that’s not true?)

Anyway, ATS offered evidence that purchasers of photographic traffic enforcement services are particularly concerned about legal compliance, and evidence that Redflex jumped through expensive and time-consuming hoops to get certification, which was enough for a reasonable factfinder to find materiality. However, ATS didn’t have evidence that Redflex’s alleged statements in trade show displays and press releases would be material, because laws governing photographic traffic enforcement services vary widely from jurisdiction to jurisdiction. A governmental entity wouldn’t rely on the mere presence of radar units at a trade show or the announcement of a recently awarded contract as evidence that the offered services would comply with their applicable laws.

Redflex’s argument that, as an Arizona firm, its proposals to Arizona entities didn’t satisfy the Lanham Act’s jurisdictional element failed because of the obvious effect on interstate commerce. I mention it only because even making the argument is so surprising!

Wednesday, April 28, 2010

Perils of geographic misdescription

So, does the boycott of Arizona Iced Tea prove that, in fact, the mark is geographically deceptive, insofar as it is now evident that it affects purchasing decisions?

HT to GK.

Tuesday, April 27, 2010

Recent reading: Chilling Effects and the DMCA

Wendy Seltzer, Free Speech Unmoored in Copyright’s Safe Harbor: Chilling Effects of the DMCA on the First Amendment

Seltzer, who created and runs Chilling Effects, knows a lot about DMCA takedowns. This is a particularly powerful insight from the paper:

The DMCA does not force ISPs to avail themselves of its harbor, but shapes their risk assessment so that almost all do, even in cases where objectively, no harbor appears necessary.

That use, moreover, is not even-handed. It distorts the speech environment by disproportionately removing challenged speech. On balance, this set of incentives produces a blander, but no less copyright infringing, information space. The pirates, interested in sharing popular mass-media, will always be able to exploit darknet economies, their many mice assuring that some will be a few hops ahead of the cat. The posters of non-mass content, by contrast, will be stymied, tripped up by administrative costs and barred from reposting by repeat infringers provisions. This means that copies of Dark Knight will spread more easily than transformative commentary on it, Saturday Night Live skits more easily than parodies (or political advertisements) that build upon them. The consequence is a vicious circle, whereby the continued presence of infringing materials spurs demand for harsher enforcement, which further increases the costs of hosting challenged material, yet fails to stop the infringement.

Sunday, April 25, 2010

ABA Antitrust Section Spring Meeting part 5

False Advertising Litigation: The Lanham Act Preliminary Injunction Hearing

Presented by the Private Advertising Litigation and Trial Practice Committees

The fastest way to stop false advertising by a competitor is to obtain a temporary restraining order or preliminary injunction in federal court. What does it take? In a mock hearing, two leading practitioners will examine an expert on consumer perception and then argue for and against an injunction before a Federal District Court Judge. The session concludes with a critique of strategy and tactics.

Session Chair: Richard A. Kurnit, Frankfurt Kurnit Selz & Klein PC, New York, NY

Moderator: Amy Ralph Mudge, Arnold & Porter LLP, Washington, DC

Thomas C. Morrison, Manatt Phelps & Phillips LLP, New York, NY

Hypothetical argument over “Where’s the Beef?”: argument for liability is that, even with the humor, a clear comparative advantage message is communicated: Wendy’s offers more burger than competitors. Ads with humor have been found false: ad with a woman whose 16-hour appetite suppressant “wore off” and who then consumed the entire contents of her refrigerator won a lot of awards for cleverness but was enjoined for conveying a false message.

Hypothetical survey: 75% of people thought that the comparative claim in the ad was not a joke. Net 14% perceived a message that Wendy’s was at least 10% bigger, and they went up to 2x as big. 14% is well within the range for finding deceptiveness. The actual difference is said to be 3%.

Michael Rappeport, RL Associates, Princeton, NJ: mock expert witness testimony. Emphasized importance of preconceptions from prior experience, thus needing a control to test what they already believed about Wendy’s burgers. Defended more specific questions since general meaning questions get unhelpful answers. Most people would accept that the ad is a joke, but the question is whether it is just a joke: people tell jokes to communicate something serious all the time (thanks, Jon Stewart!).

Questioning brought out that, with a national campaign like this, 14% is 33 million people—perhaps a more useful number.

Ronald Rothstein, Winston & Strawn LLP, Chicago, IL: For the defense. This ad is an obvious exaggeration; we don’t need a survey to tell us it’s not. The survey examines things not at issue in the ad, and is entirely based on closed-ended questions that fed answers to respondents.

Rappeport said that there were two kinds of leading questions: one implies an answer; one implies that there is an answer. The first kind is avoidable; the second kind is unavoidable by mere fact of asking a question in a survey.

Discussion of demographics: no sorting for race or economics, just random malls. Rappeport argued that national ads are aimed at everyone, even if Wendy’s actual customers are a different group skewed by race/ethnicity/economics. Also discussion of whether not interviewing people under 16 would skew the results: Rappeport maintained there was no reason to think that the reactions of people under 16 would be different. Etc.

Materiality: Rappeport argued that Wendy’s clearly thought the claim was material, or it wouldn’t have made it. Rothstein argued, through his questioning, that there was no evidence of materiality; the survey hadn’t checked that.

C. Lee Peeler III, National Advertising Review Council, New York, NY

Served as judge; pressed Morrison hard on materiality and whether there’s a difference between 3% and “at least 10%” from a consumer’s perspective.

Rothstein returned to the questions of demographics: diversity of society is such that you can’t rely on general population when different subgroups may exist. If 33 million were misled, then 270 million were not misled.

Peeler: why doesn’t the control take care of the leading questions?

Rothstein: the control was equally flawed. Makes the whole survey invalid. Invalid question can’t be fixed by a control. Planting in the question issues like “how much bigger do you think the patty is?”—forcing people to give a response that includes percentages, even though people never thought about it and just guessed based on preconceptions or on something else not in the ad.

Peeler: why run the ad if not to convince people that Wendy’s has more meat?

Rothstein: that’s true. (Then why are you fighting so hard on the joke part? The answer probably has something to do with materiality. And indeed:) There’s no proof that anyone cares about the difference between 3% and 10%.

Audience poll: based on the evidence/testimony, about half would grant the preliminary injunction.

Kurnit’s closing commentary: you have very little time in practice to get the facts, do a survey, argue it in court. The client will tell you what the precooked weight difference is and then the judge will ask you what the weight difference is after cooking. Candidly, judges pick the survey that goes with their judgments about what the result should be.

Rappeport: he thinks anything under 10% is evidence of no confusion, anything over 20% is confusion, and in the middle is the gray area that will depend on intent and other factors. He chose 14% to be in the middle of the gray area. Leading questions: he suggest a closed-ended question is leading in a troubling way when it doesn’t give all the reasonable answers (you don’t have to ask whether the ad says the Yankees will win the pennant). It’s hard to give all the reasonable categories in a closed-ended question, but if you don’t, you can be in trouble.

ABA Antitrust Section Spring Meeting part 4

False Claims of IP Protection: Competition & Consumer Protection Perspectives
Presented by the Consumer Protection and Intellectual Property Committees

Session Chair and Moderator: Henry C. Su, Howrey LLP, East Palo Alto, CA

When a person or firm falsely claims, marks, or otherwise misrepresents its goods or services as covered by patent or copyright, what are the ramifications for competition and consumer protection? This session tackles these questions in industry contexts such as Orange Book listings, standard-setting disclosures and Digital Millennium Copyright Act notices.

Spate of false marking lawsuits, but they are actually a subset of false IP claims that can perhaps be put in context. Problems usually come about when IP owners attempt to enforce their rights—counterclaims for false procurement/sham litigation. What happens if you’re not accusing someone of infringement, but you simply tell the world that you have IP rights over a particular invention/service/work, and it turns out that’s not true. So why do we have a system encouraging notice?

Paul F. McQuade, Greenberg Traurig LLP, Washington, DC: Historically, notice served a very important function where someone thinking about building an article could find out whether there was a governing right. Copyright in particular: conveys information about whether copying was free or whether you might be subject to an assertion of rights. Theory: seeing a patent number on an article might dissuade further investigation/exploration.

Q: are there benefits from marking?

McQuade: Yes—these days, you can instantly look up a patent on an article and see who owns it, when it was issued, and its claims. Informs people of the existence of the patent and allows them to find its details, including alternative designs/freedom to operate.

Su: System delineates rights and tells whole world what’s accessible.

McQuade: look at false marking’s origins. In the Wild West explosion of our industrial revolution, there were no federal depository libraries around the corner. The object was the only way to find out whether there was a patent. Without marking, people would assume no protection.

Today, the awareness level about finding patents makes access to the actual documents easier. One can get a lay reading and find a patent attorney. You’re much less dependent on the object, which is the first step to investigate.

Rebecca L. Tushnet, Georgetown Law: Marking still serves a function, though less of one (not so much of the internet, I think, but more because of the rise of nonpracticing entities (NPEs) and patents that cover parts of products).

Mozelle W. Thompson, Thompson Strategic Consulting, Washington, DC: fundamental change in how we view information. Whether you have a patent that’s real or not, you can affect the market by saying you have a patent or intimating that someone doesn’t have the IP rights that they need. By the time the market catches up to you the harm is already done.

Su: NPEs—the concept of marking is that you mark the thing associated with your IP right. Concern: NPEs can surprise the industry and pervert the system, which was to let people know.

McQuade: Background: in patent, marking is your option as a patentee to be put on the object or container (if on the object is impractical). Doesn’t apply to method claims. Marking affords constructive notice to the world of the patent’s existence and allows you to get damages. If you don’t mark, you can only get prospective damages/injunctive relief. You can put either patent # or patent pending. False marking: classic example is “patent pending” with no application on file; it can be left there for a long time. Hard to investigate.

Lately, allegations in ~160 cases are targeted at large companies that have marked their products and have failed to go into the molds and take the numbers off after the patent has expired. Plaintiffs say that’s a deterrent from entering the marketplace—the Weber grill’s patent expired many years ago, but it’s still marked as patented. Fine: up to $500 per article sold. This can be a huge amount!

Any person can be a plaintiff—a qui tam statute. You don’t have to have been injured.

Su: encourages public to police (before the deterrence occurs)—proceeds of lawsuit are then split with the government.

McQuade: Unclear legally: does the plaintiff have the authority to settle and compromise the public’s rights? There is no provision for executive branch supervision. Interesting constitutional question.

Su: Companies don’t check which patents have expired. But isn’t there an intent element?

McQuade: Yes, you must intend to deceive. But courts have crafted ways around subjective intent. Knowledge that your patent has expired/that the claims do not read on the article in which they are fixed, coupled with introduction of marked product, allows certain presumptions that can shift the burden.

Thompson: Is this the future of the litigation?

McQuade: big debate in trade press—will there be an explosion, or will this precipitate a series of compliance measures that weed out the problem? Larger clients with large patent portfolios don’t like to get all the correspondence, and sometimes they haven’t liked to be reminded about expirations. Now everyone wants the expiration letters so they can say that the molds should be changed the next time they’re taken down. So: either Congress will act, or there will be compliance programs invented. When the first wave of cases hit Chicago, that very same week, patent marking software solution was announced. Suggested: “see this website for patent claims.” It’s not exactly what the statute provides, but you could probably do a combination of numbers plus “for an update, go to this website.”

Su: Concern for competitors. Are consumers harmed at all by expired patents or false marking?

Thompson: Consumers don’t know what they’re not getting. They don’t know how the market has been corrupted. There will be an increasing focus on the end user experience and whether the market is truly transparent.

Me: Patent does have a history of interaction with consumer protection: the phrase “patent medicine” communicated special scientific benefits to consumers, and that turned out to be a problem. But the justification is really more regulatory than consumer protection or even competitive. It’s about maintaining the integrity of the registration system. Since it provides so many benefits, there needs to be some incentive not to abuse it. This may not be the right one.

Thompson: competitors are thinking hard about how they can allege consumer harm so that they can show a broader negative effect on the market.

Su: the consumer isn’t necessarily processing the patent information.

Thompson: they don’t know that someone who’s marketing under a false claim of right has caused 12 venture capital companies not to invest in competitive products. They never see that.

Su: Also the Orange Book listings, the place where the FDA lists all approved drugs plus corresponding patents on drugs/methods. It’s a way for generics to enter the market and check any patent rights, and thus accuracy is very important. Recent Federal Circuit decision on Novo Nordisk makes it harder for generics to get bad information out of the Orange Book, despite congressional amendment to allow some challenges. Majority said the new law only covered patents that didn’t cover the drug or didn’t cover any method of use, so inaccurate information about a patent that covered some but not all methods could not be corrected. Novo Nordisk broadened the method of use described to potentially cover other uses, even though everyone agreed that the patent didn’t cover all those methods. Result: generic application denied. Another instance of a false assertion of an IP right impacting generic competitors and downstream consumers.

McQuade: Orange Book is particularly important where you want accuracy. He’d like sanctions in that setting a lot more than in garden-variety expired patent situations.

Me: Consider also private claims as part of the system: YouTube’s content ID (Hitler reacts videos!) which are not DMCA claims but bar the content from getting up/take it down without DMCA counternotification rights, Google’s policy on using a competitor’s TM in ad text, where Google will bar that at a competitor’s request. These are private systems that react to the assertion of IP rights rather than the assertion of infringement—or at least blur the lines between those two.

Thompson: Australian Competition Comm’n sued Google over AdWords on consumer protection grounds.

Alternatives to responding to false patent claims: antitrust law, false advertising.

Me: Possibility of a tortious interference action for false assertions of IP rights that are damaging your business, though those cases are hard to win—even threats tourism, as discussed at last week’s TM roundtable.

Su: companies are looking for faster ways to react.

Thompson: if your problem is one of false information being spread about IP rights, patent remedies are only the starting point: need legal alternatives and nonlegal alternatives for changing the market. Litigation is a market-shaping tool.

Regulatory agencies are only beginning to renew examination of what constitutes fairness and unfairness—ripe for examination. Information marketplace shows that traditional notions of market corruption and harm don’t always work as expected. Consumer’s harm might not be readily apparent to the consumer.

Su: FTC is taking some interest in Section 5 unfairness.

Me: don’t rule out private actions. Many states allow business plaintiffs. Argue it separately from the federal issues or don’t bother. I’ve seen too many wasted pages on TM claims that are just one line from each side and one line from the judge: “the state TM claims are the same as federal claims.” True of TM infringement; not true of consumer protection claims!

McQuade: Most in-house counsel look at this as the next wave, after patent marking. Anticipating claims and getting compliance programs in place. A few clients have actually decided that they rarely approve offensive patent use, so they don’t mind foregoing damages from marking—they have decided to sell them naked. If a big competitor comes along, they’ll provide actual notice and go from that point forward. Not sure this is the best solution, because marking provides leverage in a lawsuit.

American jurisprudence is a quilt in response to specific shocks that have happened. There is a real readiness by American businesses to find something more expeditious and less burdensome than litigation.

Su: Compliance programs—how do you counsel a client more broadly in managing its communication about IP?

McQuade: the larger company, the more sophisticated they are. Generally, we promote training and in-house awareness. But usually it’s really a response to outside stimuli.

Thompson: depends on industry. More people understand importance of IP rights as asset. More enlightened companies recognize need to make more strategic uses, and at least do an audit and make conscious decisions about what to assert, when, and in what forum so that they don’t end up getting blowback or surprises.

Su: Standard-setting?

Thompson: Rambus was about the importance of clarity. It was helpful in that if Rambus had it to do over again it would probably have acted differently. There were lots of claims there besides competition: common-law fraud and other claims. That should illustrate for companies involved in patent pooling and standard-setting that they need to be more diligent in policing their participation and their compatriots.

Su: what other harms do false IP claims do?

Me: Speech! Just like it harms the market for diverse products, harms the market for diverse speech.

Thompson: Exhaustion of rights is important to consumers—they want to do what they want with something they’ve bought. Barriers to that are harmful.

McQuade: one way it comes up internationally: in China, a spate of locals who copy items and file a utility patent, which is unexamined and has a 10-year term, and then go to the OEM and tell it to pay up.

Thompson: there are whole companies imitating American companies in China, with websites that look right and everything.

Su: Is false marking a tempest in a teapot?

McQuade: A bit, but it’s a very old teapot that needs to be repaired. False marking has lived beyond its years. District judges still have some discretion per article, and should exercise it as a practical matter.

Thompson: Shines a light on a larger issues about what constitutes innovation and how US companies can protect themselves.

Me: it’s a response to pervasive overclaiming, but the target seems somewhat misguided.

Q: Is it possible that the Federal Circuit will take care of the issue with a constitutional standing requirement, or imply a requirement of competitive injury?

McQuade: wouldn’t bet on it. Look at the progression of the cases: the statute was the tail of a lot of dogs; dicta built up about how the public was injured and how there needs to be a remedy. Would need an en banc reassessment of the entire picture and make some fundamental precedential changes.

Su: Standing is an issue in a pending case.

Thompson: Courts in this area especially are much more favorably declined to decide a case on the facts than to fix a problem in the system, even though they are aware of the problem. Not sure we’re at a tipping pointwhere that would change.

Saturday, April 24, 2010

ABA Antitrust Section Spring Meeting part 3

Is Nothing Typical? Applying the New Standards in the Revised FTC Testimonial Guides

Presented by the Consumer Protection, Federal Civil Enforcement, Healthcare & Pharmaceuticals and Private Advertising Litigation Committees

Session Chair and Moderator: David A. Zetoony, Bryan Cave LLP

Cosponsorship is an indicator of how important and wide-ranging the FTC’s guides have been—our clients are asking lots of questions.

Mary K. Engle, Associate Director for Advertising Practices, Federal Trade Commission

One principal motivation for review of guides was widespread use of “results not typical,” particularly for weight control; most consumers couldn’t hope to get those results. Research on actual consumer reactions led us to amend the Guides. Commercial Alert also complained about stealth/buzz marketing, where consumers are paid to talk up products.

Three principal changes: (1) What happens when advertiser pays for a study whose results are featured? Previously we said no disclosure was necessary because the presumption was that substantiation would suffice. We changed because the fact the study was paid for might be material to consumers. (2) Typicality. When you use testimonials, they have to be representative of what consumers can expect; if the advertiser can’t substantiate that, then it can say what the general expected result is or it can say that consumers shouldn’t expect to get that result. The safe harbor for “results not typical” wasn’t working. (3) Disclosure of material connections between advertisers and endorsers.

Zetoony: Was there a need to deal with people stepping over the line, or was the word of mouth problem people who were also abusive under the old standards?

Michael Zaneis, Vice-President of Public Policy, Interactive Advertising Bureau: There was a need to update the guidelines. Microbloggers had no idea that rules existed, much less that they’d apply to bloggers. Wasn’t skirting the rules so much as lack of understanding. The disclosure rules are pre-internet—growing pains around pharma disclosure, and how FDA applies fair balance rules. Paid political speech: disclosure issues are also arising online. A few stumbles out of the starting block, but the substantive changes are not that big hurdles.

Natalie G. Lontchar, Vice-President, Senior Counsel, Home Shopping Network, Inc., St. Petersburg, FL: Most of her clients don’t have attorneys, so they may not know the rules—didn’t think they needed to disclose if they gave products to bloggers. The guidance helps small companies understand the rules.

Zetoony: Blogosphere reactions—effective at disseminating the guide?

Zaneis: It took a while for the industry/blogosphere to actually understand that they were going to be regulated (or that they already had these obligations). After that, the FTC did a lot to get the word out, as did WOMMA (Word of Mouth Marketing Ass’n) and DIMA (Direct Marketing Ass’n). Then bloggers exploded with worry: needed to explain the substance of the guides and then the enforcement priorities—the FTC is not a “gotcha” agency that tries to hide the ball and get a big settlement, but instead wants to send signals. That eventually dampened concern.

John P. Feldman, Reed Smith LLP, Washington, DC: Got attention because goes to basic tenets of how we relate on the internet: very immediate, personal, familiar-feeling even though you don’t know them personally—in ways you don’t feel close to actors in a conventional ad spot. When the blogosphere sensed tinkering with democratic aspects/immediacy, it touched a nerve. (Even though the regulation is designed to preserve that democratic/personal nature.)

Substantiation: The rules are trying to level the playing field—aspirational claims in weight loss still need to be substantiated; there is no free ride. To say that some companies are smaller/disproportionately impacted is not convincing.

Zetoony: are there industries where it’s harder to provide substantiation?

Lontchar: We’ve lost some products, particularly exercise equipment—we know the basics, but it’s hard to show exactly how. Seeing before and after photos of someone who lost 50 pounds is very effective, and it’s harder to show clinical results than with diet programs. Most of the companies we use are smaller companies. They don’t want to spend the money to do a study to show the basics of exercise. If you’re doing 5 hours a week and eating a health-conscious diet, you can expect to lose 2 lbs/week—but the companies want more than that because it’s not sexy enough. We don’t let them say more unless they have more evidence. It’s somewhat of a barrier, but we tell them to sell the product on the exercise and the basics of 2 lbs/week.

Zetoony: There’s no one size fits all on what’s a typical result—there is some flexibility. But clients want answers; safe harbor would be average.

Engle: It’s not always the numerical average. The results depicted in the ad under depicted circumstances should be generally representative of what consumers can expect to achieve. In terms of smaller companies: well, yes, substantiation will always be harder for someone with fewer resources, but you’ve always needed to substantiate claims. The evidence required for substantiation should also be sufficient to substantiate your expected results (if true).

Zetoony: Example of someone on raw vegetable diet/working out 10 hours a day/also using advertised machine. How comfortable are companies in depicting a unique situation and not holding results out as typical?

Lontchar: Generally the vendor knows the main point it wants to make. It can get a little blurry, but she thinks that eyeballing will generally identify a typicality claim.

Feldman: a question about the role of disclosures in general. FTC studies of supers suggest that the FTC hasn’t seen an appropriate disclaimer in this context. In that case, an advertiser will have a difficult time coming up with a claim not subject to typicality analysis.

Zetoony: Perhaps this fits in with David Vladeck’s suggestion that we might be in a post-disclosure era. Maybe we can’t use the disclosure framework any more.

Engle: we did begin the review under a prior director! There are general issues surrounding effectiveness of disclosures. In 1980, when the FTC issued the guides, it considered this very issue. It initially said that it wouldn’t allow a disclaimer, then backed down under protest. But still said that the advertiser should make the disclaimer as prominent as, and integrated with, the endorsement itself. If that had been done all these years, we wouldn’t most likely have needed to make the change. But people ignored that. If you’re limiting the claim, it should be integrated with the claim itself: no separate disclosure required.

Zetoony: Do we have a new concept of a material connection, or is this elucidation of what we knew?

Zaneis: It’s basically the same—the connection might affect weight or credibility; a reasonable person would expect a connection. Those aren’t perfectly harmonious, though. Seems to be stacked against bloggers for disclosure: there’s an assumption that the public doesn’t understand that a blogger might be getting some sort of product v. the New York Times book critic—assumption that public understands that the NYT writer gets the book for free, but not that the blogger does. Two competing standards, not a level playing field in that example. Whether the FTC applies them that way, we don’t yet know.

Zetoony: The disparity is technological—comments say bloggers may be subject to different disclosure requirements than traditional media. People may not understand that the editor of the local paper gets stuff for free. Artificial disadvantage/different standard for new media?

Zaneis: Yes, though he doesn’t think it’s a difficult hurdle for marketers/bloggers. Hard to argue that there isn’t a different application, though, because there’s an assumption the audience doesn’t understand. (I think the problem with the blogger is that the paid blogger is indistinguishable from the unpaid one absent disclosure, and because unpaid reviewers will tend to far outnumber paid ones the paid ones will get by default too much credibility for independence. The problem, that is, is that there is more heterogeneity among bloggers than there is among newspaper reviewers, and there’s either a market-for-lemons issue of decreasing trust, or consumers will be deceived into giving the paid endorsers the same credibility as the volunteers, neither of which are good outcomes.)

Engle: we do treat book bloggers the same as traditional reviewers: just because you’re online doesn’t mean it’s inherently different; it’s just that historically some things are more obvious. We should have explained more fully: there are different types of blogs. There are personal journals where people talk about their lives, kids; talk about a book or product you enjoyed; in those contexts, the relationship with the company wouldn’t be apparent. Then disclosure is required. If you have a review site, then it’s like a magazine offline. (I will call this a different way of saying my comment!)

Zaneis: creative solutions: metadata that follows along with the marketing message, like a marketing hashtag that gets retweeted: helps with monitoring, which can otherwise be very daunting in a complex ecosystem where people send along messages and add their own comments.

Zetoony: is there a de minimis exception for low-value goods? Is that a material connection?

Lontchar: generally with blogs we deal with people who are sending products to their favorite customers; we haven’t considered that de minimis, but would be happy for clarification.

Engle: at some level, a de minimis benefit wouldn’t be material. In practice, though, it’s probably infeasible to have that exception. Consider a continuing relationship—do you start disclosing when it reaches $100? Disclosure is much more feasible at the outset. Failure to do an initial disclosure when the value was small would be considered during an investigation, but that’s not the way to go.

Feldman: Highlights a structural problem with the guides. We’re talking about material connections and about endorsement. Initial threshold question: whether we have an endorsement or testimonial at all. The staff offered some criteria to figure out what a sponsored message might look like. Length of relationship, size of gift, etc. go into assessing sponsorship. If it’s not enough, you don’t have a sponsorship. But people are jumping straight to material connections.

Zetoony: Did the guides go too far in who they considered endorsers?

Feldman: Don’t necessarily go too far. There is confusion; the examples have a lot going on—the blogger who gets computer equipment. The analysis isn’t fully fleshed out.

The guides don’t make advertisers strictly responsible for the speech of others. It’s not a massive change on its face.

Zetoony: what about the CDA interaction for online speech?

Feldman: there could be. If you’re not the publisher or speaker, you can’t be held liable for harm arising from that speech. The question ties into the sponsorship issue: if I’m the sponsoring advertiser, am I the speaker in truth? The CDA is for a provider/user of an interactive computer service. Typically, the advertiser isn’t a provider of interactive services, though it might be a user. We don’t really know. (I am writing an article about this!)

Comment from audience: monitoring is really tough—people may be having conversations in lots of places about your product; virality is why brands want to spend money on it!

Feldman: the CDA is not a bulletproof vest. If you hire Kim Kardashian to speak on your behalf, and if you then promote her promotion, you are unlikely to be protected.

Zetoony: Talk about the loose cannon blogger as enforcement challenge.

Zaneis: it’s a brand challenge, and has helped make brands hesitant to use some sites/techniques. It’s not impossible—take offline lessons and apply online. Have accompanying material along with your product. Have a feedback mechanism: true communication between advertiser and bloggers. Open line of communication: you can train, not just order them to follow the law. Disclosures don’t always work there too! Front-end training is key. There is a perception by folks in the blogosphere that outrageous claims are ok. The FTC wasn’t all off-base about different expectations for audiences and content creators online. So make sure your folks live up to your expectations.

Lontchar: it’s about control: you control what you can and not what you can’t. On HSN, we can add in disclaimers/corrections.

Then I had to leave for a conference call, which made me sad because the discussion was very interesting.

ABA Antitrust Section Spring Meeting part 2

It’s Not Easy Being Green: Environmental Claims, Standards and Deception

Presented by the Consumer Protection, Private Advertising Litigation and Trade, Sports & Professional Associations Committees

Session Chair: David L. Meyer, Morrison & Foerster LLP, Washington, DC

Moderator: William J. Baer, Arnold & Porter LLP, Washington, DC

Government is part of the issue: Energy Star ratings are being awarded to products like a gas-powered alarm clock and an “efficient cleaning device” that’s just a mop. How do standard-setters, manufacturers, and retailers provide consumer-attractive and responsible green claims? There are antitrust issues involved.

Lauren S. Albert, Axinn Veltrop Harkrider LLP, New York, NY

Basics of the antitrust issues: coming up with a certification is considered standard-setting. When competitors get together to do that, that implicates §1 of the Sherman Act. Initial question: was this per se illegal? The law now uses the rule of reasons, balancing pro and anticompetitive effects. But per se is still around. Never (1) agree on prices or (2) agree on output restrictions, though neither of those should come up in green certification.

Issues: standard-setting process and then results. Best way to insulate them: make them neutral, objective, and verifiable. Someone who can’t get a certification can get a good explanation of why. Even better: don’t just have competitors, but have customers part of the process.

Implementation: again—verifiable and neutral. If someone’s product isn’t certified, it should still be able to get to market. If it can’t, you have a §1 issue. If a group of retailers got together and said they wouldn’t buy widgets that didn’t meet the standards, then the nonconforming widget maker would have a group boycott claim.

Michelle Mauthe Harvey, Project Manager, Corporate Partnerships Program, Environment Defense Fund, Bentonville, AR (works on-site with Wal-Mart)

We have, through an open process with suppliers and NGOs, developed screening processes where third parties come in and evaluate a product. Now Target, Sears, K-Mart etc. are looking into using the same third party. If they say “your Greenworks score has to be over 50” before we’ll buy, is there a problem?

Albert: Not if they’re doing it independently. If each makes that decision and the market moves, it’s ok; they can even talk about it, they just can’t agree.

Baer: to what extent is FTC paying attention to the antitrust/green intersection?

James A. Kohm, Associate Director of the Enforcement Division, Bureau of Consumer Protection, Federal Trade Commission

He doesn’t speak for the FTC as a whole or any particular commission. He doesn’t have a lot of interaction with antitrust folks on this issue. Green claims are very important in the marketplace, and thus his brethren on the other side would be looking at important areas. But these are credence claims that are hard for consumers to confirm; hard for the market to reward/punish good/bad claims. This is relevant to enforcement concerns. But remember that antitrust is separate from the Bureau of Consumer Protection.

David Antonioli, Chief Executive Officer, Voluntary Carbon Standard Association, Washington, DC

Carbon sector: issues not related to antitrust as much as green/greenwashing claims. Three different levels: ingredients, procedure, and completed results. His world: criteria for carbon offsets—do they have to be third-party audited? Can they be ex post or ex ante (tree planted today counting today, or only at maturity)? Concerns over who monitors, how to avoid double-counting, etc. Are the reductions actually meeting a threshold level of credibility that they wouldn’t have happened if not for the existence of a carbon market?

Baer: How do you deal with standard-setting organizations when working with Wal-Mart?

Harvey: Clarification: She’s speaking on her own behalf, not for Environmental Defense Fund, and EDF does not take any money from Wal-Mart—a voice in the belly of the beast. Wal-Mart, like individual consumers, is equally confounded by claims of sustainability. Looking for credible programs: multistakeholder, transparent, appeals process, chain of custody documentation. Shouldn’t be able to buy one’s way into them; assessment process should be uniform. Very small number of organizations tend to pass this. We’re not really crazy about certification as the answer for sustainability, because certification standards rarely drive environmental improvements. Rather they verify them. They rarely push for continuous, incremental improvement. Personal preference: developing purchasing standards that are transparent, straightforward, reflect scientific input (sustainable growing, food). Certification layers cost; creates flow of auditors auditing auditors; can take years to reach consensus among stakeholders whereas standard can be imposed more quickly by Wal-Mart. She sees more use with things like carbon where it’s even harder to tell.

Kohm: Haven’t seen complaints about green standards precisely because they are credence claims: can’t go to Hungary to see the tree allegedly planted on their behalf; can’t insure it’s been single-counted; can’t measure its CO2 effects. FTC is concerned, though, because there is no ability to protect oneself. But the FTC is neither nor a standard-setting organization. We’re looking at ensuring that consumers have accurate information, whether environmental or not. We wouldn’t get involved in the science, ex post v. ex ante and that sort of thing. There are ways to do ex ante setasides that at least appear legitimate on their face. We definitely want to avoid double-counting. If you have 20 tons of carbon scrubbed and sell it twice, there’s no doubt that’s fraud, regardless of the Green Guides. Additionality is extremely tricky; FTC have a role with “regulatory additionality”—there are lots of reasons for capturing methane; if you have to capture it by law, then you probably can’t claim it as an offset.

Baer: How do you go about evaluating a manufacturer’s green claim, whether standard-based or not?

Harvey: Dependent on particular issue. A lot of what she works with are scientific questions about better alternatives: a chemical component of bioplastic v. what it is supposed to replace. Is it improving the situation or is it just different? Use lifecycle analysis; a lot of work particularly around carbon. Bioplastics tend to take more energy to generate than the plastics they replace, leading to greater carbon impact, though this issue is being addressed—the assumption that something grown is better is not necessarily true.

Waiting for Green Guides: someone is making a claim, and the question is whether it’s over the top. Wal-Mart has a packaging expo for Wal-Mart buyers and suppliers; packaging vendors were making claims, and 75% of them didn’t pass Green Guide review. Most of the people weren’t “living over the line,” but the marketing people got excited and the scientist who designed the feature would have been appalled by the scope of the claim. Even the salesperson trying to sell the product may not understand what’s going on.

Baer: do you run into bad certification processes?

Antonioli: Look at the evolution of the carbon market. Started with Kyoto Protocol’s compliance regime: voluntary activity was unregulated, so a lot of programs developed, all of which had different approaches. Consumers are starting to understand differences (I’d sure like to see this evidence). A lot of private sector activity: carbon market is trying to foster a sense of credibility. If you’re destroying methane at a pig farm, it’s very intangible. Credibility is key to being able to charge more for the service!

There are new developments every once in a while, but we’re not seeing as many as we used to. Standards are complicated. Credibility does require multiple stakeholders and broad information. Increasingly competitive market: start to gravitate to what already works.

Harvey: Cautionary tale: There are several organizations defining “green campus” and doing rankings. For students this can be very influential. We’ve done a little work on this: people are coming and saying that their product doesn’t qualify for a university because it’s not biodegradable—but nothing degrades in a landfill, and there’s very little commercial compost. Changing the product doesn’t necessarily produce environmental benefits, but people are starting to embed well-intentioned, questionable claims. Without scientific rigor and transparency of criteria, it doesn’t work.

Kohm: Legally, transparency isn’t required, though there may be good reasons to do it. The key is substantiation of the claim, and of things reasonable people would take away from that claim. FTC has had cases against K-Mart and others on biodegradability claims: theoretical biodegradability is not enough.

Baer: What claims are you seeing that are most troubling?

Kohm: Outside the line: 2 recent cases that claim to make your car a “hybrid,” with nuclear fusion or magnets (would have to be the size of Jupiter to work). More interesting: folks who are trying to live within the bounds, but because of competititve pressure or gray lines cross over. Competitor seems to be making ever-moving claims, and pretty soon everyone is over the line. Or as with carbon offsets people have trouble finding the line. FTC is not going to pick where the line ought to be; that would be standard-setting. Instead, FTC is marking a line between deception and nondeception, focused on reasonable consumers. So we can let marketers know what consumers think the lines are. Recently: a set of cases on bamboo and biodegradability, using the Green Guides to demarcate the lines. K-Mart had substantiation that their plates biodegraded under certain circumstances, but people believed that biodegradability meant under ordinary disposal circumstances. In the case of paper plates that’s the trash and then the landfill. Nothing biodegrades without light, air and water, and those are three things not present in landfills. So what the FTC is focused on is determining consumer understanding.

Baer: what should the Green Guides be?

Kohm: FTC can make a difference—old Guides from early 90s; may be better research available now. Timing—how long does something have to take to biodegrade? New claims: double-counting and regulatory additionality are places where we can give guidance. Other claims may be too context-specific for guidance beyond substantiation/consumer takeaway. People get in a lot of trouble with general “green” claims—FTC is not happy with “eco-friendly” or “green”—it’s very hard to substantiate and consumers take lots of claims away from such claims that are very hard to substantiate. May be able to provide guidelines on more specific qualifications.

Baer: prior FTC concerns with Rambus, where Rambus pushes a standard with undisclosed patent interests. Is that a real concern here?

Albert: She isn’t seeing that with green claims. With Rambus, people didn’t realize they’d have to pay royalties to comply with the standard.

Harvey: Hasn’t seen that yet, but she can see the possibility in the way that tech is moving. Until now, the improvements have been low-hanging fruit. We’re now moving into an innovation phase.

Albert: so you’d need to be sure that there is adequate disclosure of interests in the standard-setting process.

Antonioli: Rulebook for counting impact—often requires public consultation. Some developers have been hesitant to publicize their methodologies (apparently they want them secret)—his organization has floated a proposal to compensate developers for others’ use of their methodologies.

Albert: Note that’s not patented.

Baer: envision a situation where a retailer and its trade association think that proliferation of claims has generated enormous consumer confusion. We want some standards. Can we adopt a rule that we won’t buy from a supplier that won’t meet X standard.

Albert: retailer client = no worries. Trade association: viable group boycott claim. It’s not per se illegal, but proceed with caution.

Q: We’ve seen state-level cooperation between environmental and consumer protection regulators. Do we foresee the FTC working with the EPA?

Kohm: Yes, but the lawyer answer is that it depends. EPA and DOE are commenting on the Green Guides because they have the expertise. It’s not a joint project or joint enforcement. EPA is looking to protect public from environmental hazards; we look to protect consumers from misleading claims.

Q: what’s the importance of the independence of the certifying body from the industry in funding etc? (See the recent OASIS Organic case.)

Kohm: That’s important—consumers care about it. That doesn’t mean you can’t have a body with close industry/entity ties. Disclosure is the remedy—the consumer needs to know that the manufacturer is a member of the trade association that certified the product as biodegradable.

Antonioli: Independence is important for our organization: we don’t do consulting/audits. We rely on accredited bodies under ANSI/ISO.

Q: What about a collaborative effort among companies to promote a standard, knowing that it would serve some legitimate public function but would also tend to be exclusionary because some other companies can’t meet the standard?

Albert: It’s rule of reason—balance pro and anticompetitive effects. If there is consumer benefit, as the question assumes, that would weigh heavily in its favor.

Q: Wait, what about biodegradability claims again?

Kohm: Nothing you throw in the trash is biodegradable in the US. A solid product that you don’t throw in the trash could be—a tomato plant in a cardboard-type container meant to be planted in the ground can be labeled biodegradable. Things that are thrown away in a liquid environment—detergents, toilet paper—may well biodegrade and thus may be labeled as such.

Baer: Possibly also if you urge people to litter!

Q: Compostable—can you say that knowing that only a tiny percentage of people will compost, and most will throw it away? Is that truthful or misleading, given that 95% of people might think it does some good even when thrown away?

Kohm: Probably ok. Not trying to promote composting. If it’s only compostable in a commercial facility, that’s a whole different issue, and there are a number of products like that. If you tell consumers what the requirements are, though (and the requirements are readily comprehensible), no consumer protection problem. (This is an example of a case in which there may be some misled consumers who think that even throwing the thing in the trash is better than throwing a noncompostable thing in the trash, but the cost of protecting them from that deception—removing the truthful information from people who’d use it properly—is greater than the benefits of protecting them, even though allowing the claim also will predictably distort the marketplace and possibly lead consumers to spend money inefficiently if the compostable product is more expensive. If we like composting, then the extra financial reward to the manufacturer may be a useful subsidy, but that depends on the substantive commitment and not on the idea that information is making the market work properly.)