Tuesday, August 30, 2011

Recent reading: intentional interference with contract

Sarah Swan, A New Tortious Interference with Contractual Relations: Gender and Erotic Triangles in Lumley v. Gye, 35 Harvard J.L. & Gender __ (2012). This nicely done paper arguing for a substantial contraction of the tort and its remedies reminds me of my own note, also about the gendered intersection of tort, property, and contract, though I was writing about broken engagements.

Monday, August 29, 2011

Be careful when you put that screenshot in the complaint

Fasugbe v. Willms, 2011 WL 3667440 (E.D. Cal.)

Swipebids is back, now as a defendant in this putative class action. Plaintiffs alleged that defendants, including Swipebids.com, violated the California CLRA, FAL, and UCL, and committed related torts.

Plaintiffs alleged that defendants advertise SwipeBids via sponsored links, banner advertisements, and links in fake news articles and fake blogs. The links go to a registration page that says "Winning is Easy: Step 1: JOIN & RECEIVE BIDS Step 2: PLACE BIDS on AUCTIONS Step 3: WIN GREAT PRODUCTS!" They alleged that, "on the credit card submit page, Swipebids represents that the consumers' account information is only necessary in order to pay for 'winning auctions,' " but that the page "fails to disclose the existence of its membership fees," which are actually $150 or $159.

Consumers who complain, plaintiffs alleged, are often directed via a link to a transaction page SwipeBids says is the one they initially used. That page discloses the membership fee. But, plaintiffs alleged, that’s not the real transaction page.

After dismissing the claims against the individual defendant for want of personal jurisdiction, the court turned to other issues.

The original complaint had a screenshot of a “credit card submit” page with several references to a $150 membership fee, but the first amended complaint had an identical screenshot except for the fact that the section in which consumers would have entered their credit card information, with its references to the $150 membership fee, was removed. The current complaint simply alleged that the website "fails to disclose the existence of its membership fees,” and also included a different version of the initial registration page, which includes a graphic stating "Our players Win Lots of Prizes! Here's just a few," with pictures of items customers have won and statements that the customers "Paid $159 for Access" to the prizes. The court declined to decide on a motion to dismiss “whether the statement on the initial registration page that customers paid $159 for access constitutes sufficient disclosure of the membership fee.”

Plaintiffs attempted to explain the inconsistencies by saying that the screenshot was inadvertently attached twice, the first time in error and the second to show the fabricated webpage to which consumers were sent after complaining. They stated that they never obtained a screenshot of the actual credit card submit page they viewed, and therefore could not include it in their complaint. The court was skeptical because, if they never had a copy, they wouldn’t have had anything to attach in position one, and the explanation was inconsistent with the pleadings. However, the court wanted to leave the question of whether they’d engaged in sanctionable conduct until discovery.

As for stating a claim, defendants argued that the allegations flunked Rule 9(b), since all of the claims relied at least in part on the allegation that defendants fraudulently charged an undisclosed membership fee. The court disagreed: plaintiffs described the webpages they visited and the statements and omissions about fees. They alleged reliance on the representation that their credit cards would only be used in the event that they won a prize, and that they were damaged when defendants charged a membership fee. That was enough.

The court also refused to strike the class allegations, because arguments over whether certification is appropriate are for a later date.

eBay changed everything, except that it changed nothing

CJ Products LLC v. Snuggly Plushez LLC, 2011 WL 3667750 (E.D.N.Y.)

CJ, which makes the popular Pillow Pet (a plush toy that unfolds into a flat pillow) sued Snuggly for copyright and trademark infringement and related claims. The court granted a preliminary injunction.

CJ has used various trademarks, including MY PILLOW PETS®, MY PILLOW PETS® (with logo), and IT'S A PILLOW, IT'S A PET, IT'S A PET ... IT'S A PILLOW PET®. Its attempted registration for PILLOW PETS is stalled at the opposition stage. Snuggly sells similar merchandise and uses similar marks, including as Google AdWords. CJ sought an injunction against, among other things, use of PILLOW PETS, MY PILLOW PETS, IT'S A PILLOW, IT'S A PET, IT'S A PILLOW PET, pillowpets.co, "authentic pillow pets" or any confusingly similar term as a mark or AdWord. (The request included the TM and ® symbols, but I bet that CJ really wants to enjoin the use such terms without the symbols appended, since I doubt many internet searches include them; if Snuggly was really buying AdWords including ®, I suspect it was wasting its money.) It also sought a ban on the use of "authentic," "original," "official," "As Seen On TV" or other similarly confusing terms in connection with the sale of Snuggly’s Plushez and Napies plush toys, and the use of third party reviews of CJ’s products.

After Salinger, irreparable harm can’t categorically be presumed from likely success on the merits of a claim. Though Salinger was a copyright case, there was no reason it wouldn’t also apply to trademark.

After some procedural throat-clearing (some of the works at issue were late-registered and therefore not entitled to a presumption of validity, but the court found the copyrights valid), the court easily found infringement. Defendants’ evidence purported to show that CJ’s works lacked originality, because most of the design was functional and the rest wasn’t original, as myriad other products look similar.

The court disagreed. CJ offered many different sized plush pillow toys that didn’t bear a striking resemblance to its products. CJ wasn’t attempting to protect the functional aspects, such as the straps that allow the toy to transform from pillow to soft sculpture. Visual examination revealed that the parties’ products were virtually identical. “[D]efendants were utterly unable to articulate any substantial differences between the products, apart from a difference in eye design and, in some instances, minor variations in color.” Some of CJ’s products had three small black dots on their noses, while defendants’ didn’t, but the “size, pillow shape, animal shape, overall facial look, and manner in which the pillow folds into a three-dimensional sculpture” were virtually identical, and quite distinguishable from other plush foldable pillow toys available for purchase. Any differences were “simply dwarfed by the commonalities.”

Irreparable harm: “The Salinger standard for irreparable harm to plaintiff's property interest in the copyright context was based largely on the possibility of market confusion and the fact that proving ‘the loss of sales due to infringement is ... notoriously difficult.’” (Confusion is a TM concept; the Second Circuit has its wires crossed, but that’s not the district court’s fault. I also wish courts would sort out when “it’s difficult to prove damages” means “therefore the plaintiff can’t show harm and loses” and when it means “therefore the plaintiff wins without needing to show harm.” Right now, it seems like the difference is whether the court approves of the lawsuit.)

Anyway, while irreparable harm is no longer presumed from these factors, CJ carried its burden because the products at issue are extraordinarily similar; CJ spent a lot of time, money and effort to develop goodwill “and to create an instantly recognizable toy that is highly popular among children” (TM again!); and defendants’ sales have resulted and will likely result in confusion, as well as lost sales and lost goodwill. (I’ve said this before, but I don’t get why pecuniary harms aren’t irreparable but lost sales/goodwill is. Has anyone ever tried to explain why these aren’t the same thing?)

CJ provided evidence of confusion, including Amazon.com reviews. The similarity in design coupled with the use of “Pillow Pets” in defendants’ labels and domain name makes the likelihood of confusion “extraordinarily high.” “Injecting the market with counterfeit products will not only result in lost sales, but will impair plaintiffs' reputation achieved through considerable time and effort. This type of harm cannot be redressed by monetary damages available at law.”

The balance of hardships, including the public interest (with its “strong policy in favor of defending copyrights”), also favored the plaintiff, of course.

CJ had to meet the same standard on its trademark and false advertising claims, which the court kind of mushed together.
Snuggly used “As Seen On TV” to identify its Snuggly line on its website and on product tags. But it’s never marketed the products on TV. “[D]efendants' use of the phrase was apparently to cause confusion among customers regarding the source of the product, and to reap the benefits of plaintiffs' extensive advertising campaign.” Though they removed the reference from their site and tags (I’m not sure this is true; I took a screenshot of plushez.com as of Aug. 27, so unless Snuggly has marketed other products on TV, it still has a problem), the court enjoined any future use “to eliminate confusion in the market, and to ensure that defendants do not profit from inequitable conduct.”

The court found that the slogan was a material misrepresentation. It related to an “inherent quality or characteristic” of the product because the phrase “signifies a specific product-- the ‘Pillow Pet’--with which the consumer is likely familiar by virtue of plantiffs' extensive television advertising and jingle.” So, it’s a false advertisement because it’s a false designation of origin.

Similarly, Snuggly conceded that it used at least one favorable review of CJ’s product line on its own website. This was a material misrepresentation for similar reasons. So was the use of “authentic” and “original,” as applied to the allegedly generic term “pillow pets” or as applied to Snuggly’s own Plushez mark:
It is clear that the only impetus to use the terms ‘original’ and ‘authentic’ in conjunction with the phrase ‘Pillow Pets’ is to unfairly reap profit from plaintiffs' extensive marketing campaign. At the hearing, defendants were utterly unable to explain why individuals would be interested in the authenticity of ‘Pillow Pets’ in the first place …. It is abundantly clear, however, that the general public has become interested precisely because of the plantiffs' extensive efforts in branding, marketing, and producing its own highly successful line of products. Thus, false statements regarding the provenance of the product and its connection to the plaintiffs' advertising efforts will influence the decision of customers to buy the product, and they are thus material.
And the evidence of confusion showed deception. Comment: I’m not a fan of these tactics, but note that the court was willing to use evidence that consumers were, in general, confused to support a finding of actual confusion as to each one of the challenged misrepresentations. In non-TM false advertising cases, courts are often far more forgiving. Anyway, these were also material misrepresentations that “this toy is the one so heavily marketed to children via television advertisements.”

Likely injury will not be presumed in false advertising cases. Instead, the plaintiff must show competition plus a logical causal connection between the alleged false advertising and its own sales position. Because the parties here compete, the sales of one would impact the sales of the other. (Compare to standing doctrine outside the Second Circuit.) Prospective loss of this goodwill (note seamless transition from sales to goodwill) is sufficient to support a finding of irreparable harm. And also there’s a logical causal connection between the ads and CJ’s sales position: Snuggly was trying to usurp CJ’s brand recognition. Since proving lost sales due to infringement is notoriously difficult, an injunction was warranted. The other factors also supported an injunction, especially given the strong public interest in accurate information for products marketed specifically for children.

As you can guess, the TM specific claims also went well for CJ, even though PILLOW PETS alone is not registered because Snuggly objected that a pillow pet is a generic term for a plush stuffed animal that converts into a bed pillow. CJ argued that the term is suggestive and that the combination of the two words had no inherent meaning. Applying exactly the wrong test, it asked “[w]ithout knowing the product, would you know what that means, Pillow Pets? If you never heard of the product, you would need something to get you to what that product is. You would have to see the product, hear about the product.” To the contrary, the universal governing test is whether, knowing the goods/services, a consumer would consider the term at issue to be descriptive of or generic for them.

The court gave some weight to the fact that the USPTO sent the claimed mark to publication, suggesting that it was at least descriptive with secondary meaning. The court found that it would reach this conclusion—that at a minimum, this was a protectable mark—independently as well. The term “Pillow Pet” has no inherent meaning, and the genus here at issue is plush stuffed toys, so the mark isn’t generic. (This conclusion is inconsistent with the functionality discussion above: plush stuffed toys that convert into pillows are by all accounts a separate market category—I certainly wouldn’t consider them substitutes for regular plush toys--and whether we call that “genus” or “subspecies” our biological terminology should be irrelevant.) CJ spends $1 million a month on ads, and that’s been successful in making it a well-selling toy.

Apparently CJ likes the generic term “foldable plush toy animal.” And Snuggly didn’t explain why consumers would associate “pillow pet” with the product in question. So secondary meaning sufficed to justify trademark protection.

With some sloppiness (deeming registration to make marks “highly protectable” as opposed to “functioning as marks” for purposes of the strength factor), the court easily found likely confusion with respect to Snuggly’s Plushez Pillow Pets mark on its labeling, on its website, and in AdWords. The Amazon customer reviews offered some very bad facts, such as: "I bought this thinking it was a real pillow pet but the brand is something else ... [m]y only complaint is that the description acts like it is an actual Pillow Pet and it is not" and "[t]his 'pillow pet' is NOT the brand name pillow pet that you are expecting!!! I accidentally bought this 'pillow pet' on my smart phone only to realize later that it was a complete fake when I checked my order on my computer."

Similarly likely to cause confusion was the use of Pillow Pets in Snuggly’s domain name pillowpets.co.

Irreparable harm in TM comes from lost control over the reputation of the mark, because that can’t be calculated or precisely compensated. Because confusion was likely, the harm was irreparable. (So, in other words, the presumption is precisely the same post-Salinger.) Confusion is bad for the public, so the equities weighed in CJ’s favor, especially since defendants can continue to market noninfringing products under the Plushez name.

The court dealt with AdWords separately. Snuggly bought “Pillow Pets” and “My Pillow Pets” to generate sponsored links. Snuggly argued that this was permissible descriptive use or comparative advertising.

We know that AdWords are use in commerce. But the Second Circuit hasn’t addressed how to assess likely confusion in this context, and other courts have done different things. Following the majority approach, the court here applied the multifactor test and found that, as with the other claims, the majority of the factors weighed in favor of CJ, but did not reiterate its reasons.

In terms of similarity of marks, the court considered the degree of similarity between CJ’s mark and the ads on the search results page. Screen shots from March 2011 offered, as the second sponsored link on Google, “Official PillowPets.COSoft Chenille Plush Pillow Pets/Low Prices, New Styles Now in stock/www.pillowpets.co,” and as the first on Yahoo!, “PillowPets.CoTM/Official Site. SuperSoft chenille plush pillow pets Now in Stock!/www.pillowpets.co.” The ads were virtually identical to CJ’s mark, and Snuggly’s website to which consumers were referred was virtually identical to CJ’s website, “using the same color, format, fonts, and phrases-- including the mark ‘Pillow Pets.” The totality of the circumstances was misleading.

Initial interest confusion was also relevant, though the court noted the ease of clicking back in the internet context and quoted with apparent approval cases suggesting that intent to confuse is required in this context. Website traffic data showed that the number of visitors to pillowpets.co began to rise precipitously when it began to use the “pillow pets” mark, creating a “substantial likelihood that defendants took advantage of plaintiffs' substantial advertising campaign in lieu of mounting their own.” In April 2011, Snuggly shifted its focus from its plushez.com site to a nearly identical pillowpets.co site where it used “Pillow Pets” in place of PLUSHEZ and prominently displayed its knockoffs. Given all these similarities, this factor weighed heavily in favor of CJ.

Thus, the use of AdWords also caused irreparable harm, and an injunction was appropriate. (I’m not sure that CJ should have gotten the entirety of the injunction it asked for, which included a ban on the use of the terms “Pillow Pets” and “My Pillow Pets” to trigger sponsored links. Assuming Snuggly can rid itself of infringing content and still offer competing goods, shouldn’t it be able to place appropriately worded comparative ads via AdWords? That is, the problems are the ad text and the landing website, but if those are fixed, why can’t Snuggly offer “foldable pillow animals” or whatever the generic term is?)

Among other failed defenses, Snuggly argued that it reasonably relied on CJ’s disclaimers in the registration process. But disclaimer isn’t waiver of the mark itself or of a claim that the mark is no more than descriptive. Moreover, disclaimed elements of a mark are still relevant to the overall similarity assessment. Anyway, it was simply unreasonable for defendants to have relied on CJ’s alleged representations, given that CJ was attempting to register “Pillow Pets” on its own.

Saturday, August 27, 2011

The value of goodwill

Is apparently 100% standardized, at least for children's products, according to this photo by Zach Schrag. This ties into an argument made by Judge Posner about dilution, where he contends that in certain circumstances a potential licensee should be indifferent about which famous TM it licenses, thus driving licenses down towards zero. But apparently in the pinata market they're worth $3.

Consumers like to own copies

So says Apple, ending its TV episode rental service. There's clearly interesting empirical work to be done on conceptions of copy ownership and rights in copies, with implications for first sale. We're willing to rent movies, but when we download something, we apparently want to own it--even if there are transfer restrictions.

Friday, August 26, 2011

Photo finish: infringement claim smacked down

Gordon v. McGinley, 2011 WL 3648606 (S.D.N.Y.)

Janine Gordon, an art photographer, alleged “serial exploitation” of her work by another art photographer, Ryan McGinley. The court dismissed the copyright infringement claims for want of substantial similarity as a matter of law—and it did so quickly; the initial complaint was filed in February and the court ruled in August, not much more than a month after full submissions on the motion to dismiss. (Various state law claims were also dismissed.) The complaint identified 150 allegedly infringing images, though the court only discusses a few.

Substantial similarity isn’t necessarily for a jury. Under Iqbal, it’s possible to find that the works are not substantially similar as a matter of law. The test for substantial similarity is whether an ordinary observer would regard the works’ aesthetic appeal as the same, using the “total concept and overall feel” test, though unprotectible elements can’t give rise to a finding of infringement. Here, “the dictates of good eyes and common sense lead inexorably to the conclusion that there is no substantial similarity.” Rather than conducting an exhaustive inventory, the court focused on a representative sample of the 150 works to “illustrate[] and confirm[]” this holding. (I understand the impulse here, and with 150 works to wade through I can see how a reviewing court would be disinclined to require more. Given that plaintiff herself identified the allegedly worst of the worst, this doesn’t seem to be error, but I’d be hesitant to skip analysis of each allegedly infringed work on its own terms in less extreme cases.)

So, the allegedly most blatant infringement involves two photos “of young men suspended before a cloudy sky, each with his right arm extended and bent at an approximate right angle.” (And here let me commend the court: not only did it include pictures, they’re in color where appropriate. I don’t know whether West will preserve the color in the bound volumes, but the online versions retain it.) “But there the similarity ends. The Gordon Image is black and white and vertical, while the McGinley Image is in full color and horizontal. The Gordon figure is clothed in a short-sleeve T-shirt, dark pants, and tennis shoes; his hair is closely shorn. The McGinley figure is clothed in a long-sleeve shirt and shorts and is barefoot; his hair is medium-length.” Gordon attempted to obscure these allegedly “peripheral” differences by cropping and rotating Gordon’s image and converting McGinley’s to black and white, but the court found that not even this made the “total concept and feel” similar.

If anyone ever tells you that infringement analysis can be done without aesthetic judgment, quote this passage:
The Gordon figure is muscular and taut, with not one but both arms splayed in a gesture of virile triumph. The look on his face is intent, perhaps even defiant. The McGinley figure is slender and his posture relaxed, with both legs floating apart rather than clenched together. His head drapes to one shoulder and a dreamy look inhabits his face as he falls through the frame. Thus, the overall feel of the McGinley Image is that of a passive figure simply surrendering to gravity, while the overall feel of the Gordon Image derives from a dynamic figure jumping into the frame.
There was thus an utter lack of similarity between the photos, with no dissection required.

The remaining comparisons were “even less compelling.” Gordon had a picture of a stunt biker with his motorcycle and McGinley had one of two nude models on roller skates, both engulfed in smoke. Once again, Gordon manipulated the images, flipping McGinley’s horizontally and superimposing color-coded outlines of supposedly corresponding shapes. Even granting the “dubious analogy” between the motorcycle and the crouching roller skater, the relationships between the figures were distinct and the roller skater was facing the camera and smiling while the stunt biker appeared in silhouette, his face concealed. No reasonable jury could find substantial similarity.

The court was unimpressed by Gordon’s consistent alterations of the images, and also by her “strained image descriptions.” For example, she alleged that McGinley’s photo of a nude female pelvis with a tarantula over the belly button infringed her photo of a nude female pelvis with hair draped over the shoulder and covering the abdomen. In her photo, the model was standing against a black background with her hands on her hips, while in McGinley’s, the model was reclining against a light background and her arms weren’t visible. Gordon argued that this was infringing because her model had “long spidery hair.” However, in an infringement case, the works themselves supersede and control contrary descriptions. (I think this is less true than courts wish it were, but in extreme cases like this the divergence between work and description is easy to catch.) “Thus, simply assigning creative adjectives to features of a photograph cannot manufacture substantial similarity where none exists.”

The court found the flaws in Gordon’s case “perhaps best illustrated by her allegation that three separate McGinley Images infringe the same Gordon Image, albeit for slightly different reasons.” Gordon’s photo “depicts a crowded street scene in which a central figure gazes skyward while seemingly restraining a throng of young men with his outstretched arms.” McGinley’s images each show a single figure against a studio backdrop or a clouded sky. Despite the outstretched arms and opened mouths and/or upturned faces, the total concept and feel of each image “wildly diverges” from that of Gordon’s. “The Gordon figure acts in response to the crowd behind him, his arms reaching across the bodies of his companions in a gesture of restraint. By contrast, the figures in the McGinley Images are conspicuously alone.” One “captures a moment of private enchantment at sunset. The model spreads his (or her) arms in a gesture of silent rapture; a falling leaf lingers at the bottom of the frame.” Another creates “a silhouette that is both stylized and vaguely cruciform.” Another features a model who “extends his arms behind his body, as if to propel himself into flight. A solitary shadow fills the corner of the frame.” None of these “captures or even echoes the responsive contact or the urban grit that characterize the corresponding Gordon Image.”

Moreover, 39 of the allegedly infringing images were screen grabs from videos rather than still photos. One pair of photos depict two interracial couples kissing. “In both images, a black man in the right half of the frame kisses a white woman in the left half of the frame. The faces of the couple in the Gordon Image are hidden from view, while the faces of the couple in the McGinley Image appear in full profile, with the arms of the woman stretched overhead.”
The McGinley image was from “Levi’s America,” a video montage of black-and-white footage “of rural and urban Americana” featuring a “solemn and sonorous voice reciting the Walt Whitman poem ‘America,’ as each word or phrase flashes on screen. The allegedly infringing McGinley Image appears at the 51–second mark, spliced between video of a shadowy figure standing on a wooden post and a shirtless adolescent leaping through the spray of sparks from a firecracker.” The allegedly infringing image “is derived from a wholly dissimilar and dynamic medium, in which camera angles, lighting, and focus are changing at a rate of 29.4 frames per second.” The court was skeptical that a single frame from a work containing more than 1700 discrete images could support a claim of infringement of a still photo.

Quoting Mannion v. Coors Brewing Co., 377 F.Supp.2d 444 (S.D.N.Y.2005), Gordon argued that the photograph-video comparison was permissible because “a photographer's ‘conception’ of his subject is copyrightable.” But the “conception” is not the idea of an interracial kiss, but instead originality in rendition, timing, and creation of the subject. Neither the timing nor the creation of the subject here were original to Gordon, and “the static rendition of the Gordon Image bears no likeness to the pace and pulse of the corresponding McGinley work.” In a footnote, the court noted that a recent decision identified substantial similarity between a music video and a still photograph based on a determination that “both works share the frantic and surreal mood of women dominating men in a hyper-saturated, claustrophobic domestic space.” LaChapelle v. Fenty p/k/a/ Rihanna, No. 11 Civ. 945(SAS) (S.D.N.Y. July 20, 2011). Here, the court was “ultimately unpersuaded” by LaChapelle’s analysis, but in any event the images at bar were so obviously dissimilar at to make that case entirely irrelevant.

“In lieu of identifying substantial similarities in the allegedly infringing images,” Gordon offered affidavits by various artists, curators, and critics and claimed that the expert consensus is that McGinley’s work is not original and that his photos are derived from Gordon’s. This was unhelpful, since the Second Circuit limits the use of expert opinion in determining substantial similarity. Moreover, the affidavits’ substance highlighted the problem with Gordon’s claim: several experts thought that Gordon should win even though they knew nothing about copyright. One opined on the contours of “fine art ethics” and acknowledged that art expertise “may be needed” to discern the relationship between the images at issue.

“[T]he remedy for the instant dispute lies in the court of public or expert opinion and not the federal district court…. The fact that McGinley's works may be ultimately derivative and unoriginal in an artistic sense—something which the Court has neither the expertise nor inclination to pronounce upon—is beside the point.” Most ads are derivative in that sense, and not all copying is copyright infringement.

Perhaps setting up for a fee award—which would be well justified, in my opinion—the court pointed out that Gordon’s theory
would assert copyright interests in virtually any figure with outstretched arms, any interracial kiss, or any nude female torso. Such a conception of copyright law has no basis in statute, case law, or common sense, and its application would serve to undermine rather than promote the most basic forms of artistic expression. One might have hoped that Plaintiff—an artist—would have understood as much, or that her attorneys, presumably familiar with the basic tenets of copyright and intellectual property law, would have recognized the futility of this action before embarking on a long, costly, and ultimately wasteful course of litigation in a court of law.

Thursday, August 25, 2011

Fair use/aesthetic functionality save the Green Day

Seltzer v. Green Day, Inc., No. CV 10-2103 (C.D. Cal. Aug. 18, 2011)

Seltzer, an artist, sued the band Green Day and related defendants for infringing his rights in Scream Icon, a drawing of a “dramatic image of a human face contorted in the expression of a cry or a scream.” Green Day used Scream Icon “as part of a video backdrop that was shown during live performances of Green Day’s song East Jesus Nowhere.” Scream Icon was reproduced on posters and stickers, including on a wall at Sunset Boulevard and Gardner Avenue.

Defendant Staub took a photo of that wall, which was covered with street art and graffiti. His photo showed a torn and weathered Scream Icon poster. Subsequently, Green Day hired him to create video backdrops for its concert tour that would visually represent the tone, mood, and theme of each song to be performed, one of which was East Jesus Nowhere, whose underlying theme is “the hypocrisy of religions.” Staub created a 4-minute video backgrop including a composite image based on his photo. Staub “used the portion of his photograph containing the Scream Icon poster, altered the color and contrast, added a brick background, and then superimposed a red spray-painted cross over the modified image.” This backdrop was used in concerts from July-November 2009, but not used on any album artwork, merchandise, tickets, or ads.

Seltzer sued for copyright and trademark infringement and related state law torts.

The court first found fair use. The backdrop was transformative: “[t]he different visual elements Staub added, including graffiti, a brick backdrop, and (especially) the large red cross over the image, considered in connection with the music and lyrics of East Jesus Nowhere,” added something new with a further purpose or different character. While the large red cross over the torn Scream Icon poster, according to Staub, represented the “relationship between organized religion and pain and suffering,” Seltzer stated that he created Scream Icon to address “themes of youth culture, skateboard culture, [and] insider/outsider culture.” Moreover, Seltzer’s own testimony about his moral outrage supported a finding of transformativeness, because he said that the use
[T]ainted the original message of the image and [ ] made it now synonymous with lyrics, a video, and concert tour that it was not originally intended to be used with….. I make an image, I produce it, I tailor it to my needs, the concept, the content, and then someone comes along, defaces the image, puts a red cross on it. I mean, maliciously devalues the original intent and then shows it to thousands upon thousands of people.
Though defendants profited from the concert tour, the commercial nature of the use was “minimal, if not negligible,” because they weren’t selling the image or directly using it to promote themselves. This weighed only slightly against fair use, and was strongly outweighed by the substantial transformation.

Creative works get more protection than fact-based ones (in theory), but published works are more likely to be subject to fair use than unpublished ones. “The fact that Scream Icon was published and appeared on the internet before Green Day used the image is also critical in determining whether the use of Scream Icon qualifies as fair use.” So the second factor only weighed slightly against fair use.

Amount used: first, the court noted that defendants’ use was part of a composite image containing numerous other images and effects. “Even though Defendants used substantial portions of Plaintiff’s work, the image of Scream Icon in Staub’s video backdrop was but one of many visual elements used to convey the mood, tone, and meaning of Green Day’s East Jesus Nowhere.” Thus the third factor weighed only slightly in favor of fair use. The court cited Dorling Kindersley, which held that reproducing entire images as a small part of a book with hundreds of other images didn’t take the “heart” of the plaintiff’s images. Now, in theory, this factor should focus on the plaintiff’s work, but I think there is a useful insight here about how placement in a larger context can change what’s “taken” from the plaintiff’s work. The third factor is, therefore and unsurprisingly, dependent on transformativeness.

Market effect: Seltzer had no evidence of harm. No collectors ever refused to buy Seltzer’s work because of Green Day’s use. Seltzer’s declaration said that he once licensed the use of Scream Icon in a music video, and, though he’d been approached for licensing before Green Day’s use, he hadn’t been approached thereafter. But he failed to offer evidence of any revenues from his license, and Dorling Kindersley also said that the fact of previous licensing doesn’t make a market traditional, reasonable, or likely to be developed. The statements about “approaches” were too vague and unsubstantiated to raise a triable issue of fact on harm. Also, transformative use isn’t likely to usurp the original or derivative markets for the work. “Given the fundamentally different purposes of the two works, Staub’s use of a modified version of the Scream Icon image in the East Jesus Nowhere ideo backdrop cannot reasonably be deemed a market substitute for Plaintiff’s original Scream Icon image.”

The heavy weight of factors one and four favoring defendants outweighed two and three as a matter of law.

Seltzer also claimed unfair competition, false designation of origin, and false representation of affiliation under the Lanham Act. But he failed to present admissible evidence that he used Scream Icon as a trademark. He testified that he’d only used it as “a piece of artwork.” He did submit a gallery card that used his stage name, Euthanasia, and a small image of a woman looking at a painting of Scream Icon. But that’s not enough. “That Plaintiff may have adopted Scream Icon as a means of self-identification simply does not mean he used his Scream Icon image in connection with the sale of goods.” The court goes further, unnecessarily and erroneously, saying that “his use of a pseudonym on the card actually undermines his claim of misattribution and unfair competition” because consumers seeing the card would not associate the image with Derek Seltzer but rather with Euthanasia.

Separately, even if Seltzer had used Scream Icon as a mark in commerce, his claims would fail as a matter of law because defendants didn’t use the image for trademark purposes. The court quoted Int’l Order of Job’s Daughters v. Lindeburg and Co., 633 F.2d 912 (9th Cir.
1980), for the proposition that others may copy features of a product “which constitute the actual benefit that the consumer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored, or endorsed a product.”

To figure out whether a use is for functional or trademark purposes, a court must examine the articles themselves, the defendant’s merchandising practices, and any evidence that consumers inferred a connection between the defendant’s product and the trademark owner. The court offered the recently withdrawn Betty Boop opinion as an example of aesthetic functionality, where the defendant never designated its Betty Boop merchandise as official or otherwise affirmatively indicated sponsorship and failed to show actual confusion. As a matter of law, Seltzer’s claims failed under the Job’s Daughters test. “Not only did Defendants never give any indicia of sponsorship by Plaintiff, there are not even ‘merchandising practices’ to speak of in this case.” Nor was there evidence of actual confusion. (While the discussion of the recently withdrawn Betty Boop opinion gives grounds for a motion for reconsideration, the court ultimately applied Job’s Daughters, which remains good law; any such motion ought to be futile, especially given that unlike both cases the situation here didn’t involve any merchandising at all.)

Without the Lanham Act claims, the state law claims for unfair competition and dilution also went away.

Orgasm Inc.

This is a documentary of average quality with a few very sharp moments, probably worth watching if you're interested in the subject matter (medicalization of women's sexuality). But there's a non-patent IP angle! Part of the story is how the documentarian created edited sequences of porn clips for women to watch in the course of clinical testing for one drug. So, is it fair use? Is the purpose "get women aroused for science" the same as "get viewers aroused" under the first fair use factor?

(Side note: there's also a securities law question. Founder goes on TV and says their drug, approved for men, might work on women. No particular basis other than the idea that the systems are basically the same, apparently no testing ongoing or even specifically planned. The stock goes through the roof. Is this ok?)

Wednesday, August 24, 2011

Patent infringement claim not false advertising to sophisticated consumers

Carpenter Technology Corp. v. Allegheny Technologies Inc., 2011 WL 3652447 (E.D. Pa.)

The parties compete to sell specialty alloy ingots. ATI sent letters to Carpenter, another competitor, and Carpenter customers/potential customers (one was GE) claiming patent rights in certain alloy ingots. Carpenter then entered into an indemnification agreement with its customers. It also sued for false advertising. (As you’d expect, there are also patent claims, but they aren’t addressed in this opinion except as necessary to deal with the false advertising claims.)

Carpenter argued that ATI lacked valid patent rights at the time the letters were sent, and knew its patent was invalid. The court didn’t agree. ATI held an issued patent, which is presumed valid until a court rules otherwise. Moreover, the evidence didn’t show deception (required because there was no literal falsity); GE thought the patents were invalid. “GE knew the state of the patent when it received the ATI letters and chose to proceed in its business with Carpenter regardless of the letters' contents.” The other purchaser reacted similarly. The court said that deception is closely related to materiality; it’s really talking about materiality, and clarifies this immediately. GE insisted that Carpenter finish and deliver potentially infringing ingots. The other customer also had discussed the issue and continued to buy the ingots for at least two more years. Thus, there was no deception. (In theory, the extra cost of indemnification could count as a harm to Carpenter, but given the parties’ sophistication this may have occurred no matter what.)

In a Lanham Act case based on false patent claims, the plaintiff has to show defendant’s objective and subjective bad faith in claiming patent infringement. Carpenter couldn’t show that ATI’s assertions were objectively baseless, because ATI owned a valid patent. This seems to imply that ATI can’t be sued even if it knew that the patent had been issued in error or even if it knew that the patent didn’t cover the plaintiff’s activities. The subjective component requires a showing “that ATI knew its claims were baseless when it sent its letters,” which could occur even with an issued patent. I don’t think that a non-invalidated patent covers any and all assertions a patentee wants to make, regardless of the actual facts; that said, it may allow a lot of ground for uncertain assertions.

Whittier student writing competition

Intellectual Property Writing Competition

Whittier Law Review seeks paper submissions in conjunction with its yearly symposium. The paper should relate to legal issues and challenges that surround Intellectual Property with an emphasis in New Media Topics.

- Authors must attend ABA accredited law schools
- Papers must represent original works not previously published or targeted for submission to another journal, law review or other periodical for publication until the winning papers are announced.
- Papers must be between 8,000-12,000 words, including footnotes, double spaced in 12 point font.

Please submit as an attached .doc file to wlrsubmissions@law.whittier.edu with “WRITING COMPETITION” in the subject line by 5 PM Pacific Time on September 9, 2011.
Please attach a cover letter which includes the author’s name, paper title and school.

The 1st place winner shall receive $1,000, publication in the Whittier Law Review and travel to the IP Symposium in Costa Mesa, CA. The 2nd & 3rd place winners will receive $500 each and honorable mention.

Why mess with Texas when it's doing such a good job on its own?

By way of an eagle-eyed correspondent: Apparently official Texas is embarrassed by steamy romance--shades of covering up Justice's breasts, perhaps? Suing over the clearly noninfringing, First Amendment-protected title Don't Mess with Texas, the state just dropped another notch in my estimation.

Tuesday, August 23, 2011

Movie devices as prior art

HT Carol Stoneburner: Samsung cites 2001 as prior art against Apple. Star Trek's communicator anticipated the smartphone (and if I did enable any audible ringtone, you can bet it would be a Star Trek chirp), but this filing is particularly fun because it also implicates copyright law: Samsung includes a screenshot from the film, and also directs the court to this YouTube clip from 2001 that does not seem to have been uploaded by the copyright owner. Samsung's uses are unquestionably fair; what does that imply about the clip in general? (As a ST fan, I'll also say that the various flat devices in use in the Star Treks, especially TNG, seem closer to the iPad than the device shown in 2001.)

Variety wins anti-SLAPP appeal over bad review of big advertiser

Calibra Pictures, LLC v. Variety, 2011 WL 3612209 (Cal. App. 2 Dist.)

Variety is an entertainment trade magazine with “complete separation between the advertising and editorial departments.”

Calibra is managed by Joshua Newton, who wrote, directed, and produced Iron Cross for Calibra, starring the late Roy Scheider, who died before filming was completed. In early 2009, Newton contacted the sales director at Variety to place a front cover ad to promote a Roy Scheider tribute and to attract attention to his film. The ad ran for $45,000.

The tribute featured a screening of the film trailer. The sales director was there and congratulated Newton on the trailer, then wrote him an email calling the trailer “amazing.” She offered to promote the film at the upcoming Cannes Film Festival, but Newton declined. She then invited him to attend a gala as the guest of the president of Variety, Neil Stiles. Newton attended; his guests included his son Alexander, Roy Scheider’s Iron Cross costar. (Rhetorical question: what is the function of including this factual detail?) Stiles told Newton that Variety was the lead industry with an overwhelming market share, making it useless to advertise with a competitor. He emphasized that all Academy Awards members, studios and production and distribution decisionmakers read Variety and asked if Iron Cross had a distributor. Newton said no.

Stiles then asked if Newton had considered entering Iron Cross into the 2010 Oscars. “Newton indicated it was a possibility but that he would have to ask his investors when he returned to London. Stiles stated that if Calibra was to pursue the Oscars, Variety would be the perfect partner and it could help ‘Iron Cross’ achieve an Oscar nomination.”

Newton met with his investors and then agreed to use Variety to submit the film for the Academy Awards. A few weeks later, he told the sales director that it was unlikely that the film would be completed in time for the Oscar race. The next month, she told Newton that the Variety Group Editor, Timothy Gray, had published a short list of possible Academy Award contenders that included Iron Cross. As it turned out, she’d asked Gray to include the film on the list. A few months later, Variety published another list of contenders including Iron Cross, indicating a fall release, as well as a media pack, “Academy Season 2010,” listing the film.

The sales director then told Newton that Gray had chosen to include the film in the “exclusive” Variety Screening Series, for $25,000, as part of an overall exclusive partnership with Calibra for a promotional campaign to attract a distributor and nominations for the Academy Awards and the British Academy Awards (BAFTA) for Roy Scheider. Newton told her that he could only justify the expense in order to secure a major distribution deal. The sales director “assured Newton that if Calibra had the budget, Variety could create sufficient excitement about the film through a carefully designed Academy Awards campaign that the film would achieve the attention of major distributors. She also said that she would contact distributors directly and help Calibra obtain a distributor, but only if Calibra selected Variety as an exclusive media partner.”

Variety asked for over $427,500 for its screening and promotional activities, including covers, DVD inserts, and other ads. The campaign generated enough interest that various industry people requested screener copies. To qualify for the Academy Awards and get the most value out of the Variety deal, the sales director said that Calibra needed to finish the film and have it exhibited in a commercial movie theater for one week in December 2009. In reliance on that claim, Calibra spent $800,000 to expedite completion of the film. “Newton worked 24 hours a day, seven days a week.” The sales director and another Variety representative attended the December Los Angeles screening and told Newton the film was “outstanding.” By late December, Calibra had paid Variety $226,000.

A freelance film critic, Robert Koehler, was assigned to review the film for Variety. His December 20 review began: “‘Iron Cross’ will be remembered as Roy Scheider’s swan song and little else. A film of serious intent undone by hackneyed plotting and intrusive editing, writer-director Joshua Newton's revenge drama is reasonably sound in its general outline, until it delves into specifics. Scheider feels at home in his final role as a retired Gotham cop who goes to Germany to hunt down the Nazi who killed his family, though his onscreen presence is increasingly trimmed away as the reels roll by. The briefest of theatrical windows (pic opened Friday for a one-week Oscar-qualifying run) will quickly close shut before a muted vid bid.” The court summarized the rest of the review as criticizing “the film's writing, structure and direction and some of the actors.” (The review is amusingly uses cut-off lingo suggesting that the writer gets paid, in part, for chopping letters off of words—or maybe, more to the point, for sounding like a classic Variety review. Of some note, given my question above, is that Alexander Newton was singled out as a “promising actor” despite his incongruous British accent.)

Newton asked the sales director what happened. She said “she was flabbergasted, apologized and asked Newton to meet with Stiles.” When Newton met with Stiles the next day, he asked for the review to be deleted, alleging that it contained factual inaccuracies and that Koehler left the screening before the film ended. Stiles allegedly promised that he’d “see what he could do.” The critic who’d assigned the film to Koehler promised to investigate and took the review down for a short time “to give Newton enough time to get other reviews.” But the article had already been printed in LA and NY, and many online traces and quotes remained. After Variety’s critic concluded that Newton’s factual claims were wrong, Variety reposted the review online.

Calibra sued for breach of contract (specifically, the implied covenant of good faith and fair dealing), negligence, fraud, breach of fiduciary duty and violation of California statutory consumer protection law. Variety filed an anti-SLAPP motion, which the trial court granted on the ground that the lawsuit arose from an exercise of free speech and that there was no evidence that Variety waived its rights by contracting not to publish a review of the film. With the burden shifted to Calibra to demonstrate a probability of prevailing on the merits, the suit failed. Variety got its attorneys’ fees as well, pursuant to the anti-SLAPP law.

Calibra didn’t contest that this was a case involving free speech in connection with an issue of public interest, but argued that the trial court should have found that it established a prima facie case. The court of appeals disagreed.

First, Variety didn’t waive its right to publish the review. A waiver of First Amendment rights requires “clear and compelling” relinquishment, and courts “indulge every reasonable presumption” against such a waiver. With that as a standard, Calibra was doomed. Calibra argued that Variety impliedly waived its right to publish a review of the film through its exclusive media partnership with Calibra, which formed a fiduciary relationship. But courts won’t imply a waiver of free speech rights. Calibra argued that the fact that Variety took the review down after Newton complained indicated the parties’ understanding that Variety agreed to avoid negative promotion, but the record made it reasonable to presume that this was a courtesy only, especially since Variety then reposted the review.

In Paragould Cablevision v. City of Paragould, Ark., 930 F.2d 1310 (8th Cir.1991), a cable company agreed to a contract that provided that if the company desired to offer “additional income-producing activities “such as advertising” over the cable system, it would first notify the city in order to negotiate the proposed modification. The cable company then sued for violation of its commercial speech rights. The court held that the cable company “effectively bargained away some of its free speech rights,” and could have bargained for an unqualified right to advertise. The 9th Circuit has read Paragould to hold that waiver of free speech rights can be implied in commercial transactions involving sophisticated parties. But “[p]roperly understood,” the case covers only sophisticated parties who use “contractual language that expressly restricts the party's exercise of a certain type of speech.” The waiver is implied only in a loose sense: the term “waiver” and the speech rights at issue aren’t spelled out. But the waiver “flows directly from the concrete and agreed upon restriction on speech.” That’s not this case.

The implied covenant of good faith and fair dealing prevents a party from frustrating the other party’s rights to the benefit of the contract, but because there was no waiver of free speech rights, there was no breach. Likewise, the negligence claim failed; there’s no precedent for allowing tort recovery against a newspaper for publishing opinion and nondefamatory assertions of fact. Thus, Variety could have no duty to refrain from publishing the review.

Nor did a fiduciary duty exist because of Variety’s promises, including its promises to promote Iron Cross to distributors. Calibra didn’t argue that the parties formed an agency relationship. “In any event, the context of the allegations and evidence demonstrate that Variety was offering help to Calibra as a method of landing a large advertising contract, and in no way was Variety offering to act in anyone's interest but its own.”

The exclusive media partnership wasn’t a legal partnership but an arm’s length transaction. “Variety was acting in its own financial interest. Calibra could not have reasonably expected otherwise, particularly because Variety was a trade paper that did not agree to waive its free speech rights or be a fiduciary.” Variety’s alleged ability to exploit a disparity in bargaining power didn’t of itself create a fiduciary relationship. “Regardless, we note that Calibra was an obviously well-funded film company with hundreds of thousands of dollars at its disposal. It held the purse strings and did not have to advertise in Variety ….”

It may well have been the case that Calibra depended on Variety to refrain from panning Iron Cross, “but that dependence cannot, by itself, convert what was otherwise an arm's length transaction into a fiduciary relationship.” Moreover, it was unreasonable to believe that an ad contract with the sales department would have an impact on the editorial department. (Comment: this has to mean unreasonable as a matter of law. As a matter of fact, such influences are well-known even if often decried.) “If Variety's editorial department handled advertising customers with a velvet glove, Variety would lose credibility as a source of independent news and opinions about the entertainment industry.” Nor did Calibra’s reliance on Variety’s advice about when to release the film matter, since the advice was free and Calibra didn’t have to take it.

Fraud: Calibra alleged that Variety misrepresented Calibra’s potential for winning Academy Awards. But these were merely opinions about possible future actions by Academy voters. Opinions are actionable only under special circumstances, “such as when the defendant holds itself out as being specially qualified; the opinion is stated as fact or implies justifying facts; or the opinion is rendered by a fiduciary or other trusted person.” Calibra only argued that Variety was a fiduciary (not that it held itself out as being specially qualified?), which wasn’t the case.

Calibra argued that Variety knew its predictions were false beause no one at Variety had seen the film. The court didn’t follow. “Presumably what Calibra means is that Variety did not believe that its predictions had any merit,” but the court disagreed: the evidence indicated that Variety’s prediction had “arguable merit,” given that Iron Cross was Roy Scheider’s last film, which might have gotten the sentimental vote, and that the Holocaust film genre has resonated with Academy voters over the years.

Even assuming that Variety didn’t believe its own prediction, Calibra’s reliance was unjustified. Iron Cross, an obscure independent film, had an uphill battle for Oscar consideration, and the film was uncompleted at the time of the contract. “Thus, other than the film's theme and star, Variety had no legitimate basis for offering a prediction.” There was also no evidence that Variety had a secret intent to destroy the film with a negative review, which in fact worked against Variety’s economic interest since Calibra stopped paying.

Unfair business practices: also no. Variety sold and provided advertising, “which the evidence shows was a success because it generated interest in ‘Iron Cross.’ Variety did not promise to waive its free speech rights, and its sales department is separate from its editorial department. Thus, it is unlikely Variety's conduct would lead the public to believe that buying advertising would preclude Variety from publishing negative press about the buyer.”

Variety was therefore entitled to an additional fee award for the appeal, over the $57,000 it initially got.

Comment: while this seems plainly the right result, it also appears that Hollywood sells hope at least as much as Max Factor does.


Fleischer Studios v. A.V.E.L.A., Inc., No. 09-56317 (9th Cir. Aug. 19, 2011)

The court withdrew its earlier opinion, with its holding that the Betty Boop merchandise couldn’t be serving as a trademark because people wanted to buy the merchandise with Betty Boop on it and not merchandise from a particular source, aka aesthetic functionality. After various procedural matters were out of the way, the revised opinion now remands on the trademark issues.

The district court held that the fractured copyright ownership (which was the source of plaintiff’s loss on its copyright claims) precluded the existence of a valid trademark, since multiple parties were the source of Betty Boop stuff. The new opinion agreed that “the fractured ownership of a trademark may make it legally impossible for a trademark holder to prove secondary meaning,” but held that the facts available to the court didn’t establish that this was true here as a matter of law. Fractured ownership isn’t enough on its own—there must be “something more,” which such as the facts in the district court case initially adopting the fractured ownership theory: “evidence of extensive use and licensing of similar images by other companies, the oddly-defined trademark that was legally carved out from other images of the same character, the widespread confusion amongst potential licensees and licensors regarding from whom one should license the mark, and the other image of the same character that had acquired secondary meaning.” Here, however, there had only been a showing that more than one entity owns rights to Betty Boop IP. Without evidence of confusion in the marketplace over who owns the character, extensive merchandising of other images, or secondary meaning for other images, “all we have is the possibility that other copyright owners may be destroying the secondary meaning in the Betty Boop mark.” That wasn’t enough.

The district court’s other reasons for ruling against Fleischer were that the uses here weren’t uses of a mark in commerce and weren’t likely to cause confusion. “Given the large number of complex issues it faced and the minimal assistance from the parties’ briefs, it is understandable that the district court might have deemed it unnecessary to address these issues in greater depth, to provide more detailed reasoning, to cite to relevant authority, or to identify a basis in the record for these apparent conclusions.” But more was necessary to create a reviewable decision, so remand it was.

Hill of beans: failure to disclose meat content draws lawsuit

From DuetsBlog, this story about a lawsuit against Chipotle for failing to disclose that the pinto beans are made with bacon. I'm highly sympathetic for a variety of reasons: I was a victim of McDonald's claim that it had switched to vegetable oil for frying its fries, and consumed them some number of times before it was revealed that the fries nonetheless had meat added as a "flavoring." As a vegetarian by choice and not by religious obligation, I didn't need a purification ceremony, but I was definitely deceived.

It can be hard to tell when to expect meat. I wouldn't even ask about guacamole, for example; nondisclosure of meat in guacamole would seem obviously deceptive to me. As a rule, I try to ask about whether beans are vegetarian, but (1) I consider that most important at non-chain restaurants, since I expect chains to be more aware of and able to inform vegetarians, whether through asterisks or little green leaves or, heck, the labels "vegetarian" and/or "non-vegetarian"/"contains meat," and (2) especially with that background, no one wants to hold up the line when there are 40 people behind you, and often when you ask and the beans are vegetarian you get some eye-rolling (they're beans, duh), which is never fun.

Monday, August 22, 2011

Addendum to entry-level advice

Many candidates these days send out emails/packets directly to schools of interest to them as well as using AALS. That's fine and can pay off, but if you do it electronically, please name your files appropriately. I like you better when I can just save the file lastname_resume.doc, or FIRSTNAME LASTNAME resume.pdf or any other choice that makes sense than when I have to remember to manually rename your resume.docx file to match your name, which I might even misspell! I think you can do the same thing with the AALS resume system too.

Burying the LEED

Gifford v. U.S. Green Building Council, 10 Civ. 7747 (S.D.N.Y. Aug. 15, 2011)

Plaintiffs were “professionals in the environmental engineering and design industry,” including “a consultant who provides advice about how to reduce energy costs,” a licensed architect, an engineer specializing in heating and cooling systems, a specialist in moisture barrier design and mold remediation, and a company that provides energy saving heating and cooling system designs.

Defendant is a nonprofit that operates the Leadership in Energy and Environmental Design (“LEED”) certification system, “which purports to certify buildings as being designed and constructed in an environmentally friendly manner.” Defendant also represents about 140,000 design professionals it’s accredited as qualified to advise real estate developers and other consumers on how to design LEED-certified buildings. Defendant receives fees from those seeking LEED certification for their buildings and from the professionals it accredits.

Defendant advertises LEED, and plaintiffs alleged that one particular claim was false: a statement in a press release that the results of a 2008 study “indicate that new buildings certified under the [USGBC’s] LEED certification system are, on average, performing 25–30% better than non-LEED certified buildings in terms of energy use.” Plaintiffs alleged that consumers were therefore diverted from their business to LEED-accredited professionals.

The Lanham Act is “extremely broad,” Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 111 (2d Cir. 2010), but not broad enough for these plaintiffs. The first prudential test discussed in Famous Horse is the “strong categorical” test requiring competition between plaintiff and defendant along with competitive injury. The second is the “reasonable commercial interest” test, under which competition is important but not dispositive as an indication of why the plaintiff has a reasonable basis for believing that defendant’s false advertising will damage its commercial interests. When the parties aren’t obviously in competition, a plaintiff has to make a more substantial showing of injury and causation to have standing.

Here, plaintiffs plainly didn’t compete with defendant for certification or accreditation, nor did they allege that defendant directly referred to their products or services in its advertising.

Instead, plaintiffs alleged competition in the “market for energy efficient building expertise,” but the court found that this broad label didn’t obscure the clear differences between their “products.” Unlike plaintiffs, defendant doesn’t provide clients with advice about energy-efficient design, nor does it provide design services. It reviews and rates designs created by others. This was different from Famous Horse, because there the parties operated on different levels of a supply chain for the same product.

Thus, plaintiffs didn’t adequately allege a reasonable commercial interest that is likely to be damaged by USGBC’s alleged false statement. The allegation of likely injury was “entirely speculative.” The plaintiffs design and consult on specific elements of individual buildings, including heating and cooling systems. But they didn’t allege that LEED-certified buildings don’t require those services or that such services must be provided by a LEED-accredited professional for the building to be certified. “Because there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, it is not plausible that each customer who opts for LEED certification is a customer lost to Plaintiffs.” (Given this analysis, I do wonder about the potential standing of, say, real estate developers with non-certified buildings.)

Even if plaintiffs could allege that a particular developer chose LEED-certified consultants over Gifford, that wouldn’t establish the required causal nexus, which requires reliance on the allegedly false statement. Such reliance isn’t plausible in light of the proffered statement that the developer chose a LEED professional “because everyone has heard of LEED, but not everyone has heard of Henry Gifford,” and because the developer will “get more credibility by simply saying we’re going to build a LEED-rated building.”

Because the court dismissed the Lanham Act claims with prejudice, it declined to exercise jurisdiction over the coordinate state law deceptive trade practices claims.

Friday, August 19, 2011

NYT on fake reviews

This story doesn't mention the legal risk to an advertiser hiring people to write unfounded positive reviews, though it's substantial under the FTC Endorsement Guidelines.

Something smells bad: 8th Circuit reverses literal falsity holding

Buetow v. A.L.S. Enterprises, Inc., --- F.3d ----, 2011 WL 3611488 (8th Cir.)

Another day, another decision making it harder to recover for false advertising.

Game animals use their senses of smell to avoid hunters, who therefore like clothes with activated carbon to adsorb and retain human scent (adsorption means that the scent particles physically adhere to the surface of the material). ALS advertised its ScentLok clothing as containing “odor eliminating technology.” Plaintiffs brought a purported class action against ALS and three licensees claiming that ALS falsely advertised that ScentLok technology would eliminate 100% of human odors and that it could be reactivated or regenerated in a household dryer after the clothing has become saturated with odors, violating Minnesota consumer protection laws.

The district court denied plaintiffs’ motion for class certification based on variance in reliance and damages issues. Plaintiffs moved for partial summary judgment on literal falsity, and the district court held that ads claiming that the clothing is “odor eliminating” were literally false, entitling plaintiffs to a permanent injunction. The ads claiming the potential for reactivation were not literally false, but claims that the clothing would be “like new” or “pristine” were. However, the Minnesota Deceptive Trade Practices Act allows only prospective injunctive relief, and the court granted defendants summary judgment because these plaintiffs are at no risk of future harm.

Defendants appealed; the court of appeals vacated the injunction.

First, the court held, the plaintiffs led the district court into error by arguing that the state statutes at issue were coextensive with the Lanham Act and that when an ad is literally false injunctive relief should follow. (I guess that, unlike ordinary consumers who are very hard to fool, district courts are easily misled.)

This was a misstatement of federal law, though it had been repeated in numerous district court opinions. Even in literal falsity cases, the proper rule is that “when a competitor's advertisement, particularly a comparative ad, is proved to be literally false, the court may presume that consumers were misled and grant an irreparably injured competitor injunctive relief without requiring consumer surveys or other evidence of the ad's impact on the buying public.” However, the plaintiff must still show irreparable injury to get an injunction. The district court here erred in granting a permanent injunction without proof of irreparable injury.

There was a second error: equating the standards for relief under the Lanham Act and the state consumer protection laws. (Somehow this error never matters when it’s made by defendants. As I have noted before, this is a common statement. Watch as the court tries to prevent its holding, which in the abstract is entirely correct, from making any difference to Lanham Act plaintiffs.) Lanham Act cases involve claims by competitors or those with commercial interests, and so in prior cases the court has held that pendent state law claims are “coextensive” with the federal claims. Here, however, plaintiffs are consumers making only state law claims and the laws should not be automatically equated. “When the plaintiffs are consumers who have proved no future harm, as in this case, it is an error of law to assume that a false statement materially deceived and injured the plaintiffs.”

Honestly, I’m not even surprised at the mismatch between logic and result. Actually figuring out what the state law provided would have required looking at the elements—and state consumer protection laws generally don’t require reliance or actual deception, see the Minnesota CFA. They often do require a consumer interest or impact, which sometimes affects competitor-plaintiffs’ standing, and on some occasions (Massachusetts comes to mind, where a competitor can show unfairness only by meeting the standards for an antitrust violation, whereas acts unfair to consumers are defined more broadly) the standard for liability will differ as between competitors and consumers. However, the particular doctrine here—that literal falsity leads to an inference that deception occurred—should either be valid for all state law plaintiffs or for none. We don’t even have reason to think that state law distinguishes between explicitly and implicitly false statements the way the Lanham Act does, especially given the explicit absence of any requirement of “actual confusion or misunderstanding” (compare the Lanham Act doctrine in cases of implicit falsity). The idea that the causes of action are coextensive as applied to competitors makes no sense, and the court of appeals should have admitted that the previous decisions were the product of failure to address the elements of the state law claims.

Okay: here, plaintiffs sought a permanent injunction based on violations of two state statutes. In Minnesota, injunctive relief is appropriate if the prerequisites have been established and the injunction would fulfill the legislative purposes. “Once the statutory standards are established, Lanham Act decisions provide useful guidance in determining the proof required to establish consumer confusion under the MCFA and the MUTPA.”

The MCFA specifically authorizes injunctive relief for the use of “any fraud, ... misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby,” but only for actions brought by the AG. Under a separate provision, any person injured by violation of the consumer protection laws may recover damages and “receive other equitable relief as determined by the court.” So plaintiffs have to have been injured by a violation, and equitable relief has to be consistent with remedies principles, “which universally require proof of irreparable injury.” (In a footnote, the court said it didn’t disagree with cases holding that literally false comparative advertising presumptively creates irreparable injury to the competitor.)

As for the MUTPA, it bars knowing misrepresentations of the true quality of merchandise, and does grant a private right of action to enjoin violations. “Any person damaged or who is threatened with loss, damage, or injury by reason of a violation … shall be entitled to sue for and have injunctive relief ... against any damage or threatened loss or injury by reason of a violation.... [I]t shall not be necessary to allege or prove that an adequate remedy at law does not exist.” Still, plaintifs have to prove that they were damaged or threatened with damage, and plaintiffs failed to prove the threat of future injury. “[W]e doubt that [this section] authorizes an injunction to ‘remedy’ only past violations.” Uh, okay. I’m sure that’s why the statute provides for injunctions against any “damage” or “threatened loss.” Since plaintiffs claimed they didn’t need to prove irreparable injury, the injunction was vacated.

But we’re not done! The majority then found that the district court erred in its fact-finding. The court found literal falsity, but claims must be considered in context. There was evidence that the clothing blocked a lot of odor compounds, though it didn’t eliminate odor; that consumers liked the products (which is of course relevant because consumers can easily detect whether prey animals can smell them); and that other advertisers used the word “eliminate.”

The court of appeals first disagreed with the district court’s use of “the most absolute of competing dictionary definitions” of “eliminate.” “The Lanham Act doctrine of literal falsity is reserved for an ad that is unambiguously false and misleading—‘the patently false statement that means what it says to any linguistically competent person.’ We doubt there are many hunters so scientifically unsophisticated as to believe that any product can ‘eliminate’ every molecule of human odor.”

Okay, look, I realize the court doesn’t want to let these plaintiffs win. But it would be nice to get the reasons conceptually right. “Linguistic competence” is not the same thing as “scientific competence.” “Eliminate” means get rid of. Not reduce. Every dictionary definition the court looked at, not just the “most absolute,” said this, because “eliminate” is an absolute. So, to any linguistically competent person, eliminate would mean get rid of, just like any linguistically competent person would understand the claim “this car gets 10,000 miles per gallon” to mean exactly that as a matter of denotation (compare the linguistic ambiguity in "this book should not lightly be set aside"). The court’s actual objection is that a reasonable hunter wouldn’t believe the claim that is clearly conveyed by explicit statement—that is, the court thinks this is puffery, as it quickly makes clear.

Because text must yield to context, it was error to enjoin all uses of “odor eliminating.” It might be that some of the ads so exaggerated the basic claim as to be literally false, rather than nonactionable puffery. The court mentioned as potentially false ad claims that the garments work on "100% of your scent 100% of the time," render the wearer "completely scent-free," or "create an impervious shield to odor." “But it is unclear the extent to which these ads were ever published, whether they have long since been discontinued, and whether consumers were deceived.”

Because plaintiffs represented that they moved for complete summary adjudication on their injunctive relief claims, the court of appeals directed the district court to enter an order dismissing their claims for equitable relief with prejudice. Their individual damages claims remained.

One judge concurred in the first part (the legal error), but dissented from the finding that the district court wrongly found literal falsity in “odor eliminating” and “reactivation.” (Hey, did the majority even find that “reactivation” was not literally false? I don’t see any discussion of the term. I guess implicitly we must conclude that the district court was also wrong about that, for a reason to be named later?)

The dissent agreed that context matters, but
the majority's opinion substitutes this court's judgment for the evidence in the record (i.e., the statements in the Plaintiffs' affidavits) that the Plaintiffs themselves were misled. It is true that only a very credulous consumer would believe such a claim, but the claim itself is, in fact, false. It is unwise to decide that just because the judges on the panel would not be deceived, it is therefore impossible that any reasonable consumer would be deceived. This is especially the case because the claims are scientific. I fear that the majority opinion sets up a slippery slope for future false advertising claims brought by consumers, especially as consumer products become ever more hi-tech and complex.
The dissent pointed out the disconnect between finding that "odor eliminating" and "reactivation" are nonactionable puffery and allowing that “works on 100% of your scent 100% of the time," renders the wearer "completely scent-free," and "create[s] an impervious shield to odor" might go beyond puffery. If a reasonable hunter is scientifically competent as to one, why not to the others? Also, the terms at issue don’t fit the circuit's definition of puffery, (1) exaggerated statements of bluster or boast upon which no reasonable consumer would rely and (2) vague or highly subjective claims of product superiority, including bald assertions of superiority.

Puffery is the opposite of a factual claim, which is “a statement that (1) admits of being adjudged true or false in a way that (2) admits of empirical verification.” The dissent considered, quite rightly, that “odor eliminating” met those prerequisites (and again “reactivation” has simply been ignored in the analysis). It would merely have remanded on the first issue.

Thursday, August 18, 2011

I hope this is the only time I will ever mention Ashton Kutcher

Apparently he wasn't all that clear about disclosure of his financial ties to various companies, risking violation of the FTC Endorsement Guidelines.

Inducement question of the day

This Credit Slips post recommends "a wonderful article by Howard Wainer called 'The Most Dangerous Equation' ... that appeared in The American Scientist," adding "(The original appears to be behind a pay wall, but Google will help you find copies available on the Internet.)"


Second Circuit rejects electronic database settlement

On grounds I personally find fairly unconvincing--I'm with the dissent; those Class C claims are worthless without registration likely exceeding their damages value, so anything they get is gravy. Here's a hypothesis for debate, which I'm not completely convinced of but is worth discussing: despite what we tend to think about the Second Circuit's copyright-friendliness, in the past ten years the Second Circuit has more often made it harder for authors, in practice, to receive benefits from their work than it has made it easier.

court of appeals affirms fraud on the PTO finding

Fair Isaac Corp. v. Experian Information Solutions, Inc., --- F.3d ----, 2011 WL 3586429 (8th Cir.)

The court of appeals affirmed the district court’s grant of summary judgment against Fair Isaac (FICO)’s antitrust and false advertising claims and its ruling that FICO’s trademark was merely descriptive, as well as the jury verdict that FICO obtained its trademark registration through fraud on the PTO. It also affirmed the denial of defendants’ attorneys’ fees.

FICO credit scores are produced using information from three credit bureaus, Experian, Equifax, and TransUnion. Its algorithm generates credit scores that fall within a credit-score range of 300-850, and FICO registered a trademark for "300-850." The credit bureaus developed their own credit scores, based only on their data, which are less desirable to lenders, then began to develop a joint venture to create a tri-bureau algorithm that could compete with FICO (and let them pay less for the use of FICO’s algorithms). The result, VantageScore, was offered cheaply to key lenders in return for its adoption, in the hope of creating industry momentum.

I won’t review the antitrust claims in detail; suffice it to say that there’s not much left of antitrust law in this country.

FICO argued that when it adopted the 300-850 term it had no meaning in the credit scoring industry, and that there was no competitive need for that score range (or even any numeric score range). Moreover, FICO argued that defendants failed to meet their burden to show mere descriptiveness. However, they presented evidence “that the mark conveyed the approximate range of FICO's credit scores and that FICO had selected the mark for that reason,” as well as evidence of FICO’s own use of the mark to inform consumers that their scores would fall within that range. This was sufficient evidence of descriptiveness, even without consumer surveys: descriptiveness can be proved with the same variety of evidence that can be used to show genericness or secondary meaning. Consumers would immediately understand 300-850 to describe the qualities and characteristics (here, the range) of the score.

Fraud on the PTO requires knowingly false material representations of fact. Intent can be inferred from indirect and circumstantial evidence, but must be clear and convincing. Given the standard for reviewing jury verdicts, the court of appeals affirmed. Defendants pointed to two statements made in response to the PTO’s initial mere descriptiveness refusal. (1) A FICO employee stated that "[t]o the best of [her] knowledge, only the FICO score uses the 300-850 range as a unique identifier for credit bureau risk scores." FICO said this was true because no one else used the range as a “unique identifier,” but defendants argued that FICO didn’t use it as a mark either but only as a credit score range like other ranges. FICO responded that its specimen showed use as a mark, but defendants’ expert disagreed. A reasonable jury could have found falsity.

(2) FICO’s outside legal counsel stated that the mark was not descriptive because "300-850 is the credit scoring scale only for [FICO's] credit bureau-based risk products and not for ... other credit bureau-based risk products that competitors develop." FICO argued that this was true in context because TransUnion, the only other credit bureau using 300-850 as its range, wasn’t using the term as a mark. Still, a reasonable jury could have found falsity.

As to knowing falsity/intent to deceive, defendants presented evidence that FICO’s employee was aware that others were using the same range for the same purpose and that she knew that FICO wasn’t using the term as a mark. The “artful” use of the phrase “unique identifier” could count against her. The jury could have found similarly with respect to outside counsel.

FICO argued that even if the statements about third-party use of the range were intentionally false, they wouldn’t affect descriptiveness and were thus not material to the issuance of the registration. Third party uses, according to FICO, would have been material only if someone else had superior rights in the mark, and TransUnion didn’t, given its disclaimer of any use of the range as a mark. Because it filed an ITU, FICO argued, whether TransUnion previously used the mark "could never be material." Defendants presented a PTO expert who testified that a reasonable examiner “would consider it important in deciding whether to allow the registration to know whether others were using 300 to 850 as a score range for credit scoring services.” Also, since the application was initially rejected for mere descriptiveness and the PTO didn’t issue the registration until the two statements had been made, a reasonable jury could find reliance. (Indeed I am hard pressed to see how a reasonable jury could find otherwise.)

FICO argued licensee estoppel: Experian had signed an agreement that permitted it to use FICO’s 300-850 trademark and that had a no-contest provision barring Experian from challenging the validity of FICO’s exclusive rights to its marks. VantageScore was not a licensee, so Experian’s ability to raise the issue in its own name was irrelevant. An alter ego of the licensee may also be estopped by licensee estoppel, but that wasn’t the situation here. A mark that’s invalid can’t be infringed; since VantageScore successfully challenged the mark, it can’t serve as the basis of an infringement action against anyone.

The basis of the false advertising claim was Experian advertises an in-house credit score, the PLUS Score, with a 330-830 range and the claim “[s]ee the same type of score that lenders see.” FICO argued that this would mislead consumers into thinking they were either buying the FICO score or a score widely used by lenders, neither of which was true. Experian argued that “same type” meant “a three-digit numerical representation of an individual's credit risk based on credit report information and calculated using a credit-score algorithm.” FICO pointed out that no lenders use the PLUS Score and argued that Experian’s own documents demonstrated confusion by consumers over whether they were buying a score used by lenders.

The court of appeals agreed that the statement was neither literally nor implicitly false. The score was one of the “same type” that lenders see, “namely a score indicative of how lenders would assess an individual's creditworthiness.” FICO’s only extrinsic evidence was Experian’s call scripts, which didn’t demonstrate that an implicitly false message was being communicated.

Defendants argued that the district court abused its discretion by declining to find that this was an exceptional case for fees purposes. Exceptional cases mean that the plaintiff's action was groundless, unreasonable, vexatious, or pursued in bad faith. Defendants contended that the jury finding of fraud on the PTO weighed heavily in favor of finding exceptionality, along with FICO’s allegedly substantial delay in asserting trademark rights in the score range and other factors indicating that the score range was not a mark. The district court disagreed, refusing to find FICO’s claims “wholly without merit.” FICO managed to survive motions for summary judgment and judgment as a matter of law. This was not an abuse of discretion.