Architect can falsely claim to have designed buildings, court rules

M. Arthur Gensler, Jr. & Associates, Inc. v. Strabala, 2012 WL 600679 (N.D. Ill.)

Gensler sued Strabala for trademark infringement and false advertising under state and federal law.  The court granted Strabala’s motion to dismiss.  Gensler employed Strabala as a Design Director (architect) in Gensler’s architecture business from 2006-2010.  In that capacity, Strabala worked on and participated in the design of several buildings, including the Shanghai Tower, Hess Tower, Houston Ballet Center, Three Eldridge Place in West Houston, Texas and Tesoro Corporation's headquarters.  

When Strabala left Gensler, he began doing business under the name 2DEFINE Architecture, with offices in Chicago, Illinois, Shanghai, China and Seoul, South Korea, using the website www.define-arch.com and a Flickr page. On the former, Strabala claimed to have designed the Burj Khalifa in Dubai, United Arab Emirates; the Nanjing Greenland Financial Center in Nanjing, China; and the Shanghai Tower in Shanghai, China.  On Flickr, Strabala said he designed works such as the Houston Ballet Center for Dance, Three Eldridge Place, Hess Tower, and the headquarters of the Tesoro Corporation.

Gensler argued that these claims constituted false designations of origin, but Dastar says otherwise.  “Origin” means origin of the physical goods, not the creator or author.  (Since we are dealing with original buildings, rather than copies, is this rationale fully applicable?  Also, this seems like the best case for fighting my lost battle over false advertising where competition and materiality are established—why wouldn’t an architectural client want to know what buildings an architect previously designed, and why wouldn’t deception of the client market harm consumers in precisely the way false advertising generally does?  Of course, even given only Gensler's allegations, Strabala might win; the court doesn't specify whether Gensler alleged that Strabala didn't in fact work on the Dubai, UAE, or Nanjing projects, but if he did, then the question would be whether he "designed" them.  Courts might not want to make tough allocations of credit, but there are tough factual issues all over, and there are ways to give advertisers leeway without cutting off the availability of a false advertising claim entirely.)

Many courts have dismissed trademark claims based on false authorship because authorship is the proper subject matter of copyright law, and the court here followed those precedents.  The false advertising claim also failed because “origin of goods” means the same thing in §43(a)(1)(B), so “the Lanham Act does not provide a cause of action for false advertising where the claim is based on the authorship of a creative work.”

The state law claims “rise and fall” with the federal ones (which arguably raises important questions about conflict preemption that this court, like everyone else including the litigants, is uninterested in, despite the fact that this is really Sears/Compco preemption like we haven’t seen done explicitly on a state-law TM/false advertising statute in decades).

Comment: Yeah, I know the caption's extreme, but consider: would alleging intentional falsity make any difference?  What if Strabala were in fact entirely uninvolved with the firm that did the designs at issue?  The Dastar ruling means it doesn't matter: there's still no cause of action when a different architect, not part of these projects at all, claims to have designed them.  If you think that would be different because that's fraud, why, if at all, could a common-law fraud action succeed when the claims here failed?  We know that intent elements don't constitute extra elements for purposes of 301 preemption.  Should they do so for conflict preemption?  (And of course Lanham Act plaintiffs routinely allege intentional deception.)

Short bits on spam and the right of publicity

Venkat Balasubramani on an anti-spam decision in California.  He’s dubious about the basis for finding that header information, unconnected to a functioning legal entity, isn’t enough information to identify the sender of an email.  Though I don’t pretend to know the case law as well, I think practically the court gets it right:

It was undisputed Trancos intentionally used only privately registered, meaningless domain names in order to prevent e-mail recipients from being able to identify it as the sender, or to contact it except by sending a blind reply e-mail to an address the sender would have no way of linking to Trancos…. If Trancos deliberately hides its identity from recipients, as it concedes it did, what means of redress does a recipient have? The recipient can send a blind e-mail message or a letter to a nonexistent company at a post office box making a complaint or attempting to opt out of future e-mails, but if Trancos (or an employee who sees the complaint) chooses not to respond or take any action, the recipient is at a dead end. Because Trancos hides its identity behind an impenetrable shield of made-up names, an aggrieved recipient cannot look up public information about Trancos's business, cannot find its Web site, cannot call and speak to a Trancos employee, cannot write to Brian Nelson, cannot report Trancos to the Better Business Bureau or the Attorney General, and cannot warn others about Trancos by writing a letter to a newspaper or posting a complaint on the Internet. Using a privately registered domain name leaves it entirely up to Trancos whether it will or will not respond to or provide redress to persons (other than determined litigants like Balsam) who are harmed, annoyed, or offended by its communications. Trancos does not explain why its business is so sensitive and so different from all other businesses that it must be free to hide its identity from the millions of individuals to whom it directed its commercial solicitations. (footnotes omitted)

I never send a reply/opt-out email except with companies I know I’ve interacted with, because I’m wary of confirming to a spammer that there’s a human being at my address.

Most willful understanding of both precedent and current argument of the week: the Right of Publicity site on the Justin Bieber/Joustin’ Beaver dispute:

Books, movies and news reporting, at their core, are about the expression of ideas and conveying information.  Video games are not.  There are numerous rulings explaining how the First Amendment is not a one-size fits all “shield” to otherwise infringing actions, including the United States Supreme Court in the landmark Zacchini case.   And, of course, even the generally exempted mediums can exceed those protections and stray into infringing territory.  But video games should not be entitled to exempted status as a general rule.  The Supreme Court ruling striking down a California law prohibiting sales of violent video games to minors is not an appropriate reference point in relation to an intellectual property infringement of the Joustin’ Beaver variety, though it seems to be cited as support for the notion that video games should be treated in the same manner as books and movies.

No, I didn’t edit out the reasons offered.  So, when I become arbiter of what expresses ideas and conveys information (that I think worthy), can I exclude entire mediums?  I’m looking at you, reality TV.

The Bold and the Naked

Naked Cowboy v. CBS, --- F.Supp.2d ----, 2012 WL 592539 (S.D.N.Y.)

The Naked Cowboy sued CBS for violating the Lanham Act and coordinate state law.  CBS successfully moved to dismiss.

The Naked Cowboy wears only briefs, cowboy boots, a cowboy hat, and a guitar as he performs in NYC’s Times Square.  “Naked Cowboy” is written on his outfit, with “Tips” and “$” on the boots.  He claims wide notoriety including nationwide publicity.  He registered “Naked Cowboy” in 2002, has numerous corporate sponsorships and a couple of endorsement deals, and sells licensed merchandise.

CBS broadcasts “The Bold and the Beautiful,” and it and the production company put their names/logos on the opening credits and at the end of each episode.  On November 1, 2010, a character named Oliver appeared for several seconds only in his briefs, cowboy boots, and a cowboy hat, while singing and playing the guitar. The words “Naked Cowboy” didn’t appear visually or aurally, nor were “Tips” or “$” on his boots.  There’s also a recap show covering the preceding week, and the November 5, 2010 recap included the scene; the recap continuously features the production company’s logo.

Here’s a video in support of the Naked Cowboy’s bad claim.  Here’s a video of the Naked Cowboy singing, without apparent irony, If I Said You Had a Frivolous Lawsuit, Would You Hold It Against Me?

Over 3 million people watched the original episode, which (of course) featured paid ads.  CBS also posted a clip of the episode on its YouTube channel, as did the production company.  CBS called its YouTube clip “The Bold and the Beautiful—Naked Cowboy.”  The caption “Oliver has a surprise for Amber” appeared beneath the clip.  CBS’s trademarks were displayed prominently on its YouTube page and at the end of the clip. “Naked” and “cowboy” were two of the tags on the production company’s YouTube page.  Defendants also allegedly purchased “naked cowboy” as an AdWord, making the clip a “Featured Video” on YouTube and giving the clip multiple results for a YouTube search on “naked cowboy.”

The court found that defendants hadn’t used “naked cowboy” in commerce.  The episode itself didn’t use the word mark, and the court determined that “inclusion of ‘naked’ and ‘cowboy’ as separate tags associated with the YouTube video clips is not ‘use’ of Plaintiff's word mark ‘Naked Cowboy.’”  (I wonder how well this flies in the Second Circuit.  It could be non-TM use—among other things, it could be descriptive use, see below—but given Rescuecom, the conclusion that it isn’t “use in commerce” would appear to be a hard sell.)  The court further found that the AdWords purchase wasn’t use because defendants didn’t place the term “on any goods or containers or displays or associated documents, nor do they use them in any way to indicate source or sponsorship.”   

The only use of the registered word mark in commerce—“and therefore the only potential source of trademark infringement—is CBS's use of the term ‘Naked Cowboy’ in the title of its YouTube video clip.”  That was descriptive fair use.  It was not TM use: “It is clear that CBS used the phrase in an effort to describe the contents of the video clip, not as a mark to identify the source of the video clips.”  That was clear from the prominent display of the series title and CBS’s own logo, as well as the caption beneath the clip which referenced only named characters.  The Naked Cowboy also failed to allege sufficiently that CBS used the mark in bad faith, which requires intent to trade on the plaintiff’s good will.  “Besides conclusory allegations, the Complaint alleges no set of facts which, if true, would lead to the conclusion that CBS sought to gain advantage by associating its television program with the Naked Cowboy.”  Descriptive fair use as a matter of law.

What about the unfair competition/false endorsement Lanham Act claims?  The court applied the same fair use defense to the word mark-based claims.  It then turned to the allegations that the Naked Cowboy costume was a protectable mark.  Without addressing the special requirements for trade dress (pun intended), the court stated that the costume “contains several distinctive characteristics,” but it identifed those as the presence of the word mark on the hat, briefs, and guitar, as well as the “Tips” or “$” on the boots.  On the pleadings (at least I assume so, though it’s couched as a factual finding), the costume is “extremely recognizable.”  But Oliver’s costume contained none of those distinctive characteristics and thus didn’t use the Naked Cowboy’s mark.  (I think it would have been cleaner to address this as a Rogers v. Grimaldi issue.)

The court nonetheless assessed likely confusion, looking at the multifactor confusion test.  On the pleadings, there was no likelihood of confusion.  Though the costume was distinctive, the similarities were minimal, and the complaint didn’t allege actual confusion.  The parties’ merchandising markets were distinct: a nationwide TV program versus a street performance.  “In addition, while Plaintiff has on numerous occasions appeared as himself on television, none of his television appearances suggests a desire to transition into creating and producing a daytime soap opera, so there is no likelihood that Plaintiff will bridge the gap between the two markets.”

Nor did the Naked Cowboy allege bad faith, or low quality of CBS’s product.  The complaint also didn’t allege anything about the sophistication of the audience, and “even an unsophisticated viewer would not confuse the source of the long-running daytime television series with the source of Plaintiff's street performances or Naked Cowboy souvenirs.”

Dilution: federal dilution requires use in commerce, but Oliver's costume was “simply not sufficiently similar to the Naked Cowboy costume to constitute use of the mark.”  Again, this might have been better addressed with the statutory exceptions.

New York state claims: they’re substantively the same as the Lanham Act claims.  With respect to the statutory right of privacy/publicity, the court noted that another district court had already found in another case brought by the Naked Cowboy that the right to privacy doesn’t cover characters adopted or created by celebrities (which makes me wonder about Stephen Colbert’s rights), so that’s out.

Property, contract, and copyright

Chris Newman's excellent A License is Not a 'Contract Not to Sue': Disentangling Property and Contract in the Law of Copyright Licenses takes contract and property theory very seriously as applied to copyright.  I particularly like his emphasis on the deed-like functions of written transfers; a properly executed deed requires no consideration to be effective (and irrevocable, unless a power to revoke is reserved) with real property, and neither, he suggests, should a properly executed written copyright license, whether exclusive or not.

Copyright/contract and the traffic laws

It's a truism that a cop can stop any car, finding some sort of traffic violation within a few blocks of travel.  John Tehranian and others have argued that, though we mostly don't yet expect to be "pulled over" for ordinary uses, copyright is now in the same position.  This story (HT Zach Schrag) about the Obama campaign's violation of the stated restrictions on White House photos, which a spokesman then said weren't really restrictions, is a good example for that kind of claim.  Copyright doesn't actually apply to US government works, and there's no real consent to the "terms" of release, and yet in other circumstances I can easily imagine an enforcement attempt.  Many people don't worry about a bolt from the blue (or a visit from the boys in blue)--but if you're a member of a group that's targeted for other reasons, traffic and copyright laws both can be problems.

There's a fair use angle, right?

McSweeney's: Lines from The Princess Bride that Double as Comments on Freshman Composition Papers.

Lanham Act false advertising claims not subject to Rule 9(b) in First Circuit, district court says

McGrath & Co., LLC v. PCM Consulting, Inc., 2012 WL 503629 (D. Mass.)

The most broadly relevant bit of this case is the pleading standard issue.

McGrath sued its competitor PCM for state and federal false advertising, and PCM moved to dismiss.  The parties offer project management services for companies undertaking major construction projects.  The current presidents of McGrath (McGrath) and PCM (Lane) used to be partners at McLane Associates, performing the same kinds of services.  In 2007, McLane split up, and the partners agreed not to take on any new projects under its name; it finished providing services in early 2008. McGrath formed defendant McGrath, and Lane went back to PCM, a company he’d formed around 1999.

PCM bid to provide services to Intel, a former McLane customer.  Intel required PCM to prequalify, to ensure it had sufficient resources.  McGrath alleged that PCM submitted false information on its staffing resources and financial condition, combining its own numbers with McLane’s, so that it reported a headcount of 70 employees even though PCM employed fewer than ten people. Likewise, although PCM had only minimal cash on hand, it allegedly reported to Intel that it had in excess of $1.4 million dollars in cash, using McLane's bank account information. McGrath alleged that PCM got Intel jobs—75-80% of all of PCM’s income—based on this false information.

PCM also provided services to another previous McLane client, Wyeth, along with Advanced Micro Devices and the State of New York. McGrath alleged that PCM made similar false statements to them, as well as to other named potential clients, and made other false statements on its website to give the incorrect impression that PCM is a big company, such as that its “workforce is currently consulting on over three billion dollars of active capital construction work.”  McGrath alleged that this was literally false because it referred to past, not current, work performed by McLane, not PCM.  McGrath alleged the same was true of other website statements about PCM's history and capabilities.

In evaluating the Lanham Act claims, the court first looked at whether the statements were commercial advertising or promotion.  At a minimum, a defendant must target a class or category of purchasers, not merely particular individuals.  The court found that the allegations here sufficiently alleged this; the website promotes PCM to any consumer who sees it.  As to the statements to Intel et al., the complaint alleged that PCM made similar statements about its staffing and resources to other potential customers in order to get their business. “That these alleged false statements were made in direct communication with each company, and not in a traditional advertising campaign, does not exclude these communications from amounting to ‘commercial advertising or promotion’ under the Lanham Act.”

The court also found that McGrath plausibly alleged materiality, in that financial and staffing resources affect ability to manage large projects.  For similar reasons, the statements plausibly were false or had at least the tendency to deceive potential customers.

Moreover, at the pleading stage, the allegation that McGrath’s harm “includes but is not limited to, the loss of McGrath's right to fairly compete in the marketplace and the loss of jobs which it would have obtained but for PCM's false statements and misrepresentations” was sufficient to plead the necessary harm, since the parties are direct competitors for the same clients.

The court rejected the idea that Rule 9(b)’s heightened pleading requirements applied to Lanham Act claims; there was no First Circuit authority for the proposition, and the Lanham Act doesn’t establish a traditional fraud cause of action.

McGrath also pled violations of state consumer protection law.  Massachusetts false advertising law requires a plaintiff to show that she was injured by an ad containing “any assertion, representation or statement of fact which is untrue, deceptive or misleading” made by a person who “knew, or might on reasonable investigation have ascertained to be untrue, deceptive or misleading.”  The complaint satisfied this standard as well.

Mass. Gen. L. c. 93A also bars “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”  A plaintiff must show a loss of money or property to sue, and competitors who are damaged have standing.  The Massachusetts AG has specifically provided in regulations that “[i]t is an unfair or deceptive act for a seller to make any material representations of fact in an advertisement if the seller knows or should know that the material representation is false or misleading or has the tendency or capacity to be misleading.”  So this claim survived too.

PCM argued that the complaint didn’t properly allege that the conduct occurred “substantially and primarily” in Massachusetts, as required.  The defendant bears the burden of showing that the relevant conduct took place outside the state.  The standard is the “center of gravity” of the circumstances giving rise to the claim. A court will look at where the defendant commits its act or practice, where the plaintiff receives or acts on it, and where the plaintiff sustains losses.  In this case, PCM’s HQ is in Andover.  It was reasonable to infer that PCM disseminated its allegedly false statements from and in Massachusetts through its website and direct communications with potential customers.  This was enough to put the “center of gravity” of McGrath’s claim “substantially and primarily” in Massachusetts.

The court refused to consider documentary evidence that McGrath knew about the false claims for a long time, triggering a statute of limitations bar, because that would require consideration of matters outside the complaint, even though McGrath didn’t dispute the authenticity of PCM’s document. Even if the court considered the evidence, the court noted that it went only to the statements on the website, not the allegedly false and misleading statements made to Intel and other companies, which PCM didn’t argue occurred outside the limitations period.

Hidden charges support pension funds's consumer protection claims

International Union of Operating Engineers, Stationary Engineers Local 39 Pension Trust Fund v. Bank of New York Mellon Corp., 2012 WL 476526 (N.D. Cal.)

The plaintiff is an employee benefit plan providing retirement and survivor benefits to approximately 17,000 members. Defendants provided custodial services on the Trust Fund’s behalf, which meant that it was a fiduciary whose responsibilities included delivering and accepting traded securities and collecting principal, interest, and dividend payments on securities. Over the last decade, the Trust Fund increasingly turned to overseas investments, which are bought and sold in foreign currencies.  Thus, the Trust Fund had to buy and sell those currencies, and BNY undertook the necessary foreign exchange transactions to facilitate the Trust Fund’s purchases of foreign securities and the resulting repatriation of interest and dividends.

You can guess what happens next, right?  I mean, this is a bank we’re talking about.  The Trust Fund used standing instructions to have BNY convert the necessary currency when the Trust Fund bought foreign securities or received interest.  The Trust Fund paid a flat annual fee for this, and could opt out of any particular trade by telling BNY that it wanted to negotiate with defendants’ traders directly.  BNY advertised that such standing instructions services were “free of charge,” aside from the flat fee, and that the transactions were done under “best execution standards” to “maximize the proceeds of each trade.”  The contract between the parties also guaranteed that the terms wouldn’t be less favorable to the Trust Fund than terms offered by BNY to unrelated parties in comparable arms’ length transactions, and specified methods for determining the rates for foreign exchange transactions.

The Trust Fund got monthly reports that summarized the transactions, but didn’t provide the time of trade execution, making it impossible to know the exact rate at which BNY traded.

The Trust Fund alleged a scheme dating back at least ten years.  Upon receiving a request for a purchase or sale of a foreign security, BNY would execute a trade at the exchange rate available close to the time of the request.  “They would then watch the market fluctuation on FX rates related to the transaction over the course of the day and charge plaintiff a rate less favorable to plaintiff than the one at which defendants actually traded. Defendants would then keep the difference between the true cost of the trade and the fictitious FX rate defendants claimed to have paid and charged plaintiff.”

Through careful recordkeeping, BNY was allegedly able to conceal this by reporting false rates with hidden markups, until whistleblowers exposed the scheme in 2011.  Moreover, not all standing instructions clients were treated identically; some could opt out and negotiate their prices every afternoon.  “Similarly, according to a pending action by the New York Attorney General's office, defendants reached secret agreements with at least 62 favored clients to set a pre-negotiated fixed markup, called ‘benchmark pricing,’ on all standing instructions trades rather than the larger markups made on plaintiff's trades. Some clients therefore received better standing instructions terms than plaintiff.”

The Trust Fund sued as a putative class plaintiff for all similarly situated employee benefit plans, alleging breach of contract and violations of California and New York false advertising/unfair practices laws.  The court found that the Trust Fund sufficiently pled breach of contract and breach of the implied covenant of good faith and fair dealing.

The court also held that the Trust Fund stated a claim under California’s UCL.  Unfair competition is assessed by asking (1) whether the conduct is tethered to a specific statutory provision; (2) how the utility of the conduct weighs against the gravity of the alleged victim's harm; and (3) whether there are possible countervailing benefits to consumers or competition. The court found unfairness under all three factors.  First, the requirement that trades not be less favorable to the plan than to others in arms’ length transactions was tethered to a relevant ERISA provision.  Second, “the harm to plaintiff and other class members of losing potentially millions of dollars in revenues was not outweighed by the financial gain accomplished by defendants.” Third, there were apparently no countervailing benefits to the consumer or to competition.  BNY argued that the putative class members received the benefit of convenience—they didn’t have to make trades themselves—yet “the extreme financial cost of doing so, along with the loss of trust between defendants and their clients, do not show defendants' conduct to be beneficial.”  (In other words, couldn’t they have received that benefit without getting cheated?)

BNY argued that its conduct wasn’t unfair because no reasonable consumer would have thought that defendants had agreed to provide rates for standing instructions trades that were comparable to trade-by-trade negotiated transactions, and because the Trust Fund could have opted out of the standing instructions option at any time. But the Trust Fund sufficiently alleged misrepresentation of the rates at which defendants were transacting on clients' behalf.  The Trust Fund would have had “no reason to believe—until whistleblowers came forward—that they were getting a deal far worse than was being reported.”

The California FAL claims (which require claims that are likely to mislead reasonable consumers) also survived, for similar reasons.  BNY allegedly didn’t provide “free of charge” trading or abide by “best execution standards.”  BNY argued that pension funds were less likely to be misled and that the reasonable consumer test shouldn’t apply, but the court found no authority for applying a “reasonable pension fund” standard, and anyway that’s for the trier of fact.

NY’s GBL Sec. 349 prohibits consumer-directed deceptive acts or practices that are materially misleading and cause injury.  The court found that the Trust Fund sufficiently alleged a violation.  The only serious argument was whether the services provided were “consumer-oriented,” since the typical violation of the law involves an individual buying for personal/household purposes.  However, NY’s highest court has held that Section 349 allows suits by pension funds against a bank.  The court asked whether the bank's practices had a broader impact on consumers at large and if the pension fund clients were treated “as any customer entering the bank” as opposed to entering into a private, unique contract.  Here, the standing instructions contract was “offered to any customer purchasing custodial services (except for favored clients), and defendants' practice of using hidden markups to earn profits affected all of these consumers.” Motion to dismiss denied.

Finally, the court found that the Trust Fund successfully pled around the statutes of limitations, because the discovery rule tolls them when an injury is difficult to detect, the defendant is in a far superior position to understand it, or the defendant has reason to believe that the plaintiff remained ignorant of the wrong.  The Trust Fund sufficiently pled that the information it received gave it little reason to suspect that the reported rates were false.

Don't make factual findings on a motion to dismiss

Ramchandani v. Sani, --- F.Supp.2d ----, 2012 WL 556198 (S.D.N.Y.)

Short and sweet opinion; if only more courts thought about standing like this!

The parties sell custom-tailored men's suits that are manufactured for them in Hong Kong to fill orders placed by customers attracted through newspaper advertising and whose measurements are taken by the parties in New York City and elsewhere.  Ramchandani alleged that Sani overstated the nature and quality grades of the fabrics used, producing a substantial competitive advantage by allowing Sani to charge extremely low prices for apparently high-quality goods.  Sani moved to dismiss, challenging Ramchandani’s standing on the ground that Ramchandani hadn’t suffered commercial or competitive injury, because there are so many Hong Kong tailors that he couldn’t have a reasonable basis for believing that Sani’s allegedly fraudulent activities would harm him.

The court pointed out that this was a factual argument, and inappropriate for a motion to dismiss.  “The allegations with respect to the Lanham Act claim are sufficient. Plaintiff's reasons for apprehension seem entirely reasonable to the Court, and that would be so even if there are others threatened with the same or similar harm.”

Likewise, the court rejected the alternate argument that no Lanham Act claim could lie because the alleged misrepresentations fell within the framework of the Wood [I think Wool] Products Labeling Act, which provides no private cause of action.  The court found this contention “entirely unconvincing,” since the point of Section 43(a) was to protect against consumer confusion.

Response to Worth a Thousand Words

Christina Spiesel has written a response to my article on images and copyright, which appears in the Harvard Law Review Forum.  I fully agree with Spiesel that text is rarely crystalline in meaning; it's just that lawyers are a lot more comfortable with text than with images and elevate text by comparison.  But epistemic humility would help a lot with interpreting text in copyright cases as well.

Copyright bullying as censorship

A good story at Salon about the use of meritless but terrifying copyright claims in service of the real agenda of silencing critics of a top Romney contributor and his supplement company (which also has faced trouble for some of its sales techniques, as detailed in the Salon piece).  Calling Public Citizen!

$3 million bond for corrective advertising in preliminary injunction

HT Eric Goldman, who recalled my earlier post on this case, which involved a preliminary injunction including corrective advertising.

Northern Star Industries, Inc. v. Douglas Dynamics, LLC, 2012 WL 507827 (E.D.Wis.)

The grant of an injunction is conditioned on posting security.  Damages caused by an erroneous preliminary injunction can’t exceed the amount of the bond, courts err on the high side, though they must give reasons for the figures chosen.

Defendant requested a $6.2 million bond, based on its engineering director’s estimate of costs for corrective advertising and replacement advertising at just under $120,000 each, and over $5.9 million in lost sales.  Northern Star disagreed.

First, the amounts claimed for creative work had to be eliminated since the court’s order would specify what the corrective ads must stay, which knocked $20,000 off.  Douglas also intended to shift away from safety to a new theme, possibly resulting in an entirely new production, but that wasn’t Northern Star’s problem, so the court allocated the cost of producing 45 seconds of replacement video to fix the false claims.

What about the big numbers?  Northern Star argued that lost profits was a more accurate measure of financial impact than lost revenue. But the court here was offered no profit margin information on the snow plow industry, so it stuck with lost revenue.  Still, Douglas had included estimated lost revenues for plows that it didn’t tout in the ad campaign the court found to be false.  This led to a total required bond of just under $4 million, erring on the high side.  (The court did not make clear how the lost sales figures had been calculated, but apparently the method was acceptable as applied to the advertised plows; while I have little sympathy for the defendants here, I do see an argument that corrective advertising might harm the entire brand, even the unadvertised models, though it would be hard to calculate how much.)

So, subject to the bond being posted, Douglas was enjoined not to republish various statements, and to edit the revised videos it had posted to include a court-required statement.  This statement had to be “recited by a narrator at a speed that is easily understood and consistent with the narrator's speech throughout the rest of the video … and while being read by the narrator, … displayed in print in clearly viewable black Myriad Pro 14 pt font on a white background.”  It was to say that the district court had granted a preliminary injunction, finding that, “subject to final determination of the merits of the  parties' claims, statements that ‘the BOSS Power V-XT v-blade cannot trip in the V or scoop mode’ and certain statements claiming or implying that users of blade-trip plows will be physically injured but users of Fisher/ Western edge-trip plows will not were literally false.  Accordingly, as preliminarily ordered by the Court, Douglas Dynamics withdraws those advertising claims.”  (Not the easiest statement to understand, I think.)

If, after editing, comparison tests or demonstrations were shown, the following should also be added: “The following series of comparison tests were conducted by Fisher/Western. The reliability of the test methodologies which included measuring speed with a speedometer without any type of calibration or verification and using of three different truck models although of a similar vehicle class have been called into question. Comparison tests should be as similar as possible with as many variables controlled as possible, and the variables in Dynamics' tests are not well controlled.”  Unless no test runs were shown, the video must include at least one test run showing Northern Star’s plow performing successfully.

Douglas also had to send a letter to all its dealers, post notices on its Facebook pages and Plowsite.com threads (which may go to show that competitor-plaintiffs know where consumers are getting their information) in the same font and size as other thread discussions, run full-page print ads publishing the corrective ads in a number of different specialty magazines.

Congratulations! Your ad isn't commercial speech

Jordan v. Jewel Food Stores, Inc., No. 1:10-cv-00340 (N.D. Ill. Feb. 15, 2012)

Michael Jordan was inducted into the Basketball Hall of Fame in 2009.  Sports Illustrated (whose publisher Time is a third-party defendant; interesting that Jordan didn’t try to bring it in) published a commemorative issue “devoted to celebrating his career.”  Time asked numerous businesses, including Jewel, to design a page for the issue “with some play on words or design that is specific to Michael Jordan.”  Jewel didn’t pay, but did agree to stock and sell the issue at special displays by the checkout counters of its grocery stores. 

Jewel’s ad features a pair of basketball shoes spotlighted on the hardwood floor of a

basketball court.  

23, the number Jordan wore for most of his tenure with the Chicago Bulls, appears on the tongue of each shoe, and the text reads: “A Shoe In!  After six NBA championships, scores of rewritten record books and numerous buzzer beaters, Michael Jordan’s elevation in the Basketball Hall of Fame was never in doubt!  Jewel-Osco salutes #23 on his many accomplishments as we honor a fellow Chicagoan who was ‘just around the corner’ for so many years.”

Underneath is Jewel’s logo and slogan, “Good things are just around the corner.” 

Jordan sued Jewel for state and federal trademark claims as well as violation of the Illinois right of publicity.  Jewel removed from state court and filed a third-party complaint against Time, seeking contribution and indemnification, at which point Time counterclaimed for breach of contract and indemnification.

The court ruled that the ad was noncommercial speech but declined to find that this was dispositive of all claims absent further briefing.

Procedurally, whether the speech was commercial was an issue of law, and the factors for the court to consider were also issues of law.  Jordan still argued that if relevant material facts were in dispute, the jury should be asked about them via special interrogatories.  The court disagreed.  The parties disputed not historical facts but legal consequences of those facts, and for SJ purposes it resolved all factual disputes in Jordan’s favor.

To determine whether speech is commercial, the 7^th Circuit asks whether it proposes a commercial transaction.  The court didn’t see this ad as doing so, since it was just congratulating Jordan.  “At the most basic level, … readers would be at a loss to explain what they have been invited to buy.”  Jordan invoked brand theory, arguing that the use of its TM and slogan “effectively propose a commercial transaction by inviting the reader to visit Jewel stores.”  Further, Jordan contended, the statement that he “was ‘just around the corner’ for so many years” explicitly linked him to Jewel’s ad campaign and thereby invited readers to enter into a commercial transaction.

In this posture, the court accepted Jordan’s “factual description of the role played” by the slogan.  But the conclusion—that use of the logo and slogan, and reference to the slogan in the congratulatory text, proposed a commercial transaction—did not follow given the context. 

The court then proceeded to offer several reasons that this was a special case, many of which will doubtless be seized on by plaintiffs’ counsel.  Initially, this issue was no ordinary Sports Illustrated.  It was a “special commemorative issue expressly designed as a paean to Jordan, a fact confirmed by its title, ‘Jordan[:] Celebrating a Hall of Fame Career.’”  Jewel’s ad embraced the issue’s theme, “focusing not on Jewel or its particular products and services, but on Jordan.”

True, the ad used Jewel’s logo, but that was the most effective way to identify Jewel as the speaker; Jewel wasn’t required to use the harder-to-identify corporate name, which might have caused “a moment’s hesitation or confusion.”

Likewise, the use of the slogan “was simply a play on words, a cheeky way to ensure that the congratulatory message sounded like it was coming from Jewel and not any from other person or entity.”  The court hypothesized Arnold Schwarzenegger congratulating the LA Lakers for winning the championship.  If he said, “Congratulations to our Lakers for ‘terminating’ the Orlando Magic and bringing home yet another NBA title, and to Kobe Bryant for winning the Finals MVP.  Let me join all Angelenos in saying that Kobe and the team surely will ‘be back’ in the 2010!,” the references to Terminator would personalize the congratulatory message.  “Who other than Schwarzenegger would congratulate the Lakers and Bryant in precisely that way?  The ‘Terminator’ references thus are deployed to make the congratulatory message more effective, not to tie the Lakers and Bryant to the ‘Terminator’ franchise in an effort to encourage readers to buy Terminator DVDs and video games and thereby enhance Schwarzenegger’s royalty checks.”  (The theoretical and practical criticisms of “trademark use” are powerful, but judges sure do like to reinvent the idea when it suits them.)

Jewel’s use of its slogan also personalized the message and reinforced the idea that Jordan was Jewel’s “fellow Chicagoan” and therefore a source of pride for Jewel and all other Chicagoans. “It is highly unlikely that the slogan’s presence would lead a reasonable reader to conclude that Jewel was linking itself to Jordan in order to propose a commercial transaction.”  Anyway, even if the slogan introduced a minimal amount of commercialism, “that element is intertwined with and overwhelmed by the message’s noncommercial aspects, rendering the page noncommercial as a whole.”

The court contrasted the Abdul-Jabbar case, where the ad at issue linked Lew Alcindor’s performance with that of Oldsmobile’s car.  “GM touted Alcindor’s accomplishments as a means to propose commercial transactions—sales of a particular Oldsmobile model—not as a means to congratulate him on honors he earned a quarter century before the spot aired.  The opposite is true of Jewel’s page.”

Even setting the “proposes a commercial transaction” test aside, the three factors the Supreme Court has identified as relevant to defining commercial speech also favored Jewel.  The factors: whether (1) the speech is an advertisement; (2) the speech refers to a specific product or service; and (3) the speaker has an economic motivation for the speech.  No single factor is necessary or sufficient on its own.

Jewel’s ad wasn’t a conventional ad, as the court already concluded, even though it used Jewel’s logo and slogan.  Jewel and Time used the term “ad,” but that was “convenient shorthand; there is no equivalently precise and pithy term for the kind of page that Jewel and others placed.”  Indeed, family friends of Jordan placed a page that was also called an “ad” by relevant parties, but it was not a conventional ad either.

Furthermore, Jewel didn’t pay money to run the page; it only agreed to stock copies in its store.  (I’m guessing barter doesn’t take an ad out of the “commercial speech” category without more, though.)  Nor did the ad focus on or praise any product or service.  It was timed to praise Jordan, not to any Jewel promotion.

The court also drew attention to the fact that Dominick’s Finer Foods, a defendant in a separate case filed by Jordan, placed an ad in the same issue. “The fact that Jewel and Dominick’s, fierce competitors in the Chicago grocery market, both placed pages in the commemorative issue is significant because anybody inclined to be swayed by Jordan’s appearance in an advertisement knows that he does not play on two or more sides of the same fence, commercially speaking. Jordan is Hanes, not Jockey or Fruit of the Loom; Nike, not Adidas or Reebok; Chevrolet, not Ford or Chrysler; McDonald’s, not Burger King or Wendy’s. A reader who purchased the commemorative issue and saw the Jewel and Dominick’s pages would know, instinctively, that the Jewel page was not an advertisement.”  The court noted that the Dominick’s page shows a steak and offers a coupon; “if somebody were to view one of the pages as an advertisement, it would be the Dominick’s page….  The reader would see the Jewel page for precisely what it is—a tribute by an established Chicago business to Chicago’s most accomplished athlete.”  (Given what the court says later, I’m pretty sure that the court is trying to make this prediction nondispositive to its analysis.)

As to the second factor, whether the ad refers to a specific product, Jordan argued that Jewel’s slogan and logo effectively referred to all of Jewel’s products and services.  The court disagreed.  “The name and slogan of any business will evoke that business’s products or services in general—McDonald’s, fast food; IKEA, affordable furniture; Mercedes, luxury transportation; Apple, stylish technology.  But the Jewel page does not refer to a specific product or service, which is the relevant inquiry.”  Even without a reference to a specific product, an ad might be commercial: “If Jewel’s page pictured a fully set Thanksgiving table, but no food or other products sold at Jewel stores, the page still might have been commercial.  But there is nothing in Jewel’s page even remotely as evocative of its products and services” (citation omitted).

The court accepted that Jewel had an economic motivation for placing the page, to bolster its reputation as a good Chicago citizen.  “To say that a for-profit corporation like Jewel has an ‘economic motivation’ for taking any particular action is to state a truism.”  But the Supreme Court has clearly rejected the idea that it follows that all corporate speech is commercial.  There must be something more, and that more was missing here.

The court then “recognize[d] that this conclusion rests in part on judgments regarding how reasonable readers would view the page.”  But such judgments had to be made, and the precedent said they had to be made as a matter of law.  Because judges aren’t experts in consumer perception, it was possible that consumer surveys could show whether people actually consider particular speech to have proposed a commercial transaction.  For this, the court cited the Supreme Court’s consideration of survey evidence for the second prong of Central Hudson (whether there’s a substantial government interest in regulating the speech that’s already been determined to be commercial), which I don’t think is quite on point, but ok.  (Note, however, that the 9^th Circuit has rejected surveying audiences about what counts as transformativeness for copyright fair use purposes, and that fair use serves a similar speech-protective role.  One reason not to ask consumers is that such a question might not be particularly meaningful to them: “does this page propose a commercial transaction?” is a weird thing to ask. At the very least we might need to train consumers with things that do and don’t propose commercial transactions first, as with genericity surveys.)

Anyway, it didn’t matter here because neither side submitted a survey.

The court held that it couldn’t yet decide the full implications of the noncommercial speech holding for Jordan’s claims.  Each side provided perfunctory arguments, so the court asked for further briefing.

CMI and state anti-piracy statutes

Thought of the day: There's an interesting paper to be written about state requirements to put the publisher/manufacturer on every CD & DVD, and the DMCA's CMI provisions, in contrast with the early history of English licensing, including requirements that publishers be identified.  The aim of that rule was to make it easier to identify and control seditious libel, but making identification a separate requirement simplified enforcement: someone who doesn't put a name on a book was violating the rule regardless of content.  The DMCA requires facilitation of infringement, but state regimes generally don't; still, it's hard to explain what those state laws are doing that isn't preempted, which is not to say that courts haven't tried.

Brought to you by Licentious Gotham, which also discusses publisher-disclosure requirements as ways to control the production of obscenity (compare also the current federal record-keeping requirements for producers of pornography).

Sure, we blew up the economy, but not with consumer-oriented conduct

M & T Bank Corp. v. LaSalle Bank Nat. Ass'n, 2012 WL 432890 (W.D.N.Y.)

M&T alleged that the defendants violated the law by failing to make interest payments owed to M&T on a $50 million note.  The court granted defendants’ motion to dismiss.

The Cairn defendants, Cairn Ltd. and Cairn Inc., co-issued $960 million in collateralized debt obligations, CDOs, based on subprime mortgages.  Greenwich, a registered broker-dealer, bought the notes for resale to investors.  It provided M&T with a Preliminary Offering Memorandum summarizing and describing the Cairn notes and the payment stream they (purported to) represent.  There were 13 classes of notes, each with a different level of priority.

M&T bought $50 million in Class A2A notes in 2007.  Only Class A1-VF notes had higher priority.  Greenwich allegedly owns all of those notes.  Cairn made defendant LaSalle the trustee responsible for making principal and interest distributions to note holders.  About a year after M&T bought, LaSalle notified M&T that there’d been a default event—quelle surprise, as Yves Smith might say.  LaSalle then explained that the underlying collateral earned a bit over $8 million in available interest proceeds, a little under $1.6 million of which was distributed to pay fees (because the servicer gets paid first, another charmingly disastrous incentive) and to pay the Class A1-VF notes.  Instead of getting paid out to the second priority noteholders, the remainder went into a Reserve Account for the benefit of Greenwich as Class A1-VF noteholder, as LaSalle interpreted the agreement it had with Cairn to require.  (So basically, the first tranche had to be paid in full before anyone else got paid a penny.  Well, I’m sure that will happen any day now!)

M&T, understandably chafed, brought suit.  The court first ruled that the terms of the CDO comported with LaSalle’s interpretation, thus getting rid of all claims against LaSalle and leaving only claims against Greenwich and the Cairn defendants for material misrepresentations in the offering memorandum, a violation of GBL sec. 349 as well as of the common law.

M&T’s position was that, if LaSalle’s interpretation of the agreement was right, then Greenwich and the Cairn defendants misled it about its priority.  The offering memorandum said that, “Following an Event of Default and acceleration of the maturity of the Secured Notes, payments of interest on the Secured Notes shall continue to be made in accordance with the Priority of Payments. As a result, interest on Subordinate Classes of Secured Notes (as well as other amounts set forth in the Priority of Payments) may continue to be paid prior to the payment in full of the principal amount of the Senior Classes of Notes.”

Bill Clinton ought to be so proud of the defendants’ arguments here, which the court proceeds to accept, except for the argument that the Martin Act (NY’s securities law) preempts common law and GBL claims.  The NY Court of Appeals just rejected that argument, concluding that the purpose of the Martin Act, “combating fraud and deception in securities transactions,” isn’t impaired by other causes of action with independent legal bases because such actions further the same goal of fighting fraud.  (Compare the 9^th Circuit’s analysis in the recent Honda case, which gave more weight to a state’s calibration of just how much fraud it wanted to tolerate.)

However, M&T’s claims failed on the pleadings.  Negligent misrepresentation requires:  (1) awareness by the maker of a statement that the statement is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance. There’s only a cause of action if there’s a special relationship of trust or confidence between the parties, closer than in an ordinary business relationship.  In a business relationship, the necessary degree of dominance/reliance must exist prior to the problematic transaction, not as a result of it.

M&T argued that, as a broker-dealer, Greenwich had a duty to provide it with accurate information and disclose all material information relative to the transaction at issue. But M&T didn’t allege that Greenwich acted as its broker.  M&T further pointed to defendants’ expertise and unique and specialized knowledge of the collateral underlying the notes and its risk level, along with the structure of the CDO.  But, the court ruled, even assuming defendants understood the risks of subprime mortgages better than M&T, that didn’t make their expertise unique in the financial industry, as would be required to “engender the requisite high degree of dominance and reliance in a complex transaction among sophisticated parties.”

Furthermore, M&T didn’t allege actual reliance.  Even assuming that it had, defendants argued that reliance was impossible as a matter of law due to the disclaimers in the memo.  The memo said that it described only “certain provisions of the Secured Notes and that the Indenture,” did “not purport to be complete,” and was “subject to, and qualified in its entirety by reference to, the provisions of the Indenture.”  (Though especially those first two seem irrelevant: the statement about who had priority after default was in there, it just didn’t reflect reality.)  Moreover, the memo said that each note purchaser was “deemed to acknowledge, represent to and agree ... [it] has such knowledge and experience in financial and business matters that [it] is capable of evaluating the merits and risks ... of its prospective investment ... is financially able to bear such risk, ... is not relying on the advice or recommendations of [Defendants and specified others] ... and has had acecss [sic] to such financial and other information concerning the ... Notes as it has deemed necessary to make its own independent decision to purchase notes.”

The court was persuaded: when a plaintiff has been told that it has incomplete information, or needs to look elsewhere for more information, then it has willingly assumed the business risk that the facts may be different.  “It is well settled that a plaintiff cannot establish justifiable reliance when ‘by the exercise of ordinary intelligence’ it could have learned of the information it asserts was withheld.”  M&T didn’t allege that it requested a copy of the actual terms before proceeding, nor that it sought to add protective language to the agreement. Thus, its purported reliance on the memo was unreasonable as a matter of law.

Finally, the court also accepted the alternative argument that the alleged misrepresentation was more an opinion about how the CDO would work than a material fact.  The statement was found in a portion of the memo called “Risk Factors,” prefaced by a stated expectation “that prospective investors interested in participating in this offering are willing and able to conduct an independent investigation of the risks posed by an investment in the Notes.”  The fact that the summary of terms was a different section supported the conclusion that the risk factor discussion was opinion.

So did the content.  The use of the statement that subordinate tranches “may” continue to be paid prior to full payment of the senior tranche was indefinite, thus confirming that it was a statement of opinion. 

Except: if the junior tranches could not be paid before the senior was paid off by the explicit terms of the CDO, as the court just concluded, then it’s not indefinite in a way that matters; if you said that I “may” flap my wings and fly to the moon, you’d just be wrong.  Given the order of the statements—“payments of interest … shall continue to be made in accordance with the Priority of Payments” and then “Subordinate Classes … may continue to be paid prior to payment in full of the principal amount of [the senior tranche],” I would find it reasonable to conclude that “may” here means “it’s possible depending on how many people are paying off their crappy subprime loans” rather than “depending on what the CDO really means, you may get zip.” One of these, of course, is rather more in the control of the CDO creator than the other (though of course plenty of CDOs were deliberately packed full of crappy subprime loans, so I don’t want to say there’s too much of a distinction).

But the court thought it was just opinion, “or, at best, an expression of expectations as to the general impact a possible future event might have on multiple classes of notes.”  (Note that the “future event” in the court’s analysis must necessarily be a determination of the legal meaning of the CDO terms, rather than the housing market collapse, and indeed the court cited several cases about how statements about legal liability are opinion.)

The GBL claims also failed: they require (1) a “consumer-oriented” transaction, (2) deceptive acts or practices/false advertising, and (3) an injury caused thereby.  Most NY and federal district court cases haven’t allowed GBL claims in connection with securities transactions, because they aren’t normal consumer purchases and they’re already heavily regulated by other laws. Even without the great weight of authority, the court found other factors favored rejecting GBL claims.  Though M&T’s status as a business didn’t bar it from suing, the conduct at issue still needs to have a broad impact on consumers at large.  The court didn’t think this conduct was consumer-oriented just because of the “ripple effect” of another CDO implosion on the credit market.  More generally, the amount of money involved, along with the sophistication of the parties, were important factors.  The relevant sections of the GBL offer actual damages or discretionary treble damages up to $500/$10,000.  “The modest recovery available under these statutes weighs against their application to cases involving hundreds of thousands and perhaps millions of dollars and arising from complex transactions among sophisticated parties.”

Case dismissed with prejudice.

I wish I’d thought of the Gold Toe sock example in this Duetsblog discussion of why Louboutin’s red sole trademark registration, even if valid when applied to a shoe with a contrasting color on top, provides no rights against YSL’s monochrome shoes.  The blue Nike shoe v. the Keds blue mark is another good one.  Our brief talked about red jeans and the Levis red tab, which I think is the same thing, but Gold Toe is just a really clear example.

Empirics on qui tam relators as private AGs

Just read David Freeman Engstrom’s super-interesting empirical paper Harnessing the Private Attorney General: Evidence from Qui TamLitigation, which has implications for hiring private firms to assist AGs in consumer protection cases as well. The paper also revealed this tidbit: business competitors are quite successful in pursuing qui tam cases to a successful outcome but achieve small impositions (awards) when they do.  Engstrom suggests that this may lend credence to a concern that business competitors bring False Claims Act claims as part of a broader business dispute, perhaps along with other types of claims (such as antitrust), but with less focus on maximizing impositions.  Perhaps because the US government, for all its size, is rarely a key customer of the parties who tend to use the Lanham Act to sue each other, I haven't seen many Lanham Act-FCA claims (indeed none come to mind at the moment), but it would be interesting to collect a list of the full range of business-on-business claims these days.

Standing manages to screw up non-standing case

CHW Group, Inc. v. Better Business Bureau of New Jersey, Inc., 2012 WL 426292 (D.N.J.)

CHW sells home warranties, and objected to the BBB’s rating system, which was allegedly a two-tier pay-to-play system where “donating” to the BBB automatically improved a company’s ratings.  CHW also alleged that the BBB’s letter grading system unfairly evaluated companies, for example by counting a consumer-induced delay in dispute resolution as delay by CHW.  CHW has consistently had a BBB rating of D- or F, despite its appeals and its request to be unrated.  It alleged that the BBB told CHW that if CHW paid for accreditation, the letter grade “would dramatically improve.” It also alleged that the bad grades harmed its business.

It sued for Lanham Act and state law violations.  The court found that the BBB statements at issue didn’t appear in “commercial advertising or promotion” according to the widely adopted Gordon & Breach test: (1) commercial speech; (2) by a defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services; (4) disseminated sufficiently to the relevant purchasing public.

Though the Third Circuit hasn’t yet adopted the test, it’s quite popular.  CHW argued, quite correctly, that Gordon & Breach is inconsistent with Conte Bros. Automotive, Inc. v. Quaker State–Slick 50, Inc., 165 F.3d 221 (3d Cir. 1998), which explicitly holds out the possibility (though not the reality) that noncompetitors might have standing to allege false advertising under the Lanham Act, which would seem to imply that competition is not an element.  If Gordon & Breach applies plus Conte Bros., then Conte Bros. serves only to strip competitors of standing and to make analysis more difficult.  Of course, this just goes to show that Conte Bros. is wrong to apply antitrust standing tests to Lanham Act cases and that Gordon & Breach serves all the worthwhile plaintiff-limiting functions to be had from a standing test.  But the court here was having none of it, for the kind of bad reason endemic to Conte Bros. standing analysis: “Considering the Third Circuit's Lanham Act prudential standing test asks whether the parties are in commercial competition, it would likely endorse [the] second element of the Gordon & Breach test.”  Um, no.  Conte Bros. purports to be a balancing test, such that strength on one element can balance out weakness on another.  Gordon & Breach requires each factor to be satisfied.  Just because they’re both called “tests” doesn’t make them consistent.

At least the court’s error doesn’t get in the way of the right result here.  The parties aren’t competitors either for warranty services or business rating services.  Moreover, CHW didn’t allege that CHW’s bad grade was generated for the purpose of influencing CHW’s customers to buy the services of the BBB, as required for prong three of Gordon & Breach.

After dismissing the Lanham Act claim, the court declined to exercise its supplemental jurisdiction over the remaining state law claims. 

False marking and consumer deception

Sukumar v. Nautilus, Inc., --- F.Supp.2d ----, 2012 WL 423322 (W.D. Va.)

Sukumar founded a company to create and commercialize an equipment-based protocol for elderly patients in rehab.  He found that machines manufactured by Nautilus came closest to his needs, but nonetheless needed modifications to work with his rehabilitation protocol. “Sukumar, an engineer with a Wharton MBA, believed he could make the required modifications himself, but after learning about Nautilus's extensive patent portfolio and examining the patent labels on certain of Nautilus's products, he was intimidated and deterred from attempting such modifications, instead determining that he would have to rely on Nautilus to acquire the technology needed for his custom machines.” He paid Nautilus more than $150,000 to manufacture customized exercise equipment, and more than once unsuccessfully sought to license technology from Nautilus. He alleged that his belief that he needed a license from Nautilus prevented him from designing and building custom machines.

Sukumar’s false marking complaint was interrupted by the AIA.  He amended his complaint to explicitly allege competitive injury, as now required, and adding California and Washington state law claims.  He then moved for partial summary judgment on several aspects of his claims.

False marking: the court found that there was indeed false marking.  Nine machines manufactured at Nautilus’s Independence plant were unpatented and falsely marked, where unpatented means that “the article in question is not covered by at least one claim of each patent with which the article is marked.” Nautilus admitted the mismarking at oral argument.  Six accused strength-building machines all carried the same label, which was endorsed with the Nautilus name, the words “Manufactured Under U.S. Patent Numbers and Other Patents Pending,” followed by a set of 24 numbers.  “Even a cursory review of the evidence” revealed that none were relevant; for example, one covered a stair-stepping machine and another covered a system that monitors the exerciser’s activity.  Three accused cardio machines were in a similar situation: each carried a patent label (not the same as the one on the strength machines) with the same wording and 16 different patent numbers.  It was “patently obvious to even this lay Court” that the patents didn’t cover the machines; they dealt with, among other things, rope climbing devices, resistance training apparatus, and upper body exercise apparatuses.  There was no genuine issue of material fact as to false marking.

There was, however, a genuine issue on intent to deceive the public, the other required element.  Plaintiffs argued that the blatent extent of the mismarking, plus Nautilus’s knowledge, was enough to meet their burden to win summary judgment, but the court disagreed.  The bar for deceptive intent is high in a false marking case: Nautilus, in falsely marking the accused machines, must have evinced a conscious desire that the public be deceived.

Plaintiffs argued that the fact that Nautilus used different labels on different lines of machines, combined with securities filings highlighting the scope of its patent portfolio and a previous judgment against it for false marking, show that Nautilus had deceptive intent.  In Icon Health & Fitness, Inc. v. Nautilus, Inc. (D. Utah 2006), a jury found that Nautilus had violated Section 292 by falsely marking part of its Bowflex exercise machine. Nautilus has also touted its patent portfolio in various securities filings, and has sought to enforce its patent rights in numerous cases. 

Nautilus submitted declarations in opposition.  Naked assertions of lack of intent to deceive are insufficient, but Nautilus offered more.  First, Nautilus’s witness testified that Nautilus did not receive any specific legal advice regarding its patent marking labels.  Plaintiffs argued that this indicated awareness of Nautilus’s legal obligations, while Nautilus contended that it had no specific knowledge that the accused machines were falsely marked.  Nautilus's Vice President of Engineering when the Accused Machines were manufactured, defended the so-called “uni-label,” declaring that “the use of the single patent label increased the efficiency and ease of the manufacturing process because it allowed one patent label to be affixed to each machine quickly and it could be applied to multiple orders or orders of mixed machines.”  He testified that he considered the affixing of patent labels to be of marginal importance, and that Nautilus did not have any kind of formal system or method of evaluating the labels used or monitoring their use. But he also stated that the labels were updated from time to time with patent numbers being added and removed.  Nautilus also offered the declaration of the man who’d been plant manager during the relevant time.  He said that the patent label was an “afterthought” and that using the uni-label eliminated the need for employees to discern which patent numbers applied to which product. 

Perhaps, the court said, the uni-label defense was a mere lawyer’s creation, and a factfinder might find that defense unconvincing at trial, but it created a genuine issue of material fact.

As an alternative to summary judgment, plaintiffs asked the court to find that they were entitled to an inference of false marking plus knowledge of false marking creates a rebuttable presumption of deceptive intent.  To show knowledge, plaintiffs needed to show that Nautilus lacked a reasonable belief that the accused machines were properly marked.  The court was also unwilling to go that far.  “To be sure, in light of the Icon Fitness case, no reasonable jury could find that Nautilus was not aware that the Power Rods in its Bowflex line were falsely marked. However, there is nothing in the record to indicate that the accused machines were the subject of any prior false marking suit.”  Plaintiffs needed direct evidence that Nautilus Nautilus knew or did not have a reasonable belief that the accused machines were falsely marked.  Perhaps hinting that the parties should think about settlement, the court concluded that, “[a]s persuasive as these arguments may prove to be at trial, they are, in the end, insufficient to meet the high bar for summary judgment.”

The court did grant summary judgment on the California FAL element that Nautilus intended to dispose of real or personal property, but (for the reasons given above) not on the element that Nautilus publicly disseminated untrue or misleading statements about that property which it knew, or in the exercise of reasonable care should have known, was untrue or misleading. The parties disagreed about whether the patent labels were “advertising,” but there’s actually nothing in the FAL requiring the false statement to be in an “advertisement.”  “Thus, the appropriate inquiry is whether Nautilus publicly disseminated untrue or misleading statements; the Court need pay no attention to whether those statements are advertising in the traditional, commercial sense of the word.” 

The court found that Nautilus disseminated untrue statements about the machines.  (Note the potential Dastar/preemption issue here, at least as Dastar has been widely interpreted.)  But there was still a question of whether Nautilus knew or by the exercise of reasonable care should have known the statements were untrue. Precedent imposes a duty of investigation, and the failure to verify breaches the defendant’s duty of care when the facts would put a reasonable person on notice of possible misrepresentations.  Moreover, California recognizes a duty of communication between corporate departments: “a large corporation such as Nautilus may not escape liability just because no one employee or officer has all the information necessary to use reasonable care to avoid disseminating false statements.”  Still, reasonable care was an issue for the trier of fact.

Sukumar also brought Washington Consumer Protection Act claims.  The WCPA requires an unfair or deceptive act or practice; deceptiveness requires misleadingness, or a misrepresentation of something of material importance.  The court found that “the practice of placing patent numbers on a product that do not cover that product is misleading.”  No intent to deceive is required by statute, but, to avoid preemption, in this particular instance such a showing would be required.  More saliently at this point, Sukumar also had to show that the false marking had the capacity to deceive a substantial portion of the public.

This was a question of fact.  The Ninth Circuit held, in a different context, that a tax shelter scheme marketed to people with millions of dollars in capital gains lacked such a capacity.  The accused machines were sold only to commercial entities: gyms and other industrial users.  The labels were placed in inconspicuous locations.  Thus, drawing all inferences in Nautilus’s favor, summary judgment for Sukumar on this element was inappropriate.

The WCPA also requires a showing of impact on the public interest, which can be satisfied by showing that an act or practice injured people other than the plaintiffs or had/has the capacity to injure them.  Sukumar argued that the false marking was widespread and harmed consumers by causing them to pay more than the machines were worth.  Though there were no cases construing the current statute, the court considered five factors relevant (quoting an older case): “(1) Were the alleged acts committed in the course of defendant's business? (2) Are the acts part of a pattern or generalized course of conduct? (3) Were repeated acts committed prior to the act involving plaintiff? (4) Is there a real and substantial potential for repetition of defendant's conduct after the act involving plaintiff? (5) If the act complained of involved a single transaction, were many consumers affected or likely to be affected by it?”  Nautilus’s mismarking wasn’t limited to its dealings with Sukumar, but covered all its machines made at its Independence plant, which were then sold across the country.  The Federal Circuit has noted that false marking deters innovation and research and stifles competition.  Though those harms were speculative at this point, and Sukumar would still have to show harm to itself at trial, the conduct clearly had the capacity to injure other people.  Thus, Sukumar won summary judgment on this element.

Is a domain name CMI?

Personal Keepsakes, Inc. v. Personalizationmall.com, Inc., No. 11 C 5177 (N.D. Ill. Feb. 8, 2012)

Plaintiff PKI, which runs a website selling personalized gifts and knickknacks, sued defendants and competitors Pmall, Techny, and Abernook, LLC, alleging that they took PKI’s copyrighted poems and put them on their own products.  Defendants answered the copyright infringement claim but moved to dismiss the Lanham Act, DMCA CMI, and state-law claims.  The court granted almost all of the motion to dismiss.

PKI’s poems are incorporated into personalized gift items, given to commemorate baptism (“On Your Baptism Day”) or the services of a young ring-bearer.  Pmall sells a “Walk With Jesus© Baptism Keepsake” that uses nearly identical text, though with different line breaks.  PKI:

PKI’s text:

You are a precious gift to us

sent from God above.

He placed you in our loving arms and

blessed us with your love.

May you always walk with Jesus -

Live your faith in all you do.

Treasuring God’s love -

the way we treasure

the priceless gift of you.

Pmall:

Pmall’s text:

You are a precious gift to me sent from God above.  He placed you in my loving arms and blessed me with your love.  May you always walk with Jesus - live your faith in all that you do.  Treasuring God’s love the way I treasure the priceless gift of you.
PKI's ring bearer gift:

PKI’s text for its ring bearer gift:

How lucky we are to have a ring bearer who’s so cute in every way.

Someone who knows how to walk down an aisle

and steal everyone’s heart away.

So thank you for being our ring bearer,

and helping to lead the way.

But thank you most of all for helping

to make ours a perfect wedding day.

Techny's ring bearer gift:

Techny’s text:

How lucky we are to have a ring bearer

who’s so cute in every way.

Someone who knows how to walk

down the aisle

stealing everyone’s heart away.

Thank you for being our ring bearer,

and helping in a special way.

But thank you most of all for helping

to make ours a perfect wedding day.

Abernook’s text is the same. Abernook's gift:

Dastar barred the §43(a)(1)(A) claim for false designation of origin.  Defendants sell different products than PKI does; they don’t repackage PKI’s tangible products and PKI isn’t the origin of defendants’ products. The court wasn’t impressed by the few cases that have misunderstood Dastar somehow to allow a remaining cause of action for pure copying, though rather than explaining that these cases were just wrong the court said that they were distinguishable because of allegedly wholesale copying of photographs.  I don’t know what makes copying a photo different from copying a poem—special treatment for images strikes again—but the court thought it made a difference that the poems here were incorporated into products instead of sold on their own.  PKI also said that Dastar was about public domain works, but of course it’s about the definition of “origin” in the Lanham Act.

Then PKI tried §43(a)(1)(B), and the court followed the majority caselaw that reads Dastar’s preservation of a false advertising cause of action out of existence.  The identity of the author of a poem, the court concluded, was not a “nature,” a “characteristic,” or a “quality.”  Ignoring the competition and materiality aspects of the false advertising cause of action, the court concluded that it would be wrong to preserve a false advertising claim because then the same claim rejected in Dastar would be available against any product that was “commercially advertised (as most products are).”  The overriding concern of the Dastar Court was to avoid effectively expanding copyright protection, so no claim could be allowed here.  (Which doesn’t explain why there wouldn’t be a cause of action against someone who falsely advertised to have found a new Shakespeare play, but at this point I should probably give up.)

The DMCA bans distributing false CMI, removing or altering CMI, or distributing works knowing the CMI has been removed or altered (in a way that facilitates copyright infringement, but the court doesn’t mention that part).  CMI is information “conveyed in connection with copies” of the work.   PKI argued that defendants removed the CMI conveyed with the poems when it copied the poems, and then provided false CMI on the pages selling the infringing products and in their general website terms and conditions, which make various statements about copyrights on the website.

PKI argued that the poetrygift.com domain name, the titles of the works (“Baptism Gifts”/“On Your Baptism Day” and “Ring Bearer Gift”/“To Our Ring Bearer”), and the copyright notice on every page of the website were CMI.  But poetrygift.com couldn’t be CMI, because PKI, not poetrygift.com, was the copyright owner.  The domain name was at best an indicator of the seller, “which says nothing about the copyright status of the product; in the same way, Amazon.com does not suggest that Amazon owns copyrights with respect to every product it sells.”  The titles weren’t CMI because the copyright registrations didn’t list those titles as they appeared on PKI’s site, but rather “Personal Keepsakes VI” and “Personal Keepsakes X.” Calling the titles CMI wouldn’t assist in informing the public that the works were copyrighted, which is the point of CMI.  “Put another way, if someone saw the poem, and then searched its title to see if it was copyrighted, the search would come up empty because the title of the work is not ‘On Your Baptism Day’ or ‘Baptism Gifts’ for purposes of copyright.  Allowing a plaintiff to make out a DMCA claim based on alleged CMI that does not link up in any way to the copyright registration is an invitation to unfair litigation against parties who have tried to tread carefully to avoid copyright infringment.”  (Of course, on the other side, titles are not copyrightable, and there are numerous different works with the same title.)

PKI alleged that each page of its website had a copyright notice, but its exhibits—the first pages of website printouts—didn’t show such notices and thus PKI didn’t state a plausible DMCA claim. As of the date of the court’s order, the court’s own browsing determined that PKI’s notice read “Web Site and Original Verses - © (1991-2012).”  The court found it “plausible” that the notice referred to the poems at issue if it appeared on the pages shown by the exhibits.

As for false CMI, PKI alleged that Pmall used false CMI when it put the copyright “©” in the name of its “Walk With Jesus© Baptism Keepsake.”  Because the © follows a line in the poem that forms the title “Walk With Jesus,” the court found it plausible that the © could refer to the poem, and not the product as a whole, and thus PKI stated a DMCA claim as to Pmall.  Abernook and Techny, however, didn’t use a copyright symbol in connection with a line from the poem, so PKI couldn’t state a claim as to them.  

PKI also argued that defendants made statements on their website terms and conditions pages claiming to own the poems.   Pmall’s website said:

The Website contains intellectual property rights owned by Pmall and any unauthorized use of the Website may violate or infringe upon the intellectual property rights of Pmall or a third party.

Techny’s website giftsforyounow.com said:

All content included on this site, such as text, graphics, logos, button icons, images, audio clips, digital downloads, data compilations, and software, is the property of this site’s owner or its content suppliers and protected by United States and international copyright laws.

Abernook’s statement was similar to Techny’s.

As to Pmall, the court found that the T&Cs only said that Pmall owns at least some IP rights on its site, and, in the absence of any allegations to the contrary, that statement was true.  The other statements were in absolute terms, but the court found that they weren’t CMI.  They weren’t close to the poem, but on a different page.  Other courts have found that a defendant must remove the CMI from the body of the work or at least from the “area around” the work to be subject to the DMCA, and the court applied the same rule in reverse to false CMI.  “[A]s a matter of law, if a general copyright notice appears on an entirely different webpage than the work at issue, then that CMI is not ‘conveyed’ with the work and no claim will lie under the DMCA.”

PKI could, however, replead its dismissed DMCA claims about its copyright notice if consistent with the court’s opinion.

PKI’s state law claims were for statutory and common-law unfair competition/deceptive trade practices.  These were just restated copyright claims and thus preempted.  “[E]very copyright claim inherently involves the notions of unfair competition and consumer confusion and deception, because it is fundamentally not fair competition and confusing to customers to rip off another’s protected work.”  (This is of course untrue in a variety of ways, as copyright infringement may be carried out by noncompetitors and consumers may not be in any sense confused about anything, even in our world of infinite licensing.  But that doesn’t mean the conclusion about preemption is wrong, since in these circumstances the idea of confusion is based on the same theory rejected in Dastar.)

Guest post on teaching the mortgage crisis

I have a guest post up at PropertyProf Blog, which kindly allowed me to vent a little about teaching the mortgage crisis with Dukeminier et al.

WIPIP part 4

Olufunmilayo B. Arewa, Writing Rights: Performance, Creativity, and Copyright's Visual Bias

Hermit Songs: we can hear the composer performing his own composition, through early recording technology.  He doesn’t play them as written.  Should we sing as played or as written?  Her voice teacher: sing as written—key feature of classical voice tradition. Eminent singers have more leeway.  19^th century was very different for performers’ liberties to insert arias etc.

Technologies: sheet music.  Technical revolution started with technical applications of acoustic science.  The phonautograph: first sound recording technology, invented 1856.  Vibrations from sound could be turned into writing—inventor thought that the best way to preserve music was to preserve it visually; no way to reproduce sounds at that point.  The gap between him and us: he thought sound could truly be understood by looking at it.  “Yawning epistemic gap” between him and us, according to researcher quoted in NYT.

How written relates to oral varies in musical traditions. Phonograph: 1877, Edison discloses his invention, and a number of competing technologies followed.  Dictaphone was do-it-yourself; early innovators like Bell and Edison were interested in the deaf and not so much in music, though Edison did talk about music as an application. Others soon realized that music was the killer app. This led to a struggle to find content. Opera singers, who were the rage, were hard to record—sopranos and basses in particular given the tech. Caruso established a huge career as a recording artist because he could sing for the new tech; many of the old recordings don’t sound so good because their voices didn’t fit.  So then the industry turned to bandstands and music halls. Cakewalk, minstrelsy, “coon” songs. Encountered emerging body of African-American popular music. This is an important turning point because this body of music was based on different assumptions about orality and visuality.

Tendency from Enlightenment is to think of sight as privileged.  Visual bias assumes that notation is authoritative source and we gain understanding by using it. Not always true. This has implications for how we think about performers.  Reflects assumption that composition/composer are creative locus in music, which is not always true. Sources of visual bias: historical—sacralization of European canon changing performance culture so that things like aria insertion at the performer’s choice were no longer allowed; displacement and takeover of African-American music by “popular” music.

Rhythm is very difficult to notate; music based on complex rhythms may have to be learned orally.  Timbre (musical color—difference between trumpet and flute—looks same in musical notation, though sound different).  Psychology of music literature suggests major means of recognition of music is timbre, but that’s very hard to notate.  African-American music has a very distinctive timbre. May not be evident because our ears have changed. If we listened to music 100 years ago, there’d be a remarkable change. A succession of black genres stamped themselves indelibly on generation after generation: blues, jazz, R&B, gospel, doowop, soul, etc. No one would have predicted this in 1860.

Go back to first slave song collection, published 1867. Most not heard by general public until former slaves started to leave locations of slavery in great numbers; early encounters—white people weren’t even sure how to write it down. Voices have “a peculiar quality that nothing can imitate.”  Difficult to express “by mere musical notes and signs.”

If musical forms are based in timbre and rhythmic variation, notation won’t work/is incomplete.  Making a musical work infringement determination may differ by genre, where notation may capture 80% of one genre and only 60% of another. Notation is not neutral. 

There’s more oral tradition in classical than we understand; more notation in African-American music than we understand—used more broadly in early jazz scene than is widely understood.  Would sometimes learn from notation and then perform without it—a way to play with expectations that African-Americans were naturally skilled at music.

Cognitive aspects of visual bias: how do we construe meaning via sight versus sound? If we rethink infringement, would that change outcomes?

Q: How much difficulty noting is inherent and how much because we settled on one way of writing down compositions that doesn’t catch these particular nuances?

A: Some is historical, European tradition. But how do you notate timbre?

Q: Newton v. Diamond—court actually saw things noted on the sheet music but wasn’t sure whether to treat as part of music or part of performance, because they seemed to tell the performer how to perform.

A: the performance/composition dichotomy comes out of this bias; a performance can be many things, not just one thing.  Criticizes that case.  Performance could be generic, but could be composition in itself.

Ramsey: What would you compare in infringement of a sound recording?

A: We need to think about this in a more complex way, contextually.  Also depends on musical tradition.  Experts?  In Newton, the court should have looked at the jazz context even though she agrees with the outcome.

Loren: what do you think of the timing of sound recording protection, 1972? We now have this dichotomy.

A: huge lobbying by industry.  Limited protection for sound recordings is based on visual bias

I want to know what this project implies for Jamie Lund’s incredibly interesting work on juror evaluation of musical work infringement.  Sounds like Arewa is saying that Lund is asking the wrong question because by changing the performance style she’s changing the musical work.

A: She’s interested in how those differences play out; legally we don’t know. She’s agnostic.

Eric E. Johnson, The Konomark Project

A public interest project with a paper explaining it. Konomark is a made-up word, kono as Hawai’ian for “invite.”  A signal of intent to share—go ahead and ask to use this for free.  What do people want to get out of sharing? Make money, get credit, be social.  Getty Images is an example of money.  Creative Commons is largely about credit.  Konomark is intended to fill a gap where people want to get something—contact.  An invitation; don’t be shy about asking for permission.

Economic gains & sociocultural gains.  Overkill loss—some people create for money, but others don’t. Konomark aims to decrease the loss from failing to use stuff that could easily be used. How much overkill is there in the system, and how much is it worth?  Look at historical record where people didn’t put proper notice on works and thus weren’t protected—70%, roughly.  If copyright industries are worth a trillion, that suggests that the unused value is more than twice that.

Outport effect: pictures of Hawai’i are cheap to get in Hawai’i, but valuable to someone in New York.  Transaction creates value.

Workpart multiplier effects: providing inputs to some other artistic creation to add value—sound effects, B-roll, stock footage.

Intrinsic motivation agonism: abetting the effects of intrinsic motivation.  Positive feedback, gratitude, and useful information about the contribution abet intrinsic motivation.  See it on Wikipedia: you get badges/positive feedback/gratitude/sense of relatedness.

Konomark can provide these, as well as indications of competence, feelings of autonomy, experiences of relatedness.

Market-clearing efficiencies. Benkler: gifting/sharing is economically efficient for excess capacity where people end up with more of something than they need, but not so much more that it’s worthwhile to sell—lumpy/midgrained granularity. Computer processor timeàdonated to SETI@home or folding@home.  Casual commuting/carpooling.  IP has a lot of excess capacity: your pictures are probably not worth selling in most cases. In 2005, Getty images were sometimes sold at $585.  Now we’re looking at average prices of 14 cents. Does selling photos for a pittance really make sense, when people could be getting other things like positive feedback?  People on these cheap sites want to know where there photos are being used, they don’t want a check.

Sharing is especially well suited to give the gratitude & info etc.

Sociocultural: improves expression/participation in culture/deeper reservoir of works/meritocratic artistic production.

Barrier to sharing: awkwardness of asking for something for free.  Invitation to ask lowers that barrier.  Konomark is a simple, social signal.

There are some transaction costs, but they are features, not bugs.  All the transaction costs of having to ask someone for permission and establishing a relationship creates intrinsic motivations which increase the giver’s benefit.

Beta test on flickr: large reservoir of 10,000 photos with a little explanation.  A bit under 100 people have contacted him.  About one every week.  Used for a court reporting service.  Iowa State used a picture for an event.  Trolley picture used by husband-wife streetcar guide.  This was fun!

Should the paper be about Konomark, or should it be about social sharing of IP?

Ramsey: consider TM implications of the mark.

A: feels ok with his use.

My reaction: the idea here seems to be to substitute for smaller community norms (where people may feel able to ask, e.g., the fan podficcing community—or, also, students feeling free to ask pretty much anything of their teachers, or the people who write me for free legal advice based on my blog). Need to have a thick description of norms about asking to predict how this will change behavior.  For one thing, fair use is also substituting for “please ask”—why do we think that the value Johnson claims is locked up is actually unused right now?  Are positive feedback etc. connected to reuse in any clear way?  I like your picture/like button: easier to give that feedback and more common than “I’d like that for my wallpaper.” And then you right-click save if you want to save it.  Likewise, Wikipedia rewards aren’t given by people who copy; they’re given by other contributors.  At the very least, you have to treat this as marginal contribution rather than entire gap-filler.

Q: does success threaten this project? It’s fun to get one request a week, not five hundred.

Liam O'Melinn, The Mythology of Common Law Copyright

Founders rejected the content industries’ view of copyright, which was present at the time.  RCA v. Whiteman, unauthorized transmission over the air.  Whiteman was a conductor and was unhappy about transmission.  District court ruled in his favor on a common-law theory, and was reversed, though district court’s thinking was the wave of the future. 

District judge said: at an early stage, performer had a right to prevent transmission even though there was no apparatus to do so. “Prior to the advent of the phonograph, a musical selection once rendered by an artist was lost for ever, as far as that particular rendition was concerned. It could not be captured and played back again by any mechanical contrivance then known. Thus the property right of the artist, pertaining as it did to an intangible musical interpretation, was in no danger of being violated. During all this time the right was always present, yet because of the impossibility of violating it, it was not necessary to assert it.”  In this theory, people reserve the right to communicate the performance even though it can’t be done. Doesn’t seem consistent with how people think, behave, and share performances.

Birth of copyright: censorship delegated to London’s company of stationers.  Today’s censorship is pallid by contrast.  Puritan wrote a pamphlet licensed by the censor, but the Archbishop of Canterbury disagreed and he had his ears cropped, LS branded on his forehead, and a life sentence in prison.

Copyright att’y in 1961-1962, part of lobbying to extend copyright: The Ghost of Donaldson v. Beckett: the translation is that it’s time to extend copyright to sound recordings.  Excellent piece of adversarial scholarship, though O’Melinn doesn’t believe a word of it.  Ignores the inconvenient past in which there was no common-law right of copyright.  Author denies that Donaldson reached American shores, so that when America enacted its law it was following Millar, which held that copyright was a perpetual common-law right.  Ben Franklin had to have been exposed to Donaldson, though O’Melinn can’t prove that he remembered 13 years later at the Constitutional Convention.  Key argument: Millar expressed the true spirit of copyright; common-law copyright simply suffused the world at that point, booksellers all understood that (somehow omits authors). Common-law theorists substitute a philosophical past—principles and relationships—for a historical past populated by events and people.

Paucity of authors known to have supported the common-law theory, though a few famous ones like Defoe and Jonathan Swift (discredited attribution of early version of Statute of Anne to him).  Shakespeare?  Used by several proponents, even though he was a notorious plagiarist and it’s not known that he oversaw/authorized publication of his works, though maybe so with his sonnets. Learned Hand has used him to support common-law copyright, as have a few others.  Shakespeare’s Fight with the Pirates—a book in which Shakespeare rarely if at all appears.  Many, perhaps all, of his works were printed without attribution, but the author, Pollard, saw a pattern. The Shakespeare that was pirated were the main/inferior texts, the bad quartos. It seems to him that the true, superior texts were authorized.  A moral economy of copyright—even if self-interest forced the publishers to publish, they printed bad ones; Shakespeare and his players were worried about corruption so they worked with publishers to put out good versions.  This history has been challenged.  If the authors/printer Paxton had competitors, Pollard argued, he would’ve stood up for common-law copyright, but he had none so he didn’t.  Note how that reasoning is similar to that of the district judge in the RCA case.  That’s one way to deal with the paucity of authors: they should have demanded protection.

Tonson v. Collins, 1760, later dismissed as collusive: sought to vindicate common-law perpetual right.  Started with the right of the author—the right to a profit from printing.  Manuscripts weren’t important, the advocate said, because they weren’t for profit—though it seems there was a lively trade in manuscripts in Europe.  Not clear there was any norm against unauthorized copying of manuscripts; authors raised no objections as far as the record shows.  The printing press was the game-changer. Advocate didn’t want to suggest that manuscripts had ever vindicated authors’ interests; and didn’t want others to think too hard about how manuscripts made their way into print, given that a fair number of unauthorized manuscripts seem to have found their way into print.

Common-law theory: it’s timeless, over and above history. Continued insistence on essential relationship between authors and public secured by the printing press and accompanied by copyright, as a philosophical necessity rather than a historical fact. No/little room for public domain. If people are walking around with a primordial right to control transmission even absent tech, that doesn’t seem consistent with a public domain.

More modern influences: the extension of copyright to sound recordings.  Constitutional insouciance. Campaign to extend copyright began around 1909.  Are records “writings”?  Objections have withered away over time because nobody cares.  Barbara Ringer used the district court opinion in RCA (which she said was “reversed on other grounds”) to establish a common-law copyright in sound recordings.  Copyright Office was evidently disappointed that Congress was unwilling to act/follow the true spirit of copyright.  His inclination: they passed the law they wanted. But the common-law theorists have an unrealized ideal, which every legislative enactment is a partial attempt to realize.

Q: Wheaton v. Peters?

A: The theorists do their best to ignore that, suggesting a spirit of common-law copyright infused the colonies.

Arewa: In Highbrow/Lowbrow, Lawrence Levine talks about the sacralization of Shakespeare and contrasts prior ways of dealing with Shakespeare with what happened by the end of the 19^th century—a norm of copying/altering that shifted.

Jeanne C. Fromer, The Audience in Intellectual Property Infringement

Joint work with Mark Lemley, who had to leave. Most IP disputes involve whether the D’s product, idea, brand etc. is too similar to the P’s.  Who decides similarity?  Who is the audience?  Not merely judge v. jury, but about complexities beneath the surface.  Taxonomy of aspects of the audience, and observations about them.

1. Is the audience real or hypothetical?  Tort’s reasonable person/patent’s PHOSITA, a construct with perfect information.  TM: looks at actual consumers, at least in theory.  (My thought: First Amendment TM defenses often borrow from general First Amendment and look for a more hypothetical presumptively smart audience.)

2. What group? General public or technical experts (patent, to some degree trade secrecy).  Copyright can also involve smaller groups: computer software, music of a particular genre.  TM: whether 386 is generic for semiconductor chip architecture?  General public has no clue, but people making purchasing decisions of chips will have opinions.  Competitors’ perceptions may be relevant: in trade secrecy, where business norms drive both D’s liability and whether there is even a secret.  Copyright: sometimes comes up in asking whether there’s a licensing market.  Legal experts: relevant in patent law, for claim construction.  With TM, 15% confusion can be enough, but in trade secret a larger group probably needs to think that the conduct violates commercial norms.

3.   Judge or jury.  Plays into the fact/law-norm divide.

Choice can matter quite a bit.  A lot of the choices made are effected by (or will be affected by) allocating to the jury or the judge the determination of infringement. Jury’s own perceptions: are they being reflective of actual audiences?  Actual audience might be less attentive than a jury required to sit there and pay attention.  Mismatch may worry us. Can juries or judges channel the real world or the PHOSITA?  Maybe they’ll be better at modeling someone not like them (or maybe the opposite).

When the model is less like them, what role does expertise play?  Should we survey people in the field? Present experts?  Rolling Stone interviewed jurors after the Bee Gees case about How Deep Is Your Love.  Jurors said “we just did what the expert told us.”  Reversed; the trouble with what the jurors said was that the expert was supposed to be testifying about factual copying, not substantial similarity.  Jury is more representative of consumer in some cases than the PHOSITA—should we care about differences indistinguishable to the consumer in the market? Patent law makes scientific distinctions, but is that right?

Is copyright equipped to decide cases where the jury doesn’t map on to the regular audience? Courts more willing to rely on experts in software cases; have told us to think like kids in kid-oriented work cases; etc.

Design patents: amalgam of patent and TM.

A big focus: how well can juries handle expertise? Choices may differ across areas of the law.

Goldman: weird construct—audience v. consumer.  Judges are higher variability as a focus group of one than focus group of 12, but they’re also more trained in evaluation.  But that seems like a different question than how we measure what the audience/consumer thinks.

A: Not sure you can divorce the questions. You have to decide who’s going to decide—juries might be better, given known problems about TM surveys. Compare: why doesn’t copyright use surveys?  Practical issues, but also conceptual.  We sweep a lot under the rug by sending substantial similarity to the jury and letting them work it out.

My reaction: consider expert v. survey.  In Lanham Act cases, courts actually reject experts and say only surveys count, especially in false advertising cases.  Rare even to see expert testify about confusion, though TM cases sometimes smuggle that in through expert testimony about the relevant market. A pathology that is distorting how we present evidence?

Michael Meurer: comparative law treatment of the subject? Do we see the audience defined in the same way around the world? Judges decide patent cases around the world except the US. Are we path-dependent and idiosyncratic? 

Shubha Ghosh, "If Music Didn't Pay:" Justice Holmes and the Commercialization of Intellectual Property

Commercialization comes up in Eldred and Golan, as well as in patent cases.  Holmes shaped the “traditional contours.” 

Holmes also gets cited a fair amount, so it’s useful to look at what he said.  E.g., “A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used”—cited in Markman concurrence and other significant cases.  Quoted by Judge Newman on patentable subject matter on the relationship between law and policy: litigation is necessarily bound up with public policy.  Quoted by Stevens in concurrence in Bilski (a page of history is worth a volume of logic).  The Indian High Court also cited Holmes in an IP case on deference to the new patent appeals court. And also quoted in a Delhi high court case on trade in DVDs: copyright is an abstract right to exclude not directed to any object.

Holmes was a positivist versus a natural rights theorist. Does that mean the state can do anything it wants?  His theories of property generally have to have some implications for IP.  Golan: one striking thing is Ginsburg’s reference to vested rights of users to disparage arguments that users have any reliance or expectation interest that works will be kept in the public domain—seemed out of an earlier century. 

Should we think of Holmes as a utilitarian?  Not a very serious one; any litigator is a utilitarian who talks about burdens and benefits; he was interested in consequences.

Was on the Mass. S.Ct. for about a decade; there were IP cases, like the Waltham Watch case, but also patent cases.  Commercial cases involving patents, not infringement cases.

“If music did not pay”: focuses inquiry on causation—why would they do it?  Doesn’t use term “free riding” but it’s implicated: D is getting commercial value.

Relevant to how you think about other commercial interests, including university commercialization—which may push other university interests onto the back burner.

Related: role of judiciary in shaping policy. Holmes thinks about institutional relationships, and that’s important to his IP policy.  Deference to Congress. 

Bleistein: artistic personality; uncertain competence of judges; existence of commercial value as a way of measuring its creativity and just because something has value is no reason to disparage it.  In a letter, he wrote that he upheld “the cause of low art.”

Holmes on antitrust: he was skeptical, free market views; narrow construction compared to deference to legislature.

His Mass SCt cases: he sees TM become business assets, which in some ways becomes a model for all IP.  One case: transfer of TM in will was assignment in gross.  TMs as commercial assets in various ways.  Patent cases are really interesting because also involve IP rights as commercial assets: in trusts, in stock fraud cases (worthless patent), resale price maintenance based on patent, libel based on patent infringement claim, unpatented zithers that could be copied without triggering unfair competition liability.

Jekyll and Hyde: deference to majority/commercial assets on one side; defense of creative personalities and free expression on the other—let those fools talk, seeds of more protective First Amendment doctrine.  His jurisprudence focuses on buying and selling over the creativity underlying IP.

Me: In INS v. AP, Brandeis’s dissent is more institutionally oriented than Holmes’s, in my opinion, though Holmes does mention that he can’t do anything without legislation but require disclosure despite what he sees as the potential wisdom of an anticopying remedy.

A: Brandeis is sort of a pseudo-preemption analysis: Congress didn’t put it in. Holmes is more common-law, rejecting natural right and using common law to remedy the harm he saw.

Q: pragmatism has interesting relation to IP because IP is so metaphysical. He doesn’t like high/low art distinction. Is commercialization simply a running away from abstract concepts of art etc.?

A: we have a Gordon Gecko view of commercialization in 2012, but it’s more complicated than that. A relationship between individuals. Holmes is somewhere between Gibbons v. Ogden and “greed is good” in his thinking.  There is or can be a divide between the beach (social life) v. the market—but Holmes eventually rejects IP as play: wants people to be serious and get down to work.

Yu: Was Holmes creating/trying to create markets?

A: different forms of markets were then emerging, and opinions reflect that; doesn't seem to be trying to engineer their development.