Attempt to stop reality show with TM/publicity claims leads to fee award

Arenas v. Shed Media U.S. Inc., 2011 WL 8427612 (C.D. Cal.)

Gilbert Arenas plays basketball for the Orlando Magic.  He was previously in a relationship with a woman named Govan, with whom he has four children.  Basketball Wives, a Shed Media production on VH1, is about the lives and relationships of a group of women, “most of whom have or have had a romantic relationship with a professional basketball player.”  Basketball Wives: Los Angeles (BWLA), a spinoff, included Govan in the cast.  The promotional materials describe her as the sister of Gloria Govan, the fiancée of Los Angeles Lakers player Matt Barnes, and mention her children, but don’t mention Arenas. 

Arenas sued for trademark infringement, trademark dilution, false advertising, and false endorsement under federal law, as well as violations of California’s common law and statutory right of publicity and violation of the UCL.  He sought a preliminary injunction against the use of any of his alleged trademarks in the show; if he appears in the show, the use of “Basketball Wives” or any other term that would suggest affiliation with basketball players; or the use of “any other means to suggest affiliation with basketball players, such as including more than two participants who are known to be affiliated with basketball players.”  (Comment: wow.  Basically, Arenas sounds like he’s taken instruction from the Olympics in asking that his delicate commercial sensibilities be protected from any unapproved hint that he exists!)

Defendants moved to dismiss and brought a special motion to strike under the anti-SLAPP statute.

Such motions are to be granted if (1) the cause of action arises from any act by the defendants in furtherance of their free speech rights under the federal or state constitution; (2) the act is “in connection with a public issue”; and (3) the plaintiff fails to establish a probability that he will prevail on the claim.

The court began with the common-law commercial misappropriation claim.  The court first asked whether the show would appropriate Arenas’s identity.  Without episodes on hand, the court could only speculate based on Shed Media’s declarations and promotional materials, which didn’t explicitly refer to Arenas.  Shed Media, however, recognizing its long-term interest in freedom to operate (that is, to speak), took the position that “future promotional materials could certainly refer to Govan’s prior relationship with Plaintiff.”  The court found that it was likely that Govan would discuss Arenas on the show. 

The court then turned to the question of whether such on-air discussions would constitute “use” of Arenas’s identity as a celebrity, and answered in the affirmative.  The old Here’s Johnny case said that there wouldn’t be any violation of the right of publicity if a defendant’s use didn’t appropriate the celebrity’s “identity as a celebrity,” for example the “John William Carson Portable Toilet.”  Here, by contrast, Arenas’s name would be used in the context of a show about “Basketball Wives,” and would refer to his status as a famous basketball player.  However, the court conceded that Govan’s inclusion on the show alone wouldn’t invoke Arenas’s identity, since she was the sister of one of the other “wives,” and her appearance on the show was therefore “explicable” without reference to Arenas.  (I take it then that Kato Kaelin violates OJ Simpson’s right of publicity by existing, under this analysis.)  True, the court continued, other media outlets made the connection with Arenas, but that’s only to be expected from “an age of tabloid journalism and celebrity obsession,” when “news outlets frequently uncover and publicize connections between celebrities.” As was widely reported in 2008, President Obama was distantly related to former V.P. Cheney.  But the court wasn’t willing to make the “improbable” assumption that Govan would refrain from discussing her relationship with Arenas onscreen.  This would constitute appropriation of Arenas’s identity for commercial gain.  That he wasn’t the focus of the show, but rather the women were, was immaterial.  (Citing, inappositely, White, which held that it didn’t matter what aspect of the plaintiff’s identity—image, voice, etc.—the defendant appropriated; in White the song was a central element of the ad, not an incidental part, so the court is making new law—though that will soon be mostly eaten by the rest of the analysis; still, clever plaintiffs will like this statement for incidental uses.)

Fortunately for Shed Media, the court found this commercial appropriation to be protected by the First Amendment both under the transformative use test and the public interest test.  Transformativeness: when the value of the work comes principally from the defendant, the First Amendment protects against liability.  But “when an artist’s skill and talent is manifestly subordinated to the overall goal of creating a conventional portrait of a celebrity so as to commercially exploit his or her fame, then the artist’s right of free expression is outweighed by the right of publicity.”  Saderup.  (Consider, in this regard, why a “conventional” biography—say, an hour of television in a series of celebrity profiles, following a standardized format—wouldn’t flunk this test.  Saderup relies on dishonesty about art.  But that doesn’t matter here.)  On the current record, the court found that references to Arenas would be incidental to the show’s plot.  “At its core, the show is about the women who have or have had relationships with basketball players rather than the players themselves. Thus, the show appears to be transformative.”

Arenas argued that BWLA used his identity solely to attract attention to the show because the show wasn’t related to him.  “This is simply untrue. Unlike Vanna White and Samsung videocassette recorders or Bette Midler and Ford cars, there is an obvious connection between Arenas and BWLA.  Shed Media's show is about women who have dated or married basketball players. Arenas is a basketball player who dated one of BWLA’s cast members. While the show is not predominantly about Arenas, it is not so unconnected to him as to vitiate Shed Media's First Amendment defense.” 

In a footnote, the court pointed out that, even if the show were predominantly about Arenas, it would still be protected by the First Amendment, as unauthorized biographies are.  Importantly, the court’s reasoning was not that this hypothetical show would be transformative—see the Saderup quote above—but rather that a contrary result would chill lots of expression.  But of course this is why Saderup is (at least on its own) a terrible rule.  It sets up inherent conflicts with the other popular First Amendment test, Rogers v. Grimaldi: a Saderup-transformative use of a celebrity may seem to lack artistic relevance (Rosa Parks), while an accurate portrayal, which is artistically relevant by definition once you’ve chosen to depict a particular celebrity, seems nontransformative (Saderup).  But we’re ok with chilling the expression of visual artists.

On to the public interest defense: the public has a right to know things!  This includes reporting on recent events, even ones in the entertainment field, and people legitimately in the public eye.  Arenas argued that discussion of his family life wasn’t sufficiently related to his celebrity to render BWLA’s use of his identity a matter of public concern.  Best use of Twitter I’ve seen in a legal opinion yet: “This contention is belied by the tens of thousands of Twitter users who follow Arenas as he tweets about a variety of mundane occurrences. (See, e.g., “dont u hate waking up doing the same thing..wash face.. brush teeth..pee..take shower(well sum of us) ... put on clothes ... eat ... etc”).”  He’s a celebrity and thus the public has an interest in him.

Arenas then argued that there could be no First Amendment defense because Shed Media acted with actual malice.  This picks up on a problem I had with Stewart v. Rolling Stone, which was that the case imported the concept of actual malice into the right of publicity context with no coherent explanation of what exactly had to be malicious—the best candidate seemed to be the commercial use.  But if that’s so, Shed Media would almost certainly have acted with malice according to what the court said above, since it obviously knew it was going to evoke Arenas’s identity and wanted to make money, which apparently counts as “commercial.”  But since the public interest defense contemplates that for-profit publishers can report on celebrities because of the beneficial effects for public discourse, it can’t be “malicious” to do so deliberately.  In the absence of any coherent explanation of what one must be actually malicious about, the court here closed the circle: delightfully, it applied the actual malice standard from NYT v. Sullivan.  Because Arenas alleged neither defamation nor even falsehood, there was no way that defendants could have acted with knowledge of falsity or reckless disregard for the truth.

Arenas’s counsel said he’d be satisfied with an injunction against using his name in promotional materials, but the court was having none of that.  If you can constitutionally make a show about someone, you can tell your potential audience what it’s about.  As long as it doesn’t falsely claim that Arenas endorses BWLA, the advertising is also safe.

Notice that all this pain could have been avoided by a simple, and I believe constitutionally compelled, rule: the right of publicity can only be violated by commercial speech.  “Commercial” in California’s “commercial appropriation” tort should mean the same thing it does in First Amendment law.  BWLA is not an ad and could not constitute commercial appropriation.  There, I fixed it.

Turning to trademark, the court described Arenas’s infringement claim as “muddled,” lacking a theory of infringement.  He claimed trademarks in his name and variants thereof, and then added that the very presence of Govan and the show’s title was an obvious reference to him and a use of his likeness.  He further alleged that defendants were going to use his marks in commerce in connection with advertising BWLA.  But “Basketball Wives” and “Gilbert Arenas” (etc.) are not likely to be confused under the standard multifactor test. 

Arenas argued that the court should instead use the variant multifactor test of Downing for his false endorsement claim, but the court declined because defendants weren’t using Arenas’s “likeness,” in the sense of his “image—either actual or suggested.”  I have no idea what this means.  Is “image” metaphorical?  I would have thought that Downing applies to the use of a name without a picture. And would this argument disappear if BWLA shows him in a picture taken by Govan and displayed by her? This strange statement is just another manifestation of the fact that trademark law has metastized without figuring out how to make sense of its defenses: Arenas shouldn’t have a false endorsement claim based on a TV show whose characters talk about him, but somehow the case law doesn’t make clear why that is so.

Arenas also argued infringement based on use of his name.  That’s nominative fair use.  Defendants have to use his name to talk about him.  Given the prospective nature of the claims, the court couldn’t predict whether they’d eventually “use more of his marks than necessary,” whatever that could possibly mean (after Mattel v. MCA, I would suggest it places no particular limit on what an expressive production like a song or TV show can do).  “[M]ost importantly, allowing Govan to talk about her relationship with Arenas on BWLA and permitting Shed Media to advertise that its show will feature such discussions in no way suggests that Arenas endorses the show. To the contrary, common sense suggests that a celebrity may not agree with his ex-girlfriend's opinion of him.”

Arenas argued that he’d suffer irreparable harm without an injunction because of harm to his reputation, given that the Basketball Wives franchise “prides itself on its coarse brand of drama,” featuring “cat fights” and “infidelity issues.”  Though there are obvious First Amendment problems with counting this as harm, the court instead hit Arenas in the ego: “Shed Media provides a treasure trove of newspaper articles about and tweets by Arenas that, taken as a whole, convince the Court that Plaintiff's reputation will suffer no serious blow if BWLA airs as scheduled.… [I]t is difficult to see how an association with ‘cat fights’ will tarnish Arenas' reputation when he has been publicly associated with potential gunfights…. Arenas has publicized on Twitter his views of women and other groups—opinions that would be characterized by many, if not most, people as crude and offensive.”  (So if he’d been known as a model citizen without a Twitter account, would the court have accepted that he could suffer irreparable harm from a show that, on this record, was neither defamatory nor even wrong about him?  The next Tiger Woods might like an answer.)  Further, Arenas already associated himself with the show “by tweeting directly or indirectly about Govan’s appearance on it…. Arenas’ own tweets calling attention to Govan's upcoming appearance on BWLA undermine his claim that he will be injured by an association with the show.”  True, even a man with a bad reputation may be libeled, but that doesn’t go to irreparable injury.

The balance of equities also tipped sharply in Shed Media’s favor, given the potential harm to timely broadcast.  And there was a significant public interest in protecting First Amendment rights.

All this meant that Shed Media prevailed on its anti-SLAPP motion, since its conduct was in furtherance of its free speech rights in connection with a matter of public concern.

Arenas v. Shed Media U.S. Inc., No. 2:11-cv-05279-DMG -PJW (C.D. Cal. June 6, 2012)

Shed Media moved for the attorneys’ fees to which it was entitled based on its successful anti-SLAPP motion.  Arenas argued that Shed Media wasn’t a prevailing defendant because the court dismissed the complaint with leave to amend.  The potential for amendment wasn’t enough to take Shed Media out of “prevailing defendant” status.  Its victory was on the merits, even though the court was not completely certain that Arenas couldn’t state a claim with additional allegations; the court’s ruling “greatly reduced the potential scope of any amended claim,” and indeed Arenas ultimately chose not to file an amended complaint. 

Shed Media was awarded a bit over $32,000 in attorneys’ fees.  Arenas was, however, allowed to dismiss his claims without prejudice.

Review essay: The Knockoff Economy/There's No Free Laugh (Anymore)

A long time ago, I worked on a piece about Chris Sprigman and Dotan Oliar’s great article on stand-up comics that is reprised in Chris Sprigman and Kal Raustiala’s The Knockoff Economy: How Imitation Sparks Innovation (review copy).  My piece never went anywhere, but I’ll take my chance to share it now, modified to add some discussion of The Knockoff Economy, which I think is equally worth reading. 

Summary of the book: Uncompensated and uncontrolled copying is all around us, and it’s not destroying creators’ willingness to create.  The core case studies of the book are: (1) Fashion, where norms don’t stop copying, but instead, the authors argue, the inherent desire of fashion consumers for the new and trendy and distaste for the old means that innovation continues even with a lot of copying, though copying may well add a bit of speed to the cycle.  Of course, fashion is often despised for this changeability, where we celebrate innovation in many other cases; both fashion’s lack of intellectual property protection and its general lesser status compared to other arts are gendered.  (2) Recipes created by chefs, where norms do govern and restrain copying in many circumstances; chefs generally seek credit for innovation but share information readily.  Cooking is also gendered in its lack of intellectual property protection and rise into higher status; cooking became art, not to mention high-dollar commerce, when men (“chefs”) started to do it.  (3) Stand-up comedy, where there has been a noticeable decrease in acceptance of copying over time, which the authors connect to changes in the technological context—comedians can now reach millions and thus copying a joke is more noticeable and may really occupy the field in a way that vaudevillians stealing from each other didn’t—and relatedly to changes in the social meaning of comedy—a shift to identity-based rather than single-joke comedy that is likely to make many kinds of copying more difficult/less funny to the audiences.  Louis C.K. can’t tell a Sarah Silverman joke without substantially revising it to make it his own. Comedians reportedly have strong anticopying norms backed not just by gossip but by the threat of violence (again, gendered), and the norms cover far more than copyright would, protecting the premise or idea of a joke that is, under copyright’s terms, free for anyone to appropriate. 

Based on these three case studies, the authors suggest that “Social norms about creativity probably work best, and are most likely to take root, in contexts that are most social—that is, where individuals are the key actors and where they rub up against each other frequently.”  (Interestingly, it would be relatively easy to secure copyright for jokes, but comedians just don’t use the copyright system to protect against copying, almost without exception.)  The book also discusses magicians, who prize secrecy from the public over anticopying; financial products, where innovation is not necessarily a good thing; football moves; fonts; and databases.  An epilogue discusses music; the authors suggest that music is transforming, not dying, with money shifting to touring and other forms of production that don’t rely on large-scale record sales. 

(Aside: For football, the discussion of the mixed, often negative reaction to the West Coast Defense, the No-Huddle Offense, and the Spread Offense, all adopted by weaker teams to offset the advantages of the existing leaders, reminded me of Malcolm Gladwell on underdogs in basketball.  Whereas the football innovations were all eventually adopted by other teams, Gladwell’s story makes the point that innovations are regularly resisted by people doing well under the current system; in fact they can be crushed if you convince enough people that doing the thing “right” requires avoiding innovation.  A great extension of Sprigman & Raustiala’s book would explore communities in which innovation fails and their attitudes towards property; the language used to attack innovations is often moral and non-utilitarian, suggesting a kind of moral right in preserving the existing system/game/etc.)

In addition, the example of a coding challenge where submissions to a contest are all public and can be borrowed as the contest continues helps illustrate that what the authors call “tweakers” are often directly responsible for refining a leap by a pioneer and making it much more productive/valuable, and this both incentivizes tweakers and leads to big debates over credit allocation.  Copyright and patent don’t favor tweaking, though, given the control they give patentees and copyright owners over follow-on innovation/derivative works.  This leads the authors to an unfortunate aside about how it’s maybe a good thing that we all can’t rewrite Star Trek episodes to “explore the romantic possibilities between Commander William Riker and Counselor Deanna Troi” (i.e., the creative variation I like in, say, football is awesome, but the creative variation you like is crap).  This leads in turn to an equally unfortunate footnote recognizing that the statement in text does not describe the state of the world: plenty of people do write their own Star Trek stories.  But the authors deem “almost all” fan fiction to be infringing, as if fair use were irrelevant.

One overarching lesson of the book’s case studies is that regimes that don’t rely on intellectual property to incentivize creativity and innovation are everywhere; copyright and patent are more exceptional than we often assume.  Things that are relevant to the kinds of copying and innovation that occur include: fads, norms, the ability to sell a different underlying product or experience/performance along with a creative work, first-mover advantages, and branding success (we pay more for Coke than for generic grocery store cola).

Now I’m going to talk mostly about comedians: Studies like Sprigman and Oliar’s, along with the other case studies in the book, illuminate how poorly copyright law’s standard incentive theory describes a large number of creative endeavors.  Why is that?  One key insight is that, in Madhavi Sunder’s words, identity politics interact with intellectual property concepts: intellectual creations regularly have as much to do with the first kind of “IP” as they do with the second.  Put differently, authors understand their works to express and form an identity that is both unique to themselves and part of a larger culture.  This cultural context both incentivizes creativity even in the absence of conventional IP ownership and shapes the content of what gets created. 

Relatedly, intellectual property, like property generally, allows some claims to power and authority and deauthorizes others.  Oliar and Sprigman showed that modern comics think of their jokes as being intrinsically tied to their own identities, often invoking specifics of race, gender, sexuality, and class.  Regardless of how great a role law or its absence played in this shift, Oliar and Sprigman argue that comics have achieved a sort of self-help propertization of their jokes by moving to identity-specific routines that are not as easy to appropriate.  I think the cultural drivers of these changes were probably more important than a desire to create comedy that could be propertized; even if we include norms as part of IP rules, it’s not clear that anticopying norms drove practices rather than vice versa (and both the book and the article disavow strong causal claims, the book more insistently).

But just who are these jokers who now make who they are central to their routines?  Oliar and Sprigman reported that their interviewees had “some diversity across sex, race, age, geographic location, income level, and sexual preference.”  One important question is whether the “prison-gang justice” reported by some respondents, also called “tribal,” is affected by these differences.  Would a comic help harass a joke-thieving comic from his own larger group if the victim was from a different group?  (I use “his” quite deliberately; the reported examples of comedians threatening or using violence to punish joke-stealing all involved men.)  If tribal loyalties are affected by aspects of identity that extend beyond the role of comic, as seems likely, then not everyone gets the same benefits from the norms.  And, of course, it is quite common for norms to be differentially enforced in favor of more powerful groups, just as it is common for laws to be differentially enforced.  The hugely popular Robin Williams, allegedly a notorious joke thief, seems to have done fine—and I’ll suggest some extra reasons in a bit.  The account of comics’ self-help reminded me of Acheson’s classic study of the lobster gangs of Maine, which also created a kind of private property through informal lawmaking and also involved groups of men willing to inflict violence for norm violation.

For an interesting contrast, the least cohesive group—fashion designers and producers of garments—was the one with the fewest anticopying norms, and probably not incidentally was global in its diversity.  Not everyone in the fashion business speaks to each other; they don’t have to care what many other market participants think.  Meanwhile, The Knockoff Economy points out that chefs are in the middle—American cuisine is dispersed and varied, and American chefs are more ambivalent about anticopying norms than French chefs.

Another feature of tribalism is that comedians’ norms are directed at other comics.  It doesn’t seem that the people surveyed would have much interest in barring non-comedians from retelling one of their jokes to friends who missed a particular performance.  Likewise, chefs want recognition from other chefs—of course they want the public acclaim that comes from being a celebrity too, but that acclaim won’t be affected by private/personal copying of their recipes and indeed may be enhanced, whereas unattributed copying by another chef may cause outrage.  One way to look at this would be to consider jokes and recipes quasi-property, like the news in INS v. AP: property only as against competitors.  Proposed protections for fashion design work similarly: they are aimed only at the competition.  Another, perhaps more productive, perspective is to think of property claims as a kind of language, as Carol Rose would have it, speaking to a particular audience—not primarily the one buying the drinks, though convincing that audience to help police “theft” is also quite useful. 

Even where norms govern instead of law, there is always a question of whose claims count and whose claims, though an alien (Mork?) might think them similar, are not even recognized as such.  Oliar and Sprigman wrote that “[c]omedians … believe that it is never permissible for a comedian to deliver material that is not his.”  But their own research revealed that the opposite was true.  (I’m not questioning their research nor the sincerity of their sources: the point is that their sources believed something that was self-evidently untrue.  This is always a signal that something very interesting—usually something about status—is going on.)  In fact, comedians often provide material for other comedians. 

Oliar and Sprigman identified two common situations of this type.  First, comedians may help others create jokes.  There is no joint authorship norm: “The comedian who offered the punchline would know that she has in effect volunteered a punchline.”  People who provide parts of jokes to comics have given a gift.  And as Carol Rose and Lewis Hyde among others have noted, a gift can also be a burden, because it creates an obligation for the recipient.  The anxiety generated by a gift can be managed by reciprocal norms: the contributor will perhaps someday receive assistance in creating his own jokes, and also be able to claim complete ownership of those jokes.  The contributor’s creativity and labor when she helps out, however, are not her own.  They disappear into the primary comedian’s joke.

Second, comedians may use jokes created by other people, who submit them and get paid if their jokes are used.  Like the singer/songwriter model in music, the stand-up character can be as constructed as any boy band.  Oliar and Sprigman maintain, however, that the practice of using writers is much less common than it used to be for comedians, and relatedly that comedians today invest relatively less in performative aspects (costume, movement, props) and relatively more in individualized schtick.  One reason comedians invest more in writing their own jokes is, they suggest, that it is naturally harder to write for another person with a unique persona than it is to write generic jokes.  This extra difficulty can be expected to raise the relative price of buying modern, identity-specific jokes.

Yet buying jokes is apparently a perfectly legitimate means of becoming their exclusive owner even among stand-up comedians.  Indeed, Oliar and Sprigman’s informants accept that sale of a joke divests attribution rights, which are often considered far more important than economic rights to individual creators.  Writers can’t claim the jokes they wrote even in seeking to prove their comic credentials.

Now revisit “[c]omedians … believe that it is never permissible for a comedian to deliver material that is not his.”  “His” here means something that obscures important operations of power.  Ownership claims depend upon the absence of other ownership claims—contrary to the “official” story about writing one’s own material in splendid isolation, it turns out that it is all right for a comedian to tell other comedians’ jokes, as long as the relationship is structured in the appropriate way so that the jokes, or joke components, become the property of the person who didn’t think them up.  Some creative work counts in producing property claims; other creative work doesn’t.  It’s about power. 

There’s more: all this depended on a particular definition of “comedian.”  There’s actually a gap between what The Knockoff Economy calls “rival creators” and the group known as “consumers.”  Expand the frame, and a property norm may only apply to a subset of broadly similar activities—a truly local ownership norm.  This matters, among other things, because copying may work very differently in the other subsets, most obviously in advertising where becoming a political slogan (“Where’s the Beef?”) can be confirmation of fame and value.  The market for comedy is expanding, and permeable.  If we look at non-stand-up aspects of the market for comedy, we see a different picture. 

Television sitcoms, for example, reach millions of viewers every week.  Sitcoms have extensive writing staffs devoted to producing jokes for hire.  While many successful sitcoms feature writer-performers (30 Rock, Seinfeld, and so on), the stars do not write all their own material.  Moreover, their material often is customized to their public personae.  This common practice made me wonder about Oliar and Sprigman’s proposition that writing for another specific person is more difficult than writing generic jokes, and thus relatively more expensive.  Scripted television—which includes a fair amount of “reality” television as well—is premised on teams of writers writing for characters not themselves.  Even accepting that this is harder to do than to write for oneself, the supply of aspiring writers outstrips demand so greatly that it seems unlikely that writers can demand much of a premium for writing in a different voice. 

The practice of writing for other people is not unique to comedy.  Historically, writing in a different voice is fairly common, whether for television or in other media.  (Think of the Nashville songwriter versus the singer/songwriter, the latter of whose strong showing in recent decades is now perhaps receding compared to work from top-liners/producers.)  Indeed, Oliar and Sprigman’s assumption that writing for a specific character is especially difficult may itself be an effect of the ideology of romantic authorship in which genius is individual, unique and nontransferable.  Good “generic” jokes are not that easy to come up with either.  Not for nothing is the rule “dying is easy, comedy is hard.”

Relatedly, expanding and diversifying comedy markets may be providing audiences with jokes they can repeat, jokes that used to be provided by stand-up comedians.  Viral marketing, advertising (Wassup?), sitcoms (not that there’s anything wrong with that), and other sources of spreadable comedy seem to be flourishing, subject to their own incentive schemes and norms.  Audiences still want to hear jokes they can repeat.  They just don’t necessarily want to hear them from stand-up comedians.  In this context, I was unconvinced by Oliar and Sprigman’s argument that generic jokes are plainly less valuable than comic-specific jokes:

if crowds would prefer hearing generic jokes, then we would expect them to flock to the sorts of low-level venues (cruise ships, casinos, and corporate events) that offer that kind of material to this day. Their willingness to pay for generic jokes would arguably be higher than for original material. These, of course, are counter-factuals ….

Of courses are dangerous (mine too!), because we might not be able to prove them.   Along with sitcoms and advertising, cruise ships, casinos, corporate events, and other similar venues seem relatively popular.  And why seek out more generic jokes from stand-up comedians when so many are being supplied by other parts of popular culture?  Instead of concluding that generic jokes lack value, I would conclude that stand-up now supplies a different and perhaps smaller subset of comedy than it used to.  This very specialization may be one of the factors that feeds into anti-copying norms: distinct norms can help a group maintain its sense of coherence and superiority to other, similar groups.  (One might compare this situation to Peter Decherney’s discussion in Hollywood’s Copyright Wars: From Edison to the Internet about how YouTube represented a crisis in norms of fair use because people from different video subcultures suddenly found themselves highly visible to other subcultures and to copyright owners.)

The Knockoff Economy, like the projects on which it is based, provides a rich and intriguing look at how members of specific communities of practice think about ownership and copying.  I would urge people to read it, and to think about how norms about copying fit into larger relations, including gender, race, and class divisions; the balance of power between people who pay and people who get paid; and ideologies of craft versus ideologies of mass production.

Does a purchaser of one flavor of ice cream have standing as to other flavors?

Astiana v. Dreyer’s Grand Ice Cream, Inc., 2012 WL 2990766 (N.D. Cal.)

DGIC makes Dreyer’s and Edy’s ice cream, which are basically the same but Dreyer’s is used in the West and Edy’s in the East, along with Haagen-Dazs, a premium brand.  Some of the Dreyer’s/Edy’s products say “All Natural Flavors,” while some Haagen-Dazs packages say “All Natural Ice Cream.”  Plaintiffs alleged that these were false and misleading because Dreyer’s/Edy’s actually has between one and five artificial/synthetic ingredients, and because Haagen-Dazs doesn’t disclose that cocoa, an ingredient, was processed using a synthetic and/or artificial alkalizing agent, i.e., potassium carbonate, as opposed to a nonsynthetic one.  (Plaintiffs cited various regulations to support their claims that particular ingredients were synthetic or artificial.)  Each plaintiff alleged that, had he or she known the truth, he or she would not have purchased DGIC’s ice cream and would have purchased instead ice cream that was truly all natural or bought a non-natural ice cream that was cheaper than DGIC’s.

Plaintiffs sued under the Magnuson-Moss Warranty Act, the usual California claims, and common-law fraud.  The Magnuson-Moss claims were dismissed because that law defines a covered written warranty as an affirmation or fact that “relates to the nature of the material or workmanship and affirms or promises that such material or workmanship is defect free or will meet a specified level of performance over a specified period of time.”  A claim that a food is natural is not a claim to be defect-free, and deliberately including synthetic ingredients isn’t the kind of omission/aberration that “defect” suggests.

The court dealt with the Dreyer’s/Edy’s “All Natural Flavors” statement first.  DGIC mainly argued that the claims were preempted.  The FDCA provides that a food shall be deemed misbranded if it contains any artificial flavoring unless its label states the same.  Regulations define artificial and natural flavor/flavoring.  Artificial flavor/flavoring means “any substance, the function of which is to impart flavor, which is not derived from a spice, fruit or fruit juice, vegetable or vegetable juice, [etc.],” while natural flavor/flavoring means “the essential oil, oleoresin, essence or extractive, [etc.] which contains the flavoring constituents derived from a spice, fruit or fruit juice, vegetable or vegetable juice, [etc.], whose significant function in food is flavoring rather than nutritional.”  Further regulations say that labels of foods to which flavor is added shall declare them as “spice,” “natural flavor,” “artificial flavor,” “or any combination thereof, as the case may be.”  Another regulation addresses labeling of “characterizing flavors.”
“If the food contains no artificial flavor which simulates, resembles or reinforces the characterizing flavor, the name of the food on the principal display panel or panels of the label shall be accompanied by the common or usual name of the characterizing flavor [with certain exceptions] ....”  In the alternative, if there is an artificial flavor, “artificial” or “artificially flavored,” has to be adjacent to the flavor name in letters not less than one-half the height of the letters in the name of the characterizing flavor.

But wait!  There are also regulations about ice cream specifically, including regulations governing the labeling of characterizing flavors, which allows the manufacturer to use the term “flavored,” as in “vanilla flavor,” on the main package panel, as long as the natural characterizing flavor predominates over an artificial flavor simulating it.  The FDA has recognized that these two provisions conflict.

Plaintiffs alleged that “All Natural Flavors” was misleading because it suggested that all ingredients, not just the flavoring ingredients, are natural when they aren’t.  In addition, they alleged that DGIC violated the regulations because the ice cream simply used the common/usual name of the characterizing flavor when in fact it had two artificial flavors: propylene glycol monostearate and/or alcalized cocoa processed with potassium carbonate.  (Plaintiffs specifically alleged that propylene glycol monostearate and alcalized cocoa were “flavors” in that they imparted flavor; whether the potassium carbonate counted as part of the flavor was not a fact that could be resolved on a motion to dismiss.)  E.g., Dreyer’s/Edy’s Triple Chocolate Peanut Butter Sundae didn’t use “flavored” or “artificial” as it allegedly should.

DGIC argued that the first theory was preempted because it’s allowed by regulation to use “natural flavors” on the ingredient list and should be allowed to use the same term elsewhere on the label without penalty.  The fact that DGIC added “all” to “natural flavors” didn’t take it outside the scope of preemption, since the preemption provision bars a state from imposing any requirement for food labeling “of the type” required by the federal scheme, and the statute “does not require exact precision.” 

Still, DGIC didn’t succeed.  It mainly relied on on 21 U.S.C. § 343(r), which provides that a claim on a label about a food product’s nutritional levels can be made “if the characterization of the level ... uses terms which are defined in regulations of the Secretary.”  However, plaintiffs weren’t challenging any claim about nutritional levels.  Congress could have, but didn’t, include a similar provision for flavoring.  The court also suggested that claims about nutritional levels were less likely to be subject to consumer interpretation:

For example, where a claim is made that a food product has 0 grams of trans fat, there is no real room for debate as to what is meant by “trans fat.” In contrast, a claim that a food product has “All Natural Flavors” is plausibly subject to some interpretation—i.e ., what is the meaning of “flavors”? Here, Plaintiffs take the position that a reasonable consumer could interpret “All Natural Flavors” to mean “all natural ingredients,” a claim purportedly applicable to all of Dreyer’s/Edy’s ice cream flavors. While DGIC disagrees, and while the Court is skeptical of Plaintiffs’ “spin” on “All Natural Flavors,” it cannot say at this juncture that it is implausible under Twombly and Iqbal that a reasonable consumer might so understand the term.

Plaintiffs were arguing that DGIC violated the federal regulations, and it’s okay for states to make that, and only that, actionable.  However, to the extent that plaintiffs were arguing independent violations of California law, their claims were either preempted or duplicative.  Thus, only their “unlawful” claims survived, not the “unfair” or “fraudulent” claims.

DGIC also argued that it was implausible that a reasonable consumer would view the “All Natural Flavors” label and that plaintiffs failed to adequately allege materiality and reliance.  As for the first, though the label wasn’t prominently displayed, “clearly it was intended to be seen by consumers or there would be no reason to include it.” Plaintiffs alleged that they were concerned about and tried to avoid consuming foods that are not natural; that they relied on the label in purchasing the ice cream; and that, had they known about the synthetic and/or artificial ingredients, they would not have purchased the ice cream. That was enough; the court rejected DGIC’s argument that, under Iqbal/Twombly, plaintiffs needed to explain why consuming natural foods is important to them.

DGIC also argued that it wasn’t required to identify whether a natural or synthetic process was used so long as it identified the ingredient, but the court disagreed at this point.  DGIC argued that the FDA had recognized that disclosing the presence of high fructose corn syrup was enough, without indicating which type (synthetic or nonsynthetic) was present.  But DGIC didn’t provide the relevant authority, and in any event it wasn’t clear that conclusions about high fructose corn syrup would automatically apply to other ingredients.

The court then turned to the Haagen-Dazs “All Natural Ice Cream” statement.  DGIC argued that the claims should be dismissed for want of materiality, and that plaintiffs’ claims were implausible because “(1) ice cream is not a wholesome or healthy food, (2) ice cream is not a natural food (i.e., one found in nature), (3) the label on its face indicates that only the ice cream itself is natural (i.e., the ice cream base) and not mix-ins to the ice cream, and (4) even if the mix-ins were considered part of the ice cream, a reasonable consumer would not likely expect that the cocoa was alkalized with a ‘natural’ alkalizing agent, as opposed to the commonly used potassium carbonate.”  The court rejected all these arguments for purposes of the motion to dismiss.  (1)-(2) were, in fact, “clearly without merit and hardly worth addressing,” since that wasn’t what plaintiffs were arguing.  They simply claimed that they believed that natural ingredients are healthier and that “All Natural Ice Cream” suggests that the entire ice cream product is made of natural ingredients. 

The argument about mix-ins wasn’t meritless, but it was still wrong.  DGIC argued that the ingredient list separates out the mix-ins.  But, under federal regulations, ice cream is arguably defined to include flavoring ingredients, and the 9^th Circuit’s Williams decision says that a manufacturer can’t rely on the ingredient list to correct a false or misleading front-of-package statement.

Finally, DGIC’s argument (4) relied on an FDA advisory policy which states that natural means “nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.”  Because potassium carbonate is commonly used as an alkalizing agent, as plaintiffs admitted in the complaint, nothing artificial or synthetic had been used.  The court recognized the potential gap between industry practice and consumer expectations: “This position is problematic because, even if potassium carbonate is commonly used, that does not necessarily mean that a reasonable consumer would expect it to be used—i.e., normally used does not necessarily imply normally expected; a reasonable consumer may not have the same knowledge as, e.g., a commercial manufacturer.”  In any event, plaintiffs alleged that sodium carbonate, a non-artificial/synthetic substance, was also commonly used as an alkalizing agent.

Finally, DGIC raised the usual standing objections, arguing that plaintiffs could only represent people who bought exactly the same products.  Plaintiffs responded that there was enough similarity between the products they bought and those they didn’t to survive a motion to dismiss, and that any remaining concerns would be better addressed at the class certification/adequacy of representation stage.  Because of a concerted effort by defendants to push this theory, and some mishandling of the issue, there is caselaw going both ways.  The court here noted that some of the cases were quite conclusory.  For the cases that did provide reasoning, “the critical inquiry seems to be whether there is sufficient similarity between the products purchased and not purchased.”

For example, Dysthe v. Basic Research LLC, No. CV 09–8013 AG (SSx), 2011 WL 5868307 (C.D. Cal. June 13, 2011), involved claims based on Relacore and Relacore Extra Maximum Strength, even though the plaintiff had only purchased the latter.  The court held that the plaintiff lacked standing as to Relacore, and rejected plaintiff’s argument that the products were nearly identical: Relacore had nineteen ingredients, and Relacore Extra only ten (?), and the products had different packaging with different claims.  Having a few common ingredients wasn’t enough; the court commented, “just because an Old Fashioned and a Manhattan both have bourbon doesn't mean they’re the same drink. Relacore and Relacore Extra are different products, marketed and sold separately by Defendants.”  (As the court’s later analysis implies, one would think that this conclusion would depend on the purpose for which one was asking the question.  If you’re stopped for DUI, there is no relevant difference between an Old Fashioned and a Manhattan.)

The court contrasted Carideo v. Dell, Inc., 706 F. Supp. 2d 1122 (W.D. Wash. 2010), which allowed class action claims to continue including computer models plaintiffs didn’t buy.  The plaintiffs pleaded the same core factual allegations and causes of action; further inquiry could take place later, at the class action certification inquiry.  Similarly, Koh v. S.C. Johnson & Son, Inc., No. C–09–0927 RMW, 2010 WL 94265 (N.D. Cal. Jan. 6, 2010), the court found that the plaintiff had standing to pursue class action claims based on a product (Shout) that he did not purchase as opposed to a product (Windex) that he did purchase. There’s no bright-line rule that different product lines can’t be covered by a single class.  In Koh, the plaintiff challenged the defendant’s use of specific labels (i.e., “Greenlist Ingredients” and other supposedly environmentally friendly claims) that could be found on both products.

Here, the court concluded, plaintiffs alleged sufficient similarity between the products they purchased and those they didn’t.  They were challenging the same kind of food products—ice cream—and the same labels for all the products.  Variation in non-challenged ingredients wasn’t dispositive because plaintiffs’ claims were based on the same mislabeling practice across different product flavors.  In fact, many of the ingredients were the same: “21 out of 59 ice creams contain propylene glycol monostearate; 43 out of 59 contain potassium carbonate; and all 59 appear to contain glycerin, mono and diglycerides, tetrasodium pyrophosphate, and xanthan gum.”  This distinguished a recent case against Trader Joe’s where the plaintiffs lacked standing as to Trader Joe’s crescent rolls; the products at issue there (cookies, apple juice, cinnamon rolls, biscuits, ricotta cheese, and crescent rolls) bore little similarity to each other.  This case, by contrast, involved “the same kind of product (ice cream), based on largely the same ingredients, and asserting the same wrongful conduct applicable to a wide range within the product line.”  

Feature that doesn't work well can still be functional

Acacia, Inc. v. NeoMed, Inc., 2012 WL 3019948 (C.D. Cal.)

The parties produce neonatal feeding systems.  Errors in tubing and misconnection with devices not intended for enteral (feeding) use can seriously harm patients.  As a result, companies have used color-coded tubing and connections to diminish the risks of error, though the parties disputed whether this is necessary given current designs.  NeoMed uses orange for “enteral use only” devices, as do several other companies including Acacia and Utah Medical products, which chose orange as a safety measure.

NeoMed’s predecessor applied for a trademark in 2007 for orange used for gradation markings and text/text box on a clear barrel for oral syringes.  The PTO allowed registration on the supplemental register.  NeoMed sent Acacia a C&D for its use of orange on syringes, including for gradation markings and text.  Acacia sued for declaratory relief and cancellation of the registration.  NeoMed counterclaimed.  Acacia moved for partial summary judgment on functionality, which it received.  Since the mark was only on the supplemental register and not the principal register, NeoMed retained the burden of proving the nonfunctionality of its trade dress (query: given this rule, should the PTO consider functionality as a bar to registration on the supplemental register as thoroughly as it does for the principal register? I would think yes, given the potential deterrent effect of even a supplemental registration, not to mention things like import controls). 

Functionality exists when a feature is essential to the use or purpose of the article or whe it affects the cost or quality of the article.  Color can be an essential product feature if it serves a significant nontrademark function.

Less than a month after the PTO put NeoMed’s claimed mark on the supplemental register, NeoMed’s counsel sent letters to three manufacturers of neonatal enteral devices saying, in part,

NeoMed is working to create a coalition of manufacturers of enteral products to establish orange as the color representing enteral safety, and would be happy for you to join that coalition. However, the use of orange specifically for gradation [sic] markings and text represents only our own products.

NeoMed has advertised that “orange signals enteral safety,” “NeoMed Oral Dispensers feature orange lettering and precise gradient marking that signify ‘enteral or oral’ designed to connect with other compliant devices,” and “[o]range lettering and graduation marking identify as enteral only.”  NeoMed’s president testified similarly.  Acacia presented evidence from executives of other device manufacturers, medical device sales representatives, and a nurse that orange is used to signal to hospital staff that a particular device is for enteral use, and to coordinate different enteral only devices, including syringes.  (Purple and amber are apparently the other key colors for enteral-only devices.)  The court found this case indistinguishable from Inwood: color is an aid to hospital staff in identifying particular types of devices by sight.

NeoMed’s primary argument was that its claims were limited to orange gradation markings and text on the barrels of syringes.  Orange, it admitted, was functional; but it claimed that its use of orange wasn’t.  But a product feature can’t be nonfunctional when it’s nothing other than a collection of functional parts.  NeoMed argued, at most, that its product was visually distinguishable from competing products, but that’s not sufficient.

NeoMed argued that color had become nonfunctional because “[s]pecially-designed enteral-only syringes, physically incapable of being connected to IV tubes, have become universal in the neonatal environment [ ]and will be mandated by law in California as of January 1, 2013[ ].”  But its evidence was not strong enough to support the factual claim that orange was now anachronistic.  That would raise an interesting issue if the facts were there!  It seems possible that functional could become nonfunctional under a rather unusual set of circumstances (as Tom Lehrer might say); could someone now attempt to trademark the rotary dial?

NeoMed argued that it tried to put together a coalition to promote orange, but that its efforts failed.  Thus, orange was intended to be functional, but became source identifying. The court ruled that the fact that orange wasn’t functioning well didn’t make it nonfunctional.  In Inwood, the Supreme Court noted only that “some” patients commingled their pills and used color to distinguish them; others wouldn’t do so. “Therefore, under Inwood, a design feature does not have to achieve perfect functionality to be functional as a matter of law.”  If NeoMed hadn't tried to game the system, maybe the court would have been more sympathetic, but no dice.

Thus, the court granted Acacia’s motion and directed the PTO to cancel NeoMed’s registration.

Law school fraud cases will go to discovery

Arring v. Golden Gate Univ., No. CGC-12-517837 & Halloc v. Univ. of San Francisco, No. CGC-12-517861 (Cal. Super. Ct. July 19, 2012)

These two cases involve the same reasoning, so I won’t distinguish them.  The defendants demurred to plaintiffs’ complaints about allegedly fraudulent claims made about the defendants’ law schools/plaintiffs’ chances of securing remunerative employment if they attended defendants’ law schools. 

First, defendants argued that their statements weren’t likely to deceive reasonable law students.  The court noted that, ordinarily, whether a statement is likely to deceive reasonable consumers is a question of fact under California law.  Relying on the similar New York case, defendants argued that no reasonable person could have thought their statistics included only jobs requiring or favoring a law degree.  The plaintiffs, however, alleged that they were in fact deceived, and the court had no reason to think that they weren’t reasonable consumers of a law school education.  Further, the alleged statements were made in a context—attracting people to law school—where a reasonable prospective/current student could believe that the statements didn’t include jobs for which a law degree was irrelevant or minimally useful.  Further factual development was required.

Second, defendants argued that a law school education wasn’t within the definition of “services” under the relevant California consumer protection law.The court again disagreed.  “Services” is very broad, even though it doesn’t include insurance; the cases about insurance were inapposite because the legislative history with respect to insurance differs and because education is like many other services to which the relevant laws have routinely been applied.

Adding "the" and "company" makes generic term protectable, court rules

Katiroll Company Inc. v. Kati Roll And Platters Inc., No. 10-3620 (D.N.J. July 26, 2012)

HT Eric Goldman

Skipping everything but the weird part: kati roll is, the parties apparently agreed for purposes of this motion, the generic term for a type of common Indian street food.  Nonetheless, the plaintiff has a registration for The Kati Roll Company, with a translation statement “The foreign wording in the mark translates into English as ‘skewer’” and a claim of acquired distinctiveness only in “Kati Roll.”  (Given that you can’t actually prove fraud any more without someone who says ‘I knew I was lying to the PTO,’ this is probably not a fraud claim, but I’d at least try for cancellation on the defendants’ side.)

The court granted partial summary judgment to the plaintiff on defendants’ genericness challenge, starting with the proposition that the registration accorded a strong presumption of validity/non-genericness, and that the defendants’ arguments went to infringement instead.

The court thought that the argument that “kati roll” was generic didn’t deal with the “nuances” of registration.  Names including generic terms can be registered.  Defendants mainly argued that “kati roll” was generic for a type of food, but the court found this argument legally flawed.  First, the plaintiff’s mark was for restaurant services, not for food.  Second, the mark as a whole was not “Kati Roll” but “The Kati Roll Company,” which as a whole functioned to identify a particular source of services to consumers, and thus had secondary meaning.  (Note that secondary meaning would be irrelevant were the term generic.)  The PTO necessarily found that there was secondary meaning in registering the mark (though the disclaimer statement indicates that plaintiff only claimed distinctiveness in “Kati Roll,” not the mark as a whole), and defendants didn’t present “conflicting evidence that is relevant to this determination” (presumably, they didn’t present evidence on the whole name).  “The fact that consumers may understand a kati roll to be a generic type of food is not relevant to the validity of the mark itself.”

Comment: This case doesn’t necessarily seem to have been well argued, or properly focused on genericity.  Perhaps the unfamiliarity of the term was a distractor; it should have been clear that “Burrito Company” is generic for a company that sells burritos.  In general, while you can add terms to a generic word to create what is, in toto, a protectable mark (Spirit Airlines or even American Airlines), the addition of a generic word for a business like “Company” or “Inc.” can’t make a generic term into a mark, see, e.g., In re Wm. B. Coleman Co., Inc, 93 U.S.P.Q.2d 2019, 2010 WL 766487 (T.T.A.B. 2010) (“Electric Candle” was a “unitary generic term”; the generic designation “company” added no trademark significance); In re Cell Therapeutics, Inc., 67 U.S.P.Q.2d 1795, 2003 WL 21979838 (T.T.A.B. 2003) (“Cell Therapeutics, Inc.” is a generic name for biochemical preparations, and “Inc.” was no help); Welding Services, Inc. v. Forman, 509 F.3d 1351, n.4, 85 U.S.P.Q.2d 1233 (11th Cir. 2007) (adding “Inc.” to “Welding Services” for servicing welding equipment didn’t turn a generic name into a protectable trademark).  Here’s McCarthy §12:39 (footnotes omitted):

Tacking a company organizational designation such as “Company,” or “Inc.” or “Partners” cannot transform a generic name into a protectable trademark. Such company designations or their abbreviations are themselves generic and have no trademark significance. Thus, one cannot append a generic company designation and magically transform a generic name for a product or service into a trademark, thereby giving a right to exclude others. Such composites cannot be trademarks. For example: “Color Television, Inc.”; “Laptop Computers, Ltd.”; or “Restaurant Food Services Company.” Thus, the Trademark Board remarked that: “[T]he term ‘company’ is simply a designation for a type of entity without source-identifying capability.”

Among other things, a contrary rule would put too much weight on the infringement side, with Joe’s Burrito Company having to defend itself against the claims of the Burrito Company even though it’s the “Joe’s” that’s doing all the distinguishing work there.  Indeed, that’s clearly the way this case is going.  Nor is the product/service distinction sensible in the context of a term that merely indicates that the claimant is a business entity: a company that supplies food X is sensibly called a food X company.  (Given the definition of “kati roll” provided above, it seems that the PTO didn’t follow its ordinary rule here, for whatever reason.)

The court might have been thinking of the general rule that a composite mark including the name of a generic type of food can be a protectable mark—e.g., Le Croissant Shop is a descriptive term for a restaurant that sells croissants, In re France Croissant, Ltd., 1 U.S.P.Q.2d 1238 (T.T.A.B. 1986)—but I don’t think that works with “Company,” given the authorities above.

Nor is the product/service distinction persuasive.  Cf. In re Pencils, Inc., 9 U.S.P.Q.2d 1410 (T.T.A.B. 1988) (“pencils” is descriptive of an office supply store because it’s a generic term for a subset of products sold there, whereas if the word named goods that were the primary product sold, then it would be a generic name of retail services, such as “lingerie” for lingerie retail store services); 2 McCarthy § 12:23 (“A generic name of goods may also be a generic name of the service of selling or designing those goods.”) (citing TTAB cases involving “Russianart” for fine art dealership services, “Candy Bouquet” for selling a floral-type gift arrangement of candies, “Lens” for retail Internet stores services selling contact eyewear, “Log Cabin Homes” for log cabin home design services, and “tires tires tires” for retail tire sales services).

Even after this decision, the subsequent infringement inquiry should properly focus on the weakness of the plaintiff’s mark and the lack of similarity between the parties’ marks: two marks that overlap only in their generic portions are unlikely to cause confusion.

Abortion law or First Amendment law?

I just want to know if this is also the law as applied to non-abortion-related, commercial speech: "a truthful disclosure cannot be unconstitutionally misleading or irrelevant simply because some degree of medical and scientific uncertainty persists."  Planned Parenthood Minnesota v. Rounds, Nos. 09-3231/3233/3362 (8th Cir. July 24, 2012).  Perhaps we'll get a chance to see how the Supreme Court resolves this issue in the tobacco cases.

Slate on false claims by dietary supplements

In the context of athletics, but the point is a broader one: we sometimes hear about how we shouldn't worry so much about health claims for supplements that turn out to be wrong, because the consumer's just placing a bet--if the health claims are wrong, all she loses is her money.  Not so.

What does it take to plead copyright infringement?

Ritani, LLC v. Aghjayan, 2012 WL 2979058 (S.D.N.Y.)

Ritani, a high-end jewelry company, sued Harout Aghjayan (known to the trade as Harout Ritani), his wife, and several related companies (including Harout R, LLC and H. Ritani, Inc.).  Given the names, you can guess the basic backstory: Aghjayan’s wholly owned corporation used the Ritani mark, but then sold all its assets including IP and good will to Ritani, LLC.  He then worked for the LLC and had confidentiality and noncompete agreements.  Nonetheless, Ritani alleged, when he left he took trade secrets, including secret design files with CAD/CAM drawings for jewelry, and violated the noncompete agreement.  Ritani alleged that Aghjayan “tweaked” existing Ritani designs “to save time and money, rather than undertake the slow process of building jewelry designs from scratch.”  He allegedly used 84 CAD/CAM files identical or nearly identical to Ritani’s designs, including designs incorporating Ritani’s Three-Leaf trademark and as-yet-unpublished designs, that allowed him to create more than 200 styles.

Aghjayan allegedly mailed out around 7,000 flyers to all of Ritani's customers announcing the formation of Harout R.  The flyers emphasized that the “R” in Harout R stands for Ritani, and included Aghjayan’s statement that he was “previously known as Harout Ritani.” Ritani further alleged that someone told customers and potential customers that Aghjayan was the real “Harout Ritani.” In addition, Mrs. Aghjayan allegedly referred to herself as Shawndria Ritani and posted a picture of Aghjayan selling jewelry on her Flickr page, asking “Where is Harout Ritani now?”

Additionally, Ritani alleged that defendants sold copies of the Three-Leaf trademark in their Harout R jewelry line in a way that was likely to cause confusion, because the designs were “virtual copies” of Ritani’s designs.

This ruling is perhaps most notable for its dismissal (without prejudice) of the copyright claims for failure to satisfy the pleading requirements of Rule 8.  All that’s required at this stage is fair notice.  You might think that identifying the allegedly infringed works plus identifying the allegedly infringing designs would be enough, but here it was not.  First, though Ritani alleged that defendants collectively used Ritani’s designs to create their design portfolio, Ritani didn’t identify which defendants created that portfolio or allege specific facts supporting its claim that defendants used protected aspects of Ritani’s collections in creating that portfolio.  The complaint also lacked specification of what acts and what times the identified copyrights were infringed.  For example, the complaint alleged that a specific email included certain Harout R styles that were identical to a specific design that was part of Ritani’s copyrighted sketch book.  But, even assuming Aghjayan copied Ritani's work, the complaint failed to plead facts regarding how the rings were substantially similar, including identifying the protectable elements of the works.  Though substantial similarity is typically a question of fact, there are cases in which that question can be resolved as a matter of law because any similarity is only in noncopyrightable elements or because no reasonable jury could find substantial similarity.  (I take it that the court’s point is that this can only be done if the protectable elements are sufficiently well-identified, including by attaching the plaintiff’s and defendant’s works to the complaint.)

In jewelry cases, the court continued, courts have applied both an ordinary observer and a discerning observer test, the latter of which applies when a work contains both protectable and unprotectable elements.  Copyright doesn’t cover functional elements of jewelry (for example, presumably, the special “perfect fit” feature Ritani claimed as part of its trade secrets that allowed a wedding and engagement ring to fit together seamlessly) or the idea or concept of jewelry.  Functional elements include the location of the stone, type of shank, and how the prongs hold the main stone; even in the aggregate, they are ideas rather than expression.

In this case, the complaint didn’t specify particular protected elements of the rings, just generally alleged virtual copying/substantial similarity of the rings overall.  Assuming that there were both protectable and unprotectable elements, it was significant that Ritani’s complaint admitted that the rings differed (had been “tweak[ed]”).  There were no allegations of facts establishing substantial similarity, as required in this type of case.

Finally, Ritani couldn’t maintain a claim based on wax models allegedly produced by Aghjayan during his employment with Ritani; the court said that there was no allegation that the models were ever “copyrighted,” for which I will read “registered.”

Assume that images of both parties’ rings had been attached to the complaint.  Given the functionality and idea/expression concerns cited by the court, could images alone be enough to plead substantial similarity, or would the complaint also have to identify particular features?  (Compare the trend in unregistered trade dress cases of requiring a specification of the alleged trade dress in words.) 

Ritani did somewhat better on the rest of its claims.  Ritani had a registered mark in its Three-Leaf design (which apparently stated a claim based on the alleged incorporation of the design into the jewelry itself--is that inconsistent with the copyright ruling, given that the court didn't spend any time on the identification of the design?) and also pled sufficient facts to state a claim for confusion based on defendants’ use of Ritani/claim to be the “real” Harout Ritani.  The use of an identical mark in the same industry is likely to cause confusion so the claim was adequately pled.  (The court probably doesn’t really mean that the plaintiff must only show use of Ritani in competition with Ritani, regardless of other circumstances such as nominative fair use; I wonder whether it would be possible to do a summary judgment proceeding limited to nominative fair use, though if Ritani gets discovery into everything defendants have said about themselves that will probably not be very limited.)  

However, as to “Harout R,” Ritani didn’t allege any trademark in the unregistered, unstylized letter R, which was not inherently distinctive as a matter of law.  Thus, alleging the use of R was insufficient to allege likely confusion, though other facts in the complaint did suffice.  Defendants argued that the flyer identified Harout R as a new company and only mentioned Aghjayan’s previous association with Ritani: “[Aghjayan was] previously known as Harout Ritani, designer and founder of New York’s RITANI’S Fine Jewelry Brand. He is now launching his new company HAROUT R LLC. This collection is the most innovative to date, ... Harout observed that the opportunity for variety was limited and saw a need to introduce something that has not been done before.”  It also described Harout R as a new brand and included a biography of Aghjayan which identified him as Ritani’s founder, previously known as Harout Ritani and stated that he sold his interest and left Ritani in 2009.  Defendants argued that the flyer couldn’t make the distinction between the parties any clearer, an argument the court identified as descriptive fair use (though nominative fair use might also make sense).  The court found that this defense couldn’t be resolved on a motion to dismiss given the allegations: the complaint alleged that that Aghjayan “repeatedly identified himself to trade show participants as ‘Harout Ritani’ “ and “advis[ed] potential customers that he was the real ‘Ritani.’”  These comments “are not free from ambiguity and may potentially cause consumer confusion.”  Thus, these Lanham Act claims survived along with coordinate state law claims.

The state law false advertising claim was dismissed for failure to allege sufficiently consumer-oriented conduct.  Though consumers might be misled into believing that the parties were associated, there were no allegations describing the resulting injuries to Ritani or to the public.

The state law dilution claim also survived.  “Plaintiff has plausibly suggested that Harout R’s marketing materials, Aghjayan’s maintenance and continued registration of HR Corp. and HR LLC, and certain representations made by Aghjayan to customers may dilute the Plaintiff's business name and reputations.”

The trade secret misappropriation and breach of the duty of loyalty and fiduciary duty claims were also sufficient, though only against Aghjayan and his wife (also a former Ritani employee); breach of contract survived only against Aghjayan.  By contrast, the tortious interference claim failed.  The complaint named specific customers and alleged that Aghjayan’s actions led to “the breakdown of negotiations between Ritani LLC and Helzberg, which resulted in Helzberg’s placement of $2.8 million worth of orders with Defendant Companies,” and that but for Aghjayan’s actions, “it is likely that Ritani LLC would have obtained the financial benefit of Defendants’ initial contract with Helzberg, plus Defendants’ ongoing business from Helzberg and Blue Nile.”  I’m not quite sure what the problem is, but the court held that, nonetheless, Ritani failed to allege that “as a result of Aghjayan’s actions, … any of these customers did not buy from Ritani, or that any order was canceled or that it had an actual, legitimate expectation as to their further patronage.”  Instead, the complaint simply alleged that Helzberg and Blue Nile ordered from defendants and that “it is likely” that Ritani might have benefited from the contract.  In addition, Ritani failed to plead sufficient facts to show that Aghjayan acted “with a wrongful purpose ... motivated solely by malice and/or to inflict injury” to Ritani, as required. “In starting his new business ventures, Aghjayan set up meetings with vendors that he was familiar with and with whom he had previous relationships with.”

Ritani’s claim for breach of an implied covenant not to solicit business, based on Aghjayan’s previous sale of his business with its associated goodwill, was also dismissed.  Aghjayan individually didn’t sell his goodwill; it was assigned by an agreement to which Aghjayan wasn’t a party.  In any event, the parties to a sale can negotiate and narrow any implied covenant, which the parties did here: they negotiated a restrictive covenant for Aghjayan limited to a one-year non-compete, which was later modified, and permitted Aghjayan to sell to all current Ritani customers, listed on its website, after December 31, 2010.  It didn’t restrict who he could solicit, thereby modifying any implied restriction that might otherwise have existed.

Separately, Ritani didn’t plead improper solicitation, which requires something more than general ads and announcements to the public and competition with the business’s buyer.  “Nowhere in the marketing materials is there a suggestion that he is touting his goods over Ritani’s.”  The facts alleged over 7000 brochures sent to potential customers, and such broad advertising is allowed.

When marketing partnerships go wrong

The Jim Henson Co. decided not to partner with Chik-Fil-A in the future because of the company's anti-gay stance.  Chik-Fil-A then pulled its present Jim Henson toy promotion, with at least one claim that there was a "safety" issue with the toys (which are pretty much certain not to be made by Jim Henson itself, but rather under license).  Exercise for the reader: assuming a standard licensing deal between Jim Henson Co. and Chik-Fil-A, what claims might arise?

Is the US First Amendment a model for other countries?

Not any more, given the Supreme Court's current politicization, says Anthony Lester, a member of the House of Lords and human rights expert.  He notes that we tell other people what their laws should be but aren't particularly willing to listen reciprocally, something that's also a theme in IP.

Advertising on Craigslist for a rubber stamp attorney

So reports the Consumer Law & Policy Blog.  The ethical (and legal) implications are clear; I'd add that this posting, assuming it's actually from a debt collection agency, is a reminder that it's extremely easy for people to forget one important feature of many digital tools: we can see you.  Cf. marketers using del.icio.us back when that was a thing.

Heads I win, tails you lose

Or, here's a naked statement of self-interest without any particular warrant for why I ought to care:

"We really don't want to establish a precedent on a series of treaties that specifically focus on trying to set forth minimal limitations and exceptions to the rights of copyright owners," Alder [a top lobbyist with the Association of American Publishers] told KEI in Geneva. "Up until now ... the treaties and other international agreements that have been devised ... have been to establish the minimal rights available to copyright owners, not the limitations and exceptions to those rights."

I think we're all pretty clear on that.  It's the why that we wonder about.

Causation/reliance interplay dooms condo false advertising claim

Grain Exchange Condominium Ass’n, Inc. v. Burke, 341 Wis. 2d 489, 815 N.W.2d 406, 2012 WL 1351240 (Wis. App.), 2012 WI App 62

The Association and its members sued the developer of its building, the Milwaukee Grain Exchange, which the developer had converted into residential condos.  The Exchange was required to have its façade inspected, and inspection revealed that repairs were required.  The Association brought various claims against the defendants, most of which were dismissed.  A claim of false advertising based on the use of the phrase “newly renovated” survived for trial for one plaintiff, and the jury found in favor of defendants.  The Association appealed.

Under Wisconsin’s false advertising law, a plaintiff must show that (1) the defendant made a representation to the public with the intent to induce obligation; (2) the representation was untrue, deceptive, or misleading; and (3) the representation materially induced (caused) the plaintiff a pecuniary loss.  The Association alleged that defendants falsely advertised that “the building, or elements of the building” were “ ‘newly renovated,’ ‘new construction,’ and an ‘engineered masterpiece.’”  The trial court granted summary judgment on “engineered masterpiece” as puffery and “new construction” because the condos were plainly not being sold as new property.  The trial court found a factual issue on the falsity of “newly renovated,” though only one owner presented evidence that she saw this statement and thus was allowed to go to trial. 

On appeal, the Association argued that “new construction” should have been actionable, but the court of appeals disagreed: as a matter of law, the term didn’t materially induce the plaintiffs to buy because any reliance would not be reasonable.  Reasonable reliance is not a separate element, but a factor to consider in determining causation.  When a plaintiff’s belief is unreasonable, her reliance may also be unreasonable, and a court may determine that a representation didn’t materially induce her decision and that she would have acted in the absence of the representation.  The undisputed facts showed that the Grain Exchange building was advertised as an historic building and that the buyers were aware that the building was old, not new.  Thus, it would have been unreasonable to rely on “new construction” and this representation didn’t materially induce the plaintiffs to act.

As to “newly renovated,” the Association argued that reliance wasn’t a required element.  But only one plaintiff presented any evidence that she saw this ad claim before buying.  If a plaintiff didn’t see the claim, it couldn’t have caused her a pecuniary loss.  Reasonable reliance isn’t required, but some reliance is.

The court also affirmed the dismissal of other claims, including contract-based claims barred by the economic loss doctrine and warranty claims.

Weakness in evidence didn't make Nestle's "clinically shown" claims false

Scheuerman v. Nestle Healthcare Nutrition, Inc., 2012 WL 2916827 (D.N.J.)

Plaintiffs brought a putative class action based on their purchases of Nestle’s BOOST Kid Essentials (BKE), a drink that Nestle promoted as having health benefits. It was sold with a separately packaged straw containing a strand of probiotic bacteria. Plaintiffs alleged that Nestle explicitly or implicitly claimed that BKE prevented upper respiratory tract infections in children, provided “Immunity Protection,” was “Nutritionally Complete Drink with PROBIOTICS to Help Keep Kids Healthy,” strengthened the immune system, protected against cold and flu viruses (without using those terms), reduced the duration of diarrhea, and reduced absences from daycare or school due to illness. Nestle allegedly lacked a reasonable basis for these claims.

Despite the alleged lack of substantiation, Nestle made “clinically shown” claims in some of its marketing, such as a “Straw Power” TV ad stating: (1) the product “has been clinically shown to help strengthen the immune system when consumed daily;” (2) “Probiotic straw / Clinically shown to help strengthen the immune system;” and (3) “... and probiotics clinically shown to help strengthen the immune system.” Another ad. Plaintiffs’ claims were based only on the “clinically shown” statements; they didn’t plead that Boost failed to provide the promised nutrition or health benefits, bur only that the claims weren’t sufficiently substantiated to count as clinically shown.

The court was unimpressed by plaintiffs’ “piggybacking” on the successful FTC enforcement action against the same claims, which it commented in a footnote should affect fees, though that didn’t matter here.

The court seemed to accept Nestle’s argument that the claims were insufficient because they were based on failure to substantiate, which aren’t cognizable under the relevant state consumer protection statutes, those of New Jersey and California. I say “seemed” because the court ruled that the claims were basically non-cognizable failure to substantiate claims, but then did address them on their own terms.  The court did not refer to the Lanham Act precedent separating “establishment claims,” where a plaintiff can prove literal falsity by showing exactly what plaintiffs alleged—that claimed clinical proof didn’t count as clinical proof—from “nonestablishment claims,” where the plaintiff has to show the falsity of the underlying claim. The standard in both cases is still falsity; the question is what has to be shown to be false, and that depends on what the defendant actually claimed.

There’s no standalone “lack of substantiation” claim under most state consumer protection statutes, but that rule makes sense when the defendant doesn’t claim to have substantiation. When the defendant does so claim in its ads, then applying the case law as the court seemingly started out doing here carves out a set of explicit claims that plaintiffs aren’t allowed to show are false—which is a very different thing from allowing plaintiffs to proceed against anyone as if all ads made establishment claims.

Still, the subsequent discussion suggests that this court would recognize a “clinically shown” statement made with completely insufficient proof as false and misleading.  The court turned to plaintiffs’ “attempt to transform what is essentially a prior substantiation claim into a consumer fraud claim by arguing that Nestle’s use of the words ‘clinically shown’ constitutes a false and misleading statement.” Here, despite expert submissions, the court ruled that plaintiffs failed to sufficiently prove that Nestle lacked clinical support for the health benefits it attributed to its probiotic, and granted summary judgment to Nestle.

“At best, Plaintiffs can prove that Nestle's studies were not sufficiently strong; while this may be enough to make out an ordinary claim not premised on a theory of fraud, it is insufficient to demonstrate entitlement to relief under the consumer fraud statutes cited above.” This literally elides the key question: sufficiently strong to do what? The issue is whether they are sufficiently strong to count as clinical proof. The court found that plaintiffs’ experts could only opine that there was “limited support” for Nestle’s claims, and “limited” or “weak support” wasn’t enough for falsity, though the court suggested that it could ground another type of legal claim. The court pointed out that even plaintiffs’ experts found some of the science good, e.g., “[v]ery good basic science data has been presented, but this must be translated to better ascertain its clinical application.” Nestle’s data also related only to children of certain ages, but “[t]he fact that Nestle relies upon studies that demonstrate LRP or similar probiotics' effectiveness in specific age groups does not render any of Nestle's advertising claims—which never indicated a specific age range … —false or misleading.”

In the end, these attacks didn’t satisfy plaintiffs’ burden to show that the “clinically shown” claims were actually false or misleading. “Plaintiffs fail to demonstrate that any customers were misled into believing that Nestle possessed a clinical showing for the immunity-related health benefits of the probiotic in BKE when it did not.”

This also got rid of the negligent misrepresentation claims, though the court didn’t grant summary judgment on the breach of express warranty claim because both sides failed to brief the issues sufficiently. 

Caveat student: lawsuit against Cooley law school dismissed

MacDonald v. Quist, No. 1:11-cv-00831-GJQ (W.D. Mich. July 20, 2012)

Plaintiffs, 12 graduates of Thomas M. Cooley Law School, brought a putative class action alleging that Cooley deceived them about graduates’ employment prospects, causing them to pay more than they would have if they’d known the truth.  They sued under Michigan’s Consumer Protection Act (MCPA) and also brought claims for fraud and negligent misrepresentation. The court dismissed the complaint.

“Cooley, a for-profit law school, enrolls more law students than any other law school in the country–approximately 4,000. It is ranked in the bottom tier by every major law school ranking. Cooley has the lowest admission standards of any accredited or provisionally-accredited law school in the country.”  In 2010, incoming students’ mean LSAT was 146, which apparently is in the 30^th percentile.  Roughly 1500 new students matriculate each year, about 1/3 of whom fail to graduate.  Dean Don LeDuc was paid more than $500,000 in 2008 and 2009.

LeDuc and former Dean Brennan publish Cooley’s own law-school rankings, which have been met with “great skepticism, if not outright ridicule, and no reputable academic or legal commentator takes it serious[ly],” according to the complaint. “Incredulous[ly]” [sic], these rankings place Cooley as the second best law school in the country, apparently based on the overall size of the student body, library total square footage, and library seating capacity. 

The plaintiffs, however, based their challenge on Cooley’s Employment Report and Salary Survey.  Its report on 2010 graduates listed their number as 934, the number with known employment status as 780, the percentage employed as 76%, and the average starting salary for “all graduates” as $54,796.

However, the reported placement rates and salary information remained steady 2004-2009, even though the total number of annual graduates increased from 404 to 958 and the legal market didn’t add jobs.  Indeed, Cooley’s reported placement rates and salary information have “barely dipped since the onslaught of the ‘Great Recession.’”  Cooley’s statistics are at odds with the employment statistics reported by the National Association for Law Placement (NALP); despite its lower standards and bottom ranking, its statistics suggest that it outplaced 40% of other law schools.  The court noted that these attacks all relied on “the assumption that Cooley graduates’ employment statistics move in correlation with overall market statistics,” though presumably that can be pled as a fact for these purposes.

Anyway, the data in the Employment Reports comes from a survey Cooley sends to all recent graduates.  For the 2010 report, about 83% responded; the responses are unaudited, unverified, and self-reported.  Cooley disseminates this information widely on its website and to US News, the ABA, and NALP.  US News and the ABA don’t require distinctions between part-time and full-time employment and temporary or permanent employment.  NALP makes those distinctions but doesn’t provide public information about individual law schools; Cooley’s compliance with NALP showed that Cooley could provide more detailed data to prospective and current students.

The plaintiffs alleged that they didn’t enroll in order to use a JD for an ongoing business or to start a non-legal business, but rather intended to use the degree to better themselves through getting full-time legal employment.  They relied on the salary/employment data posted on Cooley’s website, used in marketing material, and/or disseminated to third-party data clearinghouses and publications, such as the ABA and U.S. News.  They alleged that if they’d been aware that the placement rates included temporary and part-time employment and/or employment for which a JD was not required or preferred, they wouldn’t have paid as much to go to Cooley or might not even have attended.  The plaintiffs’ circumstances varied; some opened their own law firms or found other meaningful legal work, while others worked in nonlegal jobs and one was unemployed.  They alleged that Cooley marketed primarily to “naive, relatively unsophisticated consumers – many of whom are barely removed from college – who are often making their first ‘big-ticket’ purchase,”  and that they took on tens of thousands of dollars in debt to attend Cooley, whose current tuition is more than $36,000 per year ($52,000 with living expenses etc.).  U.S. News reports that Cooley graduates carry an average of $105,798 in student loans when they graduate.  Like all other law grads, Cooley grads face serious headwinds in the job market, which has caused salaries to decline.

The court first dismissed the MCPA claim because that law covers only the “conduct of trade or commerce,” which is defined as “providing goods, property, or service primarily for personal, family, or household purposes.” “[I]f an item is purchased primarily for business or commercial rather than personal purposes, the MCPA does not supply protection.”  Plaintiffs couldn’t plausibly plead that their purposes were personal.  “Plaintiffs did not purchase a Cooley legal education so that they could leisurely read and understand Supreme Court Reports, or to provide legal services for themselves or family members. Rather, Plaintiffs purchased a legal education in order to make money as lawyers so that they could live a lifestyle that they believed (perhaps naively) would be more pleasing to them.”  That was a business purpose.  Even if a legal education gives personal satisfaction, that’s no different from many other business expenses that might incidentally provide satisfaction to the business owner.

The court then turned to the far more restrictive cause of action for common-law fraud, and found that plaintiffs failed to allege the kind of explicit falsity required.  Plaintiffs focused on the 76% employment and $54,796 “average starting salary for all graduates” claims.

As to the percentage of graduates employed, the court first found that this statistic had to refer only to the 780 graduates who responded, because Cooley couldn’t know the employment status of the 154 nonresponders.  The plaintiffs alleged that reasonable consumers would think this number represented full-time, permanent legal employment (defined as positions for which a law degree is required or preferred), but that in fact Cooley was counting anything, and the truth was that the number who had JD-required/preferred jobs could be below 25%.  This wasn’t sufficient to plead fraud because there was no explicitly false representation, and a plaintiff’s misunderstanding isn’t enough.  On its face, the statistic descriptor didn’t differentiate among types of jobs.  Separately, any reliance on the percentage statistic was unreasonable, since the statistic didn’t distinguish between legal and non-legal, or permanent and temporary, jobs.  Moreover, the Employment Reports expressly said that many graduates were “self employed” solo practitioners; “it is unreasonable to think that all self-employed graduates from arguably the lowest-ranked law school in the country have bustling full-time legal practices immediately upon graduation.”  Plus, basic deductive reasoning would tell reasonable people that the statistic on its face includes all employed graduates, not just those in full-time legal positions.

The court turned to the average salary statement.  Of course, an obvious reading of this is that it is the average starting salary for all 943 graduates.  But Cooley wouldn’t have any way to know the starting salaries of nonrespondents.  Instead, it had to rely on the answers of those who provided salary information (a subset of total respondents); the number of those respondents can’t be determined from the Employment Report.  So the number doesn’t represent the average salary for “all” graduates.  “Standing alone, the representation is objectively untrue.”  Plaintiffs alleged more: that Cooley disregarded responses that claimed a salary of zero, meaning that the statistic would be false even if properly labeled as the average salary of respondents who provided salary information.  But reliance on this was unreasonable.  For purposes of common-law fraud, unreasonable reliance includes relying on an alleged misrepresentation that is expressly contradicted in a written contract that the plaintiff reviewed and signed.  (This is, not for nothing, one of the reasons modern consumer protection statutes abandoned the fraud rules: the formalism of this idea doesn’t correspond to how consumers actually understand promises made by salespeople versus the legalistic word-barrage of a standard contract.)  At common law, there can be no fraud if the plaintiff has the ability to figure out that she’s not being told the truth and the defendant doesn’t take steps to prevent her from doing so.  In another case, for example, the plaintiff received several sets of financial documents containing widely divergent and internally inconsistent numbers, but the plaintiff didn’t question any of them.  The Sixth Circuit held that no reasonable buyer could have relied on the documents: because the statements were inconsistent and confusing, the documents were inherently untrustworthy. 

“‘There can be no fraud where it is apparent that all the representations cannot simultaneously be true.’ The same principle applies in the instant case.”  On the face of the Employment Report, Cooley didn’t know the salary of “all” graduates, and plaintiffs had no way to determine the number of graduates’ salaries used to determine the average.  Not the way a defendant wants to win: “Without question, the Employment Reports are inconsistent, confusing, and inherently untrustworthy.”  Among other things, the question arises whether Cooley counted those whose salaries were zero, but plaintiffs should have asked such questions beforehand.  “Plaintiffs and prospective students should have approached their decision to enter into law school with extreme caution given the size of the investment.… With red flags waiving and cautionary bells ringing, an ordinary prudent person would not have relied on the statistics to decide to spend $100,000 or more.”  Plaintiffs’ reliance was arguably more unreasonable than in other cases, since the competing representations were made on the same page.  “It is quite apparent from a reading of an Employment Report, without blinders as to a particular statistic, that all of the representations in the Employment Report cannot simultaneously be true.”

Finally, the court held that plaintiffs unreasonably relied on these two statistics when enrolling/deciding to stay at Cooley, citing the reasons given in Gomez-Jimenez v. New York Law Sch.  While college graduates might not be particularly sophisticated, and “[s]ometimes hope and dreams triumph over experience and common sense,” it would still be unreasonable to rely on “two bare-bones statistics in deciding to attend a bottom-tier law school with the lowest admission standards in the country.”  Plaintiffs even pled that it was widely accepted that American law schools, Cooley among them, “employ all sorts of legerdemain to boost employment rates in a contracting legal market,” providing other reasons to think that the market for law schools is a market for lemons. In addition, it would be unreasonable to continue to rely on the Employment Reports given the massive economic crunch.

For the same reasons, plaintiffs didn’t state a claim for “silent fraud,” which requires an allegation that the defendant suppressed a material fact that the defendant had a duty to disclose. Mere nondisclosure is insufficient.  Plaintiffs argued that Cooley had a duty to disclose because the omitted information was so important, and that it had duties as an educator and as a recipient of federal student financial aid funds.  A duty to disclose most commonly arises when the plaintiff asks questions and the defendant’s replies are incomplete and omit material information.  Here, the plaintiffs didn’t allege that they asked for additional information, and no other duty gave rise to a duty of disclosure to the plaintiffs.

Negligent misrepresentation also failed, because it required misrepresentation and reasonable reliance.  “The bottom line is that the statistics provided by Cooley and other law schools in a format required by the ABA were so vague and incomplete as to be meaningless and could not reasonably be relied upon. But, as put in the phrase we lawyers learn early in law school–caveat emptor.”