Friday, August 31, 2012

Satirical picture doesn't make rest of blog post mere puffery/opinion

ThermoLife Intern., LLC v. Gaspari Nutrition, Inc., 2012 WL 3744715 (D. Ariz.)

Previously.  ThermoLife and Gaspari, competing suppliers of dietary supplements, accused each other of false advertising and unfair competition.  In counterclaims, Gaspari alleged that ThermoLife disparaged its products with statements on ThermoLife’s website and on third-party websites that Gaspari products were mislabeled, underdosed, spiked, poorly formulated, and pixidusted, and also made disparaging statements about Rich Gaspari, Gaspari's president.

The court found that, even under Rule 9(b), Gaspari had sufficiently alleged specific falsity as to the statements on ThermoLife’s own website, e.g., that ThermoLife falsely claimed that Gaspari’s products didn’t contain effective doses.

Mostly, ThermoLife argued that its blog post on a third party site wasn’t actionable.  The court disagreed.  The statement that Gaspari’s products were “poorly formulated and pixidusted” was within the scope of the Lanham Act, and wasn’t mere puffery.  “[T]he statements reflect a relatively straightforward, if subjective, report of the Court's order related on a previous motion to dismiss.”  The court thought that the picture and the headline “Things look bleak for Gaspari Nutrition after Federal Judge allows all ThermoLife[’]s claims against [Gaspari] for selling steroids as supplements to move forward” could possibly be considered satire, but the article itself couldn’t be understood that way.  The picture, which seems less satirical than barely comprehensible to me:

The unfair competition claim also survived, except that Gaspari’s general allegations of “use of illegal means” were insufficient.

How we talk about politics

By using familiar references, the same way we talk about everything else, as this photo from the Minnesota State Fair demonstrates yet again:

There's also Super Mario and some prominent names featured in other art.  The satire/parody distinction, which wasn't even offered as a bright line in Campbell, doesn't make sense of how people communicate with popular culture.

Google's geotargeting claims may be actionable

Woods v. Google, Inc., 2012 WL 3673319 (N.D. Cal.)

AdWords allows advertisers to display ads on Google and other sites.  AdSense allows third parties to host/publish Google ads on their websites; the third parties receive a share of Google’s per-click revenue.  Woods argued, among other things, that Google secretly allowed certain partners to be exempt from AdSense quality policies, forcing advertisers to pay for accidental and meaningless clicks worth less than Google charged.  In addition, Google allows advertisers the option of specifiying geographic locations for their ads.  The help link for the question “In what geographical location do you want your ads to appear?” during the signup process said: “You can target your ads to almost any set of locations, including countries, territories, regions, cities and custom areas. For example, you could target specific regions within the United States and a few large English-speaking cities in Europe. You can view or edit your targeting options from the Settings tab for your campaign. Learn more about location targeting options. [hyperlink]”

Woods selected “Metro area: Ft. SmithFayetteville–Springdale–Rogers AR, US,” but discovered that Google distributed his ads to users outside this location.  He alleged that the location statements were fraudulent, in violation of California’s UCL.

The court got rid of Woods’ contract-based arguments, and the alleged UCL violations stemming from them.  Woods alleged that Google’s AdWords statements were fraudulent because they were likely to deceive advertisers into believing that Google would give them a discount for all clicks on sites that were less likely to convert than clicks from, instead of just a subset of those clicks, and that Google would apply AdSense policies to all sites.

Google argued successfully that Woods lacked standing. Under the UCL, a representative plaintiff must personally have lost money or property because of his own actual and reasonable reliance on the allegedly untrue or misleading statements. The contract itself expressly states that “[n]o statement or promises have been relied upon in entering into this Agreement except as expressly set forth herein,” and that “any conflicting or additional terms contained in any other documents ... are void.” Google maintained that, as a practicing attorney, Woods was a sophisticated party in a position to understand the no-reliance clause.

Reasonable reliance is ordinarily a question of fact, but can sometimes be resolved as a matter of law.  So here: in light of his sophistication as a lawyer, Woods could not have reasonably relied on the AdSense policies.  As for the pricing statements, reliance might have been justified because those statements were used to interpret an ambiguous clause in the contract.  But Woods didn’t allege facts showing that the pricing statements were untrue or misleading: the pricing statements said Google would give a discount on certain clicks from Display Network pages, but Display Network was specifically defined and didn’t cover Google’s entire advertising empire.  Woods failed to allege that Google failed to apply the pricing formula to Display Network pages.

The location targeting claim fared better.  Woods alleged that he expected that, by choosing his location, he’d get ads only within that location, but Google nonetheless distributed the ads and charged him for clicks outside that area.  Google argued that the complaint failed to show that it had made any representations, guarantees, or other commitments that all of Woods' ads would appear within only certain areas of Arkansas, and that other web pages disclosed the possibility of ads appearing to users elsewhere.  But Google didn’t present those web pages to the court or otherwise convince it that these statements wouldn’t mislead a reasonable consumer.  Misleadingess is, anyway, usually a question of fact.

Woods also pled injury sufficient to confer standing: Google “distributed over $20.00 of exemplary clicks that were in violation of Woods' Campaign Settings,” and he also alleged that if he’d known of the geographic scope of the ads he wouldn’t have advertised with Google.  (Wonder if that last allegation can survive summary judgment.)

When does the right of publicity trump a TM?

Mercado-Salinas v. Bart Enterprises Intern., Ltd., 2012 WL 3716721 (D. Puerto Rico)

Since this opinion comes from a motion to alter or amend the judgment, it skips over a lot of things, as will I, but one part of the holding is of significant interest—read on for a cautionary note on drafting a license to use a name.  Bart had a license from Mercado (whose continuing validity was in question) to use Mercado’s name and likeness. When a dispute arose, Mercado sued for, among other things, violation of his publicity rights.

The court found that Bart only had the right, pursuant to the license, to use Mercado’s name and likeness for existing or new materials related to Mercado’s psychic and astrological services.  New materials were defined as materials “relating to Mercado's psychic and astrological services of whatever nature whatsoever,” but that turned out to be insufficient.

In the modern economy, services can change fast.  Bart’s co-defendant used Mercado’s name and license for, providing interactive astrological and psychic consultation through the internet, including some daily horoscopes published under Mercado’s name as well as live psychic readings. Likewise, co-defendant Waltervision entered into a contract allowing another company, SCI, the right to use the Mercado mark in connection with various 800 numbers, prepaid paid calling cards and pay per call live astrological and psychic readings through 900 numbers, including the creation of a new website,, and the use of Mercado's name and likeness to advertise the astrological and psychic services being sold.  SCI produced gift cards featuring Mercado's name and likeness and a press release for the launch of “Walter Mercado's Psychic and Astrology Network, starring Walter Mercado.”  Defendants also operated an SMS/text-messaging service using his name and likeness with horoscopes not created by Mercado.  Co-defendant Walter Int’l published horoscopes using Mercado’s name and likeness in a Mexican newspaper; Mercado didn’t write them.

The court found that these weren’t New Materials under the contract because they didn’t relate to Mercado’s psychic and astrological services.  “This is not necessarily contingent on Mercado providing personal services to Bart, but New Materials must relate to psychic and astrological services provided by Mercado himself.”  The contract’s use of the term “produce” didn’t mean “create,” since the contract itself was written “in a manner that distinguishes between the two verbs. The Preexisting Materials provision uses the verbs ‘created or originated,’ while the New Materials provision does not use the verb ‘created.’”  Thus, the right to develop new materials “contemplates a product already in existence that is related to Mercado's psychic and astrological services. It does not give Bart the right to create new materials using Mercado's Name and Likeness. If the parties had intended to grant Bart such a right, the parties could have used the verbs ‘create’ or “originate,’ as they did in the Preexisting Materials section.”

Because of the limitation of the contract, even though defendants might own the mark, they were unable to expand the scope of their services without violating Mercado’s right of publicity.  I leave as an exercise for the reader how this might have been fixed, from Bart's perspective. 

When the court turned to the false advertising claims, matters grew even more complicated.  Bart, as owner of the mark, might have the right to use the mark to advertise its services even if it didn’t have the right to use Mercado’s name and likeness.  The court considered the mark to be “a type of endorsement.”  Bart, as owner, could use its own mark as an endorsement for advertising purposes without becoming liable for false endorsement.  Endorsement doesn’t require actual involvement in or development of the sponsored product.  (What about the FTC Guidelines, then?)

However, “endorsing a product and saying a product is created by the endorser are two different things.”  Thus, even as owner, Bart couldn’t advertise Mercado as the source of its products, except for the preexisting materials and the new materials that were in some way Mercado’s work product.  (Great example for Mark McKenna’s investigation of the meaning of Dastar.)  For example, the website featured Mercado's photo and signature with a message that read “Live consult with my most profound psychics.”  The court ruled that defendants couldn’t use this photo and signature to promote the website, nor could they refer to “Mercado's most profound psychics.”  Instead, if they owned the mark, they could use it to refer to the business—e.g., “‘profound Walter Mercado psychics’—but Bart cannot say it is selling the work product of Mercado.”  (Are consumers likely to understand this distinction?  What about the domain name?)

Likewise, ads for the SMS service couldn’t use Mercado’s name and likeness.  Further, defendants couldn’t “advertise the SMS Services as if Mercado himself were authoring the horoscopes and messages or has personally selected the psychics authoring the same.… However, advertising consults from ‘Mercado's powerful psychics’ or that consumers ‘will be connected with the good energy of Walter Mercado’” would be allowed if Bart owned the mark.  (Hunh?  How is that not using his name?)

Mercado also claimed a violation of his moral right to avoid attribution.  But Puerto Rico law only provides an attribution right, not a right against attribution for work not the author’s: “[t]he author or beneficiary of a literary, scientific, artistic and/or musical work has the right to benefit from it, and the exclusive prerogatives to attribute to him/herself or retract its authorship, dispose of his/her work, authorize its publication and protect its integrity ...”

Anthropological Quarterly special issue on pirates

Alexander Sebastian Dent, Understanding the War on Piracy, or Why We Need More Anthropology of Pirates, 85 Anthropological Quarterly 659 (2012):

[P]iracy is not an individualized practice, but is, rather, a group affair, despite the fact that all the current Internet pirates might be acting by themselves in lonely rooms in Russia, China, the college dormitories of New Jersey, or other subversive locales. A cat-burglar (or perhaps an overly-aggressive anthropologist) is a thief, not a pirate….

Finally, at the core of piratical practice lies a specific circulatory ideology in which objects and ideas are “supposed” to move through channels which signal attention to selected aspects of their production—an inter-discursive orthodoxy of brand-patent-trademark-copyright. When piracy is used pejoratively, this invocation smacks of an attempt to protect the commodity’s “secret”—its concealment of its character as a concatenation of social relations. When piracy is invoked positively, it sounds very much like a Marxian attempt to peel back the veil and show us all what’s “really” behind the curtain—a set of extractive and monopolistic practices where “real” producers aren’t properly remunerated. We can, in this way, see that piracy arises from an anxiety that the idealized alignment of intention with reception—a sort of fantasy of unmediated consumption such that an object or idea is received in a controlled and “clean” way—is being broken.… Both its policing and its practice seek to govern excesses, sloppiness, and the underperformance of a given circulatory system.

Constantine V. Nakassis, Counterfeiting What? Aesthetics of Brandedness and Brand in Tamil Nadu, India, 85 Anthropological Quarterly 701 (2012):

[N]on-elite youth, producers explained, find brands and commodities from abroad aesthetically pleasing. The brand garment for export is, by virtue of that very fact, a reasonable guarantee that an inspired version of it can be sold for profit....

In short, this belief that brands guarantee profits isn’t held to because producers see “demand” for such-and-such brands among young, non-elite men (their primary market); nor is it held because producers closely follow the sales of such and such brands in the West or among the Indian elite because, by and large, they don’t. Rather, this belief is grounded in an aesthetic of brandedness that producers believe that they share with their non-elite, youth consumers. That is, the branded form has that look and style which is performative of statusful modes of youth masculinity. Thus, such forms will sell, while “plain” ones without brand-esque names and designs won’t. And again, this is independent of brand identity or authenticity as such. As producers often justified the liberties that they would take with the branded form, “the customer doesn’t know the difference, and if they do, they don’t care.” And as I found out, often producers themselves didn’t know about the brands they were copying or using for inspiration, except that they were brands (and sometimes not even that). As one producer noted: “we don’t care what the brands are. We make them because they ‘move’ [sell] on the market. There is no need to know the brands, because consumers don’t even know the brands.”

… [B]rands are ubiquitous in local Tamil markets, and thus seemingly in “demand.” And yet, there is an insensitivity—an active indifference, even—towards those very same brands.

… If, indeed, branded garments in local, non-elite Tamil markets are not reckoned as instances of particular brands, but as participating in an aesthetics of brandedness, legal doctrines like “consumer confusion” and more recent notions like “disassociation,” “dilution,” or “tarnishment” of brand image do us no service in understanding the local consumption, circulation, or production of these garments. The brand surfeits that we have discussed confuse no one as to their origin. In fact, they are not even read as indexing any (brand) origin except for some vague notion of exteriority (the “foreign”). And from this it follows that they cannot dilute associations attached to particular brands. Without the indexicable brand identity as a knot to tie together a variety of brand “meanings” or associations, there is nothing to dilute, and no one for whom it can be diluted.

Thursday, August 30, 2012

Pitch to healthcare providers may necessarily imply legality of proposal

Ameritox, Ltd. v. Millennium Laboratories, Inc., 2012 WL 3651110 (M.D. Fla.)

Ameritox and Millennium compete to screen urine specimens for drugs.  They contract with healthcare providers.  Ameritox alleged that Millennium falsely advertised its services and also engaged in unfair business practices, including “providing illegal inducements to garner business, performing medically unnecessary confirmatory testing, assisting healthcare providers in acquiring an improper ownership interest in purportedly independent businesses, and not collecting legally required co-payments and deductibles.” 

Millennium moved to dismiss Ameritox’s false advertising, tortious interference, and unfair competition claims; the interesting part is the false advertising aspect.

The false advertising covered multiple types of conduct, including printed ads—billing letters—provided by Millennium to providers for distribution to patients.  Millennium allegedly informed potential customers that its corporate policy was to not collect from patients the difference between the amount Millennium billed for its services and the amount the patients' insurance companies agreed to pay; Millennium also advertised that it would not require patients to pay deductibles or co-pays. These ads were allegedly false and misleading to three groups: those enrolled in Medicare who are not required to pay any co-pay or deductible; those enrolled in Florida Medicaid who are required to pay only a $1 co-payment; and those enrolled in private insurance programs that include the services that Millennium provides within a patient's annual deductible.  Thus, Millennium advertised an illusory benefit—and it was also illegal to waive those payments, so Millennium allegedly got customers by falsely representing that this was legal.

Millennium also distributed an allegedly misleading press release in which its CEO advocated for Medicare to reimburse healthcare providers at a higher rate for drug screening, claiming that Millennium had no vested interest in advocating for this change.  In fact, Millennium’s motives were not altruistic because such a change would make it money.

The other allegations described various schemes to encourage providers to engage in unnecessary, duplicative, and otherwise illegal billing and to suggest that these techniques weren’t illegal; among other things, Millennium allegedly encouraged providers to invest in supposedly independent labs that would forward samples to Millennium for additional testing.  Providers had an incentive to choose Millennium in the mistaken belief that its schemes were legal.

First, Millennium argued that it hadn’t engaged in “commercial advertising or promotion” by disseminating its representations sufficiently to the relevant purchasing public.  Alleged dissemination of billing letters to thousands of providers and, through them, to thousands of patients was sufficient.  As for the other representations, they were allegedly disseminated to thousands of providers in several different states, which was also enough.

Falsity: As to the press release, Ameritox argued that it was literally false to say “Millennium as a corporation has no financial stake in this argument.” Given the allegation that Millennium's business model is premised on generating increased revenue for healthcare providers partly through Medicare reimbursements, the court agreed. Likewise, where Ameritox alleged that Millennium represented that the conduct it was advocating “was in compliance with federal and state laws” and was otherwise proper, that combined will allegations that the conduct was actually illegal was sufficient to allege literal falsity.

What about statements encouraging conduct but not explicitly telling providers that the conduct was legal?  Ameritox argued that these were false by necessary implication where the conduct was, in fact, illegal.  Though the Eleventh Circuit hasn’t formally adopted the doctrine of falsity by necessary implication, many other circuits have, as have district courts in the circuit. So the question was whether the targeted audience would receive the message “the conduct we’re advocating is legal” as if it had been stated.  Ameritox alleged that consumers chose Millennium mistakenly believing that its representations promoted legal conduct—and that makes a lot of sense to me; while we’ve seen plenty of systemic corruption, I at least want to believe that a pitch saying “let’s commit Medicare fraud!” would have been received very differently.

Assuming that there was a necessary implication of legality, Millennium argued that Ameritox hadn’t conclusively demonstrated illegality and thus falsity.  However, on a motion to dismiss, the court determined that allegations of illegality were sufficient.

Similarly, Ameritox sufficiently alleged that the billing letter misleadingly touted an illusory benefit, since some patients weren’t required to pay for Millennium’s services in the first place.  If Millennium actually didn’t charge co-pays, then saying it wouldn’t seek payment from patients couldn’t be literally false.  But the allegation of implicit falsity was sufficient.

What about deception or tendency to deceive?  Ameritox sufficiently specified how consumers were or were likely to be deceived: because of mistaken beliefs in the legality and propriety of Millennium’s billing schemes.  Also, literal falsity doesn’t require evidence of consumer deception, and at the pleading stage, plaintiffs need not provide evidence of consumer deception for misleadingness either.

Materiality: Ameritox alleged that the legality and propriety of billing arrangements were material to purchasing decisions.  That was enough on a motion to dismiss.  The press release was different, but the court accepted that providers could be, at least in part, persuaded to choose Millennium because of a deceptive implication of Millennium’s magnaminity.

Millennium argued that its statements about legality or propriety were non-actionable opinions.  Statements by laypersons purporting to interpret law are opinion unless a court or agency of competent jurisdiction has clearly and unambiguously ruled on the matter at the time of the alleged misstatements.  But Ameritox provided support for its arguments that the practices discussed violated established law at the time of the ads, with a combination of agency reports, statutes, regulations, and case law.

Wednesday, August 29, 2012

Trademark use?

The sign reads: "Fuji: Great film, great cameras, even better apples!"
Photo by Zach Schrag, who in a nod to recent headlines notes, "good thing they didn't suggest pinching or swiping!"

Bonus images from my collection:
More Rush Than You Get From Talk Radio:

When the new President said his favorite candy bar is Baby Ruth, nobody Snickered.

Our Hardware Runs Better Without Windows:

Judge Posner on trusting an author

Perhaps the harshest moment in his review of the recent book by Justice Scalia and Prof. Bryan Garner:
Scalia and Garner ridicule a decision by the Supreme Court of Kansas (State ex rel. Miller v. Claiborne) that held that cockfighting did not violate the state’s law against cruelty to animals. They say that the court, in defiance of the dictionary, “perversely held that roosters are not ‘animals.’” When I read this, I found it hard to believe that a court would hold that roosters are not animals, so I looked up the case. I discovered that the court had not held that roosters are not animals. It was then that I started reading the other cases cited by Scalia and Garner.
It's never a good idea to lose the trust of your audience, especially a federal judge.

Herding cats: follow-on Clorox class action proceeds

In re Clorox Consumer Litigation, --- F. Supp. 2d ----, 2012 WL 3642263 (N.D. Cal.)

After Church & Dwight successfully attacked Clorox’s Fresh Step ads (settled before resolution of the appeal), plaintiffs filed a putative nationwide class action alleging that Clorox falsely advertised that (1) Fresh Step is more effective at eliminating cat odors than products that do not contain carbon, and (2) cats choose Fresh Step over these other cat litters.

The first relevant ads showed several cats jumping into a Fresh Step litter box, after some of them examined and apparently rejected a Super Scoop litter box.  Supers said “dramatization” and “based on lab tests,” while the voiceover said: “Cats like boxes. Big ones. Little ones. And ones with Fresh Step litter inside. That's because Fresh Step's scoopable litter with carbon is better at eliminating odors than Arm & Hammer's Super Scoop. Fresh Step. Cats know what they like.”  Then Clorox ran an ad showing cats opening jars of cat food, unlocking doors, thwarting a dog from entering a house, etc., and finally choosing a box of Fresh Step over a box of Super Scoop. Voiceover: “Cats are smart. They can outsmart their humans. Their canines. And locked doors. They're also smart enough to choose the litter with less odors. That's because Fresh Step Scoopable Litter with carbon is better at eliminating litter box odors than Arm & Hammer Super Scoop. Fresh Step, cats know what they like.”  Church & Dwight’s study in response showed that 6 of 158 studied cats rejected a Super Scoop box, while 8 rejected a Fresh Step box.

Clorox’s next set of ads kept up the playful theme, and showed two beakers, one filled with a black substance labeled “carbon” and the other filled with a white substance labeled “baking soda.” Green gas floated through the beakers, rapidly dissipating in the carbon beaker but not reacting much in the baking soda beaker.  Voiceover: “That's why Fresh Step Scoopable has carbon, which is more effective at absorbing odors than baking soda.” The super said: “Dramatization of cat waste malodor after 1 day. Based on sensory lab test.”  Church & Dwight commissioned an independent lab to do a ten-day sensory study using people trained in odor evaluation.  On every day and overall, the panel’s average rating for Church & Dwight’s baking soda-based litter was lower (more palatable) than the average rating for Fresh Step.

Plaintiffs sued under the usual California statutes and, in the alternative to a nationwide class, asserted consumer protection claims on behalf of five subclasses in California, Florida, New Jersey, New York, and Texas. They also brought causes of action for breach of express warranty and unjust enrichment.

Clorox argued that the claims failed because they were based on allegations that its ads lacked substantiation.  Such claims aren’t cognizable under California law when brought by private parties, though the law allows certain government authorities to demand substantiation.  Plaintiffs responded that their argument was not that the claims were unsubstantiated, but that they were provably false.  The court agreed.  Plaintiffs alleged that the two claims (carbon-based cat litter’s greater effectiveness on odors than non-carbon brands, and cat preference) were contradicted by scientific studies.  This was more than an allegation that scientific evidence in support of the claims was lacking.

Clorox also moved to dismiss the claims to the extent they were based on the ads’ statements that cats “like” or “are smart enough to choose Fresh Step.”  Whether an alleged misrepresentation is puffery, the court said, was a question of law that could be answered on a motion to dismiss.  (Always?  That seems unlikely.  Or very confident.)  Plaintiffs argued that claims that cats “like” and “choose” particular litter brands are measurable.  One of Church & Dwight’s studies measured such preferences by looking at cats’ rejection of litter.  Similarly, the ads themselves depict preferences, thus allegedly giving the impression that the claims were based on scientific testing.

The court agreed that the first set of ads conveyed a preference message, but found that they provided no basis for the claim.  “[T]he depiction of four or five cats choosing to playfully jump into a litter box of Fresh Step rather than a litter box of the competitor's brand does not give the impression of scientific testing—especially since this demonstration follows several videos of cats playing with boxes.”  These ads didn’t make quantifiable claims that could be proved or disproved; no reasonable consumer would consider the message that cats prefer Fresh Step because they are “smart enough to choose the litter with less odors” to be a statement of fact.  (The judge is not a cat person, I see.  If humans are smart enough to do that, why not cats?)

The court also relied on the super, without assessing whether consumers were likely to perceive it as part of the message (which I would argue shouldn’t be done on a motion to dismiss anyway).  The “dramatization” disclaimer undercut the plaintiffs’ arguments, while “based on lab tests” “[had] the potential to cut the other way,” but since the ads didn’t clearly identify which representations were based on lab test, that didn’t help.  The court thought “based on lab tests” was intended to convey “better at eliminating odors,” given its placement against the voiceover.  (Again, if it’s not clear, why does that hurt plaintiffs on a motion to dismiss?  If “based on lab tests” could plausibly refer to cat preference, that should matter at this stage of the case.)

So the claims were dismissed to the extent they were based on statements that cats “like” or “are smart enough to choose Fresh Step.”

Clorox next argued that plaintiffs failed to satisfy Rule 9(b) by failing to allege the content of the alleged misrepresentations, when they saw them, or where. Without contesting that the fraud pleading requirements applied, plaintiffs argued they’d met them, and the court agreed.  Rule 9(b) has three functions: to provide defendants with adequate notice/deter fishing expeditions, to protect reputations against fraud charges, and to keep plaintiffs from taking up resources on litigation without a factual basis.  Here, requiring pleading of additional facts wouldn’t advance any of these goals.  The complaint identified each ad on which the plaintiffs allegedly relied and described their contents.  It alleged when the commercials aired and provided storyboards for each.  Plaintiffs alleged that they bought Fresh Step in reliance on the ads.  That was enough to put Clorox on notice and showed that plaintiffs weren’t on a fishing expedition.  Indeed, Clorox had located and produced videos of the ads.

On to substance: Breach of express warranty under California law requires a plaintiff to allege the exact terms of the warranty, reasonable reliance thereon, and a breach proximately causing injury.  Plaintiffs identified two alleged warranties: (1) carbon-based Fresh Step is better at eliminating and absorbing odors than baking soda-based cat litters, and (2) cats “are smart enough to choose” carbon-based Fresh Step over baking soda-based cat litters. The second was puffery and nonactionable.  Also, vague allegations about “product labels” couldn’t support the claim, since plaintiffs didn’t specify what the labels said.  But the claim based on the first alleged warranty was properly pled.

Clorox argued that its statements weren’t actionable because they were “highly subjective product superiority claims.”  No, reasonable consumers are likely to consider “Fresh Step ... is better at eliminating litter box odors than Arm & Hammer Super Scoop” a statement of fact. This was neither “vague” nor “highly subjective.” “Clorox identifies both a point of comparison—Arm & Hammer Super Scoop—and a metric for comparison—elimination of cat odors. Further, the beaker comparison depicted in the Second Commercials gives the impression that this representation is based on the results of a scientific study.  Clorox's apparent representation that this beaker test is '[b]ased on [a] sensory lab test’ furthers this impression.”  (The court also rejected Clorox’s argument that there was no privity—there’s an exception when the consumer relies on labels or ads from the manufacturer, and Clorox provided no warrant for the idea that the exception is limited to written warranties.)

Clorox also moved to strike the class allegations.  Motions to strike are disfavored, but occasionally granted when it’s clear that class claims can’t be sustained.  Clorox said this was true here given Mazza’s holding that California's consumer protection laws cannot be applied nationwide.  But Mazza was decided on a motion for class certification, not a motion to strike. “At this stage of the instant litigation, a detailed choice-of-law analysis would be inappropriate. Since the parties have yet to develop a factual record, it is unclear whether applying different state consumer protection statutes could have a material impact on the viability of Plaintiffs' claims. Further, unlike the defendant in Mazza, Clorox has not explained how differences in the various states' consumer protection laws would materially affect the adjudication of Plaintiffs' claims or otherwise explained why foreign laws should apply.”

Clorox contended that out-of-state plaintiffs lacked standing to sue under California law.  But California remedies can be invoked by out-of-state parties harmed by wrongful conduct occurring in California. Plaintiffs alleged that Clorox conducts substantial business in California and has its principal place of business and corporate headquarters in the state, decisions regarding the challenged representations were made in California, Clorox's marketing activities were coordinated at its California headquarters, and a significant number of class members reside in California. This was enough for purposes of the present motion.

Health insurers offering coupons for food?

Via Evgeny Morozov, this Washington Post story about food coupons delivered with information from insurers offers a new marketing frontier--deployed here in the interest of better health, although the story notes that many of the products offered are second-best.  "Dreamfields Pasta, a specialty item designed for diabetics, says it gets double the redemption on coupons issued through Linkwell because it puts them in the hands of patients who need to manage their blood sugar. Other, more mainstream, brands such as Quaker Oats and Sargento get a kind of halo effect because coupons for their product are packaged with information from a health-insurance company."  What would happen if a consumer sued, alleging that the products aren't healthy--how if at all could a court take account of this intended and expected halo effect?

replacing manufacturer's mark with repairer's mark is ok

CheckPoint Fluidic Systems Intern., Ltd. v. Guccione, 2012 WL 3637389 (E.D. La.)

CheckPoint brought a number of claims against Ray Guccione and his company RAM Repairs, including trade secret/misappropriation, but I’m just looking at the Lanham Act and coordinate state law claims. CheckPoint sells chemical injection pumps and pump components.  Guccione had various previous relations with CheckPoint, including an employment relationship.  After he left, he became managing partner of RAM, which makes “Monkey Pumps” chemical injection pumps.  It also initially acted as a third-party repair business for pumps.

The court rejected Lanham Act claims based on RAM’s repair activities: removal of CheckPoint identifiers when repairing CheckPoint pumps and application of RAM stickers, and failure to use CheckPoint parts in the repairs.  The court allowed false advertising claims to continue based on claims that Monkey Pumps were identical to CheckPoint pumps.

Putting RAM stickers in place of CheckPoint identifiers wasn’t reverse palming off.  First, there was no evidence that RAM sold, rather than repaired, the pumps, and the Lanham Act requires sales.  Separately, repairing, rebuilding, or modifying a product at the request of the product’s owner doesn’t violate the Lanham Act.  (The court doesn’t elaborate given the clear precedent, but it’s hard to imagine how the owner could be confused; post-sale confusion apparently doesn’t come into it.)  The same principle applied to the use of RAM parts to repair CheckPoint pumps.  There was no false designation of the parts as CheckPoint parts; “RAM labeled itself as the source of the repairs, not the originator of the pumps.”

The false advertising claims were based on statements such as an email to a prospective customer: “RAM Repairs' trademark Monkey Pump pneumatic chemical injection pump is identical to the CheckPoint 1250 Pump. Therefore, the replacement parts are identical and interchangeable.”  There was evidence of falsity: defendants’ expert identified differences between the parts and found that some of the Monkey Pump parts “appeared to be [of] slightly less quality” than CheckPoint pump parts.

Tuesday, August 28, 2012

Distrust that particular flavor: standing challenge fails

Anderson v. Jamba Juice Co., --- F. Supp. 2d ----, 2012 WL 3642835 (N.D. Cal.)

Anderson filed a putative class action asserting the usual California claims, plus Magnuson-Moss Warranty Act claims, based on Jamba Juice’s allegedly false representations that its smoothie kits were “All Natural.”  Jamba Juice moved to dismiss and the court granted the motion in part and denied it in part. 

Anderson alleged that the kits were prominently labeled “All Natural” in all five flavors, and that this allowed Jamba Juice to charge a price premium, even though the smoothie kits contain “unnaturally processed, synthetic and/or non-natural ingredients: ascorbic acid, steviol glycosides, xanthan gum, and citric acid.”  Anderson bought the Mango and Razzmatazz kits in reliance on the representations.

Warranty: Anderson alleged that “All Natural” was a written warranty that the ingredients in the smoothie kits were free of a particular type of defect (i.e., that they were not synthetic, artificial and/or otherwise non-natural).  The MMWA defines a warranty as “any written affirmation of fact or written promise … which 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.”  The claim here was based on “defect free.”  The court found that “All Natural” was not a promise of freedom from defect, but rather a product description.

Next, the court turned to Jamba Juice’s argument that Anderson lacked standing for flavors he didn’t buy.  The cases are divided, but the court was more persuaded by Anderson’s argument that he had representative standing as long as his claims were based on the same core factual allegations and causes of action.  Where there’s sufficient similarity between the products, concerns over material differences can be addressed at the class certification stage.  There was sufficient similarity here between purchased and unpurchased products—the same alleged misrepresentation was on all flavors.

If you are being nasty, is it more likely you are being false?

TASER Intern., Inc. v. Stinger Systems, 2012 WL 3598267 (D. Nev.)

Another opinion from the apparently vicious battle between Taser and a competitor.  Individual defendant McNulty moved for partial summary judgment on some of the claims against him.  Stinger issued press releases in January 2008 about Stinger’s patent reexamination request.  McNulty argued that Taser hadn’t been able to show falsity; Taser said that it did, and that in the alternative “truthfulness is not a defense to a Lanham Act unfair competition claim.”  (I’m just going to interpret that as “misleading statements are actionable too,” argh.)

The first January press release was “Stinger Systems Request Reexamination of Taser International's Intellectual Property,” subheaded “Large Portion of Taser's Intellectual Property in Jeopardy.”  It stated that the PTO was “currently evaluating whether to reexamine” a Taser patent based on Stinger’s obviousness challenge.  The release claimed that the consequence of Stinger’s then-pending lawsuit against Taser would be to invalidate the relevant patent family on unequitable conduct grounds.  It ended with a lengthy quote attributed to McNulty offering his opinion that TASER “has not done a proper job of filing these patents” and that the “the financial markets are under the misimpression that Taser International has a patent monopoly on projectile stun guns.”  The second press release defended the first against charges that the first was misleading and the ensuing stock sell-off as “an overreaction.” McNulty’s quote this time urged analysts to investigate TASER's conduct and described the patent reexamination request as “quite serious.”  The third described the statistical likelihood that patent reexamination requests cancel or amend claims and quoted Stinger’s CEO as saying that “most law enforcement agencies that Stinger personnel have called on strongly prefer the Stinger [product] over the Taser X26.”  “The release also cited Stinger's lawsuit charging TASER with inequitable conduct, and again implied that the family of TASER patents were at risk of invalidation.”

McNulty argued that the statements were true.  He submitted that 94% of reexamination requests are opened and, of those, 76% of reexaminations result in claims being narrowed or cancelled.  As a result, there was a strong likelihood that Taser’s patent would have been narrowed or cancelled.  Moreover, Taser admitted that one model embodied at least one invention claimed in the relevant patent, allegedly jeopardizing the patent (this discussion is unclear on timing, but it seems that the model came before the patent, at least if you accept McNulty’s argument about continuances).  And, since a finding of inequitable conduct can invalidate a patent family, he argued, three total patents were at risk of invalidation.

None of this showed as a matter of law that the press releases were true or not misleading.  “[I]t is plainly true that a reader of the three releases at issue here would believe that TASER was on the brink of a serious collapse.”  E.g., the releases said that Taser’s intellectual property is “in jeopardy,” that Taser’s patents “may all be invalidated if Stinger's argument in the case prevails,” that Taser’s patents “are extremely narrow (and in some cases even farcical),” that Taser was “feeding” misinformation to the financial markets, that Taser’s chair could only know Stinger’s current sales pipeline if he violated security regulations and announced insider information, that “[M]any departments currently using Tasers have expressed interest in trading them in for Stingers,” etc.  “This information encompassed in releases issued in a span of three days could reasonably lead a reader to the conclusion that TASER is in serious danger. Thus the Lanham Act analysis must begin with the premise that the releases, regardless of their veracity, paint a dire picture for TASER.”

The literal truth of some of the statements—Singer did file a patent reexamination request—was not dispositive.  Stinger initially failed to meet filing requirements until March 2008, and in May the PTO denied the request for failing to establish any “substantial new question of patentability.” Thus, the reexamination request was apparently not “quite serious” in nature, and Taser’s allegation that the request was filed merely to facilitate the issuance of the press releases was consistent with its allegation that the Stinger lawsuit was filed for the same purpose.

Further, McNulty didn’t meet his burden of showing that the reexamination statistics in the releases were accurate—they appeared to be based on old data (compare Millenium Import Co. v. Sidney Frank Importing Co., 2004 U.S. Dist. LEXIS 11871 (D. Minn. June 11, 2004), finding reliance on old data legitimate) and were “deployed in the releases in a manner that would mislead a reader into believing that it is all but a foregone conclusion that TASER's patents will be rendered invalid.” 

The overall derogatory context mattered: Even if the statistics were true, putting them alongside claims about Taser’s inequitable conduct, quotes about Stinger’s superior products, and Taser’s poor corporate governance “all support a Lanham Act unfair competition claim.”  Likewise, even if the patent at issue claimed an embodiment that already existed, “a consumer would understand the release as jeopardizing much of TASER's patent portfolio,” especially since the releases referred to a cancelled Taser patent for a nonlethal landmine and a patent “at risk of cancellation” for nonpayment of fees, both seemingly unrelated to the patent reexamination request.  Misleadingness was for a jury to resolve.

McNulty also sought partial summary judgment about a January 2008 press release from Bestex.  Taser alleged that the Bestex release came from McNulty’s attempts to “broker a fraudulent relationship between Bestex and LEA [another company] in an effort to portray the two companies as entering in a business relationship, all with an eye toward pushing the value of the companies up and damaging TASER's stock.”  LEA rejected McNulty’s advances, but the Bestex release allegedly misleadingly implied that discussions were ongoing, almost a year later.  The release announced that Bestex would sell new stun guns to compete against Taser, “for a fraction of the cost.”  Bestex’s CEO attacked a recent Taser press release for including “absolutely false and misleading statements” and “absolutely outrageous and unprecedented” statements. Specifically, the release labeled Taser’s statements that Bestex had exited the stun gun market as false.  (I’m missing something about how this brings LEA in, but there was apparently something in there as well.)

McNulty argued that the press release could have related to more recent discussions; deposition testimony from Feldman, representing LEA, suggested that it was a “possibility” that there were discussions in early 2008.  There was also a recorded conversation between Feldman and McNulty (allegedly acting for Bestex) where Feldman said that the press release was true, even if the timeline “isn’t really exact.”  The court found that there were genuine issues of material fact.  The deposition was inconclusive, since Feldman couldn’t recall timing and other evidence suggested that the discussions might have ended much earlier.  And the recorded conversation was “irrelevant” to whether the Bestex release was true or false, since it occurred after the Bestex release was issued. (Does this mean it can be excluded?  Somehow I doubt it.)  “To the extent that the transcript discusses prior Bestex and LEA negotiations, it is inconclusive as to when those discussions occurred,” though the court gave “some weight” to Feldman’s representations that he believed the Bestex release was true.

Anyway, there was a question of fact as to misleadingness.  The same recorded conversation indicated that customers called LEA as a result of the press release, believing that LEA was immediately entering the market.  The Bestex release “also includes various attacks against TASER, including that it should be ‘embarrassed and ashamed’ to mention a case it had lost and that TASER's conduct was ordered unethical and ‘highly suspect.’”  (I’m not sure why that makes it more plausible to the relevant consumers that LEA and Bestex were working together, but ok.) In context, the release could be misleading.

No injunction, no cause of action under private AG statute

Buetow v. A.L.S. Enterprises, Inc., 2012 WL 3568874 (D. Minn.)

After remand from the court of appeals, the court granted defendants’ motion to dismiss.  The district court initially enjoined certain advertising by defendants (claims to have “odor eliminating technology” for hunting clothing), but the court of appeals held that the claims for equitable relief had to be dismissed.  The only remaining claims were for damages under the Minnesota Consumer Fraud Act (“CFA”) and the Minnesota Unfair Trade Practices Act (“UTPA”).  Under the state’s private AG statute, individuals can bring consumer fraud claims, but must show a benefit to the public.  The Minnesota Supreme Court previously held that a case about a fraudulent one-on-one transaction didn’t meet the public benefit requirement.

Defendants argued that, at this point, there was no remaining public benefit, just small claims for nominal damages.  The court agreed, finding that it had to evaluate the claims as they stood, not as originally pleaded. 

Plaintiffs argued that the UTPA wasn’t subject to the same public benefit requirement.  And it was true, the court conceded, that the UTPA, unlike the CFA, expressly authorized a private cause of action for damages.  But that didn’t help plaintiffs, because they pursued remedies under the private AG statute, not under the UTPA directly, which they did because the UTPA doesn’t provide for attorneys’ fees and the private AG statute does.

Plaintiffs argued that they satisfied the public benefit requirement because the misleading ads were distributed to the public at large.  The case law was not clear on this; some cases concluded that public benefit was lacking despite the allegedly false/misleading statements being disseminated to the public.  The court didn’t think that an individual bringing a small claim for the amount he lost on a deceptively advertised product would benefit the public, even if the ad had been broadly disseminated.  (The court couched this as a hypothetical, but since it’s the exact same facts as the current case minus a few individual plaintiffs, I don’t see what’s hypothetical about it.)  Public benefit requires examination of the relief sought by the plaintiff.  “[A] public benefit typically will be found when the plaintiff seeks relief primarily aimed at altering the defendant's conduct (usually, but not always, through an injunction) rather than seeking remedies for past wrongs (typically through damages). This is because individual damages, generally speaking, merely enrich (or reimburse) the plaintiff to the defendant's detriment; they do not advance a public interest.”  Thus, whatever public benefit existed at the outset of the case no longer existed, since injunctive relief was out and plaintiffs failed to get class certification.  Nor would a potential fee award alter the analysis, since it would likely be de minimis in this case. 

Plaintiffs argued that an award would benefit the public through deterrence, but that would allow every “dog bite” case to come within the statute’s ambit and was too remote a possibility to suffice.  Anyway, even assuming that damages can sometimes achieve a public benefit, they’d have to be adequate to deter, but here the only possible award was in the tens or hundreds of dollars.  The litigation was “‘so feeble that it is best to end it immediately’” and was only ongoing because of the potential fees.  Anyway, even if this motion hadn’t been granted, the court of appeals “strongly suggested” that the ads were nonactionable puffery, and the district court likely would have felt “constrained” to agree.

Empirical study on trademarks as keywords

David Franklyn & David A. Hyman, Trademarks as Keywords: Much Ado About Something?

We report on the results of a two-part study, including three online consumer surveys, and a coding study of the results when 2,500 trademarks were run through three search engines.  Consumer goals and expectations turn out to be quite heterogeneous: a majority of consumers use brand names to search primarily for the branded goods, but most consumers are open to purchasing competing products.  We find little evidence of consumer confusion regarding the source of goods, but only a small minority of consumers correctly and consistently distinguished paid ads from unpaid search results.  We also find  that the aggregate risk of consumer confusion is low, because most of the ads triggered by the use of trademarks as keywords are for authorized sellers or the trademark owners themselves.  However, a sizeable percentage of survey respondents thought it was unfair and  inappropriate for one company to purchase another company’s trademark as a keyword, independent of confusion as to source.  

I have some quibbles with the interpretations, particularly with respect to the control/distractor question about Google’s selection of ads that isn’t really a control since a reasonable consumer might well think that Google’s marketing department selects ads.  Someone who selected that “control” to classify a link seems likely to understand that the link is there because Google hopes to get paid for it, even if they’re confused about conscious/case-by-case selection.  Adding those responses to the “paid advertising” responses changes some results significantly.  I also have doubts about the analysis suggesting that “people think X is unfair” means “people want a law against X” or even “there ought to be a law against X.”  Nonetheless, it’s valuable empirical work that should be much cited.

A case with legs? Supplier suing retailer for false advertising

Runberg, Inc. v. Victoria’s Secret Stores, Inc., No. 2:12-cv-00722-EAS-MRA (S.D. Ohio filed Aug. 10, 2012)

This case raises interesting questions of falsity and materiality.  Ordinarily there’s no cause of action just because a trademark owner changes the quality of its product, but here the former producer for VS argues that the changed product is falsely advertised by the unchanged packaging (and consumers’ expectations about the product based on past experience).  I doubt that will go anywhere, not least because of the standing/noncompetitor problem.  If it did, I would also ask about materiality: suppose the product in the picture and the product delivered are in fact different in durability/quality, as alleged.  Such differences are surely material—but would consumers know about them?  In other words, would a court require evidence that consumers expected a certain durability/quality based on the picture?  I ask because only one of the alleged differences seems really visible in the pictures of the packaging shown in the complaint: the slipper heel (which seems not to be present in this nearly identical picture from VS’s site). 
If VS could get it done, I’d suggest a survey with pictures of equally sexy models showing off the new versions; assessing purchase intentions from groups shown each package would likely be a defendant-favorable way of measuring materiality.

Monday, August 27, 2012

Accusing competitor of wanting customers to get sued can be defamatory

Sidense Corp. v. Kilopass Technology Inc., 2012 WL 3545289 (N.D. Cal.)

Sidense and Kilopass compete in “the emerging market for ‘1T’ one-time programmable embedded non-volatile memory (‘eNVM’),” which allows permanent data storage inside integrated circuits by creating a breakdown in the transistor.  Kilopass separately sued Sidense for patent infringement as well as some business torts.

Sidense alleged that Kilopass and individual defendant Cheng embarked on a campaign of false claims in order to harm Sidense.  Sidense alleged that these statements variously constituted defamation, false advertising, intentional interference with contractual relations/prospective economic advantage, and violations of California’s UCL.

Defamation: Sidense first challenged a statement to a Sidense potential customer that, based on Kilopass' own tests, Sidense's 1T technology was not commercially viable. The court expressed uncertainty about whether the statement referred to Sidense.  Sidense’s argument was that, though Kilopass claimed to have patents covering 1T, it was trying to sell the recipient, Samsung, on its 2T technology, and both Samsung and Kilopass knew that Kilopass was competing against Sidense’s 1T technology.  The statement began with a statement that “reliability and manufacturability should be compared with our competitors.” Indeed, Kilopass sent another message to Samsung the next day about Sidense’s patent application.  Kilopass, though, argued that it was talking about its own 1T technology.

Kilopass also argued truth: its own testing of 1T cells showed manufacturability and reliability issues.  Sidense presented contrary evidence.

The court found that the statement wasn’t defamatory.  It was evaluative, not a false statement of fact: “The statement that a type of technology is not reliable or manufacturable in high volume production, as drawn from a company's evaluation of that technology, is too subjective and vague to be subject to a defamation claim.”  Plus, Sidense’s evidence of truth was its success in the years after the message was sent, which wasn’t available to Kilopass at the time.

The next claim involved the statement “Sidense continues to offer for license even after May, '08, knowing substantial portion of its patent claims have been rejected.  Sidense argued that, seven months before this claim was distributed, the PTO affirmed all the claims in its patent and allowed new claims to be added during inter partes reexamination initiated by Kilopass. Kilopass argued truth because the original application had 29 claims, the majority of which were rejected. The court agreed that this was subject to a defamatory meaning, since it was in the present tense: “The most credible inference to be drawn from the statement is that Sidense continues to market and license technology to which it holds no patent.”  It wasn’t libel per se (an accusation of fraud on customers), because the “innuendo” that Sidense continued to license products based on rejected claims was “subject to the reader's interpretation,” requiring Sidense to show special damages.  (It seems to me that the court is importing the explicit/implicit distinction from false advertising law; this doesn’t seem consistent with the business defamation cases I’ve read, though admittedly I haven't made a detailed study.)

Next, Kilopass threatened to sue Sidense’s customers and potential customers as patent infringers or respondents before the ITC, including threats to Fujitsu and Sony.  Kilopass argued truth: in reponse to the patent suit, Sidense disclaimed direct infringement since all it does is license its technology.  Thus, Kilopass reached out to alleged direct infringers, and contended that it had made preparations to file potential lawsuits against Sidense’s customers, including testing chips from customers.  The court agreed that these statements weren’t subject to a defamatory meaning: whether Kilopass ultimately sues likely depends on the outcome of its current suit against Sidense, and Sidense didn’t raise a question of fact as to Kilopass’ intentions.

Matters were different with respect to the next set of statements, from an email sent to several Sidense customers stating that Sidense “has refused to take responsibility for its customers' chips that contain the embedded Sidense OTP.” This email was sent after Kilopass subpoenaed 52 of Sidense' customers in order to obtain evidence of direct infringement.  It continued: “With Sidense indicating to the court that it is its licensees who should be charged as direct infringers, Kilopass had no choice but to send out the subpoena to all Sidense licensees.”

Kilopass argued that this was true, or at least opinion: because Sidense hadn’t stipulated to direct infringement by its customers if the products are found infringing, it was “refus[ing] to take responsibility,” and “Sidense [is] indicating to the court that it is its licensees who should be charged with direct infringement,” was a fair and reasonable interpretation of Sidense's posture in the patent litigation.

The court wasn’t having it.  Arguing that one isn’t a direct infringer isn’t the same as refusing to take responsibility for customers’ use of the licensed technology, and certainly doesn’t suggest that licensees should be charged with direct infringement.  Even more so here, where Sidense offers indemnification to customers (which Kilopass recognized elsewhere, using it as evidence of Sidense’s financial troubles).  The defamatory sting was that “Sidense abandoned its customers in the face of a patent infringement suit.”  But the court found that it wasn’t libelous per se; an understanding of the defamatory nature of the statement, specifically what “taking responsibility” means in this context, “requires at least some understanding of extrinsic facts, including the nature of direct versus indirect patent infringement lawsuits.” 

The next set of statements charged that Sidense was not financially stable, that it would soon be bankrupt, etc.  For example, in an email to a potential customer, Kilopass stated that “Sidense has also alleged that its licensees are the direct infringers (if/when proven). When coupled with its possible bankruptcy filing, it has motivated us to seek direct resolution with licensees now ...”

Kilopass argued truth, with evidence that Sidense has operated at a loss every year since 2006, bolstered by Sidense’s unlimited indemnification against claims of infringement for use of its technology, which allegedly “create[s] a high-risk profile for any business.”  (It’s true because I made it true, your honor!)  In the alternative, Kilopass argued that this was just opinion.

The court disagreed.  Kilopass had no personal knowledge of Sidense’s finances, and the fact that a startup operates at a loss doesn’t mean it’s facing bankruptcy.  And, while generalized statements about a competitor's future financial conditions are not actionable, statements insinuating imminent financial collapse are.

Sidense alleged false advertising under the Lanham Act with respect to two statements: first, the white paper allegedly depicting Sidense’s product as if it were Kilopass’.  The paper stated, “Kilopass was the first to pioneer [technobabble]. Kilopass holds patents for several flavors of the cells, including the 1T and 2T,” followed by two illustrations labeled “Antifuse Bit Cell–2T” and “Antifuse Bit Cell–1T.” Sidense alleged that, though this statement implied that the bit cells were both Kilopass' patents, the 1T illustration actually depicted Sidense's 1T bit cell. Thus, people familiar with the Sidense product allegedly would have thought that Sidense's bit cell was merely a copy of the Kilopass bit cell and was an infringer.

Kilopass argued that the illustration was, in fact, one of its own bit cells.  The court found that Sidense raised a question of fact as to what product was shown.  But there was no evidence that this actually deceived or had the tendency to deceive a substantial segment of the audience or that it was likely to influence a purchasing decision, and thus no evidence of injury.  It was not reasonable, absent other evidence, to infer that people looking to select a vendor would (1) read the white paper off of Kilopass’ website, (2) think that Sidense’s bit cell was covered by Kilopass patents, and (3) therefore hesitate to choose Sidense.  Without evidence, the court wasn’t willing to infer that customers would recognize Sidense’s technology from the image, think that Kilopass had a patent that covered Sidense’s technology, and decline to license Sidense’s technology based on that belief.

Sidense also argued that the “Sidense continues to offer licensing despite rejected claims” statement was false advertising.  Kilopass argued that the PowerPoint in which the statement appeared wasn’t commercial advertising, but instead an internal education document used to “educate Kilopass' internal sales and marketing team and inform a few select customers on the status of the litigation so that they could be better equipped to handle questions from their customers.”  It also argued that the statement hadn’t been shown to be deceptive or material.  The court rejected these arguments: the relevant market is small enough that statements to a few are enough to constitute commercial advertisement.  Also, Sidense created a fact issue on deceptiveness and materiality.  It provided an email who saw the presentation and was concerned

that Sidense is “still selling their IP ever [sic] after knowing substantial portion of its patent claims have been rejected.”  The email asked “Would you please confirm whether there is still on-going or close to be done issue with Sidense? If they are going out of business, we all need to be careful.”  While the statement wasn’t libelous per se, it had a “tendency to deceive and lessen goodwill, as it may suggest that Sidense is licensing technology it does not have ownership in.”

Some of the same allegations—the “still licensing despite rejected claims,” “going out of business/facing bankruptcy,” and “not taking responsibility/told the court that its customers should be sued” ones—also formed the basis of Sidense’s claim for intentional interference with contractual relations. 

The Kilopass email to Sidense’s customers about Sidense’s financial viability also discussed “converting” the licensees to Kilopass customers.  The email asked for an official letter stating that the recipient wasn’t using its Sidense license, because “unfortunately we are likely to initiate litigation against Sidense licensees, and we like to get this clarification so we can close the matter with you.”  Further, it said, “Sidense is attempting to name its licensees as ‘direct infringers' as it only licenses the GDS database.… Recently, due to concerns over Sidense viability, we have no choice to [sic] turn our attention to the licensees. It's been a difficult process and I am looking forward to finishing the conversion of licensees. Fortunately, we've done three and several others in discussion. It's a long road though.”  This was enough to create a question of fact precluding summary judgment.  Sidense also submitted evidence that three customers renegotiated their contracts to require limitless indemnification; this also created a question of whether Kilopass actually disrupted the licensing agreements.

However, statements made to Samsung while the parties competed for Samsung’s business didn’t constitute intentional interference with prospective economic advantage—these were the statements discussed above that the 1T tech wasn’t reliable or suitable for high-volume manufacturing, and since they weren’t defamatory they also couldn’t support an intentional interference claim.

Sarah Burstein on design patents and Apple v. Samsung

This post by Sarah Burstein highlights some important features of the recent verdict against Samsung, including the role of design patents that only cover some features of a product--as with claiming certain aspects of a design as protectable trade dress, this can create difficult questions of the scope of rights.  The verdict, whether it stands on appeal or not, also really announces the arrival of design patents in American law.

"duty to police" as excuse for bullying

Here's another example, with cupcakes, from the University of Alabama--but with the Moore case on everyone's minds, isn't there also a duty not to police?

"revolutionary, new" claims could be false if competitor had patent

Mycone Dental Supply Co., Inc. v. Creative Nail Design, Inc., 2012 WL 3599368 (D.N.J.)

Mycone, aka Keystone, sued defendants CND and some others (distributors) for patent infringement, false advertising, and various state law claims.

Keystone alleged that it invented “a substantially acid-free nail coating that forms a strong protective bond with the fingernail in a toxicologically and dermatologically safe manner,” which is patented and promoted as GEL POLISH in three varieties: base, color, and top coats.  CND’s sales of SHELLAC nail polish products allegedly infringed Keystone’s patent.  Further, Keystone alleged, CND’s marketing falsely claimed that CND created and owned the substantially acid-free fingernail coating technology with claims including “revolutionary, new hybrid color service for nails,” “breakthrough, patent-pending UV3 technology,” “[a] true innovation in chip-free, extended wear color,” and “game-changing product.”  This also allegedly violated the New Jersey Fair Trade Act’s prohibition on “appropriating for [a defendant’s] own use a name, brand, trade-mark, reputation or goodwill of any maker in whose product such ... corporation deals.”

*cough*Dastar*cough* (as subsequently interpreted by lower courts, anyway)

Rather than addressing the Dastar issue, however, the parties fought about the pleading standard.  Some district courts in the Third Circuit have applied an intermediate pleading standard for false advertising claims.  This court thought that this “heightened” or “intermediate” standard might be identical to the Iqbal/Twombly standard.  But in any event, Keystone satisfied the standard.

CND argued that Keystone didn’t plead why CND’s statements were false.  Even if it were infringing Keystone’s patent, that wouldn’t prevent it from being true that CND independently developed Shellac, or that Shellac was unique, or that CND filed patent applications for its system.  The court considered these all to be possible defenses, but not something Keystone needed to disprove at this stage. “The Court assumes, as it must at this procedural posture, that Keystone's patent is valid and enforceable, that Keystone created and patented these unique nail technologies and, therefore, that any statement that CND created or brought them to the market is false.”  Keystone also didn’t need to include precise allegations of date, time or place.  It provided sufficient specificity about whether this was commercial advertising by attaching examples of the statements to the complaint and, at oral argument, offering statements from CND's marketing brochures, website, and Facebook page.

The parties agreed that the New Jersey state law claims tracked the Lanham Act claims (though the court noted in a footnote that it wasn’t entirely clear that this should be true of claims “revolv[ing] around patent infringement and false advertising,” without allegations of trademark infringement).

However, Keystone didn’t properly allege false advertising against the distributors.  Though it alleged that they advertised that they were dealers for CND, there were no allegations that they made false statements.  Keystone argued that the distributors engaged in “misappropriation” and use of the patented invention, but that wasn’t sufficiently detailed to make out a facially plausible claim.

The unjust enrichment claims were also dismissed because the parties didn’t have a direct relationship, as required in New Jersey.

Thursday, August 23, 2012

Amazon doesn't have to replicate eBay policies to avoid TM liability

Tre Milano, LLC v., Inc., 2012 WL 3594380 (Cal. App. 2 Dist.)

One question on many minds after Tiffany v. eBay was whether eBay's anticounterfeiting policies were necessary to the result, or whether an intermediary could be less TM-owner-friendly and still escape liability.  Though this is an intermediate state court ruling, it is also the most extensive description of an alternative policy--one with some apparent communication delays--that I've seen, and thus may be a useful signal of what courts are likely to do with entities they perceive as acting in good faith.

Tre Milano appealed from an order denying a preliminary injunction against Amazon, and the court affirmed.  Tre Milano sells the InStyler Rotating Hot Iron Hair Straightener; Amazon offers InStylers on its website, some that are from third parties and are counterfeit.  Tre Milano sued Amazon and some third party sellers, seeking damages and an injunction barring Amazon from selling any “purported” InStyler products in California or, in the alternative, from selling “counterfeit” InStylers.  InStyler is popular enough to counterfeit, and Tre Milano has in-house and outside personnel looking for counterfeiters, along with a manual, “How to Tell It's Counterfeit.”  But a typical consumer, without the manual or a side-by-side comparison, couldn’t identify a counterfeit product.

Amazon sells from its own inventory, from third parties “fulfilled by Amazon” and shipped from its warehouses, and from the Amazon Marketplace; the last category is sold and shipped by third party sellers.  Amazon identifies which is going on for each particular sale, though the sales process is the same regardless, including payment made through Amazon.

Amazon takes anti-counterfeiting measures in order to protect the buyer experience and avoid claims and chargebacks.  Among other things, it bans “Replicas of trademarked items.   The sale of unauthorized replicas, or pirated, counterfeit, and knockoff merchandise is not permitted.”  It employs over 100 people in “risk investigation,” which includes identifying counterfeits.  Over the last 2 1/2 years, Amazon blocked about 5900 sellers for suspected infringing content, about 75% from Amazon’s own work and the remainder after a Notice of Claimed Infringement (NOCI), a Digital Millennium Copyright Act (DMCA) notice or a customer complaint.   “In the last year, Amazon has canceled over 4 million seller listings.”

When Amazon identifies a problem or receives a NOCI, its team follows set procedures.  If the team decides that a listing is for an infringing product, Amazon may block the listing or block the seller; the latter also means a bar on opening a new account.  “However, if an infringing seller has a good relationship with Amazon and positive customer feedback, Amazon may just block the listing and issue a warning.”  Amazon tries to act within 24 hours of a NOCI, and generally does so within 48 hours.  “If there is no supporting evidence, Amazon will review the seller's profile to determine whether there is a probability the NOCI is accurate.   If there is a probability of accuracy, Amazon will block the seller or remove the listing and warn the seller.   If there is little probability of accuracy, Amazon will ask the sender of the NOCI for evidence to substantiate its claims.”

Amazon also screens applicants to become third-party sellers.  It monitors their monthly sales; if they reach a certain “sales velocity,” Amazon reviews the seller to make sure it’s shipping on time and complying with Amazon’s policies.  In addition, Amazon has a database that tracks high risk items—those likely to be counterfeit.  Computer programs monitor third party offers, flag potentially counterfeit or high risk listings, and scan feedback for keywords such as “counterfeit,” “fake,” or “open box” to flag sellers for review.

In November 2009, Tre Milano’s attorney bought an InStyler directly from Amazon, and determined that it was counterfeit.  She contacted Amazon’s legal department with a C&D.  A legal representative “acknowledged that Amazon was having trouble with its inventory being mixed with that of third parties in its facilities.”  At Amazon’s request, the lawyer sent an InStyler reference guide to the legal department.   In December 2009, the lawyer bought two more InStylers from DAB Nutrition, fulfilled by Amazon, and again found them to be counterfeits.  Amazon’s associate general counsel stated that Amazon did not maintain its own inventory of InStylers but sold products from the inventories of third parties who maintained inventories at Amazon facilities, that Amazon did not control the supply chains of these third parties, and that Amazon had no definitive ways of determining whether their InStylers were authentic or counterfeit.  Tre Milano’s attorney sent numerous NOCIs from November 2009-February 2010.

Tre Milano also used software to scan various internet sites, including Amazon, for counterfeits.  Its compliance coordinator reviewed the flagged items and sent infringement notices when they appeared to be counterfeit.  From May 2010 through April 2011, Tre Milano sent 311 NOCIs to Amazon, 226 for first-time listings and 85 following up on listings not removed after a previous NOCI.  This included duplicate NOCIs when Amazon failed to respond. 

In March 2011, Tre Milano sent a NOCI identifying 11 listings, including one from Success Store.  Shortly thereafter, Pete Day purchased an InStyler from Success Store using Amazon.  In April, Day’s wife was using the product and it exploded at the point where the electrical cord entered the product; she was injured.  Tre Milano identifed the product as a counterfeit based on its serial number.  Tre Milano also bought from several other sellers it had sent NOCIs for and identified their products as counterfeits; it sued some of them.  One defendant also sold under different names on Amazon.  For another, Tre Milano sent a NOCI in March, bought a counterfeit in May, and still saw the seller offering InStylers on Amazon in June.  “In the course of this litigation, Tre Milano sought contact information for Amazon Marketplace sellers whom Tre Milano believed were selling counterfeit InStylers.   Much of the information provided by Amazon was inaccurate.”

Amazon described its response to NOCIs.  Its Copyright Compliance Officer, reviews NOCIs, and if a NOCI “appears sufficient and legitimate,” he forwards it to Amazon's investigators to remove the listing and determine what action to take against the seller.  If a NOCI does not provide sufficient information, Amazon asks the sender for specific information, including “[p]roof of the violation,” which includes an “ Order ID of a test buy that confirms the violation.”  He stated that “[w]hile a handful of [Tre Milano’s] notices have contained evidence or some explanation of why Tre Milano claimed that a listing was for a counterfeit item, the vast majority have contained nothing but a statement like ‘the item is a counterfeit product that infringes the trademark owner's rights' ... or ‘the item is an unlawful replica of a product made by the trademark owner’....   As I have explained to Tre Milano, needs more evidence regarding the alleged infringement before it can assist Tre Milano in carrying out our common goal of preventing the sale of counterfeits.”  Without a test buy, he believed, Tre Milano’s notices were based only on the offering price, and Amazon is reluctant to accuse sellers of counterfeiting on the basis of price alone without other “objective indicators” of infringement.  He also stated that Tre Milano had sent numerous erroneous NOCIs and recanted many of them.  During June 2010-April 2011, Amazon received 159 NOCIs, but in 41% of the cases Amazon had already taken down the listing before the NOCI was processed.  (This doesn’t seem like the same thing as an erroneous NOCI to me, but perhaps the court is just recording two separate facts.)  Amazon didn’t have any InStylers in inventory, but had still “issued specific instructions that any future inventory of InStylers belonging to is to be kept segregated from any inventory belonging to third-party sellers for Fulfillment By Amazon.”

The court then turned to differences between Amazon and eBay: Amazon sells its own products along with third parties’; it may provide a single generic product photo; products may be shipped from Amazon; Amazon handles all payments, instead of having payment arranged between buyer and seller (though given PayPal, I don’t know how much of a difference that really is).  Tre Milano participates in eBay’s VeRO, which allows allegedly infringing listings to be taken down almost immediately and allows Tre Milano to get seller information on request.  Amazon, by contrast, doesn’t have an API by which rightsholders can claim infringement, but instead allegedly takes 1-2 weeks to respond to Tre Milano’s NOCIs, and sometimes that stretches to months.

Among the harm Tre Milano suffered, it claimed was “a large number of negative reviews from Amazon customers who purchase counterfeit InStylers® and then give ‘1-star’ reviews on the product page as if they were reviews of the genuine InStyler®.”  These reviews stem from the poor quality of the counterfeits—which also pose risks of injury to consumers.  Along with the incident detailed above, there was a negative video review of the InStyler from AOL, but it showed a counterfeit; Tre Milano contacted AOL, which removed the review, stating: “Unfortunately, we bought our product from a reseller on Amazon that we have now learned may be selling counterfeit goods.   While that reseller was rated highly on Amazon at the time that we purchased the InStyler, that reseller has since shut down.   Apparently, there are a number of other sellers still engaging in this practice and we want to pass along this word of caution about fake InStylers.”

Typical of the negative reviews was one that said that the seller “sent me a thing that looked like an InStyler, it was the exact thing but BOOTLEG!!!!     [I]t was a fake.   It was much fatter and a lot of plastic and it made a pop sound on the first try an[d] didn't work.   I thought it was a real instyler [sic ] until I actually purchased one from ULTA. I noticed it wasn't.   It was a rip off.”  Eric Goldman will like this: In response, another reviewer wrote:  “There is another place for you to review the seller.   This is not it.   This is for reporting on the quality of the INSTYLER.”   A third wrote:  “I agree this makes the ratings of the real product go down.   Why not rate it based on the one you bought at ULTA?”

So, was Amazon liable as a direct infringer under the Lanham Act?  (There’s an interesting side note here about Amazon’s decision not to remove.  Especially if I got a sense that the state judge assigned to the case was decent, I too might have decided not to find out which station the Ninth Circuit’s ticket went to for my case.)

The trial court ruled that Tre Milano had failed to show that Amazon was under a duty to affirmatively police counterfeit sales on its site; Amazon was not selling the goods itself but only facilitating their sale.  It relied on Tiffany v. eBay.  The court of appeals recounted eBay’s extensive anticounterfeiting efforts in detail, then explained that the Second Circuit found eBay not liable for direct or secondary infringement.  (Following on my earlier aside, I understand why the California judges preferred to use somebody else’s—anybody else’s—secondary liability standards.)

Tre Milano argued that Amazon was a direct infringer because it used the InStyler mark “in connection with” the sale of counterfeit products, and that was enough regardless of whether the use was part of the sale, the advertising, or the distribution.  Except that Tiffany held that a service provider’s use of a mark to describe a product was protected by nominative fair use.  At least as to the InStyler, Amazon was the service provider, not the seller; all InStylers it currently sold belonged to third parties.  It wasn’t a direct seller even though it provided the product description and handled the payments.  (A slightly odd way to describe the role of nominative fair use,  but ok!  If they’re actually InStylers, anyone—including but not limited to a mere service provider—is free to describe them as such; the real point is that Amazon lacks sufficient connection to the sales to be deemed a direct seller.)  This also disposed of Tre Milano’s argument that it was infringing to use the mark on the InStyler product page: eBay took similar action in using Tiffany’s mark on its website and in sponsored links.  Put simply, Amazon was not a retailer, but rather a “transactional intermediary,” and was not directly liable.

Contributory infringement requires that Amazon continued to supply its services to one who it knew or had reason to know was engaging in trademark infringement, and that it had direct control and monitoring of the instrumentality used by a third party to infringe.  Willful blindness will suffice for knowledge.  Generalized knowledge of counterfeit sales on the site, however, is insufficient.

The evidence showed that Amazon continued listings of suspected counterfeit InStylers after receiving NOCIs identifying specific sources of suspected counterfeit InStylers.  But the majority of NOCIs simply claimed that the listing was counterfeit with no supporting evidence.  And such NOCIs were not themselves proof of infringement.  Just as it was ok for eBay to remove a single listing and not (as Tiffany requested) permanently suspend a seller whose listing received a NOCI, it was ok to have an investigation policy rather than an automatic removal policy in response to a NOCI.  Thus, “substantial evidence” supported the trial court’s determination that Tre Milano failed to show that it was likely to prevail on the merits.  When Amazon received evidence of infringement, it acted to remove infringing listings.

What about the harm to Tre Milano, which had to be balanced against likely success?  It was clear that Tre Milano was harmed by counterfeit sales.  But its own evidence also showed that Amazon customers were able to ID the products as counterfeits and pass the information along to other customers.  Denial of preliminary injunction affirmed.