Seventh Circuit fixes outlier "advertising or promotion" rule

Neuros Co., Ltd. v. KTurbo, Inc., --- F.3d ----, 2012 WL 4856489 (7^th Cir.)

The parties compete in the market for high-speed turbo blowers used in waste water treatment plants.  Neuros was the first company to offer these in the North American market, while KTurbo began selling two years later, with little success.  In 2008, Neuros won a bidding contest in Utah, while KTurbo came in third (last).  KTurbo’s CEO Lee prepared PowerPoint slides and tables accusing Neuros of fraud in its claim to the Utah buyer that its blowers would achieve a “total efficiency” “that Lee claimed, probably correctly, was unattainable.”  His slides, aimed at the consulting engineers who select and install blowers, alleged that Neuros engaged in “total efficiency cheating,” and that its numbers were “impossible,” “unrealistic,” and a “crime.”

Turbo blowers use a lot of expensive electricity.  “Total efficiency” “is the ratio of input power (electrical current) to output power (a specified volume of air blown by the blower at a specified speed).”  The figure that the slide accused Neuros of claiming, 82.5%, appears to be unattainable.  But Neuros didn’t make total efficiency representations.  Instead, it represented “wire power,” the ratio of an electrical current to work.  Total efficiency requires considering other factors, like temperature and humidity, along with wire power.  KTurbo’s slides challenged some of Neuros’s wire power claims, but the challenges were based on computational errors and incorrect assumptions; Lee eventually admitted that the wire power claims implied at most 76% total efficiency, which apparently was attainable.  Though KTurbo’s expert argued that Neuros overclaimed its efficiency by 2-7%, that didn’t make its accusations substantially truthful, since KTurbo claimed overstatements from 15-26%.

This presentation, which was made to engineering firms, published on a KTurbo website, and sent to sales reps, nonetheless failed to move any business from Neuros, despite KTurbo’s vow to “break” and “terminate” Neuros. Neuros sued for violations of the Lanham Act, the Illinois UDTPA, and defamation.  After a bench trial, Neuros won the defamation claim, with an award of $10,000 in general damages and $50,000 in punitive damages.

KTurbo argued that it had a qualified privilege to make the false statements, but the privilege doesn’t apply if a statement is made with knowledge of its falsity or with reckless disregard for the truth.  “KTurbo was warned repeatedly, not only by Neuros but also by disinterested sources, that its accusations were false; it ignored the warnings and refused to investigate the truth of the accusations. Its conduct was not only disreputable but reprehensible.”

As for the punitive damages, there was no evidence of actual injury, but defamation per se is an exception to the general rule “no injury no tort.”  And accusations of criminal fraud constitute defamation per se.  “It's hard to imagine a more damaging accusation to make against a business.”  Defamation per se entitles a plaintiff to general compensatory damages and, in cases of gross negligence or worse, punitive damages.  Yet what is there to compensate here?  Judge Posner explains:

[T]here can never be assurance that an accusation, however groundless, is not believed by someone, and doubtless employees or sales reps of Neuros had to answer questions put to them by consulting engineers, and perhaps even by shareholders of the parent companies, concerning Lee's inflammatory accusations. So a modest award of damages, though not based on evidence (what kind of “evidence” would enable an accurate estimate of the type of cost that we've suggested Neuros incurred from the defamation?), can reasonably be thought compensatory. The judge may have pulled the $10,000 figure out of his hat, but the figure is appropriately modest, considering that a single high-speed turbo blower costs more than $100,000 and that [Neuros] sold some 500 of them in the first few years of its existence.

He continued that $50,000 was too little in punitive damages.  KTurbo’s conduct was outrageous, and it was a “substantial” company.  The district judge may have been concerned that more than a slap on the wrist would have run afoul of the Supreme Court’s due process/punitive damages cases.  But those cases merely find a presumption against big multiples, which can be rebutted when the compensatory damages award is very small.  The gravity of the injury is only one consideration in determining punitive damages; deterrence also matters, and this award might not be a big deterrent, “considering the potential gains to KTurbo had it succeeded in expelling its foremost competitor from the North American market. It should consider itself fortunate that Neuros hasn't challenged the adequacy of the punitive-damages award.”

Judge Posner turned to the appeal of the dismissal of the Lanham Act claims.  Without provable injury, general damages were unavailable under the Lanham Act, as was trebling of actual damages.  But the Act permits injunctions along with fee awards in “exceptional cases,” including especially egregious violations of the law.

“Without meaning to prejudge the determination on remand, we point out that KTurbo persisted in its false representations to the engineering community concerning Neuros's blowers even after the suit was filed and compelling evidence was presented that the representations were false.”  Though KTurbo’s argument that it wasn’t engaged in advertising or promotion was a “respectable” argument, the part of its defense that went to non-falsity was “objectively unreasonable.” 

In First Health Group Corp. v. BCE Emergis Corp., 269 F.3d 800 (7th Cir. 2001), the court stated (note Judge Posner’s careful avoidance of the word “held”) that “commercial advertising or promotion” is limited to “promotional material disseminated to anonymous recipients.”  This over-stringent language has been followed by a number of district courts, but Judge Posner said that the appellate cases “do not hold that ‘advertising or promotion’ is always limited to published or broadcast materials—an interpretation that would put us at odds with all seven other federal courts of appeals to have considered the issue.”  First Health evinced no intention to create an intercircuit conflict (comment: other than the words it used, I guess?).  The Seventh Circuit cases at the appellate level finding no advertising or promotion involved (1) three person-to-person communications at trade shows and (2) letters to the plaintiff’s customers threatening suit for patent infringement.

So, we now learn that a “classic advertising campaign” isn’t the only form of marketing covered by the Lanham Act.  Rather, we need only “some medium or means” through which the defendant disseminated information “to a particular class of consumers.”  The required amount of dissemination varies by industry.  “If ‘advertising or promotion’ just meant ‘advertising,’ then ‘promotion’ would do no work in the statute.”  But we’re used to redundant language in statutes, so more important is that “there are industries in which promotion—a systematic communicative endeavor to persuade possible customers to buy the seller's product—takes a form other than publishing or broadcasting.”  So here, where KTurbo made presentations to most of the “de facto customers,” the engineers who act as the purchasers’ agents, in the market.  Its negative ads reached fewer people than a conventional campaign would have, but that was because the market was smaller.  Anyway, the type of “road show” KTurbo put on is “a common method of promotion.”  And some of the false statements were also posted on a KTurbo website: “methods of advertising and promotion are changing with innovations in communications media; they are no longer, if they ever were, confined to newspaper and magazine ads, radio and television commercials, and billboards.”

The district court ruled against Neuros in part because “there is no evidence that the statements at issue were presented to any members of the general public.”  But no one would expect that of ads for high-speed turbo blowers, or indeed of ads for almost anything, since rarely is the true market for a product “314 million individuals and millions of firms.”  “There is no basis for limiting the Lanham Act to advertising or promotion directed to the general public, and the case law does not do that.”  (Look, I could snark or ask whether this should have gone en banc, but the “anonymous” standard was poorly reasoned to begin with, and district courts largely felt bound by it; I’m just glad it’s gone.)

Thus, the Lanham Act and parallel UDTPA claims shouldn’t have been dismissed.

Today's trademark question

Harpsichord Hero, on a website apparently devoted to George Washington for kids.  Discuss.  (Via Zachary Schrag.)

Supplier lacks standing to sue retailer for false advertising

Runberg, Inc. v. Victoria's Secret Stores, Inc., 2012 WL 5252309 (S.D. Ohio)

Discussion of complaint here.  Runberg, d/b/a Zephyrs, sued VS when it got dumped as a supplier, arguing that VS violated the Lanham Act, and coordinate state law, by putting different and allegedly lower-quality hosiery in packages that still had pictures of the Zephyrs product.  VS moved to dismiss everything but the breach of contract claims (which I too will ignore) on standing grounds.  (The court declined to reach VS’s argument that choice of law prevented Zephyrs from bringing false advertising claims based on the law of states other than Ohio, which I guess means that those claims are technically still alive, but the writing’s on the wall.)

Because Ohio courts look to the Lanham Act for guidance on Ohio’s DTPA, the court treated the standing analysis similarly for both the Ohio and federal claims.  Zephyrs needed to show injury to itself; false advertising that caused injury to consumers was not enough to establish Article III standing.  Zephyrs argued that direct competition wasn’t required as long as there was a nexus between itself and the alleged falsehood, which existed here because the packages had images of Zephyrs-supplied products on them and because the continued use of those images interfered with Zephyrs’ ability to market its goods to other sellers and undermined Zephyrs’ reputation for high quality.

That wasn’t enough.  Nothing on the packaging indicated that the products came from Zephyrs, and the allegations about the effects on Zephyrs’ reputation were merely conclusory.  Even if VS’s failure to update the packaging caused injury in fact, there was no reasonable inference of a causal connection between the injury and the claim of harm to Zephyrs’ reputation because there’s no obvious association between the parties.  Not only was there no connection on the package, the parties’ agreement barred Zephyrs from publicly disclosing that it made the hoisery for VS.  The required nexus for a false advertising claim would be between Zephyrs’ alleged injury and the advertising, and it didn’t allege facts showing such a nexus.

Even if there were Article III standing, Zephyrs would lack prudential standing.  The 6^th Circuit requires (1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.  Direct competition is the focus, even if it’s not absolutely required.  In the absence of direct competition, a more substantial showing of injury and causation is required.  “It is not plausible, as the term is used in Iqbal and Twombly, to believe that Victoria's Secret's failure to remove the pictures of the Zephyrs-made product from the hosiery packages for similar products now made by another supplier impedes Zephyrs' ability to sell these same designs to other retailers or injures its reputation.”

Zephyr argued that it was the exclusive licensee of the “Butterfly Lace Design,” owned by a German company, which status was undermined because VS continued to use the design on its package without a license.  But without any allegation of trademark or copyright infringement, this purported license couldn’t have any actionable effect.  Dastar allowed an exclusive licensee to sue for infringement.  Zephyrs failed to allege that its relationship with the German company was harmed or that it lost US business based on VS’s continued use of the photo.

OK for defendant to copy stuff plaintiff doesn't own; also keyword ads ok

CollegeSource, Inc. v. AcademyOne, Inc., 2012 WL 5269213 (E.D. Pa.)

Earlier district court opinion discussed here.  The parties compete to provide online college transfer services, serving schools and individual students seeking to transfer credits from one school to another.  CollegeSource accused AcademyOne of republishing course catalogs and course information digitized and maintained by CollegeSource.  The court granted AcademyOne’s motion for summary judgment on CollegeSource’s claims, which the court divided as follows:

(1) Course collection efforts: CollegeSource offered subscription access to its archive to PDF digital course catalogs; student users could download a free trial with access to up to 3 catalogs.  A separate subscription product, TES, was an online database of courses and other course equivalency-related data culled from CollegeSource's library of course catalogs, primarily marketed to institutions seeking to facilitate the transfer of credits from one school to another.  And CataLink aided schools in distributing course catalogs efficiently: “CollegeSource provides subscribing schools with a URL hyperlink to CollegeSource's archive of that school's digital course catalogs, which can then be inserted and displayed on the school's home page.”  CataLink was not a subscriber service, and users would go to CollegeSource’s website without being told they were leaving a school’s site.

CollegeSource repopulated its catalogs yearly, by contacting individual colleges and requesting copies.  If the catalogs were in electronic form, CollegeSource converted them to PDFs. If not, CollegeSource scanned them, used optical character recognition software, and converted them to PDFs.  Course data was also entered into the TES course database, and some of the catalogs went into CataLink.  CollegeSource inserted a uniform cover page/splash page including the CollegeSource logo on each catalog it converted to PDF.  On the inside cover of each catalog, CollegeSource inserted “Copyright & Disclaimer Information”:

While CollegeSource, Inc. and Career Guidance Foundation provides information as a service to the public, copyright is retained on all digital catalogs. This means you may NOT:

• distribute the digital catalog files to others,

• “mirror” or include this material on an internet (or intranet) server, or

• modify or re-use the files

without the express written consent of CollegeSource, Inc. and Career Guidance Foundation and the appropriate school.

So, basically, copyfraud.  (Nice use of the passive voice there, too!)  CollegeSource’s website had a “Copyright and Disclaimer” link that said the same thing.

CollegeSource Online and TES also required users to agree that anything they get from the services is CollegeSource’s and that they can’t reuse it without permission.  Subscription users encountered sign-in boxes and pop-up forms with links to these terms, but users of CataLink would not encounter this agreement, though the Copyright and Disclaimer page was still present in the catalog.

AcademyOne sought to populate its own database; when CollegeSource denied it a license, it turned to Chinese company to pull PDF or HTML college catalogs directly from those colleges’ sites.  About half of the 4000 schools targeted used PDFs, which had to be converted and processed to get into AcademyOne’s database.  The Chinese  company downloaded over 18,000 PDF files.  Between 2005 and 2007, several AcademyOne employees registered for free trial subscriptions to CollegeSource online.  When AcademyOne launched its sites, which provided free access to its course description database, about 2000 of the PDFs were included. CollegeSource discovered that about 680 had been copied from CollegeSource servers; the Chinese company later identified 783 out of the 18,000 as CollegeSource PDFs.  They had all been obtained through CataLink (there was no evidence of any “breach” of CollegeSource’s servers); presently, over 1700 CollegeSource PDFs are publicly available through college websites using CataLink.  CollegeSource was aware of this practice and permitted it.

CollegeSource sent a C&D letter asserting copyright and trademark infringement.  AcademyOne disabled links on its site allowing access to all PDF catalogs (which meant that someone who’d saved the URL of a catalog could still access it) and initiated an internal investigation.  AcademyOne ultimately removed all PDF catalogs from its servers, but didn’t delete the course descriptions it had copied from CollegeSource PDFs.  Eventually, it began repopulating its database in a new manner, removing all course descriptions derived from PDF catalogs—whether from CollegeSource or not—from its database.

CollegeSource spent a lot of employee hours dealing with this horrible, competitive behavior; it hired a computer expert and increased security measures on its catalogs, such as “seeding,” “salting,” and “watermarking.”  (So, doubling down on the copyfraud?)

(2) Starting in 2007, AcademyOne bought “college,” “college source,” “career guidance,” and “career guidance foundation” from Google’s AdWords and similar search engine services.  The resulting ads used phrases such as “College Transfer Help” or “Find Transfer Information” and used the URL “collegetransfer.net,” not AcademyOne.  Different search engines displayed the ads differently: AOL displayed ads above organic results, shaded in a different color, and marked them “Sponsored Links.”  Google used “Sponsored Links” to the right of organic results.  Ask.com “nestled” ads within organic results under a small “Sponsored Results” banner.

(3) AcademyOne also applied to register collegetransfer.net as a service mark; it was registered on the Supplemental Register in 2010.  AcademyOne represented a first use date of December 1, 2005, but record evidence suggested that first use was sometime after March 2007.  AcademyOne also didn’t disclose to the PTO that an Eastern District of Pennsylvania decision had held that CollegeSource’s collegetransfer.com did not infringe on the collegetransfer.net trademark.  CollegeSource argued that this undisclosed evidence justified cancellation of the claimed mark.

(4) As for the false advertising claims, they came from two sets of public statements: AcademyOne’s correspondence with public colleges and its representations on its website about the accuracy of its course database.  In 2010, AcademyOne’s CEO sent letters to a number of public colleges requesting information under state freedom of information laws.  He told them that CollegeSource had filed “copyright claims” in federal court, requested copies of correspondence between the institution and CollegeSource relating to any “ownership and control [by CollegeSource] of your Institution's digital catalog and the course descriptions therein,” stated that “CollegeSource claims control of the digital catlogs that they collect, even if it resides on your website,” and claimed that CollegeSource's assertions of ownership “attempt to preclude AcademyOne and other software providers from providing automated student transfer systems ....” 

The CEO, a nonlawyer, testified that he used “copyright claim” “generally and not as a reference to a specific cause of action.”  (When news outlets report that Tim Tebow has “copyrighted,” “patented,” and “trademarked” Tebowing, choosing their terms randomly as far as I can tell, I find it hard to blame him; harder given CollegeSource’s own claims.)  He also testified that he’d been told that a specific person related to CollegeSource had told members of the industry that CollegeSource intended to sue any other developers who copied course descriptions or engaged in similar conduct.  

As a result of these letters, some schools contacted CollegeSource and expressed concern. (As well they should have!)  One client pulled its catalogs from CollegeSource's databases.

On AcademyOne’s courseatlas.com, AcademyOne stated that its database was “published annually” with “current course offerings,” was the “most comprehensive database of current course offerings possible,” was not “outdated,” and was “reliable, accurate, and up-to-date.” CollegeSource argued that these statements were false and misleading, pointing to an entry for Bergen Community College which appeared to be derived from a 2006–2007 catalog, not from the current catalog.

Turning to the law: the court rejected AcademyOne’s argument that CollegeSource’s breach of contract claim was equivalent to copyright rights and thus preempted.  The existence of a contract or agreement provided an extra element.  Some courts have held that a promise to refrain from exercising copyright rights was not enough to avoid preemption, but the promise here was to make only personal use of the documents, which was “sufficiently distinct” from copyright to avoid preemption.

There were two separate contract claims: one based on the “Copyright and Disclaimer” notice, and one based on the subscription agreement.  AcademyOne won both.  Contract formation requires mutual understanding: both parties must be aware of the contractual nature of a document.  The notice on the second page of the PDF “does not contain any of the essential elements of contract formation. It does not state what exactly is being offered; that users should agree to its terms in a particular manner; or that users will obtain any sort of consideration in exchange for their assent.”  Further, it wasn’t obvious that the notices related to contract as opposed to copyright.  The title suggested that they were telling the user about copyright rights, and the language reinfored that inference.  “A reasonable party reading the documents would not be aware of the contractual nature of the documents.”  There was no contract formed, and thus no contract breached.

As for the subscription agreement, CollegeSource didn’t provide any evidence that AcademyOne breached it by improperly obtaining CollegeSource data through its subscriptions.  That is, there was no evidence that AcademyOne’s actions as a subscriber—while logged in under a trial subscription—violated the terms.   CollegeSource argued that the agreement covered AcademyOne’s subsequent access to CollegeSource documents through CataLink because the agreement told subscribers that restrictions apply to all of CollegeSource's “other electronic services,” and that CataLink was an electronic service because it was comprised of CollegeSource's information from CollegeSource's server.

Again, looking at the parties’ intent, this didn’t work.  Other uses of the term “Service” in the agreement clearly didn’t apply to CataLink (e.g., username requirements and CollegeSource’s ability to cut off an individual user’s access to “Services,” when CollegeSource apparently couldn’t block a user from CataLink).  A subscriber was unlikely even to know that a CataLink document came from CollegeSource, since it would be accessed from a third party’s website via a redirect. 

With the contract claim gone, the unjust enrichment claim failed—it was preempted by §301 of the Copyright Act, lacking an extra element beyond copying/display.  “[M]isrepresentation, or taking in an underhanded way,” didn’t count as an extra element.

The CFAA claim also failed, though there was sufficient evidence of loss, because there was no evidence of unauthorized access, or access exceeding authorization, to CollegeSource computers.  As noted above, the evidence only supported a claim that AcademyOne got to CollegeSource files via CataLink, and that didn’t violate the CFAA.  The documents were available to the general public, and AcademyOne was under no obligation to abide by any terms of use, so its access was neither without authorization nor in excess of its authorization.  CollegeSource argued that it didn’t want to allow competitive uses, but that went to use, not access.  “AcademyOne, as a member of the public, would have had authorization if it had used the data for non-commercial related purposes; by CollegeSource's account, it is only because AcademyOne's use was inappropriate that it became unauthorized. The argument is insufficient to support a CFAA claim.”

Now, the Lanham Act/keyword ad claims: the likely confusion factors applied, but the Third Circuit has noted that “economic reality and common sense require that some of the Lapp factors be analyzed differently” depending on the type of claim at issue. Thus, the court here looked to Network Automation’s treatment of AdWords (a term which here means all keyword ads; insert your own commentary).  The most relevant factors are (1) the strength of the mark, (2) evidence of actual confusion, (3) types of goods and degree of care likely to be exercised by the typical purchaser, and (4) the labeling and appearance of the advertisements.

CollegeSource’s marks were both suggestive and commercially strong, with hundreds of thousands of dollars in advertising over 18 years.  (Really?  That’s commercial strength?)  This favored CollegeSource, since a consumer searching for a generic term is more likely to be searching for a product category.  (Which the 9^th Circuit knew about consumers because … never mind.)

There was little evidence of actual confusion.  The record contained evidence of 65 relevant clicks (I expect Eric Goldman will comment on this part!): “instances in which Internet users searched for CollegeSource, were presented with AcademyOne's advertisements, and clicked to AcademyOne's website.”  All these clicks occurred in June 2009, but the challenged practice had been going on for years.  “Even assuming that all clicks resulted from consumer confusion and not legitimate advertising diversion or in anticipation of litigation, CollegeSource's evidence of actual confusion is sparse.”  This weighed in favor of AcademyOne.

For AdWords, the real key factor is what consumers see on the screen, including labeling and overall appearance.  Even if the ads don’t clearly identify a source, clear labels for sponsored links decrease the likelihood of confusion, and those were present here.  Also, AcademyOne didn’t use CollegeSource’s marks in the ads themselves, only as triggers.  This also weighed in favor of AcademyOne.

Consumer care/attention also favored AcademyOne.  Internet users generally are becoming more accustomed to trial and error and to the practices of search engines.  Specifically, consumers looking for college transfer information “are likely to practice diligence in their research.… Given the importance of their inquiries, they have an incentive to be discerning about the search results they choose to trust.”  CollegeSource argued that, since both parties provide free services, consumers’ level of care would be low, but it wasn’t clear that consumers would be looking exclusively for free services; CollegeSource provides paid services as well.

As for the other factors, the degree of similarity between the owner’s mark and the allegedly infringing mark didn’t favor either party in the context of AdWords, since it was relevant “when a consumer confronts two different trademarks and, due to their similarity, has trouble distinguishing between the two,” but, with AdWords, “the consumer enters one trademark as a search term and sees a sponsored link that displays neither.”  On intent, the court distinguished between using a trademark to mislead consumers and using it to truthfully inform them of their choices.  There was no evidence of an intent to confuse, even though AcademyOne knew about CollegeSource; it might just as well have been trying to give consumers a choice.

Similar marketing channels are less important when those channels are “less obscure,” as in the internet.  Anyway, CollegeSource had never used AdWords, instead using print materials, trade shows, and conferences.  Similarity in targeted consumers and in products/services favored CollegeSource, but the court gave these minimal weight in the overall context.  Summary judgment for AcademyOne.

Further, CollegeSource lacked standing to seek declaratory judgment of trademark invalidity.  CollegeSource’s supposition that the supplemental registration might eventually move to the Principal Register, and its past fight with AcademyOne (resolved in CollegeSource’s favor), were insufficient to give it a real present interest.

For its false advertising claim, the only fact offered to falsify AcademyOne’s claim that its database was “published annually” with “current course offerings,” the “most comprehensive database of current course offerings possible,” not “outdated,” and “reliable, accurate, and up-to-date,” was a single course description that CollegeSource claimed was from a 2006–07 catalog. That wasn’t enough to establish that the description was out of date or not current; there was no evidence about whether Bergen Community College was still offering the course, with or without the same description.  It was possible that the information was still current.  Nor was failure to provide dates when descriptions were last modified misleading.

As for the freedom of information act letters, the court had earlier denied a preliminary injunction because the statements weren’t literally false and hadn’t sufficiently been shown to be misleading to the intended audience.  The description of the lawsuit as a “copyright” suit wasn’t literally false, given that the reference was meant to refer to CollegeSource's Copyright Notice and Disclaimer, not to a legal cause of action. The CEO’s “understanding of the situation, and his subsequent statement to that effect, were reasonable and cannot be considered literally false.”  (Ordinarily intent doesn’t matter to Lanham Act claims, but statements about legal meaning are often treated differently.)  CollegeSource introduced evidence that an attorney might have had a role in drafting the letter, but that didn’t change the court’s conclusion.

CollegeSource argued that since it was only suing AcademyOne, the claim that CollegeSource was attempting to exclude other developers was literally false.  But, given the CEO’s testimony, this claim was “not unambiguously false given the fact that CollegeSource's founder may have threatened other developers with suit.”  (Hey, isn’t that hearsay?  It may well be admissible for the CEO’s state of mind, which of course isn’t relevant, but how is it admissible evidence that there actually were threats of suit?  I think this false advertising claim is bogus for plenty of other reasons, not least because CollegeSource’s claims to own the content of college course catalogs made it perfectly obvious that it would threaten other software developers as well, but I think this rationale skips some necessary steps.)

And no reasonable jury could find the statement that “CollegeSource claims control of the digital catalogs they collect, even if they reside on your website,” unambiguously false.  Given CollegeSource’s claims in this very lawsuit, the statement was “at least ambiguous, if not true.”  (I’d have gone with “unambiguously true,” myself.)

Nor could CollegeSource show misleadingness.  The fact that schools expressed concerns, and that one pulled its catalogs from CollegeSource databases, was insufficient to show a tendency to deceive a substantial portion of the intended audience.  (Because the basic claim was true.)

First Amendment protects right to make film referencing trademarked attraction

Winchester Mystery House, LLC v. Global Asylum, Inc., --- Cal. Rptr. 3d ----, 2012 WL 5243809 (Cal. App. 6 Dist.)

If you don’t know what the Winchester Mystery House is, you should.  Both parties here agree on that, at least.  As the court explains:

The Winchester Mystery House is known for the mansion built by Sarah Winchester. After Sarah and William Winchester were married, they had a daughter who died shortly after her birth. When William died in 1881, he left his wife a substantial interest in the Winchester Repeating Arms Company. It is popularly believed that a psychic medium told Sarah Winchester in 1884 that her family was cursed by the spirits of those who had been killed by the Winchester rifle. Based on the medium's advice, Sarah Winchester moved to California and bought a farmhouse in what is now San Jose. She then began renovating and adding more rooms to the house. The construction continued 24 hours a day, seven days a week, 365 days a year for the next 38 years, and only stopped when she died in 1922. This work resulted in a 160-room Victorian-style mansion ….

Global Asylum released the film “Haunting of Winchester House,” and plaintiff WMH, which operates this popular tourist attraction, sued for trademark infringement and intentional interference with contract/economic advantage.  The trial court granted Global Asylum’s motion for summary judgment, and the court of appeals affirmed.

In 2010, WMH secured registrations for Winchester Mystery House as a word mark and for an “architectural” mark consisting of the three-dimensional design of the Winchester mansion.  (The various registrations say, in the description field, “The mark consists of the three-dimensional architectural design of a building,” but the image in TESS is from a particular perspective; on the WMH website, there doesn’t seem to be a consistent use of particular images of the house.) It had made various marketing efforts for the attraction, which has also received publicity in various venues.

In 2008, WMH granted exclusive rights to Imagination Design Works to use the House site as a location to film and produce a movie, and also granted it rights to use certain WMH trademarks and copyrights.  In April 2009, a director affiliated with IDW was asked about his future plans.  He ended his response: “The last one, which I really wish I could tell you the title of, but we're still dotting i's and crossing t's, is on a very well known haunted house. We're coming to terms on doing the first movie ever based on this house.”  In June, Global Asylum’s production coordinator asked WMH for location rates to use the property for a “low budget haunted house/ghost story movie” that was to begin production on June 13.  WMH responded that it had just signed a contract with another company for “exclusive rights” to the Winchester story.  In July, WMH and IDW announced that a “Major Hollywood Feature-Film” on the House would begin filming by the end of the year, and that this would be “the first film granted permission to shoot on location.”

In late July, WMH learned that Global Asylum had announced that it was producing “Haunting of Winchester House.”  It sent a letter “regarding possible infringement” of its marks, and then another letter stressing its objection to use of any unauthorized footage of the House.  It didn’t mention its contract with IDW.

The DVD cover for Global Asylum’s film has its title, “HAUNTING OF WINCHESTER HOUSE,” and states that it is a “A MARK ATKINS Film” and that it is “THE TERRIFYING TRUE STORY.”  It also shows a Victorian-style structure. The back jacket cover states: “A family moves into the 160 room mansion to act as caretakers, but when a malevolent force abducts their daughter they discover why the house deserves its reputation as one of the most haunted places in America.”  The content of the DVD also includes the title and the image of the Victorian-style structure, which appears in the movie but isn’t the actual House.  The plot includes the ghosts of Sarah Winchester, her adolescent daughter, her deaf brother, and the ghosts of those killed by Winchester weapons; the daughter and brother are not true historical figures.

On appeal, WMH argued that the trial court erred by applying Rogers v. Grimaldi without first determining that WMH’s marks “had transcended their source-identifying purpose as trademarks and become an integral part of the public discourse, thus taking on an expressive function.”  The 9^th Circuit’s Barbie cases emphasized that Barbie had an important role in American culture, and WMH argued that such a finding was a precondition for Rogers treatment.  It cited Rebelution, LLC v. Perez, 732 F. Supp. 2d 883 (N.D. Cal. 2010), which quite wrongly held that the 9^th Circuit has limited Rogers to cases in which the plaintiff’s mark was “of such cultural significance that it has become an integral part of the public's vocabulary.”  According to WMH, the question was whether its marks had become “cultural icons or terms of cultural significance” or “integral to the public discourse,” or instead “continue[d] to function as source identifiers for the goods and services that it offers,” and in the latter case no First Amendment issues were implicated by its claim.  Among other things, this erroneously frames Rogers as a test for genericity, which it is not; Barbie remains a perfectly valid mark even though Mattel can’t control expressive uses of that mark.  The court of appeals wisely determined that Rogers should not apply only when a mark is “iconic”:

Here, plaintiff's marks identify not only a world famous tourist attraction, but also the property of its former eccentric owner. There was an actual Sarah Winchester, who, according to legend, created a Victorian-style mansion to fend off ghosts. A film that is based on a “true” story will inevitably have a more powerful impact on those who enjoy ghost or horror films. Thus, defendant has used “Winchester House” in its title and a Victorian-style mansion on its DVD cover, which are similar to plaintiff's marks, and created a fictional work based on the historical figure Sarah Winchester and her allegedly haunted mansion. In our view, where marks have historical significance and similar marks are used in the title of an artistic work or advertising, the Rogers test adequately ensures protection of both the public interest in avoiding consumer confusion and the public interest in free expression.

Other cases have found trademark infringement even when titles refer to historical locations or events, but those were cases involving movie titles similar to those of previously released films—classic consumer confusion in the market for films, a situation provided for in Rogers but not present here.

Rogers requires that the title have “minimal artistic relevance” to the content, which the title and cover image here did.  Deviation from historical fact didn’t put the film outside the First Amendment’s protection.  WMH argued that the title and image were “merely a crass marketing tool, not an artistic decision based upon the subject matter” of the film, because a Global Asylum officer/director was asked at deposition, “[Y]ou could have told the story without relating it to The Winchester House, couldn't you?” and responded, “We could have, but as I indicated in the beginning, we found that a true story increases interest ... in the film....” That didn’t create a triable issue of fact on artistic relevance: artistic and commercial elements of titles are “inextricably intertwined.”  Basing a film on a true story “to generate interest” didn’t take away from the artistic relevance of the title/cover to the film that was actually produced.

WMH also cited American Dairy Queen Corp. v. New Line Prods., 35 F.Supp.2d 727 (D. Minn. 1998), the case in which New Line was enjoined from calling its film about rural beauty contests Dairy Queens.  Dairy Queen distinguished Rogers on the ground that New Line denied any reference to the plaintiff’s restaurants (a worthless distinction, by the way, and a bad decision), which was not the case here.

The second Rogers prong require that the title/cover not explicitly mislead as to source.  It didn’t: there was no suggestion that the film was authorized, endorsed, or produced by WMH.  The cover didn’t even use the phrase “Winchester Mystery House” or “Winchester Mystery House, LLC.” Nor did the use explicitly mislead as to the content of the film.  That was all that was needed.

WMH argued that Rogers was inappropriate for trademark claims and should be limited to publicity rights claims, but Rogers itself applied the test to both.  WMH also questioned whether California state law would adopt Rogers.  No Doubt v. Activision Publishing, Inc., 192 Cal.App.4th 1018 (2011), declined to adopt Rogers because “[a]lthough the ‘explicitly misleading’ requirement of the Rogers test makes obvious sense when the title of an artistic work is at issue, and thus conventional ‘speech’ is involved, we question whether it should apply when the actionable wrong is the misappropriation of a celebrity's likeness in a video game.”  While No Doubt makes no sense given that video games are “speech” too, and we now have a Supreme Court case confirming that, the court here didn’t reach that issue, pointing out that a movie is “conventional speech.”  (Though that wasn’t always the case; like video games, movies too went through a period when the courts weren’t clear that they were protected by the First Amendment.)  Other pre-Rogers California cases involved titles confusingly similar to other titles and were inapposite.

Then, showing that plaintiffs will work relentlessly to get likely confusion incorporated into any exception or limitation, WMH argued that likely confusion should be incorporated into the second prong of the Rogers test.  Rather than explicitly rejecting this argument on its merits, the court quoted Twin Peaks v. Publications Intern., 996 F.2d 1366 (2d Cir. 1993), for the proposition that “the finding of likelihood of confusion must be particularly compelling to outweigh the First Amendment interest recognized in Rogers.”  Then it noted that there weren’t full facts on all the confusion factors (e.g., the parties didn’t set forth sufficient facts to figure out whether they used the same marketing channels).  Because a likely confusion analysis would require the court of appeals to consider new factual questions and because WMH failed to raise the issue below, the issue was forfeited.

The tortious interference claims also failed.  The evidence was insufficient to raise a triable issue on Global Asylum’s knowledge of WMH’s contract with IDW and Global Asylum’s intentional acts to disrupt the relationship.  WMH’s response to Global Asylum’s filming request said, “Thank you for your interest in the beautiful, but bizarre Winchester Mystery House. The Winchester Mystery House just signed a contract with another company for the exclusive rights to the Winchester story. I am unable to give further details at this time.”  This didn’t identify the production company, describe the terms of the deal, or indicate that the contract related to any trademarks.  It didn’t explain what kind of production (film, documentary, cartoon, commercial, novel, in-house video, TV show, etc.) was contemplated.  “Based on this information, defendant could not have determined that producing and distributing its film would interfere with plaintiff's contractual obligation to provide exclusive story rights to an unidentified third party.” 

The C&D letters asserting infringement didn’t mention any contracts or economic relationships with third parties.  WMH’s second letter said: “Winchester has previously granted filming rights of the Winchester Mystery House property to other production companies. Unlike [defendant], other movie, television, and video production companies have recognized and respected the rights of Winchester to regulate the filming of images of the Winchester Mystery House property as necessary for the protection of a proprietary and valuable business asset.”  The letter focused on WMH’s demand that Global Asylum not use any actual footage of the WMH in the film.  This evidence couldn’t show either knowledge or intent.  (Also, though the court didn’t need to reach the issue, it is hard to see how a use fully protected by the First Amendment could be “independently wrongful” in a way that would rise to tortious interference.)

What does "counterfeit" mean for books?

This story of two reports, one allegedly an "addendum" to the first but from an entirely different source, with the same cover art, “key message” sections, chapter heads, fonts and footnotes, raises a number of interesting IP questions alongside the political/propaganda ones.  It reminds me of the pro-slavery "sequels" to Uncle Tom's Cabin by people who weren't Stowe, among other things.  The label "counterfeit" applied by one professor is about authenticity, not authorization.

Similarities such as "Both reports dedicate a chapter to transportation. Both illustrate key points with a photograph of a big rig, shot low to the ground from the driver's side" couldn't support a copyright claim, since the original is a work of the federal government.  And it's unlikely that many concepts of authors' rights/personhood/attribution rights would cover the government, though I suppose they could.  But does "addendum" (plus the other similarities, if they can properly be considered) communicate a false message that it comes from an official source in a way that would survive a Rogers v. Grimaldi examination?

Tragic irony or poetic justice?

Faulkner Literary Rights, LLC, a worthy (?) successor to Righthaven in the annals of copyright (and trademark) trolls, has sued the Washington Post for running an ad by Northrop Grumman (also sued).  Attached to the complaint: the full ad, and the full text of the Harper's article from which the ad's 14-word quote is taken, thus making it available to anyone who cares to read the whole thing.  The case is Faulkner Literary Rights, LLC v. Washington Post, 3:12-cv-00732-HTW-LRA (S.D. Miss. filed Oct. 26, 2012).  I've seen a court do this, Siegel v. Warner Bros. Entm't Inc., 658 F. Supp. 2d 1036 (C.D. Cal. 2009) (attaching entire Action Comics #1, in color, to opinion determining ownership of copyright in Action Comics #1), and I'm used to seeing poor-quality scans of a plaintiff's work as exhibits, but that's for images; I can't remember seeing someone do this with a text, where the quality of the scan doesn't really limit its usability.  I can only wonder whether plaintiff will seek to add claims against defendants for filing briefs in their own defense that include a recitation of the facts; after all, their ultimate motives in fighting the case will be to save money!

PS: I trust Warner won't sue me for the title quote.

Faulkner estate doubles down on terrible claims

Again, THR Esq. has the story.  I'll see if I can dig up the complaint, and the ad for the IP database.

Worst lawsuit of the week

Faulkner estate sues over the line in a Woody Allen film, “The past is not dead! Actually, it's not even past. You know who said that? Faulkner. And he was right. And I met him, too. I ran into him at a dinner party.”  (I would have taken this as a parodic reference to Allen's own persona, myself.)  The quote itself reads: “The past is never dead. It’s not even past.”  The story says this is a copyright complaint, but quotes an assertion of confusion; the complaint itself claims both copyright infringement and a violation of the Lanham Act (along with something called "commercial appropriation"), but I'm torn as to which claim is more fee-worthy for defendants.

ETA: here's the complaint until RECAP goes live.  Faulkner Literary Rights, LLC v. Sony Pictures.

Repair without removing certification mark infringes

Process Controls Intern., Inc. v. Emerson Process Management, 2012 WL 5199583 (E.D. Mo.)

Emerson is an OEM of process control equipment used to control/regulate hazardous substances flowing through pipes.  Plaintiff PCI does business as Automation.  Automation, along with its competitor Emerson, remanufactures process control equipment.  Factory Mutual Ins. Co. insures companies that use such equipment, and its subsidiary FM Approvals has safety standards for those companies and certifies process control equipment as “FM approved.”  Many Emerson products are FM approved and bear the FM Approvals trademark, but Automation has not been approved as a repairer by FM Approvals.

“When Automation remanufactures Emerson equipment, it sometimes leaves the Emerson and FM Approvals trademarks on the equipment.”  This created ongoing disputes about unfair competition and trademarks; the parties settled and released their claims from before December 3, 2007, but then began fighting again.

The court granted summary judgment to Emerson on Automation’s claims for false advertising, tortious interference, and defamation. Some of the claims were barred by the earlier release.  As to the rest, Automation failed to show damages with reasonable certainty.  There was little evidence that any of Automation’s customers received or acted on Emerson’s letters, emails, and articles.

Emerson brought patent infringement counterclaims, which Automation beat back because its actions constituted permissible repair rather than infringing reconstruction.  Automation’s statements in marketing materials that it “remanufacture[d]” rather than “repair[ed]” the products wasn’t controlling since reconstruction for infringement purposes is a matter of law.  Automation also procured parts from third parties, but repair doesn’t require that every replacement item be purchased from the patentee—third-party nuts, bolts, screws, gaskets, o-rings, glass, and gauges didn’t transform an otherwise permissible repair into an impermissible reconstruction.  Automation acquired its products from third parties who discarded them or placed them in scrap bins; others were recovered after being heavily corroded by Hurricane Katrina, but that didn’t make them “spent” such that Automation’s acts were infringing.  Emerson’s controllers had readily replaceable parts, with a substantial market for repaired products, and Emerson itself must have intended such repair, since it competes with Automation to do it.  Even some limited customization didn’t go beyond repair.

Automation also sought summary judgment on Emerson’s trademark claim, but the court ruled (in a holding Mark McKenna will hate) that the Champion Spark Plug standard for trademark repair is different from that in patent.  “While the patent cases are chiefly concerned with the physical condition of the invention, Champion ultimately turns on the issue, central to trademark law, of whether ‘the unauthorized use was likely to deceive, cause confusion, or result in mistake.’  The Champion line of cases is concerned both with the nature of the repaired product and any disclaimer notifying customers of its repaired nature.” Automation argued that it clearly indicated that the products had been repaired and that its customers were sophisticated. But that wasn’t enough.  But the evidence showed that Automation didn’t repair every item in an identical manner or use the same disclaimers for every product, and that was enough to make the fact-intensive issue of infringement get past summary judgment.  There were also genuine issues of material fact on Emerson’s other false advertising/unfair competition/trade secret claims, though the court didn’t go into detail.

The court also granted summary judgment on liability to FM Approvals based on Automation’s use of/failure to remove FM Approvals’ certification mark.  FM Approvals has three ways to ensure that repaired equipment still complies with its standards: repair by the OEM, repair by an independent under its Standard 3606, or repair by an end user approved under 3606.  Each method involves an audit or inspection of the repair facilities and processes by FM Approvals.  Automation didn’t claim that it had been approved under 3606, but rather that, as an owner, it could repair the product according to the OEM’s manual without voiding the certification, and that its repaired equipment met the FM Approvals certification standard.  The court responded that meeting the standard wasn’t the issue: “the FM Approvals certification mark does not simply represent the quality of the equipment, but the fact that FM Approvals has in fact inspected the equipment, facility, or repair processes and approved it. Not only does Automation's argument ignore the process for repair approvals, it would completely undermine the value of the certification system, which relies on testing and oversight ….”

Automation argued that it was nonetheless entitled to retain the FM Approvals mark under Champion.  Not so.  While consumers expect used goods to be inferior, and so disclosure of their status avoids actionable confusion, “certification marks are different in nature from other trademarks. Disclosing that an item is ‘repaired’ may effectively inform a consumer of the product's nature as compared to a new item of the same origin. However, simply disclosing that an item is ‘repaired’ does not similarly inform a consumer that the repair process has not been re-audited by the holder of the certification mark it bears.”  Thus, Automation’s acts were likely to confuse consumers.  There was also evidence of actual consumer confusion, which mooted Automation’s argument that its products could be marketed as FM Approved.

DMCA rulemaking recommendation released

Full text here.  The Register recommended expanding the noncommercial remix exemption to cover both DVDs and online services.  The reference to "motion pictures" covers "movies, television shows, commercials, news, DVD extras, etc." Congratulations to all the people at the Organization for Transformative Works and the EFF who worked so hard for this, as well as to the individual vidders who allowed us to share their stories and make their creative work and values visible to policymakers.  Among other things:

Creators of noncommercial videos provided the most extensive record to support the need for higher-quality source material.  Based on the video evidence presented, the Register is able to conclude that diminished quality likely would impair the criticism and comment contained in noncommercial videos.  For example, the Register is able to perceive that Buffy vs Edward and other noncommercial videos would suffer significantly because of blurring and the loss of detail in characters’ expression and sense of depth.

 The short clip exemptions:

Motion pictures, as defined in 17 U.S.C. § 101, on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System, where the person engaging in circumvention believes and has reasonable grounds for believing that circumvention is necessary because reasonably available alternatives, such as noncircumventing methods or using screen capture software as provided for in alternative exemptions, are not able to produce the level of high-quality content required to achieve the desired criticism or comment on such motion pictures, and where circumvention is undertaken solely in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances: (i) in noncommercial videos; (ii) in documentary films; (iii) in nonfiction multimedia ebooks offering film analysis; and (iv) for educational purposes in film studies or other courses requiring close analysis of film and media excerpts, by college and university faculty, college and university students, and kindergarten through twelfth grade educators.  For purposes of this exemption, “noncommercial videos”  includes videos created pursuant to a paid commission, provided that the commissioning entity’s use is noncommercial.  

The next exemption is the same except that it covers motion pictures "that are lawfully made and acquired via online distribution services and that are protected by various technological protection measures."

The next exemption is a bit odd, since the Copyright Office itself takes the position that screen capture is not circumvention.   But since copyright owners could litigate the issue, this exemption covers DVD "circumvention, if any" "undertaken using screen capture technology that is reasonably represented and offered to the public as enabling the reproduction of motion picture content after such content has been lawfully decrypted, when such representations have been reasonably relied upon by the user of such technology, when the person engaging in the circumvention believes and has reasonable grounds for believing that the circumvention is necessary to achieve the desired criticism or comment," with the rest of the exemption the same. 

The final exemption in this set is the same except that it covers online distribution services.  By the Copyright Office's logic, though, one could try screen capture on Blu-Ray content since that's not circumvention anyway--if one could live with the ugly results.

Marketers can dish it out (literally) ...

Slate on the defamation lawsuit against ABC and others for popularizing the term "pink slime."  Sadly, South Dakota lacks an anti-SLAPP law. 

Poems can only be made of other poems

... but what if your songs are made only of other Jay-Z songs?

Mela Machinko says:

Hov Said It Best is a concept project based largely on Jay Z songs. It uses Jay Z lyrics, concepts and even ad libs and cadences to craft entirely new songs that tell my stories....

I am a native Brooklynite and longtime fan of Jay Z. He's absolutely a hometown hero to me. And as a lover of hip hop and lyricism, I noticed a while ago that many lines that originated in Jay Z songs became a part of my everyday speech. Phrases like "we don't believe you, you need more people" made their way seamlessly into my lexicon. And while I relate to the lyrics of many, many songs by many artists, few are as relatable, open to interpretation, and as prolific as Jay Z.

... As a fan, combing back through my favorite songs was enjoyable. Also, the process of how to use the lyrics I chose was an interesting challenge. Whether to use the words verbatim in the context he did, or whether to interpret them differently, whether to paraphrase a bit, or whether to even challenge the lyrics was a fun thing to figure out. ...

 

My goal with this project is to introduce myself to the music world, and give people some songs that they want to listen to, over and over. These songs are fun and interesting, enjoyable for Jay Z fans and for people who just like good music that doesn't sound like everything else.

Discuss.

IP/Gender at AU

Via Sean Flynn: Following the Jaszi Lecture featuring Christopher Sprigman on the evening of November 1, PIJIP will be hosting the 9^th Annual IP-Gender symposium the morning of November 2 – featuring a roundtable discussion of some of the themes raised in The Knockoff Economy (details below).

Please join the roundtable by registering: Nov 2: The Ninth Annual IP/Gender: Creativity Outside of Intellectual Property's Domain

How are conflicts around competing uses of an image, a method, or a form of words resolved when copyright, patent and trademark don’t provide good answers? The topic of the 2012 IP/Gender workshop will be “IP without IP – when women rule.” In a roundtable discussion on the morning on Friday, November 2, we will explore gendered perspectives on the norm-based regulation of information ownership and use with specific communities of practice, and generate a research agenda for further inquiry. The general subject of how informal norms operate in domains where IP law and such doesn’t apply, or isn’t applied, is the subject of an interesting and growing literature. However, most of this work has been with self-regulating fields where authority genders strongly male: magic, comedy, haut cuisine, etc. The goal of this workshop is to stimulate thinking about this phenomenon as it may applied in communities where women practitioners are (or could be) norm-setters: dance, fan culture, traditional arts, serial and reality television, Pinterest, fiber art (including weaving, knitting and needlework), to name a few. The previous evening, November 1, Professor Christopher Sprigman of the University of Virginia, will deliver WCL’s annual Distinguished Lecture in Intellectual Property. Professor Sprigman, who has written extensively about “IP without IP,” will join the workshop discussion on Friday, as will a number of legal experts, cultural anthropologists, and practitioners.

Participants:

Peter Jaszi, American University Washington College of Law

Lorraine Aragon, University of North Carolina at Chapel Hill

Libby Smigel, Dance Heritage Coalition

Rebecca Tushnet, Georgetown University Law School

Christopher Sprigman, University of Virginia Law School

Creativity and the expectation of payment

They're not very strongly related.  Latest example from Slate's series on Free to Be You and Me.  Read the whole thing, but have a quote:

Dan Greenburg marvels today that while the movie he went off to film in Martha’s Vineyard—the one he thought would make his career—was a total flop, the two poems he dashed off one afternoon on set have resulted in steady royalty checks every year since.

Allegedly false claims of authorship not actionable false advertising

Blake v. Professional Coin Grading Service, --- F. Supp. 2d ---, 2012 WL 4903334 (D. Mass.)

Blake, a coin collector, allegedly invented a method for judging the “eye appeal” of coins, the “axial ultimate refractory angle of the coin” (“AURA System” or “AURA”).  He applied for a patent, and also sought to promote the AURA System with Professional Coin Grading Service (an unincorporated division of Collectors Universe, Inc.), and its competitor Numismatic Guaranty Corporation of America, both of which provide coin grading services. During initial talks with them, Blake communicated some marketing proposals that using the plus (+) symbol to promote the AURA System. The defendants weren’t interested, but instead launched an idea similar to the AURA System. Blake brought a number of trade secret and unfair competition-type claims, as well as contract-based claims against Numismatic.

Coin grading and labeling is important for determining value, and there is already “a plethora of grading systems and labels,” but Blake’s AURA proposes a new twist.  The patent posits that symbols can be used as labels for the “eye appeal” grade, and discloses a plus sign as one possibility for above average quality.  Before AURA, Numismatic already used a star next to a numerical grade to indicate above-average eye appeal, while Professional Grading also considered eye appeal in its “PQ” (Premium Quality) label.  Blake proposed to solve the coordination problem in the industry.  He alleged that as a result of defendants’ unfair acts he was unlawfully deprived of the opportunity to license the AURA System and lost expenses associated with his patent and trademark applications.

The court ruled that the filed patent application disclosed the plus and the idea of the system and the use of the plus to indicate a coin’s grade was also well-known beforehand anyway.  In addition, Blake voluntarily disclosed the public aspects of the Aura System in a published book which he offered to a research director at Numismatic, who responded that he already had a copy.   However, Blake had sufficiently alleged the existence of confidential information about his marketing plan to promote the Aura System, which he disclosed to Numismatic under an expectation of confidentiality, to survive a motion to dismiss on the breach of contract/trade secrecy-related claims.  The marketing ideas included “a proposal to work jointly with other firms in the coin grading industry because the particularly fragmented nature of the industry makes it nearly impossible for any single enterprise to unilaterally standardize a labeling methodology for the eye appeal concept,” with the + as a marketing tool.  This was the same symbol the defendants allegedly introduced together, despite being competitors.  The fact that + overlapped with Numismatic’s existing use of the star symbol tended to substantiate Blake’s allegations.  Although Blake wasn’t actively using the alleged secret in connection with a business, he was at an entrepreneurial stage; the marketing plan “was created for use in connection with a business and was ready to be launched.”  He alleged that he was actively seeking partners, which was enough to count as use of the trade secret at this stage.  Most of his claimed damages came from the plus/system claims, though, so the suggestion was that his remaining claims might have minimal value.  (There was no allegation that defendants used the applied-for method.)

Blake couldn’t claim ownership of the + to indicate higher quality “because it is a symbol in the public domain and commonly used in the coin grading industry,” and also was an everyday word with a “generic character,” which doomed his trade secret claims at to the + and also bore on the Lanham Act claims.

Turning to the Lanham Act claims, the court found that Dastar barred Blake’s false designation of origin claim.  Blake argued that defendants impliedly represented that they created the + labeling methodology, but that’s communicative and flat-out nonactionable under Dastar.

Dastar left open false advertising as a possibility in dicta, but is authorship within the “nature, characteristic, or quality” language of the Lanham Act?  Other courts have said no.

Blake’s false advertising claims were based on (1) defendants’ alleged renaming of the AURA System as SecurePlus and its + labeling methodology, (2) alleged false description of SecurePlus and its methodology, and (3) alleged violations of a 1990 FTC consent decree, which permanently enjoins Professional Grading from claiming that its “grading is ‘objective,’ ‘consistent’ or ‘unbiased,’ if such representation is contrary to fact.”   

The first argument was just the Dastar-barred claim repackaged.  And it didn’t even fit Dastar’s dictum, which concerned a situation in which a communicative product’s ads gave consumers the impression that its product was “quite different” from the plaintiff’s.  But since Blake has never marketed AURA-labeled coins, the public couldn’t have been misled into believing that AURA was quite different from SecurePlus, and defendants’ ads never mentioned AURA.  Anyway, Blake claimed that the two systems were virtually identical.

The court concluded that “[t]he grading process does not change the nature, characteristics, or qualities of the coin.”  A graded coin has added value, but that comes “from the service provided by a reputable grading company,” especially since eye appeal “is a subjective measure dependent on the expertise of the grader.”  Innovation in grading should be rewarded by copyright or patent law, not the Lanham Act.  Thus, the authorship of a coin grading system does not bear on the “nature, characteristics, [or] qualities” of the labeled coins.  (That can easily be true without the first sentence in this paragraph being true: it seems quite clear that statements about the grading process can be true or false descriptions of the “nature, characteristics, [or] qualities” of the grading service, which defendants provide.)    Further, Blake didn’t adequately allege that defendants advertised in a way that falsely differentiated SecurePlus from AURA.

Blake also argued that Professional Grading agreed to a “naked license” of the + mark from Numismatic; naked licenses are inherently misleading, and also the public was allegedly misled that the two parties had equivalent grading standards for +.  But the complaint didn’t allege that Professional Grading licensed a mark, but rather that Numismatic “shared” + with Professional Grading.  Each company allegedly created its own mark, SecurePlus for Professional Grading and + for Numismatic, and each promoted its own respective label.  Blake failed to allege any written or implied license agreement, so the court didn’t decide whether Professional Grading could have breached its duty to control the quality of services bearing the + mark (if it can be a mark at all).

As to the argument about the FTC consent decree, the FTC hasn’t initiated any action against Professional Grading for a violation, and Blake lacked standing to enforce the decree.  To the extent that Blake alleged that the court ought to take the FTC decree as a reason to think that defendants violated the Lanham Act, he failed to allege that they exaggerated the reach of the methodology to AURA’s detriment.  Blake alleged that Professional Grading exaggerated the power of its methodology, misleadingly conveying that it could grade objectively and consistently.  “Even if Professional Grading used the term ‘consistent’ in violation of the FTC Decree, Blake simply has failed to allege that it exaggerated the reach of the methodology to the detriment of AURA,” since Blake himself claimed that AURA “objectively” and “systematically” assesses the eye appeal of coins.  I don’t understand this rationale: if AURA can truthfully claim to be the only objective/systematic system on the market, that seems a clear competitive advantage that would be negated by falsely advertising that a competing system was also objective and systematic.  That said, I agree that the consent decree isn’t important here.

Blake’s conversion claims failed because they related to intangible property, and Massachusetts doesn’t recognize a conversion claim in marketing plans, goodwill, copyrights, trademarks, or patents.  Even if a conversion claim could be brought, Blake failed to allege that he was the rightful owner of the property, given that AURA and the + designation were generally known to the industry. 

Poor universe and control doom survey

Medisim Ltd. v. BestMed LLC, 861 F. Supp. 2d 158 (S.D.N.Y. 2012)

Medisim sued BestMed for patent and copyright infringement, unfair competition, false designation of origin, false advertising, deceptive acts and practices, unfair competition, and unjust enrichment.   Basically, BestMed replaced Medisim as the supplier of house-branded digital thermometers to Rite Aid.  I am ignoring the utility patent aspects of the case.  This opinion dealt with motions to exclude various kinds of expert testimony, and the plaintiff’s consumer survey did not survive Daubert.

Warren Keegan, a professor of marketing with an extensive resume, conducted an internet survey in which each respondent (who’d been screened to be likely chain drugstore customers and users of digital thermometers) was shown a picture of a product and directed to “take as much time to look at [it] as you would if you were considering purchasing it.”  The test cell saw pictures of Medisim and BestMed thermometers in Rite Aid packaging, while the control cell saw Medisim and a third-party brand digitally altered to look like it was in Rite Aid packaging.

Respondents were asked if they thought the two products were manufactured by the same company, or by different companies; then if they thought the two products were manufactured by companies that were affiliated, connected, or associated with one another.  A yes on either was coded as likely confusion.  Eighty-three percent of test cell respondents and 52% of control cell respondents showed likely confusion, for a net level of 31%.

Questions about survey reliability generally go to weight rather than admissibility, but surveys can be excluded entirely under Rule 702 when they’re invalid or unreliable, and/or under Rule 403 when they’re likely to be insufficiently probative, unfairly prejudicial, misleading, confusing, or a waste of time.

BestMed argued that Keegan used the wrong universe and an improper control product.  In addition, BestMed argued that Keegan biased the respondent pool by telling them that “there is often a relationship between a retail store and its source manufacturers,” while Medisim argued that this instruction merely “correct[ed] for the possibility that some respondents might have been unaware of the potential relationship between the retailer and manufacturer.”  The use of a control group is the “gold standard” for dealing with such pre-existing beliefs (or ignorance, I guess).  “A carefully crafted instruction may have a similar effect, albeit in a more subjective way.”  But where the instruction is given to the control and test cells, its effect will wash out if the control works appropriately, so the court wasn’t convinced that the instruction created improper bias.

The court agreed that the respondent universe was improper.  Point-of-sale confusion should be examined by surveying potential purchasers.  Screening questions that ensured that respondents were likely to shop at stores that sold the parties’ thermometers were not enough to ensure that they were likely purchasers.  I have sympathy for Medisim’s argument that “a digital thermometer is not a major planned purchase ... for which a survey could easily locate individuals who are ‘in the market,’” so shoppers who were also users were a good proxy.  But the court held that “a party may not simply excuse itself from surveying the relevant universe of respondents because it is difficult to assemble an appropriate sample of that population.  In addition, repeat purchases of digital thermometers are relatively infrequent.  (Which also seems to doom secondary meaning for the trade dress; who would ever learn which was which?)  Thus, the logical assumption is that current/recent users of digital thermometers are unlikely to buy another within a reasonable timeframe.  Without knowing when they bought their devices, there was no way to tell if they were similar to true potential purchasers.  Keegan suggested that shopping at the relevant stores provided familiarity with the products, but such stores carry thousands of unrelated products.  “Amidst this deluge, there is no basis to equate the knowledge of a person admittedly not shopping for a given product with that of a potential purchaser.”  The respondent universe was a “crucial step” in a survey, because even if the proper questions are asked, the results are likely to be irrelevant when they’re asked of the wrong group.

In addition, the control design was flawed.  BestMed identified two problems.  First, the control didn’t really exist in the marketplace, and had few similarities to either party’s product.  Second, because Keegan didn’t specify which features of the Medisim packaging he was testing (that is, what was protectable), it was impossible to tell what generated the reported confusion.  A party can seek protection for a product’s overall look, but it still has to articulate which specific elements comprise its trade dress; this is necessary to avoid de facto protection for legally unprotectable styles, themes, or ideas.  The court focused on the second problem: Keegan didn’t explain which elements of the packaging (or product) were protectable trade dress, and Medisim just said the control shared “certain characteristics” with the test product.  The court found these failures “deeply troubling, and indicative of a serious flaw in the design of Keegan's survey.   Furthermore, I am unable to determine whether Keegan's control was appropriate without understanding the scope of the claimed protection.”

Neither flaw would justify excluding the report on its own, but taken together, since each went to a fundamental element of the survey, the combined impact was “too significant to overlook under  Daubert and Rule 702.”