Monday, October 22, 2012

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. 

No comments: