Friday, November 30, 2012

FTC wins against "make money fast" claims

F.T.C. v. John Beck Amazing Profits, LLC, 865 F. Supp. 2d 1052 (C.D. Cal. 2012)

The court granted the FTC summary judgment on liability for violation of §5 and the Telemarketing Sales Rule with respect to three “wealth-creation” products sold via infomercials, the John Beck system (promising real estate riches), the John Alexander system (ditto), and Jeff Paul’s Shortcuts to Internet Millions (guess what).  The FTC successfully held the named originators, their companies, and related companies liable.

The John Beck system claimed to help consumers make money by buying real estate at tax foreclosure sales by paying the delinquent back taxes.  The relevant defendants falsely represented that consumers could quickly and easily earn lots of money by buying homes in their area “free and clear” for “pennies on the dollar,” then reselling them for full market value or renting them for a profit.  The informercials also claimed that buyers would get a free 30-day membership to “John Beck’s Property Vault,” but failed to disclose that it was a continuity plan that subsequently charged them $39.95/month, in violation of the Telemarketing Sales Rule.

The “John Alexander's Real Estate Riches in 14 days” infomercial touted Alexander's “inverse ownership system” of acquiring real estate, supposedly allowing consumers to put together real estate transactions and get “the cash out at closing” without using any of their own money or credit, within 14 days.  “John's Club” was the same type of continuity plan.

“Jeff Paul's Shortcuts to Internet Millions” infomercials marketed materials on “proven, turnkey internet businesses,” allegedly “so simple that consumers do not need any prior experience with internet business to make it work.” The “Big League” or “Internet Millionaires Club” was the same type of continuity plan.

Defendants challenged the FTC’s survey, which was conducted by Dr. Conrey.  The survey “measured the earnings and profit experienced by consumers who had purchased one of the three products.  [It] also investigated whether investment in coaching services or investment of time was related to consumers' earnings or profit.”  Using the list of people from customer databases of the three products, the surveyor took a sample.  Each person in the sample was mailed a Prenotification Letter, which read in part:

The Federal Trade Commission needs your help.   Since 1914, the Federal Trade Commission (the FTC) has protected American consumers by monitoring and regulating businesses.   In order to fulfill this responsibility, it periodically conducts research into the experiences of customers who have purchased certain types of products and services.   As part of a current research study, the FTC has enlisted the help of ICF Macro, an independent research firm, to learn about customers' experiences with [PRODUCT NAME]. A few days from now, you will receive a phone call from an ICF Macro interviewer who will ask for your assistance in this important research effort....

Dr. Conrey confirmed that the final survey was consistent with best practices in survey design.  Defendants argued that the prenotification letter tainted the pool by positioning the FTC as the “good guy.”  Dr. Conrey explained that there was no feasible alternative to a letter with this kind of disclosure, given respondents’ privacy and legitimacy concerns; the notification gave the survey credibility and legitimacy and avoided confusion or suspicion about the sponsor.  The court held that this satisfied the requirements for admissibility.

The court readily found Section 5 violations.  The claims were material and were false and unsubstantiated at the time they were made.  Just looking at the John Beck system, the claims that consumers could “purchase” homes for “pennies on the dollar”; buy homes in their own area, regardless of where they lived; make money “easily” and with little financial investment; and make money “free and clear of all mortgages” were disproved by the kit materials themselves.  Buying tax liens doesn’t mean you get a deed, only a right to collect delinquent taxes, which only ends up with title and right to possess or sell in exceptional circumstances.  Tax sales are held only once a year and bidding typically starts at a very high percentage of fair market value.

Beck’s deposition testimony also showed the falsity of the infomercials; while he expressly claimed to have bought “thousands” of properties with his system, at deposition he admitted that he did so “very infrequently”—only 10 times.  Beck claimed that his daughter had bought over 90 properties using his system, but admitted that he knew of only 4 “students” who’d been able to get title to homes like those shown in the infomercial, and those instances required several years of waiting, including a court trip to foreclose on the right of redemption.  Purchasing property at tax sales is elaborate and time-consuming.

Dozens of consumer witnesses further confirmed this falsity.  They testified that it was difficult or impossible to find tax sales in their area, and difficult or impossible to earn substantial money using the Beck system. Success, if any, would require significant monetary investment.  The Conrey survey showed that less than 2% of consumers made any revenues at all, and less than 0.2% made any profits.  Only 1.9% of those who bought coaching materials made any revenues.  Even among consumers who spent ten or more hours per week using the product, only 3.5% of them made any revenues.

Defendants argued that their representations weren’t false, in that the houses featured in the infomercial did in fact sell for the displayed prices.  Plus, the Beck system also encouraged purchases of raw land and house sites.  And, even if a consumer does not live in a non-tax lien state, she can use the Internet to buy properties elsewhere.  None of this matters: the overall net impression of the ads communicated that a typical consumer could easily purchase high-value properties for pennies on the dollar and quickly earn tens if not hundreds of thousands of dollars.  What the kit “encouraged” was immaterial, because the visuals of the infomercials themselves focused heavily on large homes and vacation properties.  And even if the featured houses did sell for the displayed prices, the net impression was still false: that nice homes such as those shown were easily available in all 50 states, and that one could easily obtain deeds to them for pennies on the dollar.  The same defect applied to defendants’ argument that the exact phrase “quick and easy” never appeared: “quick,” “easy,” and similar concepts were used repeatedly.  Defendants’ own copy test showed that the number of respondents who received the challenged claims exceeded 10.5%, which was sufficient to count as deceptive.  No reasonable trier of fact could concluded that these representations weren’t likely to deceive consumers acting reasonably under the circumstances.

The same story, with variations only as to the misrepresentations, held for the other infomercials.  The court dismissed small print disclaimers that endorsers’ experiences were unique.  “The prints are so tiny that, under the circumstances, consumers are unlikely to read them while watching and listening to the testimonials of the endorsers.”  Nor did defendants possess any substantiation for their exaggerated claims of easy financial success. Infomercials that gave the overall impression that a typical buyer could “easily, quickly, and ‘magically’ earn thousands of dollars per week simply by purchasing and using the Jeff Paul System” were deceptive.

Likewise, failure to disclose that buyers would be automatically enrolled in continuity programs when they bought the front-end kits was material and deceptive under Section 5 (and violated the TSR). 

Further, defendants misrepresented that consumers who bought their coaching programs would quickly and easily earn back the coaching costs or more, falsely claiming that personal coaches would hold consumers’ hands and walk them “step by step” through the system; some telemarketers even suggested that consumers would certainly fail without coaching.  Conrey’s survey showed that almost all who bought coaching programs lost money, and more than 17% lost at least $10,000.  Only 1.7% of those who bought coaching services made any profit at all.  And the coaches failed to answer questions or walk consumers step by step through the system.  Defendants argued that they had a quality assurance program and took steps to rein in rogue staff.  Nonetheless, their telemarketers made false and unsubstantiated representations; there was no evidence showing that defendants’ recording of calls reduced or eliminated the false claims. And in any event, the basic express claim that the coaching program would help consumers was completely unsubstantiated.

The continuity charges violated the TSR because defendants didn’t disclose their existence before customers handed over their credit card information.  Defendants argued that they explained the negative option program at the time of the purchase, and also did so in the invoice and package shipped with the product, as well as in post card disclosures, phoned expiration notice disclosures, and coaching disclosures.  Those were all too late: disclosure was required before a consumer divulges credit card or bank account information. 

In addition, defendants violated the do not call rule.  They failed to set up a meaningful compliance program, lacked written procedures, and didn’t train staff. They allowed paper leads to pile up on “boiler room” floors before marking them as do not call in their database.  They also used “lead recycling,” ensuring that consumers, including people who asked not to be called, would be called multiple times.  Defendants argued that these were isolated incidents and that the violations didn’t fall outside the 30-day grace period for putting customers on the company’s internal do not call list.  But without written policies and procedures for do not call complaints, these defenses were unavailing.

The FTC asked for injunctive relief and monetary relief of over $300 million. The defendants were all liable, including the individual “gurus” who knew that their claims were false and unsubstantiated.  The court requested further briefing on whether certain defendants should be subjected to a lifetime ban on telemarketing, given prior lawsuits.  Likewise, the court sought further briefing on monetary relief in the form of disgorgement under Section 13(b); defendants were liable, but there was more to learn about the amount because the FTC’s numbers didn’t exclude consumers who benefited; it might be equitable to subtract from the disgorgement the amount actually earned by consumers who used the products.

Court dismisses "natural" claim on primary jurisdiction grounds

Astiana v. Hain Celestial Group, Inc., --- F. Supp. 2d ----, 2012 WL 5873585 (N.D. Cal.)

A decision with potentially broad implications, if followed: Plaintiffs challenged defendants’ use of “all natural,” “pure natural,” and “pure, natural & organic” on the labels of their cosmetic products because the products allegedly contained artificial and/or synthetic materials. They alleged fraud, along with violations of the UCL, CLRA, and FAL.  But the FDA has no policy on the use of “natural.”  Plaintiffs argued that the court shouldn’t wait for the FDA, and that courts routinely decide on their own whether conduct was misleading.

The court held that determining whether or not “natural” was false or misleading would “undermin[e], through private litigation, the FDA's considered judgments.” Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012). Pom involved a challenge to a juice name where the FDA already had detailed, specific rules about how juices could be named based on juice content, and Coca-Cola complied with those rules (though the FDA hadn’t specified that all words in a juice blend’s name must appear on the label in the same size).  The Pom court said that it wasn’t holding that the Coca-Cola label was nondeceptive, but Congress had given the task of guarding deception to the FDA.  This wasn’t about preemption, but rather about deference to the FDA.  (I entirely disagree—and many cases allow claims about food labels to proceed, where the FDA hasn’t regulated very specifically.  See, e.g., Gerber.)

Pom, the court here reasoned, was about how the FDA has expertise in guarding against deception in the food labeling context, and thus was implicitly a primary jurisdiction case.  The primary jurisdiction doctrine counsels a stay/dismissal when an issue has been placed by Congress within an administrative body’s jurisdiction pursuant to a comprehensive regulatory statute that requires expertise or uniformity in adminstration.  Such was the case here.  Issues of cosmetics labeling have been entrusted to the FDA, and they can be “remarkably specific,” including specifying the ordering of ingredients, the naming scheme to be used, and the size of the type.  The regulations even “shed light” on what’s false or misleading “in certain contexts,” such as fragrance or flavor.  (But the claim here wasn’t tightly bound to any of the areas in which the requirements are so specific.)

The only FDA statement about “natural” was an informal policy statement limited to food that couldn’t be imported into the cosmetics context.  In the absence of FDA rules or regulations, the court wasn’t going to stick its nose into the issue.

Contract language isn't commercial speech?

Syngenta Seeds, Inc. v. Bunge North America, Inc., 2012 WL 5879271 (N.D. Iowa)

Previously, the court denied a preliminary injunction on Syngenta’s claims that Bunge, which operates grain milling facilities and warehouses, wrongfully refused to accept Syngenta’s Viptera corn from growers and wrongfully posted signs stating this policy, allegedy because Viptera (which has been genetically modified) hadn’t received approval from “major” export destinations.

The court found that Syngenta wasn’t likely to succeed on the merits of its Lanham Act claim because it wasn’t in commercial competition with Bunge and because the sign stating the policy of refusing Viptera corn wasn’t commercial speech.  Though American Association of Orthodontists v. Yellow Book USA, Inc., 434 F.3d 1100 (8th Cir. 2006), didn’t require direct commercial competition between the parties, Aviation Charter, Inc. v. Aviation Research Group/US, 416 F.3d 864 (8th Cir. 2005), held that “commercial advertising or promotion” requires a statement by a defendant in commercial competition with the plaintiff, and the earlier case controlled.

Syngenta argued that it was in commercial competition with Bunge: “Bunge provides economic incentives to growers to grow and deliver certain specialty crops, with seeds produced by companies other than Syngenta, and thereafter sells those crops to certain customers at a premium.”  Thus, every acre planted because of such an incentive program was a non-Viptera acre.  Bunge responded that this program was only for soybeans, at facilities that didn’t accept corn, and that Syngenta wasn’t in the soybean market.  In addition, Bunge argued, recognizing this as competition would mean that “every grain handling company competes with every seed developer simply by paying more money for delivery of one crop over another.”

The court agreed that “commercial competition” required a less attenuated competitive relationship.  The Eighth Circuit’s categorical approach looks for the same or similar goods or services in the same market—competition for the same dollars from the same consumers.  Soybeans weren’t corn, and Bunge didn’t compete in seed production anyway.  Even defining the relevant area as “promoting seed products,” Syngenta and Bunge didn’t compete—Syngenta promoted Viptera corn seed, and Bunge promoted certain soybean seeds.  And they’re at the opposite ends of the supply process—Syngenta promoting to growers at the supply end, while Bunge seeks to get growers to grow products it will buy at the demand end.  A household consumer doesn’t compete with Sony by being willing to pay more for a Mitsubishi TV.

In addition, Bunge’s sign wasn’t commercial speech.  The relevant factors: (i) whether the communication is an advertisement, (ii) whether it refers to a specific product or service, and (iii) whether the speaker has an economic motivation for the speech.  Though Syngenta argued that not all three were necessary, and that the second and third factors were present, Bunge claimed that it wasn’t proposing a commercial transaction, because a sign declining to enter into a Viptera transaction didn’t implicitly propose another transaction.  (I’m dubious about this—surely at a facility dedicated to buying corn, the implication has to be “please bring us non-Viptera corn.”)

The court agreed: the absence of a proposed commercial transaction weighed dispositively against deeming the speech commercial.  Syngenta argued that Bunge was trying to dictate the terms of its proposed transaction for the purchase of corn.  The court reaffirmed its conclusion that the sign related to commercial transactions, but didn’t propose any, and was therefore not commercial speech. 

(The mystery deepens.  Regulation of contract terms is ordinarily thought not to involve any speech at all; it’s not even subject to Central Hudson scrutiny, as Fred Schauer among others has pointed out.  For these purposes, I don’t see why speech “relating to” a contract wouldn’t be commercial speech.  That is, it’s “not commercial speech” only in the sense that it’s not protected “speech” at all in the current constitutional scheme; the only purpose of the “commercial speech” requirement is to prevent the Lanham Act from regulating “noncommercial speech”—political, artistic, etc. speech—and so contract terms should easily qualify as “words that can constitutionally be governed by the Lanham Act.”  Now, there may be other parts of the Lanham Act that are actually part of its text that disqualify this claim—the aforementioned “commercial advertising or promotion” is a good candidate—but “commercial speech” does no sensible independent work here.)

But anyway: Bunge’s contracts barred growers from delivering, and Bunge had the right to refuse, corn containing transgenic traits that were not approved for all United States export markets. So the sign was just reiterating the terms of the contracts, which were all in effect at the time the sign went up. Thus, the sign didn’t propose any contract terms, only reiterated existing terms.  “[A]s a matter of law, a statement of refusal to enter into a certain transaction, standing alone, is not a proposal of any transaction, and, hence, is not ‘commercial speech.’”  It might be different if the statement “promoted or urged selection of another product” instead.

Unusual 230 defense against virtual ownership claims

Evans v. Linden Research, Inc., 2012 WL 5877579 (N.D. Cal.)

The court partially granted a motion for class certification in this case about “property” in Second Life.  People buy and sell virtual items, including virtual land, in-game, using money (lindens) that can be bought for and exchanged into dollars.  Virtual land incurs monthly tier fees, similar to property taxes, paying for maintenance of the servers.  (Linden also takes a commission on participants’ sales of virtual items in-game.)  Linden does not run out of virtual land; “once Linden sells land to a participant, it continues to exist in Second Life and is not deleted or removed from the game.”  Plaintiffs were people who’d participated in Second Life, bought virtual items/land, had their accounts terminated or suspended by Linden, and weren’t compensated for the value of what they had. 

The question was what “ownership” meant.  Plaintiffs argued that Linden and defendant Rosedale (founder, former CEO, current board member) represented that Second Life participants would have an actual ownership interest in virtual land and other items.  Defendants argued that they meant that participants would have copyright in items they created.  Plaintiffs alleged that, to attract participants, Linden “made a calculated business decision to depart from the industry standard of denying that participants had any rights to virtual items, land and/or goods” and “globally represented to participants ... that their ownership rights and intellectual property rights to the virtual items, land and goods held in the participants' accounts would be preserved and recognized.”  Thus, for several years, the following statement appeared prominently on the Second Life homepage: “SECOND LIFE IS AN ONLINE, 3D VIRTUAL WORLD, IMAGINED, CREATED AND OWNED BY ITS RESIDENTS.”

However, sometime after 2007, following a dispute with an individual user regarding Linden's alleged confiscation of virtual property, Linden changed that statement to “SECOND LIFE IS AN ONLINE, 3D VIRTUAL WORLD, IMAGINED AND CREATED BY ITS RESIDENTS” and began to strip ownership rights from users.  In 2010, Linden modified its terms of service, for the first time stating that “[v]irtual land is in-world space that we license.”  Participants were not allowed to opt out of the new terms; if they didn’t accept, they couldn’t access their virtual land or items.

The court contrasted “actual ownership rights” in “a piece of the Second Life world” (what plaintiffs claimed to have) with “copyrights” (what defendants said they had).  Plaintiffs didn’t claim to own the physical servers, but did claim to own the “things” and “land” created by the code that ran on the servers, in the same way that one can own a domain name.  Thus, beyond IP rights, users owned their accounts and could treat them like property, including selling them and licensing them, whether in the game or through independent third parties such as eBay.  Defendants argued that the only real thing or property capable of being owned was the copyright, and users had a license to use Second Life computing resources.  If an account was closed, users still owned copyrights in whatever they created, and that provided the value proposition distinguishing Second Life from other games.  However, the bits making up a given copy on Linden’s servers were not themselves a user’s property.

Plaintiffs argued for certification of a main class of purchasers and sellers of virtual land/items and a subclass of people whose assets had been taken, frozen, or otherwise rendered unusable by Linden’s affirmative action (not just by having to agree to the amended ToS).  So the main class claims were predicated on the idea that defendants lured people into participating in Second Life by making ownership promises, and then later reneged, while the subclass claimed that defendants unlawfully converted members’ valuable property by closing their accounts without reimbursement.  For the main class, plaintiffs alleged violations of the CLRA, FAL, UCL, and California Auction Law, along with fraud in the inducement.  For the subclass, plaintiffs alleged conversion, intentional interference with contract/prospective economic advantage, and unjust enrichment.

Defendants argued that plaintiffs failed to show injury in fact sufficient to create constitutional standing for the main class.  For these claims, that meant they needed to show lost money or property due to the alleged misrepresentations that participants would own their virtual items/land.  But they didn’t describe any economic harm they suffered as the result of these misrepresentations.  At the end, they argued that they wouldn’t have bought the items at all or would have paid less for them if they’d known the truth.  Although the difference between the price a consumer would have paid had she known the truth and the price she actually did pay may constitute “injury in fact,” here plaintiffs failed to offer “a shred of evidence” that this was true in their case.  The only record testimony was from Donald Spencer, who testified:

[W]hen I started the game that—everything [Defendants] promoted was it was owned by the residents. If you created it it was yours. You owned it. It wasn't there for [anybody] else to take away from you ... [t]hat was one of the big draws for me and my friends to go there ... we could go in there and create as a group, you know, or even individually belonged to each one of us.

This wasn’t enough to show that he wouldn’t have bought or spent as much money for virtual land/items but for the misrepresentation.  Other possible evidence that plaintiffs didn’t present might have been about Second Life’s market share relative to its competitors before and after the “ownership” marketing campaign.  In addition, plaintiffs’ “inability to articulate a coherent remedial theory highlighted the absence of a concrete and non-conjectural injury.”  They asked for return of the entire price paid for land and tier fees paid to Linden, along with return of the transaction fees for item transfers.  But that’s not the proper measure if the harm was the extra price they paid because of the promise.

The court also found that plaintiffs failed to do more than recite the elements of a violation of the California Auction Law, and they didn’t show injury sufficient to confer standing under that law, which requires auctioneers to maintain various safeguards.

The court additionally found the main class definition overbroad and ascertainable—anyone who ever purchased or sold virtual land/items in Second Life.  Not everyone might have been subject to and injured by the alleged ownership misrepresentations.

The court then turned to the subclass, as to which defendants didn’t challenge standing.  On numerosity, the court looked at a random sample of 500 terminated accounts, in which 2 held virtual land at the time of termination (adding cases in which the terminated accounts had virtual items, lindens, or dollars would presumably increase the numbers).  From this sample, plaintiffs estimated that, of the 57,000 accounts Linden terminated, at least 228 held confiscated virtual land.  Defendants argued that plaintiffs only identified one person who bought virtual land under the pre-March 2010 ToS and then had it “confiscated” after, and that she was properly terminated for violating Second Life’s anti-fraud provisions.  But the problem wasn’t mandatory acceptance of the ToS, but rather account closures or suspensions, and the class could also include users whose items other than land (including lindens and dollars) were taken without compensation.  No matter what the reasons for termination were, plaintiffs alleged, Linden wrongfully confiscated the land, items, and currency in the accounts.  The sampling evidence therefore satisfied the numerosity requirement, “based on a common sense extrapolation of the numbers and considering the geographical dispersion of class members.”

As for commonality, the court identified several common questions: (1) whether the new TOS was unconscionable or otherwise unenforceable against Second Life users whose accounts Linden suspended or terminated; (2) whether subclass members have an “ownership” right in virtual land and virtual items; (3) and whether Linden has an obligation to reimburse them for virtual land, virtual items, or currency (either lindens or dollars) in a Linden-closed account.  The court rejected defendants’ alternate characterization that the primary issue was whether Linden wrongfully terminated any individual account.  The claims didn’t depend on whether an account was terminated for good cause.

Defendants made the intriguing argument that §230 provided them, essentially, a sword as well as a shield: that is, that if they confiscated valuable items in a user’s account because they terminated that user for violating Second Life conduct rules, then they were acting as an ISP to filter offensive conduct and were absolutely immune to non-IP claims.  Tentatively, I’d say that this doesn’t work, since the grant of ownership (if that’s what it was, on which I express no opinion) would operate as a separate source of rights—the claim isn’t based on the account closure (for which defendants should be immune under §230 for claims of consequential damages, harm to reputation, etc.) but rather on the stuff left in the account that Linden should have “returned.”  This seems to me not much different from an ISP contract for $10/month payable as $120 at the beginning of the contract; if the contract provides for early termination for bad behavior, but does not provide that the ISP gets to keep the whole $120 in case of such early termination, it doesn’t seem to me that §230 would bar a claim by the user to get the balance of her payment back.  It is the background law and the parties’ agreement, not the termination, that provides the basis of the claim/source of the wrong.  But perhaps Eric Goldman will disagree.

Anyway, the court didn’t get into the §230 weeds, but simply rejected defendants’ argument that the subclass claims would inherently devolve into individual adjudications. Whether §230 applied would itself likely present common questions of law, and such determinations could be made as to categories of reasons for account closure.  Thus, commonality was still present.

The putative class representatives who had their accounts suspended with valuables still in them also could satisfy the typicality requirement, though the putative class representatives who refused to log in and accept the new ToS couldn’t do so; the latter hadn’t lost valuables through Linden’s acts of account closure/termination/freezing.  Relatedly, defendants argued that named plaintiff Evans was inadequate as a representative because he had a demonstrated history of “abusive and obscene communications with other Second Life users and Linden personnel…. [H]is lewd, profane, violent, and threatening language toward other users has drawn over 100 abuse reports.”  Given this record of abusive and hostile conduct toward potential class members, the court was persuaded that there was a conflict of interest.  However, the adequacy of named plaintiff Hemingway was established, even though she loaned her computer to a friend, who then committed credit card fraud on Second Life.

The court then turned to the remaining certification requirements.  The court declined to allow certification under Rule 23(b)(1)(A) or (b)(2), despite plaintiffs’ claims for injunctive relief against enforcement of the ToS, since their primary goal was damages.  Nor was certification appropriate under Rule 23(b)(1)(B), since adjudication of their claims wouldn’t as a practical matter be dispositive of the interests of nonmembers—victory wouldn’t exhaust Linden’s resources.

But Rule 23(b)(3) was satisfied.  The court again rejected defendants’ claims that individualized inquiries into the reasons for account closure would be required.  “[A] predominant legal and factual inquiry is whether the TOS, which allows Linden to confiscate class members' virtual land and property, is unconscionable or otherwise unenforceable against Second Life users whose accounts Linden suspended or terminated,” and this was subject to classwide proof.  Also, classwide liability determinations should be possible using the dollar value of lindens and dollars, along with the price paid for virtual items and land; this would involve only ministerial review of transaction records.  The court didn’t accept this damage calculation method as a final ruling; it retained the possibility of modifying or decertifying the class as appropriate.

Defendants didn’t contest superiority, but they did contest ascertainability.  Given the clarification of the definition of the subclass, it should be easily ascertainable using Linden’s records.  If plaintiffs are correct that, even if subclass members’ accounts were validly terminated, Linden still owed them the value therein, then it should be possible to determine what was in those accounts.

Wednesday, November 28, 2012

Okay, very obvious joke

... but Nicholas Taleb appears to be a bit fragile.  I'm sad that the blogger didn't just add a big disclaimer at the top of the parody post (or even tell Taleb and his publisher to pound sand, but that's a personal decision).  I'm sure that now that the parody is gone, no one will accuse Taleb of egomania.

Routine California class certification highlights power of presuming reliance

Here, the California class is certified but the Pennsylvania class isn't, a stark reminder of how differently California courts treat material omissions in advertising:

Beck-Ellman v. Kaz USA, Inc., 283 F.R.D. 558 (S.D. Cal. 2012)

Plaintiffs moved for class certification of their claims of false advertising of Kaz heating pads, and the court granted the motion in part and denied it in part. Plaintiffs alleged that the pads contained known defects limiting their utility and creating dangers, but that Kaz failed to disclose these defects. About 5 million units were sold over eight years, over half of them in Pennsylvania and California. California plaintiff Beck-Ellman alleged that she bought a pad in late 2007 that injured her in early 2008. The Pennsylvania plaintiffs (Mahoy) alleged that they bought one in 2010, which injured one of them and broke in the process.

Beck-Ellman alleged violation of the UCL, FAL, CLRA, breach of warranty, and unjust enrichment. Mahoy alleged violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, breach of warranty, and unjust enrichment. They proposed certifying a California class and a Pennsylvania class, excluding anyone seeking damages for personal injury or property damage caused by the pads.

Numerosity was no problem. Kaz argued that differences in heating pads prevented commonality. But plaintiffs alleged that the ads for substantially uniform products were deceptive for a common reason. Differences in size, shape, number of heat settings, and washability of the pads didn’t matter if the ads/packages all contained the same material omissions, which was sufficient to create common issues among the class.

As for typicality, plaintiffs benefited by excluding personal injury claims; Beck-Ellman was typical of the class for purposes of the advertising related claims. Kaz argued, again, that the pads came in different versions and were bought in different places, online and in brick-and-mortar stores (how many stores are actually brick-and-mortar, I wonder?). But the omissions, and the pads, were sufficiently similar at this stage. Alleged differences in the applicability of the statute of limitations also didn’t defeat typicality. Kaz argued that Beck-Ellman was inadequate because she wasn’t bringing claims for personal injury or property damage, but it couldn’t claim she was inadequate for declining to assert a theory that could unravel the putative class. Any class member seeking recovery for such injury could opt out and sue.

The court therefore turned to the requirements of Rule 23(b)(3), which looks at predominance and superiority. Beck-Ellman’s consumer protection claims satisfied the predominance requirement, since they focused on Kaz’s alleged deceptive conduct across all the products. Individual reliance didn’t defeat predominance, because California looks at the reasonable consumer’s reaction, not the particular consumer’s; relief is available without individualized proof of deception, reliance, and injury. She’d also shown materiality for purposes of class certification, and because the omission was on the package, it was part of a common advertising scheme to which the entire class was exposed. The court likewise found common issues to predominate on her claims for unjust enrichment and breach of the implied warranty of merchantability, for similar reasons.

Damages, while invariably individualized, didn’t defeat class action treatment. Kaz had sales data that could be used to determine damages or restitution, and Beck-Ellman sought no unique remedy. Likewise, potential differences in the statute of limitations didn’t defeat predominance, given an otherwise sufficient nucleus of common questions. Statute of limitations issues could best be resolved at the merits stage, at which Kaz would be free to move for summary judgment. The court also found superiority, given the small individual sums at stake.

The outcome was different for the Pennsylvania class, since the court found that Pennsylvania consumer protection law requires proof of justifiable reliance, and that would apply to each plaintiff without a presumption of reliance from materiality. Though some cases suggested that Pennsylvania sometimes presumes reliance, the Third Circuit has stuck to an individualized proof standard and the court here agreed.

ABA Journal Blawg 100

I’m on the ABA Journal’s Blawg 100, which is very nice.  Thanks to all you readers & correspondents!  Eric Goldman is, of course, returning to the list.

Google raters' manual

Interesting document, of possible use for defendants in search engine cases: Google explicitly considers certain searches, like "iPad," ambiguous.

Tuesday, November 27, 2012

How to make a supercut: it's about power

There are a variety of things one might say about this Slate story, ranging from the fact that after 14 years it's still the case that, to a first approximation, no one who makes stuff understands 17 USC 1201, to the question of why supercuts fascinate some people (mainly, it seems, guys) while others go for political remix or vidding.  The creative heart wants what it wants, and what it wants is to use what it knows to make something new.  I certainly recognized the author/supercutter's description of what some might call "flow":
These aren't the most compelling three minutes you'll ever experience. But they were shockingly fun for me to build. Time whizzed by as I pieced the whole thing together. When I mentioned this to [technical consultant/friend] Chris, he told me he sometimes stays up all night working on an edit. "It's just the right balance of puzzle-solving, technical detail, and creative choices to keep your brain endlessly engaged," he explained.

I began to understand why all these folks are scrambling to teach themselves how to use editing software. Unexpectedly, I also got a taste of the supercutting urge. I think I now see what drives people to cut even in the absence of monetary reward: In the midst of scanning through all those New Girl scenes, plucking out bits and repurposing them, I noticed a new and unfamiliar little jolt of power was coursing through me. I had asserted my dominance over this slickly produced piece of media. The show was subject to my whims—defenseless against my editorial scissors. I could have done anything to it. Talked over it. Played farting sound effects. Slapped a photo of my face in the middle of the screen.

This sense of autonomy is something that would have been extremely difficult to achieve until the relatively recent past. Before digital formats and easy computer editing programs, an amateur like me would have had little hope of reshaping an entire TV series to fit his own vision. Now anybody with an idea and a laptop can play visual media god. "I sometimes feel like a magician," Chris told me when I confessed that my editing experiment was swelling my ego. "Editing is a powerful way to interact with the modern world."

Reading list: SEO manipulation

Victor Nilsson, You’re Not From Around Here, Are You? Fighting Deceptive Marketing in the Twenty-First Century, 54 Arizona Law Review 801 (2012).  Abstract:

Deceptive marketing has hurt consumers and business owners since the birth of promotional advertising. As the Internet increasingly inspires and dictates our consumption choices, even sophisticated business acumen and technological savvy are not enough to withstand the harmful consequences. While lawmakers and courts have fashioned remedies applicable to some misleading practices, sly marketers with deep pockets frequently find new ways to trick unsuspecting shoppers and seize market share. This Note therefore provides a novel interpretation of prior scholarship to recommend a solution to a particularly misleading marketing practice—deceptive search engine optimization—in order to bolster currently available, yet independently inadequate, alternatives. Although some of the problems associated with deceptive search engine optimization have caught the media’s eye as of late, a much-needed solution is heretofore unexplored in law review literature.

Spoiler: I doubt Eric Goldman will like the proposal.

Monday, November 26, 2012

Today's trademark question

How close is this denim bag to the Levi's red tab mark for jeans?
(Yes, that's a bone behind it.  Photo taken at the National Zoo.)

Brave new world that has such software in it

Right of publicity violation?  New porn services encourage people to uploadpictures; the services’ facial recognition technology will allegedly find pornperformers who are lookalikes for the subjects. 


Not that I'd ever put it in those terms to a student, but, really, in copyright: you have to read the statute.  For reasons not worth exploring at this juncture, I'm reading the briefs in Garcia v. Google, the case brought by the actress in the Innocence of Muslims case where she claims to own the copyright in ... something.  Her performance as fixed in the film, is the best way to say it.  One of Google's arguments is that, under the CCNV test, she was an employee working within the scope of her employment, and her lawyers' outraged response is that there was no written agreement making her contribution a work for hire.

17 U.S.C. 101: A “work made for hire” is—
(1) a work prepared by an employee within the scope of his or her employment; or  
(2) a work specially ordered or commissioned ... if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

While I express no opinion on the merits of Google's analysis of whether Garcia was an employee using the multifactor CCNV test, Garcia's claim would be more credible if Garcia's lawyers spent less time being wrong.

Saturday, November 24, 2012

Kids as less careful consumers?

This is in the doctrine, but it's a terrible lie.  More credulous consumers, yes, but when it comes to brand awareness, kids are exquisitely sensitive.  My son received a party favor from this company:
What did you get? I asked him.  "A Pezzy thing.  But not Pez," he immediately responded.  Who knew there was more than one brand of this thing?

Thursday, November 22, 2012

Math and advertising

Over at the informative All About Advertising Law blog from Venable, the authors ask "what does a lifetime supply really mean?"  They describe one calculation method that, as described, seems obviously wrong to me: "For the promotion, the company took the average life expectancy of a U.S. citizen, subtracted it by 18 (the minimum age of entry) and multiplied the difference by 365, representing one gumball per day."  Though the US is a low infant-mortality nation and the final number doesn't differ much, the proper calculation is life expectancy at age 18, which isn't the same as life expectancy at age 0 - 18.  Science is the lawyers' friend!

Wednesday, November 21, 2012

Reproduction and accuracy

The Art of Reproduction has taken images of famous artworks from across the web and created mosaics to show variations in color (as well as framing).  Here's 8 Kens and Roberts, after Mapplethorpe's Ken Moody and Robert Sherman:

The Hollywood Reporter on TM claims against films

One of the key sentences: "Nevertheless, for a number of technical legal reasons, some attorneys say that trademarks now serve as better weapons in court than more traditional copyrights, harder to defeat at the early stages of a lawsuit."  Unfortunately, the story suggests, Hollywood is learning the wrong lesson: try to interfere with legitimate uses (such as uses of public domain works or works whose copyright has been recaptured by the original author using termination of transfer) with trademark claims.  Let's hope that part is wrong.

Tuesday, November 20, 2012


So what happens if the cake you serve made using this Coca-Cola bottle shaped pan is terrible?
Also, browsing the Coca-Cola rewards pages suggests that there's no such thing as an unlicenseable product.  A Diet Coke scarf?  A Diet Coke makeup bag?  (Gender is also a big thing.  You can't get a Coke makeup bag, but you can get a Coke Zero apron to go with your chips 'n dip.)

Monday, November 19, 2012

Pictures or it's not false advertising

The FTC, as part of its efforts to increase compliance with rules around mortgage ads/disclosures, has released some mock ads to show what deceptive/noncompliant advertising looks like.  In the past, the FTC has also used mock ads to illustrate good and bad disclosures; I think this is a helpful way to give concrete guidance, going beyond the traditional focus on the words alone.

"original" claim as false advertising

Zobmondo Entertainment LLC v. Imagination Intern. Corp., 2009 WL 8714439 (C.D. Cal.)

This opinion is old, but Westlaw just coughed it up, perhaps because of a related jury finding that Zombondo infringed the Would You Rather …? mark and was liable for significant damages.  I’m going to write about the older opinion because it addresses an issue near and dear to my heart.  On these facts, in 1998, Zobmondo “introduced the first board game based on the traditional conversational game known as ‘would you rather.’”  Imagination later debuted its own board game titled “Justin & David's Original Would You Rather ... ? Board Game.”  Zobmondo alleged that “Original” constituted false advertising. 

Imagination moved to dismiss based on Dastar, and the court denied the motion.  Zobmondo pled that “original” falsely conveys that Imagination’s game was earliest/first in time, when it wasn’t.  The claim was not about who was responsible for originating the concept of the game, but rather who was the first to make a “would you rather” board game.  Thus, this was a claim of alleged misrepresentation about the production of the physical good.  Also, it was a §43(a)(1)(B) claim, as preserved by Dastar.  No interaction with copyright or patent law was implicated, nor would any determination be required of who came up with the idea of the board game.

In addition, the court found that “original” was not, as a matter of law, puffery.  Who made the first “would you rather” board game was not subjective and was falsifiable.  But Imagination was free to raise puffery later, if the evidence showed that no one would ascribe that particular meaning to “original” in this context.

Friday, November 16, 2012

Referential uses don't cause blurring: an example

I love clever ads that use another, noncompeting entity's trademark to make a point about the advertiser's own services--Tracfone's "Even Viagra couldn't make this hard" touting the simplicity of its calling plan is a personal favorite--and I just came across this actual litigated case involving one: Jennifer Leather's "Only Revlon has more colors."  Revlon Consumer Products Corp. v. Jennifer Leather Broadway, Inc., 858 F.Supp. 1268 (S.D.N.Y. 1994).  Given the age of the case, it's perhaps not surprising that there's no initial interest confusion argument; defendant prevailed, even against Revlon's state dilution claim, because Revlon couldn't show confusion and because there was no incongruity the court could see between the meaning of "Revlon" sought by Revlon and the meaning of "Revlon" invoked by Jennifer Leather.

Thursday, November 15, 2012


Fleischer Studios, Inc. v. A.V.E.L.A., Inc., No. 2:06-cv-06229 (C.D. Cal. Nov. 14, 2012)

The 9th Circuit withdrew its first opinion in this case, substituting one that affirmed the dismissal of Fleischer’s copyright claims and trademark claims based on the image of Betty Boop, while remanding for more clarification of the district court’s holding on the Betty Boop word mark.  Fleischer, the successor in name but not in interest to the original Fleischer Studios, had a registered trademark in “Betty Boop.”  The court of appeals reversed the ruling that the word mark’s fractured ownership history precluded secondary meaning, finding a triable issue of fact.  The district court has now provided that clarification, holding that defendants’ use of “Betty Boop” was, in context, aesthetically functional, nonconfusing, and fair use.

Defendants, like Fleischer, license Betty Boop merchandise.  Defendants’ merchandise incorporates elements from vintage movie posters (correction: some of the copyright status is disputed, but Fleischer isn't the copyright owner and has no standing to object on copyright grounds, per previous rulings); these elements include both images of Betty Boop and the words Betty Boop. 

While the original court of appeals ruling was withdrawn, the district court still found its reasoning “sound and applicable.”  Fleischer argued that there’s no such thing as aesthetic functionality in the 9th Circuit.  While the court here acknowledged “some confusion,” it found that Au-Tomotive Gold made clear that the doctrine, while limited, was nevertheless viable, and Job’s Daughters was still good law.  That case held that trademark law “does not prevent a person from copying so-called  ‘functional’ features of a product which constitute the actual benefit  that the consumer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored, or endorsed a product.”  To distinguish between these two poles, the court must examine the goods themselves, the defendant’s merchandising practices, and evidence of consumer reaction.  Au-Tomotive Gold set out a two-step test: the court must first ask whether an allegedly significant non-trademark function is essential to the use or purpose of the article or affects its cost or quality; if that’s not present, the court should still determine whether trademark protection would impose a significant non-reputation-related competitive disadvantage.

The district court examined the products, merchandising practices, and evidence of consumer reaction in the record, and found that, as a matter of law, defendants’ use was not a trademark use.  As in Job’s Daughters, the defendants used the words Betty Boop prominently on their products, including t-shirts bearing movie poster images, dolls, and packaging adapted from movie posters.  “Betty Boop” was a decorative component: “part and parcel of the aesthetic design of those goods.”  Defendants never labeled their merchandise “official” or otherwise indicated that it was sponsored by Fleischer, but rather identified defendants as the source.  Given the combination of “Betty Boop” as artistic design element and defendants’ own source-identification, “Betty Boop” simply couldn’t be seen as source-identifying.  Unsurprisingly, Fleischer didn’t present a single instance of consumer confusion as to origin or sponsorship.

Apparently treating “trademark use” and “aesthetic functionality” as separate but related inquiries, the court then held that these same considerations rendered the use of the words Betty Boop aesthetically functional.  Though the T-shirts would still be wearable without the words, and the dolls would still be toys, and would function in that sense (the court didn’t address whether this would affect the “quality” of the article, though I think it plainly would), “protection of the feature as a trademark would impose a significant non-reputation-related competitive disadvantage” on defendants.  Defendants are entitled to market goods with Betty Boop’s image, but those products would be less marketable than the same product without the name, because Betty Boop names the famous character depicted on the goods/movie posters.  (This is also understandable as a genericity ruling.)  For example, one doll’s package has imagery from a Betty Boop movie poster, and a product tag that’s a miniature reproduction of the poster.  The poster says: “Adolph Zukor presents BETTY BOOP with HENRY the Funniest Living American.”

Removing the words BETTY BOOP from these items would render  the textual aspect of the poster reproductions incomplete and the remaining words would be nonsensical.  It would be obvious to the average consumer that such merchandise would be missing something. Clearly, merchandise that is missing something is less marketable and therefore at a competitive disadvantage.

Also, given that the use wasn’t source-identifying and didn’t trade on any source’s reputation (as opposed to the reputation of Betty Boop, which defendants were free to provide), barring defendants from using the words would impose a significant non-reputation-related competitive disadvantage.

In the alternative, the use was descriptive fair use.  It referred to a characteristic of defendants’ products: they featured Betty Boop. Whether a use is “otherwise than as a mark” depends on several factors in the 9th Circuit, including whether the term is used to attract public attention and whether the user took precautions such as labeling to minimize the risk that the term would be used in its trademark sense.  Here, the use was in connection with products bearing Betty Boop’s image.  “It is extremely unlikely that a prospective consumer would understand those words as identifying the source of the goods rather  than merely naming the character.”  And defendants indicated themselves as the source.  As a matter of law, this was use other than as a mark.

Likewise, there was no triable issue on whether defendants were using the words in their descriptive sense: there were no other words available to describe Betty Boop, and the words “self-evidently” describe the goods.  (This result could also have been achieved with nominative fair use, though that would presuppose the validity of plaintiff’s mark.)  Given that defendants had the right to use the character despite Fleischer’s objection, they must necessarily therefore be able to identify the character by name.  And no jury could find bad faith in the sense of intent to capitalize on Fleischer’s goodwill, because defendants weren’t using the mark as a source-identifier.

Finally, just in case you were worried, there was no triable issue of fact on likely confusion. The court didn’t run through the Sleekcraft factors because of the absence of trademark use.  That test assumes that the defendant’s use is a trademark use, referring for example to the similarity of the “marks” and defendant’s intent in using the “mark.”  Here there was no source-identifying use, and thus no way that the use could create the impression that the goods originated with anyone in particular.  Fleischer invoked the doctrine of legal equivalents—words and pictures that have the same meaning can be confusingly similar.  Thus, Fleischer argued, the court should find that images of Betty Boop infringed the Betty Boop word marks.  Yes, they were equivalents, but that didn’t help Fleischer, since there was still a trademark use requirement, and Fleischer didn’t argue, much less show, that defendants’ use of the Betty Boop image was a trademark use.  She didn’t look the same on all of the goods, so that was evidence against use as a mark, along with all the reasons that defendants’ use of the name wasn’t source-identifying.

Wednesday, November 14, 2012

Descriptive trademark means uniqueness claim wasn't false

Continental Datalabel, Inc. v. Avery Dennison Corp., 2012 WL 5467667 (N.D. Ill.)

Continental and Avery compete in the market for self-adhesive address labels.  Continental sued for patent infringement, unfair competition/false advertising, and tortious interference with its dealings with Staples and Office Depot.  The patent claims were stayed pending reexamination.  The court here granted summary judgment to Avery on the Lanham Act and tortious interference claims.

In 2006, the parties began to market easier-to-peel labels: Avery’s Easy Peel and Continental’s FastPly.  Each product’s backing sheet was perforated, allowing them to be torn into columns that exposed the edges of the labels.  This enabled easier peeling than traditional backing sheets did.  In 2008, Avery introduced its next generation of Easy Peel labels, which could be folded rather than torn and thus a partially used sheet could be flattened and even re-run through a printer.  Avery’s instructions advised users not to put a sheet through a printer more than once, but many consumers did so, and Staples saw this capability as an advantage.  Rather than revamping the FastPly labels, Continental tested them and concluded that they could also be folded to make the labels “pop up” without needing to be torn.

Avery’s 2008 advertising materials claimed “Only Avery label sheets bend to expose the Pop-up Edge™” and “Only Avery offers the Pop-up Edge™ for fast peeling—just bend the sheet to expose the label edge.”  Avery also applied to register Pop-up Edge with the PTO; its application was granted in 2010, and Continental didn’t challenge its validity.

Continental unsuccessfully sought to place its products in Staples and Office Depot, allegedly because of Avery’s threats to sue for patent infringement, despite not having relevant patents at the time (a patent was later granted).  Two Continental officers were told by Staples and Office Depot representatives that those retailers feared a patent suit from Avery, as did others.  In 2009, an Avery rep sent an email to Staples stating, “Once the patents are granted Avery will aggressively defend its IP [intellectual property],” and an internal Avery document from mid–2008 referred to the Easy Peel labels as a “Patented Avery Exclusive” well before Avery had actually been granted a patent.

The Lanham Act claim was that the “Only Avery” statements were false because FastPly labels could also be folded to expose their edges without being torn.  The court began by quoting the unfortunate, intent-heavy language from Schering-Plough: “‘literal’ falsehood is bald-faced, egregious, undeniable, over the top.... The proper domain of ‘literal falsity’ as a doctrine that dispenses with proof that anyone was misled or likely to be misled is the patently false statement that means what it says to any linguistically competent person.”

Plainly, the “Only Avery” claims were that only Avery had something called “the Pop-up Edge™.”  But what was that—the generic feature of bendability so that edges pop up, which for purposes of this motion the court assumed that FastPly also possessed, thus making the claim false?  Or instead a trademarked feature—the particular version of that function carrying the “Pop-up Edge” name—which would be true? 

This is where falsity by necessary implication would be very useful.  The “only Avery” claim doesn’t make sense as a reason to buy unless the claim is about functionality—why would a consumer care that the name of Avery’s implementation of the functional feature is trademarked?  But the court didn’t agree, and instead held that no reasonable jury could find that Avery was referring to the function instead of the mark.  LensCrafters, Inc. v. Vision World, Inc., 943 F.Supp. 1481 (D. Minn.1996), supported this—the court there held that claims to be the exclusive supplier of “Featherwate” lenses wasn’t false even though identically composed unbranded lenses were widely available, and Featherwate was just as descriptive as Pop-up Edge was.

Analogizing to a far more famous mark, Avery argued that while a McDonald’s ad claiming “only McDonald's serves hamburgers with quarter-pound patties” would be literally false, an ad that “the Quarter Pounder® hamburger is available only at McDonald's” would not be false.  I think this analogy proves the exact opposite: the non-TM-claimed parts of the statements “Only Avery label sheets bend to expose the Pop-up Edge™” and “Only Avery offers the Pop-up Edge™ for fast peeling—just bend the sheet to expose the label edge” explicitly refer to the functionality of the pop-up edge, thus directing consumers to think about the descriptive aspects of the phrase even if it also has trademark significance, similar to the false “quarter-pound patties.”  Likewise, note that Quarter Pounder, not Quarter Pounder hamburger, is the mark for McDonald’s, while for Avery the claimed mark states the whole product feature, again making it more likely that consumers would understand the claim to encompass the feature and not just its source.  (In other words, the fact that Avery’s mark is for a feature, not for a product or service as a whole, the way a traditional trademark is, may well affect consumer understanding.)  

Since no reasonable jury could find literal falsity, the court turned to misleadingness.  Continental offered an expert survey of likely users of self-adhesive labels.  The test cell used the “Only Avery” statements and the control cell used the same statements without “only” and “unique.”  The questions:

What does this sentence communicate or say regarding how many label companies offer this feature? (Read each possible answer and then choose one)

______ No label company offers this feature

______ Just one label company offers this feature

______ Two label companies offer this feature

______ Three or more label companies offer this feature

______ This sentence does not say how many label companies offer this feature

In the test cell, 82.1% or 82.5% selected “just one label company offers this feature,” while 34.4% and 36.7% of the control group did so. But the court found that this survey just proved the unremarkable proposition that “only” and “unique” convey exclusivity to many consumers.  But the pertinent question was not exclusivity, but exclusivity as to what, and the survey didn’t answer that question.  Thus, there was no evidence of misleadingness, and summary judgment was granted to Avery.

Continental also lost its tortious interference claim because it couldn’t show an intentional and unjustified interference that induced or caused the loss of a business expectancy.  Had Avery claimed to hold a patent, not just a pending patent application, or had it claimed that it was going to sue for infringement of its patent application, those statements would have been false and unjustified, but Continental didn’t provide enough admissible evidence from which a reasonable jury could find that Avery actually made either of those statements.  Continental’s witnesses testified that Staples and Office Depot believed that Avery, rather than Continental, had a patent on the product, but their testimony was hearsay.  Avery’s direct statement, which was in essence that it would sue anyone it saw as an infringer once its patent was granted, wasn’t false, and in fact federal patent law would preempt any state law imposing liability for warning of potential patent litigation, without bad faith, and there was no evidence of bad faith.

Tuesday, November 13, 2012

Oral music deal leads to multiple claims and Dastar problems

Ward v. Mitchell, 2012 WL 5301475 (N.D. Cal.)

Matthew Ward alleged that he was a famous musical recording artist and songwriter. In 2001, he wrote fifteen compositions for an album, “End of Amnesia,” released by defendants.  He alleged that Mitchell repeatedly represented that defendants would enter into a written agreement to pay him for the right to use the sound recordings and musical works in “End of Amnesia,” but never did so.  Still, Ward created sound recordings of his compositions and allowed defendants to hold the masters pending a written agreement.  Ward registered the copyrights in 2005.

Ward initially filed a state court lawsuit alleging that defendants were selling his material without a license, then dismissed and refiled in federal court when it was pointed out that copyright claims are subject to exclusive federal jurisdiction.  (The specter haunting the claims here, it seems to me, is Rano v. Sipa Press, 987 F.2d 580 (9th Cir. 1993), which holds that even an oral, nonexclusive license is not revocable until the 35-year period has passed in the absence of a different express or implied period; while breach could entitle Ward to terminate the license, in the 9th Circuit he’s otherwise out of luck.)

The court rejected the argument that the entire claim was barred by the statute of limitations; the complaint only sought damages for the last four years, and damages from beyond that period would likely be barred, but no determination needed to be made without a record.  Ward also adequately pled a claim for breach of an oral contract, including a promise to enter into a written agreement, and a claim for fraud.  However, the court also denied a request for judicial notice of a C&D email from Ward’s attorney, which if properly authenticated would be “strong evidence” against the fraud claim.  “Also, it is worth noting that one can only wonder, if the allegations are true, why plaintiff sat on his rights for almost a dozen years, knowing full well that he had been defrauded; still, we are only at the pleading stage and the claim must go forward.”

Plaintiff’s claim for conversion of the master recordings also survived, though not his claim for conversion of profits from the sale of the album, since a claim for generalized money isn’t a conversion claim.

Ward’s California UCL claims were that “defendants attempted to take complete control over the copyrighted works and profitably promoted their record label by representing to the public that they had the authority and consent to exploit plaintiff's copyrighted material.”  (Though not raised by defendants, put this way the claim seems like an excellent candidate for preemption based on Dastar.  If the Lanham Act would conflict with the Copyright Act when interpreted in this way—where the alleged misrepresentation comes, as far as I can tell, from mere sales/distribution of works labeled truthfully as being written & performed by Ward—then conflict preemption would also get rid of a state law claim premised on the same allegations.  Admittedly, few courts have noticed this; and see below.)

The court found this claim unclear about the underlying violation of the law.  And to state a claim based on the fraudulent prong of the UCL, the complaint must satisfy Rule 9(b), which it didn’t—general claims of deception based on defendants’ “representing ... that they have the authority and consent to exploit [p]laintiff's copyrighted material” were insufficient.

Ward also brought right of publicity claims, as to which defendants did argue preemption.  Here, at the pleading stage, the court found that the allegations went beyond rights equivalent to any of copyright’s exclusive rights: misappropriation of Ward’s identity for the purpose of promoting defendants’ record label and website.  That went beyond being based entirely on alleged unauthorized distribution of copyrighted material.  (I’m assuming that if it turns out that the website just says “we are proud to have End of Amnesia in our catalog,” or some such, this claim fails.  At least I hope so.  Also, note that Dastar conflict preemption would go beyond §301, all that’s analyzed here, and I think Dastar would definitely cover the “we are proud” hypo.)

Ward’s Lanham Act claims were similar: that “by using his name, likeness, and musical works within the promotion of defendants' business and record label, defendants have deceived the public into believing that plaintiff is affiliated and/or participating in the promotion.”  In addition, Ward alleged that defendants “deceived and confused the public into believing that defendants have the authority and consent to sell and/or distribute plaintiff's musical compositions, constituting unfair competition.”  The court found that this failed to state a claim for false designation of origin (not mentioning Dastar) but did state a claim for “false representation in advertising/promotion.”  Obviously, there are a bunch of post-Dastar cases that are relevant here, and perhaps they’ll get a workout later.  (Even if this claim survives Dastar, would a consumer’s belief as to defendants’ “authority and consent” be material to a purchasing decision?  Seems unlikely if the works really were written and performed by Ward; why would a consumer care about the details of the contract?)

Fair use question of the day

Overthinkingit's deconstruction of Call Me Maybe, originally blocked on YouTube.  Maybe young Harvard guys are more acceptable than Foucault?  In comments, Fred von Lohmann speculates (disclaiming any specific knowledge) that perhaps Overthinkingit made use of YouTube's dispute resolution mechanism, but that would still leave the interesting question of why a stop-start rendition interspersed with commentary, which clearly couldn't function as a replacement for the official video, needed to use the dispute resolution mechanism when, for all that I can tell, the lipsyncing Harvard guys never did.  One possibility is that even with the commentary the use of some clips of the official video triggered an automatic filter because of the sound/video match.

My former colleague David Vladeck at the FTC

Via Consumer Law & Policy Blog, here's an Adweek story on the FTC's revitalized approach to false and misleading advertising, and BCP Director Vladeck's role in it.

Monday, November 12, 2012

News for storage jars who vote

This NYT article on the Obama campaign's behavioral marketing discusses the "dream team" of researchers who communicated what marketers (often aided by members of this very team) have long known about selling products and services.  The team included Robert Cialdini, whose Influence is a must-read for any advertising lawyer.


I spent half of the time watching Revenge's interstitial ads starring many cast members last night confused about why Neiman Marcus had copied Target's logo for its holiday line.  Turns out they're in a partnership!  It didn't seem that the retailers got placement in the show itself, but they did get exclusive sponsorship in the national ad slots (local broadcasters could add in their own ads) and their ads/mini-episode will also run when the show streams online.

So does this make the main show's mention of Narciso Rodriguez a commercial use?

Saturday, November 10, 2012

Safeway and Alfred Bell v. Catalda

Via Ben Golant, this Cake Wrecks post indicates that Safeway attempts to stop intrepid bloggers from taking pictures of their disasters (scroll down for a funny, NSFW Halloween example) by claiming copyright even on masterpieces like this one:
So, apparently they are taking seriously Judge Frank's instruction:
A copyist's bad eyesight or defective musculature, or a shock caused by a clap of thunder, may yield sufficiently distinguishable variations. Having hit upon such a variation unintentionally, the 'author' may adopt it as his and copyright it.
Though I'm tempted to ask how long that thunderclap lasted, in this case.

Friday, November 09, 2012

Fox and frauds: Cablevision spat is breach of contract, not false advertising

In re Cablevision Consumer Litigation, 864 F. Supp. 2d 258 (E.D.N.Y. 2012)

Plaintiffs sued Cablevision for not giving them credits for a 2-week period in 2010 during which they couldn’t watch Fox channels because of a licensing dispute between Fox and Cablevision, allegedly because Cablevision rejected numerous reasonable proposals.  Cablevision’s terms of service include a provision for giving customers credit for each “known program or service interruption in excess of 24 hours,” which Cablevision didn’t do here (with a small exception for customers who ordered extra World Series coverage).  Here, the breach of contract claims survived because plaintiffs’ interpretation of the ToS was a reasonable one, while the claims for breach of the covenant of good faith and fair dealing and the state law consumer protection claims failed.  The court also dismissed plaintiffs’ request for an injunction requiring Cablevision to do better in its contracts with content providers.

The consumer protection claims were under the laws of New York, Connecticut, and New Jersey.  First, the court held that Rule 9(b) didn’t apply to the NY claims at least where the alleged conduct didn’t involve an affirmative misrepresentation, but didn’t need to resolve the issue because the claims flunked Rule 8.  NY’s GBL §349 requires (1) a consumer-oriented practice that was (2) materially misleading or deceptive, and (3) that caused the plaintiff resulting injury. 

Here, the allegations were that Cablevision represented that it would carry the Fox Channels despite having reason to know that an interruption of that service was imminent, failed to warn subscribers in advance that the Fox Channels would be disconnected, billed for service in advance and later failed to credit subscribers for the disruption.  But plaintiffs didn’t specify any affirmative misleading representations, and the alleged omission wasn’t objectively misleading.  Cablevision’s lineup wasn’t set in stone, and the ToS explicitly contemplated service and program interruptions, so the alleged omission couldn’t have misled a reasonable consumer into believing that no service interruptions would occur. Failure to provide a credit didn’t count as a deceptive practice, because that was a mere breach of contract claim, which is generally insufficient to state a §349 claim.  For the same reasons, §350, which bars false advertising, was no help.

Connecticut’s Unfair Trade Practices Act bans “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce,” which also covers practices that violate public policy. But here too the claims failed because they merely stated “a breach of contract claim in disguise,” with no aggravating circumstances.

Likewise, New Jersey’s Consumer Fraud Act didn’t apply.  In cases of wrongful omissions, the NJCFA requires a showing that the defendant acted with knowledge, and plaintiffs didn’t allege that Cablevision intended to mislead customers by not timely advising them of the impending cutoff.  The NJCFA also requires more than a mere breach of contract.