I know it's really serious

In light of recent discussions about Glee's cover of Jonathan Coulton's arrangement of Baby Got Back, have some Rockabye Baby, offering lullaby covers of Rush, the Smiths, etc.  Has the fundamental character of Tom Sawyer been changed?  What about Girlfriend in a Coma?  (For what it's worth, this type of cover is why I've always assumed that there is in practice essentially nothing that changes the basic melody or fundamental character of a work for purposes of the cover right.)

HT Zach Schrag.

Terminator Too: Judgment Play

From the creator of Point Break Live, fresh from a court victory finding that her interactive retelling of the Kathryn Bigelow/Keanu Reeves movie was a fair use and thus that another theater couldn't use her script even with a license from the owners of the copyright in the Bigelow/Reeves original, comes this gem, which almost makes me wish I were in LA to see it.

reading list: Coding Freedom

E. Gabriella Coleman, Coding Freedom: The Ethics and Aesthetics of Hacking: Free download available. Coleman argues that free/open source software forms a kind of lifeworld for programmers deeply embedded in it, which provides a source of pleasure (and frustration) as well as a very limited kind of politics that seeks effectiveness from being deliberately unconnected to other kinds of politics. Hackers meld commitments to free speech and individualism with deeply embodied pleasure in losing themselves in coding and collective action in service of self-chosen goals: “a liberal politics of free speech and liberty that speaks to an audience beyond hackers as well as a nonliberal politics of cultural pleasure and political detachment, which is internally and intensely focused on the practice of hacking only and entirely for its own sake, although certainly inspiring others to follow in their footsteps.” They endorse liberal ideals while also valuing unalienated labor (often enough in their off hours, working for The Man during the day).

Random thoughts: I had no idea that Unix got its name from “eunuchs,” describing that it had been “cut down” from a previous OS, Multics. I was struck by the commonality of fannish language/commitments, such as the deep enjoyment of conventions that bring together people who usually only communicate online, or the developer who said:

What really grabbed me was the community. That was what really grabbed me, and you have to understand at the time, it was a completely foreign notion. [ . . . ] I had stumbled on this group of people that were interested in the same things that I was interested in that had, basically for no particular reason, built this thing, this operating system, and it actually worked, and I could do my work in it and I had not paid a dime for it; they did not ask anything of me when I downloaded it or used it.

Coleman also discusses the different political orientations at work, comparing Eric Raymond’s desire to make open source compatible with the business world to Richard Stallman’s anticapitalism. Raymond argued that economic success would “allow [hackers] to reap enough social capital so that they could escape a cultural ghetto of marginalized nerdiness.” Meanwhile, a conflict with copyright as it had been understood was brewing, and open source partisans had to learn how to articulate legal arguments as they attacked copyright control, wrote their own licenses, and turned copyright back on itself to preserve the openness of their work through open source licensing. Here Coleman posits a particular orientation towards legal interpretation, arguing that

the skills, mental dispositions, and forms of reasoning necessary to read and analyze a formal, rule-based system like the law parallel the operations necessary to code software. Both, for example, are logic oriented, internally consistent textual practices that require great attention to detail. Small mistakes in both law and software— a missing comma in a contract or a missing semicolon in code— can jeopardize the system’s integrity and compromise the author’s intention.

But this is not nearly as true in law as it is in software—computers are so dumb that they only do what you tell them, but humans, including judges and other legal actors, have intentionality. They are capable of doing what you meant them to do, especially if that’s consistent with other commitments they have. And in DMCA cases, one of Coleman’s case studies, several courts have done exactly that, refusing to apply the DMCA to attempts to control markets for garage door openers and printer toner cartridges even though the language of the law on its face would cover them because they contain copyrighted works. Nor do many laws—say, for example, what constitutes a derivative work or even boundary cases of fair use—have the clean edges of things like copyright duration, where there is in fact a right answer independent of one’s other commitments (albeit an answer that’s often aggravatingly hard to come by).

What’s interesting about Coleman’s explanation, though I have no doubt she’s accurately reporting how hackers experienced the legal encounter, is that they were working not in a right-answer area but, in wording licenses, regularly confronted the legal ambiguities that are also bog-standard in law. For example, the popular Creative Commons Noncommercial license doesn’t define “noncommercial,” and it turns out that its users are deeply divided on what that might mean; e pur se muove.

Thus, I’m even more struck by Coleman’s observation that, while learning the law often leads to cynicism among hackers and non-hackers, hackers weren’t frustrated by the process of learning in the way non-hackers often are. I take it that they felt that the apparent arcana weren’t all that different from the specialized language and language-rules they already learned. But taken too seriously, that treatment of law as code in the sense of computer code leads to people deciding that the income tax is unconstitutional, or that they can’t be tried in courts that display flags with fringes on them, or that they can copyright their own names. Still, most people end up understanding that there’s more than one way to do things in law, and that input and output are not solely determined by the language of a statute or contract.

Coleman addresses the spread of F/OSS, which she argues was enabled by hackers’ refusal to engage with standard conservative or liberal ideologies, avoiding polarization and ghettoization. And yet that goes only so far. Of Larry Lessig, she says, “Part of [Lessig’s] success can be attributed to the fact that he, like F/OSS geeks, is reluctant to portray his work as political; instead, he prefers to articulate his position either in terms of a constitutionality that sits above the fray of politics or in terms of the importance of cultural preservation.” Except not really! Lessig recognized the severe limits of that strategy post-Eldred, when he made an explicitly political turn and proclaimed that there will be no real legal improvement, in copyright or otherwise, without reform of the process of buying elections.

Indeed, to me, Coleman’s discussion of Lessig skirts the trap she so clearly identifies: the idea that online production can happen without organization/institutions, which as she says was an attractive meme because it “perfectly meshes with, and thus supports, dominant understandings of freedom, agency, and individualism.” She specifically points to Clay Shirky’s Here Comes Everybody, with its subtitle The Power of Organizing without Organizations. “Although many of his observations about digital dynamics are illuminating, and many of the examples he draws on, such as meet-up groups, remain informal, many others that he discusses, such as Wikipedia and Linux, were by 2006, organized, and as such, some type of organization.”

 I’d extend this to politics: at some point, if you want your organization to work, you have to get in the game, and that means showing up in political contexts, whether that’s before an administrative agency, in court, or before Congress. And open source organizations have done so—litigating in the US and other countries to enforce an open source license; participating in Brazil’s attempt to go officially open source, etc. (Obviously I have an agenda here too—not for nothing is it the “Organization for Transformative Works.”) Coleman explains how certain kinds of organizations can maintain that they don’t fit along the Right/Left axis, and thus that they aren’t political, but as she notes, the “and thus” is itself a political claim, and not ultimately a very convincing one (to me; she leaves this to the reader).

calculation of remedies and vicarious liability under California consumer protection law

People v. JTH Tax, Inc., -- Cal. Rptr. 3d --, 2013 WL 177140 (Cal. App. 1 Dist.)

JTH, doing business as Liberty Tax Service, unsuccessfully appealed from a large judgment against it, awarding the people of the state of California about $1.169 million in civil penalties, ordering Liberty to pay roughly $135,000 in restitution, and permanently enjoining Liberty in several ways for violating state and federal lending, unfair competition, consumer protection, and false advertising laws.  I won’t discuss the federal Truth In Lending Act claims.

Liberty provides tax preparation and related loan services (refund anticipation loans and “electronic refund checks”), with 195 franchised stores in California, and two company-owned stores during part of the relevant period, all doing business as Liberty Tax Service.  The AG’s lawsuit claimed that Liberty and its franchisees made misleading or deceptive statements in ads, and also had inadequate disclosures on Liberty’s RAL and ERC applications about various costs/risks to consumers.  Liberty made a lot of money from RALs and ERCs, including in California; it got percentages or flat fees from the banks with which it worked, and RALs and ERCs also cross-subsidized its tax preparation services, which was important because many of its customers couldn’t afford to pay for them out of pocket. 

The trial court found that Liberty’s handling fee charged to ERC customers was an undisclosed finance charge in violation of TILA (since an ERC was a form of credit allowing delayed payment for tax preparation services), and that the failure to disclose this also violated the UCL and FAL. Second, the trial court found that using “cross-collection” to collect tax refund loan debts from prior transactions, including non-Liberty transactions, was deceptive, unfair, and illegal.  (This could occur when consumers’ prior RALs were larger than the refunds they ultimately received; because a RAL was a loan, they remained potentially liable on the debt.)  Third, the trial court found that certain print and TV ads were likely to deceive within the meaning of the UCL and FAL; Liberty was liable for its own ads and those placed by California franchisees.  Among other things, Liberty was enjoined from directly or indirectly representing a RAL as an actual refund, and from failing to state conspicuously that the product is a loan and including the name of the lending institution and the fee or interest it will charge.

The court of appeals upheld the determination that Liberty’s cross-collection practices violated multiple state laws along with the federal Fair Debt Collection Practices Act (FDCPA).  Liberty waived its arguments about the fraudulent and unfair prongs of the UCL and about the FAL, so the court didn’t need to reach other bases for liability.  Liberty was responsible for bringing customers to the banks, soliciting loan applications and getting consumers to sign applications that authorized cross-collection.  These authorizations covered any unpaid RAL debts, whether owed to Liberty or to anyone else, and whether the debt was stale or otherwise uncollectable.  The trial court found that both unsophisticated and reasonable consumers were unlikely to recall the details of such debts, particularly those “incurred far in the past and perhaps in connection with a loan issued by a different lender and/or obtained through a different tax preparer.”  Consumers had no meaningful notice of whether there was a claim against them before they authorized the cross-collection; they thus lost the right to dispute the debt, and thus the practice was deceptive, unfair, and in violation of the FDCPA.  The cross-collection authorization “appeared on the second or third pages of lengthy and complex contracts that on their face had nothing to do with debt collection, making it unlikely that applicants would read and understand the significance of the information.” 

The trial court found that Liberty had wrongly attempted to collect an extant debt as to 118 customers from 2002 to 2005 and imposed $118,000 in civil penalties under the UCL and FAL, given that the violations were serious, persistent, and long-standing.  Even if Liberty’s construction of the state and federal FDCPA and the CLRA were correct and its conduct was not “unlawful,” it didn’t address the trial court’s finding that Liberty’s practices were fraudulent and unfair.

Liberty also challenged its liability for franchisee advertising.  The district court explained that a franchisee can be a franchisor’s agent, depending on the extent of the franchisor’s control.  Franchisors face “the Scylla of failing to exercise sufficient control to protect their marks, and the Charybdis of exercising so much control they are vicariously liable for the torts of the franchisees or other licensees.”  (It’s not clear to me why this is Scylla and Charybdis: in seeking the benefits of franchising, franchisors of course don’t want to be responsible for their franchisees’ bad behavior, but why should the legal system honor that desire while still deeming them in total control of their marks?)  Anyway, the trial court determined that its agency inquiry had to focus on “the extent to which the control reserved to the franchisor plainly exceeds that required to police the mark, which is control so pervasive that it amounts to complete or substantial control over the daily activities of the franchisee's business.”

This was the right standard.  Though a couple of other cases have said that “vicarious liability” isn’t available in an action for unfair business practices, the key case with that language involved only “reverse vicarious liability,” meaning that “officers and directors are not automatically (vicariously) liable for the acts of the company that employs them.”

The trial court pointed to Liberty’s operations manual, which showed a right of control far in excess of that needed to police the mark:

Liberty required franchisees to offer RAL's and ERC's via banks mandated by Liberty; prohibited franchisees from offering products and services without Liberty's permission; mandated franchisees' minimum operating hours, computers to be used, and day-to-day tasks such as how to open the store and when to clean the bathrooms; reserved the right to intervene in disputes with customers, including the right to pay refunds directly to customers and bill the franchisees for them; required franchisees to commit to maintaining Liberty's prescribed filing system and the setup for the tax return processing center; and controlled franchisee pricing by controlling the discounts franchisees could offer at different times of the year.

The trial court also emphasized Liberty's “particularly extensive” right of control over franchisee advertising, which Liberty used to not only protect its marks, “but also to dictate business strategy to franchisees.”  For example, it controlled discounts because of its beliefs about customers’ price sensitivity over time, and barred certain advertising as “a waste of time and money.”  The operation manuals provided detailed advertising instructions divided by time of year; mandated extensive pre-approval; and provided samples.  Liberty was “literally providing a detailed, step-by-step guide for every aspect of marketing and advertising.” Further, Liberty retained an open-ended right to modify the manual without franchisees’ consent; its essentially complete control over operations, specifically over advertising, exceeded that reasonably necessary to protect the mark.  Thus, at least for purposes of advertising, Liberty’s franchisees were its agents.

As a result, Liberty was responsible for more than 100 illegal ads by Liberty franchisees, including 43 ads that falsely promised “most refunds in one day” or a variation on that theme, including four specifically approved by Liberty, and 67 ads that unlawfully omitted mandatory bank name and lender fee disclosures.

The court of appeals approved the trial court’s reasoning.  Liberty argued that it didn’t exercise day-to-day operational control and that franchisees were solely responsible for training, hiring, firing, and supervising their employees; outfitting their offices; complying with all laws; and choosing how many offices to operate.  They also had discretion to select among marketing methods, design ads subject to Liberty’s approval, and pick a marketing budget.  This wasn’t enough to save Liberty under California law; it wasn’t essential that the right of control be exercised or that the principal actually supervise the agent’s work.  The existence of the right established the agency relationship. 

It was true that the franchisor-franchisee relationship allows certain controls to protect the franchisor’s marks and goodwill without transforming the relationship into one of agency.  But it was also true that the franchisor’s “unique interests” don’t remove agency liability “if the franchisor exercises a right of control that goes beyond its interests in its marks and goodwill.” This was a question of fact, and the trial court articulated the correct standard.  Since there was substantial evidence to support its findings, they would not be disturbed. 

Liberty required preapproval of all ads, which it used not just to protect its marks and goodwill but also to control business strategies and tactics; there was evidence that it rejected certain ads for being inconsistent with its pricing strategies.  The trial court specifically found that Liberty controlled RAL- and ERC-related ads and disclosures.  Rejecting ads because it was “good for business,” as Liberty argued, wasn’t coextensive with “protecting the goodwill in its mark.” The court of appeals wouldn’t reweigh the trial court’s conclusions.

In another case, the California Supreme Court suggested in dicta that a Ford dealer might not be responsible for a salesperson’s false statement if it showed that “it made every effort to discourage misrepresentations; had no knowledge of salespeople's misleading statements; and, when so informed, refused to accept the benefits of any sales based on misrepresentations and took action to prevent a reoccurrence.”  Liberty argued that it qualified for this “exception,” but the discussion in the Ford case indicated that this was a question of fact for the trial court, and the undisputed facts did not show that Liberty made “every effort” to discourage misrepresentations. 

Though its manual prohibited use in any advertising of the phrases “instant refund” or “refunds in 24 hours,” the evidence indicated that Liberty became aware of the unapproved ads “sort [of] by happenstance” and didn’t then put a system in place to monitor them, for example by checking Pennysaver, the publication where the unapproved ads were showing up.  There was evidence that it let the problem slide for 2 years, while dozens of ads began appearing in Pennysaver that improperly promised such things as “Most Refunds in One Day,” “Get $1200 in Minutes ... And the Rest of Your Tax Refund in 24 Hours,” “Most Refunds in 24 Hours” and “Got W–2? 24 Hour Refunds.”  After an early low-level contact with Pennysaver failed, Liberty didn’t reach out to a senior executive until six months after the AG found the illegal ads and two months before trial.  Liberty argued that it took reasonable steps, but that wasn’t what the Ford exception would require, which was “every effort.”

The court of appeals then affirmed the civil penalties under the UCL and FAL.  The penalty for each violation can’t exceed $2500 (though the UCL and FAL penalties are cumulative), but what counts as a “violation” depends on the facts and circumstances. The trial court’s ruling on this is reviewed for abuse of discretion.  Each copy of a newspaper shouldn’t count as a “violation,” because that could easily lead to outsize liabilities.  But a single edition of a newspaper isn’t necessarily, as a matter of law, a single violation either.  Instead, a single publication constitutes a minimum of one violation, with as many additional violations “as there are persons who read the advertisement or who responded to the advertisement by purchasing the advertised product or service or by making inquiries concerning such product or service.”  This is reasonably related to the gain or opportunity achieved by disseminating a deceptive ad.  Expert testimony and circumstantial evidence could provide the necessary proof.  Other factors bearing on the determination include whether the misrepresentations were intentional or negligent, the medium’s circulation, the nature and extent of public injury, and the advertiser’s size and wealth.

Liberty argued that the trial court imposed excessive penalties based only on gross circulation for print publications and Nielsen ratings for TV shows.  However, the People’s expert provided a reasonable basis for calculating how many people actually saw the ads, and even for showing that viewers saw the deceptive ads multiple times; the district court didn’t impose penalties for multiple viewings.  Given that the ads aired 1829 times, the maximum penalty could have been over $9 million; $715,344 was reasonable.  Anyway, Liberty’s arguments would essentially require proof of each individual who saw an illegal TV ad, which would defeat the purpose of the civil penalty.

The court reasoned similarly with respect to penalties imposed for Pennysaver ads mailed to homes.  The trial court didn’t rely on gross circulation figures, but used a fraction of circulation as a proxy—here .0088 for Liberty-approved Pennysaver ads, and .0044 for ads for which Liberty was vicariously liable.  The resulting figure of nearly $1 million was then reduced to $50,000 because the initial calculation was grossly disproportionate to Liberty’s role and the harm inflicted.  Still, there was circumstantial evidence to support this penalty.  Liberty’s marketing department and its franchisees considered Pennysaver to be particularly effective at reaching its target audience, and many of the illegal ads appeared on the front cover, increasing the chances they’d be read.  And Liberty didn’t provide a better means of calculation.

The court of appeals also upheld the injunctive relief ordered by the trial court, which was designed to “address Liberty's failures not only to educate its own internal staff on the legalities of advertising, but its failure in controlling its franchises.”  Liberty was required to discipline employees with escalating sanctions for violating the requirements, as well as to give franchisees written warnings and order them to pay $15,000 fines to the AG for a second violation, then terminate them for a third.  It was further required to audit at least 10 California franchisees each year, monitor Pennysavers to make sure franchisees are complying with the law, and notify California franchisees during tax season reminding them of their obligations.

A court has the power to order “necessary” relief, and its discretion is broad; the court of appeals found no abuse of that discretion here.  Liberty argued that a franchisee that inadvertently violated the law once by using an insufficiently conspicuous disclaimer, and then did so again 15 years later, could be required to pay the fine.  The court was unimpressed by this speculation.  Liberty also argued that it didn’t have the contractual right to fine franchisees (and that the fine was six times the penalty available for a single violation of the UCL or FAL).

But the trial court found that the violations were serious and persistent.  Liberty didn’t devote enough resources to monitoring franchisee ads, even though it knew it had a problem with unapproved and illegal ads in Pennysaver in particular.  As to one illegal TV ad, Liberty’s chief marketing officer testified that she’d still approve it for use in California.  An injunction was needed to address Liberty’s failure to educate its internal staff and its failure in controlling franchisees.

Liberty complained about the permanence of the injunction, but the court maintained jurisdiction.  Liberty could apply for modification or termination as appropriate.

Then, Liberty argued that the injunction didn’t give reasonable notice of what conduct was prohibited because Liberty would have to draw legal conclusions about whether a franchisee’s ad disclaimer was “conspicuous.”  But conspicuousness is a requirement that provides sufficient notice, and a more specific order wouldn’t be feasible, since conspicuousness can vary with an ad’s size, color, placement, and design.

ambiguity of "authenticity" defeats literal falsity claim

Kwan Software Engineering, Inc. v. Foray Technologies, LLC, 2013 WL 244999 (N.D. Cal.)

Plaintiff, known as Veripic, moved to enjoin its competitor Foray from making certain claims about its technology.  It had copyright, DMCA, and related claims, but only sought injunctive relief on its false advertising claims, which the court denied.

Both parties make software for handling digital evidence for police departments and similar entities.  Veripic sells the Digital Photo Lab (DPL) while Foray sells the Authenticated Digital Asset Management System (ADAMS) software.  ADAMS employs a hash function that allows a user to validate whether digital evidence “has been manipulated or altered between the time it is entered into the ADAMS software system and a later time when a user wishes to make use of that piece of digital evidence.”  Veripic has similar technology, but it also allows users to validate whether the digital evidence has been altered from the moment a picture was originally taken.

Basically, Veripic argued that Foray falsely advertised that its software could “authenticate” images according to guidelines propounded by the Scientific Working Group on Imaging Technology (SWGIT), when in fact it could only guarantee “integrity.”  Authenticity, Veripic argued, required further validation of whether the picture was an accurate depiction of the world (subject matter authenticity), not just whether it had been altered once entered into the system (acquisition authenticity). 

This was a literal falsity claim only.  The court therefore looked at the meaning of “authenticity” as the term was understood by law enforcement customers and others in the market for digital evidence management software, and found that “integrity” and “authenticity” were “ambiguous, overlapping, and sometimes interchangeable.”  On the evidence before the court, numerous relevant entities—including SWGIT and even Veripic—went back and forth, sometimes distinguishing “authentication” from “integrity” and sometimes using “authentication” to mean “integrity.”  Thus, Veripic didn’t show it was likely to succeed on the merits.

Veripic also complained of other statements, such as that ADAMS was the only software that complied “with the SWGIT ‘requirement’ contained in the workflow described in Section 13, Best Practices for Maintaining the Integrity of Digital Images and Digital Video of the SWGIT Guidelines…. While some vendors may claim they are ASCLD or SWGIT compliant, no other digital evidence management vendor complies with the SWGIT workflow # 2 [described in Section 13].”  

The court found that this wasn’t literally false, even though the workflow #2 was only an example and not required to comply with the best practices.  ADAMS used a series of steps “known to be wanted or needed by the example workflow”—which fit the OED definition of “requirement.”  Moreover, Veripic’s DPL could achieve a similar result, but not by complying with example #2.  Veripic “specifically eschewed” the process set out in #2 as cumbersome and offered a different solution (though one that also apparently complied with the best practices). So ADAMS literally complies with example #2 and DPL doesn’t, and there was no threshold showing of literal falsity.

Veripic also didn’t show irreparable harm, despite “a speculative declaration from its company president in which he states that six customers have told Veripic that it was their understanding that ‘Foray authenticated digital images in the same manner as Veripic.’” First, Veripic should have been aware of the alleged misrepresentations since at least June 2011, when Seattle made Foray’s RFP response available to Veripic; that contained the offending statements.  This delay “hardly bespeaks of the urgency typical in successful preliminary injunction motions.” Second, the court didn’t think the evidence showed anything more than legitimate competition.  “In fact, most customers purchase one of these competing software suites only after first reviewing responses to requests for proposals, company presentations and extensive research.”  Lost customers might well be the result of full understanding and preference for one product over the other.  Though the public interest in the integrity of law enforcement evidence was great, the court was willing to rely on the sophisticated customers’ careful investment in purchase decisions to protect it.

Do you know where your towel is, and what claims it gives rise to?

Hall v. Bed Bath & Beyond, Inc., --- F.3d ----, 2013 WL 276080 (Fed. Cir.)

Hall obtained a design patent on a “Tote Towel,” a large towel with binding around all the edges, zippered pockets at both ends, and an angled cloth loop in the middle.  He began producing the towel soon after filing his patent application.  He had a meeting with Bed Bath & Beyond and left samples of the packaged towel with BBB; both the package and the towel were marked “patent pending.”  BBB then had copies of the towel made, and Hall sued for patent infringement, unfair competition under the Lanham Act, and misappropriation under New York law.  The district court dismissed the complaint on the pleadings, and the Federal Circuit reversed except for the claims against individual executives sued in their personal capacity.

Design patent: The district court ruled that the complaint didn’t allege which aspects of the towel merited design patent protection, or how the defendants infringed the claim.  All that was required was to allege ownership of a cited patent, state the means by which each named defendant allegedly infringed, and point to the sections of patent law invoked.  BBB even admitted in its motion to dismiss on other grounds that patent infringement was pled properly.  Claim construction isn’t an essential element of a patent infringement claim.

The district court wanted the complaint to allege, among other things, what about the towel was  “‘new, original and ornamental,’ meriting the protection of a design patent,” but that’s not required by Iqbal/Twombly to give fair notice of the claim.  In any event, infringement is based on the design as a whole, not any points of novelty; the design patent is infringed if the ordinary observer would find them substantially the same/deceptively similar. 

Hall’s complaint identified the patent, included a picture, and described the accused towel as “virtually identical,” with the same shape and almost the same dimensions, including the “unique zippered compartments and hanging loop.” Hall alleged that the resemblance would deceive an ordinary observer, following the infringement standard.  The record also included pictures including the two towels.  The district court’s sua sponte dismissal should have been reserved for a complaint that was “so confused, ambiguous, vague, or otherwise unintelligible that its true substance, if any, is well disguised.”  The pleadings allowed the court to draw the reasonable inference that BBB was liable; no more was required.

Lanham Act: the district court found that the complaint merely alleged unfair competition “without elaboration.”  The court of appeals disagreed, based on the following allegations:

¶ 62. Defendants' use of [phrases including “Workout Towel,” “drapes around your neck,” and “convenient zipper pockets”] are likely to cause confusion, mistake, or to deceive as to the affiliation, connection, or association between the Tote Towel and the Counterfeit Towel.

¶ 63. The packaging of the Counterfeit Towel also states “performance that lasts the useful lifetime of the towel.”...Defendants' use of these terms and words on its label and in commercial advertising and promotion misrepresents the nature, characteristics, and qualities of the Counterfeit Towel which is of extremely poor quality and falls apart only after several washes.

¶ 64. Defendants' attempts to claim Hall's innovations and sell inferior, cheaper products, promising lifetime use, amount to unfair competition and misappropriation under The Lanham Act, 15 U.S .C. § 1125(a), which has caused and continues to cause serious injury to Plaintiff.

The district court held that the “likely to cause confusion” allegation didn’t state a claim because the complaint didn’t allege the existence of a trademark, either in the packaging or the design.  On appeal, Hall argued that his complaint wasn’t limited to trademark/trade dress, but rather that BBB advertised an identical and similarly packaged towel that would be confused with Hall’s towel.  (Um, that is a trade dress claim.  That’s like saying that two light bulbs are indistinguishable and therefore confusing. See below for more.) A false advertising claim can be brought against a defendant who misrepresents the quality of its own goods.

Hall alleged that BBB engaged in false or misleading advertising by claiming that its towel has “performance that lasts the useful lifetime of the towel.” He claimed that he washed one of BBB’s towels and it was damaged after a single washing, and the district court observed that “the difference between the [once] washed product and new is noticeable.”  However, the court then held that the advertising was puffery, not falsifiable, and that BBB “makes no guarantees about how long the towel itself will last.” Further, the district court found that Hall didn’t plausibly allege injury, to which Hall argued that the similar appearance would confuse consumers, who’d expect Hall's towel to be of similar poor quality.  (Again, a trademark rationale, not a general false advertising rationale.)

The court of appeals concluded that Hall plausibly pleaded falsity, whether literal or by necessary implication.  Although “lasts the useful lifetime of the towel” literally just says that the towel lasts as long as it lasts, even if it lasts for only one washing, that could still be false. The claim “implies that the towel will not fall apart after a single wash or a few washes.…A reasonable consumer would expect the ‘useful lifetime’ of a towel to be more than one or a few washes.”  The court analogized to the “Night Time Strength” case, Novartis Consumer Health, Inc. v. Johnson & Johnson–Merck Consumer Pharmaceuticals Co., 290 F.3d 578 (3d Cir. 2002). While in theory “Night Time Strength” could mean “whatever strength the product happened to have at night,” the court there found falsity by necessary implication because the phrase conveyed that the product was specially made to work at night.

Nor did Hall need to plead actual harm, only likely harm.  The parties’ products compete, and Hall alleged that one of his resale customers mistakenly believed that BBB was selling Hall's towel “for nearly half his price.” When the parties compete and the advertising is misleading, dismissal on the pleadings was inappropriate, given the Lanham Act’s “flexible approach” to injury and causation.

The district court thought that the performance claim was nonactionable puffery. The test was whether a reasonable buyer would take the representation at face value; if no one would take it seriously, there’d be no danger of consumer deception.  BBB’s claim of “lasting” performance was “stated as a fact; it is not ‘blustering’ or ‘boasting,’ and does not sound like ‘puffery.’” Dismissal reversed.

Note: it seems to me that only one of plaintiff’s §43(a) theories survives—the theory that BBB falsely advertised quality, not that its sale of a copycat product constituted false designation of origin, as alleged in ¶ 62 and repeated as “attempts to claim Hall’s innovations” in ¶ 64.  The opinion doesn’t say so outright, but its discussion is all about quality, and it couldn’t be clearer that Dastar bars the false designation of origin claim, which is, per the complaint, that by copying the design BBB created confusion about source.  If there’s no valid trade dress, that’s Dastar-barred.  Indeed, the Federal Circuit was pretty clear about this when discussing 9^th Circuit law a few years back.

The court of appeals also reversed the dismissal of the NY GBL § 349 and common-law misappropriation claims, for similar reasons.  Hall alleged that BBB willfully misappropriated his product, ideas, and design, and that the deceptive act under § 349 was the quality/performance claim.  The district court held that Hall didn’t allege injury, even if customers were misled, but Hall pled that “the extent of the imitation of the Tote Towel by Defendants” confuses consumers into associating the Tote Towel with “the inferior Counterfeit Towels,” and that this confusing similarity harms Hall's reputation.  Again, this is a Dastar-barred theory of injury (or really a Sears/Compco barred theory, though see below), but the court found that Hall sufficiently pleaded possible injury to his business.

NY common law bars unjust enrichment.  Hall’s claim was based on BBB’s acts “in accepting Hall's sample towel, ostensibly for consideration of a commercial relationship, and acting in bad faith by having Hall's towels copied for commercial benefit.” The complaint alleged misappropriation by “stealing” Hall’s patented designs. The district court held that Hall failed to plead any kind of contractual or quasi-contractual relationship, as required.  But Hall argued that that line of precedent applied only to misappropriation of ideas, not misappropriation of labor: he alleged that “he spent time and money designing the towel, surveying and buying materials, assessing consumer interest, manufacturing the Tote Towel, and further efforts, including applying for the '439 Patent.”  Thus it was his labor that was misappropriated, not his idea. 

Comment: Hunh?  Not only is this a workaround that can be used to turn any “idea” claim into a “labor” claim, thus eviscerating the limits on idea misappropriation that have been carefully developed in order to prevent the cause of action from interfering with the general freedom to copy, it doesn’t make sense on its own terms: Hall labored for himself.  BBB didn’t somehow end up with his towels or owning his patent, although it copied his towels.  It’s the results, not the labor, that BBB allegedly misappropriated; it’s not like Hall painted a BBB store and didn’t get paid.

The court of appeals still reversed.  “New York law does not condone inappropriate actions, and provides that equitable doctrines may support a misappropriation claim.”  It can impose equitable obligations to prevent injustice even without an actual agreement between the parties.  Unfair competition can be “any form of commercial immorality, or simply as endeavoring to reap where one has not sown.”  Thus, the district court erred in holding a contractual relationship required for misappropriation, whether the misappropriation is of an idea or of “labor and skill.”  Hall provided his sample towel in good faith and BBB then acted to his detriment, so the claim shouldn’t have been dismissed on the pleadings.

BBB argued that preemption still barred any NY claim. But some state regulation of potentially patentable but unpatented subject matter survives preemption, “in the complex balance between the policy of unencumbered movement of unpatented ideas, and principles of morality and fairness that are within state authority.”  Hall argued that BBB didn’t copy a publicly available product, but rather copied a towel he showed to BBB in the course of discussing a business relationship.  Without further elaboration, and with no explanation of the limits of its ruling, the court held that

principles of patent law preemption do not override potential causes of action based on unfair commercial practices. New York misappropriation law extends to “commercial immorality, or simply as endeavoring to reap where one has not sown.” We conclude that federal preemption does not apply to the circumstances set forth in the pleadings.

If there was no contractual relationship, or implicit confidentiality agreement (which is how I'd spin this holding), I have no idea why this would be true.  NY misappropriation law may try to extend to reaping where one hasn’t sown, but that’s why it’s quite often preempted.

The court upheld the dismissal of BBB’s false advertising counterclaim, which was brought on the ground that Hall falsely claimed that his towel was protected by his patent when the patent was really just pending. The district court found it plain from the pleadings that Hall’s representations weren’t made with the intent to deceive, and one defendant appealed on the ground that §43(a) doesn’t require deceptive intent.  The court of appeals upheld the dismissal because no plausible false advertising issue arose under the circumstances of the case. Likewise, the false marking counterclaim based on Hall’s retention of the label “patent pending” for a few months after the patent had issued failed because under the AIA, which applied retrospectively, defendants couldn’t allege competitive injury.

Judge Lourie dissented from the majority on the design patent and Lanham Act claims (why not the NY claims?).  The district court found the complaint to be a conflation of facts and theories, making no distinctions (something that seems to me correct about the quoted §43(a) allegations).  The district court asked about the elements of the towel that merited design patent protection as well as an explanation of how the BBB towel infringed and how each defendant acted in violation of the patent laws.  True, much of the district court’s concern related to validity rather than infringement, but “the overall design of a design patent consists of the particular aspects of the design, and noting those aspects is not claim construction. How else does one describe a design except to note the characteristic aspects of the design?” Thus the dissent found the district court’s actions insufficiently faulty, especially since the district court invited Hall to replead, and Hall didn’t, which he should have done. “The judicial system encourages correction of errors when made, and plaintiff should have paid the penalty for declining that opportunity.”

As for the Lanham Act, the dissent would have found “performance that lasts the useful lifetime of the towel” to be “mere puffery, a subjective claim that cannot be proven true or false and is thus not actionable under the Lanham Act.” It was an untestable tautology: “the towel lasts as long as it lasts.” (But could consumers come to a consensus about what it implies?  I agree with the majority that it implies more than one washing—the question is if what it implies is sufficiently measurable to be falsified.  I'd be inclined to think that a very, very flimsy towel could be falsely advertised this way, even though "performance" isn't very specific.)

False claims to have taken class and disliked it not defamatory

Robin Singh Educational Services, Inc. v. Blueprint Test Preparation, Llc, 2013 WL 240273 (Cal. App. 2 Dist.)

Plaintiff TestMasters sued Blueprint and a number of principals, who used to be TestMasters employees, for breach of duty and related shenanigans.  Defendants committed really extensive discovery violations, for which they were sanctioned, and lost on a number of claims at trial, though the sanction award substantially exceeded the damages awarded by the jury. I’m only going to discuss the defamation claims, though the breach of duty etc. claims make juicy reading.

The jury found that two individual defendants, Triplett and Riley, along with Blueprint (the business) defamed TestMasters on pre-law/law school discussion sites.  The court found that there wasn’t substantial evidence to support the jury’s defamation verdict: although defendants lied about having taken TestMasters’ classes, the nasty things they said based on those lies weren’t themselves defamatory. 

The claim against Triplett was based on a statement that she posted, pretending to be a student who’d taken a TestMasters class the previous summer:

Be careful if taking TM. I took it last summer at UCLA and my instructor was awful, really boring and thick accent.   Actually answered questions wrong in class and would try to talk his way out of it.   Trent was teaching next door and he sounded awesome, his class looked much better but theywouldn't let me switch, said it was full.   I heard there are a couple other good instructors but i forgot their names.   Probably taking the class over so Im gonna try to get in trents this time.

Triplett testified that, though she didn’t take the class, she sat in on a class from an instructor who spoke with such a “very thick southern accent” that “it was difficult at times to hear what he was saying.”   Triplett stated that Harrison incorrectly diagrammed a problem on the board, and then “instead of sort of stepping back he actually tried to explain why that was the correct way to diagram it.”

Riley made a post in response to a student who had taken a TestMasters class from Teti (one of the perfidious defendants) and felt that Teti was “a f-ing jackingass” and “arrogant.”   Riley, pretending also to be a student who took a TestMasters class from Teti, wrote:

Wow mimi323.   I was in a TM UCLA class close to that time with Trent (I took him for the December test) and all I can say is that there's no accounting for taste. No offense, and I'm sorry you got that vibe, but I had a really different experience.

First off, my original teacher (whose name I wish I knew but blocked out) was terrible- and a lot of people thought he was just boring and shitty.

… [M]y class sucked so I basically brided/bullied TM office people to transfer me into his class.

[more praise of Teti]

… And judging from the fact that his class had more than 100 people in it for the last lesson when my original class had dwindled to about 10 people by that point, I'm not alone.

Riley testified that he did not have an original TestMasters class that “sucked” and was “boring and bad,” and that his post actually referred to an experience that two of his friends at the time (whose last names he could not remember) told him they had in a TestMasters class at UCLA. Riley stated that the post was “a true experience of a lot of TestMasters students at that time period,” but not for him.   His statements about switching classes, and the related claim that he raised his LSAT score 20 points, were also false.

TestMasters argued that Triplett’s false “first-hand” account of her instructor’s competence and TestMasters’ unwillingness to let her switch into Teti’s class were provably false, as were Riley’s statements that his original class dwindled to about 10 people.  This wasn’t support for the jury’s verdict. 

Whether a statement contains or implies a provably false factual claim is a question of law, unless the statement could be interpreted either innocently or libelously; that exception didn’t apply here.  In the context of a discussion board, statements that TestMasters instructors were “awful,” “really boring,” “terrible,” “boring,” “shitty,” and “bad,” and they “sucked” couldn’t be statements of fact or imply provably false assertions of fact.  They were classic statements of opinion that couldn’t be proven true or false.  The accusations of incompetence weren’t made by experts with special skill or knowledge, whose statements might seem more factual.  Since the comments were anonymous, readers wouldn’t know about Triplett’s experience with LSAT instruction.  And anyway, determining whether a teacher is boring doesn’t usually require expertise.

Some of the statements were or implied provably false assertions of fact: that a TestMasters instructor answered questions incorrectly in class and tried to talk his way out of it; that TestMasters refused to allow Triplett to transfer classes; and that Riley’s class shrunk in size over time from 100 to 10 students because it was so bad that 90 percent of the students left.  But TestMasters didn’t introduce evidence that these statements were false, as it had to do given that LSAT prep is a matter of public concern.  TestMasters didn’t point to record evidence that the teacher didn’t teach incorrectly, or that it did allow transfers.  (This last bit seems wrong: Triplett said she wasn’t allowed to transfer, and this was false because she wasn’t in the class.  It seems to me that all that’s needed to show falsity is that she wasn’t in the class and thus couldn’t have been refused a transfer.)  Nor did TestMasters introduce evidence that its class didn’t dwindle, and Riley testified that he was taking the experience of “a lot of TestMasters students” as his own.  Counsel asked Riley, “So that's false then where you said that you had a [Testmasters] class that sucked, right?”   He said, “right,” but then explained in the rest of his answer that the statement about the class was true, and the only part that was not true was that he had taken the class.  

The court noted that “the statements by Triplett and Riley that they were TestMasters students were very provably and indeed admittedly false assertions of fact, but they are not defamatory.”  Thus, the awards on the defamation claims were struck.  (At the very least, a false advertising claim would proceed differently in that the defendants clearly made false establishment claims—their substantiation, that they had actually taken the classes, was admittedly false.)

preliminary injunction mandates corrective advertising for literal falsity

Generac Power Systems, Inc. v. Kohler Co., 2013 WL 238843 (E.D. Wis.)

Previously, the court denied Generac’s motion for a Lanham Act preliminary injunction on the ground that materials sent to over 1200 dealers weren’t commercial advertising or promotion.  After the Seventh Circuit’s decision in Neuros Co., Ltd. v. KTurbo, Inc., 698 F.3d 514 (7th Cir. 2012), the court granted Generac’s motion for reconsideration on that point.

Generac had already established that Kohler's statement that the Generac Generator lacks a “Low–Speed Diagnostic Exercise” was literally false. Falsity was enough to lead to a finding of irreparable injury in the context of comparative advertising (citing McCarthy and Axiom). 

Kohler argued that injunctive relief was moot because the offending handbook was no longer in circulation.  Still, Generac argued that, to avoid the lingering impact of the false advertising, Kohler should be required to inform dealers and distributors of the falsity of its statements and to instruct them to destroy the old handbook. The question was whether the harm Generac would suffer in the absence of an injunction was greater than the harm that Kohler would suffer if it were granted.  The more likely a plaintiff is to prevail, the less heavily need the balance of harms favor it.  Kohler argued that, given the narrow audience of dealers and the lack of evidence about how they used the handbook, the remote possibility of lost goodwill was less weighty than the harm to Kohler of having to take unnecessary corrective action and harming its own reputation.

The court disagreed, given Generac’s strong probability of prevailing on the merits.  The harm to Generac was the risk of continued dissemination of the falsity in existing copies of the handbook.  Since Kohler didn’t tell its dealers why it provided a replacement handbook or direct them to destroy the prior version, the remaining steps were necessary to eradicate any residual effects of the false advertising.

Kohler also argued that the public interest was minimal because the parties provided consumers with lots of advertising related to their respective generators.  But it’s always in the public’s interest to have truth replace falsity.  Thus, Kohler would be required to inform its dealers and distributors of the falsity of its statement and instruct them to destroy any remaining copies or CDs of the Handbook.

Generac asked for attorneys’ fees because Kohler dragged the case out for eleven months after ceasing distribution of its false statements, but the court didn’t find that the case was exceptional.

Lawyers in remix culture

In the grand tradition of Larry Lessig RPF (real person fiction), we now have Mark Andrews, a video celebrating the rapper's lawyer's successful defense of his name.  HT Mark Edward Andrews.

Is patent infringement theft?

E.I. Du Pont de Nemours and Co. v. Heraeus Precious Metals North America Conshohocken LLC, 2013 WL 214292 (D. Or.)

DuPont sued Heraeus for patent infringement.  Heraeus counterclaimed for, among other things, false advertising, based on a DuPont press release, “DuPont Addresses Patent Protection at Solarbuzz China Conference; Intellectual Property Theft Growing in Competitive Climate of Photovoltaics.”  The press release stated that a DuPont managing director, as a featured speaker at a conference, said that “Intellectual Property (IP) theft is widespread and the issue seems to be growing in the current climate of this industry…. We do not ignore infringement and will pursue aggressively other points in the PV supply chain where IP infringement of our PV metallization pastes exists.”  The press release continued:

Cheng indicated this set of actions continues in the manner of previous DuPont actions involving IP protection in China and other countries in the world. The company recently filed two lawsuits against PV metallization paste supplier Heraeus and one against its customer SolarWorld, for infringing on DuPont patents for DuPontTM Solamet® PV metallization pastes.

Cheng asked for increased support from the industry to guard against infringement and stronger opposition to the use of “infringing” materials in the production and sale of downstream products by cell and module makers, PV system developers, installers and owners. Infringing companies expose themselves, and potentially others they do business with, to the full range of legal remedies.

Heraeus argued that DuPont’s statement that Heraeus engaged in IP theft was false and misleading.  Though this statement didn’t appear in precisely those words in the press release, it was a reasonable inference that could be drawn from the press release, given the juxtaposition of statements about IP theft and statements about DuPont's lawsuits against Heraeus.  “[I]n stating it has filed two lawsuits against Heraeus alleging patent infringement (a statement that is true on its face), DuPont is, ipso facto, alleging Heraeus has committed intellectual property theft.”  While Heraeus argued that DuPont’s statement was false because DuPont’s lawsuits failed to allege any copying, misappropriation, willfulness or other conduct that could be reasonably characterized as “theft,” the court thought that was a mistake.  Because a patent is IP, the distinction between “patent infringement” and “IP theft” is a distinction without a difference.  (Really?  Could Heraeus be prosecuted for selling stolen property, then?  For purposes of a Lanham Act false advertising counterclaim, I agree with the court, but that hardly means there’s no difference between theft and infringement.)

Because the counterclaim depended on a patentee’s assertion of its patent rights, in addition to the ordinary Lanham Act elements, Heraeus was also required to allege bad faith, which it didn’t do.  The counterclaim was dismissed with leave to amend.

Reading list: comic law

James Daily & Ryan Davidson, The Law of Superheroes: Based on lawandthemultiverse.com, this breezy book has the benefit of plenty of illustrations, but its presentation of the law is generally devoid of nuance. While it’s not wrong for the sake of drama the way a Law & Order episode or a comic book might be, it’s probably a much better read for nonlawyers. It starts with two statements of note from an IP perspective, for two different reasons. First, there’s

So why comic books? Well, for one thing, they’re both interesting and popular. The main problem with a lot of legal educational materials is that they are boring…. So rather than making up people who may not even have names, or using cases involving people you’ve never heard of, The Law of Superheroes uses characters you already know and love.

To a copyright lawyer, that sounds intriguingly like a description of using another’s work simply to avoid the drudgery of working up something fresh, or simply to get attention—something that would in theory count against the book in a fair use analysis, even though the book is obviously fair use. You can use someone else’s work to get attention under many circumstances, including when you want to teach them law.

The authors immediately follow with the preposterous statement that “[t]he terms ‘superhero’ and ‘supervillain’ are trademarks co-owned by Marvel Characters, Inc. and DC Comics, Inc. These terms are used throughout this book solely to refer descriptively to Marvel and DC characters.” I don’t presume to know whether Marvel & DC asked for this ridiculous disclaimer in return for agreeing not to contest the extensive and helpful (and fair use!) images in the book, but, just to be clear: (1) superhero and supervillain are generic terms, not trademarks (ETA: yes, I know there's a registration; that just makes Marvel & DC aggressive and well-funded, not trademark owners); (2) even if they weren’t generic, the owner (since a trademark must have an owner, not two who don’t control each other’s behavior) would not have any claim against a book that used a term “wrongly.”

But at least this is a good indication of what you’re going to get: some entertaining/shallow discussion of various legal dilemmas in which comics characters might find themselves. I did like the discussion of masked superheroes testifying in court, and the point that DC has solved this problem with a constitutional amendment allowing “registered meta-humans” to testify masked, which then means that DC has already put in place the very provision that in the Marvelverse sparked Civil War: “while the DC workaround would be effective in the courts, it does not seem as if that universe has fully dealt with the implications of that solution.” Heh.

Unfortunately, while sensitive to the First Amendment implications of anti-mask laws, the authors badly mishandle the idea of newsworthiness when it comes to invasion of privacy, claiming that Peter Parker would have a cause of action against someone who revealed that he was Spiderman because Peter Parker “is just a working stiff, a news photographer and, perhaps most importantly, is often written as a minor. The public probably doesn’t have as much of an interest in knowing these details.” Um, no. Dude is Spiderman. That his secret identity seems like an ordinary Joe is no more relevant to whether the Spiderman-Peter Parker link is newsworthy than the ordinariness of the contents of Anthony Weiner’s boxer-briefs is relevant to the newsworthiness of the fact that a Congressman was sending pictures of his erection around. So, as the authors suggest, don’t take the book as offering legal advice--but it's an interesting entry into the category "what people think the law is."

Patent law, after xkcd

Patent law explained (perhaps) using the most common ten hundred words.  After xkcd's Upgoer 5, and facilitated by the subsequently created Upgoer 5 Text Editor.  Your call on how ironic that is.

Subway has a nice knock-down argument against length complaints

Subway says "footlong" is just a descriptive (um, wouldn't that be deceptively misdescriptive?) trademark, not a statement about length.

'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.'

'The question is,' said Alice, 'whether you can make words mean so many different things.'

'The question is,' said Humpty Dumpty, 'which is to be master — that's all.'

Lewis Carroll, Through the Looking Glass, Ch. 6

Knockoff Economy, Session IV

David Opderbeck (Seton Hall University School of Law; Notre Dame Law School)

Photos: Flickr, iStockphoto: a CC regime establishes both an open- and closed-source community.  Can pay $5 for a very professional-looking image.  You need copyright to support the dual model.

Pushing back on specific examples.  Fashion: what really matters in fashion is the TM/brand.  Consulting on Coach fabric—company bought 20 rolls of vinyl fabric with the Coach brand on it; selling swathes to people on Etsy who presumably were making iPhone cases. Coach sued, listing 100 TMs, including 2 on fabric, but Coach doesn’t sell fabric at retail; instead they supply it to contractors.  Asking for millions in statutory damages for the logo.

Cuisine: parts of a dish are known while parts are innovative—but is this a completely unique community because it’s so different from other creatives?

Comedy: can we really say that norm enforcement that includes occasional beatdowns is a superior form of regulation?  Connection/history with organized crime.  What supports a willingness to use violence?

Football: League is a cartel; league is very strict about TMs and other IP; highly specified what the team can do, what only the league can do, what the players can do. There, underlying copying norm is the notion that the cartel would fall apart if someone could monopolize a play that would always win. Probably true for the NCAA.  What about high school?  The league may have norms of a certain kind of competition.  Not competitors slugging it out in an open market, but a closed cartel.

Fonts: thinks that fonts are overproduced; 5000 fonts you get with your purchase are marketing, not used.

Finance: are trade secrets as important as the authors say?  Tacit knowledge is important, as it is in biotech.  People jealously protect tacit knowledge developed in the lab.  Knowing what a client prefers isn’t really a trade secret, but not something you want to share either.

Lea Shaver (Indiana University Robert H. McKinney School of Law)

Consider willingness to share smaller share of larger pie.  One theory: provide maximum rewards to the person most responsible for the pie.  Anyone else who takes a piece is stealing.  But that wrongly assumes a pie of fixed size.

Case study of early light bulb industry—Edison’s patent litigation strategy.  Early industry: people knock off designs because they don’t understand the patents and are too poorly financed to sue anyway.  Innovation is everywhere.  Edison, who’s financed and has an emperor’s view of his Lockean role, chases everyone else out.  Innovation slows; maybe a Pyrrhic victory.

Don’t fall into the fallacy of the fixed pie. IP enforcement can be less rational viewed over a longer timeframe; hard to convince firms with a shortterm mentality to see benefits of competition.

Implicit in the book is a question of distributive justice and innovation. Knockoff seems to make innovation affordable to the masses—trickle-down theory.

South Africa: English books are readily available, as are books in Afrikaans (for white minority w/sufficient disposable income to induce robust regime), but you don’t see many works in Zulu or !Xhosa, not because people can’t read in those language—a Zulu newspaper publishing industry has arisen.  May come down to the fact that the community isn’t wealthy enough to afford the copyright model of innovation.  Transaction costs/can’t deliver innovation cheaply.  We should modify copyright to allow translations, which could allow the industry to thrive and then Zulu authors could also earn a living by accepting a smaller share of a larger pie.

Fred von Lohmann (Google)

Kept thinking of the dysfunction of policymaking.  Why can’t legislators deal with the richness and variety of these fields?  Rep. Kastenmeier & Michael Renner, who served on his staff for many years: Kastenmeier used to view requests for extensions/expansions of exclusive rights in relation to a principle from David Lange (influenced by a law professor!): a civil procedure for copyright reform proposals.  Four burdens of proof for new copyright legislation to expand exclusive rights—proponent ought to show that the interest can fit harmoniously within the existing legal framework; proponent must be able to commit the new expression to a reasonably clear and satisfactory definition—the sort of thing you could explain to the average member of Congress (many provisions of current law flunck this); honest analysis of costs and benefits of proposed legislation—the argument that a particular interest group will make more money and thus be more creative doesn’t satisfy this standard or the requirements of the Copyright Clause; and finally, any advocate of a new interest should show how giving protection will enrich or enhance the aggregate public domain—the public gain should outweigh the private benefit. It’s this last part that’s the most important.

If you ask not “would comedians/fashion industry be better off?” but “would the public benefit exceed the benefit to the comedians/fashion industry?” the answers would be very clear.  But he’s never heard anyone explain how the public would benefit more than the recording artists from enhancements to recording artists’ rights.

Peter DiCola’s results from survey of 5000 working musicians.  Revenue sources were 80%, on average, not related to copyright or at best indirectly related to copyright. Echoed The KE’s themes. Robust incentives that are remote from what we think of as the copyright incentive/monopoly model.

Dave Fagundes (Southwestern Law School; University of Miami School of Law)

Last-mover advantage.  Derby, like football, is an open-source strategic innovation world.  May be dying for lots of reasons, including bad business model; it’s kind of a novelty and most people don’t come back.  New strategic innovation: slow derby, both highly effective and horrible to watch.  You can typically gain points more effectively with this strategy; but whether it’s worse is contested—participants say it’s more interesting for players and rewards different kinds of play and strategies.  Ass’n is trying to intervene to change the rules against this, but hasn’t been able to do so. 

The KE is useful for taking things that are in plain sight and pointing out that they have implications that are not in plain sight.  Puzzle, though: there are a lot of angry people in this book.  Louis CK is made at Dane Cook, etc.  Third parties are also mad at copiers. Why are they mad if they’re not losing money or prestige?  Third parties have no monetary investment in brand even if we believe dilution theories.  They should be happy about the positive effects of copying on a brand!

They’re mad because they feel like they got ripped off, which triggers an instinctive sense of moral outrage.  Highlights a difference between the way The KE thinks about unauthorized use and how it’s actually experienced.  In this room, we think of unauthorized copying as an economic phenomenon that can be optimized. Owners, authors, some third parties at least sometimes see it as a deeply harmful activity that inflicts expressive harm.  Many people say it wasn’t about economic harm or brand dilution: someone stole my name!  Speaking a different moral language.

Moral psychology language, primary popular expositor Jonathan Haidt.  Basic claim: moral reasoning is something like innate—organized in advance of experience.  Just as we use heuristics to perceive the world, we have the equivalent of moral heuristics.  Basic descriptive claim: these moral heuristics are not just the harm principle, but feature different dyads: justice/fairness, sanctity/perversion, loyalty/betrayal.  They vary a lot among cultures and people. Some people are fine with copying.

What is to be done?  Counterpoint to claim made in The KE, which is about social benefits of unauthorized copying.  Can represent an additional social cost beyond the ones we usually think about.  Demoralization costs of observing work being copied, for the copied person or for third parties.  Maybe dynamic costs for people who experience sense of moral loss; maybe they’ll be less trusting in creative process.

Why aren’t people more receptive to this? Gets to what law can do about copying and what industry can do.  Resistance to copying among substantial percentage of population is going to exert gravitational pull—hard for law to encourage more copying.  Sees this as a teacher.  American copyright law has tons of natural rights language.  If people are not consciously adopting the content of law, they will have a hard time changing reactions no matter what law says.

Moral psychology helps us understand why self-governance pops up. Norms coalesce around behavior.  Not just a norm story in the sense of coming from other people; feels like it’s coming from the self.

Sprigman: we criminalized adultery for a long time; the moral intuitions are deep but that doesn’t mean that we want the law to intervene.  Also endogenous—if you change the rules, people understand that the rules allow copying, and people like what they’re used to.

Von Lohmann: some idea that the tweaker is lining its pockets at the expense of the originator—but if there’s competition, the tweaker doesn’t keep social surplus—in the competitive market of VCR makers, the price falls to marginal cost; the benefit goes to consumer surplus.  Maybe that’s wasting some valuable asset, but the idea that the follow-on innovator is rentseeking doesn’t work if the market in that segment is competitive.

Opderbeck: Games sometimes prevent even the innovator from using the innovation—that’s one thing a cartel can do if it slows down the game.

Von Lohmann: Mixed martial arts also had “bad” innovation—resulted in combatants immediately going to ground in very static wrestling holds: made matches unfun to watch and very short. 

McKenna: across sports—NFL rule changes are intended to score more.

Buccafusco: not “bad” just subject to different incentives.

McKenna: likely to cost the group a bunch of money (in the long term—arguably this happened to the brand of college debate in which Fagundes & I engaged).

Buccafusco: moral intuitions are sufficient to allow people to find harm when they’re told they need to in order to impose a sanction.  (Not automatically, but definitely there are big swings in the research I saw.)  But they can be debiased.

Raustiala: we focused on the central question of what causes innovation, and not so much about who gets the gains, but that’s a huge issue.  Often happens that larger pies lead to greater distribution of benefits, he believes.  Shepherd Fairey: really pissed off that his fashion line is often knocked off.  Illustrates that people have moral intuitions, but they find ways to make those fit their economic interests.

McKenna: it’s not just economic interests; it’s that you don’t have a fully explicated sense of which copying is wrong.  CVS always locates next to Walgreen’s and vice versa, and no one sees that as wrong just because the other ID’d a market.

Heller: in European laws that could be unfair competition.

Von Lohmann: doubts anyone in the book would have an objection to a purely personal copier—a restaurant will happily share a recipe with an ordinary citizen.

Sprigman: one comedian said, “If you can use one of my jokes to improve your lame life, go ahead.” Fashion designers say that their rights shouldn’t apply to home sewing.

Ellickson: maybe it’s a Lockean norm, I made it so I should own it—but that’s not what you really see in the world.  To allow property in football plays would be destructive of the league, so efficiency demands no rights; but is there any moral outrage that is just trumped by other considerations?

Sprigman: the moral outrage tends to be directed at the innovation.

Me: I think Fagundes makes a great point; the question is how that psychology gets operationalized in any given society—because it’s clearly very different across times and places, as well as with ingroups and outgroups.  E.g., Joe Karaganis’s copying study shows that many people don’t take very much account of the interests of distant record companies.  Likewise you see different cultural results in the dictator game, on a base that is stable (people like fairness).

Fagundes: doesn’t think moral outrage is itself a reason to grant rights, but something to be factored into calculate.  Is Hume right?  Do we begin with intuitions and then reason our way to them?  No one knows whether copyright really promotes progress of science/useful arts; maybe we should stop pretending we know the answer.  The Qs are empirical in that people differ even individually as well as within culture.  If something is seen as a transgression, then it triggers your sense of wrongness; if you don’t have that heuristic and just think in terms of economic harm, you’ll never see that as a problem.  Compare consensus about what’s transgression in football (copying plays is ok) versus no consensus in fashion (big disagreements about what copying is ok).

Von Lohmann: moral intuitions have a distributional element. Vast difference in revenue distributions depending on how successful musicians are—if you’re making over $200,000/year off of music, sources of your revenue more likely to be copyright-related.  Young musicians starting out may have a very different moral compass compared to older/successful ones, influenced in both cases by economic situations.

Shaver: not Lockean; she thinks people often think ideas should be protected, and they don’t give moral credit to the people who take the idea and make it operational/executable; they think of the patent system as kind of a lottery.

Fagundes: people angry on behalf of third parties make the pure Lockean story harder to tell.  (Though wanting to enforce norms can come from a Lockean place, I’d think.)

McKenna: the NFL might well step in to stop teams from protecting plays, but that doesn’t explain why the copying norm exists in the first place. At the very bottom level, the reason why there’s no norm against copying in football is that it would be unmasculine. You win by dominating, not by whining about the play used.  Also, coaches make a reputation by being able to come up with a new thing and staying ahead on a week to week basis.

However, some ways of copying would be deeply offensive. Teams share game tape, now enforced through conferences but by norm first.  You’d be shamed for not complying.  But if someone spied on practices, or on a playbook, that would be deeply offensive.  You have to figure it out on your own, and only once we put it out on the field.  Has to do with first mover advantages.  Can’t take away our chance to have a successful play.

Also, people get mad when there’s too much innovation.  Cultural norm about who gets to define what the game is—you’re playing some other game if you change it too much.  (Along with policy debate, see: golf and the ADA; letter values in Scrabble.)

Raustiala: interests of designer/chef in being innovator/being copied can be very different from that of a firm by which s/he’s employed.  Better reputation as innovator allows you to move up—a principal/agent problem that needs to be considered. One thing that ties our examples together is that they’re often individuals.

McKenna: firms who are most interested in sharing are also the most innovative—feel they can stay ahead and improve their reputations.

Von Lohmann: engineers in Silicon Valley can also get a lot of reputational capital from sharing code.

Ellickson: doesn’t share the intuition that firms are constrained more by norms than individuals—individual deviance is more highly distributed.  (Depends on which kinds of norms, it seems to me—Fox News was mentioned.  Herein we are talking about norms about freedom to copy and the extra benefits available to individuals when there’s free copying and improved reputation that don’t accrue to their firms, not norms about how accounting will be done or whether your clients are muppets.)

Sprigman: Institutional conservatism can keep a client/institution out of trouble.  Not so much about law but about norms of enforcement agencies.  In the financial crisis, stuff got done that wouldn’t have gotten done in earlier regimes, with really aggressive advice from lawyers. Firms read the law and asked what they could do, not what the norms were.