Thursday, December 31, 2015

Prior use can't be determined on motion to dismiss, even using Wayback Machine

My Health, Inc. v. General Electric Co., 2015 WL 9474293, No. 15-cv-80 (W.D. Wis. Dec. 28, 2015)
GE allegedly uses MYHEALTH on a section of its website that provides health and benefits information to GE employees,, infringing plaintiff’s incontestable trademark.  GE argued that it had priority, but this could not be determined on a motion to dismiss.
GE argued that its website was a document specifically referred to in the complaint, thus incorporated by reference.  Separately, GE argued that the court could take judicial notice of the historical content of the GE website based on print-outs from the Internet Archive, showing use at least by November 2005, before My Health’s 2008 registration.  The court rejected both arguments.  “GE’s website is not a simple document that can be incorporated by reference into the complaint. A website, particularly one like GE’s, is a dynamic library of documents.”  No more would a citation to the NYT website incorporate everything on by reference.  Separately, “a snapshot of a moment in time, which is all the Internet Archive can provide, does not establish the continuous use for particular purposes that GE must show to establish priority over My Health’s rights.”  Nor would the court take judicial notice of Internet Archive printouts anyway.  They would have to be authenticated by an Internet Archive employee, and that made them inappropriate for judicial notice.
My Health’s registration was incontestable and couldn’t be cancelled because of another’s prior use, but a senior user who could show continuous use could have common-law trademark rights unaffected by any subsequent registration.  (This is an interesting strategic dilemma.  I might possibly have gone with descriptive fair use; did GE really acquire trademark rights by using a term just for information for its employees?)  But the court couldn’t consider priority, a factual issue, on a motion to dismiss.
Even if the court considered the Wayback Machine evidence, showing some prior use wouldn’t sustain GE’s burden of showing prior rights. My Health plausibly alleged a protectable interest in its mark, even though GE might later prove an affirmative defense based on a priority.
Likewise, My Health plausibly alleged consumer confusion (among GE employees?).  My Health alleged that the marks were virtually identical and differed only in insignificant ways (“My Health” versus “myHealth”); that the parties market similar products (patented remote patient care technology versus websites to facilitate exchanges between medical professionals and patients); and that both parties market their offerings to consumers via the internet. My Health alleged that potential licensees and customers found GE’s products because of the accused mark and confused GE’s offerings with My Health’s. GE’s website invites customers to “[g]o to the main U.S. myHealth site” and allegedly created “the impression that GE’s website is run and operated by My Health.” Assuming these facts to be true, they plausibly alleged likely confusion.  [Here, current law’s indifference to the identity of people suffering confusion hurts GE.]   

Bait and switch on different versions of the same brand isn't TM infringement

Adobe Sys. Inc. v. Christenson, No. 12-1731 (9th Cir. Dec. 30, 2015)
Adobe loses this case because of pleading and discovery choices, allowing the 9th Circuit to avoid harder first sale questions.  Christenson sold Adobe software, which he purchased from a third-party distributor, without Adobe’s authorization.  Adobe argued that first sale didn’t apply because Adobe never sells (copies of) its software. A declaration by its Anti-Piracy Enforcement Manager described different ways that Adobe licenses software.  Adobe also submitted evidence of customer returns and complaints in which customers complained that they had received software licensed for academic use from Christenson despite having understood that they had purchased software appropriate for non-academic users.  However, Adobe pled trademark infringement, not false advertising.
Christenson filed a motion to preclude Adobe from relying on contracts, licenses, or agreements that Adobe failed to disclose under Rule 26(a), which was granted.  Since it was uncontroverted that Christenson purchased genuine copies of Adobe software, the trial court reasoned that the burden shifted to Adobe to show that there had been no first sale, which it could not do.  The trademark claim failed because the use was nominative.
On appeal, the court of appeals noted that “some purported software licensing agreements may actually create a sale.”  But first: who bears the initial burden of showing ownership through lawful acquisition?  The answer: the party asserting the defense, to wit, the defendant.  (Which is too bad for anyone who doesn’t keep receipts for the books they buy.)  To pass summary judgment, “the party asserting a first sale defense must come forward with evidence sufficient for a jury to find lawful acquisition of title, through purchase or otherwise, to genuine copies of the copyrighted software.”  If the copyright owner claims that the defendant couldn’t acquire title because the software [read “copies of the software”] was never sold, only licensed, the burden shifts back to the copyright owner to show such a license.  The copyright owner is in a superior position to show the terms of any such licenses.  “[F]airness dictates that a litigant ought not have the burden of proof with respect to facts particularly within the knowledge of the opposing party.” And, without the burden shift, the defendant would have to prove a negative; a downstream possessor “is hardly in a position to prove either a negative—the absence of a license—or the unknown—the terms of the multiple transfers of the software.”
Christenson discharged his burden by showing legitimate sales from third-party distributors of Adobe software. Adobe didn’t produce its alleged licenses until too late, and excluding its evidence was not an abuse of discretion.  Its “effort to substitute general testimony and generic licensing templates in lieu of the actual licensing agreements does not withstand scrutiny.”  Calling an agreement a “license” is not dispositive; the precise terms matter for first sale, and here there was no admissible evidence about those terms.
As for the Lanham Act claim, Adobe “confuses the claim that it made—trademark infringement—with the claim it wishes it had made—unfair competition, or false advertising.”  It pled infringement, and nominative fair use precluded that claim.  On appeal, Adobe argued that Christenson engaged in a “bait and switch” tactic of selling Adobe products licensed as academic or OEM products by describing them as “full” or “retail” versions, misleading consumers as to which version they would receive. But that was a false advertising theory, not a trademark infringement theory, since there was no claim that the marks weren’t applied to genuine Adobe products, or that “Adobe Acrobat Pro” was only the mark for the non-academic/OEM version.  Christenson’s use of the marks was to identify the products themselves and not to “inspire a mistaken belief on the part of consumers that the speaker is sponsored or endorsed by the trademark holder.”

Wednesday, December 30, 2015

Selfie restraint: It's hard to show fame and irreparable harm

ArcSoft, Inc. v. Cyberlink Corp., 2015 WL 9455516, No. 15-cv-03707 (N.D. Cal. Dec. 28, 2015)
ArcSoft makes the Perfect365 selfie editing app, and sued defendants for infringing and diluting the trademarks/trade dress of that app with their YouCam Perfect selfie editing app.  ArcSoft claimed first use of the Perfect365 mark as of Nov. 2, 2011, and registered it in 2012, along with a design mark for “Perfect365” and the image of a human face.  It alleged that over 20 million US consumers have downloaded the app, and that it had “significant acquired distinctiveness and goodwill” in its mark and in the term “Perfect” for selfie editing apps.  “The famous Kardashian family, including Kim Kardashian, Kendall Jenner, and Kylie Jenner (perhaps the world’s foremost authorities on the selfie), reportedly use the Perfect365 app to edit their widely-consumed selfies,” amplifying Perfect365’s consumer recognition.  ArcSoft also alleged substantial media coverage of the app.
Interface for Perfect365

Logo for Perfect365

In addition, ArcSoft claimed to own the following trade dress: A distinctive purple color scheme throughout the app and app icon; the Perfect365 mark; the “distinctive (in function and form) photo-taking feature, which utilizes the smart device’s camera within the app to enable the user to easily take and edit selfies all within the confines of the app,” with a circular shutter button at the bottom of the screen comprised of an inner white circle surrounded by circular bands in ArcSoft’s purple; and the photo-editing and beautification function of the app, featuring icons reflecting selfie editing options (e.g., for editing “Blemishes,” “Blush,” and eye features) at the bottom of screen in ArcSoft’s purple when selected, over a white rectangular band.  It alleged that this trade dress had both inherent and acquired distinctiveness.
YouCam Perfect interface

YouCam Perfect logo

Trademark dilution: ArcSoft failed to sufficiently allege federal fame (also required under California law).  Alleging 20 million US downloads, along with “widespread and favorable recognition of its Perfect365 Mark throughout the United States,” was insufficient, despite allegations of celebrity use and media coverage from outlets from the New York Times to Allure and TechCrunch.  Although the Perfect365 mark was registered, other factors in assessing fame weighed “heavily” against ArcSoft.
Defendants’ alleged use began in February 2014, and ArcSoft didn’t plausibly allege that it acquired fame in the approximately 28 months that passed between its first use date of November 2, 2011 and then.  It didn’t allege that the widespread recognition and media coverage occurred before February 2014, or allege details about its advertising.  Even assuming, contrary to the court’s expectation, that 20 million downloads sufficed (in a nation of over 318 million), again ArcSoft didn’t allege how many of those occurred before February 2014.  Nor were there any nonconclusory allegations about the extent to which consumers actually recognized the Perfect365 Mark.  Dilution claims dismissed, with leave to amend.
As for trade dress infringement, ArcSoft likewise failed to plead nonfunctionality.  Given the explicit functionality of many of the features claimed in its initial description, ArcSoft retreated in its moving papers to claiming (1) “a distinctive purple color scheme,” (2) “a unique app icon for the Perfect365 app,” (3) the “Perfect365 Mark itself,” (4) “a circular shutter button at the bottom of the screen comprised of an inner white circle surrounded by distinctive circular bands in ArcSoft’s purple,” and (5) the “icons reflecting selfie editing options the bottom of [the] screen in ArcSoft’s distinctive purple when selected, over a white rectangular band,” or even further, to “how the shutter button [and] [selfie editing] icons look.”  However, given the importance of defining trade dress sufficiently to give defendants adequate notice, Arcsoft’s “shifting-sands approach” to defining the trade dress was insufficient.  Given the apparent concession that the trade dress described in the complaint wasn’t the trade dress ArcSoft wanted to assert, this claim was also dismissed with leave to amend.
That left only alleged word mark infringement in ArcSoft’s motion for preliminary injunction, which the court denied for failure to show irreparable harm.  After Herb Reed Enterprises, LLC v. Florida Entm’t Mgmt., Inc., 736 F.3d 1239 (9th Cir. 2013), likely confusion isn’t enough to show irreparable harm, nor are conclusory statements about lost control over reputation and damage to goodwill.  Thus, ArcSoft’s claims of actual confusion and lost goodwill, and allegations that these losses were “incalculable,” were insufficient.  So were claims that ArcSoft’s success depended on a “broad and loyal user base,” perhaps meaning to evoke the idea of network effects.
ArcSoft offered one incident that provided “some, but not much, support for its claim of loss of goodwill.” A user, “Rosiella ShadowsHeart,” posted a one-star review of ArcSoft’s Perfect365 app, stating “they stole the whole ui and all from You Cam Makeup.” This evidence was “on the right track,” but still didn’t show irreparable harm.  First, the reference to the whole user interface meant that the user was relying on the (not-yet-protected) trade dress, not just the word mark.  Second, a review consisting of “a single, somewhat ambiguous sentence by an anonymous internet user” was of minimal probative value even under the relaxed evidentiary standard applicable to preliminary injunction motions.

An additional declaration from ArcSoft’s legal counsel was no more helpful.  The declaration stated that the number of users of its app in 2015 had materially decreased by about 1/3 compared to 2014, while defendants engaged in increasingly aggressive promotional efforts.  Moreover, ArcSoft “commenced in-depth discussions with a major cosmetics company to enter into a partnership to implement looks sponsored by said company in our Perfect365 app,” but the company ultimately elected to use the YouCam Makeup app.  This didn’t show a sufficient connection between the infringement and the lost business, since the timing of defendants’ incorporation and marketing didn’t support a reasonable inference that the number of Perfect365 app users decreased because of confusion.  Any decrease in downloads, users, and ad sales reflected economic injury, which could be remedied by money damages.  Also, the cosmetics company, on these allegations, understood the difference between the two and chose YouCam. “That is what happens when products compete.”

UK ASA doesn't think "in association with" is enough to disclose an ad

See this ruling on an ad for Michelin tires.  Note also the stricter regulation of comparative advertising than in the US.

Monday, December 28, 2015

Reading list: are Facebook likes true endorsements?

Natasha T. Brison, Thomas A. Baker III, and Kevin K. Byon, Facebook Likes and Sport Brand Image: An Empirical Examination of the National Advertising Division’s Coastal Contacts Decision, 25 J. Legal Aspects Sport 104 (2015)
Do Facebook likes represent a genuine endorsement of a sports team?  From the abstract:
The National Advertising Division (NAD), a dispute resolution agency for claims related to national advertisements, recently determined that Facebook likes and the number of likes are a form of social endorsement and advised marketers that Facebook likes should be genuine endorsements for the brand. This study tested whether the NAD’s concerns were justified, and thus warranting additional regulatory action by the NAD, by examining whether the number of Facebook likes for a sport brand creates an endorsement effect, thus influencing brand image and consumer purchase intention. The results indicated a strong relationship between the number of Facebook likes, a consumer’s perception of the brand, and likelihood of purchase.

Tuesday, December 22, 2015

one note on In re Tam: TM as right to suppress others' speech

Judge Reyna's dissent makes a point that I think courts will find very hard to grapple with, whatever the fate of 2(a) or disparagement specifically:
Judge Dyk concurs in the result today only because he believes the content of Mr. Tam’s mark is so “indisputably expressive” that it cannot be regulated under the lesser standards applied to commercial speech. Dyk, J., concurring at *20-21. But if the expressive content of the mark precludes regulation, on what authority may the government grant Mr. Tam the exclusive right to use this mark in commerce? Whatever standard of scrutiny protects the content of Mr. Tam’s trademark from government regulation, that same standard must necessarily be overcome by the government’s substantial interest in the orderly flow of commerce, or no trademark could issue.
To look at it from the flipside, there's a mismatch between the rationale for protecting commercial speech--it provides useful information!--and the rationale for giving registrants complete freedom to choose non-inherently informational symbols to which they attach meaning.

Update: SanMedica v. Amazon favorably settles

Victory is mine!  Bring me the finest muffins and bagels in all the land!  Public Citizen represented me in a lawsuit to unseal the key information in SanMedica v. Amazon, a case that applied the 1-800 Contacts rule that ad clickthrough rates provide an upper bound to the percentage of consumers who could have been confused online—but sealed the rate it found sufficient to avoid summary judgment.  After the court granted my motion to intervene, the parties agreed to unseal most of the information we sought, including this fact, which is crucial to understanding the decision.  Thanks so much to Scott Michelman and the other lawyers at Public Citizen who brought this about.  More to come when the unsealing occurs and I can at last see the significance of the case for keyword infringement litigation more generally.

Monday, December 21, 2015

Transformative work of the day, Star Wars edition

The Washington Post shows how Ken Burns would recount the Intergalactic Civil War (so bonus right of publicity issue too).  Note use of clips from the films--also a DMCA 1201/exemption issue.  (You're welcome, Washington Post!)

Friday, December 18, 2015

A dreaded sunny day for Abbott & Costello heirs: play made fair use of Who's On First

TCA Television Corp. v. McCollum, No. 15 Civ. 4325 (S.D.N.Y. Dec. 17, 2105)
The “critically-acclaimed Broadway dark comedy, Hand to God,” used dialogue from the iconic comedy routine, Who’s On First? both in the play and in a promotional video for the play (which sadly, I can’t find online).  Claiming rights in the routine, plaintiffs, heirs of Abbott and Costello, sued for copyright infringement, and the court found fair use on the pleadings.
According to the complaint: Abbott and Costello first performed the Routine on March 24, 1938, as a live radio broadcast for The Kate Smith Hour. In November 1940, they signed a work-for-hire agreement with Universal Pictures Company that assigned to Universal “all the rights to the duo’s performances of Who’s On First in One Night and The Naughty Nineties.” One Night (1940) was the first publication for 1909 Act purposes; the Routine was then expanded in The Naughty Nineties in 1945.  These films were properly registered and renewed.  Universal then quitclaimed its interest in the Routine to the duo’s heirs (through a chain not relevant here).
Accepting all the allegations in the complaint as true, Abbott and Costello assigned their common law copyright in the Routine to UPC. UPC’s registration of the initial copyright in One Night was “therefore the first time that it obtained [statutory] copyright under the 1909 Act[,] upon UPC’s registration with the Copyright Office.” The publication of the Routine within the film then, under circuit precedent, extinguished the common law copyright in the unpublished version of the Routine.  “Because as much of the 1938 Routine as was disclosed in the motion picture was published when the motion picture was published, and because the law treats motion pictures as a unitary works, the copyrights in One Night and The Naughty Nineties that UPC registered ‘merged’ the Routine with the films.”  (Citing 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 257-58 (2d Cir. 2015) (holding that because “[f]ilmmaking is a collaborative process typically involving artistic contributions from large numbers of people,” statutory copyright in the film itself could be undermined if “copyright subsisted separately in each of their contributions to the completed film”).
In Hand to God, “Jason, the play’s shy and repressed main character, finds a creative escape from his religious small-town life through his hand sock-puppet, named Tyrone.”  Tyrone begins in Jason’s mother’s Christian Puppet Ministry, but “begins to develop a life of its own, possibly due to demonic possession.”  The use of the Routine is as follows:
About fifteen minutes into the play, Jason attempts to impress his crush, Jessica, by performing about one minute and seven seconds of the Routine, with Tyrone as Costello and Jason as Abbott. Impressed, Jessica asks Jason if he made up the dialogue himself, and he says “yes.” The audience is intended to recognize the famous Abbott and Costello sketch and find humor when Tyrone, the puppet, calls Jason a liar and tells Jessica that the sketch “is a ‘famous routine from the Fifties.”‘ The puppet proceeds to insult Jessica, saying, “You’d know that if you weren’t so stupid,” and then exposes Jason’s feelings for Jessica. (“It doesn’t matter because he thinks you’re hot.”). Providing a contrast with the soft-spoken Jason, the puppet Tyrone’s outrageous and subversive behavior escalates over the course of the play, and its post-Routine outburst provides a starting point for the gradual exposure of the darker side of Jason’s personality.
The nature of the work: creative and iconic, weighing in plaintiffs’ favor.  Amount taken: about one minute and seven seconds, while the Routine in One Night runs about three minutes and The Naughty Nineties goes almost nine minutes; the play uses a hybrid of the first thirty-seven seconds of One Night and the first minute and six seconds of The Naughty Nineties.  Because even one line, “Who’s on first?” is instantly recognizable, and the play uses more than that, the amount factor slightly favors the plaintiffs, though this factor is comparatively less important than transformativeness.  [Hey, if it’s a unitary work, how come we aren’t measuring amount by the percentages of the total films represented by the routine? Here, the qualitative part of the assessment probably remains similar, but chopping up works into parts has risks for fair use, which is one supporting justification for the ultimate holding in Garcia v. Google, cited by the court here.]
Effect on the market: alleged harm to the licensing market wasn’t enough; a reasonable observer wasn’t likely to find that Jason and his puppet’s reenactment of the Routine could usurp the market for the original Abbott and Costello performance. “Furthermore, Defendants’ transformative use of the Routine could arguably broaden the market for the original work, as it exposes a new audience of viewers to the work of the classic American comedy duo.”  This is even a stronger statement of this market-enhancing conclusion than that in Google, I think.  Favors defendants.
The determinative factor, however, was transformativeness.  The use of the scene using the Routine in the promotional video (which might only have images from the scene, not dialogue, if it’s like others I looked at) showed a commercial purpose.  Defendants used that clip because it was representative of the plot, and also was specifically mentioned in many articles and reviews of the play.  But commerciality can be discounted in transformativeness cases.
Commentary isn’t necessary. The relevant distinction is whether the new work “merely ‘supersede[s] the objects’ of the original . . . or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.” Creating “a distinct visual aesthetic and overall mood” for the audience is transformative.  Here, the tone of the new performance was “markedly different,” using the Routine to create a background for the increasingly sinister development of Tyrone’s character.  This creates a new understanding/aesthetic about the relationship between horror and comedy absent from Abbott & Costello’s performances.  Jason and his hand, rather than two actors, perform the Routine to contrast his seemingly soft-spoken personality and his inner nature, which isn’t the same purpose as the original. Though both performances evoke laughter, that doesn’t matter: the Routine provides comic relief in the play for reasons that differ from the humor of the original sketch.  Tyrone breaks the fourth wall when he tells Jessica that she should recognize the routine—he’s sharing an inside joke with the audience.  “The audience laughs at Jason’s lie, not, as Plaintiffs claim, simply the words of the Routine itself.”  And for the lie to be apparent, the original needs to be recognizable.

Thursday, December 17, 2015

Reading list: Lanham Act standing after Lexmark

Virginia E. Scholtes, The Lexmark Test for False Advertising Standing: When Two Prongs Don’t Make a Right, 30 Berkeley Tech. L.J. 1023 (2015):

Part I of this Note tracks the development of standing under § 43(a) of the Lanham Act and analyzes the three-way circuit split on false advertising standing that existed before the Lexmark decision. Part II describes the Supreme Court’s decision in Lexmark, focusing on the Court’s reasoning for formulating the new two-pronged test and the Court’s interpretation of the Lanham Act’s purpose. Part III assess the extent to which both the zone-of-interests prong and the proximate cause prong serve the purposes of the Lanham Act. First, Part III shows how the zone-of-interests prong gives a right of action to plaintiffs with an injury the Lanham Act was intended to protect, focusing on the issue of consumer standing under § 43(a). Next, Part III explains two situations where the proximate cause prong may fail to serve the purpose of the Lanham Act: when the defendant has a low market share, and when the plaintiff’s injury was inflicted through network effects. Finally, Part III analyzes courts’ application of the proximate cause prong in false advertising cases and concludes that the relaxed application of the proximate cause requirement will likely prevent this prong from barring plaintiffs who otherwise fall within the class of plaintiffs the Lanham Act was intended to protect. Overall, the Lexmark test for federal false advertising standing serves the purpose of the Lanham Act because it grants a cause of action to plaintiffs with a commercial injury, thus deterring unfair competition.

Defendant can't take advantage of TM abandonment it created

Axiom Worldwide, Inc. v. HTRD Group Hong Kong Ltd., 2015 WL 8113965, No. 8:11–cv–1468–T–33 (M.D. Fla. Oct. 30, 2015)
Axiom sued seeking to confirm its ownership of certain IP, including trademarks, related to medical devices, and for infringement resulting from its unauthorized use.  It won summary judgment against numerous defendants, and prevailed again after a non-jury trial, receiving damages and a permanent injunction, which was affirmed.
Defendants sought modification of the permanent injunction, which enjoined them from using Axiom’s trademarks, including “DRX 9000” and “Axiom Worldwide” for any commercial purpose.  Defendants alleged that Axiom had abandoned the marks for medical devices; that the federal registrations for Axiom Worldwide and DRX 9000 had been cancelled; that Axiom has had no substantive operations in the United States since 2010; and that at least since 2011, no new devices in the “DRX” line could be offered for sale in the U.S. because the FDA 510(k) pre-market clearances for those devices were de-listed. Thus, the legal basis for the injunction allegedly no longer existed.
Axiom responded that it hadn’t abandoned the marks but rather licensed them to other companies, who were using them on the internet at, in fax blasts to doctors, and at trade shows both domestically and internationally. Also, Axiom argued that defendants had flagrantly violated the injunction, and that any nonuse was their fault.  The court heard testimony from James Gibson, president of Axiom.
An injunction may be modified when its original purposes are not being fulfilled in any material respects, or perhaps when the party seeking modification shows that a significant change in circumstances warrants revision.  Either way, defendants failed to show entitlement to a change.  Defendants argued that the abandonment of the marks, and their consequent availability to the public, constituted a change in circumstances.
Gibson conceded that Axiom had no substantive business operations in the United States, apart from litigation, since 2010, although he testified to Axiom’s efforts post-judgment and post-appeal to regain a footing in the DRX medical device service and sales market.  Nonuse for three years is prima facie evidence of abandonment, creating a rebuttable presumption of intent not to resume use.  Moreover, intent to resume use “cannot be far-flung or indefinite; rather there must be an intent to resume use within the reasonably foreseeable future.”  However, here, much of the period of nonuse was caused by defendants and others like them, and was excusable; further, Axiom took efforts to resume meaningful use of the marks in a timely manner.
For some background: Axiom created an LLC and transferred certain assets to the LLC; the LLC ran into financial trouble and its assets were bought by HTRD, which filed paperwork with the PTO to assign Axiom’s trademarks to itself.  HTRD used Excite Medical to make and sell DRX devices using Axiom’s trademarks, designs, and other intellectual property.  It was this that led to the lawsuit which established that Axiom owned the relevant IP. The court ordered the cancellation of HTRD’s registrations of the trademarks and directed the PTO to amend its records to show Axiom as the owner.
The first notice of cancellation for failure to file a section 8 declaration for “Axiom Worldwide” came while HTRD claimed to own the marks and before the district court’s ruling that Axiom owned the marks. A later notice of cancellation, for the “DRX 9000” word mark, came after the entry of judgment, when the marks had been reassigned to Axiom.  HTRD filed the first required Section 8 Declarations for both marks between the fifth and sixth anniversaries of the registration, but the PTO rejected the declaration for “Axiom Worldwide” because HTRD didn’t have proper chain of title. For the “DRX 9000” mark, the PTO accepted the declaration from HTRD, but cancelled the registration for failure to file the declaration at the ten-year mark.  In any event, the owner didn’t properly file section 8 declarations, and that couldn’t be blamed on the PTO or someone else.
In April 2011, purportedly to protect the marketplace from counterfeit goods, Axiom de-listed its DRX 9000 series of products with the FDA, which prevented it from making DRX devices in the U.S. After the litigation, Axiom conveyed the trademarks to other entities, as a result of substantial judgments against it.  One of those other entities is currently authorized by the FDA to manufacture DRX 9000 devices, because it re-listed the 510(k) clearance with the FDA this year.  Although these entities haven’t made new devices, Gibson testified that they could do so if they received a customer order, and that they’d been advertising new machines for sale since attending a trade show in January 2015 in Dubai. They also attended trade shows in Nevada and the West Coast and intended to go to others ithis fall. The DRX 9000 mark and the Axiom Worldwide trademark and logo have been used at these trade shows. Axiom also showed “fax blasts” from between February and June 2014, promoting the sale of service parts and used devices for the DRX machines (the latter for international customers, which would seem to create a use in the US issue). Gibson further testified that he attempted to regenerate Axiom’s business activity but was unable to obtain investors who were fearful of the injunction and of defendants’ continued violations.
Axiom showed that defense counsel, on behalf of defendant Excite Medical, filed an application with the PTO to register “DRX 9000” for medical devices in May 2015.  Its declaration that “the applicant is the owner of the trademark or service mark” or alternatively, that “the applicant is entitled to use the mark in commerce” and that “the signatory believes .... no other person has the right to use the mark in commerce ....” was, according to Axiom, clearly false, and a blatant violation of the injunction. Defendants responded that it was merely an ITU application, and that  Excite Medical intended to use the mark for “back braces,” not for the spinal decompression device at issue in this litigation.
The court concluded that, “despite some missteps and apparent difficulty getting business restarted, the whole of this litigation demonstrates Axiom’s efforts to reclaim the marks for use of the marks in commerce.”  Its actions of suing after learning that HTRD claimed ownership of the intellectual property and had reassigned the Axiom trademarks to itself and begun manufacturing and selling DRX 9000 devices weighed against any finding of inexcusable nonuse. “While Axiom ceased further operations pending a determination that it owned the marks, its conduct in seeking to regain control of its marks and intellectual property simply does not lend support to Defendants’ claims of abandonment nor their request for modification.”  The court wasn’t willing to allow defendants to benefit from a problem they’d helped cause.  Their attempts to do so included the ITU, since the injunction explicitly prevented defendants from “[m]aking representations that they own or are authorized to use any of the trademarks or intellectual property rights and proprietary information this Court has found belong to Axiom.” Defendants’ and their counsel’s belief in the marks’ abandonment didn’t displace the injunction, and their insistence on testing its boundaries weighed against a finding that the injunction had served its intended purpose.
Although Axiom’s financial circumstances made it doubtful that Axiom itself could reenter the DRX sales or service business, it had post-litigation licensing agreements that allowed it and its transferee to do so, and those entities were actively marketing the DRX products and using the marks for their sales and service efforts. (The court again didn’t address the international v. use in the US aspects of this marketing.)  “[T]hese intentional and concrete efforts to reestablish business in the DRX line of machines are not far flung or indefinite.”

Puerto Rico registration can't constitutionally extend elsewhere

Puerto Rico Coffee Roasters LLC v. Pan American Grain Manufacturing Co., Inc., 2015 WL 8551102, No. 3:15–CV–02099 (D.P.R. Dec. 11, 2015)
P.R. Coffee Roasters, which sells “Café Rico” coffee in P.R., sued Pan American for trademark infringement, false advertising, and related claims under federal and Puerto Rico law based on Pan American’s conduct in the coffee industry, specifically its Florida sales of “Rico Coffee”  using the same name, packaging format, and color scheme as P.R. Coffee Roasters’ Café Rico,” along with alleged disparagement of P.R. Coffee Roasters. P.R. Coffee Roasters further alleged that the statement on packages of Rico Coffee, that “it is no accident Puertorrican coffee is the preferred coffee of Popes and Kings” infringed P.R. Coffee Roasters’ trademark in the slogan “The Coffee of Popes & Kings,” on packages of “Alto Grande” coffee, another P.R. Coffee Roasters brand.  (I imagine the nominative use argument might be an uphill battle here, but it’s an interesting thought.)
Plaintiff's Café Rico
Plaintiff's Alto Grande, The Coffee of Popes & Kings

Defendant's Rico Coffee
Defendant's coffee: It is no accident that Puertorrican Coffee is the preferred coffee of popes & kings

Also, P.R. Coffee Roasters alleged that Pan American was waging a “defamation campaign” that accusds P.R. Coffee Roasters of “using child labor,” “selling imported coffee as local coffee,” and “participating in efforts to undermine the Puerto Rico coffee industry,” etc.  The court pointed out that, to some extent, the allegations were that Pan American’s wrongs were at cross-purposes: seeking to benefit from, but ultimately destroy, the reputation of P.R. Coffee Roasters’ coffee brands.
P.R. Coffee Roasters alleged that Pan American knew of its Café Rico trademark due to a series of deals and litigation by Pan American involving the mark. Pan American’s Rico Coffee was allegedly marketed to the same type of consumers as P.R. Coffee Roasters’ brands, such as “the Puerto Rican community in Florida, who know and have been consuming Café Rico for more than 70 years.”  
Pan American argued that it had senior rights, but that certainly couldn’t be resolved on the pleadings. Plus, Pan American seemed to base its claim on its incontestable right to use the trade dress for “Arroz Rico,” a brand of packaged rice.  But P.R. Coffee Roasters alleged the use of its Café Rico mark for coffee since “approximately 1936” and that it was the senior user of the mark for coffee.
P.R. Coffee Roasters thus sufficiently pled infringement of its registered and unregistered marks/designs, though it didn’t allege a separate trade dress claim and would be held to that concession.  “Café Rico” was unregistered under federal law, so P.R. Coffee Roasters would ultimately have to prove secondary meaning under a rigorous standard, but it adequately pled secondary meaning by alleging that the word mark had been in continuous use since the 1930s, such that “the Puerto Rican community in Florida ... know[s] and ha[s] been consuming Café Rico for more than 70 years,” and by appending to the complaint historic examples of the advertising and promotion of the mark.  Thus, P.R. Coffee Roasters sufficiently alleged that its mark could identify the source of coffee in Florida.
The false advertising claim was also sufficiently pled.  P.R. Coffee Roasters alleged that the falsities were “disseminated under the Facebook accounts for Pan American’s brand Café Mami and the campaign ‘Salvemos el café 100% puertorriqueño,’ controlled by Pan American’s public relations team.”  “Whether a P.R. Coffee Roasters coffee is cheap or good, imported or local, adulterated or pure, destructive of Puerto Rico or supportive of it, and complicit in child labor or standing against it are all material representations about the coffee because they all ‘relate[ ] to a characteristic that defines the product at issue, as well as the market in which it is sold.’” The alleged accusations struck at the heart of P.R. Coffee Roasters’ brand.  And the allegations were of explicit falsity, requiring no extrinsic evidence of consumer deception.  Likewise, P.R. Coffee Roasters properly alleged that Pan American made false statements about itself: that it was protecting locally produced coffee, using the “slogan ‘Salvemos el Café 100% puertorriqueño’ (Save the 100% Puertorrican Coffee),” while at least two of the three brands affiliated with Pan American, Del Patio and De Mi Tierra, used imported coffee. P.R. Coffee further alleged that Pan American was abusing its control of 90% of the fertilizer market to harm P.R. coffee growers, contrary to its representations.
Pan American argued that the court lacked jurisdiction because all the allegedly disparaging statements occurred in Puerto Rico and were directed at the consuming public there.  But Congress legislated to the full extent of its Commerce Clause power in the Lanham Act.  Pan American allegedly waged part of its defamation campaign through online “ads and sponsored social media sites.” And anything that has “traveled via the Internet” has “traveled in interstate commerce.” Separately, “an adverse effect on the sales or goodwill of one whose trademark is used in interstate commerce is a sufficiently substantial effect on interstate commerce to entitle [P.R. Coffee Roasters] to invoke the protection of the Lanham Act, even if the [acts] of [Pan American’s] are wholly intrastate.”
The court also rejected Pan American’s First Amendment defense at this stage, since the First Amendment didn’t give Pan American a right to engage in misleading commercial speech.
However, P.R. Coffee Roasters couldn’t bring a Puerto Rico trademark claim, because Puerto Rico trademark law didn’t apply extraterritorially, both on statutory interpretation and Dormant Commerce Clause/First Amendment grounds. (Note interesting invocation of the First Amendment here—as we’ll see, the court suggests that there is a First Amendment right of others to use descriptive terms without secondary meaning.  That would suggest some trouble for incontestability.)  Extraterritorial application of trademark rights in “Café Rico” would conflict with the PTO’s holding that P.R. Coffee Roasters was required to disclaim rights in the word mark, other than as shown in the design mark, because “Café Rico” is a descriptive phrase in Spanish, meaning “delicious, rich coffee.” “The extraterritorial application of Puerto Rico law in this case would not only unravel the delicate balance between free speech and property rights struck in the Lanham Act, but it would also unconstitutionally impede interstate trade and speech.”

The court dismissed P.R. Coffee Roasters’ trademark misuse claim, because there was no cause of action for that.  However, P.R. Coffee Roasters could bring Puerto Rico tort claims to the extent that they adopted the Lanham Act—so P.R. Coffee Roasters could sue another Puerto Rico citizen, as Pan American was, for conduct in the state of Florida that violated the Lanham Act.  The court reserved the question of whether, if Puerto Rico law provided extra remedies (as it might), such remedies would be preempted.
By contrast, P.R. Coffee Roasters’ defamation claim under Puerto Rico law failed.  Although Pan American didn’t show it was a public figure, P.R. Coffee Roasters still needed to plausibly allege negligence.  Negligence is assessed based on the “nature of the published information,” the “[o]rigin of the information and reliability of its source,” and the “[r]easonableness of the process for checking the truthfulness of the information.”Although discovery would be required to prove negligence, P.R. Coffee Roasters still had the burden at this stage to plead negligence in a non-conclusory manner supported by pertinent facts. This it did not do.

Tuesday, December 15, 2015

California false advertising requires "advertising," but unfair competition doesn't

Golden v. Sound Inpatient Physicians Medical Group, Inc., No. 14-cv-00497, 2015 WL 8539034 (E.D. Cal. Dec. 11, 2015)
Golden, a medical doctor, was a VP of medical affairs/chief quality officer at Dameron Hospital from 2008-2012.  Golden was also the majority shareholder of the California Hospitalist Physicians, Inc. (CHP), a medical corporation providing primary care medical services, which contracted with Dameron to provide services from 2009-2012, at which point Dameron chose Sound Inpatient as the new hospitalist group for Dameron.  Golden had entered into agreements with several doctors to provide hospitalist services for their patients, competing with Sound Inpatient.
Golden posted a list in the emergency room of doctors who designated her as the hospitalist for their patients.  But Sound Inpatient sent letters to providers saying Golden did not practice at Dameron anymore; sent a nurse to visit offices of providers stating Golden was not practicing at Dameron anymore; and told employees to inform Dameron emergency room staff not to check anymore whether Golden was designated as hospitalist for patients, because all those patients were now assigned to Sound Inpatient.
Golden sued for violation of the California consumer protection laws.  She had standing to sue because she alleged that she lost money as a result of patients not seeking her services anymore.
Under Cal. Bus & Prof. Code § 17500, it’s “unlawful for any person [or] corporation … with intent directly or indirectly to dispose of real or personal property or to perform services … or to induce the public to enter into any obligation relating thereto, to make or disseminate … any statement, concerning that real or personal property or those services … which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.”  However, a close reading of the statute convinced the court that the statements had to be made in “advertising,” which these statements were not.  The relevant language from Section 17500 refers to false statements disseminated: “in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, including over the Internet.” The all-inclusive language of “any other manner or means whatever” could include letters, a nurse’s statements to providers, and instructions to employees not to check whether Golden had been designated as the hospitalist. But section 17500 as a whole clearly referred to advertising, and there was a “common sense” difference between the communications at issue here and advertising. If Golden could sue here, “nearly any false statement connected with the sale of a product/service constitutes false advertising.”  (Which would be a problem because …)
The language of the statute clearly referred to harm to the public, and Golden didn’t show that the public was induced or that a false advertisement was disseminated to the public. Instead, Sound Inpatient allegedly targeted individual providers and employees.   “[T]hese sporadic, infrequent means were not directed at the public for purposes of section 17500.”  Moreover, the complaint didn’t allege how consumers such as patients were deceived or harmed, just that medical providers and staff were the recipients of false statements.  (If they didn’t get the hospitalist they’d chosen, why isn’t that harm?)
Section 17200 prohibits “any unlawful, unfair or fraudulent business act.”  “Unlawful” borrows violations of other laws, and without a 17500 predicate claim, there was nothing there.  As for “fraudulent,” that requires actual and justifiable reliance, and Golden didn’t allege that she relied on Sound Inpatient’s false statements.  Nor did most of the facts alleged amount to “unfair” conduct, which requires “an incipient violation of an antitrust law, or that violates the policy or spirit of [such] laws because its effects are comparable to a violation of the law, or that otherwise significantly threatens or harms competition.”

However, alleged false statements that Golden wasn’t practicing at Dameron anymore nudged the complaint based on 17200 past the threshold of plausibility.  Repeatedly making such false statements with the aim of drawing patients away from Golden stated a claim for unfair competition.

Monday, December 14, 2015

Transformative work of the day, Omelas edition

I know I do a lot of these from The Toast, but that's kind of their thing.

Soliciting lawsuits against TM owner isn't confusing use of TM owner's mark

AMCOL Sys., Inc. v. Lemberg Law, LLC, No. 3:15-3422, 2015 WL 8493955 (D.S.C. Dec. 10, 2015)
AMCOL provides debt collection services and is subject to the Fair Debt Collection Practices Act (FDCPA)’s ban on “harassment” in debt collection. AMCOL alleged that it had substantial goodwill associated “recognized by the relevant consumers, including AMCOL’s clients and debtors.”  (Seems unlikely that the debtors have much goodwill towards AMCOL, though.)  Lemberg allegedly used the internet to advertise its services using AMCOL’s marks, interfering with internet users’ ability to reach AMCOL’s own website, and misleading potential clients into believing that AMCOL’s services violated applicable laws such as the FDCPA. 
Lemberg runs “several websites soliciting potential clients to file lawsuits against debt collectors, including and” One of its headings was “Stop AMCOL Systems Harassment,” which allegedly defamed AMCOL by suggesting a violation of the FDCPA.  The “heading” for Lemberg’s YouTube Channel stated “Amcol Systems Calling You? Sue Amcol Systems for Harass[ment].” Debtors would allegedly choose to retain Lemberg rather than working with AMCOL. [Debtors are involuntarily involved with AMCOL.  Query whether debt sellers, AMCOL’s actual customers, would care what happens after sale, as long as AMCOL pays them for the debt.]
The court kicked out the Lanham Act claims and declined to exercise jurisdiction over pendent state law claims.  First, likely confusion: Lemberg was using AMCOL’s marks in connection with advertising their own services, but AMCOL still failed to allege actionable consumer confusion.  Both Radiance Foundation, Inc. v. N.A.A.C.P., 786 F.3d 316 (4th Cir. 2015), and Lamparello v. Falwell, 420 F.3d 309 (4th Cir. 2005), hold that criticism of a plaintiff “via use of its marks” does not equate to consumer confusion.  Although those cases involved “First Amendment issues” [and this doesn’t?], the broader holding is that trademark law doesn’t affect the rights of critics and commentators, because it requires use that is likely to cause confusion as to source or sponsorship.
Allied Interstate LLC v. Kimmel & Silverman P.C., No. 12 Civ. 4204(LTS)(SN), 2013 WL 4245987 (S.D.N.Y. Aug. 12, 2013), and NCC Business Services, Inc. v. Lemberg & Associates, LLC, No. 3:13-cv-795-J-39MCR, 2014 WL 5510892 (M.D. Fl. June 6, 2014), adopted by 2014 WL 5514247 (M.D. Fl. July 23, 2014), similarly found no plausible allegations of likely confusion based on lawyers’ websites targeting particular debt collectors.  The websites made clear that they belonged to law firms that sued debt collectors like AMCOL, and references to its name were “merely for the purpose of advertising Defendant’s services and generating leads for potential lawsuits.”  [This could be taken care of as nominative fair use, possibly even under the Third Circuit’s restrictive test which requires that the defendant need to use the plaintiff’s mark to explain the defendant’s own goods and services.  Interesting that the court doesn’t even need to do that, and can rely on basic plausibility.  Seriously, why isn't this fee-worthy?  Rule 11-worthy?]
It was implausible that the relevant consumers—businesses seeking to hire AMCOL to collect debts—would be confused as to the source or sponsorship of Lemberg’s services based on its use of AMCOL’s marks. Nor could debtors be said to be part of the relevant consuming public even if they “choose” to work with Plaintiff to pay off debts. They were subjects, not customers.
How about false advertising, such as allegations that AMCOL harassed debtors in violation of the FDCPA?  AMCOL didn’t specifically identify false or misleading representations of fact. The two identified headings – “Stop AMCOL Systems Harassment” and “Sue AMCOL Systems for Harassment” – wouldn’t be enough to mislead the relevant consumers, given the context.  Although AMCOL claimed damages from debtors refusing to work with it, the relevant damage would have to come from the merchandising context—from AMCOL’s consumers.  [Here the court repeats its no-confusion-as-to-source conclusion, though that’s wrong for false advertising.  The basic Lexmark reasoning, that AMCOL needs to plausibly allege a competitive injury, still seems obviously correct.]

Friday, December 11, 2015

Reading list: Redskins as insult and brand

C. Richard King, Redskins: Insult and Brand (2016)

Passionate, if somewhat repetitive (as perhaps all moral calls to action are), argument about the poisonous nature of the Washington football team’s name. King argues that the name isn’t just about insulting Native Americans, but about white people owning them, propertizing their images and getting to decide what “counts” as a real problem, and that this ownership itself is one of the benefits the name provides in bolstering white supremacy. Claiming Indianness becomes a privilege of white masculinity, the mascot now a trophy. (Notably, the team was famously racist towards African-American players and the last in the NFL to integrate, with an anthem that not only stereotyped “braves on the warpath” and used mock pidgin but also urged the players to “fight for old Dixie.”) The name, and the images with which it is associated, combine a “paradoxical love of imagined Indians and a loathing of actual, embodied Indians that continues to this day.” That love is indifferent to the fact that, for example, the team currently plays on the ancestral territory of the Piscataway Tribe, or that DC is where the Patawomeck used to live. And as hard as the team tries to remove the stereotypes and leave only tribute, as late as December 2014, fans ran a “Scalp Out Cancer” fundraiser. When defending the name, team fans speak of their own hurt and pain—what King calls “playing Indian and playing the victim.” It’s their power to name and claim that’s threatened, and that’s all they see—as when fans consider protesters inauthentic because they don’t look “Indian” enough then claim that they have 1/16 Cherokee blood.

Along with the privileging of whiteness, King also discusses the harms directly done by stereotypical images: making Native Americans feel worse and triggering disparaging stereotypes in whites. I learned that owner Dan Snyder’s Original Americans Foundation, while launched to huge hoopla, appears to have gone completely dormant in terms of carrying out any charitable activities. I also learned more about the history of the term that arose “to accommodate an increasingly racialized European and European American view of the world which was imposed on a broad range of peoples who only gradually developed a sense of a collective identity in response to it.”

King also discusses Native Americans who don’t mind the team name, or like it. It’s a useful point: “how could there not be some American Indians who support it?” There’s a lot of diversity among any group of people; some don’t think about it; some have family connections to the team; and, “in a society that offers so few images of American Indians, … that has so fully erased living indigenous people in favor of imaginary versions of them, why wouldn’t some number of Native Americans come to accept, endorse, and even identify with” the team? King further suggests that Native Americans living on reservations experience racism differently than Native Americans living in large cities, who see the logo regularly and don’t have the insulating counter-narratives that might surround them in their communities. So, while three high schools with a majority Native American student body still use the same name, their communities and audiences wouldn’t use the stereotypes that white football fans do.

Wednesday, December 09, 2015

Reading list: empirically testing tarnishment of movies

This Article [reports] the results of two novel experiments designed to test the effects of pornographic versions of creative works on the value of the underlying works. In our experiments, subjects viewed movie posters of pornographic versions of popular movies before they were asked questions about those movies. Our data show little if any support for the tarnishment hypothesis and some significant support for an alternative enhancement hypothesis: Some of our subjects actually perceived more value in the “tarnished” movies. We believe the results of these experiments put the ball back into the court of tarnishment theorists to prove their anxiety has a factual basis.
Good to see some empirical confirmation of the position I’ve long taken (wow, I’ve had this blog for more than ten years!).

Tuesday, December 08, 2015

6th Circuit holds that targeted ads are commercial advertising or promotion

Grubbs v. Sheakley Gp., Inc., 2015 WL 7964109, -- F.3d – (6th Cir. Dec. 7, 2015)
District court’s ruling covered here (with my raised eyebrow).  The court of appeals affirms the dismissal of the RICO claims (they’re RICO claims), but reverses the dismissal of Lanham Act claims based on the consequences of a mass employee departure.
Grubbs owns Tri–Serve, Ltd.; TriServe # 1, LLC; and Capital Concepts, Inc.  Capital Concepts is a financial planning, wealth management, and tax preparation firm, while the other firms were successors to four professional employment organizations, which are a type of Ohio regulated entity to which employers may outsource certain administrative tasks, such as payroll, workers’ compensation, and benefits.  Tri-Serve provides PEO services to the greater Cincinnati, Ohio market.
After she purchased Tri-Serve, Grubbs asked Defendant Strunk–Zwick to manage the newly acquired companies because of her expertise with PEOs. Strunk–Zwick was subject to a non-competition agreement.  Defendant Larry Sheakley owns and operates the Sheakley Group of Companies, which also provide “401(k) services, flexible benefit plans, workers’ compensation, payroll, [and] human resources outsourcing solutions,” headquartered in Cincinnati.
One of the Sheakley defendants solicited Strunk–Zwick to ask for her assistance with Sheakley’s PEO division while she was still employed by Tri-Serve. “During March and April 2009, Strunk–Zwick was paid by Sheakley on a consulting basis, and was sometimes absent from the Tri–Serve office during business hours in order to provide services to Sheakley.”  Sheakley solicited Strunk-Zwick and other Tri-Serve staff members to join Sheakley, and coordinated the transfer of Tri-Serve clients to Sheakley.  Defendant Steve Wolf, a Sheakley VP, suggested that Strunk–Zwick tell Tri–Serve clients that “we are partnering with Sheakley and that we may transition them over to give them better service etc.”  For example, Strunk-Zwick sent an email to 22 Tri-Serve clients:
We are moving! In order to better serve you, we are partnering with Sheakley HR and moving our offices. As many of you know, we have partnered with Sheakley over the years with regards to our workers compensation and unemployment management. We have been blessed to have experienced tremendous growth over the last 6 months. We find ourselves needing more office space and more resources to ensure that our customer service level continues to meet your expectations. By moving into Sheakley Group we will be able to provide you and your employees with additional resources, services, and benefits, while continuing to provide you with the service that you have grown accustomed to expect from TriServe. Nothing will change from your standpoint. We will have new contact information, but nothing else will change. You will begin to see the Sheakley HR name and we will be introducing new benefits and new services to assist you with growing your business. …
Effective Monday, July 6, 2009 our Contact Information will be:
TriServe LTD c/o Sheakley HR Solutions…
“Several Tri–Serve clients expressed dissatisfaction with the move, were upset that they had received no notice, and worried that all of their information had been transferred to Sheakley.”  At that point, Strunk-Zwick resigned from Capital Concepts.  Before she left Capital Concepts, she removed all files, including all customer files; took Tri-Serve’s 2009 tax returns; and deleted computer files and e-mails.  Sheakley continued to use the Tri–Serve name thereafter.
Grubbs had sporadic contact with Strunk–Zwick and Sheakley for the next several months as they tried to work out various issues with payroll, taxes, and similar matters for 2009. As of August 2009, health insurers and workers’ compensation departments were still sending third-quarter invoices to Tri–Serve at Grubbs’ office, but Sheakley, not Grubbs, received the client payments.  Strunk-Zwick denied possessing Tri-Serve’s own tax documents; Grubbs continued receiving bills for Tri–Serve, “which she paid from her retirement account.”  (Nice detail, plaintiff’s lawyers!)
Grubbs sued in 2013.  The district court dismissed her Lanham Act and RICO claims, and declined pendent jurisdiction over 15 state-law claims.
False designation of origin: Grubb argued that Strunk-Zwick’s conduct could be imputed to Sheakley.  Vicarious liability exists when “the defendant and the infringer have an actual or apparent partnership, have authority to bind one another in transactions, or exercise joint ownership or control over the infringing product.”  The “partnership” email sent to 22 clients used that language at Wolf’s suggestion.  “The intent to create an apparent partnership in the eyes of the Tri–Serve clients is self-evident from this language.”
Next, the court considered whether there was “trademark use” or instead use in a “non-trademark way,” which would fall outside the Lanham Act. “This finding may be dispositive: plaintiffs cannot succeed on a trademark claim where trademark law does not apply.” The district court found that the email used Tri-Serve’s mark in a non-trademark way, as a source of comparison between the two organizations.
Hensley Manufacturing v. ProPride, Inc., 579 F.3d 603 (6th Cir. 2009), found no actionable trademark use where an inventor, Jim Hensley, left the company bearing his name and designed products for its rival, who described the products by identifying Jim Hensley as the designer, with a disclaimer that Jim Hensley was no longer affiliated with Hensley Manufacturing.  This was not trademark use.  However, Hensley was inapposite.  The email provided a new address of Tri-Serve at Sheakley HR Solutions at One Sheakley Way, designating geographic source and implying that those services would be originating from both Tri–Serve and Sheakley HR. Likewise, including a link to suggested that Tri–Serve would still be the source of payroll services, as before. Domain name use was use “in a trademark way.”
Likely confusion:  Tri-Serve is a suggestive mark, “toward the stronger end of the spectrum,” and “Tri–Serve customers were perfectly acquainted with the name.”  The services directly compete, making confusion likely in cases of sufficient similarity.  Mark similarity: defendant copied “wholesale,” favoring confusion.  Actual confusion: Some clients expressed dissatisfaction and worry, and they started sending payments to Sheakley, indicating that they were duped.  Marketing channels/customer base: the same.  Degree of customer care: there was no evidence that business owners purchasing HR services need to be held to an unusually high standard—the question was whether “a typical buyer exercising ordinary caution receiving Strunk–Zwick’s e-mail could be confused as whether the HR services were coming from Sheakley or Tri–Serve.”  Intent: “The use of the Tri–Serve name cannot have been anything other than purposeful; we therefore read Strunk–Zwick’s e-mail as calculated to mislead the Tri–Serve clients into diverting their business to Sheakley.” 
All the factors supported a finding of likely confusion, and this was not in any way counterintuitive.  “Taking the facts in the light most favorable to Plaintiffs, as we must, we read the frequent use of the first person plural throughout the e-mail to mean Tri–Serve, not simply Strunk–Zwick and the other Tri–Serve staff members who were entering Sheakley’s employ; according to the e-mail, all of Tri–Serve was moving, and was partnering with Sheakley.”  The email was chock full of ambiguous (at best) references, which could sow confusion and strongly implied affiliation, even though Grubbs—the actual owner of Tri-Serve—did not affiliate with Sheakley.
False advertising:  The district court used the Gordon & Breach test for “commercial advertising or promotion.”  The Sixth Circuit hasn’t adopted Gordon & Breach, but circuit precedent was silent about what constitutes “advertising or promotion.”  The court of appeals here noted the Seventh Circuit precedent stating that advertising was “promotion to anonymous recipients,” but (like other courts) didn’t note that the Seventh Circuit subsequently walked that back a bunch.  (Does this failure by subsequent courts to notice later refinements tend to happen more with Seventh Circuit cases because they are so breezy about precedent generally and thus it’s harder to tell when they’re limiting/contradicting earlier precedent?)  The Second Circuit has adopted most of Gordon & Breach in Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48 (2d Cir.2002), requiring that “the contested representations are part of an organized campaign to penetrate the relevant market. Proof of widespread dissemination within the relevant industry is a normal concomitant of meeting this requirement.”
Like the Second Circuit, the court of appeals adopted the Gordon & Breach requirements that “commercial advertising or promotion” must consist of “ ‘commercial speech’ that is made for the purpose of influencing the purchasing decisions of the consuming public.”  Likewise, it adopted the “organized campaign to penetrate the relevant market” standard, which need not entail widespread, market-wide dissemination.  “[P]roducers today employ data as never before to track our consumption habits, especially on the Internet, and send out personalized promotional material accordingly.”  Targeted promotion to a discrete segment of a larger market could be an organized campaign even without “flooding” the market.  “[T]he plain meaning of the terms ‘commercial advertising’ or ‘commercial promotion’ accommodates targeted communications to a substantial portion of a company’s existing customer or client base.” 
Still, not all commercial speech should be actionable under the Lanham Act (because …?). Thus, the appropriate definition was:
(1) commercial speech; (2) for the purpose of influencing customers to buy the defendant’s goods or services; (3) that is disseminated either widely enough to the relevant purchasing public to constitute advertising or promotion within that industry or to a substantial portion of the plaintiff’s or defendant’s existing customer or client base.
No competition was required.  (This is also entailed by Lexmark, as other courts have observed.)
The letter to all of Tri-Serve’s clients fit squarely within this definition.
The complaint sufficiently pled that the emails contained several false and misleading statements of fact about Tri-Serve’s services and its “partnership” with Sheakley.  “Tri–Serve was not moving and the companies had no relationship whatsoever.” The new address at One Sheakley Way “was also a false representation of the geographic origin of the PEO services and could also have created a further misimpression as to the relationship between the companies.”  There was also evidence of actual deception, necessary for a damages claim.  Health insurers and workers’ compensation departments billed Tri–Serve at Grubbs’ office, but clients paid Sheakley, not Grubbs. 
What about interstate commerce? Grubbs didn’t allege that the e-mail, or the mailed versions thereof, ever traveled outside Ohio, or where any of the relevant e-mail servers might have been.  However, a civil plaintiff need not allege that an e-mail crossed state lines to survive a motion to dismiss; stating that an email was sent was enough to allow the reasonable inference that the allegedly false advertisements were introduced into interstate commerce.

Monday, December 07, 2015

California claims against false use of "organic" not preempted

Quesada v. Herb Thyme Farms, Inc., 2015 WL 7770635, No. S216305 (Cal. S.Ct. Dec. 3, 2015)
Labels matter to consumers, and misrepresentations on labels hurt consumers in their search for information and also disadvantage honest producers attempting to differentiate themselves.  Thus, the Supreme Court of California concluded, federal law didn’t preempt claims against allegedly intentional misrepresentations of organic status by an herb grower.  Congress only preempted state law on matters related to certifying production as organic, rather than also reaching out to preempt action against abuse of the “organic” label.  Such state claims further Congress’ purpose of having a clear national definition of organic production, allowing consumers to rely on organic labels.
According to the complaint, Herb Thyme has multiple conventional farms and one farm that is properly certified as organic by a registered certifying agent. When it comes time for distribution and marketing, however, Herb Thyme allegedly brings its conventionally grown and organic herbs to the same packing and labeling facility, processes them together, and sends blended conventional and organic herbs out under the same “Fresh Organic” label and packaging. Herb Thyme also allegedly packages and labels as organic some herbs that are entirely conventionally grown.

The trial court and court of appeals found preemption of the state-law consumer protection claims based on the Organic Foods Production Act of 1990.  The Supreme Court recounted the history behind OFPA: the rise of consumer demand for “organic” food, but the persistence of consumer confusion and deception in the absence of uniform standards.  States reacted first, but created inconsistent standards.  Congress responded by creating national standards for the production, labeling, and sale of organic products. Producers may label products as organic only if they comply with an approved organic plan; approval must come from either state officials or private certifying agents.
California became the first state to have its own organic program approved.  Approved state programs take principal responsibility for certifying growers and instituting administrative proceedings for noncompliance with the governing standards. California’s state program authorizes anyone to file a complaint about noncompliance, and various state authorities may bring enforcement actions and impose penalties.
Express preemption applies to federalize (1) the term “organic”—a state can’t allow something the feds don’t, and (2) certification for growers, which must be carried out only by certifying agents who themselves have been federally accredited.  Whether production processes qualify as organic is to be measured “only ... in accordance with” the provisions of OFPA.  However, no such language of exclusivity appears in the provisions governing sanctions for misuse of the organic label.  There was no reason to conclude Congress wanted these sanctions to be a ceiling as well as a floor, especially since the law permits states to adopt more stringent standards governing “organic” production. Other courts to consider the issue have found no no express preemption of state consumer protection lawsuits.
Herb Thyme argued that obstacle preemption applied.  There’s a presumption against preemption, and the longstanding interest of the states in protecting consumers against deception in food labeling makes preemption especially unlikely.  Even if the minority on the Supreme Court who advocate for removing the presumption against preemption were in charge, it wasn’t clear that they’d apply a presumptionless test in matters of obstacle preemption.  State consumer fraud lawsuits promote Congress’ goals of avoiding consumer deception, building consumer trust in a standard definition of “organic,” and protecting legitimate organic producers from having their prices undercut by sharp dealers.  Indeed, the USDA’s final rule adopting implementing regulations emphasized that a standard definition of “organic” would aid state enforcement of consumer fraud laws by providing a clear benchmark.  Because OPFA has no private right of action, implied preemption “would render organic labeling uniquely immune from suits for deception because of legislation Congress passed, in part, to prevent food from being ‘deliberately mislabeled as “organic.”’”  It seems unlikely that Congress intended to do so. 
The Eighth Circuit preempted only consumer protection claims asserting the defendant dairy should not have been permitted to sell milk as USDA Organic because its production methods were not actually consistent with federal regulations—“that is, claims making a frontal assault on the validity of the organic producer’s government certification.” Nor could consumers sue the certifying entity on the grounds that it erred either in initially granting certification or in not revoking certification. But that case expressly distinguished state law claims that merely challenged the truth of facts relating to certification.  Herb Thyme argued that the claims here went to split operations involving both conventional and organic produce, which are required by regulation to institute precautions against inadvertent commingling, and thus allowing the case to proceed would conflict with organic regulations.  If the claim was that Herb Thyme’s anti-commingling protocols were inadequate for “true” organic production, notwithstanding the plan’s approval by a federal certifying agent, that might well be preempted.  But that wasn’t the argument here: the complaint accepted Herb Thyme’s certification and compliance with federal regulations on its certified organic farm.  It claimed intentional mislabeling of conventional herbs as organic. “The Organic Foods Act cannot be interpreted, under the guise of obstacle preemption, as shielding from suit the precise misconduct Congress sought to eradicate.... [T]hese claims do not contest Herb Thyme’s ability to do anything its federal certification actually permits it to do."
Further, the overall scheme was inconsistent with Herb Thyme’s claim that only one “umpire”—the federal government—should have a say, since it already delegated lots of decisions to certified growers, state and local officials, and certifying agents.