Wednesday, April 29, 2015

DC Comics thinks derivative works are creator-less

According to this post by a DC Comics artist (who created Felicity Smoak!).  This raises fascinating contract issues, as well as depressingly highlighting artists' lack of bargaining power.

The dangers of only arguing one half of 43(a)

Diodato v. Wells Fargo Ins. Servs., USA, Inc., 44 F. Supp. 3d 541 (M.D. Pa. 2014)

Darrell Diodato was employed by Wells Fargo Insurance for thirty-six years as an insurance producer, servicing existing insurance business and originating new insurance business. He specialized in brokering insurance for bowling alleys and family entertainment centers, developing “numerous personal and business relationships with owners” and considering himself to be “the godfather” of the bowling alley insurance industry. Approximately 70% of the revenue he generated was derived from bowling center owners and operators. He signed a trade secret/nondisclosure/nonsolicitation agreement in 2009, allegedly at threat of losing his job.

Wells Fargo fired him in 2011; the parties’ accounts of why diverged drastically, with Wells Fargo claiming job-related misbehavior and Diodato claiming they wanted to get his book of business without having to pay him.After the termination, Wells Fargo distributed about 53 insurance-related documents which identified Diodato as the producer on their respective accounts. (Advertising or promotion?) Wells Fargo continued to run advertisements in Roller Skating Business using Diodato’s name until at least February of 2012 and continued to identify him as a producer on the Wells Fargo website months after his termination.

Diodato subsequently began working with Wells Fargo competitors. He denied that he solicited business from former Wells Fargo clients, but admitted that he maintained relationships with them and told them how to switch to his new business if they asked. Many of the clients he serviced at Wells Fargo indeed “left or removed their accounts from [Wells Fargo] in the period following [his] termination.” Wells Fargo sent cease and desist letters to the competitors, alleging Diodato’s breach of the nonsolicitation agreement and demanding that each ensure Diodato’s compliance with the agreement’s terms.

The court granted summary judgment on Diodato’s fraudulent inducement, breach of contract, and breach of the duty of good faith & fair dealing claims. The unjust enrichment claim also failed because Diodato failed to show that Wells Fargo received an uncompensated benefit from him.

Defamation/commercial disparagement: Diodato alleged three different types of defamation: that his superior informed a Wells Fargo business manager, that Diodato’s actions were “not in Wells Fargo’s best interests”; that the superior “painted a picture” to the head underwriter for an insurer that Diodato’s “business practices were suspect and that he was insubordinate”; and that Wells Fargo’s counsel advised the competitors that Diodato was in violation of the nonsolicitation agreement. The first statement was merely opinion: it was “ambiguous, obscure, and does not imply the existence of specific defamatory facts.” The “best interests” statement didn’t imply a violation of any particular duty or other responsibility as a Wells Fargo employee. However, Wells Fargo didn’t get rid of the “suspect/insubordinate” claim because its only argument was that Diodato failed to sufficiently identify an actual statement. The record showed that the challenged meeting occurred and that Diodato was explicitly described as “insubordinate” and his business practices as “suspect.” As for the C&Ds, Wells Fargo successfully asserted a “competitors privilege.” See Gresh v. Potter McCune Co., 235 Pa.Super. 537, 344 A.2d 540 (1975). In such circumstances, a conditional privilege applied, and Diodato failed to show abuse of the privilege, given Wells Fargo’s argument that it reasonably believed that its efforts were necessary to protect its legitimate and protectable interests as identified in the nonsolicitation agreement.

However, the agreement’s post-employment prohibition on “accepting the unsolicited business of former clients” was broader than necessary to protect against Wells Fargo’s legitimate concerns, and struck it as unenforceable as a matter of law.

Diodato’s claim for violation of §43(a)(1)(B) survived because Wells Fargo only made arguments about §43(a)(1)(A); his claims were based on Wells Fargo’s continued use of his name on its website for nearly seven months after Diodato’s termination and its continued use of his name as its representative in Roller Skating Business after his termination. The complaint clearly alleged a “false or misleading description of representation or fact,” and expressly stated the statutory requirements of both a false designation claim and a false advertising claim. While Diodato abandoned his §43(a)(1)(A) claim, Wells Fargo had notice of the false advertising claim and it therefore survived summary judgment. (It seems extremely unlikely that someone who can’t win a §43(a)(1)(A) claim could show the extra elements of commercial advertising or promotion plus materiality.) The Pennsylvania common law of unfair competition tracks the Lanham Act, so that survived too.

Diodato’s statutory claim for unauthorized use of his name, in violation of Pennsylvania’s Unauthorized Use of Name or Likeness statute survived. That law creates a cause of action for any “person whose name or likeness has commercial value and is used for any commercial or advertising purpose without written consent....” Diodato sufficiently established commercial value in his name. “The record reveals that Diodato has developed long-standing personal relationships with many of the clients he serviced while working for Wells Fargo, and he argues that, in the context of the roller skating and bowling alley insurance businesses, his name ‘has significant commercial value.’” He averred that, over the course of more than 30 years, (1) he spent his own money supporting various fundraising activities; (2) he entertained contacts at annual industry meetings; and (3) he paid $12,000 annually from his own commission revenue to account for costs relating to Wells Fargo’s endorsement of a bowling industry organization. This would allow a trier of fact to find that he expended time, effort, and money “in excess of what any salesperson does to generate customers.”

The court denied summary judgment on Wells Fargo’s breach of contract counterclaim; a jury had to decide exactly what role Diodato played in the transition of his former clients’ business. Wells Fargo lost its trade secret claim because it didn’t provide evidence showing exactly what information it believed Diodato misappropriated or the manner in which he did so. Finally, the gist of the action doctrine barred Wells Fargo’s remaining tort claims for unfair competition, conversion, and tortious interference with existing and prospective contractual relations, because these claims were derivative of its breach of contract claim.

Monday, April 27, 2015

briefly noted: another court rejects proof of purchase requirement for class ascertainability

Really briefly!  In re Scotts EZ Seed Litig. 304 F.R.D. 397 (S.D.N.Y. 2015).  It would defeat the purpose of class actions.  Also, though, there couldn't be an injunctive relief class after the challenged statement was removed from packaging.

Court makes the write choice on descriptive fair use

Marketquest Group, Inc. v. BIC Corp., No. 11-cv-618 BAS (S.D. Cal. Apr. 17, 2015)
Marketquest website using All In One and The Write Choice marks
Marketquest sued BIC for infringing its registrations for ALL-IN-ONE and THE WRITE CHOICE for, among other things, pens.  BIC included “The Write Pen Choice” in online advertising and displays for writing instruments, including its pens, in 2010. The ads included BIC ® and ROUND STIC ® at the top of the page, followed by “The WRITE Pen Choice for 30 years!,” unaccompanied by either TM or ®.  A BIC subsidiary that sells promotional products, Norwood, included the phrase "All in ONE" on its 2011 product catalogue. Norwood ® was printed in a larger font on the cover of the catalogue, and “All in ONE” appeared below and to the right of it.
Bic write choice ad
The court initially determined that these uses had “some likelihood of confusion” and the “potential” for infringement and the case proceeded to summary judgment, which BIC then won on fair use.  Fair use requires descriptive use, other than as a mark, fairly and in good faith only to describe the defendant’s goods or services.  Some possibility of confusion is compatible with fair use, since the existence of the defense reflects “the undesirability of allowing anyone to obtain a complete monopoly on use of a descriptive term simply by grabbing it first.”  The Ninth Circuit has said that the degree of consumer confusion remains a factor, along with “the strength of the trademark, the descriptive nature of the term for the product or service being offered by [the plaintiff] and the availability of alternate descriptive terms, the extent of the use of the term prior to the registration of the trademark, and any differences among the times and contexts in which [the plaintiff] has used the term.”  (Follow along and see how many of these the court considers—which says more about the undesirability of the Ninth Circuit’s laundry list than the quality of the district court’s analysis here.)
As for “All in ONE,” the court found that it had the meaning “an entity or object which combines all the required or appropriate elements, items, or functions in one” for over 130 years.  All didn’t mean “everything,” but “everything appropriate.” Marketquest argued that “all in one” wasn’t descriptive because Norwood “produced other catalogs in addition to their `all in ONE' Catalog that year which featured their housemarks and sub-brands.”  So what?  “All in one” meant “appropriately consolidated.” “Trademark fair use is designed to protect uses of the plain meanings of common words, and semantic contortions cannot render Norwood's meaning or use uncommon.”
When a trademark owner claims a descriptive phrase, it accepts the risk that such marks are weak and that others will make descriptive fair use of them.  Norwood used the common meaning of “all in one,” other than as a mark.  The only remaining issue was BIC’s good faith.  Knowledge of the marks alone was not enough.  “While it is true that a larger corporation may not roll over a small corporation’s mark, any organization that imbues secondary meaning to common phrases assumes the risk that another organization in the same business sphere will use that phrase for its common meaning. Marketquest was on notice that its ALL-IN-ONE marks were, by their very nature, susceptible to such confusion.”  Marketquest also claimed that the use of both marks in the same year demonstrated bad faith, but use of two common descriptive phrases in “wide-ranging marketing materials” was also insufficient.
Plus, Norwood “largely mitigated the risk of confusion” by prominently printing its NORWOOD® mark in every location including the phrase. “Spatially, there is no implied association between the Norwood mark and the All in ONE descriptor. All in ONE is printed in a standard font, and it is followed by a list of generic types of items included in the catalog.” Several places in the catalog also explained the phrase’s context, including: “Our primary product resource, featuring all product lines in ONE catalog.” Norwood did “everything possible, short of an explicit disclaimer, to mitigate the risk of confusion,” and disclaimers aren’t required.
The “write pen choice” fared similarly.  There was no evidence of actual or potential confusion.  Marketquest argued that BIC’s use was suggestive, but “the ‘write choice’ is a trite pun, notable only for its obviousness.”  The words were used with conventional spacing (rather than something like WriteChoice) and did not denote a trademark use.  The court cited evidence that advertisers use puns in 10-40% of ads, because consumers feel pleasure when they solve an easily solved riddle, and they may transfer this positive affect to the product being advertised.  “This simplistic pun is directly related to BIC’s pen product, and ‘write’ is far more descriptive of a pen than of Marketquest’s general promotional products business. To preclude BIC from making this pun would effectively eliminate this avenue of commercial speech.”
BIC took similar measures to reduce the likelihood of confusion here, including modifying its promotion from “The WRITE choice for over 30 years!” to “The WRITE Pen Choice for 30 Years!” BIC also “rigorously” labeled its marks with ® or TM, and used only its house font to write the phrase. “While Marketquest often uses a nondescript cursive font for ‘the write choice’ logo, its failure to make a more distinctive mark is again an assumed risk.”  This was undisputedly good faith.
Marketquest also couldn’t suggest a viable alternative for the phrase.  Its suggestion of “the right choice” “eliminates any pun and begs readers to ask: ‘Why not use the obvious pun here?’”  Its problem, if any, was of its own making.

Needless markup: outlet stores' pricing not deceptive

Rubenstein v. Neiman Marcus Group LLC, 2015 WL 1841254, No. CV 14–07155 (C.D. Cal. Mar. 2, 2015)
Rubenstein bought two items of clothing from the Neiman Marcus Last Call Store (a discount store, as opposed to the usual upscale Neiman Marcus store) that was purportedly sold for markedly lower than the “Compared to” price that a consumer would pay at traditional Neiman Marcus retail stores.  Outlet stores often sell discounted clothes that are “after season” or clothing that had very little popularity and did not sell, so consumers have allegedly become accustomed to seeing products at outlet stores that once were sold at the traditional retail store.  Rubenstein alleged that the use of “Neiman Marcus” in the name of the Last Call Stores caused her and other Last Call Store shoppers to reasonably believe that the Last Call Stores are outlet stores of traditional Neiman Marcus retail stores and that the Last Call Stores sell “after season” and unsold products that were previously sold at traditional Neiman Marcus retail stores.
Neiman Marcus labels its Last Call products with a tag that shows a markedly lower price from the “Compared to” price, and Rubenstein alleged that she and putative class members reasonably believed that this “Compared to” price represented the price that the exact same product would be sold at the traditional Neiman Marcus retail store. However, the Last Call products were manufactured strictly for sale at the Last Call Stores, and allegedly were of inferior grade and quality to the products sold at the traditional Neiman Marcus stores. Because the products were never sold at traditional Neiman Marcus stores, Rubenstein argued that they couldn’t be compared to any price and that the insinuated discount (and the implied quality) was false and misleading.
Members of Congress have complained to the FTC about this practice: “it is a common practice at outlet stores to advertise a retail price alongside the outlet store price-even on made-for-outlet merchandise that does not sell at regular retail locations. Since the item was never sold in the regular retail store or at the retail price, the retail price is impossible to substantiate. We believe this practice may be a violation of the FTC’s Guides Against Deceptive Pricing (16 CFR 233).”
In particular, “[u]nlike the use of the words ‘Compared to’ in the context of a regular retail store, where a price comparison might suggest the price for similar product sold at a competing store, when used in connection with Defendant’s Last Call outlet store, the words ‘Compared to’ can reasonably be interpreted by reasonable consumers to be a price comparison with the price of the exact same product when it was previously for sale at Defendant’s regular retail store.” Even the name “Last Call” reinforces the implication that the stores sell products previously available at Neiman Marcus stores, and in that context, “Compared to” allegedly conveyed the message that these products were formerly sold in regular Neiman Marcus stores for that price, not just the message that goods of a like grade and quality were sold somewhere else for that price.

That all seems plausible to me to state a claim for the usual California claims, but not to the court.  The court didn’t find the “Compared to” tag and “Last Call” name sufficient. It turned to the FTC’s Guides Against Deceptive Pricing for help. The Guides distinguish between “former price comparisons,” “retail price comparisons,” and “comparable value comparisons.”
Former price comparisons indicate that the retailer formerly offered the good at the listed price, and are indicated by language such as “Formerly sold at $___” or “Were $10, Now Only $7.50!” Other language to indicate a former price includes “Regularly,” “Usually,” “Formerly,” or “Reduced to.” Retail price comparisons indicate that the same article is sold by other merchants at a particular price, and are indicated by language such as “Price Elsewhere $10, Our Price $7.50” or “Retail Value $15.00, My Price $7.50.” Comparable value comparisons merely indicate that merchandise of “like grade and quality” are sold by the advertiser or others in the area at the listed price, and can be indicated by language such as “Comparable Value $15.00.”
Rubenstein’s argument was contrary to the FTC’s guidance.  There was no evidence that Neiman Marcus affirmatively claimed that its Last Call stores sold merchandise previously for sale at the flagship stores. “‘Last Call’ could just as easily refer to the last call for merchandise from a prior season or the last call for a third-party manufacturer’s clearance items.” (That seems tendentious—it’s not just as easy to make the jump from Neiman Marcus to another store. Neiman Marcus’s value proposition is its exclusivity, not that it dines on others’ scraps.) The “Compared to” tags “would most likely be interpreted by a reasonable consumer as a comparable value comparison.”  Thus the complaint didn’t sufficiently allege misleading advertising techniques or improperly advertising of a former price.

Friday, April 24, 2015

So, that happened: MPAA Creativity Conference

The Motion Picture Association of America, in partnership with Microsoft and ABC News
Creativity Conference
(File under: you invited me!  Also, no surprise, the food was good and the perks nice—you could get your photo made in a James Bond pose with the swirl around you, among other things. Stormtroopers accompanied the MPAA intro: is that really the message you want to send?)
Chris Dodd, MPAA: Film & tv industry = greatest innovators of the country. 1.9 million jobs dependent on flim & TV industry. More than 450 unique online services available for legally streaming movies & TV, more than 100 in the US.  MPAA created a website,, to find them. Tech & content support and rely on one another (Microsoft).
Fred Humphries, Microsoft: Industry is sustaining America’s global competitiveness. Microsoft invests more than $10 billion in R&D each year. Devoted to empowering 300 million young people.  (Wonder about the young people they’re not devoted to empowering …)  Need policies and programs to enable us to do more—gov’t, entertainment, and tech sectors discussing future of growth.
Tom Sebroski (sp?), ABC News: ¾ of consumers about to own smart device.  We don’t want to be left out.  Will we be surfing 500 channels or telling our fridge to play Scandal?  ABC News now available on the Apple Watch and X-Box. We are learning how to tell stories in 6 seconds; storytelling is the heart of the endeavor. Instantly we’re all storytellers w/power of social media w/ability to curate and form our own narratives with one click.  Charleston, SC footage as example.
Cathy McMorris Rodgers, House Republican Conference Chair
Interviewed by John Carl, White House correspondent for ABC News
Rodgers: our office looks a lot like a startup, because we want to encourage that culture.  (Oh, for Evgeny Morozov commenting on this.) 
Carl: did fictional portrayals of Washington inspire you?
Rodgers: American history, biographies.  (I guess the answer is no.)
Carl: portrayals of Washington are so dark right now—Scandal, House of Cards.
Rodgers: that is a concern; people ask about it.  (Earlier she jokingly blamed House of Cards for Congress’s low approval ratings.) Congress is based on relationships, getting to know each other and finding common ground. People are hungry to get things done.  (Like the TPP, I guess?)
Carl: what’s necessary for creativity to prosper?
Rodgers: Americans taking the risk to fail.  Smart, creative people with ideas for positive impact.  (Wow, this is more anodyne than I thought it could be.)  Sometimes the status quo stamps down any new approach on Capitol Hill. Potential to improve federal gov’t delivery of services—Veterans Administration.  A private company knocked on my door and said it could help.  App providing appointments for doctors that accept your insurance.  The VA gives lots of reasons it can’t do that.  Need to embrace new tools.  (For a very small fee.)  Need to start embracing the ideas of these companies w/in the gov’t. Education, encouraging blended learning.  Bringing tech into the classroom—a student spends a portion of time one on one w/teacher, a portion in a small group, and a portion on the computer, watching a video or getting curriculum from different perspective & taking a test.  Kids love it!
Carl: Trade and the TPP.
Rodgers: I’m optimistic it will pass. 
Carl: you are giving President authority to make the deal.
Rodgers: in the negotiations, this is different than past years. Congress laid out a long list of criteria, and has the committees of jurisdiction allowed to vote up or down if it meets our intent. That provides more oversight.  I’m hopeful.  Good vote on Ways & Means.  Washington is the most trade-dependent state in the country.  We want to make it here and export it there.
Jim Williams, FAA manager.  Unmanned aircraft. We figured out how to approve these aircraft, but can’t grant exemption to everyone at once—has to be individual companies.  Movie companies were attractive model.  (Now we get a drone demo. I think this is also the Star Wars music playing, which again makes me a tad nervous.  I don’t have a lightsaber to fend the drones off.)
Aerial mob drone guy: drones allow continuous motion across 360 degrees, allowing new film angles, movement along path. Low-altitude aerial cinematography: crane shots, etc. can be gotten and combined: we can fly through a front window and out the back door of a building, which is the only way to get that shot.  New creativity, budget savings—a lot faster to set up.  Not just a creative tool—used for many different jobs.  We’re very proud that we’re creating new things with our hands.  Can be used to inspect power lines, turbines, oil pipelines; security robots to monitor a facility; labor resource.  (He’s talking about creating new jobs but the description is of technologies that will allow employers to shed jobs.  That’s not to say these innovations are bad, but query what jobs they create.)  We feel very creative in that we’re developing new businesses. 
Howard Lukk, Indie Filmmaker and Uber Geek: Most of the stuff in Back to the Future 2 is here, except for the flying cars.  (He left out the other part of the quote: “The future is already here. It’s just not very evenly distributed.”)
Sidhant Gupta, Researcher, Microsoft: What inspired him growing up was Stargate: SG1.  (One of us!) What tech do they have, what’s next?
Juju Chang, Co-anchor of ABC News Nightline: lifelong Star Trek fangirl.  Engineers are often inspired by creative works.
Lukk: Engineering is a creative field.
Chang: then take the tech and infuse it into the creative process.
Lukk: historically it took 10-15 years for technology to become commercial (film, radio, TV).  But the creative side doesn’t change in terms of storytelling: that’s still the core.
Hollywood is wrestling with VR—changing the passive experience of what the filmmaker wants us to see. VR = look around and see new things, not just the actors.  Audience can have control. How do we get the story across?
Gupta: in video games, you still have cut scenes with director controlling. Still trying to figure out how to let the viewer run the show.
Lukk: most of the time the audience isn’t interested in selecting its own ending.  Game design and filmmaking are likely to merge.
Gupta: in a game if you don’t do well you criticize yourself; in a film you criticize the director.
Haptic technologies: trying to use bursts of air so that it feels like you get feedback from the physical world, e.g. when you hit a curb in a game. Trying to detect gestures without putting a camera everywhere.
Lukk: computational cinematography: use multiple cameras to capture different parts of a scene, allowing sophisticated visual effects.  (That is very cool.)
Gupta: we are moving towards making medical devices to diagnose cancer by sensing in the same way.
Daniel H. Marti, U.S. Intellectual Property Enforcement Coordinator, Executive Office of the President: IP industries accounted for over 60% of US exports.  Recorded music, software, etc. over $156 billion dollars. That’s why it’s so important to protect IP and open foreign markets to US creative content.  This year’s IP Day theme is “Get Up! Stand Up!” for music, invoking Bob Marley’s song—an anthem for human rights. Tap into this spirit/call to action to speak up for artistic communities the world over. Respect right to make a living off artistic labor, and reject those who believe that theft of creative output is acceptable.
Creativity = human expression, building communities. Sharing brings communities together and helps create common identities.  (Well, it depends on what you pay, I guess.)  We need to build a safe, secure, and stable internet.  Fostering multistakeholder processes in which all participants—government, private sector, civil society—can marginalize antisocial/criminal activity. Stakeholder responsibility promotes environment conducive to creativity. Promote innovation in those in the business of connecting creators and consumers. Respecting IP promotes tech for communicating creativity. Desire to tell stories to wider audiences has long chain of innovation, creating new industries along the way—print, film, radio, TV.  (Interesting how all of those industries have an early and sometimes extended history of copying w/out paying that enabled them to get off the ground.  Sauce for the goose?)  (Also I am a little creeped out that he just straight-up introduced a Microsoft ad for its holotechnology, as if he worked for Microsoft and not for the US government.  Truth in advertising?)
U.S. Representative Karen Bass (CA-37): “I represented Fox when I was in the state legislature.”  Upside of redistricting, I got Fox back.  (So she is literally the representative from Fox?)  Stories and characters once thought unmarketable have been catapulted to fame: 12 Years a Slave.
Nancy Utley, President, Fox Searchlight Pictures: some interesting stuff about getting films at film festivals—you could see why she got into this business.  Also discussed that her movies aren’t very effects-driven/tentpole, and screens are pretty big at home, so they need to get people to go to theaters/not wait for Netflix. Sometimes it’s a star, sometime it’s participating in a cultural conversation, sometimes it’s just very different (Black Swan), or awards; it’s easier for older people who don’t mind going out as much.
Juju Chang, ABC Nightline (chair)
Lori McCreary, Executive Producer, “Madam Secretary,” and President, Producers Guild of America
Barbara Hall, Creator & Executive Producer, “Madam Secretary”
Evan Ryan, Assistant Secretary of State for Educational & Cultural Affairs, U.S. Department of State: In Egypt, met with high school students: one asked “do you see drag races every day?”—his impression of US was determined by Fast and Furious films—people who haven’t visited the US think of the US as being its films. No way to overstate the impact of our media globally.  The Interview of course; House of Cards is popular among the Chinese leadership, who thinks it’s reality-based.  It would be great if film & TV portrayed other countries/the people of other countries as more complex and human in their aspirations.
U.S. Representative Rosa DeLauro (CT-3): don’t trivialize the hard work of these jobs; women don’t get as many bites at the apple as men do in these jobs. So don’t make them frivolous characters.
This discussion was mainly interesting because of how ego-boosting it was for non-Hollywood types in DC—what did the shows get right and wrong—and for Hollywood from DC’s perspective—how important and influential they are. It’s the entertainment/political/industrial complex.
Nancy Pelosi, House Democratic Leader: Culture, creativity, good jobs.  I had a depressing realization during her conversation with Chris Dodd: Sarah Palin is probably not even two standard deviations away from regular politicians on the word salad scale.  Pelosi finished with: you wouldn’t steal a sweater, so you shouldn’t steal movies because they are property—it’s in the Constitution.

Deducting points for a 3-point landing in copyright claim

Horizon Comics Prods., Inc. v. Marvel Entertainment, LLC, No. 15-cv-11684 (D. Mass. filed Apr. 23, 2015): Newly filed; the claim is that movie Iron Man's armor infringes the copyright in another comic armored suit.  All I'll say right now is that one part of the allegations is clearly silly: the complaint alleges that one movie poster is a copy of an image from plaintiffs' cartoon:
Radix image and Iron Man 3 poster
Three Point Landing is such a trope that it has its own supercut, as well as its own entry on TVTropes.  (Warning: link goes to TVTropes.  I accept no responsibility for the time you'll spend there.)  I would kind of love to put together the exhibits for the motion to dismiss, actually.

Ad agency liability for false advertising without scienter

Nestlé Purina Petcare Co. v. Blue Buffalo Co., No. 4:14 CV 859, 2015 WL 1782661 (E.D. Mo. Apr. 20, 2015)
Purina sued Blue Buffalo for false advertising of its dog food as “grain free” and containing “no chicken by-product.” Purina issued press releases about the suit and launched, criticizing Blue Buffalo for its alleged false advertising. Blue Buffalo denied the allegations and alleged that the “independent testing” Purina relied upon for its claims against Blue Buffalo was unreliable.  Blue Buffalo countersued Purina for false advertising and defamation, and added the ad agencies working with Purina. began with an “open letter” to pet owners from Purina describing Blue Buffalo’s allegedly false advertising. Blue Buffalo alleged that a number of statements about Blue Buffalo and the content of Blue Buffalo’s dog food were false, e.g., “[T]esting conducted by an independent laboratory revealed that several of Blue Buffalo’s top-selling ‘Life Protection’ pet food products actually contain substantial amounts of poultry by-product meal” and “Blue Buffalo is not being honest about the ingredients in its pet food.” Blue Buffalo made similar allegations about Purina’s Facebook and Twitter pages, with content developed by ad agency Blue State Digital.  Purina also allegedly promoted its Honesty website through Google ads developed by Blue State Digital, e.g., “A dog food company is lying about its ingredients. Learn the facts.”
Under Lexmark, Lanham Act false advertising liability isn’t limited to direct competitors. And those who work with competitors to produce false ads can also be liable.  There isn’t much caselaw on this, but what there is has held that ad agencies can be liable under the Lanham Act as joint tortfeasors for knowing participation.  The ad agency defendants argued that they weren’t active participants in preparing the ads and didn’t know or have reason to know of its falsity. 
Blue Buffalo pointed out that the Lanham Act doesn’t have a scienter requirement, but the ad agency defendants argued that the law “silently” imposes such a requirement as to ad agencies. But the main case supporting that, Gillette v. Wilkinson Sword, relied on the pre-1988 version of the Lanham Act, which did have a knowledge requirement for false advertising claims. Thus, given the express removal of “knowing” as an element of Lanham Act false advertising, knowledge was not required.
The ad agency defendants also argued that Blue Buffalo failed to satisfy Rule 9(b). Blue Buffalo pled that defendant PRCG Haggerty “designed and built” the Honesty website, and that Blue State Digital “developed the content” of the ads on Purina’s Facebook & Twitter accounts and “arranged for these links to to appear when users search for terms related to Blue Buffalo.”
There’s a split over whether 9(b) applies to Lanham Act claims “grounded in fraud,” but only one bound the court here: In re NationsMart Corp. Sec. Litig., 130 F.3d 309 (8th Cir.1997). The Eighth Circuit held that Rule 9(b) does not apply to § 11 Securities Act claims for false statements and misrepresentations because proof of fraud is “not a prerequisite to establishing liability,” and it would be unjust to dismiss a case because plaintiffs alleged more than was necessary to recover under the law.  So too here, because Lanham Act liability doesn’t require fraud, even if Blue Buffalo did include fraud allegations.  (This has always eemed to me to be the right approach.)
Blue Buffalo’s Lanham Act claim met the notice pleading standards of Rule 8(a). Blue Buffalo attached and cited several examples of allegedly false statements and advertisements from Purina’s Honesty website, Facebook page, Twitter account, and Google search results. Blue Buffalo also alleged that the ad agencies participated in the design and creation of those ads.  These allegations weren’t “particularly robust,” but “it would be difficult for Blue Buffalo to plead many additional facts at this time without the benefit of discovery.” And even if 9(b) did apply, Blue Buffalo alleged sufficient details to put the ad agency defendants on notice, quoting language from specific ads, and noting the dates on which those ads ran.
PRCG/Haggerty argued that it was immune under CDA § 230.  The court rejected this for two reasons: (1) CDA immunity is an affirmative defense that a plaintiff is not required to plead around (yikes!), and (2) given the allegations of the complaint, PRCG/Haggerty was an “information content provider” for the content it created for the Honesty website—allegations that PRCG/Haggerty “designed and built” the advertising campaign were sufficient.
The court dismissed claims for false advertising under Missouri common law, concluding that no such claim exists under Missouri law. Unfair competition and unjust enrichment claims survived for the same reason as the Lanham Act claims. The ad agency defendants also didn’t get the injurious falsehood and defamation claims kicked out, because scienter can be alleged generally even under Rule 9(b).
Unfair competition under Connecticut common law: the ad agency argued that this claim could only be maintained against competitors. Blue Buffalo said the state law tracked the Lanham Act, but under Connecticut law, “the word ‘competition’ as used in ‘unfair competition’ limits coverage to claims by competitors.”  (This language came from an insurance case but provided guidance.)  Although state trademark law follows the Lanham Act, false advertising/unfair competition isn’t the same thing. Claim dismissed.

Finally, the court dismissed claims for violation of trade practice statutes of different states because the counterclaim “summarily lists citations to statutes of twenty-six different states,” which wasn’t enough to make a plausible claim or provide notice.

Thursday, April 23, 2015

8th Circuit dismisses right of publicity claim as copyright preempted

Ray v. ESPN, Inc., No. 14-2117 (8th Cir. Apr. 22, 2015)
Steve "Wild Thing" Ray wrestled professionally in the Universal Wrestling Federation (UWF) from 1990 to 1994. ESPN obtained films of his wrestling matches and re-telecast them without his consent.  He sued for invasion of privacy and misappropriation of name.  The Copyright Act preempts state-law claims if (1) the work at issue is within the subject matter of copyright as defined in § 102 and 103 of the Copyright Act, and (2) the state law created right is equivalent to any of the exclusive rights within the general scope of copyright as specified in § 106.
The films of Ray's wrestling performances were within the subject matter of copyright law. Ray argued that ESPN's use of his "likeness" was the true "focal point of this case." Not so. The cases he cited were distinguishable because they involved use of an identity to sell something else. Downing v. Abercrombie & Fitch, 265 F.3d 994 (9th Cir. 2001) (use in ads suggesting endorsement of clothing seller); Brown v. Ames, 201 F.3d 654 (5th Cir. 2000) (use to sell "cassettes and CD's," "music catalogs," "posters," and "videotapes," even though the defendants "lacked copyrights"). “Brown specifically distinguished Baltimore Orioles—and in so doing, distinguished this case as well—on the grounds that ‘the right of publicity claimed’ by the plaintiffs in Baltimore Orioles ‘was essentially a right to prevent rebroadcast of games whose broadcast rights were already owned by’ other parties.” I find this frustrating because it just announces a conclusion: use in ads is use of likeness but use of the same copyrighted work in a broadcast isn’t, at least if defendants own the copyright. But the result’s right.  “ESPN did not use Ray's likeness or name in an advertisement without his permission to promote its commercial products, and, as the district court correctly noted, Ray's ‘likenesses could not be detached from the copyrighted performances that were contained in the films."
And the rights were equivalent: they were "'infringed by the mere act of reproduction, performance, distribution or display'" of his performances. Dismissal affirmed.

Wednesday, April 22, 2015

Amazon doesn't want you to know how to apply 1-800's IIC rule

SanMedica Int’l, LLC v., Inc., No. 13-cv-00169 (D. Utah filed publicly Apr. 15, 2015)

The parties agreed to dismiss the case with prejudice on the day the redacted version of the opinion was released, so we won’t get more. I'll have more to say later, but: Amazon continued to run ads saying "buy SeroVital [SanMedica's supplement product] at Amazon" in response to keyword searches on Google etc. even after it removed SeroVital from Amazon due to policy violations.  The court declined to grant summary judgment on initial interest confusion, finding that
It is undisputed that during the Advertising Period, approximately [redacted] sponsored ads were generated. Out of those, there were approximately [redacted] clicks on the sponsored ads. The click to impression rate of the sponsored ads is approximately [redacted] percent. This rate sets the "upper limit on how often consumers really were lured in such a fashion." Amazon contends that of the [redacted] users that clicked on the ads for SeroVital, only [redacted] made any purchase at, a measly [redacted] percent." Although consumer purchases constitute [redacted] percent, the focus is not on the purchase rate but instead on the [redacted] percent rate that consumers were lured to Amazon's website. [Redacted]-percent, although a relative small number, is not so insufficient to suggest that there was no likelihood of confusion.
I do not think it is consistent with the rule of law to leave us to guess at the meaning of this.  In the Tenth Circuit, 1-800 governs the IIC analysis, and we know from that case that 1.5% clickthrough isn't sufficient to make confusion likely; we also know that 7% confusion is usually not enough.  But what is enough? Is this one of the unusual cases where 7% is enough?  These redactions make it impossible to put this case in its proper context.

Separately, the court rejects SanMedica's 43(a) false advertising claim for failure to show materiality.  SanMedica argued that the ads were literally false so that it didn't need to show materiality separately, but the court disagreed:
Amazon's misrepresentation was that consumers could purchase SeroVital on But when consumers clicked on the sponsored ads, they were taken to a landing page that did not contain for sale any SeroVital products. Amazon's misrepresentation thus related to the marketing of the product, that is, the channel through which a consumer may purchase the product. Amazon's misrepresentation did not discuss the quality or characteristics of SeroVital which could potentially affect consumers' purchasing decisions. Under the undisputed facts on this motion, no reasonable jury could find that Amazon's misrepresentation likely influenced a consumer's purchasing decision.
This seems ... wrong.  Bait and switch is false advertising, too (something the court acknowledges in its analysis of state law).  The misrepresentation that they could buy that particular product at Amazon was material to the people who clicked--that's the theory of trademark infringement!  Alternatively, I suppose we could read the court as saying that we don’t know whether consumers cared at all whether they were buying SeroVital—that is, whether they cared about the source/producer—but there can still be trademark infringement, because trademark doesn’t have a materiality requirement. Why is this sensible?

Tuesday, April 21, 2015

Reading list: class ascertainability & preemption of state sound recording public perf. rights

Geoffrey C. Shaw, Class Ascertainability, forthcoming, Yale Law J. (2015)
In recent years, federal courts have been enforcing an “implicit” requirement for class certification, in addition to the explicit requirements established in Rule 23 of the Federal Rules of Civil Procedure. The ascertainability requirement insists that a proposed class be defined in “objective” terms and that an “administratively feasible” method exist for identifying individual class members and ascertaining their class membership. This requirement has generated considerable controversy and prevented the certification of many proposed classes. The requirement has taken a particular toll on consumer class actions, where potential class members are often unknown to the representative plaintiffs, often lack documentary proof of their injury, and often do not even know they have a legal claim at all.
This Note explores the ascertainability requirement’s conceptual foundations. The Note first evaluates the affirmative case for the requirement and finds it unpersuasive. At most, Rule 23 implicitly requires something much more modest: that classes enjoy what I call a minimally clear definition. The Note then argues that the ascertainability requirement frustrates the purposes of Rule 23 by pushing out of court the kind of cases Rule 23 was designed to bring into court. Finally, the Note proposes that courts abandon the ascertainability requirement and simply perform a rigorous analysis of Rule 23’s explicit requirements. This unremarkable approach to class certification better reflects what the Rule says and better advances what the Rule is for.
Lovers of the music of Frank Sinatra, The Beatles, Etta James, and hundreds of other recording artists whose records were made before February 15, 1972, may soon have a hard time hearing these great artists on any satellite or Internet radio service. Recently, two federal district courts have found that state laws were violated when satellite radio broadcaster Sirius XM Radio included pre-1972 sound recordings in its broadcasts without the owners’ permission, but these courts did not consider-–and the parties did not argue-–how the Supremacy Clause applies to those state law claims. This article argues that state laws purporting to grant digital performance rights to pre-1972 sound recordings are necessarily preempted by the Supremacy Clause of the United States Constitution. This article contends that enforcement of those state laws would create a serious obstacle to “the accomplishment and execution of the full purposes and objectives of Congress” in enacting the Digital Performance Right in Sound Recordings Act of 1995 (“DPRA”). The DPRA reflects Congress’ careful balancing of interests and recognition of the need for an easily administrable system of licensing, which Congress established through a complex and comprehensive compulsory licensing system. The Supremacy Clause thus preempts all state laws purporting to require licenses for digital performance rights or payment of royalties for the use of such rights by Internet or satellite radio stations beyond what is expressly provided for in the compulsory licensing system established by the DPRA, because permitting countless owners of individual pre-1972 sound recordings to assert claims for royalties and other damages outside of the compulsory licensing system would frustrate Congress’ goals in establishing that system. Part I of this article provides a brief overview of the federal rights at issue and the (very) brief history of performance rights in sound recordings, noting the absence of any express state law recognition of a performance right in sound recordings throughout most of the 20th century (other than short-lived decisions in two states over seventy-five years ago that focused on notices stamped on records purporting to prohibit a purchaser’s use of sound recordings on radio rather than a true performance right). It is only in very recent cases that courts in New York and California have recognized state law performance rights. However, they did so without considering Supremacy Clause preemption or how any state law performance rights might conflict with the federal statutory compulsory license regime established by the DPRA. Part II of the article explains the relevant legislative history and provisions of the DPRA governing the comprehensive licensing system. That statutory license and rules governing it were established to provide an efficient mechanism for digital Internet and satellite radio services to operate in compliance with their legal obligations. In Part III, the article explains Supremacy Clause doctrine and distinguishes the Supreme Court’s opinion in Goldstein v. California, which rejected a Supremacy Clause challenge to a state record piracy law in 1973. It demonstrates why neither the Court’s decision in Goldstein nor the language of the Copyright Act’s express preemption clause, which exempts state laws governing pre-1972 sound recordings from statutory preemption, precludes conflict preemption under the Supremacy Clause in the context of digital radio services that are subject to the federal compulsory license. Part IV of the article acknowledges that preemption of state law protection for digital performances of pre-1972 sound recordings raises equitable concerns, as it leaves some of this nation’s most treasured musical artists uncompensated for use of their works by Internet and satellite streaming services while the authors of more current works are compensated. However, given the delicate balancing that has gone into Congress’ recognition of a limited digital performance right and creation of a compulsory statutory licensing system, any remedy for the inequity to owners of pre-1972 sound recordings must be left to Congress. Allowing individual courts in individual states to craft a patchwork of inconsistent remedies would disrupt the balance struck by Congress and interfere with the functioning of the compulsory license system for digital sound recording performances. This is a result that the Supremacy Clause does not permit.

2(a) avoids First Amendment challenge, for now

In re Tam, -- F.3d --,  No. 2014-1203 (Fed. Cir. Apr. 20, 2015)
The Federal Circuit affirmed the refusal to register THE SLANTS for entertainment (a band) because it was disparaging, with “additional views” from one judge suggesting that it’s time for the Federal Circuit to reconsider its precedent upholding §2(a) against First Amendment challenge.
The TTAB pointed to record evidence that THE SLANTS would likely be perceived as referring to people of Asian descent, and that this was offensive to a substantial component of such people.  The band’s website displayed the mark next to “a depiction of an Asian woman, utilizing rising sun imagery and using a stylized dragon image,” and the applicant said that he selected the mark in order to “own” the stereotype it represents. Nonetheless, “[t]he dictionary definitions, reference works, and all other evidence unanimously categorize the word ‘slant,’ when meaning a person of Asian descent, as disparaging,” and there was record evidence of individuals and groups in the Asian community objecting to Tam’s use of the word.
The test for disparagement asks “(1) what is the likely meaning of the matter in question, taking into account not only dictionary definitions, but also the relationship of the matter to the other elements in the mark, the nature of the goods or services, and the manner in which the mark is used in the marketplace in connection with the goods or services; and (2) if that meaning is found to refer to identifiable persons, institutions, beliefs or national symbols, whether that meaning may be disparaging to a substantial composite of the referenced group.”
The TTAB appropriately took into account evidence gathered with respect to a prior abandoned application for a version of the mark with an Asian-inspired graphic; evidence outside the application can be relevant to determine the manner of a mark’s use.  Substantial evidence supported the Board’s finding that the mark referred to people of Asian descent.  Though the term “slant” has a number of alternative meanings, one of them is (according to Tam’s own cited dictionaries) “a disparaging term for a person of East Asian birth or ancestry,” (The American Heritage Dictionary of the English Language), and “[a] person with slanting eyes, spec. one of Oriental descent” (Oxford English Dictionary).  Its innocuous meanings, and trademarks based thereupon, don’t prevent it from being used in an offensive manner. Instead, those meanings require the PTO to examine how the applicant uses the mark in the marketplace to determine its likely meaning.
The factual record included Tam’s explanation of the band’s name: “I was trying to think of things that people associate with Asians. Obviously, one of the first things people say is that we have slanted eyes. . . .” and “We want to take on these stereotypes that people have about us, like the slanted eyes, and own them. We’re very proud of being Asian—we’re not going to hide that fact. The reaction from the Asian community has been positive.” The band’s website sets the mark against “a depiction of an Asian woman, utilizing rising sun imagery and using a stylized dragon image.”  Individuals and Asian groups perceived the term as referring to people of Asian descent.
Likewise, substantial evidence supported the finding of likely offensiveness to a substantial composite of people of Asian descent. The definitions in the record “universally characterize the word … as disparaging, offensive, or an ethnic slur when used to refer to a person of Asian descent.” The Japanese American Citizens League published a brochure describing the term as a “derogatory term” that is “demeaning” and “cripple[s] the spirit.” The  offensive  nature  of  the band’s name led to the cancellation of the band’s scheduled performance at a conference for Asian youth. No survey or other quantitative measure was required. 
Tam’s constitutional challenges were also unavailing. Binding precedent establishes that §2(a) doesn’t violate the First Amendment because it doesn’t ban use of a mark. In re McGinley, 660 F.2d 481 (C.C.P.A. 1981). (Note that the majority doesn’t say anything about whether §43(a) might provide protection; the reasoning that “lack of registration doesn’t bar use and so it’s not a problem” is equally applicable to refusing §43(a) protection.)  Nor was the §2(a) disparagement standard unconstitutionally vague.  Although there is inherent difficulty in finding an objective measure, the two-part test is “sufficiently precise to enable the PTO and the courts to apply the law fairly and to notify a would-be registrant that the mark he adopts will not be granted a federal registration.”
Tam argued that the arbitrary application of the standard, allowing registrations for “slurs against homosexuals such as DYKES ON BIKES,” violated due process. But due process was satisfied by a full opportunity to prosecute an application and appeal any denial. Moreover, “allegations regarding similar marks are irrelevant because each application must be considered on its own merits.” Past errors don’t bind the PTO to improperly register an applicant’s mark.
Tam finally argued that the rejection hinged on his and his bandmates’ ethnic identities, thus denying him equal protection.  Instead, the registration was rejected because it used the mark in a disparaging matter; as the TTAB said, “[a]n application by a band comprised of nonAsian-Americans called THE SLANTS that displayed the mark next to the imagery used by applicant . . . would also be subject to a refusal under Section 2(a).”
Judge Moore offered “additional views,” though this isn’t styled a concurrence or a dissent.  Judge Moore wrote to argue that it was time to revisit McGinley’s holding on the constitutionality of §2(a).  First Amendment jurisprudence on unconstitutional conditions and commercial speech, she noted, has evolved significantly since McGinley.
First, Judge Moore noted, trademarks are commercial speech and thus “unquestionably … protected” (skipping over the question of whether a mark is truthful and nonmisleading, but ok). And the mark here was more than a source identifier.  (Which, incidentally, undermines the articulated justification for commercial speech—that it provides consumers with useful information.)  Instead, Tam sought to “reclaim” and “take ownership” of Asian stereotypes. This name “weigh[ed] in on cultural and political discussions about race and society that are within the heartland of speech protected by the First Amendment.”
True, banning registration doesn’t mean banning use.  But, as B&B v. Hargis just told us, “[t]he  Lanham  Act  confers  important  legal  rights  and benefits on trademark owners who register their marks.” These benefits were both substantive and procedural, including nationwide rights even without nationwide use and a presumption of validity/possible incontestability. 
Moreover, “[n]ot only is a disparaging trademark denied federal registration, but it cannot be protected by its owner by virtue of a § 43(a) unfair competition claim.”  We know this because the Supreme Court made “clear” in Taco Cabana “that § 43(a) protection is only available for unregistered trademarks that could have qualified for federal registration.” See also Donchez v. Coors Brewing Co., 392 F.3d 1211, 1215 (10th Cir. 2004) (plaintiff must establish that its mark is protectable to prevail in a claim under § 43(a)); Yarmuth-Dion, Inc. v. D’ion Furs, Inc., 835 F.2d 990, 992 (2d Cir. 1987) (requiring a plaintiff to “demonstrate that his [unregistered] mark merits protection under the Lanham Act”).  “Thus, no federal cause of action is available to protect a trademark deemed disparaging, regardless of its use in commerce.”
And further, the Model State Trademark Bill was patterned after the Lanham Act and includes similar prohibitions.  “[V]irtually all states have adopted the Model Bill and its disparagement provision. Thus, not only are the benefits of federal registration unavailable to Mr. Tam, so too are the benefits of trademark registration in nearly all states.”  Plus, the common law mirrors the Lanham Act, so that means any state protection is unlikely. The denial of any rights “severely burdens” the use of disparaging marks.  Indeed, the content-based restrictions of §2(a) were adopted to reduce use of government-deprecated marks, creating a chilling effect.
The unconstitutional conditions doctrine says that the government cannot deny access to a benefit because of the recipient’s exercise of constitutionally protected speech. Of course the government can grant benefits predicated on compliance with certain policies, so “when the Government appropriates public funds to establish a program it is entitled to define the limits of that program.” However, Congress does not have the authority to attach “conditions that seek to leverage funding to regulate speech outside the contours of the program itself,” and outside the spending power.
Here, Judge Moore reasoned, “[b]ecause the government denies benefits to applicants on the basis of their constitutionally protected speech, the ‘unconstitutional conditions’ doctrine applies.”  The benefits of registration, while valuable, weren’t monetary.  “Unlike tangible property, a subsidy, or a tax exemption, bestowal of a trademark registration does not result in a direct loss of any property or money from the public fisc. Rather, a trademark redefines the nature of the markholder’s rights as against the rights of other citizens, depriving others of their rights to use the mark.” This was a regulatory regime, not a government subsidy program.  And registration doesn’t drain the public fisc; PTO operations are funded by registration fees. There might be an attenuated connection to spending, such as when ICE agents seize counterfeit goods because of a registration, but that wasn’t enough.
Thus, §2(a) had to survive First Amendment scrutiny, and as a content-based and viewpoint-based regulation it was presumptively invalid. One can register a mark referring to a certain group in a positive, nondisparaging manner, but not a mark referring negatively to the same group.  “Section 2(a) discriminates against disparaging or offensive viewpoints,” contrary to R.A.V. v. City of St. Paul, which doesn’t allow the government to punish only fighting words directed at one group. It was thus presumptively invalid and had to satisfy strict scrutiny.
Comment: this is the wrong comparator.  Defamation carried out with actual malice is actionable, but lying positively about someone with actual malice is not actionable, absent associated fraud (see Alvarez).  The government may punish fighting words without punishing hugging words, as long as it punishes all fighting words, or some subset that’s related to the reason it can punish fighting words in the first place.  By the same logic, the mere fact that only disparaging marks are barred is not itself a constitutional problem.
Regardless, Judge Moore continued, §2(a) couldn’t even survive Central Hudson.
Note an interesting presupposition here: that the bar on registration restricts or suppresses commercial speech.  Arguably the better analogy is a mandatory disclosure requirement, which may raise the cost of commercial speech—just as denying registration may raise the cost of using a particular disparaging symbol as a mark—but is not judged under Central Hudson, but rather under a test much closer to rationality review.  We’d ask if the cost-raising requirement was reasonably related to the government’s legitimate interests, and if it was not so unduly burdensome as to be functionally speech-suppressive.  One could come out either way on this inquiry, it seems to me, but it’s not Central Hudson.
Anyway, Judge Moore continued, the speech here—the use of a disparaging mark—was lawful and not misleading.  The governmente thus needed a substantial interest independent of disapproving the speech’s message to justify the regulation. There was none; Congress disapproved of the message carried by disparaging marks.  That’s not a legitimate government interest. The Supreme Court has “consistently held that the fact that protected speech may be offensive to some does not justify its suppression.” It is a “bedrock principle underlying the First Amendment . . . that the Government may not prohibit the expression of an idea simply because society finds the idea itself offensive or disagreeable.” (Note again the suppression language here.)
The alleged interest in not devoting government resources to disparaging marks is makeweight/bunk.  Nor did the ban harmonize longstanding state and federal law, because §2(a) didn’t codify a common law bar on disparaging marks (which are different from vulgar and misleading marks, which do have a history of state refusal to recognize); §2(a) created new law.  (Of course, the ban does harmonize now, as she pointed out above.) 
Further, trademarks aren’t government speech.  Publication on the Principal Register is not for the purpose of communicating a particular message or viewpoint; it is for providing notice that a mark has been registered.  (That actually seems like a particular message.)  The government would only have a substantial interest in avoiding the appearance of giving a stamp of approval to disparaging marks if the public believed that trademarks carry the stamp of government approval.  But that’s not what registration is.  The PTO’s job is to register marks that are functioning to identify and distinguish goods and services in the marketplace. “The purpose served by trademarks, to identify the source of the goods, is antithetical to the notion that the trademark is tied to the government.”

Monday, April 20, 2015

Regression damages model fails to convince court

Reed Const. Data Inc. v. McGraw-Hill Companies, Inc., --- F.Supp.3d ----, 2014 WL 4746130, No. 09–CV–8578 (S.D.N.Y. Sept. 24, 2014)
Reed sued McGraw-Hill for violations of the Lanham Act, the Sherman Act, and various state law torts. The parties are the only two competitors in the business of providing construction product information (CPI), which allows subscribers in the building trade to bid for jobs.  They sell subscriptions to “nationwide searchable databases that can filter projects based on the user’s preferences. For example, a user can search for library projects in Topeka, Kansas, worth more than three million dollars, that need plumbing in the next two months.” The CPI services provide plans, bidding information, and contact information for the planner, architect, or general contractor on the job. Reed alleged that McGraw-Hill surreptitiously accessed Reed’s database (Connect) and used that access to generate false or misleading product comparisons with McGraw-Hill’s Dodge Network that it distributed to prospective Reed customers.
CPI customers prefer a service that lists more projects over one that lists fewer, so the parties compete to have the most projects in their databases. Their user agreements limit permissible use of the information, and the agreements don’t include “creating comparisons with competing CPI providers.”  (That prohibition of comparisons seems anticompetitive and against public policy, as opposed to a prohibition on scraping data, which has different justifications.)
Around 2004, McGraw-Hill began to access Reed Connect in order to create favorable comparisons; to do so, it needed to know how many projects were listed on Reed Connect.  It also wanted to be aware of changes in the marketplace and to ensure that Reed was not listing significant projects that it had missed. McGraw–Hill paid consultants—“referred to internally as ‘spies’”—to subscribe to Reed Connect. They would sometimes falsely claim that the fake entities they created to subscribe were associated with actual builders and contractors. McGraw–Hill paid these consultants $3.45 million in cash and personal checks and listed the expenses on its books as “Stationery and Supplies,” or “Magazines and Books.”
McGraw-Hill hired Roper to generate product comparisons, but, according to Reed, Roper wasn’t independent, as it claimed. Rather, Roper “did little more than send someone to sit in a room and watch a McGraw–Hill employee run searches on the two services,” without ensuring that the two searches were fairly comparable. McGraw–Hill allegedly used one of its other  products in the tests but said that it had used the Dodge Network.  The searches were selected so as to emphasize McGraw–Hill’s strengths and minimize Reed’s by limiting comparisons to projects worth more than $1 million, whereas Reed was stronger below $1 million.  In addition, McGraw-Hill allegedly ran searches to get projects that needed to be completed expeditiously (ASAPs) from its database but not from Reed’s database. The result was a report in which McGraw–Hill boasted “71% more planning projects, 78% more bidding projects, and 71 % more digitized plans and specifications.”
McGraw-Hill also made ad hoc comparisons of the services in response to questions from customers. McGraw–Hill frequently advised customers to search for a particular project in both services, knowing that the suggested project would be found only in the Dodge Network, as well as suggesting state and local comparisons that were generally similar to the Roper reports in both content and methodology. McGraw–Hill touted a five-to-one advantage in projects “exclusive” to McGraw–Hill. Reed alleged that the true ratio was closer to 2.6–to–1.
“On at least a few occasions, McGraw–Hill used its access to Reed Connect to find new projects.” McGraw–Hill said these were “isolated potential violations of McGraw–Hill’s rules in which McGraw–Hill may have used Reed Connect to obtain a source of project leads.” The parties agree that McGraw–Hill broke its own rules at least a few times and used its access to Reed Connect for purposes other than generating comparisons.
Reed sued in 2009; its RICO claims were dismissed, but the other claims proceeded. At the motion to dismiss stage, Reed alleged that no fewer than 231 customers reported noticing the Roper Reports and were influenced by their contents. “Discovery has not borne out that claim,” though Reed had one customer declaration showing that the Roper reports influenced purchases.  Reed also argued that it was injured because it was forced to price its services lower than it otherwise would have absent the misconduct. It offered Dr. Frederick Warren–Boulton’s testimony in support of this claim; McGraw-Hill moved to exclude his testimony.
Dr. Warren-Boulton opined on four questions: Was there a distinct national market for CPI sufficient to trigger § 2 of the Sherman Act? Did McGraw–Hill exercise power in that market? Did McGraw–Hill’s misconduct allow it to keep its market power? Did McGraw–Hill’s misconduct damage Reed? To support his opinions, he conducted statistical regression analyses of the parties’ pricing and service data in an attempt to isolate the effect of the variable at issue here (McGraw-Hill’s alleged misconduct).
In order to isolate the price effects of the misconduct, Warren-Boulton compared the parties’ prices for national services during the relevant period with the parties’ prices for local services during the relevant period.  This was based on the assumption that national pricing was affected by McGraw–Hill’s misconduct significantly more than local pricing, and that the effects of McGraw–Hill’s misconduct would grow weaker over time (because the misconduct ceased in approximately 2008). If the difference between each party’s price index declined over the relevant period, and that decline couldn’t be attributed to any other observable factor, then Warren-Boulton would consider that proof that McGraw–Hill’s malfeasance worked a price effect.
McGraw-Hill objected to the assumptions of the model.  Warren-Boulton acknowledged that Reed presumably had been becoming a more effective competitor, though the local market had always been effective; if that were true—and the evidence suggested it was—McGraw would have to cut its national prices but not its local prices, adequately explaining the narrowing gap without the presence of any misconduct. This was a significant flaw that, coupled with other flaws, rendered the model inadmissible.
McGraw-Hill also argued that Warren-Boulton’s model had to be wrong because he found a price effect with no corresponding quantity effect: he found that “the misconduct differentially affected the prices that customers were willing to pay for each of the two competitors’ services, but had no effect on how much customers chose one over the other.”  That contradicted standard microeconomic theory, which predicted that in almost all markets (excluding perfectly inelastic goods, Giffen goods, and Veblen goods, none of which were involved here), increased price decreases consumption.
Warren-Boulton responded that the CPI market had negotiated prices, so there could be a price effect without a quantity effect “because the price each consumer is willing to pay is a function of the price of the competing product and the relative value of the competing product and the negotiated product.”  But that would only be true if Reed and McGraw-Hill had a bigger range of prices they’d accept than prices that consumers would offer to pay.  But there was no evidence to support that, and no reason to believe that the CPI market had these “unusual economic characteristics.”
McGraw-Hill also convinced the court that construction volume was an important omitted variable in the analysis. National firms were hit harder by the 2008 recession than state and local firms, and price indices were in fact highly negatively correlated with construction volume data. The omission of a major variable was fatal to one of Warren-Boulton’s models.
When he added construction volume data, “a new problem arose: multicollinearity.” This happens when the independent variable is correlated with one of the control variables, making it impossible to isolate the effect of the independent variable on the dependent variable. “Because of the correlation between the explanatory variables, there is insufficient variation in the data set to produce statistically significant results.”  As it turns out, construction volume was highly correlated with both the independent and dependent variables. This made the independent variable (here, the misconduct) appear not to have statistical significance.
Warren-Boulton defended his choices by showing that using construction volume alone didn’t explain the prices and in fact had weird results (increasing prices for one party but decreasing them for another, and vice versa in different markets), but the court was unconvinced.  Among other things, Warren-Boulton was unable to explain his decision to pool local and national data in light of his expertise, and running the numbers without pooling produced opposite results (no price effect). Although there was no reason to believe that his judgment was “anything other than perfectly sensible,” he had no methodological explanation for his judgment, and a different judgment would also be reasonable and totally change the outcome.
Finally, and relatedly, the methodology he used was too manipulable to qualify as “scientific.”  The choice of end dates for measuring when the effect of McGraw-Hill’s misconduct fully dissipated was more or less arbitrary. That’s not fatal on its own; any statistical model requires some judgment. As long as the model is “robust with respect to different choices of arbitrary points, there is no pressing issue.” But here the choice of the end-date had an outcome-determinative effect; changing the end dates within a “very conservative” range produced a result of no price effect.  Generally, choice of a reasonable timeframe is an issue of credibility for the jury.  “But where, as here, very minor changes in arbitrarily selected model parameters can entirely alter the model’s conclusions, that model is insufficiently robust to withstand the scrutiny of Rule 702.”
Thus, Reed failed to meet its burden of showing that Warren-Boulton’s testimony was sufficiently reliable to be admissible.
Turning to the false advertising, Reed identified a number of false or misleading statements:
First, the court had to identify what was “advertising and promotion”; McGraw-Hill argued that only some of the misrepresentations were sufficiently disseminated to count. Should the ad hoc statements be considered together or separately? The court decided to take McGraw-Hill’s promotional efforts as a whole.  Unlike individual conversations that aren’t advertising or promotion, “the ad hoc comparisons at issue in this case were an undisputed part of a broader campaign to compete with Reed and to tout the supposed advantages of the Dodge Network over Reed Connect.”  There was also evidence that McGraw–Hill management directed individual salespeople to disseminate several of the allegedly false or misleading statements. “There is little difference between this and a traditional advertising campaign in either purpose or effect. … [T]he mere fact that the promotional campaign took the form of individual conversations does not mean that it is not advertising when taken as a whole.”
Turning to falsity, the court began with Roper’s involvement and the representations that Roper, an “independent” firm, “oversaw the entire comparison process [and] ensured that comparable categories were used” to evaluate the competing services. McGraw–Hill similarly represented that the reports were “independent,” “objective,” “audited,” and “unbiased.”  Roper’s “project director” testified that he made sure that the searches conducted were “worded similarly,” but he also told a colleague that McGraw–Hill paid Roper “just to say we oversaw the whole process.” He testified that he “did not know if [the searches were conducted] using Network or Dataline, another McGraw–Hill service.” Though the McGraw-Hill employee who conducted the comparisons testified that Roper “verified the numbers,” “made sure that they were not being misrecorded,” and “ensured that the comparisons were run in similar ways and that one search mirrored another search,” that didn’t make the truth of the claims uncontroverted. A reasonable jury could find literal falsity in the claims that the reports were “independent,” “objective,” and “overs[een]” by Roper.
Next set of statements: The Roper Reports and the ad hoc comparisons allegedly overstated the number of projects in McGraw Hill’s database as compared to Reed’s database by using the wrong database; exluding some Reed projects (including some utilities projects and the ASAP projects it counted for itself); double-counting some McGraw-Hill projects; and selecting search criteria designed to highlight its relative strengths. Reed alleged literal falsity in the use of a different database, Dataline, for at least one Roper Report, the double-counting of some of McGraw-Hill’s projects, and the imbalanced treatment of ASAP projects.  Reed failed to provide evidence that the Dataline listings weren’t in fact included in “Dodge electronic listings,” so its first literal falsity claim failed.  Likewise, the Dodge network listed some projects on dual tracks as multiple projects, but this is a perfectly sensible way to count: a school might seek asbestos removal while simultaneously planning a new wing.  Reed didn’t provide evidence that “projects” couldn’t have this meaning, so that single institutions could have multiple “projects.”
It was undisputed that a search for projects whose bid date was ASAP would yield more results in McGraw-Hill’s database, because Reed listed ASAP projects by simply leaving the bid-date field blank. McGraw–Hill characterized that as an error in Reed’s search algorithm. Reed didn’t offer evidence that the statement that both comparisons were based on searches for projects whose bid-date was listed as “ASAP” was false.
What about stale “Executive Briefs” citing data from a “recent” comparison from 2007 when there were more recent comparisons?  The briefs didn’t claim to use the most recent comparison, and words like “recent” are subject to a range of reasonable interpretations, so even in 2012 that wasn’t literally false. “[T]he Lanham Act does not require that comparisons listed as recent be based on the most current available data.”
False claims of exclusivity: Reed offered some circumstantial evidence that projects that McGraw-Hill claimed were exclusive to it were also in Reed’s database. On at least one occasion, Reed searched its database the day after McGraw–Hill told a customer that seven projects were exclusive to its service and found six out of the seven purportedly exclusive projects. A reasonable juror could find literal falsity.
Claimed project ratios of 5:1 in exclusive projects and 3:1 in all projects: Reed’s expert came up with substantially smaller ratios, but McGraw-Hill argued that she just used different means of calculation. Reed presented “plenty” of evidence that McGraw–Hill’s employees did not know how the ratios were calculated when they distributed them. So, the evidence was that other calculations, of contested accuracy, showed significantly lower advantages for McGraw–Hill than the ratios it touted, but there was no evidence on how it calculated those ratios. A reasonable juror could find literal falsity.
For the literally false statements, consumer deception would be presumed. For the rest, evidence of deliberate deception or consumer confusion would be required.  Reed first tried to show deliberate deception.  (1) McGraw-Hill spent a lot of money getting access to Reed Connect and generating the Roper Reports. (2) McGraw–Hill conducted its comparisons when they would be most advantageous to McGraw–Hill and “crafted search queries designed to maximize the McGraw–Hill projects counted while minimizing the projects counted for Reed.” (3) McGraw–Hill convinced consumers that the Roper Reports were independent. The court found this evidence insufficient to allow a reasonable jury to find deliberate deception, only recklessness.
As for consumer confusion, Reed submitted one declaration to show confusion.  But McGraw-Hill’s evidence of lack of confusion was “overwhelming” and one declaration was not enough for a reasonable jury to find that a substantial number of consumers were misled by the challenged statements.  Reed identified one customer “out of a national market that both parties concede contains at least 70,000 customers,” and the declarant might not actually have made the purchasing decisions at his company.
The court then analyzed the materiality of the remaining, possibly literally false, statements: (1) the statements about Roper’s involvement, (2) the statements touting exclusives to certain individual customers, and (3) the statements about the 5:1 and 3:1 project ratios. No reasonable juror could conclude that any of these statements was material.  Interpreting the Second Circuit’s adherence to older language about misrepresenting “an inherent quality or characteristic of a product,” the court concluded that this phrase meant “likely to influence purchasing decisions.”
Reed’s evidence failed for the same reason its evidence of deception failed: at worst, one customer relied on the misrepresentations.  “Every other customer testified that the Roper Reports and ad hoc comparisons were immaterial.” Summary judgment on the Lanham Act claims was granted.
McGraw-Hill also sought to get rid of claims that its disparaging ads constituted monopolization and attempted monopolization in violation of Section 2 of the Sherman Act. It is very hard to show an antitrust violation through misleading advertisements, because the test has a bunch of weird presumptions that aren’t really consistent with how false advertising works. You’re better off with the Lanham Act.
In the Second Circuit, “a plaintiff asserting a monopolization claim based on misleading advertising must overcome a presumption that the effect on competition of such a practice was de minimis” and therefore insufficient to sustain an antitrust action. To rebut that presumption, a plaintiff must show that the challenged statements were “[1] clearly false, [2] clearly material, [3] clearly likely to induce reasonable reliance, [4] made to buyers without knowledge of the subject matter, [5] continued for prolonged periods, and [6] not readily susceptible of neutralization or other offset by rivals.”  Reed’s arguments that the use of Roper as a third party guarantor triggered special rules, and that an exception should exist for two-competitor markets, were unavailing.
Plaintiffs don’t need to win on every factor to rebut the presumption. The inquiry is simply “whether a disparaging advertisement is so deceptive as to constitute anticompetitive exclusionary conduct.” The presumption formalized the rule that “[i]solated business torts, such as falsely disparaging another’s product, do not typically rise to the level of a Section 2 violation unless there is a harm to competition itself.”
There was, as noted above, sufficient evidence of literal falsity for some statements.  But literal falsity is not clear falsity—otherwise the word “clear” would be meaningless. (This seems to me an example of courts seizing on terms that were basically accidental. The literally false/misleading distinction in Lanham Act jurisprudence is relatively new; and anyway there is no reason to think that courts deciding antitrust cases were thinking about the Lanham Act in when they were formulating the antitrust test.)  So what does “clearly false” mean?
Epistemologically speaking, falsity is an absolute: a statement is either false or it is not. But the level of justification of one’s belief in a statement’s falsity can vary by degree. Thus, while a statement is either false or it is not, it can be more or less “clearly” false, as measured by how much thought or effort one has to put into determining its veracity or how confident one is in its falsity—or, put another way, how obvious or apparent its falsity is in light of the statement itself and its relationship to the state of the world.
A reasonable person could believe that Roper’s involvement in its reports was not a sham, given that a Roper employee was present during the challenged comparisons and made sure that the individual search terms used were comparable.  A reasonable person could likewise believe from the evidence that, “upon learning that McGraw–Hill was touting exclusive projects that Reed did not have in its database, Reed scurried to add them, and, therefore, the claim of exclusivity was true when made.” And there was still no evidence in the record about how the claims about the 5:1 and 3:1 ratios were calculated.  So the evidence was insufficient to show that the challenged statements were clearly false.
Obviously, the evidence also didn’t show that the statements were clearly material or likely to induce reasonable reliance.  As for customers’ knowledge, Reed argued that, because its customers lacked knowledge of complex data and statistical analysis, they were unable to discern the accuracy of McGraw–Hill’s claims.  The court disagreed—“buyers do not need a degree in statistics to count how many projects of a given type, value, and location appear in either service,” and there was evidence that “plenty of buyers conducted their own analyses when deciding which service to purchase.”
Exposure to the claims was prolonged, but that didn’t help.  Reed argued that McGraw-Hill’s statements weren’t susceptible to neutralization because they couldn’t easily be disproven and because McGraw-Hill tried to keep some of the comparisons from Reed.  But the challenged statements were simple sums of how many projects were in each database, and Reed definitely knew about them. As a result of the combination of the factors, the presumption of de minimis effect on competition held and McGraw-Hill got summary judgment.
Only state law claims remained:  (1) fraud, (2) misappropriation of trade secrets, (3) misappropriation of confidential information, (4) unfair competition, (5) tortious interference with contractual relations, and (6) unjust enrichment. Only Reed’s unfair competition claim survived.
Fraud: Reed alleged that McGraw–Hill defrauded it by falsely representing that the “consultants” McGraw–Hill hired to access Reed Connect were not McGraw–Hill employees. New York law, which applied because the fraud was carried out in New York, requires that the alleged losses stemming from a fraud “be the direct, immediate, and proximate result of the misrepresentation,” and that those losses be independent of other causes. But Reed alleged lost profits due to lost customers stemming from McGraw–Hill’s misleading ads, based on information gathered from the fraud.  That wasn’t sufficiently proximate.
Trade secrets and misappropriation of confidential information: information in the database was not secret. “Reed’s CPI lost its trade-secrets status—if it ever had any—when Reed gave out free trial subscriptions unaccompanied by any contractual restrictions on their use.” Tortious interference: Reed couldn’t prove injury to its business relationship with customers, because of the lack of harm evidence detailed above. Unjust enrichment:  Again, the undisputed evidence suggested that the only customer Reed allegedly “lost” because of McGraw–Hill’s misconduct didn’t make any purchasing decisions.
Unfair competition: McGraw-Hill conceded that on “two or three isolated” occasions, McGraw-Hill employees used project leads that they acquired through their illicit access to Reed Connect in their own database. Reed argues this constituted misappropriation. Applying New York law again as the principal locus of the defendant’s conduct, this claim survived. INS v. AP provided the framework, though large portions of New York’s unfair competition jurisprudence are preempted by the Copyright Act. Still, New York protects business people from “all forms of commercial immorality, the confines of which are marked only by the ‘conscience, justice and equity of common-law judges.’” The defendant must have taken something in which the plaintiff had a property right, and that constituted free riding on the plaintiff’s efforts.
McGraw-Hill argued that there was no property interest in project counts, but there could be in the underlying data.  “McGraw–Hill used phony entities to surreptitiously subscribe to Reed’s database service, then took the projects it found there and added them to its own database. The project listings are the parties’ stock in trade. Reed has a property interest—or at least a “quasi” property interest—in its project leads.” When McGraw–Hill put those leads into its own database, it “free r[ode]” on the significant effort Reed expended to collect projects. Lack of significant damage or broad scope wasn’t dispositive at this stage.