Monday, October 26, 2015

Annotating competitor's ad is fair use

Miller UK Ltd. v. Caterpillar Inc., No. 10-cv-03770 (N.D. Ill. Oct. 21, 2015)
Miller sued Caterpillar for breach of a contractual restriction on the use of Miller’s confidential information, for trade secret misappropriation, and for fraudulent inducement. Caterpillar counterclaimed for breach of contract, defamation, disparagement, tortious interference, false advertising, and copyright infringement. Most interesting: the court granted summary judgment on the copyright claim because an annotated copy of a Caterpillar ad was fair use.
Miller “made a coupler that allowed earthmover and excavator vehicles to attach shovels, buckets, and other attachments to their mechanical arms quickly without requiring the vehicle operator to leave its cab.”  It entered into a supply agreement with Caterpillar to make couplers that Caterpillar sold under its own name. Caterpillar allegedly used proprietary information about the coupler to make its own version and then terminated the supply agreement. After Miller sued, Caterpillar distributed a brochure to equipment dealers that compared its new coupler favorably to other couplers.  
Miller replied with its own communication package, including a letter from Miller’s chairman claiming that the Caterpillar coupler was potentially unsafe because it lacked a mechanical backup.  The accompanying video showed the failure of a coupler connection, the dropping of a bucket, and the decapitation of a hard-hat wearing life-sized dummy. There was also a document that purported to be a third party safety test of the Caterpillar coupler, and an annotated copy of the Caterpillar coupler brochure, highlighting Miller’s assessment of the competitive and safety deficiencies of the Caterpillar coupler.
Copyright: Market effect is the most important factor. Kienitz v. Sconnie Nation LLC, 766 F.3d 756, 758 (7th Cir. 2014).  Miller’s annotated version of Caterpillar’s brochure had no effect on the value of the brochure, as opposed to the value of the product touted by the brochure.  Plus, negative impact on the value of a work by convincing the audience that the work is no good is not harm for purposes of copyright.  Thus, the first factor (?) weighed in favor of fair use.  “[T]he commercial value to Miller and any resulting decline in the commercial value of the original work resulted not from the value of the original, but from the Miller additions. Such uses are not considered substitutes for the original work and are encouraged by the fair use doctrine.” The nature of the work—an ad—didn’t favor Caterpillar, though the wholesale copying did.  Without separately analyzing factor four, the court found that the annotated brochure was fair use as a matter of law.
The disparagement, defamation, consumer fraud, and false advertising claims against Miller survived because the truth or falsity of Miller’s statements that Caterpillar’s coupler posed safety risks was not resolvable on summary judgment.  Moreover, Caterpillar showed that Miller’s package caused it to take steps to mitigating the impact on customers, and its expenses were recoupable as damages.  Therefore, Caterpillar didn’t need to show lost sales or profits.  Mitigation expenses also counted as special damage for defamation purposes.  Miller allegedly said that Caterpillar made an unsafe product, which would count as incompetence in business, which could be per se defamatory.

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