Monday, October 31, 2016

Disparaging an unauthorized reseller could violate the Lanham Act

Dentsply Int’l Inc. v. Dental Brands for Less LLC, No. 15 Civ. 8775, 2016 WL 6310777 (S.D.N.Y. Oct. 27, 2016)

Dentsply sued Dental Brands over Dental Brands’ resale of Dentsply’s dental products without Dentsply’s authorization. Dental Brands buys Dentsply’s products overseas, where they’re sold at 20-65% below the prices in the US, and then resells them domestically.  Dental Brands counterclaimed for antitrust and false advertising violations. Along with filing suit against unauthorized resellers, Dentsply allegedly falsely claimed that Dental Brands’ products (1) were “materially different” and “inferior” to Dentsply’s products sold by its authorized distributors, (2) have been “mishandled” and (3) present an “immediate safety and health risk to their patients and puts dentists at risk of liability to patients.”

The court dismissed the antitrust claims because Dental Brands lacked antitrust standing, but the false advertising counterclaim survived.  The counterclaim alleged that Dental Brands “stores and ships” the Dentsply’s products “following the same directions” that Dentsply provides to its authorized distributors; that Dental Brands “does not sell dental product less than twelve months before its expiration date”; and that the Dentsply products Dental Brands offers are not any different in quality, composition or formulation from the Dentsply products sold by authorized distributors. Thus, Dental Brands plausibly alleged false advertising.

However, New York commercial disparagement and defamation claims were dismissed.  Disparagement and defamation are different claims, and “New York courts have taken a relatively strict approach” such that if “the statements concern products or services at all, it is rare for a court to find that a claim for commercial defamation lies.” The issue here was only product disparagement.  That matters because “injury is conclusively presumed” for defamation, but a plaintiff alleging product disparagement must plead and ultimately prove “malice and special damages.” New York law that special damages be pled with more than round dollar amounts; this “particularity requirement is strictly applied.” 

Dental Brands didn’t plead special damages.  Dental Brands invoked the Restatement (Second) of Torts, arguing that it could use a “lost sales” theory of special damages because it could show “with reasonable certainty” that a “[w]idely disseminated” misrepresentation caused “serious and genuine pecuniary loss by affecting the conduct of a number of persons whom the plaintiff is unable to identify and so depriving him of a market that he would otherwise have found.” But New York hasn’t adopted this theory, and even if it applied, a plaintiff must do more than estimate damages.

Study's co-author disclaiming its use creates material issue on falsity

Ferring Pharmaceuticals, Inc. v. Braintree Laboratories, Inc., 2016 WL 6275156, No. 13-12553 (D. Mass. Oct. 25, 2016)

Previous opinion discussed here. The parties compete in the market for products used for bowel preparation before colonoscopies. Ferring alleged false advertising in violation of federal and state law and dilution of its mark, Prepopik. Braintree counterclaimed for false advertising and unfair trade practices.  The court denied summary judgment on the false advertising claims.

First: In addition to Prepopik, Ferring produces a chemically-identical treatment called “Pico-Salax” which is sold in other countries. After the FDA approved Prepopik, Ferring issued a press release stating that “Ferring has a long history in the international gastroenterology market, where PREPOPIK is available in Canada (marketed under the name PICO-SALAX).”  However, there are several differences: Pico-Salax is OTC, while Prepopik is prescription; the instructions direct users to consume different amounts of fluid; and Prepopik is only approved for adult colonoscopy preparation, whereas Pico-Salax is approved for children and adults in preparation for x-rays, surgeries and colonoscopies.  The Canadian government published an article about Pico-Salax in January, 2013, in the Canadian Adverse Reaction Newsletter, stating that “The diarrhea produced by [Pico-Salax] can lead to dehydration and loss of electrolytes, particularly sodium which may result in hyponatremia and convulsions .... As of June 30, 2012, Health Canada received 11 reports of convulsions suspected of being associated with Pico-Salax.”

The court found that there was a genuine issue of material fact about whether Braintree’s use of the Canadian Newsletter to raise safety concerns was literally false or misleading because the letter concerned a different treatment and didn’t indicate that Pico-Salax was dangerous.  (There was conflicting evidence about whether the letter was used to “highlight potential safety concerns” or to support misleading claims that Prepopik was “deadly” and “kills people.”)  Braintree pointed out that Ferring’s own statements equated Prepopik and Pico-Salax, but the court found conflicting evidence about whether the two were equivalent.

Braintree also distributed an FDA-approved comparison detailer, “What’s NOT New About Prepopik?” It listed the formula, the acceptability of use for patients with severely reduced renal function and the effect of antibiotics on efficacy. The flyer also compared the price of Prepopik with other treatments, including Braintree’s.  Ferring argued that efficacy percentages associated with the detailer were unreliable establishment claims, but only found two instances of percentage claims: 1) a handwritten annotation on a flyer that stated percentages and 2) a sales log entry did the same. These were inadequate to show “commercial advertising or promotion” of percentage claims.  Ferring didn’t claim literal falsity for the detailer itself, but rather omission of material information as to Suprep’s safety and lack of fair balance.  Ferring argued that Braintree’s own study showed that the detailer was misleading about safety, but this was contested.

Ferring also challenged an ad, “Clean Freak,” which claimed that Braintree’s product “achieved ‘excellent’ bowel cleansing in patients based on investigator grading ... Significantly more patients had ‘excellent’ preps with SUPREP Bowel Prep Kit compared to MoviPrep[.]”  Braintree won summary judgment because Ferring wasn’t within the protected zone of interests.  The ad compared Suprep to a third party’s treatment.  Though Braintree employees referred to the ad in five instances in sales conversations that also addressed Prepopik’s efficacy, those were insufficient to show “any financial or reputational harm as a direct result of Braintree’s advertising.” Thus, Ferring lacked standing; and independently, five isolated instances weren’t commercial advertising or promotion.

State dilution: MGL, Chapter 110H provides a claim for “[l]ikelihood of injury to business reputation or of dilution of the distinctive quality of a mark ....” This requires the plaintiff to show distinctiveness and that “the defendant’s use of a similar mark creates a possibility of dilution.” The court doesn’t explicitly disavow its earlier weird trademark argument; in fact, it rejects the dilution claim on a ground that doesn’t deal with the total senselessness of the claim.  Ferring argued that Braintree diluted its trademark “by comparing Prepopik to another Ferring product, Pico-Salax.”  Of course, this can’t possibly be “the defendant’s use of a similar mark” as required for Massachusetts dilution, but the court instead granted summary judgment because Ferring itself equated the two products, and even combined their names on its website. 

The court also denied summary judgment on Braintree’s unclean hands defense because Ferring’s own equation of the two products, allegedly false claim of superior cleansing efficacy, and alleged off-label promotion created a genuine issue of material fact about whether the equitable relations of the parties were affected by Ferring’s own misconduct.

Braintree’s counterclaims fared basically the same. Braintree challenged Ferring’s statement that Prepopik has the “lowest volume of active ingredient.” There was a genuine issue about literal falsity—a fact finder could interpret this claim as involving a comparison to the entire market of bowel preparation treatments, including tablets which have a lower volume than Prepopik. Moreover, emails from Ferring employees, internal Ferring documents and Ferring’s own expert all acknowledged that additional hydration was needed, including hydration with liquids containing electrolytes, in order for Prepopik to work effectively. Thus, a fact finder could find the claim to be literally false.  This was also material because it was an essential characteristic and because Ferring “aggressively marketed Prepopik as being low volume.”

Likewise, summary judgment was denied on Braintree’s challenge to Ferring’s “Superior Cleansing Efficacy” claim because the study on which Ferring based the claim might or might not be reliable, based on a declaration from one of the study’s co-authors that said that the study and the article he co-authored about it “do not reliably support a marketing claim of Prepopik’s superior cleansing ....”

Direct, secondary liability under Lanham Act for statements targeted at foreign markets

Operation Technology, Inc. v. Cyme International T & D Inc., No. SACV 14-00999,  2016 WL 6246806 (C.D. Cal. Mar. 31, 2016)

Plaintiff (ETAP) alleged that defendants (CYME, IPET-CO, and Amir Aslani) violated the Lanham Act via pseudononymous, disparaging remarks made about its software.  The question here was whether a reasonable jury could find that CYME caused a false statement to enter interstate commerce.  ETAP argued for direct and vicarious liability, and the court found a genuine issue of triable fact.

Direct liability: ETAP’s evidence was that the campaign of disparaging communications against ETAP began, or expanded, during the Summer of 2013. Just before the relevant communications were sent to two customers, CYME employees received in their inbox, from the alleged originator of the disparaging communications, “what appear to be prior draft versions.” Aslani sent one to a CYME regional technical manager with the text, “I will be there in 20 min. just have a look at attached files. 20 hours working results of evaluating ETAP.” There was no “direct evidence” that CYME employees responded to these emails with encouragement, or edits, though there was evidence that CYME employees reviewed, edited, or contributed to other marketing materials from Aslani, which was relevant circumstantial evidence that CYME oversaw his communications.  “[T]he timing of the emails, and the lack of record evidence of Aslani being immediately reprimanded for these materials, permits the reasonable and justifiable inference in ETAP’s favor that at least one of the three CYME employees who received these communications had a role in shaping them.”

The then-director of CYME testified that he investigated the source of these emails, and asked Aslani whether he was behind the email and told him that “we don’t run a business like that.” However, the director only emailed his direct employees to tell them to “make sure that these things doesn’t [sic] go out of our office,” actually removing Aslani from an email chain when giving this warning. Aslani also remained CYME’s sole authorized retailer for his region for at least the subsequent eighteen months. A reasonable jury could therefore find that CYME employees were participants in the initiation of Aslani’s purported campaign of disparaging communication, making CYME directly liable.

Vicarious liability: ETAP presented sufficient evidence for a jury to find that Aslani was an agent of CYME for purposes of Lanham Act liability. The labels used by the purported agent and principal aren’t dispositive.  There was a material issue on agency because (1) Aslani and CYME agreed to make Aslani the sole authorized sales representative for the area he worked in; (2) CYME retained certain controls over the scope of Aslani’s work as the sales representative; and (3) Aslani was largely insulated from the risk of purchasing CYME’s software without a resale customer.  Even if Aslani was an agent, he wouldn’t necessarily create Lanham Act liability for CYME for conduct that was not authorized and was outside of the scope of Aslani’s authority to act on behalf of CYME.

A reasonable jury could find that CYME ratified Aslani’s conduct, because CYME was on notice of the likelihood that Aslani was behind the initial disparaging comments and similar disparaging comments made in subsequent months. A CYME representative accepted Aslani’s denials of responsibility “without significant further inquiry,” even though two CYME employees guessed that he was behind the communications. “[B]ecause Aslani suffered no repercussions for his behavior, … a reasonable inference is that he would have considered his activities authorized by CYME.”  Moreover, the parties’ agreement restricted Aslani’s conduct, and communication between them was frequent. “A jury could reasonably find that Aslani was in a much closer, more tightly controlled relationship than a simple reseller of software.” There was no evidence that Aslani considered his own acts unauthorized. 

CYME also argued that the case involved an impermissible extraterritorial application of the Lanham Act.  However, the disparaging communications took place, at least in part, within interstate commerce.  A US customer of ETAP received a disparaging email from a CYME Sales Manager for North America as part of CYME’s efforts to solicit that customer’s business.  Although it was retracted, the Lanham Act could be applied “when there is evidence showing a CYME employee affirmatively steered a disparaging communication into the United States, an act of interstate commerce.”

Further, the Lanham Act could be applied based on the foreign acts alone. The Ninth Circuit’s test: “[F]irst, there must be some effect on American foreign commerce; second, the effect must be sufficiently great to present a cognizable injury to plaintiffs under the federal statute; and third, the interests of and links to American foreign commerce must be sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.”  First, ETAP is an American company that sells to customers in the U.S. and abroad, and ETAP showed a genuine factual issue on harm.

The final factor required balancing multiple factors.  (1) The degree of conflict with foreign law or policy: there was no evidence that applying the Lanham Act would cause any conflict. (2) The nationality or allegiance of the parties and the locations or principal places of business of any corporations involved: ETAP is US-based and CYME is a Canadian based subsidiary of a multinational company that has operational headquarters in the US, making it related to a company with “substantial ties” to the US. (3) The extent to which an order by a U.S. court can be expected to achieve compliance with the Lanham Act: the court could order CYME to stop and to remove the incentive for disparaging communications. (4) The relative significance of effects on the United States as compared with those elsewhere: ETAP felt the effects in the US, thoug there was little other evidence of the disparaging communications entering the US market. (5) The extent to which there is an explicit purpose to harm or affect U.S. commerce: none shown; the apparent purpose was to affect competition in the Middle East, where Aslani was directly competing.  (6) The foreseeability of such effect: “the disparaging communications were put into the stream of international communication channels” and “received by entities as far apart as Australia and Bulgaria.” Other disparaging communications were posted to YouTube, viewable worldwide. (7) The relative importance to the violations charged of conduct that occurred within the United States as compared with conduct abroad: only one communication occurred within the US, and didn’t affed the potential customer’s decision before it was retracted.  Balancing the factors, the found that extraterritorial application of the Lanham Act was appropriate.

Inapplicable studies and lost market share equal literal falsity and irreparable harm

OrthoAccel Technologies, Inc. v. Propel Orthodontics, LLC, No. 4:16-CV-350, 2016 WL 6248711 (E.D. Tex. Oct. 26, 2016)

OrthoAccel is a medical device company that makes dental appliances, including the AcceleDent, a hands-free dental device that uses gentle vibrations to accelerate tooth movement when used with orthodontic treatment. It has two main functional components: (1) a “Mouthpiece” and (2) an “Activator,” a small extraoral component that generates a vibrational force when the patient lightly bites down on it to accelerate tooth movement during orthodontic treatment.  It received 510(k) clearance in 2011, which requires a showing that the device is as safe and effective as a legally marketed device that is not subject to premarket approval.  In 2013, OrthoAccel launched its second-generation product, the Aura, which was cleared for use with braces and in 2016 for use with clear aligners.

Propel is an OrthoAccel competitor.  It released the VPro5, which costs significantly less than the Aura.  Propel markets the Vpro5 through its sales force, promoting it as a quicker, cheaper alternative to the Aura that offers “5 Clinical Benefits”: (1) more efficient aligner seating, (2) relieves orthodontic pain, (3) accelerates tooth movement, (4) fast tracks retention, and (5) stimulates bone growth and remodeling.

OrthoAccel argued that the burden of avoiding a finding of falsity should shift to Propel under Novartis v. Johnson & Johnson-Merck Consumer Pharm. Co., 290 F.3d 578 (3d Cir. 2002), because its claims were “completely unsubstantiated.”  But the Fifth Circuit hasn’t adopted this rule, and anyway Propel’s claims weren’t “completely” unsubstantiated.

However, the court did find several Propel claims to be literally false.  For example, a document for the sales force said that, “We have many research studies that show the benefits of high frequency vibration. Let me detail some of them with you.” Another claim was that there are “significant clinical findings that support the VPro5’s ability to increase bone formation and accelerate tooth movement.” But no such studies existed. Propel also claimed that the frequency of the VPro5’s vibration was clinically optimal, also completely unsubstantiated.  OrthoAccel also showed falsity by disproving Propel’s establishment claims; the literature and studies on which Propel relied weren’t reliable enough to support its claims, mainly because they didn’t test the VPro5 or just offered hypotheses.  One article summarized a single patient’s positive experience with the VPro5, but that didn’t support the “Clinical Benefits” claims.

OrthoAccel also showed actual deception, though it didn’t need to because of the literal falsity, by showing that dentists’ websites had copied the 5 Clinical Benefits to tout the devices.  One doctor’s declaration also indicated that he “would expect the VPro5 to have scientific support, similar to AcceleDent.”  Materiality was a given.  OrthoAccel also showed injury: a sharp decline in sales following the launch of the VPro5.

Irreparable injury:  “It is well established that loss of market share due to false advertising constitutes irreparable harm.”  (Quoting a case involving “a competitive industry where consumers are brand loyal” without discussing whether that’s true of orthodontic devices.)  While OrthoAccel’s annual operating plan and actual revenues varied by 7% in 2014 and 2% in 2015, the variance measured 57% after the launch of the VPro5.  Thus, OrthoAccel showed irreparable harm. 

“Propel can still claim that the VPro5 aids in aligner seating. It will only enjoin Propel from disseminating claims of the VPro5’s 5 Clinical Benefits, which are false and misleading.”

Propel argued that OrthoAccel had unclean hands, based on statements made by OrthoAccel that allegedly misrepresented Propel’s FDA status. Without explaining its reasoning, the court found these arguments preempted, but regardless, such statements weren’t enough to “shock[s] the moral sensibilities of the judge, or...[be] offensive to the dictates of natural justice.” 

Wednesday, October 26, 2016

Republication of online articles was commercial speech and not protected by CDA

Western Sugar Coop. v. Archer-Daniels-Midland Co., 2015 WL 12683192, No. CV 11-3473 (C.D. Cal. Aug. 21, 2015)

More belated blogging.  The sugar industry and the corn refining industry accused each other of falsely advertising  high-fructose corn syrup (HFCS).  Plaintiffs were manufacturers, trade groups, and associations active in the sugar industry; defendants ditto for the corn and HFCS industry. Plaintiffs alleged three types of false and/or misleading representations about HFCS in the Campaign: (1) use of the term “corn sugar;” (2) statements that HFCS is a “natural” product; and (3) representations that “sugar is sugar” and that “your body can’t tell the difference” between sugar and HFCS. The counterclaim alleged that plaintiff Sugar Association falsely represented that HFCS causes obesity, cancer, and cirrhosis of the liver, among other things, when in fact, HFCS and sugar are nutritionally equivalent.

The court found that, even if defendants’ statements that HFCS is “natural” were in accordance with policies and guidance promulgated by the FDA, that didn’t preclude a Lanham Act falsity/misleadingness claim under Pom Wonderful.  There were genuine issues of material fact on falsity as to the claims and counterclaim.

Plaintiffs argued that they were entitled to a presumption of injury because this was a false comparative advertising case.  By contrast, recovery of damages in a false non-comparative advertising case requires “actual evidence of some injury resulting from the deception is an essential element of the plaintiff’s case.”  Defendants argued that the challenged campaign didn’t directly compare HFCS to any particular sugar product or brand.  However, the campaign directly compared defendants’ sweetener product, HFCS, to plaintiffs’ competing sweetener product, sugar.  According to defendants’ own evidence, the creative messaging strategy was to “directly compare HFCS and sugar.”  From 2008 to 2011, key campaign messages included that HFCS is “nutritionally the same as sugar,” and the “facts prove there is no difference between HFCS and other sugars.”  This was not a case where defendants merely emphasized the positive aspects of their own products; they specifically claimed that HFCS was equivalent to and the same as sugar.  The aim was to stop consumers from switching from using HFCS to using sugar, and thereby to stop plaintiffs from gaining market share.  “Thus, while the instant case is not a typical comparative false advertising case in that it does not involve comparisons between name-brand products, the Court finds that the presumption of causation and injury applies because the products are in head-to-head competition and Defendants’ Campaign directly targets Plaintiffs’ competing product.”

The court also addressed defendants’ argument that the Noerr-Pennington doctrine precluded liability for First Amendment-protected petitioning conduct, which can include “concerted efforts to influence ... government [ ] through direct lobbying, publicity campaigns, and other traditional avenues of political expression,” as well as litigation. Private petitioning conduct “incidental to a valid effort to influence government action” can’t be the foundation of liability.  Defendant CRA filed a “Citizens Petition” with the FDA on September 14, 2010, seeking to allow food and beverage manufacturers the option of using the name “corn sugar” to identify HFCS on ingredient labels, and the court found that certain challenged materials were incidental to the Citizens Petition and protected under Noerr-Pennington.  By contrast, statements challenged in the counterclaim weren’t “incidental to valid efforts to influence” the FDA or the prosecution of the instant lawsuit.

Counterclaim defendant SAI argued that its reposting and dissemination of articles wasn’t actionable commercial advertising or promotion under the Lanham Act.  The counterclaim challenged, inter alia, statements in articles authored by non-parties, Dr. John McElligott and Linda Bonvie: “Dr. John McElligott weighs in on the high fructose corn syrup debate in Land Line Magazine,” and Bonvie’s blog post, “The Corn Processors ‘get their way’ with UCLA, or do they?” SAI republished the articles on its website and distributed them in its electronic monthly newsletter, “The Sugar Packet.”  (Cute!)  SAI argued that reposting didn’t transform otherwise protected, non-commercial articles into “commercial speech” because SAI didn’t alter or incorporate the articles into traditional advertising, or distribute them to targeted potential customers, with a commercial motive.

The articles, as noted, were available on SAI’s website, and the Sugar Packet was distributed to approximately 3,500 recipients, including approximately 1,750 individual consumers and members of the media. “SAI had a clear economic motive for distributing the Articles—to promote the consumption (and thereby sales) of sugar.” The Sugar Packet itself stated, in the same issue that disseminated the McElligott article, that  SAI is “on a mission to educate consumers and promote the consumption of sugar through sound scientific principles.”  Citing Gordon & Breach, the court concluded that SAI’s republication promoted its own business and was commercial in nature.

SAI also raised a CDA defense.  Under Batzel v. Smith, 333 F.3d 1018, 1032 (9th Cir. 2003), the question of whether SAI was an “interactive computer service” for these purposes is whether under the circumstances, “a reasonable person ... would conclude that the information was sent [to them] for internet publication.”  The court found that SAI hadn’t shown that its website or electronic distribution service qualified as a “provider[ ] or user[ ] of an interactive computer service” within the meaning of the CDA.  Moreover, “[i]f information is provided to [SAI] in a capacity unrelated to [its] function as a provider or user of interactive computer services, then there is no reason to protect [it] with the special statutory immunity.” SAI showed that it obtained permission to republish the articles.  That was not evidence that SAI “passively displayed Articles from third parties who actively provided them to SAI in its capacity as a user or provider of interactive computer services.”  Thus, SAI wasn’t entitled to CDA immunity.

Monday, October 24, 2016

Third party lacked standing to challenge allegedly misleading use of abandoned mark

578539 B.C., Ltd. v. Kortz, 2014 WL 12572679, No. CV 14-04375 (C.D. Cal. Oct. 16, 2014)

Westlaw is doing something to surface all sorts of old cases, but this one covers an issue about abandoned marks that often comes up in my class on abandonment, so here goes.

Plaintiff, trading as Canadian Maico, filed a trademark infringement claim against Kortz, d/b/a SoCal Maico.  Maicowerk A.G. was a popular German motorcycle manufacturer founded in 1926; it went out of business in the 1980’s.  Plaintiff was founded in 1996 with the goal of rebuilding Maicowerk’s business by restoring and selling genuine Maicowerk motorcycles, as well as parts that could be used by others to restore and maintain Maicowerk motorcycles. Canadian Maico now serves Maicowerk motorcycle enthusiasts in the US and Canada, as well as internationally.  It had registrations for the word Maico and a large “M” superimposed over a shield (the “Maico marks”) for relevant goods.

Plaintiff alleged that Kortz observed its success and decided to copy it under the name SoCal Maico. In 2014, Kortz sought to register MAICO in connection with “on-line retail store services featuring new and used Maico motorcycle parts” and his website Kortz’s logo allegedly incorporated Maico’s federally registered trademarks; Kortz petitioned to have the USPTO cancel Maico’s registration.  Kortz also allegedly made false and damaging statements about Maico and its goods to potential customers.

Kortz alleged, in his counterclaims, that Maico registered Maicowerk’s abandoned trademarks despite the fact that it had not received an assignment of any of Maicowerk’s rights, reputation or goodwill, even though that reputation and goodwill persists.  He alleged that Maico traded on Maicowerk’s goodwill and caused consumer confusion as to the source or origin of its goods and services.

The court found that Kortz lacked Article III standing to bring his counterclaims.  He lacked allegations of injury to himself that was “concrete and particularized” and “actual or imminent” in order to satisfy the injury in fact requirement of Article III standing. Kortz wasn’t Maicowork’s successor in interest:

Because Kortz admittedly has no protectable legal interest in Maicowerk’s purported goodwill and reputation, he cannot assert injury based on damage to that goodwill and reputation. Because he sues as a competitor, and not as a member of the public confused by Maico’s use of the Maico marks, he cannot assert injury to consumers as a basis for his claims.

H didn’t plead that Maico’s customers would otherwise do business with him or that its use of the marks otherwise injured him in his business.  Lexmark analysis would reason likewise.

Later, the court commented that the fact of Maicowerks’ persistent goodwill would not, in itself, make Maico’s adoption of the Maicowerks marks invalid, quoting McCarthy: “Once abandoned, a mark may be seized immediately and the person doing so may build up rights against the whole world.” “After abandonment, those who then adopt the mark must turn to the basic rules of trademark priority to determine priority of use and ownership.”  True, parties who adopt an abandoned mark “must take steps to avoid a likelihood of confusion arising from an association with the former owner,” but that’s the former owner’s business, and even the former owner won’t win without use that fraudulently trades on its reputation.

Press release constituted commercial advertising or promotion

Engineered Arresting Sys. Corp. v. Runway Safe LLC, No. 1:15-CV-546, 2016 WL 6087906 (W.D. Tex. Sept. 19, 2016)

Engineered materials arrestor systems (EMAS) are installed at the end of airport runways in order to safely stop an aircraft that fails to stop before the end of the runway by absorbing the energy of the aircraft. For over 15 years, plaintiff ESCO was the only supplier of EMAS for US airports, but Runway Safe entered the market in 2014.  ESCO sued for direct and indirect patent infringement; Runway Safe brought various counterclaims, including a false advertising counterclaim based on ESCO’s press release announcing this lawsuit.  (Including: “As a new and untested entrant into the marketplace, Runway Safe apparently hopes to capitalize on the goodwill and reputation of [ESCO] by misappropriating [ESCO’s] valuable intellectual property ….”) 

The court declined to dismiss that counterclaim, adding to the small but reasonably consistent jurisprudence on press releases: at least when the target market is small enough that press releases are a good way to communicate with consumers, they can constitute advertising or promotion. The press release, which also says that “[c]ustomers desiring the aircraft arresting system that provides proven safety records with successful arrestments should ensure that they are purchasing the EMASMAX® manufactured only by [ESCO],” directly targets EMAS customers and encourages them to buy from ESCO.  It was published on ESCO’s website where any potential purchaser of an EMAS would be able to view it.  Thus, Runway Safe properly pled commercial advertising or promotion.

Likewise, Runway Safe properly alleged that statements such as that Runway Safe has copied features of ESCO’s EMAS and that Runway Safe is an “untested entrant into the marketplace,” were false and misleading.

Runway Safe also alleged that this conduct was likely to cause “confusion, mistake, or deception as to the origin, sponsorship or approval of the nature of the services offered by Runway Safe.”  Hello, Dastar.  Here, the court reasoned that §43(a)(1)(A) required statements about the speaker’s own goods, not statements about someone else’s goods, which are covered by §43(a)(1)(B).

Friday, October 21, 2016

At the USPTO Trademark Expo

Well, here I am at the National Trademark Expo

Here is a giant registration symbol character costume

Musical pairing, which seems really really functional to be at a TM expo, but emphasizes its patents, copyrights, and word marks

Metrorail Map and Logo usage guidelines

USAF: An Emblem of Power & Protection

Did you know that sounds can be trademarks?

DC Rollergirls, for Dave Fagundes

Velcro: There is only one.  I asked the rep, "One what?" and she said "it's the original hook and loop fastener."

Velcro mascot with kids throwing balls at its chest

The power of the Navy brand

How to report a Coke bottle lookalike (it's right side up on my computer, sorry)

NOT AUTHORIZED versions of bottles Coke finds unacceptable

More on the DC Rollergirls, for Dave Fagundes

Did you know that color can be a trademark?

Benefits of federal registration

Here I am. Considering making this my new profile picture.

Swag: UPS plane, Idaho stuffed potato (get it?), Velcro branded Velcro, sunscreen from the Global IP Protection Council (protect yourself)!

I heart IP and IP in heart tattoos--I got a few extra if anyone must have them
Modern Velcro usage guidelines

Thursday, October 20, 2016

A transformative purpose fair use finding

Wong v. Village Green Owners Association, No. CV 14-03803, 2015 WL 12672092 (C.D. Cal. Mar. 20, 2015)

This transformative fair use case just showed up in my Westclip search.  Wong, who owned a unit in Village Green, prepared a National Historic Landmark nomination on behalf of VGOA, a homeowners association, which subsequently posted the nomination on its website. Wong sued for copyright infringement, and the court found fair use.

Wong prepared the NHL nomination on her own initiative, knowing that VGOA wouldn’t pay her, because she believed that, “[f]rom a moral viewpoint, [she] had no choice.” The nomination consists of a 78-page form and 38 pages of photographs. It contains “purely factual information, such as information about the property’s location, the structures on the property, the materials used to build the property, and its architecture, history, and impact and legacy on the community.” The Village Green became a certified National Historic Landmark in 2001.

Since 2005, Wong has made the nomination available for free to the general public through her website. Another copy is also available for free to the general public through the National Park Service’s website, and Wong understood that the general public would eventually have access to the document for free while she was preparing it.

The court found that VGOA’s use of the nomination as an “Important Document[]” on its website was transformative. Wong’s purpose in making the work was to obtain a NHL certification on behalf of the Village Green, which was granted.  VGOA’s purpose in posting the document was “so the Village Green community and the general public may have access to the document as an information and educational resource.” This substantially different purpose weighed heavily in favor of fair use.

VGOA’s use was also entirely noncommercial: VGOA neither charged for nor received profits from or revenues from the use.  The tax benefits VGOA received from the certification decision were irrelevant. Anyway, even counting those benefits wouldn’t render VGOA’s use of the nomination commercial, in the sense of “unfair[ly] exploit [ing] the monopoly privilege that belongs to the owner of the copyright.” Village Green, as a National Historic Landmark, was eligible for a tax break, but Wong, as an individual, was not.

Nature of the work: highly factual, favoring fair use. Amount used: the whole thing, which was reasonable in relation to the purpose of the copying, so this factor didn’t weigh in favor of either party.

Market effect: there was none because the nomination had no market value and Wong already made it available for free, as did the NPS.  Although someone had to pay for the work’s preparation, the fourth fair use factor “has nothing to do with the cost of preparing the copyrighted work.”

Package size can be false advertising

In Re: Mccormick & Company, Inc., Pepper Products Marketing & Sales Practices Litigation, 2016 WL 6078250, No. 15-cv-2188 (D.D.C. Oct. 17, 2016)

Watkins, which produces black pepper, alleges that its largest competitor, defendant McCormick (which has 70% of domestic black pepper sales), deceptively “slack-filled” its black pepper containers, confusing consumers and causing a loss in Watkins’ pepper sales. Consumers can’t see inside McCormick’s containers before they buy. In early 2015, McCormick allegedly reduced the amount of actual pepper in each of its pepper tins by 25% but “misleadingly continued to use the same traditional-sized tins” and reduced the quantity of peppercorns in its grinders from 1.24 ounces to 1 ounces, again without changing the size of the containers. McCormick did print the reduced quantity on the containers. Watkins also alleged that McCormick kept the price the same, though it didn’t specify wholesale or retail price.  Under 21 C.F.R. § 100.100, “A container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill. Slack-fill is the difference between the actual capacity of a container and the volume of product contained therein.” 

McCormick challenged Watkins’ Article III standing. In a false advertising suit, a plaintiff can demonstrate injury by showing that “ ‘some consumers who bought the defendant’s product under a mistaken belief’ fostered by the defendant ‘would have otherwise bought the plaintiff’s product.’ ” The court here quoted Judge Bazelon’s statement that “all claims of competitive injury are to some extent speculative, since they are predicated on the independent decisions of third parties; i.e., customers. However, ... it is the stuff of the most elementary economic texts that if two firms are offering a similar product for different prices, the firm offering the lower price will draw away customers from its competitor.” Given the purpose of the Lanham Act to protect producers against unfair competition, the court adopted the Ninth Circuit rule that “[a] plaintiff who can’t produce lost sales data may ... establish an injury by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.”  That’s what happened here.  Watkins alleged that consumers bought containers that looked like they delivered more bang for the buck and wouldn’t have done so if they’d known the truth; that was an adequate allegation of injury fairly traceable to McCormick’s conduct.

Statutory standing: Lexmark allowed Watkins standing. Lexmark noted that “potential difficulty in ascertaining and apportioning damages is not ... an independent basis for denying standing where it is adequately alleged that a defendant’s conduct has proximately injured an interest of the plaintiff’s that the statute protects.”  Sales diversion from a direct competitor was a “paradigmatic” direct injury for Lanham Act purposes.

On the merits, Watkins also stated a claim.  McCormick argued that slack-fill packaging wasn’t “commercial advertising or promotion.”  “McCormick’s insistence that the size of its containers does not constitute advertising or promotion defies common sense and the law.”  McCormick argued that the size of its containers didn’t propose a commercial transaction.  But “advertising includes statements about the product to be sold, not merely a proposal to sell.” Moreover, “[t]he size of a package signals to the consumer vital information about a product and is as influential in affecting a customer’s choices as an explicit message on its surface.” As Watkins argued, “[t]he size of McCormick’s containers is exactly what makes them misleading, because consumers cannot see the amount of their contents.” (We might more properly call McCormick’s actions communicative conduct, but that hardly helps its argument.  Compare this wrongly decided case about how color and price aren't falsifiable claims.) 

Watkins properly alleged falsity, given federal law about nonfunctional slack fill.  “[T]he slack-fill regulations do not include an exception for containers which accurately state the product amount.” The court articulated the reason for this rule:

An accurate statement of weight does not necessarily correct a consumer’s misimpression of product quantity based on the size of a container, because consumers are accustomed to seeing how much space a product occupies but may not know how that relates to its weight. Moreover, as plaintiff has alleged, the history and iconic, recognizable size of the McCormick containers creates a misleading impression.

McCormick argued that Watkins needed to plead “facts showing that identifiable consumers were actually confused.”  But Watkins could rely on the allegations in the parallel consumer class actions against McCormick, and anyway, the regulations consider nonfunctional slack fill to be deceptive as a matter of law, “ so there is nothing implausible about allegations of actual, widespread deception among McCormick’s customers.”

State law claims under various deceptive trade practices laws also survived.

Transformative work of the day, Dilbert edition

Dilbert is mine now: art, appropriation, and politics.

Tuesday, October 18, 2016

Spy Phone v. spy phone: Google loses motion to dismiss TM and other claims

Spy Phone Labs LLC. v. Google Inc., No. 15-cv-03756, 2016 WL 6025469 (N.D. Cal. Oct. 14, 2016)

The plaintiff here, an app maker with a registered mark for Spy Phone for a monitoring app, squeaks past dismissal of its trademark secondary liability claim, and gets a win on §230(c)(2)(A) by alleging that Google acted in bad faith—another for Eric Goldman’s tally.  Spy Phone offers its free app on Google’s Play Store and generates revenue through AdSense ads on its website.

Spy Phone alleged that, between November 2012 and May 2013, it discovered other monitoring apps that used or incorporated the “Spy Phone” trademark.  It submitted trademark infringement complaints to the Google Play Team, and Google removed the apps.  But in May 2013, Google delayed removal for 27 days, and then Spy Phone received an email from the developer of the challenged “Spy Phone App” complaining about the removal.  At that point, Google allegedly began retaliating against Spy Phone, taking actions orchestrated by the developer and the Google Play Team. [I imagine the developer is thrilled to learn of its power over Google.]

In June 2013, Spy Phone submitted a trademark infringement complaint regarding the “ Brutal Spy Phone” app. Google took no action, responding that: “Google is not in a position to mediate trademark disputes between developers and trademark owners. As a courtesy we have considered your claim, but are unable to determine its merits at this time.”  Later that month, Google removed Spy Phone’s app on the ground that it violated Google’s anti-spyware policy, even though Spy Phone alleges its app was in full compliance with Google’s Developer Distribution Agreement.  Spy Phone alleged its belief that the complaint that triggered the removal was submitted by the angry developer, the Google Play Team, or a Doe defendant in retaliation for Spy Phone’s trademark infringement complaints.

After Spy Phone sued, Google clarified that the app itself did not violate the anti-spyware policy, but that the app title was in violation because “[a]pp titles should not be misleading or represent the product as being spyware and/or capable of surreptitious tracking.” Spy Phone’s counsel pointed out that other monitoring apps contained the word “spy” in the title, and Google responded that it intended to prohibit all developers from using the word “spy.” In October, Google reinstated Spy Phone’s developer account, but deleted all of the consumer reviews and records for the original “Spy Phone” app.

Spy Phone relaunched its app as “Phone Tracker,” but got many fewer downloads and lost much advertising revenue.  Other apps allegedly continued using “spy” in their titles.  Thus, beginning in January 2014, Spy Phone began submitting complaints about apps using the word “spy” in their title, asserting violations of the anti-spyware policy. Google allegedly removed only some of these apps, and many of the apps that were removed were re-listed afterwards.  In July 2014, Spy Phone complained about a monitoring app developed by that same angry developer, and then Google suspended Spy Phone’s developer account and removed its app for violating Google’s spam policy. Again, Spy Phone alleged its belief the removal was based on a complaint submitted by the angry developer, a Google Play Team member, and/or a Doe defendant. Spy Phone still filed complaints against other monitoring apps to test whether the anti-spam policy was being applied uniformly, but alleged that none of these apps were removed.  “A month after having its developer account terminated, Plaintiff received a letter from a ‘Concerned Google Play Member,’ which ‘confirmed Plaintiff’s belief’ that Plaintiff was being singled out for submitting trademark infringement complaints.”  After Spy Phone sued, Google removed an app that Spy Phone identified as an infringing app, and also removed at least five apps that infringed without Spy Phone’s specific request.

Contributory trademark infringement: Previously, Judge Grewal dismissed this claim because Spy Phone had not alleged Google had notice of the specific acts of infringement because Spy Phone made spyware complaints instead of trademark complaints.  For the Brutal Spy Phone complaint, Google didn’t ignore the trademark complaint but investigated and found that it could not assess the merits of the claim.  Because “Spy Phone” could have been a descriptor, Google didn’t have actual notice. 

Here, Spy Phone argued that Google failed to act promptly to suspend services to known infringers, citing (1) the 27 days it took Google to remove “Spy Phone App” after Plaintiff filed a trademark complaint on May 17, 2013, and (2) the 18 days it took Google to remove an infringing app identified in Plaintiff’s First Amended Complaint on January 23, 2015.  This allegation wasn’t addressed by the previous order.  Cases have found action within three days to be sufficient to avoid liability, but six to nine months of delay have been found sufficient to allege contributory copyright infringement.  Here, the court found that “whether this delay is actionable cannot be decided at the pleading stage.” 

However, the court rejected Spy Phone’s disagreement with Judge Grewal about the app.  Mere assertion by a trademark owner that a domain name infringes isn’t sufficient to impute knowledge of infringement, without more knowledge of the relevant goods and services; so too here.  Spy Phone didn’t allege that Google knew the app was a parental monitoring app or make factual allegations regarding the likelihood of confusion factors.

Spy Phone also alleged willful blindness to ongoing infringement. “Plaintiff is essentially alleging that Google had a duty to preemptively remove apps that infringed on Plaintiff’s trademark, on the basis that it has alleged that the Google Play Team is a small group who was put on notice that Plaintiff possessed the ‘Spy Phone’ trademark.” Spy Phone also alleged that Google had engaged in human review to ensure compliance with the Google Play’s Developer Program Policies, which meant that “Google knew the names of all infringing apps before they were listed on Google Play.” That wasn’t enough; at most, it was generalized knowledge insufficient to impute actionable knowledge without something more.  Spy Phone argued that Google was like a flea market operator who has been put on notice that a particular vendor is selling counterfeit goods, but continues to allow that vendor to sell counterfeit goods. “Not so. Plaintiff seeks to require the flea market operator not to just police specific vendors who it has been put on notice of selling counterfeit goods, but to also preemptively check over the goods of every vendor to ensure they are not also selling counterfeit goods. This is the type of generalized notice that Tiffany rejected.”

However, Spy Phone did allege a claim as to apps from developers that Plaintiff had previously reported to have infringed on its trademark, such as the defendant angry developer. Thus, the motion to dismiss was denied.

State claims and the CDA, section 230(c)(2)(A) (immunity for good faith removals): Spy Phone argued that Google was an information content provider (of the source code that enables apps to use Android), not an interactive computer service. Opperman v. Path, Inc., 84 F. Supp. 3d 962, 987 (N.D. Cal. 2015), found that Apple was an information content provider because it controlled the development of the apps that were being challenged. But “development” means material contribution to the alleged unlawfulness, and providing neutral tools isn’t “development.”  Opperman involved Apple’s “iOS Human Interface Guidelines,” which included “several suggestions that do, on their face, appear to encourage the practices Plaintiffs complain of in this case.” Not here.

However, the court found that it couldn’t resolve the issue of whether Google acted in good faith at the motion to dismiss stage.  Google argued that selective enforcement of its spyware polic was not actionable. But Spy Phone argued that Google’s claim that Plaintiff’s app violated the spyware policy was entirely pretextual. Google would have to return to § 230(c)(2)(A) on summary judgment.

Tortious interference with contract: Spy Phone relied on its contract with Google through AdSense.  Google can’t interfere with its own contract, even when the allegedly tortious actions are committed by a different department (the Google Play Team).  Dismissed with prejudice.

Breach of contract and the covenant of good faith and fair dealing: “[t]he general rule regarding the covenant of good faith is plainly subject to the exception that the parties may, by express provisions of the contract, grant the right to engage in the very acts and conduct which would otherwise have been forbidden by an implied covenant of good faith and fair dealing.” Google’s developer agreement says it has the right to take down content that, among other things, “is deemed by Google to have a virus or is deemed to be malware, spyware or have an adverse impact on Google’s or an Authorized Carrier’s network …. Google reserves the right to suspend and/or bar any Developer from the Market at its sole discretion.” But Spy Phone alleged that Google failed to exercise this right in good faith and that Google didn’t actually find the app in violation of the anti-spyware policy (as no such policy allegedly exists).  Thus this claim survived.

Tortious interference with prospective economic advantage: Google argued that its developer agreement precluded recovery for consequential and lost profits damages. Spy Phone argued that this section was unconscionable or should be interpreted as applying only to good faith acts.  Though the contract might be procedurally unconscionable, Spy Phone didn’t explain why the limitation on liability provision was substantively unconscionable.  These provisions “have long been recognized valid in California” and “are particularly appropriate where, as here, one party is offering a service for free.” However, the limitation of liability provision couldn’t be applied to intentional wrongs.  Motion to dismiss denied.

The coordinate California UCL claims based on the above also survived.  However, the court declined to allow Spy Phone to add a new claim for false advertising under the Lanham Act and California’s False Advertising Law. Spy Phone wanted to argue that when Google AdWords sold the keywords “Spy Phone” to other developers, Google was engaging in false advertising because Google had previously told Plaintiff that the term “spy” was misleading as it deceives people into thinking that such apps are spyware and/or capable of surreptitiously monitoring data.  Thus, allowing others to buy priority placement in response to a search for those keywords put Spy Phone at a competitive disadvantage by falsely suggesting that the competing app associated with the keywords “Spy Phone” was “capable of surreptitious tracking.”

But Spy Phone’s allegations of falsity were too clever by half; it alleged that Google had no reason to believe its own statement that use of “spy” is misleading.  Also, Spy Phone didn’t allege facts that would establish materiality or injury caused by the allegedly false statement that the apps shown in response to the search would allow surreptitious monitoring. “In fact, the only ad listed above Plaintiff’s app when using the ‘Spy Phone’ keyword search is an app that is clearly labeled as the ‘Best Parental Control App,’ the same function as Plaintiff’s app.” Amendment to allow the false advertising claim would be futile. 

Copyright nerd question of the day

Lin-Manuel Miranda and Renee Elise Goldsberry perform a revised version of Ten Duel Commandments about Hillary Clinton.  Miranda licensed Ten Crack Commandments--does the license cover this/is it fair use?  What language would you require for a license?

Monday, October 17, 2016

Initial interest confusion rides again: law school ordered to re-change name

Board of Regents of the Univ. of Houston Sys. v. Houston College of Law, Inc., No. 16-CV-1839 (S.D. Tex. Oct. 14, 2016)

UH sought and received a preliminary injunction to prevent the former South Texas College of Law from using the mark HOUSTON COLLEGE OF LAW.  UH has had a law school since 1947 and is ranked 50th in the USNWR law school rankings; defendant HCL is a private, unranked law school.  UH had protectable marks in its names and also alleged common law rights in its colors, red and white.
The parties' logos
UH argued both initial interest source confusion and association confusion.

UH’s mark was relatively strong commercially, especially within the most relevant legal industry and geographic markets—both UH and HCL “overwhelmingly” target prospective students in Texas and Florida.  HCL argued that extensive third party use, even use outside UH’s particular industry, was “impressive evidence that there would be no likelihood of confusion,” relying on Florida International University Board of Trustees v. Florida National University, Inc., 2016 WL 4010164, --- F.3d ----, No. 15-11509 (11th Cir. Jul. 26, 2016).  More than 25,000 registered businesses use the word “Houston” in their names.  But not all third-party uses have equal weight.  Though a number of Houston-based institutions of higher learning that use either “University” or “Houston” in their name, “none has law schools and there is no evidence that any are well known in the marketplace. To the extent consumers  are unaware of third-party use, the logic behind the third-party use rule is inapplicable; the consumers have not been conditioned to distinguish among the marks.”

Similarity of marks: strikingly similar. The word overlap was obvious; “[f]ar more troubling, however, is the way in which Defendant deploys its mark in the marketplace.”  HCL’s logo, like the UH logo, uses block letters, emphasizes the word “HOUSTON,” and uses a red  and white color scheme, and the logo was “ubiquitous” in HCL’s marketing materials.  Small differences, including the generic image of the scales of justice, were insufficient to counter the overall impression of similarity.  Anyway, even if the differences were enough to prevent source confusion, they weren’t enough to prevent affiliation confusion.

The meanings of the marks were practically identical, “and this alone presents a source of  potential confusion.”  Compounding the confusion was the fact that universities “often serve as umbrella organizations to multiple colleges that are each responsible for educating students within certain academic disciplines.”  UH is home to, along with its Law Center, the University of Houston College of Arts, the University of Houston College of Education, and the University of Houston College of Pharmacy. “‘Houston College of Law’ fits almost perfectly within this framework, creating a substantial risk that potential purchasers will ‘think [Defendant’s] services [have] some connection with [UH],’” especially given HCL’s use of “the red and white colors commonly associated with UH.”

Similarity between the parties’ services: practically identical, making affiliation confusion more likely.  Customer base: the same.  Marketing efforts: the same.  All weighed heavily in favor of confusion.

HCL argued that advertising in the same media would help students compare and contrast, as in the USNWR rankings.  “But this argument would only apply to instances where students see the two marks side-by-side, which would seem to be exceedingly rare. Indeed, even Defendant’s example of the U.S. News rankings seems inapplicable—the Law Center is ranked 50th, while Defendant is unranked and referenced on a separate page.”

Intent: “[A] junior user’s knowledge or awareness of the senior user’s trademark” is insufficient to create an inference of intent.  HCL argued that it intended to align its name with its location; a market survey it commissioned in 2013 favored a name change because “South Texas College of Law” can  lead people to mistakenly believe that the school is located in the Rio Grande Valley. When respondents were asked to suggest a new name, the most frequently mentioned suggestion (32%) was to “include [a] reference to the location in Houston.”

However, the most common reason respondents gave to change the name was “that the name South Texas College of Law is often confused with other schools, particularly Texas Southern University.”  This “detracts from STCL’s prestige and national reputation.”  UH presented evidence that a perceived affiliation with UH would, by contrast, enhance HCL’s prestige.  The survey included many respondents who mentioned a name change if HCL affiliated with a university, and HCL had actually discussed doing so over the past two decades.  “The benefits of affiliation were thrown into sharp relief for Defendant when the entity formerly known as Texas Wesleyan University Law School leapfrogged South Texas in the U.S. News rankings shortly after affiliating with Texas A&M.”  Shortly after this event, when South Texas fell out of the rankings entirely, it decided to change its name.

The court found that “UH’s theory is rooted in highly circumstantial evidence that would [alone] be insufficient to meet the substantial burden imposed at this procedural stage.”  But an additional fact directly called HCL’s intent into question: in conjunction with the name change, HCL also adopted a new red and white color scheme closely resembling UH’s.  HCL’s official school colors are red and gold, but in practice, its use of red was inconsistent throughout the years and in the past the red was dark crimson, accompanied by gold. Not so now. Even accepting HCL’s argument that white provides a better contrast, the similarity was striking.  UH presented numerous images of HCL promotions next to its South Texas College of Law merchandise, and the current shade of red was “unmistakably brighter than the classic South Texas crimson.”  HCL argued that the varied shade of red was the result of using a variety of vendors and inconsistent paper quality.  But it lacked credible testimony from a witness about that and internal documents corroborating that testimony. 

HCL was at least aware of the likelihood of mistaken association; though it was a close call, the court declined to find an intent to derive benefit from UH’s reputation.  “Defendant’s rationale for emphasizing ‘Houston’ in its name is entirely plausible, and the Court is wary of relying too heavily on select snapshots of promotions and merchandise produced by various vendors on various types of materials.”  Given the variety of merchandise that showed up in my own search, the court’s caution seems more than justified.
old student handbook

2015 calendar

old merchandise

old logo

old merchandise: bright red?

old merchandise: crimson?

old merchandise: red?

Actual confusion: Initial interest confusion counts.  So does confusion among people other than prospective law students.  So do surveys. 

UH’s expert, Hal Poret, found net confusion of 25%.  HLC’s expert found a net confusion rate of only 6%. HLC objected the way in which the survey participants in Poret’s “Webpage Test Group” were questioned. These participants were shown an image that was identical to the Houston College of Law homepage, but with one exception: the image omits two banners that rotate prominently across the webpage (“South Texas College of Law Changes to Houston College of Law” and “Houston College of Law Stands Behind Name Change; Is Prepared to Defend Decision in Court”).  HLC argued that the survey thus failed to “test the alleged infringing use as it’s actually seen in the real world today.”

The court disagreed, given the multiple uses of the mark outside the webpage; HLC has already begun “aggressively marketing its new name by advertising on large billboards on major Houston highways, sending out mailers to prospective law students and members of the legal community, and selling merchandise bearing its new name and logo.” None of those uses contained HLC’s purported disclaimers. Even people who clicked a direct link from Google to the “Admissions” page would never see the banners. By contrast, the only image of the webpage that respondents saw in HLC’s survey included the prominent “South Texas . . . Changes to Houston College of Law” banner, and not the two other rotating banners (one unrelated to the name change).

And the court didn’t think the banners worked as disclaimers; though they were prominent, the most prominent feature was a series of eight rotating banners that tout Defendant’s primary selling points.  “[E]ven if a consumer’s initial-interest confusion only persists long enough to lead him to the homepage, then Defendant has ‘br[ought] the patrons   in the door. . . . [T]he confusion has succeeded.’”  Poret’s survey was thus substantially stronger.

UH also submitted anecdotal evidence of confusion. (1) The United States Postal Service misdelivered a letter to HCL to UH. (2) A law firm mistakenly changed a South Texas College of Law alumnus’s profile to indicate that he graduated from UHLC and was on the Houston Law Review. (3) HLC sent an email to the members of the Sunbelt Consortium, an organization comprised of seventeen law schools in the region, informing them of the name change and asking that the change be reflected on the organization’s website. The email used HCL’s logo (including “formerly South Texas College of Law”), was sent from an “@stcl” email address, and even included a link to Nevertheless, the Sunbelt Consortium thought the email came from UH and changed UH’s name by mistake.  (4) The Texas Board of Law Examiners mistakenly sent UH an email regarding a student who actually attends HCL. (5) SMU Law School hosted a workshop and provided a HCL professor with a placard identifying him as a professor at “University of Houston Law Center.” (6) A UH student mistakenly selected the HCL location rather than the UH location when signing up for the Multi-State Professional Responsibility Exam.  (7) At the 2016 Graduate and Professional School Fair in Lubbock, Texas, an attendee approached a representative from UH’s College of Social Work and mentioned that he had just spoken to a representative from “your law school.” UH’s law school didn’t attend the fair, but HLC did. (8) A prospective law student contacted UH’s admissions department asking for a  waiver of the application fee; UH doesn’t have an applicatino fee, but the student “reiterated that she was on the Law School Admission Counsel’s website and was being charged a $55 application fee.”  When questioned, the student said she meant to contact HCL.

Though a lot of this was not evidence from prospective students, “evidence of confusion in others permits the inference of confusion in purchasers.”  The first two instances deserved “relatively little weight—they involved individuals who are unfamiliar with the legal education industry.”  But “mistakes made by individuals who are active participants in the field” were much more noteworthy, and the last two instances of actual confusion by prospective law students were even more important, and “even suggest that the confusion is not quickly dispelled…. The fact that confusion could persist at the point of paying to apply for admission is particularly significant in the context of initial-interest confusion.”

Degree of care exercised by purchasers: not enough to overwhelm the other factors:

Prospective law students are not endowed with an inbuilt knowledge of the legal education industry. It is only after their interest in legal education is first piqued that they begin the process of becoming sophisticated. In other words, there exists a  period of time in every prospective law student’s career where, not only is he unsophisticated, he knows practically nothing about the industry and is particularly susceptible to confusion. 

The court focused on how to weigh the factors in the context of initial interest confusion.  There was no need to show that a sale occurred as the result of the confusion.  Fifth Circuit precedent suggests that competition isn’t required; “a plaintiff need only show that the junior user achieved some financial benefit as a result of the confusion, regardless of any potential pecuniary effects on the senior user.”  But here, even imposing a competition/ “possibly precluding the plaintiff from being considered by the purchaser” requirement would lead to a finding in UH’s favor.  [Note contrary precedent, developed to cabin the scope of IIC, in cases such as the Third Circuit’s Checkpoint v. Checkpoint.]

Multiple factors favored finding likely confusion, and only degree of care cut against UH’s case.  UH cautioned against a broad application of IIC, and its point was “well taken.” There is a difference between initial interest confusion and initial interest.  But UH offered more here: “Prospective students  are likely to further investigate Houston College of Law not necessarily because of their initial interest in the law school, as Defendant suggests, but rather because the mark seemingly bears  the imprimatur of UH’s well-known brand—in other words, because of initial-interest confusion.”  And the stronger brand from whose goodwill HCL benefited was a direct competitor, which was particularly relevant to IIC. Indeed, “the most prominent portion of the webpage is essentially a list of the best reasons to choose Defendant’s law school over UH’s.”

The court rejected the cases HLC offered to show that the sophistication of purchasers rebuts initial-interest confusion, but the authority is unpersuasive. Three of the four cases involved commercial purchasers, “who are far more likely to be familiar with the relevant market at the outset of their purchasing process, and therefore less susceptible to confusion throughout it.”  Also, in each case, the courts rejecting IIC theories also relied on several additional factors, none of which supported HLC here.  If sophistication were enough, “sellers of goods or services that involve extended purchasing processes would be effectively outside the ambit of the Lanham Act’s protection, leaving competitors free to appropriate the senior user’s goodwill with impunity, and allowing them to gain ‘credibility during the early stages of a transaction.’” But it’s the early stages of the transaction that prospective law students “are the least sophisticated and most susceptible to confusion.”  Nor is intent required to win on IIC, and, anyway, intent didn’t weigh against HLC, but that didn’t mean it weighed for HLC.

Regardless of any presumption of irreparable harm, the court found that monetary damages wouldn’t adequately compensate UH.  First, lack of control over the quality of HLC’s conduct, which prospective law students would likely attribute to UH, was irreparable injury.  [Not clear why this would be irreparable if it is literally corrected before purchase, or that HLC’s conduct has caused or is likely to actually cause any harm in need of repair.]  HLC’s law professors may speak to audiences that include prospective law students, and HLC’s recruiting department attended school fairs at which its representatives directly interacted with prospective law students. Second, UH’s “time, effort, and expense exerted to create and define its brand has been unfairly exploited,” which monetary damages cannot compensate.  [Note that this isn’t about harm to UH but benefit to HLC.  Does this require a finding that UH would be entitled to disgorgement?  If not, where is the harm to UH?]

Anyway, the court wasn’t impressed, given HLC’s own motivation for the name change: if confusion with other schools, particularly Texas Southern University, was a problem for HLC, then it was a problem for UH.

The court also was unimpressed by the costs of an injunction to HLC.  In June 2016, HCL’s Dean said, “I feel safe in saying we haven’t spent $35,000 to $40,000 extra over anything we would have spent anyway. And so the biggest cost that we see going forward is changing the external signage.”  True, those subsequent changes proved costly: $458,000 in additional costs to publicize the name change. But that had little weight given that HLC knew about UH’s objection—indeed, its intent to sue—and proceeded anyway.  Only after news of UH’s objection did HCL destroy “[m]uch of the older stationary and signage bearing the name ‘South Texas College of Law.’”  HCL “opted to double down, yet cites to the high stakes of the game as a reason to call off the bet.”

Since the public interest is always served by avoiding confusion, the court issued the requested injunction against the renaming.