Monday, October 14, 2019

Amicus in Dr. Seuss v. ComicMix

Here. With Mark Lemley, Jessica Litman, Lydia Loren, Pam Samuelson, and Erik Stallman. 

incentivized reviews/targeted upvoting can be false advertising, court reiterates


Vitamins Online, Inc. v. HeartWise, Inc., No. 13-CV-982 (D. Utah Sept. 24, 2019)

Supplement industry behavior is wild.  

Vitamins Online sells dietary supplements online, including on Amazon, using the name NutriGold. HeartWise, aka NatureWise, competes with NutriGold, including on Amazon, with products that contain an extract of garcinia cambogia and green coffee. NatureWise had its employees upvote positive reviews on its product pages and downvote negative reviews, increasing the likelihood that potential customers would see positive reviews of its products first and negative reviews last. “NatureWise also encouraged customers to post or repost their positive reviews on Amazon by offering them free products or gifts cards.  NatureWise would review and, in some cases, make minor edits to the reviews before asking the customers to post them on Amazon.” Such reviews could affect NatureWise’s placement in results. Vitamins Online sued NatureWise for false advertising based on: (1) manipulating Amazon’s customer review system and (2) falsely advertising and misrepresenting the content and characteristics of its green coffee and garcinia cambogia products.

NatureWise counterclaimed, alleging among other things that VO’s principal bought over one thousand bottles of one of its garcinia cambogia products and then resold those bottles with an insert that was entitled “AS IS”:

The insert cautioned purchasers to read it before opening the bottle or else the purchaser would unable to return it for a refund. The insert then explained that the product did “not contain inside the bottle what is claimed on the outside label,” that a third-party laboratory had tested and concluded that the label did not entirely match the content of the bottle, and that NatureWise’s online product reviews were not genuine. The insert also claimed that the manufacturer was being sued for its scams and purported fraudulent practices.

Review claims: Rather than taking the relatively more simple path of saying that manipulating reviews can imply false facts and thus constitute a false or misleading representation of fact, the court instead (and ahistorically) seized on the word “device” in §43(a) to say that review manipulation could be a misleading “device.”  (As Graeme Dinwoodie has extensively documented, “device” to the Lanham Act’s drafters meant essentially “badge/logo.” I think the court’s holding is right but its statutory construction is both unnecessary and overelaborate.)

Could review manipulation be falsifiable instead of puffery?  The court pointed to a “well-established exception [to the rule that only factual claims are actionable:] that an opinion by a speaker who lacks a good faith belief in the truth of the statement is actionable.” And an intent to deceive can be presumed to have succeeded even for implied claims.  There was a genuine factual issue about whether NatureWise acted with the intent to deceive consumers. The evidence showed that NatureWise discussed contracting with individuals in the Philippines “to use a rotating IP service and multiple accounts to reduce the effect” of their competitor’s attempts to lower their market share, which could be effective because the conduct was “not connected to NatureWise.” A NatureWise employee expressed that he was “wary of tipping our hand to our customers that we have anything to do with interfering with reviews.” In response, NatureWise’s principal stated that his “only concern” was that Amazon would investigate the positive changes in NatureWise’s product reviews and realize that the accounts voting up NatureWise’s products may not belong to real people. He also expressed the importance of having more third-party sellers so that it would be impossible for Amazon to know which company was behind the up and down voting of reviews.

Second, even without a presumption of deception, Vitamins Online produced a survey that supported its claims. It showed that that a majority of consumers: read reviews when shopping for weight loss products; rely upon those reviews; and believe that product reviews are genuine and done by real customers. A review’s number of stars and its helpfulness rating play influential roles in a consumer’s purchasing decision.

NatureWise argued that these were all just opinions. But there was extrinsic evidence that the reviews mattered, and also some of the reviews might not have been from “real people,” making them literally false.

Injury: this wasn’t a comparative advertising case where injury could be presumed even though there was some evidence of NatureWise targeting VO and even though the parties’ products could appear against each other on Amazon. “[I]t would be unjust and improper for the court to apply a presumption of injury based on a third party’s conduct instead of the defendant’s. The comparison captions found on Vitamins Online’s and NatureWise’s Amazon product pages are a function of Amazon’s website—not a result of NatureWise’s conduct.” VO argued that a presumption of injury was appropriate because the parties dominated the market: one of its witnesses found 17 market participants on Amazon for the products at issue, but approximately 92% of the reviews appear on Vitamins Online’s and NatureWise’s product pages. That wasn’t enough to show market domination.

Although this issue is presently before the Supreme Court, the Tenth Circuit presently holds that either actual damages or willfulness must be shown for disgorgement; VO thus argued that it didn’t need to show actual damages to establish injury. But that conflates injury with entitlement to disgorgement, which only matters once liability has already been established.  That leaves the puzzling question: what is the burden for showing injury when the plaintiff seeks disgorgement? “Bearing in mind that there is a higher burden for seeking money damages and a lower burden for seeking injunctive relief, the court concludes that the standard for disgorgement is somewhere between the two.”

VO introduced evidence that sales plummeted after NatureWise entered the Amazon market, and argued that its survey showed injury.  There were genuine issues of material fact, but VO wasn’t entitled to summary judgment on injury. Outside a two-player market and in the absence of comparative advertising, the parties weren’t necessarily taking each other’s sales; this was better left for the finder of fact (though how the finder of fact is supposed to sort that out is a bit of a mystery).

Inredient claims: VO argued that NatureWise made various false statements about its ingredients/efficacy/etc. Some of the products no longer had existing samples to test; the court concluded that NatureWise had destroyed those products; that VO was prejudiced by that destruction; and that NatureWise acted in bad faith. VO was thus entitled to an adverse inference instruction that this product subset bore all of the allegedly false ingredient claims and that they were false.

NatureWise sought summary judgment on certain challenged statements.

“100% Pure” and “Sourced, Formulated, . . . and Guaranteed to be the Highest Quality Available”: “Particularly in the context of health supplements, a claim that something is ‘100% Pure’ is a measurable statement of fact…. It seems likely that a reasonable consumer viewing such a phrase would expect exactly what the phrase suggests—an unadulterated product consisting purely of the listed ingredients.”  The “sourced etc.” claim was a closer call. In context, however, it immediately followed NatureWise’s label claim that its garcinia cambogia consisted of “Vegetarian Capsules and Absolutely Nothing Else! ZERO Fillers, ZERO Binders, and ZERO Artificial Ingredients.” And there were genuine issues of material fact about whether NatureWise’s products had fillers, binders, and artificial ingredients.

So too with other challenged claims: “For each remaining statement, NatureWise employs an exercise of identifying specific words within each statement that it claims can be interpreted or defined, by dictionary or otherwise, in multiple ways thus rendering the entire statement ambiguous.” The court found that this ignored the requirement of considering the ad context. Combined with the other label statements, “the alleged ambiguities dissipate.”

Moreover, “NatureWise’s exercise of suggesting that several of its own statements are ambiguous seemingly cuts against what a corporation would want when promoting and advertising its health supplement products. That a company deliberately markets its products in an ambiguous and difficult-to-understand manner is anomalous to say the least ….”

The court also found that NatureWise wasn’t entitled to summary judgment on VO’s request for disgorgement.  NatureWise argued that VO didn’t show what sales were attributable to false advertising. But “[t]he language of the Lanham Act is clear: ‘In assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed.’” “To require Vitamins Online to not only distinguish all sales based on false advertising from all sales based on legitimate conduct, but also require it to apportion its sales among all the various categories and subsets of its claims, would be to violate the plain terms of the statute.”  VO had provided evidence of NatureWise’s sales, as well as some evidence of willfulness, as discussed above, and evidence that NatureWise “discussed stealing the design of Vitamins Online’s labels.”

NatureWise relied on Retractable Techs., Inc. v. Becton Dickinson & Co., 842 F.3d 883, 901 (5th Cir. 2016), but even that case accepted the district court’s finding that some of the defendant’s profits were attributable to its false advertising. The appropriate rule: “a plaintiff need only demonstrate that the defendant has benefitted from the alleged false advertising (which Vitamins Online has done), then the defendant has the burden to reduce its profits by the elements of cost and deduction, which will result in the plaintiff recovering only those profits attributable to the false advertising.”  That’s a pretty generous reading of Becton Dickinson, but ok.  NatureWise argued that disgorgement would result in a penalty instead of compensation, but the defendant “has the power to ensure that the plaintiff does not recover any profits that are not attributable to the false advertising” by meeting its burden; the alternative gives a windfall to the wrongdoer. And the court in its equitable discretion can further protect against bad outcomes.  False advertising cases should be treated no differently than trademark infringement cases for purposes of disgorgement.

By contrast, NatureWise wasn’t entitled to disgorgement on the counterclaims because it neglected to produce evidence of VO’s sales. It also failed to show that it could get injunctive relief. On irreparable injury, although its sales of garcinia cambogia fell after VO sent out the “AS IS” flyer, “NatureWise returned to the top sales ranking on Amazon for garcinia cambogia within only a few months.”  Money damages might well have been sufficient, but for NatureWise’s choice to withdraw its claim for actual damages. Without evidence relating to the only remaining remedies it sought, the counterclaims were dismissed.

The court also struck VO’s jury demand because the only remedies left in the case, disgorgement and injunctive relief, were equitable in nature. VO argued that disgorgement was a surrogate for damages and thereby a legal remedy, but that’s not what the cases say. But even if damages and profits are related, they have distinct purposes and natures; disgorgement focuses on unjust enrichment/deterrence, while damages redress an injury.

Some courts have held that “an accounting of profits can act as a proxy for a legal claim in some circumstances.” The idea is that, “because proving actual damages is difficult, trademark law creates an alternative form of relief—profits as a proxy for damages— which is governed by a less challenging evidentiary regime.”  Under this theory, a plaintiff may be entitled to a jury trial if “1) the case involves similar products, 2) there is no adequate remedy at law and 3) the products compete directly.” The court was unpersuaded.  Anyway, even under this theory, the market would have to be such that a loss for one party was almost automatically a gain for the other, and the market here wasn’t a two-player market.

Thursday, October 10, 2019

ingredient supplier has standing against disparagement of products/false claims about competing product


ThermoLife Int’l LLC v. Vital Pharms. Inc., No. 19-cv-61380-BLOOM/Valle, 2019 WL 4954622 (S.D. Fla. Oct. 8, 2019)

ThermoLife licenses/sells a patented creatine nitrate used in dietary supplements, which is allegedly included in many top-selling dietary supplements. VPX allegedly attacked ThermoLife’s creatine nitrate in its own advertising, including with false and misleading statements about VPX’s own “Super Creatine,” because products including ThermoLife’s creatine nitrate compete directly with VPX’s products.

The court found that Thermolife was within the zone of interests protected by the Lanham Act: it alleged that its business, reputation, goodwill, sales and profits were harmed “when consumers are misled to purchase a falsely advertised product that competes with products containing creatine nitrate sourced from Thermolife. These are the type of commercial interests the Lanham Act seeks to protect.”  And disparagement means that direct competition isn’t required for proximate cause: it was plausible that disparagement of creatine nitrate would affect sales of competing products containing creatine nitrate sourced from Thermolife. (though here the court didn’t distinguish the disparaging parts from the allegedly false self-promotion about VPX’s own product; I support the result but would have appreciated more clarity that it’s not just disparagement that can create proximate cause).

VPX next argued that the complaint didn’t satisfy FRCP 9(b)’s heightened pleading standard. Since there was no controlling precedent, the court declined “to expand Rule 9(b) absent instruction from the Eleventh Circuit or persuasive guidance from its sister districts.”

Nor were the alleged misstatements clearly opinions or nonactionable puffery: VPX allegedly advertised that creatine nitrate was “minimally effective,” “useless,” “can be dangerous,” and “that there is ZERO scientific evidence it can increase performance.” VPX also allegedly falsely and misleadingly compared the solubility of “Super Creatine” to creatine nitrate; blurred the concepts of dissolution rate and solubility; and claimed that “Super Creatine is the world’s only water-stable creatine,” that it is “much more bioavailable than regular creatine,” that it can “beef up your muscles and your brain,” that it can cross the blood brain barrier “twenty times more efficiently than regular creatine,” and that it helps with “all forms of dementia, including Alzheimer’s, Parkinson’s, Huntington’s, and other forms of dementia.” Those were actionable. VPX’s analysis of why its statements were true went to denials of the alleged facts and weren’t a basis for dismissal.

Friday, October 04, 2019

medical influencers show up in false advertising case


Wright Medical Technology, Inc. v. Paragon 28, Inc., 2019 WL 4751807,  No. 18-cv-00691-PAB-STV (D. Colo. Sept. 30, 2019)

Wright is a medical device developer, manufacturer, and distributor; its products include surgical plates and other instruments used to repair bones in the foot and ankle areas. Paragon, founded by three former high-level Wright employees, makes competing orthopedic plate systems and other devices used to repair bones in the foot and ankle. Trade secret claims ensued.

Also, Paragon allegedly promoted a “cadaver course” intended to teach surgeons to perform procedures of the foot and listed Dr. Christopher Hyer, a Wright “Key Opinion Leader” (KOL, a common term for a medical influencer), as “anticipated course faculty” on the course’s promotional material. It also allegedly engaged in unfair competition by submitting a patent application that was nearly identical to a patent application that Wright had filed a month prior and by offering several KOLs equity or ownership interests in Paragon, leading to the KOLs using Paragon products in surgical procedures without disclosing their interests.

As to false advertising, Paragon argued that predictions (here, about who would teach the course) couldn’t be false advertising. But Wright alleged that there was never any consent for the use of the doctor’s name in advertising, and that Paragon was aware of this lack of consent, which was enough.  (But that reasoning has to be incomplete: did Wright allege that Paragon never even asked the doctor to teach the course/that he turned them down before they started promoting it? If he had agreed to teach the course, even without specifically consenting to use of his name in advertising the course, it shouldn’t be false advertising, though the right of publicity result might be different (given the First Amendment-implicating nature of the course, though, it might not).)  Anyway, the rule is that, while “[a]n honest or sincere statement of belief about a future event is not actionable,”...a statement known at that time by the speaker to be false, or a statement by a speaker who lacks a good faith belief in the truth of the statement, may constitute an actionable misrepresentation.”

However, Wright failed to adequately plead that the lack of disclosure from KOLs was deceiving the public, and therefore didn’t adequately plead unfair competition as to that.

Nor did Wright adequately plead passing off (or false advertising) based on the dueling patent applications. A patent application is not a tangible good offered for sale and it didn’t constitute commercial advertising or promotion. 

Lexmark is super-clear: business customers can't sue for Lanham Act false advertising


Jiaherb, Inc. v. MTC Indus., Inc., 2019 WL 4785784, Civil No. 18-15532 (KSH) (CLW) (D.N.J. Sept. 30, 2019)

Brief but very clear statement: after Lexmark, business customers can’t bring Lanham Act claims. Jiaherb makes herbal extracts and other natural products, including saw palmetto oil and powder. MTC is a nutritional ingredient supplier and distributor of saw palmetto extract, from whom Jiaherb purchased all of its saw palmetto extract, totaling thousands of kilograms.  Apparently, saw palmetto has limited availability and to enhance profit, harvesters may dilute their product by adding vegetable oils that contain some of the same components and are thus hard to detect. Jiaherb alleged that this happened, and MTC misrepresented its saw palmetto products as unadulterated, comprehensively tested and certified according to various industry standards. Although Jiaherb did test, one of Jiaherb’s customers performed a more sophisticated Nuclear Magnetic Resonance examination and concluded that the MTC product did in fact contain coconut oil. This customer thus cancelled two purchase orders, representing over $200,000 in lost profits.

Jiaherb’s injury didn’t “stem from MTC’s false advertising or conduct by MTC which unfairly diminished Jiaherb’s competitive position in the marketplace. Rather, Jiaherb is harmed as a consumer of MTC’s product; Jiaherb’s lost profits and goodwill stem from its purchase of a product which it cannot sell. The injury of a consumer-entity that was misled into purchasing a ‘disappointing product’ is precisely the type that the Lexmark Court excluded from Lanham Act relief.”

Claims based under the UCC/state law remained; the court retained subject matter jurisdiction because of the diversity of the parties and the amount in controversy (Jiaherb was seeking a refund of over $400,000 it paid).

Bad definition of suggestiveness in a sad TM case about anti-hate groups


Life After Hate, Inc. v. Free Radicals Project, Inc., 2019 WL 4825072, No. 18 C 6967 (N.D. Ill Sept. 30, 2019)

“At a time when people—particularly young people—are being radicalized online with alarming frequency, nonprofit organizations like Life After Hate and Free Radicals Project provide critical outreach services to help individuals disengage from violence-based extremism. Unfortunately, these two organizations now find themselves in an ugly trademark dispute that can only distract them from the important work they perform.”  LAH sued Christian Picciolini (formerly high ranking at LAH) and his Free Radicals Project for infringement of the mark ExitUSA and a related slogan.  LAH secured a preliminary injunction limiting defendants to fair use of the mark to describe Picciolini’s former work. 

In the process, the court demonstrates that judicial misunderstanding of the standard for descriptiveness versus suggestiveness continues to grow—here it is in the Seventh Circuit.  It probably wouldn’t change the outcome here (though note the description of the parties’ services below), but it’s a bad idea to state the standard as “a suggestive mark requires some imagination to guess the goods/services covered.”  The correct standard, as applied by the PTO, is that a suggestive mark requires imagination to link with the goods/services, knowing the goods/services.  Otherwise QUICK is suggestive for food delivery, printing services, and anything else one might want done quickly.

LAH is an Illinois nonprofit “that follows the model of ‘exit’ programs developed in Europe in the 1990’s to help individuals exit hate groups through education, interventions, academic research, and outreach.” Picciolini helped found LAH in 2009 and left the organization in 2017. In 2018, Picciolini founded Free Radicals Project.

In 2011, LAH’s principals formed a nonprofit.  When one of the founders left LAH, Picciolini informed him that “the assets of LAH and KNW [a LAH program, Kindness not Weakness] belong to the organization,” including “the Youtube and your arno@lifeafterhate.org email address.” Picciolini told him “[w]e’ll need the youtube account back, as well as the KNW twitter credentials.” Picciolini said that LAH needed the YouTube account because “the domain is the organization’s and belongs to us,” and the former founder keeping the account for himself “will be confusing.” He also told the departing founder to turn over access to “all LAH and KNW associated domains” to Picciolini’s GoDaddy account.

In 2014, another principal traveled to Europe and met with a number of “Exit”-branded groups, including Exit Sweden, Exit Germany, Exit Norway, Exit U.K., and Exit Slovakia, that provide similar disengagement and deradicalization services in their respective countries. He decided that LAH should start calling itself “ExitUSA” to more accurately convey the outreach services it was offering and improve its recognition among peer organizations in Europe. LAH began doing business as “ExitUSA,” which became a “program” of LAH. They developed a logo for ExitUSA, a new logo for LAH, and the tagline “No Judgment. Just Help.” The logos were based on Picciolini’s designs. Picciolini said he bought www.ExitUSA.org with his personal funds and was later reimbursed by LAH. The domain was transferred to LAH’s GoDaddy account, which lists Picciolini as the administrator. He also created an “ExitUSA” YouTube channel.

Eventually, conflicts between the principals led to Picciolini’s exit; first he proposed that LAH “spin off” ExitUSA to be run as a separate nonprofit led by Picciolini, but that didn’t happen, though he did resign from LAH’s board and just served as a director of ExitUSA for some time. He was terminated in 2017; again LAH rejected his idea of a “spin off” to avoid “confus[ing] people and rais[ing] questions.” LAH declined in part because ExitUSA was such a “significant part” of LAH and was “associated with [LAH’s] identity.”

Shortly thereafter, LAH’s members learned that they could not control or access the ExitUSA.org domain, which began automatically redirecting users to a different webpage— ChristianPicciolini.com/ExitUSA, which featured ExitUSA logos and slogans, along with Picciolini’s photo and posts about his books. LAH also learned that it could not access the Twitter account @ExitUSATeam, which it had been previously using, or the ExitUSA Youtube channel, which was “attached to [Picciolini’s] email.” Picciolini registered the domain “Exit.us.”  

In 2018, Picciolini started an Illinois nonprofit called Free Radicals Project that used the phrases “No Judgment. Just Help.” and “Free Radicals: There is life after hate.” Four videos created primarily by Picciolini as part of a grant LAH received, which had been posted on the ExitUSA YouTube channel were also posted on the Free Radicals Project site. At some point, ExitUSA.org began automatically redirecting users to a website for Free Radicals Project. The description of the @ExitUSATeam Twitter handle was changed to “ExitUSA (now @FreeRadicalsOrg),” inviting users to visit the @FreeRadicalsOrg Twitter page.

Various people in the industry asked “what was happening with Life After Hate,” “what was happening with...[Exit]USA,” etc. A journalist asked if LAH controlled ExitUSA or if Picciolini did, or if LAH and Picciolini controlled it as partners. [Note that some courts would interpret similar evidence as consumer understanding that there’s uncertainty, rather than consumer confusion.]

LAH retained a lawyer and applied to register “EXITUSA” and “LIFE AFTER HATE,” which were registered in 2018 with a 2017 priority date. It sent a C&D demanding that Picciolini stop using the “ExitUSA” and “Life After Hate” marks; Picciolini then filed a trademark application for “EXITUSA,” which was eventually abandoned. LAH’s officers also tried to reclaim the ExitUSA.org domain through GoDaddy and Google. After the registration, LAH applied to an organization that connects non-profit groups with law firms providing pro bono legal assistance, but after five or six weeks, it learned that it wasn’t selected for services. LAH couldn’t afford the fees of the first lawyer it used. It finally retained counsel in September 2018, and filed suit October 17, 2018.

Around November 2018, the ExitUSA.org domain stopped redirecting to Picciolini’s website; in January 2019, Picciolini stopped using the @ExitUSATeam Twitter account; and in February 2019, the ExitUSA YouTube channel was disabled. Picciolini and Free Radicals Project still allegedly used the “No Judgment. Just Help.” and “Life After Hate” phrases on the Free Radicals Project website and posted links to the four videos LAH produced.

Defendants tried to rebut the presumption of validity for the registered marks, arguing that “Life After Hate” merely describes LAH’s services: namely, helping people with their life after leaving a hate group. The court disagreed, first because of infrequent use of the term by similar organizations in the US. Second, and here’s the wrong part, “[u]nderstanding exactly what services ‘Life After Hate’ provides requires a leap of imagination.” It wasn’t readily apparent that it helped people after they left hate groups, and anyway LAH provided other services (another wrong turn: QWIK PRINT is descriptive for a print store that also sales copy paper and other office supplies, because the term describes one service it provides). Since “a consumer would need to use their imagination to determine the nature of services provided by an organization called Life After Hate,” it was suggestive.  

The same test also deemed ExitUSA suggestive, though a closer call. Defendants noted the existence of other geographic “Exit” groups and argued that “USA” was merely a geographic designation and “exit” merely a type of group. But the record didn’t show that the use of “exit” was so widespread in the US as to make it descriptive or generic.  Likewise, “ExitUSA” didn’t immediately convey “disengagement and deradicalization services.” It “literally sounds like a group that helps people exit the United States—not a group that helps people in the United States exit extremist hate groups. It takes a degree of thought and imagination to make that leap.” 

Finally, “No Judgment. Just Help.” was similarly suggestive because it didn’t immediately convey any ideas, characteristics, or qualities about LAH’s services. (That’s just not true, though—it immediately conveys that the providers won’t judge you—it just doesn’t say what they won’t judge you for, which is the QUICK issue.) And anyway only two parties used it, indicating that the phrase was suggestive.

Sadly, all of this could easily have been done with “descriptive plus secondary meaning,” which the court later says exists.

After that, ownership and likely confusion were mostly not particularly interesting analyses.  One point of note is consumer care:

[I]n this context, the price (or lack thereof) of the services is much less important than the nature of the services. As LAH’s own witness testified, “providing private and confidential services is really the basis of the trust we’re establishing with the people we serve...The people we’re trying to help are already very paranoid and afraid and skittish. They’re trying to hide the idea that they’re trying to change.” … LAH’s services are sensitive, private, and required LAH to establish trust with its clients. This testimony makes clear that consumers of these services are likely to exercise a high degree of care when choosing a service provider. This factor weighs in Defendants’ favor.

The court also deemed three instances of industry people asking what was up to weigh “heavily” against defendants as instances of actual confusion.

In a fairly weird description of the standard for a preliminary injunction, the court found that LAH had a “greater than negligible chance” of showing that it owned valid marks and of showing a likelihood of confusion, resulting in a “good chance” of succeeding on the merits.  Of course, the preliminary injunction standard isn’t math, but “greater than negligible” is really not the standard for likely success on the merits. Clearly that’s just underselling the evidence in this case (the court then says “[i]ndeed, [given the factors,] LAH has a strong likelihood of succeeding”), but it’s still weird.

The court then presumed irreparable injury, despite eBay. Delay can rebut the presumption. Here, LAH learned in August 2017 that ExitUSA.org was automatically redirecting users to ChristianPicciolini.com/ExitUSA, which featured ExitUSA logos and slogans, but it didn’t sue for 14 months. This was again a close call, but here the delay wasn’t too long given LAH’s explanations for the delay. It quickly hired an attorney to help it submit applications to the USPTO, hired another attorney who sent Picciolini a C&D, and attempted to regain control of the ExitUSA.org domain. “More time passed while LAH waited on the results of its USPTO applications and found a third set of attorneys to assist it in bringing its claims, but once it secured new counsel, it promptly brought this suit. Though 14 months is certainly pushing the limit, LAH demonstrated that it was making good faith efforts during that time to investigate and prosecute its trademark rights.” Given the C&D, defendants couldn’t have been lulled into a false sense of security.  (This seems to conflate laches and delay that rebuts a presumption of irreparable harm for purposes of preliminary relief, but it is taken directly from prior cases.)

Defendants argued that an injunction would damage Picciolini’s goodwill and reputation in the anti-extremism community, but that was speculative.

The injunction prohibited use of “LIFE AFTER HATE,” and/or “EXITUSA,” or “No Judgment. Just Help.” (or any variation thereof) “in connection with any goods or services online or offline.” For exitusa.org, defendants could do nothing with it but create a landing page that states: “For those seeking Life After Hate, Inc., please go to www.lifeafterhate.org/exitusa” (though it’s not clear they have to do so); they also couldn’t use the Twitter handle/account or YouTube channels. They couldn’t use LAH videos without a disclaimer conspicuously stating “This video is owned by and is used with the permission of Life After Hate, Inc. Free Radicals Project, Inc. is not in any way affiliated with Life After Hate, Inc.” 

Despite the language of total prohibition that leads off the injunction, they couldn’t use or permit the relevant phrases “on any website or social media account, except for in the limited, fair use manner that sufficiently limits and/or dispels any likelihood of confusion (e.g., Defendants may state in Picciolini’s biography that he co-founded Life After Hate, Inc., but he must also explicitly state that he 'no longer works for and is no longer affiliated with "Life After Hate, Inc." or "ExitUSA."’).” Can he say these things offline under the terms of the injunction? I think he has a First Amendment right to do so. The last part of the injunction suggests that he can by saying that, if defendants mention “Life After Hate” or “ExitUSA,” “they shall explicitly communicate that Defendants are no longer associated with or affiliated with Life After Hate, Inc. or ExitUSA.”

"use in a TM way" just creates another fact issue in the 6th circuit


Ford Motor Co. v. InterMotive, Inc., No. 17-CV-11584-TGB, 2019 WL 4746811 (E.D. Mich. Sept. 30, 2019)

Ford sued InterMotive for trademark infringement, false designation of origin, trademark dilution, cancelation of trademark registration, and declaratory judgment for using Ford’s trademarks in various InterMotive ads; defendants counterclaimed for a bunch of things including misappropriation of trade secrets and trademark infringement based on Ford’s launch of a competing product of the same name:

In 2011 and early 2012, Ford and InterMotive explored a potential business relationship wherein InterMotive would design an “Upfitter Interface Module” (“UIM”) for Ford to use on its vehicles. The UIM, as described in the record, is a product that allows its user to modify a vehicle for special applications such as in the police, fire, and utility truck market. For example, it can program a truck to flash a light if exceeds 65 miles per hour, or program a police vehicle to automatically lock its doors unless certain conditions are met.

Ford alleged that its relationship with InterMotive ended in May 2012; it announced a different design from a different vendor in 2016.  In June 2013, InterMotive and Ford executed a licensing agreement governing the Police Surveillance Mode Module, which Ford argued (and InterMotive disputed) was an express agreement not to use Ford’s marks, regardless of Ford’s alleged acquiescence to InterMotive’s use throughout 2012.

Along with the trade secret claims, InterMotive argued that Ford began using the name “Upfitter Interface Module” with full knowledge of InterMotive’s use of the same name to market its product. After the announcement, InterMotive applied to register UPFITTER INTERFACE MODULE, but it was placed on the Supplemental Register.

The dispute over this triggered Ford’s own trademark claims. First, InterMotive allegedly used the distinctive “Ford Oval” mark on the “splash screen” of InterMotive’s UIM software, in a UIM brochure for Ford, and in a promotional and training video on InterMotive’s website under the heading “The Ford Competitive Advantage.” They also allegedly used the Ford Oval and “Go Further” trademarks in a video on InterMotive’s website describing the “Ford Police Interceptor Surveillance Mode.” InterMotive argued that its uses showed that InterMotive is the source of the UIM product, as evidenced, e.g., by InterMotive’s logo, phone number and web address printed on the bottom of the brochure for prospective buyers, and merely showed that the product operates on Ford vehicles.  (After Ford objected, the oval mark was removed from the splash screen but a Ford mark remained.)

In August 2016, InterMotive’s engineering manager reviewed Ford’s recently-released user manual for the Ford UIM, stating that the user manual “is pretty much a knock off of [InterMotive’s], with different screen layouts”; Ford argued that its UIM was thus not a “blatant copy” of InterMotive’s UIM.

The court found that there was a question of fact whether InterMotive used Ford’s marks “in a trademark way,” which is a predicate question in the Sixth Circuit. 

First, the court noted that on the splash screen, Ford’s mark appeared between the logos of Ram, Chevrolet, GMC and GM below the heading “InterMotive UIM.” InterMotive also argued that the “splash screen” only appears after the customer has downloaded InterMotive’s UIM from the InterMotive website by clicking on an InterMotive software icon—none of which display Ford marks. Ford argued “post-sale” or “marketplace” confusion, but didn’t explain how this would happen.

Second, Ford challenged use of the Ford Oval and “Go Further” trademarks in a video on InterMotive’s website describing the “Ford Police Interceptor Surveillance Mode.” InterMotive responded that it merely posted a link to the video on its website, but Ford hosted (and continued to host) the video on YouTube. Ford just argued that it didn’t authorize InterMotive to use the marks.

Third, Ford argued that InterMotive used the Ford Oval trademark in a UIM brochure for Ford created on July 23, 2013. The heading of the brochure states: “Ford Upfitter Interface Module” followed by the Ford Oval mark below it. InterMotive points to its use of its logo, phone number and web address printed on the bottom of the brochure for prospective buyers. InterMotive argued that “Ford knew about the brochure and actually used it” at trade shows or otherwise and InterMotive used it to demonstrate how InterMotive’s UIM supported Ford vehicles.

Fourth, there was a “Ford Competitive Advantage” video, which InterMotive argued was designed with Ford when they were actively working together; InterMotive’s witness said that Ford provided a high-resolution image of the Ford Oval mark for use in the video and InterMotive argued that the overall video made clear it was from InterMotive.

Ford argued that these uses create a “presumption of confusion” because InterMotive used a “precise replica” of Ford’s marks and because InterMotive’s product competed directly with Ford’s product. But that didn’t matter if there was non-trademark use. Also, the allegedly infringing uses were all from 2012-13—up to four years before Ford had a competing product.

Despite this very favorable description taken straight from the court’s opinion, there’s still a genuine issue of material fact on whether InterMotive only used Ford marks to show that its UIM was compatible with Ford vehicles, which suggests something about the utility of many TM defenses. A jury could accept that “the relationship between Ford and InterMotive ended well before the advertisements were produced and the advertisements give the incorrect impression that Ford, not InterMotive, is either the source of InterMotive’s UIM or otherwise endorses the UIM.” Whether Ford really did provide a high-resolution photo of the Ford Oval mark for InterMotive to use in the “Competitive Advantage” video, whether Ford used and played the video at trade shows, whether Ford welcomed and encouraged the production of the brochure so that InterMotive could inform Ford at trade shows that its UIM was optimized for Ford vehicles, and whether Ford gave InterMotive previous approval to use the Ford Oval mark on InterMotive’s “splash screen” were all issues of fact.  [Query: if all this is true, should InterMotive get its fees?]

Also: why are these facts relevant to whether it was non-trademark use, as opposed to a defense of consent? The court said that “[i]f Ford knew that InterMotive was using its marks to advertise InterMotive’s products’ functionality on Ford vehicles, then Ford—in effect—concedes the … threshold inquiry by saying that InterMotive was not using Ford’s marks to show that Ford was the creator of the UIM.”  But even if Ford contests the threshold inquiry, shouldn’t we ask if there really is a question of fact posed by these uses?  And what Ford “knew” is highly unlikely to have been framed by Ford at the time as an issue of non-TM use, as opposed to “an ok thing a partner is doing”; when they were working together, it wasn’t false to suggest they were working together.  So figuring out what Ford thought isn’t really that helpful in identifying a non-TM use.

Anyway, Ford’s agreements with InterMotive didn’t prohibit InterMotive from using the marks (again, super unclear why that would matter to whether the use was infringing, as opposed to a breach of contract).

There was also, sigh, an issue of fact on trademark dilution, because non-trademark use can’t dilute. There was a genuine issue of material fact on whether InterMotive used Ford marks “only to describe some aspect of the [InterMotive UIM] product.”

As for InterMotive’s claim based on “upfitter interface module,” the PTO characterized the term as “(at best) highly descriptive,” but that examiner statement “does not constitute a finding by the Patent and Trademark Office.” Though Ford argued that the term was generic, a jury could find otherwise. The PTO considered a number of “web page screen captures” showing that the term “upfitter” was being used in a “highly descriptive” way by Dodge, Ram, and Ford. “But a number of those examples are efforts by Ford to market its ‘Ford upfitter interface module,’ which is the subject of InterMotive’s trademark infringement claim.” And, alleged direct, intentional copying of InterMotive’s mark was “strong evidence” of secondary meaning. “InterMotive also presents Ford-affiliated publications where InterMotive advertised its Upfitter Interface Module, demonstrating that it was a brand that Ford associated with InterMotive.”  [Or demonstrating that InterMotive made an upfitter interface module?]

Also, there was an email from a Ford employee who worked on developing Ford’s UIM, which stated that the term “Upfitter Interface Module” was already being used by an existing supplier and recommended changing Ford’s UIM name to one of three suggestions: Programmable Upfitter Interface Module (PUIM),19 Programmable Interface Module (PIM), or Programable Upfitter Module (PUM). The existence of three alternative ways to refer to the product was, InterMotive argued, evidence that “Upfitter Interface Module” wasn’t generic or highly descriptive. This argument has a decidedly mixed record in the courts—there are lots of ways to describe restaurants and hotels, but that doesn’t make “house” or “inn” protectable; there can be multiple generic names for a thing.  But that’s a fact issue here.

InterMotive also provided possible evidence of confusion: “at a 2016 trade show, Ford dealers and trade show personnel were confused over whether Ford’s product came from InterMotive—as prior tradeshows demonstrated that InterMotive was marketing an Upfitter Interface Module that was optimized for Ford vehicles.” [But did that confusion come from the name or the terminated partnership?]

InterMotive also challenged two claims in Ford’s ads as false advertising.  In a promotional video titled “Ford Programmable Upfitter Interface Module ‘Critical’ to Industry,” available on YouTube, a Ford representative states: “Ford is the only product that is actually programmable in these upfitter interface modules.” InterMotive alleged that it did too. Ford argued that this claim was puffery, but it’s a specific claim.  Ford also argued that the statement was immaterial and de minimis, given the video had been viewed less than 300 times at the time Ford’s motion for summary judgment was filed. InterMotive’s witness declared that this wasn’t small “because the work truck market is not very big” and “a single viewer could make the decision to buy thousands of vehicles.” Moreover, the views count didn’t include people at a trade show who viewed the video when it was played; trade shows are an important market for InterMotive. In addition, InterMotive argued that programmability was material because a product that is not programmable “has much less use to the customer.” There were genuine fact issues on materiality.

The second alleged false advertisement came from Ford’s “What You Get” brochure: “[U]nlike aftermarket upfitter modules currently on the market, [Ford’s UIM] is warranted by Ford and will not interrupt the Computer Area Network (CAN).” In a classic caveat emptor argument, Ford contended that its statement was true if taken as conjunctive (it’s the only one that is both warranted by Ford and also won’t interrupt the CAN). Without ruling on this bad argument, the court found that InterMotive hadn’t shown materiality/travel in interstate commerce.

Friday, September 27, 2019

small wonder: sleeve undergarment isn't valid trade dress/innovation claim isn't false advertising


R and A Synergy LLC v. Spanx, Inc., No. 2:17-cv-09147-SVW-AS, 2019 WL 4390564 (C.D. Cal. May 1, 2019)

The court dismissed trademark and false advertising claims brought by R&A based on their “Sleevey Wonders” sleeved undergarments designed to be worn under sleeveless tops.  Note that it seems pretty bold for “Sleevey Wonders” to bring IP claims!

“Plaintiff claims that no other similar sleeved undergarment product existed before the Sleevey products were introduced.”  Defendant ordered two Sleevey products and then made its own Spanx-branded undergarment sleeve products.

Like Sleevey, Spanx products are allegedly made in different colors, textures, and combinations thereof, similarly advertised as being able to “Transform your wardrobe!,” advertised using paper dolls wearing sleeved undergarments with interchangeable outfits in order to demonstrate the different variations that are possible with the product. Like Sleevey, Spanx allegedly uses a bullet point list to showcase the Spanx products’ features, and allegedly uses equations to show how combinations of the Spanx products and outergarments can create new outfits. It allegedly uses the tagline “#Madewithlove” to advertise the Spanx products, similar to Sleevey’s claims to be made “with love.”

Spanx allegedly claimed to have come up with the idea for the Spanx products on its own, including by representing that the Spanx products are new, that the Spanx products fill a “white space” in the market, and that the Spanx products are “unlike any other layer options” in the market. This allegedly misleads the public into thinking that Spanx operates its business with the intention of supporting women in their entrepreneurial pursuits.

Trade dress infringement: Sleevey failed to properly identify a protectable trade dress. It cited similarities in “colors, shapes, fabric materials and material arrangements” between Sleevey and Spanx products. Sleevey products include “basic, bell, bandeau, flutter, waterfall, halter, shirred, tunic, and trellis” and are available “in a variety of colors including black, white, grey, coral, pink, mint, cobalt blue, periwinkle blue, apple green, olive green, forest green, navy, red, silver, turquoise, eggplant, brown and off-white.” This failed to sufficiently identify a precise and non-generic trade dress, and thus failed to provide proper notice to competitors. “Concerns of imprecise trade dress definitions include the risk that jurors will interpret the same trade dress differently, the possibility that jurors or courts will be unable to determine functionality or secondary meaning, the likely overbreadth of the trade dress claim, and the difficulty in crafting narrowly-tailored injunctive relief.”

As alleged, the design was generic and uprotectable even on a showing of secondary meaning. It was far too broad/generalized, and it was also the basic form of a product. To the extent that Sleevey sought to claim the concept of a “sleeved undergarment” as trade dress, that’s “nothing more than a basic description of the product and its function.”

Nor did the packaging and promotional materials fit within the description of product design; allegations about the similarities in packaging weren’t contained in the trade dress claim.

For the same reasons, the features Sleevey sought to protect were functional. The sleeved undergarment design, combined with various colors, shapes, fabrics, and material arrangements, was essential to the Sleevey products’ purpose, “which is to provide women with a variety of sleeved undergarments to pair with other short-sleeved apparel in order to create the appearance of sleeves.” Sleevey pled that the purpose of Sleevey is to cover “bare, flabby arms,” and to “give the appearance of the sleeveless over garment having sleeves.” The “form-fitting” nature of the sleeved undergarments “serves an important function as it relates to the overall look of the wearer’s outfit, beyond a mere aesthetically-unique design. The same can be said of the particular material used for each individual Sleevey product; consumers buy a particular item of clothing not just because of its overall look but also because of its comfort and fit.” Because Sleevey sought protection for the entire product line, “the general design and look of each individual Sleevey product is undoubtedly functional.” Sleevey’s competitors, reciprocally, would be placed at a significant disadvantage if the Sleevey product line were treated as protectable trade dress.

Independently, Sleevey failed to plausibly allege secondary meaning. (The court mentions inherent distinctiveness but of course that’s not possible under Wal-Mart v. Samara.) Allegations that the Sleevey product line has generated over $5.8 million in revenue, and that Sleevey products have been worn by celebrities, showcased at trade shows, and featured in magazines, were insufficient. Evidence of sales is not dispositive and “does not in itself create legally protectable rights” in the product being sold; success in promoting Sleevey as brand didn’t equate to secondary meaning in any feature of the products themselves. “Plaintiff has not alleged that it sufficiently urged consumers to associate any particular feature of the Sleevey products with the Sleevey brand, other than by promoting the general design and purpose of sleeved undergarments in its advertisements.”

Likely confusion: Sleevey didn’t plausibly plead likely confusion.  It provided two examples of alleged consumer confusion, one of which was allegedly consumer comments on Spanx’s Instagram page regarding the similarities between Sleevey products worn by an actress in a television show and Spanx products. There was also a comment on Spanx’s Facebook page, where a consumer wrote that Spanx products “look a lot like Sleevey Wonders.” These allegations didn’t support a confusion claim but were consistent with the opposite conclusion: that consumers could readily distinguish the Sleevey products from the Spanx products based on packaging, manufacturing, and even product design. “The online comments Plaintiff alleges were made by consumers were made on Defendant’s clearly-labeled corporate accounts, refuting the notion that any consumer visiting those accounts would believe that Defendant’s sleeved undergarment products were identical to Plaintiff’s Sleevey products.” The marketing and packaging materials attached to the complaint were also easily distinguishable.

False advertising: There were two categories alleged: Spanx’s claims of innovation, e.g. its CEO being quoted in a newspaper article as saying “[t]ights have been around for our legs for so many years, I was thinking, ‘Why aren’t there tights for our arms?’ ” and its claims that its mission is to support entrepreneurial women and to “help women feel great about themselves and their potential.” This was allegedly false because Spanx hurt Sleevey and other “small, women owned” businesses, rather than elevating those women.

Nothing in the complaint alleged literal falsity, and the statements weren’t misleading because they were puffing. “Merely advertising a product as being new, invented, filling a white space, and being unlike other layering options does not amount to an assertion of fact” and was puffery.  Likewise, statements that Spanx products are “unlike any other layering options” was unquantifiable puffery.

Likewise, statements about Spanx’s mission to support women in business were also clearly puffery:  “vague and abstract goals in conducting business” that couldn’t be falsified. Plus, the falsity claim put the cart before the horse by assuming infringement.

Puffery, of course, can’t be material. And “the Supreme Court has directly addressed the question of whether representations about which company came up with the idea for a product materially influence consumers” in Dastar, which stated that claims under the Lanham Act “should not be stretched to cover matters that are typically of no consequence to purchasers.” It was clearly immaterial as a matter of law to consumers whether Sleevey or Spanx was the original source of the general concept of sleeved undergarments.

False designation of origin: Unsurprisingly, no. Allegations about similarities in the marketing and advertising materials were too conclusory. The exhibits attached to the complaint “reveal that Defendant uses clearly distinguishable advertising materials, packaging, and other brand recognition materials under the Spanx brand, even if the substance and style of those materials overlap with those Plaintiff uses for its Sleevey products.”


Suffolk University IP Conference, Oct. 29-30

Webpage here.  Draft schedule (subject to change) is available to download.
Current Confirmed Speakers and panelists include:
  • Erich Anderson, Corporate Vice President and Chief Intellectual Property Officer, Microsoft
  • Eric. E. Bensen, Co-Author, Milgrim on Trade Secret
  • Deepika Bhayana, Senior Managing Director, IP at Dell Technologies
  • Larissa Bifano, Partner, DLA Piper
  • Carolyn Blankenship, Director, IP, Thomson Reuters
  • Tom Brown, Senior Legal Direct, Dell Technologies
  • Margaret Chon, Donald and Lynda Horowitz Professor for the Pursuit of Justice, Seattle University School of Law
  • Robert K. Coughlin, President & CEO, Mass Bio
  • Daniel Dardani, Technology Licensing Officer, MIT
  • Chad Davis, Partner, Dechert
  • Jeffrey Francer, Senior Vice President & General Counsel, Association for Accessible Medicines (AAM)
  • Stefania Fusco, Senior Lecturer, Notre Dame University Law School
  • Adam Kessel, Principal, Fish & Richardson
  • Bruce Leicher, former General Counsel, Momenta Pharmaceuticals, Inc.
  • Travis McCready, President & CEO, Massachusetts Life Sciences Center
  • Michael Meurer, Professor of Law, Abraham and Lillian Benton Scholar, Boston University School of Law
  • Byron Olsen, Vice President, Chief Patent Counsel at Dicerna Pharmaceuticals, Inc.
  • Scott Peterson, Red Hat
  • Alexandra Roberts, Associate Professor of Law, University of New Hampshire School of Law
  • Hans Sauer, Deputy General Counsel for Intellectual Property, BIO
  • David Schuler, Chief Intellectual Property Counsel, Bose Corporation
  • Jacob S. Sherkow, Edmond J. Safra/Petrie-Flom Centers Joint Fellow-in-Residence, Harvard University; Professor of Law at the Innovation Center for Law and Technology, New York Law School
  • Ofer Tur-Sinai, Senior Lecturer, Ono Academic College, Israel
  • Craig Smith, Partner, Lando & Anastasi
  • Christine Taft, Ph.D., Senior Licensing Manager at Partners HealthCare
  • Rebecca Tushnet, Professor of Law, Harvard Law School
  • James H. Velema, Partner, Lathrop Gage
  • Saurabh Vishnubhakat, Associate Professor of Law, Texas A&M University School of Law
  • Maria Laccotripe Zacharakis, Partner, McCarter & English

Innovation, Justice, and Globalization: A Celebration of J.H. Reichman


Harvard Law School

Opening Keynote
Yochai Benkler, Harvard University
How do we understand what we do in our field against the background of profoundly increased inequality and stagnation for all but the top 5%, including an unprecedented increase in death rate among US whites from diseases of dispair? The economy functions in relation to power. Prior stories that have failed us: Mainstream economics treated technology as exogenous; it has become skill-biased. Monotonic story: the more skilled people are, the more they can adapt to tech, so college degree gets a premium. Fit the 1980s US data beautifully. Institutions played a relatively limited role in this theory and we were supposed to educate workers. But that story didn’t work in the 1990s.  Early 2000s: “tasks framework”: technology still exogenous, deterministic (some things are easier to automate than others). Middle class jobs—people in the back office of the CPA—were now being done by Excel. People on assembly line replaced by robots. Nonroutine jobs—the janitor dealing with irregular floors, the CPA using Excel—still had demand.  But that still didn’t fit the overall differences b/t different countries, all at the same tech frontier—substantial empirical threat.

Then the story became: robots will take jobs, cause sustained levels of structural unemployment; all work will be Uber.  Insitutionalists fought back: politics led to sustained shift of bargaining power b/t labor and capital, b/t financial sector and others; free movements of goods/capital but not people across borders created new methods of offshoring, outsourcing, etc. Tech plays no independent role in the institutional story.

So, where do we stand, who do law/institutions but also believe that tech has an important role?  Innovation economics/IP scholarship has some familiar forms. E.g., Classic/neoclassical incentives/access model; Schumpeterian: market structure is more important, antitrust is the key area of law; industrial policy intended to have exogenous effect. Institution design can seek better innovation w/o attention to distributional effects. Or you can have distribution sensitive innovation policy—primarily about access; accepting a market society and looking for redistribution through rules. Market systems will predictably not deliver access to certain goods, e.g. treatments for tropical diseases. Central to Reichman’s work. How to structure markets and more importantly innovation systems to deliver outcomes that are not maldistributive.

Next to this: people looking at tech rather than at IP, sounding more in STS than in economics or law (Winner, Do Artifacts Have Politics?, Nissenbaum, Bias in Computer Systems/Values in Design, Lessig, Code), focusing on the fact that technologies settle politics, whether in the form of bridges that block access to public beaches or machines that were less productive than workers but still managed to break unions, tech is used to resolve social conflict in favor of the party implementing the tech.

Look at ©, patent, TRIPs, WIPO treaty wars: the experience is of active, knowing, strategic action both by firms and individuals, alone and collectively, to shape the contest they understand will give them greater or lesser market power. Rent seeking, particularly on the side of firms seeking to increase the value of first mover advantages. (For Schumpeterians, rents aren’t inherently bad—they drive innovation—but it matters how long they will last before competition comes in.) Individuals come in with: freedom oriented and other social values. Trying to nullify state capture. Strategic lobbying on DRM, WIPO, etc. to create technologies that allow incumbents to control entrants. Today: surveillance capitalism, dark patterns/manipulating consumer demand.

Markets are arenas where power is negotiated in context—actors spend some of their rents to create the context that will make it easier to extract rents next time. Tech is endogenous and plastic.  There’s enough play in the joints that how it’s designed makes a huge difference including for bargaining and distributions. Markets are usually not efficient and power therefore matters. Institutions, tech, and ideology each shape policy.  Hired scholarship on one side justifying extractive practices; academics trying to do something else—like Reichman on the relationship b/t academic science and innovation. Shapes knowledge framework to shape the institutional framework.

New institutionalism in sociology: models of practice are imitated/normalized across groups.

Microfoundational component, just looking at the firm: every firm faces a choice of action in any given context. It can increase productivity (becoming more competitive) or decrease competitiveness (make products for which demand is less elastic). Tech and institutions are part of the investment pathways. Each pathway has an ideology too. They’re constantly trading off options to shape future rents. Options: increase entry barriers, prevent entry by innovators, increase competition among workers in the labor market and decrease competition among employers, increase monitoring of employees, disrupt collective action among employees/consumers, manipulate demand among consumers. DRMs, terminator gene, rent maximizing price discrimination are all mechanisms to control demand and disable competition. Older work on ways in which tech is used to deskill and homogenize, to monitor labor, to decrease labor’s bargaining power. “Ghost Work” by Mary Gray—platform organization makes it harder for workers to organize, and that’s part of the point. It’s not just about extraction; it’s in part about productivity and it’s also about ability to strategically grab rents.  In each relation, the objective is to decrease competition/entry, increase the size and lifetime of the strategies and the rate of rents; larger rents give you more bargaining power to capture more.

All this explains dramatic tech innovation/growth in one sector along with higher rents, more markups, more concentration of firms and wealth and increasing economic insecurity for everyone else—once the state is removed as counterbalance through regulation, once unions are weakened through labor law, then firms can dedicate more resources to rent seeking and rent extraction over productivity.

Q from Reichman: What is to be done?

A: (1) Knowledge production is part of the process and having a different story about how tech works opens up different avenues; many regulators today are highly constrained by fear of upsetting the applecart by regulating/pressuring tech firms. That’s changing a bit.  Having a better story that understands structural/distributive things at play in tech policy, not just more is better, is one part of moving forward. Invite distribution sensitive innovation theorists to look more at extraction and competition. (2) Invite a multisystem approach: look in the mirror and worry. He’s spent plenty of time being skeptical about the state, trying to find self-organizing approaches like free software. That’s not good enough. That’s not to be nostalgic for the 1950s and 60s—there are excellent reasons that model of regulation lost out in the developing world. We need to find new ways to make regulation more effective—democratically accountable but flexible sources of counterpower. Consider: who can actually do this? What kind of actors can serve as counterpower? What innovations will undermine the financial power of certain actors?

Maggie Chon: building on rent extraction being not inherently bad—is it reinvested in R&D and innovation generation that might lead to more growth/inclusion of labor?

Q: rate of innovation v. direction of innovation—are we even capable of directional?

A: one of the outcomes of understanding things this way is to get comfortable nudging tech development into different structures. There’s no reason to think we should focus on rate; if we focus only on rate based on letting market actors choose whatever they want we aren’t doing our jobs. Social/political consequences can be vastly different and disruptive. Power of labor, 15 years after you go to robot nurses versus PAs with computers in their pockets, is completely different. Understanding how that relates to the broader framework may make you demand to see the interactions b/t “rate” and the power of incumbents.

Reichman: but where does the counterpower come from?

A: Democratic party in the US has changed a bunch in 20 years.  Green New Deal.  EC’s willingness to regulate tech now compared to its willingness to hand out monopolies in database rights 15 years ago is different.

Reichman: so institutional tools can evolve into counterpower.

Do antitrust and competition law trust intellectual property law too much?
Rebecca Tushnet, Harvard University, session chair

Graham Dutfield, The evolving role of branding in pharmaceutical management: how should competition law respond?

Are there things other than patents that raise issues with pricing/competition? Looking at TMs. Norlutin: on the market in UK since 1936.  Pfizer sold marketing authorization to Flynn; Flynn debranded the product and escaped all price controls. Pfizer became the sole supplier of the active ingredient to Flynn; Pfizer raised the price and Flynn did as well (and then some). Then Flynn sought to block importation of Norlutin from Italy based on its rights.  Competition authority imposed a fine, but they appealed and won.  Trademarks do matter.

In historical work, patent based rights are often subordinate to brand based rights. Dyestuff/chemical companies onward. 

What about the science?  Plain packaging of pills conveys little info.  Text/visuals affect how consumers perceive and even react to the products. Bayer puts its cross on its aspirin.  When TM litigated, Learned Hand says “aspirin” has two meanings. Nowadays pharmacos use colors as well. When it’s transferred to a me-too product that has a completely different price, what happens?  Zantac product expansion.

Looked at old cases on visual aspects of pills, UK case in 1972: court recognizes rights in “getup” or coloring.  Some problems: AstraZeneca, which has gotten in trouble w/competition authorities over Nexium, has used color to protect rights.

How does this matter?  Tentative conclusions: Look further than patent system. Competition law should reflect this broader focus.  Branding can actually generate confusion about the product provenance/uniqueness, and that’s a problem.

Maybe shape/color shouldn’t be protected/shouldn’t be enforceable against authorized generics for the same conditions. Placebo & nocebo effects are relevant here; if the color matters, it should be transferred to the generic drug to avoid artificial creation of nonsubstitutability. The consumer may reject/experience less effect from the generic.

Sean Flynn, Enforcing Fair Following Rights Through Competition Law

Confronted an argument in assisting South Africa: you can’t use competition law to force licensing of patent rights b/c they are completely separate fields.  Reichman was foundational in response to that. Also relevant to ©: rights to education and research w/in the © system can also be seen as competition issues.

How do we craft the interface b/t IP and competition? Louis Kaplow has done work on finding a realist/realistic proposal. US courts have looked at the “scope of the patent” but that’s what Felix Cohen would call transcendental nonsense. If competition law cabins the power of the patent holder, you can’t use the scope of the patent to determine when competition law operates: it has to have the ability to operate on the core of the rights, including the right to exclude. Kaplow said it’s basically a ratio. The more you have a small patent reward and a large monopoly loss, the more competition law should bear on the situation and vice versa.  Can we identify scenarios where one or the other will typically be the case?

Where monopoly power is on essential goods/services w/ highly inelastic demand curve, and a country has extremely high income inequality, it will almost always be the case that full exercise of monopoly power will create small monopoly reward and huge deadweight loss. Edmund Kitsch was wrong: we didn’t see, after TRIPs, proportional reductions in prices in countries with less income.  It turns out that charging high prices in India is still what happens. In the US if you charge a price that only the top 10% can afford you make less than if you charge a price to allow 60% to afford it. In South Africa, though, there’s a small # of people who earn global high incomes and a large # who have very low incomes, and the profit maximizing price turns out to be to serve only the small #.  You might even make more profit having a higher price in a poorer country because you’re not serving much of it.

We also have textbook examples: books, like drugs, have essentially zero marginal cost to distribute. But b/c you’re not trying to serve the entire market, a higher price earns more profit. Exclusionary pricing: more profit through massive deadweight loss. 2-3x more than monopoly profit. We should be restraining that through competition law (or other means).

How to do it?  Competition, fair use, international law.  In South Africa, they forced the licensing of AIDS drugs, and after that the advice IP lawyers began giving to drug suppliers was that any pharmaco has to give at least 4-5 licenses to local producers to enter the market.  So we shouldn’t look at the scope of the patent, but at whether there’s massive exclusion in the market. 

For ©, in South Africa there are affordable locally produced textbooks, but not for niche topics. They can be 10-20x higher priced than normal. Current SAfrican bill, on the President’s desk now, adds a competition standard to fair use, allowing use of entire work where authorized copies can’t be obtained at a price reasonably related to the normal price for textbooks in South Africa.  Used language from the Berne convention that was highlighted by Reichman.

Duncan Matthews, A Pro-Competitive Strategy for Developing Countries: Do we still need this and where do we go from here?

Reichman’s work on flexibilities in TRIPs.  Not just the use of competition law per se, but invoked Art. 7 & 8 of TRIPs. Art. 8 para. 2 creates potential to prevent abuse of IP rights. UN panel on access to medicines referred to this as underutilized.  OECD: competition committee, where national enforcement agencies are looking closely not only at excessive pricing and pay for delay and vexatious litigation but also at patenting strategies, patent thickets, defensive patenting, divisional applications causing noise & confusion to increase uncertainties for generics.  TRIPs council: South Africa has taken the lead, supported by China, India and Brazil, acknowledging that competition law is one of the least discussed flexibilities and asking for information gathering.

European perspective: the EC is led at WTO/TRIPs council by DG Trade, which has pushed back against discussion of this topic, which is somewhat surprising given what DG Competition has been doing in Brussels.  Pharma inquiry by DG Competition raised patent strategy issues as recently as Jan. 2019.  Policy incoherence in the EU prevents the issues from being discussed in progressive way at TRIPs council; can be harmful to regional/EU discussions as well. For developing countries, simple information gathering is being blocked. Reichman’s ideas remain as topical and crucial as they did when TRIPs was new.

Pam Samuelson, The Infusion of Competition Policy in Copyright Law
When they were starting out, the idea of considering competition policy in © was relatively new. Reichman’s work on computer software as applied knowhow was significant. Reichman argued against overprotection via patent/©. At the time, Whelan v. Jaslow had suggested that only the general purpose or function of a computer program was unprotected by © and everything else was protectable look and feel.  Nimmer’s treatise tried to rewrite the statute, which is not the way it’s supposed to go. Reichman & Samuelson started writing amicus briefs and getting more active—Lotus v. Borland, where the dct protected the command menu hierarchy of a program even though the dct also said that was the fundamental part of the functionality of the system.  The SCt blew it by splitting 4-4 when it got to them, and we wouldn’t be in this Oracle mess if it hadn’t, but at least the 1st Circuit got it right. Likewise, worked on Sega v. Accolade to allow decompilation to get access to un©able subject matter.  This was an uphill battle!  The 9th Circuit tracked their amicus, yay.  The court said that decompilation was important to innovation and competition—likewise the Altai case.  The cycle of overprotection seemed to have come to an end.

But then there’s a threat of underprotection; recent decisions in CAFC in Oracle v. Google overreacts to give us Whelan v. Jaslow all over again.  So it’s still amicus work for Samuelson et al.  Wrote a paper: if we’re worried about cycles of over and underprotection, we should think about what kind of protection programs really need—the industrial compilation of applied knowhow is what’s valuable about them.  She’s still convinced that’s right. They’re not suitable for ©; they should be protected, if at all, through a sui generis right. She’s not expecting that, but we should think it through regardless.

Peter Yu, Revisiting the Historical Lines of Demarcation: Competition Law, Intellectual Property Rights, and International Trade When TRIPS Hits 25

EU proposal on data producer’s right for anonymous data. Japan actually did change its law in 2018 with respect to big data.  “Data is the new oil”: misleading but persuasive description. Unasked important question: should data be owned in the first place? Reichman & Samuelson have addressed this in an important article dealing w/ the modality of protection. There are methods of regulation between nothing and property rights, including unfair competition law.

Complementary operation of competition law: US filed an IP complaint against China, its second under TRIPs, 2 years ago, that could have shed light on these important issues. National treatment (art. 3) and about license/contract in patent law. Some of the potential defenses come from art. 40, abuse of IP rights. Technology transfer and joint venture issues have been important for decades, before TRIPs.  In June, however, they suspended the complaint so we won’t have a ruling.

Traditional knowledge: do people overstate the importance of protection?  Does competition law have the same relation to TK as to other IP—do we want to encourage more competition in this space?

Reichman’s 1983 article on design and the law: foundational.

Justin Hughes: is Altai about as good as sui generis would’ve been?

Samuelson: yes, given that there would’ve been issues w/sui generis protection too.  Cases mandating filtering algorithms out as unprotectable procedures; interoperability as unprotectable procedures improved the Altai standard. As long as there’s meaningful effort to filter out the functional, it’s not so bad an outcome. The software industry is doing well. Microsoft endorsed flexible fair use in its amicus supporting cert in Oracle, which is not where Microsoft was in the 1990s.  Fed Cir threw out 102(b), merger, and fair use, and you can get to the Fed Cir by alleging a patent claim; there are no defenses left in (c) (they would get rid of the scenes a faire doctrine too if given the chance).

Q: PTO asked for comments on protection of AI. Asked if we need data protection. Seems quite concerning: comment period extended to Nov. 8.

Samuelson: she’s heard noises that extensive protection for structure, sequence and organization is necessary because patents are being invalidated under Alice; she thinks it’s healthy and that the industry doesn’t need patents as much as all that.  There should be a layer that is unprotectable except for trade secret; that’s the most sensible.

Reichman: was puzzled by Alice, which seemed like a move to the European approach (technical step/solution) but stopped short of it, which makes it conceptually worse.

Samuelson: Alice involved 10 judges with 7 opinions, which was part of the problem.  Fed Cir reacts by saying that SCt threw out patent, so © must step into the void.

Thursday, September 26, 2019

Allergan gets small damages award in case against compounder


Allergan USA, Inc. v. Imprimis Pharmaceuticals, Inc., 2019 WL 4546897, No. 17-cv-01551-DOC-JDE (C.D. Cal. Aug. 2, 2019)

Previous discussion of liability issues in this pharmaco v. compounder false advertising case. After the court awarded partial summary judgment to Allergan (falsity and materiality, not damages), the court excluded Allergan’s expert report that based all its damages estimates on the Imprimis business model, not on the impact of the particular statements at issue. And the jury was to rule on Lanham Act damages only (there were also UCL violations, but the relief there is equitable and Allergan couldn’t get disgorgement). The jury awarded Allergan $48,500 in damages and zero in disgorgement of profits.

Imprimis renewed its motion for judgment as a matter of law, which the court denied. Imprimis argued that Allergan presented no credible evidence linking the false advertisements to lost Allergan sales. Mot. at 3. It relied on Out of the Box Enterprises, LLC v. El Paseo Jewelry Exchange, Inc., 732 Fed. App’x 532 (9th Cir. Apr. 30, 2018), where the jury found in favor of the plaintiff and awarded $1.5 million in lost profits due to false advertisements. The Ninth Circuit held that the plaintiff’s expert’s testimony “established only a correlation—not a causal relationship—between [the] advertisements and a decline in Out of the Box’s projected profits.” The testimony also “did not provide the jury with a way to determine by a preponderance of evidence the amount of any lost profits … In short, the record provides ‘no way to determine with any degree of certainty what award would be compensatory,’ as required by our precedent.”

Imprimis likewise argued that Allergan’s references to a drop in its sales established a correlation, not a causal relationship, making both (1) the fact of damage and (2) the amount of damage unproven.

As for the fact of damage, the Ninth Circuit has “generally presumed commercial injury when defendant and plaintiff are direct competitors and defendant’s misrepresentation has a tendency to mislead consumers.” “The Court instructed that the parties are in direct competition and consumer deception existed; the jury could therefore infer that the false statements caused some injury to Allergan.”

As for the amount, a court “must ensure that the record adequately supports all items of damages ... lest the award become speculative or violate [the Lanham Act’s] prohibition against punishment.” For jury awards, courts accept “crude” measures of damages based upon reasonable inferences so long as those inferences are neither “inexorable ... [nor] fanciful.” The Court instructed the jury: “Allergan does not need to quantify its damages in any particular way or provide expert testimony; many sources can provide the requisite information upon which you may calculate damages. Only the fact of damages must be established with reasonable certainty. You need not calculate the amount of damages with absolute exactness but there must be a reasonable basis for computing the amount of damages.” The jury was allowed to consider both direct and circumstantial evidence.

There was no direct testimony from a relevant consumer that she purchased from Imprimis rather than Allergan due to the false advertisements; and there was no survey of relevant consumers indicating actual confusion or economic harm. But Allergan presented sufficient circumstantial evidence. For example, a medical practice requested information on Imprimis’s FDA report from July 2017, and in response, Imprimis’s VP of Quality stated that “FDA found our products and services to be safe and effective.” A doctor from the practice placed an order with Imprimis only two weeks later. An Imprimis sales rep told another practice that Imprimis’s drugs combine “FDA-approved” component before the practice made a purchase. There was also evidence that Allergan lost market share during the time in which Imprimis made the false promotional statements at issue.

Allergan argued to the jury that it should use the following methodology: (1) begin with Imprimis’s unit sales during the time period the jury believed that Imprimis’s false advertising had an effect; (2) multiply that number by the percentage of Imprimis’s sales the jury found was attributable to false advertising; (3) discount the product of that calculation by Allergan’s market share for that drug to determine Allergan’s lost sales units caused by false advertising; and (4) multiply that by Allergan’s per-unit profitability. Imprimis disagreed, but this was a reasonable way to ask the jury to think about the case. The jury asked the Court for the “summary document showing the market share of Allergan Products,” and the jury could reasonably have reached the $48,500 figure from this information and circumstantial evidence before it.

It’s true that other factors affected the market, and Allergan’s sales trends in the pre-wrongdoing period might have supported a different conclusion.  “But that does not mean that the jury could not infer any connection between lost sales and false advertisements.” Imprimis mostly convinced the jury that there wasn't much in the way of lost sales, but not entirely.