AALS: Law and Computers

AALS Section on Law and Computers, Free and Open Source: Next Generation Issues

Great panel!

Intro: We’ve learned a lot studying FOSS in the past decade, including the importance of intertwined copyright and contract law to sustaining it. FOSS licenses were written by programmers, not lawyers, so we came in as non-natives.

Heather Meeker of Greenberg Taurig (adviser to ALI on principles of software contracts): Open source has completely changed the function it plays in the tech industry. Ten years ago, it was the purview of hobbyists and enthusiasts, participating because of a normative idea. Now a flip-flop of demographics. Rumored figures: 1999, 20% of participants were corporate, whereas today is more like 80%. Success changed it!

Even five years ago, you still heard a lot about an ideological war (is open source more moral, more robust, more/less secure?) between open and closed, but that’s largely a thing of the past. Now people agree that the development model works well for some things and not others. Open source works really well for fundamental pieces of software, like OS—the basic stack. That allows a lot of innovation on top. Doesn’t work quite as well for high value-added software like applications.

Two goals to revising GPL: (1) clarify in light of subsequent technological developments; (2) add additional provisions like patent-related ones addressing new issues. Those who believed in open source politically tried to impose their desires on the rest of the community, especially the corporate owners, and there was an enormous amount of resistance—almost unresolvable. GPL 3 hasn’t exactly taken the world by storm. The thought pioneers of 10 years ago had a lot of clout, but today there are many constituencies and any one has trouble leading.

From an engineer’s perspective, open source doesn’t require involving the business process/requisition process. Thus, organizations overwhelmingly don’t know what open source they’re using. It’s very hard just to keep track. Legal departments would say they had a policy against using open source, and then it would turn out that the entire product was riddled with open source. There is a trainwreck coming; there are little trainwrecks all the time in due diligence. We’re at the dawning of the age of enforcement of open source by lawsuit—open source authors are willing to enforce, and companies don’t know what they’re doing so can’t comply—so this is an information management problem for the entire industry. Big burden in the form of paying lawyers, getting engineers to backtrack, etc.

Trend: take a proprietary product that’s mature and release as open source. Company isn’t making a lot of money on the product but has competitors, and releases as open source to disrupt the marketplace and get the benefits of open source development. In the past, open source was usually done from scratch. We’ll see in the future proprietary products being converted.

Also enormous trend for corporations to set up non-stock entities (foundations) to involve many companies at once in open source development, allowing collaboration in a formalized way. Helps them manage their IP rights.

Open source is countercyclical and the downturn will only increase its adoption.

Mike Madison, Pitt: Jacobsen v. Katzer, picking up on the trainwreck metaphor. The underlying software has to do with model railroads. Katzer has a small for-profit software company that produces model railroad software. Jacobsen is part of a group that produces an open source model railroad Java engine released under the Artistic License. Katzer had a patent on some software; made noises about suing Jacobsen’s group for patent infringement; Jacobsen sued for nonvalidity and for violation of the Artistic License, since Katzer had downloaded the open source software, modified it, and sold it in breach of the terms of the license. District judge denied the PI on the ground that the Artistic License did not create a copyright entitlement, only a contract right.

Appealed to Federal Circuit (because of the patent claim), and the Federal Circuit reversed, ruling that the Artistic License created a copyright entitlement, so that breach created the possibility of an injunction. The license said “provided that,” and the court of appeals treated that as a condition. The court also said that injunctive relief in the context of an open source license is necessary to accomplish the objectives of the open source collaborative, so that the copyright owner can benefit from the users of the downstream code. And then it suggested that a contract claim might also be available along with the copyright claim, but that was a one-sentence mention of “consideration,” so it’s not clear what that meant.

On remand: Katzer moved to dismiss the contract claims, and Jacobsen renewed motion for PI on both contract and copyright. On Monday, the court ruled; it seems confused about what open source and IP law are (referring a lot to TM). First, granted the motion to dismiss the contract claims on the ground that Jacobsen hasn’t specified any damages. Anyway, the contract claims are preempted by copyright.

Second, denied the PI, bearing in mind eBay on the ground that Jacobsen hasn’t demonstrated irreparable injury. The court is skeptical that there’s any injury of any kind at all. The judge refers to the idea that downstream users of the open source code wouldn’t contribute back to the project as speculative—it’s not a standard copyright claim where the owner can identify quite clearly the nature of the work and the nature of the injury. The plaintiff’s brief says that it wants the court to enforce the license, but it’s not clear how that would be done: what do we tell the defendant to do? Even though its failure to comply with the license terms is essentially conceded.

The district court rejected the application of the Federal Circuit’s idea of the purpose of open source as a workaround for the standard requirements of harm. The Federal Circuit’s ruling was warmly received in the open source community as a way to prevent forking code. The district court brings us back to reality: the high purposes of open source run into copyright litigation imperatives. Better lawyering/judicial education may be the answer, but there is still conceptual tension in the law as to what open source licenses are about.

McCoy Smith, chair of Intel’s open source legal practice group: Knowing the law isn’t enough; extralegal laws are key in open source. First, Linus’s Law (given enough eyeballs, all bugs are shallow). Second, absolute freeom to tinker: derivative works are allowed; no discrimination against persons/groups; no discrimination against fields of endeavor. Third, Schneier’s Law: if people who write open source software are liable for it, it will disappear.

The proprietary model sometimes involves warranties or indemnities for risks to customers, and possibly secures upstream protected in the same way from suppliers, but this practice isn’t universal or even commonplace. Many large companies’ end-user licenses disclaim many warranties and indemnities. Fees and/or license restrictions can be used to mitigate/insure against risks of legal assurances, though they’re most commonly used to defray development and support costs.

Open source: for-profit companies offset costs through indirect fees, such as support contracts and ancillary product sales. Each party is responsible for its own legal risks; the absence of warranty/indemnity is baked in to virtually every open source license. No party really has the ability to take on the risks of others—individual developers, nonprofits, etc. are incapable of doing so, especially since they give unlimited licenses allowing distribution of millions of copies. Nobody can demand fees for incremental risks and/or development costs.

Coming issues: consumer protection. ALI principles of software contracts draft: proposes that all software licenses come with upstream warranties (no material defects) and indemnity (IP infringement) that are nondisclaimable. In the commercial model, you’re trying to protect the downstream consumer from the monolithic developer. Doesn’t make so much sense for open source, which is disaggregated; one contributor shouldn’t necessarily take on that risk for all. Some limitations in the current draft might protect the hobbyist/academic, but there are people who make money, but not much, and are still individual developers.

Another feature of draft: in case of injunction, transferor must take steps to make end user whole. Must purchase right to continued use (buy a license to infringed IP); replace or modify software so it works the same without infringement; or cancel the agreement, refund fees, and reimburse for replacement. NB: virtually all open source licenses are non-terminable. Likely none of these alternatives are practicable for small/individual developers. These requirements would violate Schneier’s law—would kill open source, or would at least mean that only people working for big corporations can do open source.

Potential clash: public protection. The FCC has regulations saying devices emitting electromagnetic radiation can’t be sold if they allow user modifications to take the devices out of FCC parameters. Thus, you can’t use open source software to regulate that component of the device. Smith believes FDA will do the same for medical devices and maybe other regulatory agencies will act similarly in the future in the name of public interest. Private actors might do the same for non-public reasons. Will the government stifle open source for those devices? The Bureau of Export Administration had this issue with encryption years ago, but they resolved the issue in favor of open source.

Three new laws for the future: (1) Don’t assume 20^th century business models (e.g., don’t assume that the small consumer must be protected from the big developer when the consumer may be the developer). (2) Gov’t and courts should protect the egghead individual equally, or even more, than the eggshell skull consumer. (3) Avoid solutions in search of a problem: open source licenses and extralegal enforcement has been working pretty well; no need to fix the problem of warranty/indemnity.

David McGowan, San Diego: The form license debate is endlessly repetitive and focuses on something everybody knows is immaterial, which is assent. The modal user would click on a license no matter what warnings you showed her/him. Open source did the great benefit of pointing this out; it was the form agreement about freedom. It became clear that to get the sweet of open source you needed the bitter of the form. We should stop worrying about assent.

The notion of consumer v. producer oversimplifies: if you get enough producers who are also recipients, you stabilize the anti/commons and it can’t be taken private. We should learn from this that warranty disclaimers and the like are employed essentially behind the veil of ignorance, by people who don’t know what role they’ll play, and thus they are justified.

In the open source corporate model, you use open source to make money some other way. Making money by ancillary services is making money by applying IP fixed in someone’s head (expertise). That is not necessarily better than concretizing the IP into a tangible medium of expression that can be sold, reverse engineered, etc. The hardware model uses software to get margin out of hardware, which is protected by patents and trade secrets. So open source shifts commoditization—is that a net gain for freedom? The unanticipated effects are not all positive. We must net them to know.

Jacobsen: Property rules v. liability rules. This is a question of how we best net offsetting effects; do we get better pricing one way or another? The type of analysis in Jacobsen in the Federal Circuit pleased McGowan. The court made the point that there’s a difference between economic and monetary costs—lost revenues aren’t the only costs. Microstar v. Formgen is an early open source case: the gamers shouldn’t be free labor for someone else’s revenue model (comment: only the game company’s own revenue model).

Most people don’t like being zero-cost labor for others. The real import of contract law is not what happens in litigation, but to set up an architecture in which interactions among people with converging and diverging goals can be managed. The folks working on the model railroad interface are probably not happy that someone is making money off their work, even if it makes the product better. The Federal Circuit talked about downstream improvements, but the upstream ecology/willingness to participate matters. Smaller, hobby projects may well need property rules more than big corporate ones, and a property rule works really well to enforce the sociology of those systems.

(Comment, related to my comment above: there is a lot of work going on now about monetization of user-generated content. People will happily be zero-cost labor for others in appropriate circumstances, when for example YouTube gives them access to audiences/communities in return for providing free content; Linux contributors have lived with Red Hat making money indirectly on them. Viviana Zelizer’s work should come to mind.)

Q: What about patents as a threat?

Smith: it’s 17 years after the first big claim that patents were a threat—we haven’t seen the litigation. It’s out there, but it’s not as dangerous as people have thought. He understands the philosophical point about software patents, but practically it’s less important.

McGowan: He expected more of that until he read IBM’s answer in SCO. There are enough competing interests with patent portfolios of their own that it may not be worth it: you don’t want to go up against IBM with a patent case and let them find a patent that reads on you.

Meeker: Open source is particularly not vulnerable to patents. The FUD expressed in open source community about patents is like the FUD expressed in the legal community about open source 10 years ago, when lawyers assumed open source would be riddled with copyright infringement. Open source projects are bad targets, especially for patent trolls just in it for the money. Open sources tend to be effective for commoditized aspects of tech, and there’s not much upside in suing those. Open source creates an automatic store of prior art. Open source code results in any claims materializing early.

Madison on McGowan: Agrees with a lot about netting out costs and benefits. The projects can be valuable sociologically more than financially. The Java Model Railroad Initiative: Jacobsen is a physicist at Lawrence Berkeley, part of an exceptionally well organized group. The issue is how to apply eBay and the equities across diverse open source projects. When we talk about injunctive relief and property rules, remember that practicing lawyers treat software licenses in general and open source licenses in particular as contracts, not copyright matter. Only when it gets to enforcement do practitioners want to start talking copyright.

McGowan: It’s not obvious why we don’t more readily let parties contract for specific performance.

Greg Vetter, Houston: In terms of the sociology: there are two modes of licensing, BSD versus strong copylefting. As we move to more commercial involvement, will BSD licensing be more accepted?

Meeker: Corporate interests have become much more comfortable with open source of any flavor. Most won’t use GPL 3, but that’s mostly because it doesn’t have a track record. GPL is so ubiquitous that businesses have to become comfortable with it.

Eric Goldman, Santa Clara: Remains confused about interplay between Jacobsen and browsewraps. What if a browsewrap used “provided that” as its language?

Madison: he’s confused too, especially given what the district court did. Given the conclusions as to harm, it’s a heads I win, tails you lose situation for the defendant and the language doesn’t seem to matter as much.

Mark Lemley: We don’t have a clear answer to the question of whether these things are contracts or not. McGowan likes them as contracts, but then wants a property rule for enforcement. What do I get out of calling them contracts instead of “a statement of whether/when I’m going to sue you”?

McGowan: Wants to abandon the form debate. Let’s not parse magic words on condition/covenant. Default: if you’re running someone else’s code, you can’t do that without permission. If you are in violation of the terms of the license, you don’t have permission. With browsewrap, he’s willing to imply permission (unless there’s an express reservation) and discuss the scope of the implied license. We know that if the browsewrap were a dialogue box, the user’s comprehension would be the same, which is to say zero. Our discomfort with the procedure doesn’t depend on that distinction. On the other hand, the defendants in Jacobsen probably had a much better sense of the rules they were violating.

Drug references for beverages revisited

We've been through this with Cocaine, now Drank, a purple "relaxation" beverage whose name refers to "purple drank," slang for cough syrup mixed with soda. Is a blatant drug reference for a consumable item inherently scandalous/immoral and thus unregistrable? Is it deceptive, given that the drink doesn't contain cough syrup? Or does its very shock value make clear that it can't contain the promised ingredient, converting it to inherently distinctive?

Cellphone minute reseller can sue other resellers, not intermediary

Platinumtel Communications, LLC v. Zefcom, LLC, 2008 WL 5423606 (N.D. Ill.)

Plaintiff Platinumtel and defendants EZ Stream and U.S. Mobile sell cellphones and prepaid wireless services to consumers in Chicago. Platinumtel purchases minutes directly from Sprint PCS, while EZ Stream and U.S. Mobile purchase minutes from defendant Telispire, which acquires them from Sprint and gives the other defendants the necessary technological support. Platinumtel alleged that EZ Stream and U.S. Mobile, with Telispire’s knowledge and assistance, “misrepresent the connection fee charged for calls made on their prepaid wireless plans and arbitrarily deduct additional minutes from their customers’ accounts,” so that they advertise but do not deliver below-market rates, in violation of the Lanham Act and state law. Platinumtel’s affidavits recite some pretty persuasive evidence of actual minute charges that contradict defendants’ advertised charges. (Price is supposed to be easily verifiable, but not when it comes to services!)

Telispire moved for dismissal on standing grounds. The Seventh Circuit hasn’t ruled on the Conte Bros. standing test, though some district courts have required direct competition between the parties. Even if Conte Bros. were Seventh Circuit law, the court ruled, Telispire’s involvement in the harm here is too remote, indirect, and speculative to satisfy the standing test.

Telispire also argued that it hadn’t made any false statements, but the issue here is joint tortfeasor liability—whether Telispire is liable for other defendants’ false statements. (This would seem to make standing somewhat beside the point; if the requirements of joint liability were satisfied, then the lack of direct competition shouldn’t matter.)

However, in this case, Platinumtel failed to allege a sufficient theory of joint liability, which would require knowing that another’s conduct constituted a breach of duty and giving substantial assistance or encouragement for the breach. Although Telispire was responsible for the technology that allows the other defendants to set rates, coordinate billing, prepare call detail reports and deduct minutes from customer accounts, that doesn’t make it aware of the false advertising. Even though Platinumtel told Telispire about the arbitrary billing, it failed to allege that it made Telispire aware of the content of the other defendants’ ads. Moreover, the court held that simply providing the technological platform for the allegedly distorted billing did not count as “substantial assistance.” (Compare to copyright cases.) The state law claims, governed by the same standards, also failed against Telispire.

The court held that Platinumtel had pled false advertising sufficiently against the other defendants. By identifying the types of ad materials, the persons to whom the misrepresentations were made (the investigators it used), the date, and the context (in connection with the purchase of specific phones), Platinumtel successfully described the who, what, when, where and how as required by Rule 9(b).

retailer lacks standing against manufacturer

The Knit With v. Knitting Fever, Inc., 2008 WL 5381349 (E.D. Pa.)

Defendant manufactured certain yarns that were labeled as containing cashmere, but their cashmere content was allegedly below that labeled or even nonexistent. Plaintiff sold defendant’s yarns until questions about their cashmere content developed, and sued defendant for false advertising.

The court found that plaintiff lacked prudential standing under the Lanham Act. The court rejected the claim that the parties were vertical competitors (manufacturer versus retailer of different yarns). There was no competitive relationship: plaintiff didn’t make its own competing yarns, nor did defendant sell directly to consumers, which would have made it a competing retailer. The harm plaintiff suffered from buying the falsely labeled yarns was not a harm to its ability to compete, just a loss of sales/profits. Rather, its harms were those suffered by a consumer of defendant’s products. Manufacturers and distributors of competing designer yarns were in a better position to vindicate the interests protected by the Lanham Act, even if they’d decided not to sue. For similar reasons, the possibility of duplicative damages weighed against standing.

Allegedly false comparative ads trigger duty to defend against "disparagement"

E.piphany, Inc. v. St. Paul Fire & Marine Insurance Co., --- F.Supp.2d ----, 2008 WL 5396889 (N.D. Cal.)

E.piphany sued St. Paul alleging that it had a duty to defend E.piphany under the terms of E.piphany’s insurance policy. The underlying litigation involved false advertising claims against E.piphany by a competing software provider, Sigma.

The advertising injury policy at issue covered “disparagement.” The question was whether the underlying litigation alleged disparagement of Sigma’s products, when E.piphany basically just said nice stuff about itself and only disparaged Sigma’s products by implication. The underlying claim was that E.piphany falsely advertised its products as the “first” and “only” “all Java” and “fully J2EE” product suite (important characteristics) when they weren’t, and when other competitors’ products actually were.

The policy excluded injury caused by failure of E.piphany’s products to conform with advertised quality, but the court held that this wasn’t relevant. Sigma’s claims were based on comparative advertising; it’s irrelevant (at least to the duty to defend) whether E.piphany’s products did what E.piphany said. (It sure sounds like that was an important part of the underlying lawsuit—but the duty to defend is triggered when the allegations could support policy coverage, even if the plaintiff in the underlying case might ultimately win on something the policy doesn’t cover.)

Though state courts haven’t explicitly ruled on the issue, the case law suggests that disparagement by implication is actionable under California law. And other jurisdictions have found a duty to defend when superiority claims are allegedly false, even when the comparison didn’t name specific competitors. The necessary implication of superiority claims is to disparage competitors as inferior. Here, an allegedly false statement of being the “only” producer of “all Java” and “fully J2EE” software solutions was a prominent part of E.piphany’s ads. E.piphany claimed this was an “important differentiator” in the marketplace, giving it a lead of a couple of years on competitors. This disparaged the competition by implication. Thus, by refusing to defend in the underlying litigation, St. Paul breached its duty to defend.

Off-label promotion of drugs not inherently misleading

In re Epogen & Aranesp Off-Label Marketing & Sales Practices Litigation, --- F. Supp. 2d ----, 2008 WL 5335062 (C.D. Cal.)

The plaintiffs mostly provide health care benefits to various union workers and dependents, though one is a private third-party payor. They proposed to represent a class of everyone who paid any part of the purchase price of Epogen and Aranesp when prescribed for off-label use. These drugs simulate the production of red blood cells and are approved for treating anemia in certain patients with other serious medical problems.

Defendants are Amgen, a large pharmaco, and two providers of dialysis services. From 2002 until at least 2007, Amgen issued press releases touting clinical studies on off-label uses of Aranesp, but didn’t disclose that the studies were Amgen-funded. Amgen also funded third-party groups that pushed off-label uses of Aranesp to doctors through continuing medical education and other means, allegedly concealing or minimizing evidence of the drugs’ risks (heart attacks, strokes, tumor growth, and death). Amgen entered into supply contracts with the other defendants providing volume-based discounts and other incentives for increased IV use of the drugs. In early 2007, the FDA mandated a “black box” warning about off-label use of Aranesp, based on studies showing that its use shortened the time to tumor progression and increased the risk of death in certain classes of cancer patients.

The court dismissed plaintiffs’ RICO claims as being fundamentally based on the idea that merely promoting the drugs for off-label use was unlawful. This amounted to an attempt to enforce the FDCA, but the FDCA does not provide for a private cause of action. Similarly, the state-law false advertising/unfair competition claims were basically premised on the idea that off-label promotion was unlawful and therefore unfair and inherently fraudulent. Precedent holds that, in itself, off-label promotion is not inherently misleading. However, false advertising laws can be used to fight false pharmaceutical advertising even though there is overlap with FDA jurisdiction. FDA label regulations are designed to support the FDA’s authority to approve new drugs; without regulation of off-label promotion, there would be no incentive for companies to get approval for new uses. Thus, consumer protection objectives diverge from the more arbitrage-focused FDA regulations, and consumer protection laws have a separate role to play in regulating drug ads.

Some of plaintiffs’ claims--e.g., that defendants promoted the false belief that the drugs were safe for off-label uses at excessive doses and that they concealed adverse study results and selectively disclosed positive studies—could be repled as pure fraud/false advertising claims. The FDA lacks special expertise on whether the claims were likely to mislead or deceive the recipients of the ads. Thus, the plaintiffs were allowed leave to amend the complaint to allege specific misrepresentations, subject to the requirements of Rule 9(b) (note that this is a heavy burden; not all courts require false advertising claims to be pled with particularity, because fraudulent intent is not an element of most false advertising laws).

Punting to culture

Christopher Kelty, Two Bits: The Cultural Significance of Free Software: You can download the whole thing here. I liked Kelty’s essay on open source, Punt to Culture, which you can also read for free—I thought it provided an interesting theoretical context for the open source movement. This is Kelty’s larger project, and I had more trouble with it than I did with Punt to Culture. He focuses on free software and its contexts, arguing that free software is an instance of a “recursive public,” “a public that is vitally concerned with the material and practical maintenance and modification of the technical, legal, practical, and conceptual means of its own existence as a public; it is a collective independent of other forms of constituted power and is capable of speaking to existing forms of power through the production of actually existing alternatives.” I love the idea, because it fits in with what the Organization for Transformative Works is trying to do: owning the servers, writing the code that makes being fannishly creative easier.

But the meat of the book frustrated me, perhaps because I’m not familiar with anthropological writing of this sort. It felt like he half-told a bunch of stories: early development and forking of UNIX; the story of Apache; debates over the Linux kernel; the founding of an "open source" textbook/module project called Connexions; etc. But then at the end each story seemed to turn into generalities, or at least the absence of useful lessons. (This is the standard law professor's reaction: what's the payoff? What do you want me to do? And Kelty's specialty is understandably resistant to answering that question.)

There was a great story about UNIX, which at the relevant time was under relatively tight formal control by AT&T. A non-AT&T person wrote a commentary, which because of intellectual property concerns had a copyright notice and instructed people not to make copies. But, because access to actual code (not to mention access to actual computers) was very hard to come by, there was immense pressure to disseminate it. As one programmer wrote:

We soon came into possession of what looked like a fifth generation photocopy and someone who shall remain nameless spent all night in the copier room spawning a sixth, an act expressly forbidden by a carefully worded disclaimer on the first page. Four remarkable things were happening at the same time. One, we had discovered the first piece of software that would inspire rather than annoy us; two, we had acquired what amounted to a literary criticism of that computer software; three, we were making the single most significant advancement of our education in computer science by actually reading an entire operating system; and four, we were breaking the law.

Kelty points out that this generation of computer science students therefore learned the essentials of UNIX while also learning that AT&T was trying unsuccessfully to control the distribution of the commentary. Computer science already had, at the moment of its explosion, a fraught relationship with law and with copying, here photocopying. Kelty concludes:

This nascent recursive public not only understood itself as belonging to a technical elite which was constituted by its creation, understanding, and promotion of a particular technical tool, but also recognized itself as “breaking the law,” a community constituted in opposition to forms of power that governed the circulation, distribution, modification, and creation of the very tools they were learning to make as part of their vocation. The material connection shared around the world by UNIX-loving geeks to their source code is not a mere technical experience, but a social and legal one as well.

Going forward, he notes, intellectual property can be expected to remain central to the recursive public--a tool and a barrier--as participants try to reframe and rewrite that law and the social practices that undergird compliance with or resistance to law.

Reading list: critiquing falsity by necessary implication

Sarah Samuelson, Note, True or False: The Expanding “False by Necessary Implication” Doctrine in Lanham Act False Advertising, and How a Revitalized Puffery Defense Can Solve This Problem, 30 Cardozo L. Rev. 317 (2008)

Summary:

This Note explains why the “false by necessary implication” doctrine is a harmful development in false advertising law and proposes a better way for courts to deal with tricky distinctions between truth and falsity. Part I will introduce Section 43(a) and describe the development of the “false by necessary implication” doctrine in greater detail. Using Time Warner Cable as a model, Part II will show that courts are expanding the doctrine too far and applying it inconsistently, often confusing its doctrinal underpinnings. Part II will also demonstrate that the expansion of 43(a) false advertising liability implicates the First Amendment's guarantee of free speech and may impede an open marketplace of information. In addition, it will explain that overregulation of false advertising underestimates the modern reality of consumer intelligence and ignores the technological resources available to debunk false advertisements. Finally, Part III will argue that courts should apply a new framework when deciding Section 43(a) false advertising cases. This new structure would redefine and expand the puffery doctrine, turning its application into a threshold inquiry instead of a defense. As a result, courts could eliminate trivial or non-credible claims at the outset and focus their attention on the type of false advertising that actually harms consumers.

I think it’s wrong in pretty much every respect, but I'm a big fan of falsity by necessary implication, and there’s a lot of stuff out there that’s not even wrong, so you might want to check it out if you’re interested in false advertising law.

Jazz hands: today's right of publicity question

Among our kids' Hanukah gifts this year were books from this series starring Duck Ellington (who inexplicably raps), also featuring Charlie Bird (plays sax), Ella the Elephant (she scats), Miles the Crocodile, Mingus Mouse, Louis Lion, and Philly Joe Giraffe (drums). Under what theories would you defend the publisher from right of publicity claims by (the estates of) the jazz greats referenced? Under White, at least, there's absolutely no reason that use of the entire name is required; in a jazz context, these first names and associated instruments clearly evoke certain identities. Artistic relevance?

Spiegel v. Spiegel: internet coexistence is possible

H. Jay Spiegel & Associates, P.C. v. Spiegel, 2008 WL 5211784 (E.D. Va.)

This local case caught my eye because of the unusual result: preliminary relief denied despite the court’s conclusion that consumer confusion was fairly likely.

Plaintiff, a law firm specializing in patents and trademarks, registered spiegelaw.com in 1999. The domain name was registered on the Supplemental Register in 2000, and plaintiff applied for registration on the Principal Register after five consecutive years of use; that registration issued in 2006.

In 2008, defendant, an attorney with a sole practice focusing on employment law, created a website at spiegellaw.com. Plaintiff sued and asked for a preliminary injunction shutting down the website.

You know the plaintiff has an uphill climb when the court starts out with a reminder that preliminary injunctions are extraordinary remedies, to be granted only sparingly and in limited circumstances. In trademark infringement cases, a presumption of irreparable injury is generally used when a plaintiff shows likely confusion. However, the balance of harms here favored the defendant, and the other elements of the preliminary injunction standard were uncertain. Even with irreparable injury, a court must still balance the harm to the defendant. An irreparable harm may be small.

The court assumed a likelihood of confusion, triggering a presumption of irreparable harm. Plaintiff argued that the harm was significant here because many people, including foreign clients, seek to reach it through its website, and defendant’s use threatened its goodwill. The court agreed that there was “some threat” to plaintiff’s goodwill, given that the names are nearly identical and that people searching for plaintiff could be misled or diverted to defendant’s site, especially if they were working from oral instructions to visit the site. There was evidence that at least one person was confused by defendant’s site, though that person was a fellow lawyer and not a potential client (apparently the lawyer cc’d defendant and plaintiff both, suggesting at least one typo).

However, the court determined that harm during the pendency of the litigation was not likely to be significant. Plaintiff’s practice is specialized; a search for a patent lawyer named Spiegel would not end with defendant’s site. And someone who heard the address given orally might just as easily visit spiegel-law.com, another website in use by a solo practitioner named Spiegel. “In other words, the online presence of Defendant does not pose a wholly novel threat to the ability of potential clients to locate Plaintiff's Website.” There may well be a likelihood of confusion, but not of serious harm. There was no evidence of any attempt to “poach” clients, which would be counterproductive for an employment lawyer. The single misdirected email was an isolated instance, not large-scale confusion among clients.

On the other side, enjoining spiegellaw.com would significantly harm defendant, who uses the site primarily in his capacity as class counsel in a civil rights class action lawsuit. Shutting the site down would disrupt defendant’s law practice and harm the interests of his clients. “The nature of a class action lawsuit puts a premium on the ability of counsel to communicate with individuals who may be geographically diverse and, indeed, may never meet their attorney in person. Disrupting a major line of communication and information sharing between class counsel and a class of plaintiffs poses a real threat to the ability of counsel to advocate in an effective and efficient manner.” Thus, the balance of harms favored defendant, requiring a stronger showing of likely success on the merits before a preliminary injunction could issue.

The court was uncertain whether plaintiff’s mark was protectable, making overall likelihood of success uncertain. Plaintiff argued that its mark was “stronger” than merely descriptive and “more likely than not suggestive,” given that spiegelaw.com could connote the provision of a variety of legal services via the internet. You know, I wouldn’t give a student much credit for making that argument on an exam: the mark, describing the provision of legal services by somebody named Spiegel, is descriptive. Deal with it.

The real argument here is acquired distinctiveness. The registration was prima facie evidence of validity, but defendant could challenge this. The evidence of secondary meaning was unclear at this stage. (Defendant also argued that any secondary meaning wouldn’t extend beyond IP lawyering, but that’s not an argument for unprotectability; that’s just an infringement consideration.) It’s not clear from the opinion what evidence, if any, defendant submitted here: it doesn’t seem likely that he could have overcome the prima facie validity of the registration from argument alone, but I’d have pointed to that spiegel-law.com site at least as evidence that plaintiff’s use wasn’t exclusive.

The public interest favors protecting valid trademarks, but also communication between lawyers and clients. It wasn’t any help here. On balance, plaintiff wasn’t entitled to a preliminary injunction.

I found it interesting how this issue was resolved without any overt reference to something that the common law would have considered quite important: defendant’s name really is Spiegel. Of course that factors into the mark’s descriptiveness, its protectability, and probably the likelihood of confusion, but that just shows that the law of personal names has been basically submerged into broader trademark doctrines.

MostChoice's brags succeed where its false leads don't

NetQuote, Inc. v. Byrd, 2008 WL 5225880 (D. Colo.)

Previous developments in this case of competitor sabotage, including a big damages award.

NetQuote moved for injunctive relief against MostChoice for false advertising. It identified three allegedly false statements: (1) that MostChoice's leads are "Better Than NetQuote Leads"; (2) that MostChoice's leads are "[f]rom a solid company ... [n]ot a 'fly by night' company like most lead companies"; and (3) that MostChoice's leads are better because they are subject to "Extensive Filtering for Highest Lead Quality."

The court found the statements had not been shown to be literally or implicitly false. The trial evidence tended to support the claim that MostChoice’s leads were better. NetQuote uses affiliate leads, and those tend to be poorer quality. By contrast, MostChoice’s leads during the relevant time period did not include affiliate leads, which the court saw as support for the “filtering” claim, because selecting the source of a lead can be viewed as a filtering process. Moreover, NetQuote sent each lead to a larger number of agents than MostChoice, diluting any single agent’s chance of closing a sale. The market price of MostChoice leads was higher, which the court also considered evidence that its leads were “better.”

As for the solid/fly-by-night claims, there was no evidence that MostChoice was a fly-by-night company, and even though NetQuote wasn’t either, that didn’t disprove MostChoice’s claim that “most” lead companies are fly-by-night. The court also considered this statement entitled to “leeway” because it was puffery.

The implicit falsity argument fared no better. NetQuote argued that, to the extent “Better Than NetQuote Leads” was true, it was only true because MostChoice deceptively submitted fake leads to NetQuote, and that undisclosed wrinkle made the claim misleading. However, NetQuote failed to prove that, but for the fake leads, MostChoice would not have been superior. Even before MostChoice began submitting fake leads, the indicators of greater quality identified by the court were present. (Which makes one wonder: what was MostChoice so afraid of? Perhaps low prices are a potent lure, even if they bring lower quality with them.) The false submissions also represented such a small percentage of NetQuote’s total leads that, though they were actionable for the harm they caused to specific agents, the court deemed it unlikely that they materially affected the overall quality of NetQuote’s leads.

In addition, NetQuote failed to show that consumers (insurance agents) were actually misled by the ads (as opposed to the fake leads). NetQuote argued that an intent to deceive justified a presumption of successful deception, but there was no evidence of deceptive intent with respect to the ad statements. Nor did NetQuote show actual or likely injury: it had no evidence that its customers ever visited MostChoice’s site. (I think this goes too far; suppose a credible consumer survey had shown extensive deception in likely consumers exposed to the ad. Asking the plaintiff to prove more than that serves very little purpose. Perhaps a defendant might be able to avoid monetary and even injunctive relief by showing that nobody ever saw the false claim at issue, but that’s the defendant’s problem at that point, not the plaintiff’s; the risk must be on the deceptive advertiser.)

Fake gripe sites

The Consumer Law & Policy blog discusses an instance of arguably deceptive advertising using the trademark owner's own mark, in a critical context, to draw searchers to an owner-run site that speaks favorably of the trademark owner. It's not preposterous to think that this could be false advertising--indeed, some trademark doctrines, like naked licensing, are concerned with false promises made by uses of marks. But I'm not sure that there is significant, extended consumer deception--clicking back will probably allow the interested consumer to find the actually critical sites--and I'd much prefer courts to hold every plaintiff, especially trademark owners, to a standard that requires a showing of more than brief clickthrough confusion.

Pipe dreams: mixed ruling on trademark and false advertising plumbing case

Falcon Stainless, Inc. v. Rino Companies, Inc., 2008 WL 5179037 (C.D. Cal.)

Falcon and Rino sell plumbing products. Falcon alleged that Rino (1) falsely advertised that its products meet American Society of Mechanical Engineers (ASME) A112.18.6 standards; (2) falsely advertised that its connectors exceeded the flow rate of Falcon connectors; (3) infringed Falcon’s marks by using on its connectors a numbering system confusingly similar to Falcon’s system; and (4) infringed Falcon’s marks by using on its connectors a square with ‘S’ inside that was confusingly similar to Falcon’s diamond with ‘F’ inside.

For the ASME claim, the court found as follows: The International Association of Plumbing and Mechanical Officials ("IAPMO") regulates and sets the standards for plumbing products in the United States, and the parties believe its approval is critical to business success. IAPMO verifies compliance with industry standards, including the relevant ASME standard, which specifies requirements for metallic water heater connector tubes. Both parties advertise IAPMO verification; pointing to IAPMO certification is standard in the industry, and Rino’s connectors are in fact certified. An IAPMO auditor tested a sample pipe and concluded that it complied with the ASME standard. Falcon, however, hired a third party to test the connectors, and the third party tester concluded that they were not ASME-compliant.

Under Ninth Circuit precedent, for a court to evaluate a claim that certification is false, there must be “a clear and unambiguous statement from the licensing body about [the relevant] regulations and certifications.” Rino’s claim of compliance was not literally false, since IAPMO was generally agreed to be a proper body to certify ASME compliance.

For the water flow claim, the court found that maximum water flow is a key characteristic for water connectors. Rino’s Chinese test lab showed a flow rate of 7.238 gallons per minute, based on 5.32 feet per second water velocity. Falcon’s test results used a water velocity of 5 feet per second, producing an advertised flow rate of 6.345 gallons/minute. It’s undisputed that higher velocity produces higher flow.

Rino’s ad claimed superiority, comparing 6.345 gallons/minute to its own 7.24 gallons/minute. Falcon hired a different lab to do a comparison test using standardized pressures, conditions, and times. In those tests, Falcon’s connectors had a flow rate marginally higher than Rino’s (though apparently the difference was not statistically significant). In other words, the tests showed that Falcon’s connectors were not inferior, and they didn’t substantiate Rino’s claimed flow rate from its Chinese test. Point to remember: comparative ads should compare the same things! For a head-to-head comparison, have head-to-head substantiation.

The court concluded that Falcon had successfully shown that (1) Rino’s Chinese test wasn’t a controlled comparative test, and (2) its own controlled test disproved Rino’s claim of faster flow. False comparative claims create a presumption of actual deception and reliance, as well as irreparable injury.

On the numbering system claim: Falcon doesn’t have a registered trademark on its numbering system. Indeed, I’m not sure one could register a trademark on a system; wouldn’t it be a phantom mark? Taco Cabana mentioned “sales techniques” as a type of protectable trade dress in passing, but I don’t think a numbering system would qualify. Especially here, where Falcon doesn’t use its numbering system in ads or on its website.

Both parties use numerical bar codes on their connectors to identify the diameter and length of the connectors. Falcon uses FF or SWC, followed by a space, as a prefix on flexible connectors, while Rino uses SWF, with no space. In three instances, the parties use identical numbers for certain products, deriving from the fact that they sell products of identical diameter and length. For other products, the numbers aren’t identical because Falcon adds a zero between the diameter and length numbers.

Most of the parties’ sales are made to sophisticated retailers and plumbing companies that know the industry well. The court concluded that the bar code is functional, and it’s also required by a significant buyer in the market. Thus, Rino couldn’t compete with Falcon for that buyer’s business without the system.

Falcon’s number system claim failed because it couldn’t meet its burden of showing nonfunctionality. The system is utilitarian because it identifies size and dimensions. Though alternative designs are available, that doesn’t change the fact that the system performs a function, and does so in response to consumer demand.

As for the geometric shape and letter combo, IAPMO requires certain identifying information on plumbing products. Falcon’s diamond F is a standard diamond shape and a capital F. Falcon has no registered trademark in the diamond F, and it doesn’t use it in advertising. Rino’s square S is a rotated square with an S inside, for Southsea Metal, the manufacturer. At least one other company also puts diamonds on its water connectors in the same place Falcon does. There was no evidence of customer confusion.

Falcon failed to show trademark rights in the diamond F mark. As a common basic shape and letter, the alleged mark wasn’t inherently distinctive. Falcon had insufficient evidence to show secondary meaning: no surveys or other customer evidence; no use in advertising or packaging; no use as a logo. It was just a physical design stamped on the connector itself. Falcon couldn’t even show exclusive use of the diamond.

As a result, the court granted a preliminary injunction on the water flow claims, but not on anything else. The court noted that Falcon was the larger, more established company. Three out of four claims in this case thus support the proposition that established companies use the Lanham Act to create barriers to market entry. But that fourth supports the proposition that new entrants, hungry for market share, may be overhasty in their claims.

Clash of the sculpted titans: Ninth Circuit affirms Renoir case

Societe Civile Succession Richard Guino v. Renoir, 2008 WL 5157719 (9th Cir.)

The district court’s rulings are discussed here and here: this is a wonderfully chewy case, but not much goes on in the appeal, even though the Societe appealed practically everything—the verdict against it on Renoir’s Lanham Act false advertising claim, the associated equitable relief, the fee awards on the Lanham Act claim and discovery sanctions, and the district court’s refusal to award prejudgment interest on the Societe’s successful copyright claim—and Renoir also appealed the finding of willful copyright infringement. (There’s a separate published opinion affirming the basic copyright infringement claim, which I haven’t read yet.)

The court found the jury’s verdict on false advertising was supported by substantial evidence that the Societe made a false statement in commercial advertising about its own or another’s product. The court of appeals also found the injunctive relief proper: in order to display the Societe’s Guino reproductions to the public, they had to be labeled as “unauthentic and/or unauthorized duplicates of original Renoir-Guino works.” (Any bets on which word the Societe might pick?) But this was limited relief: the Societe could still sell the sculptures if properly labeled. Defendant Renoir’s copyright infringement didn’t count as unclean hands disentitling him to equitable relief, because copyright and false advertising are different.

The court also affirmed the fee award related to Societe’s Lanham Act claims. The Societe never tried to prove those claims, but waited until trial to abandon them, without having any evidence of the basic elements of confusion or damages. It should have dismissed the claim earlier; fees were properly awarded. Likewise with the discovery sanctions.

Prejudgment interest on the Societe’s successful copyright infringement claim was properly denied. Prejudgment interest may be awarded where infringement is undisputed, to discourage delay and compensate the owner for the time value of money. But this wasn’t a case of indisputable copyright infringement because of confusion surrounding the legal standard for whether the works at issue were in the public domain in the US. Defendants relied on Copyright Office circulars and treatises to show that the works were in the public domain. While their arguments failed, there was no abuse of discretion in denying prejudgment interest.

At the same time, the jury could properly have found willful copyright infringement. (In other words, on these facts, there was a lot of room for disagreement when it comes to things that will increase or decrease an award. The judge apparently found the copyright claim reasonably disputable, even as the jury found the conduct willful.) Willful here means knowing that one’s conduct is infringing; one who believes reasonably and in good faith that conduct is not infringing does not act willfully. Renoir, however, identified no evidence in the record of his belief that the sculptures were in the public domain in the US, so the court of appeals held his argument waived. (Why not rely on the Copyright Office circulars and treatises? If evidence of his belief in those is also required, does that mean he’s likely to have to waive attorney-client privilege to show lack of willfulness?) Anyway, there was substantial evidence of willfulness, including a French judgment against Renoir for violating Societe’s rights in the sculptures. Renoir testified that he knew about the judgment yet still sold molds and castings for the sculptures. A previous judge in the case had stated that applying the relevant 9^th Circuit case to the sculptures was “unreasonable” and that there were “substantial grounds for difference of opinion” on copyright status. But the presiding judge refused to allow those statements to be given to the jury, and the court of appeals found no abuse of discretion: the judge’s statements would simply be improper testimony on issues of law. (This makes more sense: the question is what Renoir thought at the time he took the allegedly infringing acts at issue, and the judge’s statements aren’t good evidence of that.)

Freedom of the press: Lanham Act claim against reseller fails

St. Croix Printing Equipment, Inc. v. Sexton, 578 F. Supp. 2d 1195 (D. Minn. 2008)

Plaintiff St. Croix (St. Croix Minnesota) sells used printing presses, including used Shinohara presses, but is not an authorized Shinohara dealer. Defendant Sexton used to be in business with one of St. Croix’s principals. Sexton opened her own business, St. Croix Printing Equipment Imports, Ltd., and “after a bit of litigation, the parties apparently agreed to live and let live.” Sexton’s business (St. Croix Iowa) is an authorized dealer for new printing presses made by the Japanese parent company of defendant Shinohara USA.

St. Croix Minnesota sued for unfair trade practices. Specifically, St. Croix Minnesota claimed that defendants approached its customers and told them false and misleading things about St. Croix Minnesota and its products, causing customers to break their contracts. Shinohara counterclaimed in mirror image: it argued that St. Croix Minnesota was engaging in trademark infringement, false designation of origin, and coordinate state-law claims.

Because Shinohara sought money damages, circuit precedent required proof of actual confusion, intent to cause confusion, and a causal connection between confusion and harm. Shinohara alleged as follows: until November 2007, plaintiff’s website used Shinohara’s logo and trademark; the website contained false representations about plaintiff’s inventory, warehouse space, years in business, and availability of “factory trained technicians” on staff; plaintiff tells customers that it sells Shinohara presses and can get anything they need from Shinohara, including parts for a used press, and pretends to be an official Shinohara representative; plaintiff copied software from English-language Shinohara presses to Japanese-language Shinohara presses; plaintiff tried to sell a damaged press without disclosing that it was likely unusable; and plaintiff’s contract with at least one customer spoke of “delivery, installation and training by Shinohara with print and register warranty” (emphasis added).

The court considered these allegations largely irrelevant to the legal claims. Copying software, for example, isn’t relevant to whether customers are confused about origin. (Sounds like Shinohara should have hit harder on the line of cases about genuine goods: a variance in language might well be sufficient to make grey-market Shinohara presses count as infringing. Of course, if Shinohara sells Japanese-language presses in the US as well, that line of cases would be no help.) Likewise, the court didn’t see how the allegedly false statements on plaintiff’s website violated the Lanham Act, “which prohibits the misuse of trademarks.”

§43(a)(1)(B) allows a civil action against “(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which-… (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities ….” It may well be the case that Shinohara can’t make out all the requisite elements; standing, for example, is likely to be a problem in the current climate. But the Lanham Act covers false advertising, and has done so for a very long time. I can’t speak to Minnesota state law, but I’m going to guess that it probably does too.

Anyway, the court only looked at the claims relating to (1) use of the Shinohara logo and trademark; (2) the allegation that plaintiff told potential customers that it had access to “everything Shinohara”; (3) statements to one customer that gave an impression of a direct relationship with Shinohara; and (4) the language in the contract indicating that Shinohara would provide services.

As to the website, plaintiff removed Shinohara’s logo and mark from its site shortly after Shinohara demanded that it do so. Shinohara failed to show any damages, even assuming that this violated the Lanham Act. As to the general claims that plaintiff feigned a direct relationship with Shinohara, the court found the supporting testimony too general: an installer thought that plaintiff’s principal “tries to make it sound like he is a dealer and that there's some type of connection.” This testimony, however, might well have been about confusion between St. Croix Minnesota and St. Croix Iowa, which apparently (and understandably) confused a lot of consumers, but was irrelevant to Shinohara’s claims. This was insufficient to show actual confusion.

One of plaintiff’s potential customers testifed that plaintiff told him that it could get parts directly from Shinohara in Japan, quoted him “the official factory response,” and otherwise “gave a definite impression” of a direct relationship with Shinohara. But the customer also said that he simply assumed that plaintiff was an authorized dealer because plaintiff told him that it would sell him and support the Shinohara press. Even if this created a genuine issue of material fact on confusion and intent to confuse, there was no evidence of injury: the customer ultimately bought a new Shinohara press from St. Croix Iowa.

The final instance is pretty clearly the worst for plaintiff: in May 2006, a printer named Schuster contracted to buy a Shinohara press from plaintiff. The press was cracked (though genuine), and the contract contained a phrase promising services from Shinohara. For purposes of the motion, plaintiff conceded confusion. After Schuster signed the contract, Sexton visited him and told him that the press was cracked and that Shinohara wouldn’t warranty it. (How did she know? There are such layers of drama encoded into this apparently bitter dispute.) Schuster cancelled the purchase agreement and bought a new Shinohara press from St. Croix Iowa. Once again, Shinohara couldn’t show damages.

Practice pointer: it can be really hard to go for damages-only Lanham Act claims. If you aren’t looking for injunctive relief, the client needs to think very hard about whether the game is worth the candle. Of course, the calculus may be different in cases like this one, where the issue is whether to bring a counterclaim. But I still wonder whether this was a good use of litigation resources.