False accusations of patent infringement justify fee award, not damages

Veteran Medical Products, Inc. v. Bionix Development Corp., 2009 WL 891724 (W.D. Mich.)

Veteran Medical makes a plastic double-ended ear curette. The CEO of Bionix accused Veteran Medical of infringing a Bionix design patent and misappropriating trade secrets; this included calling one of Veteran Medical’s suppliers and threatening litigation. Veteran Medical and related individuals/entities sued for a declaration of noninfringement and nonmisappropriation (if you’ll excuse the neologism), as well as for state and federal unfair competition and tortious interference. Bionix made the expected counterclaims of patent infringement and trade secret theft.

The district court granted declaratory judgment on noninfringement and dismissed the patent infringement counterclaim. There was a jury trial; the court granted judgment as a matter of law on the tortious interference claim, but, though finding plaintiffs’ evidence “very thin,” refused to do so on the unfair competition claims.

The jury found for Veteran Medical, awarding various plaintiffs nearly $200,000 in damages, divvied equally between Lanham Act and state unfair competition claims, as well as rejecting Bionix’s trade secret claims.

Bionix renewed its motion for judgment as a matter of law. It argued that there was no proof of damages, and that four of the plaintiffs lacked standing. The court agreed on the damages point. There was no evidence that Bionix made any statements to existing or potential customers about alleged patent infringement.

Plaintiffs brought their state law claims not as injurious falsehood/trade libel claims, but as general unfair competition claims. Michigan unfair competition law doesn’t fit the situation very well; most cases concern trademark-type claims, but the gist is that the defendant’s deception causes the plaintiff to lose some trade. A showing of actual confusion isn’t required, but actual or probable deception must be shown. Michigan courts have condemned as unfair competition any conduct that is fraudulent or deceptive and tends to mislead the public; the law is based on the principles of “common business integrity.”

Unfair competition, however, requires competition. But most of the plaintiffs weren’t in competition with defendants, only Veteran Medical. One of the other plaintiffs was a contract manufacturer for health care companies including Veteran Medical; it didn’t sell any of its own products. And the individual plaintiffs worked for the manufacturer. Even if they’d worked for Veteran Medical, they couldn’t have filed a claim on behalf of their employer. Thus, they lacked standing.

Bionix’s CEO did make a statement to a third party that Veteran Medical’s product was infringing. This supported Veteran Medical’s common law unfair competition claim based on defamation. Corporate defamation doesn’t require a showing of special damages. However, Veteran Medical still needed to establish the amount of damages to obtain a damages award. The court agreed with defendants that Veteran Medical didn’t prove anything to justify the damages awarded by the jury ($25,000, at this point). The testimony on damages was too vague and based on speculative business plans.

Finally, the court turned to plaintiffs’ argument that the patent infringement counterclaim was an exceptional case justifying an award of attorneys’ fees. Despite threatening suit, filing an infringement counterclaim, and filing suit in another district, Bionix ultimately didn’t oppose plaintiffs’ motion for summary judgment of noninfringement.

An exceptional case usually involves bad litigation behavior, including vexatious, unjustified, or frivolous litigation. Assertions of infringement of a granted patent are presumed to be in good faith; patentees aren’t liable for vigorous prosecution or enforcement of a presumptively valid patent. The underlying improper conduct must be shown by clear and convincing evidence; the burden is on the accused infringer to show that the patentee knew or should have known that the suit was baseless.

Here, the court determined that the infringement suit was baseless and brought in bad faith. The patent was a design patent, and the differences between the parties’ products were “startling.” “The Veteran Medical curettes have an hourglass-shaped, ribbed handle[] that is flat on one side. The Bionix curettes have a straight, elongated, smooth, octagon shaped handle with a flat rectangular-shaped recess (‘the notch’) in the middle of one side of the handle. Within the notch, the name BIONIX is spelled out in raised capital letters. It is difficult to conceive of much greater differences between two handle designs, and certainly no ordinary observer would be confused.”

Bionix knew this from the beginning. Nonetheless, defendants spent two years threatening litigation and insisting on litigation. The court concluded that Bionix had an anticompetitive motive. This was the type of case Congress had in mind when it authorized courts to award fees.

Too much attribution?

This discussion of a Dow Jones site's reuse of other blog content suggests that over-attribution, though accurate, was the source of bloggers' protest: by using pictures and bylines for the bloggers, the site seemed to imply that the bloggers were actually working with the site. Would a Lanham Act claim be barred by Dastar? I think not (though I wouldn't advise bringing the claim or think it ought to be won), but there are cases out there that suggest otherwise.

5 Hour Power struck unfair blow against alleged infringer 6 Hour Power

Innovation Ventures, LLC v. Body Dynamics, Inc., 2009 WL 877640 (E.D. Mich.)

The court adopted the magistrate’s report and recommendation, which was as follows: Plaintiff does business as Living Essentials; the parties sell dietary supplements formulated as energy shots. Living Essentials, which sells 5 HOUR ENERGY® shots, sued Body Dynamics (BDI), alleging that BDI’s use of 6 HOUR ENERGY infrined its trademarks by using a substantially similar phrase and package illustrations. BDI counterclaimed for false advertising, tortious interference, and related business torts. BDI also sought a declaratory judgment of the registration’s invalidity—that ® comes from the Supplemental Register (which makes invalidation unlikely, but also points to the highly descriptive nature of the mark).

The key: Living Essentials obtained a preliminary injunction in a separate case, then created the impression that BDI’s product was the subject of a court ordered recall.

In September 2007, BDI began selling MINI THIN RUSH® dietary supplements in liquid, capsule, and chewing gum form. The liquid energy shot has “6 Hour Energy!” at the top of the label. Living Essentials has been using 5-HOUR ENERGY since September 2004, and it registered a trademark a year later.

In April 2008, the court granted Living Essentials a preliminary injunction against N2G Distributing, not BDI, for trade dress infringement, finding that N2G’s bottle label for INSTANT ENERGY was “remarkably” similar, with the same color scheme, font, and depiction of a silhouetted figure ascending a mountain. But it didn’t enjoin use of the descriptive phrase “6 Hour Energy Shot.” Living Essentials hadn’t carried its heavy burden of showing that the primary sigificance of 5 HOUR ENERGY was to identify the source of the product rather than the product itself, and plenty of competitors used highly similar phrases such as “7 Hour Energy Boost,” “6 Hour Energy!,” “Extreme Energy Six Hour Shot,” and “6 Hour Power,” making Living Essentials’ secondary meaning claim less persuasive.

After the injunction issued, Living Essentials issued a press release and notice to customers, “RECALL OF ‘6 HOUR’ SHOT ORDERED.” It said:

Court orders immediate stop to manufacturing, distributing and sale of 6 Hour Energy shot.

Dear Customer,

We are pleased to announce that we won a decision against a “6 Hour” energy shot that closely mimicked 5-Hour Energy®. The United States District Court, in Case No. 08-CV-10983, issued a preliminary injunction ordering the immediate recall of all the “6 Hour” product, and told its manufacturer to stop making, distributing and selling it.

If you have any of the “6 Hour” energy shots in your store(s) or warehouse(s) contact the product’s manufacturer or your distributor to return the product immediately.

DO NOT RETURN ANY 5-HOUR ENERGY®. It can be difficult to tell 5-Hour Energy® apart from the "6 Hour" knockoff product. …

The press release didn’t identify the manufacturer, didn’t identify the product, and didn’t include an illustration of the trade dress. It was published as a “legal notice” in the Convenience Store News, the primary industry publication. (Query: did counsel approve this? What should counsel have told the client who wanted to run this notice?) As a result, numerous brokers and distributors of MINI THIN RUSH contacted BDI about returning its products, and BDI lost a bunch of sales. BDI had to hire a PR firm to respond.

The press release was misleading in saying that Living Essentials won a decision “against a ‘6 Hour’ energy shot,” when it really won a trade dress injunction against N2G. The use of the case number doesn’t communicate what product or party was enjoined (and indeed, why use the case number and not the name?). Moreover, the judge specifically denied an injunction against the only feature Living Essentials did identify, “6 Hour.”

Living Essentials rejoined that any confusion was BDI’s fault, for using the confusingly similar 6 HOUR ENERGY slogan, which constitutes trademark infringement. This conflated two separate issues, the alleged infringement and the press release, which falsely communicated that Living Essentials had achieved a court-ordered recall of all drinks using “6 HOUR ENERGY” on the label. Even if Living Essentials has a meritorious trademark infringement claim, the press release is misleading. Living Essentials could easily have avoided confusion by identifying the manufacturer and the trade dress—it included a picture in the complaint and the motion papers—but chose not to do so. Unless and until Living Essentials establishes trademark infringement, it’s misleading to represent that all energy drinks using “6 HOUR ENERGY” on the label are subject to a federal court’s recall order.

The district court adopted the magistrate judge’s reasoning on this point over Living Essentials’ strong objections. It argued that the court shouldn’t look at likelihood of success in isolation from its trademark infringement claim, because if it wins on trademark infringement, then BDI would have no legitimate interest in “6 HOUR ENERGY” and therefore no ground to claim harm. But the present procedural posture of the case involves nothing more than allegations of infringement; Living Essentials hadn’t moved for a preliminary injunction or offered evidence to support its claim. Right now, BDI is entitled to use the phrase on its products. If Living Essentials ultimately wins its infringement claim, BDI may not be able to claim any further false advertising injuries, but that’s for later.

Living Essentials then argued that the press release didn’t misstate any facts. It took steps to avoid misleading the audience by providing contact information for any questions and concerns, and by using “singular” words such as “the,” “its,” and “a” to indicate that it had won a victory against a single product and manufacturer. (Note: this is why we pay lawyers—to get them to make such claims with a straight face.) The court thought the magistrate got it right, considering Living Essentials’ anti-confusion measures “modest at best.”

Living Essentials also contended that the issue was moot because it didn’t intend to publish the press releases again. Voluntary cessation doesn’t render a claim for injunctive relief moot.

BDI showed actual deception among brokers, distributors, and customers. Among other things, at a trade show, one convenience store manager refused to take a free sample, believing it to have been recalled because something was wrong with the product.

The falsehood was material: a consumer is less likely to purchase a product she believes is subject to a court-ordered recall, as the trade show incident demonstrated.

There was a presumption of irreparable injury from a Lanham Act violation. (eBay hasn’t yet been held to change this in the Sixth Circuit.) BDI’s goodwill was being tarnished in the industry. The public interest also supported an injunction, since the public has an interest in avoiding deception.

tax protest as false advertising

United States v. Benson, --- F.3d ----, 2009 WL 902291 (7th Cir.)

Benson is a tax protester. The district court enjoined him from promoting, organizing, or selling his “Reliance Defense Package” and “16^th Amendment Reliance Package,” which were based on the false premise that customers could stop paying federal income taxes and escape prosecution by relying on the packages. The court of appeals affirmed, and also required Benson to divulge a customer list.

Benson wrote a book claiming that the Sixteenth Amendment was never properly ratified. He packaged the book with other materials to create his packages, which he sold for $3500. His theories were bunk.

Benson argued that he didn’t violate the tax laws—he was simply urging political action, not promoting any tax plans or affirmatively help his customers—and that the injunction violated his First Amendment rights. The court of appeals was unimpressed. Benson’s plan was a tax evasion plan that, instead of filing false returns, encouraged customers not to file at all. This “don’t-do-it-yourself” kit required nothing more to be an illegal method to avoid paying taxes.

Indeed, the materials were prepared to be sent to the IRS, including a customized “Reliance Letter.” And he made numerous statements about the tax benefits of buying his materials, boasting that he hadn’t been prosecuted for failing to pay taxes after his release from federal prison for tax evasion, and that the IRS hadn’t prosecuted any person who relied on his materials. He knew or had reason to know that his statements were false or fraudulent: his claims have been rejected by the Seventh Circuit in his own appeal, and his attempt to rely on his book in his own criminal case was ineffective, as it has been in numerous other cases. It’s also false to claim that the government can’t prosecute any person who fails to file a tax return based on a sincere belief in the income tax’s unconstitutionality. A defense of misunderstanding the tax code can raise a true state-of-mind defense, but one who believes that the tax code is unconstitutional is in a different position; one’s views of the validity of the tax statutes are irrelevant to willfulness.

Benson’s false statements were material. “There is no matter more material to the sale of a tax avoidance package than whether the package effectively allows customers to avoid taxes.” Benson’s program was promoted as a “golden ticket” to avoid tax liability and prosecution; his falsehoods would naturally have a substantial impact on a purchasing decision. “Even if some of Benson’s followers purchased the Packages for educational purposes or to take political action, as Benson claims, it is hard to believe they would have bought the materials knowing they were false.”

Benson claimed he was engaging in political speech. The government called it false commercial speech. The court of appeals agreed with the government. The injunction covered false statements made in connection with the sale of a product, not mere distribution of court opinions or expression of opinion. Benson can even sell his book with its mistaken claims. He just can’t promote its sale by claiming the ability to rely on it to avoid prosecution, or making any other false promises. Benson made many false statements about the benefits of buying his packages; he made them for the purpose of promoting sales, and therefore the statements were commercial speech. He said he was selling a way to avoid tax liability; he was really selling “a way to increase tax and criminal liability for failing to pay taxes.” That’s false advertising and it can simply be banned.

If the injunction bars Benson from actually selling the packages, not just falsely advertising their sale, that’s okay because the packages inherently involve false commercial speech. Their very names—Reliance Defense Package and 16th Amendment Reliance Package—imply falsely that a customer can rely on them. “Therefore, according to our great tradition of tolerating nutty opinions, the marketplace of ideas remains open to Benson; the commercial marketplace, however, is appropriately limited to speech that is not deceptive.”

The customer list also had to be surrendered. The government found 7 people who failed to file tax returns using Benson’s materials. Reliance on the materials will irreparably harm Benson’s customers, who are exposing themselves to civil and criminal penalties, and harm the government, causing it loss of taxes and expense in finding non-payors and collecting from them. Producing the customer list would also allow the government to monitor Benson’s compliance with the part of the injunction requiring him to mail a copy of the injunction to everyone to whom he sold the packages. This didn’t offend the First Amendment because “Benson operated an

Internet marketing scheme, not a membership organization.” A commercial enterprise doesn’t have the same rights of association as a political group or meeting.

MSNBC.com on the Fairey v. AP case

I participated in an interview with NBC's gracious Lisa Green.

FDA warns companies over sponsored links

The FDA sent warning letters to 14 companies about sponsored links whose text did not sufficiently disclose the risks of the advertised drugs. A useful reminder that background principles of law--not just crazy extensions of trademark law--apply to sponsored links. I found notable the comment from an FDA spokesperson that the FDA hadn't contacted Google and other search engines because "its policy is not to contact third parties that carry drug ads, even if they violate agency rules." Section 230 might also have something to say about that!

Things you never want your musician-client to say

"'Our very first spark was the Marvelettes,' Marr has said. 'We very, very consciously wore our girl group, retro, sixties influence on our sleeves. "Girlfriend in a Coma" is "Young, Gifted, and Black"—the music of it. You can sing "Young, Gifted, And Black" over it.'" Cf.

Plastic fantastic: failure to monitor packaging dooms TM claim, but other claims proceed

Perrin & Nissen Ltd. v. SAS Group Inc., 2009 WL 857606 (S.D.N.Y.)

Perrin & Nissen sued SAS for trademark, trade dress, and copyright infringement; related state claims; and breach of contract. Allegations: Perrin & Nissen is an English company that makes toy balloon products under the names “Magic Plastic” and “Amazing Elastic Plastic.” The toy is plastic compound with a blow-pipe.
Users can turn the plastic into balloons by balling up some of the compound, inserting the pipe, and blowing into the pipe. Perrin & Nissen has made the toy since 1947 under the name “Magic Plastic,” and began importing it into the US in 1994 in toy stores like FAO Schwartz.
Allegedly, Claney, one of the defendants, approached Perrin & Nissen in 1997 about selling it in the mass market, with Perrin & Nissen to retain all ownership rights.

The parties agreed to use a different name than the name used in American high-end stores: “Amazing Elastic Plastic.” Some customers required assurances that the product was the same as “Magic Plastic,” which fact Perrin & Nissen confirmed in writing. At the same time, The Better Blocks Trust filed an ITU for “Amazing Elastic Plastic”; the ITU was signed by Claney. Better Blocks later assigned the ITU to RJM Ventures; the registration issued in 1999.

In 1998, Perrin & Nissen entered into an agreement with International Chemical Corp., licensing it exclusively to manufacture the toy in North America in return for a royalty of 52 cents per four-pack, with a minimum of $260,000/year. Perrin & Nissen disclosed its trade secrets in return for ICC’s promise of confidentiality. Claney and ICC chose a distributor; it was given no ownership in either the trademark or the product.

Perrin & Nissen decided to change the “Amazing Elastic Plastic” packaging, and licensed the new trade dress to Claney, ICC, and the distributor, who agreed to use the trade dress only with the name “Amazing Elastic Plastic” in North America to mass market retailers and only in connection with Perrin & Nissen’s product. Then the distributor filed for bankruptcy, and a new distributor stepped in.

In 2002, royalties began decreasing, until there were no sales at all in April-May 2003. According to the distributor, this was because of competing imports from China. In 2004, Perrin & Nissen agreed with the distributor that Perrin & Nissen would make the toy in England and sell it directly to the distributor, and they agreed to a price increase for retail customers. But their retail customers (Target & Walgreen’s) not only rejected the price increase, but decided to stop selling the toy, and the distributor declined to take the already-agreed-on quantities. The distributor took the position that it had cancelled the outstanding order, worth $95,000, and that it owned the registered “Amazing Elastic Plastic” trademark, though it wouldn’t use Perrin & Nissen’s photos or art in connection with its sales.

In 2006, Perrin & Nissen learned that beginning in 2002, the distributor had been selling toy balloon products made in China using packaging that contained part of Perrin & Nissen’s trade dress and the mark “Amazing Elastic Plastic.” The distributor substituted those products for Perrin & Nissen when filling orders for the toy for retailers, while telling Perrin & Nissen and ICC that customers didn’t want to sell the toys any longer.

Perrin & Nissen alleged valid claims for copyright infringement of its packaging, fraud, and breach of contract.

The interesting stuff happened with the Lanham Act and coordinate claims. Perrin & Nissen alleged secondary meaning in its trade dress because of use on the Amazing Elastic Plastic product since 1998. But that packaging says “Amazing Elastic PlasticTM is a Trademark of SAS Group Inc.” (SAS being the distributor.) Perrin & Nissen received an earlier version of the packaging in 1998 from SAS’s predecessor in interest, RJM Ventures (the filer of the ITU, in case you don’t remember), which stated “Amazing Elastic PlasticTM is a Trademark of RJM Ventures Ltd.” Since the packaging was attached to the complaint and relied on in the complaint, the court could properly consider it on a motion to dismiss. So: Perrin & Nissen clearly had notice that SAS’s predecessor in interest was asserting ownership of the trademark and printing its own name on the packaging as early as 1998.

Perrin & Nissen could not therefore plausibly claim that its trade dress acquired a secondary meaning in the minds of purchasers as being associated exclusively with Perrin & Nissen, since its name never appeared on the packaging. (Hmm. I don’t think this throws licensing into doubt; it just means that the licensor has to inspect the product to make sure that the licensee isn’t making trademark claims adverse to the licensor!) So Perrin & Nissen failed to state a claim for false designation of origin based on trade dress.

Perrin & Nissen also alleged two false advertising claims. The first was that the packaging “Established Toy Since 1947” misrepresents the nature, characteristics, qualities and geographic origin of SAS’s product by falsely suggesting that the product is the genuine toy Perrin & Nissen has been making since 1947, instead of a Chinese knockoff. Perrin & Nissen also alleged that “Established Toy Since 1947” had secondary meaning, which allegation was defeated by the court’s reasoning above. The genuineness argument, too, failed because Amazing Elastic Plastic has never been marketed as emanating from Perrin & Nissen, but always marked with someone else’s trademark claim.

The other false advertising claim did better. Perrin & Nissen competes with SAS because it sells “Magic Plastic” toy balloons in the US. Perrin & Nissen also alleged that SAS was advertising toy balloon products on its website using a 1997 video with Jayne Phillips of Perrin & Nissen and her daughter demonstrating the toy, which falsely represents the quality of the product because SAS is selling an inferior knockoff that doesn’t work as well. This was sufficient to state a claim: the ability to form bubbles is a material characteristic of the product.

FTC ad parodies freecreditreport.com

Slate does the comparison for me, pointing out that freecreditreport.com's annual advertising budget is a significant fraction of the FTC's total budget. Annualcreditreport.com is the only truly free source of credit reports. The FTC actor sings "don't be misled," but the FTC has more tools than internet ads if people are being misled. Perhaps the FTC needs to revisit enforcement against freecreditreport.com.

IPSC deadline extended

The submissions deadline for the 9^th Annual Intellectual Property Scholars Conference at Cardozo School of Law has been extended to April 30^th, 2009. Individual submissions should be directed to David Morrison at dmorriso@yu.edu. For more information, visit www.ipscholars.org.

Discussion questions

The American Indians In Children's Literature blog has a revised discussion guide based on the official discussion guide for Gerald McDermott's Arrow to the Sun. The wholesale copying for purposes of dissection and critique at the blog is unproblematic. Here's what interests me:

After Reading Activities

... Stage a dramatic presentation of Arrow to the Sun. Choose two to three students to be narrators. Rewrite the text for beginner readers or help them memorize their parts of the text. Some students can be actors and the rest can play instruments and provide other sound effects and music. Rehearse the production and present it to other classes and parents.

So: (1) Do teachers and schools have a license from Scholastic to create and publicly perform derivative works of Arrow to the Sun? What if they rewrote the text in light of the blog's critique: would that be within the scope of any such license? (2) Do you think that Scholastic's contract with McDermott allowing audiovisual adaptations extends to Scholastic's invitation here? (3) What sort of contract language would you draft to cover the situation if you were Scholastic?

Settlement disagreement leads to copyright, trade secret and false advertising claims

SimplexGrinnell LP v. Integrated Systems & Power, Inc., 2009 WL 857504 (S.D.N.Y.)

The plaintiff, SG, sells and services commercial fire safety systems. Defendant ISPI doesn’t make its own fire safety systems, but services them. They compete in New York and New Jersey. Often, customers will contract with SG to install a fire alarm system, but retain ISPI to service and maintain it. Before 2002, the parties had a close business relationship—ISPI originated in 1987 as a local service company for SG’s predecessor. But in 2002, they parted ways, and ISPI filed for Chapter 11 bankruptcy. ISPI instituted an adversary proceeding against SG, alleging breach of contract and various business torts. In 2004, the parties agreed on a settlement, which required SG to pay over a million dollars to ISPI and voided all prior agreeements between them. However, SG was required to sell ISPI service parts, including patches and fixes, for its then-existing customer base at list price. It also required SG to provide ISPI with certain forms of technical support.

The basic question in the case was whether the software used to program and configure two systems, the 4100 and 4100U, were covered by the settlement. With both systems, the software can run through a laptop or an on-site network computer; in either case, a software key (dongle) must be attached to the computer for the programs to run. Each time a program is run, it’s loaded into RAM, where it remains while a technician configures the system; this can take minutes or hours.

There are multiple revisions for each program—4100 has revisions 8 and 9, and 4100 goes from revision 10 to revision 12. And each revision has a number of versions: approximately 50 for 4100U. The particular version of the program must match the particular fire system panel installed. Dongles, however, are not version- or revision-specific: a given dongle works on all SG programs. (Query: why no DMCA claim?)

SG didn’t dispute that ISPI could use the 4100 program to service customers on its customer list. And the court concluded that the 4100U program was also a service part. Among other things, the settlement agreement defined “service parts” as items that used a six-digit product identification number, as both 4100 and 4100U programs did and do, and SG repeatedly sent ISPI price lists for “service parts,” pursuant to the settlement, that included the programs. And the programs are necessary to perform various fire system functions, making them service parts within the plain meaning of the term. The dongles were also service parts, despite SG’s attempts to claim otherwise, even if they contained proprietary information.

SG registered copyrights one version each of revisions 8 through 11 of the 4100 and 4100U programs. The registrations are from 2005; it’s also applied to register one revision of version 12, with an application filed in 2008.

ISPI had access to program disks, and later to a SG website to download revisions and updates. ISPI didn’t limit its use of the programs to servicing customers on the settlement customer list. At some point in 2005 or 2006, SG cut off ISPI’s website access, and denied ISPI’s request for new versions, but never sought to have ISPI return the software it possessed. In 2006, SG wrote to two of ISPI’s new customers, telling them that there was no authorized servicer other than SG itself. SG also denied ISPI’s request to buy dongles specifically for two customers on the existing customer list; SG argued unsuccessfully that the dongles were trade secrets, not service parts.

A preliminary issue was the effect of SG’s registrations. In the Second Circuit, registration of a work doesn’t confer jurisdiction over claims of infringement in derivative works. Each new version of SG’s program is a separate derivative work, as set forth in SG’s registrations themselves. Thus, the court only had jurisdiction over claims that ISPI infringed the registered revisions (not, of course, including the revision whose registration is still pending).

The court concluded that ISPI was infringing SG’s copyrights when it used the software with new customers, but not when it used the software with preexisting customers. Each use of the program creates a copy in RAM (the recent 2^nd Circuit Cartoon Network case supported the idea that retention in RAM for a few minutes, as here, sufficed), implicating the reproduction right. In some cases, new customers had the appropriate program and dongle installed on their onsite computers; in other cases, ISPI serviced new customers by bringing in a laptop with the appropriate software already installed. In either case, the court concluded, ISPI was infringing.

The court denied SG’s contention that ISPI was only authorized to use versions and revisions existing at the time of settlement, even if the customers on the list changed their systems and therefore needed new software. The settlement agreement didn’t limit ISPI to the systems existing at the time of the agreement; it put a limit on the parties ISPI had a right to service (and a right to get parts from SG for), not the equipment they used.

Thus, SG could refuse to sell service parts to ISPI for the use of other customers; and SG could assert copyright and trade secret rights against ISPI’s use of the parts for new customers, even if ISPI legitimately acquired the parts. (Query how first sale fits into this; but it’s not clear that the software or the dongles are among the service parts available on the resale market.) The court also rejected ISPI’s arguments that ISPI was licensed to use the programs more broadly and that SG was estopped from claiming infringement.

ISPI promoted itself in emails and letters to potential clients as the only company other than SG that had the necessary software to program SG panels. It stated that it used factory parts, had factory-trained technicians, and once said that it had “direct access to parts and support from the factory.” ISPI could obtain SG parts through other companies, even without direct access. Many of its service technicians were previously employed or trained by SG.

Neither party showed any damages from the other’s conduct. SG wasn’t entitled to statutory damages; it didn’t initially seek damages at all in its complaint, and its allegations of copyright infringement were at first limited to two customers on the settlement list; the incidents for which it sought damages were technically beyond the scope of the present action. Even were that not so, SG could only show a couple of instances of infringement of the registered versions, and it meet its burden of showing that its registrations predated the infringement, so statutory damages were unavailable.

Likewise, SG wasn’t entitled to costs and attorneys’ fees; it largely failed to establish specific acts of infringement, and the case was really about interpretation of the bankruptcy settlement, as to which each side prevailed in part. The most equitable solution was for each party to bear its own costs.

The court found that SG was entitled to an injunction against copyright infringement. Irreparable injury could be presumed from infringement; the evidence suggested ISPI would continue to infringe absent an injunction; ISPI had identified no hardship beyond the hardship of loss of ability to engage in unauthorized conduct and the resulting loss of business; and there was no public interest at stake, because SG could continue to service and maintain fire alarm systems that ISPI couldn’t. The injunction, however, would only extend to the particular versions of the programs over which the court had proper subject matter jurisdiction. The Second Circuit doesn’t allow the kind of general prophylactic injunction that other circuits do. (Query whether this rule will fall along with the Second Circuit’s ruling rejecting the Tasini settlement, when the Supreme Court does reverse.) SG’s remedy for other infringements is to register the other versions. The court’s ruling on the dongle will also preclude unauthorized use of the programs.

So: the dongles contain a trade secret, and ISPI misappropriated it as applied to new customers; for customers on the existing customer list, there was no misappropriation because ISPI was entitled to use the dongles. The court held that the dongles are trade secrets. They’re kept secret, even though they’re sometimes left at customer sites, because they are only provided to authorized users and are not available to the public at large. (Are any measures taken against reverse engineering, whether contractual or technical? This analysis seems rather brisk to me, sensitized as I am by Elizabeth Rowe’s recent presentation on trade secrets.)

ISPI misappropriated the dongles; it didn’t really argue the point, instead arguing that it was entitled to use them to service all customers. Its use for new customers was in breach of a confidential duty—it was provided the dongles for use attendant to authorized functions, first as SG’s agent and later pursuant to the settlement. The court also concluded that there was no copyright preemption, because breach of duty is an extra element. The rationale for finding no preemption, the court thought, was “nicely underscored” by the facts here, because the primary claims of copyright infringement were “largely irremediable.” (I would think this is a rationale for finding preemption—if the infringement were irremediable because of expiration of the limitations period, for example, then the court should be clear that a state-law cause of action shouldn’t resurrect what’s actually a copyright claim; lack of subject matter jurisdiction for failure to register is the same type of barrier. This isn’t to say that the trade secret claim should be preempted—though I do wonder whether the DMCA should factor into that analysis—but that the court’s extra reason is not as helpful as it thinks.) Trade secret is uniquely valuable for computer programmers precisely because it protects ideas, processes and systems that copyright can’t.

The court therefore enjoined unauthorized use of the dongles. (Given SG’s recalcitrance on providing any software updates or dongles, I would think ISPI’s also entitled to an injunction allowing it to purchase same for old customers, but maybe ISPI didn’t ask for that.) The court did need to revisit irreparable injury, because recent circuit precedent suggests that damages will often be a complete remedy in trade secret case when there is no danger of further dissemination and the only possible injury is loss of sales to a competitor. The misappropriator who uses a trade secret to profit will often have the same interest as the the owner in avoiding further dissemination. But the court found that here, the interest in preventing copyright infringement of unregistered versions was sufficient to justify a finding of irreparable injury.

SG also alleged unfair competition in violation of the Lanham Act and state law. The court rejected ISPI’s argument for copyright preemption, because false designation of origin and false advertising aren’t rights equivalent to a copyright right. But SG lost the §43(a)(1)(A) claim, which seemed to be that ISPI misled customers into thinking it was a full and complete substitute for SG. Improperly marketing a product by creating a false impression of a link between the plaintiff’s product and the defendant’s product, those, is actionable as false advertising; it’s not a representation that defendant’s product originated with plaintiff’s.

ISPI’s claims that it had “direct access to parts and support from the factory” and “all the software necessary for programming” was only true for old customers, but false by necessary implication for new customers. They’re material statements, and the second one was made broadly to many potential customers; the first was only made to one New Jersey customer, which (1) wasn’t enough to constitute commercial advertising or promotion under the Lanham Act and (2) didn’t violate New York law because it was directed at New Jersey (which kind of sounds like a New Jersey joke).

ISPI’s claim to have “factory trained technicians” was not literally false, even though SG argued that their training was out of date. Nothing in the ads suggested that the training was the most up-to-date. Nor was the alleged misrepresentation shown to be material; the testimony was that most expertise comes from doing the job.

BC Law Review Symposium, panel 4

The First Amendment & The Construction of Copyright

Alfred Yen, Boston College Law School

Yen accepts Eldred, at least partially, but copyright law still chills speech. In particular, third-party liability poses particular risks because the incentives of the person doing the chilling are different. A speaker will fully weigh the value of her own speech—monetary or otherwise—in deciding whether to resist. But the intermediary has much less incentive to resist.

The expansion of indirect liability over time has made this a bigger deal—e.g., the expansion of vicarious liability from cases of direct financial benefit to indirect and diffuse financial benefit. Vicarious liability is strict—there’s nothing the defendant can do to avoid liability other than to censor another party. That makes it chilling. Contributory: similar issues. What constitutes knowledge for contributory liability? If a copyright owner informs eBay that copyright infringement is occurring on its network, is eBay now liable? That would be strict liability on the cheap. Inducement: another form of fault-based liability, here an intentional tort.

At the time of Sullivan, the common law of libel was also strict liability, including both compensatory and presumed damages (which can be awarded without proof). To the extent that vicarious liability is respondeat superior—responsibility for what your employees do—he has no problem with that. But the more expanded vicarious liability in copyright is constitutionally problematic. Sullivan and Gertz also tell us how contributory infringement should be construed. Notice of generic infringement on a network is constitutionally problematic, converting a fault-based cause of action to a strict liability cause of action. A plaintiff must at least show fault before claiming damages: the defendant needs to have behaved unreasonably under the circumstances, and failing to prevent all infringement isn’t unreasonable.

Following Gertz (which requires greater fault before presumed damages can be awarded than when baseline liability for actual damages in defamation can be awarded), to the extent that copyright allows presumed damages, they should be available in third-party cases only for reckless or intentional behavior.

Even if you don’t believe that this is a constitutional requirement, constitutional sensitivity counsels these reforms.

David Olson, Boston College Law School

Other changes in copyright: elimination of formalities, expansion of term—huge change in our lived experience of copyright law. The First Amendment interests accommodated by copyright law are no longer accommodated so well. The traditional contours analysis can show how our lived experience of copyright has changed.

So what counts as traditional contours? Kahle (certain formalities) and Golan (URAA restoration) (where a new ruling was just issued). The Berne Convention requires us to remove formalities. Golan: Taking material out of the public domain transgresses the traditional contours. The Tenth Circuit therefore sent it back to the district court for a First Amendment analysis; the district court applied intermediate scrutiny (both sides agreed that restoration was content-neutral and that the category of “foreign works” was too general to constitute a content-based category) and found the law insufficiently tailored. People who had used the works had reliance interests, and their First Amendment interests could have been protected while still complying with Berne.

Formalities in general might be a target—even though a generation has now grown up without formalities, it hasn’t been long enough to constitute a tradition. Then the question is whether compliance with the Berne Convention, along with equity and protecting authors from tiny mistakes, is sufficient government interest to justify the abandonment of formalities. The other rationales aren’t sufficient, but the Berne Convention is quite strong; the First Amendment interest might not outweigh it. But maybe we should do narrow tailoring for remedies for authors who haven’t complied with formalities: notice and registration. Also gives us a strong First Amendment interest in orphan works. Could have a requirement that a copyright owner comply with formalities, and if not the only remedy for infringement would be payment of a predetermined fee.

Moderator: Elizabeth Townsend Gard, Tulane University Law School: What would a case challenging formalities look like?

Olson: Ideally, you’d find people, maybe scholars/documentarians who want to make use of orphan works, can’t find the authors, and then could show a real impingement on their speech. File a declaratory judgment.

Yen: Who’s the defendant? Is the claim the statute is unconstitutional as applied?

Olson: The defendant is the US, and you could claim as-applied or facial unconstitutionality.

Gard: Can these two papers be put together?

Yen: He’s particularly concerned with third parties; first parties have incentives to assert their own rights. (Isn’t this a classic question of internalization—as Wendy Gordon noted long ago, fair users routinely don’t actually internalize all the benefits of their uses, for example, so are in similar positions to third parties in terms of incentives?) The First Amendment isn’t a cureall. But there might be room in circumvention and DRM to apply his analysis. He isn’t tying what he’s done here to traditional contours. He does highlight that it’s easy now to become an inadvertent infringer, which it wasn’t in 1909, where notice applied.

Me: (1) I’m now wondering about the role of knowledge/scienter/copyright myths among users—if we care about not imposing liability without fault on intermediaries, why shouldn’t we care about imposing liability without fault on initial speakers/copiers, who may think that copyright requires notice? Or are unconscious copiers? (2) Under Olson’s scheme, presumably the Supreme Court should affirm the Second Circuit case rejecting the settlement of the Tasini follow-on claims because the settlement can’t cover unregistered works.

Yen: The logic of his position probably does extend to individual liability without fault. For a later project!

Liu: Say more about what “traditional contours” means. Implicit in your article is a definition of traditional contours, but what could that possibly mean? The Copyright Act has changed so dramatically since 1789 in scope, works covered, rights granted, term, and lots of other ways (even registration and notice have changed hugely—you used to have to publish notice in a newspaper!). Why single out formalities?

Olson: one reason for traditional contours was a notion of judicial economy. Another: deference to Congress, which he expects the courts would continue to do. Courts will resist full cost-benefit analysis. Sometimes, though, balancing will be necessary.

Liu: Would you treat intermediaries the same regardless of how people are using them? E.g., is there a difference between Napster (which arguably had more limited speech value than the NYT) than YouTube (where there’s more likely to be speech value in what’s up there)?

Yen: thought about the project in terms of an ISP who had full speech rights of its own. Vicarious liability should be rare, and limited to employees; most cases should be contributory liability. (So, I guess, his answer is yes, treat them the same.)

The benefit of using contributory liability is to ask nuanced questions about whether a particular third-party defendant is in a position to take cheap and effective precautions against infringement without also wiping out a lot of valuable noninfringing speech. This is important because the market often doesn’t work that well in letting people held strictly liable for others’ speech pass their costs on and work out for themselves who should be doing the screening.

Mammoth opinion in drug false advertising case

Bracco Diagnostics, Inc. v. Amersham Health, Inc., 2009 WL 806581 (D.N.J.)

Fair warning: this decision runs over 120 pages in Word. It is the product of a 39-day bench trial; I hope everyone took a vacation afterwards. Lots of stuff happened, probably the most wasteful of which was that a bunch of expensive expert opinions got excluded on Daubert grounds. The opinion also suggests some of the huge burdens of a false advertising case where many relevant representations are made by sales reps. Here, there were detailed notes of over 300,000 sales visits, creating an enormous job of reviewing and coding them, because the parties disagreed vigorously about how to characterize the notes of what got said.

The parties sued each other for false advertising. Bracco proved some false advertising, but couldn’t establish a causal nexus between the false ads and its alleged lost profits. “[T]he greater number” of Amersham’s ads were true, though some were false in extrapolating beyond the results of reliable, well-controlled studies. Thus, the court granted an injunction and damages for millions of dollars in corrective advertising. On the counterclaims, Amersham gave up on its pursuit of damages and Bracco discontinued the claims at issue, so even though some of Bracco’s ads were false the court didn’t grant an injunction against Bracco. The court required the parties to use an alternative dispute resolution mechanism for future allegations of false advertising.

Falsity

The parties sell x-ray contrast media, which are classified by osmolality. Bracco makes Isovue and Amersham makes Visipaque (a product with the osmolality of blood, also called iso-osmolar). Amersham made establishment claims that its iso-osmolar Visipaque performed better in terms of renal effects than low-osmolar contrast media (LOCM) such as Isovue. Amersham generalized to the class, even though the reliable studies were performed using its own LOCM as the comparator, in part to minimize the impact of its claims on that product, Omnipaque. (There were a bunch of other studies the court concluded did not support the general superiority claim.) In fact, there were no head-to-head studies of Visipaque versus multiple LOCM, or versus LOCM combined with pretreatments, which can improve the performance of LOCM. The FDA has sent warning letters to Amersham indicating that the results of its study can’t be extrapolated to media other than Omnipaque in advertising.

Here’s a bad fact: while one key study that was supposed to prove Visipaque’s renal superiority was ongoing, Amersham took “secret and forbidden peeks at the data looking for trends, and even changed the study endpoints and stopped the study early in response.” When a New England Journal of Medicine reviewer asked if there had been an interim analysis, Amersham and the authors denied it, then amended the article to include this false denial. The “secret attempt to ‘fix’ the study midstream” made the trial non-prospective. The court was also not impressed by the fact that Amersham’s marketing director “provided input to the NEJM article to try to make it misleading, and then celebrated the final version’s obscuring of the limitation of the results of the study to Omnipaque and its overly broad and unsupportable conclusion.”

However, the court determined that the study results were not entirely vitiated by these and other flaws. As long as Amersham carefully identified that Visipaque had been compared to Omnipaque alone, it could use the study results in ads; it just couldn’t use the study to claim general superiority. Notably, the court instructed that if Amersham uses its brand name Visipaque in ads, it must similarly refer to the brand name of the comparator—Omnipaque—instead of the clinical name (iohexol).

The case reminds us strongly that medical literature can say things that the FDA doesn’t allow drug manufacturers to say. One study author testified that he, his co-authors, and the NEJM believed in the scientific reasonableness of the conclusion (extrapolating superiority over Omnipaque to general superiority). But the FDA has repeatedly rejected Amersham’s attempts to make that claim itself.

Bracco doesn’t come off particularly awesome here either; it sponsored a head-to-head randomized trial comparing Visipaque and Isovue on the incidence of cardiac adverse events, then tried to reanalyze the data, undermine the results, and pressure the study’s author when it showed superiority for Visipaque.

Separately, Amersham overclaimed Visipaque’s advantage in patient comfort; its claims are only supported in regard to peripheral angiopathy procedures, not any others, as the FDA has reminded Amersham. Amersham also made unsupported claims of lower costs, based on the idea that Visipaque led to lower rates of adverse events, which are costly. There’s some indication that Visipaque has a higher rate of delayed adverse events than Isovue and other similar contrast media.

Only an unambiguous message can be literally false. The court found three key renal statements: “Visipaque may be better than a LOCM,” “Visipaque is better than all LOCM,” and “Visipaque is as good as or better than a LOCM with prophylactics.” The last two were unambiguous. The first claim was paraphrased from the key study and, without context, may be misleading—in context, it’s clear that “a LOCM” is “Omnipaque,” the LOCM tested. But the court found the phrase misleading on its own. (Is this a stealth application of falsity by necessary implication? I think the doctrine fits.) As for the non-renal superiority claims, there were cardiovascular superiority claims, which included claims of less pain, and cost superiority claims.

These were all establishment claims. (Amersham argued vainly that Bracco had the burden of proof to show by surveys that its claims were establishment claims. It was clear that these superiority claims were based on tests.) So Bracco needed to show that the tests didn’t support the claim, either by attacking the reliability of the tests or by showing that the claim wasn’t sufficiently founded in the tests. The court found that “Visipaque is better than all LOCM” was an extrapolation that strayed too far from the results of the underlying studies. The court found that those studies were reliable, but without identifying which LOCM was tested, disseminating the studies’ conclusions was misleading. Amersham must clearly and conspicuously state which drugs were actually tested. And it may not explicitly or implicitly communicate a superiority message over Isovue without a reliable head-to-head study. The non-renal superiority claims fared similarly.

The court found testimony about FDA guidelines to be legally irrelevant. In particular, the FDA requires substantial evidence before allowing superiority claims, defined as two or more adequate and well-controlled studies directly comparing the same products. But it’s not sufficient under the Lanham Act to show that claims are inadequately substantiated under FDA rules; claims must be shown to be literally false or misleading. Thus, a defendant could advertise the results of one adequate well-controlled head-to-head study without violating the Lanham Act (and just wait for the FDA letter, I suppose).

However, the FDA’s response to the claims at issue is probative and persuasive. Here, the court didn’t have to interpret the FDCA or speculate on the FDA’s position, since the FDA had provided its views in “numerous letters” to Amersham about Visipaque’s misleading superiority claims. (One lesson: even if FDA enforcement is dead, worry about your competitors’ use of FDA warning letters!) Amersham argued that, to the contrary, the FDA never acted against Amersham, despite Bracco’s attempts to convince it to do so, and that Bracco was using the Lanham Act as an end run around the FDA’s inaction, since none of the FDA letters were final agency action.

But the court wasn’t usurping the FDA’s authority or preempting its findings. The FDA had already made its position abundantly clear. Still, Bracco can’t prove falsity simply by relying on the FDA’s letters applying FDA’s standards. Inadequate substantiation under FDA standards is not the same as falsity. But Bracco had other evidence of falsity.

On implied falsity, the court excluded Bracco’s consumer survey and thus had no evidence of misleadingness, as required by the case law.

Amersham’s falsity was not willful, because the claims were based on scientific studies that have not been invalidated—just not sufficiently based. Amersham did have a protocol in place attempting to weed out false claims in ads, but, perhaps unsurprisingly, that protocol let through some claims that a neutral adjudicator later found false.

Puffery

I’m not sure why the court thought it necessary to say this, but: Amersham’s statements were specific and measurable factual claims, not puffery. The use of footnotes also didn’t help, because footnotes purporting to change the apparent meaning of claims but are inconspicuous or in fine print can’t remedy a misleading claim. Amersham’s footnotes simply cited studies, without further explanation and in particularly without explaining the studies’ limitations.

Materiality

The court found materiality because: (1) Amersham’s sales and marketing teams repeated certain unsupported claims; (2) the substance of the claims can’t be observed anecdotally by doctors (this is not directly about materiality, but it shows that doctors would have to take the claims on faith); (3) the type of claims—drug safety—were shown by Amersham’s own observations and market research to be useful at generating sales; (4) there was evidence that it will take several years for Bracco to recover from the falsity. Also, given that some of the claims were literally false, there is a presumption of materiality and deception.

Commercial Speech

Not everything at issue in the case was commercial speech actionable under the Lanham Act. Most obviously, internal company documents that were never publicly disseminated in the US weren’t actionable.

Scientific articles in peer reviewed journals also aren’t commercial speech, even if the underlying research was funded by one of the parties in the hopes of improving its economic position. Amersham may have sponsored the research whose results were reported in the NEJM, but it wasn’t the author; the author wasn’t paid for his work on the article; the article didn’t advocate a particular purchase, even though it came to specific conclusions about which product was better suited for medical purposes; and the article was published by the NEJM, which is an impartial educational journal.

In its initial form, the court refused to inquire into the article’s reliability, but the court nonetheless determined that using articles “in a secondary dissemination in the form of commercial advertising” puts their reliability in question. Manufacturers will only seek to disseminate favorable information, and their considerable financial resources mean that favorable findings are more likely to reach doctors than unfavorable findings, distorting doctors’ understanding of safety and efficacy. When manufacturers disseminate favorable studies in order to get people to buy their drugs, they are engaging in commercial speech.

Likewise, oral statements made by Amersham’s sales reps were actionable commercial advertising or promotion, if proved. Amersham argued that the sales notes weren’t sufficient evidence of what the sales reps said; and as mentioned above, there were epic disputes about interpreting whether the notes indicated any kind of falsity. But many cases accept sales notes as evidence of what was said. Under the standard Lanham Act test, commercial advertising or promotion must be disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within that industry, which in the case of oral statements means that they’re widely disseminated and part of an organized campaign in the relevant market.

Amersham argued that the number of actually false statements at issue was too small to be actionable. Bracco contended that, given how vital face-to-face communication is to selling drugs, the sales call notes were enough. The court agreed: the sales calls weren’t made in isolation, but as part of a large-scale marketing plan. “[E]ven if the offending sales calls are a very small percentage, and thus, alone would not be actionable, when the sales calls are combined with [the] overall campaign, which was promoted through press releases, websites, and [continuing medical education], the result is false ads which have been sufficiently disseminated to be actionable under the Lanham Act.”

Amersham also argued that a good faith effort by a company to educate its sales force about what can fairly be said about published studies rendered any limited false or misleading statements made by representatives outside of those parameters not actionable. But that’s not the law; the law targets not unreasonableness, but falsity. Nonetheless, the court considered Amersham’s training “evidential,” just not dispositive; I’m not clear what that means, but my guess is it has to do with the ultimate finding that Bracco couldn’t show that it was the falsity that cost it sales.

As for the rest of it: website ads, print ads, and TV ads are all actionable, as were continuing medical education events (CMEs) sponsored by Amersham, because they were designed by Amersham to deliver a specific message of Visipaque’s renal superiority. CMEs are presented by doctors, but here Amersham had a substantial role in the creation of their content. One example of a sponsored CME used slides that had the defendant’s logo on every slide and was given by an authorized representative. The “direct control” made the CME commercial. The court also specifically found commercial speech when defendant’s logo was on the first slide of another presentation and the presentation was made in part by its paid consultants.

Unclean Hands

Bracco’s own alleged false advertising wasn’t a barrier to relief because Amersham’s claims had significant safety implications. The unclean hands defense is rarely successful, because of a strong public interest in avoiding misleading ads. Bracco’s misconduct, even if taken as established, was largely defensive and limited in scope and duration.

Injunctive Relief

Bracco met the standards for injunctive relief. The court ordered corrective advertising: Amersham is to issue a press release, including on its website, about the decision and the corrective ads. Corrective advertising is appropriate in cases of falsity that bear on public health. Amersham is also to re-train sales and marketing personnel in accordance with the opinion. Future disputes about Amersham’s ads are to go to arbitration, which may include NAD (though I suspect NAD might decline jurisdiction over some standard methods of communication with doctors, like CME and sales rep visits), and Amersham is to bear the costs associated with the disputes if the ads are found to be false, while Bracco will bear them if the ads are not found to be false.

Damages

Falsity leads to a presumption of consumer deception and harm. But that doesn’t alone justify an award of money damages. For that, you need willfulness or other evidence. Here, there was insufficient evidence of willfulness; the studies were subject to interpretation (though Amersham wrongly interpreted them in its own favor) and Amersham did have an extensive ad approval process that considered FDA and other issues.

Amersham’s witnesses conceded that the Visipaque renal safety claims drove substantial sales increases, a big chunk of which were at Bracco’s expense, since the market is effectively a duopoly. Nonetheless, only some of the claims were false; others were “accurate touting of favorable results of reliable scientific studies,” which means it was impossible to conclude that the false ads were the cause of Bracco’s lost profits, so lost profits couldn’t be awarded. In particular, the court found that the falsity wasn’t the cause of Bracco losing several major contracts to Amersham. The basic problem was that some of Amersham’s uniqueness claims were true, while others were false, and it’s hard to tell which drove sales.

Disgorgement of Amersham’s profits was also inappropriate. Using the Third Circuit’s five-factor test: (1) Amersham’s acts weren’t willful or deliberate. (2) The court found insufficient evidence of sales diversion, as noted above. (3) Other remedies—injunctive relief and compensatory damages for the costs of Bracco’s corrective ads—were sufficient. (4) Bracco acted fast in asserting its rights, which favors disgorgement. (5) There’s a strong public policy in making false advertising unprofitable, deterring false statements about drug safety, and deterring inflated drug prices based on inflated clinical claims. But deterrence alone isn’t enough to justify disgorgement without willful conduct.

Bracco was, however, entitled to recover its costs for corrective ads and other damage control expenses if (1) there was a likelihood of confusion or damage to sales, profits or goodwill; (2) the damage control expenses were responsive to the misconduct; and (3) the expenses were reasonable under the circumstances and proportionate to the damage that was likely to occur. Bracco met these requirements. Hundreds of millions of dollars were at stake; it was reasonable of Bracco to spend a bunch, and the court awarded nearly $11.4 million.

However, the court concluded that Amersham wouldn’t have to pay Bracco’s expenses in investing in research to disprove the falsity. The parties compete fiercely, and Bracco has an incentive to invest in studies anyway. Given the number of studies submitted to the court, it appears to be “commonplace, if not a necessary part of the industry,” to spend significant amounts on comparative studies. Indeed, virtually every clinical trial, study, and publication in the area was sponsored by one of the parties; the court lamented the absence of a truly independent clinical study.

Bracco also didn’t get attorneys’ fees, which probably ate up a huge amount of the award (one expert alone got paid $500,000, which among other things made the court skeptical of claims that Bracco couldn’t have done a bigger survey because of the expense).

Counterclaims

Amersham alleged that Bracco falsely advertised Isovue’s superiority to Omnipaque. The court agreed that Bracco’s tests didn’t prove its claims. Bracco stipulated that these claims were no longer in use, and the court found no real possibility that it would revive the claims, so it declined to grant injunctive relief. But if disputes do arise, the same arbitration procedure is to be used, with the same cost-bearing structure.

BC Law Review Symposium, panel 3

Publicity, Reputation, Commerce & The First Amendment

Diane Zimmerman, NYU Law

Not all things we think of as IP will offend a First Amendment theorist. Trade secret: We respect rights not to speak, so much of trade secret law is acceptable under the First Amendment. Similarly, free speech doctrine is not that friendly to false/misleading speech. But outside of copyright, IP has a problem—when the label property gets placed on an interest, suddenly the image of dollar signs changes the way speech regulations are approached by many courts and they start balancing property versus speech. Is that legitimate?

Used to be that noncommercial use of persona was privileged, but use in advertising or products, or even some forms of commercial entertainment (Elvis lookalikes) would violate the right of publicity. This was based on a view of what constituted commercial speech that is now quite outdated. Leave aside commercial advertising uses for her purposes, and deal only with nonadvertising uses, including merchandising (coffee mugs, T-shirts).

Whatever you think about the First Amendment’s role in ads, there are speech concerns in these areas. Horror story: The Tony Twist case, Doe v. TCI--$15 million verdict (down from $24 million) bankrupted a comic book publisher because of the use of a hockey player’s name for one character who appeared in a fraction of the issues. The court admitted there was a free speech interest at stake, but found defendant’s intent to obtain commercial benefit sufficient to allow a jury to decide whether the commercial benefit outweighed the plaintiff’s property right.

That’s an example of a balancing test; the others are peculiar and troubling too. The Restatement of Unfair Competition sets out the common-law approach: if the use is a use on a product, plaintiff presumptively wins because that’s not expressive. That’s plain silly. You don’t put Springsteen’s face on a t-shirt because it’s a beautiful decoration; you do it because people who buy it want to express something about themselves, their origins, their allegiances. Also, the Restatement says that use of a persona unrelated to an expressive work is actionable, because the speech interest is subsumed by the property interest. But magazines use celebrity images just to attract attention all the time.

Saderup: Cal. S.Ct. came up with a test for the explicit reason of trying to salvage publicity rights against a very serious First Amendment defense. Why take transformativeness from copyright, which is provided for in the Constitution? Anyway, a realistic depiction of the Three Stooges violates the right of publicity, but turning Johnny and Edgar Winter, musicians, into half-worm, half-human characters in a comic book, that’s transformative. Wacky.

Then recently, the 8^th Circuit applied the Missouri Doe v. TCI rule in a way that seemed to invalidate all right of publicity claims, by saying that information in the public domain was free to all comers. Conclusion: chaos! Because if you try to fit the right of publicity into any kind of normal First Amendment analysis, it doesn’t work well. This is content-based regulation, identifying prohibited subject matter. How did we get to a point where we’re balancing right of publicity against free speech? Money—courts will look at an economic interest and analogize it to physical theft. But that is a false analogy.

Many people take comfort from Zacchini, which Zimmerman thinks is not a true right of publicity case. But using Tony Twist’s name is not the same thing as paying Tony Twist to play hockey, which was the issue in Zacchini. Lowe v. SEC: The Court said there would be real First Amendment problem to combat securities fraud by preventing a former security adviser from publishing a newsletter. P&G case—economic interest in barring newspaper from publishing harmful information was insufficient to justify suppression.

Roberta Kwall, DePaul Law

Wrote about the right of publicity and the First Amendment a while ago. Now interested in a particular factor she identified: morally based harm, where the use is an affront to the plaintiff’s dignity or autonomy interest. The Fat Boys case, where personas were used in a beer commercial when the Fat Boys were anti-drinking. Another case: Jackie Mason v. Jews for Jesus. JfJ used a caricature of Mason on the cover of a recruiting pamphlet—“Jackie Mason … a Jew for Jesus?!” Inside, there was a riff on his routines. But he’s not a JfJ; he’s an ordained rabbi.

The courts don’t do well understanding morally based harm in a right of publicity action. The autonomy and dignity interests at the bottom of some conceptions of the First Amendment are also at stake in the right of publicity as dignity.

The cases Zimmerman reviews don’t work to protect dignity interests. Money has nothing to do with dignity-based causes of action. In Doe v. TCI, looking at the predominant purpose of the defendant has nothing to do with the dignity-based harm. Likewise, the “actual malice” test used in Hoffman v. Capital Cities has nothing to do with dignity. Intent and money aren’t the right questions.

Two questions for a court when a plaintiff is largely or primarily concerned with dignity: (1) to what extent does the defendant’s use force the plaintiff to say something she doesn’t want to say; (2) to what extent does the defendant’s use of the plaintiff’s identity create a link between the parties? When a persona is compromised by a portrayal that the public understands as emanating from the persona, then there is a right of publicity violation. This test can show where First Amendment interests should prevail even when there is a dignitary harm—fictional portrayals aren’t compelled speech and don’t create a linkage; people understand the fiction doesn’t come from the persona. Use of Carol Burnett’s Charwoman character in Family Guy to mop the floor in a porn shop—the public understands that the parodies aren’t authorized, thus they don’t cause dignitary damage of the kind she recognizes. Closer case: when a political campaign uses an artist’s song as a theme, and the artist strongly disagrees with the politician—is that compelled speech? Is there a possible public link of the persona and the candidate? Something to discuss.

Moderator: Stacey Dogan, Northeastern University School of Law

She was struck by the difference in presumption between the two approaches. Zimmerman: presumption is that speech may not be limited absent a good reason. Kwall: if there is a harm, there’s a presumption in favor of protecting against it, which the speaker must overcome.

If the harm is dignitary, the right of publicity might be a bad idea. The vast majority of dignitary harms arise from clearly protected speech. So just because there’s some commercial hook in some instances, that doesn’t make those instances the right ones in which to address dignitary harm, when so much more harm is left unaddressed. Dogan drew an analogy to the argument I make about dilution in Gone in 60 Milliseconds.

Question for Kwall: what do you think about the merchandising right? Depending on the answer to that question, Kwall and Zimmerman may be far apart or close together.

Kwall: Wants a multifactor, context-sensitive test.

Zimmerman: She thinks courts are moving away from the newsworthy/commercial distinction, and are recognizing that other kinds of uses, including product uses, have major speech implications. Once you own up to the fact that a T-shirt is a form of speech, then it’s hard to explain why it’s not protected the way a newspaper is. We should be applying strict scrutiny!

Dogan: To her, the right of publicity is about TM law. If publicity is false endorsement, then §43 covers the waterfront. So we could abolish the independent right of publicity without trouble.

Q: How would the dignity claim survive death? Also how do you deal with postcards showing John Wayne wearing lipstick, titled “it’s a bitch to be butch”?

Kwall: if it were up to her, she’d protect personas under a theory of moral rights, but in a very cabined way. Attribution would be a requirement; you could use someone else’s persona/work as long as you identified that this was not emanating from them. And she’d terminate the interest at death.

Dogan: the problem of circularity/feedback effects—licensing practices develop in the shadow of court rules. Courts should thus draw lines early on, to protect speech interests.

Q: How would you apply dignity to Hustler v. Falwell? How would it change if it were actually a Campari ad?

Kwall: The Court said that no one would believe Falwell actually endorsed it, which is what she’d do too. If it were an ad, would it be construed as an endorsement? (No.)

Kwall eventually gets to the place where the dignity harm is being misrepresented. Dogan points out then that criticism alone leaves you with no claim. (Zimmerman points out that laudatory presentations have also been historically considered potentially actionable in false light, but most states are now collapsing that into defamation and that’s dying out.)

Lidsky: Rapp v. Jews for Jesus: same case, but not a celebrity—false light. Fla. S.Ct. used it to declare that it wouldn’t recognize false light as an independent cause of action; have to meet defamation’s standards. But the standards are different in publicity cases.

Zimmerman: we should rethink that separation. S.Ct. has said that privacy as a justification for regulating/punishing speech regularly doesn’t rise to a sufficient state interest. We haven’t used the right set of standards for evaluating publicity, though maybe we now have in privacy since those cases are so hard to win.

Papandreau: Why not return to the tort of misappropriation? If the only actionable dignity harm is misattribution, then why do you need the right of publicity? Consider what’s going on in the law of misappropriation in New York.

Kwall: The problem with misappropriation: same ills as IP generally—undefined and standardless, and almost discredited. Misappropriation might not advance the analysis.

Kwall for Zimmerman: What does she think of the idea of the plaintiff having speech interests, or autonomy/self-realization interests, in her own persona?

Zimmerman: She doesn’t think it’s two speech interests, but one speech and one self-realization/liberty interest, always in tension in a First Amendment system because unpleasant, cutting, hateful speech regularly causes the target to cringe. People’s feelings about themselves are subject to possible assault. That’s just the constitutional scheme.

Dogan: But if you define dignity only to included compelled speech, then there may be a speech interest.

Zimmerman: compelled speech is rare; disclaimer would be better.

Kwall agrees on disclaimer remedy.

Me: I don’t get the difference between Kwall’s (1) and (2). How can a copy of my image be compelled speech by me? I am not my image. Or, more specifically: how can there be any harm of this type without false endorsement? What she means by coerced speech is unclear to the extent it means anything other thus false endorsement. And the Burnett example, among others, makes it important to ask whether her definition of false endorsement is normative or empirical; it sounds empirical. But false endorsement, as we just discussed, is manipulable: suppose the plaintiff is Paris Hilton. Isn’t it easy for her to convince the public that all representations of her are endorsed by her?

Kwall: There’s a relation between compelled speech and linkage. Compelled speech goes not to public perception but the defendant’s taking the plaintiff’s image and using it in a way that makes the plaintiff look as if she’s saying something she isn’t. (I still don’t get how you know what the plaintiff looks like she’s saying without evaluating what the audience sees.)

Q: Why worry about the dignity of celebrities and not the dignity of other people?

Kwall: She wouldn’t draw any distinctions.