Look upward

So there are these two books about to be released, with some similarities of subject and cover, but also some pretty significant differences (at least in attitude). Would a reasonable consumer distinguish the American dream from the American nightmare?

I have to admit, I'm more interested in the cover pose as pose: these appear to be entirely different photographs, yet represent Palin in a nearly identical attitude towards the camera. Though Shepherd Fairey's case is now marred by his conduct, I'm still unconvinced that he took protectable expression from the photo he used. It's striking to me that both photos of Obama have basically the same angle as the photos of Palin: that upward-angled look, the look of a leader.

Another way it's hard to plead around Dastar

Robert Bosch LLC v. Pylon Manufacturing Corp., 2009 WL 3366967 (D. Del.)

Bosch moved for reconsideration on its Lanham Act claim. It alleged that Pylon falsely claimed that its partner’s “expertise ... has inspired the development of a high performance, frameless all-weather wiper blade with many innovative features and benefits,” and that these wiper blades “are all new and improved ... adding functional features such as spoilers for improved wiper performance.” But this was allegedly false, because Bosch developed the technology. The court rejected this claim as barred by Dastar; false attribution of authorship can’t be repled as misrepresentation of a good’s characteristics or qualities. Bosch argued that its claim focused on Pylon’s misrepresentations about its “commercial activities”—its R&D. The court thought that pre-marketing R&D activity might not even count as “commercial,” but in any event claiming credit for the activities leading to the development of a product couldn’t be distinguished from claiming credit for the product itself.

Arnold & Porter Webinar on False Advertising

False Advertising Disputes: Benefits, Challenges, and Risks of Making and Defending Against False Advertising Claims, hosted by Arnold & Porter LLP

Mary Engle, FTC Associate Dir. for Advertising Practices

FTC’s priorities: national advertising. Health claims, functional foods, green marketing, endorsement/testimonials. Health claims are becoming more prevalent in food ads, drawing increased scrutiny. Settled claims with Kellogg over Mini Wheats: be careful when transforming study results into ad claims. Airborne: consent judgment over, inter alia, misleading implied claims made through visual depictions. Also Rite Aid and CVS which sold store brand Airborne knockoffs.

Kellogg: “Clinically shown to improve kids’ attentiveness by nearly 20%”—compared to kids who had only water for breakfast. Only half the kids showed any improvement in attentiveness at all; only one in 7 improved by 18% or more, and 1 in 9 20% or more. Study was presented misleadingly! Subsequent version of ad included verbal disclosure that this was compared to no food, but the FTC didn’t think that was enough.

Airborne: Challenged the claims that Airborne prevented colds: clearly implied from depictions of germs spreading, reference to Airborne as a defense. Earlier ad versions had made express cold prevention claims, but even after the ads were toned down they implied the same thing. Settlement: up to $30 million in refunds, including private class action settlement. Commissioner Rosch’s dissenting statement: didn’t support allowing Airborne to run out existing packages for several months, and believed that FTC should have addressed assertions of Airborne’s “immune-boosting” qualities and should have required corrective advertising to dispel lingering misimpressions.

Improvita: Airborne knockoff for Rite Aid and other retailers, still pending. FTC settled with Rite Aid for Germ Defense ($500,000 in consumer redress, stores posting refund notices now) and CVS for AirShield ($2.8 million in consumer redress). These complaints did challenge immunity-boosting claims and didn’t have run-out provisions for existing packaging.

Functional foods: boost the immune system, assist with brain function, protect the heart, etc. FTC is concerned with non-FDA-approved claims—need strong science to back them up. Standard FTC injunctive provision prohibits claims unless based on competent and reliable scientific evidence, but that standard is not sufficiently precise. We will be crafting new injunctive language in future orders. More precision will increase ease of enforcement and harmonize with laws and regs administered by sister agencies like FDA. Address situations where a single piece of research, though conducted according to established protocols, gets results inconsistent with scientific consensus.

Green marketing: conducted consumer research to see how to update the Green Guides. Expect to issue revised Guides for comment in 2010. Clothing/sheet sellers deceptively advertised products as made of natural bmboo fiber, when they were made of manmade rayon from bamboo, which is an environmentally destructive process that mostly occurs in China because US regs are too tight. Challenged claims the products were manufactured using an “environmentally friendly” process and were biodegradable; also included Textile Fiber Act counts: you have to say that the end product is rayon; can’t just say it’s bamboo.

Kmart 2009 consent order: challenging biodegradability claims for paper plates. In modern landfills, paper doesn’t biodegrade.

FTC endorsement/testimonial guides: Least-noticed principal change—requiring disclosure when advertiser paid for a study touted in the ad.

Typicality: testimonials need to do more than say “results not typical,” because that didn’t work. An endorsement on an essential/key attribute will be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the product in actual, albeit variable, conditions of use. So, unless there’s substantiation for that, the ad should clearly and conspicuously disclose the generally expected performance in the depicted circumstance; no longer sufficient to disclose limited applicability of the endorser’s experience, because that wasn’t working. The net impression of the ad controls.

Social media marketing: pretending to be a customer and giving oneself a good review violates the FTC Act. And the guides require disclosure of material connections between seller and endorser, where the audience wouldn’t reasonably expect the connection and it would affect the weight or credibility of the endorsement. Examples: seller is compensating endorser; endorser is employee/buisness associate of seller; endorser is related to seller. When does a consumer become an endorser? When, viewed objectively, the consumer is being sponsored by the marketer. Is speaker acting solely independently, or is the speaker acting on behalf of the advertiser or its agent such that the speaker’s statement is an endorsement that’s part of an overall marketing campaign? If an advertiser sends me free samples as part of a marketing campaign and expects me to talk it up on my blog, that can be an endorsement. Linedrawing may be tough, but that’s always true—advertorials pose the same issues.

Nonexclusive factors: did the advertiser compensate the speaker, provide product for free? What are the terms of any agreement between them? What’s the length of the relationship? Did the speaker previously receive free products? What’s the value of free products received? Overall, is this part of a marketing campaign? Only then are disclosure requirements triggered.

David Mallen, Associate Director, NAD

NAD as alternative to litigation, though can’t get you a preliminary injunction. What’s new? Aggressiveness in comparative advertising, resulting in an uptick in NAD challenges. Implied claims/puffery. Green marketing. Social media.

Often a battle of the tests—when S.C. Johnson’s Glade comparative performance claims were challenged, for example. NAD tries to offer guidance on substantiation.

Sensory testing: Kraft Foods, #4915—claim was that Tombstone pizza was preferred over Red Baron; mouseprint said it was a pepperoni comparison. Two issues: if the test is only pepperoni, can you make such a broad claim? Parties make a variety of pizzas, and pepperoni wasn’t the majority sold. Second, how do we conduct comparative sensory tests? Basic issues: is there a standard industry test; is the methodology sound; did the study test the actual products at issue (often a problem with dietary supplements where the test was only on one ingredient and extrapolation is difficult); can a correlation be drawn between the results and the challenged claims; are the parameters of the test consumer relevant?

Puffery: don’t suggest health benefits without adequate substantiation.

Green marketing: most claims are faith-based advertising: consumers have no choice but to trust; they can’t verify. If they can’t trust those claims, it will undermine faith in ads as a whole. Confusion over substantiation, meaning of claims to consumers. One case: advertiser relied on its supplier’s certificate of biodegradability. Not good enough. “Better for you” claim overall on the basis of one attribute—that’s not a good idea. Clorox Liquid Laundry: “more sensible for the environment” because a plant-based surfactant; that was true, but that doesn’t mean that overall the product had substantiated a claim that it was more sensible for the environment—it’s still a complex chemical with difficulty breaking down, and there was no lifecycle analysis that could support a broad green claim.

Social media: big challenge for NAD. Used to be easy to figure out what advertising is. Dyson, Inc. #4619: a YouTube clip of a product demo, performing really well and showing the competition performing badly. NAD made itself clear that it would consider these types of things “advertising.” Will try to harmonize with FTC guidelines and provide consistent message to industry.

Blogger disclosure: weknowdiets.com—“We have compiled the most comprehensive database of information for people who are looking for a trimmer body and healthier lifestyle.” Gives MiracleBurn an “editor’s choice” award one week after another—this is actually owned and operated by MiracleBurn. A clear violation of the old testimonial guidelines as well as the new ones. NAD plans on following this issue.

Michael Mazis, prof. of marketing, AU

Key issues in false advertising surveys: universe; open v. close-ended questions; “noise”; filter questions; control questions v. control ads.

How do attorneys get into trouble? Clients are often emotionally upset by competitors’ ads. Surveys are blunt instruments. People don’t retain all that’s in an ad; take away one or two messages. A subtle message can’t be assessed well by a survey. Tendency for attorney/researcher to push the envelope and include leading questions.

Memory v. stimulus-based surveys. Memory: Eveready confusion (look at this product: who makes it? Requires consumers to have brand in memory), secondary meaning, and dilution surveys. Universe is crucial! If you define it too broadly, people won’t have the product in memory. Stimulus-based: show the ad; the universe is important, but not as important, because memory isn’t as crucial, so universe definition will often go to the weight of the survey.

Open ended questions: preferred by courts; less likely to be biased, but may produce general responses. Closed-ended: greater potential for bias, but likely to produce more specific findings. Most surveys have both types. Ideally, you get consistency: people play back a claim in the open ended questions and again in the close ended questions (comment: the Mylanta Night Time Strength case was like that). What if you get little or no playback in the open-ended questions, but strong playback in the close-ended ones? People may suspect bias, and you’ll need an explanation for the inconsistency.

Exmaple: AbForce, FTC v. Telebrands from 2004. Claim: electrical contraction of stomach muscles; reminded consumers of commercials for other ab belts; no express claims about weight or fat loss; showed toned models. The claims were all implied. Open ended questions: 22% said product will give you flat abs, lose weight/fat, gets you in shape; closed-ended said it would result in well-defined abs (65%), lost inches on the waist (58%), lost weight (43%), alternative to exercise (39%), and so on. Is the AbForce ad deceptive? Possible objections: (1) there was yea-saying to closed-ended questions. (2) Just relying on preexisting beliefs about other ab belts—the earlier beliefs are deceptive, not this ad. (3) Nondeceptive elements of the ad might be biasing the results.

Alternative explanations are noise: extraneous factors that make it impossible to state that the ad caused the observed results (here, deception). Controls can help. Filter questions: eliminate respondents who are guessing or yea-saying. So: “Did the ad, say show or imply that Ab Force improves users’ appearance, fitness, or health?” Anyone who said yes went into the close-ended questions, but anyone who said no didn’t. Filter questions cause respondents to be dropped from the survey. Overfiltering is a defense strategy: the fewer respondents answer a closed-ended question, the less likely you are to find deception. Quasi-filter: “Did or didn’t the ad say, show or imply … or don’t you know?” Necessary but not sufficient. “Don’t know” gets an average 25% takeup—a more conservative way of doing the research.

Control questions: items not in the ad yet plausibly associated with the product. Ab Force: lowers blood pressure (6%), relieves stomach ucler pain (5%), relieves nausea (4%)—subtract these results to get net deception. Good, but not enough.

Best practice: control ads. Control for preexisting beliefs; control for nondeceptive elements of ad. Goal: show respondent a nondeceptive ad as close as possible to the allegedly deceptive ad. Modified ad: purge misleading elements and correct any misimpression.

Easier to do with a print ad, which can be digitized and modified; harder with a TV ad. Depending on the ad, there may be little remaining of the ad.

Vermont sued RJ Reynolds for Eclipse advertising: a cigarette that “may present less risk of cancer, chronic bronchitis and possibly emphysema.” RJ Reynolds relied on the word “may.” How many people played back the concept of “may”? Hardly anyone even saw “may.” Words like “cancer,” especially for smokers, are the ones they pay attention to.

Two controls: one ad was “a cigarette that presents less risk of cancer, chronic bronchitis and possibly emphsyema.” No difference in reception. Then a really meaningless ad with little claim left; didn’t convey much.

Disclaimers: most common in creating controls for TV ads. Correcting alleged deception with an additional statement. Potential problems: what should the statement be? Is the message effective? Ongoing case: FreeCreditReport.com – case between Experian and LifeLock. What does “free” mean? It’s free if you sign up for a paid program. Control ad with disclaimer: to get your free credit report you must sign up for a trial membership. If you don’t cancel within the 7-day trial period, you’ll be billed $14.95/month. Difficulty with proving a negative: did the ad fail to communicate conditions associated with the free credit report. Pretty significant differences in open-ended and close-ended responses both; people did notice the disclaimer.

If you can’t fix the ad, use a different ad for the same product, as done in the Kraft v. FTC milk content case. Issues: must have an available nonmisleading ad; which ad to use?

Finally, could use a different brand’s ad—used when no control is available. Doan’s: advertised for decades that it contained a special ingredient that other brands didn’t have, but it was just an aspirin variant. Problems comparing, but best they could do.

There is no cookbook for studies; they each have to be designed. Control questions/filters are useful, often necessary, but you really need a control ad to control for prior brand beliefs. Trade-offs exist in selecting control ads. There’s no substitute for a knowledgeable, experienced, and independent expert. A bad expert will come back to haunt you; courts aren’t stupid.

Randy Miller, Arnold & Porter

Lanham Act is useful when speed is critical. Courts are more willing these days to order advertising stopped, because of a body of caselaw allowing injunctive relief. Listerine “as effective as floss”; DirecTV; Splenda; Tysons Food “no antibiotics” case—all granted injunctions requiring ads to be pulled. Sometimes, as a result, the C&D approach works. Always call competitor first; you won’t get a TRO unless you’ve gone to your competitor and asked it to stop.

Cheat and retreat: run a disparaging ad and then stop and claim mootness: the Gatorade/Powerade “incomplete sports drink” dispute. Voluntary cessation won’t always help, though; the Tyson’s court said that if you’ve already stopped you should have no problem with my injunction not to restart.

Rochelle Dreyfuss on the Federal Circuit and the Supreme Court

Washington College of Law (AU) Program on Information Justice and Intellectual Property

Rochelle Dreyfuss, NYU

What the Federal Circuit Can Learn from the Supreme Court, and Vice Versa

In the early 1970s, the regional circuits couldn’t handle the appellate load. More judges would lead to more intracircuit inconsistency and more cases. New circuits would also breen more intercircuit splits for the Supreme Court to decide. One possibility: experimenting with specialist courts to reduce the dockets of the regional circuits, take pressure off the SCt, reduce pressure for forum-shopping, produce coherence in a field, and use expertise to decide cases more efficiently. A brain surgeon practicing every day may do a faster and better job than someone who does brain surgery once every few years. Patent law was the killer app.

Fears: tunnel vision. Judges might be so focused on patents they’d ignore nonpatent incentives to innovate like curiosity or prizes. They might leave the judicial mainstream. There might be difficult boundary issues between the specialized court and the regional courts.

Congress gave the Federal Circuit authority over things other than patent, meaning that other groups are involved in lobbying for appointments and judges must be aware of nonpatent developments in the law.

Result: success, on the whole. Many other countries are copying the model. No capture—if anything, concern is that not enough appointees have patent experience; repeat players don’t seem to dominate because patentees are often on both sides of cases. Supreme Court intervention cleared up early boundary problems: once a case is before the Federal Circuit, it decides all the issues, not just the patent issues; but the Circuit doesn’t have jurisdiction if the only patent issues are in defense.

Has eliminated forum shopping for patent issues, which is really important for industries looking to make big exceptions. Is some forum shopping at the district court level, but things are still vastly better. Markman: eliminated jury trials on claim construction, creating more predictability, another value for industry. There are still complaints about claim construction, but empirical study shows that the level of uncertainty is no greater than for contract construction, plus the Federal Circuit’s expertise has smoothed out uncertainty in a lot of areas, and the court has become knowledgeable about the tech industry so it’s now influential within the judiciary as a whole on licensing issues.

So now comes the Supreme Court, reversing its practice of reviewing Fed. Cir. decisions only intermittently and on procedural issues. Now it’s begun to intervene substantively and reversed or modified almost every time: Medimmune, Quanta v. LG, eBay v. Mercexchange, Microsoft v. AT&T, and several others. Bilski, pending, doesn’t look so good for the Fed. Cir. either. But SCt review generally is declining, and this trend is happening without any circuit splits. Is this an implicit criticism of the Fed. Cir.’s work?

She says no: every circuit comes into focus eventually, and it’s now the Fed. Cir.’s turn. Plus, SCt involvement is salutary.

The two courts have a lot in common. They’re both part of the experiment with a specialized court: how a judiciary largely committed to generalist jurisdiction deals with a specialized court. Both are largely courts of last result, and have responsibility for superintending courts below them.

Federal Circuit’s relationship to the generalist SCt, who reviews its work, and to the generalist district courts, whose work it reviews: Review of Fed. Cir. seems particularly intrusive. Fed. Cir. judges are specialists, but SCt justices have no experience at all with patent cases—except for Stevens, by the time they were appointed to the appellate bench, they wouldn’t ever have heard a patent case. The Fed. Cir. has little chance to see how patents fit into the economy as a whole, while the SCt does. At the micro level the SCt is making sure standards for injunctive relief and standing and antitrust treatment are uniform across all bodies of doctrine. At the macro level, the SCt has largely pushed the reset button: the Fed. Cir. took the commitment to patents to heart, but that turned into a mixed blessing with concerns that there are now too many patents with low quality and that the high cost of patent litigation is chilling innovation. eBay steps in to reduce incentives to litigate; KSR makes it harder to get patents, improving patent quality.

What about Fed. Cir.’s relationship to generalist district courts? Supposed to defer to trial court’s factual findings, given the trial court’s unique access to facts. But that comparative advantage is diminished in patent cases, where the judges may not be familiar with the tech. Fed. Cir. has the background and hires clerks for their technical backgrounds. Other countries that have specialized patent courts have mostly established the court at the trial level—real gains from specialization might well be in factfinding.

Fed. Cir. faces specialization issues more regularly, and has most to teach SCt. Fed. Cir. has been attentive to the factfinding review question. In earliest nonobviousness cases, the Fed. Cir. undertook a detailed examination of the facts. The SCt held that Rule 52 allowed reversal only for clearly erroneous rulings, even though the Fed. Cir.’s grasp of the facts was clearly better. But the Fed. Cir. didn’t give up. First, required trial courts to apply specific analytical techniques in factfinding, like “long-felt need.” Second, characterized issues as ones of law rather than fact to allow itself to bring its expertise to bear. True, these sacrificed flexibility for predictability, but patent industries liked that.

Markman approved recharacterizing facts as law—fit in with SCt agenda to limit jury factfinding—but the SCt is busily dismantling the Fed. Cir.’s analytical framework as overly rigid. May also happen in Bilski. But the SCt hasn’t faced the larger issue of expertise head-on. How to find the sweet spot between rules and standards? Need to help the Fed. Cir. deal with deficiencies in lower court factfinding. If the SCt looked at that, it could also help the Court figure out what to do about other complex factual issues like medical malpractice.

SCt should take Fed. Cir.’s advice on certworthiness—to a certain extent happening now, because of strong dissents in recent cases the Court has taken. Then, the judges of the Fed. Cir. have to be careful about what they’re teaching—should for example have let Bilski play out before assessing it. And other inputs should matter—for example when patent has diverged from other bodies of law, as with eBay.

Should the SCt defer on substantive law? SCt has assumed role of teacher, chastising Fed. Cir. for departing from precedent. But the Fed. Cir. can’t just apply SCt precedent. Tech changes rapidly. The internet exploded; the structure of the patent industries changed, with joint ventures and university involvement becoming common. And yet before KSR the SCt hadn’t addressed nonobviousness since the 1970s. On micro and macro issues, the SCt should be the teacher, but it shouldn’t get testy about Fed. Cir. departures from its rules when there are contemporary problems not contemplated by old precedent.

SCt tends to leave implementation questions to the Fed. Cir. Is the SCt the best institution to set midrange policy? In other technical areas, an administrative agency takes care of that. SCt works very hard on identifying the theory on which it’s making midrange rules—the policy arguments for and against the alternatives, and why it chose the rule it did. In part this comes from experience resolving circuit splits, but the Court did the same thing in KSR and Festo, etc. In contrast, though the Fed. Cir. recites policy justifications for the statutory requirements of patent law, it rarely provides policy reasons for its own decisions and some judges affirmatively say that doing so would be inappropriate.

Why does the Fed. Cir. deny policy motives? Maybe didn’t want to make waves while it was experimental, but the Fed. Cir. is now part of the fabric of the US judiciary. It must justify and explain policy, or it can’t play its role. The Fed. Cir. never attempted to engage Breyer’s dissent in Labcorp, just dismissing it as not controlling law, even though the claims were basically the same. If the Fed. Cir. had explained why it was ignoring Rule 52 on factfinding, or why it adopted analytical rules, the SCt may have taken it more seriously. Bilski at least moves in this direction, referencing Diamond v. Diehr multiple times.

How to deal with the special problems for being a supervisory/administrative court that is mostly a court of last resort? The SCt’s docket is littered with cases arising from its own failure to provide clear rules, and lowered caseload makes the problem worse; the Fed. Cir. could set a good example. On the other hand, being a court of last resort means that you need to articulate policy well to guide the trial courts: good explanations can substitute for rigid rules—the more the trial court understands why the Federal Circuit rules as it does, the better they’ll be able to apply the rules. Might help avoid appeals based only on linguistic variations in tests.

Damage control: where a court needs to reconsider an issue it’s already laid to rest. That’s not always easy. Repeat players don’t want to annoy the judge/jeopardize future cases. The number of PTO cert petitions plummeted after the Fed. Cir. was established—the PTO is the ultimate repeat player. Another example: Common-law experimental use privilege: consternation in the research community at the cutback in the privilege; the Fed. Cir. heard a case in which it could have done damage control, but the attorneys in that case decided to use a statutory argument, creating doubt about the scope of the common law for more than 5 years. Need to empower lawyers to find good cases to bring back issues for consideration—some Fed. Cir. dissents are along those lines. Fed. Cir. bar should learn like the SCt bar does to read the tea leaves.

Q: What about TM?

A: Hasn’t studied Fed. Cir. TM cases, but might suggest putting all IP in specialized courts to give those courts experience with all the different ways of incentivizing innovation. More antitrust jurisdiction would help for the same reason. Taiwan specialized court: its jurisdiction was innovation policy.

Josh Sarnoff: The SCt cases have often been weak on explaining the policy behind its rules—eBay, KSR—destroys the clear rules but doesn’t give a clear sense of what the policy should be. The SCt may be reluctant to speak clearly and change the nature of the patent system too broadly.

A: Part of the problem is that the policies aren’t neatly teed up for the SCt. A 2^nd Circuit case disagreeing with the 9^th Circuit will explain why the 9^th Circuit is wrong and the 2^nd is right. We don’t have that in patent law—the Fed. Cir. at most will articulate its own policy; would be useful to describe the different policy options in more detail. If they did, the SCt might be less interested in intervening in midrange policy in the first place!

Q: What’s the role of judge made law?

A: The Patent Act is really short now (if it ever got reformed it would be like copyright, 120 pages), so most of the law has to be judge made law, and the question is “which judges?” The Fed. Cir. doesn’t have enough cases to make macro policy, and at a micro level you want the rules to be the same across the entire judicial system, as with eBay. (Though as a civ pro professor, she’d never taught the rule articulated in eBay as the rule for granting injunctions! Where did they get this rule? The SCt thought it was harmonizing, but it used a rule that didn’t exist anywhere else!)

Q: Why doesn’t the IP bar suggest that, given IP’s importance to our economy, more judges with patent experience should be appointed, even to the SCt?

A: Stevens (also Breyer and Ginsburg) have antitrust experience; she thinks that suggestion would be a good idea. Appointments to the SCt are so politicized, though.

Q: There seem to be a group of judges at the Fed. Cir. who seem to want to en banc every big question. Is that provocative to the SCt, compared to allowing the cases to bounce around for a bit?

A: That’s possible. Every circuit has panel disagreements, but seems more salient for the Fed. Cir. because everyone thought it could produce coherence. Fewer judges initially; fewer judges produce more coherence, even without en bancs—if you eat lunch together every day, you don’t need en bancs. But now the Fed. Cir. is too big for that, and if you still want them to produce coherence, you need more en bancs.

NY AG wins case against debt relief firm

People v. Nationwide Asset Services, Inc., --- N.Y.S.2d ----, 2009 WL 3277307 (N.Y. Sup.)

NY’s AG sued Nationwide (and related entities) for fraud, false advertising, deceptive business practices, and unlawfully doing business in NY. Nationwide is in the business of “debt settlement”: it negotiates with creditors on behalf of debt-burdened consumers to try to wipe out a portion of their total unsecured debt. Nationwide markets its program through “cold calls” to distressed consumers. American Debt Arbitration, Nationwide’s partner, gets fees for enrolling consumers in Nationwide’s program, and Nationwide gets fees for negotiating with creditors.

In essence, Nationwide tells consumers they can eliminate their unsecured debt, typically over 2-3 years, while saving a large portion, typically 25-40%, of the original amount due at the time they enroll in Nationwide’s program. This savings promise supposedly takes into account the substantial fees Nationwide charges. Consumers get this result, Nationwide claims, by (1) stopping all payments to creditors, (2) making smaller monthly payments directly to Nationwide, (3) not negotiating personally with creditors, attorneys or collection agencies, and (4) instead authorizing Nationwide to negotiate settlements with creditors, but not immediately—only after delay, usually many months. Nationwide tells consumers that steps (1), (3), and (4) are helpful because creditors are more willing to write down debts that are more seriously delinquent. Nationwide does warn consumers that enrolling in its program is no guarantee against continued dunning, the institution of debt collection procedures, or the initiation of legal action. Nationwide also tells consumers to disclose all unsecured debt and put it into Nationwide’s program while not undertaking any new debt. As to step (2), Nationwide determines each consumer’s monthly cash flow and sets a monthly payment intended to enable the consumer to pay the amount “targeted” for negotiation, as well as Nationwide’s fees, over the anticipated duration of the program. The typical minimum is $300 a month, but could be much higher.

Nationwide charges various fees, including a setup fee of $399, an enrollment fee of three monthly payments (minimum $900), a monthly administrative fee (in conjunction with monthly bank fees), and an ultimate settlement fee. The first 3-5 monthly payments go to the initial fees, and only then is any portion of the monthly payment put into a special bank account set up to fund debt settlements. While the months pass waiting for money to accumulate in that bank account, the consumer usually becomes seriously delinquent. And once the bank account is set up, the consumer pays an additional monthly administrative fee of $49, plus additional monthly fees of a minimum of $7 a month, to the chosen bank (Rocky Mountain Bank and Trust). The final settlement fee, earned at the time Nationwide settles each designated account, is 29% of the difference between the original amount due on the account at the time the consumer signed up with Nationwide and the amount ultimately negotiated by Nationwide. If the bank account doesn’t contain enough to pay the settlement and the fees, the consumer has to pay the shortfall along with his or her next scheduled monthly payment.

The basic deceptive practices at issue: (1) According to information provided by Nationwide in response to subpoenas, the AG alleged, it rarely achieves the promised savings of 25% or more on behalf of New York consumers. Of 1981 consumers signed up from 2005 through May 5, 2008, only 64 (under 3%) successfully completed the program by September 25, 2008, while 537 had canceled, and of the 64, only 6 (.3%) realized savings of 25% or more after taking Nationwide’s fees into account.

(2) Nationwide allegedly systematically misrepresents the savings realized through its settlements. It provides a “Program Completion Summary” for each supposedly successful participant, listing the total amount paid by the consumer and concluding with a percentage of total savings, but the AG alleged that the Summary is deceptive because it doesn’t account for the enrollment and setup fees in total amount paid, nor does it account for those fees or the monthly administrative/bank fees in calculating total percentage saved. Moreover, if Nationwide settles a debt for more than the consumer originally owed when she signed up, Nationwide lists the amount saved as zero, rather than acknowledging the fact or amount of an overage.

(3) Nationwide allegedly fails to honor its guarantee that the total paid won’t exceed the original amount owed, even taking all fees into account. 27 of the 64 consumers Nationwide called “successes” actually paid more than the original amount owed when the program fees were taken into account.

(4) Nationwide allegedly fails to disclose all its fees up front, particularly the setup fee of $399 and the monthly bank fees.

The AG submitted a lot of evidence, including affidavits from ten of the 64 “successful” consumers, documenting their “very unhappy” experience with Nationwide, along with the contents of ADA’s telemarketing script.

Nationwide countered by denying the charges and claiming that the identified consumers, though originally identified as successes by Nationwide, failed to comply with Nationwide’s programs, so weren’t misled or damaged. Nationwide did its own analysis of results, looking at 116 consumers who were fully compliant (enrolling all debt with Nationwide and allowing Nationwide to negotiate settlements of all that debt); 596 consumers who completed the program with less compliance; 886 consumers who dropped out “before depositing enough in their accounts for respondents to negotiate any debt settlements on their behalf”; and 650 active customers. For the 116 successes, Nationwide’s expert calculated that they settled their debts at about 50 cents on the dollar, and saved 26.2% in the aggregate even taking all fees into account. For the 596 in partial compliance (which generally meant that they withdrew debt from the program, failed to make one or more monthly deposits, withdrew funds from their accounts, or opened new credit accounts), Nationwide had negotiated settlements of about 54 cents on the dollar for the debt remaining in the program (which represented under 40% of those consumers’ aggregate debt). As for the claim that Nationwide failed to honor its guarantee, Nationwide contended that the guarantee explicitly required compliance with its program, which almost no one achieved because they failed to disclose all their unsecured debt, skipped multiple deposits into their special purpose accounts, negotiated with creditors or settled debts independently of the program, or withdrew accounts from the program before completion.

The court agreed with the AG that Nationwide had engaged in false advertising and deceptive business practices. Initially, it credited the facts and figures provided in response to the AG’s subpoenas, not the revised data, whose late and “striking[ly] contradict[ory]” presentation was “troubling” at a minimum and definitely less reliable and credible than the AG’s evidence. Among other things, Nationwide calculated probable savings for accounts consumers withdrew from the program or didn’t reveal to Nationwide in the first place, and the court found it “rather speculative” to extrapolate possible savings and percentages for accounts not actually settled—indeed, it seemed as if much of the revised data had been “created out of whole cloth.”

The court had little difficulty concluding that Nationwide had persistently misrepresented typical savings of 25%-40%. The problem wasn’t simply with the use of the word “typical,” though the court agreed that it was seriously troubling to define a “typical” consumer in a way that excludes at least 95% of Nationwide’s consumers. Instead, by joining “typically” with a predicted range of savings, rather than simply using a percentage amount, Nationwide misleadingly suggested that enrollees would achieve savings in that range and that the risk of deviation from that range was small. But both parties’ statistics demonstrated that the risk of deviation was “exceedingly large.” What Nationwide calls “typical” or “average,” the evidence demonstrated “beyond any doubt” was “all too atypical.” By Nationwide’s own definition of success, under 3% of consumers achieved success, and only .3% realized savings of 25% or more.

Using Nationwide’s recharacterized numbers, that rises only to 5%--and the court was highly suspicious of the fact that none of the original 64 labeled as successes were included in the 116 successes in Nationwide’s recalculation; the kind of wizardry required to produce the new numbers prevented the court from having any confidence at all in the newly submitted information. Even were the court to take those figures at face value, they still wouldn’t match any common or reasonable understanding of “typical.”

Nationwide simply didn’t say to consumers what it said to the court: “There is no merit to respondents’ suggestion that reasonable consumers would understand respondents’ references to the ‘typical’ consumer as pertaining only to that comparatively rare consumer who, in resistance to all of the extreme financial and legal pressures inherent in the situation, might complete the program after complying strictly with the program’s core requirements. If respondents have been truly intent on conveying that limited understanding, they easily could have said so in their advertising and telemarketing script in approximately those words. (Comment: should have taken a page from the more careful weight loss ads! “It won’t be easy, but if you’re committed, you can do it.”)

Likewise, the “Program Completion Summary” was deceptive in representing savings because it omitted significant fees, and because it failed to take any overages into account. The court noted that showing “amount saved” as zero on debts for which the consumer paid more than originally owed was not inherently deceptive, given that a net cost is not a savings and that “only an economist would attribute meaning to the concept of a ‘negative savings.’” But the Summary became deceptive because it didn’t take the overages into account in calculating the aggregate amount saved.

Further, Nationwide engaged in deceptive business practices and false advertising by failing to honor its guarantee that total paid—including fees—wouldn’t exceed the total amount of confirmed debt a consumer had on entering the program. The AG showed that 27 out of the 64 who Nationwide initially identified as having successfully completed the program paid total amounts that exceeded—sometimes far exceeded—the original amount owed.

The guarantee was, however, expressly limited by requirements that the consumer disclose all creditors and adhere to other requirements, and by a provision that the guarantee was void if she skipped more than one payment within any 12-month period. Of the 27 consumers identified by the AG, 22 failed to adhere to these requirements. Nationwide attempted to show that the remaining 5 weren’t guarantee-eligible because they did things like negotiating with creditors on their own, continuing to use enrolled accounts, or opening new accounts.

The court was unimpressed: “respondents seek to demonstrate that their guarantee is so riddled with conditions, limitations, and exceptions as to be no real guarantee at all.” This wasn’t a great defense to a false advertising case. Instead, the court interpreted the guarantee to require only its two proximately expressed conditions—identify all unsecured debt and don’t skip multiple payments. Thus, withdrawing enrolled accounts, settling with creditors, etc. didn’t nullify the guarantee. Moreover, only in retrospect were the consumers told that withdrawing funds from their special bank account would nullify the guarantee. Thus, there were five demonstrated instances of violation of the guarantee. Given Nationwide’s pattern of misleading consumers and exaggerating savings, the court was convinced that these were deceptive acts aimed at consumers generally.

However, the court rejected the claim that Nationwide violated the law by failing to disclose all its fees. The AG focused only on one section of Nationwide’s website, the FAQ answer “What is the cost of your program?,” which didn’t specifically list the $399 setup fee and monthly bank fees. But the telemarketing script and other written materials do clearly disclose those fees.

The court found that the record was lacking in clear and convincing evidence of specific intent to defraud; thus, the AG showed fraud under the statute, but not fraud under common law. “Whatever their telemarketing methods, and however unethical or socially undesirable it may be for respondents to systematically encourage consumers to default on their just debts, and whatever detriment they might cause to desperate consumers in counseling them to a course of action that exposes many of them to unrelenting and unbearable pressure from creditors and successful suit by some such creditors, respondents through their program have undeniably furnished monetarily quantifiable ‘value’ to a demonstrable number of their New York consumers, although nowhere near all or even most such consumers.” Moreover, except for those specific consumers who furnished affidavits, the court couldn’t make individualized findings of actual and reasonable reliance as necessary to support a finding of common-law fraud. Even with the affidavits, all they showed is promises about what “usually” or “typically” happened to program participants. The consumers didn’t specifically allege that they relied on such representations.

Further, given the written materials Nationwide used, the court refused to credit the affidavits when the consumers said that other false promises were made to them, such as that interest and fees would stop accruing on their defaulted accounts if they entered the Nationwide program. “Even if respondents had said that, a reasonable consumer would not have believed it and relied on it to his or her detriment. More generally, in light of the scripted presentations and written materials furnished by respondents, the Court cannot infer that any of the Ten Consumers were promised that their credit rating or score would not be adversely affected by a default or that they would not be harassed, threatened, or sued by creditors or collection agencies if they defaulted on their debts.” If they really were told those things, the court didn’t think a reasonable consumer could have believed such statements. (Comment: why not? How were those 25-40% savings going to be achieved? I’ve seen ads on TV that promise to get Uncle Sam to stop dunning you for back taxes—why wouldn’t a consumer believe that initiating some process could be enough to make a creditor stop calling?)

Anyway, under the statute, reliance isn’t required, as long as the targeted practice has the capacity or tendency to deceive. (Also defendants were liable for doing business in NY as foreign corporations without authorization to do so. They were thus enjoined from doing business in NY unless and until authorized.)

The court permanently enjoined Nationwide from representing that consumers utilizing their services typically save 25% to 40% on their debt, failing to account for fees and overages, and failing to live up to its guarantees. The court refused, however, to grant full restitution, partly because the court wasn’t clear what the AG really wanted—some of the sums consumers paid to Nationwide went to settle their debts, after all. And some consumers received some value from paying fees. The AG wanted restitution for consumers who completed the program but paid more than the original amount due, and for consumers who canceled the program. The court thought this left out currently active participants, who might be paying a lot more than those groups; the court was especially disinclined to award restitution to those consumers who experienced buyer’s remorse and cancelled. (Apparently the court wanted them to embrace the sunk cost fallacy instead.) There was no way to calculate restitution without proof of what percentage of Nationwide’s revenues was attributable to deception.

However, the court would enforce the express guarantee on a showing of individual deception, causation and injury. (Why is deception required if it’s an express guarantee? Causation and injury would seem to follow from refusal to honor a guarantee, so I’m not as curious about those.) The AG would monitor computation and payment of such restitution, and could return to court if necessary.

The AG asked for a civil penalty of $200 per NY consumer signed up between January 2005 and May 2008 (the statute authorized $5000 for each deceptive act and false ad), but the court decided that $100 was more appropriate, for a total civil penalty of nearly $200,000.

Special pleading: Iqbal and trademark

Found this interesting case while working on a comment for Mark McKenna’s forthcoming piece in the Iowa Law Review:

Hensley Manufacturing v. ProPride, Inc., 579 F.3d 603 (6^th Cir. 2009)

Hensley sued ProPride for using the name and reputation of Jim Hensley, whose business Hensley had bought, in advertising its trailer hitches. ProPride ads featured Jim Hensley’s name and evoked his reputation as a designer, and also had a small disclaimer of past affiliation with Hensley Manufacturing. The district court dismissed the complaint as fair use as a matter of law. The court of appeals applied Iqbal and affirmed on the ground that the complaint failed to sufficiently allege use of a mark in a way that was likely to cause confusion as to source. Examining the ads at issue, as allowed on a motion to dismiss, the court concluded that ProPride used a separate, dissimilar mark for its products, and, although Hensley alleged confusion as to origin and sponsorship, the court found this a merely “conclusory and ‘formulaic recitation’” of the elements of an infringement claim. ProPride's use was not the type of use as a mark that can cause confusion. The court also agreed that ProPride had conclusively established that it had made a descriptive fair use of Jim Hensley’s name as a matter of law, rejecting ProPride’s argument that judgment on the pleadings was inappropriate in a trademark case. While “facts may exist” that showed consumer confusion, “mere speculation” was insufficient, and Hensley needed to allege those facts; absent them, Hensley failed to state a claim that was plausible on its face.

Iqbal fits into a pro-business trend at the Court, in the sense that most businesses think it’s in their interest to make it harder to sue. But this has distributional effects even among businesses, some of whom at least occasionally want to be plaintiffs. Thus, it will be very interesting to see how Iqbal plays out in Lanham Act law.

I told you so

Mattel licenses Barbie Girl. Self-dilution is as real as self-parody; in the postmodern condition, can we even distinguish between dilution and promotion? Bruce Keller and I wrote about the weakness of "rightsowners won't license" as a limiting factor years ago; we need something other than owners' behavior to define the appropriate scope of their rights.

Announcement: Grants for scholarship

The IPIL Sponsored Scholarship Grants (SSG) Program at the University of Houston Law Center is designed to facilitate newly-authored scholarship in specific areas of Intellectual Property & Information Law (IPIL) within the legal academy and for federal appellate judicial clerks.

For 2009-10, the focus is Copyright, Entertainment and Media Law for legal academy grants.

For 2009-10, the focus for judicial clerks is any area within IPIL.

Complete details are available at the scholarship webpage, including current grant amounts and application timing.

100% Natural claim 100% dismissed

Wright v. General Mills, 2009 WL 3247148 (S.D. Cal.)

General Mills sells “Nature Valley” granola bars and chewy trail mix bars. They were sold as “100% Natural” even though they contained “non-natural or artificial” ingredients such as high fructose corn syrup (HFCS). Plaintiff alleged that consumers understand “natural” to mean that a product isn’t highly processed or chemically altered and is thus superior, commanding a premium price. Because HFCS doesn’t exist in nature, plaintiff alleged that “100% Natural” was false and misleading under California consumer protection law.

The court first rejected defendant’s various preemption arguments. The Nutrition Labeling and Education Act has an express preemption provision covering specific topics relating to food labeling, and stating that the NLEA should not be construed to preempt state law unless there’s express preemption under the FDCA. Unsurprisingly, the court rejected General Mills’ field preemption argument: the express preemption provision permitting state regulations identical to federal law, plus the savings clause, demonstrated that state regulation could coexist with federal. So too with conflict regulation: the FDA has declined to regulate the term “natural,” holding that it doesn’t need specific definition, and the state law claims therefore stood as no obstacle to congressional objectives of uniformity and consistency in food labeling.

Finally, the court rejected General Mills’ primary jurisdiction argument: the meaning of “natural” was not peculiarly within the competence of the FDA. Though the FDA has addressed the use of the term, its policy is “unrestrictive”—it doesn’t take enforcement action as long as the product at issue has no added color, synthetic substances, or flavors. Determining the meaning of the term doesn’t require technical expertise within the specific competence of the FDA nor is it a particularly complicated issue outside of the court’s ability to decide.

The complaint, however, failed under Rule 12(b)(6). Under Twombly and Iqbal, the pleading standard has undergone “a somewhat dramatic change,” and “the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” The court found the complaint contained little more than conclusory and speculative allegations; for example, to show economic damage plaintiff simply alleged that she and the proposed class bought, bought more of, or paid more for Nature Valley products based on the misrepresentations. Likewise, it was insufficient to allege that members of the public were likely to have been deceived and to have made purchases because they believed that a “100% Natural” product wouldn’t have HFCS. Similarly, because Rule 9(b)’s particularity requirement applied to the state-law fraud-based claims (CLRA and UCL), the complaint also failed to state the who, what, when, where and how with sufficient specificity.

The court therefore dismissed the complaint without prejudice.

Visit to a weird planet: Canadian copyright and trade

Woodrow Wilson International Center for Scholars, Internet Piracy: Copyright Law in Canada and the United States (webcast)

Canada is back on the US IP watch list. The Canada Institute commissioned a report written by Eric Schwartz and Barry Sookman discussing the issues.

Steven M. Tepp (moderator), Senior Counsel for Policy and International Affairs, U.S. Copyright Office, drafter of the US Model FTA on IP

Eric J. Schwartz, Partner, Mitchell Silberberg & Knupp LLP, Washington, D.C., and former Acting General Counsel, U.S. Copyright Office

We don’t generally subsidize the arts in the US; we rely on investment incentives to generate art, and that’s why we need copyright. On the US presenting itself as a model: look at history—Dickens complained fervently about US law, and the US took a while to harmonize its law with the broader, formality-free framework. It wasn’t until the growth of the international market for copyrighted goods in the 1980s that harmonization seemed vital. TRIPs was concluded Dec. 1991, pre-internet; even 1996 agreements were pre-P2P. Technology neutral but nonetheless reflect the thinking of the day.

The US cares because studies show that IP is responsible for 8% of US employment, and the salaries in copyright industries are 30% above average. This isn’t unique: 50,000 jobs in Lebanon are in the core copyright industries, 4% of GDP.

DMCA success story: DVD market was able to grow as a result of the DMCA, because the studios had some comfort level with CSS as a speed bump. The average person didn’t care because s/he was willing to pay the price and wouldn’t spend time breaking the code to get an unauthorized copy. (Comment: the DMCA affected this dynamic how?) Now film is more available than ever before. There are still some concerns about availability—orphan works legislation might help. With notice and takedown as well as §1201, a lot of material is available that wasn’t available 10 years now.

The “making available” right/the collapse of the exclusive rights. Consumers now decide when and how they want to get works. US has a treaty obligation to recognize a making available right, but some courts have struggled to find it in the distribution/public performance right. Problem of proof: if a work is posted, there should be a “deemed” or implied distribution—this is a way to find a making available right in existing law, but not all the courts have gotten there yet. Likewise, with public performance, there are issues as with the Cablevision case—he says (with Jane Ginsburg) that was flat wrong. Individuals receiving a performance in their homes are getting a public performance. Private performance/copying rights would obliterate copyright. (!) So too with temporary/buffer copies—it’s about the ability to control works in whole or in part and license that way. Most temporary copies would be included in licenses anyway. (Comment: this is a wishlist for increasing US rights. I’m not entirely clear why our trade relations with Canada require these things.)

While hard copy piracy remains an issue, it’s all about digital piracy right now. Users, disseminators (ISPs), and others need to see efficient enforcement, data retention for enforcement, cooperation with notice and takedown, penalties for repeat infringers, and some privacy protections. Growth of graduated responses: France is working through developing cooperation between rights owners and disseminators of copyrighted material (comment: an interesting characterization of ISPs).

Courts have struggled to understand what “storage” means in the DMCA and that’s been a problem in that they’ve expanded the concept. Likewise, they’ve been very harsh about what constitutes “red flag” knowledge of infringement for ISPs. Difference between US and Canada: fairly well-developed third party liability law in the US. Post-Grokster, there is an understanding of the activities of inducement, but how and where a third party crosses the line is not clear. He sees the language of a test emerging, but not the details—general knowledge plus the availability of “simple measures” that weren’t used equals third-party liability. Future courts will track technological advances; when simple measures exist to police a site, failure to use them should incur third-party liability. Need more cooperation between disseminators and rightsholders; DMCA has been okay, allowing some measure of security for rightsholders and some understanding for users that they have a right to counternotify. (Query: how would this concept of user rights cohere with his endorsement of “simple measures,” as to which no counternotification opportunity is required, as we’ve seen with YouTube’s deployment of screening technologies?)

Barry Sookman, Partner and Co-chair, Technology Law Group, McCarthy Tétrault LLP, Toronto

Canada is in the midst of copyright reform. The use of P2P networks is very high in Canada; it’s home to some of the world’s most popular illegitimate filesharing sites; the amount of filesharing facilitated in Canada internationally and at home is staggering; pirate sites view Canada as having weak laws and thus gravitate there. Of the top 10 Bittorrent sites ranked by total number of visits, Canada has 5, and 2 of the others were ordered shut down. Isohunt indexes over 92 million files available to anyone, anywhere to download. 12 million peers sharing files at the time he took a snapshot. Isohunt claims that it’s just like Google.

Over 27% of visitors to Isohunt are from the US. 6% from Britain. It’s a significant contributor to US filesharing—roughly 1.3 million visits/month from Americans. Canadian use is 30%. Similarly, BTJunkie moved to Canada for legal reasons, but 27% of visitors are from the US; 636,000 US visits/month. TorrentPortal: same story; maintains that it’s just like Google. TorrentPortal advises users that Canadian users are immune from lawsuits for P2P use—tells them that Canadian laws are weak and haven’t implemented the WIPO treaties. 26% of visitors are from the US.

Canada also has “leech” services, allowing people to get any number of movies: e.g., IWannaDownload, a pay service ($4.95/month). Publicized with the tagline that “Canadian service = completely legal.” Many nonCanadian users. Graboid, an “innovative” pirate service for getting stuff from Usenet—say they’ve studied the law and that they’re legal in Canada. 30% of users are from US.

Other innovations: BT Guard: masks the identity of users from rightsholders. Says: Set up specifically in Canada for proximity to the US; helps avoid disconnection by US ISPs. PeerGuardian: another filesharing anonymity site—says on the site that “outside Canada” downloading via P2P puts you at legal risk. 48% of its users are from the US. Hexagon: sharing files over social networking systems.

International reputation: About.com says that file-sharing is legal in Canada, consistent with a lot of other commentary.

Canadians are high users of P2P: Canadian use of mininova is 3x higher than that in the US—over 3 million Canadian visits/month. Torrent sites beat out nhl.com in popularity, which really means something in Canada. Canada also has a lax border enforcement problem for counterfeiting/piracy. Also a real problem for transshipment of pirate goods from Canada to the US.

What is needed? Notice and takedown. Notice and notice has been proposed in Canada, uniquely in the world. Canada has weak secondary liability provisions, which is a real concern. Need injunctive relief against ISPs to prevent third-party infringement. Reform is needed; it’s not simply a domestic problem but a trade problem.

Q: What about that Google analogy? So what’s the holdup in Canada for fixing the law?

Sookman: Google is watching the Isohunt litigation with interest—any secondary liability developments have an impact on them, even though Isohunt isn’t the same as Google. Google worries that bad facts will make bad law for Google. Politically: might be because of successive minority governments, where proposals have never made it to fruition. Canada is also late in implementing digital treaties, and since those early days there’s been more of an anticopyright movement who use digital media to popularize anticopyright sentiment. There’s a perception that the public may not appreciate new legislation.

Schwartz: In the US, Google has been sued for direct and third-party infringement, and they were successful in defense. That case has now come to Canada, though Canada’s “acting in concert” third-party liability is a lot looser and he can’t predict what will happen.

Q: What remedies do exist now in Canada? Are non-digital intermediaries liable? Without DMCA notice and takedown, what should a copyright owner do?

Sookman: Canada does have laws! It’s a member of Berne and TRIPs. Reproduction, communication to the public right exist. Damages (including small statutory damages), accounting, and injunctive relief are available. Intermediary liability depends on what the intermediaries are doing. Distributing infringing copies can lead to liability—selling bootleg copies of movies, for example. Flea market: when it’s not direct acts of selling, but fostering infringement, that’s where there’s a real weakness in digital and nondigital scenarios. There is no effective way to require an ISP to do a takedown. Rightsholders can acquire information, go to court, and get an injunction, but there’s no way short of suit. Note normal rule: prevailing party is entitled to attorneys’ fees.

Q: What can/should a US policymaker do about this?

Schwartz: Continue to press the Canadian government in bilateral negotiations. No country is ever forced to do anything—countries decide to do things in trade negotiations because it’s in their own interests; they decide that one thing is worth more to them than to the other country, and trade apples with oranges. Copyright is important to the US economy, and because of the ability of countries with weaker laws to harm the US within its borders, we work with countries to improve their laws up to the international laws and, where treaties apply, up to their treaty obligations. (Plus extra with our FTAs, of course.) Does it benefit the local constituency? Yes, it would help Canadian authors and tech investment in Canada, but at the end of the day the US is advocating for the US. This is a longstanding irritant.

Sookman: Ensure that ministers in charge in Canada understand why the issue is important—explain the reasons to protect copyright that are in the Canadian as well as the US interest. The link between protection and creativity; the link between protection and enabling dissemination for the benefit of the public. Canada lacks the online services the US have, and partly that’s because companies have no assurance that they’ll make money if they develop the marketplace.

Schwartz: Sometimes local rightsholders say that US negotiators are better at getting the ear of policymakers, precisely because local content production is undeveloped. The US can engage in education, but at the end of the day it has to be self-interest.

UK has concluded that effective response is possible: their study shows that graduated response would reduce downloading by 78%, or 100 million pounds for the British recording industry. There can be real economic/cultural benefits to taking the right steps. Take what works and show it to Canadian decisionmakers. Next generation of issues: go beyond implementing WIPO treaties, and begin implementing graduated response, not necessarily three strikes but more nuanced. Laws can work, have worked, and have real positive benefits.

Sookman: in the UK, the largest growing music service is Spotify, coming to the US—a free download service. 80% of their users say they’ve stopped filesharing (according to Spotify). If you give people the opportunity to get licensed material, and add in notice plus consequences—not just notice and notice—it works, just like when Homer Simpson decided to steal cable and got electrocuted, though he doesn’t advocate electrocution as a penalty for downloading. (I note that Spotify appears to offer the opportunity with no change in the consequences, and seems to be working; I would like to hear about the added value of “consequences.”)

Q: Canada wants so much from us, why haven’t they given in?

Sookman: Torrent sites are actually submitting comments and participating in copyright reform in Canada. One sued the RIAA. Only in Canada would this happen. (Yes, how dare they participate in the legislative process! I guess they should go for armed rebellion instead, like proper pirates.) There’s been a lot of popularization of anticopyright positions in Canada, but the minority government is really a bigger problem.

Q: What can we learn positively from Canada on copyright issues, or is Canada just completely at fault? It seems dishonest to portray the DMCA and other US laws as wonderful examples. Canada has been trying to learn from the US experience. The DMCA inspired a number of movements focusing on its problems.

Sookman: Canada has waited too long. There are lessons learned around the globe: more or less homogenous laws dealing with digital problems, coming from the treaty framework. We could develop laws based on the best experiences around the world, and that’s a chance for redemption. But today, it’s just a very dark situation. Enforcement and digital issues need modernization, and Canada is contributing to infringement around the world.

Schwartz: The DMCA is not the be-all end-all, and we need graduated response and effective tools against P2P; the US isn’t the right measure, but treaty compliance is. Canada is now a victim of time delay, because businesses become entrenched, and a populist movement supporting free and convenient access has developed, which doesn’t help the government meet its treaty obligations.

Q for Sookman: You’re for the UK solution?

Sookman: They’ve been studying the issue and set a goal, unlike other countries, to enact laws which would reduce illegitimate filesharing by 70%. He likes that. Then they decided that a graduated response would work, then they studied what would be procedurally fair. This is a good precedent of going beyond WIPO treaty implementation. Steps taken in the face of the same popular discontent as there is in Canada.

Comment from Canadian embassy: Canada has passed legislation to address camcording: can move quickly.

Q: Canada can be a world leader: tracking/regulation of toxic chemicals is a success under minority governments. Canada wants the US to reverse “buy American” policies, as do many other countries. Why not do a deal on copyright?

Sookman: Canada does express a desire to be a world leader on copyright; some trade is necessary.

Think the USOC would sue?

I've seen some great cakes featuring trademarks, but this Cake Wreck (NYT story) is the one that strikes me as most likely to draw a C&D with the least payoff.

Don't let the native hue of resolution be sicklied over with the pale cast of thought

Donate to the OTW, get a mug! Manipulation from here. We revisioners and transformative artists have to stick together, after all.

(Hamlet is my favorite play. Notable transformative uses include Rosencrantz and Guildenstern are Dead and the lesser-known Kean, by Dumas père, itself reworked by Sartre into a play I adored as a teen; I always did like retellings. Which is also why I will see any production of Hamlet, even if they use a plastic pumpkin to represent the skull.)

Organization for Transformative Works donation drive

The Organization for Transformative Works is having a fundraising drive! Now with swag!

What's the OTW been doing that needs your help? On the legal side, the OTW partnered with the American Library Association and other freedom to read groups to file a brief in the Salinger case defending the concept of a broad definition of transformative works. We also submitted testimony in the Copyright Office hearings on exemptions to §1201 of the DMCA, supporting the EFF’s proposed exemption for noncommercial, fair use remixes. We also continued to publish our open-source academic journal Transformative Works and Cultures, developed the Fanlore wiki chronicling the histories of transformative fandom, and—perhaps most significantly—bought our own servers, to which the Archive of Our Own will shortly move.

Please donate! The OTW is a 501(c)(3) organization, so your donations are tax-deductible in the US, and may be eligible for employer matching donations.

Interaction between disparagement and antitrust

Insignia Systems, Inc. v. News America Marketing In-Store, Inc., 2009 WL 3213291 (D. Minn.)

Discussion of the motion to dismiss. Insignia and NAMI directly compete in the in-store promotions business. They enter into contracts with manufacturers and retailers, selling the former advertising tactics and services for putting products in stores, and buying from the latter the right to carry out those tactics in stores. The tactics include print and electronic signs, end-of-aisle displays, freezer displays, floor signs, cart ads, and coupons. Manufacturers typically demand that the parties promote only their products within a particular product category for specified periods, often four-week cycles, which is known as category exclusivity. Manufacturers can also bypass third parties and work directly with retailers such as grocery stores, drugstores, mass retailers, home improvement stores, and bargain chains. NAMI often puts “retail exclusivity” clauses in its contracts with retailers, excluding other providers of similar promotional vehicles. Retail exclusivity can maximize ad effectiveness for manufacturers, who pay more to third parties who can secure retail exclusivity. Many retailers, however, negotiate to carve out exceptions to exclusivity for particular tactics offered by other third parties or by the retailer itself.

NAMI’s offerings include shelf-mounted coupon dispensing machines, floor decal ads, shopping cart ads, and shelf signs with brand messages and product prices. NAMI touts “one-stop shopping” for manufacturers’ in-store promotion needs. Insignia’s offerings are more limited, mainly to the “POPSign” shelf ad, which incorporates both a brand message and a product price. It has had marketplace success, with around 7.5x the sales of NAMI’s shelf ad product in 2007 (a total for Insignia of over $20 million). There’s a third main competitor in the market for at-shelf ads, FLOORgraphics, but most of its sales are for floor decals. The top three firms’ revenue grew from $292 million to $393 million between 2002 and 2006, with NAMI accounting for 90% of that growth.

NAMI and its competitors manage implementation either by having retailers install the tactics or providing their own field force. They measure compliance based on the percentage of contracted-for tactics actually displayed in stores. Insignia has retailers install its signs. NAMI noted that compliance rates are lower for retailer-installed programs than for field-force-installed ones, and NAMI discontinued retailer installation in 2003; afterwards, it guaranteed at least 90% compliance. Prior to that, it audited compliance rates of several programs, including Insignia’s. According to NAMI, Insignia’s retailer-installed program had compliance rates under 20%, while FLOORGraphic’s was under 50%. Insignia contended that the audit was flawed, and that its compliance rate was 75% or higher during the relevant time period. Insignia also argued that NAMI misrepresented the size of its field force as 10,000 employees and misrepresented the source of audit data by claiming that it came from syndicated data suppliers outside NAMI.

Along with discontinuing retail installation, NAMI also sent a letter to manufacturers about the results of its audit to promote its new field-force installation model: “Did you know that most in-store marketing services providers rely on retailers or subcontracted field labor to execute the programs that YOU buy? This means that on average, less than half the stores that you contracted for are ultimately installed. Less than half! We know that from a variety of sources, including client feedback, industry intelligence and a range of audit studies. In fact, our latest audit studies confirm this, as the results indicated that FLOORgraphics compliance averages were once again below 50%. Even more glaring is that in these same studies, Insignia POPS was found to have executed in less than 20% of the stores we surveyed. Certainly, this is not the most optimal spend of your media dollars. After all, how effective can an in-store program be if it's not actually seen in-store?

“At News America Marketing, we operate differently. We take field execution extremely seriously. We have a dedicated in-house Field force that is 10,000k people strong. These field professionals are our employees. They are not subcontracted. As a result, we are able to consistently deliver average compliance rates of 90-95%!”

NAMI continued to use these compliance figures in marketing. Insignia sued for antitrust violations and false advertising/disparagement; NAMI counterclaimed for intentional inducement to breach contract and false advertising/disparagement by Insignia’s president.

The antitrust claims were based on NAMI’s exclusive contracts with retailers (which included NAMI representatives taking down Insignia ads that Insignia had contracted to provide) and false statements about Insignia’s compliance rates. The court largely denied NAMI’s summary judgment motion on the antitrust claims, finding triable issues of fact on antitrust injury, including loss of business from the distribution of NAMI’s audit results as well as from the exclusive contracts.

Likewise, the court couldn’t resolve the definition of the relevant market on summary judgment; there was evidence on both sides. And it found a disputed fact issue about whether NAMI’s conduct was anticompetitive and likely to produce a monopoly and about whether NAMI engaged in attempted monopolization, though it found that there was insufficient evidence that NAMI had monopsony power.

NAMI argued that disparagement couldn’t be anticompetitive conduct because commercial speech isn’t actionable under antitrust law. Citing Seventh Circuit precedent, NAMI argued that false statements about a rival’s goods are not monopolistic because they don’t drive up prices by curtailing output, either in the short run or the long run; they just set the stage for competition in the market for advertising. (Hunh?) The Eighth Circuit, however, has upheld false-advertising-as-monopolization claims where the false statements were made with the intent to prevent the plaintiff from becoming a competitive threat. The court agreed that, while generally false or disparaging statements don’t injure competition, they can do so under certain circumstances, and those circumstances were arguably present here. If NAMI distributed false audit results with the intent to eliminate competition, that could contribute to the willful maintenance of monopoly power. Because NAMI had relatively few competitors in Insignia’s proposed market, misrepresentation of those competitors’ compliance rates could cause harm to competition. In addition, the evidence could support a finding of an unlawful agreement among NAMI and retailers.

On the Lanham Act claims, NAMI argued that Insignia hadn’t shown injury. Given that the statements were comparative, Insignia would be entitled to a presumption of causation and harm upon showing falsity. Separately, Insignia had provided evidence of harm. As to falsity, Insignia produced evidence that NAMI selectively reported audit results to make Insignia look worse; that the audit was methodologically flawed and not the same method NAMI used for its own audits; and that clients relied on the letter with the audit claims. The court nonetheless remained somewhat skeptical about the credibility of Insignia’s damages claims and its ability to show NAMI’s market power.

NAMI’s counterclaims were for false advertising, tortious interference, and related business torts. NAMI couldn’t show damages for many of its claims, so the court would only consider declaratory or injunctive relief on them.

NAMI argued that Insignia made false and disparaging statements to manufacturers, retailers, and the public that NAMI was engaging in unlawful, anticompetitive conduct. For example, in letter to manufacturers and retailers, Insignia claimed: “We believe that the purpose of the disparagement of Insignia’s and FLOORgraphics’ compliance is to irreparably harm Insignia and FLOORgraphics, NAM’s two primary competitors in the in-store promotional marketplace.

“.... [In a letter from a NAM executive to CPGs] NAM proposed a backroom deal in which one of the key objectives was to substantially reduce the payments that retailers like you receive for putting up our signs.”

Another letter stated, “[NAMI] is on a mission to destroy competition from FLOORgraphics, Inc. and Insignia POPS.® If NAMIS succeeds in this mission, your company is likely to pay higher prices for the NAMIS product line. Further, you will experience situations in which you are locked out of major categories for extended periods of time. The NAMIS vision for the future is to charge brands more and pay the retailers less.” There were other letters and remarks in a similar vein, including a conference call in which Insignia noted pessimism about short-term revenue prospects from POPSigns sales due “primarily” to the “cumulative effects of illegal anti-competitive conduct by News America.” NAMI also alleges that Insignia persuaded retailers and manufacturers that its exclusivity provisions were unenforceable and that Insignia could place its products in stores simultaneously with NAMI's products.

The first question was whether the allegations of anticompetitive conduct were statements of fact or opinion. The caselaw on statements about the legality of another party’s conduct is divided. The court determined that statements on unsettled areas of the law are opinion, but if the law is settled, then a statement can be factual; because federal and state antitrust law is clearly established, Insignia can’t get out of the claims automatically. However, the particular statements here were nonactionable statements of opinion; they were not provably false as required for defamation, because they advocated one of several feasible interpretations of events. Insignia used language indicating that it was engaging in interpretation (“we think you will agree,” “we believe,” “from our perspective”), and though that’s not controlling when opinions imply assertions of objective fact, the specific statements were feasible interpretations of NAMI’s conduct. The statement in the conference call was made in the context of discussing the present litigation. Likewise, to the extent that NAMI argued that it was false to tell retailers that the exclusive contracts were unlawful and unenforceable, the court found that Insignia referred retailers to a Department of Justice investigation into exclusivity provisions in in-store promotions contracts, and NAMI submitted no evidence that Justice was not in fact investigating.

Even if the statements had been actionable factual statements, the court found a qualified privilege. The court had denied a motion to dismiss because NAMI had sufficiently alleged knowing falsity and unfair purpose, but at summary judgment there was no evidence Insignia knew its statements were false, and in fact Insignia had submitted evidence supporting its interpretation. “[E]ven now NAMI cannot demonstrate the threshold issue of falsity, as a finder of fact has yet to determine whether the underlying antitrust claims are viable.”

(Note that the Lanham Act’s strict liability scheme diverges from traditional defamation law; implicit here is a holding that Lanham Act strict liability is for some reason inappropriate when the allegedly false claims are about legality. This is similar to the common-law modfication judges have made to the Lanham Act when false claims about patent status are alleged. It’s not that I disagree with this outcome, but it highlights a real failure to theorize strict liability in the Lanham Act. What makes false claims about the law different from false claims about product efficacy, which can also be extremely difficult and expensive to determine with any finality?)

NAMI sought prospective relief on its tortious interference claims so that Insignia would no longer get retailers to breach their exclusive contracts with NAMI. NAMI argued that despite knowing about NAMI’s contracts, Insignia contracted with 12 retailers during their exclusivity periods and sent shelf signs to those retailers in violation of the exclusivity clauses. (The details are interesting, to me at least: Insignia allegedly sent tear-off cards to retailers, printed both with price and a product image/brand equity message; if the price changed, the retailer could tear off the price and retain the product/brand information. NAMI argued that Insignia knew that retail employees wouldn’t reliably write in new prices after tearing off the inaccurate ones, leaving the torn cards in violation of NAMI exclusivity arrangements that specified that NAMI would supply all signs that gave only brand equity messages.) In addition, NAMI alleged that Insignia misled retailers about the scope and enforceability of NAMI’s exclusivity provisions.

NAMI didn’t identify the twelve retailers who allegedly breached their contracts, nor did it identify the exclusivity provisions that were allegedly breached. NAMI apparently hadn’t sued or otherwise gone after the twelve retailers. Absent evidence of breach, the court granted summary judgment on these claims. Likewise, NAMI didn’t offer sufficient evidence of injury to prospective business relationships. “Even to the extent that NAMI offers evidence that the value of its exclusivity provisions was reduced by Insignia’s alleged interference, NAMI has produced no evidence that such interference actually harmed prospective business relationships or that retailers or [manufacturers] decided not to do business with NAMI as a consequence.”