World's Fair Use day part one

World’s Fair Use Day, sponsored by Public Knowledge

Morning Keynote: Pa. Congressman Mike Doyle

Found out about a constituent, Girl Talk, whose work initially surprised him but grew on him as creative practice made out of small snippets of earlier songs. Artists should be compensated, but compensation should be in line with contribution—licensing his form of remix is essentially impossible, even if you could find all the owners. Related issue: the people who provide the tech that makes content accessible, understandable and findable. Filling an iPod with music ripped from one’s CDs is core fair use. Other fair use issues: Scraping content from websites is under threat today, but try to imagine navigating search without this. Rupert Murdoch hates this, but his own sites do it; Fox is getting sued over using a clip of someone else’s interview. Copyright industries are also fair use industries.

USTR has said ACTA won’t require ISPs to become copyright cops or prevent any changes in DMCA anticircumvention, but he’s still afraid of a three strikes rule, and will oppose any legislative or trade agreement moves towards that—fair uses like clips of a child dancing to Prince shouldn’t count as strikes. When digital literacy/access is so important, one child’s mistake shouldn’t get a family kicked off the internet. Without access to computers at home, students fall behind their peers—we should be expanding access, not talking about how to take it away.

WIPO’s US delegation supported exemptions for the visually impaired—there, the US position was that the US is committed to better exceptions as well as better enforcement. And this is his position as well.

In response to Q: many of his colleagues don’t know what fair use is. That’s why grassroots communication with Congress is important. Girl Talk is in his district, which is how he got interested. (I’m reminded of the successful move to bring video store owners from every district to lobby their own representatives, helping fend off any movie rental right.)

Panel 1: Artistic Innovations and Participatory Culture

Warrington Hudlin, Filmmaker and Public Knowledge board member, moderator

Elisa Kreisinger, remixer/educator: showed You Can’t Vote in “Change,” with clips from various presidents and news events, arguing that institutional change can’t come from leaders but has to come from people.

Chris Burke, producer, This Spartan Life (machinima): shooting film in a realtime virtual 3D environment. This Spartan Life uses Halo, published by Bungee/Microsoft. Game cos. are different from music companies; see the value in user-generated content in extending the shelf life of the game. Microsoft has an end user license agreement with rules for making machinima; following them avoids a C&D. So far the only thing they’re really against is commercialization of the work without a license. Very few licenses are actually granted.

Jonathan McIntosh, Political Remix Video: political/social commentary through remix. Showed excerpts from So You Think You Can Be President and Buffy vs. Edward (expressed a little bit of unhappiness that people had reuploaded it to YouTube a bunch of times even though it was already on there!). Contrasted the softpedaling of questions to the presidential candidates with the roughness of the judges on reality shows; contrasted the gender roles in Buffy to those in Twilight, arguing that Twilight presents stalking and the desire to kill the beloved (much younger girl) as sexy.

Nina Paley, Filmmaker, Sita Sings the Blues: Fair use won’t help people like her unless it’s really expanded. She did learn, when she released the film under a copyleft license—she couldn’t risk even giving it away at first—that people told her that copyright was for her as an artist, but she made more with giving the film away than she ever made for works under copyright. Fair use can’t fix the problems with copyright, which she doesn’t think benefits artists.

Dan Walsh, creator of Garfield Minus Garfield: IT nerd by day, murderer of Garfield by night. Once you edit out Garfield, it becomes clear that Jon is a very disturbed person! Tumblr founders gave him a lot of support, promising to fight to keep the strip up if there was trouble. Temptation: add pay per click ads, but decided not to do so, even with ½-million visitors a day—wanted to leave the parody as it was. Ended up with a book deal—no profit from the book for him, but they told him he could have the website as he wished, so he immediately added ads.

Hudlin: horror stories?

Paley: Hers! She used songs from 80 years ago that should be in the public domain now, but due to retroactive extensions they’ll never be! Compulsory cover licenses exist, but they don’t cover synch licenses—everything in our history is owned by big media corporations which can set any price they want; in this case, the price was more than the budget of the film. Legal costs and time lost trying to comply with the law was extraordinary, and the potential punishments were horrifying. This is something that happens to a lot of filmmakers and they just don’t talk about it. She ended up negotiating a “step deal”—for every 5000 copies sold she needs to pay more, and also for every $X at the box office. This cost $20,000 to negotiate—even with pro bono lawyering. This is why most filmmakers on the circuit are eager to have pirates distribute their stuff, because most films are inaccessible and distribution is highly controlled. Copylefting Sita allowed the film to go farther, preventing any one distributor from having a monopoly.

McIntosh: LA Times did a story on Buffy vs. Edward and contacted the executive producer of Buffy, who loved it; that was lucky for him (though of course Marti Noxon owns no rights; Fox is the rightsholder) because it could have gone the other way—if the owner of Twilight didn’t like it, he could have had a battle. (Actually, I think the distinction between the two sources raises an interesting point—Edward is clearly the target of criticism, but Buffy is the mechanism. Buffy is used transformatively, but she’s still valued for what she does in the original narrative—it’s just that she’s being used to critique another media form, which is a different purpose than the original.) But he’s very careful about what he uses—using material produced by the powerful, not making fun of video of someone’s kid—he pays attention to the power of the media maker. Though if you’re celebrating someone’s YouTube uploads and creating a mashup, he’s happy with that. Cultural icons are ethically more available for criticism.

Kreisinger: Another effect of power: it takes huge resources to produce your own film, and access to others’ works to start with makes it possible for people to criticize and participate. Moreover, the cultural power of the mass media texts is such that you have to start with them to be part of the econversation.

Paley: it’s like a language: you shouldn’t have to make up a new language and teach it to people before you get to talk.

McIntosh: culture is moving to more audiovisual forms—are we allowed to speak in that language and talk about what we’ve heard, seen and done? We have to, and it’s also inevitable, so let’s work out a way to do it without lawsuits.

Kreisinger: Audiovisual media are more accessible, make critiques possible in a compressed timeframe; enters our brains at a faster pace.

Paley: It’s not always critique, sometimes it’s pure joy. Fair use is terribly limited—isn’t able to keep up with the expansion of copyright.

Q: how do artists get paid?

Kreisinger: Doesn’t expect to get paid for remix. But the skills she’s learned—editing, storytelling—that’s invaluable, and also is a teachable skill set.

Burke: He’d love to make a living from This Spartan Life, but it’s not possible so far. He’d like a limited commercial license, but it’s a slow process. The game companies started off supportive, releasing open architectures for gamers to modify games, but they didn’t fully realize what would happen. They’ve been pretty supportive, but when you want to make a living from it, it gets tougher. More machinima is free because nobody can afford the legal fees to negotiate a contract—he’s been negotiating with Microsoft for several years. He’s done some work directly for Microsoft, but it’s changing every day. Still waiting.

McIntosh: what he does would never go down well with corporate. He gets indirect benefits—speaking engagements, workshops with youth on how to remix as a media literacy tool. He detests online ads on video, especially if he’s critiquing a company that’s advertising. All his remixes are released under a CC-noncommercial license to avoid having ads put on it. Has happened with Buffy vs. Edward: people reuploading it with ads; he accepts reuploading but doesn’t want the ads. (I note that this is a big lacuna in CC-noncommercial licenses: can your blog run ads and still use CC-noncommercial content?)

Kreisinger: We have to assert fair use despite our fears, because otherwise we can’t criticize/speak in culture. Best practices from the Center for Social Media can help.

Q: You have commercially valuable material here—Buffy vs. Edward can generate renewed interest in Buffy in syndication. Garfield without Garfield rejuvenated Garfield. Hard to get that kind of exposure/interest with ordinary ads. So why not set that as a goal: make more money?

Paley: She wondered about why she was risking jail for increasing the value of old songs? Why don’t copyright owners have to prove lost revenues?

McIntosh: he doesn’t want to negotiate with Fox about the message. Yes, they want more impressions, but they want more impressions that will sell. If the remix made people dislike Buffy, that avenue would be closed, which is why he’s hesitant to move in that direction. If people want to support his work through donations etc. as a community, that’s fantastic; that’s his preferred alternative.

Q from SESAC attorney: He thinks a lot of these works here are at the core of fair use, and there is a fair use best practices for documenary filmmakers that includes music. On one side, there’s a soundtrack of 60 minutes, versus a film that uses small snippets for factual purposes. That’s been helpful. Copyright owners do believe in fair use—from your dealings with them, what can we do better to facilitate fair use?

Kreisinger: On YouTube in particular, if remixers/vidders are using music to supplement comment/critique, YT’s bots pick it up. In her remix, Aretha Franklin’s Respect was playing in the background of material she was remixing, and YouTube took it down. Vidders, a group of predominantly women creating fanworks based on copyrighted music to tell a story/comment on the material, are constantly faced with takedowns. She posted some of her favorite takedown notices. YT is eliminating a whole slew of work based on remix.

SESAC attorney: it is robots interacting with robots, due to volume. We don’t control all the necessary rights, including the synch right. We do work with YT to license use of all of our content regardless of the political message. Blanket licensing will streamline a lot of this. A blanket synch license would be very helpful, but it’s a matter of organizing the publishers to do this.

Matt Shears, Computer & Communications Industry Association: What you may really want is simplicity, not just reform: the ability to navigate the system without lawyers. Would you be less hostile to copyright if you didn’t have to consult a lawyer to scratch your nose?

Paley: she’s opposed to the idea of owning culture, which leads to fundamentalism and monopolies. Broadcasters won’t allow you to air a film on TV without notes from a lawyer on every single clip.

McIntosh: Slightly different approach. He believes copyright can be useful in protecting the rights of already culturally marginalized people—someone makes progressive speech and someone else uses it for racist or hateful purposes. (I don’t think this works—I’ve seen plenty of progressive copying/critiques of individuals who represent a certain conservative viewpoint but are not major Fox commentators; by this logic, they’d also be protected because they don’t have, as individuals, much power.)

Paley: She’s heard that argument over Sita—what if people use it for Nazi porn? She thinks hate speech won’t get that far, and if it does she’s not the one to stop it. People are not horrible; they are sane.

McIntosh: He’s interested in protecting the marginalized, though possibly not through copyright.

Recent reading: Uncle Tom's Cabin in the Public Domain

Terrence A. Maxwell, Uncle Tom’s Cabin in the Public Domain. From the introduction:

There is an enduring notion handed down from the Romantic era that authors are unique creatures, born of the world but separated by genius from the normal patterns of information creation and use. Regular people converse, authors transform information into things utterly new. Normal folk passively consume information. Authors peek behind the veil of the apparent world to uncover deeper meanings and express reality by methods and in levels of depth not available to the rest of us. Finally, successful authors and their books transform the world.

Embedded in this notion of authorship are several assumptions about the public domain. First, it acknowledges that much of the rough material for artistic work comes from the world outside the author’s head, with its information artifacts and ideas. At the same time, this view argues that base material is changed into something unique through an artist’s process of transformation. A corollary of this idea is a presumption of unique authorial possession different than the ownership of information in the everyday exchange of facts, thoughts and ideas. Finally, it presumes that authorship has some impact on the people who experience the text, and on the society in which people exist. However, not much is said about this impact or its consequences, because an author-­‐centered information universe demands our eyes remain focused on the single, creative individual and his intentions rather than the mass of humanity who digest and use the text in new ways not contemplated by the author.

In the following pages, we’ll explore these assumptions by viewing the cultural history connected to Harriet Beecher Stowe’s Uncle Tom’s Cabin.

Google DC Talk: ACTA

Google is trying to be more involved in East Coast code, and this was a wonderful implementation of that greater involvement. Kudos to all concerned.

Side notes: Google’s space is not a very Washingtonian office. It was the hanging paper lanterns that really pushed it over, if you ask me. And their background music is not quite to my taste. (Background music? See: not very Washingtonian.)

Moderator: Washington Post Consumer Technology Columnist Rob Pegoraro

Steve Metalitz, Mitchell, Silverberg & Knupp: represents copyright organizations/International IP Alliance in DC on international matters.

James Love, director, Knowledge Ecology Int’l: a human rights/consumer advocacy organization. Interested in pharmaceuticals/access to medicine as well as copyright. Generic drugs have been seized in Europe en route from India to Africa—creates a lot of concern among people in public health community. Interested in ACTA as it relates to what countries can do with respect their own copyright law. And in the transparency of int’l trade negotiations—secrecy doesn’t sit well with them.

Ryan Clough, legislative counsel to Congresswoman Zoe Lofgren (San Jose, CA). Lofgren is concerned about international effects—some US concerns in that USTR is looking at this as an executive agreement which wouldn’t require congressional approval. But she is concerned about what this means for copyright laws in other countries; the Internet is global and this will affect the US.

Jonathan Band, attorney for Library Copyright Alliance, Computer & Communications Industry Ass’n, & Net Coalition. Outward-looking and inward-looking problems: outward-looking in terms of impact on internet companies’ ability to compete internationally. Our legal system is extremely balanced: strong protections and enforcement provisions, and strong exceptions. ACTA only tries to export the protection/enforcement side, and as a result it could lead to imbalance abroad, which in turn makes it more difficult for US companies to operate abroad. Inward-looking: IP in general and copyright in particular is subject to constant evolution in caselaw and congressional action. If you have an international agreement that is too specific/granular, even if it’s now consistent with US law, it will prevent Congress/courts from allowing law to evolve in the future. Relatedly, copyright law is ambiguous—an international agreement can codify Metalitz’s interpretation of US law, but that won’t be his, and it won’t be the Supreme Court’s interpretation.

Pegoraro: What’s the problem that ACTA is trying to solve?

Metalitz: The copyright industries make up 1/10^th of our economy, 6 million jobs that pay 30% more than the average wage. Disproportionate amount of economic growth in longer run has come from these industries. These facts are also basically true of other countries involved in ACTA, about 40. There is widespread piracy of copyrighted material: vast majority of copies available online are pirated; the internet is not the world, and outside the internet, there’s a serious piracy problem. People can disagree about magnitude of harm, but it’s big. On the issue of enforcement standards, not exceptions/rights, the last time countries got together was 20 years ago in TRIPs. A lot has happened in 20 years, among countries, copyright industries, and pirates [comment: a lot has happened, as in, who counts as a pirate?]. It’s a no-brainer to say let’s get countries together that are concerned about the problem and share best practices, improve communications, and refine international standards to better reflect today’s situation.

Love: it’s one thing to say there’s a problem, another that the current legal/technological regime has a solution. Compare past failed attempts.

Clough: Biggest sources of pirate/fraudulent material, like China and Russia, aren’t involved in this. The countries with the biggest problems aren’t nearly as willing to participate in these kinds of efforts. By the same measurements Metalitz cited to show IP is important to the economy, the industries & people who rely on exceptions to copyright, including fair use and DMCA safe harbors, are also enormous parts of the economy. We’ve heard many concerns about how ACTA could diminish those protections abroad, affecting American and foreign businesses. IP policy can’t just be about enforcing to the max because there are real costs.

Band: If this were really just about counterfeiting, this would be a shorter conversation. The name of the agreement has “counterfeiting” in it, but infringement is a broader category. Are we talking copyright, trademark, patent? Start to get into added complications as you broaden the range of issues. Improving coordination of law enforcement is cool. More tools for prosecutors to go after counterfeiting/cooperation among countries for that: great. But the agreement under consideration goes way beyond that, and beyond enforcement into issues like grey market goods, which are not counterfeit and not even infringing but may move across borders. These are controversial and complex issues.

Love: For the record, disputes Metalitz’s numbers. A lot of jobs are in the knowledge industries, and regulating them is hard. If you strictly enforced trade secret laws, you wouldn’t have Silicon Valley, where people swap information in bars. Even the illegal part of infringement has economic benefits. Example: we don’t have a real research exception for patents in US law, but people just ignore them and do the research because US law should have an exception. Look at what’s on your own desk: people send you copies of articles—strict enforcement against unauthorized distribution would make us dumber, less creative, and less knowledgeable when making decisions. Sometimes the laws that deal with information are not realistic about what people do on a daily basis.

Metalitz: Illegal activity does have an economic impact—the people involved in big int’l criminal enterprises cross int’l borders, which is why we need coordination, but law enforcement coordination may not go far enough. Gov’ts aren’t getting any of that money in taxes, which is another reason for gov’ts to be concerned.

Love: If it’s really such a serious issue, it doesn’t make any sense to develop an agreement as a national security exercise. The countries involved and the lobbyists on K streets have access to the proposal—but not voters, taxpayers, citizens. If the future of our economy depends on this, why is it a shameful secret?

Metalitz: I’m not negotiating this agreement. Our government—Obama and Bush administrations both—negotiates with other governments, and so all the countries have to agree on the level of transparency. This agreement is more transparent than other trade negotiations have been. More information has been made public over ACTA than in recent FTAs.

Love: Wasn’t the text of the 1996 treaties available for public comment? Didn’t you attend the negotiations?

Metalitz: Yes, though there were meetings into which I wasn’t allowed. The formal text was available, but there were other negotiations.

Pegoraro: People say in defense of ACTA that there’s nothing in ACTA that isn’t in US law. He can’t confirm that for himself, of course, because he hasn’t signed the NDA. Is it coloring outside the lines?

Metalitz: The US government has said this a couple of times. Negotiating it as an executive agreement means, by definition, it can’t be inconsistent with US law. Practically: Congress may not be that eager to change the law in any trade related area, so any agreement that would require a change in the law would be much harder to get through. So he doesn’t have much doubt that what the US is putting forward won’t require changes in US law.

Clough: Metalitz is correct in a broad sense. Substantive liability changes in US courts would require congressional action. But executive agreements still create obligations/constraints on the US in the future if we want to revise copyright law. It’s really hard to say at this point.

Band: The EU has written a detailed memo about the internet chapter, which has been leaked, so he can talk about the leaked memo. (Background: basically everyone in the conversation has seen one country’s draft of a chunk and signed an NDA agreeing not to disclose what they saw.) What it says about secondary copyright liability can be analyzed—US law is very complicated and all judge-made. Nobody knows whether inducement is a subset of contributory infringement, swallows contributory infringement, or is something different—the 9^th Circuit has two different panels interpreting inducement in different ways. Law is unstable/constantly evolving—we don’t know where the lines, which makes coloring within them difficult. Even an executive agreement will influence litigation: litigants cite international agreements and try to convince courts to follow them.

Pegoraro: If ACTA doesn’t require any change in US law, and other countries agree about that, what’s in it for them?

Metalitz: That’s oversimplified. It depends on granularity/level of detail in agreement. The US has negotiated a dozen FTAs with detailed copyright provisions, criticized (fairly, in his opinion) for being too detailed/prescriptive and making their laws read too much like ours. ACTA is different, appropriately so: focused on general principles/overall framework. Secondary liability is a good example: we don’t have it in our statute because we’re a common-law system. Lines become clearer over time as cases are decided—Grokster was a unanimous decision; clarified things for purposes of advising clients—if you put together a business to encourage infringement, you’ll get nailed—recent isoHunt case in California is to the same effect. ACTA embodying that principle could be a big step forward. Many of the countries have similar legal principles already, but they would lead by example—showing China and Russia etc. the direction that countries that want to be responsible international players take.

Love: It’s often true that negotiators say “this won’t change anything,” and yet for some reason they spend a lot of political capital/effort on international conventions. It would definitely change norms in the US, which is why the US is keeping it secret. Canadian government is keeping it secret because it means big changes for them.

EU proposal: injunction must always be available. A number of proposals ramp up amount of damages: things like full commercial value—a plaintiffs’ greatest hits. With things like orphan works/Google Books Settlement, this would be a big deal. Proposals to deal with orphan works include limited liability for damages/injunction—this could be collateral damage from these existing proposals. Response to this criticism has been: that’s not the current proposal! But how are we to know? The government won’t defend the conversation because it’s embarrassed by what’s on the table.

Pegoraro: Why is secrecy appropriate? But is it really possible to keep this a secret with nearly 40 countries?

Love: Secret from whom though? It’s not secret from big corporations, just from the public.

Metalitz: But even the stuff I (and you) saw under the NDA isn’t the agreement, it’s one country’s proposal.

Love: I’ve reviewed parts of it in the European Parliament: if you’re well-connected, you can see it—and Metalitz’s clients are well-connected. This isn’t about secrecy, it’s about marginalizing the public: a cynical effort to empower people disproportionately.

Metalitz: Apparently Love has seen more of it than anyone else. There’s more transparency in this than in other trade agreements.

Pegoraro: Multilateral or bilateral?

Love: Concededly, there are horror stories of secrecy. But is that what we aspire to?

Metalitz: Reality: our gov’t has to get the agreement of all the other gov’ts to have transparency.

Love: It would be a cinch if the US insisted on transparency—Finland and Sweden have asked; if Obama did, it would happen.

Metalitz: Moving forward to protect the economy is more important.

Love: WIPO was transparent in 1996. The minutes were on the internet!

Clough: Not an expert on precedent, but he thinks the USTR will be forced to have meaningful transparency to defend the agreement; right now its defenders can’t defend it against rumors, some justified and some unjustified. It’s not enough to have transparency after the final draft, before the president signs. We need transparency earlier on.

Band: This is not about counterfeiting, it’s about IP enforcement generally. It’s also a misnomer to call it a trade agreement, and comparing it to other trade agreements is inaccurate; confidentiality in trade agreements does raise different issues. With IP, what is the justification for secrecy? Would transparency lead to collapse? Doesn’t think so—many provisions are noncontroversial, including counterfeiting; transparency might lead to a narrowing of the issues. Maybe the more controversial issues need more debate/need to be raised to a higher level of generality. Transparency could leave us with something very useful in combating counterfeiting.

Metalitz: True that a lot of opponents of improved enforcement have a big meta issue, transparency, and it’s difficult for proponents/government to respond. That will help drive in the direction of transparency. But no one would think that enforcing IP rights is a high priority for this government. Our industries think it’s a top issue, and many governments around the world think so.

Pegararo: So you think secrecy is justified but politically untenable?

Metalitz: He thinks Clough is right that time will make secrecy harder. But we have to get governments to agree on this.

Love: The USTR asked us to do a research project on trade negotiations and transparency; there’s not a huge history of full tranparency, but as WIPO became more transparent, and as the WTO became more oriented to civil society, they’ve been more pro-consumer: Doha Declaration, WIPO Development Agenda. That’s why the Chamber of Commerce wants secrecy: transparency doesn’t work to its advantage in the outcome. Seeing it when it’s finished is not enough—people attend WIPO meetings and discuss the drafts, and that influences the results. ACTA is an example of a DC insider game at its worst: people pay to be on the inside.

Q from Q submitted to Google Moderator: Will providers still enjoy safe harbors? What about remix/UGC?

Band: According to EU, there would still be safe harbors, but EU safe harbors are somewhat different from US safe harbors. So an open Q: who has to give? Or does this have to be raised to a higher level of generality so both the EU E-commerce directive and the US §512 protections would comply? (Japan also has its own safe harbors and probably doesn’t want to change its law.)

Metalitz: Doesn’t think US law would change. Most of the other countries involved in ACTA have safe harbors, sometimes because of compliance with FTAs that were very prescriptive. He would hope that ACTA would be a positive step for Canada, which is an outlier.

Gigi Sohn, Public Knowledge: Why are we still waiting for transparency? Hears rumors that USTR is the bottleneck, trying to bring in the National Security Council for no apparent reason.

Metalitz: The MPAA is one of my clients, not sure they all share the view of the MPAA’s Glickman that transparency is justified, but that’s up to the US government.

Q from ColdWind (online): What about anticircumvention?

Band: The EU memo includes reference to some anticircumvention requirements. One point raised by the EU is that the DMCA targets both access and rights controls, whereas the EU only focuses on copy controls; he doesn’t recall more.

Metalitz: Most of these countries have pretty much the same rules. The difference lies in the area of exceptions. These were all adopted to implement the WIPO treaty, which had no exceptions. Possible that ACTA might give guidance on what constitutes a legitimate exception, which Band should like.

Clough: There’s a broader issue here of how exceptions/limitations are articulated. One question: are they required, or are they merely permitted? ACTA apparently requires the enforcement but permits the exceptions/limitations—that’s a push in a particular direction. Also, what does that mean for other countries’ understanding of US copyright interests?

Q: To say that it just colors within the US lines, but it’s really important to change others’ laws, is disingenous. To get US law, you’d have to attach the Sony decision to ACTA, and a thousand other pages. No other country has secondary liability like we do; Commonwealth countries have “authorization,” which works differently. Intel and IBM get protection from the current doctrine. Changing secondary liability without the protections of §107 and Sony affects a lot of countries.

Band: This goes back to the issue of “what’s in it for them?” We need to focus not just on US law, or on other negotiating partners’; what is the long-term objective? Not 40 countries, but 120 other countries that aren’t in ACTA. Developed countries have concluded that traditional fora for negotiating like WIPO or WTO aren’t as friendly as they used to be; developing world is standing up for itself. There was a desire to seek a new, more friendly forum, and so one was created.

Love: WIPO committee on copyright now hears all the stakeholders, and discussed the relation of TPMs to limitations and exceptions, including orphan works. Began a conversation of reconciling technological protection measures with user rights. A lot of people question whether US implementation of 1996 WIPO treaty is the best balance, or whether it needs to be rethought. Orphan works mean there are a lot of inaccessible works, and a layer of technical barriers is being put on top. Concerns: in the rush to protect entertainment industries, what is the collateral damage/unintended consequence? This is where secrecy is the enemy of good policy; you need more eyeballs. Time for this administration to take the lead in treating ordinary citizens as entitled to the same knowledge as campaign contributors.

Band: US delegation at WIPO made a fabulous statement in favor of addressing the needs of the visually disabled, and arguing for the importance of strong exceptions in copyright law along with strong enforcement. So when we bash the US government, it isn’t across the board.

Q from Andre in the free world (ok!): How does ACTA enforcement of GIs comply with free trade objectives?

Love: There’s dispute among the parties over the scope of the agreement. Patent laws, for example, differ a lot from country to country. Refers back to incident of transshipment of drugs seized in Europe that were totally legal where they came from and totally legal where they were going. Europeans have asked to eliminate “goods in transit” from the agreement—goods in transit are normally treated differently from goods destined for a particular country. It shouldn’t matter what the patent law is in the airport of Amsterdam. This is why public health groups are active on ACTA.

Pegararo: This seems like a key difference between a bilateral FTA and a multilateral agreement—a FTA only deals with South Korea-US trade, for example, not things like this.

Metalitz: Can’t comment on patents. One significant development in piracy is that it increasingly crosses borders, especially but not exclusively on the internet. One advantage of getting together a group of likeminded countries is to address this and lead by example.

Band: Question about GIs circles back to “be careful what you wish for.” The Bush administration folks who started this were thinking of exporting US law abroad, but the EU has its own view, and if we raise the bar in one way they will want to raise it in another, and GIs are a perfect example: very important to the EU and we typically resist it. EU wants criminal provisions for patent infringement, etc. Once you start down this road, it is a global community and the EU has very definite views that often differ from those of the US.

Love: The EU is negotiating the agreement through one small group of people, even though there isn’t necessarily unanimity among the governments; same has happened with USTR here. The WTO says you have to balance the public interest; covers exhaustion of rights/first sale; other consumer safeguards like allowing regulation of anticompetitive conduct. The rightsholders took the parts they liked about TRIPs and doubled up on them, and took the parts they didn’t like about TRIPs and left them out—gutted the consumer protection side. And they’re adding dispute resolution.

Q: Distinguish between copies on the internet and counterfeit airplane parts. What are the common threads and the distinct stakeholders?

Clough: It’s impossible to do things narrowly and talk just about copyright enforcement. You need to talk about what the liabilities are and how they’re enforced, as it matters to everyday life. That’s why people want to see ACTA.

Metalitz: Copyright is not enforcement. The international agreements differentiate between substantive and enforcement provisions. ACTA probably wouldn’t impact Google Books because that’s a question of the scope of an exception.

Clough: But if a provision in the agreement changes obligations on injunctive relief, that constrains changes of law that could affect orphan works.

Metalitz: Takes the point that this could affect digitization without rightsholders’ consent. (Comment: hee. Really, they’re all in fine form up there.)

Band: If we’re really talking counterfeiting, airplane parts and drugs, we can get to agreement; but if it’s also about trademark infringement and copyright infringement, then we get a bunch of new issues. Pending case in Supreme Court, called a copyright case, but it’s about Costco buying legit Omega watches and importing them into the US for sale, which is cheaper than buying from the US authorized dealer. Omega printed a logo on the back of the watch and claims copyright protection. This is not a counterfeiting issue but gets pulled into the enforcement issue.

The nature of the remedies affect the nature of the right. Google’s exposure for displaying snippets in France is actual damages, constraining its risk even without a fair use defense. If ACTA exports statutory damages, that changes Google’s risk calculation—but France doesn’t have our defenses, so their adoption of statutory damages would change the balance that US law has overall.

Metalitz: Red herring. Statutory damages under US law—99.9% of orphan works won’t be able to claim statutory damages. (My Q: Will France require timely registration for eligibility for statutory damages if adopted? Seems unlikely since nobody else has our overhang of formalities.)

Band: Not a red herring. Ratcheting up enforcement without ratcheting up exceptions would have bad effects.

Metalitz: The issue of covering trademark and copyright in one treaty was settled with TRIPs 20 years ago—you have to have remedies.

Q from audience: I still don’t get why we need this if it’s not going to change our law. What is the industry looking to achieve?

Metalitz: If the parties can’t come to a unified view on secondary liability, then it won’t be in the agreement. There’s a lot more harmonization taking place around some aspects of secondary liability: inducement in the Netherlands, Korea, Australia. There is something that could be derived as a general principle about entities that make it their business to encourage people to massively violate copyright protection.

Love: He thinks counterfeiting is perceived in focus groups as being like lack of patriotism or child pornography—no one can vote against a anticounterfeiting measure. Big discussion about unsafe drugs, one of the main rationales for the agreement. What percentage of drugs are counterfeit, and what percentage substandard but legal? Focusing in speeches on counterfeits brings attention and funds, but the real problem is substandard manufacturing. The solution is better regulation and prequalification for manufacturers, which the US has opposed in the past, because they thought poor-quality drugs in the developing world gave a competitive advantage to US and European manufacturers.

Pegararo: Caveat: many measures assume that if you ban something, it will go away. But it’s very easy to play a DVD on Linux these days. Anticircumvention hasn’t worked. Hoping we can ban copyright infringement tech, which can also have perfectly legit uses, may not make any difference in the real world.

Harper & Row revisited

The Supreme Court's decision in Harper & Row v. Nation seemed to put even minimal quotation from unpublished works at risk. But has that been borne out in practice, at least with respect to quotation from prepublication works, where there is the real possibility of a "scoop"? I recall some controversy/threatening words over early reviews of the final Harry Potter book, but it seems to me that the principle of the case is not deterring major media, at least when they have acquired a copy of the book at issue by finding an inadvertent early release. It happened with Sarah Palin's book, and now with Game Change, a book about the 2008 campaign. The incentive to sell copies/ads seems to be enough to induce news organizations to take their chances.

On the one hand, this suggests that chilling effects imposed by copyright can be fought by sufficient other incentives to speak. But on the other, the real chilling effect of Harper & Row is on quotations from non-prepublication works--works the author or copyright owner has no interest in allowing to be published. Academic and other book publishers, who do not have the same news cycle incentives, are incredibly leery of fair use quotation from that much larger category of unpublished works. And it's there that Harper & Row has the worst effects, because it chills the dissemination of information that would not otherwise be made available.

So Harper & Row may have done little to stop the scooping it condemned, while constraining valuable speech of other types.

That transformativeness thing

Peter Watts wrote a good story, The Things. It is a retelling of The Thing from the perspective of the Thing, and a commentary on what it means to be alien. (There’s a pun on “transformative” in there somewhere. Along with the body of a dog.) Apparently the first editor who wanted to publish it lost a fight with the publisher, who was extremely risk-averse. I think this was a mistake—too bad they didn’t get an opinion letter from the Stanford Fair Use Project or the like, but I doubt they knew it was a possibility. Publishers should take a cue from documentarians (and their insurers) and rely on fair use where appropriate. But the underlying problem is that conglomerate copyright owners’ attitudes towards their rights are too often a variant on H.L. Mencken’s definition of Puritanism: they are possessed by the haunting fear that someone, somewhere, might be gaining utility from their work.

Pom day: this time, a loss

Pom Wonderful LLC v. Welch Foods, Inc., 2009 WL 5184422 (C.D. Cal.)

Pom (I’ll follow the court’s capitalization) sued Welch for state and federal false advertising based on Welch’s “White Grape Pomegranate” juice blend that competes with Pom’s juices. Related case against Ocean Spray.

The court here granted Welch’s motion to dismiss the California UCL and FAL claims for lack of standing, though (with hesitation) allowed Pom to amend. Currently, a UCL or FAL claim requires a showing of injury in fact: lost money or property as a result of unfair competition. The UCL’s remedies are limited to restitution and injunctive relief. So, to establish loss of money or property, a plaintiff must have prior possession or a vested legal interest in the money or property lost. Here, the court reasoned, Pom sought an unavailable remedy. The damages alleged were lost business and goodwill, injury of relationships with existing and prospective cutomers, and hindered sales of Pom products. But the California Supreme Court has held that disgorgement of profits is not authorized under the UCL where the profits aren’t money taken for a plaintiff or funds in which a plaintiff has an ownership interest. A California court of appeal case has recently held that harm to goodwill isn’t loss of money or property sufficient to confer standing. All Pom has is a “contingent expectancy of payment from a third party”—consumers. Lost profits are damages, not restitution.

POM Wonderful ruling affirmed

POM Wonderful LLC v. Purely Juice, Inc., 2009 WL 5184233 (9th Cir.)

The court of appeals affirmed the district court’s findings of false advertising under the Lanham Act and California law. Damages were nearly $1.2 million, profits disgorged $300,000, and fees and costs over $620,000. The brief opinion affirming noted that intent is not an element of a Lanham Act false advertising claim. Nor did the district court clearly err in finding the requisite knowledge of falsity under California law, even though the court adopted POM’s proposed findings of fact “uncritically,” and thus those findings are reviewed with “particularly close scrutiny.” Under California law, a seller has a duty to investigate and verify facts that would put a reasonable person on notice of possible misrepresentations; it can’t blindly rely on others’ representations. In other words, negligent false advertising creates liability.

Here, Purely Juice knew a batch of its product was not 100% pure, without sugar added, from testing results it received in early 2007. Further testing revealed further evidence that its product was not 100% pure, and Purely Juice left that product on the shelves. “Despite knowing certain industry brokers had ‘credibility issues’ and there were ‘suitability questions’ about some concentrate, Purely Juice did little to vet its broker or suppliers. Purely Juice understood (1) a limited global supply of pomegranates led some concentrate juice manufacturers to blend pomegranate with other juices; and (2) difficult harvesting conditions and lack of refrigeration at processing plants led concentrate manufacturers to add sugar. Nevertheless, Hachigian testified he selected Perma Pom, Purely Juice's broker, by simply ‘talk[ing] to them and ask[ing] them how long they had been doing pomegranate juice concentrate and so forth.’ The Perma Pom representative testified suppliers are not subject to any verification process; Perma Pom ‘take[s] the word of the supplier’ and relies on certificates of quality.” Purely Juice did instruct its broker to switch suppliers immediately, but its practice was still to rely blindly on the underlying representations.

The court of appeals found error in the district court’s conclusions that Purely Juice was on notice from an internal memorandum, which referenced an article not admitted in evidence (evidence isn’t my thing, but isn’t there some hearsay exception about knowledge that would cover this?), and that Purely Juice was on notice based on “general knowledge of foreign and domestic pricing structures from a prior year,” but the error was harmless given the rest of the record.

The court also upheld the district court’s calculation of damages, as well as individual liability for Purely Juice’s president and founder, who knowingly controlled, authorized and directed the false advertising.

There was also no intrusion on the FDA’s authority; POM wasn’t suing to enforce the FDCA.

Coat ad using Obama's picture draws interest

NYT blogs the story here. Obama might be the only prominent celebrity so unlikely to act against this type of use of his image that the publicity isn't accompanied by substantial risk. Here's what the company's president has to say, somewhat disingenuously:

Asked whether he was taking a risk, he said, “Is it a calculated risk? Not being an attorney — I’m being, really, a designer, merchandiser guy in the apparel business — I would leave that to the attorneys or whatever. We’re not saying President Obama endorses Weatherproof apparel.”

“If we were to get a letter or a call from the White House saying they didn’t approve of it or they didn’t like it or whatever, or they see it as an ad, we’ll do whatever we have to do. We’re not looking to alienate the White House,” Mr. Stollmack said.

Iqbal no barrier to standard false advertising claim

Gates Corp. v. Dorman Products, Inc., 2009 WL 5126556 (D. Colo.)

This case is pretty straight down the center of Lanham Act false advertising cases, which makes it a useful data point for assessing how Iqbal is starting to play out: courts are likely to find certain inferences inherently plausible, as here.

Gates makes auto products, and for over 25 years has been making automatic belt tensioners for original equipment manufacturers (OEMs) and for the aftermarket. (A belt tensioner helps maintain proper operation of subsystems that get rotary power from the engine crankshaft.) Gate alleged that Dorman’s ads and marketing materials claimed that its belt tensioners “[Meet] All SAE Specifications.” SAE is a standards development organization for the engineering of powered vehicles of all kinds. Gates alleged that it’s important for an auto component maker to be able to make this claim. Gates further alleged, however, that this claim was false and misleading. According to its own tests, a substantial number of Dorman’s tensioners failed SAE’s “Snap Test.” (SAE also specifies test procedures and criteria addressing known failure modes for mechanical rotary tensioners.)

Dorman also allegedly uses the trademark “OE Solutions” and terms like “OE Quality” and “OE Performance” in its marketing. OE is a well-known acronym for “original equipment,” which is important because standards set by carmakers for OE equipment are often higher than aftermarket standards. Gates alleged that this is false and misleading because Dorman doesn’t make OE belt tensioners, either for OEMs or for the aftermarket.

Gates alleged false advertising under the Lanham Act, deceptive trade practices under the Colorado consumer protection statute, and common-law unfair competition. Dorman moved to dismiss, arguing that Rule 9(b)’s heightened pleading standard should apply. The court refused to decide that issue because it wouldn’t have changed the result.

The court found that Gates had properly pled its Lanham Act claims. Among other things, it included representative ads as part of its allegations, showing that the claims had been made, and it alleged facts sufficient to show falsity/misleadingness. It’s reasonable to assume that product quality influences purchase decisions, and thus the facts alleged also supported materiality. Literal falsity doesn’t require further proof of consumer deception; misleadingness plus materiality can also make likely deception plausible. “Plaintiff here cannot be expected to present detailed evidence in its Complaint on the nuances of consumer confusion, such as survey evidence, when [the Lanham Act] only requires a ‘tendency to deceive.’" Discovery is the place for exploration of the evidence. Likewise, in alleging harm, Gates rested on the fact of direct competition. At this stage, it need not prove lost customers, only likely harm, and given direct competition, it’s plausible—following Iqbal—that Gates would be harmed by Dorman’s exaggerations about product quality.

Likewise, Gates properly pled its state-law statutory claims, which included the additional element of intent not to sell the product as advertised and an allegation of willfulness, for which the court presumed Gates had a good-faith basis. The allegations were sufficiently particular to meet Rule 9(b)’s requirements.

The common-law unfair competition, however, failed. In Colorado, this tort reaches only trademark-like harms from using or copying a plaintiff’s products or services and deceiving or confusing the public as to the source of the business in question.

Reading list: Property Outlaws

Property Outlaws: How Squatters, Pirates and Protesters Improve the Law of Ownership, by Eduardo Peñalver and Sonia Katyal. I blurbed it, so obviously I liked it! I myself am on the classic liberal reformer side when it comes to IP, but (among other things) the book shows nicely how radicals interact with liberals to do more to change the law than either could on their own.

False marking statute gets shot in the arm

The Forest Group, Inc. v. Bon Tool Co., -- F.3d – (Fed. Cir. 2009)

Background reading: Elizabeth Winston, who’s been arguing for revitalizing the false marking statute.

District court decision discussed here. The trial court found that Forest had falsely marked its stilts with intent to deceive the public, fining Forest $500 for a single decision that affected multiple stilts. In a significant ruling, the court of appeals reversed on the calculation of damages.

Before getting there, the court found no clear error in the district court’s ruling that Forest lacked the requisite knowledge of false marking before Nov. 2007, at which point it had a huge amount of information that its stilts were falsely marked: Forest had been sued for a finding of noninfringement by another company that manufactured similar stilts; it had received an opinion of counsel in 2005 advising that a stilt configured as its stilts were didn’t literally infringe the patent (the natural inference being that a stilt configured as its stilts were also didn’t implement the patent); it had two separate adverse Markman results and two summary judgment rulings to the same effect; and it had retained experienced patent counsel who advised it to modify its stilts so that they’d be made according to the patent.

Still, the original lawyer and principal didn’t have a detailed appreciation of patent law, and the principal was not a native English speaker; this was enough to avoid clear error. The court of appeals was apparently concerned that this case shouldn’t establish some sort of boundary for false marking: “No doubt the quantum of proof regarding Forest’s knowledge in this case is quite high. We do not suggest that multiple claim constructions or summary judgments are required before the requisite knowledge for false marking can be found. Even if we would have found such knowledge at an earlier date, we cannot conclude that the district court’s fact finding on this issue was clearly erroneous.”

Now the meat: Bon Tool argued that 35 USC §292 shouldn’t be interpreted to impose only $500 per decision to mark an article falsely. The language: “Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word ‘patent’ or any word or number importing that the same is patented, for the purpose of deceiving the public . . . Shall be fined not more than $ 500 for every such offense.”

The court held that the plain language does not support the per-decision penalty, but a per-article penalty. “The statute prohibits false marking of ‘any unpatented article,’ and it imposes a fine for ‘every such offense.’” It is the act of false marking that is punished, not the decision; “for the purpose of deceiving the public” is an intent requirement but doesn’t change the relationship between the marking and the penalty. Every article falsely marked with intent to deceive is an offense.

A century ago, the First Circuit held that a different false marking statute, in the Patent Act of 1870, imposed a single fine for continuous false marking. But that penalty was “not less than one hundred dollars.” The First Circuit reasoned that patented articles vary so much in kind and value, the false marking of small and cheap articles in great quantities would result in an accumulation of an enormous sum, out of proportion to the value of the articles, while a lesser fine would apply to falsely marking big, expensive machines. In 1952, Congress changed the $100 minimum to a $500 maximum, because courts had been interpreting $100 as a maximum. “Both the statutory language and the underlying policy rationale supporting the [First Circuit’s] interpretation changed.” The change to a maximum eliminated the policy consideration about cheap versus expensive articles. Though district courts have often followed this precedent, they haven’t taken the statutory change or its justification into account. Given the other side of the policy concern—a single $500 fine for extended false marking would eviscerate the statute—a number of courts adopted a time-based approach, imposing a penalty for each period of false marking. But that doesn’t find any support in the statutory language.

Further policy considerations support a per article interpretation. The marking and false marking statutes are aimed at providing public notice of patent rights. Congress wanted the public to rely on marking as a ready means of determining IP status. False marking deters innovation and stifles competition. “False marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement.” Or they can cause unnecessary designing around or costs analyzing the validity or enforceability of a patent whose number is marked on an article with which a competitor would like to compete. “These injuries occur each time an article is falsely marked. The more articles that are falsely marked the greater the chance that competitors will see the falsely marked article and be deterred from competing. By contrast, a per-decision rule “would render the statute completely ineffective.” Each act could span years and “countless articles,” which would be insufficient to deter “in nearly all cases.” Given that Congress was so interested in preventing false marking that it enacted a qui tam statute to get third parties to enforce the law, that’s wrong.

Forest argued that a per-article penalty would encourage a “new cottage industry” of false marking litigation. But the statute clearly contemplates that “[a]ny person” may sue for the penalty. There is a possibility that “marking trolls” will arise. But the statute explicitly permits such actions. “The fact that the statute provides for qui tam actions further supports the per article construction. Penalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs—who would share in the penalty—to bring suit. It seems unlikely that any qui tam plaintiffs would incur the enormous expense of patent litigation in order to split a $500 fine with the government.”

That doesn’t mean that the fine must be $500 per article. It can be less, to avoid disproportionately large penalties for “small, inexpensive items produced in large quantities. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.”

Remand for determination of the proper number and resulting penalty.

False advertising surveys v. trademark surveys

Rocky Brands, Inc. v. Red Wing Shoe Co., 2009 WL 5125475 (S.D. Ohio)

Previous ruling blogged here. Rocky alleged that Red Wing markets its boots in a manner falsely suggesting they’re made in the US, when some of its lines are made wholly or partly overseas. Red Wing moved, unsuccessfully, to exclude Rocky’s survey and related expert testimony.

The survey was designed to figure out whether consumers believed that the Irish Setter, Red Wing, and Worx brands are made in the US and to determine consumer choice between two boots identical in all respects except country of origin. Awesomely, the survey was conducted at four knife and gun shows in Pennsylvania and Tennessee, limited to people over 18 who’d bought hunting or work boots or were likely to do so in the next 12 months.

There were three questionnaires. The first one showed an Irish Setter boot with labels and tags stating “made in the USA with imported materials.” The respondents were then asked, “Where do you think this product is made?” and followups. The second showed the same boot, but with references to “with imported materials” removed. The third showed a page from one of Red Wing’s catalogs and asked them “Where do you think shoes from this company are made?” and followups. For all three, respondents were asked to assume that there were two brands of boots identical except that one was made in the US and the other was made in another country. They were asked which they’d purchase (with no-preference and don’t-know options).

Because almost all surveys can be criticized (ed: almost?), flaws generally go to a survey’s weight rather than its admissibility, as long as its probative value isn’t outweighed by the prejudice, waste of time and confusion it would cause at trial.

Red Wing argued that the universe was overinclusive because it included past purchasers, not just potential purchasers. In trademark cases, a consumer confusion survey should consist only of potential purchasers, not past purchasers. But, though there’s not much precedent, the same rule may not always apply in a false advertising case. (Why? The court doesn’t discuss the rationale.) Cross-examination can address alleged overinclusiveness, which goes to weight rather than admissibility.

Red Wing also argued that the survey was underinclusive for covering only a narrow segment of the relevant market, gun and knife show attendees in two states, and that surveys should have been conducted in states with larger, more diverse populations. The court thought this was second-guessing. There was no evidence that gun and knife show patrons don’t represent likely purchasers, or that Pennsylvania and Tennessee were unrepresentative, and again this goes to weight.

Further, Red Wing argued that the survey should have been conducted in a retail setting such as a shopping mall, using a pair of boots that respondents could have tried on, with other footwear on hand for comparison, and sales staff present to answer questions. (In other words, Red Wing wanted a shoe store, not a survey.) Rocky argued that testing for country of origin preference didn’t require the same degree of replication of market conditions as testing for consumer confusion in an infringement case. Moreover, for the first two questionnaires, the boot was on a table and respondents could pick it up and examine it for as long as they wanted.

In what I consider an unnecessary holding, the court agreed that “the standards for replicating market conditions for a consumer confusion survey in a trademark infringement case cannot be applied wholesale to this false advertising/designation of origin case in which the survey was designed to measure consumer perceptions about country of origin.” What is certainly true is that, “[g]iven the purposes for which it was designed, the … survey satisfactorily replicates marketplace conditions.” The here-it-is, pick-it-up-if-you-want setup has been accepted in a lot of trademark cases. And certainly, depending on the nature of the infringement claim, surveys can do better if they offer an array of products, but that’s often because the plaintiff’s mark isn’t so strong that the respondents can be expected to think of it just by being presented with the defendant’s similar mark. In addition, sometimes the products can be expected to be presented side-by-side in the actual marketplace, which can increase or decrease likely confusion (think store-brand generics with similar trade dress to national brands), in which case the survey should reflect that. It’s absolutely the case that the presence of other brands is less directly relevant to whether the message on these boots is false or misleading (though if other brands bear country of origin labeling, that may affect what consumers expect from boots), but I’m not sure that one should say generally that the trademark and false advertising survey standards differ. Rather, the survey should replicate relevant market conditions; the presence of other brands is not necessarily relevant, depending on the claim at issue.

Red Wing also argued that the first two questionnaires were irrelevant because 85-90% of Irish Setter boots are clearly labeled “made in China.” Rocky conceded that the results couldn’t be extrapolated to those boots, but the survey was relevant to the 10-15% that are labeled similarly. Red Wing further claimed that the second survey used a “defaced” product that people would never encounter in the marketplace, but it’s still relevant because the difference between the first and the second measures the difference between boots labeled “made in USA with imported materials” and “made in USA.”

Red Wing then argued that the third questionnaire was irrelevant because it contained no designation of manufacturing origin and only tested respondents’ assumptions about Red Wing and Worx. But that was the purpose: to place before respondents the language “Red Wing Shoe Company, Inc.,” “Red Wing Shoes Since 1905,” and “WORX by Red Wing Shoes,” testing whether they believed that the brands were made in the US. This was relevant to the case.

As for the materiality question, Red Wing argued that it assumed what it sought to prove: that country of origin is material. Given the “no preference” and “no opinion” options, the court disagreed. There was a little bit of order bias, because the US option was first, but the court didn’t consider that fatal.

Red Wing contended that the questions in the first two questionnaires were leading and suggestive because the boots had tags saying “made in USA,” and thus the questions amounted only to a reading test. The court disagreed that the questions were leading, though they were suggestive given the labels and tags. Further, the question in the third questionnaire was leading because it asked respondents about “this company,” not permitting respondents to distinguish among Red Wing the company, Red Wing the brand, and the WORX brand. But this was for a jury to weigh. (What’s wrong with a suggestive question if it’s not leading? It’s true that, by focusing respondents’ attention on particular messages, you probably get a higher uptake in surveys than in the “real world,” but that’s true of all messages, and marketers ask focusing questions all the time to help advertisers make very significant decisions; the fact that most people don’t pay any attention to ads isn’t a compelling reason to allow falsity/misleadingness to persist in those ads to deceive those who do look.)

Red Wing then argued that the entire survey was ambiguous because it failed to define “made.” The FTC has determined that “made in USA” means that all or virtually all of a product is made in the US, but the court hadn’t yet ruled on whether it would instruct the jury on this standard. “[T]he FTC standard is not so much a legal definition as it is a measurement of what the FTC determined consumers believed ‘made in USA’ meant when the FTC conducted its research more than a decade ago,” and the FTC standard isn’t binding on the court or the jury. This is simply evidence of the FTC’s opinion, which the jury can give any weight it deems appropriate. (This seems to me underweighted—especially if there’s no better evidence, this is exactly the type of issue on which a court should defer to the FTC’s expertise; in addition, by enforcing this standard, the FTC has done more than measure: it has intervened in the market, shaping what consumers can expect.) Regardless, the court rejected Red Wing’s argument, pointing out that Red Wing would have fought any definition in the survey just as hard, since its argument is that “made in the USA” is subject to varying interpretations. The survey didn’t ask respondents what “Made in USA” meant to them, but that doesn’t make the survey unreliable or inadmissible.

This is why I'm pop

DJ Earworm has released a mashup of this year's top 25 songs, in video and mp3. I think it's the best yet, and actually says something about trends and the specific songs in the way that they interact with one another. Zeitgeist with a beat.

(OK, the post title's a couple of years behind, but it's better than anything from this year.)

Formulaic: store brand mostly wins a round in formula battle

PBM Products v. Mead Johnson Nutrition Co., 2009 WL 5090862 (E.D. Va.)

Previous discussion. PBM complained that Mead Johnson had renewed its false advertising in a 2008 mailer “falsely stating that only Mead Johnson’s Enfamil ® LIPIL® has two fats, DHA ... and ARA ..., which Mead Johnson calls ‘LIPIL®.’” Both PBM’s store brand formula and Mead Johnson’s Enfamil LIPIL have the same levels of the lipids at issue and obtain them from the same supplier, which is the only FDA-approved source. Still, the mailer states, “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development,” and uses a graphic with a blurry/clear image of a duck to the same effect. The smaller-type footnotes this disclose that the comparison is between Enfamil LIPIL and Enfamil without DHA and ARA. The next page says “En-Fact: Enfamil LIPIL’s unique formulation is not available in any store brand.”

Mead Johnson argued that PBM’s false advertising claims were barred by a broad 2007 settlement in a trade dress case between the parties. But the claim regarding the 2008 Mailer could not have been brought then because it did not yet exist. Mead Johnson also argued laches. The Lanham Act has no express limitations period, so courts borrow analogous state periods for purposes of assessing laches; here, the court chose Virginia’s action for fraud, which has a two-year statute of limitations. Mead Johnson argued that many of the key statements were repeated from its 2006 mailer, of which PBM was aware.

Laches requires (1) lack of diligence by the plaintiff and (2) prejudice to the defendant. On prejudice, Mead Johnson argued that it had used the challenged ads extensively in its marketing and spent hundreds of millions of dollars linking its product to these claims. The court agreed with PBM, however, that while the 2008 mailer might contain similar language pieced together from earlier ads, it made “stronger and more direct arguments related to the efficacy of store bought infant formula than prior Mead Johnson ads.” This “new tone and point” meant that PBM did not delay unduly after being wronged. In context, the mailer was designed to “[c]reate uncertainty” about the benefits of store brand formula; evidence that the campaign decreased sales of store brands also showed that the 2008 mailer was different from prior ads.

With that out of the way, Mead Johnson’s argument that the Lanham Act claim couldn’t succeed on the merits was also rejected, because it depended on the idea that PBM’s survey failed to distinguish laches-protected claims from laches-unprotected claims. Thus, whether the claims were literally or impliedly true or false presented material factual issues. And even without proof of consumer deception, PBM had enough evidence to go to trial on intentional deception, an alternate means of proving falsity. In a footnote, the court also left open the possibility of finding, after trial, that the mailer was literally false.

PBM’s state law commercial disparagement claim, however, failed because Virginia recognizes only palming off and misappropriation as unfair competition.

Interest-free credit card offer triggers finance charges and lawsuit

Davis v. Chase Bank U.S.A., N.A., 650 F.Supp.2d 1073 (C.D. Cal. 2009)

A brief note: the credit card practice alleged here is so ridiculous, so obviously out of tune with any rational understanding of the promised card benefits, that one might think that it was the result of incompetence—thoughtless application of a standard sharp-dealing but not ordinarily fraudulent bank-favoring rule to a particular reward that conflicted with that rule. And Occam’s Razor favors incompetence over evil in the regular case. But given (1) the range of ways credit card issuers have found to exploit consumer vulnerabilities and their active adoption of new ones to evade regulations, (2) the fact that the underlying bank-favoring rule (apply your payment in the way that produces the least reduction in indebtedness for you and the most profit for us) is already ethically shaky, and (3)—most of all—the reality that the loss of the promised benefit here would be extremely hard to detect by any consumer who carried a balance, as most do, I simply can’t find it in my heart to offer Chase the benefit of the doubt. Not that incompetent execution of exploitation would be an excuse, but I do wonder: did whoever decided to do this laugh?

So here’s what happened in this potential class action under California law: Chase offered a Circuit City credit card. Among the benefits of the card was an interest- and payment-free period to pay off the balance on certain promotional purchases. “For example, a Circuit City Rewards Card promotional item offered to customers in 2006 states in large writing: ‘No interest! No payments! For six months when you spend $499 or more. For 90 days when you spend $299 or more.’; and ‘It is easy to take advantage of this offer! When you make a purchase with your Circuit City credit card, present this certificate to the store associate to scan.’”

In fact, it was allegedly not so easy as that. “[A]ll payments made by the consumer on his or her regular monthly statement are given priority of payment to the promotional item, even if not yet billed and even if not due for many months.” That is, payments were allocated to purchases not yet due and owing, rather than purchases accruing interest. As a result, rather than having more time to pay off these promotional purchases, customers have less.

Here, the plaintiff bought a TV set in March 2006 for $2000 from Circuit City using his rewards card. Chase treated the item as a promotional purchase, with no interest and minimal payment until January 2008. Before the TV, Chase billed him for purchases made between January 14 and February 13, 2006. Based on his monthly statements, the plaintiff believed that he wouldn’t be assessed a finance charge if he paid his monthly billing in full, or that if he paid in part his finance charge would be based only on the remaining balance. Thus, if he paid the full amount due on March 10 by March 10, he wouldn’t get a finance charge. In fact, he paid his February statement in full.

He was therefore surprised to find that, though he’d paid his statement ahead of time and in full, he was assessed $77.25 in finance charges, because his entire payment was applied against the $2000 promotional purchase, payment for which was not due and which had not yet appeared on his bill. (This is the part that scares me. I autopay, to avoid missing deadlines or changes in deadlines, but that doesn’t keep me safe from this bit of business.) The plaintiff alleged similar charges in at least two other situations.

The terms and conditions did say: “You authorize us to allocate your payments and credits in a way that is most favorable to or convenient for us. For example, you authorize us to apply your payments and credits to balances with lower APRs (such as promotional APRs) before balances with higher APRs.” The plaintiff argued that this language shouldn’t be read to include “interest free” purchases which have no APR and which are not posted to his monthly account balance. (I suppose, because these are banks, we are also going to have to ignore the general rule that fine print can’t take back explicit promises that are the focus of the advertising.) The agreement stated that no payment would be due on promotional purchases until the end of the promotional period, and that finance charges on a promotional purchase wouldn’t be added to the account balance unless and until the promotional purchase wasn’t paid in full by the end of the specified time period.

Chase initially moved to compel arbitration and enforce a class action waiver. This was denied; the arbitration clause was unconscionable under California law.

The plaintiff alleged violations of the CLRA and the unfair competition law, as well as breach of contract and breach of the implied covenant of good faith and fair dealing. Chase argued that the National Bank Act preempted the non-breach of contract claims, while the plaintiff responded that these were laws of general applicability with only an incidental effect on bank operations. I won’t bore you with the details, but the court found that the CLRA claims weren’t preempted, the UCL claims were preempted in part, and the breach of implied covenant claim wasn’t preempted. While state law regulations requiring specific disclosures in credit card ads, for example, would be preempted, the general duty to avoid deception is broader and not preempted.

However, the UCL claims were preempted to the extent they challenged the allocation of payments apart from the way the allocation interacted with deceptive advertising. The court was unclear on exactly what the plaintiff was challenging with respect to allocation alone, but the allocation itself is made sacrosanct by the NBA. To the extent that the plaintiff alleged that the allocation violated the UCL because it contradicted the ads or the contract, though, those claims are not preempted. In those claims, he wasn’t trying to get Chase to abandon specific contract terms, only to get Chase to stick to its promises.

Chase also argued that the complaint failed to state a claim because the plaintiff didn’t allege reliance or harm, and because its ads say nothing about allocation of payments. The court found sufficient allegations of reliance, and a sufficiently well-pled claim. “Although Plaintiff’s allegations preclude him from arguing that he relied on the advertising campaign in purchasing the item that was subject to the promotional purchase (and therefore limit his damages accordingly), the Court finds his allegations regarding his payment choices after Chase treated his purchase as a promotional payment sufficient to state a claim at the pleading stage.”

Chase also argued that the complaint failed to state a claim for breach of contract or breach of the implied covenant of good faith and fair dealing, because the contract didn’t promise to allocate payments in the manner the plaintiff expected. Chase’s promotional offer provided only that the promotional balance would be “interest free,” not that other balances would not be subject to finance charges; further, nothing in the contract said that Chase wouldn’t allocate payments to the promotional purchase first. (So, let’s be completely clear: if you don’t put the card in a block of ice after your promotional purchase, you must pay for your purchase immediately or you get hit with exactly the same finance charges that would have been assessed on a nonpromotional purchase. I suspect many of us would find this relevant information in deciding whether to take advantage of the offer, and also in deciding whether to use the card after--or, as these facts show, before--using the card to make nonpromotional purchases.)

The plaintiff noted that Chase allocated his payment to amounts that were not yet due or owing, and hadn’t appeared on his statement. He also argued that the contract defined “interest free” offers as exempt from Chase’s payment allocation powers. The court found that he’d stated a claim. The contract interpretation issue could not be resolved on the briefs.