difference between Mongolia and Mexico not defamatory

Direct Shopping Network, LLC v. Interweave Press, LLC, 2010 WL 1951142 (Cal. App. 2 Dist.)

DSN’s lawsuit begins with gemstones derived from feldspar. Plagioclase feldspar is divided into six sub-classifications; at issue here are andesine and labradorite, which are apparently so close in composition and appearance that the names are sometimes used interchangeably. Yellow is the most common color of gem-quality feldspar. Mexico produces relatively large quantities of yellow (iron-containing) feldspar, while Oregon produces smaller quantities of red and green (copper-containing) feldspar. Red feldspar from Oregon, aka sunstone, is significantly more expensive than Mexican yellow feldspar.

Oregon was, for some time, the only known source of red gem-quality feldspar. Then, in the early 2000s, some dealers began to sell inexpensive red feldspar gems, called andesine or andesine-laboradorite and said to come from Mongolia, Tibet or the Congo. Robert James, president of the International School of Gemology in San Antonio (ISG), ran tests on gemstones from various sources, including DSN, and concluded in a report that this inexpensive red feldspar was treated yellow feldspar from Mexico. Interweave, publisher of Colored Stone magazine and producer of the content of Colored-Stone.com, published James’s report along with articles of its own essentially agreeing that the material was artificially treated Mexican feldspar.

DSN sued James and Interweave for trade libel, interference with contract and intentional and negligent interference with prospective economic advantage. Interweave moved to strike under the anti-SLAPP law, arguing that the statements were made in a public forum on an issue of public interest and that DSN couldn’t demonstrate a probability of success on the merits, as required to survive the motion to strike. The trial court agreed that the claims arose out of protected conduct, but concluded that DSN presented a prima facie case to support its claims and denied the motion. The court of appeals held that DSN failed to meet its burden and reversed.

The court found several potentially actionable statements of purported fact in the challenged publications, divided into two basic issues—whether the feldspar was treated (as opposed to naturally colored), and whether it was Mexican. As to the first, the court of appeals found that DSN didn’t provide sufficient evidence that its stones were not treated; its scientific evidence was from a testing body that explicitly disavowed (a) the ability to detect all forms of treatment and (b) the reliability of its conclusions as any kind of guarantee.

As to the second, while DSN did provide evidence that could lead a factfinder to conclude that its stones were not Mexican, and thus that defendants’ claims were in that regard false, there was no independent harmful sting from the origin claims. The thrust of the claims at issue was that stones marketed as “all-natural” were, in fact, color-infused. The point of the Mexican origin claim was to support the hypothesis that the stones had been artificially treated: given that all known Mexican feldspar was yellow, if the feldspar originated in Mexico, then its natural color would be expected to be yellow. (There's a strangeness in the court's framing: unless Mexico is also the only/main source of yellow feldspar, then the premise that the stones were naturally yellow doesn't say much about Mexican origin. M-->Y means ~Y-->~M, but it doesn't mean that Y-->M. To say "we know it's treated because it's Mexican and we know it's Mexican because it's treated" is bootstrapping--which is not to say that the underlying claims by the defendants suffer from this flaw, merely that I found the court's summary puzzling.)

Stating that a gemstone is not “all natural” because it’s been treated by heat and color infusion is “obviously disparaging” of its quality. But DSN failed to present evidence that statements about Mexican origin, “standing apart from the statement concerning artificial treatment, would be understood in a disparaging sense or persuade a consumer to avoid the product.” Moreover, DSN presented no evidence of lost sales from the Mexican origin claims other than a conclusory statement by its president.

Comments: Ordinarily, Made in USA would be material to consumers, and I would expect “these products aren’t really Made in the USA” to be obviously disparaging as well. But do gemstone consumers think that the Congo differs from Mexico as a source? That’s far less clear. I wonder what a European perspective on geographic indications would bring to this analysis—if origin really is important by default, then ought we presume that consumers care where their gemstones were mined? Here, the argument that consumer interest in origin is parasitic on whether the stones are “all natural” makes a lot of sense.

Lawyer ad protected by anti-SLAPP law

Simpson Strong-Tie Company, Inc. v. Gore, --- Cal. Rptr. 3d ----, 2010 WL 1948283 (Cal.)

Simpson sued for defamation and related claims against Gore and his law firm over a newspaper ad directed to owners of wood decks constructed after January 1, 2004. The ad advised readers that “you may have certain legal rights and be entitled to monetary compensation, and repair or replacement of your deck” if the deck was built with galvanized screws manufactured by Simpson or other specified entities. It suggested that such people contact Gore “if you would like an attorney to investigate whether you have a potential claim.”

Gore successfully moved to have the complaint stricken under the anti-SLAPP statute, the court of appeals affirmed, and so did the California Supreme Court. The key issue was whether Simpson’s complaint was exempt from the anti-SLAPP statute because of section 425.17(c), which excludes causes of action arising from representations of fact about the speaker’s or a competitor’s “business operations, goods, or services ... made for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions in, the person’s goods or services” or “made in the course of delivering the person’s goods or services.”

Galvanized screws such as Simpson sells are known to be vulnerable to corrosion from the pressure-treated wood commonly used in outdoor decks, shortening their service life and compromising their ability to support their recommended loads and endure stress. The problem worsened when, in 2004, the EPA recommended the end of sales of lumber treated with chromium copper arsenate; the alternatives are more corrosive. Simpson stated that it communicated this potential problem to the industry and the public.

Gore learned about the corrosion potential and contacted a senior inspector with the Contra Costa County DA’s Office, which ultimately issued a consumer alert warning about corrosion. “The alert noted that advisories had been posted in some retail stores about the potential incompatibility of the two products but cautioned that the advisories ‘tend to be in very small print or somewhat inconspicuously posted.’” Gore also visited Simpson’s website, which included a bold-type advisory that “[m]any of the new Pressure Treated Woods use chemicals that are corrosive to steel. By selecting connectors that offer greater corrosion resistance ... you can extend the service life of your connectors. However, corrosion will still occur. You should perform periodic inspection of your connectors and fasteners to insure their strength is not being adversely affected by corrosion. In some cases, it may be necessary to have a local professional perform the inspections. Because of the many variables involved, Simpson Strong-Tie cannot provide estimates on service life of connectors, anchors or fasteners.”

Gore also found out about a Massachusetts class action complaint against one of Simpson’s competitors, and about investigations by Gore’s former law firm into claims that some newly designed fasteners were failing in spite of manufacturers’ representations that “special coatings” would resist corrosion. As a result, Gore placed the ad, allegedly modeled after notices he or his cocounsel had used in connection with other class actions. Simpson conducted a survey revealing that shoppers who read the ad “were significantly more likely to believe that Simpson’s galvanized screws were defective or of low quality and were significantly less likely to purchase galvanized screws manufactured by Simpson.”

The court began by stating that section 425.17(c) should be narrowly construed; its intent was to “trim off a few bad branches.” Simpson, as plaintiff, bore the burden of establishing that Gore’s ad fell within the commercial speech exemption. (Not clear that the placement of the burden matters here, though.)

Interpreting the exemption, the court ruled that the statute exempts a cause of action arising from a statement or conduct that (1) consists of representations of fact about the speaker’s or a competitor’s business operations, goods, or services (2) that were made either (a) “for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions in, the person's goods or services” or (b) “in the course of delivering the [speaker’s] goods or services.”

The court rejected a construction that would have exempted a cause of action for any statements/conduct in the course of delivering goods/services, not just representations of fact about oneself/a competitor. While as grammatically correct as the court’s favored interpretation, this alternative seemed overbroad and inconsistent with the legislative purpose and history. (Compare what counts as offering a service in commerce for purposes of the Lanham Act: in some views, pretty much everything, meaning that the exemption would apply in too many cases, for example statements by a nonprofit in the course of delivering its advocacy services.) The court didn’t think the stage of the transaction (ad versus delivery) should play such a critical factor in applying the exemption. Moreover, the court didn’t think it made sense for a business to lack anti-SLAPP protection for political or religious statements made by an employee in the course of delivering a product or service, but not for the same statements made for the purpose of selling its products.

The only remaining question was whether the causes of action here “aris[e] from ... representations of fact about [Gore’s] ... business operations, goods, or services.” The court found that they didn’t. The defamation and related claims were about the ad’s alleged message that Simpson’s galvanized screws are defective. Assuming this is true, this is not “about” Gore’s or a competitor’s “business operations, goods, or services.” It is “about” Simpson’s products.

Simpson argued that the statement that an attorney will “investigate whether you have a potential claim” is about Gore’s services, and also that the ad justified the inference “that Gore has investigated the named companies and has discovered that they are selling defective screws.” Both of these statements are “about” Gore’s business operations, but Simpson’s causes of action didn’t arise from them as required for the exemption to apply. Simpson didn’t allege that the statement that an attorney would investigate was false or even defamatory, plus it’s not a representation of fact because it’s a promise to take certain future actions (this last bit, tacked on, seems rather sloppy and vulnerable to misreading). As for the allegedly implied investigation, “it would be no more than an attempt to layer the allegedly defamatory inference itself--i.e., that Simpson’s galvanized screws are defective--with an alleged inference that Gore had discovered the defect.” This wordplay could not justify expanding the scope of the exemption, which is supposed to be narrow.

Moreover, Simpson’s alleged damages didn’t come from any implied representation that Gore allegedly discovered that Simpson’s products were defective, but because Gore allegedly implied they were defective. As the court of appeals put it, “To the extent that Gore’s advertisement ‘consists of’ representations about his services, Simpson’s action does not ‘aris[e] from’ it; to the extent that Simpson's action ‘aris[es] from’ a representation by Gore, the representation was not ‘about’ Gore’s or a competitor’s services or business operations.” It would be possible, the court noted, for a cause of action to arise based on representations about the attorney’s own services, such as “a false claim that the attorney had already recovered a judgment against the manufacturer for the defective product,” but that’s not what we have here.

Simpson argued that the ad defamed Simpson in order to tout Gore, thus making the self-promotion inseparably linked with the defamation. “But this is merely another way of saying that the speaker made a representation of fact about a noncompetitor’s goods for the purpose of promoting the speaker’s own services.” The legislature could have written the exemption to cover this, but it didn’t. It is true that a party can’t avoid the commercial speech exception by parsing an ad into component parts: the proper test turns on the basis for the cause of action. But here, the cause of action is based on something that does not involve representations of facts about Gore or Gore’s competitors. The court declined to adopt a construction that would take anti-SLAPP protection away from a press release critical of a political candidate if the press release also mentioned the products sold by the business-speaker.

The flavor of false advertising

Pom Wonderful LLC v. Coca Cola Co., No. CV 08-06237 SJO (C.D. Cal. 2010)

Fruit juice, like headache relief and razors, could get its own chapter in a false advertising treatise.

Pom sells pomegranate juice and juice blends, including pomegranate blueberry. Coca Cola’s Minute Maid brand is a primary competitor. Coca Cola sells “Minute Maid Enhanced Pomegranate Blueberry Flavored 100% Juice Blend,” whose formal name is “Pomegranate Blueberry Flavored Blend of 5 Juices.” By volume, it’s apple juice, then grape juice, then pomegranate, then blueberry, then raspberry. The bottle has a “fruit vignette” (why the term vignette is used this way escapes me, but it is apparently not unique to the parties) depicting each of the five fruits. The parties disputed the extent to which the ads, coupons, and website for the product focused on pomegranates.

Pom’s basic point was that the Minute Maid juice is 99.4% apple and grape juice, and only 0.3% pomegranate and 0.2% blueberry juice, which Pom argued is likely to deceive consumers. (From the reviews I looked at online, there does seem to be some assumption that pomegranate makes up a more substantial amount of the product than this--plus there is apparently a price premium for the product, as there is for Pom's more pomegranate-intensive juices.)

Indeed, Coca Cola has received a number of complaints about the juice—more than about any other Minute Maid product. Example: “Today I made the mistake of buying [the] Minute Maid product that you call 'Pomegranate Blueberry[.]' What a crock. It's nothing but fancy apple grape juice. You people are scumbags for mislabeling your products. I'll never buy this product again. I'll never buy Minute Maid products again. And I'll tell all of my friends about this fraud. Thanks for wasting my time and money . . . .” Pom also submitted a survey indicating that consumers believed that the juice mainly contains pomegranate and blueberry juice, and not other types of juice. The control was a modified bottle with the words “Pomegranate Blueberry” removed from the front and back label; while 1% of the control group thought the juice mainly contained pomegranate and blueberry (now that’s a noiseless control!) 36% of the test group did (32% indicating that they believed this because of the words “pomegranate blueberry” on the label). Pom argued that elements other than the label, and Coca Cola’s ads, could be expected to have the same deceptive effects, whereas Coca Cola argued that the only thing tested was the label—this will be vital later.

Pom also argued that Coca Cola knew that the juice was misleading, citing a communication between employees: “As discussed here is a copy of the front label for the new MM Enhanced Juice Pomegrante [sic] Blueberry product. The product has a blend of apple, grape, pomegranate, blueberry & raspberry juices from conc[entrate]. We are in compliance with the FDA regs related to the naming of juice containing products. There is a risk from a misleading standpoint as the product has less than 0.5% of pomegranate and blueberry juices. [A company lawyer] is aware of this issue & is willing to assume the risk.”

The court had already granted Coca Cola’s motion to dismiss the Lanham Act and California state law claims to the extent they challenged the juice’s formal name and labeling for areas in which the FDA had promulgated regulations. However, FDA regulations didn’t bar Pom from alleging other types of false advertising. Coca Cola then moved for summary judgment, arguing that Pom’s only evidence of falsity/misleadingness came from the name and label.

The Nutrition Labeling and Education Act (NLEA) specifically addressed the issue of when consumers might be misled about juice content. Initially, the FDA suggested that a multiple-juice beverage named for a representated flavor wouldn’t necessarily be misleading if properly qualified. If a named juice isn’t the predominant juice, the label “must either state that the beverage is flavored by the named juice (e.g., ‘raspberry flavored juice drink’) or declare that the content of the named juice in a 5 percent range (e.g. ‘raspberry juice drink 2 to 7 percent raspberry juice’). Names of juices must be in descending order by volume unless the name specifically shows that the juice is used as a flavor. The FDA believed that this would address misleading uses.

What’s most notable, from nearly 20 years after the regulations were promulgated, is that the court doesn’t discuss any consumer evidence—the FDA’s preemptive authority applies even if consumers are misled and even if the FDA didn’t actually check to see whether consumers were misled. As the FDA has now more regularly recognized, this puts a premium on actual evidence about consumer perception during the regulatory process, but I don’t think NLEA regulations were promulgated with that kind of evidence in hand. Secondarily, the regulations apparently presume that flavorings will be a greater presence in the juice than they are in the Minute Maid beverage—3% is the lowest percentage mentioned in the parts the court quoted, whereas pomegranate and blueberry are an order of magnitude less present here, and the regulations allow a 5% range of variation (e.g., a label declaring 3 to 8 percent raspberry juice). However, the FDA adopted general regulations on the meaning of “flavored,” indicating that a food may be described as “flavored” with natural flavor derived from a “characterizing” ingredient, even if little of the “characterizing” ingredient is actually present in the food.

Finally, the FDA also specifically addressed potentially misleading fruit vignettes. It concluded that a multiple-juice beverage need not depict each juice, as long as the name “adequately and appropriately describes the contribution of the pictured juice.” So a vignette depicting raspberries would “not necessarily” be misleading if the product was “raspberry juice in a blend.” The FDA decided not to require that vignettes depict the fruits/vegetables for all present juices, though encouraged it. (Query: does “not necessarily” mean that submission of further evidence could show misleadingness? Since the FDA rarely acts on individual products, should we allow Lanham Act claims when the FDA has indicated that a particular practice might or might not be misleading, depending on the circumstances?)

After discussion of the FDA-Lanham Act interface, the court turned to Lanham Act standards, the key one of which here is that willful misconduct by Coca Cola can justify a presumption of consumer deception. However, the court dismissed the California state law claims, because Pom couldn’t get restitution without having a vested interest in some money or property, and Pom has no vested share in the pomegranate juice market.

Then the court proceeded to gut most of Pom’s claims, characterizing them as an attempt to indirectly require Coca Cola to change the juice’s naming and labeling. Pom argued that the product was really “Apple Grape” juice, but was labeled “Pomegranate Blueberry” and depicted with a pomegranate in order to mislead. It argued that Coca Cola’s choice of name and label is voluntary, and thus the FDA requirements for “formal” naming and labeling aren’t in conflict. The court agreed with Coca Cola that the name “Pomegranate Blueberry Flavored Blend Of 5 Juices” couldn’t be challenged under the Lanham Act because of its compliance with FDA regulations. “The FDA has directly spoken on the issues that form the basis of Pom’s Lanham Act claim against the naming and labeling of the Juice, and has therefore, reached a conclusion as to what is permissible…. [M]anufacturers of multiple-juice beverages may identify their beverages with a non-primary, characteristic juice, as Coca Cola does here.”

The conclusion with respect to the fruit vignette was similar. Here, because the juice is identified as a blend, Coca Cola’s statement of identity adequately and appropriately identifies pomegranate and blueberry as merely characterizing flavors. By depicting all of the juices present, Coca Cola seemingly provided more information and identification for consumers than required by the FDA.

The court did not dismiss all Pom’s claims, though it evinced some skepticism. Ads apart from the formal name and label are subject to challenge under the Lanham Act, though Pom had to show actual consumer reception of a deceptive message. Pom’s consumer survey, however, focused on the name and label, not on other ads or marketing. The court agreed that this made the survey “seemingly unreliable,” but held that Daubert issues were best considered at trial. (Seems to me the survey provides at least inferential support for the ad/marketing claims, which after all are about basically the same things that are in the name and on the label; the real problem is the marginal contribution of the ads/marketing to deception, given the holding here. Perhaps there are analogies from cases finding that defendants can’t be liable for playing on consumers preexisting beliefs, even if those beliefs are false, as long as defendants do nothing else to promote those beliefs.)

The issue of willful deception played out similarly: though the evidence tending to show deceptive intent seemingly related to the name, not the ads, Pom could get the opportunity to show otherwise at trial.

Fair and fraudulent

Fair Isaac Corp. v. Experian Information Solutions Inc., 2010 WL 1875479 (D. Minn.)

Previous discussion. Fair Isaac lost summary judgment on its antitrust, breach of contract, and false advertising claims against Experian and the other credit bureaus, its competitors/customers for FICO scores. Following the recent tradition of weak trademark claims surviving more easily than other weak claims, the remaining trademark-related claims, along with a counterclaim for fraud on the PTO, proceeded to trial. At the close of evidence, the court ruled that because the keyword ad claim and the passing off claim would entitle Fair Isaac to equitable relief only, the court would decide them. The jury returned a verdict on the remaining claims in favor of defendants, finding that the alleged 350-800 marks, which the court had ruled descriptive, hadn’t acquired secondary meaning. The jury found for defendants on the counterclaim as well. Then the court ruled that Fair Isaac had failed to prove its keyword ad and passing off claims.

The fraud on the PTO counterclaim required the jury to find by clear and convincing evidence that (1) Fair Isaac made a false representation during the application process to the PTO for registrations of the 300-850 marks, (2) Fair Isaac knew that representation to be false when it was made and intended to deceive the PTO, and (3) the PTO relied on the false representation in deciding to issue the registrations.

The counterclaim was premised on two statements in response to the PTO’s initial denial on mere descriptiveness grounds. First, there was a declaration by a Fair Isaac employee stating that “[t]o the best of my knowledge, only the FICO score uses the 300-850 range as a unique identifier for credit bureau risk scores.” Fair Isaac argued that the statement was true because, though others may have used the term “300-850,” none of them claimed to have used it as a unique identifier. Defendants conceded this, but argued that the statement was still false because Fair Isaac didn’t use the term as a mark either. Fair Isaac rejoined that defendants didn’t make this argument at trial, and that it used a seal with 350-800 at its center as of 2004, making the statement true.

The second statement was from Fair Isaac’s outside legal counsel: “300-850 is the credit scoring scale only for Applicant’s credit bureau-based risk products and not for ... other credit bureau-based risk products that competitors develop.” Fair Isaac argued that this statement was taken out of context, which explained that the term was not per se descriptive.

The court upheld the jury’s verdict as based on sufficient evidence. The jury heard evidence that competitors sold credit bureau-based risk products that did in fact use the same, or nearly the same, scoring range and Fair Isaac knew these competitors sold such products. This was sufficient to justify an inference of fraudulent intent, and the statements were material in that they were the only intervening event between the PTO’s initial rejection of the registration application and its subsequent issuance of a notice of allowance. Defendants also offered testimony from a former Deputy Assistant Commissioner for Trademarks that the question of whether competitors were also using the 300-850 scoring range would have been important to a reasonable examiner in deciding whether to issue the registration.

Fair Isaac argued that the expert testimony shouldn’t have been allowed, because the test is not whether the information would have been important to a reasonable examiner but whether the registration would not have issued but for the false information. The latter standard, however, is only for damages, not for when the fraud claim seeks only to declare the trademark invalid.

Fair Isaac further argued licensee estoppel: defendants Experian and Trans Union should’ve been precluded from challenging the validity of a mark they’d licensed. Defendants contended that defendant VantageScore was not a licensee, and thus the jury would’ve heard the same evidence in any event. Fair Isaac replied that VantageScore is under the absolute control of the credit bureaus, meaning that agency principles and equity demand the application of licensee estoppel to it as well. But McCarthy says that other parties, even those “closely affiliated” with a licensee, are not foreclosed from challenging the validity of a mark, and there are several cases rejecting the agency argument. Thus, the court agreed that VantageScore could challenge the mark and so the issue would have been submitted to the jury regardless of licensee estoppel.

Fair Isaac also challenged the court’s ruling that 300-850 is merely descriptive, arguing that the categorization of the mark should have been submitted to the jury. Descriptive v. suggestive/arbitrary is typically a question of fact, but can sometimes be determined on summary judgment, as here. Though Fair Isaac argued that it arbitrarily chose the scoring range, that was unpersuasive: a manufacturer can’t claim a trademark in “Red Bike” because it arbitrarily chose to paint its bicycle product red instead of some other color. Nor is it persuasive to argue that the term is suggestive because the actual scoring range goes beyond 300-850. Analogously, “Red Bike” would still be descriptive if it were approximate rather than a precise description of a crimson color. (If the deviation were far enough, it would be misdescriptive, and still treated as descriptive for these purposes.)

Fair Isaac then argued that it should get JMOL or a new trial on secondary meaning. The court found that sufficient evidence supported the jury’s verdict, despite the existence of evidence favorable to Fair Isaac, including length of time in the market and deliberate copying of scoring ranges. The use of the score range in ads, for example, was descriptive. Fair Isaac argued that the court erred by failing to instruct the jury that the federal registration required a presumption of secondary meaning. The court had ruled, however, that the registrations placed a burden of production on the defendants to show that the term lacked secondary meaning; defendants met that burden, and therefore the burden of persuasion went to Fair Isaac.

Defendants also succeeded in their motion to amend the judgment to direct cancellation of the 300-850 registration based on lack of secondary meaning, stayed pending appeal.

Defendants moved for attorneys’ fees on the Lanham Act claims, and on the coordinate state law claims based on a provision of the Minnesota deceptive trade practices act allowing fees if the party complaining of a deceptive trade practice has brought an action knowing it to be “groundless.” The court held that this was a similar standard to the Lanham Act, which allows fee awards in “exceptional cases.”

The court declined to find that the infringement claims were groundless, unreasonable, or pursued in bad faith. Although the court earlier noted that this case seems to have been brought to deter entry of a new competitor into the market, Fair Isaac’s claims did survive a hotly contested motion for summary judgment and a motion for judgment as a matter of law at the close of a three-week trial. The jury verdict suggested that Fair Isaac “badly misjudged” the strength of its claims. But they weren’t wholly without merit, given uncertainties about how the court would rule on various motions in limine, the role of registration, and issues including licensee estoppel and spoliation. Fraud on the PTO didn’t necessarily make this an exceptional case either; courts still have discretion on fee awards. The hypothetical the court used to prove that not all cases of fraud on the PTO justify fee awards was one in which there was fraud on the PTO but the plaintiff won on common-law claims. Though that doesn’t seem very closely connected to this case, the court went on to note that defendants here would’ve had to defend against the common-law claims regardless of the registration—and of course since the standards for finding infringement are the same for registered and unregistered marks, they would have incurred substantial attorneys’ fees.

I’m not sure this really addresses the problem, though: in this case, the marginal cost of defending against the fraudulently obtained federal registration was clearly huge, given that a substantial amount of the litigation focused on fraud on the PTO, and on the related issue of secondary meaning. One can sue under the Lanham Act with an unregistered mark, of course; but I can certainly imagine a court finding that proceeding under one head of jurisdiction was groundless while one wasn’t—for example, trademark claims but not false advertising claims, as in the recent Franklin Mint case.

IP and disability

Eric E. Johnson, Intellectual property's need for a disability perspective, 20 Geo. Mason U. Civ. Rts. L.J. 181-208 (2010). Notable for, among other things, trenchant criticism of nominative fair use doctrine. Bitter irony: the PDF available online is an image scan.

"Iron Man 2 is the most expensive movie ever made about an intellectual property dispute."

From here. On the other hand, Avatar was about property law, so maybe it still wins? My colleague Laura Donohue is writing about the problem referenced in the post, government appropriation of IP and then subsequent invocation of the state secrets privilege to protect against takings claims.

patent infringement as advertising injury

Hyundai Motor America v. National Union Fire Ins. Co., No. 08-56527 (9^th Cir. 2010)

This advertising injury case addresses nontraditional advertising and should be noted by any advertiser engaged in such practices; I expect the insurers have already paid heed. Hyundai put a design-your-own-vehicle feature on its website, and as a result a third party sued it for patent infringement. Hyundai contended that this was “advertising injury,” but the defendants declined to defend. The Ninth Circuit agreed with Hyundai.

Hyundai’s “build your own vehicle” (BYO) feature “allowed users to navigate through a series of questions on a menu (to select, for example, colors, engine and transmission types, and options).” The output was customized vehicle images and price information. Hyundai’s parts catalogue feature likewise allowed users “to navigate through a series of menus (to choose, for example, a model, engine system, and sub-system) and displayed customized parts images and pricing information.”

Orion IP, an NPE, had two patents, one on a method of generating customized product proposals for potential customers of an automobile dealer by using a computer-based system “to dynamically create customized, printed proposals for potential purchasers of a product.” The invention is “[a]n electronic system for creating customized product proposals [that] stores a plurality of pictures and text segments to be used as building blocks in creating the proposal.” The other patent was similar, but aimed at the sale of parts. In 2005, Orion sued Hyundai, and 19 other car companies, for patent infringement.

Hyundai had a policy that covered advertising injury, which included “[m]isappropriation of advertising ideas or style of doing business.” After defendants refused to defend, a jury found against Hyundai and awarded $34 million in damages. Hyundai sought to recover its defense costs, though not the damage award. The district court held that patent infringement is not “advertising injury,” and that Hyundai couldn’t show a causal connection between its advertising and Orion’s alleged injury.

First, was the BYO feature advertising? Defendants argued that, because the feature created customized proposals for individual users, it was high-tech one-on-one solicitation, not widespread promotional activity directed at the public at large, as required for “advertising” under relevant precedent. However, the underlying Orion complaint—which largely determines the duty to defend—identified the BYO feature as “marketing methods” and “marketing systems,” both of which fit squarely within the definition of advertising. But the insurer could also look at Hyundai’s website. Was it one-on-one solicitation? True, it does “little, if anything,” until the user inputs personal preferences. But, unlike prior cases finding solicitation rather than advertising, the BYO feature was not limited to “a discrete number of known potential customers.” The BYO feature “is widely distributed to the public at large, to millions of unknown web-browsing potential customers, even if the precise information conveyed to each user varies with user input. All the users are still using the same BYO feature.”

The next question was whether Orion’s patent infringement claim constituted “misappropriation of advertising ideas.” Would a layperson reasonably read the phrase to include this patent infringement claim? In other words, do the patents at issue involve a process or invention that could reasonably be considered an “advertising idea”? Answer: yes. This was a patent in a method of “displaying information to the public at large for the purpose of facilitating sales, i.e., a method of advertising.” Orion’s own complaint referred to Hyundai’s “marketing method” or “marketing system.”

Defendants argued that “misappropriation of advertising ideas” had to relate to the actual content of the challenged ad. Prior cases held that advertising injury requires a claim concerning the “elements of the advertisement itself —in its text[,] form, logo, or pictures—rather than in the product being advertised.” Iolab Corp. v. Seaboard Sur. Co., 15 F.3d 1500, 1506 (9th Cir. 1994). But reliance on that quotation was misplaced, because the BYO feature was the “form” of the ad. The BYO feature was definitely not the product being advertised, which is the point of the line-drawing.

Next, defendants argued that the source of the advertising idea had to be a competitor. Nothing in the policy’s text supported that claim. “Nor can we discern any contextual, public-policy, or logical significance to who owns the legal rights to the advertising idea in question.” Next!

When an advertising technique is patented, patent infringement may constitute advertising injury.

Finally, there must be a causal connection between the advertisement and the alleged advertising injury. Courts have rejected causation when the patents at issue were allegedly infringed by the underlying product for sale. When the ad itself allegedly infringes, however, there’s a causal connection. The use of the BYO feature on the website was itself an infringement, and it was that use that caused Orion’s injuries.

Reversed and remanded with directions to grant summary judgment to Hyundai on its claim for declaratory relief on the duty to defend.

This law review article was made for me

Kirill Ershov, A Macabre Fixation: Is Plastination Copyrightable?, 32 University of Hawai'i Law Review 125 (2009). Two of my favorite topics combined. Like chocolate and peanut butter, only with human bodies! Sadly, currently unavailable online.

No injury without materiality of patent-related claims

Appliance Recycling Centers of America, Inc. v. JACO Environmental, Inc., 2010 WL 1767313 (9th Cir.)

The district court granted summary judgment on plaintiffs’ state and federal false advertising claims. The lead plaintiff’s name describes the market in which the parties compete. JACO’s statement that its method for recycling appliances was a “unique” system with “unprecedented” results was puffery: a general, subjective claim. Likewise, certain product-specific statements, in context, weren’t false, including a claim that, before JACO showed up, “no other company” could handle contaminated foam. In context, where plaintiffs’ existence had explicitly been acknowledged, that might have meant “before JACO, no other company could compete with plaintiffs,” especially since the statement was made to the California Public Utility Commission, which was obviously aware that plaintiffs had been recycling appliances for utilities in southern California for the preceding nine years. Thus, no reasonable jury could find that the statement actually deceived the Commission into believing that JACO was the only company that could process contaminated foam.

Of more general interest, plaintiffs brought claims predicated on JACO’s allegedly false statements about patent rights: express references to a patent, claims to have designed or pioneered the method, claims that the system was “JACO’s,” and allegations of patent infringement. To manage the patent/false advertising intersection, such claims—unlike Lanham Act claims generally—require a showing of bad faith to succeed. The court of appeals upheld the district court’s determination that there was no material issue on bad faith. More importantly, plaintiffs also failed to raise a genuine issue on materiality and injury.

“No reasonable jury could find statements referring to the patent, claiming to have designed or pioneered the system, or claiming that the system was ‘JACO’s’ to be either material or likely to cause future injury.” Three utility officials testified that the “patent pending” status of JACO’s method wasn’t relevant to their decision, and there was no evidence that it was material to anyone. Because the patent status wasn’t material, “a fortiori, a mere claim to have designed or pioneered the method or that the method was ‘JACO’s’ could not have been material.” (For the record, I think this is too brief, though I have no quibble with the result. It does not follow as the night the day that the status of a company as an innovator is irrelevant just because customers don’t care about patents. It’s the “a fortiori” that bugs me.)

Anyway, there was no evidence that the patent-related statements caused actual injury, and because of lack of materiality, “no reasonable jury could find that they or any similar statements were likely to cause future injury.”

Now this is an important point! If only courts paid attention to it in trademark law!

Finally, though there was a genuine issue of material fact as to the materiality of the infringement allegations, JACO signed a covenant not to enforce its patent against the plaintiffs, so it was unlikely to make similar statements in the future.

Book cover not artwork, subject to right of publicity claim

Yasin v. Q-Boro Holdings, LLC, 2010 WL 1704889 (Table) (N.Y.Sup.), 2010 N.Y. Slip Op. 50742(U), No. 13259/09 (Apr. 23, 2010)

Tasleema Yasin sued over the use of a photo of her, without her consent, for the cover of a work of fiction, Baby Doll. In 2005, Yasin hired photographer Frank Antonio Aleman to take photos of her “for the purpose of promoting her career as a singer and songwriter.” She signed no release. In 2008, she learned that her image was on the front cover of the book. (Defendants stated that the photographer had certified in writing that he had the necessary release.) She sued for commercial misappropriation under Civil Rights Law §§ 50 and 51, which bar using a person’s name, portrait or picture for advertising or trade purposes without first obtaining written consent.

Defendants argued that the picture wasn’t used for advertising or trade purposes, but was protected by the First Amendment. The court disagreed. The use here did not fall within the newsworthiness/public interest exception. There was no relationship between Yasin’s picture and the subject matter of the book, which was a pure work of fiction that in no way referenced her or used her as a character. Although the use of a person’s image in a work of art is constitutionally protected free speech, the photo here wasn’t “artwork.” Rather, its use on the cover was “purely for marketing and trade purposes; solely as a means to attract customers and generate sales.” Thus, the court granted a permanent injunction against further use of her image and summary judgment on the issue of liability.

Note: although the court cited Messenger v. Gruner & Jahr Printing & Publ’g, 94 N.Y.2d 436, 441 [2000], in explaining the cause of action, it did not discuss the facts of that case or distinguish it, creating at least an oddity: there’s a cause of action for appearing on the cover of an unrelated work of fiction, but not for appearing as an illustration of a newsworthy story that has nothing to do with the person depicted (as long as there’s a “real relationship” between the picture and the story, which there can be even if the person is not part of the story)—even though it’s the latter that is more likely to cause people to draw false conclusions about the person depicted.

No sleep 'til 7 hours from now

Hansen Beverage Co. v. Vital Pharmaceutical, Inc. 2010 WL 1734960 (S.D. Cal.)

Hansen sued Vital (VPX) for false advertising, unfair competition, and trade libel. But Hansen then proceeded only to argue Lanham Act case law for all three claims. Oh well! How much money was wasted on everybody saying “the unfair competition analysis follows the Lanham Act analysis,” etc.? Argh.

Hansen makes energy beverages, including Monster energy drink and Hit Man energy shot. VPX makes the energy shot Redline Power Rush! 7-Hour Energy Boost and energy drinks including Redline Extreme, Redline Princess, and Redline Ready-to-Drink.

Hansen objected to claims that VPX’s product gives “7 Hours of Pure Energy,” “7 Hours of Sustained Energy,” and “No Crash.” The court denied a preliminary injunction, and the case continued.

VPX represents that one serving of Power Rush provides seven hours of energy. The name of the product includes the phrase “7- Hour Energy Boost,” and ads tout “7 Hours of Sustained Energy” and “7 Hours of Pure Energy.” VPX’s website says that “the intense energy will last beyond your workout to keep you focused and energized throughout your day.”

The court rejected the argument that there was an implicit representation that the 7-hour duration claim was supported by product testing, and thus held that VPX hadn’t made an establishment claim.

On the merits, the parties presented conflicting expert opinions and scientific studies about whether there is enough caffeine in Power Rush (163-175 mg, depending on the flavor) to support the claim. VPX had no tests conducted specifically on Power Rush. VPX’s expert opined that the half-life of caffeine is 1.5 to 12.4 hours, averaging 6 hours, while Hansen’s experts identified a lower range, 3 to 5 hours. Neither party submitted evidence on the minimum amount of caffeine below which there is no discernable effect.

VPX’s expert concluded that, with a 6-hour half-life, at 7 hours there’d be about 67 mg of caffeine in the bloodstream. Even with a 4-hour half-life, there’d be about 50 mg at 7 hours. Even assuming the 3-5 hour range used by Hansen, and assuming equal distribution at each hour, 66% of consumers would have individual half-lives of 4 hours or more. VPX’s expert opined that energy effects have been observed at caffeine doses of 50 mg and less, producing small but significant increases in self-reports of mood/alertness and reaction times. Hansen’s own expert stated that an average person shouldn’t have any coffee after the morning to avoid impairments falling or staying asleep in the evening.

The court found that VPX’s claim was not unsubstantiated. It relied on third-party scientific literature on caffeine when it launched Power Rush.

Hansen introduced contradictory evidence, suggesting that minimal effects persisted five hours after consumption of 250 mg of caffeine and that “exercise endurance” six hours after consuming 350 mg of caffeine was no greater than placebo levels. Hansen retained an expert to conduct a clinical trial on Power Rush; the expert concluded that there were no differences between Power Rush and placebo at four hours. The court found this was enough to avoid summary judgment for VPX, despite VPX’s criticisms of bias and defects.

Likewise, the court found a genuine issue of material fact as to whether VPX’s “No Crash” claim was literally false. VPX argued that it only meant no crash from sugar, while Hansen claimed that caffeine was also implicated. The parties had conflicting expert opinions. VPX’s expert said there’d be no sugar crash because Power Rush doesn’t have sugar, and that caffeine doesn’t cause a crash because it’s metabolized slowly. But Hansen’s expert opined that substantial scientific data showed that people often experience crash-like systems following caffeine withdrawal. (Myself, I’ve never called the migraines and emesis I experience from sudden caffeine abstinence a “crash,” but then I've been too busy whimpering to really put a name to the experience.) Continue on to trial!

Hansen also challenged the claim that Power Rush “will leave you ‘amped’ to the max in minutes, ready to tear apart the weights and wear out the treadmill like a tiger released from its cage!” This was puffery: “exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely,” not verifiable or measurable. Even were it not puffery, to the extent that the claim represents that Power Rush provides energy for physical activity, VPX had shown that caffeine provides ergogenic effects even without calories, and thus VPX had shown truth. The court also dismissed claims based on an ad for Redline Xtreme claiming that the drink is “university research proven” to deliver “a significant 7.5% improvement reaction time,” “a dramatic 13% increase in energy,” and “an amazing 15% increase in focus,” and that it “dramatically enhances focus and energy.” The ad accurately reported the study results, and Hansen didn’t challenge the study.

Whether it was false to claim Redline Princess provides “mood enhancement” and “appetite suppression,” which is “nothing short of euphoric,” however, survived summary judgment. VPX’s expert opined that caffeine and other ingredients in Princess such as 5-hydroxy-L-tryptophan, beta-phenylalanine, St. John’s wort, yohimbine and hordenine (hordeum) have been shown to suppress appetite and enhance mood. Hansen’s study of Princess, however, showed no mood enhancement compared to placebo, and cast doubt on the appetite suppression claims, creating a genuine issue of fact.

Hansen also challenged VPX’s statements regarding its sales rank: Ranked “# 1 Energy Shot in Los Angeles” (genuine issue of material fact based on conflicting/confusing reports showing the parties nearly neck and neck); ranked “sixth in San Francisco, Los Angeles and Phoenix and seventh in Dallas” (summary judgment for VPX; VPX’s evidence was good enough, in the absence of contradiction rather than mere criticism that the evidence didn’t cover the 20-25% of energy beverage sales made in drug stores and grocery stores; there was no reason to infer that those sales would change the results); and claims of high growth rates (summary judgment for VPX; VPX presented sufficient uncontradicted evidence supporting its claims).

VPX seperately argued that Hansen couldn’t meet its burden on trade libel. The trade libel claim was based on the sales ranking statements. On the only remaining sales ranking claim, Hansen provided no evidence that consumers were induced not to deal with Hansen because of the allegedly false statement, that the statement was directed at Hansen’s products, or that it caused Hansen special damages, all requirements of the tort. “Importantly, Hansen’s conflicting market report for the Los Angeles area shows that 5-Hour Energy is ranked first in Los Angeles, not Hansen.” So the trade libel claim was out.

Tough out there for a plaintiff's attorney

Franklin Mint Company v. Manatt, Phelps & Phillips, LLP, --- Cal.Rptr.3d ----, 2010 WL 1744635 (Cal. App. 2 Dist.)

Manatt represented the executors of the estate of Diana, Princess of Wales and the trustees of The Diana, Princess of Wales Memorial Fund in a lawsuit against Franklin Mint alleging claims related to Franklin Mint’s use of Princess Diana’s name and image in connection with Franklin Mint merchandise. Franklin Mint, after prevailing, sued for malicious prosecution of the false advertising and federal trademark dilution claims. The trial court found that Manatt had probable cause; the court of appeals reversed. (The trustees, executors etc. settled before trial.)

Basic holding: based on the record, no reasonable attorney could have found the false advertising or federal dilution claims tenable, the latter because of lack of trademark use and of secondary meaning—because “Diana, Princess of Wales” had such an “extraordinarily strong primary meaning” as descriptive of the person, the contention that it had secondary meaning was “absurd,” as the district court in the underlying lawsuit (the well-known Cairns v. Franklin Mint) observed.

Manatt argued that the issues were complex and that there was no directly controlling authority. But the fundamental principles of trademark law were clear and well-established, and their application to the case was “straightforward and uncomplicated.” The complexity arose from Manatt’s attempts to avoid those principles. Thus, remand was required for trial on malice and damages.

Further background: Princess Diana was a highly visible celebrity. During her lifetime, Franklin Mint sold over $9 million of Diana-related products. After her death, Franklin Mint produced more products, and sought agreement with the Memorial Fund so that it could advertise official authorization by the Fund. When the Fund didn’t respond, Franklin Mint went ahead, issuing a press release that it was developing a tribute plate, all of whose proceeds would “go directly to The Diana, Princess of Wales Charities,” and an ad stating, “All proceeds to go to Diana, Princess of Wales’ Charities” and “100% of your purchase price will be donated to Diana, Princess of Wales’ favorite charities.” The Fund then said no.

Because Franklin Mint wanted to “associate” its Princess Diana collectibles with donations to charities that supported causes that were important to her, Franklin Mint entered into an agreement with the Great Ormond Street Children’s Hospital (a charity with which she had been involved), allowing the Mint to use the charity’s name in advertising. At some point, Franklin Mint took out the “all proceeds” language but continued to advertise the tribute plate, instead stating that the Mint had pledged a minimum of $1.5 million worldwide to charity in tribute to Diana. Franklin Mint apparently had pretty careful tracking of which purchases were in response to which ads, since each ad had a “response code” that was included in every order, and determined that the “all proceeds” ad generated approximately $2.5 million in sales (eventually interpleaded with the district court, to be distributed to charity on resolution of the suit). The later ad generated $7 to $7.5 million worldwide, $1.5 million of which was paid to the charity.

Eventually, the Fund hired Manatt to sue Franklin Mint. Questions arose about establishing secondary meaning/use in commerce, but Manatt indicated that substantial case law supported using Diana’s charitable activities to establish secondary meaning. The complaint as filed alleged false designation of origin under §43(a)(1)(A), trademark dilution under §43(c), infringement of the California right of publicity, false advertising under §43(a)(1)(B), and California unfair competition/false and misleading advertising claims.

On dilution, the complaint alleged that the Diana mark was famous, inherently distinctive, and also possessed acquired distinctiveness from its past use for charitable activities.

On false advertising, the complaint alleged “a large scale program of deceptive advertising” about the use of the proceeds from the sale of its products. The representations were allegedly false because “Defendants have never donated a penny to the Fund,” and the Fund was damaged by this attempt to benefit from the goodwill associated with Princess Diana’s identity. The claim also included the allegation that consumers were induced to purchase the Mint’s dolls and plates based on a mistaken belief that they were endorsed by, associated with, or affiliated with Diana, her estate, and/or the Fund.

Though the district court refused to dismiss the dilution claim because it was required to take the allegations as true, it expressed doubt that the Fund could show secondary meaning distinct from the primary descriptive meaning of Diana’s name, and denied a preliminary injunction on that ground. The results were similar for the false advertising claim: properly pleaded, but no PI because the Fund didn’t show a fair chance of showing likely confusion and the ads didn’t support the Fund’s position that the ads falsely implied that proceeds would be donated to it.

Note: I can see why the Fund thought there was false advertising. From its perspective, references to “The Diana, Princess of Wales Charities” and even the other, less specific references were references to the Fund (though it doesn’t seem to have pursued this theory as the case went on). But the secondary meaning point is fairly critical here: given that the Fund was very new, it’s questionable that anybody else, specifically the targeted consumers, associated the Fund with Diana’s charities, which during her life had not included the Fund. The use of the article “The” is the best hook here, arguably implying that there are some distinct charities known, as a body, as Diana’s charities, and after Anti-Monopoly’s reversal a consumer belief in an unknown-but-single source qualifies as secondary meaning. But again, even if that were true, it would arguably be much more reasonable for consumers to think that this was a body of charities Diana had supported in life, not the Fund, and that false implication would be a heavy weight to hang on a single article.

Though the appeal centered on the district court’s dismissal of the right of publicity claim, the Ninth Circuit also considered the other claims. The court of appeals agreed that “Diana, Princess of Wales” lacked secondary meaning for charitable activities. Diana was known as a person, not a charity. And the Fund didn’t challenge the district court’s holding on whether the ads falsely implied that proceeds would be donated to the Fund.

Back in the district court, the Mint won summary judgment. As noted above, the court found it “absurd” to claim that “Diana, Princess of Wales” had secondary meaning for the Fund’s charitable services. No fame without secondary meaning; that’s the end of the dilution claim.

The false advertising claim as argued was based on the theory that the “all proceeds” ad was false because the Mint retained a bunch of the money. But only one ad said “all proceeds,” and the evidence demonstrated that the Mint gave $1.5 million to the Great Ormond Street Children’s Hospital and interpleaded another $2.5 million for charity upon the resolution of the lawsuit. (If it’s only true because a lawsuit led the Mint to comply with its promise, is it really true? Kind of like the reverse placebo effect, in a way.) So, given the evidence about sales associated with that ad, the “all proceeds” ad was literally true; summary judgment for the Mint. (The question of how to communicate changes in an advertised product to consumers is an interesting one—a consumer who’d seen earlier ads, but only on later exposure decided to buy, might well not notice the change in the “all proceeds” promise and rely on her recollection of the earlier ad. But that’s hard to prove, especially without an extended campaign making the “all proceeds” claim.)

The Mint then sought and was awarded $1.6 million in attorney’s fees under the Lanham Act for the dilution and false advertising claims, though the false endorsement claim—while a stretch—was a non-groundless attempt to extend existing law. The court found the Fund’s secondary meaning argument “just short of frivolous,” and the false advertising claim groundless because the statements at issue were true and because the Fund presented no evidence to cast doubt on their veracity. The Fund shouldn’t have brought the claim, or voluntarily dismissed it when it was clear that there was no evidence to support it.

Now, on to the present lawsuit for malicious prosecution. At the close of a jury trial, the trial court ruled that there was probable cause to bring these claims, “and having consulted with other lawyers to determine whether or not that client’s cause had merit, had [the lawyer] failed to file a cause of action, one would have had a serious question of whether or not he committed malpractice.” (Really? Even if you agree with the dissent (wait for it), bringing the false endorsement/right of publicity claims seems sufficient; especially if one’s remedies for multiple claims overlap, as here, and if extra causes of action raise difficult matters of proof, I can’t imagine why it would be malpractice to bring the claims that seem most obvious and omit the ones that might—as these did—lead down the rabbit hole and to an award of attorney’s fees. It’s annoying enough when plaintiffs bring state trademark claims that are identical with Lanham Act claims and then don’t bother to argue anything about the state claims; I’d hate to have more incentives to add to a shotgun complaint.)

Also, if I read this right, the judge took the case away from a jury perhaps ready to render a verdict; this turns out to have been inefficient. Anyway, the Mint appealed the dismissal.

The Mint first argued that Manatt was bound by the district court rulings that the underlying claims were groundless and unreasonable. But the Mint failed to preserve the issue of collateral estoppel for appeal.

So, to prove malicious prosecution, the plaintiff needs to prove that the underlying action was (1) terminated in the plaintiff’s favor, (2) prosecuted without probable cause, and (3) initiated with malice. A claim may be based upon only some of the causes of action alleged in the underlying lawsuit, in order to avoid rewarding shotgun tactics.

Probable cause is a question of law for the court. Counsel can present issues that are arguably correct, even if it’s “extremely unlikely” they’ll win. Since law evolves, the court must ask “whether any reasonable attorney would have thought the claim tenable.”

The court of appeals found that there was no probable cause. Even if Diana used her name or image as a mark, which passed to the Fund after her death, no reasonable attorney would argue that her name or likeness had acquired the necessary secondary meaning. (The court paused to note that it’s possible that the Fund has, in the 12 years since the underlying lawsuit was filed, acquired a valid trademark in Diana’s name or likeness in connection with the Fund’s charitable activities; its analysis is limited to the facts as they were in 1998. Later, however, the court appeared to suggest that secondary meaning could only be found when Diana's name was coupled with that of the Fund.)

First, the court found no legally tenable argument that Diana herself used “Diana, Princess of Wales” as a trademark. Manatt argued that her name and likeness was a mark because it was used on promotional materials to inform the public that she would perform the service of “promoting charities through personal appearances.” The court first expressed uncertainty that “making personal appearances” is a cognizable service under the Lanham Act, as opposed to providing entertainment services once present. The TTAB requires evidence of use of the name “not just to identify the individual but rather to identify goods sold or services rendered by the applicant in commerce.” Though Diana supported many charities and promoted them through personal appearances, Manatt didn’t submit evidence mentioning any services she provided. “[I]f Princess Diana’s name was used only as part of a textual reference to Princess Diana as an individual (i.e., that she would be appearing at, or supporting, a charitable event), even if Princess Diana exercised significant control over that use of her name, her name was not used in a service mark manner and therefore did not qualify as a trademark.”

In addition, there was no tenable argument that “Diana, Princess of Wales” acquired secondary meaning, which would require the name’s primary meaning to be subordinate to its secondary meaning as a source indicator. “To prove secondary meaning, the Fund would have to show that the primary significance of ‘Diana, Princess of Wales’ in the minds of the public was to the charitable services performed by Princess Diana (the source-identifying meaning) rather than to Princess Diana as an individual (the primary meaning of the words).”

Manatt relied on cases finding secondary meaning through use of a person’s name in connection with entertainment services, even when the name continues to refer to the person. But those celebrity cases involved people, including Elvis Presley, Glenn Miller, Johnny Carson, and Paul Prudhomme who “achieved public name (or image) recognition in connection with their provision of services. Princess Diana did not.” The public didn’t know the “primary” meaning of their names except through their services, that is, through secondary meaning. Diana was well-known long before her association with charitable work; those other people didn’t have a strong “primary meaning” to overcome, and could achieve secondary meaning “simply by promoting their names in association with the entertainment services they provided.” By contrast, the extraordinarily strong primary meaning of Diana’s name made it doubtful that “Diana, Princess of Wales” could ever achieve secondary meaning, and even more so in the immediate aftermath of her death. No reasonable attorney would contend that the primary significance of her name was to identify the provider of charitable services.

Manatt argued that the Fund didn’t need to prove secondary meaning because “Diana, Princess of Wales” is inherently distinctive because it identifies only one specific person, and because celebrity false endorsement cases haven’t required secondary meaning. The court held that this position “ignores basic trademark law.” “As with Manatt’s other attempts to avoid well established trademark law, neither argument is tenable.” Personal name marks are considered descriptive because they are usually understood to refer to a person (however unique) rather than a provider of goods and services. As for the false endorsement cases, here the court entered the tangle of incoherence that those cases represent: they involve a confusion test like a trademark infringement analysis, but because the traditional multifactor confusion test “did not make much sense in the context of a celebrity endorsement case,” courts tend to rejigger the factors, and sometimes they do that by analogizing a “mark” to a celebrity persona. But this is just shorthand.

Moreover, even if Manatt’s contentions about inherent distinctiveness were true with respect to ownership, secondary meaning—fame of the mark for designating Princess Diana’s charitable services—was required to establish the dilution claim. Shakespeare is surely a famous person, but adopting Shakespeare as a mark doesn’t make it famous as a mark. Argument to the contrary was untenable.

Manatt argued that, in order to avoid chilling novel or debatable legal claims, malicious prosecution was only available in cases involving simple legal issues arising in uncomplicated factual contexts. The court noted that trademark law is specialized and requires “rigorous analysis.” (If only!) Moreover, it was true that there was “no previous case quite like the underlying case, where a person achieved worldwide fame unconnected to any goods or services she provided and her successor subsequently sought protection for her name and image under the trademark dilution law.” But immunity from malicious prosecution claims isn’t established simply because the general area of law at issue is complex and there’s no case with the exact same facts. “Lawyers are charged with the responsibility of acquiring a reasonable understanding of the law governing the claim to be alleged. That achieving such an understanding may be more difficult in a specialized field is no defense to alleging an objectively untenable claim.”

Nor could Manatt claim to be arguing for extension, modification, or reversal of existing law when its arguments asserted “legal theories that simply ignore fundamental principles on which that law is based.” In fact, that was especially true here, because the fundamental principles of trademark law on source identification and secondary meaning are “clear and well established,” not mysterious.

Likewise, there was no probable cause to prosecute the false advertising claim. The Mint’s objection to the Fund’s alleged lack of standing was procedurally barred, but its argument that there was no evidence of falsity or misleadingness carried the day. The theory in the underlying complaint was that the Mint stated in ads that all proceeds from Princess Diana merchandise would be donated to Princess Diana’s charities, and that those statements were false because the Mint didn’t donate any money to the Fund. But the actual ads, attached to the complaint, clearly didn’t make the alleged representation, and “no reasonable attorney could argue that the advertisements could be construed to even suggest that all proceeds from all Princess Diana merchandise would be donated to charity (let alone to the Fund).”

One tribute plate ad said: “All proceeds to go to Diana, Princess of Wales’ Charities …. 100% of your purchase price will be donated to Diana, Princess of Wales’ favorite charities.” A subsequent ad for the tribute plate instead included: “The Franklin Mint has pledged a minimum of 1.5 million dollars worldwide to charity in tribute to the beloved Princess Diana,” a statement repeated in other ads. One final ad, for a doll, stated that the doll was presented by the Franklin Mint, in association with Great Ormond Street Hospital Children’s Charity and that “[t]he doll wears the only exact replica of the dress The Franklin Mint purchased at Christie’s auction where all proceeds were donated to Diana’s favorite charities.”

Manatt nonetheless continued to assert that “at least one” of the ads stated that all proceeds from all Princess Diana merchandise would be donated to her charities. At the summary judgment stage, Manatt modified its theory, arguing that the ads were false because the Mint “retained many times more from their sales of Princess Diana merchandise than they have ‘pledged’ to charity,” and it had not even pledged an amount equal to the proceeds it obtained from sales of “the particular product which used that [all proceeds] ad.” Manatt further argued that reasonable consumers would believe that the Mint was donating a portion of the proceeds from the particular products in the ads, when the Mint wasn’t actually doing that. (In other words, the consumers’ purchases wouldn’t actually increase the amount the Mint gave to Diana’s charities, but consumers would be misled to think so.)

The first “all proceeds from all merchandise” theory was untenable, since no reasonable attorney could have thought that any of the ads “even suggested” this. The “all proceeds” ad “could only be construed” to mean that the sales proceeds generated as a result of that ad would be donated. And this was true, even though the Mint didn’t donate proceeds from sales of the tribute plate generated by other ads. The court rejected Manatt’s argument that the Mint ultimately donated the interpleaded funds to charities with no direct connection to Diana; the issue was whether there was probable cause based on the evidence at the time of the lawsuit.

The second theory—donations based on purchases—is a misleadingness argument. It requires evidence of consumer deception, and the only thing in the record that might support it was a single sentence in a single declaration by a Mint customer, most of which focused on the false endorsement claim. That customer believed that the Fund was going to get some portion of the proceeds of the sale. The other declarations in the record were just about false association. (And that doesn’t even really get to the key question: did the customer believe that the Fund would get more money because she bought and less if she didn’t?) Given the paucity of evidence, no reasonable attorney would have found this theory tenable.

The dissent would have affirmed. The dissent first expressed extreme caution about the malicious prosecution cause of action as a hazard for lawyers. We don’t want to chill the creativity of lawyers who develop the law; the law changes, and that’s because new claims change it. Lack of probable cause is a key limit on the malicious prosecution tort, and should be construed strictly.

There shouldn’t be exposure to a malicious prosecution claim just from asserting claims not within the four corners of precedent or of relevant statutory warning, if the lawyer uses defensible analogical reasoning and has evidence that arguably permits an inference of the ultimate facts to be proved. The burden was on the Mint to prove lack of probable cause, and it didn’t, in significant part because it didn’t submit all the evidence that Manatt submitted in the underlying federal action—you can’t conclude that evidence was legally untenable without knowing what it was.

Given the variations in how lawyers and judges see claims, it’s important to preserve distinctions between merely unsuccessful and legally untenable claims. A claim isn’t necessarily untenable even if existing authority is directly adverse, as long as there’s a tenable basis to argue for an extension, modification, or reversal of existing law. The lawyers in Brown v. Board of Education, for example, confronted adverse precedent. Unless the claim is patently meritless, “the benefit of the doubt should go to the lawyer.”

Lack of probable cause requires either that no reasonable attorney would contend that the facts as alleged would establish liability, or that the attorney alleged facts that s/he knew or subsequently learned weren’t true or had no reasonable basis to infer that supportive evidence could be developed through discovery/investigation. But lawyers need not possess all necessary evidence; a reasonable lawyer can rely on discovery and further investigation.

The legal tenability of both claims, as alleged “was established” by the federal district court’s denial of the motion to dismiss. (I have to wonder how the tighter Iqbal/Twombly standards, which may well have required more in the way of specific factual allegations than the Fund offered in the underlying litigation, will affect a similar analysis in the future.) And, taking into account the evolutionary nature of the law, Manatt had an arguable legal basis. Nor was there evidence that Manatt knew or learned that its factual allegations were false or had no reasonable basis to believe them.

Though the district judge characterized the dilution claim as “absurd” and then “just short of frivolous” in awarding fees, just short of frivolous is not frivolous and not frivolous is legally tenable. There was no authority directly adverse to the dilution claim, because of Diana’s unique circumstances. A reasonable lawyer, “zealously and creatively representing his client’s interests,” could have argued the dilution claim. That’s how the law evolves: “good lawyers, usually in weak cases, reasoning from established principles to advocate an extension, modification, or reversal of existing law.” (Put that way, evolution sounds unattractive—if they’re weak cases, do we like this? Or does this mean, legally weak but morally sound? If so, how do we determine what’s morally sound?) Indeed, in Peaceable Planet, Inc. v. Ty, Inc., 362 F.3d 986 (7th Cir. 2004), Judge Posner argued that the rule against giving trademark protection to personal names without secondary meaning was a common-law “generalization” rather than a statutory absolute, and should be modified where appropriate.

As for whether the dilution claim was factually untenable, the dissent argued that the Mint failed to introduce the underlying factual record into evidence and thus failed to meet its burden. The rulings in the underlying case are no substitute for the evidence. The Mint had no evidence to establish that Diana didn’t use her name and likeness as a mark, or that Manatt was aware of “specific information as to verifiable facts that, if true, would totally negate its cause of action” (citation omitted), and the majority improperly shifted the burden. The Mint couldn’t rely on the trial judge’s conclusions that there was no evidence of use as a mark.

The dissent argued that other celebrity cases couldn’t be distinguished “based on our own assumptions and views about Princess Diana.… Whether the ‘public’ associates the phrase ‘Diana, Princess of Wales’ with the Diana of the fairytale wedding and tabloid divorce, on the one hand, or the Diana who did charitable work, on the other, is a matter subject to proof, as is the questionable assumption that the words ‘Diana, Princess of Wales’ could never gain secondary meaning.” Manatt could even have tenably argued post-death association with charities.

The dissent reasoned similarly with respect to false advertising. The district court judge, looking at the ads at issue, denied the motion to dismiss, showing that it was legally tenable. There was no attempt in the body of the complaint to misstate the facts or mislead the court, so the complaint should be reconciled with the ads. One ad did say “All proceeds go to Diana, Princess of Wales’ Charities.” It didn’t limit its claims to all sales of that particular plate generated by that particular ad. And, when the action was filed, none of the proceeds had yet been donated to any charity. That’s probable cause. The deposit with the court of a portion of revenue from sales of the plate didn’t divest Manatt of probable cause, because it was also undisputed that a significant portion of the proceeds were never donated to “Diana, Princess of Wales’ Charities,” but instead to charities favored by the Mint’s owners. One could view this representation, then, as actually false. “These circumstances suggest that there was evidence that Manatt could develop to support its false advertising claim.” Manatt’s failure to establish that all the ads were false or misleading doesn’t mean it lacked probable cause as to its claim, theory, or ground of recovery, which should be the standard.

The dissent ended by questioning the California rule that malicious prosecution claims can be brought based only on some of the claims in an underlying lawsuit. Other states, more hesitant to chill litigation (more hesitant than California? That’s got to be a first), follow the opposite rule, assessing probable cause with respect to the underlying complaint as a whole. It’s odd, the dissent observed, that “a remedy for excessive litigation expands the opportunity for lawsuits.” And malicious prosecution actions can increase the cost of legal services and harm the attorney-client relationship. Litigators face a dilemma: if they assert various alternative causes of action, they risk a malicious prosecution claim, but if they fail to allege alternative causes of action, they risk a malpractice claim. And defense attorneys face no such risks when asserting affirmative defenses, most of which often have no relationship to the case at hand.

Here, it wouldn’t have been unreasonable to assume that the Mint’s marketing campaign interfered with the Fund’s rights. “At first glance,” the Fund “might reasonably be apprehensive” about a US company “marketing goods that use the name and likeness of Princess Diana and suggest that proceeds from the sale of those goods will go to an undisclosed Princess Diana charity.” The Fund could justifiably believe that many other companies would follow, adversely affecting the Fund’s charitable activities. Maybe there was no valid claim under existing law to prevent such conduct. But if there was probable cause under one theory, the attorneys shouldn’t have been vulnerable to malicious prosecution litigation for asserting other claims arising out of the same operative (or, in the case of false advertising, related) facts.

Comment: among the many interesting features of this case, it's notable that the Mint--likely to be a repeat player in right of publicity controversies--was willing to go beyond attorney's fees, presumably as a signalling device: suing the Mint may not be cost-free, paying one's own way aside.

Belated birthday

I just spent an enjoyable chunk of the day listening to the podcasts from Berkeley/Santa Clara's Copyright at 300. PDFs from many panelists are available along with mp3s of the panels. Many intriguing ideas about historical and modern copyright. Leaving out many, many others, Jules Sigal of Microsoft was particularly interesting on nongovernmental formalities (including things like YouTube's Content ID system); you can get a basic idea of his presentation from the PDF.

puffery and protein powder

Cornelius v. DeLuca, 2010 WL 1709928 (D. Idaho)

Derek Cornelius and SI03, Inc. sued in Missouri state court for violations of the Lanham Act, tortious interference, defamation and related torts, naming more than 15 defendants as responsible for postings on the www.bodybuilding.com website criticizing Cornelius, SI03, and SI03’s products. The statements at issue here were posted on the Forum Message Board, open to any user. Bodybuilding.com and some other defendants removed and, instead of dismissing the suit for lack of personal jurisdiction, the district court transferred the case. The court upheld a personal jurisdiction challenge for the non-Bodybuilding.com defendants because they were competitors with SI03, which sold products through the Idaho-based Bodybuilding.com (as did these defendants). Their allegedly defamatory statements would foreseeably cause harm to SI03’s sales to Idaho. Many of the defamation claims turned out to be time-barred by Missouri’s two-year statute of limitations. Tortious interference has a five-year limitations period; can you use that to get around the limits on defamation? When the claim is clearly and solely based on defamatory statements, such that all the alleged wrongdoing depends on whether the statements were true or false, the answer is no, so those claims were also dismissed.

The Lanham Act has no statute of limitations, but courts borrow local periods unless those are inconsistent with the underlying federal policies. Courts have analogized to trademark infringement, fraud (here five years), and defamation. At its heart, this was a defamation claim. SI03 argued that laches was the proper doctrine, though, rather than an absolute bar. A suit filed after the statute of limitations has expired creates a strong presumption that laches bars the claim. Laches means that delay in filing suit was unreasonable and that defendants would suffer prejudice caused by the delay; the length of the delay is measured from when the plaintiff knew or should have known about its cause of action.

The challenged statements were posted in January 2004, May 2005, May 2006, August & September 2006, and April 2007. SI03 filed its initial complaint in October 2008; only one statement would fall within the two-year limitations period. But defendants didn’t move to dismiss based on laches and the court had no information about when SI03 knew or should have known or about prejudice to defendants. So the court refused to dismiss the claim.

One defendant, SAN, argued that the statement attributed it to it was mere puffery: “You are obviously a Syntrax [SI03 predecessor] pimp. Why don't you have Cornholio stand up for himself? I know at least a half a dozen lawyers who want to crucify him for his reckless behavior.” This was a statement in response to another post, using “figurative and hyperbolic language.” “Pimp” disparaged the third person’s objectivity, rather than suggesting criminal activities. “Cornholio” was not a specific and measurable statement of fact, but a disparaging term borrowed from Beavis and Butt-Head to refer to Cornelius. (Here the court cited Wikipedia, explaining that it “does not encourage citations to Wikipedia. However, in rare circumstances, citation to a pop-culture encyclopedia is necessary in order to explain a pop-culture character.”) The final sentence was also “hyperbolic exaggeration.” A reasonable reader wouldn’t believe that 6 or more attorneys actually want to crucify Cornelius. The statement didn’t provide context for its accusation of recklessnes; it was vague and subjective and therefore nonactionable puffery.

Another defendant, ISS, made similar arguments. The statements: “I would stick w/Ergopharm and primaforce because syntrax has had label claim issues” and “Syntrax has some label claim problems.” The court found those to be vague allusions, but they could be interpreted as objective statement of fact—whether or not Syntrax had problems with label claims is falsifiable, and thus not puffery.

However, the court found that the statements were not commercial advertising. The first statement was commercial speech, but the purpose was not to influence consumers to purchase ISS’s products but to convince them not to purchase SI03’s products. That’s not commercial advertising. The second statement didn’t propose a commercial transaction and thus wasn’t commercial speech. (Good to know you can say false things about your competition in chatrooms as long as you don’t rise to the level of defamation, under this ruling. Why don’t we get to aggregate statement one and statement two for determining whether two was commercial speech, at least? Also, tearing down your competitor is an argument for purchasing your product—just like many arguments for purchasing your product may also serve as arguments for others’ products (e.g., “now’s a great time to buy a new home!” seen in real estate ads).) Note: it is unclear from the opinion whether Ergopharm and Primaforce are products from which ISS derives commercial benefit. If they are, then this decision is not just odd and marginal, it is bizarrely wrong.

Another defendant, Molecular, also argued puffery. The relevant statements: “Syntrax has secret operatives? Could it Be? ... I just think everyone should be aware of the dishonest tactics used by this company. And there’s even more stuff you don’t know about”; “IMO [In My Opinion] it’s not so much the HFCS [high fructose corn syrup] that people are worried about but the recent reports of possible use of contaminated / spoiled protein powder. I think most people remember the threads / posts about Creative Compounds [a different company than SI03] attempting to import protein that was unfit for human consumption.”

The first statement, the court ruled, was “vague, subjective, and rhetorical hyperbole,” and even “more stuff you don’t know about” was vague, without specific and measurable claims capable of being proved false or interpreted as statements of objective fact. (By suggesting the presence of further undisclosed facts, I would think it’s at least potentially defamatory, at least when said by a sufficiently credible source.)

Now I’m kind of surprised: the second statement was also puffery because it started with “In My Opinion.” SI03 argued—which I would have thought consistent with the case law—that prefacing a statement with that claim shouldn’t distract from the underlying factual assertions. However, the court ruled that “[t]he author is expressing his opinion that people may be worried, and why they may be worried. The reference to attempted importation of protein unfit for human consumption relates to a different company entirely. The two statements together explain the basis for the author’s opinion that people may be worried.” Anyway, the statement was vague and subjective, not specific and measurable, and thus non-actionable puffery.

I think the court is requiring too much in the way of “specific and measurable” here. Contamination and spoilage seem pretty specific and measurable—and of course the issue is not whether “people” are worried but whether the statement tells readers they ought to be worried about contamination/spoilage in SI03’s product. Stating the basis for one’s opinion can be important in defamation, where readers can then make their own judgments about whether the facts support the opinion, but here it’s the reports of contamination/spoilage that, if false, are the problem.

What about tortious interference based on the same contamination/spoilage quote? The court then subjected it to defamation analysis. And here again, the court found “an opinion about what may be worrying some people regarding one of SI03’s products.” The objective fact was “reports of possible use of contaminated or spoiled protein powder.” “The author is offering his opinion that the reports may have caused fear, he is not asserting that the reports are true or that SI03’s product contains contaminated or spoiled protein powder.” The court refused to attribute claims about spoiled protein power to Molecular, when the statements were [allegedly] “in fact made by an unknown person.”

What is puzzling here is the court doesn’t address whether those reports were false—it’s possible that a defendant who knowingly repeated falsity engaged in defamation. In other words, the alleged falsity here is not centered on whether this was actually the poster's opinion; it's centered on whether there actually was contamination.

The court appears to be allowing a classic whispering campaign: “I’m not saying you’re a cheat and a liar. I’m just saying that people are saying that. And my opinion is that they’re saying that because you’ve been reported to be a cheat and a liar.” This, to me, is a statement whose weasel words should not of themselves excuse the speaker from potential defamation liability, if the elements—falsity of the underlying factual claim, scienter, harm—are present. Especially since we don’t know the source of the reports. Indeed, it is a standard ground for defamation liability that a reporter failed to do fact- and source-checking that would have revealed the unreliability/bias of a source. I would think it would at least meet the Iqbal pleading standard to allege that a competitor engaged in similar knowing/reckless conduct with respect to the key factual basis of its claim.

Bodybuilding.com moved to dismiss based on §230. It argued that the person who posted the statements attributed to it was not “working for or on behalf of” the company when the post was made and is thus the statement of “another information content provider.” Most of the statements listed in the complaint were attributed to other defendants. SI03 argued, quite fruitlessly, that Bodybuilding.com was a speaker/publisher for all the statements because it appointed moderators on its forum and allowed them to censor content. These are the standard functions of a publisher.

The only statement attributed to Bodybuilding.com was posted by INGENIUM in May 2007. Higher Balance, LLC v. Quantum Future Group, Inc., No. 08-233-HA (D.Or. Dec. 18, 2008), required a plaintiff to show that online forum moderators were the defendant’s employees; without such a showing, they were each “another information content provider.” But that was decided under an anti-SLAPP statute, not on a motion to dismiss subject to Twombly. SI03 alleged that Bodybuilding.com appoints moderators to act as representatives of the company; that INGENIUM was a moderator; and that s/he was acting within the scope and course of his/her representation when the statement was posted. This states a plausible claim for relief.

Takeaway: (1) Hard to believe this case was, or remains, worth the litigation resources expended. (2) Don’t believe everything you read on message boards.