Pink not generic but not strong for mammography supplies

DeSena v. Beekley Corp., --- F.Supp.2d ----, 2010 WL 3064403 (D.Me.), 2010 Markman 3064403

I will ignore the patent claims in this case and focus only on the Lanham Act/false marking counterclaims. At issue: “skin markers that medical practitioners use to demarcate a particular area or feature of concern that will then be highlighted on subsequent x-rays.”

Beekley alleged that Solstice (the plaintiff company) falsely marked its mammography scar markers as patented under its '106 patent. Solstice also referred to this patent on its mammography mole and lesion markers, but because the scope of the patent was hotly contested with respect to those markers, Beekley couldn’t prove intent to deceive there. Solstice admitted that the patent didn’t cover its scar markers, but its webpage advertising scar markers contained a reference to the patent near an image of and information about the scar marker, removed after the counterclaim was filed. The inventor, DeSena, testified that he told the Solstice employee tasked with putting the website together to put the patent number on the pages for the mole and lesion markers, and that its presence on the scar marker page was an oversight. Solstice conceded that the scar markers were falsely marked and that it had no reasonable belief that they were properly marked. But the remaining question, intent to deceive, was a question of fact.

The court expressed skepticism that the claim was worth Beekley’s effort, given a penalty of “not more than $500,” half of which was to go to the US treasury. It was unclear whether Solstice engaged in more than a single act of false marking. Under Bon Tool, the penalty is per article, but the court pointed out that it would be difficult to apply this rule to website ads where, as here, no individual article was marked falsely. The district court has wide discretion, though the Federal Circuit didn’t have much use for time-based calculations (as applied to falsely marked articles).

Beekley also alleged false advertising over Solstice’s claims that its mammography markers were comparable with Beekley’s. Solstice advertised a “Price Challenge,” “Five products, one low price. Inventory made simple!,” and similar statements comparing Solstice markers to Beekley markers. Beekley argued that Solstice falsely claimed (1) equivalence/interchangeability by matching Beekley and Solstice markers; (2) that “a consumer need only purchase five different Solstice mammography markers in lieu of Beekley's inventory of thirty-five ... without any trade-off in product characteristics and performance”; (3) that Solstice had verified equivalence via testing; and (4) that it sold markers in sizes that it in fact didn’t sell. The court disagreed that the ads made those statements; those were Beekley’s view of how consumers would read the ads. The ads were “compare and save” ads, juxtaposing Solstice markers with their “comparable” Markers. “Comparable” was puffery—vague and subjective, not specific and measurable--at least in this context, though not always as a matter of law. Beekley’s arguments about differences between the products might be persuasive in the marketplace, but if used as a legal standard would essentially remove “comparable” from competitors’ advertising vocabulary. (Compare the European approach to comparative advertising, which approaches this result the court found unacceptable.)

Anyway, if the statements weren’t puffery, no jury could find they were literally false. The consumers are highly sophisticated and engage in significant research and sampling before buying. Beekley lacked evidence of consumer confusion.

On to trademark infringement: Solstice sold a two-tone pink skin marker for mammongraphy, which Beekley alleged infringed its registration of the color pink for "identification markers placed on the skin for use in medical imaging, in class 10." The registration says:

The mark consists of the color pink applied to the front face of a pressure-sensitive adhesive backing used for attaching the marker to a patient's skin and forming a part of the goods, and to pink illustrations and representations of the markers applied to the packaging for the goods. The pressure-sensitive adhesive backings bearing the mark take different geometric shapes, and the shapes and borders of the color pink, and the outline of the portion of the goods to which the mark is applied are illustrated in broken lines in the drawing, and do not form part of the mark.

Solstice argued that pink was functional because it was compatible with Caucasian skin tone. The court refused to grant summary judgment on this argument, because “[b]lending mammography markers with patients' skin has not been a goal or consideration in Beekley's design. In fact, the color pink is not visible on a mammogram and plays no role in the functioning of the marker.” Unlike pink bandages (found functional by the TTAB), imaging markers are only applied temporarily, during a mammogram. Solstice didn’t show that Beekley’s pink markers blended with any skin color. (Wouldn’t it also suffice to show that Solstice’s did?) There was no evidence that competitors used pink to blend; instead, it showed that competitors didn’t use pink or any other color for blending purposes: they used animal prints, blue patterns, etc.

Solstice also argued genericism because the color pink has become generic for goods and services in breast cancer-related fields. Again, Solstice didn’t have sufficient evidence to win on summary judgment. Solstice had to (1) identify the class of products to which its argument applied; (2) identify the relevant purchasing public; and (3) prove that the primary significance of pink to the relevant public is to identify the class of products. The relevant class here was the class stated in the registration: identification markers placed on the skin, not breast cancer-related goods and services. (I don’t see why this is so—consumer perception is the key issue, and consumers are, to put it mildly, unlikely to be aware of the class of goods (and this is even true of sophisticated purchasers). If Solstice proved that consumers would encounter the goods in the context of breast cancer detection/screening, then that should suffice for (1). This seems especially so where the goods are specialized: they’re all widgets to me, but on my first encounter I can still get signals about their general use.)

Anyway, Solstice couldn’t establish that the primary significance of the color pink, when applied to mammography-related identification markers for skin, is to identify that class of products, rather than Beekley as a source. “Although Solstice offers examples of many uses of pink in connection with breast cancer treatment, prevention and related activities, Solstice has offered no evidence that consumers have come to view pink as a generic indicator that goods or services marked with that color are related to those activities, or that imaging markers of that color would be seen as necessarily mammography-related.”

Beekley, however, failed to show likely confusion. Beekley’s registration was for the color pink, with no particular shape, making it somewhat difficult to compare the marks, but Solstice’s nipple marker has a two-tone pink color: darker in the shape of a semicircle and lighter in the shape of a rectangle. None of the Beekley products in the record had the same shape, and the marker also clearly bore Solstice’s own Xact® trademark. A reasonable jury would have to find that the total effect was very different from any Beekley use of pink in the record, making the marks not similar.

The goods, channels of trade, advertising, and prospective purchasers were the same, though the court noted that the purchase decision “typically involves multiple phone calls, product sampling, and feedback from technicians and radiologists,” making confusion unlikely. Solstice had sold the markers since 2005, and Beekley had no evidence of actual confusion, creating a strong presumption against likely confusion.

There were issues of fact on Solstice’s intent, which the court weighed in Beekley’s favor for purposes of the motion for summary judgment.

As for mark strength, Beekley is the market leader in mammography skin markers, but offers them in a variety of colors. Beekley’s two biggest competitors in mammography markers don’t use pink on their markers, but others do use pink in connection with breast cancer, and Beekley doesn’t use pink consistently across its mammography line; it uses various colors including multicolor floral designs. A factfinder “could not find pink to be either a strong or a weak mark.”

Overall, the likelihood of confusion was “nil.” Intent, the fact that the mark was not weak, and direct competition were not enough to create a fact issue for the jury given the products’ dissimilarity, the mark’s lack of strength, purchaser sophistication and extended prepurchase scrutiny, and lack of evidence of confusion.

Finally, the only remaining claim under Maine’s UDTPA was based on false patent marking. Solstice argued conflict preemption. The Federal Circuit has held that a false patent marking claim can proceed under state unfair competition law if, and only if, there is bad faith even if the state law in general does not require bad faith. Fact issues precluded summary judgment on intent, but there was no case or controversy because the UDTPA is limited to equitable relief and the offending website reference is gone. On its own, voluntary discontinuance might be insufficient, but Solstice went farther by admitting that the patent didn’t cover the scar markers, leaving no controversy between the parties.

Blog comments as consumer confusion evidence

QVC, Inc. v. Your Vitamins, Inc., --- F.Supp.2d ---, 2010 WL 2985801 (D. Del.)

Defendant Andrew Lessman made a series of blog posts (which the court called “blogs”) about his and QVC’s respective dietary supplements. QVC moved for a TRO and preliminary injunction, which were denied.

QVC makes Nature’s Code supplements, including Resveratrex and Hair, Skin & Nails supplements (Nature’s Code Hair). In 1992, Lessman started marketing dietary supplements on QVC, but left QVC in 1997 and began marketing with QVC’s primary competitor, the Home Shopping Network. Lessman began marketing Healthy Hair Skin & Nails (Healthy Hair), which has generated more than $70 million in revenue. Defendants also make Resveratrol-100, which competes with Resveratrex. Lessman alleged that, in the course of negotiating over a return to QVC, he disclosed the success of Healthy Hair, and that QVC started marketing Nature’s Code Hair shortly after the negotiations stalled.

Lessman then blogged that “QVC's Hair Skin and Nails isn't Healthy ... it is just sleazy and deceptive.” He stated that QVC took his “most successful product's name and use[d] it to try and deceive customers,” “create[d] a low quality product,” and that QVC's “lack of integrity is totally in keeping with the lack of quality of their vitamins.” In a followup post, he repeated the allegations. The next day, he posted “QVC's Hair, Skin and Nails ... Over 99% Additives!”:

[A] quick look at the label reveals numerous additives, including two Artificial Colors/Dyes .... the four active ingredients are Biotin 3 mgs (3,000 mcg); Hyaluronic Acid 1 mg; Silica 10 mg (actually 4.7 mg Silicon); Lutein 0.6 mg (600 mcg). Adding up their weights ... the four active ingredients (14.6 mg) comprise about 1% of the tablet making it 99% additives! That's right ... 99%! But why would QVC do this?! Perhaps a bigger tablet fools you into thinking you're getting more, but who knows? Anyhow, this large tablet is just as deceptive and confusing as their use of my product's name to sell it.

The post continued by praising Biotin. Then it criticized Hyaluronic Acid because

I have followed the research on HA for over 30 years, but I have never used it, because there is no science that shows it offers any benefit when taken orally and there is a significant body of troubling research that connects it to cancer. Back in 1979 I first considered using HA, but chose not to, because in my humble opinion, it is totally useless and potentially unsafe. HA is not well absorbed from the Gl tract and as a result, can offer no benefits. HA does not necessarily "cause" cancer, since it occurs naturally in the body, but credible research points to a relationship and mechanism between HA and cancer, which should preclude its use in vitamins. Personally, I would never take HA, so of course, I would never put it in my products. … In closing, oral HA offers no benefits to the hair, skin or nails and at 1 mg, it is all but meaningless. The only benefit to this ultra-low level is that it likely poses no risk.

He further criticized Silica for “solubility limitations” and said that Lutien “will NOT improve the growth of your hair, skin and nails.” He concluded that QVC’s copying was “downright disparaging to my product.”

He then weighed in with “A Few Words on Resveratrol and QVC's Colorful and Sweet Versions,” praising his own Resveratrol-100 as delivering an “ultra-concentrated” dose of the supplement because of its source, Japanese knotweed, which was better than grape/wine extracts, and contending that Resveratrex (1) includes three artificial colors; (2) is "almost two-thirds additives;" (3) has an active ingredient comes from polygonum cuspidatum (not Japanese knotweed); and (4) contained active ingredients that were “an all but meaningless list of seven different botanicals--NONE of which states a standardization of any kind. You have NO idea how much you get of each." As to the Resveratrex drink, he wrote that: (1) despite the wine-shaped bottle and "Fruits from the Vine" type, the supplement does not come from wine; (2) there are 4 grams of sugar per serving from "a mystery source;" (3) sugar-rich grape concentrate is included; (4) sugar is the "dominant ingredient;" and (5) there is no standardization of any of the ingredients.

Lessman also produced three videos that essentially restated the claims from his articles.

The Delaware Deceptive Trade Practices Act bars conduct that "[d]isparages the goods, services, or business of another by false or misleading representation of fact" or that generally "creates a likelihood of confusion or of misunderstanding." Neither competition nor actual confusion is required to prevail, creating a difference with the Lanham Act with respect to implicitly false statements. QVC also argued that responses to Lessman’s blog posts showed actual confusion.

QVC contended that the 99% additives statement was false by necessary implication because the context implied that additives are harmful when, in fact, they’re innocuous. Though QVC calculated the percentage at 97.76%, the court considered 99% largely correct, and Lessman didn’t specifically state that the additives were harmful or rendered Nature’s Code hair inferior. However, interwoven with statements about QVC’s products “lacking quality” and the like “renders customer confusion plausible.” QVC was required to provide expert testimony or other evidence to support a finding that these statements were true but misleading, and blog comments don’t count. (I’m missing a few things. What happened to the DTPA claim? Also, isn’t QVC required to prove that its additives don’t render the product inferior, or did defendants concede that for purposes of this motion?)

As for the silicon dioxide/silica claim, plaintiffs argued that scientific studies don’t support the claim that silica is unabsorbable. Defendants provided a declaration from a professor at U Mass-Lowell stating that pharmaceutical-grade silicon dioxide (or silica) is “hardly soluble,” citing manufacturer specifications. On this record, the statements were not completely unsubstantiated sufficiently to make them per se false under Third Circuit law. Since Lessman didn’t specifically say that the silica in Nature’s Code Hair is nonabsorbable or nonorganic, consumer reaction evidence would be required to succeed on those theories.

Similar problems existed with plaintiff’s attack, on the present record, on Lessman’s Resveratrex claims. Many of the allegedly false claims were only implied, requiring consumer reaction evidence.

The HA/cancer claims were the most serious. Lessman stated that he was “very familiar” with the research because he’d “followed” it for over 30 years, which was an imprecise term and not explicitly false even though he had others check the research over the last decade or so. Defendants submitted literature which documents a correlation between cancer and high HA levels in the body, with no theory of causation. This was consistent enough with Lessman’s statements to avoid explicit falsity or falsity by necessary implication.

However, given the context, the statements “may likely mislead and confuse consumers into believing that the HA in Nature's Code Hair causes cancer.” But the degree of confusion wasn’t something the court could determine on its own.

Turning then to the evidence of confusion in the record, the court rejected blog posts (or comments; the court’s terminology is off) as evidence of likely confusion. There were 67 comments to the 99% additives post and 50 to the Reseveratrex post. Only a few indicated a relationship between Lessman’s statements and a decision not to buy Nature’s Code Hair. This was not sufficient to show likely success on implied falsity. In a footnote, the court noted that it was not determining whether blog posts (comments) should be deemed relevant and credible evidence generally, but commented that blog posts may be more reliable than broad-based surveys because they “represent direct feedback from consumers specifically interested in the product(s) at issue,” despite authenticity concerns.

I still don't know what happened to the DTPA claim, except that the court seems implicitly to be holding that, absent consumer evidence, this particular set of claims doesn't seem confusing to the court in its independent judgment, though it would be nice to have a clearer articulation of why.

Trademark dei-lution (post title by Zach Schrag)

Geek Squad goes after God Squad.

Financial innovations and false advertising

Municipal Revenue Service, Inc. v. Xspand, Inc., 700 F. Supp. 2d 692 (M.D. Pa. 2010)

Plaintiff MRS sued Xspand and Bear Stearns for violating the Lanham Act, unfair competition, defamation, commercial disparagement, and tortious interference with prospective contractual relations. MRS bought delinquent tax liens from municipalities and school districts in Pennsylvania, and Xspand was its competitor. MRS alleged that Xspand told potential customers that MRS-facilitated transactions produced debt, not revenue, which could have a negative impact on the customer’s credit rating, and that Bear was in a joint venture or agency relationsihp with Xspand.

Xspand first argued that the Noerr-Pennington doctrine, which is grounded in the First Amendment right to petition the government, barred the entire complaint. Petitioning activity covers attempts to influence the passage and enforcement of laws, efforts to influence administrative agencies, and efforts to access the court system. Here, the “petitioning activity” was the distribution of information to persuade government entities to choose Xspand’s services over MRS’s. The court held that, even if this qualified as petitioning activity (and my guess is that addressing the government as market participant does not), the “sham exception” would apply, which strips protection from a defendant who’s simply using the petition process as a means of harassment or as an anti-competitive weapon. A reasonable juror could find that Xspand’s marketing was designed to harass MRS.

For example, in 2004, James Florio, former NJ governor and a founder of Xspand, contacted Clive Corner, a former executive at Commerce Bank, Harrisburg, which was the institution MRS used to finance its tax lien purchases. Florio expressed concerned about the legality of MRS-facilitated transactions. Corner consulted lawyers, who ultimately concluded that there was no issue, which Corner told Florio. But Xspand proceeded to distribute its claims about MRS transactions producing debt, not revenue. This communication could reasonably indicate that Xspand’s intent was to “cripple MRS, and not necessarily to acquire business for itself,” since it wasn’t designed to convince customers but to stifle MRS’s financing. (I’m not sure why an intent to acquire business for itself would be a better motive, if the method used was falsity, but that’s probably why I would think that dealing with the government as market participant instead of as regulator isn’t subject to Noerr-Pennington.)

Moreover, Xspand acknowledged at least two factual errors in its ads. In its FAQ about MRS, it falsely said that the Harrisburg School District had actually accounted for the funds received from its MRS-facilitated transaction as debt rather than revenue. In another letter letter, Xspand falsely represented that it had entered into lien-sale contracts with several municipalities, including Allentown, Pennsylvania.

Xspand also argued that MRS couldn’t show falsity because its statements that “MRS-facilitated transactions are borrowings and cannot be budgeted as revenue” were intended to convey that MRS could not properly book proceeds of tax-lien transactions as revenue, whereas MRS argued that the statements were intended to say something about how MRS customers actually booked the revenue, thus making the claims literally false. The court found that the statements were not literally false. MRS’s reasoning was “circular,” positing that the proceeds were revenue because MRS customers said they were revenue. Xspand’s statements could not reasonably be interpreted to assert that the transactions physically couldn’t be booked as revenue. Any reasonable person would interpret the statement to address how the proceeds should be booked. Therefore, to prove falsity, MRS needed expert testimony.

Comment: The court’s conflation of literal falsity with statements that require no expertise to disprove reflects some confusion. The court’s reasoning (which in itself makes sense) just means that literal falsity has to be shown with further evidence, as it would always have to be in the absence of a concession from the defendants. This situation doesn’t make the statement implicitly false in the Lanham Act sense. The question is not, “what message did the consumer audience take from the materials?”—a matter the court already resolved, as a matter of law, when it held that the message was about proper accounting. The question is, “was that message false?” The court correctly recognized that the statement wouldn’t be false if MRS customers improperly booked proceeds as revenue (and would be false if they properly did so), but that’s not something that can be resolved with survey evidence about consumer perception, which is what the literal/implicit divide is supposed to measure. From the rest of the opinion, it seems that the court was clear on the issue at stake—what the proper accounting procedure was—but I’d call this opinion another casualty of the somewhat counterintuitive way in which Lanham Act doctrine has developed with respect to rigid categories for extrinsic evidence.

The court noted in a footnote that the statement about Xspand’s business with Allentown was false, but hadn’t been shown to influence any other transactions. As for causation on the basic claim, MRS’s principal testified that “everywhere” he went clients and potential clients wanted to discuss Xspand’s letter, and he named specific school districts that had slowed down negotiations with him. This was a matter of credibility for the jury to decide; the testimony was allowed under a hearsay exception, since it went to the state of mind of the clients/potential clients. Xspand argued that this was still hearsay, since the ultimate decision about doing business with MRS rested not with a single individual but with a group. The court deemed this argument “innovative” but unavailing. The exception applies to statements by individual customers; “we fail to see why it would not apply to an individual who is an official representative of a corporate or governmental customer.” The court did not believe that the Federal Rules of Evidence were designed to distinguish between a corporate entity and a sole proprietor in this fashion.

Xspand had some specific arguments against each of the claims, too. On defamation, it argued that MRS couldn’t prove that its statements were of a defamatory character. Commercial disparagement targets the goods (or services) of a business; it doesn’t cross the line into defamation unless “without the aid of extrinsic evidence” it imputes fraud, deceit, dishonesty, or reprehensible conduct in relation to the goods. Xspand’s letter explicitly stated that MRS-facilitated transactions were not sales but borrowings. It didn’t say that MRS advertises itself as producing revenue, not debt. So, for this letter to impugn MRS’s integrity, the recipient would have had to have heard MRS describe its own services. This would be extrinsic evidence, and can’t be considered; thus the letter was incapable of a defamatory meaning.

However, Xspand’s letter could be found to denigrate the quality of MRS’s product, and thus could give rise to liability for commercial disparagement. In Pennsylvania, the elements are: “(i) the statement is false; (ii) the publisher either intends the publication to cause pecuniary loss or reasonably should recognize that publication will result in pecuniary loss; (iii) pecuniary loss does in fact result; and (iv) the publisher either knows that the statement is false or acts in reckless disregard of its truth or falsity.”

Xspand argued that there was no evidence of knowledge or reckless disregard. Xspand’s president Scura, who oversaw the drafting of Xspand’s letter, had extensive experience in municipal finance and reviewed a copy of the purchase and sales agreement used in MRS-facilitated transactions; Xspand argued that this level of care prevents a finding of recklessness. The court, however, found that a reasonable jury could infer that Xspand was aware that lawyers at two prominent firms had examined the structure of MRS transactions and concluded that it was legal. Scura himself testified that he did not consult any lawyers or certified public accountants regarding the truth of the statements in the letter, relying on his 20 years of structured finance experience instead. The reasonableness of this conduct was a jury question.

Similar reasoning preserved the tortious interference claim.

The court also refused to dismiss the complaint against Bear Sterns. There’s probably some interesting stuff in here for people following the complicated sleight-of-hand used to structure relationships between Bear and its allies. What I took from this: the term sheet proposed for the parties (including an intermediary) was never signed, so Bear didn’t obviously have an ownership interest in Xspand. But Bear jointly marketed itself with Xspand by putting its logo and name through Xspand’s marketing materials; Bear people attended marketing meetings with prospective Xspand clients and were regularly updated on Xspand’s efforts; and Bear allegedly made a large profit from Xspand. Scura testified that a “joint venture” agreement existed. A reasonable jury could conclude that Bear was involved in a joint venture with Xspand and was therefore jointly and severally liable. “Vigorously as Bear may argue otherwise, it is possible that it did not fully remove itself from Xspand's operation despite the structural machinations ….”

MRS cross-moved for summary judgment on literal falsity. Aside from what was addressed above, the court considered paragraph 18 of Xspand’s FAQ about MRS, which said:

The Harrisburg School District is currently participating in a borrowing plan associated with [MRS]. This plan has recourse to the Harrisburg School District if the liens are not sufficient to repay the borrowing. The liability appears on the balance sheet of the Harrisburg School District, and the advance of the borrowed funds is not revenue for budgeting purposes. The debt 'does' affect the School Districts credit rating, and may be limited by any debt limitation tests in bond indentures.

The court found this language unambiguous: a reasonable person could only read it to mean that the district actually booked the transaction as a borrowing that created debt, not as revenue. But in fact the district booked it as revenue. Xspand admitted that this statement was incorrect, but called it a “typographical error” of “no moment.” Xspand argued that the statement was intended to read “The liability should appear on the balance sheet ….” The court didn’t think this was a typo; at least the jury was entitled to determine the “nature of the error.”

To get money damages, MRS would have to prove actual deception, even for a claim based on literal falsity, and no Third Circuit authority supported varying that rule even in the case of willfully false advertising. However, there was testimony from a representative from a school district that she was actually deceived. On the other hand, the testimony also provided reasons to believe that the district might not have done business with MRS anyway. Causation was for the jury. Thus, summary judgment was granted in part finding literal falsity on the Harrisburg and Allentown claims, but not on liability for the literal falsity.

MRS then argued that the Tax Injunction Act prevented the court from finding that the transactions were improperly booked as revenue rather than debt, which would turn the court into an auditor. The court found this argument, too, novel but unpersuasive. The TIA is designed to stop state taxpayers from getting federal court orders enabling them to avoid paying state taxes, and that’s it. Xspand was not attempting to force the government to alter its books, and even if Xspand wins, the entities that booked MRS transactions as revenue won’t be forced to adjust their books.

Deceptive place name not material

Guantanamera Cigar Co. v. Corporacion Habanos, SA., Civil Action No. 08-0721, 2010 WL 3035750 (D.D.C. Aug. 5, 2010)

The district court found, among other things, that the TTAB erred in finding that the term GUANTANAMERA for cigars not made in Cuba was deceptive and thus unregistrable, because it didn’t sufficiently support its materiality finding. The goods-place association was clear; the TTAB’s reasons for finding materiality were (1) Cuba’s “renown and reputation for high quality cigars” and (2) the plaintiff’s subjective intent to deceive customers evidenced by previously placing “Guantanamera, Cuba” and “Genuine Cuban Tobacco” on the packaging. The district court rejected the first reason because in a previous case decided by the Federal Circuit, Moscow’s renown for vodka was not sufficient. The second reason was that the applicant’s subjective intent “provides little, if any, insight into the minds of consumers. Consumers could have numerous reasons as to why they purchase Guantanamera cigars…. [T]he Court does not consider extraneous and out-dated marketing material particularly relevant in determining a mark’s ability to satisfy the §1052(e)(3) registration bar.”

I agree with John Welch that this ruling leaves unclear what, if anything, would count as a material deception, especially since many Americans are probably not aware of a lot of place names in Cuba that they more clearly recognize as a source of cigars or tobacco. I’m particularly surprised by the disregard for deliberate deceptiveness on the packaging, even if that was later eliminated because it was fraudulent—that tells us a lot about what the applicant wanted consumers to believe, and it’s pretty standard to presume that an intent to deceive is likely to succeed. Applicant, after all, probably is better placed to know what its customers want than outsiders.

The secret ingredient is sugar

Ackerman v. The Coca-Cola Co., 2010 WL 2925955 (E.D.N.Y.)

The plaintiffs filed a putative class action against defendants alleging violations of California, New York, and New Jersey consumer protection laws, as well as warranty, deceit and unjust enrichment claims under the common law. Defendants moved to dismiss based on preemption and failure to state a claim, and plaintiffs largely succeeded in preserving their claims.

Defendants make vitaminwater. Plaintiffs bought it, allegedly because of the following health/nutrient claims: 1. The description of the product as a "Nutrient-Enhanced Water Beverage"; 2. The phrase "vitamins + water = all you need" on the product label; 3. Flavor names such as "rescue" and "defense"; 4. The name "vitaminwater" itself; 5. The statement "vitamins water = what's in your hand" on in-store advertising materials; 6. The statement "this combination of zinc and fortifying vitamins can ... keep you healthy as a horse" on the label of vitaminwater's "defense" flavor; 7-12 “specially formulated” claims about reducing the risk of various diseases on various flavors. These claims are allegedly misleading because they distract consumers from the significant amount of sugar in the product; portray vitaminwater as healthy when it’s essentially a snack food that only provides nutritional benefits because it’s been specially fortified to do so; and suggest that vitaminwater contains nothing but vitamins and water.

Defendants argued express and implied conflict preemption, given the Nutrition Labeling and Education Act and other FDA requirements. The FDCA preempts any non-identical state law requirements for nutrition and health-related claims in labeling. California, New York and New Jersey all prohibit misbranding of food, in language largely identical to that in the FDCA.

There’s a presumption against preemption in food and drug regulation, and when there’s an express preemption clause, as here, that clause should be read narrowly. There are two ways to escape express preemption here: (1) only impose requirements identical to those in the FDCA, which can include providing a damage remedy for conduct that otherwise violates federal law, even if the federal statute provides no private right of action; or (2) don’t impose requirements on claims described in the FDCA’s preemption provision, so that causes of action based on ad statements would not be preempted unless the ad qualifies as labeling under the FDCA (however, the court noted that “in-store advertising” is labeling because the law defines labeling broadly as statements accompanying the products). The relevant law “preempts only claims based on statements that expressly or by implication characterize the level of a nutrient or the relationship of a nutrient to a disease or health related condition; claims based on statements not falling into those categories are not preempted.” Moreover, breach of warranty claims are generally not preempted because they’re not requirements imposed by state law, but rather imposed by the warrantor. However, this is only true when the statements at issue are not required by federal regulations.

Plaintiffs argued that their claims were based on misleading statements that violate FDA regulations. The court rejected the argument that it was misleading under FDA regulations to make health claims or implied nutrient content claims despite the high amount of sugar in the product. But the court agreed that (1) making those claims despite the fact that vitaminwater has been fortified in violation of the FDA’s fortification policy, and (2) prominently featuring the name of some, but not all, ingredients in the product name and label, could violate the regulations according to the allegations of the complaint.

The FDCA authorizes regulations about “disqualifying nutrient levels”: nutrient levels that preclude any health claims about a product. Under the current rule, only four such nutrients can be disqualifying: total fat, saturated fat, cholesterol, or sodium. Sugar is not on that list, and thus defendants can’t be prohibited from touting the purported benefits of other ingredients based on high sugar content; the FDA’s decision to exclude sugar as a disqualifying ingredient was entitled to preemptive force.

However, plaintiffs also alleged that vitaminwater violates the FDA’s fortification policy. FDA regulations don’t permit health claims, or nutrient content claims involving “healthy” or derivatives, unless the food at issue contains, in customarily consumed quantities, at least 10% of the recommended daily reference quantity of vitamin A, vitamin C, calcium, iron, protein or fiber. To use “healthy,” a manufacturer may fortify to reach the 10% threshold only if it’s consistent with the FDA’s fortification policy, which bars the “indiscriminate addition of nutrients to foods.” For health claims, the food must contain the threshold level prior to nutrient addition. The words "more," "fortified," "enriched," "added," "extra," or "plus" are also barred if the addition of the nutrients itself violates the fortification policy. The FDA sent a warning letter to defendant Coca-Cola in 2008 about Diet Coke Plus, concluding that the product was misbranded because the addition of vitamins to snack foods such as carbonated beverages was contrary to the FDA’s fortification policy.

This rule is colloquially known as the “jelly bean rule,” designed to prevent food producers from promoting junk foods by fortifying them with nutrients. The FDA has noted that “There is great potential to confuse consumers if foods like sugars, soft drinks, and sweet desserts are fortified to qualify for a health claim when, at the same time, dietary guidance as contained in USDA's Food Guide Pyramid, for example, states that ‘[T]hese foods provide calories and little else nutritionally. Most people should use them sparingly.’” Nutrient content claims generally are still allowed, but not health claims or nutrient content claims that use the word “healthy” to suggest consuming the food because of its nutrient content as a way of maintaining a healthy diet. The court held that vitaminwater’s labeling contains both types of claims. Though not every use of “healthy” conveys an implied nutrient content, the context of the other claims here might imply that the product will assist consumers in maintaining healthy dietary practices. The “specially formulated” claims likewise were health claims. Because, the court found, vitaminwater is not in compliance with the FDA’s fortification rule, any health claim is contrary to FDA regulation.

The defendants failed to establish that vitaminwater’s fortification complies with FDA policy, which holds that “random fortification of foods could result in over- or underfortification in consumer diets and create nutrient imbalances in the food supply" and "could also result in deceptive or misleading claims for certain foods." 21 C.F.R. § 104.20. Fortification is appropriate only to correct a scientifically recognized dietary insufficiency; to restore nutrients lost in storage, handling, and processing; with respect to 21 specified nutrients not at issue here, in proportion to the total caloric content, to balance the vitamin, mineral, and protein content; or to avoid nutritional inferiority when replacing a traditional food. Defendants didn’t meet their burden (theirs because they were asserting preemption) of showing that any of these applied.

Next, plaintiffs alleged that vitaminwater’s labeling is misleading because the product name includes two of its ingredients but fails to mention one other notable ingredient, sugar. The FDA recognizes that such product names may mislead, even though all the ingredients are listed elsewhere on the label. “The potential for confusion is heightened by the presence of other statements in vitaminwater's labeling, such as the description of the product as a ‘vitamin enhanced water beverage’ and the phrases ‘vitamins water = all you need’ and ‘vitamins + water = what's in your hand’ which have the potential to reinforce a consumer's mistaken belief that the product is comprised of only vitamins and water.’”

These claims were therefore not preempted: they sought to impose requirements on the defendants identical to those imposed by the FDCA.

The implied preemption defense fared no better, except with the already-preempted sugar content claim.

Defendants also argued that the court should defer to the FDA under the primary jurisdiction doctrine. The court disagreed. Courts are well-equipped to handle the question of whether defendants violated FDA regulations and marketed a misleading product. Courts decide what’s misleading every day. Moreover, the FDA lacks the resources to act every time its policies are violated. There’s no reason to believe plaintiffs could obtain a timely resolution from the FDA.

Independent of that, did plaintiffs state a claim under state consumer protection laws? Viewing each allegedly misleading statement in context, it was not possible to conclude as a matter of law that reasonable consumers would not be misled. The FDA has recognized the potential for misleadingness in incomplete product names, and that potential was heightened by the other health and “vitamins + water” claims surrounding the product and the description of the product as a “nutrient enhanced water beverage.” “The plaintiffs have sufficiently alleged that the collective effect of the challenged statements was to mislead a reasonable consumer into believing that vitaminwater is either composed solely of vitamins and water, or that it is a beneficial source of nutrients rather than a ‘food of little or no nutritional value [which has been fortified] for the sole purpose of’ claiming or implying that it is ‘healthy.’” The court gave substantial weight to the FDA’s determination that fortification of a food in a way inconsistent with the fortification policy may be misleading.

Defendants argued that no reasonable consumer could have been misled because (1) the FDA-mandated label on each bottle shows the amount of sugar per serving; (2) the name "vitaminwater," the one-word flavor names like "rescue," slogans like "vitamins water = all you need," and sayings like "healthy as a horse" are puffery; and (3) no reasonable consumer could believe that vitamins and water are literally "all they need to survive" or all that "is in your hand" when holding a bottle that disclosed the presence of sugar.

But stating the actual sugar content in the nutritional label doesn’t eliminate the possibility that reasonable consumers could be misled. Following Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), the court reasoned that reasonable consumers shouldn’t be expected to look beyond misleading representations on the front of a package to discover the truth in the small print. “[E]ven reasonable consumers may not read the nutritional label prior to every purchase of a new product,” the court wrote, citing a survey showing that only 60-80% of food shoppers read the label before buying a new food. The court also directed criticism at the label here: sugar and calorie content are listed on the assumption that a 20-ounce bottle has 2.5 servings. This is allowed by FDA regulations, but defendants could also have chosen to give per bottle information.

Defendants argued that the sweet taste of vitaminwater puts consumers on notice of the sugar content. The court said: (1) there was no evidence of taste in the record, and it was not appropriate to take judicial notice that sugar makes things sweet, since there exist products like ketchup that are not sweet; (2) a reasonable consumer might believe that something other than sugar was the sweetener; and (3) defendants are not entitled to one bite at the apple in violation of the consumer protection laws.

Nor were the statements puffery. They described the contents of a food product in ways on which consumers might reasonably rely. Here’s an interesting statement: “Further, consumers who have some awareness that food product labeling is subject to government regulation (owing in part to the ubiquitousness of the FDA's "nutrition facts" label on food products) may reasonably be expected to rely on label claims as accurate depictions of a food's contents and nutritional value.” And in fact it seemed clear to the court that defendants intended to convey that impression; it was hard to imagine what else they might have had in mind. Puffery was at least not resolvable on a motion to dismiss.

The court concluded that, even if Rule 9(b) required pleading all the California claims with particularity (which it did not decide), the allegations of the complaint satisfied the heightened standard. Plaintiffs adequately alleged reliance (had they known the truth that vitaminwater was sugar water and not a beneficial dietary supplement, they would not have bought the beverages) and injury (failing to receive the benefit of the bargain). “California courts have liberally construed the requirements for pleading reliance in cases in which it would be impractical to expect a plaintiff to recall with specificity each statement that he or she considered prior to making a purchase.”

Similar results obtained for the New York claims (though reliance is not an element of a §349 claim, albeit it is for a §350 claim). Injury was adequately alleged by claims that plaintiffs paid a premium for the product based on defendants’ inaccurate representations.

With New Jersey’s Consumer Fraud Act, Rule 9(b) did apply because plaintiffs alleged both affirmative misrepresentations and intentional omission of material facts with intent to cause consumers to buy vitaminwater, and plaintiffs failed to plead with the requisite particularity. As opposed to the detail in the complaint about the California claims, the complaint contained “no information regarding: (1) when or how often during the class period the New Jersey plaintiffs purchased vitaminwater; (2) where they purchased vitaminwater, or whether any purchases occurred within the state of New Jersey; (3) what variety of vitaminwater they purchased.”

The court also dismissed the breach of warranty claims under all three state laws, because plaintiffs failed to plead a claim for violation of an express warranty by identifying appropriately specific statements. There was also no breach of an implied warranty of merchantability, because that only provides for a minimum level of quality, which was not at issue here. An implied warranty of fitness for a particular purpose would also have failed, because the complaint didn’t allege that defendants knew that any particular plaintiff purchased vitaminwater to get a healthy beverage. “Consumers may seek beverages for a variety of purposes; indeed some may desire the beverage precisely because it contains high levels of sugar.”

Tracking the consumer protection law results, the court found plaintiffs had stated a claim for common law deceit/misrepresentation under New York and California but not New Jersey law.

IPSC part 6

Closing Plenary Session

Christopher Buccafusco, Chicago-Kent College of Law & Christopher Sprigman, Virginia

The Creativity Effect

Interested in work on endowment effects. Framing affects how people think about the value of goods and services. (This leads to what I think is the next step in these experiments: there are mature markets for many creative goods, with standard contracts/prices, and that will be part of the framing as well, at least for people who are or become aware that there might be money to be made, and the effect of being presented with a standard contract needs to be considered.)

Ran an experiment about goods that people actually create. Wanted an experiment that looked like a chance to benefit, like IP is, rather than a good with a consensus market value like a mug. Asked people to write haiku. Entered into a contest against 9 other contestants. Asked them to sell the chance to win the prize: incomplete alienation. Then brought in the buyers: how much would they be willing to pay? Third set of subjects: mere owners, who were put in the same position as the authors but were assigned their haiku and asked their willingness to accept.

Hypothesis: author valution would be greater than owner valuation, which would be greater than bidder valuation. This was true. Authors’ mean value was $22.90 (for chance to win $50); owners were $21.23; bidders were $10.38. So even with nonrival, incomplete alienation there was an endowment effect, but the author/owner difference was not significant. Maybe creating haiku in a couple of minutes is insufficient and externally motivated. What if we looked at internally motivated creators? Students at the Art Institute of Chicago who’d been working for months.

This time, a $100 prize. Painters: $74.59; owners $40.67; buyers $17.39—owners and buyers were in the same relation to each other as in the previous experiment. Painters were way out there. This is the creativity effect.

But why? That may determine our normative response. Emotional attachment; labor; regret aversion; optimism. Hard to figure out what to do with the first two. Clearly there’s more labor and emotional attachment in the painters, but within the class of painters neither more labor nor more emotional attachment predicted valuation. Instead the relationship would have to be binary: on-off. Regret aversion doesn’t seem to play a huge role. Optimism seems key: painters thought they had 52.8% chance of winning the prize. Owners were at 41.9%; buyers 31.8%. Irrationality about quality is high.

Implications: debate between property and liability rules. A right to exclude leads to overvaluation and supraoptimal number of failed negotiations. IP more than other forms of property relies on negotiation for efficacy, because IP often locates rights in rightsholders who are unable to exploit them commercially in an easy way. So the initial transfer is very important. IP law often presumes efficacious transaction costs, but we should worry about negotiation costs here. Unlike liability rules, where pricing mistakes are both over- and under-, property rule mistakes are directional. So if the creator is just as likely to be over- as under-compensated, errors in implementing a liability rule might not harm efficient incentives.

Formalities: if we are going to have a property rule regime, we will have overvaluation. We should therefore take care to limit the impact of the property rule to commercially valuable transactions that will bear the freight of valuation anomalies.

Intermediaries: ways to ease transition to intermediaries, if you think they’re better at valuation than authors. One way might be to expand work for hire doctrine.

Running royalties: allow parties to agree to disagree about the value of the transaction. If authors are widely optimistic though the seller may disagree about the split, since the seller may disagree about the amount of work she did to deserve her share. Running royalties are also expensive. Only work for transactions rich enough to carry the freight.

Mark McKenna: Work for hire idea depends on the idea that people who are authors by operation of law, like Disney, are going to view themselves as owners rather than creators. What underlies that intuition? (Listening to the lawyers for big companies, there is often huge emotional investment in “our” stuff. “Our people” made it.)

Sprigman: Intuition.

Betsy Rosenblatt: what about creators who are more than happy to forego protection/compensatoin in their works?

Buccafusco: We’re thinking about testing this. If we meet intrinsic motivations, people might accept less money.

Sprigman: this takes the copyright system on its own terms, testing the role of appropriability. Other people outside the industry may behave differently.

Q: (1) Droit de suite? (2) Wouldn’t the market reward creators with lesser endowment effects, disciplining them over time? (This may be a version of my argument above.)

Sprigman: We asked people to rate their emotional attachment and so on; these are difficult questions to ask because we don’t know people’s scale. We saw no significant attachment between emotional attachment or labor and valuation. If their preference were to raise their valuation because of emotional attachment/labor that’s a preference and there’s little reason to think about debiasing. Optimism is just a mistake, leading to a stronger case for debiasing. Thus this study does not provide normative support for droit de suite.

Buccafusco: IP works are highly imperfect substitutes for one another, but people will be equivalently overoptimistic about each one.

Q: Does the bias exists before they create the work? If optimism is part of the incentive to create, then that is important (e.g. for debiasing).

Sprigman: we don’t know the answer but know it’s important to copyright’s (silly) incentive story. If I’m overestimating my likely returns on the front end, then ratcheting down copyright protection can work more easily.

Q: In order to get out of bed in the morning, maybe creators need to be overoptimistic.

Buccafusco: Gets to debiasing question.

Orly Lobel, University of San Diego School of Law

Employment IP and Innovation: A Dynamic Model of Optimal Human Capital Flows

[missed beginning due to conversation with young children] Empirical test of worker capacity where people were asked to do mechanical or free association (more creative) tasks. People were paid for accuracy. Looked at task completion, performance, reported work satisfaction. People who sign a noncompete agreement (agreeing not to take the same test again) are almost 20% more likely to abandon the task before even giving results and getting paid for participating. After that, the task that requires pure effort gets less time on task; enjoying it about the same; error rates are more than twice as high in the noncompete condition. They skip as many questions as in the control condition, but fail more.

In the experimental condition where the tasks are more intrinsically motivating—associations—we hypothesized less of an effect on performance. Spend a little less time in restrictive conditions v. control; also have as many mistakes as control.

This is a starting point. In time zero, during employment relationship, restrictions on competing jobs may encourage firm investment in human capital, but also discourage individuals to invest in their own human capital and negatively affect innovation. But if it’s something you enjoy/your own focus or career, we might see less of an impact. There’s also a relationship with carrot-based performance bonuses as compensation. In time 1, post employment, controls may prevent loss of valuable employees and misappropriation, but also reduce mobility and efficient employee-firm fit.

Gaia Bernstein: People might not know what they’re signing; often true in new employment situations; can’t affect them if they don’t know about the restriction. People also are optimistic; may think they’ll be in the job for a while.

A: true, we need to consider sophistication/what employees know. Often employment contracts are quite thin, because employers have interest in not writing very much down; post-employment restrictions and arbitration are the two that are key. May also matter whether people are going to big firms that will back them up when the former employer makes noises about the noncompete.

Oliar: were people offered the same monetary compensation in the control and experimental conditions? One would think that the noncompete affects the amount that would need to be offered.

A: Yes, they were offered the same compensation. Evidence is that weak post employment controls increase salary (as well as performance base component of salary).

Jorge Contreras, Washington University in St. Louis

Data Sharing, Latency Variables and the Science Commons

Scientists share data; there’s a literature on why. Individual recognition, validation of results, scientific advancement. Access blocking rights: copyright, trade secret, database. Usage blocking rights: patents. Publication delay and interpersonal and institutional delays also interfere with access to information/sharing. Knowledge latency: period from generation of information until contribution to commons. Rights latency: period from appearance of datum of knowledge until the time it is freely useable.

Various anti-patenting policies from private groups. Bayh-Dole prevents government from implementing non-patenting policy. Two divergent approaches developed: embargo. Data had to be released rapidly, but users must agree not to present or publish on data during an embargo people, so you can’t scoop the data generators. Enforceabilty of agreement questionable. Policy: advances science; minimizes encumbrances; but it’s a weak protector of publication priority. Alternative approach: retention, adopted by private consortia: knowledge latency can be longer, but once data is released, no post-release embargo/optional. Patents addressed via contractual nonpatenting resolution because no need to fight patenting strategies. Policy effects: strong protection for publication priority, weaker advancement of science and doesn’t do much to minimize encumbrances.

Scientific publishing: increasing subscription fees diminished access to data. Calls for open access resulted. Stakeholders: data generating scientists, data using scientists, commercial publishers, funders like NIH, public/taxpayers/Congress (want to make use of data as soon as possible). Punchline: latency variables were used. Different approaches reflect a wide variety of negotiations—bilateral between publishers and large universities like Harvard, which implemented policies requiring professors to publish in public domain, open access journal. Agreed on exclusivity periods giving the publisher a chance to earn subscription fees. Professional association journals: NEJM—adopted its own exclusivity period. NIH policy: have to release data through publicly accessible databases like PubMed Central within 12 months. Pending legislation would shrink that to 6 months and apply to all federal funding. Bilateral negotiation, private ordering, regulatory action, legislative action: all use latency variables to compromise.

Conclusions: competing groups can achieve compromise using objective variables to mediate competing policy goals; variables like time are suited for compromise, compared to values.

Congratulations to Pam Samuelson on running another tight and wonderful ship. Thanks to everyone who helped make it such a great conference, and to Peter Menell for opening his home for the postconference dinner.

IPSC part 5

Seventh Breakout Session

Liability and Digital Technology

Steven Hetcher, Vanderbilt Law School

The Death of Strict Liability in Copyright

Proposal: Recognizing a fault standard for amateur-generated copyright. Copyright infringement is a tort, but we don’t take that concept seriously. Why do we have strict liability? General answer: don’t know. Not really strict right now properly understood: fair use, even though the burden is on the defendant.

Why only one liability standard when there are three in torts generally? In tort, generally a fault rule has been considered morally superior. Fault instead of causation improved on trespass by inserting a moral principle. Economics story: fault liability is economically efficient by finding the least cost avoider. Strict liability is the exception: wild animals, ultrahazardous/unreasonably dangerous activities/land trespass.

Restatement offers a 6-part test for when liability should be strict. Requires high degree of risk of harm, and likelihood that the harm will be great. These are hard arguments to make for user-generated content. Inability to eliminate risk by exercise of reasonable care. Copyright infringement as an intentional tort? Amateur content: most of it is fair use, in which case you’re doing something that’s probably legal but that creates a risk of harm, which puts us in negligence territory. There’s nothing inherently intentional about infringement. E.g., norm in fan fiction not to commercialize work; avoid spoilers from newly released works: this is due care. Likewise, other factors in Restatement don’t seem to fit, for example whether the practice is not a matter of common usage.

You really get fault liability when you have nonreciprocity of risk (e.g., using explosives): car accidents show that strict liability is about reciprocity of risk—we don’t have strict liability for car accidents because the risks are high to everyone. In user-generated content there is reciprocity of risk, everyone using everyone else’s stuff.

Finally, infringement is not like trespass to chattels. Idea is that infringer is better placed to avoid the error. But that’s true of drivers as well, and yet we don’t have strict liability for driving accidents. Intentional and innocent infringement are not finegrained enough; fail to acknowledge the element of risk. Much amateur risk may risk accidental harm; if injury results, the issue should be whether the defendant exercised due care.

Standard example of innocent infringement: Harrissongs: should George Harrison have taken more care to figure out whether he was copying someone else’s song?

Fair use is as close as we usually get to fault, but should be closer.

Jennifer Rothman: you have to define what counts as harm first; otherwise copyright owners get to say that they want to monetize UGC and you’re causing harm by not paying.

A: harm question is always circular. Why are noneconomic harms not cognizable in tort? Future risk of harm? We just say so. Harm to existing/traditional markets just mostly doesn’t exist. There may be harm in some cases: spoilers; pornographic portrayals. (Hetcher says Rowling purports to allow everything but pornography; in this he is mistaken, as Rowling/the WB made some noises about this years back but have stopped, though age-rating of explicit fan content, including HP content, is regularly practiced. Also of course harm from that type of portrayal is not cognizable as copyright harm.)

Peter DiCola, Northwestern University School of Law

A Reverse Liability Rule for Copyright in Digital Samples

Some licensing transactions work great between repeat players with a major label. They work with one sample per track; they work when professionals can verify the credentials of sophisticated, connected players. New entrants/independent players can’t participate. Multisample works are commercially impossible. Fear of a Black Planet could not be released today.

Proposed reforms: enhanced property rights (Bridgeport), compulsory licensing, noninfringing uses (de minimis use, fair use); innovations in voluntary licensing from transaction-facilitating institutions like PROs, Creative Commons, individual firms, authentication databases. Even with solutions like CC, we didn’t do anything for the Beastie Boys and Public Enemy.

Why don’t licenses happen? Because negotiations never start: costly to seek and ID owners, hire intermediaries, and negotiate. Because copyright owners seek to obtain higher fees; price discriminate. Because copyright owners don’t like other creators: “I don’t like rap music,” says the guy from the Turtles. Public Enemy: “I don’t like their politics.”

Property rule for the downstream user would be a well-defined de minimis threshold. Other options: copyright owners or downstream users could have various entitlements, from alienability to property rules to liability rules. Choices today: instead of property rule for owners, create a liability rule for downstream users. (This is the classic nuisance case of Spur Industries v. Del Webb.) That would mean downstream users would have an entitlement to sample, but copyright owners could block sampling as long as they were willing to pay. Copyright owners can flip the default. Fair use would continue to apply even if the copyright owner paid to block.

This is a reverse of compulsory licensing. Owners would be decisionmakers—they’d have control. But they’d have to pay instead of getting paid. Money and control are both goods that owners value. Why not trade them off, instead of assuming that copyright owners want money more?

Criticisms: need measures to deal with extortion by the downstream user as well as by the copyright owner. Administrative complexity. Nonstarter for copyright owners unless they expect to lose their entitlement with property rule protection.

Can do a sliding scale: use length as proxy for value. Sufficiently short samples could have a reverse liability rule and longer could be negotiated. Could manipulate mutability (whether owners could choose between compulsory licensing or reverse liability); timing; where the money goes (to the government, ideally for the arts).

Incentives: could result in more sampling, more licensing, or both; might help build database of copyright owners. Might show the balance between authors’ desire for money and their desire for control.

Why bother talking about options not on the legislative horizon? Reminds us that copyright is designed. Responds to serious problems that exist now. Shows that compulsory licenses aren’t the only option. Could be part of a reform package; motive to private actors to get them to fix the system.

Justin Hughes: there have been proposals to put copyright money into the NEA: does this raise a formality problem, though?

Molly van Houwelling: worries about small players always getting sampled, because they don’t have the money to make it stop—worries about digital sharecropping.

A: Interesting that what seems like being a weaker property right might raise these concerns.

Q: Consider whether new DMCA exemptions for DVD ripping affect substantive copyright law in terms of how sampling will be regarded more generally. (You’re welcome. ;) )

Tonya Evans, Widener Law

Sampling, Looping and Mashing...Oh My!: How Hip Hop Music is Scratching the Surface of Copyright Law

Sampling: first done in ignorance; then done despite risks; then practice ebbed and is now rarer than it should be, except in underground contexts. Paper goes through the details of why sampling produces different/better aesthetic results than replicating a composition in the studio.

Analogizing to collage/tapestry and other artistic justifications for using samples. Also wants to highlight the unequal treatment of sound recordings versus musical works generally. Bridgeport case; recent case in Saregama (now on appeal) wrote a scathing rebuttal to Bridgeport’s infringement analysis. The way that music is created is different than the way that texts are created; copyright needs to appreciate this.

Wants to analogize to semiconductor chip protection: specific rights against copying without reverse engineering were granted, but right to reverse engineer protected, in part because innovation is highly cumulative, the same way music production is.

My Q: Bridgeport actually treats text and music as different, just gets the difference wrong. Bridgeport looks at industry structure: ‘get a license or do not sample.’ The court would, however, easily have seen that this was a ridiculous requirement to apply that to writers. Focusing on creativity might be a way to identify relevant differences.

DiCola: what happens when people innovate to avoid sample clearance issues? (My thoughts: The fact that artists don’t shut up doesn’t mean that the situation has improved/not deteriorated. Finding a workaround—there, I fixed it—can be great when the restrictions are self-imposed; not so great when they put a class of works outside the realm of creation (collage, as Evans points out) and restrict other classes (single-sample works) to artists wealthy enough to pay for them.)

A: Classic example of Public Enemy. Industry changed; but it doesn’t work as well to pay for a single use. Lose collage.

Lital Helman, Columbia Law School

Voluntary Payment as a Complementary Model for Music Copyright

Proposes that every site offering music should be able to transfer music directly to the performing artist regardless of copyright ownership by the label. Technology has not kept pace with the link between artists and audiences.

There are literatures about tipping and voluntary payment. We all engage in these activities a lot. When does it work and why? People are more comfortable in reciprocal relationships; they often don’t like only to get, and want some kind of equality. People like to feel open-handed, kind, not cheap. We are music fans; many care about the persona behind the music.

Van Houwelling: how well does this translate online? People watch me put money in the hat in the physical world, and I can also feel that I’m encouraging others to contribute; harder to do that online.

A: online is not necessarily anonymous. (AMV.org, I think, gives donating contributors a special designation.) Wikipedia has also been able to engage in fundraising successfully.

Stauffer: would this be a windfall in the case of works for hire/transfers? Also, age/cultural differences in tipping matter—many cultures don’t tip or don’t tip much; age also affects tipping behavior.

A: given what artists make today, we don’t need everyone in China to pay to help them out.

Q: is it good for artists to be people who are tipped? To be people who are at the whims of others? (As opposed to their great independence now with respect to the record labels? Not that I’m not sympathetic—but who is the kind of person for whom it’s good to be in the position of being tipped, and what does that say about our understandings of class and human dignity?)

Eighth Breakout Session

Technological Change Affecting IP, Room 630

Gaia Bernstein, Seton Hall University School of Law

Disseminating Technologies

Diffusion of innovation. Looking at copyright and patent to figure out what’s happening with dissemination of technologies. Looking at copyright: filesharing cases and contributory liability affect dissemination of technology (copyright concerns itself with dissemination of knowledge, not dissemination of technology). Main patent doctrines related to dissemination include patent misuse and compulsory licensing. But the user as couch potato (compared to user as innovator) has been ignored—every day decisions users make about whether they want to adopt a new technology. Law has ignored how to encourage such adoption.

Should the government intervene to encourage adoption of new technology? Not to encourage adoption of one over others, but adoption of a technology that doesn’t seem to be gaining even though it would be good. Usual reaction: let market operate. But there are market failures. When a technology is dependent on a critical mass. When time is of the essence.

Network effects: minitel in France: many of the conveniences we now associate with the internet; grocery shopping, travel reservations, chat rooms, etc. Videotext systems weren’t adopted elsewhere in the world. Swine flu: window for vaccination; government intervened with massive advertising campaigns and distributing the vaccine for free. Digital TV: government mandated a move.

Legal framework that might encourage user adoption: specific case by case regulation? Broader IP mandate?

Q: Picking winners and losers is a challenge.

A: She tries to set aside where there are several technologies that do the same thing; picking is difficult. (How often will this be the case? Compare Medicare reform, where we created so many options that picking was too difficult.)

Jennifer Rothman: Say something about the difference between access and innovation. Access to drugs/internet raise slightly different but related issues. Is swine flu technology?

A: Yes, swine flu is technology—fear of vaccines is an adoption issue. Interested in consumer resistance to something new, not consumer desire for information that is not available.

Q: to what extent should government act as market participant or restructure the market? Some examples, IP law has no role because the government has acted by using money. When do we want it to change the rules of the game?

Q: Government provided a DTV voucher. It presents one method of not having to choose winners if you can ID the technology you want to encourage broadly (digital receivers for analog TVs) (though you are, I’d say, expressing a preference for DTV over the air compared to internet TV/other forms of disaggregating the receipt of audiovisual content).

My thoughts: I’m reminded of the arguments that copyright owners needed special rules to “put cars on the information highway,” and the arguments that the DMCA would spur content owners to make their content available on new devices that would then make those devices attractive to consumers.

Bruce Boyden, Marquette University Law School

Copyright’s Collapse

Copyright isn’t growing. The world is just shrinking.

Types of expansion that have been identified: in rules—categories of works covered, rights in those works, term, removal of formalities. Standards: nonliteral infringement expanding (derivative works right), contraction of fair use. Enforcement: damages larger, criminal provisions expanded, anticircumvention. Users: controls on personal use, form contracts.

Is expansion a good metaphor for what’s happening in reality? It’s a spatial metaphor. What’s the space that’s “around” the law? It’s also about time: be clear about timescale under discussion. Finally, things used as evidence of expansion have to be connected to the law that then causes the phenomenon in the relevant time period.

Correct period: over the past 30 years. That’s the area around which there’s some consensus in the scholarship that has been the period of expansion (and the literature itself has developed over that period).

Many of these things don’t serve as evidence of expansion: change in law leading to expansion of what the law covers—new things in the relevant space. Expansion of categories/increase in number of categories has occurred since copyright’s inception, as have rights; development of nonliteral infringement as a concept comes from the 1800s; fair use has been set since the 1930s. There are recent changes, but it’s moving around rather than increasing or decreasing.

Changes in enforcement are not evidence of expansion—doesn’t extend law to cover new things, just changes strictness with respect to what’s already covered. (This seems to me a mistake or at least a meaningless definition of expansion.)

What’s going on is a problem of perception. The view that copyright is expanding makes sense if you are taking a particular point of view. In copyright c. 1909-1970, you might have been able to make a Venn diagram with non-overlapping circles showing “producers” and “users”—the former would be about mass production; the latter would be individualized activities. Copyright is founded on the assumption that there are two groups of people acting with respect to a work who can be neatly separated, though connected by distribution. Copyright law was drafted broadly to regulate producers, in somewhat universal terms that go beyond what producers were actually doing. It’s the cost of publication that established natural bottlenecks at which gates could be erected without much direct governance, so that money could be collected for content.

That structure, however, is collapsing. Emergence of reproductive technologies came first; technologies of easy distribution of those individual reproductions then became widespread. Familiar chokepoints were gone. Law is being asked to do more with respect to individuals because law hasn’t expanded but users have moved into the space occupied by large entities.

Q: Things that are spread too thin collapse when they’re being extended, like military empires. Your opposition between expansion and collapse may not be an opposition.

A: His question: what’s the cause of the turmoil? Where do you trace it to? (Okay, but what about formalities? That’s a real change in law with real consequences for people who aren’t sued, but who fear being sued, and I don’t think you can say “that’s not the law’s fault, that’s the fault of understandings of the law.” Likewise with duration.) His question: Holding everything else constant, has the law intruded? (I disagree that you can hold everything else constant. Copyright owners assert more claims because they think they have more rights; this produces effects on teachers, publishers, intermediaries, etc. Also consider the way in which sound recording copyright owners argue—increasingly successfully—for expanded rights: they should get what musical work copyright owners get. Rights talk is, I think, pretty important. There is a reason why our international treaties set all these floors and essentially no ceilings in the IP area.)

Cheryl Preston, Brigham Young University Law School

The Infancy Doctrine for Off- and Online Contracts

What is the effect of an infancy doctrine on online behavior, especially behavior by OSPs? Teens have much more online experience than most adults, but tech savvy is not comprehension of consequence; the lore of innocence is less convincing with respect to teens. It’s arbitrary and capricious to assume competence sprouts on the 18^th birthday, but the Supreme Court defended categorical age cutoff for capital punishment, but that’s not the same. There’s no legislative movement away from age 18. Studies suggest that adolescents have some capacities, but still some differences from fully developed adult brains.

Can OSPs avoid voiding contracts by minors? Necessity is a defense: social networking, music downloads, and email are not yet necessities. Most teens with computer access can rely on parental support. Emancipation of a minor is rare.

Exception to unenforceability: when the minor retains the benefit of the transaction; means that whatever’s left of the benefit has to be returned. OSP would no longer have to provide services. But the minor’s right to void would not be lost just because she benefited from the service in the past.

Misrepresentation of age: the law is that this requires more than the adolescent’s representation. Adults should know that adolescents have motives to lie and need to investigate.

Recent attempt to nullify doctrine of infacy in AV v. iParadigms: the district court held that the infancy doctrine shouldn’t be a sword to injure others. If an infant enters into a contract with conditions, she can’t take the benefit without the conditions. Appealed to 4^th Circuit, which did some convoluted work to reach a fair use result (I think this is obviously fair use, not convoluted at all!): the court of appeals cited a case that was adamant in retaining the infancy doctrine, but quoted the district court how the infant can’t retainthe benefit and refuse to pay (here school credit and standing to bring the action). Williston says that if you retain returnable consideration, you have to return it; but if not, the contract is voidable.

Was there retained benefit? The district court said that students benefited from getting standing and credit. But this is wrong. They had standing under the Copyright Act, not from submitting the paper. They couldn’t give the credit back to iParadigms.

Standard terms: Access restrictions for users under age 13, because of COPPA. Only eBay bars people 13-17 from moving forward (which makes sense). Some of the terms in the TOS are overreaching; minor might want to disavow.

Is the infancy doctrine chilling business development? No. Why not: when you raise the doctrine as a defense with the OSP, they pull out their boilerplate saying “you agree you’re 18.” It’s a huge market segment where OSPs know very well and are pursuing customers under 18, but don’t care.

Greg Lastowka, Rutgers - Camden Law

Virtual Justice

Eve Online: dystopic alternate universe game where you form corporations and attack each others and steal each other’s resources. Player started up investment bank. You can trade real money for game currency. He promised a 10% return; it was a Ponzi scheme and then walks away with several thousand dollars’ worth of virtual currency. The Eve Online contract prohibits Ponzi schemes, but Eve Online said that fraud was part of the game. That didn’t lead to a lawsuit.

Dragonsaber: worth a little under $1000; friend asked to borrow it, then sold it. Owner went to the police, who refused to arrest the thief. He murdered his friend; his death sentence was later commuted.

Mirror image: Netherlands kids beat up another kid and held him at knifepoint to get all his stuff from Runescape, worth real money. Was this robbery? Or just assault? Court said that virtual property had legal reality and was robbery under Dutch law.

Woman in Japan was arrested for computer hacking for murdering her virtual husband: deleted his avatar in Maple Story.

Gold farming millionaires: subject of lawsuit.

There are 200 law review articles on virtual worlds. Much experience with law professors asking him: Isn’t this all just Monopoly? Why spend time on it? We have entertainment law, sports law; what bothers people about the law of these games in particular? Gamer stereotypes perhaps, though the stereotypes are often untrue (large numbers of women are playing online; gamers in better health than average).

Law is ill at ease with games for good reason. Rules are arbitrary, suggesting that all rules may be arbitrary. Suggest autonomy of structures from law. If real law is in abeyance, then what happens? Is the answer that code is law? Famous decision that owners/maintainers of LambdaMOO would not intervene in user behavior/dispute. But couldn’t do this, because control of server technology meant they were making important decisions; add to that contract and IP law.

How does copyright influence virtual justice? Its influence is pervasive. Copyright amplifies the differences between physical and virtual jurisdictions. MDY v. Blizzard shows how copyright can be used as a cudgel/governance mechanism. Marvel v. NCSoft: players create superhero costumes; owner of the platform says that players need to assign costumes to NCSoft, which upsets Marvel. So what role do we want platform owners to have? Ownership claims appear to flip copyright on its head.

(Compare the Geek Hierarchy: my people in their media fan identities are further down than the people Lastowka is writing about in their MMORPG identities, for gendered and other reasons, and yet I didn’t see (maybe I ignored) much dismissiveness/wondering among colleagues why I was writing about this stuff. In fact fanworks have done pretty well in terms of standing as core examples in the legal literature of nonprofessional creative works that copyright ought to be concerned about. I wonder if that’s because it’s easier to see the creative contributions of fan authors from the outside? What role do ideologies of authorship play in legal academic attitudes? The other thing, which I think Lastowka averted to when I asked this, is about the American ideology of doing things without permission, which is quite complicated. As he mentioned, gamers often show a fair amount of deference to the game makers, considering themselves legitimately subject to most of the rules (which are of course arbitrary, as he noted, and thus only changes midstream are easy to object to as unfair). So fan authors also have that frisson of doing something without permission, maybe?)