DMCA defense, lack of secondary liability not suitable for motion to dismiss

Williams v. Scribd, Inc., NO. 09cv1836-LAB (WMc) (S.D. Cal. 2010)

Williams writes books on commodities trading. Scribd allows people to upload written content. Williams alleged that a Scribd member, GalaxiaMia Guy, uploaded hundreds of pages of Williams’s copyrighted material onto Scribd, amounting to at least of 6 of Williams’s books. He also alleged that Scribd was slow to remove the material on request. He sued for direct, contributory, and vicarious copyright infringement, and misappropriation of the right of publicity. His complaint wasn’t “a model of lucidity,” failing to explain clearly which works were allegedly infringed. “Williams also omits to mention that his counsel and a ‘Copyright Agent’ for Scribd were in continual touch with respect to uploaded, copyrighted works that Scribd was attempting to be diligent in removing.”

The court believed that three works were at issue: Williams alleged that he discovered The Secret of Selecting Stocks for Immediate and Substantial Gains in March 2009 and, though he demanded that it be taken down, it appeared again twice more and was still allegedly available as of May 7, 2009. Similar allegations covered The Right Stock at the Right Time (once with a different title) and Long Term Secrets to Short Term Trading. He also alleged distribution of other copyrighted works, but didn’t specify when he discovered them or when, if ever, he demanded their removal.

Williams risked “denting his credibility” by omitting some facts. Scribd submitted “a good amount” of evidence that it was immediately responsive to many of Williams’s requests. “The impression one gets reading Williams’s complaint is that infringing material was uploaded to Scribd’s website and then lingered there; the truth is more likely that Williams and Scribd were together playing a game of Whac-A-Mole, with Williams monitoring Scribd for the presence of his copyrighted material and Scribd removing it from the website as expeditiously as possible upon a request from Williams — although Williams alleges that it sometimes took multiple requests to get Scribd to act.”

Scribd argued that the court could resolve the DMCA safe harbor defense on a motion to dismiss. The court held that that could be true where the answer is “nearly obvious,” but wasn’t here. There were open questions about the extent to which Scribd benefited financially from the uploads at issue, whether Scribd had actual knowledge of the uploads, whether Scribd was expeditious in removing Williams’s materials from the site, and indeed whether Scribd was a service provider in the first instance. (That last one, really? After Iqbal, I don’t see how a complaint could sufficiently allege facts that would deny Scribd DMCA eligibility because it wasn’t a service provider. I would appreciate anyone who could explain this to me.)

Likewise, the court couldn’t consider Scribd’s extrinsic evidence that each time Williams gave proper notice, Scribd promptly removed access to the allegedly infringing works. Scribd argued that considering the emails was proper because Williams “relied on omitting them” to allege knowledge of infringement and failure to qualify for the safe harbor. But that’s stretching the rule that the court can consider vital documents extrinsic to the complaint too far.

The court expressed some sympathy for Scribd’s position because of the “glaring omission” (something that I would think would factor into the possibility of a fee award for Scribd should Scribd ultimately prevail). Nonetheless, this is what summary judgment is for. Anyway, it wasn’t obvious that the emails submitted by Scribd exhaustively covered every instance of alleged infringement; the complaint was successfully vague.

One slightly unusual fact: Williams alleged that the individual defendant, GalaxiaMia Guy, had Scribd’s CEO Trip Adler as his only “friend” on Scribd’s site, and Adler’s picture appeared on GalaxiaMia’s page, thus giving Scribd access and knowledge of GalaxiaMia’s infringing activity. (Is this like on MySpace, where everyone starts out “friends” with the founder? Inquiring minds want to know.)

Direct copyright infringement requires volitional conduct by the defendant. Williams argued that being friends with GalaxiaMia was enough to show that Scribd’s CEO must have been in communication with him and helping/encouraging his activities. The court found this “quite thin,” since “it’s no secret that the ‘friend’ label means less in cyberspace than it does in the neighborhood, or in the workplace, or on the schoolyard, or anywhere else that humans interact as real people.” Specifically, it was too thin to survive a motion to dismiss. The actual relationship between GalaxiaMia and Adler was wholly speculative.

Here’s a weird statement: “At best, Williams has succeeded in raising the possibility that Scribd is liable for direct copyright infringement, given that Adler and GalaxiaMia Guy may know one another, and that Adler may have been aware of GalaxiaMia Guy’s infringing uploads to the Scribd website, but Iqbal requires more than the ‘sheer possibility’ that this is the case.” The weird part is the word “direct”: what’s described is potentially relevant to contributory liability, but how is it relevant to whether Scribd engaged in volitional conduct that produced a copy as opposed to wholly automated conduct?

Contributory copyright infringement: this requires actual or constructive knowledge and a material contribution to the infringing activities. Online, this knowledge must be specific, not generalized knowledge that infringement is occurring somewhere on the defendant’s site. Williams sufficiently alleged direct infringement and actual knowledge by Scribd because he alleged that he notified Scribd and asked that the materials be removed. As for material contribution, failure to remove an infringing item suffices, as does the fact that the website provides the site and facilities for infringement. But the friend allegation didn’t matter.

Vicarious infringement: this requires the right and ability to supervise the infringing conduct and financial benefit from the infringement. Scribd argued that Williams couldn’t plausibly allege financial benefit, and the court disagreed because financial benefit exists where the availability of infringing material acts as a draw for customers. The draw need not be substantial. If the presence of infringing material compels more people to visit the website than otherwise would, making it more attractive to advertisers, Scribd can be said to benefit. (I have yet to understand why this reasoning doesn’t always produce a loss for defendants. Even the Protocols of the Elders of Zion are a draw to someone. If a single person viewed the relevant page, does Williams win?) Williams alleged enough when he alleged that Scribd’s value to advertisers has a direct relationship to the amount of viewers and uploaders of content and that Scribd monetized the visits to its site that consisted of visitors reading, downloading, and/or viewing the books. Scribd’s argument that Williams only alleged prospective financial gain, and didn’t allege that his own work was monetized by Scribd, was “fair” but not appropriate on a motion to dismiss. If Scribd “only has the capability of monetizing documents by embedding advertisements in them, but didn’t generate ad revenues directly or even tangentially from the works of Williams that were uploaded to its site,” that will come out in discovery. Williams alleged to the contrary.

The court held that the Ellison case wasn’t much help for Scribd, for one thing because the district court waited for summary judgment to rule on financial benefit. But also, AOL didn’t host the infringing materials; it only provided access to internet news groups where Ellison’s works had been uploaded. (There is a potentially strange set of assumptions about the “space” where infringement takes place here, probably worth unpacking.) There was no evidence that AOL customers subscribed because of the infringing material or cancelled subscriptions because it was no longer available, especially since AOL offered a “vast array” of products and services, most importantly internet access. Moreover, Congress found that receiving a one-time set-up fee and flat periodic payments for service wouldn’t ordinarily constitute a financial benefit directly attributable to infringing activity. “Given that Scribd offers nothing to its users other than content, some copyrighted, some not, it’s far easier to presume that infringing content boosts its subscriber base, and with that, its advertising revenues — even if the gains are marginal.” Okay, what? The access AOL offered was only useful in order to access content, “some copyrighted, some not” (but mostly copyrighted, since all fixed works of expression are now born copyrighted). AOL subscribers weren’t paying for empty air.

The court then went back to procedure: an unauthorized prerelease copy of Harry Potter would clearly have driven traffic to the site, and the motion to dismiss stage isn’t the time to conclude that books about commodities are different. (I don’t disagree, but I think this is why Iqbal increases uncertainty and penalizes people whose experiences are different from those of federal judges, by encouraging them to engage in probability testing before the submission of evidence.) Summary judgment was the right time to assess this argument.

As for right and ability to control the infringement, Scribd relied on Io Group, Inc. v. Veoh Networks, Inc., 586 F.Supp.2d 1132 (N.D. Cal. 2008), which held that the key question was not right and ability to control one’s own system but right and ability to control the infringing activity. There must be some antecedent ability to limit or filter copyrighted materials. But the court again pointed to the posture of Veoh: summary judgment (and the discussion was intertwined with the DMCA safe harbor issue). There was no evidence Veoh failed to police to the fullest extent permitted by its architecture. Williams here alleged that Scribd didn’t respond to his takedown notices expeditiously and knowingly allowed copies of his materials to remain at other locations even when he sent notices about one location. His allegations were sufficiently similar to those in Napster, where Napster provided users with tools to enable easy infringement and to search out and identify infringing material. This “thin” claim, too, survived, though the court suggested that Scribd was “teed up” for summary judgment.

Misappropriation/right of publicity: Scribd argued that this was taken out by §230. Eric Goldman will hate this one: “Because there are open questions in this case about the extent to which Scribd participated in the alleged infringement — and wasn’t just ‘provided’ with Williams’s works by GalaxiaMia Guy — it is inappropriate to make an immunity determination at this time.” But conduct sufficient for copyright contributory/vicarious liability should often not be sufficient for publisher liability; I’m not sure which allegations of Williams’s complaint can fairly be read to say that Scribd provided the conduct or was in an agency relationship with the person who did.

The court concluded with a warning to Williams about whether he really wanted to go forward (again not mentioning fees, but one has to think they’re in play), and a note that minimal and expedited discovery would be sufficient to inform a summary judgment motion.

IPO: right of publicity

Intellectual Property Owners Association Annual Meeting. ETA: link to materials removed at request of the IPO, even though the link was to a public internet page. This was done as a courtesy, although the IPO has no right to control linking. Next time, I suggest it use a password.

Right of Publicity

Ronald S. Katz, Manatt, Phelps & Phillips, LLP, Palo Alto, CA

Right now we’re in a complete mess; nobody knows what the law is. We have too much/too little law. Katz generally represents celebrities; involved in Adderly v. NFL and represents Jim Brown against Electronic Arts. Adding to confusion—at least four causes of action for the same facts: breach of fiduciary duty (Adderly); antitrust (O’Bannon, UCLA basketball team), right of publicity, and trademark (Jim Brown). He’s sticking to right of publicity and video games.

Why video games? Electronic Arts had $4.1 billion in revenues, over $400 million from Madden NFL, played by 70 million people. Money = litigation. Importance of these cases shown recently by cases against EA and NCAA; friends of the court briefs filed in support of EA by 31 organizations, including LA Times, ESPN, MPAA—every major media content provider in the country. Also involve free speech. Apparently courts consider a video game to be the same kind of thing as War & Peace; you can burn a Koran; a tattoo is free speech. But you can’t defame someone; you can’t make jokes about bombs while standing in security lines. You can’t take a copanelist’s presentation and publish it as your own. You can’t start the Ron Katz Olympic Games. US SCt ruled that the USOC has exclusive rights to use “Olympics” and derivatives. Zacchini: the nightly news can’t show a performer’s entire act; this is the only Supreme Court case on the right of publicity.

Complicated because many people don’t think video games are works of art; and they are getting more realistic. A football game used to show Xs and Os, but Madden NFL is intended to be realistic: the tagline of EA is “it’s in the game.” Realism collides with various tests for appropriation of right of publicity: transformativeness, enunciated by California Supreme Court. Winter Brothers case: Katz argues that the comic artists used the Winter Brothers instead of a random person because they were exploiting the Winter Brothers’ intellectual property.

Media companies take a strong perspective: all works that are expressive are excluded from publicity rights.

Take a look at an actual case: union told EA to scramble the identities of retired players, but paid for the identity of active players, $35 million to the union. For the retired players, scramble them so we don’t have to pay them. The union was, however, the agent of the retired players. The scrambling was also minimal: showed an example where teams, position, height was the same; weight was within a few pounds. EA told the public “you can play the team”—player knows, as fan of team, that it has to be Joe Montana because it can’t be the 1984 team without Joe Montana. Plus the player is given the ability to change the number on the jersey! Can’t be resolved simply by appealing to free speech or to the right of publicity.

Elizabeth McNamara, Davis Wright Tremaine, LLP, New York, NY

Represents media companies, taking a different view. Right of publicity should focus on important principles: this is not a right against having your name or image used without permission. This relatively new right must be balanced against the First Amendment, which confers the right to depict, comment on, etc. people and events. You can use someone’s exact likeness to write about them for news or entertainment purposes. But you do have to engage in linedrawing. At one extreme: traditional advertising and commercial exploitation that we all agree requires permission. At the other: art, film, books—and yes, video games. There, you do not need permission except in certain circumstances.

California alone has 3-4 different tests, sowing confusion and unpredictability. Transformativeness, borrowed from copyright. Actual malice, borrowed from defamation. Public interest; ad hoc balancing tests. And other states have other tests. Highly fractured and unpredictable. The only people benefiting from confusion are litigators.

Focus on one case exemplifying these issues: Stewart v. Rolling Stone. Whimsical look at indie bands, surrounded by a gatefold ad celebrating RJR’s support for indie bands. Alleged that the ads plus the feature became a unified advertising vehicle, thus appropriating the bands’ rights of publicity. As is common, the advertiser was told about the theme of the issue (the future of music) and may have been told about the theme of the gatefold, indie music. But it wasn’t told about or shown the editorial content. RJR selected a theme that it thought would resonate with the audience, just as Sports Illustrated would have sports-related advertising and Travel & Leisure would have travel-related advertising.

Plaintiffs didn’t object to being included in the editorial feature, nor would they have had any grounds to do so. They objected to the apparent integration of the editorial and the ads. Rolling Stone argued that to win, plaintiffs would have to show intent to create an impression of endorsement; the lower court found that a jury could reach that conclusion because it permitted RJR to design an ad that could integrate with the feature, and that Rolling Stone didn’t check to ensure that the feature and the ad were sufficiently distinct. The court of appeals reversed, underscoring that entertainment has the same protection as traditional news reporting; pure editorial content can’t be transformed to commercial speech through inadvertence or negligence. Commercial speech has a financial motive, and Rolling Stone had no interest in the sale of cigarettes. No precedent for magazine/TV company to become a commercial speaker because of proximity to ads. All editorial content in the magazine is in a sense embedded with advertising (the magazine is more than ½ ads!).

Critical elements: who the speaker is. Creator of an expressive work—courts give more latitude to creator-speaker than to traditional commercial advertiser. Compare Hoffman v. Capital Cities (Dustin Hoffman loses against LA Magazine for manipulating his image in a fashion spread) to Downing v. Abercrombie & Fitch (surfer wins against clothes seller for using his photo in an allegedly editorial feature on surfing when the catalogue also advertised t-shirts just like those worn by the subjects of the picture—editorial was “window dressing” to sell the shirts).

Conflicting cases: Winters v. DC versus Doe v. TCI Cablevision, irreconcileable cases about comics and the right of publicity. Romantics v. Activision (musicians in interactive music video game have no claim); Keller v. Electronic Arts (athletes in interactive sports video game have claim).

We could have rationality and predictability from uniform adoption of Rogers v. Grimaldi—courts don’t agree amongst themselves; cases routinely reversed on appeal. Rogers would help by establishing that liability would attach only if (1) use of name or likeness was wholly unrelated to the content of the work; or (2) this was actually an ad and not an expressive work. (Also if there was an explicit misrepresentation about endorsement.)

Maherin Gangat, Staff Attorney, Media Law Resource Center

Legislative push from people with an interest in deceased celebrities. Amendments to existing statutes and efforts to enact new legislation. Would create rights to sue that didn’t exist when they were alive. Marilyn Monroe estate has been trying to reverse adverse court rulings. 19 states recognize a right of publicity by statute, 14 of which recognize descendible rights, from 10 to 100 years.

California/Marilyn Monroe—her right held by Anna Strossberg, widow of Monroe’s acting coach. Monroe didn’t will the right specifically to Strossberg, but the residuary clause of her will gave everything left over to him. Sued owners of copyrights in photos of Monroe taken in the 50s and 60s; those owners sued Strossberg’s licensee for interference with their right to exploit copyrights.

In 2007, the court held that CMG (licensee) lacked standing to assert postmortem right of publicity; legislature didn’t grant postmortem right until 1985 and Monroe died in 1962, so her will couldn’t have transferred the nonexistent right. California amended law: shall be deemed to have existed for anyone who died before 1985—passes under will either expressly or by residuary clause. The judge later held that her right could have passed provided she was domiciled in California at the time, but CMG was estopped from claiming that because it had already argued that she was a resident of NY when she died.

NY’s right of privacy was enacted in 1903: advertising/purposes of trade use requires written consent; doesn’t apply to deceased persons. CMG sued Shaw Family Archive in Indiana, taking issue with a photo that ended up on a T-shirt sold at Target. Shaw sued in NY and the cases were consolidated. 2007: CMG lost because Monroe didn’t own a descendible right when she died and was unable to bequeath it to heirs. Turned to the NY legislature, with support from Al Pacino, Martin Sheen, Arthur Ashe estate. Latest proposed law: would cover people 70 years postmortem. Bill hasn’t passed, because of opposition from various groups. Media, internet companies, entertainment companies, photographers and photo agencies. One issue of concern: exemption for expressive works.

California statute: exempts play, book, magazine, newspaper, musical ocmposition, audiovisual work, radio or TV program, single and original work of art, ….

NY proposed a very long list of exemptions, also adding in graphic novel, sound recording, calendar, greeting card, T-shirt where the portrait appears in the shirt itself and not as part of any hang tag or other label; does not say “video game”—exemption would only apply to deceased personalities, not to the living. Trying to take into account new forms of expression (but doesn’t the list form inherently present problems for new forms?).

Washington: enacted a postmortem amendment in 1998, intended to apply to any individual who died 50 years before 1998. Hendrix case: court held Hendrix domiciled in NY when he died, and NY didn’t recognize a posthumous right of publicity then. Washington amended law in 2008 recognizing rights regardless of where the person was domiciled.

Hawaii: new law, very little discussion of it or litigation. Exemptions for various expressive works (but not all).

Going forward we are going to see a lot of pre-introduction interest group bargaining to create compromise language before its introduced.

Rebecca Tushnet, Georgetown University Law Center

Would these statutes help the problems addressed by our first two speakers?

Katz: statutes create more litigation, not less. Common law is needed.

McNamara: itemizing exemptions brings some clarity. But you can step into these claims when you least expect them. Or when you’re just trying to engage in what you consider to be political speech—Nike v. Kasky’s press releases on manufacturing in foreign locations. Involved in a case in Illinois in connection with Michael Jordon’s induction into Hall of Fame: Jewel Osco ran an ad, “congratulations Michael” with a picture of shoes with 23 on them—Michael Jordan sued Jewel, and Jewel in turn sued Time, which had issued the call for commemorative ads.

Gangat: Exemptions in the statutes have a list of expressive works, but then if there’s a play about a real life deceased person, what about merchandise sold in connection with that play?

Katz: blurry line between ads and non-ads. Represented a baseball player who hit a famous home run. MCI had a series of commercials during the World Series for great moments in World Series history; done without permission.

My q: What about product placement?

Katz: law is clear that incidental use is not actionable, but what is incidental? Video games have 1000s of players; Jim Brown however is not incidental. Grand Theft Auto case: Pig Pen v. Playpen. No bright lines. Big issue in Paris Hilton case: can the district court decide that an image is protected as a matter of law? These are often not issues of law, at least under the law as it stands.

McNamara: litigation hasn’t arisen yet, because players/actors have signed contracts, but someone could be alluded to as lines blur between editorial and advertising content.

Q: Don’t right of publicity claims conflict with the Falwell case, where Hustler was sued for intentional infliction of emotional distress. Would Falwell have been better off suing for violation of his right of publicity? (This is relevant to the E*trade case.) Also, is there a parody defense?

McNamara: Falwell case wasn’t a real ad. Hustler had done a parody of someone else’s alcohol ads.

Me: this is an example of the incoherence of right of publicity claims. Saderup upheld a right of publicity claim against art, not an ad.

Katz: advertising something protected is also protected: California case allowing advertising of picture of Joe Montana as part of poster to advertise the San Jose Mercury News.

Gangat: some of the old statutes exempt satire and parody.

Q: any discussion among relevant interest groups about federal right of publicity?

Gangat: no—there was a failed bill a few years ago; not coming up any time soon because of opposition.

Katz: no organized group of celebrities; high sense of entitlement, hard to negotiate with them as a group. Lanham Act exists, but does have a confusion requirement. McCarthy cites survey from 1983: statement that consumers agreed with most was that no product can bear the name of a celebrity/character without permission. (Bear the name—not the same as being in the expressive product.)

Q: how to distinguish EA from cases on fantasy football, where the union sued for using players’ statistics and lost?

Katz: He has no problem with Bonds’s batting average being in the public domain. But does that answer the question of video games? No. Zacchini is the only Supreme Court case we have; we know you can’t take a guy’s entire act. EA has taken more than the entire act of Jim Brown; they’ve taken his entire career, thousands of hours and terrible injury. Jury is sympathetic.

Q: agrees with the jury point, but what makes that different from the statistics? Fantasy league is making money too—the same history, the same injuries.

Katz: video game is more of a product, not War & Peace. You’re creating a performance based on Brown’s attributes.

Q: in history of tracking lobbying, you can specifically tie CMG to NY and California, and Indiana. How much is CMG doing in other states? They’re doing a lot of lobbying, and media entities are perhaps not as focused in other states.

Gangat: You can track celebrities: Bill Cosby in Massachusetts; Michigan, Muhammad Ali; N.Car., Dale Earnhart Jr.

McNamara: in EA games, they do not create animated versions of any game. There is no Jim Brown performance depicted. To the degree there’s any use of likeness, it’s the same statistics as appear in fantasy sports. Creation of the work is driven by the player. Notion of great works of art is not the standard—we protect low brow and stupid things under the First Amendment. Making a lot of money: entertainment and news organizations do that too. Famous people as reference points are part of the enjoyment of the works.

Katz: Alliances among businesses shift—right now the NFL union is a major business partner of EA, receiving millions—NFL has the right to the team colors and uniforms, which is critical: people don’t want to see Jim Brown in a business suit.

Me: that’s precisely my concern: that only big entities will be able to cut deals that allow them to create expressive works.

eBay beats back false advertising claim

Tiffany (NJ) Inc. v. eBay, Inc. (SDNY 2010)

The Second Circuit remanded this case solely on the false advertising issue. As I predicted, eBay beat back the false advertising claims based essentially on Tiffany’s lateness in raising the issue/difficulties building a record, given that the case was litigated as a trademark case until the court of appeals ruled otherwise.

The false advertising claim is based on the allegation that, though eBay knew that a substantial percentage of “Tiffany” goods on its website was counterfeit, it nonetheless advertised that Tiffany goods were for sale there. Tiffany specifically identified (1) eBay’s reference to Tiffany merchandise on its “Jewelry and Watches” page, and (2) its purchase of the “Tiffany” keyword from search engines.

The court of appeals agreed that the ads were not literally false, but remanded on the issue of whether they were likely to mislead, which requires evaluation of extrinsic evidence. But there was insufficient evidence in the “extensive trial record” to find misleadingness. Typically, extrinsic evidence is survey evidence; there was none here. Tiffany instead offered (1) declarations from three eBay customers who believed they’d bought Tiffany counterfeits on eBay; (2) testimony from a Tiffany employee of customer complaints about counterfeits on eBay; and (3) 125 emails sent by customers to eBay complaining of Tiffany counterfeits. This evidence was deficient to show the effect of the ads on consumers in general—by which I suppose the court means that, given the volume of sales, 125 complaints isn’t enough to justify the inference that a substantial portion of the audience was deceived.

However, more vitally, none of this evidence reveals that any consumer was misled by eBay’s ads. The three declarations didn’t refer to any eBay ads for Tiffany goods: one customer came to eBay looking for a sterling silver charm bracelet, and two went straight to eBay’s site to look for Tiffany goods. Similarly, neither the Tiffany employee’s declaration nor the 125 emails referred to any eBay ads.

Tiffany’s alternative theories of liability were foreclosed. First, falsity by necessary implication was outside the scope of the remand because that’s “simply a means of analyzing whether an advertisement is literally false,” and the Second Circuit already affirmed the district court’s holding that the ads weren’t literally false. (Frankly, I don’t think the Second Circuit was being careful enough to consider falsity by necessary implication; if it had been, I doubt we would have gotten this rather pointless remand. But I don’t think the ads were false by necessary implication anyway.)

Finally, Tiffany argued that eBay intentionally misled customers. Where a plaintiff demonstrates intentional attempts to deceive, and the defendant’s conduct is egregious, there’s a presumption of deception. The burden then shifts to the defendant to show that consumers were not misled. Tiffany argued that eBay’s intent to deceive was proven because eBay continued advertising the availability of Tiffany products after it had been notified that many were counterfeit. Initially, the court found this argument waived since it wasn’t raised before, during, or after trial, or on appeal. But even aside from that, the record was clear that Tiffany failed to prove an intentional attempt to mislead.

Though eBay was aware that a portion of the Tiffany-labeled goods sold on its site were counterfeit, nothing in the record indicated that eBay was aware that its ads were misleading consumers. In addition, eBay took many steps to prevent and detect sales of counterfeit goods, including expending substantial resources on its trust and safety department and its fraud engine, instituting VeRO, and allowing rights holders to create an “About Me” page warning of the dangers of counterfeits. Thus, Tiffany failed to establish intentional deception, much less conduct of an egregious nature.

Advice for aspiring academics

Put your works up on SSRN or BePress! Make it easy on us on the hiring committees. It's easy goodwill. (I grumble now when I have to get beyond some password wall to read work, because I'm spoiled, and if I have to debate with myself whether to request your work from you to read it, I probably won't, which is not the result you want.) This goes for accepted drafts or even your job talk paper, at least; I don't usually post unpublished drafts--but I'm not seeking a tenure-track position.

Contrary opinions welcome.

Trademark bullies, trademark hypocrites

Fans sometimes make tribute merchandise for their shows, often with references only intelligible to those already in the know, and sell them on do-it-yourself sites like Zazzle. I did a post on Television Without Pity's versions here. The WB, which owns the show Supernatural, with which I have a love/hate relationship, claimed rights over "Metallicar," the fan-generated name for the car driven by Sam and Dean Winchester, the show's main characters: a black 1967 Chevy Impala (recommended vid!). Since the name refers to one of Dean Winchester's favorite bands, the WB's assertion of rights in Metallicar is a bit tricky. Apparently, the WB has decided that only the WB gets to profit from such unauthorized associations--which is what it's doing with the Impala. Currently, those who buy the fifth season from Best Buy can get a free "Supernatural-inspired classic car keychain." (Intriguingly, Best Buy apprarently advertised Season 3 as coming with a "'67 Chevrolet Impala." What could have changed between then and now?)

Here's what Best Buy's website says:

Free Exclusive Key Chain

It only makes sense that CW's hit drama/horror series, Supernatural, would come with a collectible gift that celebrates the show's signature car.

And while supplies last, The Complete Fifth Season on Blu-ray or DVD includes a free Best Buy exclusive key chain on-pack.

Today's hypothetical: if purchasers understand that this is a reference to the Impala (as they must be intended to do), does it matter that the promotional materials don't use the name? Is it better, from Chevy's perspective, that the key chain doesn't look much like the Impala? Or is it worse?

My position is, of course, that the WB should be free to talk about the Impala, the show's third main character. (The Television Without Pity thread on the Impala is 100 pages long.) But the WB should also not be such a bully when fans do the same thing the WB has done.

... and it's gone

Extra copy of the trademark book is gone.

Free to good home

Extra copy of Trademark Law & Theory: A Handbook of Contemporary Research (eds. Graeme Dinwoodie & Mark Janis, Edward Elgar Press), which includes my piece "Truth and Advertising." Contact me with a mailing address.

230 bars defamation, not false advertising claim

Reit v. Yelp!, Inc., --- N.Y.S.2d ----, 2010 WL 3490167 (N.Y.Sup.),

Reit, a dentist, sued Yelp! and John Doe (Michael S.) for defamation, and Yelp! for deceptive acts and practices under New York’s General Business Law § 349 and § 350. He wanted an order requiring Yelp to delete all references to him and his dental practice from Yelp.com. The court granted a TRO (!), and Yelp moved to dismiss based on §230.

In May 2009, Yelp’s page discussing Reit’s practice included ten positive reviews, and then Michael S. posted a negative and allegedly defamatory review, which Reit alleged caused him to lose at least half of his customers. Yelp refused to remove the post, and allegedly removed all the positive postings instead. Reit alleged that highlighting negative reviews and removing positive ones is part of Yelp’s business model, in order to blackmail businesses into buying ads on Yelp. (The Michael S. post was subsequently removed, though the court for some reason notes that it was cached in Google for a time.)

Reit argued that Yelp’s removal of posts was not the exercise of editorial judgment, but business related, making Yelp an internet content provider. But this does not follow. Content provided by others does not cease to be that merely because the configuration or operation of the website might have some influence on that content. And Yelp’s selection of the posts to keep can be considered the selection of information, a quintessential publishing function. Thus, no defamation liability for Yelp.

However, the CDA doesn’t contemplate protecting Yelp’s use of speech as leverage in its business model. Reit alleged that Yelp provided deceptive terms on its website, encouraging both businesses and individual users to believe that the reviews are not manipulated by Yelp. Also, Reit alleged that Yelp’s sales force used negative reviews on the site as leads for new ad business, and that sales reps told business owners that, if they paid for ads, the reps would assist in deleting negative reviews. But if a business owner refuses, Yelp would delete positive reviews. Yelp’s guide for business owners stated “We remove the guesswork by screening out reviews that are written by less established users. The process is entirely automated to avoid human bias,” and yet the system is not entirely automated. This allegedly deceived the public by representing that reviews are ordered, reviewed and removed by computers, and not manipulated by people. Reit referred to class action suits against Yelp of which he is not a member, and did not allege that he was a victim of this conduct.

The General Business Law bars deceptive acts or practices in the conduct of business and false advertising, giving a private right of action to any person who’s been injured; a plaintiff need not be a consumer, but must allege consumer-oriented conduct that is materially misleading and that resulted in injury. However, the identified statement by Yelp isn’t addressed to individual consumers seeking dentists, but to business owners. “Yelp's statement is not materially misleading to a reasonable consumer seeking dentistry, and is not a deceptive practice.” Likewise, deleting postings for the purpose of selling ads would be business conduct, not consumer oriented conduct. Thus, the claim was dismissed.

The claims against Michael S. were severed and continued.

Co-editor for Software Law book sought

Elgar Press is currently developing a series with Jeremy Philllips called “Research Handbooks in Intellectual Property.” One of the new projects under development is a “Research Handbook on Intellectual Property Rights and Software.” Joseph Savirimuthu is seeking a co-editor. Here's a description of the research handbooks:

Edited volumes in key areas of law comprising roughly 20-30 original, scholarly contributions. They are designed to be a source of high quality original reference representing a state-of-the-art overview of each area. They comprise entries on the most important concepts and empirical research and, if possible, outline a research agenda for the future. The Handbooks are academic in approach (academic in the sense of analytical, substantive work which is well-referenced) and while not intended as textbooks, will be useful for advanced and postgraduate students as reference points, as well as for scholars and policymakers.

If you are interested, please contact Joseph Savirimuthu.

Bureau of Consumer Protection launches business center, blog

The FTC's BCP has a new site, including a blog, with many useful resources for businesses, including videos they encourage people to use in their own training materials (two in Spanish as well as English). Thanks to Lesley Fair for the heads-up.

Shepard Furry (pun by Zach Schrag)

I'm particularly impressed by the noble uptilt of the head.

Pom Wonderful avoids unclean hands dismissal

POM Wonderful LLC v. Welch Foods, Inc., 2010 WL 3368430 (C.D.Cal.)

Pom sued Welch for false advertising over Welch’s sales of mixed fruit drinks prominently labeled as containing pomegranate juice, but mostly containing fruits not in the name. Welch moved for summary judgment on its unclean hands defense.

In 2006, Welch developed Welch's 100% White Grape Pomegranate, which discloses as ingredients white grape, apple, and pomegranate juices (from concentrate), but doesn’t list percentages on the label. To succeed on an unclean hands defense, the defendant must show that the plaintiff’s inequitable conduct relates in some way to the subject matter of the litigation, and that conduct must have continued to the time the suit was begun.

Welch alleged the following in support of its unclean hands defense: (1) Pom failed to disclose that its 100% pomegranate juice at one point contained elderberry; (2) Pom sold juice blends that, at one point, contained juices other than those identified in the product name; (3) Pom failed to list water as an ingredient in its juices, which contain approximately ¾ water; (4) Pom obscured “from concentrate” on its bottles and in its ads; (5) Pom used an ad purporting to show its juice going straight from whole fruit into bottles, when in fact the juice goes through many more steps. (Oh, Pom. There’s actually a case saying that this is a literally false image! Though on investigation Pom’s ads, at least now, seem to say that Pom controls the whole process from tree to bottle, unlike other juice sellers, which is not the same thing at all.)

Some of these didn’t relate sufficiently to the same conduct at issue in the present suit. Factual similarity between the parties’ misconduct isn’t sufficient; the misconduct must be directly related to the plaintiff’s use or acquisition of the right it claims. So, Welch needed to show that Pom misled consumers into believing that its juice products contain more pomegranate juice than they actually do or that its products misrepresented the amount of juice in them.

Claims (3)-(5) were therefore not sufficiently related: they deal with whether Pom misleads consumers to believe that its juices aren’t from concentrate. Welch argued that the issue was whether Pom deceived consumers to believe that the juices had characteristics they don’t, but the unclean hands doctrine isn’t that broad. Pom’s theory is that consumers view pomegranate juice as superior to the cheap filler juices (grape and apple) that make up most of Welch’s product. The concentrate/not from concentrate issue is premised on a different deception.

The court denied Welch’s motion for summary judgment on the remaining two claims, (1) Pom's 100% Pomegranate Juice product contains undisclosed trace amounts of elderberry, and (2) Pom's Pom Blueberry, Pom Cherry, and Pom Tangerine products contain juices not disclosed in the label.

As to the first, Welch argued that Pom’s 100% Pomegranate Juice was previously made of at least 1% elderberry juice, starting in 2004 or earlier and continuing until 2008. When questioned by consumers what the "other natural flavors" were in the juice, Pom did not identify elderberry juice by name, instead disclosing only "botanical sources." Pom characterized these as “trace amounts” for “flavoring purposes,” and Pom’s VP of operations testified that the amount of elderberry juice was 0.2-0.4%. (By way of comparison, that’s about how much pomegranate and blueberry juice is in Minute Maid’s Pomegranate Blueberry Juice, according to Pom.) Based on shelf life, this product was still available for purchase when Pom filed its complaint in January 2009.

Welch didn’t demonstrate by clear and convincing evidence that this misleading labeling was “egregious,” as required. It didn’t show that Pom’s deception was material. One customer called Pom asking whether "the plain pomegranate juice [has] any other ingredients in it" and another customer stated to a Pom CSR: "I noticed on the bottle it says pomegranate juice from concentrate with added natural flavors. This implies that it is not 100 percent pomegranate juice ..." This was anecdotal and didn’t show that any appreciable number of consumers were confused. The extent of actual harm is highly relevant to the unclean hands defense. (Pom also argued that its label complied with FDA regulations, but didn’t explain how or why this would affect the alleged deception; Welch makes the same argument about its own product name and label.)

Juice blends containing juices other than those identified in the product name: Prior to reformulation around August 2008, Pom Blueberry contained 50% pomegranate juice, 13% red plum juice, 11.5% clarified pineapple juice, 10% apple juice, 8% blueberry juice, 4% blackberry juice, and 2% wild blueberry juice, and under 1% each of various other natural flavors, while Pom Cherry contained 50% pomegranate juice, 24.5% red sour cherry juice and 5% dark sweet cherry juice, 7% apple juice, 5% clarified pineapple juice, 5% plum juice, and under 5% each of various other fruit concentrates and natural flavors.

Pom argued that these were percentages of concentrate, which differ from the actual percentage of juice once reconstituted, and that measured that way the Blueberry and Cherry blends contained more pomegranate and blueberry or cherry juice than any other juice and were thus not deceptively labeled. Welch argued that Pom’s conduct in including non-named juices in its blends was no different than Welch’s. But Pom didn’t argue that Welch should have mentioned every juice in the blend in its name; it argued that it was deceptive to name the product after a juice that isn’t one of the primary ingredients and that only makes up a small percentage of the blend.

Pom also sold Pom Tangerine, which at one point contained 54.89% pomegranate juice, 42.91% clarified orange juice, 2% clarified tangerine juice from concentrate, and .1% each of two natural flavors. Pom contended that this formulation was used in only one production run resulting from a particularly bitter tangerine harvest one season. Pom also contended, and Welch didn’t dispute, that tangerines and oranges are “functional equivalents” within the juice industry. I didn’t know that approximately 10% of orange juice is actually “tangerine juice (as well as other juices from sources such as clementines, mandarins, and murcotts or honey tangerines).” Also, orange juice concentrate is generally more expensive than tangerine juice concentrate, twice as expensive during that one production run—a fact that I take it should mkae Pom’s explanation more plausible.

The court thought the relevance of these undisputed facts was questionable:

Pom argues that they show that its use of orange juice in the Pom Tangerine blend is unlike the conduct of which it accuses Welch, because (it claims) Welch uses "cheap filler juices" that are nothing like the expensive and distinct pomegranate juice that dominate Pom's product name and label. However, even though orange juice concentrate is more expensive than tangerine juice concentrate, and even though the two juices are "functional equivalents," consumers may still be confused and misled by the product's label, which could lure consumers away from products that do contain primarily pomegranate and tangerine juice.

Again, consumers are entitled to get what they think they want, even if there's no functional difference between the thing that they think they like and the thing they think they don't. However, the court couldn’t conclude that this was egregious because Welch offered no evidence that Pom’s labeling misled or confused consumers.

Final note: While Pom may have dodged a bullet (or a thrown piece of fruit?) here, the court’s perspective on the anecdotal evidence of consumer inquiries suggests a skepticism that is generally plaintiff-hostile. Trademark and false advertising law have traditionally taken the perspective that consumers are unlikely to spontaneously express confusion, such that even small numbers of actual reports can be persuasive evidence. It may be the case that these particular inquiries suggested only uncertainty, not material deception—but I take it that, at least, by leaving it for the jury, the court left open the possibility that the inquiries could be understood in several ways.

Expert testimony on damages and materiality

LG Electronics U.S.A., Inc. v. Whirlpool Corp., 2010 WL 3397358 (N.D. Ill.)

Previous reporting in this case that is exploring the increasing role of materiality in false advertising cases.

Whirlpool moved to exclude LG’s damages expert Mohan Rao and portions of the rebuttal expert report of LG’s marketing expert, Yoram Wind. The court denied the first motion and granted/denied in part the second. The underlying case involves Whirlpool’s alleged false advertising for its steam dryers. (Or are they steam dryers?) The question is basically what consumers think “steam” means in this context; Whirlpool’s dryers produce the thing that Whirlpool calls steam differently than most other steam washers/dryers: they use a mist of cold water sprayed into a warm dryer drum.

Dr. Rao opined that, as a result of Whirlpool's false and misleading claims, LG lost profits are approximately $33.3 million and Whirlpool's gains are approximately $25.4 million. The court rejected Whirlpool’s Daubert motion. I’m just going to discuss of a couple of Whirlpool’s objections; the court rejected them all.

Whirlpool argued that Rao wrongly assumed causation, but he relied on Whirlpool documents showing that consumers’ preference for steam is a key sales driver, and that consumers recognized a distinction between hot steam and cold vapor, preferring steam dryers to steam washers by a 2 to 1 margin, and steam washers to misting dryers by a 2 to 1 margin. (Whirlpool changed the name of the dryer from Myst to Steam, apparently convinced by this internal research.) Whirlpool argued that these internal documents were unrelated to actual sales. It further argued that its internal surveys didn’t meet Shari Diamond’s standards (as incorporated in the FJC manual on surveys) for consumer perception evidence. But LG wasn’t offering the surveys as evidence of consumer perception; rather they were part of the basis on which Rao relied to form his opinions on damages. Criticisms of the surveys were a matter for cross-examination and contrary evidence. Rao didn’t need to run his own surveys. He used an appropriate methodology, and the court found it significant that he relied on Whirlpool’s documents rather than LG’s; LG also planned to establish the factual assertions on which he relied through other witnesses. So the validity of his testimony on causation was for the finder of fact.

Whirlpool argued that Rao ignored the presence of other competitors in the market. To the contrary, Rao took them into account, but assumed that they were also advertising falsely (with the exception of Kenmore, which began to license steam dryers from LG). This is a factual claim that may be challenged in front of the jury. I’m not sure how this works, exactly—for purposes of calculating damages, should we assume that other competitors aren’t advertising falsely? Doesn’t that overcompensate LG, assuming it sued each one independently and won? But the court said that the jury could decide what ought to be factored out.

Rao also calculated damages based on a price erosion theory: consumers are willing to pay a price premium for a steam dryer, but Whirlpool’s presence in the market meant that LG didn’t get the price premium on the steam dryer, which it did for its steam washer. There was no fatal flaw there. Whirlpool argued that Rao failed to consider the effect of the price premium on consumer demand, but he stated that he had analyzed price elasticity and concluded that demand would be unaffected, because the relevant consumers are feature- rather than price-sensitive. Thus, when there’s no competitor, there’s no price elasticity; only when Whirlpool entered the market did price elasticity become relevant. Another matter for cross-examination.

Finally, Whirlpool challenged Rao’s inclusion of washer sales in his calculations. He assumed that consumers typically buy washers and dryers in pairs. An independent marketing research firm’s data showed that this happens 88% of the time, while LG’s own data showed 95% and Whirlpool’s showed 98%, while sales data for the Duet Steam Dryer/Washer showed rates of 99.8% and above (depending on the color). Rao used the lower number in his calculations. Whirlpool’s own witness said that, if there was no steam dryer available to match the Whirlpool Steam Washer for a period, sales of the Washer would also suffer. The fact that Rao didn’t run his own survey but relied on Whirlpool’s data is an issue for cross-examination.

Dr. Wind was a consumer survey expert with substantial background in marketing research. He was offered as a rebuttal expert, but the court found that his opinion on the materiality of steam went beyond rebuttal of Whirlpool’s survey. Whirlpool’s expert assumed that the Whirlpool dryer creates steam, and surveyed whether the implied claim that the Whirlpool Duet Steam Dryer injects hot vapor onto clothes had any impact on consumers' purchase decisions. He concluded that it didn’t, because there was no statistical difference between Whirlpool’s actual ad and a control ad that explicitly added the language stating that a mist of water is injected and is heated after it is sprayed into the dryer drum. Thus, his opinion focused on the materiality of how steam is created, not whether steam is created. The court found that Wind’s opinion didn’t contradict or rebut Whirlpool’s expert’s opinion, but rather opined on the materiality of whether steam is created.

So, as I understand this, LG’s argument is something like: consumers want steam, but don’t necessarily have a firm idea of how steam is created. If you use the word “steam,” they focus on that, even though they don’t think that Whirlpool’s process is as valuable if you don’t use the word steam. And, just as crucially, Whirlpool doesn’t use the process that everybody agrees makes steam. So the underlying question, which is as much normative as it is empirical, is how much room an advertiser should have to try to stretch a definition on the theory that the resulting product is equally satisfactory to the consumer. This is precisely analogous to much debate over geographic indications: if sparkling wine from California tastes just like champagne, isn’t it champagne? Trademark has been relatively unforgiving here, and false advertising has traditionally been the same (there’s a classic case about the meaning of “gelatin” that is pretty much on point; see also, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374, 389 (1965)), but cases like this indicate that it is getting harder to stop an advertiser from taking the Humpty Dumpty point of view. The question is, which is to be master.

The court noted that the parties raised the issue of whether expert testimony is necessary to establish materiality, and cited a number of cases to show that courts don’t require this.

Anyway, the court will be the one to instruct the jury on materiality, not Wind; Wind will not offer a legal opinion on materiality at trial. He was also not qualified to give a technical opinion that the Whirlpool dryer does not create steam, but he could make this factual assumption when rendering his opinion; LG still bears the burden of establishing the fact at trial.

Wind’s opinion about consumer confusion was admissible; it was based on Whirpool’s studies and documents, and offered as rebuttal to the conclusions of one of Whirlpool’s experts that responses to less-leading open-ended questions showed no evidence of confusion about the way in which a Whirlpool dryer creates steam. Given his level of experience with market studies and consumer surveys, it was acceptable for him to rely on Whirlpool’s documents.

Finally, Whirlpool challenged Wind’s analysis of consumer feedback videos produced at (and after) the close of discovery. The consumers gave detailed feedback on the steam cycle. The court granted LG’s request to take discovery and have Wind opine on them. Wind did a content analysis and opined that "while 46% of the respondents had a positive evaluation of the steam feature on the dryer, 37% had a negative assessment of the steam feature and 17% had” a mixed assessment. He opined that significant dissatisfaction existed with the steam feature. Thus, Whirlpool’s claim that its use of the term “steam” was justified by the fact that it delivered the benefits associated with steam was not true for those consumer segments. (Notice how this ties in to the normative/empirical question I raised above: what does it mean to provide “steam”?)

Whirlpool challenged the admissibility of these opinions, since Wind wasn’t qualified to assess the dryers’ performance. But Wind relied on his expertise in marketing and consumer research. Coding errors were grounds for cross-examination, not exclusion.

Court reduces $10 million false advertising award to half a million

National Products, Inc. v. Gamber-Johnson LLC (W.D. Wash. 2010)

Seattle Trademark Lawyer has been following the case. Gamber-Johnson lost a trial about its comparative advertising about the parties’ emergency vehicle laptop mounting systems. It moved for and received judgment as a matter of law on damages, reducing the jury’s $10 million award to a little under $500,000. NPI received a permanent injunction and attorneys’ fees and costs, but not prejudgment interest.

A jury verdict will be upheld if supported by substantial evidence, though the district court has discretionary power to modify monetary awards under the Lanham Act, which are “subject to the principles of equity.” 15 U.S.C. § 1117(a). The Lanham Act allows (1) disgorgement of defendant’s profits; (2) plaintiff’s actual damages (lost sales); and (3) the cost of the action. The court can increase damages up to three times actual damages found and can only decrease them if the award wasn’t based on substantial evidence, but it can adjust profit awards “according to the circumstances of the case” if the initial award is inadequate or excessive, as long as its award constitutes “compensation and not a penalty.”

Here, NPI didn’t seek actual damages, so its theory was based on unjust enrichment/disgorgement of profits. Relief is not a matter of right and must be based on the totality of the circumstances, avoiding a windfall to the plaintiff and pure punishment for the defendant: actual evidence of injury is the touchstone. But the court also needed to take into account the jury’s finding that Gamber-Johnson deliberately engaged in false advertising.

NPI was entitled to a presumption of actual deception and reliance because Gamber-Johnson’s statements were intentionally false/misleading. The presumption of damages, however, didn’t extend to sales diversion. NPI disavowed reliance on injury to goodwill and reputation in its post-trial motions on damages. Because it wasn’t claiming actual damages, it had to prove that it was entitled to any profits Gamber-Johnson earned that were attributable to the false advertising. At that point, the burden would shift to Gamber-Johnson to prove its expenses and profits attributable to factors other than false advertising.

The problem was that there was a dearth of evidence proving that all Gamber-Johnson’s sales and profits during the relevant period were attributable to false advertising. After trial, the court requested evidence from NPI connecting the false video to the profits, and NPI responded with evidence from trial proving that at least two companies chose to purchase the Gamber-Johnson product after reviewing the video. But NPI never offered any evidence at trial quantifying Gamber-Johnson’s profits from those sales, and considering evidence outside the trial record was improper. Without evidence of profits attributable to those sales, the court couldn’t award damages based on Gamber-Johnson’s profits from those sales.

NPI’s expert witness opined that Gamber-Johnson’s profits during the relevant period were $22,570,826. However, his analysis of how much was attributable to false advertising was based on anecdotal evidence about unidentified customers. The court couldn’t connect his calculations to the jury verdict of $10 million, despite NPI’s argument that one could use the profit margin offered by Gamber-Johnson (nearly 30%) on revenue of $54 million, plus “a few additional deductions,” to reach that figure. Gamber-Johnson’s expert testified that the best indication of its profits from sales diverted from NPI was approximately $350,000. Using a higher profit margin estimate as posited by NPI, the court calculated that an award of nearly $500,000 “would serve the policy considerations behind the Lanham Act.” Even though other vendors were mentioned in the video and some of Gamber-Johnson’s profits therefore probably didn’t represent sales taken from NPI, equity—including the jury’s finding of Gamber-Johnson’s intent—supported the award.

NPI argued that its burden was simply to identify the pool of sales attributable or related to the false advertising, and that it had done so by identifying the sales of the falsely advertised goods. The court disagreed. It’s necessary to segregate profits from sales associated with the infringing/false activity from sales that don’t involve infringement/falsity. Another infringement case involved a presumption that profits from jeans bearing a counterfeit Playboy mark were attributable to the infringing mark. But unlike that case, where every purchaser would have seen the infringing mark, the evidence here was that only some of Gamber-Johnson’s customers would have even seen the video, so NPI needed more evidence.

NPI was still entitled to a permanent injunction. NPI wanted it to include a requirement that Gamber-Johnson notify everyone to whom it had sent the video that the statements in the video are false. Gamber-Johnson argued that injunction was unnecessary because it already ceased distribution. But it admitted that it never attempted to retract any copies and still encouraged its distributors to use the video. The only question was how much activity to enjoin. Gamber-Johnson argued that explicit notification about the falsity was unnecessary, but the court was “concerned that Gamber-Johnson continues to assert that the statements in the video were not false and thus it was not going to publicize the jury’s findings.”

Thus, the court ordered Gamber-Johnson to send by first class mail a copy of the jury’s findings in this case to each of the vendors or distributors that received the video.

NPI also got a fee award because the jury’s finding that Gamber-Johnson’s false advertising was deliberate naturally supported a finding that this was an exceptional case under 15 U.S.C. § 1117(a). The court denied prejudgment interest because that’s for cases in which the plaintiff won’t be made whole without additional compensation, and NPI didn’t meet that standard (though I’m not really clear why).

Not a close shave: Gillette class action settlement wins preliminary approval

In re M3 Power Razor System Marketing & Sales Practice Litigation, 2010 WL 3082198 (D. Mass.)

This is a consolidated class action over alleged misrepresentation by Gilette in marketing its M3P razors. The court allowed notice of a proposed settlement to go out to a North American class (including Canada). The only objector was a California plaintiff. The court found a sufficient basis to hold that: (1) questions of law and fact common to the class members predominate; (2) the class representatives align generally with the class as a whole and its constituent parts; (3) there is no unfairness in treating similarly class settlement members drawn from multiple jurisdictions with diverse legal regimes; and (4) the settlement resolution is adequate.

Given the common claim based on uniform marketing representations, the court concluded that class certification was appropriate in the absence of "variations in state laws ... so significant as to defeat commonality and predominance, even in a settlement class." Sullivan v. DB Invs., Inc., --- F.3d ----, 2010 WL 2736947, at *14 n. 15 (3d Cir. July 13, 2010). Here, all class members asserted a claim under Massachusett’s Unfair and Deceptive Practices Act, ch. 93A, on the ground that the allegedly deceptive communications originated from Gillette's Massachusetts-based headquarters.

Gillette advertised the M3P battery-powered oscillating head as "revolutionary" in its ability to raise hair up and away from the skin. All the representative plaintiffs claimed to rely on this, bu the M3P didn’t actually raise hair up and away from the skin. Gillette’s primary competitor Schick sued for false advertising around the world. Courts in France, Belgium, and the Netherlands refused to enjoin the disputed advertising, but courts in the U.S. (D. Conn.), Germany and Australia issued preliminary injunctions. After extensive U.S. discovery, with Gillette and Schick reached a worldwide settlement. But class action litigation followed in several states and Canadian jurisdictions; all the state cases were removed and all the federal cases were transferred to the Massachusetts district court and consolidated.

The proposed settlement would establish a $7.5 million settlement fund, up to $2.45 million of which could be used to provide notice. Any notice costs over this amount would be borne by Gillette. Participating class members could get a refund if they returned the razor (not the blade or batteries) and certify that it was purchased or acquired during the class period; they’d get $15, unless they could document a higher actual purchase price (with $2 for postage). Class members who keep or don’t have the razor any more can get up to 2 $5 rebates for any purchase of M3P blades purchased after May 2004, and/or a Gillette Fusion razor or a Fusion ProGlide razor purchased after January 2006, by submitting relevant documentation. If refunds and rebates exceed the allocated settlement fund, each class member gets a pro rata share. If the settlement fund isn’t exhausted after the initial claim period, class members who submitted an approved claim will also get a new Fusion razor (or a statistically random sample if mailing a razor to everyone, at a $7 credit per razor, would exceed the fund).

If that doesn’t do it, Gillette will add a link to the M3P razor webpage inviting class members who haven’t previously submitted a claim to do so. The documentation requirements will be relaxed; after certifying that he or she purchased or got an M3P razor during the class period, the class member will get a free Fusion razor, debiting the settlement fund $7. This will last 90 days or until all funds are distributed, whichever comes first. If that doesn’t exhaust the fund, then Gillette will distribute free Fusion razors to a group selected by the parties until the fund is gone.

In addition to the settlement fund, Gillette agreed to pay up to $1.85 million, subject to court approval, for attorneys’ fees, as well as $500-$1000 incentive awards to the representative and named plaintiffs.

The court found that Rule 23(a)’s requirements of numerosity, commonality, typicality, and adequacy of representation were satisfied, even under the heightened scrutiny required to protect absent class members. Gillette sold over 10 million razors in the relevant period, and didn’t maintain purchaser records, and the individual claims were relatively small. Common core questions were at the heart of the litigation: whether Gillette misrepresented the razors, whether this caused damage, and how much damage was at issue. The class representatives’ claims arose from the same ads and were based on the same legal theory as those of the class. Most counts were based on common law causes of action (negligent misrepresentation, intentional misrepresentation, breach of express warranty, breach of implied warranty of fitness of purpose, and unjust enrichment), which would be substantially uniform across the class. Though the representative plaintiffs weren’t residents of each covered state, the consumer protection statutes in their states of residence (Florida, New York, California, Massachusetts, Illinois, Georgia and Canada) “appeared to be typical of, and generally even more consumer-friendly than, consumer protection laws in the range of jurisdictions that they represent.” Finally, the representative plaintiffs’ interests aligned with the class as a whole, and appointed counsel had “performed in a highly competent and professional manner.”

The next issue was Rule 23(b); the court found that Rule 23(b)(3) applied, which allows class certification if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Superiority was easy, given the large numbers and small individual claims and that the forum jurisdiction was familiar with Chapter 93A, which applied to the Massachusetts corporate defendant.

Predominance overlaps with commonality and tests whether proposed classes are sufficiently cohesive to justify class representation. The court found predominance clear: the dominant common questions included whether Gillette's advertising was false or misleading, whether the company's conduct violated the statutory and/or common law causes of action at issue, and whether the class members suffered damages as a result of this conduct. “Even if state consumer statutes or other state causes of action differ in arguably material ways, common questions, not individual issues, predominate among and within each state's legal regimes.”

The objecting plaintiff argued that the proposed settlement was insufficiently generous to potential California class members, because California’s laws are more stringent. The court considered subclassing as a response, though subclassing shouldn’t be done lightly because it inherently reduces efficiency and increases transaction costs, particularly for notice. The court considered (1) the significance of variations in state law; (2) the differences between California and Massachusetts/other laws; and (3) the magnitude of such differences.

Legal variations can sometimes require individualized factual determinations and undermine the class’s ability to show commonality. They can also create conflicts of interest and allocation dilemmas. Thus, courts have required rigorous analysis of state law variations, but must also remain sensitive to the common core of issues.

Taking California first: the evidentiary standard for awarding restitution and actual damages is demanding. The Gillette case has valuation difficulties because Gillette produced evidence that consumers preferred the M3P razor, even if it did not perform exactly as advertised, and because the precise value of having one's hair raised "up and away" during a shave is inherently speculative. As a result, it was unlikely that a court applying California law in a California state class action would award restitution here. Likewise, punitive damages were unlikely even in a clear-cut liability case, and here courts around the world divided, at least initially, over whether Gillette’s conduct was even actionable. Moreover, since 2004’s referendum, California’s procedural and substantive consumer protection law became less consumer-friendly. Its class action law is currently very similar to Massachusetts law, as indicated by similar treatment of a putative class of Listerine purchasers suing over the same alleged misrepresentations.

Indeed, Chapter 93A is quite robust and arguably more consumer friendly than California law. Unlike the UCL, Chapter 93A does not require reliance, only a tendency to deceive. Materiality and causation can be established by showing that the deceptive representation "could reasonably be found to have caused a person to act differently from the way he [or she] otherwise would have acted." Compensatory damages are available even without intentional misrepresentation, which in a class action provides restitution, and exemplary damages from two to three times actual damages can also be awarded.

As for other jurisdictions, “[a]fter extended review of the various legal regimes,” the court found that the plaintiffs “have demonstrated that, although variations in state law exist, they do not overcome the common factual and legal issues shared by the potential class members. The only purported distinctions actually argued by an objector--those presented by California consumer protection law--are, to the extent they are significant at all, differences of degree, not of kind, and are not substantial and clear-cut enough to require a subclass.”

Objecting plaintiff Corrales argued that California consumers paid more for their M3P razors and that differences between California law and that of other jurisdictions created conflicts of interest requiring separate treatment. On the first point, Corrales had no reliable evidence, and anyway the settlement allowed class members to recover more if they had receipts. Nor did California law introduce significant difficulties for the international class. All the plaintiffs had the motivation to establish the same legal and factual elements. The available remedies were similar for everyone. The possible conflict was minimal and speculative because of the relatively small differences in damages/potential remedies.

“Especially given the commonality of the Chapter 93A claim for all class members, there are no particular advantages or disadvantages applicable to class members in any of the several jurisdictions and consequently no potential for conflicts of interest.” Inclusion of a Canadian class was somewhat unusual, but still didn’t produce conflicts, as Canada would recognize the court’s judgment.

The court then preliminarily approved the settlement, which requires a finding that it is fair, reasonable, and adequate. Factors for assessing reasonableness when the settlement occurred in lieu of litigation include whether "(1) the negotiations occurred at arm's length; (2) there was sufficient discovery; (3) the proponents of the settlement are experienced in similar litigation; and (4) only a small fraction of the class objected." The court was satisfied that these factors favored approval. The revised proposed settlement was more favorable to class members than Gillette’s initial response to pre-suit demand letters, which among other things didn’t require Gillette to provide a floor for the recovery and required consumers to return the razor to obtain a benefit. This was important because everyone agreed that redemption rates are likely to be low. Gillette produced over 100,000 pages from the litigation against Schick, “allowing the parties to acquire enough information rapidly to make serious settlement negotiations feasible.”

The court did require that the website providing notice to class members had to contain the proponents’ joint submission comparing the relevant state laws, along with the court’s memorandum and order, thus “alerting class members to the issues presented by the varying state law causes of action and remedies available to the class members. In this way, class members who may wish to learn more about those alternatives and consider their implications will have a foundation for doing so.” With that, notice could proceed.