New FTC complaint on marketing to youth

Complaint on Doritos' marketing to adolescent and other materials, including video, on this site dedicated to interactive marketing. HT Angela Campbell.

Private AG actions not subject to Concepcion rule on arbitration

Ferguson v. Corinthian Colleges, 2011 WL 4852339 (C.D. Cal.)

Plaintiffs Ferguson and Muñiz sued on behalf of two classes who enrolled in and/or attended class at one of Corinthian Colleges' academic institutions, Everest and Heald. They alleged that students believe that they will receive a quality education at an affordable price, “when, in fact, they pay some of the highest tuition rates in the country, incur crippling student loans, and graduate with a degree that never qualifies nor prepares them for any job placement other than low-wage, low-skill employment.” They brought a variety of California common-law and statutory claims.

Corinthian argued that arbitration of their claims was mandatory. Ferguson’s enrollment agreement stated:

By my signature, I acknowledge that I understand that both I and The School are irrevocably waiving rights to a trial by jury, and are selecting instead to submit any and all claims to the decision of an arbitrator instead of a court. I understand that the award of the arbitrator will be binding, and not merely advisory. … I agree that any dispute arising from my enrollment, no matter how described, pleaded or styled, shall be resolved by binding arbitration under the Federal Arbitration Act conducted by the American Arbitration Association ("AAA") under its Consumer Rules.

Terms of Arbitration
1. Both I and the School irrevocably agree that any dispute between us shall be submitted to Arbitration.
...
4. I agree not to combine or consolidate any Claims with those of other students, such as in a class or mass action.

Muñiz's enrollment agreements said:

Any dispute arising from enrollment at Heald College, no matter how described, pleaded or styled, shall be resolved by binding arbitration by a single, neutral arbitrator under the Federal Arbitration Act conducted by the American Arbitration Association ("AAA") at Davis, CA (student's city, state) under its Commercial Rules.... I acknowledge that I understand that both Heald College and I are waiving our rights to a trial by jury….
Both Student and the College irrevocably agree that any dispute between them shall be submitted to Arbitration.

Plaintiffs alleged fraudulent misrepresentation in inducements to enroll, including deception about federal financial aid, the true total cost of attending Corinthian’s programs, the value of its accreditations, and the employment prospects and career placement services plaintiffs could expect. Moreover, they alleged that if they knew that students attending Corinthian’s institutions defaulted on their student loans at alarming rates, they would not have enrolled in the first place.

Corinthian argued that these claims all fell squarely within the relevant arbitration agreements, which cover "any dispute arising from [my] enrollment ...." Plaintiffs responded that their claims centered around deceptive marketing practices and representations made to prospective students in order to induce their enrollment, well before plaintiffs signed their enrollment agreements.

The court began with the "liberal federal policy favoring arbitration," citing Concepción. Here, the language of the agreements was sufficiently broad to encompass the claims asserted in the complaints. A plaintiff's factual allegations need only "touch matters" covered by the contract containing the arbitration clause, with all doubts resolved in favor of arbitrability. While some of the claims, such as fraudulent inducement, rely, in part, on factual allegations occurring before plaintiffs signed the agreements, paid tuition, or attended their first class, enrollment, not just what happened before enrollment, is central to their claims. For example, plaintiffs alleged that enrollment advisors pressure students to enroll and direct that financial aid paperwork be completed so loans come due immediately, and that the advisors continue to make false statements about financial aid and career prospects after students are enrolled.

However, plaintiffs argued that arbitration clauses are “narrow,” and arbitration should be compelled only to disputes "relating to the interpretation and performance of the contract itself," quoting Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1295 (9th Cir.1994). An arbitration clause using “arising out of” language should therefore cover only contract claims, in contrast to a clause covering disputes “arising from or relating to” the agreement. The Ninth Circuit recently reaffirmed this distinction, so that when a tort claim constitutes an independent wrong from any breach of the contract it doesn’t require contractual interpretation and isn’t arbitrable.

However, the relevant language here wasn’t limited to disputes arising under the agreement, instead using broader language such as "any dispute arising from my enrollment,” "any and all claims," "any dispute," "any dispute between us," and "any dispute between [the student and the School]," without reference to the agreements. Thus, each plaintiff’s claim had to go to individual arbitration, with the exception of certain claims.

Plaintiffs argued that they’d be unable to vindicate their statutory rights as private attorneys general if forced to arbitrate their UCL, FAL, and CLRA claims. They contended that the injunctive relief they sought on behalf of the general public (which hasn’t and couldn’t consented to arbitration) couldn’t be sent to arbitration. Corinthian argued that Concepción necessarily means that the FAA preempts California's rule exempting public injunctive relief claims from arbitration.

Nelson v. AT & T Mobility, LLC, No. C10-4802 TEH, 2011 WL 3651153 (N.D.Cal. Aug.18, 2011), accepted this reasoning. A state can’t require a procedure inconsistent with the FAA no matter how desirable that rule would be.

The court here disagreed. “The California Legislature's decision to allow citizens to bring injunctive relief claims under the CLRA, UCL and FAL on behalf of the public is not inconsistent with the FAA. Notwithstanding Concepción, the Supreme Court previously acknowledged that ‘not ... all controversies implicating statutory rights are suitable for arbitration’” (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985)). The California Supreme Court has held that "when the primary purpose and effect of a statutory remedy is not to compensate for an individual wrong but to prohibit and enjoin conduct injurious to the general public, i.e., when the plaintiff is acting authentically as a private attorney general, such a remedy may be inherently incompatible with arbitration." Individual plaintiffs don’t benefit from injunctive relief in consumer protection cases; the benefits accrue to the general public, making the CLRA plaintiff a bona fide private attorney general.

Though the capacity to withdraw statutory rights from the scope of arbitration agreements is generally a congressional prerogative, the Supreme Court has never held that a state legislature may not restrict a private arbitration agreement when it inherently conflicts with a public statutory purpose that transcends private interests. Moreover, the FAA’s legislative history doesn’t suggest any contemplation of suppressing private AG actions. While state law can’t prohibit outright the arbitration of a particular type of claim, some injunctive relief claims may not be arbitrable under this framework, which asks whether legal constraints external to the parties’ agreements foreclose arbitration of the claims. “Because Plaintiffs' injunctive relief claims seek to enforce a public right, there is an inherent conflict with sending these claims to an arbitrator.”

As the court explained,

Defendants have identified an easy source of credit in federal student loans, including Title IV federal financial aid as well as military tuition assistance programs such as the Post-9/11 GI Bill. Defendants exploit a vulnerable consumer population by encouraging students to borrow amounts they will never be able to pay back, let alone ever discharge in bankruptcy, ruining the students' financial future for life. Defendants are able to tap into this easy source of credit, realize significant profits, and pass all of the down-side credit risk on to the students. Not only are the students harmed, but since the loans are federally guaranteed, U.S. taxpayers subsidize this scheme at the expense of the students and for the benefit of Defendants' bottom line.… Legal constraints such as the inability of arbitrators to enter an injunction affecting nonparties, as well as the inability to oversee injunctive remedies designed to protect the public as a whole create an inherent conflict and make arbitration unsuitable in this case.

The rest of the claims were stayed pending arbitration, and the public injunctive relief claims proceeded.

competitor who benefited from false advertising can't sustain claim

Pom Wonderful LLC v. Ocean Spray Cranberries, Inc., 2011 WL 4852472 (C.D. Cal.)

Pom sued Ocean Spray for false advertising of its "100% Juice Cranberry and Pomegranate" juice, which is comprised largely of apple and grape juice. Ocean Spray counterclaimed that Pom falsely advertises that Pom's pomegranate juice has health-related benefits. Pom moved for summary judgment for failure to show injury.

Ocean Spray acknowledged it had no evidence of any impact on Ocean Spray’s sales or profits, and stated that "there are so few dollars in real damages at stake" that Ocean Spray cannot quantify them. Still, in the absence of actual damages, a court can permit monetary relief based on the totality of the circumstances. However, that didn’t help Ocean Spray, which apparently benefited from Pom’s allegedly deceptive conduct. Ocean Spray’s COO testified that strong sales of Ocean Spray's pomegranate-flavored product were attributable, at least in part, to the popularity of pomegranate juice resulting from Pom's advertising. An award of profits with no proof of harm is an uncommon remedy in a false advertising suit not involving false comparative advertising, and there was no reason to award it here. Ocean Spray argued that this was a comparative advertising case, but the court disagreed. Though Pom compared its products to other drinks, including red wine, green tea, blueberry juice and cranberry juice cocktail, and though Ocean Spray argued that cranberry juice was its primary product and was readily associated with Ocean Spray, “Pom's reference to a generic product or class of products does not exhibit the specificity required of a comparative advertisement.”

Pom’s "Pomegranate Truth" features images of three non-Pom beverages, including Ocean Spray's Juice. Below each, the website lists each product's respective ingredients. But Ocean Spray didn’t show that any of the statements on this website were false or misleading. Had Pom made a false comparative statement about Ocean Spray, the image would likely be sufficiently specific to constitute a comparative advertisement. But those weren’t the facts.

The injunctive relief claim also failed because Ocean Spray couldn’t show even a likelihood of injury from Pom’s allegedly false statements.

Teleseminar on surveys in Lanham Act cases

I moderated an excellent presentation and discussion last week, following up on the Havana Club case. The audio file is now available.

Patent infringement as advertising injury

Dish Network Corp. v. Arch Specialty Ins. Co., --- F.3d ----, 2011 WL 4908108 (10th Cir.)

Dish got sued for patent infringement and its insurers refused to defend on the grounds that the underlying complaint didn’t allege advertising injury. The district court agreed with the insurers, and the court of appeals reversed.

The 23 patents in suit were allegedly infringed when Dish used “automated telephone systems, including without limitation the DISH Network customer service telephone system, that allow [Dish's] customers to perform pay-per-view ordering and customer service functions over the telephone.” Each patent outlined numerous possible applications; at least six of the claims Dish may have infringed explicitly mention advertising or product promotion.

Dish was insured by five insurers, each promising coverage for “advertising injury.” Most of the policies defined advertising injury as injury arising out of:
1. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
2. Oral or written publication of material that violates a person's right to privacy;
3. Misappropriation of advertising ideas or style of doing business; or
4. Infringement of copyright, title or slogan.
The National Union policy spoke of injury arising “solely” out of those types of offenses, and the Arch policy referred in relevant part to “[t]he use of another's advertising idea in your 'advertisement.'” Arch’s policy also excluded "any claim ... [a]rising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights," but the exclusion "does not apply to infringement, in [the insured's] 'advertisement,' of copyright, trade dress or slogan."

The district court ruled that the complained-of conduct was not “misappropriation of an advertising idea” because the complaint didn’t allege that the patented technologies were themselves incorporated as an element of Dish’s communications with consumers.

The court of appeals first held that patent infringement can be “advertising injury” in appropriate circumstances. It then found that the underlying complaint could be read to allege "misappropriation of advertising ideas or style of doing business" and that such misappropriation could be causally linked to the injury of which the underlying plaintiff complains.

Under Colorado law, courts compare the allegations of the underlying complaint with the terms of the applicable policy. There’s a duty to defend when the underlying complaint alleges any facts or claims that might fall within the ambit of the policy. “Any ambiguity in a policy must be construed against the insurer and in favor of coverage.” While numerous cases categorically rule out advertising injury coverage for patent infringement, many of them focus on the policy terms "misappropriation of style of doing business" or "infringement of title." Those cases are mostly distinguishable from the facts: they dealt with “products the insured happened to advertise, rather than a means of advertising that the insured used to market its own products.” Several courts have held that “where an advertising technique itself is patented, its infringement may constitute advertising injury.”

Dish’s policies don’t expressly cover patents, though they specifically list certain other intellectual property offenses. Other courts have accepted the argument that silence means exclusion. But the court here found that "misappropriation of advertising ideas," in context, was ambiguous and had to be construed in favor of coverage. The language is unambiguous with respect to patent claims about the product/service being sold, but ambiguous where the advertising idea misappropriated happens to be a patented technology. Faced with conflicting authority, the court of appeals concluded that an ordinary person wouldn’t reasonably expect the words "misappropriation of advertising ideas" to exclude coverage for a suit alleging the misappropriation of a patented advertising idea, “even if the word ‘patent’ appears nowhere in the policy.” “To rule otherwise would risk ‘ignoring the real contours of intellectual property litigation, which often proceeds under a bewildering variety of different labels covering the same material facts’” (quoting Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 747 (3d Cir. 1999)). “Moreover, to categorically exclude patent coverage merely because a policy enumerates other intellectual property violations would conflict with the principle, well established in Colorado, that exclusions are strictly construed against the insurer and ‘must be written in clear and specific language.’” Further, the IP exclusion in Arch’s policy demonstrated that other insurers could have used more precise language if they’d wanted.

The underlying complaint’s allegations couldn’t reasonably be read to allege misappropriation of a style of doing business, but it could potentially allege misappropriation of advertising ideas. Except for the Arch policy, which the parties didn’t discuss separately, the policies didn’t define “advertising.” The insurers argued that advertising means widespread distribution of promotional materials to the public at large. But under any definition offered, the underlying complaint can be read to potentially allege the misappropriation of advertising ideas, since some of the patents explicitly claim the capacity for advertising. The underlying complaint provided insufficient insight into what "pay-per-view ordering and customer service functions" entailed. “We cannot rule out the possibility that these activities involve not only the passive acceptance of sales requests, but also the active promotion of products through the dissemination of information, such as pricing and programming options. [The patents] conceivably allow Dish not only to sell the product a consumer calls up to purchase, but also to make up-sell offers tailored to the specific caller.” This was enough to constitute advertising. Since there was potential coverage, the duty to defend could be triggered even if there might ultimately be no duty to indemnify.

The court of appeals disagreed with the district court’s reasoning that Dish couldn’t have misappropriated advertising ideas because it didn’t incorporate patented technologies as a substantive element of its communications and interactions with customers. Instead, it was sufficient that Dish allegedly misappropriated "a means of conveying content to and tailoring its interactions with its customers." The form, not the substance, of the ads was key.

Further, the court of appeals rejected the insurers’ argument that any promotion Dish engaged in must be excluded from coverage as "one-on-one solicitation" simply because a telephone conversation is a two-party interaction. Though the transaction may be customized, the feature was intended for use by the public at large. “[A]dvertisements do not become solicitation simply because they are not viewed by a multitude of potential customers simultaneously. Indeed, even a billboard advertisement on a public road may promote a product to only one driver at a time if traffic is light. It is the availability of an advertisement to the general public, as opposed to the number of people on the phone line at a given moment, that we consider dispositive.”

However, Dish didn’t misappropriate a style of doing business because it wasn’t alleged to have copied the specific manner in which the patent holder operated its own business or to have copied any trade dress. The court of appeals declined to decide whether a patented process could be so comprehensive and detailed as to constitute a style of doing business even absent any actual past usage by, or identification with, a particular business; the allegations here didn’t rise to that level, since they were only about certain patented technologies used as part of a business.

The next question was whether the complained-of injury arose in the course of advertising, as the policy language requires. Courts have split on causation: one line of cases finds causation if the alleged advertising activities alone would be actionable. The insurers, though, argued that the proper test was whether the injury could have arisen in the absence of advertising.

The court of appeals started with a determination of what the alleged injury actually is and where it arose. The insurers argued that the injury was inflicted by Dish's development of infringing technology, and "[t]he infringement was complete as soon as Dish developed the telephone system with advertising capabilities--before any customer actually heard the system's recorded material." “If true, this would be a strong argument against the existence of any causal connection ….” But there was no record evidence or case in support of the insurers’ argument, and the underlying complaint apparently contradicted it by alleging ongoing harm from the use of the patented technologies. Even if Dish had used the telephone systems only for advertising, the patentee could still have alleged infringement of some of the patent claims at issue. Thus, the advertising alone was potentially actionable. To the extent that cases decided under other states’ laws hold that there’s no coverage if harm could have occurred without advertising, they conflicted with Colorado’s rule that a duty to defend arises wherever the complaint even potentially alleges conduct within the policy language. Moreover, the insurers’ argument would seem to require that advertising be the sole cause of the injury, but only National Union used “solely” in its policy. “To impose a duty to defend under the other policies only if advertising alone, and nothing else, caused injury would give the other four insurers the benefit of a ‘more rigorous’ causation standard than they bargained for. Colorado law does not allow us to alter the parties' contracts in this way.”

Thus, the court of appeals reversed and remanded to deal with unresolved issues, including those relating to language variances in the Arch and National Union policies.

Never bring an injunction to a knife fight: eBay blocks injunctive relief

Leatherman Tool Group, Inc. v. Coast Cutlery Co., 2011 WL 4832566 (D. Or.)

Leatherman sued for a preliminary injunction based on the Lanham Act and common law unfair competition to (1) forbid its competitor Coast from falsely stating that its knives are made from 440C steel; (2) forbid Coast from falsely stating that its knives are hardened to between 57 and 59 HRC; (3) enjoin Coast from falsely stating that each of its knives is individually hardness tested; and (4) order Coast to send corrective notices to retailers and customers. Unfortunately, Leatherman failed to show irreparable harm.

Coast advertised some of its products as being constructed of 440C steel and having a hardness of 57 to 59 on the Rockwell C scale, a measure of "hardness" that is abbreviated "HRC." One example from Coast's 2011 product catalog: "COAST knives & tools use only the finest quality 440C specially treated cutlery steel from Seki, Japan. An excellent steel for performance and durability, 440C is a high-chromium stainless steel with a terrific balance between hardness and corrosion resistance. COAST steel is produced in small quantities exclusively for the production of knife blades."

Leatherman had 61 different types of Coast knives independently tested for the type of steel and hardness of the blade. None of the tested knives were made of 440C steel, and only two had a hardness of 57 to 59 HRC. Coast’s expert didn’t dispute the testing procedures, and his analysis of test results from another lab confirmed Leatherman’s findings. Also, in November 2010, Coast learned that its factory in China was using 420 stainless steel instead of the purported 440C steel. “In June 2011, after this lawsuit had been filed, Coast issued a press release to employees and sales representatives admitting that most of its products are made with 420J2 steel.”

Coast took other corrective actions, which Leatherman found insufficient. Coast claimed to remove all references to 440C steel in its catalogs, product packaging, and marketing materials and to have printed new materials. Coast advertises that its products are "now made with 420 stainless cutlery steel," though “now” is not exactly true—they were made with 420 stainless before as well. In June 2011, Coast sent a message to its e-retailers: “Due to some recently discovered sourcing issues in connection with the production of some of our knives and multi-tools, we suggest you review your website descriptions of all COAST Knives and Multi-Tools and make the following change. Where you currently use the term 440C stainless steel to describe any of our knives or multi-tools, please change that description to read ‘400 series stainless steel.’” Only eight out of 41 e-retailers have made this change.

The court found that Coast’s corrective actions were indirect admissions of literally false statements in commercial advertising. Literally false statements are presumed likely to deceive. Coast argued that its online survey of 400 consumers who had purchased a sport/outdoor knife or a multi-purpose tool in the past two years and were somewhat likely to purchase another one in the next 12 months rebutted the presumption, but the court found this survey unhelpful because the survey participants were never presented with the false statements.

Materiality: There was insufficient evidence that the 440C steel and individual testing claims were made intentionally, and thus the court declined to presume materiality. Nor did the declaration of Leatherman’s VP help; he stated that type of steel is one of the most important factors in a purchasing decision, but did not explain the basis of this opinion. (Really? This seems self-evident to me: type of steel affects durability and sharpness, and maybe I as consumer don’t know the details but I can get that far.) There was some evidence of materiality, such as a consumer who reviewed the Coast knife this way: "I just bought this exact same knife from a department store. I was impressed that it was so cheap for a knife that has a blade made from 440C stainless steel." Further, Coast’s president hoped to achieve this result: in his deposition, he stated that he used these false statements “because he thought they would be important to the consumer and would distinguish Coast's products from competitors.”

Coast’s survey also went to materiality. “Respondents were asked the open-ended question of which features or consideration were most important when purchasing a knife or multi-tool. The majority of respondents gave answers that related to the material or quality of the product. The type of steel and the hardness of the blades are directly related to the material and quality of a product. The survey also shows that 17% of respondents said that a particular type of steel ‘greatly influences’ the purchasing decision.” Coast argued that the statements weren’t material because consumers couldn’t recognize what 440C or the hardness scale specifically meant. The court disagreed. “Simply because consumers were unable to recognize the 440C descriptor does not mean they would not be influenced by the perception of a superior product. Coast's false claim of 440C steel leads consumers to believe that they are purchasing a better product for a similar price.” So the survey reinforced “common sense” and Leatherman established materiality.

Leatherman argued that it was entitled to a presumption of irreparable harm on showing a tendency to deceive. Coast responded that eBay negated any such presumption or categorical rule for irreparable harm. The court concluded that presumptions of irreparable harm are no longer allowed. (Can we tell that to courts deciding trademark cases?) Leatherman’s VP declared that consumers "will be diverted to Coast's falsely advertised 440C knives" and that this diversion "erodes Leatherman's overall market share." The court found this insufficient. It was unclear whether the lost sales were to Leatherman or to others. Demonstrating diverted sales would be difficult, but not impossible; the record was inadequate on irreparable harm.

Leatherman argued that there was no equitable or public interest in allowing false advertising. Coast responded that it would suffer reputational harm if required to send a second corrective notice. The court noted that the first notice was ineffective, since most e-retailers ignored it, and the notice wasn’t sent to any of Coast’s 10,000 retail outlets. Moreover, the court found it “ironic that Coast is concerned about the effect that a second corrective notice might have on its reputation. It seems Coast was not concerned about its reputation when it blindly made assertions as to the quality of its products. Coast relied on the word of its Chinese trading company, despite having had product quality issues in the past.” Coast knew about the falsity in November 2010, but took no action until Leatherman sued, and the 2011 catalog contains the false statements. “Coast seems content to continue to reap the benefits of these false statements. The balance of the equities favors Leatherman, not Coast.”

Thus, while signalling that Leatherman has a good chance of winning, quite possibly even on summary judgment, the court denied a preliminary injunction for lack of irreparable harm. Both parties now have reason to settle, which might well be the court’s fervent wish.

Secondary/agency liability claims against Postal Service fail

RPost Holdings, Inc. v. Trustifi Corp., 2011 WL 4802372 (C.D. Cal.)

RPost provides an email service allowing senders to “electronically sign, encrypt, contract, record, and diagnose message transmission metadata, prove the contents of an email message, and authenticate message metadata to reconstruct a validated original email message with all attachments.” Its proof of delivery product is “Registered Email.” (The opinion contained the ® symbol, but all I saw in TESS was a July 2011 application from someone who didn’t, on my admittedly casual inspection, appear to be the plaintiff.)

Anyway, RPost sued for violation of the Lanham Act and California’s FAL/UCL by defendants Trustifi, Authentidate, and the United States Postal Service. Trustifi sells an email authenticaiton service called Trustifi Postmarked Email, which it advertises allows users to prove when emails were sent, delivered, and received, such that it can be used to replace USPS Certified Mail and other similar services offered by private couriers. RPost, however, alleged that Trustifi can’t prove that an email was delivered to or received by the intended recipient. In a related patent infirngement suit, Trustifi asserted that its service only proves that a sender sent an email, not that a recipient received or read it. RPost further alleged that USPS authorized Authentidate to provide USPS’s Electronic Postmark (EPM), which provides proof of when an email was sent. Trustifi licenses EPM from Authentidate. Thus, RPost alleged, when Trustifi made its false statements, it was acting as the agent of the other two defendants in a “formal strategic alliance” in which USPS designated Trustifi as an authorized EPM provider. RPost also alleged that Trustifi had apparent authority to make false statements about its email verification services.

USPS argued that the Lanham Act claim should be dismissed because the agency allegations had to be pleaded with particularity and weren’t, and that the government can’t be held liable based on apparent authority. Several district courts have held that Lanham Act false advertising claims must be pleaded with particularity (and not Lanham Act trademark claims? Why the discrimination? Either both sound in fraud, or neither do, see the substantively identical operative language). Anyway, the Ninth Circuit has applied Rule 9(b) to other kinds of false advertising claims, so the court decided to do so here.

RPost didn’t allege false representations by USPS, merely that Trustifi was an agent because it had formed a strategic alliance with USPS. This was based on the fact that Trustifi advertised USPS’s EPM product on its website. But alleging agency was a legal conclusion, and RPost didn’t allege facts to support its false advertising agency theory or plead this theory with particularity.

RPost argued that Rule 9 didn’t apply to agency allegations, but Rule 9 is designed to give fair notice of fraud-based claims to a defendant. “Regardless of what theory Plaintiff uses to implicate USPS, because Rule 9(b) applies to the underlying claim, Plaintiff must plead all facts necessary to support the claim with particularity, including facts explaining USPS's role as a principal in the deception.” The strategic alliance allegation was insufficent; RPost didn’t explain what being an authorized EPM provider had to do with Trustifi's false statements, nor did it allege any of the elements of an agency relationship. The claim against USPS was dismissed without prejudice.

Apparent authority was no help either. Even assuming the theory worked, which was “doubtful,” RPost didn’t allege any facts in support: it didn’t explain how USPS caused third parites to believe that USPS authorized Trustifi to engage in false and misleading statements. (Shouldn’t that be “authorized Trustifi to make statements touting its products?)

The California law claims also failed, not just because of the 9(b) issues. It was unclear whehter RPost was required to exhaust administrative remedies under the FTCAin order to bring its FAL and UCL claims. A party may not maintain a tort claim under the FTCA until it first presents the claim to the appropriate federal agency. The court wasn’t convinced that UCL and FAL claims were tort claims. Some cases distinguish UCL claims from torts, while others call them statutory torts. The court didn’t resolve the issue, because other issues were fatal.

In Emery v. Visa Int'l Serv. Ass'n, 116 Cal. Rptr. 2d 25 (App. 2002), the court held that “[a] defendant's liability must be based on his personal participation in the unlawful practices and unbridled control over the practices that are found to violate sections 17200 or 17500” and that "there can be no civil liability for unfair practices" where the defendant "played no part in preparing or sending any 'statement' that might be construed as untrue or misleading under the unfair business practices statutes." It was Trustifi who made the allegedly false statements, not USPS. Thus, there was no vicarious liability under California law.

What, no Rosa Parks?

Here's a mix of songs named for actors. How about those 43(a) and right of publicity claims? And of course there's always Our Lawyer Made Us Change The Name Of This Song So We Wouldn't Get Sued.

Reading list: After class

Myriam Gilles & Gary Friedman, After Class: Aggregate Litigation in the Wake of AT&T Mobility v. Concepcion, 79 U. Chi. L. Rev. __ (forthcoming 2012): This excellent article looks at numerous restraints imposed on consumer class actions by various developments, including the “coup de grace” of AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011). What is to be done? The authors recommend outsourcing AGs’ consumer enforcement powers to private attorneys, with appropriate limits on maximum fees and scrutiny to avoid “pay-to-play” arrangements.

Defendant hits the trifecta, loses copyright, Lanham Act, and design patent claims

Victor Stanley, Inc. v. Creative Pipe, Inc., 2011 WL 4596043 (D. Md.)

Extremely bad behavior drove the court’s (unnecessary) misinterpretation of Dastar.

Plaintiff VSI makes site furnishings such as benches, planters, bike racks, etc. It produces them in America and invests heavily in technology. This investment includes production of technical drawings, including CAD drawings, used in manufacture and sales. The court found that the drawings have substantial economic value. VSI created an online product library containing its CAD drawings, specifications, and product images, accessible by customers, architects, and designers, for specific use in project design and purchasing activities such as presentations and bid documents.

Mark Pappas owns Creative Pipe, Inc., based in California. He tried to design site furnishings in the US but sold only about two dozen. He attempted to get a foothold in the market by falsely claiming to represent VSI. Defendants also copied VSI’s products and sold them under the trade name FUVISTA, which stands for "F--- You Victor Stanley." In the course of the ensuing litigation, defendants engaged in massive spoliation of evidence. This led to a default judgment of liability on the copyright infringement count, as well as an award of attorneys’ fees and costs.

The case proceeded to trial on damages for copyright infringement and on VSI’s claims for unfair competition, false advertising, and patent infringement.

Given defendants’ behavior, the court was not kind on damages. Pappas obtained access to the VSI library by falsely identifying himself and falsely representing his purpose. He copied the drawings and substituted CPI’s name on the drawings for VSI’s. (Why no CMI removal claim?) He then made additional copies and used them in the course of CPI’s business, including them with bids submitted for the sale of Fuvista products and sending them to contractors, largely in China, to produce the products.

Since the drawings weren’t registered before the infringement began, VSI sought damages based on the infringer’s profits. The drawings must be distinguished from the objects they depict, as to which there’s no copyright protection, and that might have mattered in a different case. No one would infringe by reverse engineering a VSI product, though the court commented that there could be “debatable issues” if defendants used, without copying, a VSI drawing to manufacture products. I can’t see what the debatable issues would be, given that the court acknowledged that the products themselves would not be infringing.

Here, defendants downloaded and transmitted the drawings, caused contractors to create derivative works, transmitted the infringing derivative works, made copies of them in bids, and caused foreign contractors to copy the infringing works. (It’s not clear that there’s US infringement in that last one, but again it doesn’t really matter here.)

In recovering profits, the copyright owner must present only proof of the infringer’s gross revenue, and the infringer is required to prove deductible expenses and elements of profit attributable to factors other than the copyrighted work. There’s an obvious baseline question here: should we assume that the sales of the products would have occurred anyway via reverse engineering, meaning that profits from sales of the products themselves are not attributable to the copying, or should we look to what the profits would have been if they didn’t put the products on the market (since the copying was a but-for cause of the sales)?

The court went with the latter: “Profits attributable to the infringement can include profits derived from the sale of products if those sales are attributable to the copyright infringement.” The court found that defendants failed to meet their burden to show that sales of their “VSI-like products” were attributable to something other than copyright infringement. The court didn’t explicitly say that defendants failed to show that they would have reverse engineered if they hadn’t copied, but I think that’s both plausible in this case and the only way to make this analysis work. So nearly $2.4 million in revenue was reasonably related to infringement (and it was likely that the amount was substantially more but unascertainable due to defendants’ spoliation).

The infringer has the burden of showing deductions, and courts are especially dubious when infringement is willful, which it was here. “Pappas knew that the VSI product library contained original works that were owned by VSI, but he deliberately copied them using a false identity, removed the VSI identifiers and replaced them with CPI identifiers. Then he caused the evidence of these actions to be destroyed.” Plaintiff’s expert credibly opined that gross profit should be determined by reducing gross revenue by 51.28% to take into account cost of goods sold and net freight, producing a bit over $1.15 million in gross profit. The court denied defendants’ claimed deductions and also awarded prejudgment interest at 6%, increasing the award by over $200,000.

VSI also brought a state law unfair competition claim against defendants. Defendants argued copyright preemption. But there was an extra element here: deception, as in passing off, so there was no preemption. The court found that VSI proved misappropriation of its IP and goodwill, including “copying and using the drawings to solicit business and manufacture competing products, falsely representing VSI's drawings as CPI's, falsely representing CPI as an equal to VSI in the marketplace, and mimicking VSI's advertising, style, and marketing themes.” VSI also proved harm. In one project, the parties were the only two directly competing bidders, and CPI won the bid “using an altered drawing derived from a copyright protected original drawing that was downloaded without authority from VSI's product library.” Moreover, CPI’s bids for VSI-like products were based on the deceptive claim that the products were made "in house" in the United States, forcing VSI to reduce its prices.

Defendants “engaged in a massive degree of unfair competition directly aimed at VSI.” Aside from the copyright infringement, defendants created the false impression that CPI “was comparable to VSI as an American manufacturer of quality site furnishings, with 50 employees, a unique powder coating process and facilities, and made all its goods ‘in house.’ In fact, CPI had four employees, no manufacturing facility, had products manufactured in China, and removed the country of origin labels.” This unfair competition increased its profits.

The court awarded VSI defendants’ profits attributable to unfair competition—the sale of VSI-like products. Thus the court awarded the same amount as for the copyright infringement claims. Punitive damages are available under Maryland law only for actual malice. Actual malice must be proven by clear and convincing evidence. This standard was satisfied here, making it one of the rare cases in which a state-law claim is actually worth something over and above a Lanham Act claim. Defendants’ acts were deliberate, with wrongful motives and ill will specifically directed at VSI, evidence of which includes choosing and publicizing the meaning of the name Fuvista, and “ranting and raving” about VSI.

The amount of punitive damages shouldn’t be disproportionate to the defendant’s ability to pay. Under the circumstances, a $500,000 award was appropriate, taking into account the award of enhanced damages on the Lanham Act claim (coming up next). If that enhanced damages award were to be reversed on appeal, the court indicated that it would increase the punitive damages award by the same amount.

There was no legal authority under Maryland law to award attorneys’ fees on this claim.

For the Lanham Act claims, VSI first alleged reverse passing off of its drawings as originating with CPI. This is clearly barred by Dastar, which focuses on the origin of the tangible copies at issue. The tangible copies here (even if only tangible in the sense of being stored in a computer’s memory) are those made by defendants. That’s why they infringed VSI’s copyrights. The court even points out, above, that if defendants had used VSI’s own copies to produce the products this would have been a very different case.

The court, however, bollixed this. “VSI is the source of the technical drawings. The evidence showed, in numerous instances, that Defendants downloaded the drawings [ed. note: that is, copied the drawings, creating their own infringing copies] from the VSI product library, removed the VSI source information and product name from the [copies of the] drawings, replaced the source information [on the copies] with representations that CPI had created the drawings, and replaced the VSI product name [on the copies] with a CPI product name.” Indeed, as described, it seems certain that there were multiple generations of copies before defendants’ copies found their way to someone who might be confused by this.

The court stated that the Fourth Circuit has found reverse passing off liability in “similar circumstances,” which is not true. Universal Furniture International v. Collezione Europa USA, 618 F.3d 417 (4th Cir. 2010), found liability for both copyright infringement and reverse passing off where the defendant removed the competitor's indicia of ownership from the products and displayed them as defendant's own, even though it did not actually sell the displayed products but fulfilled sales with its own manufactured products. Removing the indicia from the physical products displayed to induce sales was reverse passing off (“Collezione had simply removed Universal stickers from some pieces. In some instances, [Universal’s principal] noticed stickers (which he had designed) bearing the name of Universal's manufacturer, Lacquercraft.”). But the copyright infringement stemmed from different acts, in that case reproducing infringing articles—the furniture designs themselves were copyrightable, unlike the situation here.

Universal is thus inapposite. Saying that “VSI's technical drawings were presented to consumers as CPI drawings for CPI products, and consumers were likely to be misled into believing that CPI was the source of the drawings” is to make the mistake the Court rejected in Dastar--treating the source of the expression in the physical object as “origin” for purposes of §43(a)(1)(A). CPI was the source of the particular copies of the drawings it presented to consumers; those copies were therefore infringing copies.

The court then found that consumers were likely to be confused into believing that CPI was “a ‘genuine’ designer and producer of VSI-like products in an ‘in-house’ American production facility. A truthful presentation of the drawing submitted with a CPI bid as a drawing that originated with VSI would have been less effective, if it would have been accepted at all.” This conclusion highlights that the false designation claim is completely unnecessary: as the Court indicated in Dastar, in some circumstances false advertising claims against copying will be viable. The court isn’t even targeting the copying here—it’s the context, including the claims to design in-house, that makes the copying deceptive.

Anyway, the court concluded that defendants obtained customers who otherwise could have bought from VSI “and thus deprived VSI of the benefit of the attendant goodwill and enhanced reputation as the creator of the drawings,” and also caused the lost sale in the instance when the parties had competing bids for the same job.

Disgorgement of profits under the Lanham Act requires consideration of (1) the defendant’s intent to confuse or deceive; (2) whether sales were diverted; (3) the adequacy of other remedies; (4) any unreasonable delay by the plaintiff in asserting its rights; (5) the public interest in making the misconduct unprofitable; and (6) whether it is a case of passing off. So, obviously, disgorgement was justified, in the same amount as above—the profits from copyright infringement plus prejudgment interest.

In addition, the Lanham Act allows an award of up to three times the amount found as actual damages, as long as it’s for the purpose of compensation instead of penalty. Enhancement may be based on willfulness as long as it doesn’t become a penalty (and yet the court’s perfectly happy to recategorize these enhanced damages as punitive damages). Enhancement can help when “imprecise damage calculations fail to do justice, especially where the imprecision results from the defendants' conduct.” This was the case here: given the willful infringement and defendants’ spoliation of evidence, the court awarded enhanced damages of one-half of actual damages. If the punitive damages award above were to be reversed on appeal, the court would add half a million dollars to the enhanced actual damages under the Lanham Act.

This was also an exceptional case entitling VSI to attorneys’ fees.

On to the actually valid false advertising claim: CPI made a number of misrepresentations: (1) It claimed to offer a safety bollard capable of stopping a 15,000 pound vehicle traveling at 50 miles per hour that had been independently crash-tested and found to achieve a Department of State "K-12" rating; (2) it claimed that the Nebelli and Necati benches were ADA-compliant, although there are no ADA requirements, either mandatory or voluntary, that apply to outdoor benches; (3) defendants claimed that CPI products were made by CPI in two United States manufacturing facilities; (4) CPI claimed that all of its work was done in house, and that it had its own state-of-the-art in-house powder coating facility; (5) CPI claimed it developed a method of manufacturing its site furnishings that resulted in unsurpassed strength and integrity.

The court found that one alleged falsehood, that CPI was developing “progressive and functional new designs,” was puffery. Even though its products were bad, past failures weren’t enough to make this claim false: “Reasonable potential purchasers are unlikely to rely on the statement as one of fact rather than opinion and are capable of determining whether the designs they see are progressive or functional despite what the seller boasts. There is insufficient evidence to find this general and subjective statement anything more than non-actionable puffery.” Interestingly, and I think correctly, the framing of this statement suggests that extrinsic evidence could have changed the court’s conclusion in appropriate circumstances; sometimes we need to know more about the relevant consumers before we can be sure what they’d think was a factual claim.

However, “unsurpassed strength and integrity” was capable of being measured and thus not puffery. CPI argued that it made a bald claim, not a “tests prove” claim, and thus VSI was required to prove falsity. Fortunately for VSI (though not for CPI’s clients), VSI introduced testimony that defendants’ products were inferior. A VSI vice president with responsibility for product design and manufacturing testified, for example, that trash receptacle doors must open thousands of times for removal of trash, and CPI used welded hinges with pins that bend over a fairly short period of time causing the doors to go out of alignment. Also, VSI relied on emails from Pappas to a subcontractor describing products rejected by customers, saying they "never should have passed your quality control inspection" and that the problems identified "call into question the quality of all the products you are making for me." There was no rebuttal evidence, and thus the court found the claims about strength and integrity false.

All the actionable statements were material and likely to deceive consumers. For example, VSI received calls from landscape architects “asking if VSI products were ADA-compliant, because they did not want to have to replace products to meet the requirement (even though there is no such standard).” This was an indicator of materiality, as was the importance of meeting a Homeland Security standard for “security bollards that were being placed outside buildings to prevent explosive-laden trucks from crashing into buildings. These are not claims that buyers take lightly.” Also, VSI submitted evidence that some buyers require (not just prefer) American-made products. “Made in America” was material even if it’s just a preference. “The very actions of Pappas to ensure that the ‘Made in China’ labels were removed from CPI's products provide eloquent testimony of the materiality of the misrepresentation as to the origin of the goods.”

Injury: here, the court found that it would be difficult to show that CPI’s sales would generally have gone to VSI, because there are a number of competitors in the market, but it was still likely that some sales would have gone to VSI as a genuine American manufacturer when CPI was awarded bids on the basis of its false origin claims. Also, there was harm to everyone in the market, including VSI, in having respond to “China prices.” Moreover, VSI provided testimony of likely harm to its reputation due to the poor quality of the CPI "knock-offs" that may be mistaken for VSI products. (Whoa! That’s not the same claim at all, and would be a §43(a)(1)(A) claim.) Anyway, VSI had been harmed by sales diversion and lessened goodwill.

VSI sought only injunctive relief, not damages, on its false advertising claims. (Note that the damages to VSI here are likely to be different from the damages based on the copying/knock-offs, though disgorgement of profits would still seem available.) VSI demonstrated irreparable injury to its reputation and goodwill, and the other factors also favored injunctive relief. VSI also got attorneys’ fees on the false advertising claim.

But wait, there’s more: design patent infringement. This is determined using the ordinary observer test. “[I]f an ordinary observer, familiar with prior art designs, giving the degree of attention normally given by a purchaser, would be deceived into believing that the Defendants' benches are the same as VSI's design, there is infringement.” Minor differences don’t prevent an infringement finding; the focus is on the overall design impression.

The court, considering the relevant prior art cited to it, found that the Nebelli bench infringed VSI’s patent. The prior art, the Chipman patent, has front and back legs oriented differently from those of VSI’s patented bench, and its seat projects beyond the end of the arm rest, creating a different overal impression. The minor differences in the Nebelli bench end frame and the patented bench were not enough to allow an ordinary observer familiar with the prior art to easily distinguish them.

However, the Necati bench was not substantially the same as the patented bench. VSI argued that the additions were trivial, but the court found that an ordinary purchaser using a reasonable degree of care would distinguish between them without much effort: “The overall effect of the design with the oval below the seat, while certainly taking advantage of the graceful curves designed into the Patent design, creates a different and distinctive look that would not confuse the ordinary observer. Each of the individual ornamental elements may be almost identical in isolation, but the overall impression is aesthetically different.” Infringement exists only if the ordinary observer would take one product to be the other, and a site furnishings purchaser was not likely to be deceived into buying the Necati bench thinking it to be VSI’s bench. Indeed, Pappas was awarded a design patent for the Necati bench, indicating that the examiner reached the same conclusion.

VSI could recover defendants’ profits from the infringement, which the court set at a bit over $35,000, plus prejudgment interest. Like the state-law unfair competition award and the Lanham Act palming off award, this award was included within, and therefore duplicative of, the profits award for copyright infringement. VSI also got an injunction against further infringement of the Nebelli bench. VSI doesn’t license its designs; it sells the resulting products and relies on designs to distinguish itself as a leader.

VSI was also entitled to attorneys’ fees; for patent infringement, the standard is (1) clear and convincing evidence that the case is exceptional, and (2) a judicial determination that a fee award is appropriate. Litigation misconduct alone can make a case exceptional, as it was here. “Defendants' obstructive behavior delayed this litigation, drove up the costs for VSI, and needlessly taxed the Court's resources.” Various factors go into an appropriateness determination, including deliberate infringement; most of them weighed in favor of a fee award, such as “deliberate use of a false identity to download and then hand trace the VSI design.” On the other hand, the case was close enough to require an actual trial, and the court held one bench noninfringing. On balance, the court decided to award fees on the design patent claim.

Guesting at SCOTUSblog

With a recap of the oral argument in Golan v. Holder.

Willful blindness is fraud on the PTO

Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta v. The Florida Priory of Knights Hospitallers of the Sovereign Order of St. John of Jerusalem, Knights of Malta, the Ecumenical Order, --- F. Supp. 2d ----, 2011 WL 4639824 (S.D. Fla.)

Plaintiff SMOM is a Catholic, non-profit international organization with associations in over 45 countries, including several in the United States. Defendant Florida Priory is a nonprofit, ecumenical Christian organization associated with an international ecumenical association known as Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Knights of Malta, the Ecumenical Order ("Ecumenical Order"). SMOM sued for trademark infringement, false advertising, unfair competition and deceptive trade practices, while the Florida Priory counterclaimed for cancellation of several of SMOM’s federal trademark registrations.

The court dropped a footnote disparaging the parties’ charitable activities: “The amounts of money each party has raised for charitable purposes are unimpressive, which leads the Court to believe that the members of both SMOM and the Ecumenical Order are more interested in dressing up in costumes, conferring titles on each other and playing in a ‘weird world of princes and knights’ than in performing charitable acts.” Query whether this affects the result—would the court be more protective of a “real” charity with registered marks?

SMOM and the Florida Priory share a history going back to the late 11th century, “when a lay religious Order was founded in Jerusalem to run a hospice for Christian pilgrims.” It came under the aegis of the Catholic Church, performing both charitable and military functions. The Order went by names including "Knights Hospitaller"; the "Knights of St. John," referring to its patron saint John the Baptist; the "Knights of Jerusalem," referring to the location of the Order's founding; the "Knights of Rhodes," once it took possession of Rhodes in 1310; and the “Knights of Malta,” from 1530, when it received the island as part of a grant from Roman Emperor Charles V. “Napoleon drove the Order from Malta in 1798, after which the knights scattered, with some returning to their homelands and others relocating to Russia. The Order subsequently ceased all military functions and focused exclusively on charitable work.” It is at this point that the parties’ histories diverged.

As SMOM tells it, Czar Paul I of Russia allowed the establishment of a Catholic Order from which SMOM claims descent. The czar, who was Russian Orthodox, also created a non-Catholic Order and appointed himself Grand Master thereof. The Florida Priory claims descent from this Order. SMOM does not consider Czar Paul I a legitimate Grand Master because he was never confirmed by the Pope, was not Catholic, was not celibate, and had not been a member of SMOM for the required number of years. In 1810, Paul’s son Alexander took away both Orders’ lands.

The Russian Orders, with Orders in other European countries, elected a Grand Master in 1803. The Pope confirmed this election. In 1926, an American Association of SMOM was established in New York, followed by a Western Association in 1953 in San Francisco and a Federal Association in 1974 in Washington, D.C. SMOM registered a number of service marks involving its shield and cross symbol, KNIGHTS OF MALTA, SOVEREIGN MILITARY HOSPITALLER ORDER OF ST. JOHN OF JERUSALEM OF RHODES AND OF MALTA, and HOSPITALLERS OF ST. JOHN OF JERUSALEM, ORDER OF ST. JOHN OF JERUSALEM. SMOM also uses “an unregistered mark that consists of a crown atop an open, fur-lined mantle sable. An ordinary cross superimposed over a Maltese cross sits inside the mantle sable. A chain winds its way through the Maltese cross and encircles the ordinary cross.”

The Florida Priory said that, “after the 1798 expulsion from Malta, the knights scattered, with some returning to their homelands and some migrating to Russia. The knights who returned to their homelands established independent Orders according to their geopolitical locations and religious persuasions. Meanwhile in Russia, Czar Paul I established two priories of the Order, the Polish Grand Priory for Catholics and the Russian Grand Priory for Russian and Greek Orthodox individuals.” The Florida Priory claimed that the Russian knights elected Czar Paul I Grand Master and that the Pope confirmed this election, that Czar Alexander returned the Polish priory to the Pope, and that during this period, a number of Orders of St. John were formed across Eurasia, with each claiming ties to the original order. Today, the Florida Priory contended, there are more than ten such Orders.

In this version of events, the Russian Grand Priory continued in Russia until the Bolshevik revolution, at which time its headquarters moved from St. Petersburg to the United States. It held its first US meeting in 1908, claiming the title of Knights of the Sovereign Order of Saint John of Jerusalem, and also referring to itself as a Grand Priory of the Order of the Knights of Malta and the Sovereign Order of Saint John of Jerusalem. The Ecumenical Order incorporated as "The Knights of Malta, Inc." in New Jersey in 1911, changed its name to "Sovereign Order of St. John of Jerusalem" in 1953, and was succeeded in interest in 1956 by a Delaware corporation, the "Sovereign Order of Saint John of Jerusalem, Inc." In 1958, the Ecumenical Order registered SOVEREIGN ORDER OF SAINT JOHN OF JERUSALEM AND KNIGHTS OF MALTA. The Governor of Indiana issued proclamation in 1977 declaring a "Dedication Day" in recognition of the contributions of the Ecumenical Order. The Ecumenical Order has used its names in the US since 1911 and has associations and members in New Jersey, Pennsylvania, Delaware, Florida, Texas, North Carolina, South Carolina and Texas.

Disputes led the Ecumenical Order to sever ties with the group that controlled the Delaware corporation in 1981, and after that the Ecumenical Order operated as an unincorporated entity. Over time, the Russian Grand Priory came to be known as Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Knights of Malta, the Ecumenical Order. The “Ecumenical Order” language was added in 2002 to distinguish the Ecumenical Order from SMOM. The Florida Priory was formed as early as 1992 and incorporated in Florida in 2005.

In 2008, the Ecumenical Order applied to register a US trademark in "[a] white cross on a red cross at the center of a red outlined Maltese Cross. A red crown is above the Cross," claiming first use in 1798 and first use in US commerce in 1916.

SMOM and the Ecumenical Order have interacted for a long time. In 1983, the Grand Chancellor of the Ecumenical Order sent a letter to SMOM seeking cooperation in an internal dispute involving the Ecumenical Order and a splinter group that obtained control over the Ecumenical Order’s US registration. The letter was sent on official letterhead bearing the marks "Sovereign Order of Saint John of Jerusalem" and "The Knights Hospitallers of the Sovereign Order of St. John of Jerusalem" and related to activities in the United States. This constituted notice of the use of those marks. SMOM also tried to cancel the registration, but withdrew its cancellation request with prejudice in 1987. There was plenty of other evidence of SMOM’s knowledge of the Ecumenical Order; SMOM mostly considered it a “false order” and, as one of its members wrote, “a modern invention, with no connections whatsoever, other than its assumed name, with the genuine Hospitaller Order founded in the Holy Land, whose only legitimate successor is [SMOM]." However, in 2000, Chancellor Prince Boudewijn de Merode of SMOM expressed the opinion that the Ecumenical Order may duly dub knights.

Despite all this, SMOM filed its applications in 2002/2003, including a declaration that no other person was entitled to use the applied-for marks in commerce for the relevant services. (The declarant testified that he’d never heard of the Ecumenical Order, and the court concluded that SMOM designated an individual with no personal knowledge of the Ecumenical Order to sign the applications.) The Examining Attorney had questions about the existence of many Orders of St. John. SMOM still didn’t disclose the existence of the Florida Priory or the Ecumenical Order and others that were using the same or similar names and marks. SMOM distinguished its trademarks from the Delaware corporation's registration and the marks of other Orders by arguing to the PTO that its work was charitable in nature, although it knew that the other Orders were charitable as well.

Three out of five of SMOM’s registrations are incontestable. SMOM also opposed the Ecumenical Order’s trademark application, which opposition has been stayed pending the outcome of the current court case.

After all this history, the court pointed out that it was not in the business of resolving religious or historical disputes about the identity of the “real” Knights of Malta.

The Florida Priory didn’t challenge SMOM’s registration for its cross and shield mark, but it did challenge the others on the ground that they were procured by fraud. Knowing misrepresentations to the PTO with the intent to deceive constitute fraud. Intent can be inferred from direct or circumstantial evidence. Although the individual who signed the applications testified that he had no knowledge of the Ecumenical Order or the Florida Priory, the declarations themselves averred false facts: that no other identity used the marks in question. “SMOM knew of the existence and domestic presence of the Ecumenical Order at the time it filed the trademark applications. Given that SMOM claims there is a likelihood of confusion with the Ecumenical Order, SMOM had a duty to disclose the existence of the Ecumenical Order to the PTO.”

Building off of Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060 (2011), the court found that the appropriate standard is willful blindness as opposed to deliberate indifference: "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts." SMOM had actual knowledge of the Ecumenical Order nearly two decades before it filed its applications. It then had an attorney with no personal knowledge of the Ecumenical Order execute the applications. SMOM’s failure to inform him is evidence of willful blindness. The court cancelled four of its registrations on that ground.

The court then turned to whether the Florida Priory’s unregistered symbol infringed SMOM’s registered symbol. Answer: no. The marks were easily distinguishable. SMOM’s registered mark consists of a Maltese cross on a shield, while the Florida Priory's mark consists of an ordinary cross on a shield. The shield is superimposed over a Maltese cross and crown sits atop the Maltese cross. The Florida Priory's two crosses to SMOM's one and addition of a crown serve to remove “any possibility for consumer confusion.” (Though the court doesn’t say so, the descriptiveness/prevalence of crosses in symbols for religious-affiliated entities, and the long period of coexistence, clearly bear on this determination.)

SMOM also had §43(a) claims based on an unregistered symbol, but the court decided to defer to the pending, stayed PTO opposition on the matter. (Can it do that? If the opposition was stayed pending this decision, isn’t it now in limbo? Also, given that an opposition doesn’t ask exactly the same questions as an infringement proceeding, I’m not sure there’s a legal basis for deferring to the PTO here.)

SMOM brought Lanham Act false advertising claims as well, arguing that the Florida Priory misappropriated SMOM’s history. No: “References by the Florida Priory to a shared history with SMOM are perfectly appropriate, as the organizations shared a history prior to 1798. Any claim for false advertising also rings hollow given that the Florida Priory expressly associates itself with the Ecumenical Order, a non-Catholic organization.”

This also doomed the coordinate state unfair competition claims. However, the fact that the court cancelled the federal registrations for SMOM’s word marks didn’t preclude a common-law unfair competition (trademark) claim based on those marks. (Or §43(a) claims, but SMOM apparently didn’t argue that, and no matter: the standard is the same.)

The court found no likely confusion because SMOM’s marks were weak and merely descriptive. “The marks consist of commonly used historical locations, religious terminology, and geographic terms that are not specifically associated with SMOM. As noted, the Ecumenical Order has been using these terms in the United States for over a century. The Court's own research indicates that there are numerous Orders that use this type of terminology in their names.” In addition, the Florida Priory clearly disclaimed affiliation with SMOM on its website. It shares a history with SMOM, “yet is a distinct entity and is ecumenical in nature as opposed to the exclusively Catholic SMOM.”

Unsurprisingly, there was also no violation of Florida’s consumer protection statute.

The court reserved judgment on whether this case was “exceptional,” allowing the Florida Priory to decide whether to submit a post-judgment motion for fees.

Organization for Transformative Works membership drive

As a former board member, current legal committee chair, and overall proud supporter of the OTW, I urge you to contribute. The Copyright Office just began the process for the next round of DMCA exemptions; the ones we fought for so hard will disappear unless we once again stand up for transformative uses. Your support helps the OTW protect and defend noncommercial fanworks.

It's a people's movement and an exam question

Links to apparently unauthorized reproduction of the complete first and second issues of The Occupied Wall Street Journal. Analyze the trademark and copyright issues!

Plaintiff without product in the market lacks standing

CareerFairs.com v. United Business Media LLC, 2011 WL 4527448 (S.D. Fla.)

CareerFairs.com’s basic claim was that UBM used CareerFairs.com’s idea for an online career fair interview format despite the execution of a confidentiality and non-compete agreement.

Among its claims was a Lanham Act false advertising claim, because it was unable to compete with the defendants in the university market because UBM falsely advertised that it originated the virtual career fair. Despite the apparent Dastar problem, the court instead focused on standing, the current path of least resistance, because plaintiff didn’t allege it had a competing product on the market. Using the Phoenix of Broward factors, plaintiff lacked standing. The Eleventh Circuit has rejected plaintiff’s argument, taken from the Ninth Circuit’s standard, that harm to “ability to compete” suffices (and anyway the Ninth Circuit requires actual or direct competition, which plaintiff didn’t allege). “[D]irect competition is essential to a finding of standing to bring a false advertising claim under the Lanham Act in the Eleventh Circuit.” (Note that this is a complete reversal of the idea motivating Conte Bros., the Third Circuit case whose test was adopted by Phoenix of Broward. In theory, the Conte Bros. approach potentially expanded standing beyond direct competitors with a multifactor test in which direct competition was not a necessary element. In practice, it’s used to deny standing to direct competitors, as this court also recognized.)

The Phoenix of Broward factors don’t expressly require the plaintiff to have a product in the market, but that’s indicative of direct competition. In Natural Answers, Inc. v. SmithKline Beecham Corp., 529 F.3d 1325 (11th Cir. 2008), the court held that a plaintiff that had ceased selling its product seven months before the defendant's launch of its own competing product “did not qualify as a direct competitor and was therefore unable to satisfy any of the five Phoenix Factors.” The Lanham Act false advertising claim was dismissed with prejudice.

Claims for misappropriation of business idea and trade secrets, and a resulting Florida Deceptive and Unfair Trade Practices Act (FDUTPA) claim, did survive. Even though plaintiff isn’t a consumer, the statute is designed to protect legitimate businesses from unfair competition and deceptive acts (here misappropriation).