WIPIP part 3

William K. Ford, ProCD: Tidying Up After the Stranger on the Street

Epstein thinks the district court’s decision in ProCD was doctrinalist while Easterbrook’s court of appeals opinion was properly functionalist. Epstein argues that the doctrinal issues were a problem—the doctrine needed to be overcome.  Don’t “parrot the language of older cases rather than figuring out the functional considerations.”  Lawyers aren’t as good at functional/economic analysis. We want them to be attentive to policy considerations, but it’s hard for them to follow the rule “be efficient” and advise clients that way.  Better for rules to make sense to be able to predict cases.

Easterbrook was required to contradict several principles of black-letter contract law to reach his result in ProCD.  Problem of copyright preemption.  Strangers to the contract: to avoid preemption, he said that someone who found a copy of the database on the street wouldn’t be affected by the license (but that’s silly, since it’s shrinkwrap).

Orthodox way to look at the contract: defendant accepted P’s offer to sell.  Though P is not the retail store at which Zeidenberg bought the CD. He accepted the retailer’s offer, not P’s offer. Long line of cases (mainly involving exploding bottles) about how to think about offer and acceptance: when an item is sitting on a store shelf, it’s an offer made by the seller (not by ProCD), which can be accepted by going up to the cashier and paying the money.  Court here struggled to move up the acceptance if the bottle explodes before the cashier—picking it up off the shelf as acceptance, allowing warranty to apply.  At least you accept the offer when you pay the money.  Privity problems are well known in these cases.  Why is there a K between P and D if the offer was made by the store?  Zeidenberg was in a sense a stranger to ProCD.  If we accept Easterbrook’s functional analysis is sound—that people won’t make uncopyrightable databases if they can’t protect them by contract that extends to the purchaser—then we need an explanation for why the contract term is binding.

Many people interpret ProCD to be about clickwrap.  That’s not why Zeidenberg was bound, though.  Why would clickwrap bind him? Typical story: offer/acceptance, with consideration being the choice. ProCD will allow you access if you agree. Alternative: reject offer and find your way around the clickwrap if you’re technically savvy enough.

Easterbrook can’t say that, though, because that invites hacking so people just pull the data off the CD.  (RT: How do you know that’s reasonably possible?)

Could now rely on DMCA to avoid hacking around the clickwrap, though ProCD predates that. If you read the case broadly, Nimmer argues that any item—books, shovels—could have terms stamped on them running with the item.  No consideration in those cases, though.

District court says Z never assented to the modification of the original contract contained in the new terms presented later.

Final approach: heterodoxy.  Easterbrook says the vendor is the master of the offer, when usually it’s the offeror.  Z accepted the offer when he decided to use the software; ProCD proposed a contract accepted by use.  You might think “keeping” the software makes you bound.  He maybe wants to hint that strangers are bound—suppose Z’s father had bought it for him and given it to him.  Then Z loses it and someone finds it on the street.  Easterbrook says you can prevent formation by returning the package.

Easterbrook does say the stranger isn’t bound, but he probably intends the opposite—they’ll click on the box.  At that point you run into preemption problems.  So he says that there’s no problem because contract doesn’t cover strangers to the agreement (same as copyright doesn’t apply to people who don’t interact with the copyrighted work).  Aronson v. Quick Point—can be bound to pay even for an unpatented technology if you agree.  Here, though, there are no strangers to the contract, if clicking on the box is what binds you.

Now, we can say it without inconsistency with Feist because we can rely on the DMCA to forbid hacking.  (RT: Except for the exemptions.)  Can think of only a few examples outside software where people try to make the promises run, so it’s not very important to limit ProCD this way.

Me: DMCA exemptions make the problems pop back up—does the contract override the exemptions granted by Congress?  Also it’s not just software—securities offerings; Kindle books, audiovisual works—all sorts of copyrighted items

A: Congress may ultimately have to act.  But can still tidy up ProCD.

Eric Goldman: 9^th Circuit troika of cases—maybe there’s a difference in how we handle the contract for the chattel v. the contract for the intangible stored in the chattel. That may not really be supportable by the cases—God only knows what they really mean—but license-like language on a promo CD apparently didn’t bind the recipient.

A: in a Vernor situation, you can be an infringer if you don’t have permission to install the software. Z probably doesn’t have to install the software to get the unprotectable data file.

Goldman: CD was just a delivery mechanism for an otherwise unprotected (no additional software required to play) music file.

Liza Vertinsky, Universities as Managers of Innovation

Looking to see if there are unique characteristics of universities which, if properly harnessed, could make better choices about post-discovery paths of development than markets or firms. May need changes in underlying legal/regulatory structure. Not arguing that development should move in-house, but focusing on dual-use (commercial/research) discoveries. Literature on the constructed commons or academic science as a semi-commons or constructed cultural commons. Also draws on theories of the firm, which ask where decisionmaking should be located given asymmetry and uncertainty; challenges of incentivizing team production especially in early post-discovery stages.

Blurred commercia/noncommercial line is inevitable, but it increases tech transfer failures. If you have too little money to develop your application, that raises hurdles of uncertainty, keeping inventor engage—but if discovery has immediate commercial application and research uses, the costs of restricting it go up.

How to put universities in the drivers’ seat? Multiple user/consumer stakeholders, and semiautonomous governance structures that can influence outcomes.

Vetter: often in a big bureaucratic institution the tech transfer department/legal is the “sales prevention department.” What about eliminating the tech transfer office?  Can we do case studies? Carnegie Mellon doesn’t have a very powerful tech transfer office—even primary investigators have more agency to go after commercialization.

A: Emory has a drug discovery institute; case studies where people try to get around these gaps.  Most successful models: Wisconsin, MIT. What makes them good?  Is there something transmissible? Have very strong tech transfer offices.

Christina M. Mulligan, A Numerus Clausus Principle for Intellectual Property

The number is closed: real property can only be conveyed in a certain limited number of forms: fee simple, easement, servitudes. This principle is almost entirely absent from IP.  We should consider incorporating it into at least a few aspects of IP.

Compare how law treats contract and property. Contracts can be highly idiosyncratic; default rules are highly alterable. When cts encounter off-menu property rights, typically decree that the legally recognized interest is actually on the menu even if the parties agree they wanted something different and the language is clear. Frustrating the interests of the agreeing parties. So why? Benefits: facilitates the alienation of property and prevents creation of anticommons. Merrill & Smith: lowers the measurement costs of property conveyance—trying to figure out what the property is that you are getting. Externalities: if you want a fee simple, you have to expend extra effort to find out whether the seller sold something weird.  Also, helps people figure out the scope of rights/understand what the conveyance means—internal costs.  Without numerus clausus, greater difficulty alienating property/greater transaction costs/greater confusion over the scope of rights.

In copyright: someone who wants to buy a copyright that’s several decades old and has changed hands several times. Person has to locate all the previous sale documents to make sure nothing’s been peeled off and given to others. This is expensive and even sophisticated entities can make mistakes. AVELA: Betty Boop copyrights had five separate owners. Turned out that conveyance from 2d to 3d owners sold movie rights but kept copyright in Betty Boop character and then sold the character to someone else. Ct said Fleischer didn’t own the character. This isn’t quite the same since there was always a separate copyright in the Betty Boop character (I don’t know that this is true or has to be true—character copyright separate from specific works seems like a classic violation of the principle.) Could have been about right to make sequel, right to make comic book.

End-user license agreements. iTunes: you can make 5 playlists and copy each of them 8 times, and so on. Impossible for people to read all the licensing agreements they agree to in any given year—average person would need to read 42 min/day to read all the privacy agreements that govern their transactions. People make rough guesses based on what they think the norms are. And of course end-user restrictions limit alienability.

Justifications for numerus clausus may be even stronger in IP because the notice system is so much worse in IP than in real property. So what forms would we impose on IP if we were to do so? Merrill & Smith say there’s an optimal number balancing ability to do what owner wants with overwhelming numbers. Also IP owners have gotten used to customizing, so they’d be frustrated with change in industry practices. So wholesale change might not be feasible, but adopting aspects might be.

Creating a digital first sale doctrine for copies of digital works: realign average person’s expectations with actual rights. Users would rather click a random box and get access to the work; we don’t really know what they really wanted to do, as compared to the real property situation where both parties truly agree. A first sale rule does prevent third-degree price discrimination. But IP isn’t a perfect monopoly anyway. Most price discrimination models assume fixed number of buyers with fixed value for the work, but that’s not really true because of network effects—popular works generate demand. Also, robust first sale doctrine in physical world seems to be working fine; doing the same thing with an ebook isn’t troubling.

Derivative works: When a song is included in a larger work and then the larger work can’t be released in new formats because the soundtracks couldn’t be cleared. Daria and WKRP in Cincinnati: both only released on DVD with elevator music in place of original music, which distorts some of the plots/jokes. Perhaps an exhaustion rule. That would change the expectations, but if we want higher-valued uses we may need to do it.

Most obvious place: eliminate divisibility of copyright, though she doesn’t think this is necessarily a good idea. You don’t have to divide copyright along the statutory right lines—can give performance rights in Idaho.

Vetter: preemption against the states helps keep the forms limited to some degree.  If copyright preemption were more potent, certain licensing practices wouldn’t be exploding the number of forms.

Lemley: divisibility is somewhat of a problem—why it took so long to get legally available digital online music, because owners had already split the rights into groups who each claimed it was a reproduction and a public performance.  More generally, some but not all of these problems are numerus clausus-solvable. If the problem is that there are 20 different inputs into a thing, that’s a separate problem even if each has only one legal right to assert, and that’s not the usual numerus clausus problem.

A: but the work was created because someone managed to license those 20 inputs once.

Lemley: we normally think of limitations on contract as preserving the property interest, but we don’t want a property doctrine that makes unification via contract harder.

Q: if you don’t sell a piece of property, you can do all sorts of idiosyncratic things. Can we move this to IP?  Are we interested in chattels (where first sale comes in) or revenue streams coming from something you’ve created?  If it’s the revenue stream, it’s harder to map numerus clausus.

A: Need to decide how you think about licensed copies: are they more like tangible copies or like a lease, though note that leases too are subject to numerus clausus.  Only looks like a contract because there are prohibitions on alienation. When you die it’s still on your computer; has in rem characteristics/qualities.

T.J. Chiang: We have three forms of getting legal rights—patent, copyright, trade secrets (RT: what’s TM, chopped liver?). That’s numerus clausus. But that broad level of division doesn’t help because you can dice the rights inefficiently in a real economy. But as a conceptual matter you can do that with real property too—multiple overlapping easements. Nobody does them because it’s dumb, whereas there are incentives to do it in IP. But the economic problem doesn’t map to the common law conceptual categories.

A: real property can get very messy—one criticism is that even with n.c. you can make things that are very messy. But it’s harder, and there are some things you just can’t do.  But that’s not enough—saying there’s copyright is like saying there’s a class of things called land.  That’s just a label for the whole property interest, but doesn’t explain how it can be divided, which n.c. does.

Me: like Mark I thought about music.  Statutory licenses/collective rights organizations as standardizing agents.

Q: what about n.c. in personal property? It’s not so much what the forms are but how you get to them—almost a process issue.  Statutory/preemption—and maybe personal property has some lessons.

Peter K. Yu, Region Codes and Territorial Mess

Clear pattern in how Hollywood movies move across the globe: US first, then Europe, then non-China East Asia, then Latin America, then Africa/Russia/China.  Plan promotional campaigns/send stars on tours based on that schedule, etc.  Region codes enable price discrimination, market segmentation (Chinese New Year is later than Western New Year so you can premiere for both), and licensing.

Does this make sense as a matter of culture or geography? China is region 6 and Hong Kong is region 3. Australia is region 4, as are Argentina and Brazil, but costs are very different.  Russia and India are region 5, but so is Africa except for South Africa and Egypt.  Hollywood lumps all region 5 countries together because they’re not really targeting them.  Region 1-3 are the ones that are prioritized.  Region 7 reserved for future use, Region 8 for aircraft/cruises; Region 0 for all regions.

Tension between copyright and convenience. Yu spends 3 months in Asia and the balance in the US. Shopping: has to decide when he’s going to watch a DVD, even though the DVDs are lawfully acquired. A region 1 Hong Kong movie: have to decide between including Cantonese and Mandarin; many customers will be out of luck. Many people turn to region-free DVD players. This has an impact on consumption patterns.

Competition: Australia encourages the development of region-free players. Australia & New Zealand would like to get products from Hollywood or from Europe—would like to be able to pick the cheaper one. Harry Potter example: books have different titles in different countries.  In HK, Australia, NZ you find both on sale for different prices, sometimes because of exchange rate.

Culture: DVDs encourage/assist learning about other cultures and provide access to the language. Not easy for many Asians to get a DVD that includes German as an option—Region 1 usually offers only English, Spanish, French.  Exception: classical operas.  Need Region 2 for German in many instances.

Censorship: region codes are excellent ways to work closely with governments to censor.  Eyes Wide Shut has deleted scenes from Region 1 that are in Region 2 because European audiences are believed more tolerant.

Solutions? On Atlantis space station, what happens if they bring region-coded DVD players?  Obama gave 25 unplayable region 1 DVDs to Gordon Brown.  Sane solution: rethink global strategy in marketing.  Some people—including law professors—pay My Expat Telly to see BBC shows that BBC America won’t show.  BBC should consider serving this market itself.  Consumer side: We need DVD region coding circumvention as a right.  Human rights reasons to do so: teaching, censorship. 

Meanwhile, the industry is trying tech that bars Region 1 DVDs from playing on region-free players.  YouTube discriminates by country—leading to circumvention efforts and resort to pirate sites.  Future of cyberlockers/cloud computing: should they replicate this failed region separation strategy?

Q: would the human rights answer change if DVD sellers were doing region coding better so that poorer countries had one region and wealthier countries had another?  Blu-Ray: Europe and Africa are together in 1 region and North & South America in another.

A: Hollywood doesn’t care a lot about certain regions.  They aren’t making decisions based on affordability in those countries. Price discrimination done correctly makes sense, but that’s always a problem of the minority wealthy population in some places—for example, pharmaceuticals in South Africa. The minority can pay the high price; who will be targeted?  Minority affluent population is considered more reliable and worth basically as much. Human rights issues don’t go away.  Learning language, for example: Region 1 requires English, French, or Spanish.  To learn other languages, you have to watch movies from your home country, in different regions.  There are enough people interested, but not enough people to be worth marketing to (deadweight loss).  Japanese anime: Yu is willing to purchase, but can’t get support for distribution in the US.  With YouTube, he can see the old anime (presumably put up by some other fans).

Yvette Liebsman: which human rights?

A: thinks IP is a human right, but also communication of information/promotion of learning.

Q: First sale doctrine—cases holding that first sale doesn’t apply to products manufactured outside the US. Will companies start producing overseas and thus be able to use Region 0 coding?

A: may work ok for some things, but not for cloud services. Also, US is doing national exhaustion. Internationally, debate is over national/international exhaustion.  Australia, Singapore, Hong Kong are interested in international exhaustion because they prioritize getting US and European access.

Q: note that game industry has moved over the past 20 years to a Region 0 model allowing everyone to play the same things. Maybe comparing the industries would help identify characteristics that allow forward movement.

A: One-stop shopping is supremely important. Money is not the only concern. Convenience.  Product placement along with ads can change the way creation is funded.

Eric Priest, Acupressure: The Role of Market Forces in China's Emerging Copyright Enforcement Environment

Stakeholders do exist in China with an interest in IP enforcement.  Suggestion: self-interest will change so that levels of protection and effectiveness of enforcement pick up, as Peter Yu and various industry members have suggested.  No doubt that there are now industries in China that have a lot invested in IP, like China’s film market.  456 domestically produced in 2009, 3d largest film producer in the world. $1.5 billion total revenue in 2010, 40% increase from 2008 (though still 15% of US).  $900 million box office, $400 million export sales. Virtually no aftermarket, thus meaning that the industry relies on physical exclusion/export rather than copyright. 6200 screens in mainland China compared to 40,000 in US.

In China, saw video pirate sites—300 million views/month.  In last 18 months, almost 180 degree shift in terms of allowing unauthorized content.  What’s going on?  If you’re already at the top of a massive market and not paying for content, why would you start to pay—in fact, pay inflated prices?  Started licensing Western content, screening pretty carefully for user-uploaded unlicensed content.  Also licensed local/Taiwanese/Korean films.  Youku even sued competitor Tudou alleging infringement of exclusive video content licenses.

What accounts for this change? Government crackdown is one explanation.  But that’s happened before—quick campaigns with little difference in the long term, often in advance of the USTR’s arrival, and then things go back to normal after the headlines go away.  Another theory: both companies have been hemorrhaging money, as YouTube did—bandwidth costs are significant, along with licensing fees, so the more users you have the more you pay. So both did emergency IPOs in the US, and maybe to impress American investors and allay fears about legal liability they cleaned up. 

Priest met with executives at both companies and analysts.  Both government and investment were in the background; both had been sued a lot by local content companies, but that was really more of an annoyance than a requirement to change behavior because damages were so low and because business model was so dependent on user-uploaded unauthorized content.  IPO explanation is not quite adequate either because Baidu, largest search engine, has been publicly listed for 8-9 years and has never done much to clean up its notorious mp3 search even after being sued a number of times; Baidu wins every time, even when sued by local record companies. Baidu is experimenting with a licensed service.

With the video services, all the content is free though Youku is experimenting with some cheap PPV. They felt like they needed a “healthy” copyright environment to attract big advertisers, because that was how they could make money; advertisers willing to pay on pirate sites don’t pay enough. Disney & Sony are advertisers/content owners. Multinational brands are driving this change.

Licensing bubble: soaring prices in licensing frenzy have led to financial losses for most domestic video sites, according to one analyst. This market simply didn’t exist a few years ago. Popular TV show, HK Palace, now costs $300k per episode, which was $1500 per episode in 2009. Inflated prices due to consumer expectations of seeing first-run content (still in theaters/on TV or immediately thereafter), an expectation created in piracy days. Video sites are now licensing exclusive rights to others at inflated prices—becoming licensing platforms themselves.

So it’s not threats of litigation, but business models—pressure derived from market/business partners.

Analogous story? What Microsoft is doing to attempt to get Chinese companies to purchase licensed software. Still 90% piracy rate for software.  Microsoft has decided that lawsuits and gov’t pressure aren’t working: leverage US law into China. Lobbied in 2 states so far, Washington and Louisiana, for unfair competition laws making it a violation to manufacture a product while using stolen or misappropriated info tech in its business operations after notice and opportunity to cure, anywhere in the supply chain.  Seller in the US is liable to competitors. (Not clear to me that that the seller in many cases will have the incentive—if they’re also making products overseas—or the information necessary to provide the requisite notice.)  The AG can also bring an action against the manufacturer.

Two categories face potential liability: manufacturers of products sold in the state, or retailers of $50+ million annual revenue who sell products in the state that were manufactured using stolen IT. The idea is to get Wal-Mart, Target, Cuisinart etc. to put pressure on their suppliers in China to buy legitimate software.  Washington statute is inapplicable to copyrightable end products, trying to avoid preemption; same with patent.  There’s also a 90-day cure period after notice.  Remedies include injunction, actual or statutory damages.

Louisiana version makes it explicit that “stolen or misappropriated property” is included but not limited to computer software that doesn’t have the necessary copyright licenses.  (Also a problem with calling this stolen or misappropriated, since the precedent is hostile to calling infringement either—again seems to be a preemption workaround but I’m not sure how successful it would be: they are targeting foreign infringement, however indirectly.  The extra element just limits who’s liable.)

Washington AG and NC AG sent letter to FTC in late 2011 claiming that it was unfair competition for Mexican manufacturers to use pirated software to lower their costs—want to bring FTC to bear at the federal level.

Implications? A new Wal-Mart effect of private supply chain requirements being more effective than lax national or international regulation.  Evidence of the crossover point for IP enforcement, or just a bubble?  Youku/Todou story could help domestic/regional content producers, but the Microsoft strategy not so much (unless I suppose it drives a switch to local producers).  China is connected to the global IP system through trade.

WIPIP part 2

Lydia Loren, Orphan Works and Open Access

Orphan metaphor: poor things that need help/protection—powerful metaphor, fits with powerful/pernicious metaphor of romantic author.  Sometimes those authors die and leave orphans in need of special solicitude. What happens to orphans? They end up in workhouses, orphanages, coopted by criminal gangs.

Different metaphor: hostage.  Held hostage by automatic and extensive nature of copyright rights and remedies. Users of orphan works: special forces operatives who should be applauded for their role in freeing hostages.

Copyright is a statutory right to exclude, a social institution—public aim of progress/knowledge.  Regulatory construct rather than property/tort. Private interests may misalign with public aim. Given that these are orphan works, we don’t have to worry too much about incentives for future creation; we need to worry about dissemination/exploitation when there’s no copyright owner to ask.  Not a strategic choice by the copyright owner. Think of them as abandoned, neglected, or derelict property.

Adverse possession theory: one justification is the demerit of the original owner, another to reward the merit of the useful possessor. Do we really need a new owner?  No.  All kinds of rules for designating new owners for tangible property whose original owner is missing.  That’s when the property has positive value; when it has negative value it’s garbage and we have rules about responsibility for garbage. Real property: doctrine of waste.  May analogize to orphan works. Waste is when there’s divided ownership: current owner/possessor has various duties to subsequent owner.  Evolves over time, but there’s no obligation to avoid waste if the property is owned in fee simple. In copyright, the public is the remainderman: the rights are possessed by the public.

Solution: reduce barriers to non-owner distribution. Risk underproduction of info about whether particular works are orphans. Who will invest in this info? Proposed European Directive: reasonable diligence.  What’s the incentive to incur that cost? One possibility: new ownership right, as with adverse possession or orphan drug act. Loren is concerned about taking ownership and giving it to someone else when we do have remaindermen.

Open access as a tool: eliminate liability for identifying hostage works and freeing the works, but require them to correct errors when identified. Elimination of liability will be enough for nonprofits and libraries—they’re interested in preserving their budgets against liability so they can save the money to buy in-copyright works. Open doesn’t have to mean “no way to make money.” Allow for commercial uses as long as consistent with open access principles. Current open access models are based on copyright owner consent. Should provide information, in markup language that can easily be searched, which can help correct records if owner is identified.

When a copyright matures, it’s emancipated. Open access as a step in that maturation process.

RT: in real property, can’t have adverse possession against an interest holder with no present interest like a remainderman, so awarding the rescue team with a new property right would be inconsistent with the metaphor (at least if it lasted longer than the original duration of the ©).

Q: Is Google Books a liberator or a hostage-taker?

A: Neither.

Q: Aren’t people unjustifiedly worried about statutory damages when all they’ll have to do is take stuff down?

A: to a certain extent. But libraries have limited budgets and are risk-averse. They are also interested in doing the right thing. They need a legal structure that reflects what the right thing is. Derivative work creators are worried.

Dave Fagundes: the social costs of waste in physical property might be higher than IP—more externalities, as with foreclosed homes. Nonuse of IP may be more inert. Physical property is also finite; you can make more IP. Waste: refers to harm to future interest owners—is that really what’s going on here? The harm is in the present with orphan works. To make analogy work, you have to show that the nonuse is harmful to the future owner, which you may be able to do. Also, are the hostage-freers still unincentivized? 

A: She’d like no damages. Even a reasonable license fee might be unwarranted without proof of actual harm.

Kelly Casey Mullally, Blocking Copyrights Revisited

Courts should take contributions of second-comer more into account in remedies—a “blocking copyrights” perspective.  eBay gives courts more leeway to deal with unauthorized works.  Courts have been somewhat receptive to denying injunctive relief where there’d be harm to public interest; her proposal capitalizes on this. Courts might also be more comfortable with “blocking copyrights” as part of equitable relief rather than as part of difficult constitutional questions or at the liability stage.

Look to tort law for lessons for improvers.  More favorable to follow-on creators than copyright. Courts have been willing to grant right if improver acted in good faith and made a sufficient contribution to the final materials as long as the improver pays compensation. Tort law also has experience valuing reputational harms, sometimes raised with derivative works. US law doesn’t support moral rights, but tort law can value if we think it should. Courts have also looked to tort law to figure out what actual damages are in copyright.

How this might work: good faith.  Tort applies a broad view of good faith—innocence isn’t required; have considered prior attempts by improvers to negotiate and the fact that the improver improved at his or her own expense as evidence of good faith. Could encompass unintentional infringement for copyright, as with mistakes in real property, but should be broader because copying is often deliberate and nonetheless worthy of protection. Significant efforts of substantial improvers should be taken into account.  Look at transformativeness, new meaning/message—particularly transformations not dictated simply by a change in genre; look at whether new work is successful because of factors unrelated to the preexisting work; attempts to negotiate and copyright owner’s general willingness to license/exploit the market at issue; delay in reacting/filing suit—gets at whether there is real harm. Does the use increase demand for the original work? Gist: courts adopt an ameliorating practice within eBay and still compensating the owner of the copyright where appropriate.

To do this requires a lot of partitioning of damages.  That’s a barrier to this approach.  Her approach attempts to avoid problems of defining what’s an improvement by sticking to statutory language—the definition of what’s a derivative work. Courts have already addressed what it means to create a derivative work out of an existing work. Courts have also had to address the value of an infringing work as part of a larger work. URAA derivative works cases also require assessment of reasonable license fee from reliance party. Greater protection for unauthorized derivative works is the goal.

Glynn Lunney: He heard an argument for reduced damages for unauthorized users who create value, but that doesn’t implicate blocking copyrights as in Gracen v. Bradford Exchange.  Blocking copyrights would mean neither could exploit Gracen’s plate unless both agree.  Or do you just mean that Gracen should be able to distribute her plate on her own by paying?

A: that’s at least what she wants.  More to come on this project.  Ideal: express acknowledgement of right to copyright unauthorized author’s contribution.  If it’s still profitable for the unauthorized user to continue, what if the copyright owner decides to get into the market to compete?

Fagundes: you’re talking about property torts like conversion, but does that work?  Separately, one counterargument is that you depress incentive to create first-generation works like motion pictures with sequel franchises.

A: Need more evidence the derivative right is important—more like a lottery.  Author reputation can also preserve a market: George Lucas’s version is more attractive.  Especially if the other creator has to pay the damages to continue.

Q: does the proposal work better for some categories, e.g., computer software, than for cartoon characters?

RT: one usual objection to tweaking remedies in this way: leads to expansion of liability. Your factors seem to play into that by replicating the fair use test.  I think if there’s new meaning & message and the copyright owner doesn’t want to exploit that market, it’s likely to be a fair use! My specific concern: noncommercial users. Plenty of effort and creativity, little financial reward.  Also, blocking copyrights—copyright owners would be terrified of strike suits under such a regime—your Avatar sequel is too close to mine! You must have copied!  They’d attempt to suppress unauthorized uses much more aggressively under this regime.

A: interaction with fair use is significant, but sometimes courts aren’t willing to say it’s fair use; can incorporate eBay framework in those cases. 

McGeveran: Derek Bambauer on derivative works has some relevant stuff.  Also, on incentives: lots of people buy lottery tickets in the unrealistic hope they’ll win. To what extent is that incentive necessary. (To what extent do average authors trying to win the lottery understand the extent of the law?) 9 of 10 top-grossing films this year were sequels.

Eric Goldman, Death of the Initial Interest Confusion Doctrine?

Why academics hate IIC: no well-accepted definition.  Capturing a consumer’s attention is in his world called marketing. But courts are all over the map on this. Courts disagree whether the doctrine even exists—compare the 4^th Circuit in PETA to the 4^th Circuit in Falwell.  Because there’s no definition, there’s no way for defendants to respond; no way to do empirical studies on either side. Lacks contours.

Also IIC pushes TM too early into the consumer search process.  Consumers experiencing IIC are actually suffering no harm at this stage. Leads to “hit the back button” response.

Practically: doesn’t improve judicial decisionmaking. Courts can’t figure out how the test applies to ordinary likelihood of confusion analysis—is it a factor? A substitute? His hypothesis: rarely changes a case’s results. A doctrine that is supposed to help doesn’t.

Non-rigorous search via Westlaw.  He looked at 55 cases 2009-2011; IIC “found” as best he could tell in about 9 cases; sometimes hard to figure out what the court did.  3 categories: Domain name cases (ACPA failures but the court lets them continue); keyword ad cases (funky; something ambiguous in the ad copy, though not a clear ripoff—court is not sure what the ad copy is telling people—Pillow Pets case); trade dress cases (Wolf/Viking red knobs on ovens, RE/MAX—court thinks people might not understand as they’re whizzing by at 50 mph).

We have doctrines that cover all these things and give a lot of law for parties to use.  We have ACPA, UDRP, etc.  We have law on keyword ads, Google’s own policies which are decreasing judicial activity.  We have trade dress law.

Implications: often pled, rarely successful. Why not plead it?  (Sounds like the history of dilution to me.)  Where it’s helpful, chances are the P was going to win on some other theory.  Means an increase in cost of litigating without payoff.  How do we declare a common law doctrinal experiment a failure?  How do we kill common law?  The whole nature is to build on precedent.  May be shaved to death, but when can it be called dead?  (Dilution might be compared as a legislative experiment—Clarisa Long?)  We as law profs would like to be able to declare its time of death, but he’s not sure how that’s done.  Only certain way: statute.  (How did competition die as a requirement through common law?  McKenna.)  Judges do have the power to simply say it failed. 
Sheff: the one category that’s most problematic is trade dress. There you can distinguish bait & switch from foot in the door. Trade dress: foot in the door. Different kind of harm than domain name where you can just hit the back button. Might influence consumer decision based on goodwill of manufacturer. Whether we care about that is a separate question. SCt denied cert. in Gibson Guitar case on the “smoky bar” initial interest confusion theory, where the 6^th Circuit rejected the P’s theory. That may be the best signal we can expect.

McGeveran: Could be an article in the Prosser tradition: I’ve read all the cases and here’s what they mean. That’s how courts gravitate away from a common law doctrine now in disfavor—they start to cite the old cases grumpily, and citing a comprehensive survey can help.

Q: potential statutory hook: sale, offering for sale, or advertising.  That may be justification for claiming it’s infringement to offer for sale/advertising.

Ramsey: First Amendment as a justification?  Requires narrow statutory interpretation to protect speech interests; IIC doesn’t do that.

Me: compare dilution; compare pleading state causes of action, which actually wastes only paper as far as I can tell.

Lunney: INS-style misappropriation also died a common-law death.  The Third Restatement declared it dead, and after a while the courts went along.

Felix Wu: if you want to make something narrower you add an element. Misappropriation: courts added so many elements that it became essentially impossible to satisfy.  One way to read Gibson Guitar case is that the court added an implicit materiality requirement, and making it explicit might be a good way to kill the doctrine.

Leah Chan Grinvald, Debunking the Duty to Police in Trademark Law (with Eric Goldman)

Hypothesis: the duty to police is overblown, played out in nutty TM enforcement claims. Monster Cable suing everything Monster, including the movie Monsters Inc.  Yoga for Athletes is on the supplemental register: sending out letters to all sorts of studios & succeeding without having to sue.  They defend themselves by saying “we must do that or we lose our brand.” But what are lawyers actually advising and is it consistent with the actual law?  Countless numbers of practitioner materials say that.  Even the PTO’s bullying report says TM rights may be weakened if use goes unchallenged so enforcement is important.

These sources are conflating the issues: actual consequences of nonpolicing are much more nuanced and harder to explain. Easier to say “always!”  Laches/acquiescence; reduction in strength; inability to bring dilution claims; abandonment; genericide—these are some possible consequences, depending on what exactly is happening.

Current results (WIP): it really depends.  Doctrines are all over the place.  Against a single defendant, laches/acquiescence still isn’t very common unless you’ve really let it go—the shortest period we’ve seen is 5-6 years (no statute of limitations on Lanham Act, so courts borrow from states).  Not clear how often people lose dilution claims because of similar unchallenged uses. Abandonment/genericide is really rare.  That’s why practitioners trot out a few well-worn examples like aspirin—that’s pretty much all that there is.

So why do people promote, in all honesty, the absolute policing belief?  Anticompetitive behavior: using it as a way to stop competitor product sales.  Anticonsumer behavior: might hurt consumers, but we have to stop it or hurt our brand.  Improper advice: practitioners using anomalous cases to scare their clients into believing that there’s a monster in the closet. Most practictioners who focus on TM do seem to understand the nuances, but there’s a lot of risk-avoidance.  Attorneys should reexamine their advice and stop talking about a “duty to police.”  New framework: identical mark situations v. nonidentical mark situations.  Other variations.

McGeveran: Documenting the risk of bad PR from being overzealous, especially in a twitterfied environment—there are countervailing/downside risks of overpolicing.

Sheff: Bucky Badger case—failure to police led to affirmative expansion of TM rights.  Policing is not that relevant to the scope of duration of TM rights, at least now.

Ramsey: why carve out naked licensing cases?

Q: Malpractice fears aren’t really necessary when you can get billable hours out of telling your clients to fight a use. How do you bring that up without alienating the lawyers?

Loren: sees policing referred to in case law in discussions of dilution: courts seem to weigh C&D letters in P’s favor.

Ramsey: plus, if you deter competitors from using a mark, you have a better argument that competitors don’t need to use it.

McGeveran: can the law agree that agreements that the goods don’t overlap are just as good as a C&D?

Devin Desai: but you still give the markholder reason to come beat on someone with a stupid doctrine.  Perception can still induce panic.

WIPIP part 1

WIPIP/Houston

My apologies—I was a bit sick so I missed some of the discussion.

Mary LaFrance, Distinctly Personal: Trademarks in Individual Names

Fight over registration of Cab Calloway’s name by competing groups of descendants.  Caylee Anthony’s grandparents’ lawyer filed an ITU to use her name for T-shirts, stickers, buttons and underwear.  PTO rejected an unrelated company (unrelated to Caylee or Casey Anthony) to register CASEY ANTHONY for entertainment services. Then, recent spate of ITUs for Blue Ivy Carter (child of Beyonce and Jay-Z).

Common law: secondary meaning is required for names.  But is it a “name” at all?  Funny ruling from Posner involving Niles the Camel in the Peaceable Planet case—did they have to show secondary meaning to protect NILES for a stuffed camel?  Posner says no, it’s a play on words and therefore arbitrary.  Is King perceived as a name or as a statement about the product?  On furniture maybe about the product; permissible to consider the context.  On a camel, would better be treated as a name.

Posner mentions 3 rationales: traditional reluctance to forbid others from using their own names, such as Brooks; some names are so common that confusion is unlikely; allowing someone to use own name conveys useful information to consumers.  Are 2 & 3 contradictory?

What about unusual names like Dweezil, Moon Unit, Blue Ivy?  May be distinctive.  Also much more likely that there’s only one person you think of when a full name is used: Tiger Woods, Cab Calloway.

False suggestion of connection, 2(a): when is the association false?  Is being a relative of Cab Calloway enough to claim a right/connection to Cab Calloway?  His only going concern while he was alive was giving performances.  What would allow him to assign a TM?  Widow claims she received TM assignment in a will—but that’s likely to be assignment in gross if he had nothing to assign as a going concern.  But PTO hasn’t raised a 2(a) objection; seems to assume connection.  Similarly with Caylee Anthony—what’s the connection to her grandparents’ firm?  DNA?  What’s the going concern, and how can the rights be assigned to the lawyer in gross?  Blue Ivy: DNA?  Legal guardianship of parents?  Same issues v. going concern and assignment in gross.

Can parents consent on Blue Ivy’s behalf?  Can she disaffirm years later, even if the mark is incontestable? Disaffirmation didn’t work for Brooke Shields w/r/t nude photos consented to by her mother.

Many of these are characterized as defensive registrations, but shouldn’t the right of publicity be enough to prevent unconsented use?  On the other hand, grandparents of Anthony don’t own her right of publicity.  If purely defensive, is there a bona fide intent to use?  Can they get around this problem with de minimis merchandising?

Bar on 2(e)(4): can’t register a mark something that’s primarily merely a surname.  De facto rule: One initial bad, two initials good: can register MC Escher.  Legislative history—merely the name of an individual; merely and primarily the name of a particular person (sounds like more than a surname); considered also “a name which identifies the particular individual”—weren’t clearly considering a pure surname rule; doesn’t say why a surname is different from other names and indicates some confusion about the purpose of the rule.

Q from Greg Vetter: why is the Calloway transfer by will in gross if he owns his library?

A: she doesn’t know if they inherited any copyrights; might be none they owned.  If there was, that would be a question of whether there’s any active marketing, was he engaged in a business?

Mark Lemley: the past expectation was that you went into business using your name, and doing otherwise might be deceptive.  We’re not in that world any more. Would it be so terrible to throw this all out?

A: we’d then have to get serious about what we mean by distinctiveness.  It IDs a particular person, but does it ID that person as a source of goods/services? 

Lemley: with a law firm, people probably do assume that the last name identifies a person, but there are some weird ones out there.

A: yes, also with foreign names.

Lydia Loren: can the right of publicity do any work in how we think about what a “connection” is?  Jimi Hendrix’s half-brother and sister are fighting over the estate/TM/right of publicity.

A: Elvis’s estate was able to bootstrap inheritance of right of publicity into a TM right (which to me raises a Dastar question of what happens when the right expires).

Lisa Ramsey: courts have applied TM law to noncommercial uses, but not right of publicity—might be worth thinking about with impersonations.

Eric Goldman: given the growth of the right of publicity, should TM law step back/narrow, given that the presumptions TM makes about names are arguably outdated?

Felix Wu: is it possible for more than one person to have a valid connection, resulting in first come first served?

A: sure: if Calloway had an orchestra, each member could claim some connection. 2(a) is phrased negatively, as a bar if you don’t have a connection. Question would be other registration hurdles.

Lisa P. Ramsey, An Impersonation Theory of Trademark Law

Texas Dep’t of Transportation has TM in Don’t Mess with Texas for anti-littering campaign; sued a romance author for using the title Don’t Mess with Texas.  Mutant of Omaha case.  ThinkGeek: April Fool’s joke fake T-shirt: Unicorn, the new white meat.  Received a threat letter from the Pork Board.

This wouldn’t make any sense if we were actually concerned about source identification. But if we’re interested in preventing free riding from attracting attention to expression, then this makes sense.  So how do we limit this expansion/discourage TM owners from making these claims?

Principles: protect comparative advertising, other truthful advertising (spare parts, services, etc. for the markholder’s products), political speech, noncommercial social commentary, news reporting and commentary, artistic and literary expression—and expressive merchandise. 

What about political-on-political disputes, such as United We Stand v. United We Stand NY?  Second Circuit held Lanham Act applied—there was a reason to prevent noncommercial entities from impersonating other noncommercial entities.  Bucci v. Planned Parenthood: she thinks it was rightly decided, b/c Bucci set up a fake plannedparenthood.com website saying “welcome to Planned Parenthood” that was actually anti-choice.  Pretending to be the NYT is a problem, as would be pretending to be JK Rowling.  Maybe Nike should have exclusive rights to put Nike on a T-shirt even if no right to prevent “Nike sucks” or other variations.  Impersonation on Facebook, Twitter, etc.—fake Nine West website asked women to send in personal information.  Not really commercial speech, but it looked like it.  Keyword advertiser who uses the mark confusingly in the content of the ad rather than just to trigger the ad.

How do we distinguish between these types of cases?  Different approaches.  Current TM approaches don’t provide sufficient guidance.  Search cost theories don’t help with certain uses that increase information but may increase clutter.  McKenna says we should focus on unfair competition—illegitimate diversion of trade.  Ramsey thinks that’s underinclusive. Some third-party uses are problematic/can harm consumers.  One possibility: a materiality requirement.  Could also try a “TM injury” requirement.  Margreth Barrett has proposed an associational marketing cause of action that would be limited to situations involving confusion over existence of consent/licensing, e.g., Mutant of Omaha—for non-TM use, initial interest confusion, noncommercial speech.  Would break it off of TM and have higher burden of proof, proximate cause requirement, limited remedies.

Ramsey proposes an impersonation theory: whether there is confusion about the source of the expression after the reasonable person views the content of the expression.  Would take care of the SMG case, where the union handed out flyers that said “special for you” with the restaurant’s name on it.  Compare to the Rogers test: free speech trumps TM if the use is artistically relevant and not explicitly misleading.  That’s a confusion analysis allowing confusion to trump artistic expression.  (RT: I could hardly disagree more about what Rogers is/should be.)  Falsely representing that you’re the markholder is the problem.  False affiliation/sponsorship can be handled by false advertising.

Her test: is the D using the mark as a false designation of source? Do reasonable people believe it? Does the content fail to dispel the confusion? Considering also a materiality requirement, not limited to purchase decisions; perhaps confusion that harms the reputation of the P or causes members of public to take certain actions.

Lemley: you intend this to be speech-protective but it’s not.  TM supposedly drew this line until recently: if people are being confused it’s illegal and if not it’s not.  On that theory, there is no First Amendment defense for expressive speech.  A number of the troubling cases are troubling precisely because we want to allow some confusion to get your message across: all the parody cases involve at least some momentary confusion; all the IIC web cases fit in this category.  Ramsey’s theory: is PETA v. Doughney correctly decided?  Ramsey says you have to look at the content, but then Bucci is wrongly decided b/c the court reasons that the domain name alone was confusing. If you say you have to look at content, maybe that’s the best we can do, but that’s worrisome from a free speech perspective. Maybe the answer is that the Yes Men lose all the time, but for core political speech we might not want that.

Ramsey: you have to look at content, not just the domain name: “welcome to the planned parenthood web page”—not the same as People Eating Tasty Animals.  False statements of fact are not protected by the First Amendment.  (RT: The Stolen Valor Act case might be of interest here.)  False attribution of quotes to a writer—no First Amendment defense (Masson case).  Materiality might matter too.

Me: This isn’t a TM problem.  The harm is done to the people who are deceived, not to the TM owner. Imagine the person who comes to your door and says they’re from Pacific Gas or with the police and then assaults you. That’s the same kind of harm, and it’s from association; there’s no reason to draw the source/association line.  And b/c the harm is done to the victim, not the TM owner, there’s a constitutional standing problem.

Ramsey: thinks that potential harm to the TM owner might justify standing. 

Eric Goldman: there’s no baseline to measure what consumers understand as the source of the expression. There will always be noise.  Extending a muddled concept to a category where it will be worse.

Ramsey: but we do grant TM rights to the NYT, other information providers.  Until we have an impersonation law, courts will use TM to address this kind of problem.  (Why isn’t the Nine West case a fraud case?  We do have fraud law.  And identity theft law.)  Since we’re already heading down this road, this is one way to limit further expansion.

Jeremy Sheff: how do you distinguish between Michelob Oily and Bucci?  Maybe we’re less solicitous of the fools who’re confused by the former.  Not clear that the standard you enunciated is doing the work; maybe a more objective standard about the reasonable consumer.

Ramsey: it’s complicated.  Michelob Oily is a “confusion about consent” case, which she wants to shut down. 
Bill McGeveran: seems like old wine in new bottles. Not clear whether you’re trying a grand unified theory of TM law or a doctrinal mechanism that would dispose of these cases cleanly and predictably. As to the latter, it’s hard to imagine success: relying a lot on consumer perception heuristics to judge the prongs of your proposed test. 

Ramsey: like TM use.

McG: yes, doesn’t like that either. If the idea is to be quick/predictable/efficient, we’re bickering right now about linedrawing, so that might not work. To say this is a unifying theory, by contrast, you need to distinguish it from materiality.  Otherwise this just seems like TM use and materiality.

Ramsey: likes bright line rules, but they won’t always work.  Can do better in creating cases that can be easily disposed of.  (McG says that if the question is whether people think P is the source, there will always be ability to debate that.)

Rebecca Tushnet, A Mask that Eats into the Face: Images and the Right of Publicity

History: the right’s unsoundness and perceived lack of boundaries may be related to its foundation in the image—the picture—which has long caused courts difficulties of understanding and interpretation. TM starts with words, but publicity rights really don’t: the canonical subject matter is the image. 

Preemption: Longstanding and contradictory beliefs that the image is nothing more than an image and also that there is something more than the image in the image, which courts have struggled to articulate leading to much dissatisfaction with the preemption analysis most courts have engaged in with respect to publicity rights.  The image (representation) stands in for the celebrity’s “image,” that is, her special aura that in turn has selling power, or at least provides a cultural referent that consumers will recognize.

Transformativeness: special treatment given to words as bearers of effort/transformativeness. Tony Twist: “[i]f a product is being sold that predominantly exploits the commercial value of an individual’s identity, that product should be held to violate the right of publicity and not be protected by the First Amendment.” Almost impossible to imagine a similar victory against a novel with a minor character named Tony Twist

Three Stooges: “the transformative elements or creative contributions that require First Amendment protection . . . can take many forms, from factual reporting to fictionalized portrayal, from heavy-handed lampooning to subtle social criticism.” Comedy III, 25 Cal. 4th at 406 (citations omitted) … But not portraiture.

More generally, transformativeness is structurally biased in favor of text. A novel or nonfiction work about Marilyn Monroe that does not caricature her, but seeks to represent her realistically, will still inherently seem to involve more contribution by the writer than a picture of her, because the effort required for the visual artist to represent reality will be transparent—invisible as creative effort—both to courts and to audiences, whereas the effort of writing a narrative will be obvious.

The Comedy III court was clear that artistic talent in the visual realm, if aimed at producing a realistic depiction, ought to be ignored in this inquiry: “[w]e ask ... whether a product containing a celebrity's likeness is so transformed that it has become primarily the defendant's own expression rather than the celebrity's likeness. And when we use the word ‘expression,’ we mean expression of something other than the likeness of the celebrity.” A “conventional portrait of a celebrity” is not protected against a right of publicity claim,  even though a “conventional” biography, reflecting reality in words, would plainly be protected by the First Amendment. 

There is no conventionally understood way to paraphrase an image, because to the extent that images are understood to share an external referent (such as a celebrity) they are the same. 

the claim in Tiger Woods—while the TM claim was rejected on this ground, the publicity claim couldn’t be.

All pictures of the Three Stooges are nothing more than pictures of the Three Stooges, even if they are posed in various ways.  Comedy III itself involved a drawing that apparently had no precise photographic reference, and that indeed heroicized the Stooges compared to the ways in which they were usually photographed, but the court still found against the artist.

The legal treatment of caricature also reflects the idea that, with images, there is a core realistic representation that infringes (unlike the factual biography) and that can be compare d with a distorted, transformative use, in a way that does not exist with respect to text.

Q: 3 stooges: analysis suggested that fictionalized portrayals were ok, but in Winter the court ignored the story surrounding the images, focusing just on the changes to the visuals.  Seemed to make it just about imagery. What if they put the Winter brothers in unaltered into this narrative? Should still be ok.

A: I agree, but focusing on alteration of image makes it easier (if wronger).

Lemley: is this really image discrimination? Maybe what the courts are doing imperfectly & subconsciously is reacting to the fact that the audience reacts differently to images than to words.

Goldman: once we get away from ad cases, it all goes downhill.

Idea/expression distinction is easier to apply to words: maybe courts are less comfortable dividing them with images.

Naked cowboy: statutory “not a picture”: do a section on NY and pictures.

William McGeveran, Competition, Communication, and Confusion

Confusion is a heuristic to ID whether competition or communication are threatened.  Passing off/diversion or inaccurate info into the marketplace.  You might lean towards one or the other, but that captures most everyone’s view. Other things that people talk about as TM’s animating purpose are really just heuristics for measuring/avoiding these things.  IP boundary issues, e.g., Dastar, are also often concerns that competition or communication will be impeded if TM can be bootstrapped into a monopoly.

But courts are mistakenly focusing on confusion as an end in itself. Becomes circular; courts think it must be eradicated at all times. Doctrinal structure of TM does that, forcing cts to confront possible tradeoffs between confusion v. competition/communication in ad hoc ways if at all. Defensive doctrine of nominative use ends up in non-Kozinski cases circling back to confusion.  Functionality: competitive need for a feature, notwithstanding confusion—may do its job better than other doctrines by not returning to confusion.  But there are very few instances, even KP Permanent on remand, where courts think directly about the reasons they’re doing the analysis in the first place.

What do we do? Can restructure some doctrines to embed the normative tradeoffs more explicitly and directly.  More creativity/flexibility around remedies.  More room in the middle: P’s TM is valid but D has an exception; P’s TM is invalid but P has a different remedy for the wrongful activity before the court (Blinded Veterans situation).  This is where he wants Louboutin to go: P’s TM is valid (or could be formulated in a way that would be valid, though this registration isn’t) but D has an exception—Louboutin has a mark only when it’s a contrasting sole.

Vetter: how does TM lubricate communication?

A: often competition and communication are the same thing—often info in the market helps competition.  But in Louboutin, for example, there’s also an expressive reason to use red. Courts have an understanding of the importance of communication but see it as an external, floating “first amendment” concern.

My suggestion: Consider the rhetoric of competitors v. competition—plenty of cases say Lanham Act protects the former, not so much the latter, whereas antitrust law specifically says it’s about competition. When you have a body of law that says it’s about protecting competition, you need to engage with it. Also look at the (frankly weird) limits antitrust doctrine has put on claims that false advertising violates the Sherman Act etc. See, e.g., American Professional Testing Service, Inc. v. Harcourt Brace Jovanovich Legal and Professional Publications, Inc., 108 F.3d 1147 (9th Cir. 1997) (no antitrust remedy for advertising disparaging a competitor).

Gerhardt: why isn’t confusion a heuristic for deception? You’re thinking about the limit/edge cases, not the counterfeit cases which involve consumer harm.

Sheff: we use heuristics because they’re cheaper/easier, and it’s easy to see why confusion meets that standard v. competition/communication generally.  But sometimes the concerns don’t lend themselves to that kind of heuristic.

A: agrees, heuristics are good when they are likely to reduce error costs and other costs. Our problem: we’ve mistaken the heuristic for the purpose in edge cases.

Lemley: there may be other middle solutions, such as disclaimers.  Or grant injunction if P pays the costs of complying.

Manufacturer and reseller compete, but Lanham Act claim still fails

InCompass IT, Inc. v. Dell, Inc., 2012 WL 383960 (D. Minn.)

There are some misappropriation/trade secret claims here, but I’m just covering the false advertising bit.  InCompass tried to negotiate a deal with Dell to be a sales partner, selling Dell products, but the deal went bad.  The court held that InCompass failed to state a Lanham Act claim.  The complaint alleged that Dell made false statements about its partner program to prospective resellers like InCompass, that InCompass shared confidential client information with Dell in reliance on those statements, and that Dell’s direct sales team then stole that information.  That’s not a Lanham Act claim, though it might well give rise to other tort liability if proven.  InCompass didn’t allege a competitive injury—an injury in competing for consumers caused by false statements to those consumers.  The Lanham Act was not designed to protect consumers (which was InCompass’s role in receiving the allegedly false statements here), but rather to protect sellers. 

The parties did compete in the sale of computers; the court specifically rejected Dell’s argument to the contrary.  Though Dell sells Dell products directly to consumers and InCompass is a reseller, they are in competition to sell Dell computers to the same customers; many manufacturers sell directly to consumers online and also use resellers, and they’re obviously in competition for the end users.  But the allegedly false ads weren’t promoting computers; rather, they promoted the partner program, and InCompass doesn’t compete with Dell to offer such programs.

Separately, InCompass didn’t identify any factual statements in the ads that were specific and measurable and capable of being falsified.  The statements were vague, such as “We'll support your sales opportunities so that you can protect your business” and “We're there when and where you need us.”

The Minnesota Deceptive Trade Practices Act claim also failed, because it provides for injunctive relief to those “likely to be damaged.” This means plaintiffs must allege future irreparable harm.  The complaint provided no reason to believe that InCompass would be harmed by the deceptive trade practices in the future, since InCompass knows better now and won’t be fooled again.

Neither Dukes nor Honda bar certification where ad claims were on all packages

Johns v. Bayer Corp., 2012 WL 368032 (S.D. Cal.) 

The court granted plaintiffs’ motion for certification, indicating that the recent Honda case isn’t the death knell for consumer class actions in California. Plaintiffs, alleging reliance, challenged statements Bayer made for its OAD Men's Health Formula and OAD Men's 50+ Advantage vitamins.  “On the front, back, and sides of the Men's Vitamins' packages and in its advertising, Bayer stated that taking Men's Vitamins daily would ‘support prostate health’” because the vitamins contained lycopene and later, selenium.  Plaintiffs alleged that Bayer charged a price premium over other multivitamins, even though the claimed benefits were absent and, in fact, recent clinical studies have shown that for some men, increased selenium consumption may increase their prostate cancer risk.

Plaintiffs alleged that Bayer focused on prostate health to make money rather than because it possessed competent and reliable scientific support.  They sought certification of UCL and CLRA claims.

Numerosity was easy: between 2005 and 2009, Bayer's national net sales of Men's Health were over $189 million, and between 2007 and 2009, its national net sales of Men's 50+ were over $39 million. It was reasonable to assume a sufficiently big California class.

Commonality: plaintiffs argued that common issues included whether Bayer's advertising of the Men's Vitamins was deceptive and likely to deceive the public. Bayer basically argued lack of predominance, of which more below.

Typicality/adequacy: Bayer argued that, since plaintiffs didn’t allege physical harm, they couldn’t be typical of class members who did.  But the class didn’t include claims for personal injury.  Bayer also argued that the named plaintiffs were subject to unique defenses on lack of reliance, credibility, proof of injury, or damages. “They also failed to read the FDA disclaimer, lack retail receipts for their purchases, and testified that reasons in addition to Bayer's advertising caused them to buy the Men's Vitamins. But as Plaintiffs note, if anything, these factors may make them more typical (not less) of other class members.”  (Heh.)  Moreover, the packages that they, and all class members, bought “prominently and repeatedly featured the identical ‘supports prostate health’ claim.”  They were all exposed to the same alleged misrepresentations; typicality and adequacy were satisfied.

The court agreed that common questions predominated, specifically whether there were misrepresentations likely to deceive a reasonable consumer.  These were binary issues capable of classwide resolution.  “Importantly, California consumer protection laws take an objective approach of the reasonable consumer, not the particular consumer.”  In addition, class reliance could be presumed under both the UCL and CLRA, the latter when a material misrepresentation was made to the class.

Bayer argued that reliance, materiality, timing, and damages were all individual issues.

Reliance: Bayer argued that reasons for purchasing the products were individual, and exposure to ads would vary by consumer in terms of the mix of TV, radio, and print ads each one saw. “But at a minimum, everyone who purchased the Men's Vitamins would have been exposed to the prostate claim that appeared on every package from 2002 to 2009. This is the predominant issue, not whether or not consumers also saw television or print advertisements.”  More generally, “when plaintiffs are exposed to a common advertising campaign, common issues predominate.”  Reliance could therefore be presumed.

Materiality: the same thing.  California evaluates materiality using a reasonable person standard, not individually.  The court also noted that the prostate health claim appeared on four panels of each package and could very well have been material, but that’s a question of fact.  In a footnote, the court characterized the claim as “very prominent[]” on the packaging: “the prostate claim was frequently listed first among purported benefits, and in more than one instance, the packaging stated prominently that the product contained ‘five times the amount of Selenium in Centrum® or Centrum® Silver®.’”  This supported plaintiffs’ argument that prostate health “was the ‘reason to believe’ the product offered something its competitors did not,” undercutting Bayer’s argument that prostate health was just one of many different claims on the packaging.

Timing: Bayer argued that the relevant science was in flux during the class period, but that went to the merits and not certification.

Damages: Bayer argued that individual issues predominated on damages. But damages are often an individual question that doesn’t defeat certification.  Here, one could calculate the damages by subtracting the value of the product without the claimed health benefit, which could be calculated using market information, from the price the class member paid.

The class action form was also superior in terms of judicial economy and the inability of class members to pursue individual claims for small amounts.

Bayer then argued that the named plaintiffs lacked standing because there were two distinct types of health claims, a qualified health claim using language proposed by the FDA that appeared on some of the packages, noting that the FDA had determined the correlation between selenium and reduced cancer risk was not conclusive; and the more general “supports prostate health” claim.  Because plaintiffs never saw the qualified health claim before purchase, Bayer argued, it couldn’t have hurt them.  The court didn’t see the relevance.  “Plaintiffs assert that they can demonstrate on a class-wide basis that Bayer conveyed a deceptive advertising message on its labeling and in its other advertisements. It is this overall message conveyed that matters.”

Not done, Bayer also argued that some class members’ claims were time-barred, but the legal and factual questions surrounding tolling were appropriate merits-based, classwide issues.

Finally, Bayer argued that Dukes barred certification because Bayer had a right to prove defenses to individual claims, such as that particular class members didn’t rely on the prostate health claim, “perhaps because they were aware of conflicting scientific studies.”  To the contrary, the court reasoned, Bayer was free to raise those defenses against individual claimants, then quoted another court for the point that “Bayer gives itself too little credit; the overwhelming majority of consumers probably trusted Bayer—a well-known company—and believed that there was some prostate-health benefit from taking the vitamins.”

Certification granted.

Nationwide class action can't proceed under California law

Mazza v. American Honda Motor Co., Inc., --- F.3d ----, 2012 WL 89176 (9^th Cir.) 

A little late, but this case will be much cited (see forthcoming post), so I'm doing it anyway. Over a strong dissent by Judge Nelson, the court of appeals reversed a certification of a nationwide class under California law, though still adhered to a bunch of 9^th Circuit precedent on standing despite defendant Honda’s arguments. 

The district court certified a class of all consumers who purchased or leased Acura RLs equipped with a Collision Mitigation Braking System (“CMBS”) during a 3 year period, based on claims that certain advertisements misrepresented the characteristics of the CMBS and omitted material information on its limitations.  The CMBS was part of an optional technology package costing $4000 (it also included adaptive cruise control and run-flat tires).  Honda advertised that it detected the proximity of other vehicles; assessed speed; and implemented a warning, braking, and seatbelt-tightening process to minimize damage from rear-end collisions. 

The claims about the CMBS were made in product brochures available at dealerships, in TV ads, and in magazine ads.  Two intranet commercials stating that the system had limitations were viewable at kiosks at Acura dealerships, and Honda encouraged dealers to show them to potential customers, though the extent of use was unclear.  It also put video clips up on its websites directed at (but not limited to) owners.  And it Acura Style—a magazine sent to dealerships, subscribing owners, and “interested consumers”—reported on CMBS in an article.  In addition, the owner’s manual explained that CMBS might shut off in certain conditions, including bad weather, with a 5-second alert displaying on the instrument panel. 

Plaintiffs alleged that Honda didn’t warn consumers that (1) the stages of the advertised 3-stage collision avoidance system might overlap, (2) the system might not warn drivers in time, and (3) the system shuts off in bad weather.  After several rounds of briefing, the district court granted certification on the usual California statutes.  Class members purchased or leased their cars in 44 different states, though 12 states account for 76% of class members, with California at 20%, Florida at 10%, and New York, Virginia, New Jersey, Texas, Pennsylvania, Washington, Illinois, Maryland, Massachusetts, and Ohio at 3–6% each. 

The district court found several common questions of law and fact:

(1) whether Honda had a duty to Plaintiffs and the prospective class members to disclose that: the three stages of the CMBS System overlap; the CMBS will not warn drivers in time to avoid an accident; and that the CMBS shuts off in bad weather;

(2) whether Honda had exclusive knowledge of material facts regarding the CMBS System, facts not known to the Plaintiffs and the prospective class members before they purchased the RL equipped with the CMBS System;

(3) whether a reasonable consumer would find the omitted facts material; and

(4) whether Honda's omissions were likely to deceive the public. 

The district court also found predominance and that California “as the forum state, has enough significant contact or aggregation of contacts to the claims asserted, given Defendants' contacts with the state, to ensure that the choice of California law is not arbitrary or unfair to nonresident class members.”  California law could be applied to all class members because Honda didn’t show how state-law differences were material or how other states had interests in applying their laws in this case.  Under California law, class members were entitled to an inference of reliance on a material misrepresentation. 

The burden is on the party seeking certification.  On appeal, Honda challenged commonality, relying on Dukes.  Commonality requires a common contention, such that determination of its truth or falsity will resolve an issue central to the validity of each claim.  Honda argued that the “crucial question” of “which buyers saw or heard which advertisements” was not susceptible to common resolution, and that a showing of a “greater propensity to purchase” is “the same type of abstract question of potential peripheral significance that the Court in Dukes held was not common” under Rule 23(a)(2). 

The problem with Honda’s argument was that commonality only requires a single significant question of law or fact.  Even accepting Honda’s “crucial question” idea, those individual issues went to preponderance under Rule 23(b)(3), not commonality. 

On to Rule 23(b)(2), superiority and predominance.  Honda first challenged the uniform application of California law to class members in 44 jurisdictions.  Under California choice of law rules, the class action proponent must first show that California has “significant contact or significant aggregation of contacts” to the claims of each class member. At that point, the burden shifts to the other side to demonstrate “that foreign law, rather than California law, should apply to class claims.”  California law may only be used if “the interests of other states are not found to outweigh California's interest in having its law applied.”  In turn, this question is resolved by asking whether the laws of the jurisdictions are different and what interests they have in having their own laws apply.  If there’s a true conflict, the states’ interests must be weighed to figure out which one’s would be more impaired if its policy were subordinated to the policy of the other state. 

California had a constitutionally sufficient aggregation of contacts to the claims of each putative class member in this case because Honda's corporate headquarters, the advertising agency that produced the allegedly fraudulent misrepresentations, and one fifth of the proposed class members were located in California. However, the district court abused its discretion in certifying a class under California law that contained class members who purchased or leased their car in different jurisdictions with materially different consumer protection laws. 

Honda “exhaustively detailed the ways in which California law differs from the laws of the 43 other jurisdictions in which class members reside.” The district court found that Honda had not met its burden of demonstrating that any of these differences were material, but the majority disagreed.  Some states require scienter, unlike California.  California named class plaintiffs have to show reliance, while other states’ statutes don’t require that.  These were not “trivial or wholly immaterial differences.”  Moreover, there were material differences in remedies, which might depend on wilfulness.  Unjust enrichment claims also varied from state to state. 

Given these differences, the next question was whether the other states’ interests outweighed California’s.  Each state is allowed to make its own judgments about prohibiting conduct within its borders, and has an interest in having its law applied to resident claimants.  Thus, the 44 states at issue here had a strong interest in applying their own consumer protection laws to these transactions.  “In our federal system, states may permissibly differ on the extent to which they will tolerate a degree of lessened protection for consumers to create a more favorable business climate for the companies that the state seeks to attract to do business in the state.”  

Note that there is an empirical claim embedded in this statement: that making things better for consumers makes things worse for businesses.  As George Akerlof famously demonstrated, there are at least some circumstances where this is false: consumers who have no reason to believe sellers’ promises have little reason to buy—as, perhaps, potential customers in the market for private-label mortgage-backed securities might be the most recent to testify.  Indeed, all the states adopted consumer protection laws in part with the rationale that doing so served to enhance the fortunes of those businesses that treated consumers well, so while one may argue that it is legislatures and not courts that ought to make this call, state legislatures in fact have made this call.  Thus, the strong form of this empirical claim is hard to accept even as a conflict of laws principle. 

Still, the majority held that the district court erred by “discounting or not recognizing each state's valid interest in shielding out-of-state businesses from what the state may consider to be excessive litigation…. Maximizing consumer and business welfare, and achieving the correct balance for society, does not inexorably favor greater consumer protection; instead, setting a baseline of corporate liability for consumer harm requires balancing the competing interests.”  The balance “between protecting consumers and attracting foreign businesses, with resulting increase in commerce and jobs,” is a policy decision for legislatures and courts within each state.  “More expansive consumer protection measures may mean more or greater commercial liability, which in turn may result in higher prices for consumers or a decrease in product availability.”  Each state should be able to make that call on its own, and has an interest in applying its own limits on liability. 

California conflict of laws doctrine isn’t supposed to identify the “best” social policy.  Thus, the district court didn’t give adequate weight to foreign states’ interests in applying their laws to transactions within their borders, and the impairment to those interests caused by application of California law to those transactions.  The district court wrongly elevated state interests in consumer protection, “while ignoring or giving too little attention to each state's interest in promoting business.”  CAFA was supposed to stop that. Also, California generally considers the place of the wrong (where the last act necessary to make the actor liable occurred, here the communication of the ads to the customers) as having the predominant interest.  California’s interest in regulating such transactions is attenuated, even though Honda is a California corporation.  Under the circumstances, each state’s consumer protection laws should apply to transactions within that state’s borders.

Thus, the certification order was vacated; the majority expressed no view on whether certification of a California-only class or state by state subclasses would be appropriate, in the latter case with different jury instruction for materially different bodies of state law. 

Honda also argued that there was no predominance of individual issues because individualized determinations of whether class members were exposed to misleading ads and whether they relied on the ads would be required.  It contended that presuming common exposure and reliance violated Article III’s standing requirements because nonexposed/nonrelying class members didn’t suffer an injury in fact. 

The court found for Honda on the predominance argument but against it on standing.  The UCL allows relief to absent class members without individualized proof of deception, reliance, or injury; Honda concluded that therefore the class included individuals who have no injury in fact.  However, to the extent that class members paid more for the CMBS than they otherwise would have paid, or bought it when they otherwise wouldn’t have, because of Honda’s deceptive claims, they suffered injury in fact.  In light of existing precedent, the fact that state law gives a right to relief without more particularized proof of injury and causation was not enough to preclude standing. 

However, the majority agreed that the misrepresentations here didn’t justify a presumption of reliance, “primarily because it is likely that many class members were never exposed to the allegedly misleading advertisements, insofar as advertising of the challenged system was very limited.”  While an inference of reliance has been made in other cases where the advertising at issue was broadly disseminated, there was no extensive and long-term fraudulent campaign here.  (The majority seems to give weight both to the extent of the campaign and to the fact that Honda’s misconduct allegedly came from omitting the limitations of its systems rather than from outright fraud.)  The limited scope of the ads at issue made it unreasonable to assume that all class members viewed them.  In the absence of a “massive” ad campaign, the relevant class has to be defined in such a way as to include only members who were exposed to the ads, and also to exclude members who learned the truth before they bought.  Thus, certification was also vacated because “common questions of fact do not predominate where an individualized case must be made for each member showing reliance.” 

The majority, in a footnote, differed with the dissent over “the importance of the individualized questions of law or fact over which any common questions must predominate.”  The majority concluded that the dissent gave inadequate weight to the limited dissemination of the Honda ads at issue, making reliance harder to presume.  On choice of law, the dissent gave inadequate weight to differences in consumer protection laws. 

Judge Nelson dissented.  The CLRA and UCL allowed a presumption of reliance, and the focus of the inquiry shouldn’t be on which class members saw the ads and relied on them.  They were broadly disseminated, and they omitted potentially material information.  Plaintiffs alleged that everyone in the class was exposed, even if other information was potentially available, and they also alleged that the named plaintiffs and class members wouldn’t have paid for the CMBS system with adequate disclosure. This was enough to impute reliance to the class. 

The dissent concurred that Honda’s contacts with California were sufficient to satisfy the Constitution.  Honda’s principal place of business and corporate HQ are in California, and so are the ad agencies that created ads for the CMBS system and internet-based ads. 

On choice of law, the dissent found only one potentially material difference in state laws: Louisiana, Georgia, Mississippi, Kentucky, Virginia and Alabama prohibit class actions that allege unfair trade practices under state law.  The dissent then considered whether those states had interests in applying their laws to this litigation.  “[P]ro-business legislation does not speak to the specific interest states have in imposing their laws on this litigation. Honda has not shown how a state's general interest in prohibiting class actions brought under its own consumer protection laws translates into an interest in having its laws apply to this litigation. Unmistakably, California has a keen interest in deterring California corporations, with their principal places of business in California, from engaging in tortious conduct within the state.” 

California suffered more from not having its law applied to this case: “Honda is incorporated and headquartered in California; the advertisements at issue emanated from the state. California has a compelling interest in regulating the conduct of corporations operating within the state and availing themselves of the state's privileges.” 

The dissent predicted significant negative consequences for consumers, because individual actions are so unlikely.  “Without certification of a nationwide class to which California law applies, Honda becomes free to avail itself of the benefits offered by California without having to answer to allegations by consumers nationwide that it has violated the consumer protection laws of its forum state. This situation will allow corporations to take advantage of a forum state's hospitable business climate on the one hand, while simultaneously discounting the potential for litigation by nationwide consumers in response to a particular profit-motivated but harmful action on the other.”

Don't Settle with Honda, lawyer says

Here's her website.  She opted out of the settlement, sued Honda in small claims court, and won nearly the statutory maximum of $10,000.  I don't know what to think about this; I'm in receipt of the settlement notice.  It is true that we haven't gotten very near the advertised mileage, certainly not in city driving.  It's also true that it was immediately obvious that one has to drive a bit differently than Americans are trained to drive to maximize mileage, and I was disturbed by the Honda statements that you could just keep driving exactly as normal; I understand why Honda would need to explain that you didn't actually need to plug in this hybrid and would gas it up like any other car, given the newness of the technology at its introduction and the variety of hybrid/electric vehicles around, but that's not really "drive just as you would any other car!"  I'd say we currently get 35 mpg on an average tank (my husband doesn't really change his driving style, and spends a fair amount of time in stop and go traffic) and 37.5 mpg on a good one.  This is a decrease over time.  I am still undecided about whether to participate in the settlement.