Francesca Coppa and Tisha Turk talk vidding

On Hearsay Culture, with David Levine!

At the intersection of my interests ...

Fan art or false advertising?  Photoshopped Marie Claire cover calls itself fan art.  (It's not legally false advertising, since the cover isn't conventional advertising and because there actually is relevant content.  I can see a Cher-type right of publicity claim in the US, but the disclosures are probably enough there too.  I also wouldn't call it fan art, in the sense of noncommercially produced artwork, though obviously we're in the middle of a definitional struggle.)

Difficult-to-empty gift card didn't violate NY consumer protection law

Preira v. Bancorp Bank, --- F. Supp. 2d ----, 2012 WL 3541702 (S.D.N.Y.)

Defendants sell prepaid, stored-value Vanilla Visa and Vanilla MasterCard gift cards.  The cards have an activation fee and are “non-reloadable,” so cardholders cannot add value or merge the values of two or more gift cards after purchase. On the package, the terms and conditions disclose that card funds never expire; other details are available either inside the packaging or on the relevant website or 800 number.  Gift cards can be used with any merchant that accepts Visa or MasterCard debit cards. The cardholder agreement specifies that cards can be mailed back and the remaining balance will be sent to the cardholder by check.

But some merchants don’t allow cardholders to conduct split transactions (zeroing out the card and paying the remainder in some other way).  Split transactions generally require pre-swipe notice to avoid having the card declined. 

Plaintiff bought a Vanilla Visa gift card for $25 plus $4.95 activation fee.  She used it for various purchases (the court was confused about why she’d buy a gift card and pay the activation fee for herself), and was initially refused in her attempt to complete a split transaction.  Later, she tried again at Wal-mart, but the transaction was refused by the issuer, and the Wal-mart clerk allegedly explained that the store had problems with Vanilla Visa and MasterCard gift cards “all the time.”

Preira sued for violation of N.Y.G.B.L. § 349, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and conversion.

The claims all failed because Preira couldn’t allege actual injury.  Balances don’t expire; some merchants do allow split transactions; and a customer can return the card at any time for a refund of the remaining balance.  Preira argued that the balance and the nonrefundable activation fee counted as damages, since consumers were paying for a card that didn’t work as advertised, and that a refund policy can’t destroy a consumer protection claim.

New York’s consumer protection law doesn’t require justifiable reliance or defendant’s intent to deceive, but it does require actual injury.  Deception alone isn’t sufficient; something more is required, such as that the price of the product was inflated as a result of the deception.  Here, plaintiff’s allegations that consumers were left with unused balances because of some merchants’ rejection of split transactions, and that consumers lacked recourse, were belied by the complaint and the documents that were inherently part of the complaint.

First, “that Plaintiff cannot complete a split transaction with every merchant that accepts Visa debit cards does not mean that she has suffered actual injury within the meaning of Section 349, especially when the Cardholder Agreement discloses this very fact.”  Second, even if no merchants allowed split transactions, she could still reclaim the unused balance by mail.  It may be true that a money-back guarantee doesn’t always preclude a consumer protection claim, but the defendants’ unrestricted refund policy providing full compensation prevented a showing of harm.  (The court doesn’t say it in so many words, but I think it matters that the product here is money—the refund is essentially fungible with the product’s performance, as it wouldn’t be for a non-money product.)

The court also commented that, in the judge’s “judicial experience and common sense” (Iqbal), it was “wholly implausible that gift card holders are unable to use the full value of their cards at the many retailers that permit split transactions. Even Plaintiff does not allege that those retailers are few in number or inconveniently located.”  In addition, though the court said it wasn’t considering this for purposes of the motion to dismiss, an affidavit from defendant created in the course of discovery stated that there were “1,676,123 Gift Cards with a zero ending balance as of August 4, 2011” and “that there were approximately 397,775 Gift Cards with a positive balance as of August 4, 2011.”  Some of the latter appeared never-used because they had the same opening and ending balances. The numbers supported the judge’s common sense that plaintiff and those like her could, like 1.6 million other cardholders, fully deplete the funds through purchases or split transactions or by sending the cards in by mail.

Preira argued that her claim wasn’t based on lost value, but rather on false and misleading statements that the gift cards could be used in the same way as debit cards.  Two problems: she never alleged that debit cards can be used for split purchases at any retailer; nothing in the complaint stated what happened to a debit card holder whose total is more than his or her available balance.  In the absence of a split transaction, both types require affirmative steps when a balance is below the desired purchase amount—either a mail-in refund (gift card) or reloading the card (debit card).

Second, Preira’s alleged injury was identical to the deception, which was insufficient.  It is not enough that a consumer allegedly bought a product she would not otherwise have purchased in the absence of deception.  She failed to allege, for example, that the deception inflated the cost of the card, or that she tried and failed to get her money back.  All the limits—including limits on split transactions and on how to get money back—were fully disclosed to her (for contract values of disclosure) before her first transaction, though after she paid the activation fee.  She never sought a refund of the activation fee.

Dastar bars implicit misrepresentation theory

Dutch Jackson IATG, LLC v. Basketball Marketing Co., 846 F. Supp. 2d 1044 (E.D. Mo. 2012)

Plaintiffs bring multiple causes of action in the hopes that one will slip through; often enough this just creates extra work for courts.  Here, plaintiffs sought damages and an injunction against defendants’ unauthorized use of a musical work, “I am the Greatest,” allegedly used by defendants as part of the sound track to a basketball DVD, AND1 Mixtape X.  The song was allegedly written and performed by Michael “Dutch” Jackson in 2006, but not published prior to the release of the DVD in 2008.  The song was registered in 2010.  Defendants moved to dismiss the non-copyright and statutory damages/attorneys’ fees claims.

On the Lanham Act, defendants argued that Dastar bars the claim for false designation of origin/ownership of the work.  Dastar means that “incorporating a creative work of another into a product without crediting the creator does not give rise to a claim under the Lanham Act.”  (Left unresolved: what happens when the creator alleges secondary meaning?)  Plaintiffs argued that their situation fell into Dastar’s hypotheticals of (1) defendant buying plaintiff’s videotapes and repackaging them as its own, and (2) a producer of a copied video giving purchasers the impression that the video was quite different from the copied series, constituting false advertising.  Neither of these two examples were implicated by the complaint.  The goods at issue, the DVDs, were “undisputedly created and manufactured by defendants.”  Even an exact copy of the song isn’t a distinct tangible good, but rather a communication embodied in the goods. 

Nor was there false advertising: defendants didn’t mention the origin of the song or reference its origin in advertising or packaging.  Plaintiffs argued that this very omission implicitly represented that the song was defendants’ original work.  Mark McKenna might like this: “The plaintiffs' novel misrepresentation-by-implication theory is an impermissible work-around of the holding in  Dastar.”  Dastar says that no Lanham Act liability attaches when a defendant merely truthfully says that it made a video.  That’s true for §43(a)(1)(A) and (B).  Allowing such a claim would impermissibly impose an affirmative duty on defendants.

Next, defendants argued that the state law claims were preempted.  What we’re looking for here is any extra element that would allow the claim to escape preemption.  First, waste: even if state law did recognize a claim allowing recovery for diminution of value to intangible property, instead of real or personal property, it would be preempted as qualitatively equivalent to infringement.

Tortious interference with business expectancy: this claim isn’t preempted when based on allegations that the defendant induced a third party to breach a contract with the plaintiff, but it is preempted when based on the creation of allegedly infringing material.  Awareness and intent aren’t extra elements for these purposes.  Since the claim was based solely on defendants’ copying and sale of plaintiffs’ song, it was also preempted.

Missouri Merchandising Practices Act: Standing requires injury, which under the MMPA has to come by way of a loss to a person who buys (or leases) merchandise primarily for personal, family or household purposes.  Plaintiffs weren’t alleging injury to themselves as a result of purchase, nor did they allege an injury the law was intended to address; they also failed to allege facts sufficient to assert rights held by third-party DVD purchasers.  No claim.

Civil conspiracy: Plaintiffs allege that defendants conspired to use plaintiffs' song to their commercial advantage.  Absent conspiracy to commit an underlying tort or wrong other than copyright infringement, this is preempted; copyright already recognizes contributory and vicarious infringement.

Tortious interference with right of publicity: the idea here was that failure to attribute the song to Jackson interfered with his expected right to publicity and goodwill, a species of tortious interference with business expectancy.  But that’s preempted.  And because defendants didn’t use plaintiffs’ names in connection with the DVD, there was no claim for “interference with publicity.”

Statutory damages/attorneys’ fees: Plaintiffs argued that the infringement continued after their registration, so they were entitled to statutory damages and possible fees.  Not so!  For §412, infringement commences when the first act of infringement in an ongoing series occurs.  Plaintiffs can’t get around that by limiting their claims to post-registration infringement.

False use of (R) justifies Lanham Act injunction without evidence of materiality

Perfect Pearl Co., Inc. v. Majestic Pearl & Stone, Inc., 2012 WL 3526611 (S.D.N.Y.)

Perfect sued Majestic for unfair competition and false advertising under the Lanham Act, alleging infringement of the marks Majestic and Majestic Pearl.  Majestic counterclaimed.  The court found that Perfect was the first to use the marks in the field of pearl jewelry and had the exclusive right to use the marks for pearl jewelry, though not for other products such as pearl beads and loose pearls (the vast majority of Majestic’s business).

Perfect makes pearl jewelry, while Majestic is a wholesale retailer of pearl beads as well as pearl jewelry.  Historically they were both business-to-business operations, but Perfect has begun to sell directly to consumers through QVC. 

Perfect used “Majestic Pearl Company” as a business name since 1965, when it began to sell a line of pearl jewelry under the name “Majestic,” and employees used “Majestic Pearl” to identify themselves since at least 1986.  Though some of its jewelry is sold as private label jewelry by retailers, a number of retailers sell it with the Majestic marks present on the tags.  The line generated over $1 million/year from 1988-2010, though some of that was the private label sales.  The court summarized Perfect’s use of the marks before Majestic’s entry into the market as “limited to (1) selling pearl jewelry; (2) to national clothing and accessories retailers; (3) including tags bearing the MAJESTIC marks; and (4) from a showroom in New York City.”

Majestic began selling jewelry in the US in 1996 (it began in Hong Kong in 1980).  It primarily sells pearl beads to bead shops, jewelry manufacturers, and designers, though about 5% of its business is in pearl jewelry.  It spent over $2.3 million on advertising in connection with the marks since 1996, a lot of it at trade shows.  Majestic obtained a registration for MAJESTIC in connection with the sale of pearls in 2001.  Its promotional materials had ® next to “majestic” during that time, and when the registration lapsed in 2008, the company continued to use those materials.  When, as a result of the present litigation, Majestic learned in October 2009 that its registration had lapsed, it stopped using the ®.  Majestic filed new applications for the Majestic marks, which have been published; Perfect has opposed; the proceedings were suspended pending the outcome of this suit.

There were numerous instances of actual confusion since 2009, caused by Perfect’s marketing on QVC.  “Perfect at some point ceased displaying its jewelry on QVC for a period of time, and that a number of Perfect's customers set out to find the retailer of the jewelry they had previously seen on QVC, and came upon Majestic, not Perfect. Believing Majestic to be the company responsible for the line of ‘majestic pearl’ jewelry shown on QVC, these customers reached out to Majestic to ask how to order Perfect's products.”  In addition, a party to the Filene’s Basement bankruptcy attempted to purchase Majestic Pearl Co.’s claim, and contacted Majestic, though it was Perfect that had the potential claim.

The court found that Perfect, as the senior user of a suggestive and inherently distinctive mark, was “necessarily” entitled to “exclusive” use of the marks.  Then (note the contradiction here, not at all unique to this court) the court evaluated whether there was likely confusion, and found that there was, but only in the sale of pearl jewelry, not loose pearls or pearl beads.  Majestic could continue to use its trade name and use the marks on loose pearls or pearl beads.

The court noted that the suggestive/descriptive line could be a difficult one, and found it reasonably close here. A suggestive mark “requires imagination, thought or perception to reach a conclusion as to the nature of the goods,” while a descriptive mark “conveys something about the qualities, ingredients or characteristics of a product.”  Majestic argued that the term was a laudatory mark describing the pearls, like “original” or “famous.”  The Second Circuit case law wasn’t entirely consistent, occasionally finding self-laudatory terms suggestive (e.g., “plus,” “100%,” “first”).  Being laudatory wasn’t necessarily enough for descriptiveness.

“The defining feature of a descriptive mark is that it gives the consumer an immediate idea of the contents of the product.”  (Note that this is unduly compressed, which may affect the analysis.  It should be: a term is descriptive when it gives the consumer an immediate idea about the product when the consumer knows the product.  Compare Apple for computers (arbitrary) with Apple for lipstick (descriptive).  Some laudatory terms may not require that extra step—“best” is going to be descriptive for pretty much everything—but you still need to know the product to conduct a full descriptiveness analysis.  For example, the court cited POWER CHECK as descriptive for batteries that allow users to check the remaining power.  But POWER CHECK for, say, a line of sports apparel wouldn’t be descriptive.)

Regardless, the court ruled that “MAJESTIC does not convey the qualities of the subject pearls with the immediacy normally associated with a purely descriptive mark,” but instead required consumers to consult their imaginations to determine what the pearls are like.  At most, the customer could infer that the pearls were viewed as having high quality, or that the wearer would convey a regal or high-quality impression while wearing them.  This still required imagination to grasp the nature of the product.

The Second Circuit also considers the effect on competitors.  “MAJESTIC is not so elemental or necessary to describe products in this area that it must be left unprotected.”  Query: what about ad copy that says, “These pearls are truly majestic”?  Is a descriptive fair use impossible?  That seems misguided.

Finally, the court noted that Majestic’s earlier registration wasn’t based on §2(f) acquired distinctiveness.  PTO findings are given a substantial degree of deference, at least when the evidence is in equipoise.  However, the court didn’t find that Majestic was bound by its earlier implicit position that the mark was inherently distinctive. “The position a party takes as to distinctiveness when seeking to register its mark with the PTO may have a sound strategic basis” (citing McCarthy’s encouragement to applicants to seek registration based on inherent distinction).  “In light of this, the Court is not persuaded that it needs to bind Majestic to the position it implicitly took in front of the PTO more than a decade ago.”

The parties agreed that confusion was likely in the market for pearl jewelry, but the court undertook its own analysis as well.  As a suggestive mark, Majestic was “moderately strong”: “inherently distinctive and entitled to some protection, [but] otherwise weak.”  This somewhat favored Majestic.  Everything else fell out as you’d expect given the summary above.  On product relatedness:

These are different types of products sold through different channels—Perfect sells jewelry to retail stores largely by having store representatives visit its showroom in New York and by cold-calling potential customers; Majestic, by contrast primarily sells its goods at trade shows. Thus, insofar as Majestic's pearl beads and loose pearls business is concerned, this factor favors Majestic, as it appears that its pearl bead and loose pearl products generally do not compete directly with Perfect’s pearl jewelry.

By contrast, “[h]aving two companies selling pearl jewelry in a national market using effectively the same or highly similar marks presents a high potential for confusion.”  Individual consumers weren’t sophisticated, but retail store buyers were.  Retailers, wholesalers, and designers were likely to differentiate between the two, especially if as the record suggested Majestic’s pearls were genuine and Perfect’s simulated.

The opinion seems to conclude that both parties have a right to operate in the non-individual consumer market (despite the one instance of debt buyer confusion, which didn’t represent consumers of any stripe), but the parties may be free to litigate that at a full merits trial if they choose.  Majestic was enjoined from using Majestic on its line of pearl jewelry.

Perfect also alleged false advertising based on use of the ® after the registration lapsed.  In the Second Circuit, literal falsity may be enjoined without reference to an ad’s impact on the buying public, which the court read to make a separate showing of materiality unnecessary.  Majestic used the ® on promotional materials including shopping bags, tape measures, and calculators at trade shows all across the country.  The court found that this constituted advertising: a way of promoting Majestic’s product to existing and potential customers.

Perfect proved literal falsity, but didn’t present evidence that the misuse of ® “played a substantial role in the decision of Majestic's customers to purchase Majestic's product.”  Still, that didn’t bar an injunction.  Thus, the court granted summary judgment to Perfect, and entered an injunction barring Majestic from misusing the ® symbol in connection with the MAJESTIC marks on any product.

Majestic’s trademark dilution claim was moot, and useless because it wasn’t famous.

The state law trademark infringement claims were resolved in the same way.  As for NY unfair competition, that requires a showing of bad faith by the infringing party, but neither party established bad faith.  And the state law false advertising claim under N.Y.G.B.L. § 350 based on use of ® failed because the gravamen of the state law is harm to consumers, not harm to business interests.  There was no evidence of harm to the public interest from Majestic’s inadvertent error.  Also, courts have found that trademark cases are outside the scope of the NY consumer protection statute, because the public harm from trademark infringement is too insubstantial.  As for Majestic’s N.Y.G.B.L. § 349 claim for deceptive business practices, that requires materially misleading practices causing harm to Majestic.  But (even ignoring the result on infringement) there was no evidence that the marks were used in a materially misleading way or that Majestic was harmed by Perfect’s use.  And courts have also found that trademark claims aren’t actionable under § 349 without specific and substantial injury to the public interest over and above the ordinary harms of infringement.

Majestic also brought a state law claim for dilution.  Perfect’s seniority precluded this claim.

Majestic further raised a laches defense.  Laches requires plaintiff’s knowledge of defendant’s use, inexcusable delay, and prejudice to the defendant.  Perfect first became aware of Majestics use around October 2009, after the instances of actual confusion, and Perfect sued in May 2010, after a “lengthy” exchange with Majestic’s counsel at the time.  The relevant statute of limitations for borrowing purposes is six years.  Perfect sued well within that period.  Thus, prejudice couldn’t be presumed.  Majestic couldn’t show any, and Majestic was on notice of a possible lawsuit as soon as Perfect reached out.

Majestic argued that Perfect had constructive notice by virtue of Majestic’s 2000 registration.  But knowledge is imputed to a party of another's use of the marks only where “the facts already known to him were such as to put upon a man of ordinary intelligence the duty of inquiry.”  (Hmm, I wonder whether that’s a correct statement of the law in the ordinary case.  Registration provides constructive notice, and a junior user can’t avoid that by claiming that an ordinary business in its position wouldn’t have searched the register and had actual notice; that’s part of the point of registration.  But perhaps senior users are in a different position.)  Majestic failed to explain what facts known to Perfect would have created a duty to inquire as to Majestic’s use.

Also, it was purely speculative to argue that Perfect knew as of December 2007, when it looked for a website name and searched a database of potential domain names for different iterations of “Majestic [and] some other adjective.”  That didn’t mean that Perfect must have found out about Majestic’s website, majesticpearl.com.

Authorization to sell products under another name defeats passing off but not false certification claim

Tri-State Energy Solutions, LLP v. KVAR Energy Savings Inc., --- F. Supp. 2d ----, 2012 WL 3322681 (D. Del.)

Tri-State and KVAR had a regional distribution agreement (RDA), providing that Tri-State would distribute KVAR’s energy-saving products in three states.  It didn’t work out.  I’ll skip the contractual claims as best I can.  Tri-State alleged deceptive trade practices.  KVAR counterclaimed for trademark infringement and false advertising, among other claims.

Tri-State and another plaintiff, Chieffo Electric, alleged trade libel against KVAR and an individual defendant, Fish.  This claim was based on an “Impostor List” posted on KVAR’s website that identified plaintiffs as entities with which KVAR asserts it is not affiliated and that are manufacturing and/or marketing KVAR's product under another name.  It was also based on oral statements by Fish to distributors that Tri-State and a related individual were overcharging, price gouging, or stealing money from distributors; that they were crooks and thieves; and that their products caused fires.

Defendants argued that plaintiffs couldn’t show that any statement on the Impostor List was false and defamatory.  Plaintiffs argued that the list’s claims that KVAR held a patent on the product, and that some of plaintiff’s products caused damage and fires, were false.  Defendants rejoined that, even if false, those statements didn’t specifically refer to any one party on the list.  The court disagreed: the narrative portion of the list could reasonably be read to refer to each listed party.

Defendants also argued that the list or the oral statements caused any pecuniary injury.  Assuming injury was required, while the individual plaintiff testified that he could not point to any “economic harm resulting from the alleged defamation,” he also testified that his reputation was damaged (“[If] somebody Googles me right now, the first thing pops up that I'm impostor and I sell a product that burns down people's homes.”); and that he and his family had been threatened to the point that his “kid hid[ ] underneath a table every time somebody knocked on the door.”  The court declined to grant summary judgment to defendants on this claim.

As to plaintiffs’ deceptive trade practices claims under Delaware law (DTPA), the claims at issue were also the Impostor List and tape-recorded statements by Fish to distributors about Plaintiffs' business practices, calling Gillen a “thief.”

Defendants correctly noted that the DTPA doesn’t extend to wrongs between parties in a vertical relationship (customer/seller), instead of a horizontal one (among sellers and producers).  But that didn’t resolve the matter: the parties’ agreement gave Tri-State exclusive rights in some respects, and the parties competed at least for one account.  A reasonable jury could find a horizontal relationship. The DTPA also denies standing where the harm occurred in the past if the party didn’t seek an injunction.  But plaintiffs were seeking an injunction and alleged ongoing harm.

KVAR’s Lanham Act counterclaims were that plaintiffs’ sale of KVAR products under the name Kilowatt Nanny created confusion, that plaintiffs used confusingly similar marks to KVAR’s mark, and that plaintiffs improperly used KVAR’s Underwriters Laboratories (UL) and CSA certifications on its product on the Kilowatt Nanny products.

Plaintiffs argued that KVAR authorized the sales under the Kilowatt Nanny name.  The undisputed record evidence was that KVAR told Tri-State to rename the product to deflect phone calls to Tri-State.  Thus, Tri-State was authorized to make the sales.  However, there was insufficient evidence to grant summary judgment to the plaintiffs/counterclaim defendants on the argument that permission to rename the product included permission to use KVAR’s certifications on those products.  (Hard to imagine that KVAR has standing to assert the certification entities’ potential endorsement claims, though.  Also, if the products were unaltered, could there be anything false about saying they were certified?  I doubt you can get around first sale by saying, even if it’s true, that “the entity that provides our certification only certifies new products, not used ones.”)  So that part of the Lanham Act claim survived.

KVAR’s counterclaim that plaintiffs’ circulation of the initial complaint to potential customers, and other statements, constituted trade libel also survived, though the court wasn’t convinced that Delaware actually recognizes trade libel distinct from defamation. 

In addition, KVAR’s counterclaims for intentional interference with contract/prospective economic advantage survived summary judgment, unusually for such claims.  Here, it was undisputed that KVAR and third party EcoQuest had a business relationship, that Tri-State knew about it, and that Tri-State distributed information about its litigation and an alleged safety recall of KVAR products (which turned out to be false) to kill EcoQuest’s deal with KVAR.  Further, the deal did indeed subsequently fall apart.  That was enough, but KVAR didn’t get summary judgment in its favor.  There was a genuine issue of material fact as to whether EcoQuest or KVAR terminated the relationship, which was important to proximate causation.

KVAR’s common law unfair competition claim failed because KVAR failed to show evidence of harm from unfair competition, despite alleging lost sales of $2 million on the intentional interference claims; the court wasn’t going to hunt through the record on KVAR’s behalf.

USDA's ability to act on organic products precludes Lanham Act claim

All One God Faith, Inc. v. Hain Celestial Group, Inc., 2012 WL 3257660 (N.D. Cal.)

Plaintiff does business as Dr. Bronner’s Magic Soaps, personal care products labeled “organic.”  It sued a bunch of companies that make “organic” labeled personal care products, alleging that those weren’t organic as the term is understood by consumers because their products were made from conventional agricultural products, had ingredients made from petrochemicals, and/or contained synthetics.  Dr. Bronner’s also sued Ecocert, which certifies products as “organic” using its own standards.

The Organic Food Products Act of 1990 (OFPA), authorized USDA to create the National Organic Program (NOP), which provides national standards for labeling agriculture and food products as “organic.”   USDA was also authorized to create a National List of approved and prohibited ingredients for the production, handling, and processing of organic products.  The National Organic Standards Board (NOSB) has the exclusive authority to recommend placement on the National List.  Congress “expressly declined” to create a private right of action to enforce OFPA or the resulting regulations.  Only USDA can investigate and penalize violations.

The NOP’s labeling certification scheme is comprehensive—for agricultural products intended for food.  It defines when food can be labeled 100% organic, organic, made with organic, or use organic to describe an ingredient. 

Initially, the USDA concluded that cosmetics, body care products, and dietary supplements were outside its scope.  Later, it held that producers of cosmetics and body care products who used agricultural products were eligible for USDA organic certification, but not required to get it or otherwise subject to NOP standards.  Then it changed back, so such producers couldn’t participate voluntarily.  Then it changed back, allowing producers to use “100 percent organic,” “organic” or “made with organic” if they complied with the NOP regulations.  A few years later, it clarified that compliance with NOP standards was necessary to use USDA certification, whether explicit or implied, on cosmetic/personal care products, but reiterated that the NOP doesn’t govern such products unless the labeling itself implies USDA certification:

USDA has no authority over the production and labeling of cosmetics, body care products and personal care products that are not made up of agricultural ingredients or do not make any claims to meeting USDA organic standards. Cosmetics, body care products, and personal care products may be certified to the other, private standards and may be marketed to those private standards in the United States. These standards might include foreign organic standards, eco-labels, Earth friendly, etc. USDA's NOP does not regulate these labels at this time.

Of course, this finesses the key issue: given the comprehensive, uniform national scheme applied to food, won’t consumers expect that the related field of personal care/cosmetics containing agricultural products is subject to the same comprehensive, uniform regulation, and that “organic” therefore means the same thing on food as on avocado conditioner?  Thus, using “organic” on conditioner will itself imply “USDA organic,” even without more specific labeling.

Anyway, in 2009, the NOP issued a draft guidance on certification and labeling of soap products made from organic agricultural ingredients, and the standards board formally recommended to the Secretary of Agriculture that the existing rules be amended to provide that NOP standards for labeling a product as “organic” or “made with organic [ingredient]” apply to personal care products.  In 2010, the NOP basically said it would study and consult on the issue, and there matters stand.

Dr. Bronner’s initially alleged that consumers expected compliance with NOP standards for the use of “organic” or “made with organic,” so that defendants engaged in false advertising by not complying. Its third amended complaint eliminated reliance on NOP definitions, but alleged that surveys and other evidence demonstrated that consumers believe that organic-labeled products “do not contain any petrochemicals or petrochemical compounds in ingredients whatsoever, and are thus entirely free of petrochemical contaminants” and do not “contain synthetic compounds including preservatives.”  Dr. Bronner’s also filed an administrative complaint with the USDA.  The case was stayed for well over a year pending resolution by the USDA.

Defendants moved to dismiss.  Hain argued that the case should be dismissed because of the primary jurisdiction doctrine: resolving the Lanham Act claim would impermissibly require the court to interpret and apply USDA standards.  The court agreed, following Pom Wonderful LLC v. Coca–Cola Co., 679 F.3d 1170 (9th Cir. 2012).  Courts should defer to an agency’s primary jurisdiction “where, in order to determine the falsity or misleading nature of a defendant's representations about its products, the court would be required to interpret and apply federal standards governing those products.”  Dr. Bronner’s argued that it could establish falsity based on consumer research without reference to NOP standards.

But the USDA had taken pre-rulemaking steps, even if it was acting slowly, and the NOP has made reference to personal care products since 2005, allowing USDA organic claims that meet those requirements.  If the court allowed Dr. Bronner’s to proceed using consumer surveys, it would have to evaluate how consumer expectations compared to federal organic standards, which permit the use of certain synthetic ingredients, including petrochemicals, along with a certain percentage of non-organic ingredients.  Thus, there was a potential conflict with USDA’s authority. 

Dismissal without prejudice was appropriate since laches was unlikely to bar Dr. Bronner’s claim later, given its administrative complaint and vigorous litigation so far. 

Ecocert also moved to dismiss because it was a certifying agent, not a competitor/producer.  The court agreed that this was enough to dismiss the Lanham Act claim.

MERS nonjudicial foreclosure may violate Washington consumer protection law

Bain v. Metropolitan Mortg. Group, Inc., --- P.3d ----, 2012 WL 3517326 (Wash.)

The Mortgage Electronic Registration System Inc. (MERS) is “a private electronic registration system for tracking ownership of mortgage-related debt.”  It’s often listed as the beneficiary of the deeds of trust securing its customers’ interests in homes subject to mortgages.  Traditionally, the beneficiary is the lender; the deed of trust protects the lender’s interest by giving the lender the power to nominate a trustee, and giving that trustee the power to sell the home upon default.  Lenders can sell secured debt, typically by selling the promissory note.  Washington’s deed of trust act allows a subsequent holder of the debt to be a “beneficiary,” defining that term as “the holder of the instrument or document evidencing the obligations secured by the deed of trust.”

A federal district court asked the Washington Supreme Court to answer three certified questions involving MERS.  In two foreclosure cases, loan servicers notified MERS that homeowners were delinquent.  MERS appointed trustees, who initiated foreclosures.  The key question was whether MERS was actually a beneficiary, with the power to appoint a trustee, if it didn’t hold the promissory notes secured by the deeds of trust.  The court answered that it wasn’t, though the legal effect of MERS not being a lawful beneficiary was not clear on the record.  It was, as a result, possible for the homeowner to bring a Consumer Protection Act (CPA) claim against MERS based on its representation that it was a beneficiary, depending on the facts of the case.

This blog isn’t perhaps the best place to go into MERS and its effect on record title.  Christopher Peterson’s work is a good place to start.  Anyway, Kevin Selkowitz and Kristin Bain bought homes in King County. Their deeds of trust named MERS as the beneficiary.  The original lenders filed for bankruptcy and went into receivership respectively, and both homeowners fell behind on their payments.  MERS named foreclosure trustees who began foreclosure proceedings.  The assignments of the promissory notes weren’t recorded.  Bain alleged underlying problems with the mortgage: the real estate agent, mortgage broker, and originator took advantage of her known cognitive disabilities; they falsified information on her mortgage application; and they failed to make legally required disclosures.  In addition, Bain allged that IndyMac started foreclosure before it was assigned the loan and that some of the documents in the chain of title were fraudulent; while IndyMac was the original lender, the record suggested that ownership of the debt changed hands several times.

The court held that MERS couldn’t be a “beneficiary” within the terms of the deed of trust act if it never held the promissory note secured by the deed of trust, which it did not.  The court declined to decide the full legal effect of this holding on the present record, but homeowners might have a CPA claim against MERS for acting as an unlawful beneficiary depending on the facts.

The power to sell under a deed of trust is significant because it allows the trustee to foreclose and sell the property without judicial supervision; this required construing the deed of trust act in favor of borrowers.  The trustee is required to have proof that the beneficiary is the owner of the note secured by the deed of trust before foreclosing on owner-occupied homes.  This is connected to the traditional rule that mortgage and note can’t be split, which MERS challenges by only purporting to transfer mortgages, with lenders left to deal with the notes themselves. 

MERS facilitated the bundling and securitization of loans, which makes it “difficult, if not impossible, to identify the current holder of any particular loan, or to negotiate with that holder.”  This circumstance “has caused great concern about possible errors in foreclosures, misrepresentation, and fraud. Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult.”  Thus, MERS seemed inconsistent with the statutory goal of providing an adequate opportunity for interested parties to prevent wrongful foreclosure.  MERS argued that knowing the loan servicers’ identity was enough; there was “considerable reason” to believe that servicers couldn’t negotiate loan modifications or respond to related requests.  Lack of transparency could even lead to a failure of the chain of title.

The court framed the question as whether MERS could both replace the existing recording system established by state law and still take advantage of legal procedures set forth in the same state law.  Put that way, the answer is clear: no.

MERS argued that it could be a beneficiary if the parties wanted it to be; the legislature wanted to make things easier for lenders faced with defaulting borrowers, not to make foreclosure harder.  Thus, since the parties agreed that MERS was the “beneficiary,” that was all that was required.  To the contrary, parties to a contract can’t alter statutory provisions by contract.  We can privately agree that I’m a licensed doctor; that doesn’t make me one.

MERS argued that it was “the holder of the instrument or document evidencing the obligations secured by the deed of trust” even if it didn’t hold the promissory note, because “instrument” and “document” could refer to all the loan documents making up the loan transaction, and that “obligation” must be read to include any financial obligation under any document signed in relation to the loan, including attorneys’ fees and costs incurred in the event of default.  Thus, since MERS was the “holder” of the deed of trust, it was a beneficiary.

The court, however, agreed with Washington’s AG that the “instrument” had to be the note, because otherwise the statute would say that “beneficiary means the holder of the [deed of trust] secured by the deed of trust,” and a deed of trust isn’t secured by itself.  Other provisions of the statute were to the same effect, including a provision that, if read the way MERS wanted, would allow a non-holding party to credit to its bid at the foreclosure sale amounts owed to the note-holder.  The court also noted that a recent foreclosure prevention law aimed to encourage homeowners and “beneficiaries” to communicate and negotiate to avoid foreclosure, and MERS doesn’t have any power to do those things.  The law wouldn’t make sense unless beneficiary means noteholder.

MERS argued that it was the agent of a beneficiary, and the court accepted that the law of agency could apply.  But “[w]hile we have no reason to doubt that the lenders and their assigns control MERS, agency requires a specific principal that is accountable for the acts of its agent. If MERS is an agent, its principals in the two cases before us remain unidentified.”  MERS said that the deed of trust language said MERS was “acting solely as a nominee for Lender and Lender's successors and assigns.”  But the lender’s nomination of MERS doesn’t rise to an agency relationship with successor noteholders; MERS failed to identify the lawful principals that controlled its actions, even when asked at oral argument.  The record suggested that MERS acted as an agent of the servicer, but said nothing about the noteholder.

So, what now?  Well, we need to figure out who the beneficiary is.  “Because it is the repository of the information relating to the chain of transactions, MERS would be in the best position to prove the identity of the holder of the note and beneficiary.”  (Heh.  I’m sure its 20,000 vice presidents can easily retrieve those records.)  If the deed of trust has been split from the obligation, the deed of trust would be unenforceable, but the record didn’t clearly show that this had happened.  If MERS was in fact an agent for the noteholder, there would have been no split.  If MERS wasn’t, an equitable mortgage in favor of the noteholder might be an appropriate remedy.  Or, if the noteholder properly transferred the note to MERS, MERS might be able to proceed with foreclosure.

This conclusion led to the CPA ruling.  The CPA requires (1) an unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or property; and (5) causation.  MERS only disputed some elements.

Deceptiveness requires neither intent nor actual deception, but the capacity to deceive a substantial portion of the public.  MERS argued that it fully described its role to Bain on the contract she signed.  But nothing in the deed of trust would alert a careful reader to the fact that MERS wouldn’t hold the note.  The AG argued that MERS knew or should have known that it needed to hold the note to claim to be the beneficiary, and that MERS’s assignment of the deed of trust “purports to transfer its beneficial interest on behalf of its own successors and assigns, not on behalf of any principal.”  This undermined MERS’s contention that it was only acting as an agent, and served to conceal the true holder of the loan.  “Many other courts have found it deceptive to claim authority when no authority existed and to conceal the true party in a transaction.”  Though the court didn’t find that this conduct was per se deceptive, it had the capacity to deceive, satisfying the first element.

There was also a public interest impact, since MERS is involved with an enormous number of mortgages. “If in fact the language is unfair or deceptive, it would have a broad impact. This element is also presumptively met.”

MERS argued that there could be no injury because the borrower knows who the servicer is, and that’s enough.  “But there are many different scenarios, such as when homeowners need to deal with the holder of the note to resolve disputes or to take advantage of legal protections, where the homeowner does need to know more and can be injured by ignorance. Further, if there have been misrepresentations, fraud, or irregularities in the proceedings, and if the homeowner borrower cannot locate the party accountable and with authority to correct the irregularity, there certainly could be injury under the CPA.”  The court also noted that, while this wasn’t at issue here, “MERS's officers often issue assignments without verifying the underlying information, which has resulted in incorrect or fraudulent transfers. Actions like those could well be the basis of a meritorious CPA claim.”

Given the procedural posture, the court declined to rule categorically on injury, which would depend on the facts of the case and MERS’s causal role.  As the AG pointed out, MERS’ concealment of loan transfers also could also deprive homeowners of other rights, such as the ability to take advantage of the protections of the Truth in Lending Act and other actions that require the homeowner to sue or negotiate with the actual holder of the promissory note. My colleague Adam Levitin will love this one: “Further, while many defenses would not run against a holder in due course, they could against a holder who was not in due course.”

In conclusion: “[t]he fact that MERS claims to be a beneficiary, when under a plain reading of the statute it was not, presumptively meets the deception element of a CPA action.”  The rest would have to follow later.

Images and text in scrapbooking

This article by Ellen Gruber Garvey on variations in scrapbooking practice (the creation of derivative works, we would call it these days) highlights different treatment of clipped text and images, a subject in which I have a continuing interest.  Via a comment on The Worst Craft Idea Ever, which involves destroying books to make storage; Garvey points out that not everyone thinks it's terrible to repurpose a copy of a text to do something else in the world, though I tend to agree that this is a huge waste of a set of Lemony Snicket books.

Asparagus + salmon is scene a faire; plaintiff's keyword buys hurt it in confusion analysis

Hearthware, Inc. v. E. Mishan & Sons, Inc., 2012 WL 3309634 (N.D. Ill.)

Hearthware owns the NU WAVE mark for halogen ovens (registered as NuWave Pro Infrared Oven), while Mishan used Super Wave (also registered) for competing products.  Hearthware sued for copyright infringement, violation of the Lanham Act, and related state law claims. 

A halogen oven/infrared oven/convection oven is “a portable cooker that uses energy from a halogen heat source located in the cooker's lid.”  A fan circulates the hot air for even cooking, while an infrared element emits heat that cooks the food from the inside out.  A halogen oven can brown or crisp foods, unlike a microwave, and is more movable and fast than a conventional oven.

Hearthware alleged copyright infringement in two infomercials, one from 2008 and one from 2010, a “moderately updated” version of the first, but the court focused on the 2010 version because the parties didn’t distinguish them.

The NuWave infomercial is a half-hour long.  It

opens with a flurry of incentives for potential buyers, including a two-year warranty and free items such as a blender/food processor. The product's benefits are summarized and then revisited by an upbeat host, who presents the product with the assistance of a “TV Cooking Expert.”  The two hosts energetically sample food cooked in the NuWave oven and explain how the product may improve the lives of buyers. This presentation is frequently interrupted by enthusiastic testimonials, demonstrations, and reminders as to the details of the bonus-laden offer.  The infomercial is rife with images of different types of food cooking illustrated with time-lapse photography.

As for Mishan aka Emson, it sells many products, including some licensed to use the Sharper Image trademark, subject to licensing requirements including product approval and other quality control provisions.  The Sharper Image didn’t engineer the Super Wave oven and doesn’t provide its warranty or money-back guarantee.  Emson registered “Super Wave” as a trademark, and marketed its competing product as the the Sharper Image Super Wave Oven, using the Sharper Image mark prominently on packaging and in ads.  It produced a competing infomercial:

No actual footage from the NuWave infomercial is included in the Super Wave infomercial but the competing infomercials share a number of similarities. Both show many of the same foods being prepared and use time-lapse photography to demonstrate the cooking process. Both suggest their respective products may be used in a recreational vehicle (“RV”), a dorm, or on a boat. Both feature a host knocking frozen food against a hard surface to demonstrate that it is frozen. The hosts are chipper, the testimonials enthusiastic, and the virtues of the product emphatically conveyed. The Sharper Image is mentioned dozens of times in the Super Wave infomercial. The Super Wave infomercial notes that the Super Wave oven is the result of “thirty-two years of The Sharper Image design ingenuity” and that the Super Wave's warranty and money-back guarantee are provided by The Sharper Image.

The court first analyzed Hearthware’s copyright infringement claim.  Along with the similarities noted above, both “feature demonstrations of food cooking, including many of the same foods (in particular, salmon cooked at the same time as asparagus); …note that the ovens are able to broil, roast, grill, bake, barbecue, steam, dehydrate, and air fry; … use similar words to describe the abilities of the free blenders that come with the products; [and] [t]he Super Wave infomercial touts ‘tri-cooking technology’ while the NuWave infomercial promises ‘triple-combo cooking power.’”  A potentially important procedural note, at least for those arguing about idea/expression or the extrinsic test: the court refused to consider about thirty additional alleged similarities, including “the presence of a male and a female host, the hosts hugging upon greeting, the cooking of a sixteen-pound turkey, and the use of testimonials,” because Hearthware didn’t identify them in response to Mishan’s interrogatories requesting identification of all words, phrases, imagery, and actions alleged to be identical or substantially similar to the NuWave infomercials.  As a result, Mishan’s discovery and summary judgment motion “understandably focused on similarities alleged in the complaint and in response to its contention interrogatories. For example, in arguing for the application of the scènes à faire doctrine, Mishan presents a chart addressing each of the similarities alleged in the complaint. Hearthware may not add new claims after the motion for summary judgment was filed without leave of court.”  How does this square, if at all, with the idea that there can be similarity in “look and feel” or intrinsic similarity?

As for the similarities the court did consider, the court agreed that they were unprotectable scènes à faire. Among other things, Mishan produced evidence that these similarities were “commonplace in the world of halogen oven infomercials.”  In fact, for each element allegedly copied, Mishan presented a list of infomercials that used it before Hearthware did.  For example, “[n]o less than eight previous infomercials demonstrate food cooking and Hearthware’s infomercials are actually only the third and fourth to specifically show salmon and asparagus cooked together.”  The court concluded that these similarities were, “as a practical matter, indispensable or at least standard in presenting a halogen oven infomercial.”  Since Hearthware didn’t identify copying of “any new or novel manners of presenting these commonplace elements” or copying of footage, its claim failed.  The specific words used to describe the NuWave’s features and the free blender/food processor with purchase were also unprotectable: “short, purely descriptive phrases concerning a product’s abilities do not receive protection.  While ‘tri-cooking technology’ may bear a resemblance to ‘triple-combo cooking power,’ both are clearly descriptive phrases that remind viewers that halogen ovens cook in three different ways.” 

Allegations of direct copying couldn’t fix the fundamental problem: the producer of Mishan’s infomercial stated that the SuperWave infomercial “[w]ould be better if there were things more substantive like Nuwave [sic],” in terms of freebies, and Mishan’s CEO responded that “All freebies should be in the tease Same [sic] like Nuwave [sic],” but no reasonable jury could find this to be evidence of direct copying.  Even if the NuWave infomercial inspired the Super Wave infomercial, Mishan was free to appropriate uncopyrightable elements.

Mishan also won summary judgment on the trademark infringement claims.

The court found that similarity clearly favored Mishan.  Except for the term “wave,” which Hearthware’s registration disclaimed, the coloring, fonts, packaging, and overall presentation differed, including prominent presentation of the Sharper Image mark on Mishan’s box and in its marketing.  “Despite the shared use the term ‘wave,’ the presentation of the marks is entirely different.”  The products were of course similar, as were the channels of sales and marketing. 

Hearthware argued that its mark was strong because it had won many awards for its infomercials, but the court found this to shed “no light” on strength, nor did the fact of the registration.  Without further evidence, the court couldn’t find any particular level of strength.  Also, “wave” as used on the products was merely descriptive.  A number of third-party halogen ovens, including FlavorWave and QuickWave, also used the term.  Further, at least sixteen other non-halogen ovens, microwave ovens, and toaster ovens had registered trademarks using “wave.”  Strength strongly favored Mishan.

Mishan also submitted a survey of approximately 300 respondents likely to purchase a halogen oven through an infomercial. Both cells saw a shortened NuWave infomercial; the test group saw a shortened Super Wave infomercial and the control saw a shortened FlavorWave infomercial.  In response to the question whether they thought the products were produced by companies that were either the same or affiliated, 59% in the control group thought the were produced by the same or affiliated companies, while only 42% thought that in the test group.  

Hearthware had no evidence of actual confusion, though it argued that it had 159 audio recordings of confused consumers who called its customer service center.  The court disagreed that these were evidence of confusion.  Mishan’s expert conducted a content analysis and found that they didn’t show actual confusion; though this was contested, the court concluded that nothing in the record would “support a reasonable inference that these callers were ‘confused’ regarding the marks.”  Among other things, these consumers weren’t calling to place orders.  One Super Wave owner initially called the Sharper Image number but was incorrectly connected to Hearthware’s call center, but this didn’t suggest consumer confusion, but rather mistake by the Sharper Image call center.  In a quarter of the calls, the expert couldn’t determine which oven the caller actually had; as for clear Super Wave customers, the number of them calling the NuWave line was de minimis, “in light of the high number of callers correctly calling the number, as well as other factors unrelated to confusion or due to Hearthware's own actions.”  The court pointed out that Hearthware bought “Super Wave” and “Sharper Image” as keywords and “as a result, a Google search for ‘super wave oven’ produced the phone number for NuWave” (emphasis added).  Whoops.  Query: would these customer service calls support Mishan’s potential infringement claim against Hearthware?

The court also found favorably with respect to Mishan’s intent.  There was no evidence of attempted passing off.  “Super Wave” was the name for innocent reasons: it’s based on the cooking technique and fits with a number of other Mishan Wave products, including the Bacon Wave, Sausage Wave, Chip Wave, Stone Wave, and Omelet Wave, as well as a number of other Mishan Super products, including the Super Sewing Machine, Super Scissors, Super 5 Edge Wipers, and Super Hear.

Given the one-sidedness of the evidence, especially on the three most important factors—similarity of the marks, intent, and actual confusion—summary judgment for Mishan was warranted.  “The only factors that favor Hearthware are product similarity and the area and manner of concurrent use. These factors would apply to any competitors in the same product line, regardless of the likelihood of confusion.”

The remaining claims of false advertising were based on Mishan’s statements that (1) the Super Wave oven is the result of thirty-two years of Sharper Image design ingenuity, (2) the Super Wave oven comes with a five-year Sharper Image warranty, and (3) the Super Wave oven is backed by a sixty-day money-back Sharper Image guarantee.  However, The Sharper Image didn’t engineer the product, nor are the warranty or guarantee provided by The Sharper Image—they come from Mishan.

Mishan argued that there was no literal falsity because “The Sharper Image reviewed and approved the oven, infomercial, packaging, instructions, and warranty cards. In Mishan's view, this oversight ensured that the product and its guarantees were consistent with Sharper Image standards.”  Thus, it stood in The Sharper Image’s shoes.  The court characterized Hearthware’s argument as “simpler,” since The Sharper Image neither designed the oven nor provided the guaranty or warranty, and agreed that a reasonable jury could find these statements literally false.

However, Hearthware still needed to show materiality.  Mishan’s second consumer survey addressed this (though in a very defendant-favorable way, testing recall instead of comprehension directly).  One hundred and fifty-three respondents watched a shortened version of the Super Wave infomercial that included all three allegedly false statements.  When asked which elements appealed to them, 5% mentioned either The Sharper Image or the brand.  Eighty-two percent recalled that there was a warranty, but only 5% mentioned The Sharper Image or the brand when they were asked what they specifically recalled about the warranty.  Eighty-eight percent recalled that there was a money-back guarantee, but none specifically recalled The Sharper Image or the brand.  (If it’s not material, why does Mishan spend so much money and effort on licensing?  Or tout it in the infomercials, as the court emphasized in its confusion analysis?)  The court found that Mishan satisfied its burden to show immateriality, and Hearthware didn’t challenge the survey or submit evidence of its own.  Claims dismissed.

In summary, the court said: “Fierce competition is not the same as unfair competition. Based on the record before the court, the battle between Hearthware and Mishan belongs in the marketplace rather than the courthouse.”

Falsity by necessary implication?

Today's xkcd is about misleading advertising:



xkcd has actually done this same joke already. But it's still funny.

All in the game: misleading press releases support Lanham Act claim

TASER Intern., Inc. v. Stinger Systems, 2012 WL 3205833 (D. Nev.)

TASER makes tasers.  Stinger’s assets have been sold to Karbon, but it produced a competing “electronic control device.”  Defendant Gruder was its CEO during the relevant time period, while defendant McNulty was a lawyer who sold patents and molds to Stinger in exchange for stock.  TASER alleged that, with Gruder’s approval, McNulty drafted misleading press releases for Stinger that negatively affected TASER’s stock value.  McNulty also allegedly drafted TASER-damaging press releases for Bestex, a company that makes traditional stun guns, and also allegedly represented and counseled Bestex pro bono in other matters.  TASER alleged that it suffered resulting damage when investors shorted its stock (this makes sense for the dismissed securities fraud count, but query whether it alleges Lanham Act damage).  McNulty allegedly owned shares in Stinger and in LEA, a company that sells surveillance equipment, when he authored the misleading press releases. 

In a previous litigation against Stinger, in which McNulty served as Stinger’s counsel, there was a stipulated dismissal of Lanham Act claims, noting that “there has been no resolution of any factual or legal issue on the merits, and the dismissal of those claims should not be construed as an adjudication against or in favor of either party.”  The case ended with a finding of patent infringement against Stinger.  TASER alleged that Stinger’s misleading 2007 press release about the case caused TASER’s stock price to drop, representing a $40 million loss in market capitalization.  Further, TASER alleged that a January 2008 series of press releases similarly harmed it.  Stinger’s press releases concerned its requests to the PTO for reexamination of one of TASER’s patents and related matters. 

In addition, in April and September of that year, Stinger issued a press release and email that TASER alleged was based on a vexatious false advertising lawsuit.  In the lawsuit, Stinger accused TASER of misleading consumers about a federal report; the suit was announced the same day TASER released its quarterly earnings, and this was allegedly misleading because the lawsuit was meritless and Stinger had no intention of prosecuting it.  “Stinger never served TASER, and voluntarily dismissed the lawsuit after the service cutoff date passed and after an order to show cause was issued against Stinger. TASER alleges that the Stinger lawsuit was intended merely to facilitate the misleading press release.”  The email was similar to the press release.

As for Bestex, TASER alleged that McNulty approached LEA’s president to propose a sham agreement between Bestex and LEA to publish press releases that would drive up LEA stock and hurt TASER.  TASER provided transcripts of recorded conversations describing this plan.  LEA refused.  Nonetheless, TASER alleged, McNulty issued a press release in January 2008 on behalf of Bestex that allegedly misled the public into believing that Bestex and LEA had entered into an agreement, in order to push up LEA stock.

TASER’s securities law claim was dismissed, but its trade libel/defamation, Lanham Act, and state deceptive trade practices claims survived.  The court found that there was no claim preclusion or judicial estoppel, since the earlier case was about different facts (not the press releases at issue here) and specifically said that no Lanham Act issue had been resolved on the merits; TASER’s damages claims here weren’t clearly inconsistent with what it claimed in the patent lawsuit.

Defendants argued that McNulty wasn’t jointly and severally liable for any violations by Stinger, but a corporate officer’s active participation in infringing (false advertising) activity is enough to subject him or her to liability.  Defendants failed to show as a matter of law that McNulty lacked personal involvement in the creation, drafting, and publication of the press releases.

Defendants also argued that there could be no claim for the Bestex press release against the defendants because TASER hadn’t named Bestex as a defendant.  TASER didn’t present evidence that Stinger or Gruder had anything to do with the release, or that McNulty himself published the release.  Moreover, defendants argued, Gruder and McNulty weren’t direct TASER competitors.  It was true that TASER hadn’t demonstrated Stinger or Gruder’s involvement in the Bestex press release; yet because it hadn’t deposed relevant witnesses, a ruling on liability would be premature.  Further, TASER did provide sufficient evidence of McNulty’s personal involvement to avoid summary judgment, including an email from him to the PR Wire Service with the entire release, which demonstrated “some level of personal participation” in the publication and evidence of his general efforts regarding press releases.

As to the direct competition argument, it wasn’t true that individual defendants had to be direct competitors, as long as they acted as agents of an infringing (false advertising) company and actively participated/were a moving, active conscious force behind the violation, they could be liable under the Lanham Act.  Bestex didn’t need to be named in order for its agent to be personally liable, especially since the allegations were that both individual defendants were actually acting as agents of Stinger.

As for the April/September 2008 lawsuit-related claims, defendants argued that TASER failed to show falsity/misleadingness.  The court disagreed.  The headline was “TASER sued for false advertising, unfair competition and injurious falsehood.”  The press release quoted the Stinger complaint’s allegations that TASER represented to consumers that the underlying federal report was up to date, when it was actually based on an older version of the technology. “The release also included allegedly misleading assessments of Stinger's newest technology as against TASER's.”  The facts created at least a triable issue of fact about whether the lawsuit was filed for the purpose of releasing misleading press statements.  Stinger didn’t serve TASER; the release didn’t provide “adequate background” into the report or what it said; and there was evidence that Stinger and McNulty wanted to pursue a strategy of using misleading press releases to harm TASER’s stock value, making intent to mislead more likely.  The Stinger lawsuit was indeed pending at the time, but that wasn’t enough to preclude a Lanham Act claim.  (It’s not clear to me what’s alleged to be misleading about the statements—this is a very layered set of allegations.  Note that the court does not appear to require evidence that consumers were actually misled in order to avoid summary judgment, even without literal falsity; perhaps this is the rare case where intentional misleadingess substitutes for evidence of consumer reception.)

I'm left with the question of harm I began with: is harm to the stock price Lanham Act harm?  Who are the relevant consumers?

Pop will eat itself

Gotye remixes YouTube covers of Somebody That I Used to Know.  Discuss!

IPSC, part 8

Closing Plenary Session

Jeanne Fromer, The State(s) of Copyright Law 

Attempting to collect all state cases that mention copyright.

Atlernative forms of IP, contract law, tax law, laws regulating pysical medium of fixation, copyrightability of state materials, access to gov’t records, authorizing state-authorized business associations to copyright; requiring copyright owners to share copyrighted material; consumer protection laws; education; laws punishing frivolous copyright claims.  (Also Washington’s law as discussed by Eric Priest this afternoon.)

What she’s seen: conversion or statutory theft laws applied to copyrightable expression: P bought compilation rights to Chicken Soup for the Soul; published chapters together; court says conversion claims can go forward because there was a contract.  Health Communic. Inc. v. Chicken Soup for the Soul Pub’g.  Many courts would say this was preempted.

Michigan: prosecution for piracy of someone caught selling DVDs.

Ohio: prosecution for possession of criminal tools for having copying equipment/blank DVDs.  (I wonder about these cases after the Arizona immigration case.)

Ark., Cal.: requiring that certain electronic material used in education be copy protected to prevent infringement.

Ohio: denying access to government records because of copyright—teacher trying to get hold of earlier exams to see if they were well-designed; decision in part based on trade secrets too. Rule 123, Arizona: state records can be inspected but can’t be republished without permission of court.

Contract law: DVDCCA v. Kaleidescape—contract over tech to prevent users from unauthorized copying.

Tax laws exempting or lowering taxes from copyright-related profits.

Laws that weaken copyright: higher taxes; punishment for frivolous copyright claims, usually punished for claiming copyright in their names.

Divorce transferring; Alaska provision denying access to public research until “copyrighted or patented”: didn’t seem to understand how copyright is acquired.

Laws forbidding royalty contracts unless the copyright owner provides all sorts of info to other party in advance: Alaska, Ark., Cal.—rights organization or copyright owner can’t enter premises without providing lots of info in writing.

Laws requiring copyright owners to share or divulge expression: Az. Requires public schools to buy materials for which there’s accessible electronic content; Cal requires car manufacturers to make various thins available, including copyrightable info.

Other laws prevent state entities from asserting copyright.

Laws incorporating copyright: Workers’ comp in Cal. says an employee is someone who creates a work for hire for these purposes.  Laws governing royalty agreements, where you need to know who the author is for breach/damages.

Preemption concerns with many examples, both under §301 and conflict preemption.  Also can bypass lousy federal political economy or create lousy political economies for copyright.  Assumes that states will be educated about copyright law, but see Alaska rule.

Q: one way ratchet? More likely to be struck down if they chip away at copyright rights.

A: That’s true—preemption is very important (compare results in piracy cases).

Katz: May seem similar to TRIPS dynamic: baseline always goes plus.

A: Interested that she found some weakening laws like those preventing entry into a business without disclosure: local businesses lobby for it. Wasn’t all a one-way ratchet.

Grimmelmann: Exclusive jurisdiction of federal courts creates comparative expertise, and yet they can’t avoid hearing cases that implicate copyright policy.  So there’s jurisdictional questions as well.

Rothman: Difference between ratcheting up and limiting in terms of preemption.  States will be most successful helping creators, not the public, so where do you take that?  E.g., idea submission cases.

A: favored strong preemption because of balance concerns; courts might see preemption as one way ratchet but she doesn’t.

Samuelson: state camcording laws.  State moral rights laws.

A: wanted to survey less obvious things here—will discuss those things in the paper.

Samuelson: what about shrinkwrap enforcement?

A: yes.

Q: state laws against abuse of copyright: outgrowth of “sovereignty” movement popular among prisoners, etc.  File UCC liens against people and so on.  Are the laws aimed specifically at that behavior?  Also pre-1972 sound recordings, based on INS v. AP.

A: recurring pattern so far is prisoners/defendants asserting their names are copyrighted.  Prosecutions for false filings have occurred.  Pre-1972 rules have been applied to post-1972 recordings because courts are so unsophistication.

Q: what happens in states with more creative industries?

A: Going through states in alpha. order; Cal. has more laws and more cases, such as workers’ comp and tax rules—definitely more lobbying there.  Not clear there’s an overarching story.

Pamela Samuelson, Why Gardens, Perfumes, Recipes, DNA, and Mathematical Formulae Are Not Copyright Subject Matter

“Includes” in 102(a) is not supposed to be exhaustive, but how much broader should it be?  What is and isn’t a work of authorship (WOA)?  Leave aside originality and fixation: can we pull together a theory?

Four approaches in the literature: (1) economic: is a grant of copyright’s exclusive rights likely to induce investments in works of that kind? Will viable markets form around those rights?  Then, WOA can mean whatever Congress says.

(2) Legal regime considerations: does the modality of copyright match well with the characteristic of works that need protection: duration, automatic protection on being fixed, thickness etc.? Often paired with (1) and again gives Congress flexibility.

(3) Special nature of authors and their works.  Are the creators similar to conventional authors/artists? Is the creative process similar? Are the artifacts they create similar to conventional WOA? Do they express the personality of the author? Do they appeal to the eye?

(4) Communication of intellectual content: do the works communicate info, ideas, aesthetic impressions to other humans in ways like conventional WOA do? Do they promote progress of science/contribute to culture? Are works of this kind engaged in dialogue/discourse with other works/kinds of works?  Often paired with (3).

What’s not WOA?  Consensus, relatively, on these: perfume, gardens, etc.

Copyright laws until recently were very artifact-specific; WOA is more abstract and forward-looking. But when it comes to acts adding subject matter, most of the arguments in favor were based on economics/incentives.  Costly to make, cheap to copy; markets can form around rights, legal remedies fit.  But “I’m like them” arguments were also made.”

Burrow-Giles, Bleistein, Mazer v. Stein: court resolves by moving away from subject matter to originality.  Baker v. Selden: the one case where that doesn’t happen: no coverage of bookkeeping system.  Copyright is for explanations and depictions, patents for useful arts.

Derenberg’s 1956 study construed “Writings” and “Author” in constitution as not intending a limit; instead whatever promotes the progress of science is copyrightable.  Was writing this as a way of saying that whatever doubts had existed about Congress’s power to protect sound recordings and industrial designs through copyright, they should be dismissed.

Today, SCt would likely take the same view.  We forget that other countries don’t protect sound recordings through copyright but rather sui generis rights; not considered WOA.  Product of engineering and not authorship.

DNA: argument in favor is grounded in analogy to computer programs.  Legal regime argument based mainly on desire for hook for CC licenses.  Yoga sequences: there was a lawsuit, and a Copyright Office policy clarifying that compilation copyrights don’t extend to selection and arrangement of yoga sequences; compilation must consist of subjects matters within one of the 8 listed categories.  Calls DNA claims into Q too.

Gardens: 7^th Circuit Chapman Kelley v. Chicago.  Chicago mistakenly conceded that garden was work of conceptual art.  District court said it wasn’t original.  But there was creative selection and arrangement.  Also talk about whether it was fixed, but it was buried in the ground.  Tangible medium of expression?  That’s different.  Is it a WOA?  No, it’s a garden.  Not the most persuasively reasoned, but got it right.  If you grant him copyright, all gardens get it.

No unified field theory and some arbitrariness, yes, in the lines being drawn, but the four considerations weigh differently here than across the Atlantic. Economics given more weight. Sound recordings and software were crammed in and made the law less coherent; sui generis right would have been better to prevent record industry from messing up general copyright law. 

Next Q: 3-D printing and stereolithography.

Buccafusco: can you move us to a unified field theory?

A: thinking so far: When all four line up, that’s copyrightable subject matter.  Even Mel Nimmer, when it came to computer programs, was concerned about extension because he feared that copyright would become a general misappropriation law.  There are reasons not to want that to happen, esp. with statutory damages; if everything original and fixed is copyrightable, that’s a bummer. 

Newman: necessary criterion: designed selection and arrangement of sensorial perceptions.  Garden is fixed, but the end result of what people perceive can’t be fixed because there’s too much intervening randomness. The gardener can’t fix petals/colors.  God is intervening.

But isn’t that always true?  Well, a bit, but garden is very clear example.

A: that’s among the things on the 7^th Circuit’s mind.  A lot of plants Kelly first put into the ground didn’t work out, and seeds made their way into the garden, so it wasn’t and couldn’t be the garden he designed.  To say the city couldn’t change the parameters of the garden during his life (per VARA) was worrisome.  Tony Reese is writing a paper saying any new type of WOA that wasn’t contemplated in 1976 can be considered, but not types that were known and not listed in 1976—that would exclude gardens; Congress was just trying to leave it open for new technology unanticipated by the present Congress, so it wouldn’t have to amend the law the way previous Congresses had been required to do by photos, films, etc.

Stuart Graham & Galen Hancock, Setting Patent Fees 

In past, Congress set fees; now has increasingly allowed Patent Office to set fees, though with various constraints.  AIA provided general authority to set fees, allowing it to use them as a polic instrument without regard for activity-based cost recovery. Leads to a need for evidence on what the fees should be and what their effects are.

1790: fees depended on the number of words in the specification, about $4.  Then a flat rate of $30; relatively constant in nominal terms for a while.  1980: maintenance fees introduced. 

Administrative tools are examination, reexamination, litigation for maintaining patent quality;  Price system, it’s application fees pre-grant and renewal fees post-grant.

Price elasticity of demand.  Roles of information, uncertainty, other factors. 

Patents that aren’t maintained are effectively subsidized by those that are.  So what’s up?  Search and exam costs are substantially larger than fees.  Maintenance fees are significantly higher than the cost of keeping the patent in force.  Continuations tend to be associated with paying maintenance fees: suggests that applicants may have good early info about potential value.

Pre AIA schedule had opportunities for improvement; rulemaking is a chance to change the system for the better.  First rulemaking is likely to be the most significant change in the foreseeable future.  Comment at uspto.gov/americainventsact.

Lemley: policy implications—sure seems like Office maximizes revenue by granting lots of patents. When you don’t grant a patent you lose money, when you grant one that has maintenance fees you make money.

A: we’re not a revenue maximizer, though we want to fund our operations.  We must set fees in the aggregate to recover cost.

Lemley: should we charge more up front?

A: Please be involved in the process going forward!  Everything we’ve learned suggests that raising fees early punishes those who are more uncertain about the prospects of their invention. Using maintenance fees you can deal with uncertainty that has resolved over time.  Raising maintenance fees can help people with more valuable patents pay for them.

Michael Frakes & Melissa Wasserman, Does Agency Funding Affect Decisionmaking? An Empirical Assessment of the PTO’s Granting Patterns

Large entities pay larer fees; renewal rates vary across technologies. So will PTO grant more to those who are more likely to maintain, assessed based on the tech class?  Will they grant more to large entities when they need money?

As the PTO gets underfunded, we see a differential granting pattern.

Lemley: how does this happen given the lag time?  If we’re short on money, we do this in hopes things will improve?

A: large entity is immediate, though maintenance is a tougher Q.  If they feel strapped, they may feel they’re likely to be strapped in the future too.

Q: types of applications: maybe large entities patent smaller things to have large portfolios. Can you control for claim length/length of specification etc.?

A: we do control for filing rates of entity size, tech class, etc.