Fair use hearing testimony available

House website here.  Written testimony from June Besek (fair use is too big, especially with respect to Google), Peter Jaszi (no, it's not), David Lowery (music remixes and sampling etc. aren't fair use; licensing is perfect),  Naomi Novik (transformative works are great and need protection; licensing is no substitute), and Kurt Wimmer (no congressional action is required even though some courts read "transformative" too broadly; licensing is better).

TM claims in DMCA notice may lead to 512(f) liability

CrossFit, Inc. v. Alvies, No. 13–3771, 2014 WL 251760 (N.D. Cal. Jan. 22, 2014)

CrossFit sued Alvies for trademark infringement, among other things, and Alvies counterclaimed for false advertising/unfair competition.  CrossFit moved to dismiss the counterclaims and partially succeeded.  CrossFit alleged that it developed a fitness training regimen and provides a nationally standardized certificate program to personal trainers who can become licensed CrossFit affiliates. It has several CrossFit registrations and ITU applications.  In 2011, Alvies launched a blog at “crossfitmamas.blogspot.com” and created a “CrossFit Mamas” Facebook page. She posted daily high-intensity interval training routines, and readers used the comments section to post and track their personal progress on certain exercises. She sold vitamin meal replacement shakes through the blog and added Google AdWords advertising.

In Spring 2013, a CrossFit paralegal demanded that Alvies stop using the CrossFit name on her blog and affiliated Facebook page, and also began communicating with at least one reader of Alvies’s blog about the quality of Alvies’s workouts. The paralegal stated that she had “assessed a few days of [Alvies’s] workouts,” that it was “bad programming,” and that a CrossFit trainer determined that Alvies’s workouts were “stupid and unsafe.”

CrossFit requested that third parties (possibly Google) remove Alvies’s blog and sent a DMCA takedown notice to Facebook.  Alvies allegedly reached an agreement to move to “califitmamas.com” and “califitmamas.blogspot.com,” though the paralegal allegedly asserted that Alvies could not use the term “CFMamas” because “CF” is a common abbreviation of CrossFit.  CrossFit continued to demand that Alvies disable Google AdWords and stop selling vitamin shakes.  It allegedly reneged on the deal and demanded that she stop using califitmamas.com; she moved to “hiitmamas.blogspot.com.” But then CrossFit repeatedly demanded that Alvies delete over two years of blog posts, allegedly as part of an improper attempt to remove evidence of her prior use in commerce of marks subject to CrossFit’s ITUs for nutritional shakes etc.

CrossFit argued that Alvies’s claim for violation of §512(f) should be dismissed.  The DMCA doesn’t provide trademark remedies, but CrossFit’s claims were based on trademark, not copyright.  CrossFit nonetheless argued that Facebook allows trademark takedown notices too.   The court responded: so what?  Alvies plausibly alleged a material misrepresentation of copyright infringement; “[w]hether CrossFit may have been able to convince Facebook to remove Alvies’s page on some other ground has no bearing on CrossFit’s compliance with the DMCA.” CrossFit argued that she wasn’t injured because if it hadn’t submitted a DMCA notice it would have submitted a trademark notice. The court refused to “hypothesize about what Facebook would or would not have done if it had received a trademark takedown notice regarding Alvies’s Facebook page.”

Alvies brought a California UCL claim on the theory that CrossFit was harassing her to eradicate all evidence of her prior use of marks for which CrossFit had filed ITUs.  CrossFit argued that Alvies lacked standing (of course) because she failed to plead economic injury.  Not so.  “Alvies alleges that her blog and affiliated Facebook page generated at least a modicum of revenue through the sale of vitamin shakes and Google AdWords, and that CrossFit wrongfully caused those pages to be removed.”  But UCL remedies for a private plaintiff are generally limited to injunctive relief and restitution, and Alvies’s prayer for relief was too vague; she didn’t seek injunctive relief and restitution requires that the defendant “acquired the plaintiff’s money or property by means of ... unfair competition”; it was unclear how CrossFit could have received Alvies’s lost revenue.  The UCL claim was dismissed with leave to amend.

As for Lanham Act false advertising, CrossFit argued that Alvies lacked standing because they weren’t direct competitors.  It’s a large fitness training company and she’s a blogger.  Nope.  “Both parties offer fitness training services. Their business models differ, but they offer similar services to consumers. … [N]othing in the Lanham Act suggests that differences in size preclude a finding of competition.”  However, Alvies didn’t plead “advertising or promotion,” because the paralegal’s statements to at least one reader didn’t constitute “an organized campaign to penetrate the market.” Any amended pleading would need to identify CrossFit’s allegedly disparaging statements and explain how they were disseminated to the purchasing public.

Mastercard v. Nader updated

Seen in Arlington, VA, Jan. 2014:

Photo by Zachary Schrag.

Congressional hearing on the scope of fair use

Coming Tuesday to a streaming website near you.

unfair competition in the news

The facts described in this article about Uber's alleged attempt to crush competitor Gett by booking and then cancelling rides seem like a pretty good candidate for application of the general unfair competition tort.  Hypo of the day: what causes of action would you allege on Gett's behalf, assuming the facts as reported?

Organization for Transformative Works gets a Hugo nomination

For Best Related Work.  Awesome!  (I guess being Hugo-adjacent runs in the family.)

FTC goes after advertiser and ad agency for false dramatization

Read all about it.  One great feature: the complaint includes the challenged ad!  The FTC at least wants us to see for ourselves.

Reading list: Without Copyrights

Robert Spoo, Without Copyrights: Piracy, Publishing, and the Public Domain: An engaging, detailed account of trade courtesy in the US before the US recognized foreign copyrights (including the period when foreign authors could in theory get a US copyright but faced nearly insuperable barriers in practice, especially if they were new/risky for publishers), and the struggles of modernist writers—primarily James Joyce—to claim rights despite the lack of legal foundation. I was most interested in the chapter on Joyce’s lawsuit against Samuel Roth for violating Joyce’s right of publicity by publishing his uncopyrighted works under his name—turns out copyright owners have been trying to leverage other rights for a long, long time. (Also, as Spoo points out, it’s no accident that unauthorized reprinters of Joyce using copyright’s boundaries aggressively also were the source of key obscenity precedents, since they were pushing other boundaries for at least in part ideological commitments to freedom).

false omission claim fails for insufficiently alleged facts about crib bumper risks

Corral v. Carter’s Inc., 2014 WL 197782, No. 1:13–cv–0262 (E.D. Cal. Jan. 16, 2014)

Plaintiff sued Carter’s for basically the usual California claims in connection with Carter’s crib bumpers—“a strip of thin padding that is intended to affix to the inside perimeter of an infant’s crib by means of ties or other attachments to the slats that surround the crib. Crib bumpers are sold either individually or as bedding sets.”  The bumpers allegedly pose a significant risk of death or injury to infants, but Carter’s allegedly concealed this and left the false impression that they promote infant safety.

Carter’s does say on the label: “To prevent entanglement or strangulation, position ties to the outside of crib and be sure they are secure. Remove bumper when child can sit up unaided or can pull to a standing position.”  Also, it includes an information sheet that counsels parents to remove “pillows, sheepskins, pillow-like stuffed toys and products not intended as infant bedding from the crib when infants are sleeping,’ [but] it does not recommend removing the crib bumper when the baby is sleeping.” Instead, the sheet counsels avoiding “pillow-type” bumpers, the use of bumpers with ties that exceed nine inches, and bumpers that can’t be fastened securely. This allegedly conceals the serious risks posed even by properly installed bumpers.  (FWIW, the allegations of risk are consistent with everything I read as an expecting parent ninish years ago.)

The complaint alleged that crib bumpers became popular with old-style cribs that used widely set slats, which allowed a baby’s head to become trapped between them. Current cribs correct this flaw, though the complaint didn’t indicate how many old cribs remain.  A number of professional and infant health advocacy groups have advised against the use of crib bumpers, as has the FDA.  The complaint didn’t allege a clear causal connection between sudden infant death syndrome and crib bumpers, but did cite statements suggesting that rebreathing stale air may be contributory to SIDS in some cases and a 2007 study that attributed 27 accidental deaths of children between 1985 and 2005 to bumper pads.

The complaint didn’t allege any affirmative misrepresentation. “Nondisclosure or concealment of a material fact that a defendant was obliged to disclose can be actionable in four situations: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; or (4) with the defendant makes a partial representation but also suppresses some material fact.”  

The court first held that Rule 9(b) required Corral to identify with particularity the “fact” that Carter’s was obliged to disclose.  “[A] claim of fraud by omission cannot, as a practical matter, require the same degree of adherence to the ‘who what when and where’ standard imposed by Rule 9(b) on claims of affirmative misrepresentation. However, for a claim of fraud by omission to provide adequate notice to the defendant, there must be a fairly precise statement of what was required to have been disclosed that was not.” Here, Corral claimed that Carter’s was required to “disclose the significant risk that their crib bumpers may cause death, entrapment, and/or suffocation,” even if used as instructed.

The court wasn’t sure that was a “fact” within the meaning of the CLRA.  To establish that this was a risk, Corral needed to allege “at least some evidence that the use of Defendant’s product, as directed, increases the frequency with which the harm will occur.”  The evidence that bumpers caused accidental deaths didn’t specify the type/whether they were the same design as Carter’s, or the contribution, if any, of faulty installation.  The recommendation of safety groups wasn’t itself proof of the alleged substantial increase in risk, but appeared to result from a global assessment that included “the nonzero risk of injury, the lack of any verifiable benefit from the use of crib bumpers and the possibility the product will be installed or used improperly leading to injury.” While Corral’s allegations might establish a number of “facts,” the alleged omission (that Carter’s bumpers are inherently dangerous) wasn’t one of them.  Corral needed a more direct line to infant harm.

Innovation and inequality

Matt Yglesias in Slate suggests that, if only the top 1% has disposable income, innovation will be very different from innovation in a more egalitarian state, and the only way for a mass market product to succeed will be for it to be free/ad-supported.  (He also discusses the emphasis on branding/exclusivity of the expensive products made for the 1%.)  A useful reminder that IP's standard monetary incentives story requires someone to pay; rights in themselves have no economic value.

Second Circuit allows one mandatory pregnancy center disclosure

Evergreen Ass’n, Inc. v. City of New York, --- F.3d ----, 2014 WL 184993 (2d Cir. 2014)

The City appealed from a preliminary injunction against Local Law 17, which required pregnancy services centers to make certain disclosures about their services. On appeal, the court concluded that the law wasn’t impermissibly vague in its definition of pregnancy centers.  Further, plaintiffs didn’t show likely success on the merits as to the portion of the law requiring pregnancy services centers to disclose if they have a licensed medical provider on staff. However, other aspects of the law impermissibly compelled speech.

The law required pregnancy centers to disclose, at their entrances and waiting rooms, on advertisements, and during telephone conversations:

(1) whether or not they “have a licensed medical provider on staff who provides or directly supervises the provision of all of the services at such pregnancy service center”;

(2) “that the New York City Department of Health and Mental Hygiene encourages women who are or who may be pregnant to consult with a licensed provider”; and

(3) whether or not they “provide or provide referrals for abortion,” “emergency contraception,” or “prenatal care.”

The law defined a “pregnancy services center” as a “facility, ... the primary purpose of which is to provide services to women who are or may be pregnant, that either (1) offers obstetric ultrasounds, obstetric sonograms or prenatal care; or (2) has the appearance of a licensed medical facility.” It provided a nonexclusive list of factors for consideration in determining whether a facility “has the appearance of a licensed medical facility,” and stated that it was “prima facie evidence that a facility has the appearance of a licensed medical facility if it has two or more of the factors.” Finally, the law exempted facilities that are “licensed ... to provide medical or pharmaceutical services” or have a licensed medical provider on staff.

The NYC Council heard testimony about the need for such disclosures to avoid misleading women.  Several people testified about misleading practices by crisis pregnancy centers (CPCs), including that they’re often intentionally located in proximity to Planned Parenthood facilities and that they often use misleading names and signage. One women’s health center director testified about a CPC that would “park a bus in front of her clinic, from which the CPC’s counselors, often wearing scrubs, would offer ultrasounds, harass Center patients, tell patients that the Center was closed, or identify themselves as Center workers.”  An official from the Department of Health and Mental Hygiene testified that delay in prenatal care posed risks to women and newborns, and that delays in access to abortion and emergency contraception were risky.  Testimony discussed patients who’d been misled by CPCs, leading to delays in access to services, e.g.:

One woman scheduled an appointment for an abortion at an organization that, as she learned upon arrival, was a CPC. Another works at a grocery store and had to negotiate with both her boss and one of her co-workers to get the day off so she could go to the clinic and have the abortion that she and her husband had together decided was best. When she realized she had gone to a place that wasn’t going to provide the service she needed, that she had wasted her day off, lost the income she could have had that day working, and that it would be without purpose, and that it might be three weeks before she could get another day off to try this again, she was outraged.

Another patient went to a CPC and was told that she needed multiple ultrasounds before the abortion could be done.  Though these were medically unneccessary, they delayed her so long that she went beyond the legal limit for abortion.  Testimony indicated that this was not an isolated incident.  A NARAL Report summarized NARAL’s website analysis, phone survey, in-person visits, and review of literature distributed by CPCs: “many CPCs use medical sounding names, are located near medical clinics and hospitals, provide pregnancy testing and ultrasounds, and require patients to fill out detailed forms soliciting personal information, all of which creates the impression that the CPCs are medical facilities. Several counselors NARAL spoke with gave incorrect information as to how long a woman can legally wait before getting an abortion.”

Opponents also testified that their CPCs didn’t mislead patients.  The Council found that “some pregnancy services centers engaged in deceptive practices about their services; that these deceptive practices could impede or delay consumer access to reproductive health services and wrongly lead consumers to believe they had received care from a licensed medical provider; and that existing laws did not adequately protect consumers from these deceptive practices.”  It further found that delay increases health risks and financial burdens and may severely limit a woman’s options.  The Council stated that it enacted the law to ensure that “consumers in New York City have access to comprehensive information about and timely access to all types of reproductive health services including, but not limited to, accurate pregnancy diagnosis, prenatal care, emergency contraception and abortion.”

Some of the plaintiff CPCs offered ultrasounds and sonograms; others didn’t. Most provided their services free of charge, except for one that offers services to women housed at its residential facilities. They objected to the law on First Amendment compelled speech grounds.

The court first found the law severable, and then the majority found that the definition of “pregnancy services center” was not unconstitutionally vague, given the overall definition plus objective guiding factors.  (These were: “the pregnancy services center (a) offers pregnancy testing and/or pregnancy diagnosis; (b) has staff or volunteers who wear medical attire or uniforms; (c) contains one or more examination tables; (d) contains a private or semi-private room or area containing medical supplies and/or medical instruments; (e) has staff or volunteers who collect health insurance information from clients; and (f) is located on the same premises as a licensed medical facility or provider or shares facility space with a licensed medical provider.”)

The court then found that each challenged provision either stood or fell under both strict and intermediate scrutiny, so it didn’t have to pick a level of scrutiny, despite the parties’ arguments about regulating medicine etc.  In a footnote, however, the court rejected the argument that rational basis review applied because these were disclosures, not speech bans, applied to commercial speech. Even assuming the speech was commercial, the law didn’t regulate “purely factual and uncontroversial information,” as required to apply rational basis review.  (This is why “uncontroversial” is a ridiculous standard.  It’s uncontroversial that these facilities don’t provide abortion information; indeed, they’d rather not admit that abortion information exists, because the topic of abortion is controversial.  But any speaker resisting a disclosure mandate will not want to admit that the information is relevant, making it controversial no matter how factual the information is.)

Anyway, the status disclosure (whether a licensed medical provider was on site) passed strict scrutiny, while the others failed even intermediate scrutiny. The City had a compelling interest in passing the law, to prevent delays in access to reproductive health services.  “[T]he State has a strong interest in protecting a woman’s freedom to seek lawful medical or counseling services in connection with her pregnancy.”

The status disclosure was narrowly tailored to promote this compelling government interest, using the least restrictive means.  The Supreme Court suggested in Riley v. Nat’l Federation of the Blind that a requirement that solicitors disclose their professional status would be narrowly tailored to the state’s interest in “informing donors how the money they contribute is spent in order to dispel the alleged misperception that the money they give to professional fundraisers goes in greater-than-actual proportion to benefit charity.”  Here, invalidating the status disclosure “would deprive the City of its ability to protect the health of its citizens and combat consumer deception in even the most minimal way.”  It was the least restrictive means “to ensure that a woman is aware of whether or not a particular pregnancy services center has a licensed medical provider at the time that she first interacts with it.” 

The alternatives of city-sponsored ads or signs posted outside CPCs, prosecuting fraud and false advertising, and imposing licensing requirements on ultrasound professionals wouldn’t get the job done.  “City-sponsored advertisements and signs cannot alert consumers as to whether a particular pregnancy services center employs a licensed medical provider, because, among other things, this is discrete factual information known only to the particular center.”  Fraud/false advertising claims pursued after the fact could be too late for women’s health, and licensing wouldn’t alert consumers to the status of a CPC unless the licensing scheme itself mandated disclosure.  Plus, not all regulated centers offered ultrasounds.

Nor was the law overly broad.  The district court found the law overinclusive because not all CPCs engage in deception.  But that wasn’t the only problem the City sought to solve—the law “seeks to prevent woman from mistakenly concluding that pregnancy services centers, which look like medical facilities, are medical facilities, whether or not the centers engage in deception.”  The law applied to centers that looked like medical facilities.  As with the law suggested in Riley, “the laws in question support the state interest in informing consumers and combating misinformation.”  The court noted that its result was consistent with Centro Tepeyac v. Montgomery County, 779 F.Supp.2d 456 (D. Md. 2011), rev’d in part, 683 F.3d 591 (4th Cir. 2012), rev’d en banc, 722 F.3d 184 (4th Cir. 2013). As Judge Wilkinson stated in his concurrence in Centro Tepeyac:

[I]n exercising its broad police power to regulate for the health and safety of its citizens, the state must also enjoy some leeway to require the disclosure of the modicum of accurate information that individuals need in order to make especially important medical ... decisions.... [The Status Disclosure] relies on the common-sense notion that pregnant women should at least be aware of the qualifications of those who wish to counsel them regarding what is, among other things, a medical condition.

The other disclosures didn’t fare so well.  First, the service disclosure required pregnancy services centers to disclose whether or not they provide or provide referrals for abortion, emergency contraception, or prenatal care.  Though the suggested alternatives (state-sponsored ads, prosecutions for fraud and false advertising, etc.) were insufficient, the status disclosure by itself might satisfy the City’s interest, “as it alerts consumers to a small bit of accurate information about the type of services each center provides—medical or non-medical—even though it does not discuss specific services.”

Even absent less restrictive means, the services disclosure was too much of a burden on plaintiffs’ speech in the context of “a public debate over the morality and efficacy of contraception and abortion.”  This would alter their political speech “by mandating the manner in which the discussion of these issues begins.” “Because it mandates discussion of controversial political topics, the Services Disclosure differs from the ‘brief, bland, and non-pejorative disclosure’ required by the Status Disclosure.”  Intermediate scrutiny wouldn’t produce a different result given the political nature of the speech and the status disclosure as a less restrictive alternative.

So too with the government message requiring  pregnancy services centers to disclose that “the New York City Department of Health and Mental Hygiene encourages women who are or who may be pregnant to consult with a licensed provider.” Here, the status disclosure could satisfy the government’s interest, as could an ad campaign by the government.  “The City’s broad message does not require knowledge of discrete information available only to individual pregnancy services centers.”  Also, the centers shouldn’t have to advertise on behalf of the city, since the question of whether “pregnant women should see a doctor” is a “public issue subject to dispute,” as this very litigation demonstrated.  (See what I mean about controversiality?)  Though the regulation made clear that the message came from the government, “a law that requires a speaker to advertise on behalf of the government offends the Constitution even if it is clear that the government is the speaker.” See Wooley v. Maynard, 430 U.S. 705 (1977).

Judge Wesley dissented in part, finding the definition of pregnancy services centers too vague:

It contains a deliberately ambiguous set of standards guiding its application, thereby providing a blank check to New York City officials to harass or threaten legitimate activity.…The operators of such a center have no way of knowing whether the Commissioner will penalize them for failing to comply with the law’s requirements even if the center exhibits no other characteristics similar to a medical facility; the context of the law raises the troubling possibility of arbitrarily harsh enforcement against such centers that choose not to tell women about the option of abortion.

changing goodwill signalled by mark isn't infringement

Purdum v. Wolfe, No. C–13–04816, 2014 WL 171546 (N.D. Cal. Jan. 15, 2014)

Kickstarter infringement dispute, which as a side note raises interesting questions of responsibility for third-party structuring of tools.  Plaintiffs Barrett Purdum, Michael Armenta, and Michael Maher are the co-owners and founders of an established San Francisco men’s clothing company, Taylor Stitch. They joined forces with defendant David Wolfe to develop Olivers Apparel, LLC, a San Francisco start-up specializing in the manufacture and retail of high-end men’s shorts.

The facts of Olivers’ founding are disputed, but the parties agreed to run a Kickstarter campaign to raise capital for the venture.  The Kickstarter video featured each of the four founders and represented to investors that the founders have “five years experience running a tailored men’s wear company.”  “The campaign was an enormous success, and in thirty days, Olivers raised $271,043 from 3,307 individuals. Maher had advertised Olivers to Taylor Stitch’s database of customers, and according to Maher, many of the investors were Taylor Stitch customers.” 

This unexpected success came with a relationship breakdown.  After plaintiffs demanded to split with Wolfe and keep the company/its IP assets, Wolfe changed the passwords to the Kickstarter page, all of Olivers’ social media pages, and Olivers’ bank accounts containing the $270,000 in Kickstarter funds. Wolfe did not disclose these changes to the approximately 3,300 Kickstarter investors, but rather continued to communicate with investors on the Kickstarter page using the name “David W, Barrett P, Mike M, Mike A.”  In a footnote, the court noted Wolfe’s assertion that he tried to remove plaintiffs’ names from the Kickstarter page, “but pursuant to Kickstarter policy, the names in the ‘project by’ section cannot be altered following the launch of a campaign.” (Should that matter?  Why not say that means he has to terminate the project, if it’s now conveying a false message?)  Wolfe didn’t otherwise try to communicate to investors that the plaintiffs’ involvement in Olivers stopped in September 2013.

In state court, Wolfe secured a TRO against plaintiffs’ and Taylor Stitch’s interference with Olivers’ supply contracts; the case was removed and was pending at the time of the court’s opinion.  Here, the court addressed plaintiffs’ request for an order 1) enjoining Wolfe from selling any shorts manufactured without plaintiffs’ assistance; 2) ordering Wolfe to turn over the passwords to Olivers’ social media and bank accounts; 3) enjoining Wolfe from using photographs copyrighted by Armenta; and 4) enjoining the use of the Olivers trademarks.

The court found that plaintiffs hadn’t shown likely success on the merits of their breach of contract claim (or unfairness UCL claim) given the disputed factual issues about the partnership, which I will not recount.

The court characterized plaintiffs’ trademark claim as an unusual one: they didn’t explicitly claim to own a valid, infringed mark.  Instead, they argued that trademark law is supposed to protect consumers from confusion and ensure that the public “will get the product which it asks for and wants to get.” They argued that the Olivers goodwill was based, at least in part, on their five years of experience in menswear with Taylor Stitch, given Olivers’ emphasis on this fact in the Kickstarter campaign.  But that experience is now gone from Olivers.  “Plaintiffs’ position appears to be that trademark infringement occurs when an element of the goodwill associated with the trademark has been altered or no longer exists.” Wolfe rejoined that, as founder of Olivers and the individual running the business, he could not be infringing anything. The court agreed.  First, there was little evidence that Olivers’ goodwill was based on plaintiffs’ experience with Taylor Stitch—they lacked an actual number of Kickstarter supporters who were also Taylor Stitch customers or other evidence of reliance on plaintiffs’ participation. Plus, “this type of alleged change in a mark’s goodwill” wasn’t the same as a transfer in gross that causes consumer confusion; here, there was no sale or assignment to a third party.  The court declined to address the novel theory that Wolfe’s conduct amounted to an infringing “assignment” of the mark because of the factual thinness of the record.

The court also found Intel Corporation v. Terabyte International, Inc., 6 F.3d 614 (9th Cir.1993), inapposite.  There, defendant relabeled legitimate Intel chips from slow to faster, more expensive ones.  Terabyte argued that there was no confusion as to source, only as to capability. The Ninth Circuit found that this ignored the “good will, reputation, and consumer protection functions associated with a particular trademark.” Intel didn’t establish that “infringement of a trademark occurs when an alleged element of the goodwill associated with the trademark has been altered or no longer exists, especially since Plaintiffs have not established the existence of the goodwill that they claim is associated with the mark.”

The copyright infringement claims weren’t a basis for a preliminary injunction because Wolfe removed the contested photos from the website and there was no reason to think they’d reappear.

Separately, the court found plaintiffs failed to show likely irreparable harm.  The theory was that Wolfe’s manufacture of shorts without the benefit of plaintiffs’ expertise would hurt their reputation, because consumers who receive shoddily manufactured shorts would believe that plaintiffs were involved with their production.  But plaintiffs didn’t provide any evidence of shoddy manufacturing, making their theory of irreparable harm “purely speculative.”  (Paging Mark McKenna! This “risk of crappy products” theory is a huge part of the theory that losing control of a mark is itself inherently injurious, and it’s significant that courts are picking up on the cautions of Herb Reed Enterprises, LLC v. Florida Entertainment Management, Inc., 736 F.3d 1239 (9th Cir. 2013).)

No records, no class action against Chipotle

Hernandez v. Chipotle Mexican Grill, Inc., 12-cv-05543 (C.D. Cal. Dec. 2, 2013)

The court rejected a proposed class action based on Chipotle’s alleged practice of serving conventionally raised meats on occasions when “naturally raised” meats were not available, though it had heavily advertised its use of “naturally raised” meats. Because the allegations centered on statements on in-store menu signboards and paper menus, which some people might not have seen, the court found the class wouldn’t be ascertainable.

“Most fundamentally, the questions of when a class member ate at Chipotle, the exact location where he ate, and which meat (if any) he ate are all not subject to class treatment.”  Consumers wouldn’t have records of purchase (and nor would Chipotle) and wouldn’t have retained the purchased item, and the dispute concerned a very low price transaction that they couldn’t be expected to recall.  “More importantly, the alleged misconduct took place only with regard to varying products at varying locations within limited time frames.” This made specific dates and locations more important than they’d be in other class actions. “[A] class member needs to know with some certainty – and Chipotle should be allowed some mechanism for confirming or contesting that certainty – the date, location, and particular meat purchased. That kind of certainty in a class action that encompasses purchases of burritos (for example) between June 2008 – more than five years ago – and now is not practical.”  Credit card records wouldn’t show the critical detail of what meat was bought.  “At best, there may be some class members who regularly eat – i.e., weekly or more often – at the same Chipotle location and always order the same thing, but presumably this is a relatively small subgroup of the proposed class.”

Plus, “the important question of whether a class member saw a so-called point-of-purchase (POP) sign when a particular purchase was made cannot be handled on a classwide basis.”  Chipotle stated that restaurants experiencing supply shortages were emailed instructions to post POP signs informing customers of a temporary shortage of naturally raised meats. The possibilities were that the signs were there and seen, there and unseen (due to Chipotle’s negligent placement of the sign or to the class member’s negligence), or not there.  Plaintiff argued that the signs were insufficient in any case, but “even if the sufficiency of the POP signs were an issue that could be handled on a classwide basis, it does not negate the existence of the further critical issue of whether a class member saw the sign on a particular occasion – an issue that cannot be handled on a classwide basis.”

Even assuming a settlement, “there is no reason to believe that class members could be compensated appropriately.” Claims would have to identify specific dates, locations, and items purchased, and the court was confident that very few people could do that.  “People will either (1) lie, (2) attempt to fill out the claim form as best they can but be unable to do so accurately, or, most likely, (3) not bother. Money would be given out basically at random to people who may or may not actually be entitled to restitution. This is unfair both to legitimate class members and to Chipotle.”

falsely claiming continued TM ownership leads to liability

C=HOLDINGS B.V. v. Asiarim Corp., 2013 WL 6987165, No. 12 Civ. 928 (S.D.N.Y. Dec. 16, 2013)

C= sued Asiarim for infringement of Commodore trademarks (“a brand long associated with the 8–bit gaming computer popular in the early 1980s”) and related claims, and mostly prevailed after a bench trial.  The litigation was contentious; C= was formerly a subsidiary of Asiarim, but the court found that it departed with the Commodore marks rather than without them, and that Asiarim nonetheless continued to sell Commodore products and attempt to license the Commodore marks.  The opinion is shy on detail about what this continued sale meant—if the claim is that products manufactured under valid rights became infringing after the split, I’m disturbed, but it’s not really clear from the recited facts.

The court found that Asiarim infringed “when it promoted the sale of Commodore-branded products on its website and entered into licensing agreements for the trademarks with third parties.”  Even without purchases from the website, this was infringing use in commerce.  The court also found that no multifactor confusion test was necessary because these were counterfeit marks and confusion was presumed (but if a multifactor analysis was necessary, the use was confusing).  Just as when an ex-licensee continues to use a mark after its license expired, because there’d be sponsorship or approval confusion, so here.  (Those are service cases, though; a licensed Ford dealer shouldn’t be barred from selling Fords it lawfully owns even if its dealership is terminated.)  The court also emphasized Asiarim’s ownership claims—it filed SEC reports claiming control of the marks, advertised Commodore products on its website, and licensed the marks.  That was confusing.

The court also found false advertising based on the website: “though not expressed in as many words, the unambiguous message sent by this promotion was that Asiarim offered for sale authentic Commodore products.”  Thus, the website was literally false, and material (going to the very nature of the products).

And here’s where I get nervous:

It is immaterial that the products may, at one point, have been authentic Commodore products, as the right to distribute products branded with a registered mark properly follows ownership of the mark. In El Greco Leather Products Co., Inc. v. Shoe World, Inc., the plaintiff ordered a factory to manufacture shoes bearing the plaintiff’s trademark. The plaintiff subsequently canceled the order, and the factory sold the shoes to the defendant retailer, which then resold them. The Second Circuit held that, in reselling the shoes, the defendant violated section 32(1) of the Lanham Act even though the goods were originally manufactured with permission of the trademark holder. El Greco’s reasoning—that a product is not “genuine” merely because it was originally manufactured with permission from the trademark holder—applies readily here: the mere fact that the Commodore products Asiarim advertised were once authentic does not mean that they continued to be when the trademark owner, C=Holdings, withdrew its permission.

First sale is an important limitation on this principle—the right to distribute branded products does not follow ownership of the mark once there’s a first sale (or other transfer of ownership).  Where that principle should start is an important question, and I would like to know more about whether the then-owner took delivery of the products offered for sale on the website—it’s not obvious that this was a “cancelled order” situation where the trademark owner never accepted the goods.

Anyway, the court then found that Asiarim’s infringing licensing activities and SEC filings weren’t false advertising.  The license was a private contract, not advertising or promotion.  Even looking at Asiarim’s claim to own the marks to one licensor and one potential licensor, that wasn’t disseminated to the public.  Though the SEC filings were disseminated to the public, the statements weren’t made in connection with the sale of goods.

The court also rejected libel claims based on Asiarim’s fraudulent SEC filings and false ownership assertion via email.  “The two Form 8–K filings, while false and likely submitted in bad faith, state only that Asiarim’s subsidiary owned the trademarks and, by implication, that C=Holdings did not. Furthermore, one of the filings explicitly characterizes the trademark issue as an ongoing legal dispute about which Asiarim has sought the advice of counsel.” Though Asiarim lacked a good faith basis to assert ownership, the SEC statements weren’t defamatory, but simply “announced the existence of a legal dispute and declared the position Asiarim was taking in regard to that dispute. As such, they do not rise to the level of exposing C=Holdings to ‘public hatred, shame, obloquy, contumely, odium, contempt, ridicule, aversion, ostracism, degradation, or disgrace.’ Nor do they impute to C=Holdings ‘fraud or misconduct or a general unfitness, incapacity, or inability to perform [its] duties.’”

The email presented a closer question, since it told the recipients that C= lacked “any legal way to claim royalty payments from [a licensee] .... You can just ignore their requests, claims[,] and statements, but please consult your lawyer to contact Asiarim’s lawyers for further confirmation of the illegal status of their claims ... by providing the proof of ownership of [Asiarim] .... For your further information, Asiarim has filed claims against C=Holdings and its director(s).”  These were less careful than the lawyerly statements in the SEC filing, “but at bottom they too state only that Asiarim is engaged in a legal dispute with C=Holdings and that Asiarim believes it will prevail.”

C=’s tortious interference with contract claim failed because it couldn’t show a valid contract between it and a third party or a breach.  Asiarim’s conduct may well have interfered with establishing new contracts, but it didn’t cause any breaches.  However, Asiarim did tortiously interfere with a prospective business relationship with a licensee. Asiarim, aware of the preexisting relationship, inserted itself between C= and the prospective licensee by insisting it was the owner of the marks.  As a result, the licensee refused to pay C= despite its intent to continue using the marks.

The court also rejected C=’s New York GBL §349 claim for lack of sufficient public harm. There was no evidence of consumer injury or danger to the public health or safety; filing false statements with the SEC doesn’t involve the relevant injury to consumers.  And the unjust enrichment claim failed because there was no evidence that Asiarim actually gained from the infringement by making any sales or collecting any royalties.

The court awarded $1 million in statutory damages based on the use of counterfeit marks. The statutory damages range goes from a minimum of $1,000 “per counterfeit mark per type of goods or services sold” for non-willful infringement, to a maximum of $2,000,000 per instance of willful infringement.  Asiarim admitted advertising eight different Commodore-branded products (not clear how this relates to how many “types” of goods there were), and entering into a licensing agreement with one entity and trying to license to another, making ten separate acts of infringement. The court also found willfulness given Asiarim’s knowingly false attempts to claim ownership of the marks.

The court noted that Asiarim “flouted the finding of a Dutch bankruptcy trustee regarding the validity of the C=Holdings transfer, made false statements in SEC filings, and run roughshod over the authority of this Court throughout this action.” A sizeable award was needed, but C= only proved lost revenues of $22,000—the $1,000 monthly royalties lost from the licensee multiplied by twenty-two months of litigation.  Still, “Asiarim’s two-year campaign of intentional infringement and deceit” “certainly” caused more harm than that, given the proven value of the marks in the past and the lost ability to exploit the marks’ licensing potential. A million-dollar award more than compensated C= and would deter future infringements.

The court also entered a declaratory judgment to clarify that C= owned the marks and that Asiarim infringed, to give relief from Asiarim’s “galling tactics” and to end the uncertainty surrounding the marks. Asiarim was enjoined from using or claiming ownership of the Commodore brand without C=Holdings’s explicit authorization.  Plus, the court ordered corrective advertising explaining the court’s findings on Asiarim’s website, also to be sent to the two licensees/potential licensees named in the case “and any other customers who purchased Commodore-branded computers from or discussed entering into licensing agreements with Asiarim.”  Also, the court ordered Asiarim to file a corrective statement with the SEC, and stated that it would refer the matter to the SEC.

Finally, the court awarded attorney’s fees.

Product placement labeled news attracts NAD's condemnation

American Media, Inc. (Shape Water Boosters), NAD Case #5665 (Dec. 18, 2013)

NAD brought this case itself.  NYT article on the case, of note given the NYT’s own foray into “native advertising.”  An article in Shape magazine, and on its website, bore the caption “News,” discussed the importance of staying hydrated and recommended SHAPE Water Boosters as an aid to staying hydrated: “The obvious solution is to stick with water, but about 20 percent of Americans reportedly don’t like the taste. If that sounds like you, check out the new SHAPE Water Boosters … Just a single squeeze … adds delicious flavor – but not calories – along with a concentrated punch of nutrients that offer some important bonus benefits.”

NAD “was concerned that consumers may give more credence to the advertiser’s objective claims about the product’s attributes because of the context in which the claims appeared.” Unlike a standard product placement, the ad made specific, objective benefit claims for the product.  Shape argued that the connection between the content and the magazine was obvious to consumers. NAD didn’t disagree.  But NAD was concerned that the article was “formatted and titled and appeared to be a news article” but promoted the SHAPE products as part of the news.  “Although consumers reading SHAPE magazine may be aware that SHAPE Water Boosters are related to SHAPE magazine, those same consumers can reasonably attach different weight to recommendations made in an editorial context than recommendations made in an advertising context. Put another way, consumers may reasonably believe that editorial recommendations in SHAPE magazine are independent of the influence of a sponsoring advertiser.”

NAD rejected Shape’s argument that an editor’s note on page 32 sufficiently alerted consumers that the article was an ad.  “[E]ffective disclosures must be in close proximity to the main claim, meaning that they can be read at the same time a consumer reviews the claim.” Though readers may have become accustomed to the informational/endorsement format, they “generally attach different significance to recommendations made in an editorial news article than they would if the same recommendations were made in an advertising format.” NAD recommended a clear and conspicuous “advertising” designation.