She don't lie, but the pharmaco might: cocaine false advertising case continues

Genus Lifesciences Inc. v. Lannett Company, Inc., 2019 WL 1981186, No. 18-cv-07603-WHO (N.D. Cal. May 3, 2019)

Genus competes with Lannett in the market for cocaine hydrochloride nasal spray. It sued Lannett for false advertising and maintaining a monopoly related to Lannett’s production of C-Topical, a cocaine hydrochloride solution that competes with Genus’ own cocaine hydrochloride solution, Goprelto. At its core, the complaint alleged that Lannett falsely advertised C-Topical as FDA-approved. Genus also sued First Databank, “a pricing list company that compares drug products and their prices so that wholesalers and customers can see all the alternatives available for a particular medication,” for false advertising and contributory false advertising. Here, Judge Orrick declined to dismiss all claims against Lannett, but kicked First Databank out because its challenged statement in the pricing list was not “commercial speech” and First Databank did not influence Lannett’s alleged false advertising.

  

In 2017, the FDA granted approval of Goprelto’s New Drug Application, which required five clinical trials and ten non-clinical trials involving over 700 human subjects. The FDA approved Goprelto “for the induction of local anesthesia of the mucous membranes when performing diagnostic procedures and surgeries on or through the nasal cavities in adults.” “As the first FDA approved cocaine product, Goprelto was awarded new chemical exclusivity, which bars any third-party applicant from seeking FDA approval until December 14, 2022.”  C-Topical and Goprelto have the same active ingredient, the same strength, and the same dosage form, and are interchangeable for certain medical uses, including Goprelto’s approved indicated use.

As the court explained, legal marketing of drugs in the US requires approval of an NDA or ANDA or exemption from the NDA requirement.  Exemptions include “grandfathered” drugs and drugs subject to an ongoing drug efficacy study implementation proceeding. A drug is grandfathered if, among other requirements, its composition and labelling have not changed since 1962. In 2006, the FDA stated that in cases where one drug was approved but had unapproved competitors, there would generally be a grace period of one year before the FDA initiated enforcement action against the unapproved drug, but the FDA hasn’t yet acted against Lannett.

C-Topical has been on the market at least since 2008, and Lannett was the sole supplier of cocaine hydrochloride solution products to ear, nose and throat doctors from 2012 until Genus’s launch of Goprelto. In 2015, the FDA rejected Lannett’s request that C-Topical be grandfathered. Despite that, Lannett claimed that C-Topical was grandfathered in a number of SEC filings and investor calls in 2017 and 2018. Lannett also allegedly advertised C-Topical as being legally marketed under a “preliminary new drug application” in a number of SEC filings, “a fictitious regulatory category.”

In addition Lannett’s meta description for its C-Topical webpage states, “Learn more about the facts and characteristics of the generic pharmaceutical C-Topical® Solution CII,” although C-Topical is not a generic pharmaceutical product because it does not have an approved ANDA.

Lannett also allegedly intentionally misled customers by making the product packaging look like an approved FDA drug, maintaining a website with the package insert information that looks like an FDA-approved insert, and registering a trademark for C-Topical. 

Lannett’s website also allegedly “identifies it as a generic pharmaceutical manufacturer whose leadership is committed to adherence to FDA standards and compliance with regulatory requirements,” as does its subsidiary Cody’s, but both sites list C-Topical as one of their products. In addition, Lannett advertised C-Topical as a “topical solution ... indicated for the introduction of local (topical) anesthesia of accessible mucous membranes of the oral, laryngeal, and nasal cavities.” This allegedly falsely implied that a cocaine hydrochloride solution product has been approved by FDA for oral or laryngeal uses, when no such product has ever been approved in that way. This allegedly further misled customers into believing that C-Topical had more uses than Goprelto, making it a more desirable and better product.

Lannett also allegedly provided incomplete or false information to third party intermediaries in the supply chain of pharmaceutical products. For example, Lannett sold C-Topical to McKesson Corp., a wholesaler whose website indicated that C-Topical is generic and does not state that it is unapproved by the FDA. Intermediaries rely on companies that aggregate third-party drug pricing information, such as First Databank. “These companies, including First Databank, assign unique identifying codes for each drug, allowing for price comparisons of equivalent products.” Because Lannett didn’t identify C-Topical as unapproved, intermediaries were allegedly unable to accurately describe it. Genus cited “a study that states that in a nationwide survey of pharmacists, 91% thought all products pharmacists dispense are FDA approved.” Customers were allegedly misled to believe that C-Topical is FDA approved and choose to purchase C-Topical over Goprelto on that basis.

First Databank allegedly assigned a unique clinical formulation ID (CFI) to drugs based on ingredients, strength, dosage form, and route of administration. Drugs with the same attributes were assigned the same CFI and “linked” so that a search for one would produce the other as a substantive alternative. But, since C-Topical’s route of administration is listed as “topical” and Goprelto’s is listed as “intranasal,” the two drugs are given different CFI numbers. Consumers would allegedly be misled into thinking that C-Topical is the only cocaine hydrochloride drug available on the market. Genus allegedly notified First Databank about the misleading advertisement, providing First Databank with knowledge.

Genus also alleged anticompetitive conduct in the market for cocaine hydrochloride solution, which is allegedly unique because it is the only nasal product that is both a vasoconstrictor and local anesthetic, unlike any other drugs on the market. Lannett allegedly schemed to use a different CFI number to prevent the parties from competing on price. “But because the CFI numbers are different, and C-Topical had a monopoly on the market for a number of years, customers are generally not aware that Goprelto exists and will not find it when searching for or reordering C-Topical.” Between June 2018 and September 2018, Genus sold only 544 bottles of Goprelto while Lannett sold over 45,000 bottles of C-Topical, despite Goprelto’s lower price.

“Lannett’s core argument is that absent an affirmative representation of approval, marketing an unapproved drug is not actionable under the Lanham Act.” It’s not enough to put an unapproved drug on the market with a FDA-ish package insert, according to Mylan Labs., Inc. v. Matkari, 7 F.3d 1130 (4th Cir. 1993). Genus pointed out that the Lanham Act covers more than affirmative, literally false statements. Par Sterile Prod., LLC v. Fresenius Kabi USA LLC, No. 14-cv-3349, 2015 WL 1263041, at *4 (N.D. Ill. Mar. 17, 2015), agreed that mere alleged implication that a drug was approved by the FDA was insufficient to state a Lanham Act claim, but also found that the implication was enough when combined with allegations that (i) buyers believe all prescribed drugs identified on the Price Lists are FDA approved and (ii) that in some surveys 91% of pharmacists are actually confused about whether all drugs that appear on industry price lists are approved. This was enough to survive a motion to dismiss, though not necessarily to survive summary judgment.

What about the false statements in SEC filings and investor calls?  [As Matt Levine of Money Stuff says, sounds like securities fraud because everything is securities fraud.]  That didn’t seem like “commercial advertising or promotion.” Genus failed to allege “that the SEC statements and investor calls were made for the purpose of influencing consumers to buy its goods or services, or that they were disseminated sufficiently to pharmacists, doctors, and hospital groups.”

And the cases were on Lannett’s side. For example, Sigma Dynamics, Inc. v. E. Piphany, Inc., No. 04-cv-0569-MJJ, 2004 WL 2648370 (N.D. Cal. June 25, 2004), held that in order for statements on the investor calls to be actionable, “plaintiffs would need to allege that consumers attended the investor conference calls and that the purpose of the investor calls was to influence customers to buy defendant’s goods or services.” Sigma did hold that statements on websites and in press releases available to the public were commercial speech for purposes of a motion to dismiss, but Judge Orrick disagreed [he didn’t really disagree, he just thought that commercial speech was a broader category than “commercial advertising or promotion”]: “in order to be actionable, the statements must be accompanied by specific allegations that they were made for the purpose of influencing the customers of cocaine hydrochloride solutions to buy C-Topical, or were disseminated sufficiently to the relevant purchasing public (pharmacists, hospitals, and doctors) to constitute ‘advertising’ or ‘promotion’ within the pharmaceutical industry.”

Alleged falsity of labeling for oral, laryngeal, or nasal administration: Lannett argued that the mere fact of broader labeling than Genus wasn’t actionable, and that there were no false comparative statements.  But the FDA says that a “topical” route is “[a]dministration to a particular spot on the outer surface of the body[.]” Lannett’s label states that C-Topical is “indicated for the introduction of local (topical) anesthesia of accessible mucous membranes of the oral, laryngeal and nasal cavities.” Mucous membranes are not the outer surface of the skin; this affirmative misrepresentation allegedly harmed Genus by inducing customers to believe that C-Topical is different and superior to Goprelto because of its additional routes of administration. The court agreed that this was sufficiently pled.

Failure to affirmatively disclose unapproved status to third parties and intermediaries: Lannett argued that it had no duty of disclosure under the Lanham Act. It also argued that the materials it sent to the third party intermediaries explicitly state that C-Topical lacks FDA approval and the product information on First Databank and other price lists made this clear as well.

Genus didn’t state a claim for false advertising to price lists and other third party intermediaries because there are weren’t supporting allegations, such as the surveys Genus cited for pharmacists. The court commented that an allegedly “buried” disclosure would “support a finding that Lannett has correctly informed the price lists,” which I don’t quite get—is it not plausible that price list operators would miss fine print?  Seems like an odd thing to say on a motion to dismiss, but perhaps the court just wanted that spelled out in the allegations.

Website statements: Lannett argued that the meta description on its C-Topical website describing the drug as generic wasn’t misleading, read in context with Lannett’s landing page that states that the FDA has not approved C-Topical. But Genus alleged that the landing page didn’t say that. Instead, one had to click on a “package insert” link.  While initial interest confusion cases say that a landing page can dispel potential trademark confusion, Lannett’s landing page “would not disabuse a consumer of the notion that C-Topical is generic based on the meta description.” Thus, the allegedly false statement in its website’s meta description could be the basis for a false advertising claim under the Lanham Act. [The court doesn’t discuss whether the description was visible in search results—for what it’s worth, when I searched Lannett’s current page didn’t use the term “generic.”]

General statements on Lannett’s websites about FDA compliance: Lannett argued that its statements weren’t specific to C-Topical and that compliance with FDA requirements was within the FDA’s primary jurisdiction. Genus responded that Lannett’s website makes no carveout for C-Topical and that because the FDA denied Lannett’s application to grandfather C-Topical, Lannett’s statement of legal compliance was false.  The court found that Genus’s argument stretched the FDA’s denial too far. The FDA rejection didn’t explicitly say that C-Topical couldn’t be marketed, only that it couldn’t be described as “grandfathered.”

The court turned to statements about making compliant, generic products, e.g., “[i]t’s important to remember that generic medicines are made to meet the same standards, as provided by FDA, as brand name medicines. Customers may rest assured that generic pharmaceuticals are produced with the same active ingredients and attention to quality as branded versions.” Those weren’t false, and Genus didn’t plausibly allege that the statements actually conveyed the implied message that C-Topical was grandfathered or sold with FDA approval, and deceived a significant portion of recipients.

However, on subsidiary Cody’s website, the statements that “Cody Laboratories is committed to compliance with all Local, State, and Federal requirements and regulations governing our business, especially FDA, DEA ...” and that Cody’s “active pharmaceutical ingredients are used in FDA approved commercial drug products,” combined with its identification of “Cocaine Hydrochloride USP” as one of those ingredients plausibly added up to an affirmatively false or misleading statement. Genus sufficiently alleged materiality: “FDA approval status of a prescription drug is material to customers because approved drugs provide customers assurance as to the quality of the product not afforded to unapproved prescription drugs.”

Appearance and content of C-Topical’s labeling and packaging: Resembling FDA-approved drug packaging wasn’t enough to plausibly allege deception. There weren’t sufficient allegations of intentional deception.  “[W]hen the alleged representation is not an overt false statement but is merely misleading in context as it is here, the pleading standard is higher and allegations that the advertising actually conveyed the implied message and deceived a significant portion of recipients is required.” Genus made only conclusory statements such as, “On information and belief, Lannett’s and Cody’s packaging and packaging insert deceives, or has the capacity to deceive, a substantial segment of customers, including pharmacists, into believing that Lannett’s and Cody’s C-Topical has FDA approval.” More specific allegations were mandatory without an affirmative misstatement.

The antitrust claims failed because they were antitrust claims. Specifically for the false advertising part, even though Genus adequately alleged that the statements were (1) clearly false, (2) clearly material, (3) clearly likely to induce reasonable reliance, and (4) made to buyers without knowledge of the subject matter, that’s not enough to avoid a presumption that the effect on competition was de minimis.  The false advertising must also have (5) continued for prolonged periods, and (6) not have been readily susceptible to neutralization or other offset by rivals, and Genus didn’t allege those. It wasn’t enough to allege that “Lannett makes it prohibitively difficult for customers to find a competing product,” and that “customers” tend to repeat their last order or search directly for [C-Topical],” making it difficult to rebut the false promotions. It also alleged that “[w]holesalers, GPOs, and IDNs use, or rely upon, First Databank’s CFI codes to compare products” making other marketing methods less useful.  “But these allegations do not show why other efforts to promote its product, other than its attempt to get First Databank to change C-Topical’s CFI number, have failed or would not be successful,” e.g., an ad campaign touting Goprelto as the only FDA approved cocaine hydrochloride product, or efforts to educate customers that C-Topical is unapproved or that its route of administration is misleading.

California FAL and UCL claims survived because the Lanham Act claim did.

First Databank: Genus sued for false advertising of C-Topical as having a “topical” route of administration and for contributory false advertising based on Lannett’s primary conduct.

Direct false advertising: this wasn’t commercial advertising or promotion as to First Databank because the price list wasn’t meant to influence purchasers to buy First Databank’s goods or services; it was what First Databank sold. Although the Gordon & Breach test for “commercial advertising or promotion” likely needed modification after Lexmark to remove the requirement of speech by a competitor, that didn’t affect the outcome here.

Genus argued that First Databank wasn’t a “mere reference database” because it derives millions of dollars from licensees to access the pricing list and that it failed to identify any statements of public importance that would make the pricing list non-commercial speech. Customers allegedly relied on pricing lists for the purely commercial purpose of comparing products and prices. Still, under Bolger, First Databank’s pricing list didn’t propose a commercial transaction between First Databank and customers of cocaine hydrochloride. Genus didn’t allege that First Databank had a monetary interest in whether customers chose C-Topical over Goprelto. Though Genus argued that “First Databank’s business involves a quid pro quo in which information is provided to First Databank in exchange for First Databank utilizing the data, including assigning its own CFI codes, and targeting and distributing it to the relevant consumers,” that “would be true for every drug listed on the pricing database, including Goprelto, and cannot reasonably be characterized as a quid pro quo relationship for the purposes of this case.” Although First Databank allegedly had an economic motivation to make representations about specific drugs in order to maintain its market position in the pharmaceutical supply chain, that didn’t show a profit motive in any particular representation.

Contributory false advertising: Genus argued that First Databank contributed to Lannett’s alleged false advertising by knowingly and materially participating in it. The court thought that contributory false advertising couldn’t apply to non-commercial speech in any context because “the Lanham Act, as a whole, applies only to commercial speech.”  [Side note: hotly contested or just wrong on the TM side of the Lanham Act!  But to the extent that we’re talking about contributory liability, we may be talking about acts that are not even commercial speech, like ordinary contractual language or other economic activity carried out through speech.]

Out of an abundance of caution (and perhaps an eye for interesting arguments), the court analyzed contributory false advertising without reference to commercial speech. In Duty Free Ams., Inc. v. Estée Lauder Cos., 797 F.3d 1248 (11th Cir. 2015), the Eleventh Circuit held that contributory false advertising requires a showing of (1) direct false advertising by a third party and (2) defendant’s contribution to that conduct “either by knowingly inducing or causing the conduct, or by materially participating in it.” Genus satisfied (1) but not (2). 

Material participation, analogizing from trademark, can occur where a defendant directly controlled or monitored the third party’s false advertising, or maybe even when the defendant provides a necessary product or service without which the false advertising would not be possible. The Eleventh Circuit suggested looking at “the nature and extent of the communication” between the third party and the defendant regarding the false advertising; “whether or not the [defendant] explicitly or implicitly encouraged” the false advertising; whether the false advertising “is serious and widespread,” making it more likely that the defendant “kn[ew] about and condone[d] the acts”; and whether the defendant engaged in “bad faith refusal to exercise a clear contractual power to halt” the false advertising. Genus’s allegations didn’t meet this standard. “The allegations in the complaint do not suggest that First Databank’s conduct was persuasive in inducing Lannett to do what it did.”

First Databank pointed to the test used in ADT Sec. Servs., Inc. v. Sec. One Int’l, Inc., No. 11-cv-05149-YGR, 2012 WL 4068632 (N.D. Cal. Sept. 14, 2012), which held that a claim for contributory false advertising requires that the defendant: “(1) intentionally induced the primary Lanham Act violation; or (2) continued to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied.” Under that test, Genus’s claims also failed.  The tests were different, but they had the same theory: “the party accused of contributorily infringing essentially drives the infringing party’s conduct.” Genus’s theory was the opposite. Its contributory false advertising claim against First Databank was dismissed with prejudice.

Patent grants and gender bias

Spotted via Colleen Chien, on patents and gender bias:

The researchers found that women inventors with common names had an 8.2% lower chance of getting their patents approved. But the difference in probability of approval fell to 2.8% for those with rare names, where it would be tougher for an examiner to guess the applicant’s gender.

When it came to future citations, patents that listed common female names were cited 30% less frequently than those held by people with common male names. That disparity did not simply vanish for women with rare names; it actually reversed. Their patents were cited approximately 20% more frequently than patents listing rare male names.

Journal article merited better disclosure of affiliation w/competing group, not a lawsuit

Board of Forensic Document Examiners, Inc. v. American Bar Ass’n, --- F.3d ----, 2019 WL 1930310, No. 18-2653 (7th Cir. May 1, 2019)

The Board of Forensic Document Examiners is a non-profit organization that certifies forensic document examiners (currently about 12), who analyze and compare handwriting and provide expert testimony in judicial proceedings. Thomas Vastrick, a forensic document examiner certified by a different, much larger organization (the American Board of Forensic Document Examiners), wrote an article in The Judges’ Journal, a peer-reviewed scholarly journal published by the ABA. Vastrick’s article offered guidance for judges in evaluating the qualifications and credentials of handwriting experts. He urged judges to look for experts certified by the American Board and warned judges to “be wary of other certifying bodies.” His biography identified him as a “board certified forensic document examiner out of Orlando, Florida, with over 37 years of experience,” including service as chairman of the “Questioned Documents Section of the American Academy of Forensic Sciences” and participation in a handwriting study funded by the National Institute of Justice.

The Board asserted claims of defamation per se and invasion of privacy on behalf of all of its members, as well as civil conspiracy, false advertising under the Lanham Act, and violations of state competition laws.  The specifically challenged statements:

“An appropriately trained forensic document examiner will have completed a full-time, in-residence training program lasting a minimum of 24 months per the professional published standard for training. Judges need to be vigilant of this issue. There are large numbers of practitioners who do not meet the training standard.” “The American Board of Forensic Document Examiners ... is the only certification board recognized by the broader forensic science community, law enforcement, and courts for maintaining principles and training requirements concurrent with the published training standards. Be wary of other certifying bodies.” The article cautioned judges “to look out for” examiners “[c]ertified by [a] board other than the American Board of Forensic Document Examiners.” The article also cautioned against any “[m]ember of American Academy of Forensic Sciences but not the Questioned Document Section.”

The Board alleged that these statements misled readers about the qualifications of its certified examiners. First, the professional standards allegedly require only the equivalent of a 24-month full-time training program, not a full-time, in-residence program as such. The second and third statements, which identified the American Board of Forensic Document Examiners as the only reputable certifying body, allegedly falsely implied that the plaintiff’s members were unqualified, even though, like the American Board, the Board is accredited by the Forensic Specialties Accreditation Board. And Vastrick allegedly harmed one person in particular by warning judges about forensic examiners who are members of the American Academy of Forensic Sciences generally but not the American Academy’s Questioned Document Section specifically; this person apparently is the only examiner who fits this description.

The Board argued that these statements were defamatory per se because they falsely imply that its experts do not meet the published professional training standards for forensic examiners. “But not all statements that doubt or impugn an individual’s professional abilities are actionable.” Opinions are nonactionable, even if they concern the topics covered by defamation per se.

Context showed that the statements were opinion, not verifiable facts. The article appeared in a scholarly law journal, in an issue devoted to “Forensic Sciences—Judges as Gatekeepers.” Anyone who read it would understand that this was “but one practicing expert’s view on how judges should attend to their gatekeeping obligations.” “Nobody reading the article in this context could reasonably have seen Vastrick’s statements as assertions of fact subject to falsification.”  This is especially reasonable because the Journal warned readers that “[a]rticles represent the opinions of the authors alone” and “provide opposing views” for readers to consider. Vastrick also used the language of opinion: “I, as a practicing forensic document examiner, would like to respectfully suggest ways to differentiate between the true professional and the lesser-qualified practitioners.” A label isn’t enough, but it helps the context.

Breaking down the statements also revealed their opinion status.  For example, Vastrick discussed the qualifications of “an appropriately trained forensic document examiner.” “This express qualification—'appropriately trained’—signaled that Vastrick was offering his own view on adequate qualifications for a forensic examiner, not describing factual, objective standards for qualifications.” The assertion that the American Board “is the only certification board recognized by the broader forensic science community, law enforcement, and courts,” “likewise reflects the expression of a viewpoint, as the statement is so broad as to lack objective, verifiable meaning.”  It’s true that Vastrick should in a moral sense have disclosed his affiliation with the American Board in the article, but that didn’t make his statements defamatory.

This conclusion also disposed of the Lanham Act claim.

Copying before-and-after surgical photos can be false advertising despite Dastar

Aesthetic Associates, Inc. v. Key West Institute for Plastic Surgery, Inc., No. 18-10059-CIV-MARTINEZ-OTAZO-REYES, 2019 WL 1922854 (S.D. Fla. Feb. 5, 2019)

Plaintiff, whose principal is Dr. Portuese, sued defendants for copyright infringement, removal of CMI and false advertising in passing off Dr. Portuese’s surgical results as their own. A patient consented to before-and-after pictures of a rhinoplasty, to be posted on Portuese’s websites; plaintiff registered the copyright.

Defendants allegedly posted the same before-and-after patient photographs on their social media accounts in a manner that attempts to pass off Portuese’s surgical results as those of defendants.

Defendants said Dastar barred the claim; the court disagreed.  Plaintiffs alleged the use of copyright photos with false representations of fact “in a manner likely to cause confusion and deceive the public into believing Dr. Loessin performed the surgery depicted in the before-and-after patient photographs and that he can obtain those results.”  That was enough to state a claim for reverse passing off.  It wasn’t just a restated copyright claim.  [Less convincingly, the court distinguishes Dastar because the copyright here isn’t expired—irrelevant—and because defendants didn’t “manufacture” the photo at issue, but of course they did “manufacture” their copy; the whole point is that they made an unauthorized copy, but didn’t “make” the expressive content of their copy.  The court should have rested on its better reasons.]

court rejects contributory false advertising under Lanham Act

Telebrands Corp. v. My Pillow, Inc., 2019 WL 1923410, No. 18-CV-06318 (N.D. Ill. Apr. 30, 2019)

Telebrands sued My Pillow (maker of a “patented pillow product,” which I’m so tempted to call PPP) for breach of contract, breach of implied contract, tortious interference with business expectancy, unjust enrichment, and quantum meruit. My Pillow counterclaimed for false advertising in violation of the Lanham Act, violations of the Illinois Uniform Deceptive Trade Practice Act (IUDTPA) and the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), unfair competition, fraud, and breach of contract. Here, the court dismisses some of the counterclaims.

The counterclaim alleged that My Pillow and Telebrands entered into a License Agreement under which My Pillow had the right to market its pillows directly to consumers and Telebrands had the exclusive right to “advertise, promote, market, distribute, and sell” the My Pillow pillows in certain stores. The License Agreement required Telebrands to comply with all applicable laws in performing under the License Agreement, including the FTC Act. It automatically terminated by its terms in 2014, but the parties continued their business relationship through a series of purchase orders.

After that time, Telebrands allegedly agreed not to engage in false advertising of the My Pillow product and to prevent its retail clients from engaging in false advertising, but didn’t.  For example, in September 2018, Walgreens.com allegedly listed My Pillow’s product as “Telebrands My Pillow” and showed a box image that contained an endorsement of the product as “National Sleep Foundation Official Pillow.” But My Pillow was, at the time, subject to a consent decree that prohibited My Pillow from making any health claims about its product or advertising it as an “official” product of any organization. Although it informed Telebrands of the decree, and Telebrands agreed to ensure that its retail clients remove from its advertisements all health claims and/or statements that My Pillow is the “official” pillow, Telebrands allegedly failed to monitor its retail clients’ advertisements to ensure the retailers complied with My Pillow’s directives. My Pillow’s CEO allegedly met with a Telebrands representative and showed them examples of false advertising from Telebrands’ retailers. The rep then offered to indemnify My Pillow for any damages incurred from the false advertising.

Telebrands also allegedly agreed to prohibit and prevent its retail clients from purchasing “ad words” on Google and other search search engines, but didn’t.

The court applied Rule 9(b) to all the counterclaims as grounded in fraud.

Telebrands argued that My Pillow’s Lanham Act claim failed because it was based entirely on statements appearing on the websites of third-party retailers. My Pillow argued that Telebrands is subject to contributory liability.  The court disagreed.  Under Lexmark, My Pillow had to plead and prove “economic or reputational injury flowing directly from the deception wrought by [Telebrands’] advertising.” [That alteration is doing a lot of work used to defeat a contributory liability theory.]

Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248 (11th Cir. 2015), held that a plaintiff could assert a claim for contributory false advertising, analogizing to contributory trademark infrignement. Under that standard, the “plaintiff must show that a third party in fact directly engaged in false advertising that injured the plaintiff” and that the “defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.”

But the Seventh Circuit hasn’t recognized contributory false advertising. “[S]uch a claim would be inconsistent with Lexmark’s proximate cause formulation.”  [No it wouldn’t!  It would just identify the primary false advertiser.  Lexmark didn’t address secondary liability.] Anyway, the court rejected the claim even assuming the DFA standard applied, because My Pillow didn’t allege that Telebrands engaged in the alleged false advertising by inducing, causing, or materially participating in the conduct.

[Courts recognize contributory trademark infringement all the time; the relevant statutory language supporting this type of liability, or lack thereof, is the same.  Say it’s not sufficiently pled, that’s fine, but it’s no surprise that the court doesn’t give any reason that trademark and false advertising ought to be treated differently.]

Because the IUDTPA, ICFA, and unfair competition claims were the same as the Lanham Act, they also failed.  [I often wonder why people don’t make more out of statutory differences.  While what constitutes deceptive advertising might and probably should be consistent across the statutes, they often don’t have the same language for things like primary v. secondary liability.  The precedents linking Lanham Act and state law claims are about the core issue of falsity/materiality/damage.]

Finally, My Pillow did meet the Rule 9(b) particularity requirements for fraud with regards to indemnification for/policing of false advertisements based on the CEO’s meeting with a specific Telebrands rep, but failed to allege sufficient details regarding AdWords, including which words should be covered, the content of ads, the identity of the relevant retail clients, or when or where the allegedly violative ads appeared.

Breach of contract failed; it was just a reassertion of the failed alleged violations of the Lanham Act, the IUDTPA, and the ICFA as a breach of the compliance-with-law clause of the contract. The only other specific statute that My Pillow identified was the FTC Act, but it didn’t allege any specifics that support that claim.

Legal Applications of Marketing Theory, part 5 (me on puffery)

Rebecca Tushnet, Harvard Law School, On Puffery

Puffery is a concept that purports to be about things consumers ignore and don’t rely on. It is in fact a concept about things courts ignore and won’t rule on.  At the moment, marketing and other empirical work has essentially nothing to say about puffery in the courts; puffery consists of precisely the elements of advertising for which courts neither require nor allow empirical evidence of consumer reaction.   That doesn’t make the doctrine wrong, but it does mean that explanations for the doctrine should not be founded in unsupported, mostly unsupportable judicial claims about how consumers think and what claims they disregard.  Instead, puffery should be about what kinds of claims are too difficult to evaluate for their truth in judicial settings.  That’s an epistemological determination that judges are actually well qualified to make.

Let me back up a bit: In modern advertising law in general, only factual misstatements are actionable.  Puffery is an overlay onto the fact/opinion divide: it allows courts to reject liability for what might look like factual, verifiable claims (such as the cheapest prices in the universe, or even the cheapest prices in West Virginia ) because they are too exaggerated or vague to be believed by reasonable consumers.  The Fifth Circuit wrote, for example, that “non-actionable ‘puffery’ comes in at least two possible forms: (1) an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying; or (2) a general claim of superiority over comparable products that is so vague that it can be understood as nothing more than a mere expression of opinion.”  The FTC has reasoned similarly. 

Courts think, without evidence, that consumers don’t rely on puffery.   This conclusion is also normative, and it has distributional consequences—it is about how consumers should behave, not about what advertisers should say. As Learned Hand wrote, “There are some kinds of talk which no sensible man takes seriously, and if he does he suffers from his own credulity.”  The influential treatise Prosser & Keeton on the Law of Torts says that an advertiser has a privilege “to lie his head off, so long as he says nothing specific.” 

Ivan Preston argues that current puffery doctrine is a mistaken evolution from nineteenth-century cases involving individual buyers and sellers that held that buyers couldn’t sue for fraud based on statements that they could easily have verified or disproved themselves.  When buyers were unable to verify the claims, however, the law provided them redress. But as the puffery doctrine developed, he argued, it turned into a rule that consumers treated certain claims as meaningless and therefore rejected them at the outset.  He argues that this new rule was not only unconnected to its historical foundation in fraud law, but also was inappropriate for modern mass advertising where the complexity of factual claims combined with their sheer volume mean that consumers can’t actually investigate most of the factual claims they receive.

One Additional piece that has to be understood before the full scope of the problem is understandable: advertising law, like trademark law, is probabalistic.  If 25% of consumers (net of control) are confused or deceived, almost any court would grant relief.  Deception, that is, doesn’t need to be universal to be actionable by a competitor, or by the FTC.  Deception doesn’t even need to be the most likely outcome for a given target consumer as long as a substantial number of consumers are likely to be deceived. 

Resulting problems in the law of puffery: First, it is a problem for the conventional justification of the doctrine that puffery actually works, in the sense of getting consumers to buy things.  Even the FTC has accepted that puffery works: C&H Sugar was ordered in 1977 not to call its brand “superior” to or otherwise different from other granulated sugars without substantiation.  In 1995, it successfully argued that it shouldn’t be barred from using ads such as “I love C&H the best” or “C&H tastes best,” which harmed it because its competition was free to make similar unsubstantiated claims. The FTC granted the modification, because competing ad campaigns were able to “take advantage of C&H’s inability to counter claims that … constitute puffery. . . .”  But, of course, if C&H needed puffery to compete, then puffery was affecting consumer behavior.

If puffery didn’t work, we should probably expect it to be rare.  Courts occasionally make the point that advertisers both want to affect consumers and are likely have greater-than-average insight into what might affect consumers in the sale of their particular thing.  It seems like the setup to a joke: why do claims appear in ads?  The obvious answer seems to be: to get to the sale.  One thing we might do when advertising claims are challenged in court, then, would be to presume that a factual claim matters to consumers.  The key questions we should have would be about whether a significant group of consumers receives a factual message specific enough to be falsified.  [We could still recognize that there are parts of ads that aren’t claims as such—for example, elements of ads that functioned to attract attention, thence to deliver a factual claim.]  I would suggest that the concept of unbelievability adds nothing further to the question of falsifiability—it’s possible that a sufficient exaggeration means that no falsifiable factual message has been conveyed, but we really don’t know that at the wholesale level, without looking at the specific exaggeration and the market.

I want to work through two examples from the FTC to show what I mean when I suggest that the current conception of puffery as meaning something about actual consumer perception is not working very well.

First, the FTC Endorsement Guides.  If you think that puffery is about subjectivity and variation among consumers’ understanding and that reasonable consumers don’t rely on puffery, the FTC’s approach to endorsements shouldn’t make sense to you. The FTC takes the position that an endorser has to disclose connections to an advertiser when they wouldn’t be obvious from context and when knowledge of the connection would be relevant to the consumer in weighing the endorsement.  So far, so good. But the FTC—quite rightly, I think—requires disclosure even when the endorser is otherwise just offering her opinion: these clothes are so cool! This hair color looks fabulous on me! Failure to disclose the connection is deceptive where the audience is likely to believe that the speech is uncompensated opinion.  If the underlying claim is pure immaterial puffery of the kind on which consumers are irrebuttably presumed not to rely—and the underlying claim in a social media endorsement is often indeed exactly that kind of claim—how can it possibly be important to consumers to know that the endorser is being compensated?

The answer is that consumers, in general, want opinions to be in some sense authentic, and they care about whether a speaker is getting paid; her influence will be less if she discloses that payment.  The fact of the financial connection is itself verifiable, so its absence can be misleading, even if all that gets said in an endorsement is stuff that consumers weren’t supposed to be relying on as a matter of law. The endorsement guidelines thus inherently, if covertly, recognize that puffery does work.  Because puffery works, it is important to regulate undisclosed endorsements, whether or not they make other factual claims.  The lack of disclosure gives us a factual hook of sufficient specificity that the courts and the FTC can handle: determining whether there was in fact an undisclosed relationship.

Second, the FTC Green Guides. In puffery discussions, courts often say that vagueness matters: some words or statements are too vague to have one specific meaning.  That was the rationale, for example, in a case involving the claim “America’s Favorite Pasta.”  There are different possible meanings of vagueness: a statement might be too vague even for an individual to get a specific message in response to the statement, but the statement might also have a lot of varying interpretations among heterogeneous consumers, at least some of which have specific definitions in mind. The AFP court endorsed the latter view, saying that favorite might mean most-purchased, but it might also mean that people liked it best but couldn’t often afford it.  Yet if the thought is that different consumers will fill out words like “favorite” with different meanings, then we could if we put the empirical work in actually figure out what those meanings are and whether they’re shared across a substantial number of relevant cases.

Which brings me to the Green Guides: The FTC’s general rule for advertisers is that they have to substantiate factual claims that are conveyed to a substantial number of relevant consumers.  FTC, relying on its own research into the meaning of general environmental benefit claims (“green” and “eco-friendly”), found that substantial numbers of consumers understood a variety of things from those claims:

61 %: made from recycled materials;

59 %: recyclable;

54 %: made with renewable materials;

53 %: biodegradable;

48 %: made with renewable energy;

45 %: non-toxic;

40 %: compostable

27 %: no negative environmental impact.

As a result, the FTC said in its Green Guides that

(b) Unqualified general environmental benefit claims … likely convey that the product, package, or service has specific and far-reaching environmental benefits and may convey that the item or service has no negative environmental impact. Because it is highly unlikely that marketers can substantiate all reasonable interpretations of these claims, marketers should not make unqualified general environmental benefit claims…..

I think this is a correct treatment of vagueness that has multiple plausible falsifiable meanings. If a substantial number of consumers receives a sufficiently specific and false meaning, we should be concerned.

Thinking of puffery as being about consumer comprehension instead of administrability leads courts into mistakes. Example: In Date v. Sony Electronics Inc., 2009 WL 435289 (E.D. Mich. 2009), Sony advertised its television as offering “Full HDTV,” and “1080p” (the best available technology). The TVs, however, could not display a 1080p signal. Instead, at best they could display an upconverted 1080i (interlaced) signal from a 1080p device. The upconversion process results in undesirable artifacts like feathering that make the viewing experience worse.

Sony argued that its claims were puffery, based on a prior similar case. In Johnson v. Mitsubishi Digital Electronics America, Inc., 578 F. Supp. 2d 1229 (C.D. Cal. 2008), the court concluded that, although Mitsubishi designated its television set as a 1080p television set, the phrase 1080p “does not convey a specific claim that is recognizable to the targeted customer.” The Johnson court thought 1080p only had meaning for engineering professionals, and that all that the plaintiff wanted was a top-of-the-line set (top of the line is classic puffery). Because he didn’t understand what 1080p meant, the claim was puffery to him.

The Date court pointed out that Sony put the term on its specification sheet addressed to consumers, suggesting that it wasn’t puffery. But more evident, I would argue, was that 1080p had a specific meaning, and consumers didn’t need to know its technical requirements in order to be moved to act by it any more than they need to know how their statins work or why the drugs are called statins.  If a consumer receives a message that she thinks is factual, credible and material, even if she can’t be particularly specific about the details, then she can be harmed if that message is false.  And it was really easy to prove that 1080p was false as applied to the Sony TV.  But focusing on consumer understanding leads to errors like the Mitsubishi court’s.

Some preliminary thoughts about implications: First, I want to revisit the difficulty that puffery works: Puffery may be effective in influencing purchases without being either provable or falsifiable in conventional judicial terms. Thus, a determination that a claim is pure puffery should arguably trump evidence that it actually influences consumers—but only if the reason for finding puffery is the difficulty of proof of truth, rather than vagueness or multiple possible meanings. And, as I suggested earlier, exaggeration should be rejected as a separate defense or category of puffery; the question is always what factual message consumers are likely to receive, if any.  If the claim is “we’ll save you a million dollars on car insurance,” we can ask whether a substantial number of consumers receives a message that they can expect to save a significant amount compared to other insurers, and whether that message is false.  The lawyers’ fighting would of course shift to whether the inquiry into falsity was a manageable judicial task from current disputes over puffery—but at least we’d have better definitions, and courts forced to consider heterogeneous groups of consumers might even be moved to look more rigorously for multiple possible meanings in an ad, where appropriate.

What’s the proper boundary of falsifiability, then?  I think it should have to do with the difficulty of getting reliable results from consumers, or of figuring out what the possible specific factual meanings are.

This approach also has implications for judicial treatment of images. The Second Circuit has said that  Time Warner Cable, Inc. v. DirecTV, Inc., 497 F.3d 144 (2nd Cir. 2007): “Unlike words, images cannot be vague or broad.” While one standard definition of puffery—general claims of superiority that are so vague as to be meaningless—fits images badly, the other—“an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying,” could be applied.  This to me gets it absolutely backwards!  Not all images have completely transparent meanings; especially in ads, images need to be interpreted.  So images absolutely could convey a vague or broad meaning, depending on what the ad was doing. But the Second Circuit’s abandonment of verifiability and focus on reasonable reliance led it to judge consumers—and to find them wanting.  In Time Warner Cable, Inc. v. DirecTV, Inc., 497 F.3d 144 (2nd Cir. 2007), DirecTV ran Internet ads showing unwatchable TV images contrasted to sharp and clear images. The district court agreed with Time Warner that DirecTV’s own rationale for running the ads—that consumers were highly confused about the then newly emerging HD technology and needed to be educated that both digital equipment and digital signals were required to experience HD quality—was reason to think that consumers might rely on the ads. The court of appeals found that the district court clearly erred. The ads were not even remotely realistic, and the court found it difficult to imagine that any consumer, no matter how unsophisticated, could be fooled into thinking cable’s picture quality would be that bad.  I would suggest that’s a problem of the court’s imagination; a consumer might know that “ordinarily” her cable wouldn’t be anything near that bad. But why would a consumer transitioning to HDTV have been confident about what cable would look like when she attached an analog cable feed to her new HDTV?

A final thought on the role of cost-benefit analysis: One reason we might reject liability even if a significant number of consumers receives a false factual message from a claim is that the claim provides benefits to a different group of consumers, significant in size or in some other way.  That’s not a justification that requires a puffery defense, nor does a puffery defense obviously help explain what benefits the nondeceived consumers might be getting—by definition, if the issue is puffery then they’re not getting specific truthful information, though maybe they’re getting enjoyment from a cool ad.  A clearer understanding of puffery could help us when we ask “is there anything lost to the nondeceived group if we get rid of or reformulate the part of the message that’s causing the deception?”

Q: more discussion of online reviews by individuals. Their ability to puff all they want if unaffiliated may be some of their attraction.  Also compare to gov’t: cities can puff all they want about how they’re great places to live. If we regulate puffery in advertising, won’t people be vulnerable to deception by uncaught puffers?

RT: I don’t think there’s any evidence that the general advertising regime can teach consumers an appropriate level of skepticism—credulity seems to vary by demographics.  I want people at least not to be fooled when they buy TVs.

Q: cheap talk/costly talk in economics: at what point is information ignorable?

Q: remedies: research suggests you can’t combat puffery w/facts, only w/anti-puffery: “best pen on earth” has to be fought with “worst pen on earth.”

RT: similar to Green Guides, where even adding explanation “green: made with recycled materials” conveys a bunch of other green claims.

Q: endorsement: isn’t the problem that the person who’s selling is anticipated to puff, but if someone else is puffing, it’s interpreted as their unbiased opinion to which people can pay attention?

RT: but that still means that there’s actionable information in the semantic content of the words—to say consumers don’t rely on puffery is just wrong.  It’s true that the deceptive part is the failure to disclose, but it then affects whether the puffery is “credible.”

Legal Applications of Marketing Theory, part 4

Legal Applications of Marketing Theory, part 4

Steve Ansolbahahere & Jacob Gersen, Harvard University, Dept of Government & Harvard Law School, Consumer Confusion in the Law of Food (Are People Misled?)

Pom Wonderful case: Pom Wonderful Pomegranate Blueberry 100% juice; 85% pomegranate juice and 15% juice from concentrate.  Minute Maid made a Pomegranate Blueberry blend of 5 juices with almost no pomegranate juice.  Kathleen Sullivan for Coca Cola said that consumers weren’t so unintelligent not to recognize the blend; Kennedy says “I thought that this was pomegranate juice.” 

So what are people thinking, and in particular what do they want (what are their most material preferences)?  Nelson’s theory of search, experience, and credence claims.

Survey about which drink would be sweeter: POM 19%, Minute Maid 43%  [remainder: no difference]

Tastes better: 30% versus 28%

Costs more: 51% versus 15%

Is organic: 29% versus 7%

Is a Pomegranate drink: 54% POM, 10% minute maid

Regression: which would you buy?  Real pomegranate juice matters; taste is important; nutrition is important

Survey about role of price versus health versus taste.  Labels affect perceptions of various attributes; filtered through value or weight that people place on each attribute. Health and nutrition are usually what people care about most, so inferences about those things have very large effects.

Health claims about foods are tightly regulated; consumers are trying to get information that they can’t get from the info so they are making lots of cross-attribute inferences.

Halo/horn effects: inferences across all dimensions at once come from the label GMO: people assume that it’s as bad as trans fat, as bad as high calorie.

Q: Pom established perception of health w/juice.  Effect could be coming from the color of the juice, even from Minute Maid.  It wouldn’t be linear.

A: probably true.

Q: consumer preference not to be fooled?

A: there probably is—Scroogled campaign was effective in accusing Google of malfeasance.

Q: represented Ocean Spray in similar case. It wasn’t just the color; the labels had pomegranates all over them and not the juices that made up the bulk of the product.  Pomegranate was a hot ingredient! But the health point is important. The attributes aren’t just correlated but in some sense the same; healthy is highly regulated so sellers have found lots of other ways to say it. Any claim about presence/absence of any nutrient is interpreted by consumers as a general health claim.  So are you just getting at “health”?

A: there were pomegranates on both products’ labels, but health/nutrition perceptions differed between Pom and Minute Maid.

Q: but it tracked the health conclusions.

A: mindful of what is activating those impressions—it’s not consistent or easy.

Q: preference for truth speaks to a remedy, not necessarily a consumer preference. If I’m misled about something not material to my choice, maybe I don’t deserve $, but the labeler should still possibly be punished for lying.  Distinction b/t info given to consumer/respondent and actual label—when I rely on a label for health related information, I actively search for it. Color isn’t something I actively search for—I receive it passively. 

A: we varied things like calorie content, sugar, in our tests.

Q: but drawing their attention to it may make a difference.

A: he’s skeptical that people don’t look at labels.  A lot of people do, not every single time, but at least at purchase initiation.  If there was no benefit to saying it, the company wouldn’t spend money to say it. They think it matters.

RT: I would have some Qs about the role of the TM versus the specific juice, including what they think “pomegranate drink” means.  It could be just a brand effect/people thinking “pomegranate” means Pom Wonderful.  If that’s true then the regulatory challenge is even greater.

A: Doesn’t seem to happen with Wesson v. Mazola oil, or Muir Glen v. Swanson canned tomatoes.  [Which might be perfectly consistent w/a brand effect to the extent that Minute Maid and Pom are known for particular slices of the juice market, whereas those brands don’t have distinctive health/nutrition profiles in their categories.]

Discussion re: harm to consumer v. harm to competitor being different things.

David Hosp & Mark Puzella, Orrick & Orrick, Profit Disgorgement in Trademark Litigation

Needs to be tied to the relevance of causation.  Came out of work for Wal-Mart on Wal-Mart’s litigation over Backyard for grills (v. Backyard Barbecue for another store).  Found to have been willful infringement.  Now it’s a disgorgement case: but whatever Wal-Mart sells, it sells $1 billion—over $1 billion of grills/grilling accessories. The Lanham Act allows profit disgorgement. How do you fight out a damages battle where the damages might even be trebled [but it couldn’t go over $1 billion—it has to be compensatory and not a penalty, not like antitrust]. The judge was thinking $500 million.  We tried it and got it down to about $35 million.  Reversed on appeal; tried to jury and got $90 million verdict, now on appeal.  Comes down to the Q of damages definition.  Lanham Act doesn’t define infringer’s profits; case law is over the map.  Damages have to be attributable to the infringement.  P’s burden: show revenues. D’s burden: show what shouldn’t be counted, including costs of goods sold.  If you start with $1 billion, that might get you down to $450 million—now what?

Figure out what’s attributable to the brand.  If you’re looking for a $25 grill, nobody cares it’s called Backyard.  Different possible surveys, regression analysis.  Juries understand hard numbers.  Ultimately, P’s burden of showing revenues, but attributability gives D a chance to attack causation. The burden is on D to show lack of causation, but that still ought to be open as an avenue for the D to show it’s not tied to the infringement.

When he was starting out, people didn’t think TM cases involved damage awards. That’s changing, particularly as patent law is being curtailed in its competitive uses.  Companies are shifting to trade dress claims.  Mahindra: offroad vehicle they’ve been making for 70 years, initially under license from the Jeep corp. Sued by Fiat/Chrysler for trade dress infringement. Causation will get a lot of attention under the next few years.

Q: Going to defend the jury.  You use names in your presentation for authority—doesn’t that indicate something about the value of names?  Maybe that’s the role of the jury: to think about how they do their shopping and whether it matters.

A: We want to figure out the appropriate structure for showing that names matter.  [Or trade dress.]  Our chapter seeks a framework.  The jury needs instructions.

Q: Backyard v. something else. What’s the counterfactual? Wal-Mart not selling grills, or using the name Frontyard, or Weber, or something else?

A: Wal-Mart took Backyard off its products; used same labels, color scheme, etc. except it had no name whatsoever.  “Grill” instead of “Backyard Grill.” No impact on sales/sales went up slightly.  We would view that as the counterfactual.

Q: would you advise your client next time to roll out different styles in different places to establish the counterfactual?

A: we deal with that a lot.  W/a large corporation, you have to assume that the profit margin on white label is so much higher than national brands that companies are moving more and more into white label. They like having a brand name; they want it to be descriptive; inevitably someone has a registration for something that’s at least borderline close. [See Barton Beebe & Jeanne Fromer’s empirical work proving this.] That is a recipe for getting sued.

Q: why isn’t a company as big as Wal-Mart doing small experiments to measure possible damages?

A: this is a newer issue; we’ll see more companies hit with large verdicts.  There are also internal pressures from marketing folks who fell in love with a name and got it cleared.  Legal knows it can’t be the department that always says no.

Q: (1) what survey form/controls did you end up using that are public? (2) hypothesis: causation is important and underthought at this stage b/c modern TM lacks a materiality requirement in the first place, which it should have preserved from the old common law. (3) Also, be interested to have you speak to relationship b/t irreparable harm and difficulty calculating damages—does showing that it’s really hard to trace damages support the pre-eBay practice of having injunctive relief be standard?

A: survey asked people their motivations for purchase. Need more work on surveys about causal relationships with sales—may see more of those in survey world.

Q: survey world can definitely produce! Why did Wal-Mart choose a name if it can sell grills w/o?

A: consumers expect to see a name. Marketers want something that actually fits w/the product category, doesn’t turn the consumer off. Doesn’t have to drive sales, just make sense to the consumer.  Interesting Q whether it is actually necessary.

Q: causality argument on disgorgement makes it a mirror image of a lost profits claim. If the P can seek either form of remedy, is there a concern that by pushing causality into disgorgement we’re taking away one of the remedies the legislator thought was important?

A: depends on the case.  Maybe there is a name that really does drive sales.  Reverse confusion case.  Damages and profits are related, for sure. They should relate to one another.

Q: how much is a conceptual challenge v. challenge of proof?  Conceptually it’s clear that the damages are either lost profits or disgorgement of d’s profits.

A: there is a conceptual challenge b/c the language of the Lanham Act allows for both [if not duplicative].  There were instructions on both and awards for both in our case.  Notion of causation is not very well explored in the case law.

August Horvath, Foley Hoag, Damages Estimation in Consumer Deception Class Actions:  Legal and Methodological Issues

Chapter is about consumer class action damages: there’s a lot of blame to be spread around on judges, litigators, expert witnesses, system of litigation structure.  It’s unrealistic to say there’s no such thing as a model that can estimate classwide damages—judges will reject it because it will remove the remedy [I’m not so sure about that]. 

In most jurisdictions, the only way to show damage is to show price premium; the other possible ways to show harm don’t work in American courts.  What happened hypothetically in a world without the false claim?  Consider: powdered infant formula with powerful brand + false claim about preventing allergies.  Creates a new demand curve compared to the equilibrium pre-false statement.  Doesn’t affect the supply curve at all, since falsity is costless (unlike incorporating a patented feature into a product). Conventionally there should be a volume increase and a price increase.  Companies don’t really know their own demand curve (or supply curve), though, which complicates things.  Executive may choose b/t trying price increase and looking for volume increase.  In theory, false advertising damages to consumers are from just that change in price and supply.

But conventional damages models for class actions look at WTP, at consumers rather than at the consumer/producer interface. The basic Lanham Act damages measure is profits/damages diverted.  Does conjoint analysis get us to the actual surplus affected by shifting the demand curve? No, it doesn’t.  No conjoint analyst has ever convinced him that it explains the interaction between supply and demand, or whether the price produced by conjoint analysis lives anywhere on a supply/demand curve.  In principle, a part worth is individual to each consumer—some value an attribute negatively, positively, not at all.  But experts assume there is a part worth for each attribute representing WTP.  If the distribution is normal instead of uniform, then it’s not clear the result is the same.  If the center is the mean, then raising the price by that amount would seem to lose half the consumers (the attribute wouldn’t be worth paying that much for the half below the mean), so seller won’t do it. 

The supply curve is also relevant.  Some experts then assume that they’d raise prices so that the supply would be the same and the price would be higher. But that’s a completely unrealistic assumption about pricing. Courts have accepted it b/c they’re desperate.  Supply side: the words courts use to explain constraints on manufacturer other than demand—but it’s not quite the right words because of the presence of retailers/middlemen.  Wal-Mart has price requirements; the formula maker had no ability to raise prices at will.  At most it can take the increased sales at the same price.  Need more sophistication but at the same time learn the sloganeering that helps explain them to courts to avoid the bad analyses that courts have accepted in the past few years.

Q: vast majority of conjoint analysis he’s seen in litigation are crap b/c experts who produce them don’t understand it.  There are perhaps a dozen people who could do that right; his guess is that Horvath hasn’t seen those.  The supply/demand curves presented reflect monopolies, not competitive markets.  If Minute Maid has a false advertising campaign changing the probability of choice, competitors may or may not react; if you recognize a competitive market, the best way to explain it is not by adhering to a curve like that.  The best way to analyze it is a market simulation with a variety of competitors. If you change an attribute in conjoint analysis, you change a market share that is simulated by, say, 1000 respondents.  Need experts who understand the power of the tool.

Q: Some of these could be argued as estimates of the maximum possible change—the jury could see that simply.

Q: Conjoint is sensitive to so many small things; uniformity in design is lacking, even before you run any simulation.

A: at the level of class certification, that’s not where we need to focus—that’s for later in the analysis.  That kind of objection will be dismissed by the court as weight v. admissibility—the court just wants to know whether the model in principle can do the job at this stage.

Michel Pham, Columbia Business School, A Consumer Psych Perspective on Source Identification and Confusion

Consumer source identification—similar to identification of painter of a painting.  How does it work? Long-term memory & knowledge.  For source identification to take place, consumer needs sufficient exposure to the stimulus. Opportunity to process: sufficient sensory access to stimuli (size, location, distance, movement, lighting conditions, loudness), pace (speed of movement, rate of speech).

Attention is limited.  Attention depends on level of involvement (greater in context of active purchase decision, lower elsewhere as in post-sale confusion allegations).  Stimuli are more likely to attract attention, all else equal, if they are large or intense, vivid in color, contrast w/background, are centrally or prominently located. Not just driven by physical characteristics; greater for familiar and recognizable stimuli.

Next, perception: the mental registration of sensory inputs into a coherent, unitary whole. Perception is holistic and strongly oriented towards organization and pattern matching, not compositional/feature by feature. We group things that are proximate, we fill in missing info that seems consistent. Subject to least noticeable variation.  Perception is subject to the principle of just-noticeable differences. People can only perceive things that exceed a certain threshold.  Adidas v. Payless: three stripes v. four.  That may not be bigger enough to be recorded.  Five stripes may look different enough.

Perceptions of similarity of A & B are driven by degree of overlap b/t features of A and features of B. Tversky’s theory of similarity. Converse v. Skechers: why do the shoes look similar?  A lot of common features and few not common features.

Categorization: labeling and identifying objects as belonging to a group/category we already know. (Here is an awesome post about categorizing a “dog.”)  Fundamental to human functioning. Identifying a product as belonging to a particular brand is a classic example of categorization; brands function like categories in consumers’ minds. Categorization is often spontaneous, “automatic.” Holistic and based on overall configurations.  Consumers may not be able to verbalize the basis of categorization-based source identifications. Cues used in categorization have three characteristics: they’re observable, typical of the category, and atypical of things that aren’t in the category.

For categorization to take place, the match to typical category cues doesn’t have to be perfect. Everything else equal, stimuli are more likely to be categorized in categories that are highly accessible/well-known brands: a glass of soda will be shorthanded as a “Coke.”

Comprehension: interpreting a stimulus to extract higher-order meaning from it. Inferences based on existing knoweldge. Two common rules: representativeness: attribute to brands that are perceived to be most representative of, or semantically related to the stimulus. Prominence: attribute to brands perceived to be large and prominent in the marketplace. So if I show you a soccer/football championship and ask who’s the sponsor, people will say Gatorade; if I show a chess championship, they guess Microsoft is the sponsor.  Ongoing case: RBX and Reebok shoes—does one suggest the other?

Q: seems to resemble machine learning w/images. Anything to be learned?

Q: dual processing theory? System 1/system 2?

A: don’t like that theory; not a good division. But a little alignment: front end looks a bit like system 1, back end more like system 2.

Q: common for products to have lots of attributes, but consumers are limited in perceiving them.

A: the number of cues you use isn’t not necessarily taxing mentally if you’re pattern matching.  More of an issue: if you have competing cues.

RT: (1) Role of preference for or against cognition? [He thinks it doesn’t mean that they categorize differently in a first pass.] (2) Special problems of trade dress: need some extra principles to figure out what should happen when some of the similarity is due to functional features. [You can control for role of the functional features by changing them in controls.] But that’s not the end of the question: one could have a rule that confusion caused by similarity in unprotectable features must be ignored, or one could have a rule that the defendant is required to stay further away in other ways—add differentiating extras—if it uses those unprotectable features.  [He agrees that part is for lawyers to fight about.]

(3) Sponsorship research on attribution of sponsorship to prominent brands, e.g. Samsung will be more easily perceived as a sponsor of the Olympics just b/c it’s prominent.  But doesn’t that mean that sponsorship, association, affiliation and approval based on similarity as opposed to based on prominence will be difficult or impossible to detect? Is this about what kinds of controls we should be using in sponsorship cases?

Bert Huang, Columbia Law School, Marketing Ethics Through Law

Effects of law on trolley problem: what if we tell subjects (1) criminal law prohibits turning trolley, (2) there’s criminal law, but not enforced, (3) law considers it justified, (4) duty to turn trolley, but not enforced, (5) legal duty to turn trolley.  Can knowing law influence moral intuitions?  People who learn it’s criminal tend not to say it’s morally required to turn the trolley; if it’s required, they tend to say it is.  Asked if it’s morally prohibited to turn, they are more likely to say yes if it’s legally prohibited.s

Looking for: Ethical questions where ethics can go both ways, and law can believably go both ways, and scenario is easily imagined.

For example: search engine paid results. Google Assistant gives oral results; should it have to label ads? Is it ethical?  Ask them what if the law said there’s a need to disclose ads versus it’s fine b/c of the First Amendment.  Or Free app sells your data to marketers, discloses but knows nobody reads the fine print.  What if the law said that wasn’t a real choice v. the law said it’s fine.

Dietary supplements: claims are based on junk science but there are no negative studies showing harm. What if the law said: first, need good science v. claim is fine until harm is proven. [I’d be interested in checking doctor v. marketer as the speaker for this.]

Q: California’s Made in the USA high standard—95% of value has to be made/sourced in the US. New Balance makes shoes that don’t meet that standard: 70% of the value comes from the US.  Expressed in its marketing.  There was a settlement.  New Balance is the only major manufacturer w/manufacturing in the US.

Q: Slack fill: ask if it’s ok. Product packaging: Barbara Kahn’s work on the shape of the package influencing perception of amount.

RT: Wal-Mart’s Equate headache remedy comes in a red box marked migraine and a green box marked headache; the green is much cheaper. The ingredients are the same.  Is that ethical?  Also: Ask them about parol evidence/salesperson who lies!

Q: ask advertisers too what they think is ethical, not just consumers.

Q: why this question? What is the ultimate goal?

A: knowledge.

Q: ethics of pricing: AZT for AIDS when it first came out.

Q: difference b/t political speech and advertising: why is lying ok in #1 and not #2?

Q: do people favor monopolists v. competitive markets?

Legal Applications of Marketing Theory, part 3

Lorin Hitt, Vildan Altuglu, Samid Hussain, & Matteo Li Bergolis, Wharton & Cornerstone Research, Cornerstone Research, Cornerstone Research, Valuation of Privacy: Assessing Potential Harm from Unauthorized Access and Misuse of Private Information in Consumer Class Actions: Disputes over use of data allegedly beyond consented use and over data breaches. Need a method for computing damages classwide if you’re going to have a class action.  Reliable, feasible, and common is required. 

Different methods have been proposed. Reliability is determined by ability to address variation across consumers in nature of private info and preferences about this info; ability to address unique aspects of privacy (privacy paradox).

What is misuse of private info?  Consumers mostly don’t even look at their contracts. Should it be dependent on what the contract says?  So should we do a cost-benefit tradeoff? Look at expected uses v. unexpected uses? Consumers have different preferences over things like retail loyalty cards in return for tracking, office surveillance (54% would accept a camera on them to prevent theft), free social media (33% think it’s acceptable in exchange for targeted ads even though 80% are on FB which is that).

Theory 1: intrinsic value of privacy: inherent value to society. Independent of consumer and type of info. As a nonmarket good, you’d estimate value from surveys (e.g., contingent valuation). Issues: it’s an old school concept, not so consistent w/class actions where harm is alleged to class. Inconsistent w/heterogeneity in preferences & info; ignores cost-benefit tradeoffs. Expressed preferences methods are especially unreliable for privacy (privacy paradox).

Q: why isn’t there a market for this information?

A: it’s been tried and failed.  A lot of people will just give you permission if asked, it turns out. You could try secondary markets as well (e.g., value to landlords, to info aggregation services). Another answer: Other markets for personal info do exist, but the big ones aren’t legal.  On the dark web, you can use secondary market data to value privacy.  Highly volatile, though in persistence, quality, price.

Data breaches have same problem with heterogeneity, but there’s no compensating benefit to consumer. Weirdly, consumers sometimes feel safer after learning of breach. But causality is difficult b/c there are so many breaches—even if you experience identity theft, which breach led to that theft?

Possibilities: difference-in-difference analysis of rate of identity theft incidences before and after breach; same for changes in credit scores, credit lines, bankruptcies. There doesn’t seem to be much effect & it’s shortlived; financial loss is small.  But most studies have looked at small data breaches, not 140 million people as w/Equifax.  Still remains a Q: life cycle of effects.  Alternatives: hedonic models.  Contingent/conjoint valuation.  Q: is privacy actually an attribute? (focalism bias; the privacy paradox)  What is the price of a zero price good (given that zero price is special)?  Privacy paradox makes expressed preference methods unreliable. Existing studies show widely, perhaps implausibly, varying results.

Increased consumer vigilance following breach is an issue.  Studies also show that PII can be inferred from other info: I can guess your SSN with reasonable accuracy if I have other significant info about you. Main point: the research here is just starting. In doing research must be mindful of heterogeneity/accounting for it.

Orly Lobel, Samuel Becher, & Yuval Feldman, San Diego, Victoria University of Wellington &  Bar Ilan University, Poor Consumer(s) Law: The Case of High Cost Credit and Payday Loans

Marshmallow test/delayed gratification as predictor of success. Revisited recently (w/more emphasis on what child’s world has already taught them about trusting promises about the future).  What is poverty?  Hard to compare different countries. A billion people by one metric count as wealthy (over $32/day, adjusted by cost of living by country), while 2 billion are $8-32/day, 3 billion $2-8, 1 billion less than $2 and in extreme poverty.  46 million people in the US.  Experience of poverty has effects on the brain: poor mothers predictably have less emotional regulation in response to baby’s cries.  There are 5,500 Walmarts in the US, 14,000 McDonald’s, and 18,000 payday loan places in the US. 12 million borrowers in the US w/ave. interest rate of 391% compared to credit card average of 15%. $9 billion in fees alone. 80% of the loans are rolled over.

Bertrand et al.: a photo of attractive woman has the same effects on demand for bank loan offers in an ad as reducing the interest rate by 5% in the ad. Overoptimism can be a significant driver of excessive borrowing, but poor people are less overoptimistic than non-poor people. Present bias: poor suffer more from that—give too much weight to the present at the expense of the future—they are very stressed.  Behavioral economics: info overload as a problem; confirmation bias; the ostrich effect/information avoidance.  [The Fyre Festival is a prominent example of all of this happening, with the difference that a bunch of people participating in the marketing or trying to attend weren’t poor and therefore didn’t suffer catastrophic consequences—though the workers who were unpaid suffered more and differently.] Financial worries, time pressure, negative stereotypes, and emotional distress all take up cognitive resources leaving less for evaluating offers. Poverty is punishment for a crime you didn’t commit. Poor children also hear 30 million fewer words than wealthy kids—affects brain development.  Poverty does not grant vacations, so you don’t get a break.  And poverty is expensive: fees and interest rates paid (or consider Desmond’s Evicted, which notes that rents in poor areas are often about equal in dollars to rents in rich areas nearby, but the properties rented are much different).  Self-control in and of itself can’t overcome economic & social disadvantages. Farmers in India: IQ test results were correlated with the harvest—after the harvest they “gained” 9-10 points, a big difference.

We don’t argue that payday loans should be outlawed, as in 12 states.  Balance: these loans may indeed offer some aid in extreme circumstances, especially with no other source of credit. But: 70% of people who take payday loans don’t use it for extreme/unforeseen circumstances, but for everyday bills.  Industry claims that these loans are expensive b/c of low repayment, though some states already cap extensively w/no real problem, as in Colorado.

Recommendation options: (1) Large scale policies like ex ante fixes (e.g., Universal Basic Income); raising minimum wages. (2) Lender regulation for responsible lending. (3) Improving borrowers’ financial decisionmaking.  We can try to manipulate system 1 with nudges, encourage use of system 2. Personalization/differentiated regulation a possibility. Nudges: default requiring payment of whole amount & not rollover; to rollover requires counseling; or rollover that defaults to paying 80% of the whole next time.  Bank apps offer reminders about saving—we could do the same with payday loans. Could present information in other ways, not just interest rate but “dollars owed” to evoke loss aversion.  Can compare the rates to alternatives, e.g., credit cards or postal banking. System 2: one main reason people say they choose payday loans is the ease: there’s little paperwork. [This reminds me so much of Tressie McMillan Cottom’s Lower Ed.] But if it’s too easy they don’t think about it enough. Create more roadblocks: video tutorials, repayment plans that people would have to fill out, vanishing option test (if you didn’t have this, what would you do?).

Q: how is this going to work for people who already are stressed and depleted?

A: the point is to get them to stop and not just use system 1. We’re not expanding their bandwidth, but directing them to use whatever they have in this situation. Can also test readability of disclosures.  Disclosure of rollover risks; ask people why they think they’re different or what they’ll do if they have to roll over the loan.

Marshmallow test: it wasn’t the ability to delay gratification that predicted success, but environment and background of tested children.  Those who didn’t fear that it was now or never for the marshmallow, who were confident that two marshmallows would appear later, were more willing to wait. Without changes, people will not be able to think clearly about taking payday loans.

Q: Why aren’t businesses competing with lower interest rates to take market share?

A: the market is not competitive; these businesses are centered around poor, minority consumers. 

Q: one of the options: offer people alternatives (online lenders)—make that available.

A: Yes; sometimes people prioritize ease of getting the money over searching.

Q: unfair to blame poor people for being stupid. People at our income level are giving away trillions of dollars. It’s irrational for rich people to vote, or to pick stocks instead of investing in Vanguard. Rich people go to church, which is irrational.  [I feel that the presenter was not blaming poor people for being stupid.]  We look at others’ bad choices. Why play on our guilt by ignoring rich people’s errors?  [Because rich people’s errors don’t immiserate them?]

A: I’m not saying that we’re smarter than them. There are enormous positive benefits from getting poor people out of poverty, which is hard to get out of without structures.  Other market failures grounded on irrational behavior exist, but in this case, even rich people should endorse helping poor people get not poor.

Q: but it has nothing to do with payday loans.  They have payday loans because no one will sell them stocks. [?]

A: Payday loans are reinforcing poverty by trapping people into loans they can’t pay. Let’s solve other problems too!

Q: Colorado example: what happened to the supply side in Colorado?

A: many branches closed, but people still have access to credit, with less interest and fees. 

Q: was there displacement into other states?

A: doesn’t know.  Online lending is also a Q.  But payday loans are still available in Colorado, capped at 35%.

Q: predatory practices generally are a problem: studies about microloans in India & interest rates being quite high given low default rates.

Tom Wesson, Mark Pelofsky, David Heller, & Erich Schaeffer, York University, Global Business Experts Group, Voluble Insights, Voluble Insights, Social Media Evidence in Commercial Litigation

Social media are useful for lots of reasons: (1) contemporaneous reactions, not harmed by decay of memory; (2) don’t have to distort the environment with a survey question.  You can also risk losing control of a narrative where the other side uses social media evidence and you don’t.  Complements consumer surveys. Already being used by attys and experts in all kinds of cases; courts are still figuring out how to make sense of it, but most courts have found it probative. USPS sued Lance Armstrong for violating his agreement by using performance enhancing drugs.  Harmed the Post Office instead of helping.  Challenge: show that goals of partnership, which ended in 2004, were harmed by 2014 confession.  We looked at social media (Twitter) for posts that talked about Armstrong & doping, and found spikes corresponding to timing of events. Can also get data for industry-specific bulletin boards. For Armstrong, peak activity was much more than for Alex Rodriguez & Maria Sharapova who had similar scandals.

Do people connect that to USPS?  Some do—and it’s timestamped.  Even two and three years after the interview, people are still mentioning USPS in connection w/his doping.

Q: [but does it matter how many people talk about Armstrong & doping without mentioning the USPS?  OK, it turns out I misinterpreted that question, which I now have.]  The question asked was really whether there was any connection to negative events and the mention of the USPS. For example, if he has a new girlfriend, does that cause a spike in attention?  And do people mention USPS when talking about that?

A: could look. But there are also memes featuring Armstrong in USPS gear, so the negative association continues to be enforced.

Social media evidence from both sides: pink slime, or lean finely textured beef, made by centrifuging beef trimmings.  Safe, leaner, cheaper and gets 20 lbs more meat per cow; or a cheap filler used only in dog food at first that didn’t belong in people food.  Spring 2012: ABC ran a bunch of stories about it.  BPI, the major maker of pink slime, took exception and sued for defamation, claiming $1.9 billion in damages subject to trebling because of South Dakota’s Agricultural Food Products Disparagement Act.  Blamed ABC for the term “pink slime.”

Social media for BPI: very clear increase of use of the term b/c of ABC’s reporting. Stories on ABC’s FB page received a lot of consumer engagement; they were very popular ABC stories in terms of number of comments received relative to other ABC stories.  Allegedly false claims: not nutritious; not meat or beef; BPI committed fraud/impropriety in acts w/USDA; not safe for consumption.  All these claims were repeated/discussed 1000s of times on social media. 

However, before ABC news mentioned pink slime, there were more than 18,000 posts in the first three months of the year mentioning the term, such as when McDonald’s and other restaurants announced they weren’t using it. The line starts to go up the day before ABC’s report, b/c a number of other outlets reported that USDA bought 7 million pounds of pink slime for use in school lunches.  Hard to say all the negative attitudes were driven by ABC’s reporting. Nor was an alternative for the phrase: LFTB wasn’t used to identify this product in social media before; 98% of mentions used “pink slime.”

Q: correlation w/sales?

A: BPI closed 3 of 4 plants.

We work to clean the data: false positives, spam, irrelevant posts, duplicates. Standards are evolving. Newness of field offers us opportunity to apply cutting edge techniques.

One issue: expert may equate social media w/survey evidence, but there are important differences. Not asking the same Qs, like what percentage of overall population is confused—represents people on social media.  Other challenges: distinguish sarcasm from truth; you have to read them.  Social media is heterogeneous in a lot of ways.

RT: I wonder about the relationship between the use of this data and courts’ already troubling tendencies to rely on anecdotes over data. Consider for example the Armstrong fans or antifans or Armstrong-indifferent people who don’t tweet even if they aren’t mad at the Post Office; how many people talk about Armstrong & doping without mentioning the USPS; and related baseline questions seem to me to make this stuff extra risky, which is not in any way to say it shouldn’t be done.  Teach people the differences from surveys!

A: look for correspondences w/other evidence.  And sometimes using search with words won’t work given how much is done online w/images.

Scott Hemphill & Jacob Gersen, NYU Law School & Harvard Law School, Evergreening and the Coca-Cola Bottle

Bottle was introduced in 1917 when CC was really struggling with copycats/fraud like Coke-Ola, Koke, etc.  Sold at the pharmacy soda fountain, the syrup was often replaced w/something cheaper/sweeter.  First, they go to court a lot—it created and distributed three volumes that look like court reporters of the Coca-Cola cases!  Inherent vulnerability was the initially descriptive name from the coca leaf and kola nut, which appeared on the label at first.  By 1903-05, the cocaine had mostly been removed and the kola nut was only used in trace amounts.  So the suit against Koke led to claims of unclean hands.

The bottle might help—Coke’s legal department came up with that, not the marketing department, so go legal!  There used to be just a diamond-shaped label, which was easy to emulate.  Contest chose a new bottle in 1915, then they used a bunch of design patents in 1915 (ungainly and prone to tip), 1923, 1937 (looks more like a modern Coke bottle).  According to lore, they decided to use cocoa pods to inspire the ridged/bulgy design.  If true, sort of misdescriptive. 

1915 design patent and production 1916 model

Eventually, 1960, PTO allows registration of container shape as a mark.  Two forms of evergreening: additional patents w/later expiration dates; trade dress protection as an end run around patent protection.  May be either bad or good. There are some additional design patents of doubtful validity.  1916 production bottle looks a lot more like the 1923 patent than the 1915 design, so is the 1923 patent valid? (see this great article on tracking the shape of the bottle from which the pictures above are taken).  It’s possible, though also a stretch, to think that the 1916 bottle would infringe the 1915 design if unauthorized.  But once that 1915 patent expired, shouldn’t folks have been free to sell their own bottles in that shape?  [I was expecting a discussion of the on sale bar, maybe anticipation; that 1916 bottle sure looks like it ought to trigger the on sale bar for the 1923 bottle.]

Evergreening is a common strategy in other areas, such as pharma. Is there a link?  It may depend on what we think we’re protecting. Aesthetic features of a bottle? Brand investment/source identification? Exclusivity on attractive design?

Should Kellogg treatment for functionality be applied to expired design patents as well as expired utility patents?  Courts have unhesitatingly said no, but perhaps they should hesitate.

Q: we have no idea what optimal incentives are in any IP field.  Better to say: isn’t it interesting to look at how law evolves when it has no idea what the welfare answer is?

Perpetual exclusivity was probably not what Congress wanted under utility patent system; what about design/TM systems?

RT: [Role of incontestability is really significant here.  If you convince the PTO once to register your design and wait five years, you can get perpetual protection even without actual secondary meaning persisting over time.  Congress wasn’t thinking about trade dress & incontestability’s interactions (in part b/c it’s pretty clear they didn’t expect registration of trade dress) and that creates a significant “perpetual patent” problem.] [And by the way, you can get a registration through a presumption of secondary meaning from showing five years of substantially exclusive use … which a design patent will have given you, plus more years beside.  The PTO need not accept exclusive use as sufficient evidence of secondary meaning, and it does not necessarily apply the presumption in all product design cases, but the statute gives it a bunch of freedom.]

[my love of TerraCycle as an example: TerraCycle puts its fertilizer in recycled bottles, including recycled Coca-Cola bottles.  It’s an example of defendant-side functionality; even if the bottle isn’t functional for people who are making their own new bottles, it is for the business model that incorporates recycling.]

Q: from this morning: look at internal and external evidence about their intent to create secondary meaning and their success in doing so.

Q: possible rule providing that you can’t register a TM for a design patent for five years after the expiration of patent protection?  [Also would have to know, as Sarah Burstein has emphasized: What is the patented design?]

A: yes, that would affect incentives. The hesitation is that maybe it’s ok to allow registrations.  Source identification is often a good thing. The anxiety is that one form of transient/temporary protection turns into something else.

Q: the problem is strategic behavior where a party seeks the first right (design patent) to secure the second (TM).

A: does it distort claims made about the product during the period you’re seeking protection? That would be a reason to try to avoid this behavior.

Q: related to whether there’s intent—are firms trying to earn a return on investment on brand?  One should perhaps not be allowed to fall into trade dress protection, but should have to show investments were made.  [This would be an easier rule for courts to tolerate if we recognized a separate role for unfair competition.]