former customer lacks Lanham Act standing against platform

Gaby’s Bags, LLC v. Mercari, Inc., No. C 20-00734 WHA, 2020 WL 5944431 (N.D. Cal. Oct. 7, 2020)

Mercari promoted its web platform, Mercari.com, for commerce in miscellaneous goods as a venue where “anyone can sell.” Gaby’s opened a Mercari account in reliance on these claims and began selling handbags on Mercari’s platform. It generated nearly $400,000 over a two-year period until Mercari terminated its account for violating its terms of service, which barred “business accounts.”

Gaby’s sued, relevantly for violation of the Lanham Act claim. Although the terms of service were not “so clear cut as to allow judgment on the pleadings,” the court denied a motion to dismiss, but here granted summary judgment on standing grounds.

Gaby’s failed to show that it fell within the zone of interests for Lanham Act false advertising and also failed to show proximate cause. It sustained its complained-of harm as a consumer, not as a competitor. The statement that “anyone can sell” “related to the type of platform Mercari provided, not any other products (e.g., handbags) available on Mercari.”

Separately, Gaby’s failed to show how Mercari’s statement that “anyone can sell” deceived consumers to withhold trade from Gaby’s.

 

9th Cir.: formal structure/function supplement claims can falsely imply disease claims

Kroessler v. CVS Health Corp., 2020 WL 5987498, --- F.3d ----, No. 19-55671 (9th Cir. Oct. 9, 2020)

Kroessler alleged that CVS glucosamine-based supplements didn’t provide the advertised benefits; the district court dismissed his California claims on preemption grounds. The court of appeals reversed and remanded.

The express marketing message—which CVS concedes—states that CVS’s glucosamine-based supplements maintain or support joint health. Kroessler alleges that the implied marketing message—which CVS contests—states that the supplements ameliorate the cardinal symptoms of arthritis, namely joint pain, discomfort, stiffness, and lack of mobility or flexibility. Kroessler alleges that the supplements do not provide the advertised benefits.

Label claims included “[s]upports flexibility & range of motion,” “help[s] support and maintain the structure of joints,” and “work[s] to support joint comfort while helping to promote joint mobility.” The label also states that the supplement “is not intended to diagnose, treat, cure, or prevent any disease” and that “[i]ndividual results may vary.” Another label stated that the supplement “[n]ourishes cartilage and promotes comfortable joint movement” and “[s]upports cartilage health & joint comfort.”

Kroessler alleged that glucosamine neither supports healthy joint function nor ameliorates joint pain, discomfort, stiffness, or other symptoms of joint disease, and alleged that good studies supported his claims.

The FDCA expressly preempts “state-law requirements for claims about dietary supplements that differ from the FDCA’s requirements.” Private plaintiffs may bring only actions to enforce violations of “state laws imposing requirements identical to those contained in the FDCA.” But: The FDCA requires manufacturers of dietary supplements to ensure that the labels on their products are not “false or misleading in any particular.”

The FDA specifies that a supplement’s label is misleading if, among other things, it “fails to reveal facts that are: (1) Material in light of other representations made or suggested by statement, word, design, device or any combination thereof; or (2) Material with respect to consequences which may result from use of the article under: (i) The conditions prescribed in such labeling or (ii) such conditions of use as are customary or usual.” The FDCA distinguishes between “disease claims” and “structure/function claims”; the latter requires (1) substantiation of truth/nonmisleadingness; (2) prominent disclaimers of FDA evaluation and of lack of disease claims; and (3) avoidance of a disease claim. Appropriate structure/function claims don’t require FDA preapproval.

FDA guidance recognizes that structure/function claims may use general terms such as “strengthen,” “improve,” and “protect,” as long as the claims “do not suggest disease prevention or treatment.” For example, the FDA states that “ ‘joint pain’ is characteristic of arthritis ... [but] [t]he claim ‘helps support cartilage and joint function,’ on the other hand, would be a permissible structure/function claim, because it relates to maintaining normal function rather than treating joint pain.” Supplement makers “can substantiate structure/function claims with evidence of an effect on a small aspect of the related structure/function, rather than with evidence of an effect on the main disease that consumers might associate with a given bodily structure or function.”

Previous case law has found preemption when plaintiffs challenged structure/function claims without sufficient evidence of misleadingness. Moreover, even though the FDCA requires substantiation, California private plaintiffs can’t bring pure lack of substantiation claims. “But just because California law prohibits private plaintiffs from forcing defendants to substantiate their advertising claims, that does not mean California law prohibits those plaintiffs from attacking defendants’ substantiation.” There isn’t preemption “when a plaintiff attempts to hold a defendant to the same substantiation standard required by the FDCA.”

In a footnote, the court pointed out that the FDA said structure/function claims have to be truthful and not misleading, which counsels in favor of adequate substantiation “for each reasonable interpretation of the claims,” consistent with the FTC’s view. The FDA also considers whether, if multiple studies exist, the most reliable of them point in a particular direction, and it considers the totality of the evidence; the court commented that “[t]his implies that a defendant’s substantiation may be evaluated and challenged.”

The district court interpreted past precedent to preempt any state law claim “seeking to challenge the substantiation of a structure/function claim … so long as the manufacturer’s claims are proper structure/function claims.” It thus rejected citations to studies alleging that glucosamine is “ineffective at supporting or benefiting joint health.” This was error. Kroessler alleged that the structure/function claims themselves were false “because scientific studies directly refute them.” To be sure, many of the studies didn’t match the exact terms of the labels, and many of the titles suggested that they narrowly address glucosamine’s effects on osteoarthritis, rather than its wider efficacy in supporting or maintaining joint health. But he alleged that the contents of the studies support the conclusion that glucosamine is “ineffective” at “supporting, maintaining, or benefiting the health of human joints.” If true, CVS’s explicit claims would be false.

“The FDCA does not preempt California false advertising causes of action simply because the challenged label contains a proper structure/function claim; instead, preemption applies only if the plaintiff’s legal claims and factual allegations would hold a defendant to a different ‘substantiation’ standard than the FDCA.”

Ultimately, “the district court erred by greatly expanding the present state of federal preemption jurisprudence under the FDCA, contrary to public policy.” It isn’t enough for a supplement maker to make “proper structure/function claims.” Rather (quoting a treatise), “it is well established that ‘supplement makers can be sued for false claims, and no federal preemption exists under the FDCA either by statute or by implication, since the FDA does not occupy the field and its controls are unaffected by private false advertising suits against supplement makers.’” The FDCA explicitly leaves open a path for non-FDA enforcers against false or misleading statements.

In addition, Kroessler should have been allowed leave to amend to add an “implied disease” claim.  “The FDA recognizes that products marketed as supplements may nevertheless implicitly claim to impact a disease or the signs of symptoms of a disease.” Its definition says that structure/function claims aren’t disease claims “unless the statement implies disease prevention or treatment,” which can depend on context. Implication can come from words or images, and there can be implied disease claims even without anything specific on the label. “We need not delineate what types of evidence courts may consider when evaluating implied disease claims. It is sufficient to state that many other courts have considered extra-label material when identifying implied disease claims and that those considerations are best made by district courts on a case-by-case basis.” In a footnote, the court mentions “factors such as the product’s advertisements, the consumer’s experience with the product, and market research showing consumer’s typical uses of the product.”

The district court erred when it “considered only the objective representations on the label of the glucosamine-based supplement that Kroessler purchased,” and found that no implied disease claim could be stated because the label had only proper structure/function claims.  Kroessler should have been allowed to amend his complaint, even though the district court was correct to hold that the label on its face didn’t present implied disease claims. E.g., “the images on the labels show an elderly couple leisurely walking along a beach, far from suffering with the symptoms of arthritis,” and there weren’t before and after comparisons. But Kroessler might be able to allege extra-label evidence showing that CVS’s glucosamine-based supplements present implied disease claims.

another G v. O preview, shorter

IPLAC/CBA (Chicago) panel

Intro by Adam Wolek, Taft Law

Chris Mohr, GC/VP for IP, Software & Information Indus. Ass’n.: Didn’t participate in this case b/c we have members on both sides. Tension b/t © protection of expression and functionality historically protected by patent. Always been true, including in runup to 1976 Act. Sec. 117 added protections for possessors of lawful copies; rental protections came later; provisions for machine repair. 102(b) polices two important boundaries: patent (functionality, e.g. recipes) v. (c) and First Amendment freedom of ideas. If APIs are protected by (c), then you must consider fair use and SCt hasn’t spoken on that for over 25 years, so that’s attracted a lot of amicus focus.

Charles Sanders, outside counsel, Songwriters Guild of America:

When elephants fight, mice get trampled; the mice provide the lifeblood through which the elephants run. There’s a value gap. FAANG are worth billions, even trillions. Meanwhile, 80% of songwriters lost their jobs as staff writers, other ways of relying on creative output for living. Same is true for novelists and journalists. There are many reasons, but unfair and unbalanced marketplace is responsible in large part. This isn’t what the Framers intended. 12 of 13 original colonies had copyright laws [that protected neither journalists nor musicians]. Berne Convention, Human Rights conventions, EU directive recognize cultural and economic value of ©.

We are hoping SCT will not continue trend of imbalance. Of course tech advances aren’t hurting creators—creators love tech advances. It’s predatory market practices of corporations that run tech that are the problem. Silicon Valley has to realize that the ability to make trillions gives it a responsibility to the people who supply the raw materials on which their businesses are built. Spotify is $50 billion on the backs of music creators solely, and they don’t want to pay market royalties. The concept that shareholders dictate what boards must do ignores the fact that if you destroy those who provide you with raw materials to wring short term profits, you destroy the industry long term. Google is trying to stop the CASE Act, despite congressional support. They didn’t want to pay market royalties to the publishers in Google books, and they’re trying to expand fair use around the world. They’ve received billions of DMCA notices, full albums posted, and they say that it’s none of their business. [Um, they do have both Content ID and robust takedown practices.] Infringement isn’t a “permissionless innovation” technique.

Nation v. Harper & Row: © protection was and will always remain the engine of free expression, but 30 years later the 9th Circuit of Silicon Valley [and Hollywood] decide in Lenz that you have to consider fair use before sending a takedown.

[For really interesting writing on Spotify and the techniques used by the labels using their deals with Spotify to cut artists out of the payment loop, I recommend Kristelia Garcia’s excellent work.]

Peter Menell, Berkeley Law: If this were Grokster, he’d be more in line with Sanders.

Baker v. Selden: process/method for accomplishing a task can be protected by patent, not by ©. Idea/expression frames the dividing line, including methods, even as their implementation through code is protectable. Thus while detailed code is protectable potentially, algorithms, function names, and other things necessary to operate a machine are not. When idea & expression merge, © gives way to avoid monopolistic protection of functionality.

A car manufacturer could use a rigid pattern with sculptural qualities as a key to the car, but couldn’t use © to prevent others from using the same cut pattern for a key to start the car. The same is true if the ignition switch is digital and turned on with a haiku: it’s an unprotected purpose. The digital key can be copied as necessary to start the car because it’s functional. Another example: a beautiful cash register, with gears/levers essential to functionality unprotected so far as other cash registers are concerned. Though separable features are protectable—nonmerged implementing code—only utility patent law can protect features necessary to operate the machine; indeed this case began as a © case.

Oracle doesn’t dispute that Google independently implemented the specifications at issue. It did so in a clean room, using no code from Oracle. This is different from the qwerty keyboard b/c Java is complicated—you need 1000s of declarations to implement the API—but that just makes it a very complicated key. Google looked at publicly available declarations to implement them when negotiations failed, like hiring a locksmith to make you a new key when you’re locked out.

RT (shorter version of last week, based on this amicus): At its core, the fair use argument for Google is about why fair use is a multifactor test and why there are different kinds of fair uses.

Fair use has four nonexclusive statutory factors: the purpose of the use, the nature of the accusing work, the amount of the original work taken, and the effect on the market for the original work.

Beginning as usual with factor one: The extent to which a new work has a new meaning, message, or purpose—transformativeness—is often and rightly prioritized in the fair use analysis. But what constitutes transformativeness is often contentious. Here, the new purpose of Google’s new code implementing the declarations was the creation of a new computing environment in which Java programmers could readily create programs on multiple platforms, which required the use of limited portions of highly functional declarations. This type of purpose has been recognized as transformative because of its role in furthering competition and innovation. A computer interface supports the creation of other creative works, and in such situations, it is important to avoid locking in third parties to specific platforms.

Factors two and three of the fair use test help define the boundaries of this type of fair use.

The jury heard evidence that the declarations and classes of the Java SE API were functional, not merely in the way that all computer code performs a function, but specifically in that these particular declarations perform their mini-duties in noncreative ways. The Federal Circuit acknowledged the thinness of the copyright, but it stated that the second factor never has much weight. But the reasons that factor two favored Google are highly relevant to the overall fair use analysis. No matter how much work and how many choices went into producing Java SE, the highly utilitarian nature of declarations means that copyright grants them thin scope at best. This thinner scope of protection naturally leads to a broader scope for fair use, especially in conjunction with factor three.

On factor three, amount, as the jury heard and evidently credited, Google took an amount from Java SE considered in the industry to be reasonable in light of its purpose of developing new, compatible works. In a fair use analysis, it is vitally important to identify the allegedly infringed work or works. As the statute commands, the proper inquiry considers the amount taken “in relation to the copyrighted work as a whole.” As Justin Hughes has written, “If our goal is to create special incentives for the building of houses, we do not necessarily need special incentives for the making of bricks or the mixing of mortar. . . ..”

So what was the work at issue? Both the copyright registrations and industry practice were clear: the work is Java SE, which had about 5 million lines of code; Google’s implementation expressing the declarations at issue totals about 11,500 lines. As a quantitative matter, what was copied was a rounding error.

What’s more, a large number of books have been published that set forth the Java SE API, in whole or in part, including the declarations and class structures. Numerous witnesses, including Sun’s then-CEO who was there when it developed Java, testified that Google behaved according to industry practice: write your own implementing code but APIs are for everyone to use. Contrary to what you might have taken away from the intro, the evidence showed that reimplementing APIs was standard practice in the industry including by Oracle.

In this way, the thinness of the copyright—factor two—interacts with factor three: even if APIs as a whole cross the line into copyrightability, Google should be able to use declarations (and the organization they necessarily reflected) that were reasonably necessary to pursue its legitimate goal of enabling the creation of an environment accessible to Java programmers.

Which leads to factor four: By downplaying the relevance of the nature of the work and the amount taken, the Federal Circuit fell into the well-known trap of circularity: reasoning that, because Oracle could have charged a license fee for this type of use if fair use were unavailable, Oracle therefore suffered cognizable market harm.

A thin copyright for software, including Java SE, provides software copyright owners with meaningful protection against copying of significant amounts of expression, but meaningful protection does not require the expansive rights that the Federal Circuit granted.

Q: what about derivative works/what do we do about market harm?

RT: Traditional, reasonable, or likely to be developed is important constraint, and traditional/reasonable behavior here was something jury heard testimony on. Derivative work right does not extend to every use, especially when the © is by necessity thin b/c of its functionality. Same issue comes up with maps and charts, which have thin ©.

Q about scope of what was taken.

Menell: 11,500 definitions were taken but those are button labels. They’re not lines from a JK Rowling novel but names of functions; “ProtectionDomain,” and “Add,” etc. They had to be included to let someone write a program for Android that would use features that were part of the Java programming environment. They specified actions & their interrelationship. That’s why the definitions circulated freely for programmers, including on Sun/Oracle’s website.

Q: why did so many entities weigh in? If this wasn’t the right way to protect Oracle’s IP, what should it have done?

Mohr: Not going to answer #2, but you see concern from open source companies worried about when they use a variety of APIs in their language that they will step into a liability minefield if it’s affirmed; other software companies want to license like Oracle wants. The other side of it is about avoiding collateral damage—MPAA and Copyright Alliance, library and user groups. When the SCt says thing about fair use, it’s so infrequent that it sticks for a while. Language in the Nation case, about acquiring rightful access to the work. That required some cleanup and Judge Leval has a long lecture about exactly this point. Thus there’s concern about how this decision plays out in other areas if the API is found to be protectable.

Q: is this a good case to provide guidance?

RT: when the SCt encounters a multifactor test it almost never leaves things less confusing. Star Athletica at least went from seven contradictory tests to only one internally contradictory test, but that wasn’t even a multifactor test.

Sanders: we want the SCt to issue a narrow decision and not speak carelessly in a way that could haunt the creative industries for decades.

Q: predictions?

Menell: not good at those. Breyer will be interested in Google’s position, but SCt doesn’t see itself as clarifying law or dealing w/fragmentation of law; in IP they have an instinct for the capillary. They get caught up in issues of stare decisis and what they call textualism [this is why I’m worried about what they’ll do with the jury questions]. 102(b) is about as clear as you can get, and it’s based on one of the greatest cases ever, Baker v. Selden, but the Fed Cir didn’t see it that way. Asking for supplemental briefing is also a signal—the Court may not want to overrule a jury finding lightly. There was a big trial, at the Fed Cir’s direction. This could sidestep the (c)ability issues and that might be the result.

 

Google v. Oracle argument preview

Chicago-Kent College of Law 2020 Supreme Court IP Review: Google v. Oracle

Copyrightability issue: Pam Samuelson: Supreme Court has 2x decided that functionality defeats ©ability for certain words/symbols when they constitute a system/method for accomplishing a useful result. Paris v. Heximer, a claim of infringement over D’s copying of a symbol system for ID’ing different types of buildings for fire insurance maps. Baker v. Selden too. Didn’t matter how original symbols/words were or what other choices were possible at the time of creation. Promotes progress of knowledge by allowing authors to build on existing knowledge and promotes useful arts by preventing © from being misused to give protection to patent-like inventions that didn’t satisfy patent standards. Dozens of cases on how shorthand systems, tax record systems, games are unprotectable even when embodied in a © work. Codified in §102(b). Codification came in order to deal w/fears about protecting computer programs as literary works, per legislative history; Fed. Cir. instead ignored every word in §102(b) except “idea” and ignored legis. history of concern for overprotection.

Fed Cir never identified the relevant work of authorship or asked what the scope of protection available to the work in light of Baker & its codification in §102(b). The relevant work is Java SE, which has the API and numerous other elements of the Java technologies created by Sun & its engineers. The Q is whether the specific declarations Google interspersed in 15 million lines of code are w/in the scope of protection for Java SE. Judge Alsup made findings of fact that these were methods/systems, consistent w/9th Cir. law which has twice held that program interfaces that enable interoperability are unprotectable procedures under 102(b). Sun—developer of Java—participated in an organizational brief in support of Borland in Lotus v. Borland, committing to proposition that interfaces that enable interoperability should be treated as a system.

Interfaces are fundamentally distinct from implementations: everyone has to write their own reimplementations, but reimplementations themselves are legitimate, which promotes interoperability and competition.

Merger doctrine leads to the same result. Once you decide to adopt a certain system, that constrains potential implementations. Many cases involving 102(b) thus use merger as an alternative argument.

Anne Capella (Weil): Programmer; represented computer science professionals to talk about the underlying technical aspects. APIs are tools for app developers to write applications. They are the audience for the APIs. Try to make them easy to use and intuitive. Also explained: what is declaring code? May look like a collection of random words, but there are a lot of subjective decisions that have to go into designing those and that are not completely dictated by function. There is original expression. Like a haiku: there are constraints on the format, but also subjective decisionmaking and creativity. API designer that would design declaring and implementation code would be balancing functionality, flexibility, simplicity and trying to make those attractive to app developers, requiring selection of which function to present, how to organize. Not just a filing cabinet but hierarchies that are important as to their locations. There are good APIs and APIs that are more attractive than others; Java was known for being well designed and intuitive which made it attractive to app developers. Better APIs have better expressions for the same function, which are not dictated by the functions themselves.

You can also write your own programs to provide the same functionality that wouldn’t have to use the same name, organization, design choices for what would be in the declaring code. [Which seems a lot like games and shorthand systems.]

Interoperability: there was no technical need to use the declaring code. Programs written for Java SE can’t be used on Android w/o modification and vice versa. Not all of the APIs are available in both. There wasn’t a need to use them to create a new Java platform. Google could have written its own declaring code but wanted the intuitive code and wanted to attract programmers to their own platform. Programmers want to protect expression in declaring code. If it’s protected, people might try to hold interfaces proprietary, but Java had a license that Google chose not to use.]

RT: (based on this amicus)

At its core, the fair use argument for Google is about why fair use is a multifactor test and why there are different kinds of fair uses. I will touch on deference to the jury though I have plenty of other thoughts on that for the question period.

Fair use has four nonexclusive statutory factors: the purpose of the use, the nature of the accusing work, the amount of the original work taken, and the effect on the market for the original work.

Beginning as usual with factor one: The extent to which a new work has a new meaning, message, or purpose—transformativeness—is often and rightly prioritized in the fair use analysis. But what constitutes transformativeness is often contentious. Here, the new purpose of Google’s new code implementing the declarations was the creation of a new computing environment in which Java programmers could readily create programs on multiple platforms, which required the use of limited portions of highly functional declarations. This “technical interchange,” is a specific kind of creativity-promoting transformativeness.  It’s about the programmers, not whether the program is “run once run anywhere,” which is a red herring. This type of purpose has been recognized as transformative because of its role in furthering competition and innovation. A computer interface supports the creation of other creative works, and in such situations, it is important to avoid locking in third parties to specific platforms.

By contrast, the Federal Circuit reasoned that factor one weighed against Google because the intrinsic purpose of the parties’ declarations was the same. But that reasoning creates a per se rule against copying any interface elements or code in a computer program, and fails to appreciate the interaction of factors two and three with transformativeness. The Federal Circuit’s simplistic rationale suggests that a law review article that quoted another law review article for support would infringe the earlier article, because they both had the same “intrinsic purpose.” Without assessing the role of the copied material in the parties’ works, this is a mistake.

Factors two and three of the fair use test help define the boundaries of technical interchange fair use. The highly functional nature of the copied declarations and the limited amount of the overall Java SE work used, consistent with industry practices, support the conclusion that Google’s use was a transformative use that served copyright’s basic goal of encouraging creation of new works.

As to the nature of the original work: The jury heard evidence that the declarations and classes of the Java SE API were functional, not merely in the way that all computer code performs a function, but specifically in that these particular declarations perform their mini-duties in noncreative ways. The Federal Circuit acknowledged the thinness of the copyright, but it failed to put this factor in proper context and thus to give it actual weight, instead reasoning that the second factor did not matter to fair use determinations generally, a proposition for which it cited only cases involving highly creative works like songs. But there are four factors because various fair uses can be fair for different reasons, and the factors may thus differ in relevance across types of cases.

Here, the reasons that factor two favored Google are highly relevant to the overall fair use analysis. No matter how much work and how many choices went into producing Java SE, the highly utilitarian nature of declarations means that copyright grants them thin scope at best. This thinner scope of protection naturally leads to a broader scope for fair use, especially in conjunction with factor three.

On factor three, amount, the question is not whether, in judicial hindsight, the defendant took more than absolutely necessary, but whether the amount taken was “reasonable in relation to the purpose of the copying.” As the jury heard and evidently credited, Google took an amount from Java SE considered in the industry to be reasonable in light of its purpose of developing new, compatible works.

One aspect of the Federal Circuit’s error was its emphasis on the 37 packages that Google copied in “entirety.” In a fair use analysis, it is vitally important to identify the allegedly infringed work or works. As the statute commands, the proper inquiry considers the amount taken “in relation to the copyrighted work as a whole.” Without careful attention to the boundaries of works, especially unfamiliar works such as software, plaintiffs can manipulate their claims to artificially increase the relative size of what was taken. As Justin Hughes has written, “If our goal is to create special incentives for the building of houses, we do not necessarily need special incentives for the making of bricks or the mixing of mortar. . . ..”

So what was the work at issue? Both the copyright registrations and industry practice were clear: the work is Java SE, which had about 5 million lines of code; Android was three times bigger. Google’s implementation expressing the declarations at issue totals about 11,500 lines. As a quantitative matter, what was copied was a rounding error. Yet the Federal Circuit characterized Google as “taking a copyrighted work verbatim,” as if the fractional part were the whole.

As the district court detailed, the jury could have found that Google used highly limited portions of Java SE’s APIs as part of an innovative mobile device platform. The jury heard testimony that portions of Java SE that Google reimplemented preserved consistency of use within the larger Java developer community. What’s more, a large number of books have been published that set forth the Java SE API, in whole or in part, including the declarations and class structures. Numerous witnesses, including Sun’s then-CEO who was there when it developed Java, testified that Google behaved according to industry practice: write your own implementing code but APIs are for everyone to use.

Where others were freely copying large parts or the entirety of the API, the jury could have found that Google’s far more limited copying strongly favored Google. In this way, the thinness of the copyright—factor two—interacts with factor three: even if APIs as a whole cross the line into copyrightability, Google should be able to use declarations (and the organization they necessarily reflected) that were reasonably necessary to pursue its legitimate goal of enabling the creation of an environment accessible to Java programmers.

Which leads to factor four: By downplaying the relevance of the nature of the work and the amount taken, the Federal Circuit fell into the well-known trap of circularity: reasoning that, because Oracle could have charged a license fee for this type of use if fair use were unavailable, Oracle therefore suffered cognizable market harm.

Because such claims can be made for any fair use, which by definition is not paid for, this reasoning cannot distinguish fair and unfair uses. In some situations involving traditional creative works with “thick” copyrights, experience and normative commitments to free speech break the circle: the markets for criticism, educational uses, and parody are not legitimate even if a specific copyright owner evinces a willingness to license particular instances.

When it comes to software, the benefits of interoperability and allowing third parties to avoid lock-in to particular platforms similarly explain why licensing interface reimplementation in newly written code is likewise not a legitimate copyright market.  Here, factors two and three can help identify when crediting claimed market harm would be inconsistent with copyright’s overall balance between past and future creators.

In reversing the jury’s verdict, the Federal Circuit wrongly relied on the circular claim that Google could have taken a license for the precise use it made and that this possibility established market harm. But the evidence did not establish harm to the market for “the work,” Java SE, or even the existence of a market for a limited number of highly functional declarations.

A thin copyright for software, including Java SE, provides software copyright owners with meaningful protection against copying of significant amounts of expression, but meaningful protection does not require the expansive rights that the Federal Circuit granted.

Elizabeth Brannen, Stris & Maher: Nothing is free. [Other than this webinar?]

What Google copied was expression that was popular with Java developers and that cost lots of resources to create. Those packages covered 6000 separate methods that Google didn’t have to write itself. Those packages are in executable form on countless Android devices.

Interfaces v implementation is a false dichotomy. We need to look at what was copied and was it expression. The haiku is a good analogy. Best interfaces are concise and intuitive, which are hallmarks of good writing in any context. Google copied b/c 6 million programmers knew and liked the Java interfaces to call the prewritten methods. It copied what it did because of the expressive value of that code. Most computer code is zeros and ones. Google copied what’s meaningful to developers, the expressive part. It didn’t copy for technical reasons. Wrote its own versions for many Android declarations. Copied not b/c of technical impossibility but b/c didn’t want to require Java developers to learn new calls, so it helped itself to the ones they already knew and liked. Google made a lucrative business decision. To call the © thin is to say functional works should receive second-class protection. [We have thin and thick © for a reason—of course it’s about scope. It’s not second-class to rece] Google didn’t transform. It’s not fair to replace and supersede the original.

Transformative use changes something about the message/content—parody, commentary. Google killed Java SE for mobile. There was unrebutted evidence that they designed Android to be incompatible w/Java. No court has found fair use where there was an incompatible software product. [Connectix found fair use where there wasn’t full compatibility, as here.] Google took a shortcut and made money. Fair use would undermine the incentive to create new works. People only take licenses because they have to. Expressive aspects of code need © to incentivize investment and making code available under unrestrictive licensing terms.

Ned Snow, South Carolina Law: The only Q the Supreme Court will care about: In the late 1700s, did the issue of fair use determine whether a defendant had infringed the legal right of copyright? The test isn’t which court was the first to decide, equity or law. Not whether fair use more frequently arose in a court of low or equity; that depends on what remedy is sought (injunctive relief or damages). Also not whether a ct of equity would have granted a D’s request for a court of law. Not whether a court of equity states that judges should detrmine the issue. He argues that two cases determine the answer. [This is no way to run a railroad, which is not Prof. Snow’s fault at all, but his explication trying to extract fair use from a pre-modern system convinces me of the disutility of the enterprise.]

Sayre v. Moore, Lord Mansfield, fourteen lines of legal analysis. Mansfield recognizes value in correcting errors in faulty sea charts. Charges the jury to find whether D corrected errors or servilely copying: value and purpose of D’s use. Points to allegation that alterations are “very material” which points to transformation. Also encourages jury to consider whether D’s work enables or worsens navigation, which points to nature of work.  If you think so, he tells the jury, you find for the D; if you find mere servile imitation, you should find for P. Shows that jury determined the infringement of the legal right. Neither Mansfield nor jury was concerned with independent creation, or fact/expression dichotomy. Lockean labor theory/no reason to think that factual works had less protection than expressive works. Even if we inferred that, the inference would support using fair use which considers fact/expression in factor two.

Next question: what is the review standard for mixed questions of law and fact. Descriptive argument: what’s going on? Take a raft of case-specific historical facts, balances them, and produces a result. That’s pretty factual sounding, per J. Kagan in US Bank v. Village at Lakeridge.  When an issue falls b/t pristine legal standard and simple historical fact, standard of reivew reflects which judicial actor is best positioned; juries have a variety of life experience, suggesting deference to them, though judges can issue general principles.

William Jay, Goodwin Procter: Bottom line: accepting Google’s argument in its strongest form, fair use is a four factor test and not only is each factor grounded in the facts, but the balancing is itself a factual question. That’s the key assertion here. If the Ct agreed, it would circumscribe JMOL review, but would also make summary judgment all but impossible even on an undisputed factual record. Skeptical the Court will go there in its strongest form. There was a jury trial! So this is a case about the appellate standard of review. Oracle does say there was no right to a jury trial anyway, so the 7th Amendment is irrelevant, but at the end of the day the Fed Cir was reviewing a JMOL verdict after a jury trial. Everyone pretty much agrees that the standard of review is in a sense de novo, but de novo review of what? Oracle’s position is grounded in Harper & Row, which was a bench trial; J. O’Connor said that the appellate court didn’t need to remand but could conclude no fair use as a matter of law.

How should that work here? At a minimum, jury’s job is to find historical facts: how much of the work was taken? Those historical facts need to be taken in the light most favorable to the prevailing party. But many Qs are Qs of degree, along with the final balancing of factors. Is that final balancing factual? Harper & Row didn’t remand for a new finding, but instead said that it was important to have historical facts determined and then the reviewing court could make its own determination. The remainder of the analysis is the province of the courts in a non-bench trial case.

If Google is right, there’s no work for judges to do after jury verdict, b/c it’s always possible that some kind of weighing favors the verdict. But the Court likely won’t reach that; Oracle agreed to a jury trial and there’s no need to decide how much of a right to a jury trial there is to decide the standard for JNOV.

Tomas Gomez-Arostegui, Lewis & Clark Law: 7th Amendment test is historical, turning on English authorities circa 1791. But Ct often not clear about what precisely it seeks from the record. Analogues work but how analogous they need to be is unclear. Feltner for example didn’t deal w/statutory damages. We’re looking for “established practice” but neither of those words are defined—Feltner cited two cases in which juries awarded nominal damages.

© litigation before 1800 was mostly in equity; ordinary damages were difficult to prove and even penalties were hard to obtain; there was no provision for discovery in law courts and P & D couldn’t even testify. Equity was easier! Chancellor could determine law and facts. Equity wasn’t obligated to send © suits to law. If Chancery did push a case to law, it was typically for a sticky legal interpretation Q. If they did go to law, there were lots of issues that were sent to the jury.

What about fair abridgement? 18th-c analogue to fair use? Oracle stresses it’s an equitable doctrine, w/no right to jury, and also argues that it’s not the same as fair use. Fair abridgement raised in equity from 1680s through 18th c, but no case at law before 1800 of which he was aware adjudicated fair abridgement. That doesn’t make it a purely equitable doctrine, esp. since it came from a statute that would apply equally at law and equity. One of the  most visible fair abridgement cases in 1870s, Lord Hardwick, influential, said that the doctrine was part of the Statute of Anne.  Fair abridgement = create a new book. Not an excuse: if fair abridgement, then no infringement. Amount taken; effect on market; added as developed. Not modern fair use but close in some respects. Considered this to be a Q of fact, though difficult for a common jury. He preferred to adjudicate the issue in chancery, aided by experts appointed by parties, but didn’t rule no jury could hear it. Partisan expert testimony became more common in courts of law just as he was leaving. He specifically said that his job was to interpret the statute in equity the same way it would be interpreted at law.

Elephant in the room: no known fair abridgement cases at law before 1800. So what do we do? In 1791, nothing prevented a P from raising the issue in law and having a jury determine it, since it came from the statute, was a component of the infringement analysis, and had been called an issue of fact. Maybe the law courts would have rejected Lord Hardwick’s interpretation, but they didn’t reject it in 1807 when they got the chance.

Discussion period

Samuelson: Haiku? Popularity? It’s not popularity, but use of your learning as a programmer v. having to learn a new language or dialect in order to write for the platform.

Compatibility: there are programs in Java that run on Android and vice versa. It’s true they’re not fully interoperable but that’s not necessary. Oracle is arguing that you have to copy the whole thing for interoperability and that’s not a sound analysis. The 83 software engineers’ brief is a really good explanation.

Capella: New languages are common; programmers are used to switching. That’s where a lot of innovation can come from. APIs are a tool/part of the overall system: would be more relevant to look at APIs themselves. [which is why these are highly functional!]

Samuelson: Fed Cir rejects six other appellate decisions that say interfaces are uncopyrightable to the extent they facilitate/enable interoperability. Fed Cir didn’t just distinguish those decisions as being about “true” compatibility (and Connectix is about replacing the other guy’s platform and is only partly compatible)—it’s a rejection of every other decision except Jaslow.

Capella: There’s different types of interfaces. APIs are tools that programmer can use. Interfaces to platforms are very different types. Declaring code isn’t just for APIs, but even for internal modules that can be called. Slippery slope.

Brannen: A lot of cases interpret 102(b) to codify idea/expression. Is there any way to give effect to the words of the statute w/o having the exception swallow the rule. Worried about second class citizenship for software. 102(b): should you just ask yourself, did they copy expression that had merged?

Samuelson: It’s correct that the Fed Cir said you can’t take 102(b) completely literally b/c it would prevent all (c) for computer programs. But it’s not correct to say that all the words in that statutory provision but “idea” should be ignored. There is a clean distinction b/t things that are the method/system versus explanation/expression. Not everything creative in a work is protectable by (c) law.

Q: size Q: 11,500 lines/less than .5% of code in Java and .1% in

RT: look at the work registered. APIs are tools; the whole work, Java SE, is protectable but parts of it aren’t.

Brannen: Qualitatively: they could have written it differently? They didn’t b/c what they copied was popular w/the developer base they wanted it to court

RT: That’s not what Fed Cir said; they said it was qualitatively important b/c Google took it which was circular/inherently anti-fair use.

Actually, some things are free: 107 says so! It even says that “multiple copies for classroom use” are examples of fair use, not just criticism.

Popularity is one way to say it; utility is another. QWERTY keyboard isn’t popular because people like the expression; it’s popular b/c it makes transferring between keyboards easy. If I can read your shorthand b/c we both trained on the same system, that’s different from both of us liking Harry Potter.

Cappella: it was popular because it was elegant and people used it.

Samuelson: if you read the lower court opinion, you can see that what this was about was that Java was originally developed for enterprise systems. Smartphone was going to be a different kind of computing environment; needed new APIs, but for things like comparing two numbers and seeing which was larger, those things needed to be done on both environments and should be kept together.

Brannen: there was expression; troubling if they could pick what they wanted w/o paying and kill Java for mobile.

Q: does the SCt need to understand all this to resolve it? Google describes it as functional and Oracle as expressive.

Samuelson: that’s one reason many of us are nervous about this case. By comparison w/Lotus v Borland, this is more technically complicated.  Some of the big players really want the copyrightability issue decided so they’re doing the best they can to explain what’s at stake. Only Breyer has followed the issues; would expect him to try to take the lead on that.

Capella: Q of who should evaluate this—it’s important to look at it from the audience’s viewpoint, which is the app developers. Trying to evaluate expressivity in a foreign language, which is difficult.

RT: There was testimony that both the trial judge and the jury relied on about what professionals thought about protectability—which is one reason this case may be tempting for the Court to see as a standard of review case. This could be another Inwood v. Ives, which is an important TM case but at the Court is decided as standard of review. And the Court may be better at getting that right, given what it knows, than at evaluating the technical details of ©ability [or, as Jay suggests, at evaluating the history].

Brennan: does gov’t’s position matter?

Jay: Maybe, but has been more pro-© claimant in a number of cases than the Court has been. The fact the gov’t thinks it’s © eligible is not going to be institutionally persuasive.

Samuelson: SG’s position in Georgia v. PublicResource was rejected; doesn’t think it’s hugely impactful.

Q: standard of review/7th Amendment?

Gomez-Arogstegui: The appellate standard of review is de novo; that’s easy. The rule 50(b) standard the trial court is supposed to apply is also easy—it’s deferential. What’s tricky is that 50(b) assumes that an issue of fact has been properly assigned to the jury, which is in doubt given Harper & Row.  You can’t call fair use a mixed Q of fact and law if it turns out you have a constitutional right to all issues relating to fair use—would have to either overrule Harper & Row or distinguish it as involving a bench trial.

Snow: Harper & Row is the final twist in this unusual case. History until H&R rarely involved SJ in fair use cases; 9th Circuit starts to in the early 1980s, and H&R then produces Fisher v. Dees in which 9th Cir. says it’s pure law. 2d Circuit stays reluctant, but in 1990s everyone starts granting SJ, including Second Circuit in Castle Rock (Sotomayor). Key Q: Does the court want to go back to when fair use couldn’t be decided on SJ? May seem like lesser evil v. wading into the tech, but then all these cases have to go to trial. It’s a bit silly to have so much turn on 14 sentences from hundreds of years ago in one case. But it could be good to clarify that Harper & Row’s language was referring to a bench trial; jury verdicts post Harper & Row are still reviewed on a deferential standard.

Jay: review of jury verdicts is deferential, but as to what? If a pure legal Q surrounds why the issue goes to the jury, everyone agrees that in the JNOV decision the judge can reexamine the legal Q and decide it wasn’t legally sufficient to go to the jury. Might be able to avoid judge/jury issue if they resolve the law/fact issue in certain ways; not all mixed Qs are alike.

Snow: we can’t dodge the constitutional issue if the inferences from the facts have historically been sent to the jury and so history shows there’s a right to have the jury make the inferences.

Samuelson: most unsatisfactory about the fair use reasoning: it said there are only 2 facts we’re willing to recognize—whether there was good/bad faith and whether it was more functional than expression. If you look at Alsup’s opinion, there were a number of other factual issues where the jury was presented with evidence on the parties’ positions. If the SCt goes in the fair use direction, hopes they’ll broaden the set of issues considered “fact” issues. How you can possibly say market harm is a purely legal issue is a Q!

RT: slightly different take b/c there are areas of normative/legal concern where, for example, we just don’t consider the © owner’s claim that it was willing to license parodies as evidence of market harm. So for each factor there can be normative components and factual components.

Josh Sarnoff: hard to reach fair use w/o finding protectability of what was copied [and yet courts do it regularly by using thinness of © in the fair use factors; that’s treated an amicus I filed in the pending 2d Cir. Warhol case]. US Bank is fundamentally incoherent: the mixed Q is “does the law apply to these facts?” But giving the overall fair use Q to juries makes no sense at all. The Court could explain this properly, though it wouldn’t solve “what conduct is fair or not fair?” The Q of what conduct is illegal under the statute—that’s a judge question.

Snow: thinks it’s more like negligence/reasonability of conduct.

Sarnoff: thinks it’s more like obviousness in patent; among other things was always a statutory question and not a common law question.

Q re arguments

Jay: J. Thomas has historically written IP opinions but not asked questions; the new format allows him to ask questions that can be agenda-setting, while J. Breyer will have a time limit which is also new.

Q: there were 60 amicus briefs filed, many focused on innovation/software industry. We’ve seen Court punt on policy issues to Congress and say it was just applying the statute. Will the Court engage w/arguments about innovation?

Samuelson: thinks Court will care about industry structure, but it’s hard to get attention for one particular brief if there are so many. Clerks will try to identify a relatively small number of briefs for Justices to read. Microsoft/IBM briefs are likely to get attention, and computer science briefs on both sides. Comparison to eBay v. MercExchange, where innovation was something the Court took seriously.

Brennan: even if they don’t address it explicitly, hopefully they’re thinking about it given the outpouring of concern. Some of the companies on Google’s side have shifted to a nonproprietary model where they give software to people for “free,” but remember that nothing’s really free. Proprietary software still matters and we shouldn’t destroy that model.

Q: For Capella: how does she think about the patent/© interface for software, as a former software programmer? Patent trolls have been a problem, but © lasts so long.

A: Original expression should be protected; there wasn’t a lot of open source when she was practicing, but even open source involves tradeoffs depending on the license. You’re not getting something for free. If you use and build on innovation of others, many licenses have obligation to give back. Some companies have chosen to go that direction. Have to abide by the law.

low-quality lead generation leads to deceptive marketing claims

In re HomeAdvisor, Inc. Litig., No. 16-cv-01849-PAB-KLM, 2020 WL 5798515 (D. Colo. Sept. 29, 2020)

HomeAdvisor “is an online marketplace that helps connect persons providing home improvement services, i.e., home service professionals (‘HSPs’), with homeowners in need of such services.” It’s a subsidiary of defendant IAC, a media and internet company that owns over 20 operating businesses comprising over 150 brands and products. Defendant ANGI is the holding company for HomeAdvisor and non-party Angie’s List.

Plaintiffs are home service professionals who paid for memberships with HomeAdvisor in order to receive homeowners’ service requests or “leads.” The HSPs must pay $8-140 for each lead depending on type and location; the cost isn’t included in membership fees.

Plaintiffs alleged that HomeAdvisor misrepresents that its leads are connected to high quality, project-ready customers, but instead the leads often directed HSPs to “wrong or disconnected phone numbers,” “wrong contact information,” “persons who never even heard of HomeAdvisor” or “persons who are not homeowners,” “stale Leads, including for projects that homeowners completed months or years prior to the Lead being sent,” or “contacts for vacant or non-existent residences,” among other things.

HomeAdvisor allegedly contracts with over 100 lead generator companies, including the “Venture defendants” and defendant CraftJack. HomeAdvisor’s parent company IAC allegedly exercised control over the terms of the lead generation agreements that HomeAdvisor entered into with these third-party lead generators.

Some third-party lead generators, such as CraftJack, are allegedly HomeAdvisor’s direct competitors and,

in many instances, sell the same leads provided to HomeAdvisor to their own networks of home service contractors, a fact which HomeAdvisor did not disclose to plaintiffs.  HomeAdvisor does not exercise any quality control over the leads it purchases from these third party lead generators, for which it pays a “nominal” amount, and plaintiffs claim that HomeAdvisor is aware that a low number of its leads result in actual home service projects for the HSPs.

CraftJack supplied HomeAdvisor with over 1.15 million leads from 2012 until mid-2017; these were allegedly poor quality, with low contact and win rates. HomeAdvisor’s internal tracking allegedly demonstrates that certain leads generated by CraftJack only have a 24 percent chance of ever making contact with the homeowner. Likewise, plaintiffs alleged that Venture defendants’ leads are exclusively generated through websites they owned and operated; the Venture defendants and HomeAdvisor were allegedly aware that robots were generating fake leads through the websites, but the Venture defendants failed to include a CAPTCHA5 to prevent this abuse.

From 2012-2017, HomeAdvisor’s quality filter allegedly “flagged approximately four to five percent of the leads received, and in most cases, HomeAdvisor ignored the fact that the lead was flagged by the filter.” Indeed, “more than 98 percent of the leads obtained by HomeAdvisor from this five-year period were inserted into HomeAdvisor’s lead database without any significant screening or verification,” including any validation of the accuracy of the address, phone number, or homeowner name associated with its leads.

In addition to this allegedly deceptive conduct, the complaint alleged that the HomeAdvisor entities diverted business away from HSPs by co-opting, using, and exploiting the identities of current and former HSPs:

When an HSP becomes a HomeAdvisor member, HomeAdvisor creates an online profile page based on information gathered during the enrollment process and extracted from the HSPs’ websites and other online sources. … Plaintiffs allege that HomeAdvisor’s “online marketing and search engine optimization (‘SEO’) capabilities are employed to rank the HSPs’ HomeAdvisor Online Profile Pages at the top of internet search results, outranking even the HSPs’ own websites, paid adwords, and other listings.” Plaintiffs allege that, once an HSP’s HomeAdvisor membership is terminated or expires, HomeAdvisor does not remove the HSP’s profile page, but continues to manipulate internet traffic to route homeowners away from HSPs’ websites and toward a HomeAdvisor-related domain. …

For example, plaintiff Hans Hass performed an internet search for terms related to his business – “Alpine Roofing” and “Alpine Roofing Sidney.” His company’s website was listed between a Google ad for roofing.zone/Alpine domain and his business’s HomeAdvisor profile page. When he clicked the roofing.zone link, Hass completed a form asking for his contact information and details about his home improvement project. He was then contacted by other HomeAdvisor roofing HSPs who had received Hass’s contact information in the form of a HomeAdvisor lead.  When Hass complained to HomeAdvisor, he was told that the issue would be reviewed and that HomeAdvisor would follow up with him about the website hijacking.

The RICO claims failed because they were RICO claims.

Lanham Act/unfair competition/trademark infringement claims: HomeAdvisor sought to get rid of these claims to the extent they were premised on “website hijacking,” which here just means infringing uses on websites. Claims under the Colorado Consumer Protection Act, Florida Deceptive and Unfair Trade Practices Act, Idaho Consumer Protection Act, and most of their common law unfair competition claims “are entirely supported by allegations of other misappropriation by Defendants,” so the court didn’t dismiss those.

Lanham Act/NY common law unfair competition: HomeAdvisor allegedly used various website domains, such as roofing.zone, to redirect legitimate internet traffic away from the HSPs’ own websites or businesses by using current and former HSPs’ company names on these domains, as with the Hass/Alpine Roofing example above. However, the complaint failed to allege that HomeAdvisor “owned the allegedly problematic domains or had any control over or affiliation with the owners of those domains.” Plaintiffs argued that they had a valid contributory infringement claim because the complaint alleges that HomeAdvisor “suggested that it could resolve the problem” when Hass complained about his information being on the roofing.info domain.

But contributory infringement requires that “a defendant must have (1) ‘intentionally induced’ the primary infringer to infringe, or (2) continued to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied.” “Allegations of ‘[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark’ could suggest contributory infringement.” However, the complaint failed to plead intentional inducement, and the lone allegation about Hass didn’t “sufficiently demonstrate a degree of control over the roofing.zone domain by HomeAdvisor so as to allege a contributory infringement theory”; it wasn’t even clear who told him that HomeAdvisor would do something.   

Defendant IAC sought to dismiss aiding and abetting unfair practices claims against it; the court considered the arguments only as to Colorado law, since it only cited a Colorado case stating that aiding and abetting under Colorado law requires proving a “substantial assistance element” that requires a showing that “the secondary party proximately caused the violation, or...that the encouragement or assistance be a substantial factor in causing the tort.”  For aiding and abetting fraud under Colorado law, a plaintiff must (1) allege the elements of common law fraud and (2) allege that the defendant “knowingly participate[d] in the underlying breach or violation.”

Plaintiffs alleged that IAC “was aware that the leads it was receiving from third-party lead generators were low quality and resulted in poor win-rates, but that IAC made the business decision to increase the number of leads it acquired rather than improve the quality of leads,” and that it was aware of HSPs’ frequent complaints over the quality of leads and requests for refunds. The complaint also alleged that IAC exercised control over HomeAdvisor: IAC was involved in the day-to-day operations; had “the ultimate say” on whether HomeAdvisor should cut poor-quality leads; initiated and drove internal discussions concerning how to grow HomeAdvisor’s market share and HomeAdvisor’s branding strategy; and “exerted operational control over HomeAdvisor and its business.”

However, knowledge alone is insufficient to state an aiding and abetting claim. Merely exerting control over HomeAdvisor, the source of the alleged false representations, without any allegations setting forth “the ‘who, what, when, where and how’ of the alleged fraud,” was insufficient.

Likewise, the California UCL, FAL, and Florida FDUPTA each require “an affirmative deceptive act by the defendant.”  The complaint didn’t plead facts that IAC had control over HomeAdvisor’s marketing or that IAC and HomeAdvisor had common marketing procedures or personnel, beyond alleging that IAC “drove internal discussions” over HomeAdvisor’s branding strategy. That wasn’t sufficiently connected to any of the allegations about the alleged misrepresentations. Those claims went too.

Unjust enrichment: The defendants didn’t have to take money directly from plaintiffs for unjust enrichment. The court accepted the theory that “the leads provided to HomeAdvisor by the Venture defendants were fraudulently sold to plaintiffs and that the monies plaintiffs paid to HomeAdvisor made its way to the Venture defendants through the Venture defendants’ and HomeAdvisor’s profit-sharing agreement.” Plaintiffs plausibly alleged that the Venture defendants and CraftJack received a benefit conferred by plaintiffs in the form of profits arising from leads purchased by plaintiffs.

Georgia Supreme Court revives some false advertising claims against sperm bank

Norman v. Xytex Corp., --- S.E.2d ----, 2020 WL 5752325, S19G1486 (Ga. Sept. 28, 2020)

Reversing the court of appeals, the Georgia Supreme Court allows plaintiffs to bring false advertising claims against a sperm bank that supplied allegedly falsely advertised sperm. Even though Georgia rejects any damages in tort “that necessarily presume that life itself can ever be an injury,” that was not the plaintiffs’ sole claim. The Normans alleged that Xytex “sold them human sperm under false pretenses about the characteristics of its donor, and that the child conceived with that sperm now suffers from a variety of impairments inherited from the sperm donor.” Result: “claims arising from the very existence of the child are barred, but claims arising from specific impairments caused or exacerbated by defendants’ alleged wrongs may proceed, as may other claims that essentially amount to ordinary consumer fraud.”

Xytex allegedly misrepresented the donor’s educational, medical, and criminal history, while representing  that it carefully screened the personal health, criminal history, and family history of all donors; that donors were put through rigorous physical exams and interviews to confirm the accuracy of the information donors provided; and that because of its thorough screening process, fewer than five percent of candidates became donors. Xytex also represented that it required sperm donors to update their medical history every six months; that the company would update the donors’ profiles with any new information; and that, if the company received “medically significant” information about a donor, it would notify patients who used that donor’s sperm.  Xytex promoted the donor as one of its “best” sperm donors “on account of his profile in which he represented that he was a Ph.D. candidate with an IQ of 160 and had no history of mental health issues or criminal activity.”

Xytex’s employee allegedly told the donor on his initial visit that intelligent donors with high levels of education were more popular sperm donors and encouraged him to exaggerate his IQ and education. Before he began selling his sperm to Xytex, he had been hospitalized for mental health treatment and diagnosed with psychotic schizophrenia, narcissistic personality disorder, and significant grandiose delusions. The child conceived with his sperm has various medical conditions, including “suicidal and homicidal ideations, requiring multiple periods of extended hospitalizations.”

Under Georgia law, damages that “categorize life as the injury” are not cognizable. Claims for the expense of raising a child—even one with profound disabilities requiring expensive care—are not cognizable because such damages would have to be premised on the child’s life as the injury. However, claims for tortious injury sustained prenatally are cognizable, and sometimes that’s true even for pre-conception injuries.

Some of the damages claimed by plaintiffs were cognizable; others weren’t. The core theory that they wouldn’t have purchased sperm from the donor had Xytex revealed the true facts was “a classic wrongful birth claim because the necessary and direct result of not buying Donor #9623’s sperm is that A.A. would not exist”; this was barred. [This strikes me as inconsistent with allowing some claims for pre-conception injuries, but I guess genetic determinism might do the work here of distinguishing those if you handwave causation problems (that is: a person who didn’t have teratogenic chemical exposure before conceiving a child also might not have had sex at the same time or with the same person, or the specific gametes might have been different, but they can still make a claim under Georgia law for damage done by that chemical exposure).]

In addition, other claims deriving from the child’s life are also barred, such as the costs of pregnancy and raising the child. However, some damages would be available as long as there was sufficient proof of causation other than the child’s life. Some damages might stem from plaintiffs’ alleged reliance on Xytex’s representations that it screened the medical and mental health history of its donors and that it would notify patients who used donor sperm if the company received any “medically significant” information about the donor.  “[W]e must accept at this procedural stage that there may exist some evidence that the Normans relied on Xytex’s representations in failing to obtain a diagnosis or treatment sooner.” That could have “exacerbated pain and other symptoms suffered” by the child.

There could also be damages “for the difference in price between the cost of the sperm they received and the fair market value of the sperm that Xytex told them they were getting.”  Also, the consumer protection claim “does not depend on life as an injury.” Georgia’s Fair Business Practice Act prohibits unfair or deceptive trade practices that harm consumers. “An individual bringing suit under the FBPA may seek injunctive relief and general damages, as well as exemplary damages for intentional violations of the Act.” Given the alleged misrepresentations about the quality of Xytex’s product (sperm) and services (screening process) to the public, plaintiffs may have suffered cognizable injury—at a minimum, paying more for the sperm than it was worth. [Was it worth zero dollars? Could it have been worth negative $100,000?] And they might be able to enjoin Xytex, or get punitive damages based on the allegations that a Xytex employee’s “encouraged, if not aided,” the donor to falsify his background.  

 

inability to rely on claims provides standing to seek injunctive relief in 9th Circuit

Milan v. Clif Bar & Co., 2020 WL 5760450, No. 18-cv-02354-JD (N.D. Cal. Sept. 28, 2020)

Plaintiffs brought the usual California claims against the “health and wellness message[s]” on defendant Clif Bar & Company’s “Kid Zbars” and “ ‘Classic’ Clif Bars,” alleging that they were “deceptive because they are incompatible with the dangers of the excessive sugar consumption to which the Products contribute.” Clif moved to dismiss (after losing a previous motion to dismiss on failure to state a claim), arguing that (1) plaintiffs lacked Article III standing for injunctive relief, and (2) the governing choice-of-law analysis didn’t permit application of California law to a nationwide class. The court denied the motion.

Even assuming that Clif was ok to raise (1) now, after a previous motion to dismiss, which the court deemed “questionable litigation conduct,” the argument failed on the merits. Under Davidson v. Kimberly-Clark Corp., 889 F.3d 956 (9th Cir. 2018), plaintiffs had standing to seek injunctive relief. Clif relied on the following statement from Davidson:

In some cases, the threat of future harm may be the consumer’s plausible allegations that she will be unable to rely on the product’s advertising or labeling in the future, and so will not purchase the product although she would like to. In other cases, the threat of future harm may be the consumer’s plausible allegations that she might purchase the product in the future, despite the fact it was once marred by false advertising or labeling, as she may reasonably, but incorrectly, assume the product was improved.

This quote, however, did not set out “a two-test method,” but rather “two illustrations of how a plaintiff who has learned the hard way that a company’s statements were deceptive can have standing under Article III to enjoin the deceptive practice.” The question was still whether plaintiffs adequately alleged future injury. The complaint alleged that plaintiffs “continue to desire to purchase healthy nutrition bars, and continue to see the Clif Products when they shop”; plaintiffs “would purchase the challenged Clif Products in the future if they were in fact healthy”; and they “would likely purchase the challenged Clif Products if they could trust that the health and wellness claims were not false or misleading.” This was “indistinguishable” in substance from the acceptable Davidson allegations.

Clif suggested that, knowing the truth, named plaintiffs can now just read the nutrition label. “The problem for Clif Bar is that plaintiffs have called into plausible question all of its health and nutrition representations, and have alleged that they ‘will be unable to trust the representations on the Clif Products’ absent an injunction. Consequently, the Court declines at this pleadings stage of the case to conclude that plaintiffs cannot, as a matter of law, ever be deceived again by Clif Bar.”

What about (2), the rule of Mazza v. American Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012), on nationwide classes? This challenge was premature. The court would wait for certification briefing, which was well underway.

 

it's difficult to show injury from false patent marking

John Bean Technologies Corporation v. Morris & Associates, Inc., 2020 WL 5666898, --- Fed.Appx. ----, 2020-1035, 2020-1081 (Fed. Cir. Sept. 24, 2020)

District court ruling that false patent marking doesn’t presumptively cause injury even in a two-player market discussed here. The court of appeals affirmed the grant of summary judgment.

The key allegation of the complaint is the asserted falsity of Morris’s representations, in product markings or advertisements, that certain Morris products for poultry processors are covered by three Morris patents.

False patent marking, Lanham Act false advertising, and coordinate state law claims all require competitive injury. “We need not and do not decide whether, for any of the causes of action at issue, a presumption applies in the circumstances of this case.” This is a puzzling statement, because it does seem like a presumption of injury in a two-player market would have led to the claims surviving summary judgment, unless you think that John Bean's production of some (inadmissible) evidence should be weighed against it because it didn't produce more. 

John Bean’s evidence of injury with respect to one product was “limited to a single incident—which involved John Bean’s sale of a chiller system to Perdue Farms.” But the only evidence of causation was “a declaration from a past John Bean employee stating that a Perdue employee mentioned Morris’s patent marking as a reason that Perdue initially declined to buy John Bean’s auger chiller with ‘water flow reliefs’ that might infringe the ’529 patent, only to later accept the feature as a no-charge modification—a process that John Bean says subjected it to some injury.” The district court didn’t abuse its discretion in ruling that this statement was inadmissible hearsay and also developed too late in the litigation.

With respect to other products, one relevant patent read on them, so Morris’s statements weren’t false. Even assuming that the other one was, there was no evidence that being marked with two patent numbers mattered given that one was truthful. When a product is “properly marked with other patents,” as here, the competitor “must show that the falsely marked patent[ ]” caused its injury and “that—for some reason—the properly marked patent[ ] did not.”  

mistaken exclusion of materiality survey leads to remand in false advertising case

Wing Enters., Inc. v. Tricam Indus., Inc., --- Fed.Appx. ----, 2020 WL 5739718, 2019-2279 (Fed. Cir. Sept. 25, 2020)

A remand because the district court wrongly excluded one survey in this false advertising case (though didn’t abuse its discretion in excluding another), then granted defendant’s motion for summary judgment.

Wing and Tricam compete in the market for multi-position ladders. Wing alleged that Tricam violated the Lanham Act and the coordinate Minnesota Deceptive Trade Practices Act by falsely advertising that its ladders complied with ANSI A14.2, an industry safety standard that applies to metal multi-position ladders. Wing alleged that Tricam’s ladders flunked the requirement that the rung on a multi-position ladder have a “step surface of not less than 1 inch.” Tricam’s allegedly false advertising appeared on: (1) the label on the side of Tricam’s ladders, which reads “manufacturer certifies conformance to OSHA ANSI A14.2 code for metal ladders,” (2) a statement on The Home Depot’s website, which reads “ANSI Certified, OSHA Compliant,” and (3) a statement on Tricam’s website, which reads “ANSI A14.2; OSHA.”

False advertising requires materiality, which frankly I would think a jury could infer from the fact that it’s an industry safety standard, but Wing had Hal Poret conduct two surveys.

The Importance Survey asked respondents to rank the factors they consider important when purchasing a ladder. The survey provided respondents with a list of factors, which included “strength/duty rating,” “compliance with industry safety standards,” “hinge lock size/style,” “feet material/style,” and “company name.” According to Mr. Poret, the survey results showed that “compliance with industry safety standards was ranked first as the most important factor by more respondents (19%) than any other factor except for strength/duty rating” and that a “total of 58% of respondents rated compliance with industry safety standards an important factor.” From these results, Mr. Poret concluded that “compliance with industry safety standards is the type of issue that is important to consumers and would tend to ... impact purchase decisions.”

The Labeling Survey showed a test group the side labeling of a Gorilla Ladder containing the allegedly false ANSI statement as well as a statement about OSHA compliance. A control group saw “an altered version” of the labeling in which “all references to compliance with OSHA/ANSI standards were removed.” While 69% of the test group members indicated that they were “extremely or very likely to purchase the ladder with the OSHA/ANSI content present,” only 55% of the control group did so, leading Poret to find “a significant impact on reported likelihood of purchase.”

Tricam’s surveyor, by contrast, concluded that “only 2% of the ... respondents [in her survey] could have potentially been influenced by the ANSI label,” though 67.5% of survey respondents “stated they had read the side label before buying the ladder,” 42.4% of the respondents had heard of ANSI, and 21.9% of the respondents clearly knew what ANSI was. Tricam’s surveyor Triese also criticized Poret’s work for failing to “isolate the effect, if any, of the ANSI” statement on consumers, focusing instead on the effect of an ANSI-OSHA statement or on industry safety standards in general.

In apparent response to this criticism, Wing sought to add OSHA compliance-related contentions, which the magistrate struck as untimely. Based on that, the district court excluded Poret’s testimony about the surveys, reasoning that they were “not relevant to the question of whether the ANSI-conformance statement that is at issue in this case is material to consumers’ purchasing decisions.” It reasoned that “[k]nowing that industry safety standards in general are important to consumers’ purchasing decisions does nothing to predict whether consumers might be dissuaded from buying a ladder that does not meet current ANSI standards” because Mr. Poret did not “ask about ANSI specifically.” Also, the surveys tested ANSI conformance in combination with OSHA conformance, so they weren’t relevant. [This is part of a trend of hyperspecificity in materiality requirements, which I think is generally a very bad idea as well as inconsistent with the historical treatment of materiality as “the kind of thing consumers care about.” Among other things, consumers aren’t great at telling you exactly why they do what they do, so demands for super-specificity can lead to lots of false negatives. If falsity/misleadingness is established, then in general we shouldn’t take the risk of allowing consumer harm unless there’s very good reason to think that the difference between the advertising and the truth wouldn’t matter to consumers.]

In addition, the court excluded the Labeling Survey because it would confuse the jury, being premised “on the conclusion that the OSHA-conformance statement is false,” and Tricam had lacked an opportunity to take meaningful discovery on the interplay between ANSI and OSHA.

Without the survey, the district court found there was insufficient evidence of materiality—testimony from a high-level Wing executive, Tricam’s president, and the chairman of the ANSI Labeling Committee was “too speculative.”

“Because Mr. Poret’s testimony concerning the Importance Survey would have at least some tendency to make a fact of consequence more probable than it would be without the evidence, and because such testimony is not so unsupported that it would offer no help to the jury, we determine that the district court abused its discretion in excluding Mr. Poret from testifying about the Importance Survey.” Even if it doesn’t mention ANSI, “ANSI is unquestionably an industry safety standard and is one of the two potential industry safety standards relating to ladders in the United States.” Asking about safety standards in general wasn’t irrelevant. Other courts have accepted materiality surveys as relevant even when the surveys didn’t ask about “the particular statement or product at issue.” Note: As well they should! Tricam also argued that the survey didn’t show that consumers know that ANSI is an industry safety standard. “This argument seems aimed more at the weight that the Importance Survey’s results should be accorded than whether the survey is relevant. Still, as the district court determined, ladder consumers could potentially ascertain that ANSI is an industry safety standard based on how Tricam displayed ANSI conformance.” Also, Tricam’s own survey results suggested that consumers know that ANSI is an industry safety standard, and it was ok to rely on the opposing party’s survey results for that proposition.

However, the district court didn’t abuse its discretion in excluding the Labeling Survey, because compliance with OSHA wasn’t part of the case and that was too intertwined with this survey, such that the jury would be confused. Wing argued that the jury could be instructed that the survey was only submitted for the materiality of the ANSI label, but the survey was still premised on the conclusion that the OSHA-conformance statement was false; Poret concluded that the survey showed that the “OSHA/ANSI content did have a significant impact on reported likelihood of purchase” (emphasis added). Tricam never had reason to explore in discovery the relationship between OSHA and ANSI on which the survey was premised.

With the one survey in, there was enough to survive summary judgment. That survey “suggests that consumers consider compliance with industry safety standards an important consideration when making a purchasing decision.” Consumers could know that, as Tricam’s survey suggested.  Result: remand, which could consider some other unsettled legal arguments.

 

impersonating company to solicit intimate images for private use isn't TM infringement/false advertising

AdoreMe, Inc. v. Watson, 2020 WL 5769083, No. CV 19-8830 FMO (AGRx) (C.D. Cal. Jul. 14, 2020)

A fundamentally commercial cause of action can be a bad tool to address even bad noncommercial behavior. AdoreMe sued Watson for trademark infringement and false advertising under federal and state law, and an unfair business practices claim under state law. Watson, who failed to respond, allegedly operates a phishing scam through which he “preys on unsuspecting women by (a) posing as a talent scout for Adore Me; (b) impersonating Lindsey Hayes Kroeger (‘Ms. Kroeger’) – a well-respected talent scout – and/or pretending to be affiliated with her; and (c) using, unlawfully and without authorization, Adore Me’s name, trademark, and reputation to obtain nude and intimate photographs from women.”

AdoreMe sought default judgment, which the court denied. Even where well-pled allegations exist, “[t]he district court’s decision whether to enter a default judgment is a discretionary one,” considering factors including the merits of plaintiff’s substantive claim and the sufficiency of the complaint.

Trademark infringement requires use “‘in commerce’ and ‘in connection with the sale, offering for sale, distribution, or advertising of any goods or services.’ ” (Citing cases that “noncommercial” uses don’t trigger the Lanham Act.) The court found that AdoreMe’s allegations of commercial use were conclusory and insufficient to state a claim.

[Query whether false advertising precedents could have been any help: although offering goods/services without intent to sell them as advertised is false advertising, that’s essentially always coupled with actual sales of something else—bait and switch. Advertising something without the intent to provide any services at all may not be the requisite “advertising,” though courts have stretched the definition of use in commerce/commercial use so far already that this seems like an odd place to stop. Indeed, one could create a category of “fake commercial speech” and treat the defendant as engaged in “advertising” of services while still robustly protecting ordinary noncommercial speech.]

Likewise, the allegations that “Defendant has profited and will continue to profit from his unlawful actions because the intimate photographs of his victims are highly valuable and the private property of those women” didn’t allege facts showing actual profit/plans to profit (implicitly defined as profit monetarily). [Side note: under California right of publicity law, the benefit to the defendant doesn’t have to be commercial; Kroeger’s potential claims are easily the strongest here.]

So too with the Lanham Act false advertising claims. This wasn’t plausibly “commercial advertising or promotion.” [Again, I might have attempted to estop defendant from challenging commerciality, but that is innovation and I can easily see why the court didn’t want to do that on a default judgment, where it’s easy to make bad law.]

The state claims were the same. [I wonder whether you could get something useful out of UCL “unfairness.” This seems like the kind of conduct the FTC thinks is unfair.]

Finally, the court was skeptical of the sufficiency of the support for plaintiff’s damages claims. “To recover damages after securing a default judgment, a plaintiff must prove the relief it seeks through testimony or written affidavit.” AdoreMe submitted only the declaration of its General Counsel, which didn’t sufficiently establish her qualifications and competency to assess and calculate AdoreMe’s damages. She also relied on potentially inadmissible evidence, e.g., supporting the statement that “approximately 1% of people who visit a company’s social media will ultimately make a purchase on the company’s platform” with a citation to a link to a website “upon which the court has no basis to rely.”

The court told AdoreMe to file an amended complaint and move for default judgment quickly or have the case dismissed; to consider retaining an expert to substantiate its damages calculations; and to consider limiting its claims. Given these instructions, it’s not incredibly surprising that AdoreMe apparently instead abandoned the lawsuit. One hopes that social media companies will nonetheless cooperate with shutting down such schemes.  

restitution unavailable in fed ct when damages are adequate, no matter what Cal state cts say

Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020)

In this amended opinion (original summarized here), the court elaborates on its reasoning that Sonner couldn’t abandon her damages claim on the eve of trial in this false advertising case and seek only restitution, because equity requires that legal remedies be inadequate and she abandoned her legal damages claim:

At bottom, “[t]hat a State may authorize its courts to give equitable relief unhampered by” the “restriction[ ]” that an adequate remedy at law be unavailable “cannot remove th[at] fetter[ ] from the federal courts.” Guided by that instruction, we hold that the traditional principles governing equitable remedies in federal courts, including the requisite inadequacy of legal remedies, apply when a party requests restitution under the UCL and CLRA in a diversity action.

Side note: I wonder how federal courts treat the “traditional principles governing equitable remedies in federal courts” when it comes to disgorgement in trademark cases. Disgorgement supposedly just became much easier to get, and if courts continue to believe that trademark goodwill is a mysterious entity, distinct from all the other parts of a business, then perhaps they will routinely find damages inadequate. But that’s always been a slogan rather than a reasoned decision, and plaintiffs pressing disgorgement demands in marginal cases may lead courts to see that.

Anyway, “Sonner must establish that she lacks an adequate remedy at law before securing equitable restitution for past harm under the UCL and CLRA.” But she conceded that she sought the same sum in equitable restitution as “a full refund of the purchase price”—$32,000,000—as she requested in damages to compensate her for the same past harm. There was no reason damages couldn’t be adequate, even if California state courts wouldn’t impose the same rule.