Today's inducement questions

When I bought my newly-arrived "World War II Campaigns in Europe" video set from an Ebay shop, did I induce infringement of the distribution right? Does it matter that I live in the Fourth Circuit, with its definition of distribution that includes "making available to the public"? What if I'd seen it in a friend's home and offered to take it off his hands for $20? Should it matter that purchasing an unauthorized copy doesn't violate any right of the copyright owner?

(The picture of the box, along with a picture of the Crusade in Europe DVD, will be available on the IP Teaching Resources database as soon as I hook my camera up to my computer.)

A non-Katrina-caused problem in New Orleans

Chiarella v. Sprint Spectrum LP, 2005 WL 3704505 (La.App. 4 Cir.)

Class certification in this consumer fraud case was reversed because, among other things, the representative plaintiffs had suffered too much harm to be truly representative – not something you see every day.

Plaintiffs alleged that Sprint had made false representations about the consistency and quality of service available in the New Orleans area – essentially, Sprint expanded into the area before it had the necessary switches and towers to provide the advertised service, so calls were constantly being dropped or failing to go through. Sprint’s statistics suggested that about 7% of calls were dropped or blocked in the relevant period. Plaintiffs, however, testified that 20-60% of their calls didn’t go through.

Many of the plaintiffs’ claims were preempted by federal law; when the FCC allowed Sprint to enter the New Orleans area, it necessarily determined that Sprint’s capacity was sufficient to justify the entry, and the Federal Communications Act bars state or local government from regulating entry or rates charged by any commercial mobile service. Granting relief on most of plaintiffs’ claims would necessarily be ruling that Sprint should have done more than was required by the FCC: providing more towers, clearer signals or lower rates. Breach of contract and false advertising claims, however, could be founded on the difference between what Sprint promised and what it delivered, which would not necessarily interfere with the FCC’s jurisdiction.

Class certification on those remaining claims, however, was improperly granted for a variety of reasons. The court first held that it could not assume that all of the Sprint subscribers in the area during the relevant period – the class as certified – were unhappy with their service, since some consumers would have experienced fewer than average lost calls. (This is a misdescription of the relevant standard; unhappy and defrauded are separate issues, and deception used to sell a product is deception even if the consumer does not complain.)

More in line with other cases denying class certification, the court also reasoned that common issues did not predominate, as the nature of the representations made to each plaintiff, and that plaintiff’s reliance, would have to be individually determined. Relatedly, appropriate damages would be difficult to determine, since each consumer suffered different blocked and dropped calls, and they would only have been charged extra if they’d been over their monthly minute plan and the system didn’t recognize a call as a dropped call for which no charge should be made. (Some of Sprint’s claims about difficulty of measuring harm seem disingenuous, including the idea that you’d have to add up the time of a dropped and a reconnected call to see if there was an extra minute charged – the conversation about the dropped call itself takes time and causes inconvenience – but apparently Sprint has no automated way of measuring who exceeds their monthly minute bundles, which seems a bit odd.)

Finally, as noted above, the court found that the class plaintiffs weren’t typical because, during the relevant time period, the system overall was experiencing 2%-3% dropped calls and 5%-9% blocked calls, whereas the five proposed representative parties who testified at the certification hearing reported dropped and blocked calls an order of magnitude greater. Three of the class representatives admitted that their experience was not “typical,” and all five had jobs that required a lot of travel around New Orleans.

Orphan works (and Google Book Search)

I talked to a group of graduate students in history at George Mason yesterday about emerging copyright issues. We spent some time on orphan works, a subject of great interest to all the historians of my acquaintance. The anti-injunction provisions in the Copyright Office's proposal cover instances "where the infringer has prepared or commenced preparation of a derivative work that recasts, transforms or adapts the infringed work with a significant amount of the infringer’s expression."

Especially for historians, who want to show you their evidence (or excerpts thereof), it's important to know whether direct quotation -- or, in the case of images particularly, complete reproduction -- can constitute recasting, transformation or adaptation. A fair number of cases suggest that the answer is yes, if the work in which the quote/copy is embedded has a different purpose than the original. What if a photo is used to illustrate a point, such as "Many Jewish immigrant families were proud of their involvement with socialist causes" (an actual example based on a photo of my husband's family holding up their favorite socialist paper, which was reprinted in a recently published book), but the photo is not otherwise analyzed or criticized in the text? I'd still say that falls within the definition of a transformative derivative work.

The proposed definition adds "with a significant amount of the infringer's expression" to the definition of a derivative work, which suggests a look at what the copier has added and not what s/he's copied, a rule that diverges from the test for infringement. What about a book like Wisconsin Death Trip, a compilation of death-related photos and news reports from the end of the nineteenth century -- does selection and arrangement count as the infringer's expression? I would think so, given that it does for purposes of the copyrightability of compilation works.

But this additional "significant amount" requirement appears to (deliberately?) exclude users like Google (who'd also be barred from using this new provision by the requirement of reasonable search for the copyright owner, since Google is relying on opt-out), who would not seem to be contributing original expression in assembling a searchable collection of documents. The Copyright Office report discusses large-scale users like libraries, but only contemplates them taking down a digitized work whose owner appears (thus avoiding any liability at all) or being able to continue distributing a book or movie that includes the work subject to the reasonable compensation requirement. The report does not consider the possibility that being part of a database is itself a type of transformation, which is obviously an important issue right now.

So, should copyright minimalists attempt to get "significant amount" taken out of the proposal? The idea that adding a short introduction shouldn't be enough to get someone into the reasonable-compensation-only category, which is the other obvious point of that requirement, is persuasive enough, but it might already be covered by the requirement that the orphan work be incorporated into a derivative work. Without sufficient transformation, maybe it's just a reproduction rather than a derivative work.

On the other hand, if the proposal is adopted with this wording, maybe it's more persuasive to say that database uses generally create derivative works (sometimes as fair use) since the implication will be that recasting, transforming and adapting can occur without the addition of significant new expression. Of course the Tasini and National Geographic cases have already gone into this problem in some detail, but I wonder if there are other similar database situations lurking out there.

Superiority claims: puffery or actionable?

Daugherty v. Sony Electronics, Inc., 2006 WL 197090 (Tenn.Ct.App.)

Plaintiff filed a putative class action alleging that Sony marketed its DVD players as high quality, even though Sony knew they were inherently defective. The dismissal of his claims for breach of express warranty, breach of implied warranty, unjust enrichment, and money had and received were dismissed. There was no breach of the express warranty and there was no additional implied warranty. Given the existence of a limited warranty, the other two claims, which only apply when there is no contract between the parties, also failed.

Plaintiff’s Tennessee Consumer Protection Act (TCPA) claim, however, fared better on appeal. The complaint named several Sony ads touting Sony’s product quality, including that “the company has earned a solid reputation for quality, reliability, innovation and stylish design.” As to DVD players specifically, Sony’s ads claimed that its DVD players “set[] the standard” and were “superior.” Sony called itself “the groundbreaking technology innovator and market leader in DVD Video” and claimed to be responsive to “increasing consumer demands for high quality DVD performance.” Plaintiff alleged that Sony’s nondisclosures of defects and false and misleading statements induced plaintiff and other members of the class to buy Sony DVD players they wouldn’t otherwise have bought.

The issue was whether the complaint stated a cause of action. Though the ad claims here seem like puffery, the court wanted to be cautious and leave the issue to the jury as long as the circumstances indicate that the buyer reasonably understood that he or she was getting some kind of assurance about specific facts. Although courts interpreting the Lanham Act have held “superiority” claims to be mere puffing, the court of appeals noted that the Lanham Act and the TCPA are distinct, and the law requires courts to construe the TCPA broadly.

The court refused to hold Sony’s statements to be puffery as a matter of law. The rationale is bracing: the court rejected the legal conclusion that, “notwithstanding the amount of money that Sony spends on advertising its DVD players, Sony never intended for Plaintiff or any consumer actually to rely on so much as even one of these advertisements and, if there was such reliance by a consumer, it was altogether unjustified.”

Some academics have argued against the puffery doctrine on precisely these grounds – the seller, as master of its ad, presumably chooses claims it thinks likely to influence consumers, and if so we should give consumers a chance to prove that they were influenced.

It may be the case that the claims were too vague to make any real factual representation, and yet consumers did rely on them; what then? The concurring opinion takes up this issue, suggesting that a claim of superiority is non-actionable puffery because it’s nothing more than opinion. Superiority can’t be measured, since superiority in one aspect may be offset by inferiority in another, for example in a tradeoff between sound quality and durability. Superiority, like beauty, is in the eye of the beholder. Nonetheless, the concurring judge agreed that the facts needed further development before dismissal as a matter of law could be appropriate.

In a wreck, get a check - and a consumer protection lawsuit

Crowe v. Tull, --- P.3d ----, 2006 WL 39248 (Colo.)

Crowe hired a lawyer to represent him in a personal injury case; he settled for a low amount, less than Crowe’s existing losses and much less than his anticipated future losses. Crowe later brought a false advertising claim against the lawyer and his firm. He argued that, though he was induced to use the firm’s services by an advertising campaign that portrayed the firm as skilled at extracting money from insurance companies and getting full redress for injury, in fact the firm was a mill that existed to settle claims as quickly as possible and he was pressured into settling for a minimal amount. (Among the slogans defendants used was “In a wreck, get a check,” while another depicts the firm’s president as a strongman who muscles insurance adjusters into paying claims.)

The Colorado Supreme Court held that a client may sue an attorney for violating the Colorado Consumer Protection Act (CCPA), rejecting claims that the statute implicitly excluded attorney advertising and that false advertising claims would impermissibly conflict with/overlap with malpractice liability and other regulations of attorney conduct. The CCPA requires (1) knowledge of a deceptive trade practice – negligence will not suffice -- and (2) conduct that significantly affects the public, and so the court believed that CCPA claims would not cover much attorney conduct. In particular, the CCPA’s limitation to trade practices that significantly affect the public means that individualized statements and contracts cannot violate the law.

Nonetheless, the court believed that modern lawyer advertising – which does include a substantial amount of mass marketing – fit within the broad scope of the law:

Contemporary advertising and marketing practices for attorney services more closely reflect the commercial marketplace as a whole and do not reflect the traditional image of the small-town practitioner hanging up a shingle and relying on personal contacts to create business. Marketing consultants and branding advisors are common tools in legal circles now. Many law firms resemble mid-size corporations rather than the image of small groups of like-minded professionals that still retains some hold on the popular consciousness.

The court was concerned that the average consumer lacks much knowledge about how to distinguish between different legal service providers and may rely solely on the provider’s own statements – often “under the added pressure of a fast-running statute of limitations.” Lawyers (not “unscrupulous” lawyers, I note, just lawyers) may target unsophisticated and underprivileged clients because of their susceptibility to advertising. (The opinion displays just a bit of nostalgia for the pre-Bates days of limited attorney advertising.)

The defendants argued that Crowe’s injury was not caused by the firm’s ads but rather by the lawyer’s advice. The court found that Crowe had alleged a sufficient nexus between the ads and Crowe’s losses. Causation is a question of fact and can be found if the ads are a but-for cause of his damages. In other words, it is enough if an ad was the first link in a chain that led to the harm. This fairly broad statement makes sense, given the purpose of consumer protection statutes; a jury could accept or reject Crowe’s contention that the ads led him to the firm.

Born in the USA, but not stamped here

Colgan v. Leatherman Tool Group, Inc., --- Cal.Rptr.3d ----, 2006 WL 45836 (Cal.App. 2 Dist.) (amended)

Leatherman labeled and advertised 22 multifunction tools as “Made in U.S.A.,” when in fact parts were manufactured outside the US. The trial court granted summary judgment to the class plaintiffs under California’s (say it with me) False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act, awarding restitution, an injunction (which included a mandatory component requiring corrective advertising on Leatherman’s website and in California newspapers), and attorneys’ fees.

The California Business & Professions Code prohibits Made in the USA representations when the goods or any part thereof “has been entirely or substantially made, manufactured, or produced outside of the United States.” Even though Leatherman’s products were designed, processed, and assembled in the US, parts of the tools were still “substantially made, manufactured or produced" outside the United States” as a matter of law. Significant working parts were cast, stamped, formed, hardened, cut, forged, polished or machined in various foreign countries. Plier jaws cast in Mexico, which were used in 20 of the 22 products at issue, had “USA” stamped onto the jaws themselves. After the lawsuit was filed, Leatherman stopped stamping “USA” onto the plier jaws and changed its packaging to state “Made in U.S.A. of U.S. and foreign components,” but didn’t do anything about existing packaged inventory, and didn’t change its unqualified “Made in U.S.A.” advertising.

Leatherman offered a number of reasons why it didn’t violate the law; the court rejected them all. As noted above, the court declined to rely on the fact that the tools were designed in the US; not only is design not manufacturing, but “made, manufactured or produced” is disjunctive, so all parts of the definition must be satisfied in order to make a Made in USA claim.

Leatherman also argued that “substantially” should be measured quantitatively rather than qualitatively, and that the comparison should involve an objective measure such as domestic and foreign production costs or relative worker hours. Domestic and foreign production costs … I wonder which of those is likely to be greater, and why, and whether that has any relationship at all to why a seller might want to make Made in USA claims without actually making the whole product in the US. In any event, the court declined to adopt such a standard. Its determination was bolstered by the FTC’s 1997 inquiry into the meaning of Made in the USA claims, which found that consumers are likely to understand such claims as meaning “all or virtually all” US origin.

In an unusual move for a consumer lawsuit, Leatherman alleged that extrinsic evidence such as a consumer survey was required to prove its advertising deceptive. The court of appeals disagreed, holding that the evidence that components were manufactured abroad was sufficient to make Leatherman’s claims deceptive without further evidence. Under California law, the primary evidence of whether an advertisement is misleading is the words of the ad itself, compared to the actual facts. Leatherman cited various federal cases that had applied Lanham Act standards, requiring a consumer survey, to misleading claims under the Unfair Competition Law. But the federal courts simply had not applied the proper standard under California law, as several California appellate courts have already held.

Given the rest of the holding – that the tools were not entirely or substantially made in the US – the same result could have occurred under the Lanham Act, as “Made in the U.S.A.” is explicitly false. Ruling this way allowed the court to define “made” as a matter of law rather than trying to assess consumer understanding of the term. Generally, courts applying the Lanham Act are also willing to resolve the meaning of single words without a consumer survey; it’s only when a claim requires putting several concepts together that implicit falsity comes into the picture. Explicit and implicit claims are really on a spectrum, as even the most explicit claim depends on consumer context as well as ad context. The growing importance of “falsity by necessary implication” and “falsity by absence of any susbtantiation” in Lanham Act cases indicates that courts are struggling to recognize the ways in which all advertising depends on consumer interpretation. Sometimes, as here, we can be pretty sure what that interpretation will be, in which case there’s no good reason to put the plaintiff to the expense and risks of a survey, which itself is subject to the manipulations of the surveyor’s black arts.

The court did reverse the restitution award because there was no evidence to support the trial court’s computation of the amount awarded ($13 million, 25% of the average wholesale unit price per tool sold in California during the relevant period). Substantial evidence is required to support a restitution award, and, though it was plain that Leatherman could charge a higher price for Made in the USA-labeled tools, the exact amount of the price premium couldn’t be determined with the available evidence. Remand was necessary to allow recomputation, and the resulting recomputation of attorneys’ fees.

Question: Will federal courts in California stop applying Lanham Act standards to UCL claims in competitor lawsuits, or will they wait for the California Supreme Court to rule? It seems that there’s little justification for waiting, since California case law points all in one pro-plaintiff direction.

Nothing's certain but death and taxes

And class actions, of course.

Laster v. T-Mobile USA, Inc., --- F.Supp.2d ----, 2005 WL 3610616 (S.D.Cal.)

In this putative class action, the plaintiffs asserted that defendants -- cellphone companies and other sellers of wireless telecommunication services -- engaged in the unfair and deceptive practice of charging consumers sales tax on the full retail value of cellphones that were advertised as "free" or at substantial discounts, in violation of California's Unfair Competition Law and False Advertising Law. Plaintiffs sought damages and injunctive relief under the Consumer Legal Remedies Act. Their state-law complaint was removed under CAFA.

Underlying facts: Cellphones are often sold as part of a bundled transaction: a free or discounted phone along with a service contract for a specified length of time. When the defendants offer the bundle, however, they generally charge sales tax of approximately 7.75% based on the full retail value of the phone. (For one representative plaintiff, this amounted to $10.31 in tax; for another it was $28.22.) Plaintiffs object that a free phone shouldn’t have any sales tax, and that the tax should be calculated on the discounted price when the phone is sold at a discount. I have to admit, this objection seems quite reasonable to me; I certainly don’t expect to be charged full-price tax on a sale item.

But this is a class action, so the legal analysis is not going to focus on the merits of the underlying claim. The contracts for the bundled phones, to which the plaintiffs agreed, included an arbitration clause that requires arbitration but bans class-wide claims in that arbitration. The Federal Arbitration Act (FAA) has a pro-arbitration policy, so the questions for the district court were whether a valid agreement to arbitrate existed and whether it encompassed the dispute at issue. But wait! Despite the federal policy favoring arbitration, state law controls issues of contract validity and enforceability. Generally applicable defenses such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements, though the court is limited to determining whether the arbitration clause itself is unconscionable.

A contract of adhesion – a standard consumer contract imposed by the party with superior bargaining power – is unconscionable when both procedural and substantive unconscionability are present, though the amount of each required will vary with the strength of the showing on the other. Procedural unconscionability comes from oppression and surprise; oppression comes from inequality of bargaining power and an absence of meaningful choice on the weaker party’s side. Surprise comes from the extent to which the terms of the bargain are hidden in a wordy form drafted by the stronger party.

The defendants contested procedural unconscionability on the grounds that plaintiffs had meaningful choices – there were other cellphone companies on the market, including some that don’t insist on arbitration. The Ninth Circuit, however, has already rejected this very argument in Ting v. AT&T. Under Ting, take-it-or-leave-it consumer contracts are deemed to be procedurally unconscionable. The court reasoned that the T-Mobile contract at issue fell on the higher end of the unconscionability spectrum, since the arbitration provision was buried in a 52-page “Welcome Guide” that was only available to the plaintiff after she’d signed the contract. Cingular’s arbitration clause was a closer call – the plaintiff got the service agreement specifically mentioning arbitration at the time of purchase. Thus, it was on the low end of the unconscionability spectrum.

As for surprise, it’s clearly present in the T-Mobile contract. Though the Cingular service agreement talks about arbitration, it doesn’t mention the terms or the ban on class-wide claims; those elements can only be determined by reading pp. 10-12 of Cingular’s 13-page terms of service booklet, so a “modicum” of surprise is present.

Substantive unconscionability is the remaining hurdle. Plaintiffs argued that a contract by which consumers waive class action rights is subsantively unconscionable, based on the California Supreme Court’s ruling in Discover Bank v. Superior Court of Los Angeles, 30 Cal.4th 148 (Cal.2005). Defendants responded that Discover Bank didn’t hold all such arbitration provisions unconscionable, and if it did, it would be preempted by the FAA.

Discover Bank held a waiver of class-wide arbitration to be unconscionable in an adhesion contract when (1) disputes between the parties would predictably involve small damages, and (2) plaintiffs alleged a scheme by the more powerful party to cheat large numbers of consumers out of small sums. In such cases, the waiver becomes in practice an exemption from responsibility for fraud and willful injury. Applying this two-prong test, the court found substantive unconscionability. Notably, prong (2) is satisfied by plaintiffs’ allegations; they need not provide evidence at this time.

Gee, that test looks like it would invalidate class-wide arbitration waivers in most consumer contracts! Thus, the preemption argument. The FAA makes arbitration agreements enforceable except on grounds that would apply to any contract. Because the Discover Bank rule is not one of general applicability, the defendants argue, it’s preempted. The California Supreme Court found that, to the contrary, the determination that a class-wide bar is (usually?) unconscionable involves general principles of state law; it just so happens that those principles will often apply to this type of contract, as they might to any class of unconscionable contracts. The district court here agreed.

Defendants also had a motion to dismiss, so we do get some discussion of the merits of the claim. Under the newly amended unfair competition law, plaintiffs have to allege (1) actual injury (2) caused by the defendants’ false advertising. The court found that plaintiffs adequately alleged injury, but not causation. Plaintiffs claim to have been harmed by a variation on bait and switch – lured in based on promises of free phones, then induced to pay. But plaintiffs failed to allege reliance on the offer of free/discounted phones – no named plaintiff alleges seeing, reading, or in any way relying on the ads. The unfair competition claim was dismissed with leave to replead.

Plaintiffs’ Consumer Legal Remedies Act damages claim was also dismissed – with prejudice – because they failed to give defendants thirty days notice before beginning an action for damages, as required by law so that defendants can have an opportunity to fix the problem without litigation. Strict adherence to the notice requirement is necessary to further the statute’s aims.

Attracts deer but also false advertising claims

Wildlife Research Center, Inc. v. Robinson Outdoors, Inc., -- F.Supp.2d --, 2005 WL 3676530 (D. Minn.)

This case resulted in a judgment of $4.8 million, plus prejudgment interest, based on the defendant’s false advertising, business defamation, and product disparagement for hunting products – a human scent elimination spray and a doe-urine-based attractant. Monetary awards in Lanham Act cases are reasonably rare, but in this case the jury apparently felt that years of false advertising had taken their toll on the plaintiff, and awarded both damages for lost business and the defendant’s profits. Although the awards on the Lanham Act and state-law claims were duplicative, prejudgment interest was available on the state-law claims and was awarded accordingly.

Lanham Act recovery may include both actual damages and the defendant’s profits, though the total recovery is subject to principles of equity and must constitute compensation, not a penalty. In this case, the duration of the false claims, the damage to the plaintiff, and the defendant’s knowledge that its claims were false justified the award. In addition, though the defendant argued that recovery of profits is only allowed for willful violations of the Lanham Act, the court ruled that the 1999 amendment to §1117(a) abrogated earlier case law imposing a willfulness requirement: The law used to allow recovery for “a violation under section 1125(a) of this title,” but now it reads “a violation under section [1125(a)] of this title, or a willful violation under section [1125(c) (dilution of famous marks)].” The contrast makes clear that willfulness is not required for an award of profits in a false advertising case.

Northeast Mississippi Daily Journal, corrupter of youth?

The paper solicited youngsters to write in with their versions of the seventh Harry Potter novel. Inducement to infringe the derivative works right? They might as well have renamed their publication Newspapster!

Self-blurring?

Slate on Ford Fusion ads that look like iPod ads. This post was going to be called "Initial interest confusion, thy name is Ford," but at the bottom of the article, the reporter notes that Apple gave permission.

Ford's car communications manager says, "the iPod is so iconic that people stop to watch the ad." To which the reporter points out, "Yes. Because people think it's a new iPod ad. And iPod ads are often fresh and entertaining. When it turns out to be an ad for a midsize sedan, I imagine that people mostly lose interest." I'm not a big fan of the initial interest confusion doctrine, yet I agree that maybe this wasn't the best use of the brand on Apple's part.

In a future dilution action against one of the many businesses that use the iPod in advertising, should this be evidence that the mark is already diluted? Even though Apple granted permission, and thus there's no infringement, promiscuous use may still dissipatet he special attributes of fame for dilution purposes. (Compare to the idea of self-tarnishment, as in these dual-authorized rivalry figurines.)

I may be able to teach my dilution classes entirely with Apple/iPod examples.

No publisher liability for false specialization claims

American Association of Orthodontists v. Yellow Book Usa, Inc., --- F.3d ----, 2006 WL 162979 (8th Cir.)

The American Association of Orthodontists (AAO) is a trade association for, unsurprisingly, orthodontists, who have specialized training beyond that of general dentists. The defendant publishes yellow pages directories that list, by category, businesses and professionals who pay to be listed. Its Missouri publications included separate listings for “Dentists,” “Dentists-Orthodontists,” and “Orthodontists (Straightening-Braces).” The AAO sued for violation of the Lanham Act because Yellow Book listed general dentists under the last two categories, which allegedly was likely to confuse and deceive consumers about the qualifications and expertise of the listed dentists. (The AAO alleged that it was, among other things, a violation of the American Dental Association’s Code of Professional Conduct for a general dentist to claim a specialty without the requisite education.)

The court of appeals ruled on two independent grounds. First, dentistry is a heavily regulated profession of which orthodontics is a subspecialty. If it is not illegal in Missouri for a general dentist to perform orthodontic services, the court reasoned, finding a Lanham Act violation in this case would usurp the function of the state licensing authorities.

This seems to be missing a step – it could be unlawful for a general dentist to advertise a speciality without additional qualifications even if s/he could perform specialized services. Nonetheless, if it is legal for a general dentist to claim to be an orthodontist even if s/he hasn’t completed extra training, then finding for the AAO might conflict with the state regulatory scheme. Later in the opinion, the court refers to the lack of a state-law ban on “general dentists holding themselves out as orthodontists,” which seems to be the right standard.

Even so, it would be nice to know more about the state regulatory scheme. Though there may not be a formal requirement for further training before dentists can advertise as orthodontists, if the AAO could prove consumer deception, the state's policy might not be in conflict -- only if the state deliberately decided to allow broad dentist advertising would there be a problem. (Query whether the Lanham Act would preempt any such state rule; given the traditional state role in regulating medicine, probably not, but a state policy allowing total freedom of advertising in other fields might well be preempted.)

Even had the complaint stated a claim, the court ruled, AAO lacked standing. From a trademark perspective, even assuming that consumers would mistake a listing under “Dentists-Orthodontists” as a false endorsement or association with the AAO, the relief sought -- an injunction against listing general dentists under that category – would not redress the injury alleged, which was public confusion over whether the AAO endorses the Yellow Book listings.

Moreover, despite the broad language of §1125, most circuits have long held that non-trademark false advertising claims are limited to competitors. Even under a more expansive, antitrust-like test, Yellow Book provides only an advertising medium to individual dentists, who would be the proper defendants. As the court notes, though, this isn’t exactly a point about standing.

I'm a little surprised that there was no discusion of 15 U.S.C. § 1114(2), which provides for injunction-only remedies against publishers who innocently print matter in violation of § 43(a). Though that limitation is mostly targeted towards trademark infringement, it clearly contemplates other violations of § 43(a) such as false advertising; it limits “the remedies given to the owner of a right infringed under this Act or to a person bringing an action under section 43(a)” (emphasis added), suggesting that you don’t need a trademark “right” for this section to apply. This provision implies that a false advertising cause of action against a publisher would exist, though damages would be unavailable.

When the moon hits your eye like a big pizza pie ...

... it could be a jab from a disgruntled family member.

Rosati's Franchise Systems, Inc. v. Rosati, 2006 WL 163145 (N.D.Ill.)

Rosati’s Franchise is a family business of pizza restaurants. The corporate plaintiff has federal registrations for “Rosati’s Pizza” and related marks; it has ten director/shareholders, all of whom are family members. Frederic, Michael, William, and Jeffrey Rosati, the first three of whom are minority director/shareholders, are the defendants in this trademark and false advertising case.

As a result of disputes between the majority and minority Rosatis, the shareholders agreed to split exclusive territorial rights. Rosati’s Franchise agreed to cease franchising and instead issue licenses to each of the shareholders to use and sublicense the Rosati marks and recipes (which are claimed as trade secrets). After this agreement, the shareholders created a marketing cooperative to advertise the individual pizza stores, both existing franchises and new licensees. All ten shareholders used the cooperative to market the 140 Rosati’s.

In 1999, “a website was created” – I use the passive voice because that’s how the complaint says it – at rosatispizza.com (warning: plays music). It listed the names of all Rosati’s nationwide. A third party owned the domain name.

In 2005, unbeknownst to the majority, the minority shareholders purchased rosatispizza.com and rosatis.com from the third-party owners. Soon thereafter, the family rift became open, and the minority group’s lawyer sent a letter to one of the majority Rosatis, stating that rosatispizza.com would be revised to list only the locations owned and controlled by the minority. And indeed, the 94 Rosati’s stores franchised or licensed by the majority were taken off the site.

As a result, the plaintiffs alleged, both customers and licensees had expressed confusion and anger, which had resulted in a substantial loss of business and goodwill. Moreover, because the website was changed, they were forced to pull ads because their Rosati’s stores weren’t listed on the site named in the ads.

Moreover, at the time the complaint was filed, a message appeared on the listings for Arizona restaurants:

Note to our valued customers:

… In 2001 a second group started licensing the Rosati name to independent owner operators. Due to the high number of complaints received at this web site in relation to locations controlled by the second group, we want to make it clear that the Original Valley Owners have no ownership or authority over locations that use the Rosati name that are not listed on this web site. Any complaints for locations not listed on this web site should be directed to that location and should be resolved by the parties that own that location. We apologize for any confusion.

Plaintiffs alleged that this constituted unfair competition under the Lanham Act and violation of the Illinois consumer fraud and deceptive trade practices statutes.

The court dismissed the federal trademark claims based on the authorization granted to each shareholder, including the minority shareholders, to use the mark in connection with their own sublicensing activities. The license, however, did not allow the minority to make false or misleading representations of fact about the majority, so the federal false advertising claim survived, as did the coordinate federal claims.

This case included a standing challenge – defendants argued that the individual plaintiffs, as non-exclusive licensees, had no standing to sue. This is the rule for trademark infringement under §1114, but §1125(a) confers standing on a broader range of plaintiffs, “any person who believes that he or she is or is likely to be damaged by” prohibited conduct. The individual plaintiffs were such persons.

Brief comment: Usually, quality controls within a family business will be assumed to exist, avoiding the charge that the mark has been abandoned through naked licensing. Can that general rule possibly apply here, where it appears that one segment of the family has no control over the other? The existence of this litigation shows an attempt to monitor the use of the marks under the license; perhaps that’s enough. But the reviews at epinions suggest that consumers might not understand the convoluted ways in which this franchise has developed.

Farmed salmon: under the pink

Gallego v. Wal-Mart Stores, Inc., 707 N.W.2d 539 (Wisc. Ct. App. 2005)

Gallego filed a class action complaint against Wal-Mart for misrepresenting the origin of salmon and failing to disclose that the salmon was artificially colored. The trial court dismissed the complaint. The court of appeals affirmed in part and reversed in part, allowing one of his claims to proceed.

Gallego alleged that he bought artificially colored salmon from a Wal-Mart because he believed, based on the color, that it was “naturally raised or wild” rather than farm-raised; farm-raised salmon allegedly has “gray, unappealing flesh.” (Farmed salmon don’t eat the shrimp and krill that produce the red color of wild salmon, so salmon farmers add the color.) Gallego alleged that this was a misrepresentation, since consumers consider color to be a sign of wildness and think that wild salmon is tastier and more nutritious. Wal-Mart did not disclose the presence of the dye at the point of sale or on the packaging. Gallego sought damages for false advertising and unfair trade practices.

The court of appeals reasoned that Wisconsin law has a specific statutory provision prohibiting false advertising with regard to food. Unlike the general false advertising statute, which covers “merchandise” and other things that clearly aren’t food, the food law does not provide for a private right of action. Because of this more specific provision, which indicated that food is not merchandise, Gallego could not assert a private claim based on the general law.

He could, however, state a claim for unfair trade practices under a separate section of the law. Wisconsin regulations require food sold or distributed for sale in-state to be labeled in compliance with FDA rules, and the law provides a private cause of action for violation of state regulations. Wal-Mart did not dispute that FDA rules require disclosure of artificial coloring in salmon; instead, it argued that, for technical reasons, the relevant regulation didn’t trigger a private right of action, but the court disagreed.

More on the issue of dyed farmed fish, including other lawsuits: here here, and here, the last two of which include the marvelous fact that farmers can use a device called the Salmofan® to choose the color of the dye.

A new justification for the derivative works right

Michael Abramowicz has written A Theory of Copyright's Derivative Right and Related Doctrines, 90 Minn. L. Rev. 317 (2005), offering a new justification for the derivative right: not that it offers a tiny increase in the incentive to create over and above the reproduction right, but that it serves to force product differentiation in the derivative markets. I was amused by "[without the derivative right,] it is certain that there would be many written adaptations of Harry Potter, as amateur authors presumably would create a large number of unauthorized sequels and adaptations to other cultural contexts." Because that surely doesn't happen now.

More generally, though Abramowicz's work is typically thorough, I'm not yet convinced that competition in the derivative markets is a bad thing. As Mark Lemley has pointed out, when people copy each other in the market for (unpatented) products like office supplies, we call it the free market; we don't think that forcing product differentiation so that only one producer can make paper clips is efficient, even if the result of the free-for-all is that lots of producers rush into the market and drive the product down to its marginal cost. In fact, that's kind of the point.

The product differentiation theory says works are worth more to consumers when they lack close substitutes, so the production of many similar derivative could be less valuable to consumers than the production of a variety of highly differentiated works. The empirics of this are unclear and my intuitions are that the derivative right does not add social value, in that I see network effects in fandom so that the production of hundreds of stories about one TV show creates more value (including the value of having a fan community in which enthusiasms are shared) than one story about each of a hundred shows, and I also think there's a special pleasure in fetishizing small differences, comparing different treatments of the same basic story - or collecting vegetarian cookbooks, to take one of Abramowicz's examples. Nonetheless, as Abramowicz acknowledges, even assuming that creative works benefit from not being clumped together, and that a derivative works right increases the average space between works, consumers might be better off if free competition drove the price of derivatives down.

My description of the theory suggests that, at least with respect to the highly creative works that tend to spark fan derivative works, the model needs to be modified to take into account fans who enter the "market" and distribute their works freely, as in the Harry Potter novel archive linked above. We can add in non-monetary prices, but I suspect it makes the whole thing much more complicated, especially since sellers of authorized derivative works want to be paid with money. Perhaps there's some work on open source versus proprietary source software that might provide some insights.

There's no such thing as a controlled experiment in copyright, but it might also be worthwhile to look at the spate of unauthorized derivatives of Uncle Tom's Cabin, Tom Sawyer and the like. Those derivatives didn't crowd out other, nonderivative works as far as I'm aware, nor do modern versions of Shakespeare dominate the Blockbuster shelves, suggesting that the product space for copyrighted works is broad enough to give us variety without needing an extra derivative right.

Maybe the real problem I have is with the idea that, if we can propose a detailed enough economic model, we'll know something useful about copyright scope - the difficulty, as with the difficulty in Judge Posner's detailed equation in Sex and Reason that purports to show whether or not abortion should be banned, is that we have no idea what the values of the variables are and no real hope of determining those values. Thus, as Abramowicz acknowledges, his theory shows that a derivative right might be a good idea and might not be. Perhaps the models are helpful if they get us to think about considerations that otherwise might just be unintended consequences - Abramowicz uses his model to argue that we should think about the reproduction right and derivative right separately, and even assign them different scopes, to take into account the difference between reproduction's plain incentive justification and the derivative right's more complex product differentiation justification.

I have of course given only the merest outline of Abramowicz's argument. Interested readers should definitely check it out. Unfortunately, it does not seem to be available at the journal's site or on SSRN.

Mandarins and Geographic Origin

"I guess you could say it's a sense of terroir." What I find particularly interesting (aside from the idea of more yummy tangerines) is that the concept of terroir is, it appears, well enough known to food section readers in LA that it need not be defined.