Upcoming trademark event at Georgetown

Georgetown is hosting an event in honor of the publication of Jeff Handelman's Guide to TTAB Practice on Tuesday, January 22, 2008 from 4:00 pm to 6:00 pm on the 5^th floor of the Georgetown Law Library. Judge Pauline Newman of the Federal Circuit will be speaking. Anyone interested is welcome to attend.

Deficient pleading leads to disappointment

Wellness Publishing v. Barefoot, 2008 WL 108889 (D.N.J.)

Plaintiff Holt is a doctor and, he alleged, an authority on nutritional supplements with a long academic resume. He has a consulting business which owns Wellness Publishing; the plaintiffs all participate in the supplement industry and in health care publishing. Defendants are Kevin Trudeau and related direct marketers.

The allegations of the complaint are these: In early 2000, former defendant Barefoot (with whom plaintiffs settled) solicited Holt to make a nutritional supplement in a joint venture. Barefoot proposed various formulations, and Holt advised him that a number of them were medically unsafe because of excessive doses of vitamin D and toxic metals. Barefoot told Holt he wanted to market a coral calcium supplement, but Holt, concerned with Barefoot’s ethics, demurred. Barefoot promised Holt he’d behave. The parties agreed that Barefoot would make his best efforts to show a product manufactured by Holt Consulting, to be known as Barefoot’s Coral Calcium Plus, and Wellness would own rights in a book, Barefoot on Coral Calcium. The parties’ agreement included a noncompete clause relating to coral calcium. Despite this, however, Barefoot found a better deal and sabotaged the sales of Coral Calcium Plus, including by promoting a competing book and associated items in at least two infomercials created by Barefoot, Trudeau, and the other defendants. On his website, Barefoot also made claims about coral calcium that Holt felt were unlawful.

Plaintiffs alleged copyright infringement. Defendants challenged standing, because in their settlement with Barefoot, plaintiffs transferred their copyright interests back to Barefoot and thus are no longer legal or beneficial owners of the copyright. The settlement agreement does purport to preserve plaintiffs’ rights in accrued legal claims against defendants. The court agreed that a copyright owner can assign its copyright interests but still bring claims that accrued when it owned the copyright. In fact, under Second Circuit precedent, accrued copyright claims don’t transfer with an overall assignment of copyright unless they’re expressly assigned. The transferor remains free to sue as long as it owned the copyright at the time of the infringement.

Defendants’ second argument, about plaintiffs’ failure to allege registration, worked better. Registration is jurisdictional. The complaint, however, failed to allege registration, and Barefoot on Coral Calcium wasn’t registered when the complaint was filed. It was registered Dec. 20, 2002, four months after the initial complaint, yet the second amended complaint did not so allege. Plaintiffs requested leave from the court to file a third amended complaint to correct the deficiency.

The court ruled that it initially lacked subject matter jurisdiction. The question, it thought, was whether plaintiffs could confer such jurisdiction on the court after the limitations period expired by amending the complaint. Some prior cases hold that a registration defect may be cured by amending or supplementing the complaint once registration has occurred. But in none of those cases had the statute of limitations run prior to a plaintiff’s attempt to cure the defect. “[T]he proper course for a plaintiff who has filed a jurisdictionally deficient copyright infringement claim, upon satisfying the jurisdictional prerequisite of registration, is to file a new action.” Some cases, for efficiency purposes, allow amendment instead, but the expiration of the limitations period removes that justification. An amendment cannot relate back to an initial complaint when there was no subject matter jurisdiction over that complaint.

The copyright claims were dismissed.

Plaintiffs also alleged that defendants made false statements about coral calcium and about their rights to sell coral calcium using the Barefoot name, in violation of the Lanham Act’s false advertising provisions. (The court noted in a footnote that the latter claim might not be actionable under §43(a)(1)(B), since claims about a trademark do not relate to “the nature, characteristics, qualities, or geographic origin” of the coral calcium product (citing Monsanto Co. v. Syngenta Seeds, Inc., 443 F.Supp.2d 648, 652 (D.Del. 2006)).

Defendants challenged plaintiffs’ standing. Constitutionally, what is required is an injury in fact, fairly traceable to the defendant’s acts, that will likely be redressed by a favorable decision. Despite an inartfully drafted complaint and minimally argued brief, the court found that these elements were satisfied. Plaintiffs alleged that defendants’ false advertising in their infomercials harmed plaintiffs’ market for coral calcium.

Prudentially, the Third Circuit has developed a multifactor test for assessing standing in Lanham Act false advertising cases when the parties are not direct competitors. Here, plaintiffs make nutritional supplements and publish health care information. Kevin Trudeau appeared in infomercials promoting coral calcium, and the other defendants produced those infomercials. The complaint was unclear about the existence of direct competition. Because the false statements allegedly made in the infomercials directly concerned plaintiffs’ products and could bear on their ability to compete in the marketplace, the court declined to rule against plaintiffs on standing grounds.

The next question was whether Rule 9(b), requiring fraud to be pled with particularity, required dismissal. Plaintiffs, oddly, didn’t dispute that Rule 9(b) applied, but the court noted that there is a division of opinion in the courts on this topic. Some district courts in the Third Circuit have even made up an “intermediate” standard for false advertising claims, furthering the policy of Rule 9(b), and this court followed that lead, though I think this is a mistake. The complaint’s recitation of the words of the Lanham Act, the court ruled, failed that standard. And the mere allegation of “false and misleading statements” in defendants’ books and videos was insufficient, because it didn’t give enough detail about the false statements and didn’t even clearly relate to goods, services, or commercial activities.

Plaintiffs identified some allegedly false claims about coral calcium, including that coral calcium supplements “will cure cancer.” But the court found these insuffient, because the false statements alleged in the Lanham Act count purportedly referred to a specific brand of coral calcium, not coral calcium generally. A competitor who did not sell coral calcium, but sold some other supplement or anti-cancer product, could easily base a Lanham Act false advertising claim on these statements, but it’s harder to see why these plaintiffs should have a claim, even though defendants’ false advertising about coral calcium generally could definitely have a negative effect on the overall market for coral calcium if consumers decided that the claims were all snake oil.

Plaintiffs’ fraud claims also failed. Plaintiffs alleged that defendants’ false claims about coral calcium deceived vulnerable members of the public. But they failed to plead with sufficient particularity, and they also didn’t allege harm to themselves from the fraud, as opposed to harm to the direct victims of the fraud who relied on the false claims.

Plaintiffs’ tortious interference claims were also dismissed, because plaintiffs failed to allege wrongful/malicious conduct on the defendants’ part that induced Barefoot to breach his noncompete agreement. (The court did, however, reject defendants’ mistaken argument that this claim was preempted by the Copyright Act.)

Plaintiffs’ New Jersey common law unfair competition law claims were no more successful. Though the New Jersey tort is amorphous, a basic requirement is some kind of misappropriation of property, plus bad faith or malicious conduct. Here, there was no misappropriation, despite the allegedly misleading statements.

Obviously false ads

... otherwise known as humorous ads. The Trunk Monkey series from Suburban Auto Group qualifies; no reasonable consumer would think the Trunk Monkey was actually included with purchase, despite the fast-talking announcer's claim that he's "pending Department of Transportation approval."

Thanks to Christine Haight Farley for the heads-up.

Claim substantiation research not privileged

Procter & Gamble Co. v. Ultreo, Inc., 2008 WL 110245 (S.D.N.Y)

P&G sued Ultreo for false advertising. Both parties make toothbrushes; P&G disputes Ultreo’s claim “that its power toothbrush cleans beyond the reach of the toothbrush’s bristles by virtue of its high-speed sonic bristle action and ultrasound wave technology.” In particular, P&G considers this misleading because it’s based exclusively on lab studies rather than clinical tests in humans. P&G sought discovery of five scientific studies by Ultreo and its affiliates, but Ultreo argued they were privileged attorney work product. The court disagreed and ordered production.

Ultreo argued that the studies were privileged because its attorney advised it to conduct the studies given the likelihood of suit by P&G, and that the privilege should extend to investigators seeking factual information, such as clinical study results, when they work on behalf of an attorney. P&G responded that the studies were part of Ultreo’s ordinary business and no different from other studies that had been produced.

FRCP 26(b)(3) protects materials “prepared in anticipation of litigation or for trial or for another party or by or for that other party’s representative” unless the party seeking discovery has substantial need of those materials and can’t obtain their substantial equivalent by other means. The burden of establishing the privilege is on the party invoking it, but the privilege does cover facts as well as attorney opinions and strategies. As a result, the privilege can apply to non-lawyer party representatives, including investigators seeking factual information.

Nonetheless, the privilege requires such facts to be created “by or for counsel in anticipation of litigation or for trial.” Even if documents are in an attorney’s possession, they aren’t protected if they were created in the ordinary course of business and would have been created in substantially similar form irrespective of the anticipation of a lawsuit.

The court found that Ultreo’s lawyer’s statement that the studies were conducted at his behest was insufficient to establish the privilege. The record clearly showed that Ultreo “has long sought to obtain clinical proof of the effectiveness of the ultrasound component of its toothbrush.” It even applied for (and won) a grant from the National Institute of Health to conduct clinical studies, and planned additional such studies. Ultreo has also planned to use the studies for which privilege was claimed to sell its toothbrushes and has talked about the studies with retailers. The court’s in camera review confirmed that the studies were part of Ultreo’s routine business efforts to substantiate its ad claims. Thus, Ultreo failed to meet its burden.

“Ultreo’s business plan was built around developing a new and innovative toothbrush, and conducting scientific investigations to demonstrate that the toothbrush worked. The fact that these investigations were undertaken in consultation with outside counsel, under the looming specter of litigation, does not, by itself, clothe them with protection. Such a holding would effectively shield every clinical investigation and scientific inquiry, so long as the party was savvy enough to include outside counsel in the decision-making process.” (citations omitted).

Comment: the research here was designed to substantiate a factual claim, not to assess consumer understandings of an ad. Getting discovery of the latter type of research, which is important in implicit falsity cases, could be a harder task, depending on whether the advertiser routinely surveys for consumer reactions and whether the prelitigation survey resembles ordinary market research. Advertisers should also remember that heavy attorney involvement in shaping a survey may make judges less likely to credit it when the advertiser introduces the survey into evidence.

Whitman on producerism and consumerism

James Q. Whitman, Consumerism Versus Producerism: A Study in Comparative Law, 117 Yale L.J. 340 (2007). I saw Whitman present a version of this tailored to dilution, and it was very useful to read the larger article. Whitman points out that there are many versions of producer- or consumer-focused regulation; I too have tried to make the point that what he’d call consumer-protection regulation is about protecting specific consumers, sometimes at the cost of more nuanced information or lower prices that would help different consumers.

Here’s the abstract: The spread of American-style “consumerism” is a burning global issue today. The most visible symbols of American consumerism, large enterprises like Wal-Mart and McDonald’s, attract vitriolic attacks in many parts of the world. Political conflict in Europe (and elsewhere) turns largely on the question of whether legal systems everywhere must inevitably follow the American model. Despite the global importance of the consumerism debates, though, comparative lawyers have found little to say. In an effort to develop an analytic comparative law approach to the problem of global consumerism, this Article proposes to revive an analytic distinction that was common in the 1930s: the distinction between “consumerism” and “producerism.” A producerist legal order tends to revolve around rights and interests on the supply side of the market: it focuses on the interest of some class of producers or distributors (such as workers, small shopkeepers, or the competitors in a given industry). A consumerist legal order, by contrast, tends to focus on rights and interests on the demand side of the market—in particular, on the consumer economic interest, understood primarily as an interest in competitive prices. Producerist legal orders can take forms quite different from consumerist ones, both when it comes to economic regulation in the law of antitrust and retail and when it comes to fundamental conceptions of the nature of rights. The distinction between consumerism and producerism involves some real complexities, and it must be used with care. Nevertheless, this Article argues, it is of fundamental importance for classifying and analyzing legal systems, and in particular for understanding basic and persistent differences between continental Europe and the United States.

carbon neutrality claims and consumers

I spoke at the FTC’s workshop on carbon offsets and renewable energy certificates. Useful background: Randal Shaheen, Amy Ralph Mudge, and Matthew Shultz, Carbon Neutral:The New Green—Substantiation Issues for the Next Generation of Environmental Claims. Webcast here. NYT report here. An interesting example of a case in which an industry wants government regulation in order to support the development of a market, including consumer confidence.

Deborah Platt Majoras (FTC Chair): Eight in ten Americans say environmental policies should matter in their purchasing decisions. The FTC wants to help people buy green and not get fooled, and has accelerated review of the Green Guides (1992, rev. 1998). New terms are at issue: carbon-neutral, sustainable, cradle-to-cradle, etc. The claims are credence-based and hard to verify – e.g., does the seller really plant trees? Does planting trees decrease greenhouse effects? There is thus a heightened potential for deception.

Majoras reminded advertisers that both express and implied claims require substantiation, and that good faith isn’t enough; even good faith purchasers could buy offsets that have been sold more than once. The FTC seeks to give guidance to marketers and consumers without developing environmental performance standards. What, if any, additional guidance is warranted?

Lesley Fair, Division of Consumer & Business Education: Reminded advertisers that website materials are ads and thus subject to the FTC Act. General environmental claims may need careful qualification. Specific environmental/scientific claims require competent and reliable scientific evidence, which is methodologically sound research using accepted procedures with statistically significant results – not anecdotal evidence, and not sales materials from the supplier who sold you the underlying materials/ingredients.

The Commission has, to her knowledge, never lost a case where the defense was “we disclosed relevant information in a footnote/superscript!”

Katherine Hamilton, Ecosystem Marketplace: The carbon offset marketplace is mostly chaotic, a sort of Wild West/buyer beware area, but there is significant consumer demand. Customers care about (1) additionality – a project that wouldn’t have happened without the offset; (2) additional environmental benefits – “charismatic carbon”; and (3) certification – which may be related to exposes about products in the marketplace – and perhaps even registries where you can watch transactions happening.

Alan Levy, FDA (notably clear and concise – I would invite him to talk about consumer perceptions anywhere!): He doesn’t know much about carbon offsets, but does know about how consumers understand information disclosures and product labels. The claims we are discussing here are strange – they’re not about individual use attributes like taste (experience claims). Carbon footprints can’t be verified by consumers, or even by a group of consumers – these are extreme forms of credence claims. Biodegradability is verifiable, but carbon neutrality can’t be verified by product testing, nor can other claims about producer behavior outside the production cycle.

Also, most people have only a vague notion of what a carbon footprint is, and even less about what an emissions market is. And consumers know they don’t know. This produces difficult practical challenges: trust and knowledge. Buying a carbon neutral product is an act of symbolism and faith.

From the consumer point of view, labeling is a convenient shortcut for search. Effective marketing has to seem useful to consumers.

Knowledge from the FDA: (1) Labels are usually seen by consumers to be about specific products, not categories or issues. Ads can portray themselves as more generally useful. But consumers generally don’t assume ads or labels are educational. They don’t learn scoring mechanisms from those sources or think of food labels as places to learn about nutrition. (2) Consumers are looking for new and relevant information, especially product-specific information. (3) Consumers don’t necessarily assume ads are reliable. They are wary of being misled. They don’t carefully assess every claim – the whole point is to save time on search – but they’re sensitive to whether claims sync with what they already know. They run a reflexive legitimacy test on new info. This is the value of a positive brand identity: it allows claims to pass that test without triggering too much thinking.

All marketing claims are implied because they depend on what consumers already know (about value, at a minimum).

Identifying current consumer knowledge is the key to an effective approach in this area. In the dietary supplement market, producers specialize in providing information to consumers to raise knowledge and facilitate customer acceptance. They use Prevention and other news sources to do so, because news is more credible. Fortunately (for marketers) the news is often filled with what’s going on in marketing. News promotion is marketers’ best bet.

Consumers’ rules of thumb: (1) Ubiquitous claims generate confidence that the claims have been vetted and are trustworthy. (2) Marketing that uses the same format to convey information shows the existence of a consensus or maybe even a regulatory entity that can rein in excesses. This is why the nutrition panel on food has been a huge success. And it explains why industry would want a Green Guide. Consumers don’t care whether the standard is voluntary or mandatory. (3) Inconsistency signals ulterior motives and heightens skepticism.

A couple of notes from the last panel, a roundtable about what the FTC could do to help consumers as it reviews the Green Guides:

Wiley Barbour, Environmental Resources Trust (an impressive speaker): The public needs something simple: indirect reductions are difficult to explain. Also, there is no consensus in the community about what counts as a reduction when you’re buying offsets instead of reducing emissions directly. The FTC could help define terms, but those will be policy choices and we should confront that head-on. In fact, this is about price: we do have some reductions that everyone could agree on, but the fact is that they’re too expensive, so we’re looking for cheaper alternatives.

Moreover, we simply can’t expect consumers to understand the distinctions we’re talking about in terms of varying certification standards. Additionality – the extent to which a renewable energy credit or other transferable device represents environmental benefit that would not otherwise have occurred – is a key term here, but very hard to define. We need to make some policy decisions about standardizing, which is especially important if we are, as seems likely, moving towards a mandatory emissions control regime.

Court of appeals gives a little bitter and a little sweet to Splenda

Via several alert readers:

McNeil Nutritionals, LLC v. Heartland Sweeteners, LLC, --- F.3d ----, 2007 WL 4478981 (3d Cir.)

District court ruling allowing copying of Splenda’s yellow trade dress for use in sucralose house brands discussed here. The court of appeals affirmed in part and reversed in part, finding that as a matter of law the likelihood of confusion factors weighed in favor of McNeil as to certain versions of the private-label packages, so that on remand the district court would have to consider whether injunctive relief was appropriate as to those versions.

The opinion began by noting that, in 2005, private label products accounted for 20% of all US supermarket, drugstore, and mass merchandiser sales, or $50 billion. At that time, more than 90% of consumers were familiar with store brands, and almost as many bought them regularly. Such brands are typically found next to the coordinate national brands, and their packaging often invites comparison with a national brand, whether by similarity in dress or by “compare to” statements. Shelf tags also explicitly invite comparisons. The court accepted as fact that consumers are generally aware that private label products are sold next to national brands, and that prominent price displays allow consumers to see the cost differences between them.

Splenda is sold in a primarily yellow package, with blue italicized lettering on a white cloud, pictures of food in need of sweetening, and the controversial slogan “Made from Sugar, Tastes Like Sugar.” Defendants make private label boxes of individual sucralose packets and bags of granular sucralose for Giant, Stop & Shop, Tops, Food Lion, Safeway, Albertson’s, and Wal-Mart. They use yellow backgrounds and blue or white lettering, and pictures of food in need of sweetening.

The court stated that initial interest confusion could apply to private-label packages sold next to national brands, if it is likely to confuse consumers “‘at the point when [they] first reach[] for the product on the shelf.’” Initial interest confusion, like point of sale confusion, should be assessed using the standard multifactor test.

McNeil argued that the district court misapplied the first factor – the degree of similarity between the marks – with respect to products for which it weighed the similarity factor in favor of defendant Heartland. Similarity is the “‘single most important factor’” in determining likely confusion, and it is not usually assessed by side-by-side comparison unless, as here, the products are typically seen by consumers that way. The district court weighed similarity in defendants’ favor for the Food Lion box, Food Lion bag, and Safeway boxes.

McNeil claimed that similarities should have been weighed more heavily than differences. The court of appeals found that this was not the rule; rather, “forceful and distinctive design features” should be weighed more heavily because they are most likely to affect the overall impression of the trade dress, regardless of whether they’re similarities or differences.

The court of appeals found no clear error in the district court’s ruling on the overall impressions created by the trade dresses. The most important difference was the absence of the mark SPLENDA and the presence instead of a store name and logo. Quoting McCarthy, the court stated that the absence of SPLENDA was not in itself sufficient to cure an otherwise infringing trade dress, but the presence of a house mark can be sufficient. The presence of a house mark should be considered as part of the overall similarity analysis, not as an independent defense. Here, Food Lion and Safeway are themselves well-known to the relevant consumers, who are after all shopping there. And the marks are prominent on the packages. If, as cases from other circuits have found, it’s clear error to weigh similarity against a defendant when the defendant’s own house mark is prominently displayed, it can’t be clear error to weigh similarity in the defendant’s favor.

McNeil also argued that the history of color coding in the sweetener industry increases the likelihood of confusion – white stands for sugar, pink for saccharin, blue for aspartame, and yellow for Splenda. (One of these things is not like the others; this is an argument that goes back to Nabisco and Inwood v. Ives, among other cases – having a unique product in the market does not necessarily lead to enforceable trademark rights.) McNeil argued that yellow was shorthand for Splenda, whereas the market leaders in saccharin and aspartame waited too long to challenge imitators.

The court of appeals was unpersuaded. First, the district court fully accounted for the similarity in color in its overall similarity analysis. Second, the pink and blue experiences cut the other way: consumers understand that not all pink is Sweet ‘N Low and not all blue is Equal. Nor is all yellow Splenda – even sugar packages use yellow.

On consumer care – the weakest part of the district court’s analysis, in my opinion – McNeil argued that the district court erred by requiring a heightened level of care by consumers of no-calorie sweeteners, who are presumably health-conscious. The products are inexpensive – between $4 and $5 – and less sophisticated consumers are not buying sucralose for health reasons. But the district court relied on affidavits about the health-related motivations and extra care of ordinary consumers of no-calorie sweeteners. Moreover, prior Third Circuit language about looking at the least sophisticated consumers in a class only applies when the buyer class consists of both professional buyers and consumers. For a class consisting solely of ordinary consumers, most of whom are health-conscious, the district court didn’t need to focus on the least sophisticated of them.

McNeil also argued (persuasively) that health-conscious doesn’t mean brand conscious. Consumers may look at the active ingredient, but still be confused by the trade dress, and the district court therefore was wrong to hold them to a higher standard with respect to choosing among sucralose products. The court of appeals rejected this argument because it hadn’t been raised before the district court, and because grocery stores put sugar right next to sucralose; because sugar packages are often yellow, a reasonably prudent consumer “might be” careful not to pick up sugar by accident. In sum, there was no clear error on consumer care.

On evidence of actual confusion, McNeil argued that the district court erred in failing to count the evidence of one actually confused consumer in McNeil’s favor. But the district court carefully considered her testimony and held that she was just unusual. In fact, she usually didn’t pay attention to brands, and – this is based on a quote from McCarthy rather than record evidence – such consumers are “few” and unrepresentative. As a matter of law, brand indifferent consumers don’t count in the likelihood of confusion inquiry. (A secret pocket of materiality in trademark law! If only defendants surveyed for brand indifference, we might find out more about those “few” consumers!)

With respect to the Giant, Stop & Shop and Tops boxes and bags (collectively Ahold, since they’re all owned by Ahold), the district court weighed similarity in McNeil’s favor because there weren’t any prominently displayed distinguishing design features on those products, but still found in favor of defendants overall. McNeil argued that this was error.

The court of appeals considered this claim in the context of the overall balancing. It concluded that the district court clearly erred in not finding likely confusion for those packages. Because a number of factors weighed in McNeil’s favor and others in favor of neither party, “there is no way” the court could have balanced them against McNeil. The district court clearly erred because the single most important factor in determining likely confusion is similarity, especially when goods directly compete.

The district court relied on consumer awareness of store-brand products sold in direct competition with national brands in similar packaging, often touted by signs inviting comparison. But these factors, the court of appeals held, are insufficient on the current record to overcome the likelihood of confusion. “The danger in the District Court’s result is that producers of store-brand products will be held to a lower standard of infringing behavior, that is, they effectively would acquire per se immunity as long as the store brand’s name or logo appears somewhere on the allegedly infringing package, even when the name or logo is tiny. The Lanham Act does not support such a per se rule.” The practices the district court identified are important, but not sufficient here where the store name and logo aren’t prominently displayed on the packaging.

In other words, the generic maker is going to have to repackage the products for every store it sells – what the court of appeals called a “store-specific signature” -- in order to be better protected against suit; using a third-party name isn’t going to be good enough.

As this collage of Head & Shoulders-style house brands shows (click for larger image), there are a number of house or third-party brands that don’t track the store name. Even Wal-Mart’s Equate doesn’t use the Wal-Mart name prominently, though the comprehensiveness of Wal-Mart’s Equate brand may bring it within the Third Circuit’s holding that “the more a store’s name and/or logo are present around that store’s shoppers, the more likely those shoppers will know well that name and/or logo, which in turn may serve to differentiate materially a store-brand packaging that displays them prominently.”

Essentially, the court of appeals thought that the district court had created a near-absolute “house brand” defense independent of the confusion factors, which was inappropriate. The court of appeals recognized that a prominent house brand might allow store brands to “‘get away’ with” a little more similarity than other defendants’ comparable products. But a tiny differentiating label won’t suffice in any event.

Thus, for the Ahold boxes and bags, the court of appeals remanded for consideration of the other preliminary injunction factors, since McNeil established a likelihood of success on the merits.

The decision is an important trade dress case, further highlighting the importance of a strong house brand: to those who have much, much will be given.

Strikeout: baseball player's claim against cards fails

Brooks v. Topps Company, Inc., 2007 WL 4547585 (S.D.N.Y.)

Brooks sued over the publicity rights of her late father, baseball player James "Cool Papa" Bell. Bell was involved in the Negro Leagues from 1922 to 1950; "his friend Satchel Paige is said to have remarked that Bell was so fast he could switch off the light and be in bed before the room was dark." After being inducted into the Baseball Hall of Fame in 1974, Bell granted the National Baseball Hall of Fame permission to use his name and likeness on various products. He also made other deals to sell autographed cards. Brooks, the executor of his estate, also granted licenses to use his name and images on baseball cards, clothing, prints, throw blankets, and Wheaties.

In 2001 and 2004, without authorization, Topps released seven baseball cards showing Bell; one of the 2004 cards also had images of Bell's signature. The 2001 cards stated: "Cool Papa, who once stole more than 175 bases in a 200- game season, earned his nickname after falling asleep right before a game." This description came from Players of Cooperstown: Baseball's Hall of Fame, written by baseball experts, but Brooks asserted that this description was both false and derogatory.

Topps promotional materials for the 2004 cards stated, in mouseprint, that "[a]lthough these players have agreed to provide these cards for Topps, we cannot guarantee that all autographs ... will be received in time for inclusion in this product" and, in text, that the cards "feature an authentic autograph from 1 of 186 Hall of Fame members," though Bell's name and signature did not appear on the promotional materials.

In early 2005, Brooks first heard that Topps might have sold a Bell card (something Topps didn't disclose to her in 2004 when discussing possible licensing agreements, which she ultimately rejected). She found out about the 2004 cards and asked for Topps to stop selling Bell materials and for compensation for past use. She then found out about the 2001 cards. She rejected a $35,000 settlement agreement and sued for violation of the Missouri common law right of publicity, the Lanham Act, and New York unfair competition law.

The parties agreed that Missouri law governed the right of publicity claim, because Bell was a Missouri resident at the time of his death. But the statute of limitations is provided by New York law, which has a shorter limitations period – one year. Under the single publication rule, the limitations period runs from the date of publication, and further dissemination of the same item doesn't create a new cause of action or extend the period. As she sued in 2006, her right of publicity claims were time-barred; the court refused to apply the discovery rule even though the cards were distributed in sealed packages that didn't identify their particular contents.

The court also rejected the argument that Topps' concealment of the existence of certain cards estopped Topps from asserting a limitations defense. Such an estoppel must be established by clear and convincing proof of intentional misrepresentation. The statute of limitations had already run on the 2001 cards when Topps first interacted with Brooks. As for the 2004 cards, there was no evidence of affirmative misrepresentations, only failure to disclose – the first time a Topps representative told Brooks that he was providing her a list of all Bell cards was in 2006, after the statute of limitations had run.

Brooks also argued that Bell's name and likeness were unregistered marks, and that the promotional material for the 2004 card was likely to confuse consumers into believing that she or Bell endorsed the card. She further argued that the false endorsement and the nickname story were false and damaging to Bell's image.

To succeed on a false endorsement claim, Brooks needed to show ownership of a distinctive mark plus a likelihood of confusion. She failed, however, to show sufficient evidence that she owned a distinctive mark, because she did not show evidence of secondary meaning. Scattered instances of commercial licensing of Bell's name and one license of the image at issue here were insufficient to meet her burden on summary judgment. Thus, the court didn't need to reach the issue of the likelihood of confusion. (Comment: the court implicitly required Brooks to show a mark in specific images of Bell, or Bell's name, rather than a mark that would be coextensive with Bell's persona – see also the Rock & Roll Hall of Fame and ETW v. Jireh cases, in which difficult questions about likely confusion based on mere portrayal of a cultural artifact/celebrity were avoided by requiring very specific definitions of the marks at issue.)

The false advertising claim also failed. The story of Bell's nickname was not commercial speech – it wasn't made for the purpose of influencing consumers to buy the goods.

The statement that players had agreed to provide signatures was actually false with respect to Bell; consumer deception could be presumed. However, the court ruled that, as a matter of law, the statement was not material in context. Brooks didn't provide sufficient evidence that the statement would encourage consumers to buy Topps cards. (This is a problem with false endorsement claims generally: there's rarely evidence that endorsement matters to consumers, but plaintiffs usually deal with this by suing under 43(a)(1)(A), as to which courts have – perhaps mistakenly – neglected to impose a materiality requirement.) Here, the statement didn't include Bell's name, and in fact it was a disclaimer – Topps didn't guarantee that all the autographs would be included. Plus it was in "miniscule" font.

The autograph statement – that Bell's autograph would be on the card – wasn't literally false. There was no extrinsic evidence of consumer confusion, so the court also granted summary judgment as to this statement.

New York common law unfair competition provided no further coverage than the Lanham Act, and thus this claim also failed.

Final comment: One way to look at plaintiff's difficulties here is as further evidence of the disproportionate difficulties African-Americans have had in getting the benefits of IP protection.

The Cadillac of laudatory uses

Ian Ayres has written a book, Super Crunchers, lauding the power of large databases. In it, he says that medical search software Isabel touts itself as the "Google of medical diagnosis." I have to say that though I'm generally skeptical of trademark owners' attempts to control expressive and referential uses, I find this a little problematic, if only because Google is the Google of medical diagnosis. Google, however, thinks that this claim only appears in one article, albeit quoting the CEO and co-founder.

In general, because I don't believe in dilution, I think it can only be a good thing to be such a category killer that other people use your mark to mean "the epitome of." This one, though, even Google can probably live without.

ETA: Take a look at MEDgle, which came up as a result for "Google of medical." Is anyone happy with the disclaimer at the bottom?

Misleading us to the movies

Ray Cha pointed me to this column by David Pogue, discussing the extreme divergence between the trailer for National Treasure 2 and the reality:

Rearranging scenes in the trailer is one thing. But what about this business of putting stuff in the trailer -- a *lot* of stuff -- that isn’t in the movie at all? If they can get away with “National Treasure”-style misrepresentation, what’s to stop other moviemakers from putting special effects, witty lines, exotic locales and hot-looking actors into *their* trailers, just to get us to go to a movie that doesn’t have any of those things?

The answer is, I think, that materially misleading descriptions of content -- here, scenes that are funnier and more exciting than the footage actually contained in the movie -- are false advertising, even though the product is an expressive one. It's more usual to see trademark/right of publicity claims against ads for expressive works, but we can use a variant of the Rogers v. Grimaldi test to ask whether the ad explicitly misleads about the content of the work. (Rogers also asks whether the challenged content is artistically relevant to the work being advertised; arguably, missing footage isn't artistically relevant because it isn't present, but let's give the filmmakers a pass on that part.)

Does padding a trailer with scenes that aren't in the movie count as explicitly misleading? I think the necessary implication of a trailer, absent special circumstances (like the Sweeney Todd ads that are "making-of" trailers showing interviews and recording studios), is that the scenes shown are actually in the movie, and thus the trailer Pogue describes was, in Lanham Act terms, explicitly false.

I imagine that the filmmakers did not intend to make a trailer for a different, and apparently better, movie, but that something happened in the editing room -- some of the missing scenes might have been edited out to keep the film suited to short attention spans, while it sounds as if some other elements might have been reshot. But the Lanham Act, of course, is strict liability -- the fact that a product changes between the time it's advertised and the time it's purchased is little consolation to the deceived purchaser or to competitors. (And even without strict liability, if the filmmakers leave the deceptive ad running after the editing occurs, they might still have guilty knowledge.)

A court might be persuaded to require some scienter where expressive products like movies are concerned -- but it's interesting that in the trademark/publicity context, the tests developed to cabin the Lanham Act do not look at scienter, even though that's a traditional way of putting First Amendment constraints on torts. Perhaps that's because a producer will rarely, if ever, have reason to know that using a trademark or a famous person's name misleads about affiliation. A scienter requirement would therefore put serious pressure on one of modern trademark doctrine's weak points, which is the extent to which we -- courts, marketers, consumers -- should presume that other people think that referring to a trademark or a famous person requires permission. What counts as reckless indifference or negligence about likely confusion? Given that most cases involve only circumstantial evidence of likely confusion, it's hard to figure that out.

Anyway, the filmmakers might have better luck against a consumer lawsuit, if only because there's more doctrinal room in many state laws to add in a scienter requirement for expressive products. But if Pogue wanted his money back, I think he ought to get it.

Too much information

A new report from a British business group argues that too much information harms consumers, and makes recommendations for regulatory reform. HT Consumer Law & Policy blog.

Catering to a lawsuit

Lewis v. Marriott Int’l, Inc., --- F.Supp.2d ----, 2007 WL 4442785 (E.D. Pa.)

The Third Circuit is presently considering how to analyze false celebrity endorsement claims under the Lanham Act – the standard multifactor infringement test doesn’t work well in analyzing endorsement, but §43(a)(1)(B) false advertising analysis might not be right either. This case raises the issue in passing, but unsurprisingly leaves much undecided.

Lewis was the executive chef at the Downtown Courtyard by Marriott in Philadelphia until 2005, when he left to start his own business. After his departure, Marriott allegedly continued to use his name in materials used to sell wedding packages. He alleged false advertising in violation of the Lanham Act, violation of his Pennsylvania statutory right of publicity, and common-law claims for his right of publicity and right of privacy.

The court easily found that the “in commerce” requirement was satisfied since out-of-staters might plan a wedding at a major hotel like the Marriott. Marriott also argued that an essential element of the claim was that Lewis’s name is a valid mark, and that this was not properly alleged. Though the claim was styled as one for false advertising, the court treated it as a trademark issue, requiring a showing of secondary meaning before a name could be protectable. The court found the complaint sufficient, because it alleged that Lewis was well known as a chef, caterer, and event planner in the Philadelphia area, and added other specifics.

For the same reason, the court refused to dismiss the statutory claim, which covers natural persons whose names or likenesses have commercial value and are used for “any commercial or advertising purpose” without written consent – the complaint properly alleged that Lewis’s name had commercial value. As for the common-law publicity claim, the court opined that commercial value might not even be an element; commercial benefit to the defendant would suffice. Marriott argued that the common-law privacy claim based on misappropriation had been superseded by statute, as held in Facenda v. NFL Films, Inc., 488 F.Supp.2d 491, 513-14 (E.D. Pa. 2007). The court, however, disagreed, because the statute said nothing expressly about replacing common-law claims. Thus all Lewis’s counts survived the motion to dismiss.

Facebook fraud

Nine West Development Corp. v. Does 1-10, filed Aug. 24, 2007 (S.D.N.Y.)

I held on to this complaint after Susan Scafidi posted it, because the facts are so fascinating (in a tawdry way). Essentially: The Does feigned a Nine West foot model search on Facebook, soliciting women to join their groups and submit pictures of their faces, their bodies, and their toes.

The Does used email addresses such as ninewest.audition at gmail (which should have been a signal for the wary – but not everyone is wary). About 400 people joined the first fraudulent group by July 2007; Nine West got Facebook to send the group members a fraud alert when it discovered the group’s existence. (The complaint says Facebook deleted the group in June 2007, but I think there’s some timeline error because that comes after the July events alleged.)

In August 2007, another fake Nine West audition group popped up, garnering about 226 members by mid-month. Facebook’s legal counsel agreed that, because of the public safety concerns involved, Facebook would provide individual notification about the reason for deleting the group, though it usually doesn’t explain such deletions. But Facebook didn’t reveal information about the creators of the groups.

Nine West sued for trademark infringement, false designation of origin, federal and state dilution by tarnishment, and state-law deceptive trade practices/false advertising.

The obvious problem is whether any of these causes of action can apply if the deceptive Does were operating only for their own perverted gratification, rather than for commercial purposes. I’m willing to accept that pretending to offer services in the ordinary market – here, the market for modeling services – ought to count under these (hopefully unique) facts. But bad conduct makes bad law; using Nine West’s name in a noncommercial context should not, as a rule, subject the user to the risk of trademark etc. liability. And that’s so even if the noncommercial context is highly objectionable – e.g., the L.L. Bean sex catalog case.

Of course, as with other incidents, the point of filing the suit is probably to get Facebook – not a named defendant – to hand over identifying information. Whether the defendants could ultimately be held liable to Nine West (I think the Does obviously have committed torts against any women who sent in pictures or contact information) is in many ways irrelevant as a practical matter.

The principle of principal: mortgagee sues to pay faster

Jefferson v. Chase Home Finance, 2007 WL 4374410 (N.D. Cal.)

Jefferson refinanced his home in 2003. His promissory note gave him a right to prepay principal, provided he told the holder in writing that he was doing that (and provided that he was otherwise current); if not, the holder could apply his prepayment to accrued and unpaid interest on the prepayment amount. His deed had similar terms. Chase began servicing his loan, and provided him with a payment coupon at the bottom of each monthly statement that said “Please designate how you want to apply any additional funds. Undesignated funds first pay outstanding late charges and fees, then principal.”

In 2004, Jefferson called Chase to see how he could make occasional prepayments. There’s a dispute over what various customer service representatives (CSRs) told him, but apparently the first one told him any prepayment would be used to pay principal, and didn’t mention any special requirements. Jefferson therefore set up automatic $167 monthly payments with his bank, and also continued to pay regular monthly principal and interest.

When Jefferson received his monthly statement, he was surprised to find that his additional payment was not applied to principal, but had been placed in “suspense.” A CSR told him he needed to make a written request to apply his extra payment to principal. He therefore sent a letter stating: “... [I] formally request that Chase Bank apply each individual monthly payment of $167 to the principal of loan # [ ] beginning with the January 2005 payment. Each $167.00 payment will be made in addition to the standard monthly payment and should be applied to the principal of the loan immediately upon receipt.”

Chase responded with a letter stating “[w]e have received your request to apply the amount of $167.00 each month to the principal balance of your loan. Your account has been noted.” Nonetheless, Chase failed to apply the prepayments to the loan principal. After a lot of back-and-forth, Chase credited most of the payments to principal, but not all on the date they were received, and each new payment gets routed to “suspense.”

Chase maintained that it told Jefferson early on that he couldn’t use his automatic bill payment feature to prepay, because the check sent by the bank doesn’t state how it needs to be applied. Chase claimed that its practice is to apply additional payments to principal only if they’re specifically designated as principal payments, because many borrowers send in multiple undesignated partial payments each month to add up to a regular monthly payment. If Chase processed such payments as prepayments, those borrowers would end up with insufficient funds for the next monthly payment.

Jefferson sued for violation of California’s Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law. He argued that his claims were based on Chase’s misrepresentations about how it would credit payments: “[u]ndesignated funds first pay outstanding late charges and fees, then principal,” and so on.

Chase argued that Jefferson’s claims were preempted by the National Bank Act and OCC regulations, which provide that national banks can make real estate loans notwithstanding various state law limits, including repayment schedules and loan servicing. The court rejected this preemption argument.

OCC regulations state that a national bank may make real estate loans without regard to state law limitations regarding, among other things, “Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in ... billing statements ... or other credit-related documents,” and also generally preempt state regulations that conflict with the federal scheme. There is a savings clause for regulations “to the extent that they only incidentally affect the exercise of national banks’ real estate lending powers.” There is no presumption against preemption, because of the history of significant federal presence in the banking field, and regulations can preempt as well as federal legislation can.

But Jefferson argued only that Chase misrepresented how it would apply prepayments, in violation of state law. Such laws of general application merely require all businesses, including banks, to refrain from misrepresentation and abide by their contracts. They do not impair a bank’s ability to lend, and their effects on banks are only incidental. A long line of California cases holds that consumer protection laws of general application are not preempted by federal banking law. The bank can choose how to operate, but it can’t mislead consumers about how it does so. Thus, Chase can service or process loans, and write its repayment coupons, without specific state regulation – but it can’t misrepresent its terms. Cases finding preemption were distinguishable, because they were ultimately based on state laws specifically regulating banking (predatory lending, deposit-taking, etc.).

In dicta, the court commented that a general claim that a lending practice is “unfair” – that it’s unethical, harms consumers, and the harm outweighs its utility, under California law – “may well be preempted,” because it requires an individual analysis of the lender’s acts untethered to any rule of general application. But that wasn’t Jefferson’s claim – he argued that Chase acted unlawfully (deceptively) and unfairly (in systematically breaching its contracts). Such obligations apply to all businesses.

Specifically, Jefferson’s CLRA claim alleged that Chase represented its services had characteristics or benefits they lacked; advertised services with intent not to sell them as advertised; and represented that a transaction conferred or involved rights, remedies or obligations which it did not have, all violating specific provisions of law.

Chase argued that none of its statements were likely to deceive. Though its practice is to put separate undesignated payments in suspense, Chase claimed that its payment coupons’ statement that “[u]ndesignated funds first pay outstanding late charges and fees then principal” was accurate because the phrase “obviously” applies only “to payments made with the coupon” itself, and/or when borrowers “are including additional funds with their single monthly mortgage payment check.” The court disagreed; the language was not so limited, and was consistent with Jefferson’s deed of trust, which was also unqualified about the order of payment.

Chase then argued that Jefferson didn’t allege reliance and couldn’t have been deceived, because the note itself clearly stated that he needed to designate his payments (“When I make a prepayment, I will tell the Note Holder in writing that I am doing so”), and because CSRs repeatedly told him that he would have to designate his payments as principal prepayments in writing, and could not use his bank to send the payments electronically.

The court found that Jefferson’s declaration did implicitly allege reliance. (He denies Chase told him that he couldn’t use the automatic payment function.) He declared that he continued to send in payments and was told he’d have to send a written request “despite” the payment coupon representation – that was enough to raise a triable issue of fact on reliance.

Jefferson’s false advertising law claims were easier, because he didn’t need to show actual deception, only likely deception. Chase argued that its monthly statements to existing customers weren’t ads or “statements to the public” covered by the law. The representations were made to consumers, in documents “likely to induce them to send their money to Chase,” and California courts have construed statements made to people about their loans as advertising within the scope of the false advertising law. This, and Jefferson’s unfair competition claims, survived summary judgment for now.

So did his conversion claim, because he alleged that Chase was bound by its representations to credit the prepayments to his principal balance immediately, and by keeping the funds in suspense, Chase interfered with his possession of the funds. Chase argued that Jefferson failed to inform Chase in writing that his payments should go to principal. But he did so; he just didn’t attach the writing to each check, but nothing in the note required attachment.

Lions and lawsuits and bulls, oh my

Red Bull GmbH v. RLED, LLC, 515 F.Supp.2d 641 (M.D.N.C. 2007)

Red Bull has copyright registrations on two versions of the “Red Bull Product Statement”:

RED BULL Energy Drink • Improves performance especially during times of increased stress or strain • increases endurance • improves concentration and increases reaction speed • stimulates the metabolism and helps to eliminate waste substances from the body. Red Bull's effects have been recognized by professional athletes, stressed students, busy managers, and long distance drivers around the world. Not recommended for children.

RED BULL Energy Drink • Improves performance, especially during times of increased stress or strain • increases endurance • increases concentration and improves reaction speed • stimulates the metabolism.

Defendants make Roaring Lion energy drink. A job ad they placed stated that Roaring Lion was founded by original Red Bull staff who took the recipe and started their own company. Defendants' website states that Roaring Lion:

† Increases performance, especially during times of stress or strain

† Improves endurance

† Improves concentration and reaction speed

† Activates the metabolism

The bottle label says the same things, with the last two switched and using “increased stress” instead of just “stressed.”

The Roaring Lion website also contains metadata including the words “red bull.” Visible portions of the site claim that Roaring Lion has the same ingredients in the same quantities as Red Bull and that Roaring Lion provides the same benefits.

The court declined to dismiss Red Bull’s copyright infringement claims on a motion to dismiss, because Roaring Lion’s fair use defense – that it is fair use to quote a competitor’s product claims in a comparative advertising campaign -- is an affirmative defense that may be raised on a motion to dismiss only if it appears on the face of the complaint, and a fair use defense is by its nature fact-specific. Does that mean if Red Bull sues me for reporting on the case, we have to go to summary judgment? I would hope not.

I have screen captures of the European Roaring Lion website and a Red Bull site; it seems to me that a legitimate factual issue is whether it’s fair to describe Roaring Lion’s use as comparative, rather than just copying, so I don’t think the court’s result was wrong on this issue. But if Roaring Lion were to say, “Red Bull claims ‘X,’ and we can deliver the same benefits,” I would hope a court would say that was fair use as a matter of law.

Other questions go to the very tiny size of the work at issue and the possibility of merger of idea and expression, especially given that Roaring Lion did change order and verbs.

Red Bull also sued for state and federal false advertising and unfair competition/passing off, including unfair competition for using the Red Bull name in website metadata. Again, the court refused to dismiss the metadata claim, despite defendants’ argument that they were engaging in mere nominative/referential use. The court refused to dismiss this portion of the case because Red Bull had alleged that the use causes likely confusion. (Of course, metadata use that isn't coupled with confusing website content doesn’t cause likely confusion, but that’s not really a matter for a motion to dismiss.) Perhaps trademark use would have been a better defense, since that is a matter of law, at least in the Second Circuit.