My colleague David Vladeck to the FTC

To head the Bureau of Consumer Protection. CL&P blog has details.

Public performance

President Obama read Where the Wild Things Are at the White House Easter Egg roll, followed by Michelle Obama reading If You Give a Mouse a Cookie, both great favorites at our house. The AP may go after Shepard Fairey, but will the copyright owners go after the President and C-SPAN?

Statin advertising and FDA preemption

New paper on SSRN: Theodore Eisenberg & Martin T. Wells, Statins and Adverse Cardiovascular Events in Moderate Risk Females: A Statistical and Legal Analysis with Implications for FDA Preemption Claims. Abstract:

This article presents: (1) meta analyses of studies of cardioprotection of women and men by statins, including Lipitor (atorvastatin), and (2) a legal analysis of advertising promoting Lipitor as preventing heart attacks. The meta analyses of primary prevention clinical trials show statistically significant benefits for men but not for women, and a statistically significant difference between men and women. The analyses do not support (1) statin use to reduce heart attacks in women based on extrapolation from men, or (2) approving or advertising statins as reducing heart attacks without qualification in a population that includes many women. The legal analysis raises the question whether Lipitor's advertisements, which omit that Lipitor's clinical trial found slight increased risk for women, is consistent with the Food, Drug, and Cosmetics Act and related Food and Drug Administration (FDA) regulations. The analysis suggests that FDA regulation should not preempt state law actions challenging advertising that is not supported by FDA-approved labeling. Our findings suggesting inadequate regulation of the world's best-selling drug also counsel against courts accepting the FDA's claimed preemption of state law causes of action relating to warnings and safety. Courts evaluating preemption claims should consider actual agency performance as well as theoretical institutional competence. Billions of health care dollars may be being wasted on statin use by women but the current regulatory regime does not create incentives to prevent such behavior.

Lather, rinse, repeat: horse shampoo TM case continues

Schneider Saddlery Co., Inc. v. Best Shot Pet Prods. Int’l, LLC, 2009 WL 864072 (N.D. Ohio)

Sometimes a judge just decides to opine on the state of the law, as I fondly remember Judge Edward Becker doing: often enough, a Judge Becker opinion would tour both the basics and the intricacies of the area of the law at issue in a case, whether the tour was necessary to get to the final destination or not. So it is here, in a case about two parties who both wish to use the term ULTRA on equine grooming products.

In 1984, Schneider began selling ULTRA horse grooming products. It registered its marks in 1985. In 1990, unaware of Schneider, Best Shot began selling ULTRA grooming products targeted at a variety of animals, but not horses. In 2001, Best Shot expanded to horses, using ULTRA WASH, ULTRA PLENISH, and ULTRA VITALIZING MIST.

Before registering the marks for equine care, Best Shot had a trademark search done. The search turned up Schneider’s marks and the trademark attorney expressed some concern, though the attorney noted that there were a large number of ULTRA registrations and uses, making the mark likely weak. Best Shot applied for and received a registration, though it didn’t explain to the PTO that the marks were intended for use in the field of equine care, nor did it disclose the existence of the Schneider products. (The registrations are for “animal/pet grooming products”; from what I saw online, Best Shot sells the products for cats and dogs as well.)

Schneider didn’t contest any of the applications, but the court considered this of negligible significance in this case, though noted that matters might be different if a registrant failed to contest a new mark that was subject to an “extremely public unveiling” prior to registration. (The Travatan v. Xalatan case I was involved in litigating is an example of a case where the competitor, Pharmacia, should have objected when the registration was published, because so much was at stake and Pharmacia knew so much about Travatan.)

Scheider hasn’t identified any customer confusion, though Schneider’s sales decreased in the only catalog known to carry both parties’ products.

Counterfeiting

Schneider alleged that Best Shot’s marks were counterfeit. The court granted Best Shot summary judgment on this issue. Counterfeiting requires a lot more than infringement; it requires that a mark be identical to, or substantially indistinguishable from, a registered mark.

Summary judgment is usually appropriate if word marks differ by two or more letters. Schneider argued that the marks were “identical” because they both use ULTRA, but the court thought that was in direct contravention of the statutory scheme, which reserves counterfeiting liability for the worst of the worst, not arguable cases of infringement. Reasonable consumers would not believe that the junior mark was the senior mark; there was no counterfeiting as a matter of law. The Best Shot marks include an entire word that the Schneider marks don’t, and the commercial appearance differs.

The court commented that some cases suggest that the inquiry is “not really whether the marks are substantially indistinguishable, but whether the marks are employed in such a way as to cause a consumer to believe that the product itself is counterfeit.” But the court thought that standard, whatever its practical merits given the lay meaning of “counterfeit,” clearly conflicted with the statutory language, which focuses on the mark.

Best Shot asked for attorneys’ fees on this claim; the court denied the request, even though Congress wanted to discourage plaintiffs from making frivolous allegations of counterfeiting in an average infringement case, so as not to raise the specter of treble damages where they’d be inappropriate. The court thought that interpreting “counterfeit” was a relatively new area of law involving a number of judicial glosses; Best Shot would be allowed to renew its motion at the conclusion of the case if appropriate.

Infringement

The court found material issues of fact on many of the relevant factors.

Strength: Schneider argued that its marks were strong because they were incontestable. The court took the (better) view that likelihood of confusion is a separate issue from validity. Some courts treat incontestability as creating a rebuttable presumption of strength, but the analysis should be separate: “there is no apparent reason that the incontestable status of a mark should automatically translate into a well-known mark.”

On to the evidence, then: Best Shot’s expert did a survey that allegedly proved ULTRA weak. The court found this consumer survey to be “strong and currently uncontroverted evidence” of weakness. Best Shot also argued that there was extensive third-party use of “ultra,” which may weaken the mark even if used on other goods, but Best Shot had the classic problem at this stage—it didn’t show that the “ultra” marks were actually used in the marketplace, as opposed to being registered at the PTO.

Schneider argued that its marks were strong because Schneider had used ultra for 23 years and spent considerable money on promotion. Schneider could use this evidence to persuade a jury, but a reasonable jury could consider the marks weak.

Relatedness of goods: They’re the same, which weighed heavily in favor of finding likely confusion. In a European context, or in an earlier period in American trademark law, same goods plus use of highly similar mark would be the end of the story. The court found that the “better” cases relying on a presumption of confusion in such circumstances require identical use plus a clear intention by the junior user to derive a benefit from the senior mark.

The court even went out of its way to identify a “misstatement” of law in AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348 (9th Cir. 1979), which said: “When the goods produced by the alleged infringer compete for sales with those of the trademark owner, infringement usually will be found if the marks are sufficiently similar that confusion can be expected. When the goods are related, but not competitive, several other factors are added to the calculus.” This was not a misstatement at the time. It may be so now. As Mark McKenna has noted elsewhere, the multifactor confusion test now so dominates that it seems to have erased even judicial memory of the simpler tests once used for directly competing goods. The court rejected any “[rigid] rules” enabling a confusion finding, even a presumption of confusion where the marks are similar and the goods are the same, noting that this is one reason summary judgment in infringement cases is rare.

Nonetheless, identical goods substantially increase the likelihood of confusion where the marks are similar.

So, similarity: First, the court concluded that standing alone, Best Shot’s addition of a word or words did not render the marks dissimilar. Given the products at issue, “plenish,” “vitalizing mist,” and “wash” were not sufficiently distinctive in themselves to render the marks dissimilar. Similarity still exists when the marks have the same overall connotation. However, the use of “Best Shot” as a house mark would allow reasonable jurors to find less likelihood of confusion (or more, if they found that consumers would think Best Shot had been licensed to use the mark). The court commented that, were it the factfinder, it would be persuaded by the licensing argument because the products serve identical functions, but a reasonable jury could disagree. (And I hope it would, with a mark as inherently weak as ULTRA.)

The court concluded that the similarity of the logos gives Best Shot “an extremely steep challenge at trial on the question of similarity,” but the house mark plus the additional words still create a genuine issue of fact.

Actual confusion: No evidence of it, which a jury would weigh in Best Shot’s favor. The court commented that, were it not bound by precedent, it would conclude that the absence of substantial confusion could often by itself answer the question of whether there’s a likelihood of confusion. “If consumers are exposed to substantial marketing efforts from both companies, yet no evidence shows that any consumers have actually been confused, there is substantially less likelihood that consumers do or will find the marks confusing.” But binding precedent is to the contrary, and anyway even this conclusion wouldn’t entitle Best Shot to summary judgment, because both parties have a fairly small market share and there’s no evidence of extensive marketing to a unified customer population.

Some evidence supported the inference of likely confusion. Schneider argued that consumers generally don’t allow unauthorized products to be used on their horses. Thus, consumers “constantly” return products because someone mistakenly bought the wrong product for them. If consumers have been confused by the marks, then, some record of confusion ought to exist.

Marketing channels: both use the internet and catalogs, and the customer base overlaps. But there was only one catalog that carried both, and no evidence that the same websites carried both. The court quoted one case holding that when both parties use the internet, confusion is more likely—which means that the likelihood of confusion, or “confusion in the air,” if you will, has simply increased over the past ten years. A reasonable jury could conclude that this factor favors Schneider, or could accord it little weight.

Degree of purchaser care: Schneider’s sworn testimony was that customers of horse grooming products exercise little care. Horses are expensive, but consumers might still just use any old shampoo on them, just as the owner of an expensive car may use the same car wash as the owner of a cheap car. (Horse lovers, don’t come after me: not my analogy.) Best Shot argued that end users, though, do exercise substantial care. The court concluded that Schneider had the better argument. Purchasers can have big effects on trademark value even if they’re not users. End users might stop requesting a particular product if purchasers keep bringing back the wrong product; or end users might decide to try the new product and switch.

Anyway, where the marks are similar, purchaser care becomes less relevant—confusingly similar marks may lead a careful purchaser to nonetheless assume affiliation or other connection. Since the marks here are quite similar, the degree of purchaser care is less significant. (I think this does exactly what the court cautions against elsewhere: risks reducing infringement to circularity. If the marks weren’t similar, you wouldn’t be doing a confusion inquiry at all. If purchaser care is to be a meaningful factor, it must affect likelihood of confusion when the marks are similar enough to create a dispute.)

Intent: Good faith is rarely relevant, but bad faith is—it allows a factfinder to assume that a party’s intent to cause confusion was successful. Schneider argued that Best Shot’s knowledge of Schneider’s marks allowed an inference of intentional infringement. But Best Shot argued that it was just expanding its own marks from other animal care markets. A jury could agree with Best Shot, creating a material issue of fact.

The court commented that the current law of intent is messed-up, though “the ship has likely long-since left the port on this point.” Within the multifactor test, intent is circular: presume bad intent because the marks are similar and presume that the marks are similar enough to confuse because of the bad intent. It might be better to consider intent only when there’s direct proof of intentional infringement.

Ultimately, “Best Shot has an unquestionably difficult task before a jury,” and the court commented that as the finder of fact it might well find infringement, but that wasn’t the court’s job.

Finally, the court held that, though the issue was a close call, Schneider might be able to get an accounting of profits or damages if it prevailed. First, the court held that—given the 1999 amendments to the Lanham Act, and despite some older precedent—willfulness is not a prerequisite to an accounting of profits, and anyway Schneider had enough evidence of willfulness to go to a jury. Schneider could also get damages even if it couldn’t prove particular diverted sales, as long as it showed some damage. (Showing infringement alone wouldn’t be enough.) But there was testimony that Schneider saw a drop in sales in the one catalog where the parties competed. Schneider had enough to survive summary judgment on both profits and damages.

False accusations of patent infringement justify fee award, not damages

Veteran Medical Products, Inc. v. Bionix Development Corp., 2009 WL 891724 (W.D. Mich.)

Veteran Medical makes a plastic double-ended ear curette. The CEO of Bionix accused Veteran Medical of infringing a Bionix design patent and misappropriating trade secrets; this included calling one of Veteran Medical’s suppliers and threatening litigation. Veteran Medical and related individuals/entities sued for a declaration of noninfringement and nonmisappropriation (if you’ll excuse the neologism), as well as for state and federal unfair competition and tortious interference. Bionix made the expected counterclaims of patent infringement and trade secret theft.

The district court granted declaratory judgment on noninfringement and dismissed the patent infringement counterclaim. There was a jury trial; the court granted judgment as a matter of law on the tortious interference claim, but, though finding plaintiffs’ evidence “very thin,” refused to do so on the unfair competition claims.

The jury found for Veteran Medical, awarding various plaintiffs nearly $200,000 in damages, divvied equally between Lanham Act and state unfair competition claims, as well as rejecting Bionix’s trade secret claims.

Bionix renewed its motion for judgment as a matter of law. It argued that there was no proof of damages, and that four of the plaintiffs lacked standing. The court agreed on the damages point. There was no evidence that Bionix made any statements to existing or potential customers about alleged patent infringement.

Plaintiffs brought their state law claims not as injurious falsehood/trade libel claims, but as general unfair competition claims. Michigan unfair competition law doesn’t fit the situation very well; most cases concern trademark-type claims, but the gist is that the defendant’s deception causes the plaintiff to lose some trade. A showing of actual confusion isn’t required, but actual or probable deception must be shown. Michigan courts have condemned as unfair competition any conduct that is fraudulent or deceptive and tends to mislead the public; the law is based on the principles of “common business integrity.”

Unfair competition, however, requires competition. But most of the plaintiffs weren’t in competition with defendants, only Veteran Medical. One of the other plaintiffs was a contract manufacturer for health care companies including Veteran Medical; it didn’t sell any of its own products. And the individual plaintiffs worked for the manufacturer. Even if they’d worked for Veteran Medical, they couldn’t have filed a claim on behalf of their employer. Thus, they lacked standing.

Bionix’s CEO did make a statement to a third party that Veteran Medical’s product was infringing. This supported Veteran Medical’s common law unfair competition claim based on defamation. Corporate defamation doesn’t require a showing of special damages. However, Veteran Medical still needed to establish the amount of damages to obtain a damages award. The court agreed with defendants that Veteran Medical didn’t prove anything to justify the damages awarded by the jury ($25,000, at this point). The testimony on damages was too vague and based on speculative business plans.

Finally, the court turned to plaintiffs’ argument that the patent infringement counterclaim was an exceptional case justifying an award of attorneys’ fees. Despite threatening suit, filing an infringement counterclaim, and filing suit in another district, Bionix ultimately didn’t oppose plaintiffs’ motion for summary judgment of noninfringement.

An exceptional case usually involves bad litigation behavior, including vexatious, unjustified, or frivolous litigation. Assertions of infringement of a granted patent are presumed to be in good faith; patentees aren’t liable for vigorous prosecution or enforcement of a presumptively valid patent. The underlying improper conduct must be shown by clear and convincing evidence; the burden is on the accused infringer to show that the patentee knew or should have known that the suit was baseless.

Here, the court determined that the infringement suit was baseless and brought in bad faith. The patent was a design patent, and the differences between the parties’ products were “startling.” “The Veteran Medical curettes have an hourglass-shaped, ribbed handle[] that is flat on one side. The Bionix curettes have a straight, elongated, smooth, octagon shaped handle with a flat rectangular-shaped recess (‘the notch’) in the middle of one side of the handle. Within the notch, the name BIONIX is spelled out in raised capital letters. It is difficult to conceive of much greater differences between two handle designs, and certainly no ordinary observer would be confused.”

Bionix knew this from the beginning. Nonetheless, defendants spent two years threatening litigation and insisting on litigation. The court concluded that Bionix had an anticompetitive motive. This was the type of case Congress had in mind when it authorized courts to award fees.

Too much attribution?

This discussion of a Dow Jones site's reuse of other blog content suggests that over-attribution, though accurate, was the source of bloggers' protest: by using pictures and bylines for the bloggers, the site seemed to imply that the bloggers were actually working with the site. Would a Lanham Act claim be barred by Dastar? I think not (though I wouldn't advise bringing the claim or think it ought to be won), but there are cases out there that suggest otherwise.

5 Hour Power struck unfair blow against alleged infringer 6 Hour Power

Innovation Ventures, LLC v. Body Dynamics, Inc., 2009 WL 877640 (E.D. Mich.)

The court adopted the magistrate’s report and recommendation, which was as follows: Plaintiff does business as Living Essentials; the parties sell dietary supplements formulated as energy shots. Living Essentials, which sells 5 HOUR ENERGY® shots, sued Body Dynamics (BDI), alleging that BDI’s use of 6 HOUR ENERGY infrined its trademarks by using a substantially similar phrase and package illustrations. BDI counterclaimed for false advertising, tortious interference, and related business torts. BDI also sought a declaratory judgment of the registration’s invalidity—that ® comes from the Supplemental Register (which makes invalidation unlikely, but also points to the highly descriptive nature of the mark).

The key: Living Essentials obtained a preliminary injunction in a separate case, then created the impression that BDI’s product was the subject of a court ordered recall.

In September 2007, BDI began selling MINI THIN RUSH® dietary supplements in liquid, capsule, and chewing gum form. The liquid energy shot has “6 Hour Energy!” at the top of the label. Living Essentials has been using 5-HOUR ENERGY since September 2004, and it registered a trademark a year later.

In April 2008, the court granted Living Essentials a preliminary injunction against N2G Distributing, not BDI, for trade dress infringement, finding that N2G’s bottle label for INSTANT ENERGY was “remarkably” similar, with the same color scheme, font, and depiction of a silhouetted figure ascending a mountain. But it didn’t enjoin use of the descriptive phrase “6 Hour Energy Shot.” Living Essentials hadn’t carried its heavy burden of showing that the primary sigificance of 5 HOUR ENERGY was to identify the source of the product rather than the product itself, and plenty of competitors used highly similar phrases such as “7 Hour Energy Boost,” “6 Hour Energy!,” “Extreme Energy Six Hour Shot,” and “6 Hour Power,” making Living Essentials’ secondary meaning claim less persuasive.

After the injunction issued, Living Essentials issued a press release and notice to customers, “RECALL OF ‘6 HOUR’ SHOT ORDERED.” It said:

Court orders immediate stop to manufacturing, distributing and sale of 6 Hour Energy shot.

Dear Customer,

We are pleased to announce that we won a decision against a “6 Hour” energy shot that closely mimicked 5-Hour Energy®. The United States District Court, in Case No. 08-CV-10983, issued a preliminary injunction ordering the immediate recall of all the “6 Hour” product, and told its manufacturer to stop making, distributing and selling it.

If you have any of the “6 Hour” energy shots in your store(s) or warehouse(s) contact the product’s manufacturer or your distributor to return the product immediately.

DO NOT RETURN ANY 5-HOUR ENERGY®. It can be difficult to tell 5-Hour Energy® apart from the "6 Hour" knockoff product. …

The press release didn’t identify the manufacturer, didn’t identify the product, and didn’t include an illustration of the trade dress. It was published as a “legal notice” in the Convenience Store News, the primary industry publication. (Query: did counsel approve this? What should counsel have told the client who wanted to run this notice?) As a result, numerous brokers and distributors of MINI THIN RUSH contacted BDI about returning its products, and BDI lost a bunch of sales. BDI had to hire a PR firm to respond.

The press release was misleading in saying that Living Essentials won a decision “against a ‘6 Hour’ energy shot,” when it really won a trade dress injunction against N2G. The use of the case number doesn’t communicate what product or party was enjoined (and indeed, why use the case number and not the name?). Moreover, the judge specifically denied an injunction against the only feature Living Essentials did identify, “6 Hour.”

Living Essentials rejoined that any confusion was BDI’s fault, for using the confusingly similar 6 HOUR ENERGY slogan, which constitutes trademark infringement. This conflated two separate issues, the alleged infringement and the press release, which falsely communicated that Living Essentials had achieved a court-ordered recall of all drinks using “6 HOUR ENERGY” on the label. Even if Living Essentials has a meritorious trademark infringement claim, the press release is misleading. Living Essentials could easily have avoided confusion by identifying the manufacturer and the trade dress—it included a picture in the complaint and the motion papers—but chose not to do so. Unless and until Living Essentials establishes trademark infringement, it’s misleading to represent that all energy drinks using “6 HOUR ENERGY” on the label are subject to a federal court’s recall order.

The district court adopted the magistrate judge’s reasoning on this point over Living Essentials’ strong objections. It argued that the court shouldn’t look at likelihood of success in isolation from its trademark infringement claim, because if it wins on trademark infringement, then BDI would have no legitimate interest in “6 HOUR ENERGY” and therefore no ground to claim harm. But the present procedural posture of the case involves nothing more than allegations of infringement; Living Essentials hadn’t moved for a preliminary injunction or offered evidence to support its claim. Right now, BDI is entitled to use the phrase on its products. If Living Essentials ultimately wins its infringement claim, BDI may not be able to claim any further false advertising injuries, but that’s for later.

Living Essentials then argued that the press release didn’t misstate any facts. It took steps to avoid misleading the audience by providing contact information for any questions and concerns, and by using “singular” words such as “the,” “its,” and “a” to indicate that it had won a victory against a single product and manufacturer. (Note: this is why we pay lawyers—to get them to make such claims with a straight face.) The court thought the magistrate got it right, considering Living Essentials’ anti-confusion measures “modest at best.”

Living Essentials also contended that the issue was moot because it didn’t intend to publish the press releases again. Voluntary cessation doesn’t render a claim for injunctive relief moot.

BDI showed actual deception among brokers, distributors, and customers. Among other things, at a trade show, one convenience store manager refused to take a free sample, believing it to have been recalled because something was wrong with the product.

The falsehood was material: a consumer is less likely to purchase a product she believes is subject to a court-ordered recall, as the trade show incident demonstrated.

There was a presumption of irreparable injury from a Lanham Act violation. (eBay hasn’t yet been held to change this in the Sixth Circuit.) BDI’s goodwill was being tarnished in the industry. The public interest also supported an injunction, since the public has an interest in avoiding deception.

tax protest as false advertising

United States v. Benson, --- F.3d ----, 2009 WL 902291 (7th Cir.)

Benson is a tax protester. The district court enjoined him from promoting, organizing, or selling his “Reliance Defense Package” and “16^th Amendment Reliance Package,” which were based on the false premise that customers could stop paying federal income taxes and escape prosecution by relying on the packages. The court of appeals affirmed, and also required Benson to divulge a customer list.

Benson wrote a book claiming that the Sixteenth Amendment was never properly ratified. He packaged the book with other materials to create his packages, which he sold for $3500. His theories were bunk.

Benson argued that he didn’t violate the tax laws—he was simply urging political action, not promoting any tax plans or affirmatively help his customers—and that the injunction violated his First Amendment rights. The court of appeals was unimpressed. Benson’s plan was a tax evasion plan that, instead of filing false returns, encouraged customers not to file at all. This “don’t-do-it-yourself” kit required nothing more to be an illegal method to avoid paying taxes.

Indeed, the materials were prepared to be sent to the IRS, including a customized “Reliance Letter.” And he made numerous statements about the tax benefits of buying his materials, boasting that he hadn’t been prosecuted for failing to pay taxes after his release from federal prison for tax evasion, and that the IRS hadn’t prosecuted any person who relied on his materials. He knew or had reason to know that his statements were false or fraudulent: his claims have been rejected by the Seventh Circuit in his own appeal, and his attempt to rely on his book in his own criminal case was ineffective, as it has been in numerous other cases. It’s also false to claim that the government can’t prosecute any person who fails to file a tax return based on a sincere belief in the income tax’s unconstitutionality. A defense of misunderstanding the tax code can raise a true state-of-mind defense, but one who believes that the tax code is unconstitutional is in a different position; one’s views of the validity of the tax statutes are irrelevant to willfulness.

Benson’s false statements were material. “There is no matter more material to the sale of a tax avoidance package than whether the package effectively allows customers to avoid taxes.” Benson’s program was promoted as a “golden ticket” to avoid tax liability and prosecution; his falsehoods would naturally have a substantial impact on a purchasing decision. “Even if some of Benson’s followers purchased the Packages for educational purposes or to take political action, as Benson claims, it is hard to believe they would have bought the materials knowing they were false.”

Benson claimed he was engaging in political speech. The government called it false commercial speech. The court of appeals agreed with the government. The injunction covered false statements made in connection with the sale of a product, not mere distribution of court opinions or expression of opinion. Benson can even sell his book with its mistaken claims. He just can’t promote its sale by claiming the ability to rely on it to avoid prosecution, or making any other false promises. Benson made many false statements about the benefits of buying his packages; he made them for the purpose of promoting sales, and therefore the statements were commercial speech. He said he was selling a way to avoid tax liability; he was really selling “a way to increase tax and criminal liability for failing to pay taxes.” That’s false advertising and it can simply be banned.

If the injunction bars Benson from actually selling the packages, not just falsely advertising their sale, that’s okay because the packages inherently involve false commercial speech. Their very names—Reliance Defense Package and 16th Amendment Reliance Package—imply falsely that a customer can rely on them. “Therefore, according to our great tradition of tolerating nutty opinions, the marketplace of ideas remains open to Benson; the commercial marketplace, however, is appropriately limited to speech that is not deceptive.”

The customer list also had to be surrendered. The government found 7 people who failed to file tax returns using Benson’s materials. Reliance on the materials will irreparably harm Benson’s customers, who are exposing themselves to civil and criminal penalties, and harm the government, causing it loss of taxes and expense in finding non-payors and collecting from them. Producing the customer list would also allow the government to monitor Benson’s compliance with the part of the injunction requiring him to mail a copy of the injunction to everyone to whom he sold the packages. This didn’t offend the First Amendment because “Benson operated an

Internet marketing scheme, not a membership organization.” A commercial enterprise doesn’t have the same rights of association as a political group or meeting.

MSNBC.com on the Fairey v. AP case

I participated in an interview with NBC's gracious Lisa Green.

FDA warns companies over sponsored links

The FDA sent warning letters to 14 companies about sponsored links whose text did not sufficiently disclose the risks of the advertised drugs. A useful reminder that background principles of law--not just crazy extensions of trademark law--apply to sponsored links. I found notable the comment from an FDA spokesperson that the FDA hadn't contacted Google and other search engines because "its policy is not to contact third parties that carry drug ads, even if they violate agency rules." Section 230 might also have something to say about that!

Things you never want your musician-client to say

"'Our very first spark was the Marvelettes,' Marr has said. 'We very, very consciously wore our girl group, retro, sixties influence on our sleeves. "Girlfriend in a Coma" is "Young, Gifted, and Black"—the music of it. You can sing "Young, Gifted, And Black" over it.'" Cf.

Plastic fantastic: failure to monitor packaging dooms TM claim, but other claims proceed

Perrin & Nissen Ltd. v. SAS Group Inc., 2009 WL 857606 (S.D.N.Y.)

Perrin & Nissen sued SAS for trademark, trade dress, and copyright infringement; related state claims; and breach of contract. Allegations: Perrin & Nissen is an English company that makes toy balloon products under the names “Magic Plastic” and “Amazing Elastic Plastic.” The toy is plastic compound with a blow-pipe.
Users can turn the plastic into balloons by balling up some of the compound, inserting the pipe, and blowing into the pipe. Perrin & Nissen has made the toy since 1947 under the name “Magic Plastic,” and began importing it into the US in 1994 in toy stores like FAO Schwartz.
Allegedly, Claney, one of the defendants, approached Perrin & Nissen in 1997 about selling it in the mass market, with Perrin & Nissen to retain all ownership rights.

The parties agreed to use a different name than the name used in American high-end stores: “Amazing Elastic Plastic.” Some customers required assurances that the product was the same as “Magic Plastic,” which fact Perrin & Nissen confirmed in writing. At the same time, The Better Blocks Trust filed an ITU for “Amazing Elastic Plastic”; the ITU was signed by Claney. Better Blocks later assigned the ITU to RJM Ventures; the registration issued in 1999.

In 1998, Perrin & Nissen entered into an agreement with International Chemical Corp., licensing it exclusively to manufacture the toy in North America in return for a royalty of 52 cents per four-pack, with a minimum of $260,000/year. Perrin & Nissen disclosed its trade secrets in return for ICC’s promise of confidentiality. Claney and ICC chose a distributor; it was given no ownership in either the trademark or the product.

Perrin & Nissen decided to change the “Amazing Elastic Plastic” packaging, and licensed the new trade dress to Claney, ICC, and the distributor, who agreed to use the trade dress only with the name “Amazing Elastic Plastic” in North America to mass market retailers and only in connection with Perrin & Nissen’s product. Then the distributor filed for bankruptcy, and a new distributor stepped in.

In 2002, royalties began decreasing, until there were no sales at all in April-May 2003. According to the distributor, this was because of competing imports from China. In 2004, Perrin & Nissen agreed with the distributor that Perrin & Nissen would make the toy in England and sell it directly to the distributor, and they agreed to a price increase for retail customers. But their retail customers (Target & Walgreen’s) not only rejected the price increase, but decided to stop selling the toy, and the distributor declined to take the already-agreed-on quantities. The distributor took the position that it had cancelled the outstanding order, worth $95,000, and that it owned the registered “Amazing Elastic Plastic” trademark, though it wouldn’t use Perrin & Nissen’s photos or art in connection with its sales.

In 2006, Perrin & Nissen learned that beginning in 2002, the distributor had been selling toy balloon products made in China using packaging that contained part of Perrin & Nissen’s trade dress and the mark “Amazing Elastic Plastic.” The distributor substituted those products for Perrin & Nissen when filling orders for the toy for retailers, while telling Perrin & Nissen and ICC that customers didn’t want to sell the toys any longer.

Perrin & Nissen alleged valid claims for copyright infringement of its packaging, fraud, and breach of contract.

The interesting stuff happened with the Lanham Act and coordinate claims. Perrin & Nissen alleged secondary meaning in its trade dress because of use on the Amazing Elastic Plastic product since 1998. But that packaging says “Amazing Elastic PlasticTM is a Trademark of SAS Group Inc.” (SAS being the distributor.) Perrin & Nissen received an earlier version of the packaging in 1998 from SAS’s predecessor in interest, RJM Ventures (the filer of the ITU, in case you don’t remember), which stated “Amazing Elastic PlasticTM is a Trademark of RJM Ventures Ltd.” Since the packaging was attached to the complaint and relied on in the complaint, the court could properly consider it on a motion to dismiss. So: Perrin & Nissen clearly had notice that SAS’s predecessor in interest was asserting ownership of the trademark and printing its own name on the packaging as early as 1998.

Perrin & Nissen could not therefore plausibly claim that its trade dress acquired a secondary meaning in the minds of purchasers as being associated exclusively with Perrin & Nissen, since its name never appeared on the packaging. (Hmm. I don’t think this throws licensing into doubt; it just means that the licensor has to inspect the product to make sure that the licensee isn’t making trademark claims adverse to the licensor!) So Perrin & Nissen failed to state a claim for false designation of origin based on trade dress.

Perrin & Nissen also alleged two false advertising claims. The first was that the packaging “Established Toy Since 1947” misrepresents the nature, characteristics, qualities and geographic origin of SAS’s product by falsely suggesting that the product is the genuine toy Perrin & Nissen has been making since 1947, instead of a Chinese knockoff. Perrin & Nissen also alleged that “Established Toy Since 1947” had secondary meaning, which allegation was defeated by the court’s reasoning above. The genuineness argument, too, failed because Amazing Elastic Plastic has never been marketed as emanating from Perrin & Nissen, but always marked with someone else’s trademark claim.

The other false advertising claim did better. Perrin & Nissen competes with SAS because it sells “Magic Plastic” toy balloons in the US. Perrin & Nissen also alleged that SAS was advertising toy balloon products on its website using a 1997 video with Jayne Phillips of Perrin & Nissen and her daughter demonstrating the toy, which falsely represents the quality of the product because SAS is selling an inferior knockoff that doesn’t work as well. This was sufficient to state a claim: the ability to form bubbles is a material characteristic of the product.

FTC ad parodies freecreditreport.com

Slate does the comparison for me, pointing out that freecreditreport.com's annual advertising budget is a significant fraction of the FTC's total budget. Annualcreditreport.com is the only truly free source of credit reports. The FTC actor sings "don't be misled," but the FTC has more tools than internet ads if people are being misled. Perhaps the FTC needs to revisit enforcement against freecreditreport.com.

IPSC deadline extended

The submissions deadline for the 9^th Annual Intellectual Property Scholars Conference at Cardozo School of Law has been extended to April 30^th, 2009. Individual submissions should be directed to David Morrison at dmorriso@yu.edu. For more information, visit www.ipscholars.org.

Discussion questions

The American Indians In Children's Literature blog has a revised discussion guide based on the official discussion guide for Gerald McDermott's Arrow to the Sun. The wholesale copying for purposes of dissection and critique at the blog is unproblematic. Here's what interests me:

After Reading Activities

... Stage a dramatic presentation of Arrow to the Sun. Choose two to three students to be narrators. Rewrite the text for beginner readers or help them memorize their parts of the text. Some students can be actors and the rest can play instruments and provide other sound effects and music. Rehearse the production and present it to other classes and parents.

So: (1) Do teachers and schools have a license from Scholastic to create and publicly perform derivative works of Arrow to the Sun? What if they rewrote the text in light of the blog's critique: would that be within the scope of any such license? (2) Do you think that Scholastic's contract with McDermott allowing audiovisual adaptations extends to Scholastic's invitation here? (3) What sort of contract language would you draft to cover the situation if you were Scholastic?