Patent infringement claim not false advertising to sophisticated consumers

Carpenter Technology Corp. v. Allegheny Technologies Inc., 2011 WL 3652447 (E.D. Pa.)

The parties compete to sell specialty alloy ingots. ATI sent letters to Carpenter, another competitor, and Carpenter customers/potential customers (one was GE) claiming patent rights in certain alloy ingots. Carpenter then entered into an indemnification agreement with its customers. It also sued for false advertising. (As you’d expect, there are also patent claims, but they aren’t addressed in this opinion except as necessary to deal with the false advertising claims.)

Carpenter argued that ATI lacked valid patent rights at the time the letters were sent, and knew its patent was invalid. The court didn’t agree. ATI held an issued patent, which is presumed valid until a court rules otherwise. Moreover, the evidence didn’t show deception (required because there was no literal falsity); GE thought the patents were invalid. “GE knew the state of the patent when it received the ATI letters and chose to proceed in its business with Carpenter regardless of the letters' contents.” The other purchaser reacted similarly. The court said that deception is closely related to materiality; it’s really talking about materiality, and clarifies this immediately. GE insisted that Carpenter finish and deliver potentially infringing ingots. The other customer also had discussed the issue and continued to buy the ingots for at least two more years. Thus, there was no deception. (In theory, the extra cost of indemnification could count as a harm to Carpenter, but given the parties’ sophistication this may have occurred no matter what.)

In a Lanham Act case based on false patent claims, the plaintiff has to show defendant’s objective and subjective bad faith in claiming patent infringement. Carpenter couldn’t show that ATI’s assertions were objectively baseless, because ATI owned a valid patent. This seems to imply that ATI can’t be sued even if it knew that the patent had been issued in error or even if it knew that the patent didn’t cover the plaintiff’s activities. The subjective component requires a showing “that ATI knew its claims were baseless when it sent its letters,” which could occur even with an issued patent. I don’t think that a non-invalidated patent covers any and all assertions a patentee wants to make, regardless of the actual facts; that said, it may allow a lot of ground for uncertain assertions.

Whittier student writing competition

Intellectual Property Writing Competition

Whittier Law Review seeks paper submissions in conjunction with its yearly symposium. The paper should relate to legal issues and challenges that surround Intellectual Property with an emphasis in New Media Topics.

REQUIREMENTS:
- Authors must attend ABA accredited law schools
- Papers must represent original works not previously published or targeted for submission to another journal, law review or other periodical for publication until the winning papers are announced.
- Papers must be between 8,000-12,000 words, including footnotes, double spaced in 12 point font.

SUBMISSIONS:
Please submit as an attached .doc file to wlrsubmissions@law.whittier.edu with “WRITING COMPETITION” in the subject line by 5 PM Pacific Time on September 9, 2011.
Please attach a cover letter which includes the author’s name, paper title and school.

The 1st place winner shall receive $1,000, publication in the Whittier Law Review and travel to the IP Symposium in Costa Mesa, CA. The 2nd & 3rd place winners will receive $500 each and honorable mention.

Why mess with Texas when it's doing such a good job on its own?

By way of an eagle-eyed correspondent: Apparently official Texas is embarrassed by steamy romance--shades of covering up Justice's breasts, perhaps? Suing over the clearly noninfringing, First Amendment-protected title Don't Mess with Texas, the state just dropped another notch in my estimation.

Movie devices as prior art

HT Carol Stoneburner: Samsung cites 2001 as prior art against Apple. Star Trek's communicator anticipated the smartphone (and if I did enable any audible ringtone, you can bet it would be a Star Trek chirp), but this filing is particularly fun because it also implicates copyright law: Samsung includes a screenshot from the film, and also directs the court to this YouTube clip from 2001 that does not seem to have been uploaded by the copyright owner. Samsung's uses are unquestionably fair; what does that imply about the clip in general? (As a ST fan, I'll also say that the various flat devices in use in the Star Treks, especially TNG, seem closer to the iPad than the device shown in 2001.)

Variety wins anti-SLAPP appeal over bad review of big advertiser

Calibra Pictures, LLC v. Variety, 2011 WL 3612209 (Cal. App. 2 Dist.)

Variety is an entertainment trade magazine with “complete separation between the advertising and editorial departments.”

Calibra is managed by Joshua Newton, who wrote, directed, and produced Iron Cross for Calibra, starring the late Roy Scheider, who died before filming was completed. In early 2009, Newton contacted the sales director at Variety to place a front cover ad to promote a Roy Scheider tribute and to attract attention to his film. The ad ran for $45,000.

The tribute featured a screening of the film trailer. The sales director was there and congratulated Newton on the trailer, then wrote him an email calling the trailer “amazing.” She offered to promote the film at the upcoming Cannes Film Festival, but Newton declined. She then invited him to attend a gala as the guest of the president of Variety, Neil Stiles. Newton attended; his guests included his son Alexander, Roy Scheider’s Iron Cross costar. (Rhetorical question: what is the function of including this factual detail?) Stiles told Newton that Variety was the lead industry with an overwhelming market share, making it useless to advertise with a competitor. He emphasized that all Academy Awards members, studios and production and distribution decisionmakers read Variety and asked if Iron Cross had a distributor. Newton said no.

Stiles then asked if Newton had considered entering Iron Cross into the 2010 Oscars. “Newton indicated it was a possibility but that he would have to ask his investors when he returned to London. Stiles stated that if Calibra was to pursue the Oscars, Variety would be the perfect partner and it could help ‘Iron Cross’ achieve an Oscar nomination.”

Newton met with his investors and then agreed to use Variety to submit the film for the Academy Awards. A few weeks later, he told the sales director that it was unlikely that the film would be completed in time for the Oscar race. The next month, she told Newton that the Variety Group Editor, Timothy Gray, had published a short list of possible Academy Award contenders that included Iron Cross. As it turned out, she’d asked Gray to include the film on the list. A few months later, Variety published another list of contenders including Iron Cross, indicating a fall release, as well as a media pack, “Academy Season 2010,” listing the film.

The sales director then told Newton that Gray had chosen to include the film in the “exclusive” Variety Screening Series, for $25,000, as part of an overall exclusive partnership with Calibra for a promotional campaign to attract a distributor and nominations for the Academy Awards and the British Academy Awards (BAFTA) for Roy Scheider. Newton told her that he could only justify the expense in order to secure a major distribution deal. The sales director “assured Newton that if Calibra had the budget, Variety could create sufficient excitement about the film through a carefully designed Academy Awards campaign that the film would achieve the attention of major distributors. She also said that she would contact distributors directly and help Calibra obtain a distributor, but only if Calibra selected Variety as an exclusive media partner.”

Variety asked for over $427,500 for its screening and promotional activities, including covers, DVD inserts, and other ads. The campaign generated enough interest that various industry people requested screener copies. To qualify for the Academy Awards and get the most value out of the Variety deal, the sales director said that Calibra needed to finish the film and have it exhibited in a commercial movie theater for one week in December 2009. In reliance on that claim, Calibra spent $800,000 to expedite completion of the film. “Newton worked 24 hours a day, seven days a week.” The sales director and another Variety representative attended the December Los Angeles screening and told Newton the film was “outstanding.” By late December, Calibra had paid Variety $226,000.

A freelance film critic, Robert Koehler, was assigned to review the film for Variety. His December 20 review began: “‘Iron Cross’ will be remembered as Roy Scheider’s swan song and little else. A film of serious intent undone by hackneyed plotting and intrusive editing, writer-director Joshua Newton's revenge drama is reasonably sound in its general outline, until it delves into specifics. Scheider feels at home in his final role as a retired Gotham cop who goes to Germany to hunt down the Nazi who killed his family, though his onscreen presence is increasingly trimmed away as the reels roll by. The briefest of theatrical windows (pic opened Friday for a one-week Oscar-qualifying run) will quickly close shut before a muted vid bid.” The court summarized the rest of the review as criticizing “the film's writing, structure and direction and some of the actors.” (The review is amusingly uses cut-off lingo suggesting that the writer gets paid, in part, for chopping letters off of words—or maybe, more to the point, for sounding like a classic Variety review. Of some note, given my question above, is that Alexander Newton was singled out as a “promising actor” despite his incongruous British accent.)

Newton asked the sales director what happened. She said “she was flabbergasted, apologized and asked Newton to meet with Stiles.” When Newton met with Stiles the next day, he asked for the review to be deleted, alleging that it contained factual inaccuracies and that Koehler left the screening before the film ended. Stiles allegedly promised that he’d “see what he could do.” The critic who’d assigned the film to Koehler promised to investigate and took the review down for a short time “to give Newton enough time to get other reviews.” But the article had already been printed in LA and NY, and many online traces and quotes remained. After Variety’s critic concluded that Newton’s factual claims were wrong, Variety reposted the review online.

Calibra sued for breach of contract (specifically, the implied covenant of good faith and fair dealing), negligence, fraud, breach of fiduciary duty and violation of California statutory consumer protection law. Variety filed an anti-SLAPP motion, which the trial court granted on the ground that the lawsuit arose from an exercise of free speech and that there was no evidence that Variety waived its rights by contracting not to publish a review of the film. With the burden shifted to Calibra to demonstrate a probability of prevailing on the merits, the suit failed. Variety got its attorneys’ fees as well, pursuant to the anti-SLAPP law.

Calibra didn’t contest that this was a case involving free speech in connection with an issue of public interest, but argued that the trial court should have found that it established a prima facie case. The court of appeals disagreed.

First, Variety didn’t waive its right to publish the review. A waiver of First Amendment rights requires “clear and compelling” relinquishment, and courts “indulge every reasonable presumption” against such a waiver. With that as a standard, Calibra was doomed. Calibra argued that Variety impliedly waived its right to publish a review of the film through its exclusive media partnership with Calibra, which formed a fiduciary relationship. But courts won’t imply a waiver of free speech rights. Calibra argued that the fact that Variety took the review down after Newton complained indicated the parties’ understanding that Variety agreed to avoid negative promotion, but the record made it reasonable to presume that this was a courtesy only, especially since Variety then reposted the review.

In Paragould Cablevision v. City of Paragould, Ark., 930 F.2d 1310 (8th Cir.1991), a cable company agreed to a contract that provided that if the company desired to offer “additional income-producing activities “such as advertising” over the cable system, it would first notify the city in order to negotiate the proposed modification. The cable company then sued for violation of its commercial speech rights. The court held that the cable company “effectively bargained away some of its free speech rights,” and could have bargained for an unqualified right to advertise. The 9th Circuit has read Paragould to hold that waiver of free speech rights can be implied in commercial transactions involving sophisticated parties. But “[p]roperly understood,” the case covers only sophisticated parties who use “contractual language that expressly restricts the party's exercise of a certain type of speech.” The waiver is implied only in a loose sense: the term “waiver” and the speech rights at issue aren’t spelled out. But the waiver “flows directly from the concrete and agreed upon restriction on speech.” That’s not this case.

The implied covenant of good faith and fair dealing prevents a party from frustrating the other party’s rights to the benefit of the contract, but because there was no waiver of free speech rights, there was no breach. Likewise, the negligence claim failed; there’s no precedent for allowing tort recovery against a newspaper for publishing opinion and nondefamatory assertions of fact. Thus, Variety could have no duty to refrain from publishing the review.

Nor did a fiduciary duty exist because of Variety’s promises, including its promises to promote Iron Cross to distributors. Calibra didn’t argue that the parties formed an agency relationship. “In any event, the context of the allegations and evidence demonstrate that Variety was offering help to Calibra as a method of landing a large advertising contract, and in no way was Variety offering to act in anyone's interest but its own.”

The exclusive media partnership wasn’t a legal partnership but an arm’s length transaction. “Variety was acting in its own financial interest. Calibra could not have reasonably expected otherwise, particularly because Variety was a trade paper that did not agree to waive its free speech rights or be a fiduciary.” Variety’s alleged ability to exploit a disparity in bargaining power didn’t of itself create a fiduciary relationship. “Regardless, we note that Calibra was an obviously well-funded film company with hundreds of thousands of dollars at its disposal. It held the purse strings and did not have to advertise in Variety ….”

It may well have been the case that Calibra depended on Variety to refrain from panning Iron Cross, “but that dependence cannot, by itself, convert what was otherwise an arm's length transaction into a fiduciary relationship.” Moreover, it was unreasonable to believe that an ad contract with the sales department would have an impact on the editorial department. (Comment: this has to mean unreasonable as a matter of law. As a matter of fact, such influences are well-known even if often decried.) “If Variety's editorial department handled advertising customers with a velvet glove, Variety would lose credibility as a source of independent news and opinions about the entertainment industry.” Nor did Calibra’s reliance on Variety’s advice about when to release the film matter, since the advice was free and Calibra didn’t have to take it.

Fraud: Calibra alleged that Variety misrepresented Calibra’s potential for winning Academy Awards. But these were merely opinions about possible future actions by Academy voters. Opinions are actionable only under special circumstances, “such as when the defendant holds itself out as being specially qualified; the opinion is stated as fact or implies justifying facts; or the opinion is rendered by a fiduciary or other trusted person.” Calibra only argued that Variety was a fiduciary (not that it held itself out as being specially qualified?), which wasn’t the case.

Calibra argued that Variety knew its predictions were false beause no one at Variety had seen the film. The court didn’t follow. “Presumably what Calibra means is that Variety did not believe that its predictions had any merit,” but the court disagreed: the evidence indicated that Variety’s prediction had “arguable merit,” given that Iron Cross was Roy Scheider’s last film, which might have gotten the sentimental vote, and that the Holocaust film genre has resonated with Academy voters over the years.

Even assuming that Variety didn’t believe its own prediction, Calibra’s reliance was unjustified. Iron Cross, an obscure independent film, had an uphill battle for Oscar consideration, and the film was uncompleted at the time of the contract. “Thus, other than the film's theme and star, Variety had no legitimate basis for offering a prediction.” There was also no evidence that Variety had a secret intent to destroy the film with a negative review, which in fact worked against Variety’s economic interest since Calibra stopped paying.

Unfair business practices: also no. Variety sold and provided advertising, “which the evidence shows was a success because it generated interest in ‘Iron Cross.’ Variety did not promise to waive its free speech rights, and its sales department is separate from its editorial department. Thus, it is unlikely Variety's conduct would lead the public to believe that buying advertising would preclude Variety from publishing negative press about the buyer.”

Variety was therefore entitled to an additional fee award for the appeal, over the $57,000 it initially got.

Comment: while this seems plainly the right result, it also appears that Hollywood sells hope at least as much as Max Factor does.

Boop-oop-a-doops

Fleischer Studios v. A.V.E.L.A., Inc., No. 09-56317 (9th Cir. Aug. 19, 2011)

The court withdrew its earlier opinion, with its holding that the Betty Boop merchandise couldn’t be serving as a trademark because people wanted to buy the merchandise with Betty Boop on it and not merchandise from a particular source, aka aesthetic functionality. After various procedural matters were out of the way, the revised opinion now remands on the trademark issues.

The district court held that the fractured copyright ownership (which was the source of plaintiff’s loss on its copyright claims) precluded the existence of a valid trademark, since multiple parties were the source of Betty Boop stuff. The new opinion agreed that “the fractured ownership of a trademark may make it legally impossible for a trademark holder to prove secondary meaning,” but held that the facts available to the court didn’t establish that this was true here as a matter of law. Fractured ownership isn’t enough on its own—there must be “something more,” which such as the facts in the district court case initially adopting the fractured ownership theory: “evidence of extensive use and licensing of similar images by other companies, the oddly-defined trademark that was legally carved out from other images of the same character, the widespread confusion amongst potential licensees and licensors regarding from whom one should license the mark, and the other image of the same character that had acquired secondary meaning.” Here, however, there had only been a showing that more than one entity owns rights to Betty Boop IP. Without evidence of confusion in the marketplace over who owns the character, extensive merchandising of other images, or secondary meaning for other images, “all we have is the possibility that other copyright owners may be destroying the secondary meaning in the Betty Boop mark.” That wasn’t enough.

The district court’s other reasons for ruling against Fleischer were that the uses here weren’t uses of a mark in commerce and weren’t likely to cause confusion. “Given the large number of complex issues it faced and the minimal assistance from the parties’ briefs, it is understandable that the district court might have deemed it unnecessary to address these issues in greater depth, to provide more detailed reasoning, to cite to relevant authority, or to identify a basis in the record for these apparent conclusions.” But more was necessary to create a reviewable decision, so remand it was.

Hill of beans: failure to disclose meat content draws lawsuit

From DuetsBlog, this story about a lawsuit against Chipotle for failing to disclose that the pinto beans are made with bacon. I'm highly sympathetic for a variety of reasons: I was a victim of McDonald's claim that it had switched to vegetable oil for frying its fries, and consumed them some number of times before it was revealed that the fries nonetheless had meat added as a "flavoring." As a vegetarian by choice and not by religious obligation, I didn't need a purification ceremony, but I was definitely deceived.

It can be hard to tell when to expect meat. I wouldn't even ask about guacamole, for example; nondisclosure of meat in guacamole would seem obviously deceptive to me. As a rule, I try to ask about whether beans are vegetarian, but (1) I consider that most important at non-chain restaurants, since I expect chains to be more aware of and able to inform vegetarians, whether through asterisks or little green leaves or, heck, the labels "vegetarian" and/or "non-vegetarian"/"contains meat," and (2) especially with that background, no one wants to hold up the line when there are 40 people behind you, and often when you ask and the beans are vegetarian you get some eye-rolling (they're beans, duh), which is never fun.

Addendum to entry-level advice

Many candidates these days send out emails/packets directly to schools of interest to them as well as using AALS. That's fine and can pay off, but if you do it electronically, please name your files appropriately. I like you better when I can just save the file lastname_resume.doc, or FIRSTNAME LASTNAME resume.pdf or any other choice that makes sense than when I have to remember to manually rename your resume.docx file to match your name, which I might even misspell! I think you can do the same thing with the AALS resume system too.

Burying the LEED

Gifford v. U.S. Green Building Council, 10 Civ. 7747 (S.D.N.Y. Aug. 15, 2011)

Plaintiffs were “professionals in the environmental engineering and design industry,” including “a consultant who provides advice about how to reduce energy costs,” a licensed architect, an engineer specializing in heating and cooling systems, a specialist in moisture barrier design and mold remediation, and a company that provides energy saving heating and cooling system designs.

Defendant is a nonprofit that operates the Leadership in Energy and Environmental Design (“LEED”) certification system, “which purports to certify buildings as being designed and constructed in an environmentally friendly manner.” Defendant also represents about 140,000 design professionals it’s accredited as qualified to advise real estate developers and other consumers on how to design LEED-certified buildings. Defendant receives fees from those seeking LEED certification for their buildings and from the professionals it accredits.

Defendant advertises LEED, and plaintiffs alleged that one particular claim was false: a statement in a press release that the results of a 2008 study “indicate that new buildings certified under the [USGBC’s] LEED certification system are, on average, performing 25–30% better than non-LEED certified buildings in terms of energy use.” Plaintiffs alleged that consumers were therefore diverted from their business to LEED-accredited professionals.

The Lanham Act is “extremely broad,” Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 111 (2d Cir. 2010), but not broad enough for these plaintiffs. The first prudential test discussed in Famous Horse is the “strong categorical” test requiring competition between plaintiff and defendant along with competitive injury. The second is the “reasonable commercial interest” test, under which competition is important but not dispositive as an indication of why the plaintiff has a reasonable basis for believing that defendant’s false advertising will damage its commercial interests. When the parties aren’t obviously in competition, a plaintiff has to make a more substantial showing of injury and causation to have standing.

Here, plaintiffs plainly didn’t compete with defendant for certification or accreditation, nor did they allege that defendant directly referred to their products or services in its advertising.

Instead, plaintiffs alleged competition in the “market for energy efficient building expertise,” but the court found that this broad label didn’t obscure the clear differences between their “products.” Unlike plaintiffs, defendant doesn’t provide clients with advice about energy-efficient design, nor does it provide design services. It reviews and rates designs created by others. This was different from Famous Horse, because there the parties operated on different levels of a supply chain for the same product.

Thus, plaintiffs didn’t adequately allege a reasonable commercial interest that is likely to be damaged by USGBC’s alleged false statement. The allegation of likely injury was “entirely speculative.” The plaintiffs design and consult on specific elements of individual buildings, including heating and cooling systems. But they didn’t allege that LEED-certified buildings don’t require those services or that such services must be provided by a LEED-accredited professional for the building to be certified. “Because there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, it is not plausible that each customer who opts for LEED certification is a customer lost to Plaintiffs.” (Given this analysis, I do wonder about the potential standing of, say, real estate developers with non-certified buildings.)

Even if plaintiffs could allege that a particular developer chose LEED-certified consultants over Gifford, that wouldn’t establish the required causal nexus, which requires reliance on the allegedly false statement. Such reliance isn’t plausible in light of the proffered statement that the developer chose a LEED professional “because everyone has heard of LEED, but not everyone has heard of Henry Gifford,” and because the developer will “get more credibility by simply saying we’re going to build a LEED-rated building.”

Because the court dismissed the Lanham Act claims with prejudice, it declined to exercise jurisdiction over the coordinate state law deceptive trade practices claims.

NYT on fake reviews

This story doesn't mention the legal risk to an advertiser hiring people to write unfounded positive reviews, though it's substantial under the FTC Endorsement Guidelines.

Something smells bad: 8th Circuit reverses literal falsity holding

Buetow v. A.L.S. Enterprises, Inc., --- F.3d ----, 2011 WL 3611488 (8th Cir.)

Another day, another decision making it harder to recover for false advertising.

Game animals use their senses of smell to avoid hunters, who therefore like clothes with activated carbon to adsorb and retain human scent (adsorption means that the scent particles physically adhere to the surface of the material). ALS advertised its ScentLok clothing as containing “odor eliminating technology.” Plaintiffs brought a purported class action against ALS and three licensees claiming that ALS falsely advertised that ScentLok technology would eliminate 100% of human odors and that it could be reactivated or regenerated in a household dryer after the clothing has become saturated with odors, violating Minnesota consumer protection laws.

The district court denied plaintiffs’ motion for class certification based on variance in reliance and damages issues. Plaintiffs moved for partial summary judgment on literal falsity, and the district court held that ads claiming that the clothing is “odor eliminating” were literally false, entitling plaintiffs to a permanent injunction. The ads claiming the potential for reactivation were not literally false, but claims that the clothing would be “like new” or “pristine” were. However, the Minnesota Deceptive Trade Practices Act allows only prospective injunctive relief, and the court granted defendants summary judgment because these plaintiffs are at no risk of future harm.

Defendants appealed; the court of appeals vacated the injunction.

First, the court held, the plaintiffs led the district court into error by arguing that the state statutes at issue were coextensive with the Lanham Act and that when an ad is literally false injunctive relief should follow. (I guess that, unlike ordinary consumers who are very hard to fool, district courts are easily misled.)

This was a misstatement of federal law, though it had been repeated in numerous district court opinions. Even in literal falsity cases, the proper rule is that “when a competitor's advertisement, particularly a comparative ad, is proved to be literally false, the court may presume that consumers were misled and grant an irreparably injured competitor injunctive relief without requiring consumer surveys or other evidence of the ad's impact on the buying public.” However, the plaintiff must still show irreparable injury to get an injunction. The district court here erred in granting a permanent injunction without proof of irreparable injury.

There was a second error: equating the standards for relief under the Lanham Act and the state consumer protection laws. (Somehow this error never matters when it’s made by defendants. As I have noted before, this is a common statement. Watch as the court tries to prevent its holding, which in the abstract is entirely correct, from making any difference to Lanham Act plaintiffs.) Lanham Act cases involve claims by competitors or those with commercial interests, and so in prior cases the court has held that pendent state law claims are “coextensive” with the federal claims. Here, however, plaintiffs are consumers making only state law claims and the laws should not be automatically equated. “When the plaintiffs are consumers who have proved no future harm, as in this case, it is an error of law to assume that a false statement materially deceived and injured the plaintiffs.”

Honestly, I’m not even surprised at the mismatch between logic and result. Actually figuring out what the state law provided would have required looking at the elements—and state consumer protection laws generally don’t require reliance or actual deception, see the Minnesota CFA. They often do require a consumer interest or impact, which sometimes affects competitor-plaintiffs’ standing, and on some occasions (Massachusetts comes to mind, where a competitor can show unfairness only by meeting the standards for an antitrust violation, whereas acts unfair to consumers are defined more broadly) the standard for liability will differ as between competitors and consumers. However, the particular doctrine here—that literal falsity leads to an inference that deception occurred—should either be valid for all state law plaintiffs or for none. We don’t even have reason to think that state law distinguishes between explicitly and implicitly false statements the way the Lanham Act does, especially given the explicit absence of any requirement of “actual confusion or misunderstanding” (compare the Lanham Act doctrine in cases of implicit falsity). The idea that the causes of action are coextensive as applied to competitors makes no sense, and the court of appeals should have admitted that the previous decisions were the product of failure to address the elements of the state law claims.

Okay: here, plaintiffs sought a permanent injunction based on violations of two state statutes. In Minnesota, injunctive relief is appropriate if the prerequisites have been established and the injunction would fulfill the legislative purposes. “Once the statutory standards are established, Lanham Act decisions provide useful guidance in determining the proof required to establish consumer confusion under the MCFA and the MUTPA.”

The MCFA specifically authorizes injunctive relief for the use of “any fraud, ... misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby,” but only for actions brought by the AG. Under a separate provision, any person injured by violation of the consumer protection laws may recover damages and “receive other equitable relief as determined by the court.” So plaintiffs have to have been injured by a violation, and equitable relief has to be consistent with remedies principles, “which universally require proof of irreparable injury.” (In a footnote, the court said it didn’t disagree with cases holding that literally false comparative advertising presumptively creates irreparable injury to the competitor.)

As for the MUTPA, it bars knowing misrepresentations of the true quality of merchandise, and does grant a private right of action to enjoin violations. “Any person damaged or who is threatened with loss, damage, or injury by reason of a violation … shall be entitled to sue for and have injunctive relief ... against any damage or threatened loss or injury by reason of a violation.... [I]t shall not be necessary to allege or prove that an adequate remedy at law does not exist.” Still, plaintifs have to prove that they were damaged or threatened with damage, and plaintiffs failed to prove the threat of future injury. “[W]e doubt that [this section] authorizes an injunction to ‘remedy’ only past violations.” Uh, okay. I’m sure that’s why the statute provides for injunctions against any “damage” or “threatened loss.” Since plaintiffs claimed they didn’t need to prove irreparable injury, the injunction was vacated.

But we’re not done! The majority then found that the district court erred in its fact-finding. The court found literal falsity, but claims must be considered in context. There was evidence that the clothing blocked a lot of odor compounds, though it didn’t eliminate odor; that consumers liked the products (which is of course relevant because consumers can easily detect whether prey animals can smell them); and that other advertisers used the word “eliminate.”

The court of appeals first disagreed with the district court’s use of “the most absolute of competing dictionary definitions” of “eliminate.” “The Lanham Act doctrine of literal falsity is reserved for an ad that is unambiguously false and misleading—‘the patently false statement that means what it says to any linguistically competent person.’ We doubt there are many hunters so scientifically unsophisticated as to believe that any product can ‘eliminate’ every molecule of human odor.”

Okay, look, I realize the court doesn’t want to let these plaintiffs win. But it would be nice to get the reasons conceptually right. “Linguistic competence” is not the same thing as “scientific competence.” “Eliminate” means get rid of. Not reduce. Every dictionary definition the court looked at, not just the “most absolute,” said this, because “eliminate” is an absolute. So, to any linguistically competent person, eliminate would mean get rid of, just like any linguistically competent person would understand the claim “this car gets 10,000 miles per gallon” to mean exactly that as a matter of denotation (compare the linguistic ambiguity in "this book should not lightly be set aside"). The court’s actual objection is that a reasonable hunter wouldn’t believe the claim that is clearly conveyed by explicit statement—that is, the court thinks this is puffery, as it quickly makes clear.

Because text must yield to context, it was error to enjoin all uses of “odor eliminating.” It might be that some of the ads so exaggerated the basic claim as to be literally false, rather than nonactionable puffery. The court mentioned as potentially false ad claims that the garments work on "100% of your scent 100% of the time," render the wearer "completely scent-free," or "create an impervious shield to odor." “But it is unclear the extent to which these ads were ever published, whether they have long since been discontinued, and whether consumers were deceived.”

Because plaintiffs represented that they moved for complete summary adjudication on their injunctive relief claims, the court of appeals directed the district court to enter an order dismissing their claims for equitable relief with prejudice. Their individual damages claims remained.

One judge concurred in the first part (the legal error), but dissented from the finding that the district court wrongly found literal falsity in “odor eliminating” and “reactivation.” (Hey, did the majority even find that “reactivation” was not literally false? I don’t see any discussion of the term. I guess implicitly we must conclude that the district court was also wrong about that, for a reason to be named later?)

The dissent agreed that context matters, but

the majority's opinion substitutes this court's judgment for the evidence in the record (i.e., the statements in the Plaintiffs' affidavits) that the Plaintiffs themselves were misled. It is true that only a very credulous consumer would believe such a claim, but the claim itself is, in fact, false. It is unwise to decide that just because the judges on the panel would not be deceived, it is therefore impossible that any reasonable consumer would be deceived. This is especially the case because the claims are scientific. I fear that the majority opinion sets up a slippery slope for future false advertising claims brought by consumers, especially as consumer products become ever more hi-tech and complex.

The dissent pointed out the disconnect between finding that "odor eliminating" and "reactivation" are nonactionable puffery and allowing that “works on 100% of your scent 100% of the time," renders the wearer "completely scent-free," and "create[s] an impervious shield to odor" might go beyond puffery. If a reasonable hunter is scientifically competent as to one, why not to the others? Also, the terms at issue don’t fit the circuit's definition of puffery, (1) exaggerated statements of bluster or boast upon which no reasonable consumer would rely and (2) vague or highly subjective claims of product superiority, including bald assertions of superiority.

Puffery is the opposite of a factual claim, which is “a statement that (1) admits of being adjudged true or false in a way that (2) admits of empirical verification.” The dissent considered, quite rightly, that “odor eliminating” met those prerequisites (and again “reactivation” has simply been ignored in the analysis). It would merely have remanded on the first issue.

I hope this is the only time I will ever mention Ashton Kutcher

Apparently he wasn't all that clear about disclosure of his financial ties to various companies, risking violation of the FTC Endorsement Guidelines.

Inducement question of the day

This Credit Slips post recommends "a wonderful article by Howard Wainer called 'The Most Dangerous Equation' ... that appeared in The American Scientist," adding "(The original appears to be behind a pay wall, but Google will help you find copies available on the Internet.)"

Inducement?

Second Circuit rejects electronic database settlement

On grounds I personally find fairly unconvincing--I'm with the dissent; those Class C claims are worthless without registration likely exceeding their damages value, so anything they get is gravy. Here's a hypothesis for debate, which I'm not completely convinced of but is worth discussing: despite what we tend to think about the Second Circuit's copyright-friendliness, in the past ten years the Second Circuit has more often made it harder for authors, in practice, to receive benefits from their work than it has made it easier.

court of appeals affirms fraud on the PTO finding

Fair Isaac Corp. v. Experian Information Solutions, Inc., --- F.3d ----, 2011 WL 3586429 (8th Cir.)

The court of appeals affirmed the district court’s grant of summary judgment against Fair Isaac (FICO)’s antitrust and false advertising claims and its ruling that FICO’s trademark was merely descriptive, as well as the jury verdict that FICO obtained its trademark registration through fraud on the PTO. It also affirmed the denial of defendants’ attorneys’ fees.

FICO credit scores are produced using information from three credit bureaus, Experian, Equifax, and TransUnion. Its algorithm generates credit scores that fall within a credit-score range of 300-850, and FICO registered a trademark for "300-850." The credit bureaus developed their own credit scores, based only on their data, which are less desirable to lenders, then began to develop a joint venture to create a tri-bureau algorithm that could compete with FICO (and let them pay less for the use of FICO’s algorithms). The result, VantageScore, was offered cheaply to key lenders in return for its adoption, in the hope of creating industry momentum.

I won’t review the antitrust claims in detail; suffice it to say that there’s not much left of antitrust law in this country.

FICO argued that when it adopted the 300-850 term it had no meaning in the credit scoring industry, and that there was no competitive need for that score range (or even any numeric score range). Moreover, FICO argued that defendants failed to meet their burden to show mere descriptiveness. However, they presented evidence “that the mark conveyed the approximate range of FICO's credit scores and that FICO had selected the mark for that reason,” as well as evidence of FICO’s own use of the mark to inform consumers that their scores would fall within that range. This was sufficient evidence of descriptiveness, even without consumer surveys: descriptiveness can be proved with the same variety of evidence that can be used to show genericness or secondary meaning. Consumers would immediately understand 300-850 to describe the qualities and characteristics (here, the range) of the score.

Fraud on the PTO requires knowingly false material representations of fact. Intent can be inferred from indirect and circumstantial evidence, but must be clear and convincing. Given the standard for reviewing jury verdicts, the court of appeals affirmed. Defendants pointed to two statements made in response to the PTO’s initial mere descriptiveness refusal. (1) A FICO employee stated that "[t]o the best of [her] knowledge, only the FICO score uses the 300-850 range as a unique identifier for credit bureau risk scores." FICO said this was true because no one else used the range as a “unique identifier,” but defendants argued that FICO didn’t use it as a mark either but only as a credit score range like other ranges. FICO responded that its specimen showed use as a mark, but defendants’ expert disagreed. A reasonable jury could have found falsity.

(2) FICO’s outside legal counsel stated that the mark was not descriptive because "300-850 is the credit scoring scale only for [FICO's] credit bureau-based risk products and not for ... other credit bureau-based risk products that competitors develop." FICO argued that this was true in context because TransUnion, the only other credit bureau using 300-850 as its range, wasn’t using the term as a mark. Still, a reasonable jury could have found falsity.

As to knowing falsity/intent to deceive, defendants presented evidence that FICO’s employee was aware that others were using the same range for the same purpose and that she knew that FICO wasn’t using the term as a mark. The “artful” use of the phrase “unique identifier” could count against her. The jury could have found similarly with respect to outside counsel.

FICO argued that even if the statements about third-party use of the range were intentionally false, they wouldn’t affect descriptiveness and were thus not material to the issuance of the registration. Third party uses, according to FICO, would have been material only if someone else had superior rights in the mark, and TransUnion didn’t, given its disclaimer of any use of the range as a mark. Because it filed an ITU, FICO argued, whether TransUnion previously used the mark "could never be material." Defendants presented a PTO expert who testified that a reasonable examiner “would consider it important in deciding whether to allow the registration to know whether others were using 300 to 850 as a score range for credit scoring services.” Also, since the application was initially rejected for mere descriptiveness and the PTO didn’t issue the registration until the two statements had been made, a reasonable jury could find reliance. (Indeed I am hard pressed to see how a reasonable jury could find otherwise.)

FICO argued licensee estoppel: Experian had signed an agreement that permitted it to use FICO’s 300-850 trademark and that had a no-contest provision barring Experian from challenging the validity of FICO’s exclusive rights to its marks. VantageScore was not a licensee, so Experian’s ability to raise the issue in its own name was irrelevant. An alter ego of the licensee may also be estopped by licensee estoppel, but that wasn’t the situation here. A mark that’s invalid can’t be infringed; since VantageScore successfully challenged the mark, it can’t serve as the basis of an infringement action against anyone.

The basis of the false advertising claim was Experian advertises an in-house credit score, the PLUS Score, with a 330-830 range and the claim “[s]ee the same type of score that lenders see.” FICO argued that this would mislead consumers into thinking they were either buying the FICO score or a score widely used by lenders, neither of which was true. Experian argued that “same type” meant “a three-digit numerical representation of an individual's credit risk based on credit report information and calculated using a credit-score algorithm.” FICO pointed out that no lenders use the PLUS Score and argued that Experian’s own documents demonstrated confusion by consumers over whether they were buying a score used by lenders.

The court of appeals agreed that the statement was neither literally nor implicitly false. The score was one of the “same type” that lenders see, “namely a score indicative of how lenders would assess an individual's creditworthiness.” FICO’s only extrinsic evidence was Experian’s call scripts, which didn’t demonstrate that an implicitly false message was being communicated.

Defendants argued that the district court abused its discretion by declining to find that this was an exceptional case for fees purposes. Exceptional cases mean that the plaintiff's action was groundless, unreasonable, vexatious, or pursued in bad faith. Defendants contended that the jury finding of fraud on the PTO weighed heavily in favor of finding exceptionality, along with FICO’s allegedly substantial delay in asserting trademark rights in the score range and other factors indicating that the score range was not a mark. The district court disagreed, refusing to find FICO’s claims “wholly without merit.” FICO managed to survive motions for summary judgment and judgment as a matter of law. This was not an abuse of discretion.