Litigation lottery

Gameologist Group, LLC v. Scientific Games International, Inc., 2011 WL 5075224 (S.D.N.Y.)

As the court explained, “bling” “is a term popularized in the hip-hop music community and is frequently used in advertisements and pop culture.” Gameologist has a registration for "BLING BLING 2002" for "entertainment in the nature of online three dice casino games" (registered 2005) and for "casino games and equipment therefor, namely board games" (registered 2010). It also has an ITU pending for, among other things, lottery cards; it hasn’t filed a Statement of Use for those goods and has requested several deadline extensions. (The registrations and ITUs were assigned to Gameologist by McGill, a founding member of the business; Scientific argued that McGill had no underlying business or goodwill to assign and has thus filed petitions to cancel both registrations on the grounds of fraud and abandonment through improper assignment in gross.) Sample promo image from Gameologist:

Gameologist sued Scientific for marketing lottery tickets to state lottery commissions with various uses of the term “bling.” The court was unimpressed.

Gameologist (and its predecessors in interest) spent a long time attempting to license its mark. In 2002, McGill and another principal attempted to license BLING BLING 2002 to various industries, including the lottery ticket industry. They engaged in discussions with Oberthur Gaming Technologies Corporation, but Oberthur ultimately said no. A year later, Gameologist met with representatives of MDI, a company that licenses popular icons and develops lottery tickets incorporating them. MDI and Gameologist entered into a license agreement effective December 1, 2003, granting MDI rights to use BLING BLING 2002 in connection with lottery tickets. At that time, MDI had been acquired by Scientific, though the parties dispute the exact relationship.

Afterwards, MDI told McGill that state lotteries weren’t interested in the “Bling Bling” concept. Thus, in April 2004, MDI and Gameologist agreed to cancel the license agreement. Gameologist argued that MDI’s reasons for cancellation were pretextual, while Scientific argued that the parties agreed that there was a genuine commercial reason for the cancellation. (With complicated facts omitted: the NY lottery focus tested a “Bling Bling” ticket in September 2003, which had negative results.) In July 2008, Florida also rejected Gameologist’s “Bling Bling” ticket proposal.

So: Gameologist hadn’t successfully entered into any license with anyone but MDI for use of its mark in connection with lottery-related goods or any other goods or services. It never successfully marketed a "Bling Bling" lottery ticket to a state lottery commission or released a product with the "Bling Bling" mark in the lottery industry, nor did MDI do so during the existence of the license agreement.

In 2004, Gameologist made available online a free slot machine game simulation displaying the mark "BLING BLING 2002." In 2006, it produced 500 units of a board game using the mark "BLING BLING 2002 The TAKEOVER Part I." Gameologist's business records indicated that it sold four board games in 2007 at about $30 each. McGill testified that Gameologist sold about half of the remaining units to a small group of retailers in unrecorded transactions in cash and distributed the remainder free of charge as promotional items. This is the only product that Gameologist actually sold featuring the mark "BLING BLING 2002."

Meanwhile: Scientific makes lottery tickets, and have sold several thousand instant lottery tickets to state lottery commissions that feature the word "bling," including a "$50,000 BLING" ticket for the Georgia Lottery; an "IT'S A BLING THING" ticket for the New Hampshire Lottery; a "BLING ME THE MONEY" ticket for the Kentucky Lottery; a "SPRING BLING" ticket for the New Mexico Lottery; and a "$10,000 BLING" ticket for the District of Columbia Lottery. These tickets were developed and launched between 2007 and 2010.

Gameologist’s registration for online three dice casino games was incontestable. However, because Gameologist argued that Scientific infringed its mark by using “bling” in connection with lottery tickets, and Gameologist owned no registrations for the mark for lottery tickets, the presumption of an exclusive right to use the mark didn’t extend past the registratered goods/services. Nor did incontestability constitute conclusive evidence of the mark’s validity, because incontestability is conclusive only as to the goods or services specified in the registration. The court therefore found it unnecessary to reach the issue of the validity of the registrations.

Thus, because the registrations didn’t provide presumptive or conclusive evidence of validity, Gameologist had the burden to prove that its mark was valid. (This seems to me a conceptual mistake. Gameologist doesn’t have any burden with respect to the goods or services covered by the registration; the question is whether its rights extend to lottery tickets. This seems to be important given what happens next.)

The parties agreed that BLING BLING 2002 was suggestive as applied to either gaming equipment or lottery tickets. However, Scientific argued that Gameologist hadn’t made sufficient use in commerce to entitle the mark to protection. The court agreed. Four sales of the board game were de minimis (the other alleged sales weren’t proven). Gameologist’s advertising and promotion of the mark wasn’t sufficiently widespread or intensive to count as use in commerce; Gameologist asserted that it attended trade shows, created prototypes, disseminated an “email blast” to the gaming industry, disseminated press releases, and took out ads, but didn’t provide evidence of how widespread its efforts were or what audiences it reached. This wasn’t enough to create a genuine issue of material fact on whether its efforts were sufficiently open and notorious to create source identification. Instead, its use was sporadic, casual or transitory.

This result seems to me a workaround from incontestability, as to which nonuse without abandonment or fraud (both of which are defenses and both of which the court declined to address) isn’t a defense. Should the analysis be different just because the defendant is not using the mark on the registered goods or services? This seems a somewhat odd result. Now, we might want nonuse to be highly relevant to the confusion inquiry, but that would require a different type of analysis (which the court also does, immediately below). Also, what about that pending ITU? Isn’t this nonuse analysis too early in the game, given that Gameologist apparently still has time to file a statement of use?

Turning to more solid ground, the court found that Gameologist hadn’t shown likely confusion.

Gameologist alleged both forward and reverse confusion. Strength: without secondary meaning, suggestive marks are at best moderately strong. Gameologist failed to show much secondary meaning: it didn’t quantify its advertising expenses or show that they produced results; its evidence of unsolicited media coverage was minimal and might have been instead solicited; and it only had evidence of minimal sales.

Attempts to “plagiarize” a mark can raise an inference of secondary meaning, but this factor was at best neutral. Scientific knew about Gameologist’s mark, but there was no evidence they intended to benefit from Gameologist’s goodwill because “the plaintiff was not well-known in the lottery industry and had no reputation or good will on which the defendants were likely to seek to capitalize, given that the plaintiff has never successfully marketed a product in the lottery industry and has only achieved meager sales of its board game.” Nor was there evidence of other third-party attempts to plagiarize the mark that would weigh in favor of secondary meaning.

As for length and exclusivity of use, Scientific showed significant commercial use of “bling” in various industries, including 160 hits on a search for registered marks. Also, Gameologist had only been using the mark for a short time. (Long enough to become incontestable, but not long enough to show secondary meaning!) Thus, secondary meaning weighed heavily against the plaintiff despite the relative conceptual strength of the mark, meaning at best a neutral result for Gameologist. As for reverse confusion, if the court were to consider the strength of Scientific’s mark, that mark is strong (the court is unclear whether this means the house mark Scientific or the various “bling” variants Scientific used, and whether this means conceptually or in the marketplace, though I’m guessing it’s “bling” and conceptually) and so the first factor would weigh in Gameologist’s favor in a reverse confusion claim, but the court said it wouldn’t change the ultimate conclusion on balance. Comment: This is kind of a mess, but then so is reverse confusion; I’d think that suggestive marks aren’t very strong for purposes of reverse confusion analysis—you’d really need an arbitrary or fanciful mark to make your claim persuasive.

The parties’ marks are visually dissimilar. Scientific’s marks incorporated “bling” into phrases, rather than using “Bling Bling” in isolation, and they differed in the overall impression conveyed to consumers. Gameologist’s mark is surrounded by inner-city references: the board game calls itself "The Ultimate Hustler's Game" and describes players as "adventurers in an inner city setting trying to gather up money and properties," and the online slot machine game depicts photographs of cars, scantily-clad women, and stacks of hundred dollar bills. Scientific’s marks didn’t convey the image of a "hustler" nor did they feature any photographs. Instead, they featured drawings of diamonds, flowers, butterflies, and, in one instance, a cartoon of an anthropomorphized lottery ticket. This factor weighed against Gameologist.

Moreover, there was no evidence of direct competition. (Again, this is the case of the ITU that didn’t bark.) “While the defendants produce instant lottery tickets and provide lottery-related services for state lottery commissions, the plaintiff has only produced a board game and an online slot machine game. The plaintiff has never successfully marketed a product to or produced a product for a state lottery commission. Nor is there any evidence that the plaintiff's products … were marketed to a similar clientele or sold in the same distribution channels. The defendants sold their products exclusively to state lottery commissions, which were not the target clientele for the plaintiff's board game or online slot machine.” Nor did Gameologist demonstrate any likelihood that it would enter the lottery industry or that an average consumer would think it likely to do so. While Gameologist’s attempts to solicit state lotteries and engage in licensing indicated its desire to enter the industry, intent is irrelevant unless prospective purchasers would know about it, and here there was no reason to think they did.

Likewise, there was no evidence of actual confusion. Anecdotal, hearsay reports from friends and family members of Gameologist's current or former members didn’t count.

Bad faith: the only relevant intent is intent to confuse, not intent to copy. The latter may justify an inference of the former, but not so much where the defendant would derive no benefit from confusion, as where the plaintiff has no goodwill to exploit. This weighed heavily against an inference of bad faith, as did the fact that the defendants sought out and relied on the advice of counsel in clearing the marks.

Quality of the products: Scientific generally produces high quality products, but Gameologist argued that the Ba-Da-Bling ticket for the NY lottery (the subject of a separate state lawsuit) was offensive to Italian-Americans and African-Americans. The court found Gameologist’s opinion on this point insufficient evidence to raise a genuine issue of material fact that the plaintiff's reputation would be injured by any inferiority in Scientific’s products, so the quality factor was neutral.
The relevant consumers were state lottery commissions, which are highly sophisticated, favoring Scientific. Balancing the factors, Gameologist failed to show likely confusion and thus lost summary judgment.

The same defects attended Gameologist’s false advertising claim, which alleged that Scientific’s ads were likely to deceive consumers about the origin and ownership of the marks used in the lottery tickets. This is an implicit falsehood claim and requires extrinsic evidence of consumer deception, which was absent. So too with the common law unfair competition and passing off claims. The court also dismissed breach of contract and related claims relating to the license with MDI because Scientific wasn’t MDI’s successor or in any other way bound by the terms of the license.

Cal. county can sue for the people, not for itself

In re Avandia Marketing, Sales Practices and Products Liability Litigation, 2011 WL 5105503 (E.D.Pa.)

The County of Santa Clara, California, sued GlaxoSmithKline for false advertising, on its own behalf as a government payor for Avandia and Avandia-related injuries and on behalf of the citizens of California, pursuant to California's False Advertising Law. GSK moved to dismiss, and the court gave it some of what it wanted but not all.

Santa Clara alleged that GSK aggressively and falsely marketed Avandia as a safe and effective “wonder drug” for patients with Type 2 diabetes that could even reduce cardiovascular risk, while knowing that Avandia increased the risk of cardiovascular events such as heart attacks and that Avandia shouldn’t be used with insulin because it increased the risk of heart attack. GSK also allegedly misled consumers by claiming superior efficacy compared to older (and cheaper) diabetes drugs, while deliberately failing to conduct studies which could demonstrate relative efficacy.

Santa Clara alleged a violation of California’s FAL, suing on behalf of the people of California, as county counsel are explicitly authorized to do in the law. It also sued on its own behalf as a payor for health care; it allegedly spent about $2 million on Avandia during the ten years Avandia was in Santa Clara’s formulary.

The court found that the facts alleged sounded in fraud and therefore were subject to Rule 9(b), but that Santa Clara had satisfied the rule’s requirements. Santa Clara alleged a long-term marketing and promotional campaign in California, including television and print advertising, press releases, product labeling, ghostwritten articles, and marketing materials and strategies targeting doctors and third-party payors. Santa Clara identified what was misleading about the promotional materials, alleging that GSK knowingly overstated the efficacy and underplayed the cardiac risks in their marketing. It also alleged “a plethora of facts” from which the court could infer that GSK knew or should have known that its marketing messages were false or misleading from the time Avandia went on the market in 1999. This was minimal, but enough.

The court found, however, that Santa Clara couldn’t sue on its own behalf. Though corporations are listed as parties who may sue, and Santa Clara is incorporated, the court found that the failure to list counties as parties who could sue in their own right, coupled with the express authorization for counties to sue on behalf of the people, justified a finding that Santa Clara lacked standing to sue on its own behalf.

The court went on to assess GSK’s argument that Santa Clara failed to adequately allege reliance on GSK’s misleading advertising. Though county counsel suing on behalf of the people is explicitly exempt from needing to plead individualized injury and reliance, the court found that it would not be exempt from those requirements when suing on its own behalf. Santa Clara would need to identify which marketing devices it found material and allege that it relied upon them in making its choices about medication coverage and formularies, and it didn’t do so.

The court noted that formulary coverage is different from individual decisions to buy a drug; formulary decisions “are made by sophisticated and well-funded committees that conduct regular reviews of the published literature (and sometimes even independent research studies) regarding drugs on or proposed for the formulary.” Thus, the county failed to allege facts from which the court could infer that its decision to put Avandia on the formulary was made in reliance upon any of GSK's allegedly false advertisements. In fact, the court commented, Santa Clara's decision to allow the drug to remain on the formulary for two years after the truth about Avandia's risks and efficacy came to light would give rise to an inference that Santa Clara didn’t rely on GSK’s representations.

Turning to available remedies, injunctive relief is generally available under the FAL, but the complaint didn’t set forth facts from which the court could infer that there was a plausible risk that GSK would violate the FAL in marketing Avandia in the future. The county also sought unreasonbly broad relief: an injunction prohibiting GSK's marketing employees from "influencing decisions regarding scientific, medical, or clinical research, analysis or disclosure ..." and "enjoining GSK's existing scientific data publication policy, and requiring GSK to fully and publically disclose all of the source data for completed and ongoing clinical trials ..."

Civil penalties of $2500 per violation are also available. The county asked for per-prescription penalties, but the court thought that would be improper, since the FAL requires a focus on GSK’s conduct. If the county prevailed, the court could penalize instances of marketing misstatements, not prescriptions.

The county also sought restitution, which focuses on the defendant’s wrongful gains rather than purchasers’ losses and can be awarded without individualized proof of deception or loss. The court thought that evaluation of restitution would be premature, but reminded the parties that restitution is about defendant’s profits rather than individual injuries. Moreover, the court noted that restitution is generally awarded in class action lawsuits, but Santa Clara filed a representative action. “Any restitution requested should reflect this difference in posture.” Comment: I don’t get this. Santa Clara represents the people of California; it’s not a class action because the state aggregates the public’s interest. I have the feeling that the court’s warning is related to the move by the defendant’s bar to get courts to treat representative actions like class actions manquee (that is, to treat them with suspicion bordering on contempt), but I don’t see why restitution on behalf of the people shouldn’t cover all of the people.

A final note: since actual damages aren’t available under the FAL, Santa Clara couldn’t recover damages for the amount spent on Avandia or on treatment for Avandia-caused injuries.

A cry for Yelp

Levitt v. Yelp! Inc., 2011 WL 5079526 (N.D. Cal.)

If I can never achieve my aspiration to be the Yahoo! Professor of Law, now I can at least add Yelp! to my wish list. I will, however, omit the exclamation point in the rest of this summary because the court did and because it plays merry heck with my autocorrect.

Plaintiffs alleged that Yelp manipulated the content of their reviews to blackmail them into paying for ads. Eric Goldman has already covered the basics, including the complete win on §230 despite allegations of Yelp’s evil motives. I have only a couple of additional points.

First, Yelp joins the ranks of defendants attempting to resolve substantive issues by alleging lack of standing (because plaintiffs couldn’t prove they’d been harmed by Yelp’s alleged conduct). The court rightly rejected that argument as too bound up with the merits to be treated as a standing question, especially given that plaintiffs hadn’t been allowed any discovery.

Second, I disagree with Eric that potential false advertising claims should be off the table. The court specifically noted that plaintiffs didn’t allege a violation of state consumer protection law based on any claim by Yelp that it posted reviews based on bona fide neutral criteria. Both businesses and the public could be harmed if people rely on the purported neutrality of Yelp’s service and in fact Yelp is manipulating ratings to encourage ad buys without disclosing this practice. Claims based on Yelp’s representations about its own conduct wouldn’t be immune under §230. But plaintiffs simply didn’t allege that as a cause of action. Eric worries that plaintiffs will scour defendants’ marketing materials for statements about their policies, but false advertising law has more than enough tools for screening out claims based only on occasional and fragmentary representations.

xkcd and false advertising

xkcd today is about false advertising. Check out the alt-text: "Telling someone who trusts you that you’re giving them medicine when you’re not, because you want their money, isn’t just lying--it’s like an example you’d make up if you had to illustrate to a child why lying is wrong.” HT Greg Klass.

Comparative advertising

Seen at the mall. I think the reference is to Pandora bracelets; Pandora sells a breast cancer line, though none of the charms in the picture seemed to match all that well with the Pandora line. Legitimate? At least the pricing's about right.

Empire down

Empire Today, LLC v. National Floors Direct, Inc., 788 F. Supp. 2d 7 (D. Mass. 2011)

Empire and NFD compete to provide on-site carpet and flooring. Empire sued NFD for tortious interference and trademark and false advertising Lanham Act violations as well as violations of M.G.L. chapter 93A, the state consumer protection law. Empire settled with three former sales reps for breaching their agreements with Empire before the end of trial. NFD counterclaimed for defamation, tortious interference, false advertising under the Lanham Act, and abuse of process. A jury found against plaintiff on all its claims, except for the 93A claims the court had reserved for itself. The jury found in favor of NFD on the abuse of process claims and awarded NFD $500,000.00.

The parties’ business model relies heavily on TV ads and salespeople. Roughly 10 managers and 20 sales reps left Empire to work for NFD, “some under acrimonious conditions.” The evidence around whether NFD induced these employees to leave was hotly disputed.

NFD has long run a “15% or it’s free” promotion promising to beat anyone’s price by 15% “or it’s free.” Empire alleged that NFD didn’t provide the advertised discount. It offered evidence of a customer order containing less than that discount, and orders in which one NFD principal, Dan Rosenberg, reduced the prices by only 13%, despite claiming that he was offering a 15% discount. In one case, a customer complained and Rosenberg then reduced the price by 15%.

Customers were only entitled to the 15% off if they had a written quote from another company for the same quality and quantity of flooring. The first customer order Empire showed hadn’t satisfied those prerequisites. Only about 10% of NFD’s orders beat competitors’ prices. As for the others, Rosenberg testified that he sometimes took 15% off by dividing the competitor’s price by 1.15—that is, he took 13% off, not 15%. He should have multiplied by .85. Rosenberg’s calculation was used in about 10% of the orders that beat competitors’ prices. NFD, in a move that would make some politicians proud, cast Rosenberg’s calculations as “an issue of internal disagreement,” and also as a method that NFD’s software used. (Argh. This is math. Getting it wrong doesn’t mean there’s relevant disagreement; it means there’s right and wrong.)

As for NFD’s counterclaims, NFD alleged that Empire targeted it as a threat to Empire’s market. Empire performed at least eight “secret shops,” when a competitor’s employee pretends to be a customer to learn more about the target, including its pricing. Though the parties hotly contested the causes of changes in market share, NFD grew at least in part because of its low prices. Empire also reduced its ad spending in the Boston area and suffered from management problems in the Boston office. Indeed, Empire initially planned to close its Boston office, but cancelled the plan partly because it didn’t want to leave NFD without direct competition, which would ease NFD's expansion into other areas. Because Empire felt NFD was poaching its reps, Empire began sending C&Ds to NFD.

In one email chain featuring key figures at Empire, one of several possible strategies mentioned was: "We should aggressively work on the legal front. (non-competes and potentially their advertising/disclosures/disclaimers) This could be an expensive distraction at a time where [NFD is] investing in a new facility and heavy advertising." Another said that one key figure would like to see if it would be feasible to get a "large amount" of damages and take the "most aggressive" legal position, including "appropriate suing individuals [sic]." This garnered a reply: “[If Plaintiff] truly want[ed] to hurt [a competitor in Chicago] and NFD (including in this conversation at this point as to looking to expand the legal actions to them) we should leverage the profit in other markets to offset loses in Chicago and Boston. The competitors do not have this advantage and [in] losing money they will need to continue to dig into their own pockets versus leveraging other profitable markets....” The court viewed this as top management discussing legal action “seemingly as a tactical means of competition against NFD and as a tool to force NFD to incur legal fees.”

Empire also filed at least one complaint with the BBB about the 15% promotion. Months after Empire filed its initial lawsuit, it decided to close the Boston office because of a mix of price competition from NFD, leadership troubles, and generally poor economic conditions. It reversed its decision after a sales rep pointed out that this would give NFD “free reign [sic],” and that Empire would only be able to get back into the Boston market by underselling NFD.

Empire moved for judgment as a matter of law on NFD’s abuse of process counterclaim, arguing that NFD didn’t meet its burden to provide the jury with an evidentiary basis on which to award any fees because it mentioned those fees only in general and unsubstantiated ways, without any specifics for hours, charges and rates. NFD argued that the award was based not merely on attorneys’ fees but also on the financial harm caused to NFD’s business as a result of the lawsuit, which Empire argued was also never quantified by documentary or expert evidence.

The court found that the jury’s award was based on sufficient evidence. NFD’s president testified that NFD incurred more than $1.5 million in defense costs, which had to be diverted from advertising, resulting in lost revenue. This testimony was corroborated by the president’s relative, NFD's consultant with over forty years of experience in the carpet business. Also, testimony throughout the trial explained how the Rosenbergs' diversion of time, attention, and financial resources was a result of Empire’s suit. Though Empire argued that these claims weren’t supported by sufficient evidence, the court declined to disturb the jury’s verdict: the testimony of a company’s president is not insufficient as a matter of law, and Empire didn’t provide any evidence disputing NFD’s calculations. Also, NFD provided specifics in some instances, and there was no authority that more quantification of general financial harm was required. Moreover, though NFD’s financial condition improved after it was sued, that didn’t undermine the jury’s finding that it suffered damages that prevented it from realizing more profits.

Turning to NFD’s Chapter 93A counterclaim: NFD claimed that the abuse of process also violated Chapter 93A, constituting unfair and deceptive conduct. Empire waited for two years to file suit, didn’t seek injunctive relief, and sued individual employees. The court ruled that, though abuse of process could constitute a violation of Chapter 93A, it wasn’t bound by the jury’s finding on abuse of process.

Unfairness generally requires “rascality”: the "'objectionable conduct must attain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce.'" Abuse of process means that "'[1] process was used, [2] for an ulterior or illegitimate purpose, [3] resulting in damage.'" More than intent to cause a party to spend substantial time or money is required; there must be an intention to use process for coercion or harassment to obtain something not properly part of the suit.

The court found that NFD was not entitled to judgment on its abuse of process Chapter 93A claim. The emails weren’t enough to convince the court that Empire engaged in abusive litigation unfair enough to violate Chapter 93A. Empire discussed using its deep pockets offensively, but the court didn’t find that the lawsuit was motivated by a desire to injure NFD’s business. The lawsuit was filed 8 months after the first email, and the second was part of a conversation about various legitimate business practices, including leveraging profits in other markets and recovering market share by generating and closing more leads. Even though one participant suggested a desire to “hurt” NFD, that didn’t show that Empire sued to hurt NFD’s finances or drive it out of business. The court read the emails to refer to “(1) the legal fees that NFD would incur as a result of a legal action and (2) beating NFD by various legitimate practices, including providing different financing offers.” Indeed, Empire’s primary investor and ultimate decision maker replied to the second email by endorsing only the improvement of financing offers and increase in advertising. “In sum, mere conversation among interested individuals about a possible lawsuit does not constitute abuse of process.”

The other conduct was also insufficient, even in conjunction with the emails. Chapter 93A has been violated when parties raced to litigate unmeritorious claims without knowing all the facts or failed to make a reasonable settlement offer in the face of a meritorious claim. Here, by contrast, Empire attempted to resolve the issues out of court for two years, sending multiple C&Ds. It went to the BBB. It sued only as a last resort, and the court found that NFD itself may not always have enaged Empire in good faith. Moreover, Empire engaged in settlement discussions. This was not sufficient rascality to surprise people inured to the world of commerce: NFD failed to show that other corporations don’t discuss suing “as one of many means of competing against companies that they believe are engaging in illegal conduct.”

Empire’s Chapter 93A claim: Empire argued that NFD’s 15% promotion was literally false because (1) one of the principals confirmed that NFD only provides a 13% discount (remember that testimony about how the computer program does it), and (2) NFD has never given a free job. The second was easily disposed of: there was no evidence that NFD had ever been in a situation when it couldn’t give 15% and would thus have to do the job for free, yet refused to do so. Empire pointed to inconsistency in testimony on NFD’s side, such as at one time alleging that the promotion accounted for very little business and at other times claiming that the promotion was used "all day long" and "on every single customer."

A Chapter 93A claim requires the same elements as a Lanham Act false advertising claim. (Really? Chapter 93A requires that a statement be made in interstate commerce? This seems unlikely and shows the silliness of relying on such general, casual equations of state and federal false advertising law, which are generally tossed off in circumstances where people aren’t paying attention to the differences.) So Chapter 93A also uses the false/misleading distinction.

The court held that Empire didn’t show literal falsity. It didn’t prove that NFD didn’t honor the 15% discount as a standard practice, given the conditions (which were disclosed in the offer). Even the customer orders showing Rosenberg’s “alleged” miscalculations weren’t definitively established as qualifying for the 15% promotion. (Hmm—so why did the customer who complained get the 15%?)

And here the court adds an intent requirement: the “different ways” of calculating 15% didn’t mean the advertising was literally false. NFD and the Rosenbergs (there were a number of them involved) generally thought they were providing 15% when the customers qualified. “At worst, the 15% Promotion more likely suggested an internal disagreement at NFD over a mathematical calculation.” Argh again! Anyway, this disagreement only affected a small percentage of sales, none of which were clearly established as qualifying for the 15% Promotion. “Such a reasonable but incorrect interpretation of a matter does not alone constitute unfair and deceptive conduct.” Even if this was negligent, negligence alone doesn’t support Chapter 93A liability. (So, not so much like the Lanham Act, is it?) Also, NFD told the BBB its method of calculating 15% (which was, at least as to Rosenberg, actually a method of calculating 13%--look, if I told you that I was measuring in liters and I was actually measuring in gallons, even if I was honestly mistaken about what a liter was I’d be—no, forget it). The BBB apparently didn’t accuse NFD of falsity specifically about the 15% calculation, and anyway the court wasn’t bound by the BBB’s views (citing Timothy Noah, Busted Watchdog: Is the Better Business Bureau a Protection Racket?, Slate (December 7, 2010, 7:38 PM); David Lazarus, Better Business Bureau Grades Companies on a Peculiar Curve, L.A. Times, Jan. 21, 2009, perhaps to suggest why).

Empire didn’t have consumer surveys or other evidence of misleadingness, so without literal falsity its claim failed.

Empire also failed to show causation and damages. A precise showing of harm isn’t required and sales diversion may suffice, but some causal connection between misrepresentation and harm is necessary. Empire lost sales for many reasons, including its own management issues and NFD’s generally low prices. Empire’s decline during NFD’s rise showed only correlation, not causation. Empire didn’t identify any consumers who chose to purchase from NFD over Empire because of the 15% offer. Given the inconsistent evidence, the court found it appropriate to agree with the jury, which is best suited to resolve such a dispute. (Perhaps there was a special verdict form indicating that the jury found that Empire hadn’t shown causation.)

NFD requested a fee award under the Lanham Act. The Seventh Circuit has held that abuse of process makes a case “exceptional” for fees purposes. The court found, however, that NFD hadn’t met the more relevant First Circuit standard, which requires that a defendant show something less than bad faith, “such as a plaintiff's use of groundless arguments, failure to use controlling law, and generally oppressive nature of the case.” NFD didn’t satisfy that standard. Empire’s suit wasn’t completely lacking in merit; it presented a substantial amount of evidence on its false advertising and trademark claims, and both went to the jury. The factual situation was very different from that in the Seventh Circuit case, in which defendant won early summary judgment on a meritless and disingenous claim. The Seventh Circuit described an exceptional case as one in which the party's claim is "objectively unreasonable"--a claim that a rational litigant would pursue "only because it was extortionate in character if not necessarily in provable intention." But the court already found that Empire wasn’t extortionate in its Chapter 93A analysis.

statutory unfair competition claims and the parol evidence rule

Duncan v. The McCaffrey Group, Inc., --- Cal.Rptr.3d ----, 2011 WL 5110475 (Cal. App. 5 Dist.)

One advantage of statutory unfair competition claims for a plaintiff, evident here, is their independence from some of the tactics sellers often use to limit their liability.

Defendants developed a tract of land marketed as the Treviso Custom Home Development. Plaintiffs purchased lots with the intent to build custom homes on each lot; some have finished doing so. They sued, alleging that they paid a premium price because defendants marketed the development as one that would be limited to custom homes with at least 2,700 square feet of living space. However, unbeknownst to plaintiffs, defendants allegedly always intended to build tract homes on some of the lots that would be much smaller than 2,700 square feet. They alleged that this decreased the value of their homes.

The district court dismissed a variety of claims. Plaintiffs appealled only on the statutory unfair competition/false advertising claims and fraud, and also appealled the trial court’s grant of summary judgment on claims for breach of fiduciary duty and constructive fraud.

The trial court ruled that the parol evidence rule precluded any testimony about facts inconsistent with the contract between the parties and the purchase and sale agreement, depriving plaintiffs of a factual basis for their claims. The court of appeals affirmed as to the fraud claim, but reversed as to the statutory causes of action because those didn’t involve any attempt to vary, alter, or add to the terms of the parties’ agreement, and thus the parol evidence rule was inapplicable. The court of appeals also reversed the summary judgment on the question of whether defendant McCaffrey Home Realty acted as plaintiffs’ real estate agent and therefore owed them a fiduciary duty; the agreement was ambiguous, creating a triable issue of fact.

Plaintiffs bought their lots between July 28, 2006, and August 8, 2007. As initially recorded, and at the time plaintiffs bought their lots, the conditions, covenants & restrictions (CC&Rs) required each home built within the development to be at least 2,700 square feet and "'architecturally compatible with each other.'" Defendants also told two of the plaintiffs that the development contained the only custom home lots in the area and did other things allegedly indicating that the development would be full of custom homes.

After the plaintiffs bought their lots, defendants, without notice, caused the CC&Rs to be amended to reduce the minimum size of each residence built in the development, first to 1,700 square feet and then to 1,400 square feet. (This also, plaintiffs alleged, violated several provisions of the Business and Professions Code governing the relations between subdividers and lot owners.) Defendants also began selling tract homes on lots in the development for essentially the same price as plaintiffs paid for their undeveloped lots. This meant that the development was no longer a custom home development, and one defendant allegedly admitted to plaintiffs that it was never intended to be.

Defendants argued that any reliance on the alleged misrepresentations was unreasonable as a matter of law, because paragraph 9(a) of the sales agreement specifically permitted defendants to change the "product, development plan ... and marketing methods" for the development. This included:

Without limitation, … Seller may elect not to build residences on each lot of this phase or future phases of the project, or may elect to build a different type or size of residence on a smaller or larger lot, or may use different construction methods to build such residences.… Any of the foregoing events may adversely affect the value of the Property. Nothing herein shall be interpreted as an express or implied warranty or representation that the Seller will refrain from any pricing program, product design program, development strategy or marketing plan which in any manner adversely affects the value of the Property, and Buyer acknowledges that no sales representative has made any contrary representation, or has made any representation regarding any potential appreciation of the Property, any resale value of the Property, or the effect of any component, option or amenity of the Property upon the value of the Property.

The developer also retained the right to amend the CC&Rs at any time, including the right to reduce the minimum size of any residence within the Development, so long as it owned more than 51 percent of the lots.

The unfair competition/false advertising claims were not subject to the parol evidence rule, because they alleged false advertising, which didn’t affect the terms of the written agreement between the parties. Plaintiffs weren’t arguing that the terms of the agreement and the CC&Rs prohibited defendants from building tiny tract homes in the development. Instead, they alleged that defendants advertised the development as one for only custom homes, justifying a premium lot price. The question is whether plaintiffs could reasonably rely on this allegedly false advertising. Defendants argued that they couldn’t because of what the written contracts said. But plaintiffs sufficiently pled reliance and materiality. “The jury rationally could conclude that defendants' retention of the right to alter the nature of the Development did not necessarily mean they would do so.”

By contrast, the court of appeals refused to apply the fraud exception to the parol evidence rule to these facts. Under California law, the tort of promissory fraud based on an oral promise is limited by the parol evidence rule when the oral promise directly contradicts the terms of the contract to which the parties agreed (at least when there’s no misrepresentation that a particular term is not included in a contract). Here, an alleged promise not to use a right included in the contract was not within the scope of the fraud exception.

As for the fiduciary duty argument, the court found the agreement to be a “model of ambiguity”:

Agency Confirmation (California Civil Code § 2079.17 ). McCaffrey Home Realty is both the 'listing agent' and the 'selling agent' in the purchase and sale transaction contemplated by this Agreement. The 'listing agent' is the real estate broker who has obtained a listing of real property from the Seller to act as an agent of the Seller for compensation. The 'selling agent' means an agent who sells or finds and obtains buyers for real property and presents offers to purchase to the Seller. MCCAFFREY HOME REALTY IS THE AGENT OF [X] THE SELLER EXCLUSIVELY; OR [ ] BOTH THE BUYER AND SELLER. IN ITS CAPACITY AS BOTH THE LISTING AGENT AND THE SELLING AGENT, MCCAFFREY HOME REALTY IS ACTING AS THE AGENT OF BOTH BUYER AND SELLER IN CONNECTION WITH THE PURCHASE AND SALE CONTEMPLATED BY THIS AGREEMENT. McCaffrey Home Realty is affiliated by ownership with the Seller.

Another document labeled "DISCLOSURE REGARDING REAL ESTATE AGENCY RELATIONSHIPS" identified McCaffrey Home Realty as the "AGENT" and the respective plaintiffs as the "BUYER/SELLER."

The court reasoned that the ambiguity of the relevant language was apparent when each sentence was considered in isolation. The court found it impossible to reconcile all that was said in each. As marked, the fourth sentence said that McCaffrey Home Realty was exclusively the seller’s agent, but that was inconsistent with the first and fifth sentences, which said it was the agent for both buyer and seller. Thus, extrinsic evidence should be considered by the trier of fact.

Everything depends on execution: art claims fail

S.A.R.L. Galerie Enrico Navarra v. Marlborough Gallery, Inc. --- F.Supp.2d ----, 2011 WL 2623460 (S.D.N.Y.)

Plaintiffs (Navarra) sued Marlborough for unfair competition and attempted monopolization of the global market for the sale of ceramic artwork by the renowned artist Chu Teh-Chun, whose work has been exhibited in over 100 solo shows and is a part of at least 25 museum collections. Navarra is a private, high-end art gallery with space in Europe and the US. Navarra pled that the market for high-end art is small, specialized, and global, with submarkets for works by particular artists and aspects of an artist’s body of work.

Chu is primarily known for his work as a painter. In 2003, Navarra entered into a Fabrication Agreement with Chu and a French ceramic foundry, La Tuilerie. Chu designed 24 plates, each with an original painting by Chu. Following Chu's final approval (including a signed template or bon-à-tirer that was not supposed to be sold), the plates were reproduced in multiples of 40, with a total of 960 produced. The plates sold at auction for $1,700 to $2,100 each.

In 2006, Marlborough began working with Chu, commissioning a series of 57 hand-painted ceramic vases. They sold for about $280,000 each. Navarra argued that its plates were a barrier to sales of the vases, and that Marlborough therefore engaged in a covert campaign to destroy Navarra.

Navarra alleged that on February 29, 2007, Chu's attorney Bourdon sent a C&D to Navarra and the foundry alleging that they were violating the fabrication agreement, demanding that the plates be returned to Chu, and demanding that all exhibitions and sales of the plates cease. Navarra asserted that the letter was actually written and sent at Marlborough's behest and with its participation and substantial assistance. Navarra didn’t comply with the C&D, and Chu sued in France a little over a month later. Navarra also claimed that the still-pending French lawsuit was actually brought at Marlborough's behest and with its participation and substantial assistance.

In May 2008, Navarra attempted to auction a number of its pieces through Christie's in Hong Kong. Nine days before the auction, Chu’s lawyer sent an email to Christie’s stating that the Navarra-commissioned ceramics were the subject of litigation in France and that Chu "has the greatest reservations about the authenticity" of the ceramics and demanding that the auction be cancelled. Christie’s complied. Navarra alleged that these statements were knowingly false and defamatory, and also written and sent at Marlborough's behest.

Navarra also blamed Marlborough for an Oct. 3, 2008 ad in the Journal des Arts, "A Public Warning from Mr. Chu Teh-Chun." “It warned that the Navarra-commissioned ceramics were not genuine and that the Christie's Hong Kong auction was cancelled.” Navarra also alleged that Marlborough republished the ad to media outlets around the world. Navarra sued the Journal des Arts and Chu in France for defamation in 2008; the suit against the Journal des Arts settled and the case against Chu is pending.

Additionally, Navarra alleged that Marlborough exhibited the vases at the Musee Guimet, the French national museum of Asian art, as part of its sales strategy. The Managing Curator, Jean-Paul Deroches, was allegedly a frequent Marlborough collaborator. An illustrated catalogue, De Neige, d'or et D'Azure was produced, written by Deroches. Navarra alleged that the content was provided by Marlborough and that Desroches was enlisted to "pose" as the author. Navarra objected to the following text in the published De Neige: “Over a thousand canvases predated Chu Teh-Chun's rendezvous with the Sevres porcelain manufactory, as did an even greater number of ink drawings and watercolors. Nevertheless, in that time he has conducted only a few experiments with ceramics, notably in a workshop outside of Taipei in 1998 and in another in Treigny, France in 2002. But these modest explorations were not pursued ....”

Relatedly, in 2009, Marlborough allegedly influenced the publisher (La Martiniere) to put a very similar statement on its website. Though it was purportedly a quote from Deroches, Navarra alleged that Marlborough was the actual author, and that the statement was misleading and defamatory because it doesn’t include the Navarra-commissioned ceramics as genuine works of Chu’s art. Navarra alleged that such a statement was understood by members of the art community as a denial of the authenticity of the Navarra-commissioned ceramics. When Navarra complained to the publisher, it allegedly told Navarra that Marlborough had given warranties as to the accuracy of the relevant statement.

Navarra argued that its ceramics had been given a false taint of inauthenticity, causing millions in lost profits and reputation.

The court first found that Navarra couldn’t sue for attempted monopolization under the Sherman Act, because the market definition was insufficient as a matter of law. The two types of Chu works were very different; one involved multiple copies and the other involved unique, original works by Chu, and the latter sold for more than 140 times the former. Thus, the products were not reasonably interchangeable nor was it plausible to suggest cross-elasticity of demand.

The Lanham Act claims also failed because Navarra didn’t allege any false statements in commercial advertising or promotion. The paragraph in De Neige was a subjective claim that couldn’t be proven true or false and thus not actionable, and indeed protected by the First Amendment. “Deroches's description of Chu's previous ceramic work as a ‘modest exploration[ ]’ merely places the works within the context of Chu's career as an artist,” and was clearly just opinion. Even if solicited by Marlborough, the statements in the book and on the publisher's website constituted mere expressions of non-actionable opinion.

Moreover, “the statements by Deroches are those of a disinterested third party. Plaintiffs do not allege that Deroches has any financial interest in the sale of the Chu vases.” Navarra merely speculated that Marlborough ghost-wrote De Neige. “It is implausible that the managing curator of the Musee Guimet would lend his name to a publication in order to insert a vague reference that arguably diminishes the Navarra-commissioned ceramics.”

The state law claims (defamation, product disparagement) failed for similar reasons. Navarra had nothing beyond mere speculation that any of the harmful statements or acts were attributable to Marlborough. In addition, the statements were either non-actionable expressionof opinion or arguably privileged statements made in contemplation of or during the French legal proceedings. (I have no idea how the privilege applies to foreign cases; I’m not sure I’ve ever encountered this situation before and the court didn’t cite any cases, but that sounds plausible.)

Nonetheless, the court declined to find this an exceptional case and therefore didn’t award Marlborough its attorneys’ fees.

California consumer class action certified after Wal-Mart

Schramm v. JPMorgan Chase Bank, N.A., 2011 WL 5034663 (C.D. Cal.)

The putative class plaintiffs sued JPMorgan Chase and Chase Home Finance over disclosure forms and mortgage notes in connection with ARMs they took out. They argued that these documents misrepresented the interest rates they’d be charged: that defendants told them that the rates would be calculated in one particular way but then charged plaintiffs higher rates than produced by that calculation. Most of their claims were dismissed on statute of limitations grounds, but their claims for recission based on fraud or mistake and for restitution and injunctive relief for alleged violations of Cal. Bus. & Prof.Code § 17200 survived. The court here certified a class for the § 17200 claim.

The initial proposed class of about 28,000 in California had to be reduced to deal with borrowers outside the limitations period.

Plaintiffs argued that, if proved, the conduct would violate the law, entitling each plaintiff to restitution of defendants’ ill-gotten gains: the difference between the interest each class member actually paid and the amount he or she would have paid if the rate had been calculated as disclosed. In addition, they argued that each class member was entitled to recission on the basis of mistake or fraud.

The court found that numerosity was not in dispute. Commonality requires a common question of such a nature that it can be resolved classwide: “determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart, 131 S.Ct. at 2551. Ninth Circuit precedent allows findings of commonality when similar misrepresentations were allegedly made to all class members. The court thus found commonality for both causes of action.

As for the restitution claim under § 17200, plaintiffs argued that the case would turn on defendants’ misrepresentations and not on the states of mind or reliance of individual borrowers, making individual issues secondary. They further contended that, as the class was limited to borrowers who received loan disclosures with the same misleading language, there were common questions of fact on likely deception. Defendants rejoined that the case instead would turn on how each borrower interpreted the disclosures that he or she received, and whether each putative class member found the language material. The court held that the question was resolved by Ninth Circuit precedent applying Tobacco II, Stearns v. Ticketmaster Corp., --- F.3d ----, 2011 WL 3659354 (9th Cir. 2011).

Stearns said that a California UCL/FAL claim requires only that members of the public are likely to be deceived. Neither defendant’s knowledge of falsity nor plaintiff’s reasonable reliance are required. In particular, individual inquiries into reliance aren’t required, and trial will focus on whether the representations were likely to deceive a reasonable borrower, consistent with Wal-Mart.

Likewise, the recission claim also satisfied the commonality requirement. Commonality under Rule 23(a) is less exacting than predominance under Rule 23(b)(3), and requires only some common questions of fact or law that are potentially dispositive of the case. Given the factual similarity among the representations made to all class members, these issues included: (i) how a reasonable person would interpret Defendants' disclosures to mean that the initial interest rate would be the sum of an index and a margin; and (ii) whether the alleged misrepresentations would be material to a reasonable borrower. These both went to a dispositive issue of whether plaintiffs would be entitled to a class-wide presumption of reliance.

Defendants contested typicality because one of the named plaintiffs didn’t read the disclosures and the other had a “complicated and highly individualized method of shopping for ARM loans.” Not so; though failure to read the disclosures might be a defense to a claim for recission based on fraud, it wouldn’t be one that would make it difficult for the plaintiff to represent the class. Neither would a particular method of loan evaluation. “The core issue presented is whether the interest rates were as low as promised.”

Defendants failed to identify a problem with the adequacy of class counsel.

On to Rule 23(b)(3), predominance and superiority.

The court first found that common questions predominated in the § 17200 claim. Stearns held that because all putative class members encountered the same representations, common questions predominated over individual ones. The same was true here. Defendants, reflecting the trend to use standing as a separate weapon, argued that there were individual issues regarding standing and the statute of limitations that defeated predominance.

Standing requires injury in fact, a causal connection between the injury and the conduct complained of that’s fairly traceable to the defendant, and a likelihood that a favorable decision will redress the injury. Proximate cause is not required. Defendants argued that many putative class members would lack Article III standing because they suffered no injury from receiving the documents. They could have “interpreted the relevant language differently than the class representatives; failed to read the disclosures at all; or chosen a loan from Defendants for reasons unrelated to the allegedly misleading language.”

Plaintiffs responded that demonstrating the standing of one named plaintiff would suffice and that Stearns answered these questions as well. Defendants returned that Article III standing is required for all plaintiffs in any federal matter. The court found Stearns clear: in determining standing, the Ninth Circuit "keys on the representative party, not all of the class members, and has done so for many years." Stearns, 2011 WL 2659354 at *5.

Thus, the argument that individual questions about class members’ standing would predominate didn’t work—those individual questions weren’t central. “Accordingly, class certification can be determined without a more in-depth inquiry into the standing of individual unnamed class members.” In addition, the court found that each class member would satisfy Article III’s requirements. Stearn reasoned that, with respect to the entire class, injury must be concrete and particularized, and that a misrepresentation made to the class as part of a transaction that cost them money would count.

What about individual statute of limitations issues? Defendants identified two sets of documents that might have put reasonable people on notice of the existence of a claim: (i) the loan disclosure documents provided at the time of loan origination; and (ii) a Rate Change Notice sent to plaintiffs in April 2006. But the court already ruled that there was a triable issue of fact as to whether the origination documents were sufficient to provide inquiry notice, common to all class members. Since the standard is that of a reasonable person, once that question is resolved it will apply to all members. Similarly, the court alread held that the April 2006 letter did provide inquiry notice, so anyone who received that letter more than 4 years before the start of the action has time-barred claims. Thus, there were no significant individual issues related to when members should have known of the discrepancy between the represented interest rate and the rate actually charged. The time calculations required will be mechanical and provide no reason to deny class treatment.

What if class members had actual notice? Defendants argued they were entitled to investigate this on an individual basis. However, courts are all but unanimous in holding that possible differences in application of a statute of limitations to individual class members doesn’t preclude certification if common questions predominate, as here. Nor did defendants present evidence that any potential class members had actual notice outside the statutory period; their speculation was insufficient.

However, the court found that common questions didn’t predominate in the cause of action for recission based on fraud or mistake. There’s no precedent for finding mistake class-wide; mistake requires a showing that the party was subjectively mistaken about something important and that the mistake wasn’t caused by excessive carelessness. This individual state of mind inquiry was not appropriate for class treatment.

As for fraud, the question was whether the recission remedy could be applied class-wide and whether plaintiffs could get a class-wide presumption of reliance. Class certification can work for fraud if plaintiffs allege that an entire class has been defrauded by a common course of conduct.

Many Truth in Lending Act cases hold that rescission is a personal remedy that is not amenable to class treatment. Plaintiffs couldn’t identify a California case to the contrary. The court agreed with the TILA cases: recission is a remedy that restores the status quo ante, which requires inquiries into each individual borrower's situation because it generally includes the return of all interest, fees, finance charges, and commissions paid in connection with the loan. Plus, it’s an equitable remedy, and the creditor is generally entitled to consideration of individual circumstances, meaning that common questions wouldn’t predominate.

Another problem with a recission class is that some members might not be able to tender their loan proceeds to Chase as would be required as part of a rescission of their loans. Plaintiffs asked for a recission subclass limited to members who refinanced or paid off their Chase loans, as to whom all that would remain would be for defendants to refund them the difference between the amount of interest they actually paid and the amount they would have paid if their initial interest rate had been as allegedly promised.

This might fix the tender problem, but it wouldn’t solve the fundamental difficulties with class-wide recission. Also, when the loan has been paid off, there’s nothing to rescind. Anyway, recission isn’t just about recovering overpaid interest; there would have to be individualized inquiries into fees, finance charges, commissions, potential rescission of other associated agreements such as short sales, and so on. By contrast, the § 17200 remedy of restitution is designed to return amounts wrongfully taken, which was readily amenable to class treatment. If the interest rate was wrongly described, its calculation will be mechanical and readily determined from defendants’ records. (While I don’t disagree with the legal reasoning here, I am … somewhat skeptical that the defendants’ records will prove as detailed as the court hopes, given the known problems with servicers’ records. But since that’s a potential problem of defendants’ own creation, it shouldn’t affect the legal analysis.)

Superiority to individual actions: defendants didn’t expressly contest this for the restitution claims. Class action is the only plausible way these plaintiffs could seek a remedy because litigating the individual claims would be cost-prohibitive; there aren’t a bunch of other pending claims; the forum is fine; and there would be minimal case management issues because the proposed class members can be easily identified, the potential damages could be readily calculated from defendants' own records, and the class claims were centered on defendants' conduct.

Trademark and Occupy Wall Street

No, not silly registration attempts. Apparently Goldman Sachs had donated $5000 to a 25th anniversary party for a community bank (somehow this is related to its CRA obligations) at which OWS has a bank account. OWS is the honoree at the party. When Goldman Sachs discovered this, it threatened legal action unless the bank reprinted the invitations without its name. I can only assume that the "legal action" was based on trademark law. Trademark bullying at its finest?

Delaware's MERS complaint

Courtesy of Adam Levitin. The complaint asserts deceptive trade practices by MERS under state consumer protection law. This is one for both property lawyers and consumer protection lawyers to watch.

ETA: Discussing the case at the dinner table, my children found this rhyme particularly applicable:

Homeowner: Who's record owner of the mortgage in Delaware? MERS is record owner of the mortgage in Delaware.

MERS: Not me!

Homeowner: Yes you!

MERS: Couldn't be!

Homeowner: Then who?

Good question.

Someone needs a visit from the FTC Endorsement Guide fairy

Check out this Gawker story about a marketing company, 43a, which seems to be offering to pay bloggers for links while hiding these relationships from everyone, including the editors of the sites on which the bloggers post. Quote:

What we suggest (as long as you think it won't get you into any trouble — we don't want anything that isn't beneficial for both parties) is trying to drop a link in the article, and seeing if the editor mentions it. If he does, remove the link, and we'll go our separate ways. If he doesn't, we'll pay you handsomely, and we can continue if you want to. We don't do this for every article, and there is a certain "under the radar" element to it, so you don't want to over do it.

Perhaps someone should inform 43a (whose name sounds disturbingly similar to that of your humble blogger) that getting in trouble with the editor is not the worst thing that could arise out of this scheme. Note that the publishers and most of the businesses named in the solicitation email quickly issued statements that this scheme violated their own policies and that they didn't actually work with 43a, respectively--so those legal teams are on the ball.

Translation: counterclaims are out of luck

Language Line Services, Inc. v. Language Services Associates, LLC, 2011 WL 5024281 (N.D. Cal.)

The parties compete to provide interpretation services (from what I can tell, this means interpretation when non-English speakers call emergency and other lines). Language Line sued LSA for misappropriation of trade secrets and conversion, among other things, alleging that defendants stole Language Line's confidential customer list and accompanying pricing information and misused it to get customers. LSA counterclaimed against Language Line and brought in Brian Lucas, alleging false advertising under the Lanham Act and various state law claims, including that Language Line and Lucas conspired to misappropriate trade secrets from LSA and used those trade secrets to obtain a wrongful injunction that prohibits LSA from contacting prospective customers. LSA alleged that the larger Language Line couldn’t compete with smaller, nimbler competitors like LSA, and that when LSA rejected a purchase offer, the CEO of Language Line told LSA’s CEO that her rejection did not matter because Language Line "has a strong legal department and will prevail in growing its business through legal actions."

LSA continued that Lucas, originally an employee of Language Line, “infiltrated LSA as a salesperson, stole LSA's trade secrets and attempted to blackmail LSA's executives with confidential information and trade secrets.” He was then fired from LSA and rehired by Language Line. Language Line allegedly misused confidential information obtained from Lucas to secure an overbroad preliminary injunction restricting LSA from doing significant business, and then defamed LSA “by falsely informing various customers of LSA that its business model is ‘risky,’ that it is going ‘bankrupt’ and that its employment practices are ‘illegal.’” Language Line’s outside general counsel allegedly published articles on behalf of Language Line asserting that it is the only company in the language interpretation industry that pays its employees legally.

Language Line filed an anti-SLAPP motion against the counterclaims, which was granted in part and denied in part. An anti-SLAPP motion requires the defendant to show that the acts underlying the plaintiff's claims were protected speech activity, as defined by the anti-SLAPP statute. If it succeeds, the burden shifts to the plaintiff to show a reasonable probability of prevailing through a showing facts sufficient to win if the plaintiff’s evidence is credited.

Language Line argued that the counterclaims for misappropriation of trade secrets and conversion should be stricken under the anti-SLAPP law, because they were based on Language Line’s use of information to obtain an injunction. LSA rejoined that the counterclaims were based on misappropriation of two kinds of information, one of which did not arise out of protected activity. The anti-SLAPP law covers communicative litigation activity, which included the allegations here that Language Line stole information, including a confidential customer list, and used it to obtain an injunction. (I am … perplexed by this reasoning. The problem alleged isn’t the use to obtain an injunction; that’s just harm. The problem is the alleged theft. Is that really communicative activity covered by the anti-SLAPP law?)

Anyway, LSA had to show a probability of prevailing on the merits, and it didn’t submit sufficient evidence to do so.

Language Line also moved to strike the trade libel and defamation counterclaims based on a blog post written by Language Line’s counsel. LSA said that these claims involved commercial speech and were thus excluded from the anti-SLAPP law.

The counterclaims were based on a blog post by Language Line’s outside general counsel (I note that Language Line’s name appears right after his name on the post), a statement from Language Line to Farmers Insurance Group that LSA is "going out of business," and two letters delivered by Language Line to employees of LSA. If the first is protected conduct, then the counterclaims as a whole would be subject to the anti-SLAPP statute.

And the blog post was protected. It was written by an attorney for Language Line, published in an online legal news publication, and offers a general discussion of legal issues in the language interpretation industry as a whole. The commercial speech exclusion only applies to speakers who are themselves in the business of selling goods or services, and doesn’t apply to speakers acting on behalf of someone in the business thereof, like the attorney here. (The limited nature of the commercial speech exclusion should mean that the publisher of an ad can’t be liable and can use the anti-SLAPP law, but I find it hard to believe that the anti-SLAPP statute meant to upend the law of agency entirely. Without more reasoning on agency, I don’t have any idea how far the court thinks this distinction extends. What if the CEO, who as an individual isn’t directly engaged in sales, said the allegedly false things? What if it was an in-house attorney, further insulated from direct consequences of the company's financial performance?)

Anyway, the anti-SLAPP statute applied, and LSA couldn’t prevail on the merits because the blog post was protected opinion which couldn’t give rise to liability. (The court doesn’t mention the other two claims here, but I infer that LSA also didn’t submit sufficient admissible evidence on them.)

Language Line couldn’t get the Lanham Act counterclaims stricken because causes of action arising under federal law aren’t subject to the anti-SLAPP statute.

Language Line also argued that the tortious interference with employment relations/breach of contract claims should be stricken because the underlying conduct was that Lucas gave a copy of the customer list to Language Line in order to obtain an injunction. LSA responded that the counterclaims didn’t involve any petition to the courts, but because LSA alleged that the fraudulently acquired materials were used to secure an injunction, they did fall under the anti-SLAPP statute. Again, LSA failed to submit evidence showing a probability of success on the merits.

The same thing happened with the conspiracy counterclaims, and with the counterclaims for wrongful injunction (who knew that was a thing?), intentional interference with prospective economic advantage and tortious interference with customer contracts.

Language Line was entitled to its attorneys’ fees for its successful anti-SLAPP motion.

In light of these rulings, the court considered only Language Line’s motion to dismiss the Lanham Act claims. These were based on (1) the blog post by Language Line's outside counsel, stating that Language Line is the only interpretive company of which he is aware that does not classify employees as independent contractors; (2) a statement on Language Line's website that it has "taken the lead on [sic] 'setting standards and best practices for interpreter training and quality'"; (3) a statement on Language Line's website that Language Line offers "on-site, face to face interpreters"; and (4) a statement on Language Line's website that customers have benefitted for over 28 years from Language Line's "over-the-phone, over-video or on-site interpretation services."

The court questioned whether the attorney’s statements on a legal blog could be attributed to his client, but Language Line didn’t raise the issue. The allegedly false statement was that “with only one exception of which I am aware, that being Language Line Services, interpretation companies have decided that it is more important for them not to pay employee benefits and taxes than to provide the training management, supervision, quality control, and scheduling critical to ensuring effective interpretation.” LSA argued that this falsely implied that Language Line is "the only company in the language interpretation industry that does not misclassify its employees or use independent contractors." It further alleged falsity in that LSA did not misclassify its employees. The court found this was a statement of legal opinion and thus not actionable under the Lanham Act. The statement did contain the implication LSA took from it, and thus might be actionable as to a company that neither used independent contractors nor misclassified permanent employees, but LSA didn’t dispute that it uses independent contractors. “While the article goes on to offer non-favorable assessments of the risk to clients of working with companies who either use true independent contractors or who misclassify permanent employees, this risk assessment cannot be characterized as anything other than opinion.” Thus, LSA couldn’t properly allege falsity.

The statement that Language Line has “taken the lead” was nonactionable puffery. It’s neither quantifiable nor verifiable about any specific aspect of Language Line’s services.

Language Line argued that the remaining statements were literally true. LSA rejoined that they were misleading in context and thus actionable. “However, although a misleading statement may be actionable under the Lanham Act, courts have held that if a statement is purely factual and unambiguous, then that statement cannot be proven to be misleading through the use of consumer surveys. See Mead Johnson & Co. v. Abbott Labs., 201 F.3d 883, 886 (7th Cir.2000); Am. Italian Pasta Co. v. New World Pasta Co., 371 F.3d 387, 393-94 (8th Cir.2004)….Thus, where a statement is alleged to be misleading only in that it is possible that consumers could interpret it to mean something other than what it does, that statement is not actionable under the Lanham Act.” (Sigh. And we know “what it means” before taking evidence how, exactly?)

LSA alleged that Language Line’s claim to offer “on-site, face to face interpreters” was false because it didn’t offer those in any area except California, and did not do so until this year. Likewise, the website statement that "[f]or over 28 years, [clients] have benefited from using [Language Line's] over-the-phone, over-video or on-site interpretation services" was allegedly false because Language Line has not offered all three services for 28 years, and in fact, Language Line did not have on-site interpretation services until 2011.

Sadly, the court found that these statements were unambiguously factually true, “and are not actionable based on the mere possibility that consumers might interpret them to mean something other that what they plainly state.” Since Language Line offers some on-site interpretive services and at least one of the three services for 28 years, there was no plausible Lanham Act claim.

I think the court is not quite clear on what “ambiguous” means. If you have to qualify the truthfulness of the claim with “in some areas” and “at least one of the services,” then the claim is at least ambiguous. If I said “I’ve taught copyright, trademark, advertising law and property for ten years,” I’d be a liar. I’ve taught some of those things for ten years, but not the others. Compare, e.g., the FTC's Green Guides on recyclability, compostability, etc.: the FTC is pretty clear that if your product is in theory compostable, but only at specialized facilities that are rare in the US, you should not be marking it with the term "compostable" alone, and your disclosure ought to be pretty specific.

Basically, Mead Johnson is finally starting to infect the water in other circuits, making Lanham Act claims unpredictable even for plaintiffs who can produce evidence that a substantial number of consumers receive a misleading message from a claim. This case seems like a mess for a variety of reasons, but the court allocating full interpretive wisdom of how consumers react to itself is not helping.

Google and the nymwars

As Google prepares to integrate Reader and other products into G+, it has signaled a retreat on its poorly-thought-out, poorly-enforced, nasty "real name" policy. Conditional rapture! Unresolved questions: (1) the Reader implementation timeline is a week or so, while pseudonyms/autonyms/whatever Google ultimately accepts are supposed to arrive in the coming months. Is my primary Google profile going to get suspended during the gap because it's not my government name, and do I therefore need to abandon Reader anyway? This would be pretty boneheaded and I'd expect enforcement discretion during the gap, but I no longer have full confidence in Google. (2) Google's been pretty vague on what will count as an alternate form of identity. Will you need some sort of internet credit history to claim a non-government name? I'm breathless with anticipation. Maybe I'll even get to re-enable multiple logins on Google and therefore be able to use Blogger in the same browser as I use for everything else.

Towards Symmetry in the Law of Branding

Rebecca Tushnet, Towards Symmetry in the Law of Branding, 21 Fordham Intellectual Property, Media & Entertainment Law Journal 971 (2011)--12 pages on unbranding and expansive trademark claims.