Rounding up mobile minutes is mostly not actionable

Tucker v. Pacific Bell Mobile Services, 208 Cal. App. 4th 201 (2012)

Plaintiffs alleged that defendants misrepresented the actual number of usable airtime minutes in their advertised wireless plans.  The basic challenge was to disclosures relating to the practice of billing for airtime in full minute increments, with partial minutes rounded up as is standard.  The trial court sustained defendants’ demurrer to the class action allegations, and the court of appeals largely affirmed, but reversed the dismissal of equitable claims under the UCL.

The key question was whether the complaint adequately alleged predominant common questions of law or fact.  A previous decision rejecting a complaint over the same practices, Knapp, held that the class members lacked the requisite commonality because the alleged misrepresentations weren’t made uniformly—some were oral and others written.  Plaintiffs alleged that there were common, standardized misrepresentations in the contract documents, claiming that subscrubers could get a package of x number of airtime minutes at a price per month of y.  Defendants argued that plan information was communicated in a variety of ways, including brochures, mail, websites, on the phone, and in retail stores, and that the brochures had prominent disclosure of the partial minute policy.

The court agreed that the alleged misrepresentations were made to the proposed class members in a variety of ways, and individual members may or may not have seen or relied on any of them.  One named plaintiff picked the cheapest plan available and didn’t recall any discussion of how minutes were calculated.  (Isn’t that the “failure to disclose” argument?)  At least in some cases, consumers received the disclosures in the same documents that allegedly misrepresented available minutes, and a consumer who saw “or was otherwise aware” of the disclosures couldn’t have been deceived.

Common-law fraud and CLRA claims require actual reliance for damages.  Classwide causation may be shown by materiality, but if materiality or reliance would vary from consumer to consumer the issue wouldn’t be subject to common proof and the case wouldn’t be suitable as a class action.  Here, the named plaintiffs offered different reasons to choose particular service plans.  In fact, the gist of their claims was not that the undisclosed rounding up induced any particular choice, but rather that they received less than what was promised.

Given that the service agreements all disclosed the rounding up practice, other members of the class may well have seen the disclosure or discussed it with a sales rep.  This necessarily involved individualized inquiries and meant a lack of commonality.

The UCL analysis was slightly different.  Plaintiffs argued that, under Tobacco II, they were entitled to a presumption or inference of reliance if there was a material misrepresentation.  Some cases have held that a complaint alleging false advertising under the UCL should survive pleading challenges unless it can be said as a matter of law that the purported misrepresentations were immaterial.   But other cases suggest that commonality and factual questions of reliance can be addressed early on, at least as to people who weren’t exposed to the alleged misrepresentations and therefore couldn’t have lost money or property from them.  If materiality or reliance would vary from consumer to consumer, then it shouldn’t be a class action.  Given the record here, the court didn’t find an inference of common reliance justified.

Even assuming a common, material misrepresentation, the UCL restitution claims would fail.  People aware of the rounding up practice wouldn’t be entitled to the return of any money.  And those who were unaware wouldn’t be entitled to anything if they never exceeded their available minutes.  However, there might be a claim for equitable relief under the UCL.  The adequacy of the disclosures and whether at least some members of the public were likely to be deceived couldn’t be resolved as a matter of law on a demurrer.

Ben & Jerry's sues Ben & Cherry's porn producer

Blurb here.  Here is the cover of one of the films at issue; NSFW, obviously.

9th Circuit vacates opinion condemning class action fee award

Dennis v. Kellogg Co., --- F.3d ----, 2012 WL 3800230 (C.A.9 (Cal.))

The court vacated its previous opinion and substituted this one, which reversed the district court’s approval of the settlement, vacated the judgment and award of attorney’s fees, and remanded for further proceedings.  The most significant change: the portion of the initial opinion finding the attorneys’ fees to be too high was withdrawn; the decision on the merits rendered the fee issue moot.

Second Circuit tries again on "use as a mark"

Christian Louboutin S.A. v. Yves Saint Laurent Am. Holding, Inc.,  No. 11-3303-cv (2d Cir. Sept. 5, 2012)

I’m not terribly surprised the court of appeals dodged the functionality issue by holding that Louboutin’s trademark rights were limited to contrasting colors, but it’s notable just how many contradictions the court has to swallow in doing so.  In particular, the decision apparently resurrects the concept of “use as a mark,” but not in any explicitly defined or justified way. 

The sleight of hand starts with the question presented, as the court frames it: “whether a single color may serve as a legally protected trademark in the fashion industry and, in particular, as the mark for a particular style of high fashion women’s footwear.”  Formally, the court’s answer is yes, it can—except not here!  Because, we will discover, Louboutin doesn’t have a valid registration for a single color; it has a valid registration for a color contrast.  Qualitex, on which the court of appeals relies to hold that single-color trademarks must be allowed, is thus somewhat beside the point.

Louboutin’s evidence only showed that the red sole had limited secondary meaning as a contrasting color.  Thus, under 15 U.S.C. § 1119, the court of appeals limited the registration (and thus the mark) to uses in which the red outsole contrasts with the remainder of the shoe.  (The court of appeals held that the district court had properly accorded the registration its presumption of validity, but then found that YSL had proved functionality.  One might ask whether the court of appeals did the same—since that court supposedly refused to resolve functionality, on what ground did it override the presumption of validity of the unmodified registration?) 

A further step was required: YSL’s monochrome red shoe wasn’t a “use” of this modified trademark, and therefore the court didn’t need to consider whether YSL’s red monochrome shoes were likely to cause confusion or whether the remaining Louboutin mark was functional.  Thus, the denial of the preliminary injunction was affirmed, but the apparent invalidation of Louboutin’s entire mark was reversed, and the case was remanded for further proceedings on YSL’s counterclaims.

There’s a summary of the history of color marks (approved!) and of functionality doctrine (for competition! Citing Mark McKenna!), neither of which officially matter because of the outcome, though they’re clearly driving the analysis. 

How the Second Circuit sees aesthetic functionality: if there’s Traffix functionality, there’s no need to inquire further.  But product features can also be functional if giving the claimant an exclusive right would put competitors at a significant non-reputation-related disadvantage.  The first step is to ask the more specific questions about whether a feature is either “essential to the use or purpose” or “affects the cost or quality” of the product at issue. If necessary, the court then asks the more general competition question: “if the design feature is not ‘functional’ from a traditional perspective, it must still pass the fact-intensive Qualitex test and be shown not to have a significant effect on competition in order to receive trademark protection” (emphasis added).  Note the potential effect of this formulation on the burden of a plaintiff claiming rights in unregistered trade dress, who must show nonfunctionality.  

The Second Circuit fully accepts aesthetic functionality, but doesn’t ask whether the feature was an “important ingredient” in a product’s success, since that test “inevitably penalized markholders for their success in promoting their product.”  Instead, the question is whether protection would “significantly limit the range of competitive designs available.”  Aesthetic functionality bars protection of a mark that is “necessary to compete in the [relevant] market.”  Traffix likewise requires courts to “inquire” as to whether recognizing the trademark “would put competitors at a significant non-reputation-related disadvantage.”  (The court got in a dig at the Fifth Circuit’s rejection of the doctrine; the Second Circuit believes the Supreme Court has validated its approach.) 

Courts must carefully weigh “the competitive benefits of protecting the source-identifying aspects” of a mark against the “competitive costs of precluding competitors from using the feature,” especially since it can sometimes be difficult to distinguish source indication from aesthetic function.  This is a highly fact-specific analysis that must take into account both a claimaint’s “right to enjoy the benefits of its effort to distinguish its product” and the public’s “right to the ‘vigorously competitive market[]’ protected by the Lanham Act, which an overly broad trademark might hinder.”  Denoting a desirable source doesn’t make a feature functional. 

With that background, the district court erred in adopting a per se rule that a single color can’t be a mark in the fashion industry.  “Qualitex requires an individualized, fact-based inquiry into the nature of the trademark, and cannot be read to sanction an industry-based per se rule.”  Nonetheless, it's true that fashion has special trademark concerns, and that color can serve as a fashion design tool rather than as mere ornamentation.  Still, a competitor isn’t guaranteed the greatest possible range, only the ability to fairly compete in a given market. (By contrast, a footnote stated, copyright does allow creativity and originality to interfere with the rights of an existing owner, in cases of independent creation. Trademark aims to prevent consumer confusion “even at the expense of a manufacturer’s creativity.”)

The court also dropped a footnote about efforts to increase US protection for fashion design, citing various academics (hi, Chris Sprigman!).  Unfortunately, the footnote didn’t stop there:

It is arguable that, in the particular circumstances of this case, the more appropriate vehicle for the protection of the Red Sole Mark would have been copyright rather than trademark.  See generally Kieselstein-Cord v. Accessories by Pearl, Inc., 632 F.2d 989, 993–94 (2d Cir. 1980) (addressing the broad issue of aesthetically functional copyrights and holding that decorative belt buckles that were used principally for ornamentation could be copyrighted because the primary ornamental aspect of the buckles was conceptually separate from their subsidiary utilitarian function); Laura A. Heymann, The Trademark/Copyright Divide, 60 SMU L. Rev. 55 (2007). 

Ed. rant: Oh, for pete’s sake.  This is a ridiculous footnote inserted without any consideration of the actual effect on the namechecked doctrine or any opportunity for the parties to point out what’s dumb about this statement.  The idea that a color or even a color contrast could make a utilitarian article copyrightable (because that’s what has to be contemplated in order to make this aside relevant—not the shape of the shoe or the shape of the sole, though claims to those would be wrong too) is nuttier than anything the district court or either of the parties claimed.  I trust that Louboutin won’t burden the Copyright Office with rejecting an attempt to register a work that consists of the red sole of a shoe, contrasting or not. 

Hey, look, there’s actual circuit precedent!  Boisson v. Banian, Ltd., 273 F.3d 262, 270, 271 (2d Cir. 2001) (“color by itself is not subject to copyright protection”; “a particular color is not copyrightable”); Streetwise Maps, Inc. v. VanDam, Inc., 159 F.3d 739 (2d Cir. 1998) (individual colors shouldn’t be viewed as protectable elements, but must be combined with other expressive choices).  Also, the Copyright Office agrees, as do courts to whom the issue was actually presented.  See 37 C.F.R. § 202.1 (“[E]xamples of works not subject to copyright [include] mere variations of … coloring” ); U.S. Copyright Office, Compendium II, Copyright Office Practices § 503.02(a) (1984) (“[M]ere coloration cannot support a copyright even though it may enhance the aesthetic appeal or commercial value of a work. For example, it is not possible to copyright a new version of a textile design merely because the colors of red and blue appearing in the design have been replaced with green and yellow, respectively.”); see also Century Tile, Inc. v. Hirsch Glass Co., 467 Fed.Appx. 651 (9th Cir. 2012) (coloring and color blends are uncopyrightable elements); Baby Buddies, Inc. v. Toys R Us, Inc., 611 F.3d 1308 (11th Cir. 2010) (color of useful article not protectable); Amsterdam v. Triangle Publications, 189 F.2d 104 (3d Cir. 1951) (“Nor can the plaintiff copyright the arbitrary color schemes, symbols or numbers that he uses on his map.”); Banzai, Inc. v. Broder Bros. Co., 2009 WL 1285518 (E.D. Pa. 2009) (simple color combinations in tie-dye pattern not copyrightable). 

 

Note that “the red and the black” are already a well-known color combination; the decision to put it on a shoe, even if that choice had never been made before, would not constitute copyrightable creativity any more than the choice to use red, white, and blue on a tie-dye pattern was copyrightable even if it had never been done before.  And "red plus non-red contrast color" is even worse as a copyright claim.  Frankly, I expect better from the Second Circuit.  

/end rant

Now the court turned to the red sole mark.  The first question was whether the mark was protectable; functionality was an affirmative defense for the second stage of the inquiry (infringement).  This sequence is odd in the ordinary case—whether a claimed feature is functional surely affects whether it’s protectable.  There may be cases where the defendant’s use is functional, or the features that provide the similarity between the parties’ designs are functional even if the overall appearance of the plaintiff’s product is nonfunctional, and in those cases the court’s sequence makes sense.  I think the case at bar is an example of defendant-side functionality, but I wouldn’t therefore say that functionality is always a stage-two issue.

Anyway, protectability: registration is prima facie evidence of validity.  The district court erred in finding that YSL rebutted that presumption by showing that a single color can never be a valid trademark in the fashion industry.  (And that’s the last you’ll hear of the presumption!)  The court of appeals found that the red outsole contrasting with the remainder of the upper had acquired secondary meaning. 

The record here contained sufficient undisputed facts to resolve the question of distinctiveness.  The lacquered red outsole applied to a contrasting upper was a mark, but “the record fails to demonstrate that the secondary meaning of the Red Sole Mark extends to uses in which the sole does not contrast with the upper―in other words, when a red sole is used on a monochromatic red shoe.  It is the contrast that “causes the sole to ‘pop,’ and to distinguish its creator.”  The record showed a close association with contrast in particular.  Of hundreds of pictures of Louboutin shoes in the record, only four were monochrome red.  “And Louboutin’s own consumer surveys show that when consumers were shown the YSL monochrome red shoe, of those consumers who misidentified the pictured shoes as Louboutin-made, nearly every one cited the red sole of the shoe, rather than its general red color.”  Thus, Louboutin hadn’t established secondary meaning in a red sole for a red shoe.  So, the court directed the PTO to limit the registration appropriately; as modified, the mark was valid and enforceable.

Now the magic happens: “This holding disposes of the Lanham Act claims brought by both Louboutin and YSL because the red sole on YSL’s monochrome shoes is neither a use of, nor confusingly similar to, the Red Sole Mark…. Louboutin could not have shown a likelihood of success on the merits in the absence of an infringing use of the Red Sole Mark by YSL” (emphasis added).

Comment: use as a mark, we just can’t quit you.  How does the court of appeals know that the YSL shoes aren’t confusingly similar to the mark?  In the ordinary case, trademark rights extend to marks that, while not identical to the mark owner’s use, are confusingly similar thereto: you show infringement by showing validity plus confusion.  Regardless of the merits of its survey, Louboutin purported to be ready to do part two of that, and the court just held it won on part one.  So why doesn’t it get to go back and try again?  Mark McKenna has justly criticized the circularity of trademark use, which does move in both directions (here, and in Rogers v. Grimaldi and New Kids as well, where the courts want to have their cake and eat it too by simply declaring that consumer protection doesn’t conflict with free speech). 

In the end, the court held, because YSL’s red sole wasn’t a “use” of Louboutin’s mark, “it is axiomatic that we need not―and should not―address either the likelihood of consumer confusion or whether the modified Mark is functional.”  But of course the court did address likely confusion, albeit in the most cursory fashion; and the functionality of monochrome use has to be the reason why YSL’s use isn’t “use as a mark”/“use of the mark.”  This opinion isn’t worse than many important appellate cases about the proper scope of trademark protection in punting on these issues and shoving important normative and empirical questions into ipse dixits like “it’s not a use,” but it’s disappointing to see nonetheless. 

Louboutin v. YSL released

Here is a link to the opinion.  Before my detailed review: district court erred under Qualitex in holding a single color could never function as a TM in the fashion industry; the red sole is protectable and has secondary meaning, but only as a contrasting color to the rest of the outer shoe and Louboutin isn't entitled to prohibit the use of monocolor shoes.

Adaptation

Sometimes it's a matter of perspective.  Here's a rewrite of Andrew Ross Sorkin's recent article on Facebook's CFO.  An example of wholesale copying in order to say something completely different.  How would you analyze the fair use case?

Failure to disclose non-US origin not false despite American iconography

Milso Industries Corp. v. Nazzaro, 2012 WL 3778978 (D. Conn.)

Milso sued Nazzaro (a former employee), asserting a variety of claims; I’m only going to discuss the Lanham Act issues.  Milso makes and sells caskets, including some that are made in Mexico and others made in the U.S.  Nazzaro also sells caskets, including some made in China that were allegedly not clearly marked (or marked at all) as such.  His business is called Liberty, whose logo is the Statue of Liberty wrapped in the American flag; both the logo and the marketing materials are red, white, and blue.

Milso argued that defendants’ conduct constituted false designation of origin and false advertising.  Defendants contested standing because of Milso’s Mexican caskets, but Milso also sold U.S.-made caskets, giving it a reasonable interest to be protected.

The court rejected the argument that the alleged failure to label country of origin, a violation of the Tariff Act, was therefore a per se false designation of origin.  Though a few courts so hold, reasoning that the marking requirement reflects—and helps create—an environment in which consumers presume unmarked products to be U.S.-made, other courts have disagreed.  A per se rule that failure to mark is a false designation of origin would conflict with the rule that the Lanham Act doesn’t impose any affirmative duty of disclosure; a claim can’t be based on failure to disclose.  (I don’t think this follows.  That may be the general rule, but the specific context of country of origin may change background consumer expectations, and we might not want to put plaintiffs to the expense of proving this in each individual case any more than we do with literal falsity.)  The court agreed that a failure to make a statement is neither “false” nor a “representation,” especially since a duty to disclose would be almost limitless.  A per se rule about country of origin “would inappropriately restrict the ability of the finder of fact to evaluate the particular circumstances of each case.”

Milso argued that the Chinese-made caskets were either never marked “Made in China” or marked with a sticker so flimsy that it never reached the consumer, but didn’t produce evidence of this.  However, there was a genuine issue as to whether the stickers were adequate to inform consumers of the country of origin.  Milso also argued that the extensive use of American iconography constituted false advertising and false designation of origin.  The court found the company name and iconography, though evoking clear associations with the U.S., “too general to evoke any specific geographical associations [the U.S. apparently not counting as a specific geographical place] or to support an inference that there is an implied claim of domestic manufacture.”  Thus, defendants won summary judgment on literal falsity.

Turning to implicit falsity, Milso submitted a survey allegedly finding deception above 20%.  But the court found that the study didn’t ask the proper questions.  In the study, respondents in the first cell saw a booklet with three lithographs of Liberty caskets and another with three lithographs of Matthews caskets; the Liberty lithographs didn’t say “made in China.”  Respondents were then asked to pick their first, second, and third choices.  Respondents in the second cell saw the same Matthews booklet, but a Liberty booklet with “made in China” labels.  The expert concluded that “made in China” was material and that its omission was misleading.

The court found that the survey supported the materiality claim, but not the misleadingness claim.  The survey didn’t focus on whether the (unaltered) marketing materials suggested that Liberty’s caskets were manufactured domestically, nor even on what characteristics of marketing materials in general suggest domestic manufacture to consumers.  Instead, the expert’s report inferred from the materiality of the information that its omission was misleading.  But that would apply to any company in the industry, and the claim here was that it was Liberty’s iconography that required disclosure of the source of the caskets.  So defendants also won summary judgment on the implicit falsity claim.

Plaintiff's longrunning uniqueness claims establish laches

Albion Intern., Inc. v. American Intern. Chemical, Inc., 2012 WL 3776866 (D. Utah)

Albion sued defendant AMT for false advertising. The court found the claim barred by laches.  The case began in late 2007; Albion alleged that AMT and other defendants falsely advertised that their products were “chelates,” which are marketed as nutritional supplements that are designed to provided minerals in a form that can be more readily absorbed by the human body than minerals in their natural state.

“In the early 1990s, several significant employees at Albion [including Albion’s president] became aware that AMT was purporting to sell chelates.”  In September 1992, an Albion employee raised questions about the rat studies referenced in AMT’s marketing materials.  In August 1993, another employee attended an industry association meeting discussing the definition of chelates; the meeting was attended by representatives of several of Albion’s competitors who purported to sell chelates, including AMT’s owner.  In several instances, Albion made statements that it was the only manufacturer of chelates that was selling authentic, nutritionally viable chelates for human consumption.  In 1989, for example, Albion’s president wrote:

[T]o my knowledge only one company is building amino acid chelates that can be absorbed by the body intact. The other products … are no better absorbed than nonchelated minerals…. Albion Laboratories is the only company in the industry with patents guaranteeing that, if the mineral is chelated, it will result in greater absorption of that mineral. If you look closely at labels, you will see that no other company even claims that its chelates are absorbed except Albion. These companies don't make these claims because of possible patent infringements or lack of research proof that their products are truly better than inorganic mineral salts.

Albion repeated similar claims in 1993 and 1994.  In 1995, Albion stated that its competitors “cannot prove chelation because they do not have a chelate. If they did have a metal amino acid chelate, they would be infringing any one of Albion's 50 patents and patents pending.”

In 2001, Albion’s president sent an email to an Albion customer, claiming that AMT products weren’t “true chelates, but admixtures.”  In 2003, Albion tested samples of AMT’s products, which Albion alleged showed that they weren’t chelated.

The first element of laches is unreasonable delay, which has no fixed time limits but can borrow analogous state statutes of limitation as guidance; here, the court determined that, would be Utah’s three-year period from discovery for fraud.  The Tenth Circuit hasn’t adopted a presumption of laches when the analagous statute has run, but the court here believed that it would and applied a presumption—but noted that even without the presumption it would have found that Albion unreasonably delayed.

Albion argued that the limitations period didn’t begin until Albion could prove its claim.  That wasn’t the law, which looked to when a reasonable plaintiff knew or should have known.  A plaintiff has a duty to investigate when it becomes aware of facts that would lead it to discover a claim on reasonable investigation.  Given Albion’s own claims, which were based on purported testing of competitors’ products that revealed they were selling “simple mixtures of proteins and mineral salts” instead of chelates, and on patents that supposedly excluded anyone else from making chelates, it should have been on notice of a potential false advertising claim against competing chelate manufacturers generally.  Its broad public claims were the same claims it made against AMT specifically.  “If Albion believed that all competing chelate manufacturers in the market were falsely advertising their products as chelates, then surely it had knowledge of enough facts to conduct a reasonable investigation of AMT's chelates.”

Even were the general statements insufficient, the customer email from October 2001 was specific to AMT.  That Albion didn’t test the products until 2003 was of no matter.  “Albion is not permitted to make claims against AMT in the marketplace to deter potential customers of AMT from buying their products, and then later claim it was unaware whether the statements made about the propriety of AMT's chelates were true or not.”

Albion could rebut the presumption of laches by showing that its delay was resonable in light of the circumstances.  It argued that AMT’s secretive practices made its delay reasonable—it was very difficult to obtain testable samples because the products aren’t for sale to the general public, and AMT’s customers weren’t willing to help.  Albion’s CEO stated that the company tried to obtain samples since at least 1996, and couldn’t do so until 2003.  But the court found that this declaration was conclusory and self-serving. 

Even if the court started counting at 2003, Albion didn’t justify the four-year delay between the time it obtained testable samples and the time it filed its claim.  Albion argued that this delay was justified because there weren’t validated testing methods until 2004 or later, which would have made proof in court too difficult.  Again, the court found that its evidence was a conclusory, self-serving declaration.  Albion’s own documents discussing verification mention a variety of tests and claimed that several university researchers provided unequivocal proof of chelation; Albion didn’t explain why those same confirming proofs couldn’t have been used on AMT products.  The real problem, the court thought, was that there wasn’t a recognized standard definition of a chelate at the time.

Anyway, even if Albion didn’t have a validated test, that wouldn’t make its delay reasonable, given that since the early 1990s it had claimed, including in submissions to the PTO, that it could test competitors’ products and show they weren’t true chelates.  (Query: assume Iqbal/Twombly applied—without access to samples, could Albion sufficiently allege falsity and get discovery to do the tests?)  Albion clearly believed that its competitors didn’t sell chelated products, even without validated methods, so it shouldn’t have sat on its rights.  Furthermore, the court found that the lack of validated methods was at least in part Albion’s fault.  Albion sought validation from an industry organization after it tested the 2003 samples, but the testing method it sought to have validated was developed in 1995—by Albion.  Albion’s own failure to seek validation couldn’t make its delay reasonable.

The court found that AMT also showed evidentiary and economic prejudice.  Evidentiary: documents, including documents that might have shed light on Albion’s possible “undue influence” on what ultimately became the industry standard, had been destroyed because of the passage of time, and two possibly relevant witnesses had died.  Albion argued that it wasn’t going to rely on that industry standard, but rather on proof of the physical nature of the parties’ products.  But industry standards are relevant to an assessment of literal falsity.  To prevail, the court thought, Albion “must provide evidence that there is consensus within the industry and the scientific community as to what the definition of a chelate is” (emphasis added), and the industry organization’s process in reaching its definition would be relevant.  (I’m not sure this entirely works.  If Albion is really going to argue for a definition of chelate that doesn’t depend on this particular industry organization’s standard, then isn’t it AMT that would want to introduce evidence that the industry standard differed?)

AMT also showed economic prejudice because of its continued investment in its chelate products during the period of delay.  Albion argued that its delay wasn’t the cause of AMT’s investment, and that AMT failed to show it would have to abandon its investment if Albion prevailed.  But AMT only need to show general reliance, not specific reliance on a particular plaintiff’s silence, which would be an almost insurmountable burden to laches.  Plaintiffs shouldn’t be able to avoid laches by keeping their claims secret from defendants.  AMT showed that it generally relied on a litigation-free environment when it invested in developing its chelated product lien, and provided the sworn statement of its president that, had AMT known of Albion's claims in 1996, it would not have invested to develop its chelate business and would have developed other business avenues. (This was apparently not self-serving and conclusory.)

There’s an exception to laches for public health issues.  But Albion failed to show that labeling AMT’s products chelates posed a serious threat to public safety.  Its evidence was only that the European Food Safety Authority stated that it did not have enough information to assess the safety of certain types of chelates, which wasn’t enough and didn’t focus on the use of the label “chelates” anyway.

Likewise, Albion failed to show that AMT had unclean hands, which would also have avoided the equitable defense of laches.  Unclean hands has to involve inequitable conduct related to the claim at issue.  For false advertising claims, knowing falsity of a claim isn’t enough to constitute unclean hands—fraudulent intent must be shown.  (The court did not explain the difference between knowing falsity and fraudulent intent.)  The evidence on which Albion relied was the same as the basis for its false advertising claim—e.g., that AMT made claims about “the superior quality of AMT Zinc Chelate” that were based on studies of different, Albion products.  But the study investigator stated that the chelates used in his studies, though made using a technique similar to that used to make Albion chelates, were not Albion chelates.  The court determined that the substantive differences between AMT’s product and the product actually studied might create a question of falsity, it wasn’t on its face evidence of an intent to defraud.  AMT argued that its product was substantially the same as the product used in the studies, and Albion didn’t show that AMT knew this to be false.

Albion argued that AMT had unclean hands because it sold products as chelates that it admitted were not “official” or “true” chelates. But that didn’t show that AMT “had the intent to commit fraud when it labeled these products chelates…. To the contrary, the evidence shows that AMT informed its customers that the products did not meet the technical definition of a chelate.”  (Interesting question about what the customers then did with it and whether their labeling was false or misleading.)

In light of the controversy over the proper definition of a chelate during the years at issue in the lawsuit, the court was convinced that there was sufficient disagreement in the industry that no reasonable jury could find that AMT acted with fraudulent intent.

my latest acquisition

A Gay Olympics poster:

Now I just need to add museum-quality glass to the frame to prevent fading ...

Browsewrap fails to bind customer to individual arbitration

Nguyen v. Barnes & Noble, Inc., 2012 WL 3711081 (C.D. Cal.)

Nguyen sued B&N for violations of New York and California consumer protection law based on his failed attempt to buy a tablet computer advertised on B&N’s website for $102; B&N sent a confirmation email with a confirmation number, but then later cancelled his order (without charging his credit card).  He alleged that, due to B&N’s representations, and its delay in informing him, he wasn’t able to obtain a tablet during the period it was on sale for the discounted price, and had to buy a more expensive substitute. 

B&N moved to compel arbitration and stay the lawsuit; the court denied the motion.  B&N argued that, by placing an order online, Nguyen accepted the site’s Terms of Use and agreed to arbitrate claims arising from his use of the site.

Nguyen argued that the ToU link was at the bottom of the B&N webpages, and that he didn’t affirmatively assent to these terms because he didn’t need to click on the terms to make a purchase, and he didn’t in fact click or read and agree to the terms.  The court agreed with Nguyen.  B&N didn’t put its notice in a location where users would “necessarily” see it, and didn’t give notice that the terms applied except within the ToU themselves.  Thus, B&N couldn’t show that Nguyen had notice or that he affirmatively assented to the terms, which was the minimum required.  Other cases finding plaintiffs bound involved more affirmative agreement, usually in the course of filling out forms.

Consumers can't sue for unfair practices in legal, but immoral, gambling

Strickland v. Bicycle Casino, Inc., 2012 WL 3756980 (Cal.App. 2 Dist.)

Plaintiffs entered the Bicycle Casino’s no-limit poker tournament.  It was originally advertised to have three qualifying days for the final day of play, when the top 10% of qualifiers would split the $200,000 guaranteed payout.   But in the middle, after plaintiffs had already qualified, the casino declared an extra start day.  This increased the total pot but resulted in a lower payout for each person in the top 10%.  Plaintiffs sued for breach of contract, fraud and unfair business practices.   The trial court held that this was a claim arising out of a gambling contract, precluding judicial resolution of any dispute as a matter of state public policy, and the court of appeals affirmed.  The public policy bars judicial resolution of civil claims arising out of lawful or unlawful gambling contracts or transactions—you’re in the state of nature when you’re in the casino because gambling is immoral.  Plaintiffs’ basic argument was that poker was a game of skill, not chance, and pointed to statements that the defendant had made—including in litigation—in support of this.  However, the legislature had already classified poker as gambling, so that’s that.

Plaintiffs also argued that this was a case about false advertising and breach of contract, not the collection of gambling debts.  The court disagreed.  “The complaint seeks damages based on the theory that plaintiffs would have won more money if defendant did not offer an additional qualification round, which increased the number of people competing for and sharing in the same guaranteed payout.”  That made it an action for gambling losses.  Plaintiffs’ remedy was to complain to the AG and municipal authorities.

Initial interest confusion claim over keyword ads must go to trial

Morningware, Inc. v. Hearthware Home Products, Inc., 2012 WL 3721350 (N.D. Ill.)

Morningware sued Hearthware for disparagement of Morningware’s counter-top oven, violation of the Lanham Act, and related torts.  Morningware has a registered mark for MORNINGWARE for small electric kitchen appliances, namely, infrared wave-producing convection ovens.  Morningware also uses “Halo.”  Hearthware bought “morningware” and “halo” (with oven-related terms) as keywords for search engine ads.  The resulting ad contained a link to Hearthware's website, www.mynuwaveoven.com, and states that “[t]he Real NuWave® Oven Pro Why Buy an Imitation? 90–Day Gty.”  Morningware’s survey expert Burger concluded that 43% of people believed they could buy Morningware’s oven from Hearthware’s website.

The court denied cross-motions for summary judgment on trademark infringement.  The Seventh Circuit disfavors summary judgment in trademark cases, and Morningware failed to meet its heavy burden of showing that the evidence was so one-sided that there was no doubt about the proper result.

Morningware’s theory was initial interest confusion, which is actionable in the Seventh Circuit under the incredibly expansive Promatek decision.  Several of the factors favored Morningware: Hearthware used Morningware’s marks exactly, and the parties’ products are very similar.  Both parties sell their products through the internet.  Intent was also “largely undisputed.” Hearthware “chose to bid on those specific keywords with the intent that the search engines would place Hearthware's ads in the search results and knowing that Morningware is a direct competitor…. These facts strongly support a finding that Hearthware intended to divert consumers to its website.”  (Argh!  Since when is diversion confusion?  Advertisers intend to divert consumers all the time.  That’s generally called “competition.”  Intent to divert, likewise, cannot substitute for intent to confuse.) 

The degree of consumer care was less clear.  Developing precedent is that internet use alone doesn’t mean that the degree of care is low. Morningware argued, however, that the degree of care used before deciding whether to click on a link is lower than the degree of care used when purchasing.  (Which, not for nothing, is why IIC is such a dumb theory in its usual online applications.  Yes, consumers are willing to click—and click back—on a variety of links!)  The court agreed that the “relevant” issue was the degree of care consumers used when deciding on which link to click.  But that didn’t mean that the nature of the goods, including cost, and the relevant consumers’ sophistication, were irrelevant.  “Given the ever-increasing commonplace of consumers searching for and purchasing goods online, the fact that this case involves a theory of initial interest confusion in keyword advertising does not, without more, necessitate a finding that consumers exercise a low degree of care.” So this factor didn’t weigh clearly in favor of either party.

The strength of Morningware’s marks also favored a likely confusion finding, but not overwhelmingly.  Morningware’s marks were arbitrary, and the Morningware mark had been in use for almost ten years, and registered since 2010.  (Ancient!)  But Morningware was also a one-person company and had provided no evidence of market strength.

Similarly, the evidence of actual confusion was limited.  Morningware submitted a survey, but Hearthware attacked it on several grounds, including: omitting Southern consumers; leading consumers and asking them to make inappropriate assumptions; and failing to code answers to the survey’s first five questions.  Morningware couldn’t prove actual confusion solely with this survey; Hearthware had created fact issues for the jury.

All together, the evidence was not so one-sided as to make summary judgment appropriate.

The court turned next to Morningware’s disparagement claim, which contended that the Hearthware ad text, “The Real NuWave® Oven Pro Why Buy an Imitation? 90–Day Gty,” confused consumers into believing that Morningware’s ovens were inferior because they were imitations.

Morningware didn’t argue literal falsity.  It relied on its survey, which found that “many of the respondents were under the impression [that] the Nu Wave Oven Pro is an authentic product while the Morningware product was a ‘fake’ or ‘imitation.’”  Again, Hearthware attacked the survey for leading questions, failure to code answers, and unquantified results.  This created material issues of fact.  Materiality was also contested, as was injury.  The court noted, however, that Morningware wasn’t required to offer expert testimony on materiality; thus Hearthware wasn’t entitled to summary judgment in the absence of such testimony.

Lexmark v. Static Control: the false advertising years

Static Control Components, Inc. v. Lexmark Intern., Inc., --- F.3d ----, 2012 WL 3765010 (6^th Cir.)

Okay, I thought Lanham Act standing couldn’t get further bollixed.  My mistake!  Copyright folks know this long-running dispute as the source of one limit on the use of the DMCA to protect against aftermarket competition.  But there are patent, antitrust, and advertising law pieces as well; I’m only going to talk about the Lanham Act and design patent claims.

Lexmark makes laser printers and toner cartridges for them.  Other companies buy used cartridges, refill them, and sell them to owners of Lexmark printers.  Static Control sells the microchips used in the cartridges, along with other parts, to these remanufacturers, but it is not a remanufacturer; Lexmark sells cartridges but not parts.

After many years, the only issues submitted to a jury were Lexmark’s claim of inducement of patent infringement against Static Control and Static Control’s defense of patent misuse, though the jury’s findings on misuse were advisory.  The jury found no inducement and misuse by Lexmark.

Among the issues on appeal were the court’s dismissal of Static Control’s false advertising claims.  Static Control argued that Lexmark falsely advertised by telling customers that Static Control’s products infringed Lexmark’s IP and misled customers into thinking that Lexmark’s licenses prohibited remanufacturing.  The district court dismissed this counterclaim because Static Control, in the court of appeal’s words, “lacked antitrust standing.”  Though I don’t like Conte Bros., the district court at least described it more closely: the factors for antitrust standing are the same as for Lanham Act standing.  Now, this isn’t actually true either, as I’ve written; Conte Bros. already involved a bit of sleight-of-hand performed on the antitrust standing test.  But at least the district court’s description suggests that we will look at the types of plaintiffs and conduct that the Lanham Act was designed to address in applying the factors, rather than at whether the Lanham Act plaintiff would have antitrust standing.

In the Sixth Circuit, the most recent precedent was Frisch's Rests., Inc. v. Elby's Big Boy of Steubenville, Inc., 670 F.2d 642 (6th Cir. 1982), which held that a Lanham Act claimant need not demonstrate actual losses as a result of the defendant's misleading use of the claimant's trademarks in its advertisements, only a “‘likelihood of injury and causation,’” aka the Second Circuit’s “reasonable interest” approach.  Lexmark argued for the adoption of a categorical competitors-only test, as adopted by some circuits distinguishing between §43(a)(1)(A) and (a)(1)(B).  Other circuits use Conte Bros. (which, again, distinguishes between trademark and false advertising standing, though the court of appeals here pointed out that the Third Circuit purports to reject any distinction between the two but simultaneously applies the five-factor antitrust-derived test to false advertising claims).  The court of appeals quoted, without explicitly approving, the Second Circuit’s observation that Conte Bros. unnecessarily complicates the standing inquiry.

So, following the Third Circuit’s “reasoned analysis rejecting a distinction between these two types of claims for purposes of standing,” the panel was bound by Frisch’s.  As a result, Static Control sufficiently alleged a Lanham Act claim: its business reputation and sales to remanufacturers were harmed by Lexmark’s statements to those remanufacturers.  Reversed and remanded.  In a footnote, the court commented that even if it did adopt the Conte Bros. test, Static Control might still have standing.  Static Control’s allegations went beyond conduct alleged to violate the Sherman Act (as to which the claim had been dismissed), particularly the allegation that Lexmark falsely advertised that Static Control was a patent infringer.

The district court also dismissed Static Control’s state-law counterclaims for unfair competition and false advertising under North Carolina law for lack of standing, on the theory that the test was identical.  The North Carolina courts hadn’t addressed the issue of standing under the state’s UDTPA statute, the state-law equivalent of the Sherman, Clayton, and Lanham Acts, but the district court applied “North Carolina's general rule that federal case law is persuasive and instructive in construing North Carolina's own antitrust statutes.”  However, a North Carolina case has held that the federal antitrust standing test doesn’t apply to the question of which indirect purchasers have standing under North Carolina statutes; though Static Control was a supplier, it argued that the case supported the general idea that it could have standing.  The court of appeals decided that it had to “closely examine North Carolina's departure from federal law on the question of standing for indirect purchasers to determine whether North Carolina would similarly depart on the question of standing for suppliers.”

Comment: For the false advertising counterclaim, which is apparently encompassed by this analysis, the whole journey is a frolic and detour.  We should (also) be asking how North Carolina treats false advertising claims under the UDTPA.  Absent some consideration of false advertising, this discussion is like asking whether the plaintiff in a malpractice case has standing to sue her doctor by evaluating whether the doctor defamed her.

Anyway, after extensive analysis of antitrust law at the state and federal level over time, the court of appeals held that North Carolina wouldn’t apply the federal antitrust standing factors to cases like this one.  So the counterclaims go back to the district court too—apparently both state antitrust and state false advertising.

The court then denied Static Control’s request to treat the advisory jury findings of patent misuse as binding on a subsequent factfinder; this would be relevant to the false advertising claims.

The district court had invalidated two of Lexmark’s design patents, and the court of appeals affirmed.  Functionality will invalidate a design patent, which must be ornamental.  “An article is less likely to be ornamental if it is not observed, and the Federal Circuit looks not just to whether the article is ever seen but whether the appearance of the article may become a ‘matter of concern’ at any point during the article's ‘normal and intended use.’”  The district court held that the design of the cartridges was primarily functional because the design of the printer dictated the exact design of the cartridge, relying on a Federal Circuit case finding a key not patentable because its shape was dictated by its function of fitting in the corresponding lock, which indeed seems to be on all fours with the situation here.  Also, “even though the cartridges may be seen at some point during their lifetime, at no point was their appearance a matter of concern to the end-user.”

Lexmark argued that the district court improperly shifted the burden of proof onto Lexmark to show validity.  In particular, Lexmark objected to the lack of survey evidence showing that consumers didn’t consider the cartridge’s appearance to be a matter of concern, and argued that it showed pictures of the cartridges on its website and on the boxes, creating a genuine issue of material fact.  The court of appeals disagreed.  “Lexmark itself explained that the advertisements containing photographs were primarily to assist the customer in selecting the cartridge that was compatible with the printer they owned.”  Their appearance had no other role in the purchase decision.  Lexmark wanted more evidence, but photos of the product weren’t enough to create a material issue of fact; Static Control’s evidence of functionality was undisputed and clear and convincing evidence of validity.

House brands, a continuing series

I have a longstanding interest in house brands that imitate aspects of national brand formulation and trade dress.  Here's a recent example from CVS, which is notable not just for the scent combination (I imagine counsel was fairly confident that it's legit to show pictures of cucumber and watermelon to indicate the characterizing scents even if the national brand does too) but for the size.  Ordinarily, larger sizes take up more vertical and horizontal space, but this one apparently is designed to look like the smaller national brand, so it simply extends farther back and then promises 50% more on the bright yellow strip at the bottom: 11.25 oz. v. 7.5 oz.  I wonder if consumers notice that it's really bigger?

For contrast, a more standard variant (sorry for the out of focus picture) with milk and honey as the scent/pictures and a similarly shaped bottle, using color and house brand to distinguish the two:

The NYT on unreliable reviews

More here--user-generated reviews might not be all that they purport to be.  How might the curation of a site like Amazon, which singles out reviews as typical/rated helpful by other users, affect any analysis of whether Amazon is responsible for fakes?  My guess is not at all as a matter of law, but as a matter of credibility there is still an issue.