AU TM roundtable, part one

Thanks to Christine Haight Farley for organizing!

Paper 1: Jessica Silbey, “IP at Work: The Roles of Law in Creativity and Innovation, Chapter 5: Reputation”

Interviews with creative professionals/facilitators.  Topics: Claiming, disputing, protecting either with reference to law or with something they want to be a rule/law-like.  Are they really describing law?  They’re talking about things they care about and wish they could protect—so what is law?  Research is highlighting IP-like claims to see where/if there’s an alignment with the rules as lawyers understand it.  Asks how they start work; how they keep working every day—those don’t align at all with IP—beginnings emerge from serendipity, pleasure, play, urgency, need; work every day is all about labor—employment law/contract relations.  Also asks about making do: how they actually make their money.  Answers are varied; only in isolated places is it clear that IP funds livelihood. 

Reputation is a big theme: most people cared most about public image and the intrinsic value of their identity as they understood themselves.  This was paramount.  There was a misfit/misalignment with legal claiming—many would go to copyright or TM when they experienced reputational harms/wanted to protect reputation in anticipation of harm.  They don’t care about the IP regime but want to manage reputation with legal restraint or with private ordering/norms. The IP rules we think of –consumer search costs, improving quality of goods—don’t fit very well.  Under and overclaiming are ways of describing from the ground up what people are claiming/saying about their work.

Conclusion of chapter still undefined.  Misfit/leakiness between reality and legal theory is a problem if we want to say IP is doing what it’s supposed to be doing.  If the interviews are descriptively accurate, that decenters IP from its important role in making art and science happen/get it distributed.

My thoughts: Quote from the paper: “We are different than other companies, where we don’t say, ‘All right, now we own your property.’  We partner with them, and we take it out together.  … it’s just, it’s an ethical thing for us.  You know? … it’s their baby …”  I would suggest interrogating that further: who are those bad guys/other companies, and what do they think about the child metaphor?  Who are your informants constructing themselves against in the creative sphere?

Underprotection section seems to equate “branding” with “making legal claims of ownership” and I’m not sure that works on either side: paper suggests that people often “under-protect reputational interests by avoiding self-conscious marketing”: this is using the concept of protection in two distinct ways that should be disaggregated more clearly—legal (making claims to TM ownership) and outcome based (preserving a reputation as an independent/as an entity or person not concerned about “brand” but only about truth/etc.).

Any traditional infringement scenarios in your interviews, or all expressive uses?  Bill McGeveran asks likewise: what are they worrying about?

A: counterfeiting came up a couple times when I pushed the interviewee, but mostly they aren’t worrying about likelihood of confusion.  Many say that name recognition/reputation is everything; different industries really matter in terms of what they worry about.

Who are the bad guys?  Lawyers were the ones most self-conscious about fitting their clients into a structure that somehow needed justification. One lawyer talked about working hard to convince engineers to file patents.  She perceived herself as representing the “bad guy” against the people who just wanted to share.  They justify their behavior as commoditizing stuff so we can pay you.

Bill McGeveran: Not happy with overprotection/underclaiming frame.  Alternate frame: These are things that my interview subjects hate that the law probably doesn’t address, and these are things that the law covers but that my interview subjects don’t necessarily worry about.  What is the baseline?  Are you assuming that the law is?  Is that normatively justified?  It’s certainly not that you want to say “these guys aren’t making all the claims that the law allows and that’s misguided.” 

Christine Haight Farley: also wanted more clarity on over/underprotection.

A: Hard to extract these categories from the varied responses of the interviews: inherent messiness.

Discussion back and forth of the way to avoid the message that “mismatch must be corrected.”  It’s not just that people wish that the law would do more and that they don’t care about some things the law presumes they care about.  It’s that the law purports to grant TM for reasons that many respondents don’t seem interested in.

Lisa Ramsey: so what are the goals of TM?  Law takes into account interests other than those of TM owners.  Can say: this is what TM owners want; should reputation be more important in TM, given the need to consider competing interests?

Silbey: if we are willing to accept the idea that IP is more than a wealth creator, then we have to have evidence for that.  The way IP gets made and enforced on the books has little to do with moral rights, which is how interviewees are speaking about it.  We need another story/admit that IP law doesn’t read on creative practice.

Irene Calboli: Distinguish TMs from brands.  Brands = reputation.  But what is a brand from TM’s perspective?  Is goodwill reputation?

Mike Carroll: agreed.  Part of the story is people who perceive themselves to be creating value; the value is associated with reputation. You might disaggregate what reputation is doing.  There are personal and commercial dimensions. This value is important because it has a market/competitive function. TM polices the edges but not the whole thing.  Brand management team: feels a sacred trust with the product; the feeling is really religious—must protect the brand.  TM doesn’t police that.  New Coke: Coke lost $30 billion in goodwill.  Part of the reason there’s not a close mapping to interviewees is that they’re talking about value/reputation in the market and they only go to law when there are edge behaviors they need to place.

Farley: that was Schechter’s concern as well.

Silbey: rarely find law except from lawyers/licensing officers, and even they are talking about brand rather than TM.

Mary Wong: domain name side—lawyers also use the term “brand owners.”  Worth distinguishing, especially for non-IP lawyers who might be reading.

Glynn Lunney: also wanted to press on is/ought.  There are always difficulties in coding qualitative data.

A: Right, but Silbey is trying to show that the incentive story of IP is not the only story. Showing variation in how and why people work, and make money, is a useful result.  Quantitative data is not the only way to show that.  We can argue about meaning, but we should be arguing about meaning!

Mark Bartholomew: why not cover publicity rights?  People do make (dumb) incentive arguments for such rights.  One quote talks about how the interviewee doesn’t care about what happens after he dies.

Leah Chan Grinvald: industry really does matter—creative industries are going to think differently about TMs.

Paper 2: Mark Bartholomew, “Trademark Morality”

TM purports to be about search costs/rationality.  This isn’t really true.  Having taught TM, noticed pockets of doctrine that didn’t match the search costs rationale.  Judicial decisionmaking: when/where are judges invoking a moral sense instead of an economic sense?  Moral psychology: how people make moral decisions.  History: early 20^th century cases, courts are more willing to explain their moral decisions explicitly.

Decisions are made on the ground.  Descriptively, human decisionmaking systems in each brain: System 1 is deliberative; system 2 is quick and emotional, very sensitive to context and culture.  History informs the culture that leads to particular moral judgments.  Moral foundations theory: there are various major foundations for moral decisions: care/harm; fairness and reciprocity; etc.  What does it mean for something to be unfair?  How do people view the marketplace?  Early 20^th century: market is seen as a crucible for forging character—learn to steer between honest and dishonest people.  Personal names privilege: defendant has a privilege to use his/her own surname, which around 1900 was absolute.  The power of this privilege waned over time, but we still have a perk—courts are reluctant to force defendants to give up their personal names, using disclaimers instead of bans.  Another example of fairness: TM’s fixation on intent, which Barton Beebe’s work shows is key.  Intent to deceive makes sense as a factor, but intent to make use of another’s goodwill is also punished because judges think it’s unfair. 

Another moral foundation: purity/sanctity; avoiding contamination/disease/sexual partners who might be diseased.  Connected to TM’s relationship to sex—dilution by tarnishment now has a presumption, in 6^th Circuit, that use of a famous mark in a sexual manner presumptively creates tarnishment—even for Victoria’s Secret, whose TM is already drenched in sex.  Double standard: Adults ‘R Us enjoined; Guns ‘R Us not even though Toys ‘R Us was one of the first stores to ban toy guns.  Courts presume sex is harmful/damaging.  Pink Panther case: cheapens the mark to be associated with homosexuality.

Finally: loyalty to ingroup/respect for authority—nationalism in TM reflects this.

McGeveran: Pink Panther is important because Judge Leval is so well-regarded.  (I’d also note that he decided the Farmer’s Almanac case the other way, finding no infringement, at almost the same time.)  A per se rule about sex could be brought back to an economic argument—we know that sex tarnishes, not because of our morals but because of “the market’s.”  (This strikes me as too naturalized—compare Palmore v. Sidoti, which says that courts can’t accept racially discriminatory social mores as reasons to accept a harm story, even if the racially discriminatory attitudes do exist; Title VII cases are similar with respect to BFOQ for sex.)

Farley: if sex necessarily tarnishes, Victoria’s Secret shouldn’t be able to maintain a dilution claim, nor the Dallas Cowboys Cheerleaders.

Bartholomew: right, it’s interesting/disturbing that these launching points are sexualized marks.  Maybe tarnishment is about disturbing you in your head.  (The Centerfold argument.)

Me: Compare what the counterfeiters say about the morality of what they’re doing.  Many, especially if the mark is a foreign one, may not care about the TM owner’s interests for the same in-group/nationalistic reasons.

Bartholomew: other values in TM law are often mentioned but rarely articulated—it’s not just free expression and search costs.  What else is there that hasn’t been teased out.

Ramsey: compare morality in EU—different kinds of comparative advertising generally not allowed/concept of using the goodwill is much broader.

Lunney: the most important consideration in a TM case is which judge you draw—some are really willing to find confusion and others aren’t.  Judges make up their mind quickly and evidence is rarely helpful.  Is that morality?  Or some other heuristic?  Anti-Monopoly case as an example: taking a Parker Bros. TM away sparked the kind of outrage one associates with a moral response and even resulted in an amendment of the Lanham Act. 

The personal name privilege got cut back because people abused it—finding a person with the appropriate name to lend it to the venture.  Sex: if customers are offended, even if there’s little chance of confusion, any confusion that does occur will be extra harmful.

Wong: in thinking about morality, is it framed as the public interest?

A: sure, it’s characterized as protecting consumers from inefficiencies.

Wong: that makes it very hard to ID the morality.

A: yes.  Will try to make that point more forcefully.  Judges think they’re deciding based on X, but internal, unexpressed considerations are guiding that.

Wong: also look at UDRP/bad faith standards.  Those are explicitly moral.

Greg Lastowka: if it’s really morality underlying this, that creates serious due process concerns: what is the standard D is supposed to follow?

RT: Another source of examples: the “irrelevant” facts that appear in opinions that aren’t really irrelevant at all because they convince the court that, for example, the defendant is more sinned against than sinning.

Some discussion of the socially constructed line between “legitimate” sexiness and immoral sex, as with the Dallas Cowboys cheerleaders and Victoria’s Secret.

Carroll: we used to have a broader language about the morals of the marketplace.  We have some baseline level of morality, but it differs: in the past it was caveat emptor, you’re supposed to protect yourself—some things are still immoral in that universe.  Now it’s not morality but “business ethics,” but we still have a sense about what kinds of competition are “wrong.”  But what is it that triggers that impulse?  The foundations approach can help, but you need not marry yourself to it especially since what counts as immoral/etc. varies over time.

Farley: it sounds like you want to accept morality as a value as long as we think clearly about it.  Farley is much more cynical about that.

Paper 3: Leah Chan Grinvald, “Trademarks and Free Speech Justifications: A Comparative Analysis”

Goal for book chapter: educate Israeli academics who may not have a lot of background in TM law. Israel stands in the center of EU and American approaches to TM and free speech (and comparative advertising more generally).  Similarities to Asian law of comparative advertising.  Asia is even more strict than EU, which has relaxed its ban on comparative advertising, but South Korea and China ban it.

McGeveran: for a US audience, more Israeli law.  Expressive interests in TM—people want T-shirts that express something about themselves. 

My thoughts: Comparative advertising theory—most countries give very little protection to commercial speech.  Talk about why: why it is so risky to have self-interested commercial speech (this will help the US audience, which is relatively unfamiliar with these arguments)?  Different theories of the baseline skepticism with which consumers empirically do and normatively should approach commercial pitches.

Lunney: Substantive justifications for First Amendment rights—important to us as a people, but it’s not clear why the courts should enforce that instead of having Congress implement that—add a process based account for why political speech is at the core; that could diminish the personal expression/commercial speech interests; think specifically about why we might trust or not trust the legislature.

Historically, we had double identity same as the EU; likely confusion was used as a tool to expand the scope of confusion, and then in the US we doubled back and got rid of double identity as a separate head of liability so it’s all confusion now.

Ramsey: Internationally, people are trying to get registration for their marks for the provision of information—if they do that, they can stifle speech under the double identity rule.  TMs as property aren’t the end of the story—they need to be balanced against, for example, competition in the EU.  Can even frame commercial speech arguments as competition arguments—competitors’ comparative advertising, consumer complaints.

Bartholomew: why is Israel drifting further from the US approach?  Even rank speculation would be of interest.  Is there really a drift, though?  It’s not clear whether Israel is hanging on to a general confusion requirement—is the McDonald’s case (where Ariel McDonald’s appearance in a Burger King ad was held to be an infringement) an aberration?

Grinvald: thinks there is a drift towards Europe.  They call themselves a mixed common/civil law jurisdiction. Thus a split in desire to change via common law judicial decisionmaking v. statutory; getting anything through the Knesset is a big task.

Farley: note that US might not be the most protective—South African Black Label/Black Labour T-shirt case.  The South African court cites US law throughout, but finds in favor of the T-shirt creator, which she thinks might not happen here because of the different values—they’re more sensitive to racial messages that have a political valence even if the parody is not obvious.  (I think the chances are good that it would be the same result here.) 

Grinvald: Israel does have a history of passing off/confusion too.  Not sure how deep they are on general business torts/unfair competition.  Well-known marks doctrine exists, but they’re rather wary of it.  Likely association isn’t enough; there’s a confusion element.

Paper 4: Lisa Ramsey, “Mechanisms for Limiting Trademark Rights to Further Competition and Free Speech”

Structure of TM decisionmaking is her focus (with coauthor Jens Schovsbo).  Int’l law currently doesn’t require TM limits to protect competition/speech, but you can.  Proposals to impose certain limitations exist.  Domestic law: what is the best way to achieve the correct balance?  Internal limits on TM law (rules, standards, “trademark use,” limiting subject matter/higher standard of proof for particular subject matter; commercial use requirement; various defenses such as descriptive fair use, parody, etc.) or external (constitutions, human rights treaties protecting expression, competition law). 

Carroll: for copyright, we are trying to draft a model open clause that isn’t fair use as such but could be transposed into national law in various countries.  We’ve been wrangling with sources of resistance: critics say it’s too uncertain!  That’s total nonsense because judges are willing to take liberties with code text, but people still resist explicit delegation of interpretive authority.  In copyright law, when you think of modes of security, there are intermediate modes like presumptions and safe harbors are ways to set a bias in a particular direction without an absolute.  Ex ante uncertainty can also be addressed—advisory opinion mechanisms?

Bartholomew: one problem with US TM law is that the First Amendment is too external; courts don’t use it enough.  Constitutional/international sources—how do we guarantee that they’ll be noticed/used?

Ramsey: because the US has a case by case, contextual analysis, it incorporates concerns about speech within the internal tests.  Europe doesn’t have that ability (arguably, though things like “undue cause” in dilution could be interpreted in this way) so arguably it needs greater recourse to external sources like human rights treaties.  Case by case decisions mean that no one will step up and call dilution unconstitutional.  Our proposal offers a statutory list: things that a national legislature has decided are important.  Then you have the possibility of additional arguments on public policy or constitutional/treaty grounds.  Markholders criticize such proposals on uncertainty grounds, but we’ve had such an expansion of TM that the balance isn’t right now.  We don’t propose specific solutions as such, but want nations to consider alternate stories about competition and speech.  Statutory exclusions might work best in civil law countries.  Legislatures need to make more clear what they are doing and what they want TM law to do: what’s the function of a TM?  Well-represented Ps face under-represented Ds, and Ps can tell convincing harm stories and there are less skillful public interest defenses.

Farley: consider other comparative analysis: Australia is a common law system with a lot of exemptions.  TRIPS says exceptions are permissive provided they take due account of TM owners’ rights (as well as the public’s).  Say more about what that might mean.  (Would need an account of what interests TM legitimately protects.)

Ramsey: in the long term, the aim is to prevent TRIPS-plus from ratcheting standards up further.

Wong: can these proposed changes be made without changes to the Directive?

Ramsey: the EU should change its laws at the level of the Directive so that nations can do this, and other nations should as well.

Lunney: we all know the capture/public choice problem with the legislature; underfunded defendants who just want to get out of this one case are a problem with the judiciary/common-law development.  If we have only those two mechanisms, need to think about comparative institutional competence and where the worst lawmaking failure is likely to be.

Ramsey: we advocate for belt and suspenders approach.

Lunney: with the legislature, you might be able to convince them to recognize some important limits—TDRA did.  The dynamics are different with legislation.

McGeveran: if people on the other side (TM owners) really want something done, there’s room to move. ACLU etc. said “we’ll make it really difficult to pass a fix to the dilution law unless you have limits,” and they were bought off with clearer exclusions.  In the absence of a Victoria’s Secret case to fix, it wouldn’t have happened.  But cases to fix do come up on a reasonably regular basis.

Focus on how long and expensive a fight is likely to be—a clearer rule can lead to cases being dismissed earlier on.  But worrying about outcomes v. process in Europe may be different—in the US, courts generally get it right in the end, but they take so long/make Ds wait for summary judgment so often that there’s still a huge chill.  So think not just about outcomes but about impact on prelegal dispute resolution processes.

Lastowka: fee-shifting, for example, may matter. Penalties for frivolous complaints/UK threats action.

Wong: Doesn’t like the terminology of “user rights,” especially not as equivalent to “safe harbors.”  Being in a safe harbor isn’t the same thing as having a right.  Calling something a noninfringement isn’t the same thing as having a right.  If it’s a right, what’s the source of law?  TM isn’t the source of the right.

Allegedly copied infomercial can't support misappropriation claim

Morningware, Inc. v. Hearthware Home Products, Inc., 2012 WL 3835825 (N.D. Ill.)

Another chunk of the dispute between these parties who compete to sell ovens online.  Hearthware alleged three false/misleading statements.  First, that Morningware’s oven falsely bears a UL system indicating approval by Underwriters Laboratories.  Second, that Morningware’s oven has an instruction manual and recipe book that falsely states that “[u]nless a user sets a specific cooking temperature, the ... Oven automatically cooks food at the highest temperature of 400° F.”  Third, that Morningware falsely claimed that its oven saves up to 85% of the energy used by a conventional oven and cooks 50% faster than a conventional oven.

Morningware argued that, because its oven complied with UL standards, the UL representation was literally true.  It relied on a 2003 UL Report (the design hasn’t changed since then) purportedly showing that the oven performed within all prescribed UL limits, along with a summary of invoices from UL, allegedly demonstrating that follow-up inspections verified that its oven was still in accord with UL standards.  This wasn’t enough to meet Morningware’s burden.  The UL Report was unauthenticated hearsay, and it wasn’t clear whether UL actually performed the testing.  Basically, summary judgment was improper without more evidence about what the documents in the record meant.

Temperature: Hearthware argued that Morningware’s oven didn’t and couldn’t reach 400° F.  Morningware responded that the statement “[u]nless a user sets a specific cooking temperature, the Halogen Oven automatically cooks food at the highest temperature of 400° F” was literally true because it “says nothing about the actual temperature of the interior of the oven.”  The court found this argument “rather nuanced”; whether it was false or misleading was for a jury to decide, since Morningware didn’t provide any evidence that its oven could cook at 400° F.

Likewise, the energy representations had to go to a jury.  Morningware’s evidence of truth was an unauthenticated letter from a sales manager with his “calculations,” with no evidence that he was qualified to make such calculations; the letter also postdated Hearthware’s assertion of false advertising counterclaims.

The court also dismissed Hearthware’s common law misappropriation claim based on Morningware’s alleged mimicking of Hearthware’s infomercial: e.g., Morningware's infomercial opens with an image of frozen steak thawing in a sink, and then an overweight woman walking in the street, and Hearthware’s infomercial allegedly opens with the same images.  Hearthware also alleged that Morningware “mimics Hearthware's taglines” “touch and go” and “fresh cut to fabulous” with “confusingly similar phrases,” including “touch it and glow” and “frozen to fabulous flavor.”  Morningware argued copyright preemption.  Some courts have (mystifyingly) held that misappropriation claims based on “use” of an idea, rather than “copying” an idea, aren’t preempted.  Regardless of whether this court followed those cases, though, Hearthware’s claim would still be preempted because it was based on alleged copying and distribution of Hearthware’s infomercial.  The “use” here was copying.

Cracked iPhone doesn't support consumer claims

Williamson v. Apple, Inc., 2012 WL 3835104 (N.D. Cal.)

Full disclosure: My iPhone’s glass cracked when I had it in a regular case.  I now have it wrapped in a hard shell that is itself covered with rubber.  The result is thick, and I haven’t looked at the back of the phone recently to see if it has still developed cracks, but I live in hope.  The iPhone arguably has more aesthetic than utilitarian functionality; see also the antenna that didn’t work without a bumper.

Anyway, Williamson’s iPhone glass cracked when it fell off a chair a few days after he got it.  He alleged that he was one of many who suffered from the more-fragile-than-expected glass.  The intro video from Steve Jobs “called attention” to the glass paneling and said that Apple used glass on the “front and back for optical quality and scratch resistance.”  Jonathan Ive, Apple's Senior Vice President of Industrial Design, also referred to the iPhone 4’s glass housing as “comparable in strength to sapphire crystal” and 30 times harder than plastic. A video demonstration showed a portion of the glass used on the iPhone 4 being bent up to 30 degrees without cracking or breaking.  In marketing, Apple also described the glass as “the same type of glass used in the windshields of helicopters and high-speed trains” and as “20 times stiffer and 30 times harder than plastic ... ultradurable and more scratch resistant than ever.”  Its ads showed the phone being used without a protective cover.  (P.S.: don’t do that.)  Williamson alleged that many, many consumers found that the glass was quickly scarred and broken by normal, foreseeable use.  One insurer’s study found that the iPhone 4’s glass broke at an 82% higher rate than a prior iPhone version.  Replacements cost $199 (broken housing) or $29 (cracked panel).

Williamson alleged that he wouldn’t have bought the iPhone 4 if he’d known that the housing was more susceptible to cracking during normal and foreseeable use than earlier versions.  He brought warranty claims and the usual California claims.

Apple first challenged causation: the damage was caused by the drop to the floor.  The district court didn’t have much patience for that.  Williamson alleged that Apple’s misrepresentations and omissions caused him to buy a phone he wouldn’t otherwise have bought; the fall from the chair caused him to realize that he might have been misled.  The economic loss was the unwarranted purchase, not the physical damage to the phone.

Apple fared better arguing that its representations were nonactionable puffery.  Jobs’ statements that glass was used “front and back for optical quality and scratch resistance” was “no more than a description of the phone,” not a specific commentary about durability that could mislead a reasonable consumer.  Likewise, the Ive statements about the comparison to sapphire crystal and “30 times harder than plastic” weren’t alleged to be misdiscriptions of the glass, assuming they were specific enough to be non-puffery.  (Why wouldn’t 30x harder be specific?)  Similarly, Williamson didn’t allege that the demonstration of the glass flexing was false.  (What about misleading?)  He didn’t allege that he specifically relied on the Ive statements or the video clearly enough to satisfy Rule 9(b).

In addition, the court rejected the argument that ads showing use of the iPhone 4 wihtout a cover constituted an affirmative representation of durability.  “A ‘reasonable consumer’ viewing a commercial showing the iPhone 4 in use as a phone, but without a cover, would not be misled to believe that the iPhone 4 could withstand any particular level of impact if the phone was dropped.”  (Regardless of the law, I feel like those ads are like showing drivers not using seatbelts as they execute high-speed turns on a closed course—there really should be some sort of “don’t try this at home!” warning.)  The ads had nothing to do with durability—there were no allegations that any showed a phone being dropped, unscathed.

The representations, as a whole, wouldn’t lead a reasonable consumer to believe that the glass was indestructible (not, I think, what plaintiff alleged, which was about ordinary use) or drop-proof because “it is a well-known fact of life that glass can break under impact, even glass that has been reinforced.”  It’s routine to encounter shattered windows, cracked windshields, and chipped smartphone screens.  The marketing described in the complaint, which didn’t directly cover dropped phones, wouldn’t erase those images from the collective experience to allow a reasonable consumer to expect that the glass couldn’t break if dropped.  (Again, this doesn’t seem quite what plaintiff alleged: as I understand it, the claim is that the iPhone was worse on this front than a reasonable consumer would expect.  It’s not unexpected to encounter shattered windows, but a window that shatters when you lean against it would be different.)

Anyway, the same problems attended the claims framed as actionable omissions.  Nowhere did Apple allegedly say that the iPhone 4 was resistant to normal wear and tear, wouldn’t break or crack under normal use, or might not be damaged if dropped.  So the alleged omissions didn’t contradict any affirmative statements, and Williamson didn’t sufficiently plead facts showing a duty to disclose; among other things, he didn’t plead what was actually known to Apple except in conclusory fashion.  Alleged reports by unidentified consumers with uncertain timing weren’t enough. 

As for the warranty claims, Apple didn’t dispute that defects in the glass could be covered by the warranty under specified circumstances.  But Williamson didn’t successfully plead that the warranty promised damage resistance.  “To the contrary, the fact that a warranty covering the glass even exists suggests that Apple never made or reasonably could make such a representation.”  Also, Williamson didn’t identify the purported defect in the glass, other than to say it broke when the phone fell.  But glass can break when it’s dropped, so something more was required to allege a defect.

On Williamson’s claim for implied warranty of merchantability, he argued that the phone wasn’t “fit for the ordinary purposes for which such goods are used.”  But the allegation that the glass broke easily “has nothing to do with the iPhone 4's intended use as a smartphone, which the court safely presumes includes functions like making and receiving calls, sending and receiving text messages, or allowing for the use of mobile applications.”  The court was unwilling to conclude that an “ordinary purpose” of a phone is to be dropped to the ground.  This theory of liability would mean that the phone wasn’t merchantable unless it was “completely resistant” to accidental breakage or damage, and that was silly.  (I agree, which is why it doesn’t seem to me that plaintiff was making that claim.  Ordinarily resistant, though, would be a different matter, especially since it’s hard to make and receive calls when there’s a piece of glass poking at you, which I can again confirm from personal experience.)

StubHub's guarantee doesn't guarantee tickets will work

Porras v. StubHub, Inc., 2012 WL 3835073 (N.D.Cal.)

StubHub is an “online marketplace for the resale and purchase of tickets to sporting events, concerts, theater shows, and other live entertainment events.”  Porras bought two tickets to a game between the San Francisco 49ers and the Pittsburgh Steelers through StubHub's website, paying $594.95. She also spent $442.80 for two round-trip plane tickets from Los Angeles to San Francisco.  She was initially granted entrance, but was removed by security halfway through the game and told her tickets were invalid.  She complained to StubHub and received a $594.95 refund.

She brought the usual California claims, alleging that StubHub “makes numerous misrepresentations and ‘guarantees' on its website that a ticket purchased by a buyer will be ‘authentic,’ and ‘valid for entry,’ when, in fact, [StubHub] delivers tickets that are not authentic or valid” and that StubHub’s “FanProtect Guarantee,” misleadingly implies that all tickets purchased on StubHub will be valid for entry.

The court first held that there was no violation of California’s ticket seller statute because StubHub wasn’t a ticket seller; it merely brought buyers and sellers together.

Turning to the UCL, FAL, CLRA, fraud, and breach of contract claims, the court first rejected StubHub’s standing argument.  Though Porras received a refund of the ticket price and fees, she was injured by shelling out for plane tickets.  However, StubHub’s conduct was not unlawful, unfair, or misleading.  StubHub clearly disclosed that, if the buyer encountered any problems at the venue, she should call StubHub, which would try to find comparable replacement tickets, and if it couldn’t it would issue a full refund.  “An ordinary consumer reading the terms of StubHub's FanProtect Guarantee would recognize such guarantee would not exist unless there was a possibility that the tickets purchased might not be valid for entry.”  The site’s use of the terms “guarantee,” “100% confidence,” “authentic,” and “valid” wasn’t misleading, because the guarantee made clear what the promise was: an attempt to find replacement tickets and, if that failed, a refund.

New review up

I have a review of Peter Decherney’s Hollywood’s Copyright Wars: From Edison to the Internet in Jotwell.

What we see and what we don't

Chris Sprigman & Kal Raustiala's The Knockoff Economy is getting a lot of well-deserved attention.  Here's one discussion from Time whose intro I found a bit puzzling.  Both the headline and the body begin, "From the day kids pick up their first No. 2 pencils, they’re taught that copying is wrong."  But of course that's completely backwards.  From the day kids pick up their pencils in a situation where there is a teacher, they are taught to copy: first tracing the shapes of letters and numbers, then copying them on the dotted lines below the exemplars.  But because of modern concepts of IP, this practice--learning by copying, which is to say learning as it's always been done--is completely invisible even as it's completely foundational.  There are kinds and contexts of copying of which teachers disapprove, and rightly so.  But if you get the starting rule backwards, it's not surprising that you then struggle to explain why copying in fashion is a good thing.

Sharp dealers can deploy arbitration clauses too

Schnabel v. Trilegiant Corp., --- F.3d ----, 2012 WL 3871366 (2d Cir.)

Defendants market online programs that offer discounts in exchange for a “membership fee.”  Brian Schnabel was enrolled in one such program, Great Fun, after making a purchase on Priceline.com, and two years later his father Edward was enrolled in Great Fun after making a purchase on Beckett.com, a sports memorabilia site.  Neither, they alleged, intentionally or knowingly enrolled, but they were both presented with “enrollment offer” pages and entered personal information on those pages:

Edward alleged that, at the time he thought Beckett.com was collecting his information, not a third party, and Brian alleged the same.  Trilegiant has a record of Brian subscribing to their service under the username “SCHNABEL22.”  The confirmation page allegedly similar to what Edward saw says “your Online Price Guide subscription has also been sent to [your email address]”; and features, below the hyperlink “Click here to claim up to $20.00 Cash Back on this purchase!”, a “button” titled “See Details” with a legend beneath reading: “Click above to learn how to get $20 Back from Great Fun.”  But Great Fun is not further identified on the order confirmation page. 

Trilegiant alleged that only by clicking on “See Details” or “Learn More” would Edward and Brian have been brought to the enrollment page.  It wasn’t clear from the record whether they could have enrolled without ever seeing the enrollment pages by, for example, clicking instead on “Click here to claim up to $20.00 Cash Back on this purchase!” Because, the court concluded, even if they did see the enrollment pages no binding arbitration agreement was formed, the court didn’t need to resolve this question.

According to Trilegiant, neither could join Great Fun without affirmatively entering personal information including “city of birth” and a password.  However, they weren’t required to reenter credit-card information when signing up for Great Fun; Beckett and Priceline passed that on.  Indeed, the Beckett page said it was offering a “Special Award for Beckett Customers.” “Toward the bottom of the page, near an overview of some of the ‘Benefits’ of the program, though, there do appear the logos of several popular brands besides Beckett, suggesting that by accepting the offer, the purchaser will somehow be able to receive discounts when purchasing other goods or services.”  The message also promised savings at participating restaurants and “top attractions and activities.”  Small print said that “[t]here's no obligation to continue ... Great Fun benefits.... [The purchaser can] call us to cancel before the end of ... [the] FREE trial and owe us nothing[.]”

Next to the fields for city of birth and password there was a description of some of the general terms of the agreement, including that the purchaser’s credit card would be charged $14.99/month in the absence of cancellation. In addition, the text said that by clicking “Yes,” the purchaser (1) agreed that Beckett would transmit his credit card information to Great Fun, and (2) acknowledged that he read the Terms and Conditions.  Below that there were hyperlinks to a privacy policy and to Terms and Conditions.  Trilegiant said that clicking on the latter would produce a page with many terms, including the arbitration provision.

In addition, Trilegiant argued that it customarily emailed each newly enrolled member its terms and conditions; if the email bounced, it would send a paper version to the member’s billing addressed.  Edward acknowledged receiving several emails from Great Fun, but Brian denied it.  The court determined that this didn’t matter because even if they did receive the emails, the terms didn’t form part of a binding agreement between the parties. 

The arbitration provision provided that any dispute could be brought in small claims court or by binding arbitration, with a class arbitration waiver and Connecticut choice-of-law terms.

Edward eventually discovered the credit card charges; he’d never made any discounted purchases using the program. He asked for a full refund, but Trilegiant offered to refund only four of six months.  Brian also discovered thirty months of charges, and Trilegiant again offered to refund only four months.  They sued on behalf of a class for allegedly deceptive “data pass” practices.  Among other claims, they alleged the usual California claims.  Defendants moved to compel arbitration and the trial court ruled that plaintiffs had never agreed to arbitrate.

The FAA reflects a national policy favoring arbitration as long as the parties have agreed to arbitrate.  Whether they have done so is a matter for the court under state contract law.  The choice-of-law provision in the agreement (not shown on the enrollment screen) wasn’t determinative unless and until the court found that the parties agreed to it.  Fortunately it didn’t matter, since both relevant jursidictions (California and Connecticut) use substantially similar rules for determining whether the parties mutually assented to a contract term.

The key is the parties’ outward manifestations of assent, which can be words or silence, action or inaction, but the party must intend to engage in the conduct and know or have reason to know that the other party may infer assent from the conduct.  Trilegiant argued that plaintiffs assented to the arbitration provision by receiving the emailed terms and then not cancelling their memberships during the trial period.  Acceptance of a benefit may constitute assent, but only where the offeree decides to take the benefit with actual or constructive knowledge of the terms.

Where the purported assent is largely passive, contract formation often turns on whether a reasonably prudent offeree would be on notice of the term at issue. Clarity and conspicuousness is important to this question. There was no actual notice, so the court turned to inquiry notice and to whether plaintiffs’ conduct in enrolling in Great Fun, and then not cancelling their memberships before the free trial period expired, constituted an objective manifestation of their assent to the arbitration provision.

Assent is generally impossible without knowledge. Thus, an offer and its terms must generally precede acceptance.  But there are some exceptions: “The conventional chronology of contract-making has become unsettled over recent years by courts' increased acceptance of this so-called ‘terms-later’ contracting. Assent by receiving later terms and not cancelling is similar to the theory of shrinkwrap licensing.  Courts have found shrinkwrap licenses enforceable if consumers fail to return a product after reading, “or at least having a realistic opportunity to read,” the terms and conditions. Here, failure to cancel the Great Fun membership after receipt of the email arguably took the place of failing to return the product.  In the alternative, the contract may have been formed at initial enrollment, then its terms changed by the email, which was accepted by plaintiffs’ failure to cancel.  (Some authorities require consideration for contract amendments, but some of those hold that mutual arbitration supplies that consideration.)  These approaches differ in the timing of contract formation, but the court didn’t need to distinguish them here because the later-emailed terms were never accepted by the plaintiffs.  (The court noted that the initial enrollment page didn’t include a clause incorporating subsequent terms delivered by email, so it didn’t need to decide whether such a clause could bind the offeree to unknown “and effectively unknowable” terms.)

What is notice, in an age of infinite form contracts?  One can assent to terms one doesn’t actually read, but the offer must still make clear to a reasonable consumer both that terms are being presented and that they can be adopted through the conduct that the offerer wants to constitute assent.  An offeree isn’t bound by inconspicuous contractual provisions of which she’s actually unaware when contained in a document whose contractual nature isn’t obvious.  Here, an unsolicited email from an online business didn’t put its recipients on inquiry notice of the terms in that email and those terms’ relationship to a service in which they’d already enrolled, nor of the fact that a failure to act affirmatively by cancelling the membership would constitute assent.

In a footnote, the court also deemed the email unclear, whether deliberately or not.  The subject line, “Important information about your membership privileges” didn’t mention the contract or the terms. The body began with a welcome message and other details, including extensive discusison of “your great benefits.” The 13^th paragraph began the “Terms & Conditions,” with the arbitration provision following seven paragraphs later.  “But even had the email more clearly indicated that it contained an arbitration clause, the fact that it was delivered after enrollment and did not require any affirmative acknowledgment of receipt, undermines Trilegiant's assertion that the plaintiffs received sufficient notice to bind them to the additional terms through their inaction.”

It’s true that in the “modern commercial context, there are reasons to allow parties to contract without consideration of, and the possibility to negotiate, every term.”  But duty-to-read cases involving terms delivered after a contract begins don’t “nullify the requirement that a consumer be on notice of the existence of a term before he or she can be legally held to have assented to it.”  What’s sufficient inquiry notice depends on various factors including the conspicuousness of the term, the parties’ course of dealing, and industry practices, but the ultimate question is “whether reasonable people in the position of the parties would have known about the terms and the conduct that would be required to assent to them.”  In a shrinkwrap case, when a purchaser opens the package and discovers the additional provisions, she will understand that, unless she returns the goods, she’ll be bound.  (She will?  Love the empiricism here.)  So, she can’t begin to use the product until she’s been presented with the terms, whether she reads them or not.  Other examples of after-arriving terms are likewise rooted in the reasonable expectations of the parties. In many such cases, the language of the original agreement contemplates modifications.  Unilateral modification terms aren’t necessarily effective, but their inclusion at least bolsters the argument that the offeree is on inquiry notice when later terms arrive, “particularly where the modification (or amendment) is itself submitted in such a manner that a reasonable offeree would be likely to see it,” such as when it arrives with a bill.  (The court noted, however, that legislation in some states was needed to make this work for credit card terms, and then rather cryptically suggested that even without specific legislation such a practice “may” support a conclusion that a reasonable person would be on actual notice.)

Trilegiant argued that plaintiffs’ receipt of the email was enough to establish that they were on inquiry notice.  “But that someone has received an email does not without more establish that he or she should know that the terms disclosed in the email relate to a service in which he or she had previously enrolled and that a failure affirmatively to opt out of the service amounts to assent to those terms.”  Register v. Verio, by contrast, involved a prior/ongoing relationship between the parties.  “Nor would a reasonable person likely understand in some other way that disputes arising between him or her and Trilegiant were to be resolved by an alternative dispute resolution procedure.”

Also, email was different from shrinkwrap because “the recipient of the terms in this case would not have been confronted with the existence of additional terms before being able to benefit from Great Fun.”  Other cases approving amendments involved their presentation “during the course of maintaining and using the service to which the terms apply.”  Here, though, the arbitration provision “was both temporally and spatially decoupled from the plaintiffs' enrollment in and use of Great Fun.”  The critical connection between the terms and the goods/services was missing. 

A reasonable person “may understand that terms physically attached to a product may effect a change in the legal relationship between him or her and the offeror when the product is used.”  (So, I guess servitudes on chattels are okay now?) “But a reasonable person would not be expected to connect an email that the recipient may not actually see until long after enrolling in a service (if ever) with the contractual relationship he or she may have with the service provider, especially where the enrollment required as little effort as it did for the plaintiffs here.”  On these facts, the email wouldn’t have raised a red flag vivid enough to make a reasonable person anticipate a legally significant alteration in the contract. 

“To be sure, the ‘duty to read’ rule combined with the ‘standardized form’ contract makes it unlikely in many contexts that a consumer will actually read such a agreement beyond a quick scan, if that.”  The offeror doesn’t really expect customers to read, much less understand, the standard terms.  But formalities must be observed!  At the very least, consumers should be confronted with the terms they won’t read or understand “at a place and time that the consumer will associate with the initial purchase or enrollment, or the use of, the goods or services from which the recipient benefits,” since at least the consumer will be vaguely aware that there are terms “that may one day affect him or her.”  Here, however, “Trilegiant effectively obscured the details of the terms and conditions and the passive manner in which they could be accepted.”  The solicitation and enrollment pages, combined with the credit card passthrough, “made joining Great Fun fast and simple and made it appear—falsely—that being a member imposed virtually no burdens on the consumer besides payment.”

The court of appeals pointed out that shrinkwrap-approval cases often refer to the efficiency benefits of such contracting.  “Here, however, there is no policy rationale supporting Trilegiant's approach inasmuch as there are a plethora of other ways—such as requiring express acknowledgment of receipt of the terms—through which Trilegiant could have met the minimum requirements of notice.”  No case cited had found a contract formed/modified with a sequence and terms like this, and this court wasn’t going to be the first.

Lack of notice led to the next issue.  “A requirement that the plaintiffs expressly manifest assent to the arbitration provision together with such assent would likely have overcome the email's defects in providing notice.”  But the passive conduct of failing to cancel wasn’t enough, even if passive conduct may in other situations be enough to constitute assent.  “In order to constitute acceptance, the failure to act affirmatively must carry a significance that reasonable people in the parties' positions would understand to be assent. A party cannot require an evidentiary trial before a trier of fact simply by asserting that the other party assented through a failure to respond to proffered contractual terms.”  There has to be evidence that the offeree knew or should have known of the terms, and understood that accepting the benefit would be construed by the offeror as agreement.  Here, there was no inquiry notice, and auto-debited payments were too passive for any reasonable finder of fact to find a manifestation of an understanding of the existence of the arbitration terms and an intent to be bound in exchange for continued benefits from Great Fun.

What about the hyperlink on the enrollment screen to the terms and conditions?  Maybe it could have created a substantial question as to whether arbitration was part of the parties’ contract, but Trilegiant forfeited the argument by not raising it in the district court.  In a footnote, the court of appeals expressed a bit of skepticism, noting that previously it had concluded that a browsewrap provision only readable after scrolling down multiple screens wasn’t enforceable because it didn’t provide inquiry or constructive notice.

But this wasn’t a browsewrap or clickwrap case.  There was some indication next to the “click to subscribe” button that there were additional terms.  But by contrast to a typical clickwrap, the button didn’t explicitly refer to the terms by asking the user to assent to them.  Instead, it only suggested that the user would get benefits by clicking “yes.”  “[I]t seems likely that the district court not only did not mention the hyperlink, but pointed out the peculiarity of the fact that the enrollment screen did not seem to indicate to the user that he or she would be bound by additional terms, precisely because the issue was not raised.”

Query: how much does hostility to the credit card passthrough practice—so abusive that Congress was moved to try to stop it—drive the court’s conclusion?  The plaintiffs, and others who signed up for these “benefits,” often didn’t understand that they were signing up for a service at all, much less that the service would have arbitration provisions.  But, as the court acknowledges, in a world of unknown contract terms, what’s special about this one?  Is it possible for legitimate businesses to make arbitration so standard that a consumer has to expect that she’s signing up for one?

PLI briefing on Louboutin

With Gerald Ferguson, I will be participating in the upcoming PLI's One-Hour Briefing, Louboutin v.YSL:  Uses and Abuses of a Single Color as a Trademark on Fashion Goods, on September 20, 2012 from 1-2pm ET.  We'll be talking about what's next for aesthetic functionality and related topics.

Can fandom change society?

See best-selling author Naomi Novik and rock star professor Francesca Coppa on this PBS documentary of the same name.

Unofficial Illiniwek shirts

What's interesting about this complaint by the University of Illinois is that the unauthorized shirts prominently say "unofficial" across the front of the shirt.  Could that be any more clear?  Does it matter that the "Unofficial" is the name of a pre-St. Patrick's Day celebration popular on campus?

Today's Google doodle

Immediately vaulted into my top ten list of Star Trek fanworks.  Keep going until you get to the redshirt.

Standing in securities

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., No. 11-2762-cv 9 (2d Cir. Sept. 6, 2012)

The district court dismissed, for lack of standing, a putative securities class action on behalf of all persons who acquired certain mortgage-backed certificates issued under the same allegedly false and misleading registration statement, but sold in 17 separate offerings by 17 unique prospectus supplements.  The court of appeals reversed: the plaintiff had class standing to assert the claims of purchasers of certificates backed by mortgages originated by the same lenders that originated the mortgages backing plaintiff’s certificates, because such claims implicate “the same set of concerns” as plaintiff’s claims.  As my informant points out, this is a weird line for MBS (given the variety of lenders that could be involved), but perhaps less significant for false advertising plaintiffs.

Ripped from the headlines

The Obama tumblr.  Discuss.  (Start with this one.)

Rewards card didn't need to disclose annual fee in ads

Davis v. HSBC Bank Nevada, N.A., --- F.3d ----, 2012 WL 3804370 (9^th Cir.)

Davis alleged that defendants HSBC and Best Buy defrauded California customers by offering reward credit cards without adequately disclosing an annual fee. The court of appeals affirmed the dismissal of the complaint.

Defendants advertised their Reward Zone Program MasterCard (RZMC) as providing, among other things, the ability to obtain reward certificates as well as exclusive bonus point offers to earn rewards more rapidly.  Davis applied online for the RZMC after reading a newspaper ad promising a $25 reward certificate for the first purchase with the card.  He read a webpage called “Program Rules—Best Buy Reward Zone” and one called “FAQ's.” Neither mentioned an annual fee.  The application did disclose “Important Account Credit Terms,” though in a scroll-down box; ticking a check-box stating “I agree” was required to continue.  When Davis received his card, he also got seven brochures, one of which disclosed a $59 annual fee for the card.  Turns out, toward the end of the scroll box, that was disclosed.  Davis asked HSBC for a waiver of the annual fee, but HSBC declined.  “Instead of canceling the card, Davis refused to activate it and continued to pay the annual fee for five years.”  He also filed a class action complaint alleging the usual California claims.

Davis argued that the district court erred in taking judicial notice of three disclosure documents not attached to the complaint.  But the complaint alleged their contents—it said that only part of the online terms were visible, that the Cardmember Agreement and Disclosure Statement didn’t mention the annual fee, and that the Additional Disclosure Statement did.  Davis didn’t challenge the authenticity of the documents.  Whether he had access to and reviewed the documents was unrelated to their authenticity. Thus, the district court properly considered them.

The court of appeals then agreed that no reasonable consumer would have been deceived by Best Buy’s ads into thinking that there wouldn’t be an annual fee.  There was no allegation of actual falsity, such as a misrepresentation that the card would be free.  Nor was failure to mention the annual fee enough.  “Given the advertisement's legible disclaimer that [o]ther restrictions may apply,’ no reasonable consumer could have believed that if an annual fee was not mentioned, it must not exist.”  (While I’m with the court on the general conclusion, I don’t think a fee is a “restriction.”) 

Davis argued that the promise of reward certificates beginning with the first purchase implied that no offsetting charges would operate to “nullify” those rewards, making the promised reward misleading.  The court disagreed; many things could offset the cash value of any rewards, such as monthly interest charges and late fees.  “It defies common sense to claim that this tradeoff would lead a rational consumer to conclude that any credit card that offers rewards for spending must therefore not have associated costs of ownership.” 

Davis’s claim for fraudulent concealment likewise failed because he couldn’t show justifiable reliance on the failure to disclose the fee.  Though reliance is generally a factual question, here reasonable minds could come to only one conclusion.  Davis concededly failed to read the terms and conditions before checking the “I agree” box, and that wasn’t reasonable for an arm’s length transaction.  If he had read all the way, he would have learned of the annual fee. His alleged reliance on the purported misrepresentation was manifestly unreasonable.  The court noted that the common law is more rigid than various statutory schemes, such as TILA, which require clear and conspicuous disclosure.

The court similarly rejected UCL claims.  Defendants argued that their annual fee disclosure complied with and was required by TILA and Regulation Z, making their conduct fall within a safe harbor for UCL purposes.  The court agreed that the disclosures in the online application were within the safe harbor, but not the ads.  There’s a safe harbor where the legislature has specifically permitted certain conduct or considered a situation and concluded that no action should lie.  This requires another legislative provision actually barring the action or clearly permitting the conduct.  TILA and Regulation Z’s requirement for certain disclosures in applications for revolving consumer credit constituted such a safe harbor.  Although the rules directly govern only issuers, not retailers like Best Buy, the safe harbor immunizes conduct, not entities, so Best Buy could also rely on the safe harbor.

However, the ads didn’t disclose the annual fee, so they weren’t within the safe harbor unless the omission was permitted by statute or regulation, which it wasn’t.  Davis alleged that the ads were unlawful under the UCL, borrowing an OCC regulation stating that banks were not allowed ot engage in unfair or deceptive practices within the meaning of §5 of the FTCA.  But the court had already found that the ads weren’t deceptive under the FAL; neither were they deceptive under the FTCA.  For the same reason, they weren’t fraudulent under that prong of the UCL.

Likewise, they weren’t unfair under the FTCA.  Unfairness requires “substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”  Davis’s injury was reasonably avoidable. “Other restrictions may apply” should have motivated a reasonable consumer to consult the terms and conditions.  (Again, this seems like the wrong reason—I would understand “other restrictions” to mean “not everyone will be approved for this credit card.”)  The online application “used boldface and oversized font to alert Davis to the Important Terms & Disclosure Statement, instructing him to ‘read the notice below carefully.’” This was enough to allow him to avoid the harm, and he could also avoid it after opening the account by closing it within 90 days.  He didn’t want to do so because of the negative impact on his credit score, but mitigation doesn’t have to be costless to be counted.

Unfairness under the UCL is assessed differently than under the FTCA, and the definition is currently in flux, but it didn’t matter on these facts.  Any harm Davis suffered resulted from his own behavior, and Best Buy had a good justification for publishing the ad: Regulation Z, though it doesn’t expressly permit this type of ad, doesn’t require disclosure where an ad doesn’t include specific terms that trigger additional disclosures.  Thus, Best Buy justifiably relied on federal guidance in creating its ad.

Buyer-approved substitution doesn't violate Lanham Act

Suntree Technologies, Inc. v. Ecosense Intern., Inc., --- F.3d ----, 2012 WL 3832458 (11^th Cir.)

District court opinion blogged here.  Suntree appealed the grant of summary judgment to defendants on Suntree’s false advertising and trademark claims.

Suntree and Ecosense make stormwater treatment structures called baffle boxes.  The City of West Melbourne sought bids for a stormwater quality project.  The bid documents required baffle boxes “to be provided by Suntree Technologies, Inc. or approved equal. Construction details and specs are identified by Suntree Technologies, Inc. Approved equal shall meet or exceed Suntree Technologies, Inc. specifications.”  Under Florida law, the city couldn’t designate Suntree as the sole approved manufacturer absent a showing of special circumstances. 

 

The bid solicitation required bidders to list subcontractors and suppliers, and stated that the list couldn’t be changed without written consent from the city’s engineer.  In addition, the instructions said that the contract would be awarded on the basis of what was described in the bidding documents without considering possible substitutes or equals.  Such substitutes could only be applied for after the contract was awarded, through a specified approval process.  The documents also said that “[w]henever an item of material or equipment is specified or described in the Contract Documents by using the name of a proprietary item or the name of a particular Supplier, the specification or description is intended to establish the type, function, appearance and quality required.”   “Rather than incurring the expense of pre-approving an additional, less expensive supplier, the engineers for the City and County decided to use Suntree's name in the bidding specifications.   If the contractor who was awarded the project found a less expensive baffle box that was approved to be of equal quality to Suntree's, the benefit of the reduction in cost would go to the contractor.”

Derrico submitted the low bid.  Derrico’s bid listed Suntree as the supplier because Derrico didn’t know if a substitute would be accepted.  After the bid was accepted, Derrico requested approval of Ecosense baffle boxes as an “equal” substitute.  The city’s representative reviewed the specs and inspected an installed Ecosense baffle box, then approved it.

After the project was finished, a county engineer requested that Ecosense prepare a PowerPoint to train city personnel on cleaning and maintenance.  The presentation showed baffle boxes being cleaned and maintained by City of Rockledge workers.  This city was close to Ecosense’s office, the crew was well-trained, and Ecosense had a good relationship with the city.  (Good example of not-formally-relevant facts inserted to explain the situation.)  Both Ecosense and Suntree baffle boxes had been installed in Rockledge, so the presentation had photos of both, though Suntree’s name didn’t appear in the presentation.  Ecosense gave the presentation to West Melbourne and to Titusville, another current customer.  It was on Ecosense’s website for three months, but Ecosense took it down when Suntree complained.

Suntree sued Ecosense and Derrico; Derrico settled by agreeing that it wouldn’t attempt to substitue other products for Suntree products in future bidding.  (This seems a bit … anticompetitive.)  As part of the settlement, in provided evidence that even before it began bidding, it planned to use Ecosense products and based its cost estimates on Ecosense products, but listed Suntree because it would have a greater chance of winning the bid.  It would have installed Suntree products only if it had to, if the city had denied its substitution request, but it would have upheld its commitment to the city in that case.

In discovery, Ecosense produced a brochure that displayed pictures and descriptions of its products; one photo showed a maintenance worker looking into the open hatch of a Suntree baffle box.   Ecosense destroyed all copies of the brochure except one exemplar for the litigation.

Suntree argued that listing Suntree as the baffle box supplier infringed its trademark, and that Ecosense was liable for Derrico’s conduct.  The district court held that Suntree failed to prove direct infringement, without which there could be no contributory infringement.  The district court didn’t err by deeming most of the usual confusion factors unhelpful and irrelevant (strength, similarity of marks, similarity of products, similarity of marketing channels, similarity of advertising media).  Derrico didn’t use Suntree’s mark to identify Ecosense’s product.  The key question was whether there was a genuine issue of material fact over whether Derrico “used Suntree’s reputation to win a bid and then used a ‘bait-and-switch’ tactic to substitute Ecosense's baffle boxes for those of Suntree.”

The court of appeals agreed that Suntree failed to present any evidence of intent to confuse the city about the source of the baffle boxes.  The undisputed testimony was that Derrico intended to substitute Ecosense boxes unless “no substitute was allowed.”   Equal substitutions were specifically allowed in the bidding documents, which was what Derrico was pointed to when it asked.  Undisputedly, listing Suntree in the bid complied with the instructions to bidders, which told them that the contract would be awarded without considering substitutes/equals and that those should be considered after the contract was awarded.  Thus, Suntree failed to show an intent to deceive the city or an attempt to hide an intent to seek “equal” approval.

Moreover, Suntree failed to show any evidence that the City was confused at any time, whether in its “initial interest” or later, about the quality of baffle boxes required or the fact that contractors could request approval of substitutes.  Again, the bidding instructions said that naming Suntree (or any specific producer) was “to establish the type, function, appearance and quality required” for use in the project.   Without evidence of intent to confuse or actual confusion, the court declined to reach the general question of whether initial interest confusion was actionable in the Eleventh Circuit.  (As with Louboutin, we have a very thin language of “that’s not what trademark is for,” but that concept is clearly the driving force here.)

False designation of origin claims based on the brochure and PowerPoint also failed.  Suntree argued that Ecosense’s use of photos of Suntree boxes constituted attempted reverse passing off.  In such cases, most of the usual confusion factors are irrelevant.  Suntree failed to show Ecosense intended to tout Suntree’s product as its own, and Suntree’s immediate response to Ecosense’s complaint supported its lack of intent to confuse.  There was no evidence of confusion.  Ecosense prevailed (without needing to challenge validity—which should have been the first step; unless Suntree’s product configuration is nonfunctional and has secondary meaning, how could there be a reverse passing off claim after Dastar?).

As for the false advertising bit, the first question was whether Ecosense’s acts occurred in commercial advertising or promotion.  Suntree failed to show a genuine issue of material fact on

whether the brochure and PowerPoint presentation were created “for the purpose of influencing consumers to buy defendant's goods or services” and that they were “disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.”  The presentation was created at the request of an existing product, for customers who’d already purchased it.  The engineers who worked on the project testified “that brochures would not be at all helpful in their determination as to whether or not they would buy, or allow use of, a product like a baffle box.”   Suntree also failed to offer evidence that the brochure was disseminated to any potential customers. Though in small markets small distributions may suffice, Suntree failed to put forward any evidence about the number of potential consumers to whom the statements were disseminated.  

Again, I wonder: shouldn’t Ecosense get its fees for this anticompetitive lawsuit?  Certainly the trademark claim is an unprecedented attempt to create liability from what seem to be standard bidding practices with very clear contractual provisions about substitution.