TTAB gets registration defense to dilution right

The TTABlog reports on the case here.  By its terms, the statute clearly says that dilution claims, whether state or federal, are unavailable against registered marks.  One would first have to bring a successful cancellation claim against the mark, then bring a dilution claim.  (Under the FTDA, the ban was only on state dilution claims against federally registered marks; I worked on a case in which this ban was successfully applied by the defendant, who had a registration.) 

The TTAB applied the statute as written, despite arguments that its current wording was an accident; the statute as written makes plenty of sense and the TTAB has no authority to rewrite it (nor do federal courts).  One implication, apparent here, is that you can't use a dilution claim to cancel a registered mark either, or the prohibition wouldn't be any help.  Another is that, if you have a famous mark, you should damn sure be monitoring what marks are published for opposition.

Trademark prof on vacation, part 2

Chicagoland edition.  Start with a classic, Penguin Road:

 Claw & Order:

Hairy Otter: 

 Jersey Shoreline: check out the abs on that shark!

 Luke, I am your Otter!

The Otters Strike Back (on mugs and T-shirts)

My favorite: cross-marketing with actual Star Wars merchandise, which otherwise has no particular reason to be at an aquarium: 

Misrepresentation of "likes" on Facebook?

This story indicates that there are multiple ways that your interaction with a webpage might increase its likes, only one of which involves clicking "like."  Misrepresentation?  Violation of the FTC endorsement guidelines, which require not just consent but honest opinion?

statements to trade journal may be actionable false advertising

Design Resources, Inc. v. Leather Industries of America, 2012 WL 4580982 (M.D.N.C.)

Plaintiff DRI is in the “leather products” business, selling bonded leather products under the NextLeather brand.  Defendant LIA is a trade association of American leather tanners and suppliers.  Defendant Cory (dismissed for lack of personal jurisdiction) is the technical director/editor of LIA and director of the Leather Research Lab at the University of Cincinnati; LIA and the LRL share the same website and allegedly present themselves to the general public as affiliates with identical interests.  Defendant Ashley Furniture Industries is a big furniture manufacturing company; defendant Wanek (also dismissed) is its president and CEO.  The complaint centers around defendants’ alleged false advertising and disparagement of DRI’s bonded leather products.

Statements by Dr. Cory, allegedly made for and on behalf of LIA, formed the basis for DRI’s Lanham Act claims against LIA.  Whether the statements were in fact made as an agent was a factual issue inappropriate for resolution on a motion to dismiss; the allegations that this was so were sufficiently plausible.  There were two sets of statements at issue: first, statements made in an article published in the trade journal Furniture Today, and second, alleged comments to Ashley Furniture.

The Furniture Today article, “Chemist fears confusion over imitators may hurt category,” described Cory's concerns over a new form of bonded leather and said he was “crusading to educate people about this new leather imitator.”  The “original form of bonded leather” was said to consist of “a sheet of ground-up leather fibers embedded in a latex matrix, bound together with a fixative,” compared to the “new bonded product,” which “features several layers of laminated material.”  According to Cory, “[t]hese layers include a polyurethane finish; a thick layer of non-woven polyurethane-type material; a woven synthetic textile; and a thin layer of leather fibers that have not been bound to each other but glued to the underside of the laminate.”  He continued, “To call it ‘leather’ is outright deception, outright fraud.... It's not leather.... It's a synthetic that has leather fibers glued to the underside…. If tanned hide or skin has been disintegrated mechanically and/or chemically into fibrous particles, small pieces or powders, and then with or without a bonding agent is made into sheets or forms, such sheets or forms are not leather.”  The article didn’t mention DRI or NextLeather by name, but DRI alleged that it was the first to market and that the article was carefully timed to coincide with important market shows, thus harming DRI to the benefit of LIA’s members.

DRI alleged that Cory also communicated to Ashley—DRI’s largest competitor—and other competitors that DRI was misrepresenting NextLeather as bonded leather in order to fool consumers.  This “supported” Ashley’s own “smear campaign.”  Among other things, Cory allegedly falsely told Ashley that DRI forged emails between him and DRI.

In 2007, Cory received a swatch of material from Ashley, which requested “a ‘ruling’ on whether the material [could] be marketed as ‘Bonded Leather.’”  He prepared a report finding that it represented a “clear departure from the recognized description of ‘bonded leather,’” and Ashley that the material “should not be described as [bonded leather] because it would misrepresent the product and confuse the customer…. Overall, this product represents a fresh marketing opportunity that can only be maximized by emphasizing its differences to bonded leather.” While DRI argued that this was NextLeather, the report just said it was material received from Ashley.

DRI argued that Cory’s statements and Ashley’s campaign deprived it of a unique opportunity to capitalize on its position as the first to market this novel bonded leather product and create a new market niche.  It alleged that defendants were jointly and severally liable for false advertising.  The court had serious reservations that DRI’s allegations were sufficient on joint and several liability, but that wasn’t challenged at this stage.  In a footnote, the court suggested that sharing the same legal counsel wasn’t close to supporting the claim that the Leather Research Lab and LIA were a conspiracy or joint venture, and that sharing a website might support a reasonable inference as to a joint venture “as to the matters specifically addressed on the website, but not as to other matters.”

LIA argued literal truth, lack of commerical advertising or promotion, and lack of materiality.  For purposes of the motion to dismiss, the court rejected each argument.  First, a statement might be literally true but misleading; this was better addressed on summary judgment, given that DRI had identified specific statements and provided some context to support its allegation of deceptiveness.  Second, using Gordon & Breach (as other circuits and district courts in the Fourth Circuit had done), Cory’s statements were plausibly alleged to be commercial advertising or promotion, given Cory’s role in LIA, which allegedly represents the leather industry, including by performing marketing services.  Though LIA doesn’t itself sell leather goods, it is an industry organization, and its marketing services might be sufficient to meet the Gordon & Breach requirements—that too would better be addressed on summary judgment.  Though defendants argued that Cory’s statements were protected by the First Amendment, false and misleading advertising isn’t shielded by the First Amendment, and further factual development was required to figure out whether they fit in that category.  As for materiality, DRI sufficiently alleged damage to its reputation and market share, which allowed the reasonable inference that the statements were both likely to influence and did influence purchasing decisions.

The state law claims also survived, in part given unresolved choice of law questions; the court noted that this would not be burdensome because the Lanham Act claims would require discovery anyway.

Aesthetic/haptic functionality

Farhad Manjoo on the new iPhone (which I won't buy until it has Google Maps):

If I tell you the greatest thing about the iPhone 5 is how it “feels,” you’ll accuse me of being a superficial aesthete who cares more for form than function. You don’t care how a phone was built or how it looks; you just want it to work. But I think that argument misses something important about what it means for a phone to “work well”: When you’re holding a device all the time, how it feels affects its functionality. Or, as Steve Jobs might say, how it feels is how it works.

False marking claim fails on nearly all elements: can it ever succeed?

Two Moms and a Toy, LLC v. International Playthings, LLC, 2012 WL 4510686 (D. Colo.)

Two Moms sued IPT for patent infringement based on some toys called Yookidoo, which were also allegedly falsely marked “patent pending,” and which deterred potential licensees and consumers from buying from Two Moms for fear of infringing a patent.  IPT allegedly knowingly used the false marking because it was represented by competent patent counsel and was informed in 2011 that the toys were unpatented but continued to mark them.

The false advertising, false marking, and deceptive trade practices claims were dismissed.  It was undisputed that there was no patent on the defendants’ toys and no patent application.  But Two Moms failed to provide an objective indication to reasonably infer that the defendant was aware of the unlawful conduct.  Merely alleging that IPT was represented by competent counsel was insufficient.  And alleging that it continued to sell the falsely marked product after being notified of the problem was a mere conclusory allegation: Two Moms failed to identify its evidence that IPT continued to apply a patent pending label to the toys after it was advised that there was no such patent application.

In addition, Two Moms didn’t adequately plead competitive injury, because it wasn’t a competitor.  And it didn’t identify any potential licensee who was deterred or expressed concern over IPT’s false marking.  The same problem deprived it of Lanham Act standing.  And Colorado law requires a knowingly deceptive trade practice, which Two Moms had failed to allege, as found above.

False claims to have a patent not actionable; likely immaterial

Marvellous Day Elec. (S.Z.) Co., Ltd. v. Ace Hardware Corp., 2012 WL 4579511 (N.D. Ill.)

Marvellous Day sued Ace, Holiday Bright Lights, and an officer of HBL, for patent infringement, false patent marking, and false advertising under federal and state law.  The court dismissed everything but the patent infringement claims (and stayed them pending reexamination).  Marvellous Day owns a design patent for an LED light bulb, which it sold to HBL, which sold them to Ace.  They were advertised as “always lit,” meaning that when an individual bulb is damaged or burned out the remaining lights will remain lighted and the individual bulb can be replaced without extinguishing the remaining lights, for easy replacement.

HBL then began selling similar light sets not produced by Marvellous Day, still advertised as “always lit,” but not replaceable when the bulbs are broken and burned out.  Marvellous Day also alleged that Ace falsely advertised that the allegedly infringing bulbs were patented.

The court held that Marvellous Day lacked standing because it didn’t allege that it competed either with Ace or HBL.  The parties operated at different levels of the distribution chain.  Even assuming standing, it failed to allege materiality and causation.  “It fails to offer any qualitative, quantitative, or even anecdotal evidence that might provide some basis to support its conclusory claim that the ‘always lit’ phrase is material to consumer purchasing decisions.”  Arguing that “always lit” misrepresented an inherent quality or characteristic of a product was insufficient.  But some “inherent” qualities could be totally irrelevant, such as what metal is used in the internal wiring of Christmas light strands.  Materiality wouldn’t be presumed from that allegation.  (This seems different from saying that Marvellous Day needs to plead specific evidence, a more stringent standard.)

Causation was the same.  Marvellous Day never alleged that it lost sales due to defendants’ ads, and being at a different part in the chain made it unlikely, since there was no indication that it sold directly to consumers.  “Any injury to Marvellous Day would be at least one step further removed, occurring only if and when its own customers decreased their orders on the basis of reduced retail demand for Marvellous Day's lights.”

This failure of the Lanham Act claims also destroyed the Illinois state law unfair competition/deceptive business practices claims.

The patent-based false advertising claims failed for those reasons and because Marvellous Day didn’t even allege falsity.  The court also thought it was highly unlikely that the claim was material to consumers.  And the requisite intent for the false marking claim wasn’t alleged with anything but a generalized allegation of intent to deceive, which was insufficient.  There needed to be objective evidence that would allow a reasonable inference of intent to deceive.

The left hand of false advertising: isomer misrepresentations lead to liability

Merck Eprova AG v. Gnosis S.p.A., 2012 WL 4510668 (S.D.N.Y.)

Merck sued Gnosis, which makes and sells raw ingredients to nutritional companies, for false advertising in connection with a folate nutritional ingredient.  The court held a bench trial and found that Gnosis falsely advertised its product using a chemical name, abbreviation, chemical formula, and Chemical Abstracts Services registry number (“CAS number”) “reserved for Merck's purer folate ingredients.” The court found Gnosis directly and contributorily liable under the Lanham Act, but not under NY state law, and awarded Merck half a million dollars in damages, along with an injunction and attorneys’ fees.

The basic issue is that Gnosis marketed its folate product, a mixture of the “active” S-isomer and the “inactive” R-isomer, using terms and the chemical formula for the pure S-isomer product.  (The R-isomer in this case isn’t naturally occurring, is inactive in the body, and is arguably unhealthy.)  Gnosis argued that its terminology was an accurate use of scientific naming conventions.  It acknowledged that it used the incorrect chemical formula and CAS number on some documents, but argued that this (and some other materials) weren’t “advertising or promotion.”

Merck calls its Metafolin, which has just the S-isomer, “L-5-methyltetrahydrofolic acid, calcium salt” (common name) and L-5-MTHF (abbreviation).  Gnosis formerly used the same common name and abbreviation in connection with Extrafolate, its R,S mixture, on product specification sheets, product data sheets, material safety data sheets, certificates of analysis, emails to its agents and customers, purchase orders, and other marketing materials, though it stopped two years into this litigation.  The parties disputed the signficance of the L prefix.  Merck’s experts argued that a mixture product should use D,L or no prefix instead.  Gnosis argued that, under certain naming conventions, the same common name and abbreviation could properly be used to describe its product.

A pure S-isomer is hard to make and represented a significant investment by Merck.  Metafolin is one of Merck’s most important products, with over $100 million spent on marketing and promoting the product.  “Merck's customers often tout as a selling point the fact that their products contain the substantially pure S isomer.” 

Extrafolate entered the market in 2006.  It was far less costly to produce, and sold for 1/3 the price of Metafolin: $14,000 per kilo of Metafolin in 2005 and $4,500 per kilo of Extrafolate in 2007.  Gnosis sold by, among other things, attending trade shows, distributing brochures, making PowerPoint presentations, maintaining a website, and making in-person visits to potential clients.

Gnosis used product specification sheets in the sales process to communicate to customers the exact contents of the product being sold, and the sheets were frequently requested by potential customers.  Though Gnosis acknowledged that the chemical names for the mixed and pure products were different, its product specification sheets at one time erroneously listed the chemical name for the pure product.

In brochures, Gnosis also used the L prefix to describe its product.  And the brochures listed as product features characteristics associated with the pure product, including that it was the naturally predominant folate form, it was the nutritionally active form, and it was the essential form in which natural folates occur and are stored in the human bloodstream.  Similar things occurred with product data sheets, certificates of analysis, and material safety data sheets. 

The upshot: “By offering a product that appeared identical to Merck's 6S Isomer Product, but that was far less costly due to its mixed chemical makeup, Gnosis captured many of Merck's former customers by underselling Merck. Consequently, Gnosis was able to take a significant portion of that market from Merck.”

Because hope springs eternal, Gnosis challenged Merck’s prudential and constitutional standing.  The parties were direct competitors, and Famous Horse doesn’t even require direct competition.  As for constitutional standing, the court had no difficulty finding injury in fact.  (This argument seems frivolous to me; the court also noted that Gnosis was “apparently unconvinced” by the court’s previous rejection of an FDA preemption argument and thus renewed it.)

The court found literal falsity in the use of the wrong chemical name and CAS number on product specification sheets. These were commercial advertising, not isolated statements; they were widely distributed to attendees at a trade show and sent to potential customers.  And the falsehood about the “very nature” of what was for sale was material, especially since the chemical name was the only way to distinguish between the pure and mixed products sold by Gnosis.  The court also presumed injury because of the literal falsity.

Gnosis put up more of a fight on the common name and abbreviation, but the court still found literal falsity.  The materials at issue were widely distributed—while safety sheets accompanied shipments to existing customers, they were also sent in response to customer inquiries, and so they and the other materials were commercial advertising.

Literal falsity: Merck presented evidence that the common name and abbreviation Gnosis used refers only to the S-isomer under existing conventions in the scientific community and the industry.  (Note that in specialized industries, courts often allow expert testimony to establish meaning to the relevant community; this converts potentially ambiguous terms to terms with a literal meaning and allows the plaintiff to avoid presenting a consumer survey.  I think courts should be more willing to do this with expert testimony instead of surveys even in cases involving the meaning the general public gives to a term.)  Merck pointed to documents from UN, WHO, and the European Food and Safety Authority using the term in the way it did, as well as various scientific articles.  The court rejected Gnosis’s argument that the articles were authored or “influenced” by Merck and were therefore not worthy of weight; that wouldn’t change the fact that the terms were “consistently used in the manner that Merck promotes.”  Gnosis’s own expert conceded that he wasn’t aware of scientific or scholarly articles in which the terms were used to refer to anything other than the pure isomer.  Gnosis even referred to Extrafolate by a different nomenclature, which Merck argued was right for mixtures, in its own internal documents and patents.

Gnosis relied on the testimony of one expert, Dr. Siegel, who argued that Gnosis’s use of the common name and abbreviation was “reasonably derived” from existing conventions.  The court characterized this as “a largely esoteric and at times metaphysical discussion of the intricacies of scientific nomenclature and the limits of language to approximate and explain the chemical composition of stereoisomers. Although at times fascinating, the testimony was largely beside the point for the simple reason that the Lanham Act and the law generally require inquiry into whether a particular use is ‘susceptible to more than one reasonable interpretation.’”  

But Siegel’s testimony failed to demonstrate such an ambiguity.  Though he was credible, his testimony “spoke to a theoretical use of the contested terms that bordered on the aspirational, not to how those terms are actually used.”  He criticized misuse of nomenclature in articles and inconsistent use of various terms.  “But, even if some terms are misused, he ultimately did not dispute that these terms are consistently used in the way Merck contends that they should be.”  Gnosis couldn’t show a single organization or article that used the common name or abbreviation the way Gnosis did.  Gnosis’s use alone couldn’t render the meaning of the terms ambiguous.  The court also specifically found Gnosis’s explanation of how it came to use the name to be fanciful and false.  The witness upon whom Gnosis allegedly relied in naming the product testified that he relied in part on two or three articles that used the term for the mixed product, but he couldn’t produce any such articles.

Gnosis argued that it was improper for courts to impose definitions and naming conventions on scientists, and that a ruling in favor of Merck would contradict leading stereochemistry treatises.  But the court held that it was not dictating terms to scientists or cutting off debate on nomenclature at conferences and in scientific papers, which aren’t advertising.  This case involved the common name and abbreviation “as they are used today in the advertising of folate products.”  

Gnosis’s use of the common name and abbreviation “was a calculated decision to copy Merck's advertising and capture a portion of Merck's market share, knowing full well that its 6R,S Mixture Product was materially distinguishable from Merck's pure 6S Isomer Product.”  The other elements of a Lanham Act claim were satisfied as well.

Separately, the court addressed Merck’s claim that Gnosis falsely claimed that its mixed product had the attributes of the pure isomer in the same documents.  Statements that the product was the natural form of folate and the essential form in which folates are stored in the human body, and statements describing chemical properties of the pure isomer, were literally true applied to the pure isomer but impliedly false when applied to the mixture.  The statements were also intended to mislead.  Thus, there was a presumption of deceit given Gnosis’s egregious misstatement. 

Comment: This presumption may well be justified, but I don’t see why it’s in any way necessary.  If the natural form is the pure isomer, and so on, then making these statements about the mixture seems literally false.  I think the court is saying that the statements are literally true as factual statements—that is, “the pure isomer is the natural form of folate” is true—but if they’re on ads for something that isn’t the pure isomer, surely that’s falsity by necessary implication: it’s as if I said “organic apples are grown without pesticides” on my jug of conventionally grown, pesticide-residue-having apple juice.  The only way for a reasonable human reader to understand that statement is as a statement about the actual contents, not as an interesting but irrelevant observation.  Regardless, Merck established another Lanham Act violation.

Merck didn’t succeed in having Gnosis’s use of the terms on purchase orders declared a violation of the Lanham Act, though, because those weren’t ads.  Purchase orders weren’t ever used in marketing, only included with shipments.

Contributory false advertising was an available cause of action under the Lanham Act: intentionally inducing false advertising, or continuing to supply a product to one the defendant knows or has reason to know is engaging in false advertising, results in contributory liability.  Gnosis’s false use of the common name caused its distributors to also falsely advertise.  (Interesting question in some circuits whether Merck would have standing, since it’s not necessarily competing with distributors, though here there was an exclusive US distributor for at least part of the relevant period.)

The state law deceptive trade practices/false advertising claims failed because of the requirement that the challenged act or practice must be consumer-oriented.  Cases in which the core of the harm is to another business, not to consumers, fall outside the scope of the law.  Though Merck’s experts posited some negative health consequences associated with the R-isomer, they hadn’t been definitively established as associated with the mixture.

Merck sought damages in the form of three times Gnosis’s profits.  Profits are awarded to deter, to prevent unjust enrichment, and to compensate.  Willfulness is required to recover profits, but isn’t sufficient; other equitable factors must be considered.  The court was convinced that Merck was entitled to an award of profits.  “Gnosis's conduct during its advertising campaign and this litigation reveals its disdain for the law and this Court that is nothing short of appalling.”  (I’ve omitted mention of some previous sanctions.)  The court had little reason to believe that Gnosis would comply with anything short of a full accounting.  And, though Gnosis stopped using the false terms, “it had long used these terms to gain a valuable entry into the folate market, all while enhancing its ability to manufacture a pure 6S Isomer Product.”  Disgorgement was necessary to deter it, and other pharmacos, from trying to gain an “enviable” market position with minimal cost.  The record of deliberate and willful false advertising was clear, and Gnosis had no reasonable explanation for it, only a post-hoc justification “divorced from scientific conventions.”  The court made particular note of the fact that Gnosis’s internal documents, by contrast to its ads, used the conventional terms. 

Gnosis continued to use the false terms for almost two years after Merck sued.  Continuing a claim once challenged in court is not necessarily bad faith, but where the evidence shows that the defendant “gave short shrift to plaintiff's claim out of arrogance,” a finding of willful infringement is appropriate, as it was here.  Among other things, Gnosis failed to issue a litigation hold and deliberately flouted court orders during the course of discovery.  And the court found that Gnosis’s principal officers lied at trial.  Equity supported an award of profits.

Gnosis failed to prove its costs to deduct from its sales, since it only showed its costs from years after the profits at issue in this case.  And it didn’t provide any breakdown, only a total number.  “[G]iven the Court's findings about the credibility of Gnosis's witnesses, the Court is not prepared to accept these figures without justification.”  But the profit calculation didn’t sufficiently reflect the harm in this case.  Plaintiff’s damages may only be trebled, but an award of profits may be increased without an identified limit to “such sum as the court shall find to be just” if “the amount of the recovery based on profits is ... inadequate.”  The only limit is that the award should be compensatory, not a penalty. 

Here, the award had to be increased in order to compensate Merck for Gnosis’s improved market position as a result of its false advertising.  Merck was the only manufacturer of the pure product when Gnosis entered; “Gnosis's very existence as a competitor was predicated on its misdeeds. Consequently, Gnosis's sales in that market even after it corrected its advertising—and therefore after the window for accounting—stemmed from its initial deception.”  A profits award only from the period of false advertising didn’t capture that, or Merck’s loss of market share, customer loyalty, and potential customers.  Merck asked for an award of three times Gnosis’s profit, and the court thought that was appropriate, albeit crude.  Moreover, though the goal was compensation, deterrence was also relevant, especially since the court wasn’t going to grant much of Merck’s requested injunction.  (Given how overbroad Merck’s request was, as we’ll soon see, I think this would be better cast as: deterrence was also relevant, and money would be combined with injunctive relief.)

Merck wanted the court to enjoin Gnosis from misusing the terms at issue and from selling any methylfolate product for five years, and also wanted a corrective advertising campaign.  Irreparable harm requires a showing of competition plus a logical causal connection between the false advertising and the plaintiff’s own sales position; this had been shown.  Damages were only partial compensation for the change in market position.  Thus, Merck was entitled to an injunction.  Gnosis argued that no equitable relief was appropriate because it stopped using the terms at issue, but the court wasn’t confident that it wouldn’t repeat its misbehavior in the absence of an injunction.

The court enjoined Gnosis from labeling its mixture with names for the pure isomer.  Merck wanted an injunction against the use of the chemical names/abbreviation on any product, but there was no reason to preclude Gnosis from using those terms “so long as they accurately reflect the product they advertise.”  Nor would the court ban Gnosis from the methylfolate market, given the injunction and damages; a market ban wouldn’t be narrowly tailored to the unlawful conduct and would put an unnecessary burden on lawful conduct, and would harm the public by artificially inflating prices.  But the court did order corrective advertising, to be approved by the court with input from Merck; the parties could also elect to have Merck do the corrective advertising, compensated by Gnosis.  (I’m betting Gnosis wants to do the corrective ads.)

Merck also got its fees, because the false advertising was willful and much of the litigation was conducted in bad faith.

Registration is a diamond's best friend

Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., --- F. Supp. 2d ---, 2012 WL 4574140 (E.D. Va.)

An old-school priority case!  This one might go nicely in a casebook update.  Plaintiff Diamonds Direct has used its mark in North Carolina since 1996.  In January 2012, BFJ, d/b/a Capri Jewelers, registered “Diamonds Direct” with the Virginia State Corporation Commission after it learned that Diamonds Direct intended to open a store in Capri's home market, Richmond, Virginia.  It did so to protect its position in the Richmond market because of its prior use of similar marks.  The parties brought cross claims for an injunction.  Capri won.

Diamonds Direct started in Charlotte, and expanded to Raleigh and Birmingham, Alabama in 2008.  By 2011, it was considering expansion to a new market, and ultimately decided to open in Richmond.  (There’s another company using “Diamonds Direct” in Raleigh, in business since 1993, and another in St. Petersburg, Florida, since 1984.  However, the parties agreed that Diamonds Direct had a common-law mark in North Carolina.)  Diamonds Direct applied for federal registration in 2001, but abandoned the effort.  It’s filed state applications in North Carolina, Alabama, and Texas, though the Texas one was rejected, in part because Diamonds Direct has not yet begun to sell products in Texas. 

Starting in 1999, Diamond Direct’s customer database showed a number of customers with Virginia addresses.  About 700 of DD’s 69,000 customers have given a Virginia address.  There was no evidence about specific purchases in or from Virginia, or evidence of Virginia consumer association.

DD has had its mark used in nationally/Virginia-circulated magazines.  Most of the relevant ads were prepared by jewelry manufacturers who supply their lines of jewelry to Diamonds Direct and, in some cases, to Capri—they were “tag” advertisements that direct readers to jewelry stores that carry its line.  This costs DD a “meager” portion of its multi-million-dollar ad budget.  In the tag ads, DD, was always associated with the Charlotte, Raleigh, and Birmingham markets. The tag ads didn’t describe the Diamonds Direct model for acquiring diamonds directly from suppliers in Israel, at the core of its local advertising efforts. The evidence didn’t show what if any sales to Virginia residents resulted from tag ads.  Several of those ads directed Virginia consumers to Capri and other retailers throughout Virginia. There was only one a direct, non-tag ad in the record prominently promoting DD, and it specifically identified DD locations in Birmingham, Charlotte, and Raleigh—not Virginia.

Meanwhile, back in Richmond, Capri had been selling jewelry since 1983.  Over the past ten years, it advertised variations of “direct” such as “Buy Direct, Save Direct,” “Annual Direct Diamond Sale,” and “Virginia's Largest Direct Diamond Event.” When Capri learned that DD was going to open a store in Richmond, Capri filed to register “Diamonds Direct” in Virginia.  Its claimed date of first use was Jan. 14, 2012.  Capri immediately began to use “Diamonds Direct” in ads throughout the Richmond area, resulting in at least one instance of confusion with a DD customer.

The court found that Capri was likely to show that it was the owner in Virginia, and thus entitled to a preliminary injunction.  The court first found that “Diamonds Direct” was at least suggestive—which seems quite wrong to me, and an example of how unargued issues (since neither party had much incentive to argue descriptiveness and indeed didn’t present evidence directly bearing on secondary meaning) are likely to go awry.  The court said, “Here, a consumer must imagine whether ‘Diamonds Direct’ refers to jewelry shipped directly to the purchaser, obtained directly from overseas suppliers, or obtained directly from the designer,” meaning that consumers had to think creatively to figure out how the words were associated.  Sigh.

Virginia registration creates a rebuttable presumption of ownership in Virginia, which may be rebutted by showing common law prior use rights.  This requires actual use.  United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90 (1918).  At common law, the scope of rights is limited to the locality of use and to the area of probable expansion, though the common law is not entirely in play because, the court ruled, Capri had state statutory rights and thus the United Drug rules for when a remote secondary user might beat out a local user with priority don’t fully apply.  Advertising alone is insufficient to establish use; they must penetrate the consumer market and be shown to have an effect.

DD couldn’t defeat the presumption of ownership resulting from the state registration.  And it couldn’t show that its ads and few Virginia customers were enough to show use of its mark.  “Above all, there is simply no evidence that Diamonds Direct has sold any product in Virginia that bears its mark.”  Also, the ads weren’t shown to have any effect in Virginia.  Given the way the tag ads were configured, “even if a Virginia resident read the fine print, he would not perceive Diamonds Direct as a source of jewelry in his market…. Because most of the advertisements direct Virginians to Virginia-based retailers, indicating only that Diamonds Direct is in North Carolina and Alabama, it cannot be said that Diamonds Direct was ‘deliberately’ targeting the Virginia market with these ads.”

DD also argued that Richmond was within its natural zone of expansion.  This requires consideration of (1) previous business activity; (2) previous expansion or lack thereof; (3) dominance of contiguous areas; (4) presently-planned expansion; and (5) possible market penetration by means of products brought from other areas.  Looking at these factors, DD didn’t make its case.  Among other things, its closest established market was in Raleigh, not a region contiguous with Richmond even though the states share a border. 

The court went on to find that confusion was likely, and that an injunction was justified.  The equities favored Capri: DD suggested that Capri’s registration was made in bad faith to exclude DD, but Capri had been using variations on the “direct diamond” theme for at least 10 years.  Capri worried about likely confusion when it discovered DD’s plans, and made a “tactical, legal business decision to register the mark with the Virginia State Corporation Commission to protect its long established market share. Given its existing advertising scheme and the fact that Diamonds Direct had not yet established a presence in Richmond, registration of the mark could hardly constitute bad faith.”  An injunction would merely protect the status quo.

DRM and accessibility: oil and water

Two non-mixy things, this article points out.

Applebee's sweepstakes not limited to Applebee's, but that's ok

Yay for pictures!

Derbaremdiker v. Applebee's Intern., Inc., 2012 WL 4482057 (E.D.N.Y.)

Plaintiff filed a putative class action against Applebee’s alleging deceptive practices and unjust enrichment in connection with a web sweepstakes.  (The court says “a sweepstakes that plaintiff participated in via defendant's website” and not “an Applebee’s sweepstakes” for reasons that will shortly become clear.)  The court granted defendant’s motion to dismiss.

Derbaremdiker ate at an Applebee’s, and on his receipt was an invitation to go to myapplebeesvisit.com and take a survey, with the inducement “You could win $1,000/A winner every day! Other great prizes also available daily”:

The receipt also said “Void where prohibited. See Website for rules/details.”  On the website, it said:

“To thank you for your thoughts, you'll have the opportunity to enter our daily drawing for $1,000* Plus, you could instantly win an iPod®† at the end of this survey.”  The asterisk

The asterisk next to “$1,000” referred to this text at the bottom center of the website:

 

“*CLICK HERE FOR OFFICAL RULES… Cash prize value of $1,000 per day. Apple iPod® prize value of $200 per day.”  If the user clicked, she’d be taken to another website with the heading “OFFICIAL RULES.”

At that point, the official rules said: “You have been invited by Applebee's (the ‘Client’) to participate in the following contest(s), with a chance to win the following eligible prize(s).”  The rules then said that the sweepstakes was sponsored by Empathica, and the “Eligible Prize(s)” were:

 

• One (1) prize per day of either USD$1,000, CAD$1,000, £1,000, or 1,000 Euros (“Daily Prize”).

• Web (and mail-in) entries only: One (1) prize per day of a 4GB iPod Nano (“Instant Prize”).…

The Rules also said, “The Sponsor [Empathica Inc.] … will pool entries received from Client's [defendant's] surveys with entries received from other clients of Sponsor.”  The Official Rules website also provided a link to the “complete Empathica Inc. Customer Satisfaction Survey Sweepstakes Rules,” which noted that “The chances of winning the prize depend on the number of eligible entries received and the number of the Sponsor's client companies that are participating in the Sweepstakes.”

Derbaremdiker alleged that this was deceptive because the Applebee’s description implied that participants would be competing only against other Applebee’s participants, instead of competing against participants from about 30 businesses.  In addition, he alleged, Applebee’s misrepresented that there were multiple prizes available every day in addition to the $1000, when in fact there was only one a day, the iPod.  Both of these made the payoff much lower than anticipated.

The court rejected the deceptive practices claim under NY GBL § 349.  Though this was consumer-oriented conduct, Derbaremdiker failed to allege that the statements were materially misleading or that he suffered any legally cognizable injury.  Whether considered by itself or with the disclosures on the various websites, the court ruled, the receipt was not materially misleading to a reasonable consumer acting reasonably.  The statements on the receipt didn’t contradict the statements on the websites: it was true that there was a winner every day and that the plaintiff could win $1000, and that there were “other great prizes also available daily,” namely iPods or equivalent $200 Apple gift certificates.  He received what he was offered: a chance to win $1000 or “other great prizes,” either an iPod or a gift certificate.  (Well, another great prize: the terms don’t offer him a chance to win both; they offer the sponsor the option to substitute one or the other.  At oral argument, defendant agreed that the statement was ambiguous, and could imply that there were at least two other prizes.  But it could also reasonably be interpreted to refer “collectively” to the numerous iPods that could be won throughout the duration of the contest.  This ambiguity couldn’t count as materially misleading.) 

Failure to disclose the eligible universe was also not materially misleading.  Derbaremdiker argued that the presentation of the receipt as coming from Applebee’s, the use of the word “our” on the receipt, and the direction to go to an Applebee’s-branded website all indicated that this was an Applebee’s-only contest.  But the receipt didn’t explicitly say Applebee’s only, and did say “no purchase necessary” and that the only entry requirement was to be 18 or over.  “Thus the receipt specifically advised consumers that individuals who were not defendant’s customers were also eligible to enter the Sweepstakes and win the daily prizes.”  Again, the possible implication of exclusivity wasn’t enough to be materially misleading, after considering the full disclosure on the websites.

The court noted that the receipt clearly pointed entrants to the Applebee’s-branded website for rules and details.  At that point, the instructions clearly indicated that there were only two prizes, thus preventing a reasonable consumer from being misled.  And the link to the official rules clearly stated that Applebee’s customers would be pooled with other entrants and that this would affect their chances of winning.  Given this disclosure, which consumers were directed to review by the receipt and the first website, a reasonable consumer who read the official rules wouldn’t have been misled.  “Nor should the defendant be required to make such a full disclosure on the receipt so long as the statements on the receipt were consistent with the Website and the Official Rules, which they were.”  There was no law requiring entrants to review the official rules and accept them prior to entering the sweepstakes.

Likewise, the court ruled that Derbaremdiker didn’t suffer actual harm.  The harm need not necessarily be pecuniary, but lower odds of winning because of competition from other businesses’ customers didn’t qualify.  His injury was merely that he believed his odds of winning were higher than his actual odds, but he needed to allege harm separate from the alleged deception itself.  (Query: what if he pled that his injury was that he provided personal information for use in marketing as consideration for entering the sweepstakes?  I’m not saying that was what happened or that anyone would find a credible connection between that injury and his belief about the odds, but what if defendants had, for example, not awarded any prizes at all?  Presumably then we’d want to find a path for him to succeed.)  Anyway, Derbaremdiker received what he was promised: a chance to win $1000 or an iPod, and no specific odds of winning were ever given.  Instead, the rules explicitly said that his chances depended on the number of eligible entries received and the number of companies participating.  (I’m not sure this argument does all the work the court wants it to. There’s a difference between “I know my odds depend on how many other Applebee’s customers entered” and “I know my odds depend on how many other customers of multiple businesses in multiple countries entered”; one’s rational estimations of the odds would likely differ.)

The court also kicked out the unjust enrichment claim as inadequately pleaded: Derbaremdiker didn’t explain how Applebee’s was unjustly enriched, and given the above findings it didn’t seem that any enrichment would be unjust anyway.

New paper: The Eye Alone Is the Judge: Images and Design Patents

Read it on SSRN.  Abstract:

Design patents are an area of intellectual property law focused entirely on the visual, unlike copyright, patent, trademark, trade secret, or the various sui generis protections that have occasionally been enacted for specific types of innovation. Judges and lawyers in general are highly uncomfortable with images, yet design patents force direct legal engagement with images. This short piece offers an outsider’s view of what design patent law has to say about the use of images as legal tools, why tests for design patent infringement are likely to stay unsatisfactory, and what lessons other fields of intellectual property, specifically copyright, might take from design patent.

19 J. Intell. Prop. L., pp. 409-426, 2012.  (Working on correcting the cite now.)

Jury can't construe patent claims as part of false advertising case

Sidense Corp. v. Kilopass Technology Inc., 2012 WL 4497346 (N.D. Cal.)

I’ve written about this case before; in this pretrial motion, the court granted a motion in limine excluding any evidence that Sidense’s patents didn’t cover its own technology, which was the basis of Kilopass’s false advertising claim (that Sidense falsely claimed that its own technology was patented).  Patent claim construction/scope is an issue for the court; Kilopass never presented evidence and asked the court to rule on whether Sidense’s patents covered its own technology; Kilopass was not going to be allowed to present evidence to the jury about patent construction and scope, even alleged admissions by Sidense witnesses that the technology wasn’t patented.  Given the expense of claim construction, this rule might prove as fatal to many patent mismarking cases trying to use the Lanham Act as the AIA has to straight-up mismarking cases.  Since this gutted the false advertising claim, the court indicated that it was unlikely that any triable disputes of material fact remained.  Kilopass was also not allowed to present evidence of allegations not included in the complaint, since that would violate the requirement to plead false advertising with particularity.

Even default can't give plaintiff a win on Dastar-barred claim

Mahmoodian v. Pirnia, 2012 WL 4458160 (W.D. Va.)

Plaintiff, who registered a copyright in 2010 for “Historical Works of Dr. Saeed Mahmoodian,” secured a default judgment against defendants for infringement of portions of those works in a book, “Kayhan, From Nada to the Milky Way.”  Mahmoodian alleged copyright infringement and violation of the Lanham Act, and sought statutory damages and attorneys’ fees as well as an injunction barring defendants from using his copyrights and barring them from making false or defamatory statements about Mahmoodian or his family.  

Because of the default, the court treated the copyright infringement as established.  The evidence showed, however, that the infringing book was published before the registration occurred, precluding statutory damages and attorneys’ fees.

And the Lanham Act dilution/false advertising claims just didn’t work.  Mahmoodian alleged that defendants’ copying created a likelihood of confusion as to the original source of Mahmoodian’s writing and diluted the distinctive quality of Mahmoodian’s writings.  Dastar precluded any claim based on confusion about the author of ideas or representations within defendants’ book.  Mahmoodian focused on alleged misrepresentation in advertising, or a §43(a)(1)(B) claim: the alleged falsehood was that defendant Pernia was the sole author of the book, which was false because portions of three different pages out of several hundred were written by Mahmoodian.  He did not, however, provide any evidence of a tendency to deceive audiences, materiality, or injury either by direct sales diversion or lessened goodwill.

The court rejected this “tenuous” claim.  It wasn’t surprising that Mahmoodian failed to explain his theory of deception, because it was “practically impossible to imagine how they could have been misled simply by virtue of the fact that Ms. Pirnia, who published the book, claims to be the sole author.”  The court wasn’t impressed by the idea that an authorship claim is a claim to be the original and unique source of everything in a book.  This was “nothing more than a claim for plagiarism,” and Dastar stands for the proposition that §43(a) doesn’t cover plagiarism.

Even if Mahmoodian had a valid claim, the court would still have denied disgorgement of profits, which is an equitable remedy taking into account defendant’s intent, sales diversion, adequacy of other remedies, etc.  Here, there was no evidence of intent to confuse or of sales diversion.

Similarly, the court denied disgorgement of profits under the Copyright Act.  Profits of the infringer are recoverable only if they can be attributed to the infringement itself.  In the Fourth Circuit, a defendant can defeat a plaintiff’s profits claim if “either (1) there exists no conceivable connection between the infringement and [the defendant's] revenues; or (2) despite the existence of a conceivable connection, [the plaintiff] offered only speculation as to the existence of a causal link between the infringement and the revenues.”  Here, Mahmoodian failed to show a conceivable connection between the infringement and the profits defendants derived from selling the book.  It wasn’t even clear they’d made a profit—their own statements showed losses.  But even if they had, Mahmoodian failed to show how that profit could be attributed to their use of his copyrighted works on three pages of an over 300-page work.  And even assuming there was a conceivable connection, Mahmoodian didn’t offer even speculation about a causal link between the infringement and the profits.

Likewise, even if the court had sustained the Lanham Act claim, it ruled, Mahmoodian still wouldn’t be entitled to fees because this wasn’t an exceptional case.  (Based on the facts in the opinion, it seems to me that in the absence of a default defendants would have had a good case for getting their own fees paid.)

Mahmoodian was entitled to an injunction, since he didn’t get statutory damages and failed to allege actual damages.  Defendants were ordered to cease publication and sale of their book so long as it contained excerpts from Mahmoodian’s historical works.  But it wasn’t necessary to order impoundment and destruction of books already sold or otherwise disseminated.  (Would the court have such broad authority anyway?  Surely if I owned a copy, the court couldn’t order it impounded, though perhaps the court is thinking about copies shipped to bookstores.)  That would go too far, given that the inclusion of Mahmoodian’s work on three pages “does not merit the destruction of all copies of a work that was otherwise authored exclusively by Ms. Pirnia after years of her own research and effort. Moreover, such a remedy would represent a disservice to the public as the myriad histories, ideas, photographs, and other depictions found within the Kayhan book that are not a product of Plaintiff's copyright would be unnecessarily removed from the public sphere.”

The requested anti-defamation injunction was also denied.  Mahmoodian hadn’t even remotely pled libel or defamation, and the court wasn’t about to order a prior restraint on defendants’ free speech rights, especially since Mahmoodian’s general complaints seemed to concern historical disputes about his ancestors unrelated to the copied portion of the book.

It's a good thing you're tasty: Pom's losing streak continues

POM Wonderful LLC v. F.T.C., -- F. Supp. 2d --, 2012 WL 4475698 (D.D.C.)

Pom sued the FTC seeking a declaratory judgment that the FTC's allegedly new rule governing disease claims in food advertising (as set forth in its consent judgments with Iovate and Nestle) exceeded the FTC's statutory authority, violated POM's rights under the First and Fifth Amendments of the U.S. Constitution, violated the rulemaking procedures of the FTC and the Administrative Procedure Act (“APA”), and was arbitrary and capricious.  To no one’s surprise, the court declined to exercise its jurisdiction and dismissed the case.

The FTC filed an administrative complaint against POM shortly after POM filed this case, and won it (though not on its most aggressive theory), a decision that is under appeal and under PR assault by POM.  In that proceeding, POM asserted the same statutory and constitutional defenses.  Nonetheless, POM argued that its complaint in the district court was not attempting to adjudicate anticipatory defenses, but only whether the FTC was improperly applying a new standard.

The relevant factors counseled against the exercise of jurisdiction.  First, a ruling wouldn’t finally settle the controversy between the parties: there would still remain the question of whether POM’s ads were false, misleading, or unsubstantiated, regardless of the proper standard.  Second, other proceedings were pending, and the FTC forum was perfectly capable of deciding statutory and constitutional issues.  The enforcement action might not fully resolve POM’s argument that the FTC had violated the law by adopting a new standard through consent orders, but POM would still have a full opportunity to challenge any FTC final action against it.  Third, granting declaratory relief would require resolving anticipatory defenses, which isn’t ordinarily a proper use of declaratory judgment.  Courts shouldn’t allow declaratory judgments as a form of forum shopping, and the FTC pointed out that POM was well aware of the administrative complaint about to be filed against it.  POM apparently sued to get tactical leverage, even as the enforcement action continues to proceed.