Class action objection in the form of a dialogue

Sample (footnotes omitted):

CytoSport has agreed to donate whatever is left over to charitable athletic events, like Susan G. Komen’s Race for the Cure.
Class Member. That’s nice of them. Are they funding the costs of running the event?
Counsel: No, they are going to give out free Muscle Milk.
Class Member: Isn’t that the kind of thing they’d want to do anyway for publicity reasons? I’m pretty  sure  Muscle  Milk tries  to  give  away  its  products  to  sports  teams  and  at  athletics  events, not  just because that’s a good thing to do, but also because it’s good for the brand profile. ... Anyway, are you at least discounting the value of the donated products? After all, CytoSport’s cost per unit has to be pretty low, and given that they are getting all these reputation benefits…
Counsel: No, the donations are valued at the retail value of the donated products.

Read the whole thing at Above the Law.  Will Chamberlain was a student in my Property class, but I can't take any credit for this, though the Center for Class Action Fairness apparently can.

Topside Pom Wonderful briefs

I was unfortunately unable to work on an amicus brief in Pom Wonderful, but the good news is that INTA did participate.

Petitioner's brief.

Generic Pharmaceutical Association (in support of neither party).

INTA.

United States (in support of neither party).

Oscar selfies and bad copyright analysis

Paul Fakler points out that a number of things I've also seen said about copyright in Oscar selfies aren't true.  This one got me the most:

Per­haps the most silly “analy­sis” I have seen so far has been the sug­ges­tion that because Ellen had the idea to take the photo and asked Bradley to take the pic­ture, she owns the copy­right as a work for hire. Any­one with even a pass­ing famil­iar­ity with the actual copy­right law would know this is a non-starter. ...  First, pho­tographs are not among the types of works that can pos­si­bly be a work for hire when cre­ated by a non-employee (unless they are com­mis­sioned as con­tri­bu­tions to col­lec­tive works, which is not the case here). Sec­ond, as far as I have read, there was no writ­ten work for hire agree­ment. Con­trary to some of the “analy­sis” float­ing around out there, there is no “indus­try cus­tom” or “he’s an actor” excep­tion to these statu­tory requirements.

Thanks for the debunking!  (Though I would note that there is a "teacher exception" to the WFH doctrine, and that has no statutory basis either; but since it operates in the opposite direction than these arguments by preventing WFH status rather than conferring it, and since it favors me, I don't think that's a big problem.)

Slate on the branding of spelling (or the spelling of branding)

Marketers address unusual and downright awful grammar and spelling choices in brand names.  Strange spelling may sometimes help memorability, a desired brand feature, but the law ignores bad spelling.

ABA call-in tomorrow: Lanham Act developments for antitrust lawyers

Antitrust, Unfair Competition, & the Lanham Act: Recent Intersections in Litigation

March 6, 2014---1:30 pm to 2:30 pm Eastern
With the U.S. Supreme Court poised to decide whether antitrust standing should apply to
Lanham Act claims in the Static Control litigation, as well as the scope of FDCA
preemption of Lanham Act and state consumer protection claims in Pom Wonderful,
there is plenty for consumer protection and competition litigators to watch at the high
court this Term. This program will provide an overview of those cases, as well as other
notable matters in which antitrust and consumer protection laws such as the Lanham Act
have intersected, including the recent $113 million jury verdict in the Retractable
Syringes case currently on appeal to the Fifth Circuit.

This is a dial-in program; register using the link above.  Free for Antitrust section members; $25 otherwise. 

Moderator
• Robert Wierenga, Schiff Hardin LLP
Panelists
• Rebecca Tushnet, Professor,
Georgetown University Law Center
• Randy Miller, Venable LLP

The lost rights of Oz?

We know from X One X that putting public domain images on a red sequined shoe would infringe Warner's character copyright in movie Dorothy Gale.  How about this picture?  Any trademark issues?

Price claims are puffery, but fake Facebook page could be actionable

Imagine Medispa, LLC v. Transformations, Inc., 2014 WL 770810, No. 2:13–26923 (S.D. W. Va. Feb. 26, 2014)

The parties compete in the medical weight-loss and skin care industry, in overlapping geographic areas. Plaintiff David Rubio owns Imagine. Plaintiffs alleged that the defendants knowingly published false advertisements claiming that Transformations was “West Virginia’s Lowest Price Weight Loss & Skin Care Clinic.” Imagine’s prices for substantially identical products and services were allegedly lower. In addition, defendants allegedly “falsely advertised that they offered three weight loss drugs for $65.00 when in fact two of the so-called drugs offered were merely an over-thecounter nutritional supplement and a diuretic.”

Plaintiffs also claimed that the defendants created a fake Facebook profile using Rubio’s name, falsely stating that Rubio was formerly an Imagine employee and indicating that Rubio “liked” Transformations. In addition, defendants allegedly created a fake ad for a 2010 Chevrolet Camaro on Craigslist, which resulted in Rubio receiving scores of unwanted calls.

And defendants allegedly “contacted Imagine employees in an effort to learn trade secrets or other confidential information and/or to lure some of those employees away,” and also “falsely told Imagine’s clients and potential clients that Imagine used unlicensed doctors and had to change its name due to issues with the authorities.” Plaintiffs alleged that the false ads and fake Facebook profile diverted customers and lessened Imagine’s goodwill. (In their papers, plaintiffs also alleged that defendants created a second fake Facebook page under the name “Imagine Medispa,” which fraudulently induced Facebook members, including one Imagine employee, to “like” Transformations’ Facebook page—the court refused to consider those allegations absent amendment of the complaint.)

Plaintiffs sued for violation of the Lanham Act, tortious interference, defamation, and invasion of privacy. The court granted the motion to dismiss the false advertising claims, but left the others (though in a separate opinion I won’t say more about, it denied a preliminary injunction, mostly because of factual disputes, including whether defendants were in any way involved with the Facebook/Craigslist incidents—I wonder if subpoenas to those entities are forthcoming).

As for the price ads, defendants argued that they were just puffery. Some courts hold that “bald assertions of price superiority constitute puffery if they are so sufficiently general that a consumer is unlikely to rely on the statement.” The statements here—“West Virginia’s Virginia’s Lowest Price Weight Loss and Skin Care Clinic” and “Lowest Prices in WV!”—didn’t refer to any specific services or products, and drew no direct comparisons to Imagine or any other competitor. Instead, they were “broad, vague exaggerations or boasts on which no reasonable consumer would rely.” The claim about the three drugs for $65 failed because there was no allegation that the ad was distributed in interstate commerce.

False endorsement: the allegations about the fake Facebook profile in Rubio’s name which suggested that Rubio was a former Imagine employee and that Rubio “liked” Transformations did, however, state a claim for false endorsement. (Note that the court didn’t require Rubio to show secondary meaning of his name.) Assuming all factual allegations to be true, “it is plausible that the fictitious Facebook Profile misled Imagine clients and potential customers into thinking that Rubio was no longer affiliated with Imagine, and that he instead endorsed Transformations’ services.”

Tortious interference: defendants argued that the claims about attempting to learn trade secrets/disparaging Imagine were too vague. Notably, “wantonly and maliciously” inducing a competitor’s employees to break an employment contract by resigning may give rise to a claim for tortious interference under West Virginia law. However, the plaintiffs didn’t allege that defendants were successful in luring employees or obtaining trade secrets. Thus, they didn’t explain how these acts harmed Imagine: they didn’t allege, for example, that they were required to undertake efforts to persuade Imagine employees not to defect. Without a link between the challenged conduct and the alleged harms, there was no claim. These claims were dismissed without prejudice.

As to statements to Imagine clients, those too could ground a tortious interference claim. And though the allegations were thin, they were sufficient: it was plausible that existing Imagine clients who were told that Imagine was using unlicensed doctors could have been deterred from continuing to use Imagine’s services. Defendants argued that any claim was time-barred by the two-year statute of limitations, but that wasn’t apparent on the face of the complaint.

Defamation: as against one defendant, plaintiffs alleged that he made defamatory statements by publishing the fake Camaro ad and telling people that Rubio had had trouble with the authorities. The fake Camaro ad wasn’t defamatory, as it wouldn’t tend to harm his reputation. A false statement that Imagine had to change its name due to issues with the authorities, if focused on Rubio, would likely be defamatory; the same issue of the statute of limitations arose but also wasn’t apparent on the face of the complaint.

The invasion of privacy claim also survived. West Virginia recognizes various privacy torts, including unreasonable intrusion on seclusion, as allegedly occurred when unknown, unsolicited people called Rubio at all hours of the day and night about the Camaro. Although occasional telephone calls cannot constitute an intrusion upon seclusion, repeated, persistent calls at inconvenient hours can, as long as they rise to the level of what a reasonable person would find highly offensive. The allegations here were sufficient.

Plaintiffs also alleged that the fake Facebook profile appropriated Rubio’s name or likeness. The complaint sufficiently alleged an attempted commercial advantage and thus stated a claim. They further alleged that the fake Facebook profile gave unreasonable publicity to Rubio’s private life, and unreasonably placed him in a false light. Unreasonable publicity requires that the private facts disclosed were highly offensive and objectionable to a reasonable person of reasonable sensibilities. But here the allegations weren’t about disclosure of private facts, but rather about disinformation, and so the complaint failed to state a claim for unreasonable publicity. But false light was an acceptable theory: the false light must also be “offensive to a reasonable person,” and the subject of “widespread publicity.” On these allegations, creating a fake profile to associate Rubio’s name with Transformations, a competitor with which he had no reasonable connection, met that standard. (Annoying to a reasonable person, but offensive? How is this not defamation that doesn’t rise to the level of being defamatory?)

OTW copyright consultation comments

The Organization for Transformative Works submits comments to the EC in response to its copyright consultation.

no Lanham Act standing for misrepresentation by seller to buyer

Nature’s Products, Inc. v. Natrol, Inc., 2013 WL 7738172, No. 11–62409 (S.D. Fla. Oct. 7, 2013)

The parties had business dealings from the late 1990s through 2011. In 2001, they executed an open-ended indemnity agreement applying to any products Natrol bought from NPI. In 2009, NPI took over manufacturing for certain Natrol ProLab products. Natrol provided labels for the products representing that they were wheat and gluten free. In 2010, NPI returned Product Allergen Questionnaires, as completed by NPI’s Regulatory and Compliance Manager, which represented that the ProLab Products created by NPI were free of wheat and gluten allergens.

In September 2011, after an FDA investigation, NPI determined that the ProLab products did contain wheat and gluten, through the ingredient glutamine peptide. NPI informed Natrol of its discovery, and Natrol recalled the ProLab products. Natrol cancelled its contracts with NPI and destroyed the products. NPI sued Natrol for breach of contract and unjust enrichment for Natrol’s failure to pay NPI’s invoices. Natrol counterclaimed for breach of contract, breach of express warranty, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, breach of the Florida Deceptive and Unfair Trade Practices Act, and civil remedies for violations of Lanham Act.

The court found genuine disputes of material fact on the breach of contract claim. There was some contractual relationship, but they didn’t have a thorough written contract, so summary judgment couldn’t be entered. This also precluded summary judgment on the breach of express warranty claim. However, the court found that NPI breached its indemnity agreement, which broadly required NPI to indemnify Natrol “from and against any and all damages, losses, expenses, costs, claims, judgments and liabilities ... in any manner related to ... the breach of any representation ... of NPI ... pertaining to the [covered] Products.” “This language is broad and unambiguous. It applies to the instant situation where NPI incorrectly represented to Natrol that the ProLab Products were wheat and gluten free, Natrol sold those Products with a label containing that representation, and Natrol subsequently recalled those Products because of the inaccurate representation.” This was so even though NPI made its inaccurate representations after the order was in and after it had begun manufacturing. If NPI had properly completed the questionnaires, Natrol would have had many more options.

Nonetheless, genuine disputes of fact remained as to the calculation of Natrol’s losses. Likewise, while Natrol established breach of the implied warranty of merchantability, material issues of fact remained on damages. As for breach of warranty of fitness for a particular purpose, though NPI knew of the purpose here, there were factual issues about whether Natrol relied on NPI’s skill and judgment when buying the products, because the contractual terms were unclear.

Florida Deceptive and Unfair Trade Practices Act: A FDUTPA claim isn’t defined by a contract’s express terms, but covers unfair and deceptive practices arising out of business relationships. Again, there were disputed issues of fact: whether the inaccurate representation on the questionnaires that the products would be wheat/gluten free was unfair or deceptive was for the jury, as was the question of the extent to which that conduct caused Natrol’s actual, not consequential, damages.

Lanham Act claims: Natrol lacked prudential standing under Phoenix of Broward (though this is under review by the Supreme Court, it’s unlikely that any standard the Court adopts would change this result, given the fact that Natrol is NPI’s customer rather than direct or indirect competitor). Natrol didn’t lose customers because of NPI’s conduct; rather it put a product on the market with misleading claims. “Had Natrol failed to recall that Product, Natrol’s competitors or consumers may have had valid Lanham Act claims against Natrol. Natrol, as the seller of the product, cannot bring those claims against its own manufacturer.” This wasn’t the kind of injury Congress sought to address.

Lance Armstrong has a rare good day: consumer protection claims dismissed

Martin v. FRS Company, No. CV-13-01456 (C.D. Cal. Feb. 25, 2014)

FRS makes energy and sports drinks and related goods. Lance Armstrong was an equity owner and brand ambassador for FRS who participated in FRS’s marketing and ad strategy. Martin and other plaintiffs brought the usual California claims, including warranty claims, based on ads starring Armstrong (who at the time had yet to admit his use of performance enhancing drugs and had yet to be stripped of his titles).

An allegedly representative ad asked “What is Lance Armstrong’s Secret What is Lance Armstrong’s Secret . . .” over images of him training. Armstrong finished the question by looking into the camera and stating “Weapon?” The ad continued: “FRS with Quercetin,” “Keep it Real” while showing images of FRS energy drinks. The three key deceptions identified by plaintiffs were: (1) Armstrong was the only 7-time Tour de France champ; (2) FRS products were closely associated with his abilities and achievements; and (3) FRS products – and not illegal performance-enhancing substances – were the “secret weapon” that enabled those achievements and abilities.

Breach of warranty: plaintiffs didn’t comply with California’s pre-suit notification requirement. Regardless, the claims at issue were mere puffery (of which more below) and thus couldn’t form the basis of a warranty claim.

Consumer protection claims: puffery can often be resolved at the motion to dismiss stage. Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), is not to the contrary. In Williams, the plaintiffs got the benefit of the doubt because they alleged that the products weren’t “nutritious” and didn’t contain juice from the fruits displayed on the packaging, thus the products didn’t provide the advertised results. But plaintiffs didn’t allege that the products here didn’t provide the advertised benefits of fighting fatigue and supporting the immune system.

The phrase “secret weapon” was unquantifiable. Plaintiffs argued that in this circumstance it was quantifiable: Armstrong was actually using drugs as his secret weapon. The court was unconvinced; “secret weapon” was more like “high-quality,” “more innovative,” “of superb quality” and “packed with power,” all found to be non-actionable puffery. The phrase said nothing about the specific characteristics or components of FRS products. (Query: if the ads weren’t about linking Armstrong’s performance with his use of FRS products, what were they about? The opinion references an NAD decision finding that Armstrong’s appearance was as an endorser, and thus found an implied claim that his endorsement is that he drinks the product because it enhances his performance capability as an elite athlete, but the court here said that wasn’t enough to make it not puffery.)

Plus, the allegations required an unreasonable inference: that defendants’ products were the source of his success, rather than illegal performance enhancing drug use. But Armstrong didn’t make specific representations about the products. And plaintiffs didn’t allege that the products didn’t work or that Armstrong didn’t actually use the products. (Note: I can’t see why that matters, if the claim is that Armstrong’s “secret weapon” claim and not the other claims triggered a purchase.)

Plaintiffs argued that defendants were capitalizing on the controversy surrounding his wins and the rumors of illegal drug use—and they apparently did so with enough of a wink and a nudge to escape liability. “[T]he reasonable consumer would not make the inference that a healthy energy drink could be the proprietary reason a decorated cyclist achieves success. Such an inference requires the reasonable consumer to discount extensive training, natural ability or even illegal PEDs use.” Plus, Armstrong didn’t endorse the products until two years after his last Tour de France win. This was like the statement in TYR Sport, Inc. v. Warnaco Swimwear, Inc., 709 F. Supp. 2d 821, 830 (C.D. Cal 2010), that “athletes [should] wear Speedo equipment if they wanted to compete at the highest level”: classic puffery. 

Also, taking the ads this literally, the ads would reveal the “secret,” showing that a “secret weapon” advertisement is a self-defeating concept. (Okay, I understand this decision, but that’s going way too far. The plaintiffs’ arguments don’t entail that kind of interpretation.)

Plaintiffs also tried actionable omission, which requires some kind of duty to disclose. A duty occurs (1) when the defendant is the plaintiff's fiduciary; (2) when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; or (4) when the defendant makes partial representations that are misleading because some other material fact has not been disclosed. They argued that the “7 Time Tour de France Winner” was deceptive, but though Armstrong knew he won them illegally, he still won them, and there was no allegation that he knew he’d be stripped of his title; the allegations didn’t say that the ads ran after he was stripped of his titles. Fraud by hindsight isn’t fraud. Nor was “secret weapon.”

Plaintiffs argued that Armstrong knew about his own doping activities, but, even imputing that knowledge to FRS, that wasn’t enough, because the cases discuss omissions about products, not about their endorsers. Because “secret weapon” was puffery, Armstrong’s use of performance enhancing drugs wasn’t material.

Separately, plaintiffs failed to meet Rule 9(b)’s heightened pleading standard. They alleged exposure to the ads only in conclusory fashion (e.g., a plaintiff was “generally aware” of the Armstrong-FRS association). They didn’t identify the specific products they purchased, or specify the time and place of the alleged misrepresentations (note that other courts hold that identifying the relevant ads does that without specifying when they were broadcast/where they were seen). They also didn’t specifically allege reliance.

Finally, the court understandably disapproved of quotes of the ads with inserted bracketed language that changed the essence of the ad. One ad said: “if it’s good enough for Lance, it is good enough for me!” The complaint alleged: “if it’s good enough for Lance [to win 7 Tour de France world titles], it is good enough for me!” (You know, I would think that’s enough to allege that Armstrong was representing that the product helped his performance, even without the alterations.) Nor did plaintiffs sufficiently plead enough to satisfy even the vague unfairness prong of the UCL, since they didn’t specify why the FTC’s guidelines for unfairness (assuming they applied) had been violated.

FTC successfully imposes individual liability on high-level employee

Federal Trade Commission v. Ross, 2014 WL 703739, No. 12-2340 (4th Cir. Feb. 25, 2014)

The hits (by which I mean FTC victories) just keep on coming. Here, the FTC sued Innovative Marketing and several of its high-level executives and founders, including Ross, for deceptive internet advertising. The district court enjoined Ross from participating in those deceptive practices and found her jointly and severally liable for over $163 million in consumer redress.

The court of appeals affirmed. The FTC contended that the defendants operated “a massive, Internet-based scheme that trick[ed] consumers into purchasing computer security software,” referred to as “scareware.” The ads told consumers that a scan of their computers detected a variety of dangerous files, like viruses, spyware, and “illegal” pornography, but no scans were ever conducted. Ross, a VP at IMI, defended, while the remaining defendants settled or defaulted.

The district court found that Ross was personally responsible for the deceptive advertising, based on her broad responsibilities, personal financing of corporate expenses, oversight of many employees, and involvement in the creation and dissemination of the ads. It also concluded that Ross had actual knowledge of the deceptive marketing scheme, or was “at the very least recklessly indifferent or intentionally avoided the truth” about the scheme.

Ross argued that the district court lacked the authority to award consumer redress, which is to say a money judgment, under the provision of the statute authorizing a court to issue a permanent injunction, 15 U.S.C. § 53(b). Consumer redress isn’t expressly authorized, but “the Supreme Court has long held that Congress’ invocation of the federal district court’s equitable jurisdiction brings with it the full ‘power to decide all relevant matters in dispute and to award complete relief even though the decree includes that which might be conferred by a court of law.’” Those equitable powers can’t be “denied or limited in the absence of a clear and valid legislative command.” Thus, by authorizing the issuance of a permanent injunction, Congress presumptively authorized the district court to exercise the full measure of its equitable jurisdiction. This included the power to order “complete relief,” including monetary consumer redress, which is a form of equitable relief.

Ross argued that the FTCA wasn’t like the statutes at issue in the relevant Supreme Court cases, and thus that the presumption of full power didn’t apply. But there’s no “magic words” rule here; the Supreme Court has applied the same rule where the statute only authorized the district court to “restrain violations” of the law. Ross’s arguments about the structure, history, and purpose of the FTCA (not described, but if they’re like others I’ve seen, involve comparison to the ALJ route provided for in the statute, and the relief available thereby) were “not entirely unpersuasive,” but every federal appellate court to consider them (a total of five before this decision) has rejected them: "We adopt the reasoning of those courts and reject Ross’ attempt to obliterate a significant part of the Commission’s remedial arsenal. A ruling in favor of Ross would forsake almost thirty years of federal appellate decisions and create a circuit split, a result that we will not countenance in the face of powerful Supreme Court authority pointing in the other direction."

Turning to individual liability for corporate misdeeds, Ross argued that a securities fraud standard should apply, requiring (1) “authority to control the specific practices alleged to be deceptive,” coupled with a (2) “failure to act within such control authority while aware of apparent fraud.” Nope! Ross’ proposed standard would permit the Commission to pursue individuals only when they had actual awareness of specific deceptive practices and failed to act to stop the deception, i.e., a specific intent/subjective knowledge requirement; her proposal would effectively leave the Commission with the “futile gesture” of obtaining “an order directed to the lifeless entity of a corporation while exempting from its operation the living individuals who were responsible for the illegal practices” in the first place.

Instead, an individual may be liable if she (1) participated directly in the deceptive practices or had authority to control those practices, and (2) had or should have had knowledge of the deceptive practices. (2) can be shown by showing actual knowledge of the deceptive conduct, reckless indifference to its deceptiveness, or an awareness of a high probability of deceptiveness and intentional avoidance of learning the truth. This too preserves circuit uniformity with six other appellate courts.

Then Ross had some evidentiary challenges. Her expert was precluded from testifying about how the ads linkable to her were nondeceptive, but that issue had previously been resolved at summary judgment; the only issue at trial was Ross’s own liability. “Because the individual liability standard does not require a specific link from Ross to particular deceptive advertisements and instead looks at whether she had authority to control the corporate entity’s practices, [the expert’s] testimony was immaterial, and thus irrelevant, to the issue reserved for trial.” The district court also didn’t err in calculating redress.

Finally, the district court didn’t clearly err in finding that she had control of the company, participated in the deceptive acts, and had knowledge of the deceptive ads. In an affidavit in Canadian litigation, “she swore that she was a high-level business official with duties involving, among other things, ‘product optimization,’ which the district court could reasonably have inferred afforded her authority and control over the nature and quality of the advertisements. Other employees requested her authority to approve certain advertisements, and she would check the design of the advertisements before approving them. Chat logs showed that she served in a managerial role, directing the design of particular ads (e.g., requiring the word “advertisement” to be removed across ads and directing other people to “add aggression” to the ads). She was a contact person for IMI’s purchases of ad space, and she had the authority to discipline employees and contractors when work didn’t meet her standards.

“Given these facts, the district court could have reasonably inferred that Ross was actively and directly participating in multiple stages of the deceptive advertising scheme.” Though there was some indication that she personally didn’t perceive or believe that the ads were deceptive, she knew about multiple complaints about IMI’s advertisements, including that they would cause consumers to automatically download unwanted IMI products. There was no way the district court’s conclusion was clear error.

The dangers of monetizing a Twitter feed

I’ve seen commentary about how this article on the successful monetization of photostream Twitter accounts by a company called Kulfoto ignores that the copyright situation of the photos it shares seems to be … unclear at best  However, I was struck by something different: the apparent noncompliance with the FTC’s guides for presenting sponsored advertising  The ad for Chegg that appeared on @CollegeStudent contained no disclosure that it was an ad  Even if copyright owners don’t come knocking, the FTC might—and the FTC will have questions both for Kulfoto and for the advertisers who paid for these spots.

Violence and African-American patenting

Lisa D. Cook, Violence and Economic Activity: Evidence from African American Patents,

1870 to 1940.  How do inventors respond to evidence that the government isn’t interested in helping them?  Abstract:

Recent studies have examined the effect of political conflict and domestic terrorism on economic and political outcomes. This paper uses the rise in mass violence between 1870 and 1940 as an historical experiment for determining the impact of ethnic and political violence on economic activity, namely patenting. I find that violent acts account for more than 1100 missing patents compared to 726 actual patents among African American inventors over this period. Valuable patents decline in response to major riots and segregation laws. Absence of the rule of law covaries with declines in patent productivity for white and black inventors, but this decline is significant only for African American inventors. Patenting responds positively to declines in violence. These findings imply that ethnic and political conflict may affect the level, direction, and quality of invention and economic growth over time.

Via tressiemc.

false comparative ads lead to profit disgorgement

General Steel Domestic Sales, LLC v. Chumley, No. 10–cv–01398, 2014 WL 788015 (D. Colo. Feb. 27, 2014)

The Rule 59(e) motion to amend judgment in this false advertising case was denied for want of clear error. The parties, General Steel and Armstrong, compete in the market for steel buildings.

Previous ruling.  Eric Goldman on the TM aspects, where General Steel lost its claims based on defendants' keyword advertising triggered by "General Steel" (which as of this morning seems to continue, and clicking on defendants' sponsored link leads to a page that labeled "industry related legal matters," which seems to mean cases brought against or lost by General Steel; defendants' own loss is as yet unrepresented). 

 

Defendants argued that the court erred in finding literal falsity from ads that listed “Pre Galvanized Secondary Framing” and “Stainless Steel Fasteners” beneath Armstrong’s logo and didn’t list these features beneath General Steel’s logo.  Armstrong argued that this was literally true because Armstrong includes those features unless customers decline them, but General Steel doesn’t include them unless customers ask.

The advertisements at issue do not draw the fine distinction upon which Armstrong relies. …The clear import of the advertisement is that these features are available in Armstrong buildings, but not available in General Steel buildings. The evidence at trial established that this implication is false because both companies provide these features at additional cost. That these features may be accounted for in Armstrong’s–but not in General Steel’s–initial price quotation does not render the advertisement true, nor does it undermine the Court’s conclusion that both companies provide these features if customers are willing to pay more for them. The advertisement does not use the term “standard” or explain that General Steel customers may also obtain these features.

Another reminder: in comparative advertising, it is important to compare apples to apples. 

Defendants also argued that the court erred in finding that Armstrong was advertising comparatively when it claimed to provide “general steel buildings” and “general steel construction.” This matters, the court noted, because “courts may presume that a plaintiff has been harmed by false comparative advertising that specifically targets its company or brand, but may not presume injury with respect to non-comparative advertising.”  But all the statements on which the court relied for its disgorgement award were on the “May the Best Building Win” webpage, available at a domain name “maythebestbuildingwin.” The first full paragraph of text explained that “[t]here’s really only 2 companies to consider–Armstrong & General Steel.... How do the two finest buildings on the market stack up against one another? Take a look and decide for yourself.”  The court declined to consider statements appearing later on the webpage to be different ads.  In those portions, Armstrong referred to “general steel” buildings and construction.  This merely emphasized its targeting of General Steel.  “Given that the term ‘general steel’ refers to plaintiff General Steel, Armstrong’s claims to provide ‘general steel’ buildings can be understood as a false comparative advertisement in which Armstrong is offering itself as an alternative source of its competitor’s products.”

Finally, defendants argued that the court erred in ordering disgorgement of Armstrong’s profits.  “[A] plaintiff need only establish the defendant’s gross sales of an infringing product, or a product that was falsely advertised, in order to shift the burden onto the defendant to show appropriate deductions from those profits.” Defendants cited Lindy Pen Co., Inc. v. Bic Pen Corp., 982 F.2d 1400 (9th Cir.1993), which stated that the “plaintiff has only the burden of establishing the defendant’s gross profits from the infringing activity with reasonable certainty,” and argued that General Steel was required to show “with reasonable certainty” that defendants’ profits flowed directly from its false comparative advertising. But Lindy Pen continues: “Once the plaintiff demonstrates gross profits, they are presumed to be the result of the infringing activity. The defendant thereafter bears the burden of showing which, if any, of its total sales are not attributable to the infringing activity, and, additionally, any permissible deductions for overhead.”

Here, there was evidence that Armstrong’s internet ads were highly effective, generating tens of thousands of leads; that 90% of Armstrong’s ad budget went to internet ads; that “general steel” was the third most common search term in the industry, “supporting an inference that the May the Best Building Win webpage would frequently appear in the list of organic search results of consumers searching for information regarding General Steel” (note: Eric Goldman may disagree about this!); that Armstrong’s profits rose while it disseminated its false advertising; and that Armstrong persisted in making false statements even after litigation had begun. This was enough to link the false advertising to Armstrong’s profits.

Defendants’ expert supposedly opined that Armstrong’s comparative advertising generated only 7.5% of its leads.  But in fact, he concluded that 7.5% of Armstrong Steel’s traffic was “a result of paid search advertising directed towards searchers using queries related to the General Steel brand.” Since the comparative ads at issue here weren’t part of paid ads, but instead displayed on Armstrong’s own website, that didn’t matter.

 

Note: one lesson reinforced by this case is that comparative advertising can't be the basis of a successful trademark claim, whether in Smith v. Chanel or online.  False advertising law is the only Lanham Act remedy for unwanted use of a mark by a competitor when that competitor is making comparisons.  But "only remedy" and "weak remedy" are not the same thing.

General Steel Domestic Sales, LLC v. Chumley, No. 10–cv–01398, 2014 WL 788040 (D. Colo. Feb. 27, 2014)

Same case: the district court declined to award General Steel prejudgment interest.  This is discretionary; its purpose is to compensate the wronged party for the lost time value of its money, and should be awarded when it would serve as compensation and when the equities favor the award.  Courts have declined to award prejudgment interest on disgorged profits when a plaintiff failed to show that it would’ve enjoyed those profits absent the unlawful conduct. Here, General Steel failed to establish actual damages, and the award was based on a presumption that Armstrong’s false comparative advertising harmed General Steel plus a finding of willfulness.  Thus, there was no basis for finding that prejudgment interest would be compensatory.

Trademark Scholars' Roundtable part 3

Session 3: Comparing The Two Dimensions

Discussant:  Mark McKenna

Why is it difficult to stick to product/geographic markets as a topic? Both dimensions have consumer-facing concerns (how will consumers actually understand the uses in different markets) and other considerations (practical admin. of the system, interaction w/registration system, concerns about commercial interests and when/how they ought to be allowed to expand).  If we want both dimensions have similar rules, we would want to think there’s relatively the same balance between those consumer and other interests. He’s not sure they do. Geog. scope interacts w/registration, treaty obligations, sovereignty in ways that make it distinct/not motivated so much by consumer understanding. This is also somewhat true in product markets, but we’ve converged on confusion to manage all this.

Insofar as we’re trying to regulate the relations between parties/not primarily focused on consumer behavior, might treat them differently.  Accession: if granting a party an adjacent market, is it because we expect the party to have superior ability to enter/manage? Might expect that skills would be transferable to new geographic areas, but less so in other product markets.

Brand as persona: Lots of these goods were staples not individually branded; retailers had a lot of power. Marketing changed in significant part in order to change relationship between producers and retailers, so producer could connect more directly w/consumers.  This whole system has implications for how we structure relations between different levels.  A TM system that rewards advertising will give more power to brands than to retailers.  Also, then they had to focus on non-product characteristics—convince people that they should buy one kind of salt instead of another.  Our TM system supports delivering these ads where the advertised characteristics are disconnected from physical aspects of the goods.

Bill McGeveran: to the extent that branding allows producers leverage against retailers, degree of capacity to extend branding to other product might make you on the margin less interested in that. But you’re creating consumer demand for the refreshment of Coke to get better slotting fees from retailers—most significant incentive for branding is to make consumers want you and that might not change at all based on Coke’s ability or inability to extend to other product lines.

McKenna: might change the nature of the ad message.  Coke would still say “you want Coke, not some other soda.” But if you can brand other things w/Coke, you can port the brand meaning to other goods/services, so you have less incentive to focus on characteristics specific to your category and more to focus on brand personality that is portable.

Litman/Burrell suggest that an intentional/causal account of this phenomenon as driving force of change in TM law doesn’t work (esp. in terms of British law).

Bone: addition of psychological concepts to advertising does change how ads are made: become less informational.  This does push TM law to change too.

McKenna: agrees that this was a change in marketing that courts were noticing.

Litman: just doesn’t agree with the idea that TM law was “designed” to cut retailers out; maybe a wording issue.

McGeveran: consumer v. producer orientation is really important.  In product space, the product-mark association may have special meaning in TM because you can only think about distinctiveness w/r/t a particular product; exporting to different product can take away context that can be legally important, and that’s not true of geographic space. 

Does think that internet makes exposure to other, distant marks more likely—Google gives me the nearest coffee shop first, but others in other states will also show up in the search results. 

Bently is unconvinced about this increased exposure—need more evidence.

McGeveran: thinks it’s so but that it won’t necessarily increase likely confusion. If internet has shrunk geographic and product spaces, doesn’t necessarily mean consumer perception of the meaning of distance stays unchanged.

Mike Grynberg: there are a lot of doctrines that have similar effects in geog. and product markets—one could look at the Rogers test as a kind of “honest concurrent use” for geography. Lawmakers share a common baseline: tendency of TM law generally to posit inattentive consumers.  Need reason to deviate from that baseline.

Expertise in the age of the internet: not as much of a gatekeeper function; gatekeeper mattered when space in which knowledge was stored was somewhat scarce (e.g., library shelves). And now people need filters more than gatekeepers; build communities online in which people participate in the construction of truth, for good or ill. Information cosmopolitan: capable of interacting w/marks and other sources of information—possibility for multiple ways of constructing meaning. That view would provide a different foundation for Dawn Donut, saying that consumers can resist confusion while producers are operating in different markets, even w/the rise of the internet. But the same notion of consumer ability to self-protect/make meaning can also be used in product markets, as w/Sheff’s data and the many Tiffanys in the world.  Cascading amount of nonactionable uses that potentially “dilute” marks—could posit competent consumers who are able to manage this info.

But is this an elitist argument? Info resources are not evenly distributed. 

Harm stories retain their intuitive appeal.

Dinwoodie: agrees that there is change in “distance” w/out necessarily changing confusion—may lead to more sophistication.  You can see the 9^th circuit, over the course of 15 years, figure this out. But processing info takes time, and it’s still unclear how much we base our decisions on immediacy and how much we use the new information.

National marketing impulse may explain both market limits erosion and territorial limits. Coexistence agreements in registration and settlements routinely divide both geographic and product markets.  Attempts to give certainty—but sometimes what you think is a clear definition becomes more complex, as in Apple v. Apple. Many countries had a concept of defensive registration—reserved a product market removed from the goods on which you actually used the mark; another way of providing certainty over who has the right to expand into a market. Problem for use-based regimes.  But now US has ITU. Though ITU has much shorter fuse than the common 5-year period for use.

Heymann: interesting that concurrent use can be divorced from consumer understanding.

Dinwoodie: finesse that by giving deference to parties’ agreement on the idea that they know better than a court how a market would naturally flow. But there definitely be a problem of overriding consumer confusion.

McKenna: parties do this all the time—sale and leaseback; create a blanket entity that leases back to both, but both are really in control of their own activities; etc.

Dinwoodie: is there marketing literature about territorial extension as there is about product market extension? Could that be brought in to help us understand confusion?

DHL case in Europe: now have the possibility, notwithstanding unitary rights, of having a TM in less than EU and someone else able to use the same mark for the same goods elsewhere in the EU.  That prospect scared the dickens out of the TM bar. Phrased objection as creating a problem with the single market. His response: the US is a much more integrated single market with free flow throughout, but is much more comfortable with geographic restrictions and concurrent use agreements!  Somehow the US survives, even though goods and people do flow.  EU is practically fractured markets, but complete skepticism about geographic limits in TM.  Is it just nationbuilding?

RT: McKenna says: Might expect that skills would be transferable to new geographic areas, but less so in other product markets.  My reaction: Really depends on cultural factors, doesn’t it?  McDonald’s, from yesterday, doesn’t just bring the Big Mac and has had trouble when it tries a fullscale import.  McGeveran says: exporting to different product can take away context that can be legally important, and that’s not true of geographic space.  Disagree.  Depending on the mark (also true of product space, e.g. Delta) a geographic distance can make a huge difference.  Recall yesterday’s multiple Tiffany restaurants and strip clubs.  Do we think there’s a chain of each?  Not likely. And that coffee shop example, where Google gives you the nearest first, fits w/my objection to the idea that geography doesn’t provide a context of its own: the search results will be presented in ways making it unlikely that you’ll think that the different similarly named coffee shops are linked.

McGeveran: didn’t mean to contrast geography/product.  Additional information can be confusion reducing as much as it can be confusion creating in either case.

Burrell: Assumptions about consumer: consumer has a smartphone (and thus is not too poor to travel, thus has fewer income constraints). People who have to buy food where they can get it are not the “consumers” of the classic cases.  The courts are talking about people who could go to Paris and would have heard about Maxim’s.  Amazing how easily a notion of the consumer inserts itself into our thinking so that we know the “consumer” has more access to information.  Gender, class are part of the differences.

Defensive registration: had to explain to the Office why a hypothetical reasonable consumer would see the mark on X there would be some kind of harm/association that would damage the TM owner. Fell out of favor because brand owners found it really hard to explain, in the absence of use and in the absence of bad faith, what harm they would be suffering.  (I really want a citation for this!)

Dinwoodie: shows again that dilution is really unfair competition because it’s always what the defendant is doing.

McKenna: agrees that transferability is not necessarily different, but it’s a question worth asking whether one set of skills is more transferable than another (new product v. new geographic market). Thinking about transferability domestically—less significant difference in expanding from NY to Texas than NY to Mexico.

Interesting how easily we all agree, in Mark Lemley’s absence, that TM is doing much more (and different) than consumer protection. That contributes to difficulty in defining the relevant consumers—in service of what?  If it’s about protecting them from disruption in their behavior, you might define them one way. If it’s about defining them in order to allocate markets/business relations, you might define them differently. In many settings, consumers are constructed largely as a stalking horse for how we want to divide up the rights and therefore need do less to figure out what they really think.

Dinwoodie: surveys, for all their flaws, may be a light on real consumers if you think there’s a big gap between your judges and your actual consumers. 

On transferability: to the extent that the owner is licensing, then all they’re selling is their ability to market, not any other skills which become beside the point.

Bone: what sort of effects should we count? We should consider TM’s effects on market structure, but we shouldn’t necessarily use TM to engineer various markets. Dangerous to use TM as engineering device.

Dinwoodie: TM does a lot of things, but that doesn’t mean it should be used to do everything.

McKenna: his claim is not normative but descriptive.

Sheff: defining the consumer is not just normative but distributive: helping richer consumers with more brand awareness may hurt others.  Judge may be mistaken about the consumer in his/her head versus the consumers actually having experience with the mark; but separately, it may be the case that consumers are heterogenous and have different experiences.  We may subsidize one by allowing (or suppressing) use that has different effects on others.

Grynberg: be also clear on what it is we’re allocating/distributing.  Information? Value?

Dinwoodie: speculates that geographic expansion creates more heterogeneity in consumers. 

RT: I think now of McDonald’s and its beef extract used on fries, and its resulting difficulties with Hindus, vegetarians, and others who cared when McDonald’s thought they wouldn’t.  There’s an example of expansion resulting in consumer heterogeneity.  More speculatively: hasn’t branding itself attempted to create more heterogeneous consumers?  Individualizing them, hailing them as unique and different?

Dinwoodie: maybe there’s convergence between geog. and product market rules, but more formal on the geog. side because it’s easier to draw arbitrary lines when political borders are at issue. Then the arbitrary lines get softened because courts think that they’re arbitrary.  (Back to crystals and mud!)

McKenna: thicker set of rules in geog. because of registration overlay, especially in the US.  In the US, registration is mostly about nationwide rights.  Geog. market cases tend to identify areas in which the parties have rights. And those rights are sticky. They stay in place.  That is less likely to happen in product spaces, which feel more ad hoc.  It’s not a coincidence that casebooks teach priority and geog. scope of rights together, and not product market space.  There’s something more systematic and crystalline about geog. scope.  Pragmatism: sovereignty, registration, etc. which is less fluid than the product market space.

Dinwoodie: the normative qs however may be more acute with geog.  Int’l markets: well-known mark doctrine has distributive consequences between developed and developing countries. Maintenance of local culture in a global context is another question.

McKenna: US lens: registration system is more likely to give you rights with a geographic scope unrelated to any consumer understanding—in areas where the mark doesn’t mean anything to consumers (subject to Dawn Donut)—than in distant product areas.

Heymann: what is it that tells you that it’s McDonald’s even if the menu/presentation is different to respond to local conditions? What lets you recognize it as different and yet the same?  Product space offers the same questions—what difference is tolerated until there’s a crossover and the consumer thinks, ok, that’s a different source.

McGeveran: told a great story about his daughter asking if the airline company made their faucet. Navigating meaning is a skill that we teach people—even at 6 she thought it was unlikely.  Learning to parse difference and similarity is a skill.

We don’t intervene to minimize cognitive load on people in many circumstances—commercial, political, etc.  We should justify intervening in TM’s name.

Dinwoodie: other jurisdictions suppress false political speech.

McGeveran: but you don’t have in any democracy rules that ensure not just that people aren’t deceived by political falsehoods but also that they don’t draw mistaken inferences.

McKenna: we don’t regulate the incredibly confusing statements from your insurance company, for example.  (Another thing that might be unique to Americans.)