IPSC Panel 14 – Copyright Authorship & Ownership

Timothy J. McFarlin, A Copyright Ignored? Mark Twain, Mary Ann Cord, and the Meaning of Authorship

Twain used the story of formerly enslaved cook Mary Ann Cord, changing her name to Aunt Rachel. Told story “repeated word for word as I heard it.” Letter: “I have not the altered the old colored woman’s story except to begin it at the beginning, instead of the middle, as she did—and traveled both ways.” He said it had no humor in it (recounted her history, including seven children who were separated from her by enslavers). He also sets the scene, so 20% is that, but 80% is her words as he remembered them.

Taking him at his word: Did Twain infringe her common-law copyright? Would that still exist today? [Federal preemption.] Atlantic Monthly first published Twain’s work, credited to him alone, in 1874. Searching for any surviving descendants.

Cord told Twain the story in NY, which is governed by Hemingway’s Estate v. Random House (NY Ct App 1968). Twain thought he should have ownership of his lectures—“my lecture was my property.”

No evidence of express consent; is telling it in front of him implied consent for him to publish it in his name w/no payment? Seems unlikely. Twain gave her a signed & inscribed copy after publication, which descendants donated to UMd decades back. Inscription: “to Aunty Cord with his kindest regards,” says it’s a “libelous portrait” but well meant; perhaps referring to stereotypical illustration that accompanied publication.

If no consent, then arguably no fixation, then no federal preemption under 301(b). Adverse possession doesn’t fit b/c of lack of exclusivity. Statute of limitations/laches has been watered down federally by Petrella, but perhaps NY state court would apply it more strictly—or could accept a claim for equitable relief, like attribution, going forward. Unsettled; hard to say Cord & family intentionally or even negligently sat on their rights. Did Twain make fair use? There’s some transformation in organization; used entire work/market substitute so Cord wouldn’t be able to sell her narrative a publisher. If a household worker had listened to Twain tell a story and published it, would we think it was fair use?

Crux: was Cord an author? Fits into “slave narrative” genre, which influenced Twain. Twain called it “a curiously strong piece of literary work to come unpremeditated from lips untrained in the literary art.”

Betsy Rosenblatt: 2 questions worth separating—is Cord an author and is Twain an author are different important questions. They’re both authors. What do we do with that? It’s not clear that giving Cord’s estate ownership would be social justice, but that’s a question worth asking.

Shani Shisha, Copyright Pragmatism

Formalities provoked a strong pragmatic reaction from courts. Prototypical 19^th case: Publishing agreement is silent on ownership; publisher complies w/formalities and author doesn’t. The choice is invalidate the © for failure to comply with formalities, or hold that author implicitly assigned the © to the publisher, saving the © in its hands. Problem: statute appeared to require written assignments, recorded in clerk’s office. Determined to prevent forfeiture, courts found—often on very thin evidence—that authors implicitly transferred rights, defying statute. Pulte v. Derby: Author didn’t want a 3d edition published; publisher said it was the owner, court agreed because, though the agreement was silent, without publisher’s efforts to comply, the © would have been abandoned to public. Publisher thus got the © and the evidence of that was published “under the eye of the complainant. He, therefore, sanctioned it.”

There’s a parallel line of cases reaching the opposite conclusion when compliance w/formalities isn’t at issue. In some contexts (e.g., paintings), courts effectively flip the default; there’s an assumption of assignment unless the parties agreed otherwise. SCt provides an ex post rationalization: before the author registers the rights, the author doesn’t have a ©, so the statutory requirement of written assignment doesn’t apply before registration.

To prevent forfeiture, some courts create equitable co-ownership: Registrant is the formal proprietor, but author is equitable co-owner and there’s a constructive trust w/registrant trustee on behalf of author.

What should we make of this? First, tradition of aggressive pragmatism turning almost entirely on forfeiture; courts laundered facts and defied statutory directives. Also, issue of doctrinal drift—rules on implicit transfer grew from this specific context. And we should be talking more about implied permission, not © ownership per se. The court understood that what the author meant to do was to give the publisher an implied license to use/distribute work; given the risk of forfeiture, they had to frame these facts as an issue of assignment.

Zvi Rosen: Wheaton v. Peters starts out very formalist—you didn’t separately deliver the copies that you delivered to the gov’t, so no protection. Signed letter from Librarian of Congress wasn’t enough: very formalist. 1834 Act didn’t make written assignment mandatory, just rules for bona fide purchases. These aren’t copyright cases, but common law copyright cases—courts are using assignment rules b/c they think they aren’t statutory cases. So you should go more into common law/statutory distinction. Copyright Office had a report on contributions to periodicals in the 1960s—there was an old case saying that there was no ©, which made everyone unhappy.

A: my point is exactly that: that these cases are about contracts/implied consent. A lot of them involve courts thinking about statutory copyrights. Courts look to the statute, understand the statute to be controlling, but still do this. Definitely true that they weren’t entirely pragmatic. Sometimes formalities compelled forfeiture. As for 1834 Act, it did say an unrecorded assignment was fraudulent and void—and these were read into the contracts by the courts ex post. [Rosen says: void against subsequent BFP, not void in general]

Michal Shur-Ofry: do we see a larger trend of shift between pragmatism and formalism in other areas of the common law?

Sarah Polcz, Coauthorship for Minor Contributors: Empirical Evidence of Efficiency

Focusing on songs. Rules about what counts as coauthorship used to be good for songs, bad for movies; now they’re good for movies, bad for songs. Minor contributors to films would likely have qualified as coauthors under existing law; courts thus changed the law. [Interesting characterization; courts themselves wouldn’t have said they were changing anything, but that’s certainly not dispositive!] New test: coauthor must have had control over the whole work.

Some scholars say default ownership share should be proportional to contribution. In songwriting, that’s not how people prefer splits. Of 1.2 million cowritten songs, 63% of musical groups treat lesser contributors equally. But maybe an inefficient norm has taken hold. No impact on # of albums released. Equal credit=much more likely to be in top decile of sales, highly significant even controlling for other factors. Coauthorship for lesser contributors significantly predicted that a band that had one gold album would go on to have other gold albums.

Providing evidence against courts’ key empirical assumption that equal shares for lesser contributors will harm creative works via demotivating majority contributors. Equal rewards for lesser contributors are actually positive; creators’ preferences are driven by prior relationships. These results can guide creators and attorneys even in the absence of congressional or judicial action.

Equality and friendship are linked. Role labels help us organize relationships. Balance in an equality relationship depends on equality in allocation, but not on measuring contributions. People strongly desire certain relationships to be equality-based. Market pricing model focuses on measuring contributions and shapes other relationships. They’re incommensurable. Equality is a specific moral demand, not about generosity/asymmetry.

Prior friendships impact whose contributions count and what they’re worth. Prior friendship significantly influences split allocation where the hypo is that subject writes a song and other person provides suggestions and refinements. If they started a band with a friend, nearly 70% preferred equal split, while under 50% picked an equal split when it was not with a friend. Those who chose equality, whatever condition they were in, used equality matching (which isn’t limited to friendship). They know they’re mostly responsible for the song, but feel a moral relationship dominates.

In the gold record set, coded prior friendship or none. For uneven songwriting contribution bands, most significant factor for equal shares was prior relationship. Stable over time though magnitude of effect may change over time.

Friendship can help us predict whether equal shares would be preferred. Should replace control doctrine with industry-based rules that can provide predictability.

Andrew Gilden: does friendship mean friendship or intimate connection—dating, family

A: it’s a peer relationship. Used public data on whether they said they were friends, neighbors, schoolmates, preexisting peer relationship before the economic venture. Initially coded family members differently but there was no difference—they were almost all siblings, and they were peer relationships.

Rosenblatt: compare credit to avoid copyright disputes. Credit might have a different relationship to quality and friendship. People may be willing to share proceeds if they’re already pretty popular. Ed Sheeran already has money from “Shape of You.” Maybe music is better and therefore more popular if the people making it already know each other.

A: Interesting result: hard to renegotiate an initial split, and people became friends when they spent all that time together, but didn’t necessarily renegotiate.

Andres Sawicki: effects of nonmonetary compensation? Usually disproportionately allocated across band members—lead singer/guitarist versus bassist/drummer. So how does that dimension factor in; are they spitting the financial proceeds in ways that are balanced in the fame dimension?

What else might be driving success? How long the people have been making music together?

A: controlled for a lot of that, including who gets the lion’s share. Guitarist who is the songwriter may be more reluctant to split equally with the main singer.

Chris Buccafusco: might be able to tease out causality—does unequal share degrade friendships? How do the bands persist or not over time?

Trevor Reed: why?

A: some people who didn’t share equally said that they didn’t want to share royalties so they could pursue side hustles; if they shared equally then the group would want their full time commitment, which might be related to prior relationships.

Eva E. Subotnik, Dead Hand Guidance: Deconstructing the Posthumous Control of Visual Art

Following aesthetic instructions after death: law and theory. There don’t seem to be many clearcut examples of visual artists trying to micromanage work posthumously; more literary examples. But there does seem to be need/desire for more guidance to be given by artists in that successors want to have that guidance. We should encourage artists to be more specific but not to create binding instructions; guidance is not the same thing. Literary and visual art works are not sufficiently distinct to justify different treatment; enforcing interests from the grave can create conflicts with ©. E.g., can parts of a triptych be reproduced separately? Living generations are often not interested in fulfilling those wishes, making them practically unenforceable (gave Van Gogh virtual exhibit as an example); should not misrepresent to artists the likelihood of specific instructions being binding.

Guy Rub: sometimes it can be helpful for the artist to blame “the lawyers” or “the business” for control claims and perhaps vice versa?

A: these companies tout themselves as helping artists/taking work out of their hands. E.g., advice to reserve one piece of art per year or series to have a representative sample of your work that you could keep as a collection. Business of managing visual artists’ estates has just seemed to explode, and it’s not entirely clear why.

Bita Amani: Theberge case in Canada—transferred authorized paper backed posters to canvas for resale. Deals with © and moral rights, first sale, users rights.

Guy Rub, The Challenges of Posthumous Moral Rights

Exist in Europe, but not as such in US, except for works created & never sold before VARA’s effective date; coauthored work where an author remains alive; the year in which the artist dies. Presumably, the heir can sue, maybe. Probably can waive it too. Found one case in which deceased coauthor’s heirs sued w/the living coauthor.

Five states provided postmortem rights before VARA; assumption was that states would continue to do so. That was a compromise. No state has joined those five, and they’re rarely used. One decision found: a failed California claim by heirs.

Also of course economic rights can provide partial protection for postmortem moral rights.

EU didn’t and probably won’t harmonize moral rights, unclear why. Some countries provide postmortem rights tied to economic rights duration: Germany, Netherlands, Austria. France and Italy provide perpetual protection. These rights are not absolute, especially postmortem rights. German takes an approach of “fading of rights.” French approach: Victor Hugo’s grand-grand-grandson sued an author for a sequel to Les Miserables, in which the villain is neither dead nor the horrible person of the Broadway musical. Court said: after economic rights expire, you can’t just block sequels. Balance with freedom of expression. At the same time, European harmonization maybe should mean that harmonized exceptions to © apply to moral rights. Open question when you can make fun of a character, for example.

Moral rights can be, and often are, cleared and generate a lot of income, which may seem odd given that they’re supposedly nonwaivable. Clearing rights becomes more difficult after the artist’s death: there were 15 Hugo heirs, and the court held that any one of them could assert his moral rights. There are also dead hand issues: you’re supposed to implement Victor Hugo’s rights, not the opinions of his heirs—and Hugo made conflicting statements about what he wanted. So practical concerns about what would offend him arise. Normatively concerning; risk of stagnation.

Waiting for Godot: Initially cross-gender casting was held to violate the estate’s moral rights, but this appears to be eroding. Why?

Removing Confederate statues: moral rights claims if the rights were perpetual? Other examples of racially offensive art placed by public authorities in public places.

Expanding moral rights, especially postmortem, would require us to think very carefully about balancing. There aren’t VARA fair use cases, though technically it applies; there isn’t a very good fit b/t fair use and original works. Is it worth the candle? Not for personality interests, and interests in preservation don’t fit well with moral rights.

RT: Question: does waiver/clearance by one person continue when they die and the moral right descends to their heirs? Or does clearance have to be done all over again?

A: He thinks the answer is yes. Blanket licenses aren’t allowed; you need to approve specific alterations. But his intuition is yes that when there is a waiver/approval, it applies to heirs.

Michal Shur-Ofry: how many of your arguments also apply to postmortem economic rights?

no preemption of state claims where FDA didn't regulate cosmetic talc at all

Johnson & Johnson v. Fitch, No. 2019-IA-00033-SCT, --- So.3d ----, 2021 WL 1220579 (Miss. Apr. 1, 2021)

The Mississippi AG sued J&J under the Mississippi Consumer Protection Act for selling talcum powder products, alleging that J&J failed to warn of the risk of ovarian cancer in women who used talc. J&J argued that the MCPA didn’t cover FDA-regulated labels and that if it did it was preempted. In 1994 and 2008, citizen petitions to the FDA requested a cancer warning on cosmetic talc products; the FDA denied both because it “did not find that the data submitted presented conclusive evidence of a causal association between talc use in the perineal area and ovarian cancer.”

The MCPA prohibits acts that constitute “unfair or deceptive trade practices in or affecting commerce,” and provides that “[i]t is the intent of the Legislature that in construing what constitutes unfair or deceptive trade practices that the courts will be guided by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 USCS 45(a)(1)) as from time to time amended.” But the FTCA, J&J argued, explicitly excludes the regulation of labels on cosmetics, which it commits to the FDA. The state pointed out that “[t]he FTC Act’s false advertising prohibition does not include labeling, but that limit explicitly applies only ‘For the purposes of sections 52 to 54,’ not § 45(a)(1), the section in which the Act instructs courts to be ‘guided’ by.” Also, “guided by” doesn’t mean “determined by.” Given that, at the federal level, the FDA and FTC together cover the waterfront, but that “[i]f judges in Mississippi were bound by the federal Act, then Mississippi would be left without a legal mechanism to address labeling issues,” the state supreme court agreed with the AG.

Moreover, federal law didn’t preempt the claim. The FDCA has an express preemption provision covering cosmetics. Except as otherwise provided, “no State or political subdivision of a State may establish or continue in effect any requirement for labeling or packaging of a cosmetic that is different from or in addition to, or that is otherwise not identical with, a requirement specifically applicable to a particular cosmetic or class of cosmetics” under relevant federal law.

However, by its plain language, preemption only applies if the FDA adopts “a requirement specifically applicable” to a given cosmetic, which it has not. Instead, the FDA decided not to act.

Comment: I would think that the natural reading would be that if there are no federal requirements at all for talcum powder—which seems to be the missing premise here, itself somewhat unlikely—then there’s preemption if the state tries to add any. But: “the preemption statute requires the existence in federal law of a positive expression of regulation applicable to a specific product.”

Nor did implied preemption apply.

false advertising as a workaround when municipal codes are copied?

International Code Council, Inc. v. UpCodes, Inc., 2021 WL 1236106, Nos. 17 Civ. 6261 (VM) & 20 Civ. 4316 (VM) (S.D.N.Y. Mar. 1, 2021) (presently on appeal)

ICC, a nonprofit that develops model codes for design/construction that are often adopted by government entities, sued for false advertising and unfair competition by UpCodes, alleging that they falsely claim to provide updated and accurate building codes on their website, when in fact the posted codes contain numerous errors. The court granted UpCodes’ motion for summary judgment.

ICC develops the codes through a consensus process and revises the codes regularly to reflect changes in the industry. ICC publishes revised I-Codes every three years, and it also publishes custom codes that reflect versions of the codes as adopted by states and local governments (the “Custom Codes”).

That’s costly. It sells I-Codes and Custom Codes through its online store, along with access to additional features through its premiumACCESS tool. “[I]ts primary funding source is the sale and licensing of publications containing its copyrighted works.”

Meanwhile, UpCodes is a for-profit that provides access to materials and tools of particular importance to building professionals, such as the state and local building codes that govern their projects. It allegedly sold or gave away unauthorized copies of the I-Codes and Custom Codes to both customers and prospective customers. In addition, while UpCodes claims its codes are up-to-date and contain integrated amendments, UpCodes’s codes allegedly actually contain numerous errors.

The complaint alleged that UpCode falsely asserted that the posted codes are “always up to date”; the UpCodes website said customers would “never work from outdated code,” “Your code library in one place, always up to date,” “Codes are organized by state and jurisdiction to provide a full understanding of the applicable codes for your project,” and “Understand all the requirements for your jurisdiction in one place”; on Twitter they claimed that their codes are “kept up-to-date with all the amendments integrated natively into the code”; it claimed that it provides the building industry with “ ‘a complete understanding of relevant material’ for their projects” and helps customers “surface the most critical code sections.”  ICC alleged reliance, including a customer review saying he was “much more comfortable knowing that my team is working off the most up-to-date codes.”

Likewise, ICC alleged that UpCodes falsely claimed: “Integrated Amendments: ... Never miss important requirements in your jurisdiction”; “UpCodes has the adopted codes as enacted by the state or local jurisdiction”; and “While some states provide integrated codes ... Where these are not provided, UpCodes has integrated the local amendments ....” Etc. On Twitter, UpCodes claimed that their copies of building codes are “kept up-to-date with all the amendments integrated natively into the code,” and separately that they had integrated “all 973 amendments” to the New Jersey 2018 codes.

However, ICC alleged errors in UpCodes’s Wyoming, Virginia, Oregon, and New Jersey codes. The errors include: posting the entire text of a model code as the state code when it wasn’t incorporated in its entirety (this meant, among other things, posting appendices for Wyoming that included Tsunami-Generated Flood Hazards); failing to incorporate certain amendments the states made to the codes; and failing to include appendices that were adopted.

Finally, UpCodes allegedly falsely claimed to be the “only source” of state amendments integrated into the model code, when in fact ICC also offers custom codes on its website.

Once upon a time, this was a copyright dispute. When the court ruled mostly in favor of UpCodes, though reserved for trial whether UpCodes infringed by copying “model codes as model codes or indiscriminately mingl[ing] the enacted portions of the model codes with portions not so enacted” as a factual matter, ICC filed this new suit, which the court consolidated.

Falsity as to amendment integration: UpCodes argued that its claims weren’t adequately alleged to be false, because “two dozen” errors among “tens of thousands” of Integrated Amendments wasn’t plausibly false or misleading. ICC responded that the errors it identified were merely representative, not an exhaustive list, and that two dozen errors among thousands was sufficient for falsity. The court declined to rely on “vague and conclusory” allegations about “additional, unidentified errors” under Twiqbal. But even if the complaint plausibly alleged more errors, the statements about amendment integration were neither literally nor impliedly false. ICC acknowledge that UpCodes does have “some” integrated amendments, so its claim to offer integrated amendments was not rendered false by (1) not having all the possible integrated amendments or (2) having errors in the integration; those things went to accuracy and completeness, as discussed below.

Falsity as to accuracy/completeness: UpCodes argued that its claims of accuracy and completeness were nonactionable puffery, not material, and not plausibly the source of injury because ICC has more errors than UpCodes’s website.

Even a statement that could in theory be proven true or false, and isn’t a vague statement of opinion, can be puffery if it is “an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying.” That was the case here. Claims to provide “a complete understanding of relevant material,” a code library that was “always up to date,” and that ensured that customers “never work from outdated code” were exactly the type of “exaggerated” and “boasting” statements “upon which no reasonable buyer would be justified in relying.” The court noted that numerous courts have treated the terms “accurate” and “complete” as puffing language, and putting them in the context of legal requirements didn’t change matters. Accuracy is important in building, but “codes are not static, nor are the laws that rely on them. As changes in law occur, some delay between the adoption of those changes, their dissemination to the public, and their publication on the UpCodes website is not only understandable, but expected.” Thus, no reasonable consumer would believe that “the codes are instantaneously updated and at all times error-free.” And the complaint didn’t plausibly allege “rampant” errors by plausibly alleging errors in the codes of four states.

This was further supported by a disclaimer on the UpCodes website (cited in the complaint, but that might not be necessary since the website is integral to the complaint), which expressly disclaims liability for “any errors or omissions in the information or content” on its website and expressly disclaims warranting that the services provided will be “error-free.” Although in the copyright decision, the court made reference to “rather surprising oversights,” UpCodes corrected issues when notified by ICC.

Falsity as to unique services: ICC’s own screenshot shows that UpCodes claims to be the only source of integrated codes only for “jurisdictions [that] do not provide integrated code books.” ICC didn’t allege that the statement as qualified was false.

The state-law claims thus failed too.

CA's Prop 65 warning unconstitutional for acrylamide warnings for being scientifically overcertain

California Chamber of Commerce v. Becerra, 2021 WL 1193829, No. 2:19-cv-02019-KJM-EFB (E.D. Cal. Mar. 30, 2021)

California allegedly compelled businesses to display misleading warnings about the dangers of acrylamide, a carcinogen. The Council for Education and Research on Toxics (CERT) intervened because it often files lawsuits against businesses that do not display warnings about acrylamide.

The court granted an injunction against the law because genuine scientific dispute over the harms to humans of acrylamide meant that the disclosure was not “purely factual and uncontroversial,” so not ok under Zauderer, and the state didn’t meet its burden under any higher standard.

Acrylamide is a toxic chemical first detected in food in 2002, but not newly there. It often forms as a result of a reaction between sugars and the amino acid asparagine, which naturally occur in many foods. Roasting, baking, frying, or otherwise cooking food at a high temperature appears to cause acrylamide to form, whether at home or at industrial scale. According to the U.S. Food & Drug Administration (FDA), the foods that contribute the most acrylamide to the American diet are baked and fried starchy foods like french fries, chips, crackers, donuts, pancakes, and toast. Coffee also contains acrylamide, as do almonds, olives, and asparagus.

It's well established that acrylamide increases cancer in animals; more acrylamide means more cancer. The studies do use very high doses, not real-world doses. “[M]any public health authorities have concluded that exposure to acrylamide probably increases the risk of cancer in people.” Some researchers—some with ties to the food/beverage industries—think that rats and mice react differently to acrylamide. And for obvious ethical reasons, there aren’t clinical human studies, though in vitro human cell studies suggest that acrylamide causes DNA changes that are known to cause breaks and mutations in chromosomes, which can in turn cause cancer; in the International Agency for Research on Cancer (IARC) database of 1,600 human tumor genomes, about one third of the tumor genomes could be connected to acrylamide. “This may mean that a large portion of human cancer is connected to acrylamide exposure.” However, dozens of epidemiological studies have failed to find a connection. This may simply be because food diary studies are unreliable, especially given the ubiquity and uniformity of acrylamide exposure—plus, the effects may not surface for decades, so a short-term study won’t be helpful.

It is thus unsurprising that, despite their conclusions about “probable” or “likely” links to cancer, government authorities haven’t urged people to avoid acrylamide-containing foods, though the FDA has offered guidance to reduce consumption. “At the end of the day, however, because acrylamide is found in so many foods, it is probably impossible to avoid it completely. The FDA advises Americans not to attempt removing fried, roasted, and baked foods from their diets.” California public health authorities specifically decided not to warn against acrylamide exposure in coffee; the State found “inverse associations—decreasing risk with increasing coffee consumption—for [some] human cancers.”

But non-coffee sources remain subject to the warning requirements of California's Safe Drinking Water and Toxic Enforcement Act of 1986, more commonly known as “Proposition 65.” Businesses must not knowingly or intentionally expose people to chemicals “known to the state to cause cancer or reproductive toxicity” without a “prior clear and reasonable warning.”   A chemical “must be listed even if it is known to be carcinogenic or a reproductive toxin only in animals.”

Regulations require warnings to name the chemical and to be displayed “prominently,” “with such conspicuousness” that they are “likely to be seen, read, and understood by an ordinary individual.” A warning may include more information than this, but only if the addition “identifies the source of the exposure or provides information on how to avoid or reduce exposure.” There is a safe harbor warning: “Consuming this product can expose you to [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information go to www.P65warnings.ca.gov/food.”

California has settled cases by allowing more nuanced warnings: in potato chip litigation, it allowed the warning to say the chips “contain acrylamide, a substance identified as causing cancer under California's Proposition 65.” The warning further explained that foods other than chips contain acrylamide and that acrylamide is not added to these foods, but rather is “created when these and certain other foods are browned,” and that the “FDA has not advised people to stop eating potato crisps and/or potato chips...or any foods containing acrylamide as a result of cooking.”

Proposition 65 allows for exceptions, as with coffee; under the regulations, 0.2 micrograms/day poses no significant risk and needs no warning, and higher levels of exposure are permitted when “chemicals in food are produced by cooking necessary to render the food palatable or to avoid microbial contamination”; and the law grants businesses an affirmative defense if they can prove the alleged exposure “poses no significant risk assuming lifetime exposure at the level in question,” but the court concluded that these paths were too risky to be a defense to the First Amendment claim.

Here, the only safe path—the safe-harbor warning—would be: “Consuming this product can expose you to acrylamide, which is ...known to the State of California to cause cancer. For more information go to www.P65warnings.ca.gov/food.” First, by “asserting vaguely” that consumption could expose the consumer to acrylamide, a chemical most people have likely never heard of, “the warning implies incorrectly that acrylamide is an additive or ingredient.” And the warning required consumers to make several leaps—that it meant that animals get cancer more often when they consume doses hundreds of times larger than the amounts in the food, that scientists presume (absent other evidence) this means cancer in people, and that therefore the chemical is “known” to cause cancer in humans. (Necessary implication!) “People who read the safe harbor warning will probably believe that eating the food increases their personal risk of cancer.” There was indeed some evidence for that, but the epidemiological studies didn’t find it, and “California has also decided that coffee, one of the most common sources of acrylamide, actually reduces the risk of some cancers.”

Thus: “the safe harbor warning is controversial because it elevates one side of a legitimately unresolved scientific debate about whether eating foods and drinks containing acrylamide increases the risk of cancer.”

The state couldn’t adopt private definitions of what it means for California to “know” that acrylamide causes cancer, “or by showing the warning contains no affirmative falsehoods. Statements are not necessarily factual and uncontroversial just because they are technically true.”

The court commented that these problems could have been avoided by allowing businesses to explain that acrylamide forms naturally when some foods are prepared; that California has listed acrylamide as a chemical that “probably” causes cancer or is a “likely” carcinogen or that the chemical causes cancer in laboratory animals; and that acrylamide is commonly found in many foods and that neither the federal government nor California has advised people to cut acrylamide from their diets. Although this was okayed in the potato chip litigation, it wasn’t obviously available to others without litigation, based on the statute and the regulations. On the current record, the court agreed that “only the safe harbor warning is actually useable in practice,” and the state couldn’t “ ‘put the burden on commercial speakers to draft a warning that both protects their right not to speak and complies with Proposition 65.’ If the seas beyond the safe harbor are so perilous that no one risks a voyage, then the State has either compelled speech that is not purely factual, or its regulations impose an undue burden.”

This case was distinguishable from the earlier CTIA cellphone radiation warning case in three ways: First, the CTIA warning only “hinted” at potential dangers, for example by referring vaguely to “safety,” but “its text was a purely factual summary of federal regulation about radio frequency radiation.” This wasn’t even argued to be “controversial as a result of disagreement about whether radio-frequency radiation can be dangerous to cell phone users.” But the truth of whether acrylamide is “known to cause cancer” is “the subject of controversy,” even if it wasn’t a political or moral controversy.

Second, CTIA involved an unchallenged federal mandatory disclosure of the same information; the ordinance at issue just required more prominence. Here, “[n]o regulatory or public health authority has advised against consuming foods with acrylamide.” [… That’s not what this disclosure says either.]

Third, the ordinance in CTIA allowed businesses to add information, whereas “Proposition 65 does not permit businesses to add information to the required warning at their discretion, and thus prevents them from explaining their views on the true dangers of acrylamide in food.”

Since Zauderer didn’t apply, it also flunked Central Hudson and any higher standard of scrutiny. “There is no question that protecting the health and safety of consumers is a substantial government interest.”   But at this stage of the litigation, the required warning likely does not “directly advance” that interest and is “more extensive than necessary” because it misleadingly implied that the science about the risks of food-borne acrylamide was settled. The state could also fund scientific research and pursue public awareness campaigns to further its interest. “Regulators could also modify safe harbor warnings to eliminate inaccuracies and controversial statements.”

The court cautioned that it was not invalidating “existing consent decrees, settlements, or other agreements. For example, this order does not permit businesses that have already agreed to display a certain warning do take those warnings down, and businesses that have agreed to reformulate their products to reduce acrylamide content are not permitted by this order to breach those agreements.” And the court noted the risk of misinterpretation or misuse of this injunction to attack warnings about other carcinogens and reproductive toxins. “California has a substantial and likely compelling interest in protecting people from exposure to dangerous chemicals, including chemicals that have been shown to cause cancer or reproductive harm in experimental animals, even if epidemiological evidence is inconclusive.” But at this stage, the court granted the preliminary injunction.

trolling over gnomes--no, really--on Amazon

Shenzhen Tange Li’an E-Commerce Co. v. Drone Whirl LLC, 2021 WL 3474007, No. 1:20-CV-00738-RP (W.D. Tex. Aug. 6, 2021) (R&R)

Shenzhen sought a declaratory judgment that a design patent for a toy gnome figurine was unenforceable and invalid, given that defendant/counter-plaintiff Tatiana Mironova allegedly purchased its stuffed gnome toys, then switched manufacturers and obtained a patent for an identical ornamental design without authorization. Mironova then allegedly filed intellectual property complaints against its storefront on Amazon.com fraudulently claiming infringement of her patent rights and copyrights. Amazon delisted Shenzhen’s products. Shenzen also brought claims under Texas law for unfair competition, tortious interference with existing business relationships, fraud, and business disparagement. (The parties agreed to judgment on the pleadings holding a key patent invalid. Nonetheless this is now a patent case.)

The defendants (collectively Drone Whirl) counterclaimed that Shenzhen retaliated after Drone Whirl stopped buying gnome dolls from Shenzhen by interfering with Drone Whirl’s business on Amazon.com. Shenzhen allegedly placed orders without paying for them to “lock up” Drone Whirl’s gnome inventory; bribed Shenzhen’s customers to submit bad reviews of Drone Whirl’s products; and distributed pamphlets to its customers containing false or misleading statements about Drone Whirl’s products. It counterclaimed for unfair competition under the Lanham Act, as well as Texas common-law claims of fraud, breach of contract, business disparagement, and tortious interference with existing and prospective business relations.

In relevant part, the Shenzen pamphlet began:

We are aware that there are a number of companies who are committing design infringements on our products. Producing versions of our products and selling them on the internet, particularly AMAZON. Using our products description, our pictures that we have taken of our own products even our brand to falsely exploit our reputation, in order to make quick sales. Then, they are manufacturing cheap imitations with the intent of selling them. There are only 3 shops (shop name: ITOMTE, ITOMTE INC., Hi Gnome) that are currently authorized to sell our products on AMAZON ....

Not discussed in the opinion, but relevant—the pamphlet offers various incentives for reviews of competitors. Is this legitimate, either under general advertising law, or Amazon policy?

Without discussion of the broader caselaw about legal claims, the magistrate concluded that stating that a company engaged “design infringements” to manufacture products that are “cheap imitations” of Shenzhen’s “authorized” products were all “statements of fact that are capable of being proved false or misleading.” Alleging that these statements disparaged Drone Whirl (not named, but implicated) and that they were likely to confuse consumers was sufficient for falsity/misleadingness, and alleging that the statements were in emails and a pamphlet sent to customers was sufficient to allege commercial advertising/promotion.

NYIPLA student writing competition

 The New York Intellectual Property Law Association (NYIPLA) is currently accepting submissions for the Hon. William C. Conner Intellectual Property Law Writing Competition. Further information can be found on: https://www.nyipla.org/nyipla/ConnerWritingAwards.asp.

Award Name	Hon. William C. Conner Writing Competition
Award Provided by	New York Intellectual Property Law Association (NYIPLA)
Deadline	Sunday, February 27, 2022
Number of Awards	One (1) first place award in the amount of $1,500 and one (1) runner-up award in the amount of $1,000.
Provider Website URL	www.nyipla.org
About NYIPLA	The New York Intellectual Property Law Association serves as a vehicle to promote the development and administration of intellectual property interests. NYIPLA strives to educate the public and members of the bar in this particular field and continually works with foreign associations to harmonize the substance and interpretation of international conventions for the protection of intellectual property. Today, the NYIPLA exceeds 1,500 intellectual property attorneys practicing throughout the United States and abroad. The Association has a combined total of twenty-four active Committees and Delegates, whose scope covers all aspects of intellectual property law and practice and related topics, including alternative dispute resolution, legislative oversight and amicus briefs, meetings and forums, and continuing legal education.
About the Award	The Hon. William C. Conner Writing Competition was established to recognize exceptionally written papers that are submitted by law students and is presented each year at the Annual Meeting and Awards Dinner. The competition is open to students enrolled in a J.D. or LL.M. program (day or evening). The subject matter must be directed to one of the traditional subject areas of intellectual property, i.e., patents, trademarks, copyrights, trade secrets, unfair trade practices, antitrust, and data security/privacy issues. Entries must be submitted electronically by Sunday, February 27, 2022, to Richard Brown, rbrown@daypitney.com.
For Eligibility and Submission Requirements Visit	https://www.nyipla.org/nyipla/ConnerWritingAwards.asp
Contact	Lea Tejada
E-mail Address	admin@nyipla.org
Contact Phone Number	(201) 461-6603
Fax Number	(201) 461-6635
Mailing Address	2125 Center Avenue, Suite 616, Fort Lee, New Jersey 07024

false advertising & bankruptcy law: $18 million for deceptive campaign in violation of automatic stay

In re Windstream Holdings, Inc., 627 B.R. 32 (S.D.N.Y. 2021)

Plaintiffs/Debtors argued, and the court held in relevant part, that defendants (Charter) breached the automatic stay by a literally false and intentionally misleading advertising campaign to induce the Debtors’ customers to terminate their agreements with the Debtors by telling them that bankruptcy risked impairment of their service. (Charter, notably, had previously been the victim of a similar campaign by DirecTV when Charter filed for bankruptcy ten years prior, and obtained a TRO against DirecTV, which the court doesn’t mention here but might bear on the concept of willfulness.)  

As alleged in the initial complaint, Charter mailed solicitations whose envelopes “used Windstream’s trademark and copied the same distinct color pattern from Windstream’s current advertising campaign.”

"Important Information Enclosed for Windstream Customers."

Text: Windstream Customers,

Don’t Risk Losing Your Internet and TV Services.

Windstream has filed for Chapter 11 bankruptcy, which means uncertainty. Will they be able to provide the Internet and TV services you rely on in the future? To ensure you are not left without vital Internet and TV services, switch to Spectrum.

With a network built for the future, Spectrum is here for the long haul . . . .

Windstream’s future is unknown, but Spectrum is here to stay—delivering internet and TV services you can count on. . . .

Example consumer call alleged in the complaint: “…. I got a letter in the mail saying that ya’ll were going bankrupt and for me to go with Spectrum so I have gone to Spectrum and I have just called to have the services of Windstream disconnected.”

On social media:

"Were U planning on telling UR customers" [to switch before they lose service]?

This opinion considered whether Charter was liable in civil contempt and the amount of harm caused by its conduct to the relevant creditors. The court found that yes, Charter was in contempt of the automatic stay, and should be sanctioned $19,179,329.45 for the losses caused by intentionally and wrongfully interfering with the Debtors’ customer contracts and good will.

Along with knowledge of an order and failure to comply with it, civil contempt generally requires “that (1) the order the contemnor failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to comply in a reasonable manner.” If there’s “a fair ground of doubt as to the wrongfulness of the defendant’s conduct,” civil contempt isn’t appropriate. But an additional bad faith/willfulness finding isn’t required. The touchstone is not an intent to violate, but an intentional act in violation of the order; an objectively unreasonable belief that one is complying with the order does not avoid a contempt finding.

Courts have sometimes been more aggressive when treating violations of the automatic stay, which “aims to prevent damaging disruptions to the administration of a bankruptcy case in the short run.” Given the importance of the automatic stay to multiparty bankruptcy cases and the continuing judicial supervision of a bankruptcy case, “it is logical to require those in doubt whether the stay applies to seek clarification from the court or be sanctioned for shooting first and aiming later.” Certainly no more than an objective standard for a clear violation is required.

This made the nonadvertising part of the case easy: Charter breached the automatic stay when it terminated services to some of debtors’ customers based on debtors’ default on prepetition obligations.

Of possible interest to cyberlaw folks, Charter argued that it was unable to comply, because its termination of service was wholly mechanical, arising from “automatic nonpayment protocols” programmed into its computerized billing system. The court disagreed: “[I]t is not really a defense for a large and sophisticated entity like Charter that provides services to many customers, some of whom inevitably will file for relief under the Bankruptcy Code, to argue that its systems do not have an effective fail-safe to prevent it from violating the automatic stay.” Charter didn’t argue that it couldn’t create systems to override automated collection activity. “Turning a blind eye to the automatic stay by choosing systems that are incapable of complying with it is not tantamount to an inability to comply nor with making diligent efforts to comply in a reasonable manner.”

For advertising folks: Charter was also held in contempt for interfering with debtors’ customer contracts and goodwill “through Charter’s literally false and intentionally misleading advertising campaign intended to create the impression, using mailings designed to seem as if they were coming from the Debtors, that the Debtors were going out of business.” There was clear knowledge of the automatic stay, given that “Charter premised the campaign on false assertions regarding the Debtors’ bankruptcy cases.”

The Bankruptcy Code automatically stays “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” It’s not confined to acts to collect or enforce a claim or judgment against the debtor, but was designed to ensure that a trustee or debtor in possession maintains control of the estate’s property and to protect against its “dismemberment” in furtherance of an eventual equitable distribution to creditors. It covers executory contracts, which are property of the debtor’s estate, and protects them both against termination and “other interference that would have the effect of removing or hindering the debtor’s rights” in violation of the statute. Goodwill is also well recognized property of the estate.

Comment: This is an interesting question given that TM/advertising people tend to define goodwill differently than general business valuation people, especially in the TM/false advertising context. Is a counterfeiter of products of a bankrupt entity in violation of the automatic stay if it knows about the bankruptcy? Or say an unrelated competitor to a bankrupt pharmaco starts falsely advertising comparatively about its painkillers without reference to the bankruptcy. Does its awareness of the stay mean that its false advertising violates the automatic stay? A few of the cited cases seem to say yes, but even the closest analogous case seems to have been premised on prior contractual dealings: Alert Hldgs., Inc. v. Interstate Protective Services, Inc. (In re Alert Hldgs., Inc.), 148 B.R. 194 (Bankr. S.D.N.Y. 1992) (court summary: “intentionally deceptive advertising that interfered with debtor’s customer contracts and harmed goodwill automatically stayed”; contempt defendants had previously sold the relevant accounts to the debtor); see also Phillips v. Diecast Marketing Innovations, LLC (In re Collecting Concepts), 2000 Bankr. LEXIS 615 (court summary: “preliminary injunction granted against interference with debtor’s goodwill and executory contracts by competitor in violation of section 362(a)(3)”; competitor was in negotiations to buy the business line before bankruptcy and had dealings with relevant party with prepetition debtor’s knowledge).

The court noted that many such decisions didn’t require “acts for which the violator would be liable under applicable non-bankruptcy law” as long as there was simply interference with the debtor’s contract rights. Where the acts were clearly lawful under applicable non-bankruptcy law, courts use a balancing test, but that didn’t matter here because the literally false and intentionally misleading advertising campaign was not “ordinary course commercial conduct,” but rather unlawful under nonbankruptcy law.

Defendants unhelpfully argued that they subjectively didn’t believe they were violating the stay, which didn’t matter. Nor could they cast off blame onto their ad agency or their consultant. Defendants authorized the campaign “to be modeled on a prior campaign relating to a competitor that was ‘shutting down service’ to create doubt whether the Debtors would remain in business,” and anyway acts of their agents in violation of the stay would be imputed to them.

Defendants also argued that applying the automatic stay to their advertising would violate the First Amendment, and (implicitly) that the First Amendment provided them with a fair ground for doubt that the automatic stay applied. But First Amendment rights can be restricted when they are an integral part of conduct that violates a valid statute, such as that providing for the automatic stay. (This seems to treat the false advertising as speech rather than conduct; that creates problems when it comes to, say, truthful comparative advertising that also implicates the estate, but apparently that is not unique to this case. Cited: Collier v. Hill (In re Collier), 410 B.R. 464 (Bankr. E.D. Tex. 2009), “in which the posting of a sign that said, ‘Brad Collier owes me $943.23. Will you please come and pay me!’ was not protected by the First Amendment because it was debt collection activity prohibited by 11 U.S.C. § 362(a)(6), and In re Andrus, 189 B.R. 413 (N.D. Ill 1995), “which held that conduct including the posting of signs stating that the debtor ‘Went Bankrupt! He Didn’t Pay His Bills! He Is A Deadbeat! This Is a Public Service Announcement’ and ‘Gene Andrus, Where’s My Money?’ was not protected speech, but, rather, properly prohibited.” Also—and perhaps even more sound—false/misleading commercial speech isn’t protected by the First Amendment. The automatic stay “protects a strong governmental interest threatened by the Defendants’ conduct.” By contrast, defendants’ primary case, In re National Service Corp., 742 F.2d 859 (5th Cir. 1984), involved a defendant who “accurately reported a debtor’s bankruptcy status on a billboard commissioned from it by the debtor which otherwise would have inaccurately implied that the debtor was affiliated with a financially healthy company and therefore could pay its bills.” There, the addition “was found to be primarily informational; there was no act to harm and thus no violation of section 362(a) of the Bankruptcy Code.” Seems like a lot of work is being done by “harm” there, which is pretty manipulable when it comes to intangibles. Another case cited by the court, In re Golden Distribs., Ltd., 122 B.R. 15 (Bankr. S.D.N.Y. 1990), found that “the debtor’s former salespeople did not harm the debtor’s goodwill or contracts because they had not appropriated any customer lists or similarly protected information and the former customers who changed their allegiance did not have contracts with the debtor.” But of course that doesn’t mean they didn’t harm the debtor’s goodwill—it means that outside of bankruptcy, they didn’t commit a tort.

But did these defendants nonetheless have a fair ground for doubt about whether their advertising campaign violated the stay” The provision has sometimes been found to be ambiguous with respect to the meaning of “any act ... to exercise control over property of the estate,” but only in irrelevant contexts (e.g., when the alleged violator of the stay has a strong countervailing interest that would be affected, such as when federal law precluded a nonbankruptcy injunction against a union’s actions in contacting prospective customers). This last one, coming out of a Trump bankruptcy, strikes me as a solid precedent to protect truthful comparative advertising that damages the estate—but that’s not relevant here. The court considered the Trump case relevant when it’s tricky to determine “the nature and extent of the estate’s interest in the property.” But there was no ambiguity here—the debtor had uncontroverted evidence that debtors’ customer contracts’ average duration at the time of the stay violation was 50 months—and anyway the caselaw clearly points to the rule that if a party isn’t sure, it should seek relief from the automatic stay.

Future guidance: “Although every corporation expects legitimate advertising by competitors, and thus such advertising does not ‘exercise control’ over its property, improper advertising such as the Defendants’ clearly and objectively interfered with the Debtors’ customer contracts and goodwill and thus clearly was precluded by section 362(a)(3)’s plain terms and the caselaw applying them.” Again, this is a manipulation of what counts as “control” to insert “wrongful” in front. And the automatic stay isn’t overbroad simply because it “could conceivably be applied more broadly to advertising in general”; “the foregoing caselaw sufficiently cabins that application for there to be no fair ground of doubt that Charter fell on the wrong side of the statute when it undertook to mislead the Debtors’ customers to end their contracts and impaired the Debtors’ goodwill.”

For the advertising violations, the court basically accepted debtors’ evidence of (1) lost profits from customers who switched to Charter as a result; (2) corrective advertising costs; (3) “the cost of a promotional campaign to recover market share, or new customer momentum lost because of the breach,” and (4) related attorneys’ and expert witness fees and expenses. While Lanham Act courts are sometimes hesitant about damages from categories (2) and (3), the court here was satisfied that “corrective advertising is a well-recognized component of damages for harm caused by wrongful advertising,” and defendants didn’t fight very hard on whether the corrective advertising costs were reasonable and causally related to their ad campaign. Though they did object to (3), the court was satisfied that the $4 million campaign was “incurred because of and in response to Defendants’ ad campaign,” based on testimony that it was “the most aggressive campaign that [Plaintiffs] have run,” “was absolutely uncommon for [Plaintiffs],” and was aimed to address the Charter campaign’s “profound impact on [Plaintiffs’] business, and we didn’t see it in the non-Charter [Exchanges],” where the false advertising campaign didn’t occur.

Nor did (3) unfairly duplicate lost profits because it was trying to win back lost customers. It surely stood to reason that some of the promotional campaign reached former customers, but still, “damages for wrongful advertising can include both lost profits and the cost of damage control programs, including corrective advertising, at the same time.” Plaintiffs’ witness testified credibly that before the false ad campaign, they were on a growth trajectory, but after, they were “behind plan” by about 5000 customers. The promo program was primarily designed to recover suppressed demand. That met plaintiffs’ burden of showing that (3) was a category of damages separate from lost profits—or, in the alternative, that established that (3) approximated the value of plaintiffs’ lost goodwill. And here’s an interesting statement relevant to my point about goodwill above: “Defendants’ contention that this should be precluded because the Debtors’ monthly operating reports filed during their bankruptcy cases showed no erosion in goodwill clearly misses the mark; GAAP goodwill for purposes of the Debtors’ monthly operating reports is not business goodwill for purposes of calculating damages.”

Plaintiffs also received a chunk of their attorneys’ fees; if willfulness was required for that, they showed it. “While the ratio of Plaintiffs’ fees and expenses to Plaintiffs’ damages is high ($9,183179.45 /$9,996,200), a large portion of the legal fees and expenses were incurred in response to several questionable litigation choices by Defendants” as well as the costs of obtaining the cessation of the false advertising. 

3 things that all mean the same thing: a slogan isn't a TM for ad injury insurance purposes

Travelers Indemnity Co. v. Luna Gourmet Coffee & Tea Co., 2021 WL 1293314, No. 19-cv-02039-RM-NYW (D. Colo. Apr. 7, 2021)

The underlying litigation involves class actions against coffee distributors, wholesalers, and retailers arising out of the allegedly misleading use of the name “Kona.” There was a Kona coffee farmer plaintiff class and a consumer plaintiff class. They alleged that the underlying defendants wrongly profited from the goodwill of Kona, which injured Kona farmers by having excessive supply which drives prices down and by causing consumers to conclude that Kona coffee is “nothing special.” As to defendant Boyer (the relevant defendant), the class actions alleged that it falsely designated the  geographic origin of its coffee with the intent to deceive, when the products actually contained little to no Kona coffee.

Travelers insured Boyer, which sought coverage.  The personal and advertising injury policy at issue bars coverage for knowing violation of rights; material published with knowledge of falsity; failure of goods to conform to quality/performance statements; infringement of ©/patent/TM/trade name/trade dress/trade secret/ “other IP rights or laws,” with the standard exception to the last for advertising injury “arising out of any actual or alleged infringement or violation of another’s copyright, ‘title’ or ‘slogan’ in your ‘advertisement.’”

There’s also an exclusion for material published prior to the policy period, which Travelers alleged applied, but Colorado law directs courts to look at the complaint itself, which doesn’t make that clear. Its evidence was from websites, and it didn’t request judicial notice.

The policies covered disparagement of people or products in ads, defined in the Policies as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” Travelers argued that the underlying actions concerned product labels/packages, which aren’t ads. That seems wrong given the definition, but the court rejected this argument on the narrower ground that there were underlying allegations that Boyer’s also used marketing and advertising to tell consumers the packages contain coffee from Kona.

But did Boyer’s use of “Kona” disparage Kona farmers just because it allegedly harmed their goodwill? No. Implied disparagement was insufficient; the theory was “too remote to constitute disparagement within the meaning of the Policies or the element of the claim under Colorado or Washington law.” And it definitely didn’t disparage Kona consumers.

What about infringement of “slogan”? “Slogan” is defined in the Policies as “a phrase that others use for the purpose of attracting attention in their advertising” that “[d]oes not include a phrase used as, or in, the name of: (1) Any person or organization, other than you; or (2) Any business, or any of the premises, goods, products, services or work, of any person or organization, other than you.”

First, Travelers argued that a slogan can’t be a single word. “Priceless,” Boyer responded—and also pointed out that it was actually accused of using “Café Kona” and “Kona Blend.” The court agreed with the former argument, but not the latter, since those weren’t the accused matter, “Kona” was.

Second, Travelers argued that “Kona” was used in the name of the Kona coffee products and, by definition, a slogan does not cover phrases used in another company’s products. But there were Kona farmers who do not use “Kona” in their product names, such as “Rancho Aloha.”  

Finally, Travelers argued that “slogans are catchy stand-alone phrases or mottos, not brand names or product descriptions, relying on Laney Chiropractic & Sports Therapy, P.A. v. Nationwide Mut. Ins. Co., 866 F.3d 254 (5th Cir. 2017).” Relatedly, it claimed that neither “Kona” nor “Kona Coffee” or “Kona Café” are “used to attract attention” in advertising. Although the court here didn’t rely on Laney, it still agreed with Travelers, which is… a bit puzzling from a TM theory perspective.

The underlying complaint showed that the Kona farmers used “Kona,” “Kona Coffee,” and “Café Kona,” to describe the products or brand names used by Boyer’s, not as “a phrase that others use [here, Kona farmers] for the purpose of attracting attention to their advertisement.” Instead of use of Kona as a “slogan” or “advertising tagline,” they were seeking to protect Kona as a “source identifier.”

CJ Cregg is right

So, no coverage. Comment: A slogan can be a trademark, which is to say a source identifier--and a source identifier is definitely something used for purposes of attracting attention. But the insurance policies distinguish slogans from trademarks. It's something they certainly can do, but the language of trademark can't explain it. And in fact this interpretation seems to render coverage a null set: If a slogan is something used to get attention, but that doesn't work as a source identifier for the plaintiff, then the plaintiff will not be able to assert cognizable rights that could be infringed (setting aside copyright, separately listed in the exclusion to the exclusion). It would be more natural, from a TM perspective, to define a slogan as words distinct from the product name that are prominently used to sell the product. A slogan answers neither "who am I?" nor "what am I?" but provides an indication of "who."

aiding and abetting liability in false advertising cases

 Bonus: Civil RICO claims survive!

Sihler v. Fulfillment Lab, Inc., 2021 WL 1293839, No. 3:20-cv-01528-H-MSB (S.D. Cal. Apr. 7, 2021)

Defendants allegedly used fake celebrity endorsements and reviews and misrepresentations about price and limited availability to induce consumers to buy weight-loss pills, then charged consumers more than they originally agreed to pay, made it difficult or impossible to return the products or receive a refund, and operated “false front” websites to mislead banks and credit card companies investigating chargebacks.

For example, plaintiff Sihler saw an internet ad for “InstaKeto,” claiming that it was featured on Shark Tank. She chose “Buy 3 bottles, Get 2 free” promotion with the expectation that she would be billed for three bottles of the product at $39.74 each, but her debit card was charged for $198.70, the price of all five bottles. When she called, the representative told her she would have to ship the bottles back at her own expense to obtain a partial refund; she didn’t receive any money back.

Defendants’ ads allegedly are deleted after a few weeks or months to avoid detection; the terms and conditions of purchases, including the refund and return policy, are hidden or buried on the landing page, and consumers do not need to read or acknowledge the terms in order to complete their purchase. When consumers dispute charges with banks or credit card companies, defendants allegedly used a “false front” website that was similar to the original landing page, but the terms and conditions were clearly stated, the false advertisements are removed, and the actual purchase prices of the different options were listed, thus deceiving the investigators. Defendants also allegedly used multiple shell companies, each of whom signs up for a unique merchant account, which are rotated so that they won’t flagged for fraud due to high levels of chargebacks.

Plaintiffs’ amended complaint, like their first one, stated claims for violations of the CLRA, FAL, and the unfair, fraudulent, and unlawful prongs of the UCL. They identified multiple problems with the ads and alleged how they’d be false or misleading to a reasonable consumer: the pictured and quoted celebrities have not in fact endorsed the Keto Products in question, there is not actually a limited supply of Keto Products remaining, and they will not “Buy 3 Get 2 Free.” And using a “false front” website for financial institutions would also be misleading and deceptive to a reasonable consumer.

The remaining issue was whether specific defendants were plausibly alleged to be directly or indirectly liable.

Plaintiffs alleged that defendant Beyond Global created the ads containing the false statements; created and operated the landing pages viewed by consumers and the “false fronts”; opened hundreds of merchant accounts; and charged one plaintiff’s credit card. That was enough for direct liability.

Plaintiffs also alleged that defendants TFL and Nelson aided and abetted Beyond Global’s violations and conspired with it to violate the CLRA, FAL, and UCL. These allegations were also sufficient: aiding and abetting requires facts making it plausible “that defendants either ‘(a) [knew] the other’s conduct constitute[d] a breach of duty and [gave] substantial assistance or encouragement to the other to so act or (b) [gave] substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitute[d] a breach of duty to the third person.’ ”

The court focused on (a); a plaintiff must “plead sufficient facts to permit a ‘reasonable inference’ that [the defendant] knew of the ‘specific wrongful act[s]’ of fraud by the [principal(s)] at the relevant time.” Although states of mind can be alleged generally, the pleader still has the burden of alleging “the nature of the knowledge a defendant purportedly possessed,” here actual knowledge of the pirmary violation.  A defendant’s “decision to ignore suspicious activity or red flags is sufficient to demonstrate actual knowledge” for aiding and abetting liability. Allegations about a defendant’s knowledge and familiarity with the structure and operation of an alleged fraudulent scheme are also relevant. Similarly, “ordinary business transactions” can satisfy the substantial assistance element of an aiding and abetting claim “if the [defendant] actually knew those transactions were assisting the [principal] in committing a specific tort. Knowledge is the crucial element.” Defendants didn’t contest the substantial assistance element.

Here, plaintiffs alleged that TFL and Nelson had actual knowledge: they knew how the fraudulent scheme worked, that they were shipping products sold using deceptive and unfair advertising, that the ads and websites were false and misleading, and the nature of the tortious conduct being committed by Beyond Global and Doe defendants. They allegedly “directly run” ad campaigns for their clients, including Beyond Global. TFL’s website allegedly provides a variety “Affiliate Marketing Resources,” and its marketing director’s LinkedIn profile states that his duties include “Run[ning] and monitor[ing] marketing campaigns.” TFL and Nelson also allegedly integrated TFL’s custom software into the landing pages, which would have necessitated knowledge of the deceptive and misleading content on those websites. In addition, they allegedly ignored “a significant number of red flags,” receiving and processing customer returns and complaints. They also received complaints on TFL’s BBB page, one of which specifically mentioned viewing a false Shark Tank advertisement; TFL/Nelson “responded to several of these comments, demonstrating that they read them and were aware of their contents” and supporting a reasonable inference that they were aware of comments to which they did not directly respond in the same period.

The court also rejected the argument that providing order fulfillment software didn’t mean they would have been aware of the website content. “It is plausible that an entity responsible for integrating order fulfillment software with a client’s website would have knowledge of the content, representations, and general nature of the website. And it is very plausible that providing assistance with advertising campaigns for clients would necessitate knowledge of the content of the advertisements and the nature of the campaign.” Of course this could be revisited on summary judgment.

Shockingly, civil RICO claims also survived, despite being civil RICO claims.

Tan v. Quick Box, LLC, 2021 WL 1293862, No. 3:20-cv-01082-H-DEB (S.D. Cal. Apr. 7, 2021)

A similar case. Noted because the court found that the following allegations sufficiently pled aiding and abetting liability: The relevant defendants had prior experience helping other clients run free trial scams, knew the elements and hallmark characteristics of such schemes, and knew the main defendants were operating such a scheme. The design, implementation, and utilization of the relevant defendants’ load balancing software necessitated the their knowledge of the entire scheme: it was designed and used for rotating merchant accounts to avoid detection of a scheme to defraud consumers. The relevant defendants provided coaching services on how to apply for, manage, and rotate merchant accounts, as well as designing and implementing advertisements, and participated in a months-long onboarding process with the main defendants.

Defendants argued that they merely licensed legitimate, commercial software for lawful use only. But under Twiqbal, plaintiff alleged more: They specifically advertised their ability to help companies who had been “shut down” by helping them “get real merchant accounts” and providing “chargeback mitigation.” The aiding/abetting defendants’ website and press materials make several references to “load balancers” and merchant account managing. Load balancing, defined as “distribution of Transactions between or among Merchant ID numbers in order to avoid minimum thresholds,” is expressly prohibited by VISA and Mastercard. Plaintiff alleged that there is no legitimate reason to be rotating hundreds of merchant accounts and employing chargeback caps and pointed out that the aiding/abettind defendants didn’t offer a potential lawful purpose for their load balancing software. They could try at summary judgment.

Civil RICO claims also survived here.