You'll get a workout reading this opinion

Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, --- F. Supp. 2d ---, 2011 WL 4035751 (S.D.N.Y.)

Juicy facts, long opinion with comprehensive coverage of various fields of law, very sensitive to avoiding anticompetitive law even when faced with very bad behavior by defendants. Pure Power and its owner Lauren Brenner sued Warrior Fitness along with individual defendants Kenneth Fell, Ruben Belliard, Jennifer Lee, and Nancy Baynard for theft of trade secrets, trademark infringement, and related claims. Defendants counterclaimed for violations of the New York Labor Law, Stored Communications Act (SCA), and NY’s statutory right of publicity.

Facts: Brenner started a physical fitness business based on the concept of a military boot camp. Pure Power uses military camouflage colors and décor and, unlike traditional gyms, doesn’t have a membership fee. Clients sign up for “tours of duty” for a set period, and Pure Power will contact no-shows directly. Classes are limited to 16 people who go through “training” together and are called “recruits,” on the theory that people will stick to an exercise regime better if they work out in a group. Recruits wear a Pure Power T-shirt and camouflage pants. The routine uses physical objects as part of an indoor obstacle course, modeled after a Marine Corps outdoor obstacle course. Brenner used flooring made of crushed tires designed to look like outdoor dirt, and arranged the obstacles, which are surrounded by a running track separated by a border of dark sand bags.

This “unique concept” became an immediate success, garnering a fair amount of media coverage. Brenner employed former Marines as “drill instructors,” though the training techniques Pure Power uses aren’t taught in the US military, so Pure Power trains them. Hiring veterans was part of Brenner’s PR strategy.

Belliard and Fell started work at Pure Power in 2005, becoming well-liked and sought-after instructurs. Belliard eventually became Pure Power’s head drill instructor, and Brenner placed great trust in him.

Brenner intended to franchise her concept, and took significant steps in that direction, including creating a business plan, a start-up manual, and an operations manual. In preparation for the franchising roll-out, Brenner had the drill instructors sign an employment agreement as a condition of continued employment. The agreement had a number of provisions: (1) requiring employees to devote their skills and best efforts to Pure Power; (2) a nondisclosure provision; (3) a provision that precludes Pure Power employees from challenging the validity or enforceability of Pure Power's "Intellectual Property"; (4) a non-compete provision lasting 10 years worldwide precluding any employment with any business that competes directly with Pure Power using “obstacle courses,” “exercises derived from military training,” or a “military theme”; and (5) a non-solicitation provision.

Brenner applied to register Pure Power’s trade dress. The initial application was rejected, but Pure Power eventually obtained a service mark for “a drawing of an exercise facility, styled to look like a military boot camp training course comprised of camouflage wall and ceiling decor, crushed rubber flooring, a tire run, climbing walls, climbing nets, and hurdles, with the terms ‘desire,’ ‘stre,’ ‘courage,’ and ‘uty.’” (I think Strength and Duty are the chopped-up words.)

Before beginning the franchising process, Brenner opened a second Pure Power in Jericho, New York, which looks somewhat different from the Manhattan location. Brenner offered Belliard a partnership in the Jericho location, but he declined on the grounds that he didn’t have enough money to invest. After she opened the Jericho facility, Brenner spent most of her time there.

In mid-2007, Belliard and Fell began planning to open Warrior Fitness. Lee, a Pure Power client from 2006-2008 and now Fell’s wife, became an owner and silent partner in Warrior Fitness. Fell and Lee were dating in violation of an express Pure Power policy against social relationships between drill instructors and clients.

While she was still a Pure Power client, Lee emailed Pure Power clients and others to promote Warrior Fitness. The class times and promotional descriptions “closely mirrored” those of Pure Power. The defendants also organized a cocktail party, attended by a number of Pure Power clients, where Fell announced that he’d be opening Warrior Fitness. Baynard, another Pure Power client 2006-2007, was secretly dating Belliard and created a Party List that was supposed to be used to celebrate the grand opening of Warrior Fitness, but the party never took place.

Belliard stole documents from Brenner’s private office and personal computer, including the business plan, start-up manual, and operations manual. He stole a folder of employment agreements and destroyed them. He also downloaded a copy of Pure Power’s confidential customer list. He shared the stolen materials with Fell, Baynard, and Lee.

Lee also disparaged Brenner and Pure Power. Witnesses testified that Lee told them that (1) Brenner treated employees badly and didn’t pay them; (2) Brenner “hated homosexuals” and had fired a former employee because he was gay.

Fell engineered his own firing by refusing to comply with Brenner’s explicit instructions and screaming at her, daring her to fire him. Two weeks later, Belliard quit without notice, but before he did so, he told Brenner about alleged problems relating to another drill instructor and recommended that this instructor be fired. Brenner, who still trusted Belliard, did so. The loss of three full-time employees in close succession left Pure Power understaffed at a critical time in its expansion.

In April 2008, Brenner found out about the plans to open Warrior Fitness and about the thefts. Third-party defendant Elizabeth Lorenzi (a Pure Power employee) knew that Fell had used the Pure Power computer. She and third-party defendant Cheryl Dumas, a close friend of Brenner’s and a Pure Power client, were able to access and print emails from three of Fell's personal email accounts, without Brenner’s prior knowledge or approval. The emails provided a detailed picture of defendants’ scheme. Warrior Fitness opened the next month.

Pure Power sued in state court seeking a TRO. The state court found the noncompete agreement unenforceable as drafted and allowed Warrior Fitness to open, but directed defendants to return certain stolen materials and to alter the décor to further distinguish its appearance from that of Pure Power. Defendants removed and sought an order precluding the use or disclosure of specific emails obtained from Fell’s email accounts, which was granted, along with partial summary judgment finding four violations of the SCA (but not of the Electronic Communications Privacy Act). The court assessed statutory damages of $4000 but left open who was responsible and whether punitive damages, attorneys’ fees, and costs should be awarded.

With all of this background, the court turned to the plaintiffs’ claims. As to breach of contract, the noncompete agreement was unreasonable in duration and scope, as well as overbroad and vague in what it covered, since boot-camp style programs are common in fitness centers of all sorts. It was unenforceable. Likewise, there was no violation of an enforceable nonsolicitation agreement. Of the 147 clients allegedly improperly solicited, only 20 or so were actually enrolled at Pure Power at the time of the solicitation, and there was no direct evidence that they were solicited improperly by the individual defendants. And there was no evidence that defendants offered specialized or personal confidential services, which might support a stronger nonsolicitation claim; the court found that leading fitness classes doesn’t qualify as specialized or personal confidential services.

Nor did defendants breach the IP provision of the employment agreement, which was impermissibly vague (purporting to cover “obstacle-confidence courses and related environments”), indefinite, and overbroad. “Permanently barring an employee from challenging an employer's alleged intellectual property--however vaguely defined--runs contrary to the ‘important interest in permitting full and free competition in the use of ideas which are in reality a part of public domain.’” Plaintiffs didn’t have a legitimate business interest beyond that already covered by IP law, and weren’t entitled to restrict defendants’ freedom to use ideas relating to the US military.

Similarly, the “best efforts” provision of the contract was patently subjective and therefore unenforceable.

The confidentiality portion of the agreement barred disclosure of confidential or commercially sensitive information. Pure Power’s client list qualified as a protectable trade secret which plaintiffs took reasonable measures to protect, and which Belliard obtained by improper means. Belliard was liable for breach of the non-disclosure provision. However, Pure Power was unable to get lost profits; it failed to show any of the three requirements that (1) lost profits were fairly within the parties’ contemplation when the contract was formed; (2) lost profits were caused by the defendants’ breach; and (3) damages are capable of proof with reasonable certainty. As to (2), Belliard and Fell already knew how to operate a gym using Brenner’s methods, they already knew Pure Power’s pricing structure, and their partner Lee had business experience, so there was not enough proof that information in the stolen business documents or the client list was necessary to open Warrior Fitness.

The court found numerous breaches by Belliard and Fell of their duty of loyalty to Pure Power, as detailed above. Pure Power wasn’t entitled to disgorgement of Warrior Fitness’ revenues from 2008-2010, though. Disgorgement requires proof that the breach of duty was a “substantial factor” contributing to defendants’ profits, and is usually only appropriate in a straightforward case in which an employee profits from transactions on behalf of his employer. Opening a competing business was not a breach of the duty of loyalty, and they would have been able to open the business even in the absence of breach because the stolen documents etc. weren’t a substantial factor in their ability to open the business. Nor could Pure Power establish that a corporate opportunity was usurped, as it couldn’t show a tangible expectancy in many of the Pure Power clients allegedly solicited by defendants.

NY does also have a “faithless servant” doctrine, which allowed Pure Power to recover the compensation Belliard and Fell earned while working at Pure Power. This doctrine requires no showing of damage as a result of the breach of duty. Forfeiture of their compensation during the period of their disloyalty, beginning in August 2007, was appropriate given Belliard and Fell’s actions. The court awarded a bit over $55,000 from Belliard and $40,000 from Fell. The court then increased that with an award of punitive damages. Belliard’s breach of loyalty was “particularly egregious,” given its calculated nature and his concealment of the breach, including by providing a lot of misleading and false testimony to the court (this really angers judges, for some reason). Fell’s actions were also willful and wanton; among other things, he encouraged other Pure Power instructors not to sign new employment agreements after Belliard destroyed the originals. He also offered “evasive and misleading” testimony at trial. Punitives were set at twice compensatory damages from Belliard and equal to compensatory damages from Fell.

Lee also aided and abetted Belliard and Fell’s breach of their duty of loyalty by knowingly and willfully providing substantial assistance, but there wasn’t sufficient evidence that Bayard did. Lee relied on the stolen materials, knowing they were stolen, in drafting her business plan, and repeatedly encouraged then-enrolled Pure Power clients to leave for Warrior Fitness. She signed up for additional classes in October 2007 through April 2008 as part of her “network and campaign” (her words) to solicit Pure Power clients. She also repeatedly disparaged Brenner and Pure Power to Pure Power clients, as detailed above, without disclosing her financial interest in Warrior Fitness.

By contrast, the court found Baynard’s testimony credible that she didn’t know about the stolen materials, and there was no specific evidence that she maligned plaintiffs. The only evidence that she solicited Pure Power clients was that, after Belliard and Fell left Pure Power, she made statements to friends that she was working out at a new gym, that she loved working out with her friends, and that she hoped her friends would join her at her new gym. This wasn’t enough to constitute aiding and abetting; once Belliard left, Baynard was free to assist her boyfriend by promoting his new business.

Plaintiffs’ claims against Lee and Baynard for tortious interference with contract failed because there was no evidence they had actual knowledge of the nondisclosure provision, and plaintiffs failed to show that the breach wouldn’t have occurred but for their actions. Tortious interference with prospective economic advantage also failed because plaintiffs failed to establish that, even as to the 20 clients enrolled at Pure Power in 2008 who enrolled at Warrior Fitness, defendants used improper means to get them. Clients’ attachment to Belliard and Fell and the quality of their training was the primary reason for these switches.

As to unjust enrichment, it was not unjust for defendants to benefit and learn from their employment at Pure Power. “Businesses often attempt to replicate the successful ideas and concepts of their competitors, and this is proper so long as those ideas and concepts are not otherwise protectable.” The stolen documents did constitute unjust enrichment, but the harm wasn’t adequately quantified; Warrior Fitness would have opened anyway, and plaintiffs didn’t establish the value that defendants would have paid had the parties negotiated in good faith for Pure Power’s documents. The remaining unjust enrichment claim was coextensive with the trade dress claim, about to be discussed.

Plaintiffs’ conversion claim also failed because defendants only took copies, not originals.

Trade dress: After Wal-Mart, interior décor is enough like product packaging that it can be inherently distinctive, and is evaluated using the Abercrombie spectrum (comment: except not really, because that just doesn’t work well with trade dress).

The court had “some difficulty” in identifying the elements of Pure Power’s trade dress, in large part because plaintiffs kept changing the description. Some courts would find that sufficient to deny relief—it’s hard to figure out whether a trade dress that can’t be identified has been infringed—but this court went on. The federal registration made no mention of an indoor obstacle course, but plaintiffs said this was only a portion of the overall trade dress. The initial application claimed “a drawing of an exercise facility styled to look like a military boot camp training course which includes but is not limited to camouflage wall and ceiling decor, crushed rubber flooring, a tire run, climbing walls, climbing nets and hurdles.” The court pointed out that “but is not limited to” was one of the grounds on which the USPTO initially denied registration, requiring plaintiffs to replace that indefinite wording with “comprised of.”

Plaintiffs also said the trade dress was the equipment plus the design features:

[W]alls that are covered with green camouflage netting, changing rooms that are World War II tents, flooring that is bordered by military-looking sandbags, and a flooring surface of the obstacle course that is crushed-rubber, recycled surface that has the look and feel of dirt. Eleven standing pillars stenciled with principles of leadership are also part of the Design Features. Finally, individuals entering the Pure Power facility are greeted with a life-size statue of a screaming marine carrying a machine gun.

At trial, they expanded the description to include the size of the fitness classes, programs, corporate team-building, and consumer markets. The court found that Pure Power was improperly seeking to include ideas, concepts, and innovations within the definition of the trade dress.
Even if Pure Power was the first indoor exercise facility that used a fixed indoor obstacle course, that’s not protectable. Only the “look and feel” of Pure Power’s facility is. The court found that look and feel to be source-indicating and distinctive. The essence was a fixed indoor obstacle/confidence course surrounding by a running track with a floor covered with simulated dirt, using specific obstacles, coupled with special USMC-inspired design features as described above. This is unlike traditional exercise facilities, with standard workout equipment arranged in linear fashion with a utilitarian appearance. Indeed, as far as the record goes, this combination of arranged obstacles and military décor was unique in the US when Pure Power opened, and Brenner was the first to recognize its significant profit potential. (Comment: but isn’t that just describing the unprotectable idea?)

The court then turned to functionality and found that “what is distinctive about Pure Power's trade dress is neither essential to operating a gym, or even a gym with a fixed indoor obstacle course, or to effectively competing in the fitness industry. Indeed, it is possible to open and operate a fitness facility with a fixed indoor obstacle course, even one employing a military-themed decor, in a way that does not resemble the overall look and feel of the Pure Power facility…. Nor is there any basis to conclude that having to employ a different appearance and a different arrangement of obstacles would put competitors in this particular market at a competitive disadvantage--Warrior Fitness's financial success suggests as much.”

As this last phrase suggests, Pure Power gets protection for its trade dress, but only limited in scope. Query whether shifting the bulk of the inquiry to likely confusion is a game worth the candle here, especially given that there are lots of reasons a design might be unique, and recognized as such, without being source-identifying in the trademark sense.

Now to likely confusion. Strength: because the trade dress is inherently distinctive and unique, it’s strong, though weakened to some extent because the trade dress isn’t consistent in the two Pure Power locations. Similarity: the parties use similar exercise equipment, including a crushed rubber flooring surface, a running track, flooring surface and a running track, monkey bars, parallel or dip bars, high hurdles, rope climbs, a tunnel or low crawl apparatus, scaling walls, and tire runs. But these are derived from military obstacle courses. Similarity in use of individual functional, nonpatented equipment and obstacles is “of little consequence.” The court thought this might explain why the state court didn’t enjoin Warrior Fitness from opening, though it instructed defendants to remove the tents and camouflage netting and to paint the facility in some color other than military green.

There was also some similarity in overall layout: obstacles are clustered in the center of the space and surrounded by a running track. But arrangement of obstacles isn’t what makes the Pure Power trade dress distinctive: “the very same obstacle course in another exercise facility dressed up in a safari-themed decor, or a superhero decor geared towards young adults, for example, would give rise to an entirely different ‘look and feel’ and would not cause consumer confusion as to source.” It’s the obstacle arrangement in combination with military-inspired designs that creates inherent distinctiveness.

But comparing the parties’ military-inspired design elements showed no confusing similarity.

It is true that Warrior Fitness employs a military theme insofar as the walls at the Warrior Fitness facility are painted in the yellow and red colors of the United States Marine Corps and are sparsely decorated with military memorabilia, including posters and flags, as well as certain inspirational quotes, and that, like Pure Power, the trainers at Warrior Fitness wear camouflage fatigues, T-shirts, and combat boots. Yet, in nearly every other important design detail, Warrior Fitness's appearance differs from Pure Power's. The Warrior Fitness facility, for instance, does not employ … camouflage color walls, camouflage decor, hurdles with written words, and climbing nets. Nor does the Warrior Fitness facility [use] World War II tents that serve as changing rooms, camouflage cargo netting, flooring bordered by sandbags, standing pillars stenciled with principles of leadership, barbed wire, and a life-size statue of a screaming soldier. In addition, unlike Pure Power, Warrior Fitness does not provide its clients with fatigues, or require its clients to wear camouflage attire.

The similarities only existed in the broadest sense: obstacle course and military theme. But Pure Power wasn’t entitled to exclusive use of that concept. “[T]hrough the use of camouflage colors, sand bags, tents, barbed wire, and various other props, including a life-size reproduction of a combat soldier holding a machine gun, the Pure Power facility achieves something of a ‘theme park’ look and feel, while the Warrior Fitness facility, by contrast, with its relative lack of decoration, florescent lights, plain white ceilings, and simple white walls with two bands painted yellow and red, is more clinical in its effect.”
Direct competition increased the likelihood of confusion, but there was no evidence of actual confusion, and coexistence for three years without that weighed against a finding of likely confusion. Several clients who went to both places testified that they had a different “look and feel.” There was no evidence that anyone considered signing up for Pure Power but mistakenly signed up for Warrior Fitness instead.

One Pure Power client visited the Warrior Fitness website and concluded “it’s the same thing,” and four witnesses, none of whom had ever visited Warrior Fitness, testified that they saw ads for Warrior Fitness in the back of NYC taxis and believed them to be for Pure Power or were otherwise confused. But those ads didn’t show the Warrior Fitness trade dress; they just showed defendants and clients exercising. Any confusion was based on the fact that both parties operate gyms based on a Marine boot camp model. “This is not confusion as to Pure Power's trade dress, but, rather, as to more general concepts and innovations to which Brenner is not entitled trade dress protection.” And Warrior Fitness’ use of its own mark at the beginning and end of the ads, along with its website address throughout, made confusion unlikely.

Bad faith: “Although there is no doubt that Defendants copied many elements of the Pure Power concept, Brenner's ideas, concepts, and innovations are not a part of her protectable trade dress.” The look and feel of the gyms isn’t substantially similar, and there was no evidence that defendants intended to mislead consumers; the court noted that the names were not confusingly similar.

Quality was irrelevant, as usual (wouldn’t it be worthwhile for the Second Circuit to en banc this and dump this factor from the standard confusion test?).

Consumer sophistication: the parties’ training is of a different and more strenuous nature than traditional gym regimes. Because most of their customers have already patronized one or more traditional fitness centers, they tend to be more sophisticated consumers of fitness services, weighing against likely confusion.

On balance, confusion was not likely. Similar considerations also doomed the state law dilution claim.

Defamation: Plaintiffs alleged five sets of defamatory statements by Lee: (1) Brenner "hated homosexuals;" (2) Brenner treated her employees "like garbage;" (3) Brenner was a "loose cannon;" (4) Brenner fired one of her drill instructors because he was gay; and (5) Brenner was a liar. (Compare statement (1) to (4) in the list immediately following: the world has changed, and defamation doctrine should too.) A defamation plaintiff must show special harm except in cases of defamation per se: (1) a statement charging an individual with a serious crime; (2) a statement that tends to injure another in his or her trade, business, or profession; (3) a statement that claims an individual has a "loathsome disease;" or (4) a statement imputing unchastity to a woman.

The court concluded that Lee’s statements weren’t defamatory; plaintiffs failed to show special harm, and the statements weren’t defamation per se. Only (2) was at issue here. A statement that tends to injure another in her trade must be made with reference to a matter of significance for the business, rather than a more general reflection on her character; the statement must be targeted at specific standards relevant to the plaintiff’s business and must impute conduct incompatible with the proper conduct of that business. The “garbage”/firing a gay employee statements weren’t sufficiently targeted at the specific standards of performance relevant to Brenner’s duties as the owner of Pure Power. (Given the gym culture in Manhattan, I’ve got to wonder about this conclusion.) The statements don’t impute fraud or misconduct to Brenner or suggest a general unfitness to perform her duties. The same for “hates homosexuals” and “loose cannon”—that doesn’t specifically reflect on her competence as a fitness instructor but more generally on her character. And, except for the statement about firing a drill instructor, these are statements of opinion, not fact.

The court then turned to the counterclaims, first dismissing the Labor Law claim for failure to prove unpaid hours worked with any reasonable degree of certainty. Then it let Brenner off the hook for the SCA violations; Lorenzi and Dumas accessed Fell’s emails out of a sense of loyalty when they discovered that Belliard and Fell had been secretly plotting to compete with Pure Power and had stolen confidential documents. There was no evidence they were acting at Brenner’s request or direction. Though Lorenzi was an employee, she was never given access to other employees’ personal email accounts, and her actions were outside the scope of her duties at Pure Power. So Lorenzi and Dumas alone were jointly and severally liable for the $4000 in compensatory damages awarded by the court.

The court, however, refused to award punitive damages or attorneys’ fees, available if the violation is willful or intentional. There was no reason to think that the defendants were aware of the statute or knew that their conduct was unlawful. They “reflexively” accessed his accounts after learning of his plans to sabotage Pure Power, and disclosed his emails in an effort to thwart his unlawful efforts to harm Pure Power. Their reasons were not malicious and they used the emails only prophylactically, nor did they personally benefit from the access. An award of equitable remedies to defendants wouldn’t be just in view of their egregious conduct; they’d already had the use of the emails precluded at trial.

As for N.Y. Civil Rights Law s. 51, the statutory right of publicity, a claim that a person’s picture was unlawfully use requires that the person be recognizable. The ad here was a photo of Brenner flanked by four drill instructors, all of whose backs are turned to the camera and none of whom other than Brenner are recognizable. (I think this might be the picture, or a later version of it.)

Wal-Mart doesn't defeat consumer protection class action

Johnson v. General Mills, Inc. --- F.R.D. ----, 2011 WL 4056208 (C.D. Cal.)

Johnson sued General Mills and Yoplait under California’s UCL and CLRA for falsely representing that YoPlus yogurt products promote digestive health. The court granted his motion for class certification, finding commonality and predominance (as well as the other necessary factors). The common issues included: “(1) whether General Mills communicated a representation--through YoPlus packaging and other marketing, including television and print advertisements--that YoPlus promoted digestive health; (2) if so, whether that representation was material to individuals purchasing YoPlus; (3) if the representation was material, whether it was truthful; … and (4) if reasonable California consumers who purchased YoPlus were deceived by a material misrepresentation as to YoPlus' digestive health benefit, what is the proper method for calculating their damages.”

Defendants moved for reconsideration based on Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011), and then the 9th Circuit issued Stearns v. Ticketmaster, --- F.3d ---, 2011 WL 2659354 (9th Cir.2011), which directly addressed the issue of class certification of claims brought pursuant to the UCL and the CLRA. The court denied the motion.

Under Wal-Mart, commonlaity requires the plaintiff to demonstrate that class members have suffered the same injury, not just suffered a violation of the same provision of law. The common contention of the class members must be capable of classwide resolution: “determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Johnson presented sufficient facts to show that all class members’ claims had at their heart the common contention of defendants’ material misrepresentation. “Unlike in Wal-Mart, where the injury suffered, discrimination, happened at the hands of different supervisors in different regions without the link of a common practice or policy, any injury suffered by a class member in this case stems from a common core of salient facts. The class members all assert they were misled by a common advertising campaign that had little to no variation.” Thus “unitary message” was absent in Wal-Mart.

Defendants argued that reliance (CLRA) and causation (UCL) couldn’t be resolved “in one stroke,” destroying commonality. But “Wal-Mart does not mandate that every element of a cause of action must be common. The Supreme Court reversed class certification in Wal-Mart because there was no common policy or practice, not because there were factual and legal issues that could not be determined on a classwide basis.” Defendants overstated the required uniformity. “The requirement of predominance in Rule 23(b)(3) itself implies that a court may certify a class even though there will, at some point, be issues that must be determined individually.”

Indeed, Ticketmaster reaffirmed that UCL plaintiffs need not establish actual reliance. Similarly, for the CLRA claim, Ticketmaster recognized that California permits a class to establish causation as a common issue by inference if the court finds that material misrepresentations were made to the entire class.

Defendants argued that inferring reliance is only allowed for material omissions, not affirmative misrepresentations. The court disagreed. They then argued that such an inference is rebuttable and that they’d rebutted it with evidence that some class members bought the yogurt for other reasons. “While such a rebuttal may defeat Mr. Johnsons' ability to succeed in proving that an inference of classwide reliance is warranted for liability, it does not defeat class certification. Permitting decertification on this basis would require an impermissible determination of the merits of Mr. Johnson's claims.” Moreover, these decisions to buy the yogurt don’t, as a matter of law, contradict a potential finding of materiality; materiality exists when “a reasonable man would attach importance to [a fact’s] existence or nonexistence in determining his choice of action in the transaction in question.” A factfinder may well find that this information prevents liability, or precludes damages for an individual class member. But that’s not enough for decertification.

Defendants also argued that they were in the same position as Ticketmaster, which won its claim that the proposed class against it was uncertifiable. The court found that this distorted the facts. Ticketmaster involved a scheme whereby Ticketmaster passed on customers’ credit card information to a third party, allegedly inducing many to sign up for an additional fee-based reward/coupon program without knowing they were going to be charged. The proposed class covered everyone who was enrolled through Ticketmaster and who didn’t get any rewards or coupons from the program; the district court found that this was too broad because people might have known what they were signing up for but, for other reasons, failed to claim rewards or coupons.

The court found the analogy inappropriate. “Defendants assert no facts that support a finding that there were members of the class who were not misled, that is, who knew the yogurt did not provide digestive health benefits.” The 9th Circuit simply upheld the Ticketmaster trial court’s lack of predominance finding because the class contained members who weren’t misled. Here, the claims center around a common question: did defendants state a false claim that a reasonable person would have been deceived by, for purposes of the UCL, or would have attached importance to, for purposes of the CLRA? “While individualized determinations may be required to calculate damages, those determinations do not warrant decertification. The common question is sufficiently central to satisfy commonality, and, when compared to those aspects of the suit which are individualized, still predominate.”

Defendants also argued that certification violated their due process rights to challenge each plaintiff’s claim on a case-by-case basis. The court here found that a misinterpretation of the facts and holdings of Wal-Mart. An individualized determination of damages doesn’t preclude a predominance finding under Rule 23(b)(3); Wal-Mart involved Rule 23(b)(2). “Moreover, Wal-Mart's explanation of the usual damages process condones permitting separate proceedings to determine the scope of individual relief after establishing the pattern or practice which is common.” If the class prevails on deceptiveness, defendants could challenge reliance and causation individually during a determination of damages, after the common issues have been litigated and resolved. "The amount of damages is invariably an individual question and does not defeat class action treatment."

Panels on advertising law careers for new lawyers

September 29, 2011 at GW Law from 12pm to 1pm
October 12, 2011 at George Mason Law from 12pm to 1pm

Speakers:
Dan Blynn, Kelley, Drye & Warren LLP
Amy Blackwood, Keller and Heckman LLP
David Conway, Venable LLP
Elise Whang, Federal Trade Commission

Join young attorneys from the American Bar Association's Private Advertising Litigation committee for a discussion about exciting new career opportunities in consumer protection, privacy and advertising law. This program will provide students with the opportunity to dialogue with recently-graduated attorneys about pathways into these emerging areas of the law and will include a broad overview of the relevant laws and agencies that operate within the fields. The discussion will conclude with an opportunity to ask questions about what led the speakers to practice consumer protection and advertising law and any other topics of interest to students.

GW: 9/29, 12 pm, registration to attend by phone; George Washington Law students who

wish to attend live should RSVP to kmotsinger@law.gwu.edu. Others with questions or who would like to attend in person should RSVP to DDConway@Venable.com.

GMU: 10/12, 12 pm, registration to attend by phone; George Mason students who wish to attend live should RSVP to sgeyerma@gmu.edu. Others with questions or who would like to attend in person should RSVP to DDConway@Venable.com.

Court punts to jury, then announces it won't follow binding precedent

Hackett v. Feeney, 2011 WL 4007531 (D. Nev.)

Plaintiff Hackett and the individual defendants formed TRP Entertainment in 2002 to produce a live tribute show to the Rat Pack. The show was performed in Las Vegas and elsewhere; Hackett wrote the script and acted in the show. In 2005, Hackett registered the copyright (and later filed other registrations for revisions and to correct errors in the original registration). Defendants contended that they bought out Hackett’s interest in TRP in 2006, though Hackett disputed this; Hackett continued to be involved in the production until 2009, at which point the parties’ relationship dissolved. Hackett was terminated from the show and he told defendants that he terminated any license to his copyrighted materials. Defendants allegedly continued to use his materials.

Hackett then formed Hackett/Miller to produce a new tribute to the Rat Pack based on the same script. H/M created a website using TRP’s original designer based on the same “html and graphical code” to promote Sandy Hackett's Rat Pack Show.

Hackett sued defendants for multiple claims, but the court here considered only copyright infringement, and TRP counterclaimed, with only the false advertising/unfair competition counterclaims considered here.

TRP alleged three types of false advertising: (1) that Hackett/Miller's website claimed two awards it had not won (specifically "Best Entertainment Website and Best of Show" from the "2006 Electronic Media Awards"); (2) Hackett/Miller misattributed testimonials from What's On magazine and Player Magazine to its show on its website; and (3) Hackett/Miller displayed banners, posters, and billboards including the statement "Voted # 1 Best Show in Vegas!" surrounded by a laurel wreath.

H/M argued puffery. As for the “voted #1” claim, TRP argued that there was no official vote, making this a literally false statement. The court disagreed, after an aside about H/M’s failure to involve Democrats and Republicans and to comply with campaign finance law. Adding “voted” “does not substantively change the context much, though maybe some. It is no different than the addition of the word ‘Considered’ or ‘Rated’ or anything similar. All of these words (voted, considered, rated, etc.) in combination with ‘# 1 Best Show in Vegas’ beg the question: By whom? Without answering that critical question there is no specific claim and the statement is simply exaggerated advertising which precludes reliance by consumers.” But, the court continued, there was a thin line here: if the claim had continued “by X,” it would be false advertising unless X had actually voted the show #1 in Vegas. (It’s good to know that our courts can so easily tell what reasonable consumers think!) Since there was no X named, the claim was nonactionable puffery, “as no one can take real meaning from the phrase in the context of no actual endorsement from a voting body.”

The other claims were not puffery. However, TRP failed to show materiality sufficient to entitle it to summary judgment on this point. It argued that intentionally and literally false statements should be presumed material, but it didn’t have in-circuit precedent and many of the cases it cited involved really egregious conduct. “Here, Hackett/Miller placed on its website a reference to a website award that isn't even about the actual show but the website design. The conduct here is not nearly so obviously material as in TRP Entertainment's examples which may warrant a presumption of materiality not requiring actual proof.”

TRP also argued that its website was the one that won the award. This was true “to an extent,” but it was the web designer, “who entered the contest independent of TRP Entertainment and later designed the Hackett/Miller website from the same html codebase,” who won the award. Still, winning an award at one point doesn’t entitle the designer to claim that future projects have also won awards. But

the point remains: How is this material to purchasing (or advertising) tickets to a live tribute show to the Rat Pack? Who determines what show they are going to go see on the Strip based on the fact that the website they purchase the tickets from has won a design award? The website isn't even the product being sold. This is like choosing your hotel based on it having an award-winning booking system: Who cares? The Court is not sure and will therefore leave it to a jury to determine whether website award claims on the website are material.

Given that the websites were highly similar (practice note: businesses, get at least an exclusive license from your website designer!), there were also questions about the truth value of the claim. George Lucas modifies the classic Star Wars movies with “pretty much every new release.” The originals won bunches of awards. Can a modified Blu-ray release claim these awards? The court thought that the answer was yes for Lucasfilm, but that it wasn’t clear for these websites where to draw the line.

The magazine testimonials, by contrast, were given to TRP’s show, before H/M’s even existed. Thus, attributing them to the H/M show is literally false, material, and otherwise meets the other elements of the Lanham Act test.

However, when these accolades were given, the TRP Entertainment show was Hackett's script, Hackett was a key actor in the show, and Billy Karl was the director. Now, Hackett's same script is the basis for the Hackett/Miller show, Hackett apparently plays the same part as he did in the TRP Entertainment Show, Billy Karl directs the Hackett/Miller show, and there are other ways in which the two shows are the same (at least at the time the statements were displayed online). Further, TRP Entertainment admits to having the same statements on its own website despite the fact that its show was no longer the same show the magazines originally commented on as TRP Entertainment claims to have modified it in contesting copyright infringement.

The court hadn’t seen evidence of the differences between the shows. But Miller admitted that the statements were posted in error and removed. The court therefore declined to grant summary judgment to TRP: “the issue of the script and the general sameness and interrelations of the two shows” created factual questions for a jury.

I really don’t know how to read this result except as an implicit holding that the claims were not in fact literally false but only potentially misleading in this particular set of circumstances.

Turning to copyright, TRP argued that Hackett’s registration was invalid because the deposit copy was not a bona fide copy of the registered work, and that Hackett granted an oral, nonexclusive license of indeterminate duration that Hackett could not terminate at will. The court found disputed factual issues on each question. Specifically, a reasonable jury could find that the parties’ understanding was that any license terminated if and when Hackett left TRP. Also, a licensee can infringe by exceeding the scope of its license, and a reasonable jury could find that this happened when TRP revised the material after Hackett left.

But the most notable thing here is the court’s turn from snappy writing to outright defiance of clearly and concededly binding precedent. Rano v. Sipa Press, Inc., 987 F.2d 580 (9th Cir. 1993), holds that an oral license of unspecified length can’t be terminated at will, but is subject to § 203. TRP pointed that out, and the court agreed that this was the law of the circuit. “Nonetheless, the Circuit Court was wrong in its interpretation of § 203.… [T]he Court could not in good conscience apply such erroneous law and would hold that Hackett could terminate an oral license as allowed under Nevada law.”

I don’t recall seeing a court of appeals do this with a Supreme Court opinion that it thinks should be, and might be, overruled if cert is granted, and I’ve certainly never seen a district court announce this kind of rejection of its role in the system. I’m honestly shocked and am leaning towards the position that the case should be taken away from a district judge who's announced unwillingness to comply with the law. It’s one thing to rule under protest, inviting the court of appeals to reconsider en banc with one’s best arguments (other circuits disagree and so does Nimmer). But this kind of civil disobedience makes no sense to me, even as a tactic: it’s hard to imagine the Ninth Circuit looking with favor on this behavior.

Video game is transformative use of player's image

Hart v. Electronic Arts, Inc., --- F. Supp. 2d ---, 2011 WL 4005350 (D.N.J.)

In a long and sure to be much discussed opinion, the district court handed EA a significant victory as a First Amendment speaker, despite using a balancing test to determine EA’s interests that has no rightful place in a regulation of noncommercial speech. (Correspondingly, the court refused to hold that the right of publicity is content based, even though it plainly is by the only official definitions of “content” that distinguish “content” from “viewpoint.” Here I have less complaint, because I don’t think that “content” is a useful category for determining the level of scrutiny to be applied to a speech regulation in the way that “viewpoint” is, as I will detail below.)

Hart, a former college football player at Rutgers, sued EA for misappropriating his likeness and identity on behalf of a class of those similarly situated.

EA produces a video game series, NCAA Football. Each game permits users to “manipulate the actions of over 100 college football teams and thousands of virtual players in a virtual world with simulated games.” The teams are identifiable by name, and players are identified by jersey number and position. Users can edit game data and given players surnames, which appear on their jerseys. “Each virtual player's unique attributes, including personal characteristics (height, weight, athletic ability), accessories (helmet visor, wristband), physical abilities (speed and agility, throwing arm, passing accuracy), and biographical details (place of origin) can also be edited by the user.” (I’m confused, because a footnote also says that the player’s name, position, number, and handedness can be changed, but not the player’s home state, hometown, team, and year.) Users can also download custom rosters created by other players, and one place they can do that is Teambuilder on EA’s website. “Some rosters available on these websites seek to replicate actual current and former football team rosters.” School names, team names, uniforms, logos, and stadium fight songs “appear in the game through licensing agreements between EA and the NCAA's licensing agent.”

Users control the players, and they can play against the game or against other players. In Dynasty mode, a user controls a college program for up to thirty seasons. Players in Dynasty mode have the "year-round responsibilities of a college coach, such as recruiting virtual high school players out of a random-generated pool of athletes."

Hart claimed that the games depicted a "virtual" player that had been designed to replicate his physical attributes (height and weight), as well as his football skills, and that EA had used video footage of him playing in a Rutgers University Football game to promote the game. The virtual player at issue wore Hart’s jersey number and his speed and agility rating, passing accuracy rating, and arm strength all allegedly reflected actual footage of Hart in his 2005 season. He argued that the games allowed users to “simulate the college football playing experience by stepping into the shoes of Rutgers' QB Ryan Hart, and other college football players, where fans can mimic Plaintiff's style and movements and play against Plaintiff's actual opponents.” EA didn’t dispute that a photo of Hart throwing a pass appeared in a photo montage inside NCAA Football 2009, which is only seen when a user selects Rutgers as his or her favorite team.

Hart alleged that EA misappropriated his identity with the intent of increasing sales, because heightened realism in video games translates directly into increased revenue. Further, he alleged that EA wrongfully failed to prevent users from uploading and downloading team rosters with real players’ names, again to heighten the authenticity and realism of a “true NCAA football experience.”

Although the court initially refused to dismiss the right of publicity claims under New Jersey law, it now granted summary judgment (converting EA’s motion to dismiss).

Brown v. Entertainment Merchants Ass'n, 131 S.Ct. 2729 (2011), confirmed that video games are entitled to First Amendment protection. Hart argued that Brown was irrelevant because it involved a content-based statute. EA rejoined that the right of publicity is content-based as well, and that Brown confirms that video games are not commercial speech. The court agreed with EA’s latter proposition but not the former. Applying Facenda, Hart “cannot reasonably contend that the NCAA Football games constitute commercial speech.” Facenda involved an infomercial for Madden Football touting the soon-to-be released game. The video in that case promoted another creative work, the video game. “Here, by contrast, the speech is the video game that is being sold. It is not a separate instance of speech that promotes the purchase of another work.” Hart provided no evidence that his image was used in ads for the game (as opposed to being part of the game).

The court quoted the Third Circuit’s statement that a content-based speech restriction is one that regulates speech “when the specific motivating ideology or the opinion or perspective of the speaker is the rationale for the restriction.” Galena v. Leone, 638 F.3d 186, 199 (3d Cir.2011). Comment: um, no. Those are viewpoint-based restrictions, as the references to “ideology,” “opinion,” and “perspective” as opposed to “content” or “subject matter” indicate. Content-based restrictions can be driven by viewpoint bias—see, e.g., the execrable “No Promo Homo” proposals floating around—but then we should care about the viewpoint bias. The right of publicity, unlike a regulation of the volume of loudspeakers or a ban on demonstrations of any kind at the public zoo (content-neutral), requires an examination of the particular content at issue to figure out if a violation has occurred. The problem is that “content-based” is too broad a spectrum to be meaningful; some content-based regulations (e.g., regulation of false and misleading commercial speech) are perfectly fine and some aren’t. The breadth of the covered topic should make a difference to the analysis, and the right of publicity may be closer to copyright than to mentions of homosexuality. But at best this is semi-content-neutral regulation.

And indeed, citing Thomas F. Cotter, et al., Integrating the Right of Publicity with First Amendment and Copyright Preemption Analysis, 33 Colum. J. of Law & the Arts 165 (Winter 2011), the court pointed out that most courts haven’t analyzed the right of publicity as content-based. Instead, courts apply one of several balancing tests “unique to intellectual property-related cases” to determine whether the First Amendment limits a right of publicity claim, rather than applying strict or intermediate scrutiny. And since we’ve always given IP—even IP with limited historical foundation and massively expanding scope—special exemption from First Amendment scrutiny, the court continued to do so, formulating its job as to choose between existing tests. Or actually, not, because under either Rogers or transformativeness the result was the same here.

Transformativeness is borrowed from copyright’s fair use doctrine, which helps reconcile copyright and the First Amendment. Citing David Tan, Political Recoding of the Contemporary Celebrity and the First Amendment, 2 Harv. J. Sports & Ent. L. 1, 25-26 (2011), the court noted that transformativeness has been criticized as lacking objective guidelines, specifically pointing to the role the fame of the artist might (wrongly) play. As Tan puts it: “the cryptic judicial comments that literal depictions like Andy Warhol's silkscreens of celebrities may also be transformative if they carry a particular social message lend little guidance to how a court may meaningfully determine what constitutes the criteria for transformative use.” Tan continued, “the test is focused on visual transformation which can be overprotective of art and entertainment that contribute little to the discussion of public issues, but underprotective of political speech which may be contextually transformative (because of its recoding) though not visually transformative.” Copyright’s fair use doctrine is pretty nebulous, and borrowing transformativeness from it is courting danger.

But, the court rejoined, fair use “nonetheless remains the statutory law for copyright matters and the U.S. Supreme Court found it appropriate in Zacchini to analogize the right of publicity to federal copyright law.” Plus, Eldred says fair use helps make copyright constitutional, so even if transformativeness forces judges to be art critics, “a degree of artistic interpretation” is okay. “[T]he test's rooting in the fair use doctrine and its consideration of the extent to which an image is copied fairly takes into account the competing right of publicity and First Amendment interests.”

The court reviewed various California cases, and found two particularly instructive: Kirby v. Sega of America, Inc., 144 Cal. App. 4th 47 (Cal. App. 2006), holding that a video game character fashioned after the plaintiff, a celebrity singer, was a transformative use. Kirby was known for the phrase "ooh la la." The video game character was named "Ulala," and shared some physical similarities, clothing style, and catchphrases with the singer. However, Ulala had a distinct, anime-derived physique, and often varied hair and clothing. The character was also a 25th-century reporter, and didn’t dance the way Kirby did. So the character was overall transformative.

By contrast, No Doubt v. Activision, Inc., 192 Cal. App. 4th 1018 (Cal. App. 2011), dealt with the avatars who were literal recreations of the band members, who had posed for photography for the video game developer. These were not transformative, but instead “immutable images of the real celebrity musicians.”

The court found this case a closer call. Hart’s NCAA Football virtual player plays college football, just like Hart did. But he’s not an exact replica that can’t be altered by the user. Rather, he can be altered in many ways, “from his personal characteristics (height, weight, athletic ability), to his accessories (helmet visor, wristband),” along with his “physical abilities (speed and agility, throwing arm, passing accuracy), attributes, and certain biographical details (right handed/left handed).”

Still, “[p]lacing present and former college athletes, including Hart, into the fittingly-titled NCAA Football game setting strongly suggests that the goal of the game is to capitalize upon the fame of those players.” But heightened realism doesn’t mean that the use isn’t transformative, since transformativeness can result from added creative elements that operate on the celebrity depiction. “Nevertheless, a game developer that bases its work on real players, in the context of the games that bring them notoriety, may walk a fine line between using reality as a building block for the developer's own creative work and exploiting the hard-earned reputations of college players for its own profit.” (Okay, explain to me how the court can say that video games are noncommercial speech, like movies and books, and then also say this without putting biography and the like at risk. I know the answer—writing is real creative work, unlike making pictures, so it will always count as transformative—but it’s a bad answer.)

The court was sensitive to the plight of college players “who are prohibited by NCAA bylaws from entering into licensing agreements and other ‘commercial opportunities’ during their playing years,” and noted Hart’s argument that EA pays pro football players for the use of their images as well as colleges for the use of their marks, uniforms, and logos. But unfairness didn’t resolve the First Amendment question.

“Viewed as a whole, there are sufficient elements of EA's own expression found in the game that justify the conclusion that its use of Hart's image is transformative and, therefore, entitled to First Amendment protection.” The game has several creative elements apart from Hart’s image: "virtual stadiums, athletes, coaches, fans, sound effects, music, and commentary, all of which are created or compiled by the games' designers." Even Hart’s virtual image alone was transformative because users could change its features, statistics, and teammates. Moreover, the court found the C.B.C. case persuasive that the use of player names, statistics, and biographical data is entitled to First Amendment protection because the data are in the public domain. Facts aren’t entitled to copyright protection, and are available to everyone to use; this is another IP rule that protects First Amendment interests.

The court specified that it wasn’t the user’s alteration of Hart’s image that controlled, but that EA created the mechanism by which the virtual player could be altered, as well as offering multiple options for each image: height, weight, hairstyle, face shape, body size, muscle size, and complexion. There were eight possible hairstyles, 24 face options, 16 face shape options, and so on. This made the game a transformative use.

But, you might say, using Hart’s unaltered image as the starting point isn’t transformative. “The problem with this argument is that it fails to fully take into account the distinctive interactive nature of video games…. [A] user's interaction with a video game is one of the means by which video games communicate ideas and social messages.” What about the photo of Hart throwing a pass? That’s a fleeting component of the video game as a whole, and, “[b]ecause the photograph comprises such a small portion of the entire work, it cannot be said that the work itself fails to incorporate transformative elements.”

Hart attached screenshots along with photos of him taken during his college career and argued that they showed him and the virtual player in the same positions. The court disagreed that the positions were the same, but that wasn’t the real point. “That a few still screenshots in the context of a larger video game reflect his image does not undercut the existence of the additional creative elements of the game, discussed above, and the variable permutations of his image, created by EA's artists, for use in the game.”

Hart argued that EA deliberately set out to create "the most realistic authentic [football] performance [so that the user may] feel what it's like to cover the field and play at the most elite level in college football," in EA’s own words. But realism isn’t the focus, transformativeness is. (Implicitly, then, realism can be transformative?)

Keller, a N.D. Cal. case that is currently on appeal, found to the contrary. The court here distinguished Keller because it was decided on a motion to dismiss and didn’t consider the declarations describing the games. Also, Keller failed to address the interactivity of the virtual player using variations created by EA artists. The court found this significant “because it suggests that the goal of the game is not for the user to ‘be’ the player, as in No Doubt, where the virtual player could not be altered. The malleability of the player's image in NCAA Football suggests, instead, that the image serves as an art-imitating-life starting point for the game playing experience.” Thus, the image serves as one of the “raw materials” for the new work, and the celebrity depiction isn’t the “sum and substance” of the work (quoting Comedy III). “Moreover, one could argue that even the technology that permits users to alter a player's image is itself a noteworthy, expressive attribute of the game.”

In addition, the court here disagreed with Keller’s focus solely on the challenged image as opposed to the work as a whole.

The court then turned to the Rogers test that protects artistically relevant uses in expressive works, which approach the court found inferior to transformativeness. First, the court thought that Rogers didn’t explain the genesis of the test, though it may have been borrowed from NY’s “real relationship” test used to figure out when newsworthiness trumps publicity rights: there’s no violation of the right of publicity unless the image has no “real relationship” to a news item or unless the item is an ad in disguise. This test protects uses of an image that are noncommercial or not used for purposes of trade, but it’s been criticized as manipulable depending on the level of generality (that is, courts may differ on whether there’s a sufficient connection between a newsworthy topic and this particular person). Yet Rogers expands on the “real relationship” test and doesn’t even require newsworthiness, which the court found perplexing. (The underlying problem here is that there shouldn’t be a “real relationship” test, only a noncommerciality/purposes of trade test; once we’ve added the further requirement of relevance, though, and once we admit that art gets First Amendment protection just like news does, artistic relevance makes sense as the equivalent of newsworthiness.)

The court here thought that Rogers imported this test without explaining why it was helpful in the Lanham Act context, and that subsequent courts had jogged back and forth in applying Rogers to right of publicity claims as well as Lanham Act claims without sufficient justification. In fact, Rogers itself pointed out that the right of publicity has no confusion requirement, making it potentially more expansive than the Lanham Act (and thus potentially more threatening to free speech). The court concluded that there were actually two Rogers tests, one for each cause of action, and questioned the wisdom of applying a trademark-based test to the right of publicity without accounting for the latter’s absence of a confusion requirement. (Well, sure, but I don’t see how that counsels picking transformativeness over artistic relevance; if anything, it counsels protecting any use that is either transformative or artistically relevant against a right of publicity claim, at least for noncommercial speech.)

One arguable benefit of Rogers, the court continued, was that it was more straightforward and required less artistic interpretation, but it was still subject to manipulation. (Surprisingly, the court didn’t identify an instance of such manipulation, though Parks is the clear winner in that regard.) Still, three other circuits have used Rogers, and a couple of district court opinions have applied it specifically to video games.

So, assuming for the sake of argument that Rogers supplies the proper standard, EA still wins. Using Hart’s image “has great relevance to the game itself, which is set on a college football field and revolves around the playing of virtual football.” And the use is not misleading; Hart didn’t even try to claim false endorsement. Nor was the use here a disguised commercial advertisement. “[T]he use of his image is part of an expressive act by EA that might draw upon public familiarity with Hart's college football career but does not explicitly state that he endorses or contributes to the creation of the game.” Use of Hart’s identity in an expressive work relevant to that identity is legitimate. (Yes. Yes, it is, which is why the transformativeness test is underinclusive in this type of situation.)

So, the court concluded, “the transformative test best encapsulates the type of nuanced analysis required to properly balance the competing right of publicity and First Amendment interest.” (Unsurprisingly, I don’t get this in the slightest, and it seems to me that the court’s own comments about First Amendment protection for free dissemination of publicly known facts necessarily entail that transformativeness is not sufficient to protect First Amendment interests in noncommercial speech.) But EA wins no matter what so the court didn’t really need to decide the issue.

Concluding thoughts: in many ways, this is a model of a particular type of opinion: it is incredibly careful, attempting to resolve questions that have divided courts on practically identical facts while breaking no new ground whatsoever. The defects of its approach stem from the inherent flaws of the modern right of publicity, which claims property rights in others’ expression. If one purpose of art is to hold a mirror up to nature, the celebrity claims to own the mirror by virtue of being reflected in it.

Seen at the party store

Today's hypo: How should the trademark/right of publicity analysis go?

It's my distributor and my competitor

Night Vision Systems, LLC v. Night Vision Depot, Inc., 2011 WL 3875515 (E.D. Pa.)

NVS sued defendants NVD and Cejay. Cejay counterclaimed for false advertising under the Lanham Act, along with tortious interference with contracts and unfair competition under Pennsylvania law. The court denied NVS’s motion for summary judgment on the counterclaims.

Cejay makes night vision equipment for the military and law enforcement, including Phoenix and Phoenix Junior infrared beacons (used to minimize friendly fire).

In 1994, one of Cejay’s current owners started selling the Phoenix to a company called Night Vision Equipment Company. NVEC hired retired US military personnel to work with Cejay’s owner to develop and sell Cejay’s products through NVEC. NVEC sold its assets to an entity that eventually became NVS, and Cejay kept selling beacons to NVS, which became the largest distributor of Cejay’s combat identification (CID) products, representing 95% of its sales. Cejay offered NVS a 15-20% discount off the price of the products to other purchasers, allowing NVS to win a number of military contracts. The parties didn’t have an exclusive distribution agreement.

The military bought Cejay’s products through several channels: the GSA website, the Defense Logistics Agency via various bid soliciting websites, and prime vendor contracts between the government and suppliers/distributors. NVS sold Cejay products to at least one other distributor with a prime vendor contract. However, the relationship deteriorated. Among other things, NVS asserted ownership over the Phoenix trademarks and demanded an exclusive distributorship agreement. Cejay found other distributors for its CID products, primary among them ADS Tactical.

Cejay argued that NVS made numerous misrepresentations about Cejay products and the NVS/Cejay relationship, such as that it manufactured Cejay’s beacons and that NVS was the exclusive distributor of all Cejay products, because it didn’t want to lose its lucrative position as the middleman.

NVS argued that Cejay lacked prudential standing under the Lanham Act. Conte Bros. instructs courts to consider (1) whether the plaintiff’s alleged injury of a type that Congress sought to address in providing a private remedy for violations of the Lanham Act, (2) the directness or indirectness of the asserted injury, (3) the proximity or remoteness of the party to the alleged injurious conduct, (4) the speculativeness of the damages claim, and (5) the risk of duplicative damages or complexity in apportioning damages. There’s internal redundancy in the test, but it’s still a valuable heuristic. (Comment: feh.)

Nature of the injury: the Lanham Act protects commercial interests harmed by a competitor’s false advertising and strives to secure goodwill against diversion. Cejay had a commercial interest in the sale of its products, but NVS argued that Cejay didn’t suffer competitive harm; instead, NVS’s competitors were other distributors of Cejay products. Cejay responded that both parties sold Cejay products to other distributors such as ADS who in turn resold to the military. Thus, Cejay argued, it competed with NVS for sales to other distributors. NVS conceded that it did sometimes resell to other distributors. Thus, the market for Cejay’s products isn’t a simple distribution chain, and there are some ways in which Cejay is in a competitive relationship to NVS. “By falsely representing that NVS was the sole source of Cejay CID products, NVS ultimately placed Cejay at a disadvantage when other distributors such as ADS sought sources for those products.” There was thus a commercial interest and a competitive harm, making the first factor weigh in favor of standing. (When there’s competition and a direct mention of the competitor, I can’t figure out any legitimate reason to deny standing; that’s part of why the five-factor test is not a particularly useful heuristic except as a supplement in non-direct-competitor cases.)

NVS argued that Cejay benefitted from every NVS sale of Cejay products, so there could be no competitive harm. However, in other cases finding this argument persuasive, the misrepresentations at issue increased the demand for the underlying product. By contrast, the misrepresentations here (as to which Cejay presented enough evidence to create a jury question) didn’t increase demand but channeled it through NVS, preventing distributors from approaching Cejay directly.

Directness of injury: NVS argued that any injury was Cejay’s own fault because it didn’t want to work with a network of competing distributors. The court found the causal chain here fairly direct. As a result of the misrepresentations, other distributors believed they could only buy the relevant Cejay products through NVS, and Cejay lost profits it could have earned from such direct purchases. In Phoenix of Broward, by contrast, customer diversion was unlikely (the court found, on the pleadings, without receiving any evidence, but why would we want evidence about a thing like causation? Sigh) making the causal chain tenuous. “Here, by contrast, the misrepresentations alleged correspond directly with the harm alleged; Cejay claims that NVS told distributors they could only get Cejay CID products from NVS and that these distributors then did not make direct purchases from Cejay, which would have resulted in higher profit margins.” This factor also favored standing.

Proximity: NVS argued that other distributors who compete with NVS to sell Cejay products would be better suited to bring a claim, since they’re the ones who lost opportunities to sell Cejay products. If the market were a purely linear distribution chain, that might be true, but in the more complex market that existed, Cejay was sufficiently proximate to counsel in favor of standing, and it alleged an injury to its own competitive interests that didn’t derive from any injury to another party’s competitive position.

Speculativeness of damages: Cejay had some quantifiable evidence of lost profits, since it was selling to NVS at lower prices than to other distributors. Some case law suggests that courts should consider the “avoidability” of damages. But the lost profits alleged here were less obviously avoidable than the damages alleged in Conte Bros.. (This is not the present court’s fault, of course, but this is some high-level ridiculousness; avoidability is either the same thing as causation or it is improper incorporation of some kind of comparative negligence into the analysis.) To avoid the injuries here, Cejay would have had to have uncovered the allegedly false representations and invest resources in countering them. It would have been better for Cejay to offer independent expert analysis as to lost sales, but this factor “at least marginally” supported standing.

Risk of duplicative damages or complexity of apportioning damages: NVS argued that allowing Cejay to sue would “open the door” for entity in the distribution chain, including NVS customers and direct competitors. Taking Cejay’s allegations as true, numerous distributors competing with NVS were harmed because Cejay was “hidden” from the marketplace as a potential direct supplier and NVS charged them higher prices than Cejay would have. So there is possible liability to other distributors, but, given Cejay’s unique position in the market, there was little risk that finding prudential standing would result in a “great increase” in federal litigation, so this factor was neutral.

Thus, Cejay had standing. (Wow, that “valuable heuristic” required a lot of work to get to the conclusion that an entity that engaged, at least in part, in direct competition with the defendant and that the defendant’s advertising specifically mentioned had standing.)

As for the substance, there was enough to go to a jury on the Lanham Act and other claims.

Expert testimony on meaning of term allowed in pharma case

Sciele Pharma, Inc. v. Brookstone Pharmaceuticals, LLC, 2011 WL 3844891 (N.D. Ga.)

Sciele sells the prescription prenatal vitamins Prenate Elite and Prenate DHA. Defendant Acella sells generic products, including competing prescription prenatal vitamins PNV and PNV-DHA.

Folate helps prevent certain birth defects. While most prenatal vitamins contain only folic acid, some women can’t metabolize folic acid. Prenate vitamins contain both folic acid and L-Methylfolate ("L-MTHF"), which is accessible even for those women.

Acella’s labels and package inserts say that PNV vitamins contain the same combination and amounts of folic acid and L-MTHF as Prenate vitamins. But the L-MTHF is delivered in a mixture with D-MTHF, the biologically inert isomer of MTHF. Sciele provided “considerable evidence” that PNV’s D,L-MTHF mixture is a different dietary ingredient than the substantially pure L-MTHF in Prenate. And there was some evidence that D-MTHF competes with L-MTHF, diminishing its effectiveness. Sciele thus argued literal falsity as well as misleadingness. It argued that, because defendants listed the same doses of identical ingredients, the products had been linked in various pharma databases, leading pharmacists to treat them as interchangeable and prescribe whatever’s cheaper. Prenate is more expensive than PNV, so pharmacists allegedly have been improperly filling prescriptions for Prenate with PNV.

Along with resolving various discovery disputes, the court declined to exclude Sciele’s evidence of product testing focused on the shelf life or active ingredient content of PNV vitamins. The complaint was broad enough to cover a claim of misleadingness based on the label’s shelf life and active ingredient content statements. Sciele had evidence suggesting that Acella didn’t test PNV vitamins to ensure that the vitamins maintain their labeled active ingredient concentration for 24 months, which is the labeled expiration date. This was “part and parcel of plaintiff's more general claim that PNV vitamins are not identical to PRENATE vitamins in strength or concentration, and do not deliver their active ingredients at the same rate and in the same amount as PRENATE vitamins.” Product testing evidence was obviously relevant.

Then there were the Daubert motions. The court refused to exclude the testimony of two Sciele witnesses, “leading experts in folate chemistry and stereochemistry respectively,” who were prepared to testify that the active ingredient in PNV vitamins was not properly described as L-MTHF and that the D,L-MTHF used in PNV vitamins was a distinct substance from the L-MTHF used in Prenate vitamins, with different physical, chemical and biological properties. (Awesomely, there is an entire journal called Chirality, and one of Sciele’s witnesses was its former EIC.)

The folate chemistry expert would offer relevant testimony based on his experience, training, and education, including testimony that the term LMTHF refers solely to the substantially pure isomer. Likewise, the stereochemistry expert would testify that D,L-MTHF and L-MTHF are different chemical entities that “must” be called by their distinct chemical names. Defendants argued that the experts were “career academics” with no practical experience in pharmacy or medicine, and thus not part of the relevant market. But they were well-qualified to offer opinions on “differences between, and nomenclature conventions governing, L-MTHF and D,L-MTHF.”

Note how the specialized field apparently allows expert testimony about what a term means, whereas with general consumer goods, you might expect a court to require consumer survey evidence. I think the court got it right here, but also that courts should also allow such evidence in the ordinary case.

Sciele also offered an expert on the issue of misleadingness to consumers, a licensed pharmacist with a doctorate in pharmacy administration who consults with pharma companies on marketing and evaluates pharma industry surveys. He conducted a survey of 150 pharmacists, who reviewed the package inserts for the parties’ products and were asked to determine how similar the two products were and whether they were appropriate for substitution. The expert, Dr. Reisetter, concluded that the labeling was misleading pharmacists to believe that the products were pharmaceutically equivalent.

Defendants argued that the study was fundamentally flawed because it relied on outdated package inserts and labels for PNV, because it lacked appropriate controls, because the sample size was too small, and because it used leading and biased questions. These were all issues that went to weight and didn’t defeat admissibility. (Other courts have excluded surveys without controls, so this is a risky one.) Among other things, the package inserts used in the survey were the ones Acella provided to the pharma databases when PNV was launched, leading them to link the parties’ products. This made them appropriate for the survey. Moreover, defendants didn’t change the package insert until after the survey was done. Dr. Reisetter also “persuasively explain[ed] the measures taken to control for bias in his survey,” and the court found that the questions were not leading or unduly biased, though it didn’t list the questions. And the sample size was large enough to provide meaningful results.

The court also accepted as an expert witness a former employee of First DataBank, one of the two leading pharmaceutical databases, who would testify among other things that, if the label or product information sheet had indicated that the active ingredient of PNV was D,L-MTHF rather than L-MTHF, the product would not have been linked to PRENATE. This was relevant and reliable based on her extensive experience. However, she wasn’t qualified to offer any opinion that requires specialized knowledge of stereochemistry in general, or of the chemical or physical properties of D,L-MTHF and L-MTHF in particular, so her proposed testimony that "[s]cientists have concluded that [d]efendants' product did not contain the stereoisomerically pure form of L-methylfolate" was improper.

Defendants also got their expert in on damages; Sciele’s criticisms went to weight and not admissibility. Also, the expert wasn’t required to audit Acella; he could use its financial statements without independently verifying the underlying supporting data.

On to various motions for summary judgment. Defendants argued that there was insufficient evidence to support a finding of falsity or misleadingness, and also argued FDCA preclusion. The court disagreed.

FDCA preclusion applies to attempts to use the Lanham Act to enforce the FDCA, or when a Lanham Act claim strays too close to the FDA’s exclusive enforcement domain. The key factors are the extent of the plaintiff’s reliance on the FDCA as a basis of its claim or the extent to which the court would be required to interpret or apply the FDCA or FDA regulations to decide the claim. Here, however, Sciele was relying on industry and market evidence to show that the ingredients were distinct, and wasn’t arguing about the meaning of any FDCA provision. The Lanham Act was designed to cover the conduct alleged: the false description of a product.

The court also found sufficient evidence of literal falsity, as detailed above (additionally, the American Chemical Society and the Joint FAO/WHO Expert Committee on Food Additives have recognized that L-MTHF and D,L-MTHF are distinct dietary ingredients, and the FDA has accepted a New Dietary Ingredient Notification distinguishing the substantially pure form of L-MTHF from D,L-MTHF). A jury could find literal falsity from this evidence.

Likewise, a jury could find misleadingness based on the survey evidence. Defendants argued that they were entitled to summary judgment because of a disclaimer on PNV’s label expressly disavowing any claims of equivalence or generic status. “This argument is disingenuous, at best. There is an abundance of evidence in the record to suggest that defendants intended to profit from the substitution that occurs as a result of PNV's linkage to PRENATE in the pharmaceutical databases. Based on that evidence, the jury might reasonably conclude that Acella's disclaimer was not intended to, and in fact did not, discourage substitution.”

However, the court declined to award Sciele partial summary judgment on literal falsity. Sciele argued that PNV simply didn’t contain the active ingredient listed on its label, L-MTHF, and also pressed its shelf-life claims based on Acella’s lack of testing to ensure that PNV vitamins maintain their active ingredient concentration over the course of their labeled two-year shelf life.

The court held that the evidence of literal falsity was not conclusive; defendants identified enough flaws in Sciele’s case that a jury might find in their favor, and they offered evidence that L-MTHF was reasonably susceptible to more than one meaning and understood by the relevant industry to refer to the L isomer of MTHF, “whether it is in its substantially pure form or combined in a mixture with D-MTHF.” This included testimony from an OB/GYN who regularly prescribes folate supplements and from a practicing pharmacist.

As for the shelf life/content claims, Sciele relied on the proposition that the expiration date was an establishment claim. An establishment claim is “an affirmative promotional claim about testing,” but Acella didn’t make any affirmative representations about testing. (I think an expiration date, especially on a prescription pharmaceutical, is likely to necessarily imply scientific supporting data. And the classic establishment claim cases point out that establishment claims can be made without the words “tests prove,” for example by showing actors in white coats acting like doctors.) To prove its shelf life/content claims, Sciele would have to show that PNV vitamins don’t have a two-year shelf life or contain the advertised concentration during that two-year period. It hadn’t done so on this record, and there was some substantiation for the labeling: defendants offered testimony that the expiration date was based on the expiration date of the raw materials plus the manufacturers’ knowledge of similar raw materials, confirmed by manufacturers’ certificates of analysis. Acella also accounts for natural degradation over time. These procedures didn’t meet Sciele’s own internal standards, but there was evidence from which a jury could conclude that Acella’s testing procedures were acceptable in the industry.

Now, an actual reading recommendation

Jeremy De Beer & Mario Bouchard, Canada's 'Orphan Works' Regime: Unlocatable Copyright Owners and the Copyright Board, 10 Oxford University Commonwealth Law Journal 215 (2010): Fascinating empirical overview of how the system works in Canada: I did not realize, for example, how many licenses were granted with contingent payments (payments only if the copyright owner shows up within 5 years).

Lawyer's general quality claims are puffing

Conrad v. Russell, 2011 WL 3877000 (W.D. Wis.)

Conrad, pro se, alleged that Russell falsely advertised her legal services under the Lanham Act. The court dismissed the complaint because Conrad didn’t sufficiently allege false statements of fact; she complained about misrepresentations of quality, but the statements she identified weren’t actionable. A statement that a firm “specializes” in certain areas of law, for example, doesn’t promise results or a particular level of quality. Statements that a firm’s lawyers "provide thoughtful, thorough counsel in copyright, trademark and digital business law," "tak[e] the time for client education" and are "dedicated to efficiency" were mere puffery. Alleged omissions (failure to explain Conrad’s right of publicity and failure to list courts in which defendants were admitted) were not actionable because Conrad didn’t explain why the omissions were misleading.

Moreover, Conrad didn't have Lanham Act standing, since she was a customer and not a competitor.

Recent reading: litigious Americans

Eric Bennett Rasmusen & J. Mark Ramseyer, Are Americans More Litigious? Some Quantitative Evidence: In what I consider a disqualifying argument, the authors begin the paper with the example of the elderly woman who sued McDonald's after being seriously burned by the company's coffee to show how ridiculous American lawsuits are. As someone reviewing the film Hot Coffee said, if you've ever used this case as an example of over-litigiousness, you have a moral obligation to take a look at her burns. Here's a small picture. At least the authors do note in text that the jury's award was reduced by over 75% by the judge, which many people don't bother to mention. The authors say "More curiously, even prominent law professors found good things to say about $2.86 million for a coffee spill." I'm more curious why they think this verdict--based, before it was reduced, on a few days' of McDonald's revenues from coffee--is so obviously terrible that it speaks for itself as a condemnation, rather than a vindication, of the American justice system.

They also have some stuff to say about class actions, and the availability of damages and fees for violations of the Americans with Disabilities Act. Spoiler: they don't like them either.

Washington Declaration on Intellectual Property and the Public Interest

Read the Declaration here. From Sean Flynn:

With the U.S. round of the Trans-Pacific Partnership Agreement (TPPA) underway in Chicago, intellectual property and information policy experts from around the world have released a Washington Declaration on Intellectual Property and the Public Interest that challenges the dominant direction of the negotiations on intellectual property in U.S. trade agreements.

The Declaration was created through a consultative process with over 180 experts from 35 countries in six six continents at the Global Congress on Intellectual Property and the Public Interest, August 25-27 at American University Washington College of Law.

Citing an “unprecedented expansion of the concentrated legal authority exercised by intellectual property rights holders” through recent trade agreements, the experts call for new efforts to “re-articulate the public interest dimension in intellectual property law and policy.”

The Declaration’s recommendations are guided by two overarching points.

First, “International intellectual property policy affects a broad range of interests within society, not just those of rights holders.” The Declaration thus concludes that “intellectual property policy making should be conducted through mechanisms of transparency and openness that encourage broad public participation.” In direct opposition to the procedures being followed for the TPPA, where negotiations are being conducted behind closed doors over text never released to the public, the Declaration calls for intellectual property agreements to be made only “within the existing forums responsible for intellectual property policy, where both developed and developing countries have full representation, and where the texts of and forums for considering proposals are open.” And in a challenge to the U.S. position that it will enter the controversial Anti-Counterfeiting Trade Agreement without congressional approval, the Declaration calls for all international intellectual property agreements to “be subject to democratic checks and balances, including domestic legislative approval.”

The Declaration’s second major theme is that “markets alone cannot be relied upon to achieve a just allocation of information goods — that is, one that promotes the full range of human values at stake in intellectual property systems.” A full range of policies to promote public interest values must include, it explains in detail,

• the use of other legal doctrines, like human rights and consumer protection laws, to cabin intellectual property rights expansion,
• promotion of open access, open educational resources, open government and related open information policies;
• strengthening limitations and exceptions that are needed to promote creativity, innovation and other socially beneficial uses of information and its products
• setting public interest priorities in patent reform, including a more diverse structure of incentives for innovation;
• supporting cultural creativity through experimentation with new systems to reward and empower authors with, instead of in opposition to, new technologies for information diffusion;
• checking excesses in intellectual property enforcement with more safeguards, procedural fairness and proportionality in enforcement in our courts, at borders and on the internet;
• implementing development agendas, which take account of the economic, social and cultural development interests of all countries, throughout international intellectual property policy making; and
• requiring evidence, “rather than faith or ideology,” to be the core of all policy-making.

The Declaration is now open for signature by the public. Signatories need not have attended the Congress.

Voluntary food marketing principles aren't unconstitutional

David Vladeck on voluntary principles for marketing food to kids. People who don't like that. A letter I and some other people signed on why the First Amendment arguments against the FTC's report to Congress make no sense.

Can failure to leave be contractually binding?

I'm used to thinking of this for websites, but this sign from the filming of the Avengers movie says that by remaining in the area you consent to any use of your likeness etc. in the film and promotions for the film. Setting aside that it doesn't conform with the written consent requirements for, say, NY's right of publicity, if this is a public space, is there any way in which this is actually enforceable? There should be no valid cause of action for presence in the film itself, and because of that no valid cause of action for the ads, but with today's metastasized right of publicity I have to wonder.

State insurance law precludes Lanham Act claim

Insurance Products Marketing, Inc. v. Conseco Life Ins. Co., 2011 WL 3841269 (D.S.C.)

Plaintiffs sued for violations of the Lanham Act, misappropriation, invasion of privacy, state law unfair trade practices, and breach of a previous settlement agreement. They alleged that, after settlement of the prior dispute, the Conseco defendants sent letters to their policyholders stating that plaintiffs were still defendants’ agents, profiting from use of IPM’s name and causing IPM lost profits.

Defendants argued that the Lanham Act claim was preempted (technically precluded) by the McCarran-Ferguson Act, which preserves state regulation of insurance companies unless a federal act specifically relates to the business of insurance. Federal jurisdiction is barred under the McCarran Act if: (1) the federal law at issue does not specifically relate to the business of insurance; (2) the state law regulating the activity was enacted for the purpose of regulating the business of insurance; and (3) applying federal law would invalidate, impair, or supersede the state law.

Here, the activity complained of was advertising to policyholders, which was part of the business of insurance, so the Act applied. A number of courts have found that advertising insurance policies isn’t within the business of insurance, but the facts here were distinguishable because this was an ad dispute between two rival insurance companies. (I’m not sure I follow.) Another court has found that Lanham Act claims between insurer-competitors are precluded by the McCarran-Ferguson Act. Here, defendant’s statements were made to its policyholders, which is part of the business of insurance.

Since the Lanham Act doesn’t specifically relate to the business of insurance, the next questions were whether the state law regulating the activity was enacted as insurance regulation and whether applying federal law would invalidate, impair, or supersede the state law. The relevant South Carolina statute governs false or misleading practices in the business of insurance, so that’s taken care of. Plaintiffs argued that applying the Lanham Act would complement state law, but the court disagreed. Federal law impairs a state law if there’s a direct conflict, a frustration of declared state policy, or interference with a state administrative regime, and federal law supersedes state law if it displaces state law and provides a substitute rule.

Here, the court found that applying the Lanham Act would frustrate South Carolina’s declared state policy of “defining, or providing the determination of, all the practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.” (I don’t really get this. Wouldn’t you first need to decide that the Lanham Act defines unfair/deceptive claims differently than state law to say that there was any frustration of this purpose? That’s the usual way courts analyze Lanham Act conflicts in other areas, for example whether the FDCA precludes a Lanham Act claim.)

So the Lanham Act claim was dismissed, as was the state statutory unfair trade practices claim because the alleged conduct involved the business of insurance and was thus exempted from the general statute and expressly governed by the state insurance trade practices act.

The misappropriation of identity claim survived as adequately pled, and plaintiffs were granted leave to amend to allege the breach of contract claim more specifically.