Copyright year in review

I had a great time presenting this to the Copyright Society of Los Angeles. My slides.

This is going to be an opinionated overview; I know you’re an expert audience and I’m going to try to highlight developments you may have heard less about or at least spent less time thinking about.

I’m going to begin with some notes about legislative and administrative developments—the Next Great Copyright Act may not be coming, but changes well beyond the Music Modernization Act are on the horizon. After that I’ll review a number of cases with not necessarily much of a throughline, though I have some larger thoughts about various topics.

Legislatively:

We may get the CASE Act as part of the continuing resolution: This would mean the institution of copyright Small claims run out of the Copyright Office. The key features are: removal of registration requirement for up to $15,000 in statutory damages; opt-out instead of opt-in; constitutional questions because of the very limited possibility of Article III review contemplated by the setup (due process because of the lack of an opt-in requirement and separation of powers issues because these would be Article I judges not in the executive branch); increased deference to Copyright Office in other areas on the horizon?

DMCA reform: Sen. Tillis plans to release a draft next week. 

1201 rulemaking for exemptions from the prohibition on circumventing access control  measures: Ongoing; second round using a streamlined process for renewing existing exemptions. The Copyright Office is obviously interested in minimizing the ongoing burden of the exemption proceedings, and enthusiastic about getting Congress to at least let it make permanent exemptions so that it doesn’t have to redo all this work every three years. Until then, it has indicated its intention to renew every exemption for which a short-form petition asserting the continued need for that exemption has been filed, in the absence of something more than pro forma opposition from the usual suspects—which is to say representatives of the music and movie industries.

Music Choice v. Copyright Royalty Board, 970 F.3d 418 (2020)

Illustrates that the increased judicial skepticism of administrative lawmaking may well be coming for certain Copyright Office functions as well. Specific holdings:

Under the DMCA, a lower grandfathered royalty rate is paid by some music services that were early providers of digital music transmissions. The Board’s categorical exclusion of Music Choice’s transmissions from the grandfathered rate conflicted with the unambiguous statutory language, though the board had discretion to determine whether parts of Music Choice’s current service offering, which includes mobile applications and internet-exclusive channels, should be excluded from the grandfathered rate. The Board also acted arbitrarily and capriciously in altering the audit standards for Music Choice.

Other Caselaw: I’m roughly going to follow the outline of my copyright course, though the emphasis will be on new and interesting cases rather than trying to cover all the aspects of the course.

I.          Subject Matter

Obviously this is the marquee area with high profile cases, but Google v. Oracle is still pending so it will be a big case of 2021.

With respect to the other Supreme Court case about copyright subject matter, Georgia v. Publicresource.org: Supreme Court articulates a “government edicts” doctrine that says the law is not copyrightable even without the need for the statutory exclusion making works of the US government uncopyrightable.

The most interesting thing to me is that we are constantly told how textualist the new conservative majority is going to be. This isn’t even close to a textualist decision; instead it is derived from basic principles that inform the legal meaning of the word “author” despite the fact that no one would reasonably expect those principles to show up in a generalist dictionary definition; particularly striking contrast to Star Athletica decided only a couple of years earlier which disregards even legislative history. I speculate that one reason that the Justices in the majority were willing to do this is that the subject matter involved the actual text of the law itself, whose fundamental nature they think they understand much better than they understand the average subject matter like visual art or music. When it comes to law, they lack any epistemological humility about its essence. And that might well be ok!

Second, as stated, the rule that there’s no © in works “(1) created by judges and legislators (2) in the course of their judicial and legislative duties,” leaves open what happens if the works are created by lobbyists and then incorporated into law, or if they’re made part of the law like building codes drafted by private parties.

International Code Council, Inc. v. UpCodes, Inc., 2020 WL 2750636 (S.D.N.Y. May 26, 2020): Refused to decide on summary judgment both the protectability and fair use questions; note inclusion of constitutional argument that if it’s not copyrightable, then the legislature engages in a taking by enacting a private code into law.

Bork v. Tran Huong Quynh, 2020 WL 4474485 (M.D. Fla. Aug. 4, 2020): Not a really significant case, but I like it because it involves a strong illustration of the concept of relativity of title—the owner of these works is not Disney, and successfully registered the copyright thereto and asserted an infringement claim against a person who copied these works on Etsy.

II.        Authorship

Everly v. Everly, 958 F.3d 442 (6th Cir. 2020) is a case that suggests the possibility of new things: Existing precedents hold that a claim for ownership “accrues only once, and if an action is not brought within three years of accrual, it is forever barred” and this includes claims for authorship. Though there can be disputes over what starts the limitations period running, an express repudiation of a person’s authorship claim will do so. Recently appointed Judge Murphy’s concurrence, however, suggested that the statutory language and other rules of construction compelled a different finding: authorship, too, should be subject to the rule of Petrella and the remedies created by a successful authorship claim should merely stretch back only three years.

Biggest takeaway: the federal judiciary has been comprehensively reshaped over the past 4 years by people who were not hired for their opinions on IP. There is the potential for very big, but highly unpredictable, changes in IP doctrines.

III.       Infringement

The removal of the blanket license for licenses that host political events has led to a number of C&D letters and the occasional lawsuit against the Trump campaign, highlighting the importance of the ASCAP etc. licenses for daily business life, and also highlighting the relevance of privately negotiated agreements to changing statutory schemes. Here I will tout the work of Kristelia Garcia who has written fascinatingly about private agreements and how they interface with the statute, including sometimes by depriving artists of the royalties they might otherwise be entitled to get.

Embedding as implicating any of the exclusive rights: thought it was settled; isn’t: McGucken v. Newsweek LLC, 464 F.Supp.3d 594 (SDNY 2020). Instagram is leaving users of its embed feature twisting in the wind (also rejecting a fair use defense on a motion to dismiss though leaving open a little room for a different result later; in the unlikely event that the Supreme Court says something about the relationship between common industry beliefs and fair use, that could bear on the outcome)

Skidmore and progeny: While 2019 might have been the peak year for finding musical work infringement based on stylistic similarities—both in the Blurred Lines case and in the Taylor Swift lawsuit over players gonna play/haters gonna hate—2020 represented a real reversal of the trend, not just in Skidmore itself but in some cases that clearly took guidance from it.

1.     Skidmore: it is not enough to assert “a ‘combination of unprotectable elements’ without explaining how these elements are particularly selected and arranged.”

2.     Cortes v. Universal Music Latino, --- F.Supp.3d ---- (2020) “Despacito” or “Despasito” As Title and Lyric and other shared words were not protectable, nor were the number of times the words were used, nor was the general style or theme of the works

3.     Gray v. Perry, 2020 WL 1275221 (C.D. Cal. Mar. 16, 2020): Many if not most of the elements that appear in popular music are not individually protectable. Music, perhaps more than any other work of art, “borrows, and must necessarily borrow, and use much which was well known and used before.” Further, the court held, none of these individual elements are independently protectable. It was plaintiffs’ burden to establish the protected elements of their allegedly infringed work, and they didn’t show that what was copied was protectable. “A relatively common 8-note combination of unprotected elements that happens to be played in a timbre common to a particular genre of music cannot be so original as to warrant copyright protection.”

But compare: Compulife Software Inc. v. Newman, 959 F.3d 1288 (11th Cir. 2020): In a software case using the abstraction, filtration, comparison approach, the burden of proof on the protectability of what was copied is on the defendant in the filtration analysis, not on the plaintiff. Not yet determined: Will this be hugely significant in many cases? The question of what is an idea or a scene a faire may be determinable as a matter of law, but it does make things look harder for a defendant that concedes copying for purposes of summary judgment.

Potential signal: SAS Institute Inc. v. World Programming Limited, 2020 WL 6271230 (E.D. Tex. Oct. 26, 2020): once the defendant contests the protectability of the things it copied, the burden shifts back to the plaintiff to “face[ ] the manageable task of responding to the appropriately narrowed issue” and combat the allegations. This may occur either by showing what defendant alleges as not protectable actually is entitled to protection, or by coming back and showing that there are remaining and identifiable protectable elements that defendant copied. In SAS, the defendant got summary judgment because SAS didn’t do that.

IV.       Moral Rights

After big damages in 5Pointz case, we can also expect more attention to the Visual Artists Rights Act—where, as with 1202 violations, statutory damages are available independent of registration.

VARA provides visual artists the right to “prevent any intentional distortion, mutilation, or other modification” of a covered work “which would be prejudicial to his or her honor or reputation, and any intentional distortion, mutilation, or modification of that work is a violation of that right,” and also the right “to prevent any destruction of a work of recognized stature . . . . “

Cavallero case: Alleges that the defendants trespassed in order to destroy his cheese wall. If proved, might justify enhanced damages.

Kerson v. Vermont Law School, Inc., No. 20-cv-00202-cr (D. Vt. filed Dec. 2, 2020): The Law School is apparently planning to put acoustical tiles over the mural, presumably thinking that covering it up does not violate the statute, but Kerson seeks to enjoin the coverup. This is unlikely to succeed but, perhaps surprisingly given that VARA has been around for so many years, a novel issue.

[slide with the Cookie Monster mural] Also not resolved: what happens when the art is put up without permission. The plain text of the statute gives the artist the right to object to its removal or destruction without reference to whether the artist placed the artwork with the permission of a building owner, and related precedents on art that violates non-copyright laws suggest that VARA might apply even to trespassing art, so watch this space (no pun intended)

V.        Fair Use and other defenses

One way to think of this year’s roughly 40 new fair use cases is to divide them into cases featuring Richard Liebowitz’s firm as the plaintiff’s attorney and cases not featuring that firm. Starting with the latter:

“Experimental use” comes to copyright law: Nicki Minaj avoided liability for private use of Tracy Chapman’s work in order to experiment with it before seeking a license. The evidence was that making the work before seeking the license “was customary practice because rights holders often request copies of new works during licensing discussions and prospective licensees usually include their proposed derivative works with their initial licensing requests.” The court reasoned that interfering with this industry practice would be inconsistent with copyright’s purposes, and that because it was private and experimental it didn’t have a negative market impact.

Estate of Smith v. Graham, 799 Fed.Appx. 36 (2d Cir. 2020): “Pound Cake”: The first identified instance of transformativeness without parody in a music case! However, the district court found that the defendant’s use was implicitly critical of the original, which had celebrated jazz over all other forms of music; the defendant’s rap song claimed the same longevity for all real music including rap.

Perhaps most interesting in the case, however, is the court’s statement that “Nor is there evidence of the existence of an active market for ‘Jimmy Smith Rap,’ which is vital for defeating Defendants’ fair use defense.” This attention to the market for the specific work at issue, rather than the overall market for works of the same general type, is of increasing importance in fair use cases of many kinds, including educational uses in last year’s University of Georgia case and in cases where fair use fails, like the TVEyes v. Fox dispute.

Hughes v. Benjamin, 437 F.Supp.3d 382 (SDNY 2020): On a motion to dismiss. Showing a series of clips of another YouTuber of the opposite political persuasion, with a mocking title, was transformative and fair. The context—including the selection of clips, the title, and the poster’s other political commentary, was enough to create comment and a new message. Subsequently, the court awarded nearly $40,000 in attorneys’ fees to the prevailing defendant.

Also: dueling tattoo cases: disputes over whether summary judgment should be granted to defendants: (1) the second case follows a pattern of treating videogames worse than other artworks in holding that the videogame might have the same purpose as the original tattoo; (2) Google v. Oracle might give some signals about how courts should think about summary judgment in fair use cases, but it’s an unusual enough case that I wouldn’t put too much confidence in that.

Educational uses, or uses that courts clearly think contribute to education, continue to have some sway with courts: Tresóna Multimedia, LLC v. Burbank High School Vocal Music Ass’n, 953 F.3d 638 (9th Cir. 2020) Use of a portion of a musical work in a new arrangement for a show choir was a nonprofit educational use, and the use of a portion of the song to tell a new story as part of an audiovisual presentation was transformative (remand to award attorneys’ fees to the defendant—not just for reconsideration by the district court: Tresona’s fair use argument was “objectively unreasonable” because the use was nonprofit teaching and highly transformative, and its litigation strategy was unduly aggressive; it sued parent volunteers!)

And the Bell v. Worthington City School District, 2020 WL 2905803 (S.D. Ohio Jun. 2, 2020): case granted summary judgment to the defendants, reasoning that an athletic coach’s retweet of an inspirational passage about how winning isn’t usual was fair because the use was educational and noncommercial, and the defendant couldn’t show market harm from loss of a tweet license for noncommercial use—this is another of the cases where the court itself puts the copyrighted material online for free by reproducing it in its entirety.

Now to the other half of the cases: Richard Liebowitz continued his one-man crusade to further develop the law of fair use of photographs on a motion to dismiss.

Yang v. Mic Network, Inc., 2020 WL 6562403 (S.D.N.Y. Nov. 9, 2020): fair use on a motion to dismiss where the defendant used a screenshot of an article that included roughly the top half of the relevant photo.

Boesen: embedded Instagram post was fair use for purposes of reporting on the story generated by the Instagram post.

Walsh v. Townsquare Media, Inc., 464 F.Supp.3d 570 (S.D.N.Y. 2020): (Cardi B) same thing.

Schwartzwald v. Oath Inc., No. 19-CV-9938 (RA) (S.D.N.Y. Sept. 10, 2020): (altered photo of Jon Hamm commenting on the ridiculousness of people caring about Jon Hamm’s penis)

Marano v. Metropolitan Museum of Art, --- F.Supp.3d ----, 2020 WL 3962009 (S.D.N.Y. 2020) (focus on history of guitar, rather than on musician, was transformative)

Harbus v. Manhattan Institute for Policy Research, Inc. 2020 WL 1990866 (S.D.N.Y. Apr. 27, 2020): (granting motion to dismiss where the use highlighted the defendant’s own research and educational mission)

But he didn’t lose every fair use defense: Iantosca v. Elie Tahari, Ltd., 2020 WL 5603538 (S.D.N.Y. Sept. 18, 2020). Unauthorized use by a clothing designer in its social media to show off a model wearing the designer’s clothes was not fair use! Not transformative.

Cruz v. Cox Media Group, LLC, 444 F.Supp.3d 457 (E.D.N.Y. 2020) News use of newsworthy photo by amateur photographer not fair use (I will note that the relevant photo is now freely available to the public because the court included it in the opinion).

And he lost fees in a different failed fair use defense: Otto v. Hearst (court found that license fee was $100 and awarded $750 in statutory damages).

Emerging, tentative pattern: people in the business of making and using photos as part of their ordinary operations have to pay for photography, but people primarily in the commentary business don’t.

Grant v. Trump: Pending litigation over the use of music in political ads. Will this be the first finding of fair use in unaltered use of a portion of sound recording in a political ad? Trump’s motion to dismiss relies on recent cases like Smith and Brown v. Netflix, Inc., 462 F. Supp. 3d 453, 460 (S.D.N.Y. May 27, 2020), which found that short excerpts of a recording in a larger work were fair use, to argue that its 40 seconds were limited enough to be fair. Fair warning: The Trump campaign's papers are much better than the ones that have made the news of late.

VI.       Secondary Liability/512

512(a)’s protections for conduits aren’t really working any more. Sony Music Entertainment v. Cox Communications, Inc., 464 F.Supp.3d 795 (E.D. Va. 2020). $ 1 billion damages award upheld against post trial motions.

Warner Records Inc. v. Charter Communications, Inc., 454 F.Supp.3d 1069 (2020): vicarious and contributory liability by provider of high speed internet access was sufficiently alleged. UMG Recordings, Inc. v. RCN Telecom Services, LLC, 2020 WL 5204067 (D.N.J. Aug. 30, 2020) same. UMG Recordings, Inc. v. Bright House Networks, LLC, 2020 WL 3957675 (M.D. Fla. Jul. 8, 2020): Vicarious liability failed for want of direct financial benefit:

“This interpretation of the direct financial benefit requirement effectively reads the limiting term “direct” out of the test, allowing the imposition of vicarious liability based on indirect, highly attenuated connections between infringing conduct of the patron and alleged financial benefits.” What Plaintiffs alleged was that Bright House’s internet speed and efficiency are “draws” to the service, but that wasn’t enough: “It is not readily apparent or plausibly alleged that an internet thief would be “drawn” by the efficiency of internet service any more than the average law-abiding purchaser of copyrighted content.”

But contributory infringement claims survived.

ALS Scan, Inc. v. Steadfast Networks, LLC, 819 Fed.Appx. 522 (2020): Over a dissent, the Ninth Circuit held that a data-center service provider took adequate “simple measures” to avoid contributory copyright infringement by forwarding notices of such infringement to the hosting website — and every alleged infringement was taken down. Even if the notices kept coming, generalized knowledge of likely infringement wasn’t enough where each specific infringement was taken down and the data center didn’t control the website where the infringements were allegedly occurring. The plaintiff could sue the website if it was liable for the underlying infringement. Important case in rejecting an attempt to evade the DMCA’s requirements.

512(f): Beyond Blond: allegedly false takedowns sent to Amazon based on public domain materials; though the plaintiff counternoticed, Amazon declined to honor the counternotice unless the notices were actually withdrawn. 512(f) can preempt state law tortious interference and related claims if they’re based on bad copyright notices—but if the notice sender also alleges trademark issues, that may not be preempted (but the recipient likely has a harm causation problem). Because the standard for succeeding on a 512(f) claim is so stringent, 512(f) can leave people who received bad takedown notices in a worse position than if it didn’t exist.

VIII.    1202 Gains Momentum

Sometimes it takes a while for lawyers to discover a cause of action. Most important case: Mango v. BuzzFeed, Inc., 970 F.3d 167 (2d Cir. 2020): Digital Millennium Copyright Act (DMCA) includes double scienter requirement; but publisher knew of CMI removal and publisher had reason to know distribution with altered CMI concealed infringement.

Recif Resources, LLC v. Juniper Capital Advisors, L.P., 2020 WL 5739138 (S.D. Tex. Sept. 24, 2020) timely registration isn’t required for statutory damages under 1202.

Fischer v. Forrest, 968 F.3d 216 (2d Cir. 2020):

While an author’s name can constitute CMI, not every mention of the name does. Here, “Fischer’s” is part of a product name; it is not a reference to “James H. Fischer” as the owner of a copyrighted text. What was removed was not Fischer’s name as the copyright holder of the advertising text, but “Fischer’s” insofar as it was a part of the actual product’s name. …  “Fischer’s” cannot be construed as CMI with respect to the advertising text at issue because it is simply the name of the product being described. In short: context matters.

Mills v. Netflix, Inc., 2020 WL 548558 (C.D. Cal. Feb. 3, 2020): where the defendant kept the plaintiff’s name visible in its screenshots of plaintiff’s video, it wasn’t plausible that it intentionally removed CMI in order to facilitate or conceal infringement. Continues the divide in courts about whether the CMI has to be integrated into the work or really close to the work in order to count as CMI.

Kirk Kara Corp. v. Western Stone and Metal Corp., 2020 WL 5991503 (C.D. Cal. Aug. 14, 2020): “Based on a review of the side-by-side images included in the Complaint, the Court can determine that, while the works may be substantially similar, Defendant did not make identical copies of Plaintiff’s works and then remove the engraved CMI. In such cases, even where the underlying works are similar, courts have found that no DMCA violation exists where the works are not identical.”

Takeaway: Courts are not really reading “remove” to mean “remove,” even though they probably should—they are often reading “remove” to include “making copies without the CMI.”  Someone who makes a nonexact copy will often not be held to have “removed” CMI. However, this isn’t always the case and especially not on a motion to dismiss, example: Pilla v. Gilat, 2020 WL 1309086 (S.D.N.Y. Mar. 19, 2020): use to create infringing derivative work could plausibly state a claim for removing CMI.

IX. Remedies

Greg Young Publishing, Inc. v. Zazzle, 2020 WL 3871451 (C.D. Cal. Jul. 9, 2020) (now on appeal): Despite finding willful infringement by Zazzle through sales of items bearing infringing images, the court denied a permanent injunction: irreparable harm is not likely when high-volume sellers promptly and voluntarily remove infringing items. Zazzle can afford to pay money damages. Loss of exclusive rights of copyright is not itself irreparable harm after eBay v. Mercexchange. In terms of balancing the equities, GYPI has not presented any evidence of a more effective way for Zazzle to prevent infringement than its current system

Disney Enterprises, Inc. v. VidAngel, 2020 WL 2738233 (C.D. Cal. Mar. 31, 2020): Over $62 million in statutory damages for copying, altering, and streaming over 800 Disney movies.

Energy Intelligence Group, Incorporated v. Kayne Anderson Capital Advisors, L.P., 948 F.3d 261 (5th Cir. 2020) (failure to mitigate is not a complete defense to statutory damages): Plaintiffs produced a specialized newsletter and basically did not try to stop copying for a while, then sued for over 1600 infringements and 425 DMCA §1202 violations. At trial, the defendants persuaded the jury that the plaintiff could reasonably have avoided almost all the copyright and DMCA violations at issue. EIG took nothing for those violations and received $15,000 in statutory damages for 39 infringed works, about half a million dollars. The court of appeals remanded on the infringement damages because it couldn’t tell whether the jury intended to award EIG $15,000 per infringed work if failure to mitigate wasn’t a complete defense and held that the plaintiff should get $2500 per DMCA violation, over $1 million.

X. Licensing

Tresona again: The plaintiff didn’t own exclusive rights in certain songs because it was only licensed by a co-author, and the other co-authors could have licensed the songs, thus it owned no exclusive rights. This seems correct but the Ninth Circuit’s attempt to distinguish previous precedent is a bit puzzling.

XI.       Preemption

Jackson v. Roberts, No. 19-480 (2d Cir. Aug. 19, 2020): The Second Circuit reached a conclusion for which I and others like Jennifer Rothman have long argued: especially with respect to the right of publicity, conflict preemption, not §301 preemption, determines what happens when right of publicity claims are asserted against ordinary uses of copyrighted works in which the plaintiff consented to perform. Because non-advertising exploitation of such works is at the core of copyright rights, a subject’s assertion of the right of publicity to stop that exploitation fundamentally conflicts with copyright’s purposes. This reasoning preserves false association and privacy claims, but not right of publicity claims predicated merely on unauthorized exploitation of a work in which the claimant consented to appear.

Of particular note: Many courts have, with much more confused reasoning, reached similar results when the defendant is the copyright owner or is licensed by the copyright owner, the Second Circuit went further, I think properly, and held that a pure attempt to control a work’s distribution on right of publicity grounds is preempted even if the copyright owner didn’t authorize the distribution. There might or might not be a copyright claim—the use might be fair, for example—but either way the right is the copyright owner’s.

Conflict preemption reasoning explains the actual results of the cases much better than invocation of express preemption under §301. One of my remaining questions is: why do courts insist the result has to be different with advertising uses? Advertising use can be nonconfusing use—like using a licensed image of Kim Kardashian and saying “Kim wouldn’t be caught dead using our product”—and licensing copyrighted works for use in advertising is certainly an ordinary use for copyrighted works.

Pirate donut's TM claim against Dunkin X'ed out

Grazette v. Bitcoin of America, LLC, 2020 WL 6789352, No. 19-CV-4837 (MKB) (E.D.N.Y. Sept. 30, 2020)

Despite the main name here, the question presented is whether the design on a gift card sold by Dunkin’ Donuts “counterfeit[s]” the trademarked logo for Grazette’s doughnut shop in violation of the Lanham Act and NY’s GBL. The court dismissed the claims against the moving defendants (and ordered Grazette, pro se, to show cause why the remaining claims shouldn’t be dismissed).

Grazette makes and sells vegan doughnuts. In 2018, he designed a logo, “Sprinkle Roger,” consisting “of a circular face design shaped like a donut consisting of two x[-]shape[d] eyes and a smaller inner circular nose in the middle with sprinkles within the outer circle and cross bones underneath.” The “Sprinkle Roger” mark was designed to “appeal to an edgy, gritty and ethical crowd ... by signaling” that his product was gluten-free and vegan. He made business cards and stickers with the logo on them.

In 2019, Dunkin’ “advertised a brand new gift card on their ... [Instagram] page,” which allegedly“counterfeit[ed]” the trademark. That year, it also announced delivery and plant-based (vegan) options. The card depicts the brightly colored letters “XO,” with the “O” replaced by a doughnut with sprinkles. Grazette disputed whether the card was meant to be viewed horizontally.

Grazette's mark wasn’t fanciful because it included an image of a doughnut, but had “at least a moderate degree of inherent distinctiveness.” However, there were no allegations of significant sales using the mark, and it had only been alleged to be in commercial use for a short time (Oct. 2018).

Similarity strongly favored Dunkin’. There was no allegation that the colorful Dunkin’ card was intended to be “edgy,” and its colorful design “supports the conclusion that it is intended to give a different impression than Plaintiff’s mark.”

Proximity/no gap to bridge: favored Grazette.

Actual confusion: Grazette indicated that he showed two items to store employees, and at least one called them “the same.” The absence of actual confusion was neutral because of the short time on the market.

Bad faith: Even assuming Dunkin’ knew of the mark, “it is implausible that the Dunkin’ Defendants, a longstanding national brand, had any ‘intention of capitalizing on [P]laintiff’s reputation and goodwill and any confusion between his and the [Dunkin’ Defendants’] product,’ when Plaintiff markets and sells his products to a niche market.”

Quality: favors neither party, assuming that Grazette is correct that consumers consider vegan, gluten-free doughnuts to be entirely different products than those sold by Dunkin’.

Consumer sophistication: Dunkin’ contended that Grazette’s “allegations suggest that his buyers ... are sophisticated, since they likely have dietary restrictions around gluten and animal products.” But the products at issue are inexpensive, so this slightly favored Grazette.

On balance, likely confusion wasn’t plausible:

Both marks are associated with doughnut companies and include a sprinkle doughnut and crossed lines in the design, but the similarities end there. A comparison of the “Sprinkle Roger” mark and the “XO” mark (paired with Dunkin’s logo) reveals that they give starkly different impressions.

The other factors were neutral or weakly in favor of Grazette.

Also, there was no counterfeiting, which requires “a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.” A mark isn’t counterfeit when consumers would recognize the differences on cursory inspection; the differences here were enough.

advertising injury insurance covers false advertising/patent case despite exclusions

In re Indian Harbor Ins. Co. v. SharkNinja Operating LLC, No. N20C-02-014 PRW CCLD (Del. Super. Ct. Nov. 19, 2020)

Indian Harbor provided SharkNinja with personal and advertising injury insurance; it was sued for false advertising and patent infringement by a competing vacuum manufacturer. Under Massachusetts law, Indian Harbor had a duty to defend. The relevant covered offenses:

(d) Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; ...

(f) The use of another’s advertising idea in your “advertisement”; or

(g) Infringing upon another’s copyright, trade dress or slogan in your “advertisement”[.]

There were also exclusions for failure to conform “with any statement of quality or performance made in your ‘advertisement’ ” and “infringement of copyright, patent, trademark or other intellectual property rights.”

 iRobot then sued, alleging that “SharkNinja deployed a smear campaign calculated to target, and to assert false advantages over, iRobot’s vacuum cleaners, and to mislead consumers about the legitimacy and fairness of iRobot’s pricing in comparison to its own pricing.”In Massachusetts, “[a]n insurer’s duty to defend is triggered where the allegations in the complaint ‘are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms,’” even if “the merits of the claim are weak or frivolous” or “the insurer could eventually be determined to have no duty to indemnify the insured.” A possibility of coverage is enough; the allegations of the underlying complaint need not “specifically and unequivocally” make out a covered claim. The manner in which the plaintiff presents her accusations need not “mirror the policy’s coverage language.”

The underlying claim “roughly sketche[d]” personal and advertising injury. For example, iRobot alleged that SharkNinja “directly targets iRobot’s Roomba vacuums ... [by] expressly and falsely claim[ing] that the Shark IQ offers the same technological advancements as iRobot, but at less than half the price;” makes “false comparisons to iRobot’s vacuums [that] threaten iRobot with ... reputational harm;” etc. This singling out of iRobot for negative advertising potentially “disparaged” iRobot for purposes of coverage.

So too with “use of another’s advertising idea” injury. This concept encompasses myriad meanings, including: “an idea about the solicitation of business and customers;” “ideas in connection with marketing and sales and for the purpose of gaining customers;” and “an idea for calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales. ...” In the underlying complaint, iRobot provided a line-item chart detailing the ways in which SharkNinja “mimic[ked]” iRobot’s marketing claims about the Roomba’s “selected cleaning” and “recharge/resume” features to influence purchasing decisions.

Indian Harbor’s arguments failed because “Massachusetts courts routinely reject narrow, insurer-preferred interpretations of undefined policy terms that would winnow broad defense coverage.”

What about the failure to conform exclusion? Indian Harbor failed to meet its burden to show that the underlying complaint was really about SharkNinja’s own products, not iRobot’s products. At the very least, some of iRobot’s complaint was about negative things said about iRobot. Anyway, the failure to conform exclusion “cannot be fairly read also to bar coverage whenever SharkNinja couples those with misleading or disparaging statements about a competitor’s products. Otherwise, much of the personal and advertising injury coverage would be nullified—a result clearly contrary to SharkNinja’s reasonable expectations.”

And the IP exclusion may well plainly exclude any defense against the patent claims, but: “[T]he general rule in Massachusetts in the general liability insurance context is that the insurer must defend the entire lawsuit if it has a duty to defend any of the underlying counts in the complaint.”  

it's not misleading to advertise the same thing with two names and two prices

 Lokey v. CVS Pharmacy, Inc., 2020 WL 6822890, No. 20-cv-04782-LB (N.D. Cal. Nov. 20, 2020)

Lokey alleged that CVS violated the FAL/UCL/CLRA by marketing its CVS-branded infant pain-and-fever medicine at a higher price (up to two and a half times as much) than its CVS-branded child pain-and fever medicine, even though the ingredients in the two products are the same. The court held that reasonable consumers would not be confused and dismissed the claim.

The front labels for the two products describe their composition identically, including their concentrations of 160 mg/5 mL (a concentration required by the FDA for infants and children), but brand them for infants (with a syringe for administering the dosage and with no other representation about age) and children (with a dosage cup and a representation that the product is for children from ages 2 to 11 years). The infant version has instructions for children up to 35 lbs/3 years; the child version goes up to 95 pounds and 11 years; both versions say that for under 24 lbs/2 years one sohuld “ask a doctor.”

Although it seems to me that Lokey’s argument that “[n]o reasonable consumer would pay two and a half times as much per ounce and sometimes more to purchase Infants’ acetaminophen over Children’s acetaminophen unless he or she had been deceived into thinking that infants cannot safely take the Children’s product” is plausible, the court disagreed.

Lokey was fundamentally challenging pricing decisions, which aren’t justiciable without some other deception (which seems like it would be a surprise to the standard economic take that prices are themselves informational signals). Boris v. Wal-Mart Stores, 35 F. Supp. 3d 1163 (C.D. Cal. 2014) (rejecting essentially the same claim for headache remedies), aff’d, 649 F. App’x 424 (9th Cir. 2016).

Relatedly, “the labels here would not mislead a reasonable consumer.” The front label disclosed the compositional identity, and they have different delivery mechanisms (syringe and cup). The pictures of infants and older children, respectively, and the dosing instructions “do not plausibly suggest different formulations, given the front-label representation about the composition of the medicines.” “What ultimately dooms Plaintiff’s claims is that Defendant tells the consumer exactly what she is getting: the package actually discloses the fact that Plaintiff complains it omits[.]”

MGM ekes out motion to dismiss TM claim against movie content

Deus ex Machina Motorcycles Pty. Ltd. v. Metro-Goldwyn-Mayer Inc., No. CV 20-4822-PLA, 2020 WL 6875178 (C.D. Cal. Oct. 23, 2020)

The Honey Badger case continues to screw up 9th Circuit law, here making a movie’s protection against allegations of trademark infringement based on its content appear contingent on the movie having a different vibe than the trademark owner’s brand allegedly does. Ugh. At least MGM did win the motion to dismiss, but with leave to amend.

Deus Ex Machina makes custom motorcycle parts, hand-built motorcycles, and related goods, including clothing “compatible with a motorcycle riding lifestyle.” It owns registrations for DEUS EX MACHINA for various articles of clothing, including jackets and alleged that many years of effort had created “a very specific brand image and reputation for quality,” drawing on “custom motorcycle culture and vintage surf culture, along with the intersection and mingling of those lifestyle cultures with art, music, and other popular culture.” Its “core market” is males, ages 18 to 30 years old. 

One of plaintiff's motorcycle jackets

Although sales of apparel and accessories comprise 80% of its business, DEM alleged that it also makes and publishes movies to promote its brand. Its movies “portray surf, motorcycle, and other cultural themes and activities like music and snowboarding” and are “a core part of its cultural foundation to enhance the value of its brand.”

MGM made “The Sun is Also a Star,” “a schmaltzy, teen-style love story.” In the film and trailer, the “lead actress ... Yara Shahidi” wears a blue and rustic gold bomber jacket “with the words ‘DEUS EX MACHINA’ inscribed in the back in large letters.” It plays a role in the plot (and the plot of the book on which the film is based) because the male lead writes the phrase in a notebook before meeting the female lead and deciding they're meant for each other based on her jacket.

MGM allegedly authorized copies of the jacket to be sold by, among others, two different websites. This jacket was allegedly inferior in quality to plaintiff’s products, and inconsistent with what DEM’s consumers expect from its products. (Although DEM alleged that a non-defendant actor who played a teen in the film “posed for pictures posted to social media to help promote the [Film] in which he wore clothing actually sold by [plaintiff],” he wasn’t wearing the allegedly infringing jacket nor did DEM allege that MGM directed or encouraged this appearance, so this part of the claim failed no matter what.)

DEM alleged that its customers and potential customers were therefore “confused” as to the image it “is trying to create with its products,” and it was being associated with a teen love story that is “totally inconsistent” with its brand image.

First, Rogers and its 9th Circuit progeny applied both to the trademark and to the false advertising claims because the false advertising claims were “in connection with the use of a trademark in an expressive work.”

Rogers applied to the film, its trailer, and the promotional appearance by one of its stars in which he allegedly wore plaintiff’s clothing because, as Empire held, “efforts to advertise, promote, and market an expressive work are merely extensions of the use of a mark in the original expressive work.”

Artistic relevance: DEM didn’t allege any facts showing lack of artistic relevance. Despite being willing to take judicial notice of the trailer and film, however, the court declined to go any further and evaluate artistic relevance, though it noted that showing lack of artistic relevance would be an “uphill battle.”

Explicitly misleading as to source/content: This prong is now complicated because, after Gordon, explicit misleadingness can be implicit. However, it’s not enough to show that consumers are confused. The focus is on “the nature of the [junior user’s] behavior” as opposed to “the impact of the use.”

In assessing explicit misleadingness, courts should consider “the degree to which the junior user employs the mark in the same way as the senior user.” Use in a “different context” isn’t explicitly misleading (citing the Barbie cases and Empire). “By contrast, where the junior user employs the mark in the same way as the senior user, the explicitly misleading component of the Rogers test is likely to be satisfied.” (Citing to Gordon’s dicta about TV show “Law and Order: Special Hip Hop Unit” being explicitly misleading.) Also, “[c]ourts consider the extent to which the junior user has added its own expressive content to the work beyond the mark itself.”

DEM didn’t sufficiently allege explicit misleadingness. First, MGM’s use was different from DEM’s primary use—which is primarily on clothing.

Comment: This is an implicit harmonization of the Ninth and Second Circuit approaches: the Second doesn’t use Rogers in title-v-title cases, but Empire said the Ninth would do so, but then Gordon’s “same use” reasoning is really title-v-title on steroids. I think the Second Circuit’s approach, which is confined to titles and based on the advertising-like function of titles specifically, is a lot less dangerous than Gordon’s standardless “same use” reasoning, which apparently applies to all parts of a work. It’s not surprising that, in light of Gordon, the plaintiff here asserts that it is somehow in the moviemaking business. The court’s addition of “primary” to put the plaintiff’s uses in a hierarchy, so that Gordon will benefit only TM plaintiffs who are actually in the business of producing expressive works to make their money, is understandable but adds to the epicycles and uncertainty here.

Anyhow, this analysis then turns into content analysis of MGM’s movie:

Although plaintiff alleges that it also produces movies to promote its brand, those movies promote plaintiff’s brand story, which draws on custom motorcycle culture and vintage surf culture, along with the intersection and mingling of those lifestyle cultures with art, music, and other popular culture. Nothing in the Film touches on any of those themes and activities. On the contrary, as plaintiff alleges, the Film is “a schmaltzy, teen-style love story,” and is “totally inconsistent” with the brand image that plaintiff has built. Moreover, the mark in the Film appears on a jacket worn by a young female. This allegation also undermines a finding that the use of the mark is explicitly misleading because plaintiff alleges that its clothing, including its jackets, is “primarily marketed to males” between the ages of 18 and 30.

Just to be super clear, if the content of the film were focused on young males and surf culture, there would still be nothing “explicit” about source, sponsorship, or affiliation in it.

Second, the court said, MGM added its own expressive content to the film “beyond the mark itself.” The mark

plays only a part in a movie about, among other things, two young people who meet and fall in love over the course of the day, only to have events beyond their control tear them apart. Specifically, the Film uses the mark to establish a connection between the couple -- as the young man writes the words “deus ex machina” in a notebook and then later sees the young female wearing the Jacket bearing those same words.

Although the Court makes no determination at this point as to the artistic relevance of the mark in the Film, there is nothing in the Film or in plaintiff’s allegations to suggest that the mark, itself, is the centerpiece of the Film or that, like the unadorned use of the “Honey Badger” marks in Gordon, defendants used the mark without adding any artistic expression of their own.

DEM’s own description of the film, “a schmaltzy, teen-style love story,” was inconsistent with claiming that the mark was the centerpiece. (And again, even a centerpiece—like an unauthorized biopic about Tiger Woods—wouldn’t therefore be explicitly misleading about source or sponsorship.)

“Finally, although not dispositive, in and of itself, the Film includes no affirmative or implicit statement indicating plaintiff’s sponsorship of, or association with, the Film” (emphasis added). [That’s not what “explicit” means!] The jacket has no reference to surfing, motorcycles, or DEM’s “brand image.” The style and color were allegedly “inconsistent” with DEM’s use of its mark.

Trademark dilution: Not plausibly famous. DEM alleged that its mark was widely recognized only among “a discrete group of males,” and alleged only conclusory facts about its sales, especially in the US, which it didn’t enter until 2011.

The court did not dismiss the trademark infringement/false advertising claims with respect to the online sales of the jacket. “To be sure, an argument can be made that any purported sales of the Jacket could be considered promotional materials related to the Film. But defendants, at the pleading stage, cannot establish that fact, and plaintiff does not allege it.” Nor would the court take judicial notice of printouts showing that DEM’s mark didn’t appear on/wasn’t referenced in ads for the jacket, since those might only be a snapshot of time. (Given Empire’s findings about promotional goods, though, it’s hard to imagine how long this claim can last. Presumably targeted discovery should commence.)

When is "verified by [platform]" an actionable misrepresentation about authenticity?

Choon’s Design, LLC v. Contextlogic Inc., 2020 WL 6891824, No. 19-cv-05300-HSG (N.D. Cal. Nov. 24, 2020)

Defendant Contextlogic runs Wish, which is allegedly a “bargain hunting retail website and smartphone shopping application,” with 94 percent of its merchants based in China. Contextlogic allegedly imports, ships, and warehouses many of the products in its marketplace and charges the merchants a fifteen percent fee for each sale. It provides a “Verified by Wish” badge on many of the products on its platform. Wish’s website explains that the badge signifies that the products have been “inspected for the best quality,” “inspected and [are] guaranteed to be the best quality,” and “have been inspected and approved by our team, and are guaranteed to the best quality.” Moreover, to receive the badge, the products must be from “Trusted Stores,” requiring “good delivery performance and high product quality” including a “Counterfeit Rate < 0.5%.” Wish allegedly touts a “zero-tolerance policy against intellectual property infringement,” publicly prohibits the “sale of counterfeit branded goods,” and states on its website that “[w]e do not allow product listings which infringe on intellectual property.” However, Contextlogic allegedly only reviews the counterfeit rate periodically, and grants the “Verified by Wish” badge to counterfeit products.

Choon’s alleged violations of both §43(a)(1)(A) and (B), as well as California’s UCL, because the “Verified by Wish” badge “misrepresents the nature, characteristics, [and] qualities” of the third-party products on its website. Choon’s did not allege direct or secondary trademark infringement, but rather that the “Verified by Wish” badge is likely to cause confusion as to the products’ authenticity and “how Plaintiff or a third-party vendor is affiliated, connected, or associated with Wish.”

The statute doesn’t require the “use of a trademark” for an actionable claim. However, it still has to be alleged that whatever the defendant does “is likely to cause confusion or mistake, or to deceive, as to sponsorship, affiliation, or the origin of the person or goods in question.” And Choon’s didn’t adequately allege that part. It alleged only that the “Verified by Wish” badge is likely to cause confusion (1) “as to the affiliation, connection, or association of Plaintiff and the Class Members’ products with” other products or persons and, (2) “as to the origin, sponsorship, or approval of Plaintiff and the Class Members, as to their products, services, or commercial activities.” But §43(a)(1)(A) on its face requires that the badge must cause confusion as to the defendant’s affiliation, connection, or association with another, or as to the origin, sponsorship, or approval of the defendant’s goods, services, or commercial activities by another person.

There were no allegations to support the suggestion that the badge erroneously affiliates Wish with Choon’s or its products, or allegations that Wish was liable for the vendor’s conduct.

False advertising: Choon’s failed to adequately allege falsity. Contextlogic allegedly touts the badge as a representation of product quality, but Choon’s argued that it was a misrepresentation of authenticity.  Although its allegations could suggest that Contextlogic’s verification was inadequate or perhaps even nonexistent, Choon’s didn’t allege this with the specificity required by Rule 9(b), or explain why quality plausibly means authenticity. This also got rid of the UCL claim.

Georgia "data breach as unfair trade practice" claim fails

Collins v. Athens Orthopedic Clinic, 849 S.E.2d 213, A18A0296 (Ga. Ct. App. 2020)

Former and current patients filed a putative class action against the Athens Orthopedic Clinic for negligence, breach of implied contract, unjust enrichment, attorney fees, injunctive relief under Georgia’s Uniform Deceptive Trade Practices Act (UDTPA), and declaratory judgment stemming from a data breach of their personal information. An anonymous hacker stole the personally identifiable information, including social security numbers, birthdates, addresses, and health insurance information, of approximately 200,000 current and former Clinic patients. The hacker demanded ransom, but the Clinic refused to pay, and the hacker sold the information on the “dark web.”

The trial court dismissed all claims, but the Georgia Supreme Court ultimately held that the allegations in the complaint sufficiently stated a claim for negligence that was not merely speculative and remanded to reconsider the remaining claims in light of that ruling. On remand, the court of appeals affirmed the dismissal of the unjust enrichment, declaratory relief, and UDTPA claims.

The Georgia UDTPA allows only prospective relief, but not redress for past harm. Thus, standing requires likely future damage by an unfair trade practice.  Here, “an injunction would serve no purpose at this point because, as alleged, their personal information was already sold and is available on the dark web. As such, the plaintiffs have failed to allege a future harm caused by the unfair practice, as required by the UDTPA, and the trial court properly dismissed this claim.”

The Chief Judge would have reached the same result on the UDTPA but for a different reason: there was no alleged deceptive trade practice. Athens Orthopedic allegedly violated the Act by failing to inform the plaintiffs that it did not have adequate computer systems and data security practices, but there was no allegation that it knew of the inadequacy, so there was no false advertising.

mere direct competition doesn't plausibly plead false advertising standing

Allbirds, Inc. v. Giesswein Walkwaren AG, 2020 WL 6826487, No. 19-cv-05638-BLF (N.D. Cal. Jun. 4, 2020)

Allbirds sued Giesswein for trademark and related claims, and Giesswein counterclaimed for false advertising under state and federal law; the counterclaims are at issue here.

Giesswein sells footwear made from the wool of Merino sheep, including footwear referred to as “‘runners’ or sneakers,” “wool runners,” and “merino runners.” Allbirds also offers footwear products made of wool and referred to as “wool runners.” Giesswein alleged that “[o]ne of Allbirds’ central advertising messages for its footwear products is that the products are ‘natural’ or made of ‘natural materials,’ ” but Allbirds products allegedly contain synthetic polyamides and therefore the “natural” advertising is materially false or misleading.

Allbirds argued that Giesswein lacked Article III standing because it only plead generalized harm, e.g., “Giesswein has suffered and is likely to continue to suffer significant monetary damages and discernible competitive injury by the direct diversion of sales from Giesswein”; “Giesswein has suffered, and continues to suffer, injury in fact and has lost money, property, and/or goodwill”; and “Giesswein has and will continue to suffer damages, including lost sales, revenue, market share, and asset value.” Giesswein alleged that that parties were “direct competitors,” but that wasn’t conclusive of harm, and there were no allegations that customers chose Allbirds products over Giesswein products because of the alleged false or misleading advertising. The court agreed.

A party may prove its injury (1) by using lost sales data, that is “actual market experience and probable market behavior,” or (2) “by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.” “Evidence of direct competition is strong proof that plaintiffs have a stake in the outcome of the suit, so their injury isn’t conjectural or hypothetical.” But here there were no lost sales data, and Giesswein provided only one link in the chain of inferences: direct competition. Standing alone, that wasn’t enough.

Giesswein didn’t allege facts indicating that “the material of shoes is an important factor for consumers in deciding which shoes to buy such that Allbirds captures a larger share of the ‘all-natural’ shoe market because of its alleged false or misleading advertising.” Motion to dismiss granted with leave to amend (though the court suggested that the California UCL and FAL claims would require Giesswein to show that it relied on the alleged misrepresentation to its detriment, which would be hard to do even if it can plead Lanham Act standing).

Power pack plausibly promises more than it delivers

Geske v. PNY Technol., Inc., No. 19-cv-05170, 2020 WL 7042887 (N.D. Ill. Nov. 30, 2020)

A delightful example of Seventh Circuit style, clear but respectful of the parties’ arguments.

Geske alleged that PNY’s portable power bank, whose package prominently declared that it offered “5200 mAh” of available power for “3x CHARGES*,” didn’t offer “5200 mAh” of power to her cell phone. She alleged that she had to recharge the power bank more often than she thought and that the power bank was never capable of delivering 5200 mAh of power at all because the power bank itself consumes a significant portion of the power. As the court explained: “[I]t takes power to send power. The power bank must use some of the power to convert and distribute power from the internal battery to the connected device. This process can use as much as 30 to 40 percent of the battery power of the power bank.” Geske alleged that the amount of power is “the material factor in making a purchasing decision, because the function of the power bank is to provide power, and more is better.”

When she became disillusioned, “Geske didn’t return the device to the store. Instead, she hired a laboratory to figure out if her $12.99 power bank underperformed.” The lab tested two other PowerPack 5200s and two PNY PowerPack 1800s, which delivered about a third less and 45% less mAh than labeled, respectively.

Geske alleged claims under the Illinois Consumer Fraud and Deceptive Business Practices Act and comparable statutes in other states, breach of warranty, and unjust enrichment.

Geske had standing for damages: she alleged that she didn’t get what she paid for, which is a concrete injury. PNY argued that she didn’t allege that her power bank was defective, only that two others, tested by the lab, were. But this was to ignore the allegations of the complaint, which included allegations that she didn’t receive the charging power she expected. So she relied on her own personal experience, “not merely an extrapolation from testing data.” [From a scientific/predictive perspective, it’s weird to value anecdotes over data, but here we are.]

Geske also had standing to sue on behalf of purchasers who sustained a substantially similar injury, even if they didn’t buy the exact same power bank, given that PNY’s different power banks allegedly operate in the same manner and are allegedly marketed in the same way: by placing “prominent representations” about the power banks’ mAh on the packaging and using the mAh in the products’ names. The power banks allegedly “consume about the same percentage of the total battery capacity (about a third of the power), regardless of the starting point.”

However, Geske lacked standing to seek injunctive relief on the usual “won’t get fooled again” rationale. Even if public policy concerns point in the other direction, Article III doesn’t care about public policy, and the FTC can fill any gap. Also, injunctive relief remains possible if plaintiffs plead a cognizable, imminent future harm. Geske didn’t allege there was any likelihood she’d be deceived in the future.

The ICFA claim was plausibly pled. While PNY argued that the labeling of the PowerPack 5200 never made a representation about the amount of power that the product could deliver to another device, but only about the capacity of the battery (the picture of the bottom of the power bank said “Capacity: 5200mAh”), the court was unwilling to declare, as a matter of law, that Geske’s interpretation was unreasonable.

PNY referred to Department of Energy regulations that explain a battery’s capacity is usually given in mAh, but that was outside the pleadings—and “it seems like a safe bet that not a lot of consumers have read Department of Energy regulations about battery capacity.” PNY argued that reasonable consumers understand that “it takes energy to transfer energy,” but that wasn’t convincing on a motion to dismiss even if it was plausible. It wasn’t the case that information on the package would prevent a reasonable consumer from coming to another conclusion. “The existence of a competing narrative, without more, is not enough to defeat a claim when plaintiff’s theory of the case is plausible.”

PNY argued that the packaging clarifies that it offered “3x CHARGES*.” The asterisk refers to the back of the packaging, which reveals that the potential “3x CHARGES*” actually “varies by device.” Although any consumer could understand this claim, a consumer “presumably would not understand the relationship between the number of charges and the number of mAh,” and the phrase didn’t fully explain the mAh reference. Indeed, the court pointed out, there’s a disconnect between PNY’s argument here and its argument with respect to the mAh number. “3x CHARGES*” plainly refers to what a consumer’s electronic device will receive, while PNY argued that 5200 mAh refers to the power bank’s capacity, not what the electronic device will receive.

While a previous (now reversed, but not when this opinion was written) district court had allowed “100% Parmesan Cheese” to not be 100% cheese, because the ingredient panel revealed otherwise and the product was unrefrigerated,

[c]ommon sense probably comes into play with unrefrigerated cheese more than the electrical capacity of charging devices. Consumers have intuitions about room temperature dairy products. They’re less likely to have a gut feeling about what it means for a charging device to offer mAh. Unlike a package of cheese sitting out on a room-temperature shelf in a grocery store, a power bank lacks “commonsense, observable” facts that would allow a reasonable consumer to contextualize representations that a power bank offers 5200 mAh.

In a footnote, the court pointed out that it was unclear whether the power bank actually provided “3x CHARGES*.” “If the device actually delivered three charges, but yet provided less than 5200 mAh, then it is possible that Geske might not have a claim.” But at this stage, we don’t know.

The common law claims survived as well.

 

failure to disclose influencer payment/review connections is misleading

EIS, Inc. v. Wow Tech Int’l GMBH, 2020 WL 7027528, No. 19-1227-LPS (D. Del. Nov. 30, 2020)

The parties make vibrators. EIS sued defendants for violations of the Lanham Act, Delaware common law on unfair competition, the Delaware Deceptive Trade Practices Act, Delaware tortious interference laws, the Colorado Consumer Protection Act, and patent-related claims.  

Defendants argued that the state and federal false advertising claims were preempted by patent law. One of the defendants allegedly told one of EIC’s customers that the customer was infringing its patent rights by distributing and/or re-selling EIC’s product. “[T]o avoid preemption, bad faith must be alleged and ultimately proven, even if bad faith is not otherwise an element of the tort claim.” “In general, a threshold showing of incorrectness or falsity, or disregard for either, is required in order to find bad faith in the communication of information about the existence or pendency of patent rights.” However, EIC sufficiently alleged bad faith: Taking the allegations of the complaint as true, the defendant’s first US patent didn’t issue until after it contacted the customer. “That Defendants made a representation about patent rights when it knew no such patent rights existed in the United States is sufficient (if proven) to establish bad faith under Federal Circuit law.” Even if it had (as it argued) a German patent when it contacted the customer, and even if that product infringed the German patent, a German patent is unenforceable in the US.

Lanham Act commercial advertising or promotion: The statements forming the basis for the claim were (1) Instagram posts by the owner of a sex toy boutique about EIS’s products and (2) negative Amazon reviews of EIS’s products from an account displaying defendants’ We-Vibe logo. Defendants argued that, even if (as the complaint alleged) they paid the owner to post “false and misleading reviews,” that didn’t constitute commercial speech, and likewise the reviews didn’t propose commercial transactions. Although some courts have gotten this wrong, the court correctly held that the complaint sufficiently pled commerciality. The shop owner was allegedly “an industry insider and Instagram influencer” with nearly 70,000 subscribers, and her Instagram story referred to the parties’ competing products with an economic motivation. Likewise, as to the reviews specifically targeting EIS’s products, defendants, as competitors, had an economic motivation for deterring customers from purchasing competing products. It didn’t matter that there was no explicit reference in the reviews to defendants or their products. Anyway, the complaint alleged that “any potential purchaser of Plaintiff’s products who read the reviews could have clicked on the username of the reviewer and found the link to Defendants’ website on the associated account page. Hence, even without an explicit reference to Defendants, the review could lead the potential purchaser to Defendants’ website, where the purchaser could purchase competing products.”

EIC also sufficiently alleged falsity. It alleged that the Instagram influencer was being paid to share her story, but didn’t disclose her financial relationships with defendants. “That she did not disclose her financial relationship makes her story at least misleading, and establishes falsity for purposes of a Lanham Act claim, even if [she] actually held the beliefs she expressed.” Likewise, the complaint sufficiently alleged that the reviews were posted by defendants, and not by (as they purported to be) bona fide purchasers.

Similar reasoning also sustained the Delaware Deceptive Trade Practices Act and common law unfair competition claim.

Tortious interference with business relations also survived because plaintiffs didn’t need to identify a specific lost customer. The complaint alleged that defendants knew of EIC’s ongoing business relationships with its distributors and retailers; demanded that retailers stop selling its products; and threatened to raise prices or cease sales if retailers did not give in to that demand; EIC also alleged damages.

However, the Colorado CPA claim based on alleged misrepresentations about patent rights was dismissed with leave to amend for failure to satisfy Rule 9(b); the who/what/when of the misrepresentations weren’t sufficiently identified.

false designation of origin that fools Customs, not consumers, is not actionable

Diamond Sawblades Manufacturers’ Coalition v. Diamond Tools Tech., LLC, 2020 WL 7028029, No. 1:19-cv-04674-TWP-TAB (S.D. Ind. Nov. 30, 2020)

Plaintiffs sued defendants for RICO and Lanham Act violations and for prohibited predatory pricing, tortious interference, and civil conspiracy under state law.  

In May 2005, DSMC petitioned the Commerce Department and the ITC “asserting that certain foreign manufacturers of diamond sawblades were selling their products in the United States at dumped prices.” In 2009, Commerce published an “Antidumping Order” on diamond sawblades and parts thereof from China, having determined that imports from China were being “dumped” at prices below fair value and that this actually threatened the U.S. industry for diamond sawblades with material injury. Commerce thus halted imports. The order was reissued five years later after a review.

Defendants allegedly circumvented the Antidumping Order, opening “shell facilities in Thailand and Canada—countries that are not subject to the Antidumping Order—through which to fraudulently ship Chinese goods to the United States as ‘Thai’ or ‘Canadian’ goods” after relabeling, and at times, minor labor on the sawblades. Commerce and DHS therefore “issued anticircumvention decisions and findings of wrongful evasion of the Antidumping Order.” Despite the Antidumping Order, domestic consumption of subject imports was even higher than during the original period of investigation; many domestic producers were simply forced to leave the industry. “Indeed, of the original nine members of the domestic Diamond Sawblades Manufacturers’ Coalition, only two remain.”

The RICO claims failed because they were RICO claims.

False designation of origin: the court indicated that this had to be a false advertising claim because §43(a) requires confusion over affiliation with/approval by another party. The claim failed because the allegedly fraudulent relabeling of origin deceived Customs, not consumers. (I don’t see why the precedents saying that deception doesn’t have to be of end consumers to count shouldn’t extend here, given a strong but-for causation argument that the end consumers could never have bought the products without the deception.)  The court reasoned that the complaint failed to allege “that any mislabeling regarding national origin would likely dupe the consuming public into buying the products of Defendants instead of those of its members.” This wasn’t a case of false US origin labeling—false designation as products of Thailand or Canada wasn’t relevant to consumers. The arguments that the materiality of literal falsity could be presumed, and that Chinese products might be especially unattractive to US consumers, failed, as did the argument that the “false labels enabled them to sell the products at issue well below fair value—i.e., at much cheaper prices—which plainly influences consumers’ purchasing decisions.” The complaint simply didn’t allege how these labels would materially affect a consumer’s purchase, even if the briefs argued for something special about Chinese origin labeling.

allegedly false warranty letter not material, but could still be TM infringement

Window World Int’l, LLC v. O’Toole, 2020 WL 7041814, No. 4:19-cv-2363-SEP (E.D. Mo. Nov. 30, 2020)

Plaintiff WW sells exterior home remodeling products, and licenses independently owned/operated franchises to distribute them. Defendants are franchisees/related people. They sued WW in North Carolina state court for, inter alia, breach of contract and fraud, seeking reformation to enforce an unlimited right to use WW’s marks. The North Carolina case was still pending, but discovery had closed.

In April 2019, one defendant prepared and sent a letter using WW trademarks in order to collect information from past customers of the franchises and specifically those who purchased their products from “previous ownership teams.” It requested that customers call to confirm “proper contact and product information.” The letter also included a warning: “If you want to retain the warranty on your products, you need to call us by April 12, 2019.”  

In fact, warranties for WW products would not expire if customers failed to contact the defendants.

False advertising: WW came within the Lanham Act’s zone of interests because defendants allegedly presented WW’s warranties as inferior to their actual coverage. Customers allegedly believed the letter and called defendants. Proximate cause: Causing customers to believe that they had been misled about their product warranties “constitutes damage to the reputation of Window World products.”

However, WW failed to plead materiality: that the deception, even if it worked, was “likely to influence [a] purchasing decision.” The letter itself didn’t provide any information about WW products or warranties, and it was directed to past customers. Even if defendants “received telephone calls from recipients of the Warranty Letter shortly after it was sent,” the complaint didn’t plead— even upon information and belief—that any of those calls suggested that the letter did, or would likely, affect future purchases. “The bare allegation that the statement satisfies the legal standard for materiality is insufficient.”

Trademark infringement claims, which don’t require materiality, survived. The court rejected defendants’ argument that “whenever a party is authorized to use a mark to sell that mark holder’s products, confusion is impossible,” because “confusion can be created by a licensee.”  But confusion about what? The court basically resurrected the false advertising claim, without materiality: “Sending a letter using another entity’s protected marks urging customers to return communication citing a false prospect of losing warranty coverage” was enough to plausibly cause confusion about … something.

Dilution: Not plausible because WW alleged confusion, not lack of confusion, and there can be no tarnishment because the parties’ windows are the same products.

Ultimately, however, the court stayed the case so that the North Carolina court could take a first whack at defendants’ rights to use the WW marks.

negligence claim v Amazon survives when 230 bars false advertising claim

Brodie v. Green Spot Foods, LLC, 2020 WL 7027594, No. 20 Civ. 1178 (ER) (S.D.N.Y. Nov. 30, 2020)

Brodie sued Green Spot and Amazon for “injuries she sustained after consuming a product known as Better than Pasta, which she purchased on Amazon’s website.” Better than Pasta products are pasta substitutes whose primary ingredient is a root plant called konjac. “When consumed, konjac swells from its original size in the human digestive tract and may become indigestible. It may also cause choking and stomach or intestinal blockage.” Brodie pled that these dangers are “generally well-known” and have led the FDA and similar regulatory bodies to ban certain foods containing konjac or issue warnings about its risks. The packaging states that the food is “made from organic Konnyaku flour, from the root of an ancient Japanese organic plant called Konjac,” but doesn’t provide warnings about konjac’s alleged risks.

Green Spot allegedly initially created all advertising for the product, but Amazon also marketed and advertised the product on Amazon.com. Green Spot participates in Fulfillment by Amazon, meaning that Amazon ships the product to customers directly from its warehouses. Amazon designated Better than Pasta as an “Amazon’s Choice” product on the website.

Green Spot and Amazon were allegedly made aware of the dangers of Better than Pasta because they received numerous customer complaints about the health issues caused by consuming the product. E.g., “I tried this pasta for the first time last night, and today I’m having SEVERE intestinal cramps. Buyer beware! I did a web search and discovered some Konjac root products have been banned because they can actually cause an intestinal blockage.” Brodie alleged that Green Spot “may have directed Amazon to remove other negative complaints about the product,” and that it pays or incentivizes individuals to leave “false positive reviews” with Amazon’s knowledge, which Amazon allowed.

Negligence/breach of implied warranty by Amazon was sufficiently alleged because the ingredient was listed and Brodie sufficiently alleged that the ingredient’s dangers were generally known, and that the negative reviews posted on the website made Amazon aware of konjac’s potential to cause digestion issues and other injuries, and retailers have a duty to know that which can be known by ordinary inspection.

“Amazon’s Choice,” however, wasn’t an express warranty because it didn’t make a specific factual representation.

NY GBL §§349 & 350: The CDA protected Amazon from liability for republishing content created by Green Spot. “There is insufficient factual pleading supporting the plausible inference that Amazon itself created or edited any of the Better than Pasta advertising content.” As for the consumer review-based allegations, they were insufficient. “Although Brodie alleges that it is common for third-party sellers to pay for false positive reviews, this fact does not lead to a plausible inference that Amazon itself knows about this practice or permits false reviews to be posted.”

 

Comments on DMCA reform

Senator Tillis has been soliciting suggestions for DMCA reform (including 512, 1201, and 1202). With Jessica Litman, Pam Samuelson, and Jennifer Urban, I submitted responses. The Organization for Transformative Works, on whose legal committee I serve, also submitted responses. 

advertiser can amend complaint against Facebook for click fraud claims

DotStrategy Co. v. Facebook Inc., No. C 20-00170 WHA, 2020 WL 6591366 (N.D. Cal. Nov. 11, 2020)

The court grants plaintiff’s motion for leave to amend its complaint in this putative class action alleging that FB’s statements about advertising on FB violated the UCL. “The main issue presented here is whether or not a reasonable advertiser would understand Facebook’s representation that it would not charge advertisers for ‘clicks that are determined to be invalid’ to mean that Facebook would not charge — or refund — advertisers for clicks made by fake accounts, if at all, which Facebook identifies and removes from its platform for violating its authenticity policies.” Plaintiff pled sufficient facts to support this theory.

FB’s agreement said:

When serving your ad, we use best efforts to deliver the ads to the audience you specify or to achieve the outcome you select, though we cannot guarantee in every instance that your ad will reach its intended target or achieve the outcome you select[.]

We do not guarantee the reach or performance that your ads will receive, such as the number of people who will see your ads or the number of clicks your ads will get.

* * *

We cannot control how clicks are generated on your ads. We have systems that attempt to detect and filter certain click activity, but we are not responsible for click fraud, technological issues, or other potentially invalid click activity that may affect the cost of running ads.

However, from 2013 through the present, FB’s Business Help Center page represented that advertisers would “not be charged for clicks that are determined to be invalid”: “If we detect or are alerted to suspicious or potentially invalid click activity, a manual review is performed to determine the nature of the activity. You will not be charged for clicks that are determined to be invalid.” Facebook defines “invalid clicks” as “[c]licks from people that do not indicate a genuine interest in the ad or show signs of ad testing. This includes repetitive or accidental clicks or visits from the Facebook corporate network” and “[c]licks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don’t follow Facebook’s Terms.” FB’s terms of service and authenticity policy requires users to use their “real identities,” so fake accounts violate Facebook’s policies.

The proposed complaint had a bunch of other FB statements that were allegedly false and misleading, such as:

• “On Facebook, you’ll only pay to reach the right people who’ll love your business.”

• “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

Nonetheless, FB allegedly charged for invalid clicks, which includes “[c]licks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don’t follow Facebook Terms.” When Facebook determined those clicks were generated through prohibited means, it failed to provide a refund to plaintiff and the class members. Plaintiff alleged that it reasonably believed that, because Facebook requires “everyone to provide their real names,” it would not be charged for advertising that interacted with fake accounts.

Plaintiff alleged that between 2013 and 2018, Facebook charged it for clicks that were made by thirteen different fake accounts. Facebook allegedly has since deleted eight of these thirteen accounts from its platform “likely for violations of its ‘authenticity policy.’ ”

FB argued that no reasonable consumer could have been misled by its allegedly false and/or misleading statements, particularly, in light of the contractual disclaimers in the self-serve ad terms. The key issue was whether, given FB’s statements, a reasonable advertiser would have believed that once Facebook determines and removes an account for violating its authenticity policies (e.g., a fake account), FB would then perform an audit to refund advertisers for any invalid clicks that that account may have made, and for which FB had charged advertisers for.

That is a question of fact not suitable for resolution on a motion to dismiss. Plaintiff plausibly alleged deceptiveness to a reasonable consumer.

The allegedly contradictory TOS stating that Facebook is not “responsible for click fraud” was ambiguous; a reasonable advertiser could construe that to mean that FB itself is not perpetuating any click fraud [and, I’d add, couldn’t itself be held liable for damages—but that doesn’t mean it’s clearly promising to hang on to the money it collected from the advertiser for fraudulent clicks]. And the Ninth Circuit “has recognized that a UCL fraud claim can be based on misleading representations in a solicitation even when the plaintiff later signed a contract with provisions contradicting the earlier falsehoods.” “The question, then, is not whether [Facebook’s] contractual terms corrected the false statements in its advertising, but whether dotStrategy’s reliance on the false advertising was reasonable even in light of the contractual disclaimers.” That was properly alleged.

FB argued that none of its statements mentioned refunds, so they couldn’t be deceptive. “But a refund is implied” for interactions FB knew involved invalid clicks. FB tried to distinguish fake accounts from invalid clicks, arguing that it only promised to provide manual review for “suspicious or potentially invalid click activity,” and no charges for “clicks that are determined to be invalid,” not audits every time a fake account was removed.

But the proposed complaint specifically alleged that Facebook charged it and other advertisers for invalid clicks, such as clicks by fake accounts and/or bots. “Second, a reasonable advertiser might also reasonably believe that once Facebook determines an account is fake, Facebook would be ‘alerted to suspicious or potentially invalid click activity’ and thus would conduct a ‘manual review’ to determine the nature of the activity.” After all, falsity/misleadingness “is analyzed from the perspective of a reasonable consumer, not from the perspective of an attorney splitting hairs.”

This interpretation would not, as FB claimed, make it liable if its platform was 100% secure against fake accounts. Rather, the advertiser’s argument was that, once FB does stumble on fake accounts, it should then perform an audit to refund advertisers for any invalid clicks committed by such accounts, given what it said to advertisers.

FB then argued that, just because an account was fake in 2018 when plaintiff performed its survey, it doesn’t also follow that that account was also fake in 2017, for example, when it clicked or engaged with plaintiff’s ads. That was a factual issue, and the plausibility of the claims was bolstered by various news reports suggesting that fake accounts on FB “are rather ubiquitous.”

However, a number of the challenged statements hadn’t been sufficiently pled to be false or even non-puffery:

• “Connect with people. Ads help you reach the right people.”

• “Facebook can help you reach all the people who matter most to your business.”

• “Facebook ads are optimized to help you get more people to visit your website or increase conversion.”

• “Your business is for your customers. Built relationships with them, reach new people and drive sales using Facebook.”

• “Drive people to your website with one click from the most engaging place on Facebook.”

• “Find new customers. Boost sales. Facebook can help you meet your business goals.”

• “Meet the people who will love your business.”

A reasonable consumer “would understand that not all users on Facebook would adhere to Facebook’s authenticity policy or would be interested in its ads.” And even people who didn’t use “true and full names” might have provided accurate information concerning their age, gender, and location, among other things; “it cannot be said that such an account is categorically unable to be interested in plaintiff’s ads.”

But these statements were plausibly false/misleading:

• “On Facebook, you’ll only pay to reach the right people who’ll love your business.”

• “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

And the plaintiff plausibly pled economic injury: the cost of invalid clicks.