Private Law and Intellectual Property conference at Harvard

Opening Remarks: Henry Smith—exploring the connections between private law and IP.

 

Session 1: Entitlement Design

Moderator: Rebecca L. Tushnet

Speakers and Papers/Commentators:

Tun-Jen Chiang, “The Paradox of IP”: A paper looking for a theory.  Why do we have an IP system as opposed to a prize system?  His understanding has always been that IP systems harness private information and that gov’ts in a prize system wouldn’t be able to value the underlying value of the right properly, most commonly b/c judges lack adequate information to do so or judges are too easily politicized in awarding cash prizes, while IP rights determine value of underlying thing automatically through market calibration.  If that’s the reason we have an IP system, then one thing in tension with that is that judges in fact calibrate the value of the work/invention in multiple doctrinal contexts, most particularly when they determine the scope of IP rights.  Idea/expression dichotomy: Nichols/Learned Hand abstraction test.  How to apply? Judges have a feel for what’s about right in scope, and work backwards to find that if a certain level of abstraction gives too much, that’s the wrong level.

 

Patents essentially have the same problem and resolution: patent scope doctrines of claim construction—a big mess, open-ended, which ends up being used in a way that construes claims according to what judges feel is about right.  But what’s about right?  We don’t have a better answer than intuitive judgments about the economic value of the right at stake.

 

That account makes the reason for an IP system rather than a prize system more puzzling.  Intuitive differences: IP system, we don’t have to get to the bottom dollar, we just take a stab at it.  Both prize and IP systems can be imperfect.  If you note that judges calibrate at the edges all the time through doctrines of claim construction or tweaking remedies or fair use, then it opens up the question of whether they should do more. Claim construction: why be bound by whatever the patentee writes, instead of reaching good outcomes within the parameters of the system/incentives?  Claim construction could be judges figuring out what the claimed invention ought to be and then construing it by bending it the doctrine to reach that outcome.

 

Injunctions: why have a rule presuming injunctive relief when infringement is found?  There are at least a few cases where injunctions would overcompensate through holdup.  If you think judges are ok at tailoring, then they should be able to deny injunctions in those situations. Much of the traditional structure of IP is only explicable if you subscribe to the founding premise that the IP system is designed not to have judges calibrate b/c they’re bad at it, so we need second-order rules that say there is a thing called the work or the invention, determined in value according to market forces.  In that view, the idea that judges should just grant injunctions instead of ongoing royalties and that judges should construe claims linguistically make sense to avoid fine-grained inquiry. But judges seem to be doing all sorts of calibration under the hood, and by and large they seem ok at it.  Fundamental dilemma.

 

Commentator: Gideon Parchomovsky: (1) IP paradox (existence or not); (2) proper role of courts in IP space; (3) implications—should we be worried? 

 

Chiang is right on a certain view of IP.  Basic dilemma: we are fine with courts defining the asset in IP, where intangible assets w/unclear boundaries are at issue.  Idea/expression, invention scope. But many of us feel uncomfortable when courts decide how much money in dollars should be awarded.  But defining the scope of the asset of course indirectly determines value.  And that’s fine.  Is there a paradox?

There is a paradox only if one believes that courts shouldn’t have any say about the rewards for authors and inventors.  A lot of people do seem to subscribe to this view.  Either this view is wrong or they didn’t think it through.  Law is always prior to the market; even Coase says that.  Courts should define the asset, and only after that can market transactions take place.  This isn’t an IP paradox but a much more general paradox.  With Blackacre too, we need courts to determine what interferences are reasonable or not.  Drones: is that trespass or not?  My rights are influenced by zoning laws.  Value of stock is also determined by law.

 

If you believe scope determinations are inevitable, the question becomes much more difficult. How much leeway do we want to give courts?  Legal Realists.  The determinations that are inevitable lie within the competence realm of courts.  Claim construction as an example.  As long as judicial decisions are reasonably predictable, that works.  Judges are better at scope than evaluating assets overall.

 

Does it matter?  Matters for pricing function.  W/in a certain range, there’s enough determinacy to function.  Insurance cos. have a very hard time calculating the value of patents; it’s not just scope but novelty, obviousness, survival through litigation.  We also need to worry about adequate incentives to create.  Chiang leaves room for optimism—there are still incentives to produce.

 

Oskar Liivak, “Private Law and the Future of Patents”: Problem of excessive system costs. The costs of engaging with the system is too much to produce gains.  Odd if we’re trying to provide a reward for inventors.  Dickens, 1850: A Poor Man’s Take of a Patent; shows up in Steinbeck’s East of Eden as well.  Private law is attractive: property, contract, and tort—accepted and stable; low administrative costs; cheap to operate—something that patent is not (accepted and stable).  Generally speaking, people abide by their duties, but litigation is on the margins.  Patents: everything is in the shadow of litigation. 

 

Are patents private law?  No: empirically. They’re just not accepted and stable like these other institutions of property, contract, and tort. Does the public feel an obligation to obey? No.  Could patent be private law?

 

Patent theory is incompatible with becoming private law.  Sichelman said the same thing about remedies.  His solution is to rid us of private law concepts to become consistent.  Worried that we won’t get efficiencies w/o private law, so suggests getting rid of dominant patent theory and build something compatible with private law.

 

What makes private law special?  Purpose: enable socially beneficial activity; allow coordination of activity.  Structure: duties to avoid harming others.  System of rules.  Criteria for efficient operation: we can comprehend our duties (H. Smith on information costs and modularity); we feel an obligation to obey.  HLA Hart’s discussion of the internal viewpoint on an institution; less worry about litigation and more about what one ought to do. Systems become cheap to operate under those conditions.

 

Dominant patent theory: purpose, promote progress in useful arts. Structure: provide incentives to induce activity. Patents are a reward to patentees subsidized by those that infringe.  Once you set up the world this way we’re in trouble from a private law perspective. 

 

Duties: pay patentee whenever infringing; no real sense of harm to patentee.  Criteria for smooth operation: can we comprehend when to pay? No. Do we feel an obligation to pay? No. Only obliged by litigation (risk).

 

What to do? Think about getting away from incentives. Private law does incentivize through property, but it’s generally not by telling people to produce/telling us it’s there for ensuring property owners they’ll make money. Get away from the idea of subsidy.  Ask what we want to have in the world: what interactions, coordination behavior?  Once we think that way—what could third parties do to harm a business model—we start moving towards something better.  Don’t do things to harm people trying to supply their tech to other users.  We could comprehend what to avoid (people who are commercializing/transferring tech) and what causes harm (copying).  Could even tell a story about what’s wrong with a complete defense for independent inventions.  Could feel an obligation—a regular business interaction, not just misappropriation. 

 

Purpose of judiciary: What do judges think they’re doing?  Learned Hand: We don’t see how our decisions ultimately affect the end result, levels of innovation. No internal viewpoint, just reward system that no one has a good feel for.  Missing essential characteristics to make it easy/efficient to operate.  Not necessarily morality but acceptance of what harms to avoid; if the tech community could understand it, so could judges.

 

Commentator: Adam Mossoff: Failure of fit between a lot of the way we theorize the patent system as a public regulatory system that pursues economic goals by subsidizing innovation versus what we see in operation, a private law type structure.  Two points: 19^th century; empirical claims.

 

Shifting to a focus on market transactions as a proposal: in talking to people who work in the innovation industries, this is their perspective, but also doctrinally on to something, b/c many courts conceptualized patents in the 19^th c. this way, which led to patent licensing market.  Common to hear in American/British system discussion of monopolies; this is true in the same sense that American political system came from Britain: came from it, but also broke from it.  So too w/patents.  British patent system was economic regulatory system, first to file; not viewed as property rights in England. A patent was a personal monopoly privilege; couldn’t be transferred.  James Watt was an academic researcher, but he had to find a business person to work with when he got a patent; he couldn’t just sell it.

 

US broke w/that approach; first to invent, but more importantly recognized patent as property, bringing a normative structure to thinking about patent. History has a lot of policy dispute; you can find judges who say otherwise in the 19^th c., but the majority rule is courts citing to property doctrines in patent cases. They did this when they dealt w/commercialization in the marketplace: they say “we are not like England.”  This wasn’t a matter of remedies (not primarily); about the ability to frame conceptually w/ability to use normative principles—the right to use, the right to dispose of the right. A private ordering presumption.  Adopted common law concepts of assignments and licensing.  As a result, economic historians say, there’s an explosion in economic activity involving patents.  Apple licenses its patents actively.

 

Too much myopic focus on litigation; we do this b/c we are lawyers, most of us w/litigation backgrounds rather than transactional; litigation is also public, not behind the scenes.  But there’s a huge amount of transaction/licensing.  Talking about breakdown of patent system w/o considering existing market transactions is armchair empiricism; benefits to patent owners exist under the current system.  Patents contribute $6 trillion to the US economy through transactions, licensing.  That’s the denominator against which to measure the costs.  Get into empirical side.  Lots of empirical work: patents double your chances of getting startup funding.

 

Molly S. Van Houweling, “Disciplining the Dead Hand of Copyright: Durational Limits on Remote Control Property”: Connections b/t tangible property law and copyrights.  Blackacre and Black Beauty.  Controversial endeavor: Lemley argues against propertization of IP; Mossof argues for.  Peter Menell has expressed skepticism; Liivak has said that it too often corresponds w/patent absolutism.  Michael Carrier: property has lots of limits, edge cases, complications as compared to the monolithic version often presented as “property” when it comes to IP; we can learn from property’s limits.

 

Conventional wisdom differentiates Blackacre and Black Beauty in time b/c tangible property rights can be infinite while constitution requires IP rights to be limited.  Why might that be?  The special nature of © as a prohibition of conduct remote from the persons or tangibles of the party having the right. May be infringed a thousand miles from the owner w/o his awareness, ever. This right couldn’t be recognized or endured for more than a limited time: from White-Smith v. Apollo.  Remote control property over time makes us particularly nervous.

 

Why?  Special notice problems.  Don’t have notice helpers as we do w/traditional tangibles—owner on the land; fence in front of the owner; limits don’t have to do w/boundary crossings but w/use limits, more confusing than conventional non-remote control property rights. Interferes w/ basic intuitions about what we can do as owners of tangible things.  Problems can get worse over time as we lose track of the owner/the way they wanted to limit use.

 

Special obsolescence problems. Non-possessory rights are especially likely to become out of date.  Difficulty of finding absent owner to renegotiate. Non-possessory rights can be fragmented and overlapping.

 

And yet: expanding duration of copyright makes it not-so-limited.  Perpetual copyright on the installment plan; some copyright enthusiasts want it to be infinite—unfair disadvantage v. other property owners.  What skeptics and enthusiasts share is idea that there is a fundamental difference between permanent property rights and “limited times.” But problems of remote control property plague tangible property as well, and therefore we see duration limits in the tangible realm.  Rule against perpetuities; ex ante durational limits for servitudes and future interests; periodic recording requirements for servitudes and future interests; ex post termination/modification of servitudes and future interests; adverse possession; statutes of limitations.  Note the ones that operate on nonpossessory interests like servitudes and future interests especially.  Prohibition remote from the persons or tangibles of the party having the right, as in White-Smith.  Recognition in tangible property that this can become problematic—Md. legislature notes change of conditions in restricted tract or neighborhood surrounding it—the usefulness of many reversionary interests vanishes.  Not practical to obtain releases b/c owners are numerous and scattered—similar to orphan works and other duration problems.  “Dead hand”—owners do exist, but they are unfindable/too many—they might as well be dead.

 

So some states have ex ante duration limits on restrictive future interests: 30 years in Md.  Another solution is periodic recording requirements for nonpossessory interests in order to make them trackable/provide adequate notice. Cal. approach.  Ex post termination of obsolete restrictions—Mass. approach, must provide substantial benefit to a person claiming rights of enforcement at the time rights are asserted.  Obsolescence can also lead to remedial adjustment—remedy is damages and not injunction.

 

Bringing this home to ©: think about how we might use some of those tools from tangible property to address the problems in © with increasing duration/obsolescence/changed conditions.  Google Book Search: a © that seemed valuable initially now just threatens to lock up works that could be put to beneficial uses.  Paul Heald’s work showing the power of © to keep books out of print, likely against the wishes of the authors themselves.  Reinforces other suggestions such as recording requirements (Sprigman etc.) and scope adjustments (fair use over time) and remedial adjustments (Copyright Office orphan works proposals).  © is problematic private law, but a lot of the heartland of private law is also problematic—servitudes.  Copyright reform in the private law tradition.

 

Commentator: Julie Cohen: Private law skeptic.  Framework bleeds through, intentionally or not.  VH’s project is to find firm analogical footing for temporal limits on ©, and is persuaded that time is/could be relevant lever for tailoring. But not sure analogy proves very much about how relation b/t © and time should work. Some of the rules VH examines, including Rule Against Perpetuities—it’s pretty clear that the real property system worries about dead hand control, but not clear how that cuts. Both in original formulation and various modern formulations, rule is supposed to provide balance by allowing 2 generations of control but not much more. That’s exactly why Congress lengthened the term—the same accommodation.

 

Servitudes: problem is more fundamental/revealing limits of private law project.  Remote control of chattels embodying © works and uses. But servitudes aren’t nearly as disfavored as the paper presents them. They aren’t just vehicles for remote control by atomistic isolated owners; they’re powerful, flexible vehicles for communal ordering—create residential neighborhoods, commercial development (anchor tenants), and for exactly those reasons the thrust of the Restatement is greater liberalization for CCRs, noncompete covenants for shopping centers; get increasingly favorable treatment over time. Offer tools for ordering that cut across atomism of traditional real property: collective benefits, collective externalities. So why is the paper taking an atomistic view of servitudes?  Is it the private law methodology/toolkit inherently atomistic, emphasizing clear boundaries and transactions rather than communal ordering. That atomistic orientation is particularly problematic for understanding servitudes and for understanding IP.

 

IP is the subject of pervasive intermediation: intermediaries manage all the fractional and cumulative uses; also the production of tangibles & intangibles related to IP involves lots of intermediaries—publishers, movie studios, tech employers—they are production intermediaries. Layers of intermediation embedded in systems of IP production and dissemination. From an institutional POV that means that legal institutions need to be able to manage problems of access for cumulative/fractional use and they need to constrain the intermediaries in some way.

 

Time could be important in designing such institutions, particularly for orphan works.  Even so worries about remote control/dead hand don’t get us far into the institutional design questions.  Study IP directly w/o a filter needing analogies. 

 

RT: The theme I extracted from these three: Anything that can’t go on forever, won’t.

Liivak says; For the most part these institutions are self-enforcing. The stake-holders participating in these institutions know their rights and duties and they largely abide by them.

[How do we know that? Counterexamples. Property: mortgages. Contract: consumer contracts. Do you know if your cable provider is complying with its contract with you?  Tort: medical mistakes that cause harm)

 

Van Houweling: consider servitudes—they don’t work as well as other parts of property law, but we don’t reject them.  Question raised is whether it’s worth the candle in patent law. Our current system fars fall short of dealing w/pathologies in the way servitude law has evolved, by requiring proper notice for example as well as durational limits.

 

Henry Smith: Is this all about the difficulty of asset definition?  Calibration: trespass is a first cut, nuisance is a refinement.  All-nuisance, all-use all the time world would be pretty difficult (but is the world we have in IP?).  Maybe the reason it seems like a paradox is that we aren’t clear on what the resource is in the first place.  Servitudes: we have remote control, but also incomplete separation too. We don’t allow many servitudes on personal property, but at least we know what the property is.  More like water law—can’t go as far in defining.

 

Chiang: In every area of property we have a problem of asset definition—always has implications for value. We don’t have a well-theorized second-order rule or methodology to do asset definition, whereas in tangible property law we might not have a complete, gapless, ambiguity free rule, but it’s more tethered to first-order intuitions about the underlying asset value. Trespass isn’t defined by the worth of the property, though nuisance has more of that flavor, but still less than © or patent.  To the extent that asset definition falls back on first order intuitions that’s about asset value, that’s a circular definition.

 

Van Houweling: yes, we’re all getting at a problem of asset definition.  Chiang’s paper prompted recognition of tangible property cases w/ such problems—mistaken boundary claims, Manilo v. Gorski; no injunction to make encroaching building be torn down, but calculate damages instead. Upsets the idea that there’s a paradox b/t clear rules and private ordering v. judges having to do valuation on occasion. Q is whether it’s rare or endemic in a way that makes it a paradox.

 

Ted Sichelman: I try to show that if we adhere to a private law framework we don’t promote innovation optimally.  Multicomponent products, independent inventions—we care differently about notice costs, clear boundaries.  If we try to move from regulatory system (theory and goal) to private property focus we’ll have a mismatch.  Other situations, private property works quite well; just b/c you have a regulatory goal doesn’t mean you can’t use private property and private law to promote that goal. Don’t think it’s all or nothing.  Wanting everything to look neat and tidy = mismatch.

 

Liivak: we might well agree on doctrinal details.  Worry that framing affects analysis.  Independent invention might be a good test—if a private law view has the flexibility you’re interested in, maybe I can convince you.

 

David Kappos: You’re looking for a system to help people understand patent boundaries better. ECJ & German courts have been working on this in standard-essential patents, setting forth a rubric requiring the patentee to make a clear offer of a reasonable royalty license.  The erstwhile licensee must respond clearly; if there’s not agreement, the potential licensee is required to post a bond and there’s a resolution path.  Does that shine a light to further clarify property rights?

 

Liivak: sounds very interesting.  Maybe it was implied, but I think there’s an important distinction b/t ex ante and ex post licensing—when you have tech you haven’t independently invented, I’m all for such negotiations. If it’s instead allowing or preferring ex post licensing where the patentee looks around at the world to find payors, I’m less sympathetic—don’t see social benefits.  Any distinction b/t ex ante and ex post, putting thumb on scale for real tech transfer, would be good.

Rachel Sachs: In terms of needing a reason to get rid of the dominant theory in patent law—why do we want this to look more like private law? Is there a fundamental flaw in the theory?  Is it just expense? Can private law do it better for some reason?  Is there an overlapping consensus, and is it clearly cheaper to do that under private law?  Maybe we don’t feel obligation to IP b/c it makes lawbreakers of us all, but if IP is an essential human right, that might matter.

 

Liivak: I start out talking about system costs, but we need more reason than that.  Before we get to tailoring, we have the bigger Q: how much innovation do we need compared to other activities; dominant theory is premised on knowing a certain number that’s unknowable v. shoe stores or Thai restaurants. We don’t need to know if we go to the private law model and set up a neutral platform for those who innovate.  (If the rest of the economy is efficient.)  Rather than IP exceptionalism where we distort markets, think of it as neutral platform and don’t try to maximize innovation v. other things.

 

If you take reward theory seriously, your first go round has to be ok with trolls. They’re just collecting the promised rewards, including from independent inventors.  That theory has come up short on the ground.

 

Van Houweling: linked to Cohen’s point: why look at system costs adjustment and why not challenge the system if we’re not getting the benefits of community from real property servitudes.  Likewise, remote control rights do assist in coordination/long term planning v. author only owns rights in manuscript. Doesn’t prove system is worth its costs; what we certainly shouldn’t have is the pathological system without any of the tools used to moderate the problems.

 

Brett Frischmann: For Chiang: Demand manifestation in systems driving allocation of resources—ex ante investment decisions are the core of patent; we can tolerate some ex post errors if ex ante is driving most decisions.  For Liivak: duty to obey in private law—empirically needs verification.  Dave Hoffman on how different generations approach contract differently; if the premise is wrong, that pulls the rug out from the project.  If you’re going to do private v. public law or the hybrids, you have to do comparative institutional analysis.  Why do you want the alternative model you advocate?  Just saying the end is “innovation”—what does that mean?  What the normative objective is and the means.

 

Chiang: Literature on patents v. prizes begins w/ the valuation issue—not the whole story but the first cut.  As for systematic point, yes but I’m not sure it provides an answer in that both patents and prizes are about systematic overall incentives rather than individual fine tailoring.  Doesn’t matter if courts get it wrong in one particular prize or patent as long as there’s no systematic error.

 

Jonathan Barnett: You’ll never find a Delaware or NY or English judge deciding what the damages are unilaterally; typically they’re what the parties said in the contract, or expectations with a market benchmark.  If we take that back to patent, it seems like something similar is happening there. Hard to get a market benchmark for claim construction, but for damages, we want to look at how the market is valuing that right b/c a patent is simply a way to allocate intellectual resources into IP modules, so damages try to replicate the transaction that would have occurred—either through reasonable royalty or injunction. With contract, judges choose specific performance when there is no benchmark and they want the parties to negotiate/reveal value through that exercise. 

 

What happens when you go to monetary damages in patent—your market benchmark becomes less accurate b/c there isn’t a rich market any more for those patent assets.  That’s why injunctions are valuable.

 

Chiang: that’s one side. One wrinkle: it only works in contract b/c you have a second order methodology for asset definition that doesn’t depend on valuation.  We think it’s improper for the court to say the plaintiff made a huge contribution so I will construe the contract in a way that expands defendant’s obligations to the plaintiff.

 

Liivak: for Frischmann: trying to focus on tech transfer—that’s the basic definition of innovation. Wants to build that theory around micro-transactions. 

 

Patrick Goold: Idea that private law is cheaper—we had the same debate in 1980s torts about private litigation or regulation. The idea was that regulation would be cheaper b/c litigation was so expensive—Sugarman said “do away with tort system.”  Main critique is that when self-enforcement does break down, litigation costs were massive.  Would amplify that in patent where the costs are already great.

 

Greg Vetter: How open would Liivak be to technological tailoring/less uniformity if the resource at issue will never work very well as a property right.  E.g., software only for ©, not patentable.

 

Oren Bracha: Theme in the papers: “property is a neutral platform”—for Bracha that’s like saying the earth is flat.  Property is not neutral; it is a high-stakes system for allocating resources, power, and power backed with the coercive power of the state behind it.  Requires substantive justification, which might be different across us—natural rights, efficiency, something else. You can’t just take a characteristic of property and call it neutral.

 

Michael Meurer: For Liivak: put some discussion of citation practice by scientists in this paper. Seems we have a private legal system there that works reasonably well; scholars rely on scientists citing people they should cite; the comparison has been drawn.

 

Van Houweling: property isn’t a neutral platform and it can’t just be wound up and left to run; property system intervenes to correct pathologies.

 

Liivak: He’s not saying property is neutral, just better than what we have, and he should be more careful about his distinctions.

Alleged Amazon shenanigans constitute use in commerce and commercial advertising/promotion

Jae Enterprises, Inc. v. OxGord Inc., 2016 WL 865328, No. 15-CV-228 (W.D. Ky. Mar. 2, 2016)

 

Jae sells aftermarket automobile accessories under the mark Eagle Flight and designs. Jae entered into a distribution agreement with defendants, who resold the products through internet retailers such as Amazon, co-listed alongside Jae on Amazon under Eagle Flight product listings.  Jae alleged that each product sold on Amazon has a product detail page, and “[t]he first seller to offer a product for sale creates the product detail page ... and is said to ‘own’ that page.” Then other sellers offering the same product list their product “against” the original product detail page, and customers “can view all potential sellers of a product from the same page.”

 

The parties’ relationship deteriorated; while they agree that defendants could sell any remaining Eagle Flight products they had purchased, Jae alleged that defendants filled orders for Eagle Flight products with generic parts.  

 

False advertising: Jae also alleged that the Defendants “purposefully delayed shipments to customers,” and when customers complained about the shipping delay, the Defendants responded that the delay was due to “quality issues” with the manufacturer, i.e. Jae. Moreover, Jae alleged that defendants “gained administrative access” to its product listings on Amazon and changed the listings to state incorrect information, such as that “a particular product only fits a certain style of truck, that a listing is only for a single product as opposed to an entire set, and changed the model year with which a particular product is compatible.” Jae subsequently requested that Amazon remove the defendants from its product listings, and Amazon complied.  Further, Jae alleged that defendants called customers who’d bought Eagle Flight products from them and provided a positive review of the products on Amazon, offering them customers a full refund for the Eagle Flight product they purchased if they agreed to change their positive review to a negative one.

 

I won’t go through all the issues, but a couple worth noting: defendants argued that they didn’t “use” the Eagle Flight mark in commerce because Jae created the product detail page on Amazon, and the products they sold didn’t bear the Eagle Flight mark. The court agreed that, by alleging that defendants listed themselves as registered sellers on the Eagle Flight product detail pages, Jae alleged use in commerce.  “The Defendants’ argument is flawed as it relies on a technicality that ignores the practical effect of their decision to allegedly list themselves as a seller on an Eagle Flight product detail page and, consequently, to advertise and sell products using the Eagle Flight mark to consumers.”

 

False advertising: Defendants argued that the alleged phone calls offering incentives to customers to change their positive reviews to negative ones and reporting to customers that shipping delays were due to quality issues with Jae, weren’t “commercial advertising or promotion.”  The Sixth Circuit Court of Appeals recently defined “commercial advertising or promotion” as “(1) commercial speech; (2) for the purpose of influencing customers to buy the defendant’s goods or services; (3) that is disseminated either widely enough to the relevant purchasing public to constitute advertising or promotion within that industry or to a substantial portion of the plaintiff’s or defendant’s existing customer or client base.” Grubbs v. Sheakley Grp., Inc., 807 F.3d 785, 801 (6th Cir. 2015). Jae sufficiently pled commercial advertising or promotion, though it might not be able to sustain the claim after discovery.  (I would think that defendants would be at least secondarily liable for the allegedly fake reviews themselves, which clearly would be advertising or promotion.)

My forthcoming article on 2(a) and the First Amendment

Rebecca Tushnet, The First Amendment Walks into a Bar: Trademark Registration and Free Speech, Notre Dame Law Review (forthcoming)

 This Essay analyzes the First Amendment arguments against §2(a)’s disparagement bar with reference to the consequences of any invalidation on the rest of the trademark statute.  Ultimately, given the differences—or lack thereof—between disparagement and other bars in the statute, I conclude that §2(a) is generally constitutional as a government determination about what speech it is willing to approve, if not endorse.  If the Supreme Court disagrees, it will face a difficult job distinguishing other aspects of trademark law.  And these difficulties signal a greater problem: the Court has lost touch with the reasons that some content-based distinctions might deserve special scrutiny.  Often, perfectly sensible and by no means censorious regulations that depend on identifying the semantic content of speech would fall afoul of a real application of heightened scrutiny, to no good end. 

Buddy, can you spare a TRO? No injunction for overlapping use of "big" and "hunting"

Enerco Group, Inc. v. Deutsch, No. 16CV213, 2016 WL 852572 (N.D. Ohio Mar. 3, 2016)

 

Enerco sued Deutsch for false advertising and trademark infringement.  Enerco makes portable propane heaters called “Buddy Heaters,” used by outdoorsmen and fishermen in enclosures like tents, cabins and ice huts.  Enerco’s registered marks include Portable Buddy, Hunting Buddy, and Big Buddy.  Buddy Heaters contain a safety feature, called an oxygen depletion sensor (ODS), which d shuts down the heater before dangerous levels of carbon monoxide can build up within an enclosed space. Buddy Heaters are certified by the Canadian Standards Association (CSA) for gas-fired portable heaters, not for use as cookers.  Enerco developed a warming tray for heaters, but abandoned the idea because it was foreseeable that consumers would use the tray to cook food, which could interfere with the heating element and the functionality of the ODS, or tip over and harm the consumer or cause a grease fire.

 

Deutch sells a “Grill Attachment for Portable Heaters,” the Hotrack, and has applied for a patent.  Enerco (implausibly) alleged that Deutch’s use of an image of Enerco’s heater in his patent wrongfully conveyed endorsement, sponsorship and affiliation, and also challenged Deutch’s use of Enerco’s heater in his ads.  Enerco alleged that the Hotrack posed a safety hazard to consumers.  Deutsch’s website states that Hotracks “are available in 3 different sizes to fit popular models of portable propane heaters;” “create a stable heating surface;” “can hold up to five pounds of weight when attached to a portable heater;” can be used to “[c]ook hot dogs, brats, frozen pizza, grilled sandwiches, and much more on Hotrack’s food safe surface;” and can be “the perfect ice fishing companion. Pour heated water down the hole to keep it free of ice.” 

 

Enerco alleged that these statements falsely implied that the Hotrack grill attachment was safe for cooking various foods and for consumer use in conjunction with the Buddy Heaters, despite the safety risks caused by cooking greasy foods near an exposed propane flame, and the tipping hazard when the rack is not level or when the weight on it exceeds 5 ½ pounds, and the possibility of burns and of melting the heater’s handle. Enerco argued that Deutch failed to disclose the potential danger of interfering with the functioning of the ODS, when, according to the ODS manufacturer, “Even the smallest amount of grease or debris could damage the functionality of the ODS.”

 

Further, Enerco alleged that the names “Big Hotrack” and “Hunting Hotrack” associated Deutch’s product with Enerco’s, threatening its business reputation and goodwill.

 

Deutch responded that he used a disclaimer on the Hotracks website: “Hotracks has no affiliation with Enerco and its affiliates and … Enerco will not be liable for any issues with Hotracks.” He also responded that Hotracks did fit most popular portable propane heaters; that they did create a stable heating surface; that they could hold more than five pounds; and that he conducted tests on all three Hotrack models with a seventeen-pound weight and none tipped over.  Further, Deutch’s directions gave adequate safety warnings according to him, including: to ensure that the rack was level; not to allow grease spatter to come in contact with the heating element; to use no more than 5 pounds; etc.  Deutch averred that he had received no complaints, and that customers’ favorable internet postings encourage others to Google “HotRack LLC,” and not “Enerco” or “Buddy Heater.”  Finally, “[a]ll Hotracks have a grease shield (referred to on the specifications as a ‘deflector plate’) that covers the area directly above the heating element and oxygen depletion sensor (ODS) for the heaters they latch on to,” which should protect the functionality of that safety feature.

 

Given the factual disputes, Enerco didn’t show a strong likelihood of success on the merits of its false advertising claim.

 

As for trademark infringement, though Enerco had registrations for Hunting Buddy and Big Buddy, Deutch argued that his use of “Hunting” and “Big” to describe the size of his Hotracks was fine.  The parties offer related goods to the same customers through similar purchasing channels, but there was no evidence of actual confusion.  The parties both pointed to a post on an online ice fishing forum:  “I made only 1 purchase this year. I bought the hot rack that is custom made for buddy heaters. Nice and sturdy, nice welds, food grade metal. $25 for clean safe food. Google hot rack llc if interested.”  What this post showed was that the customer understood the truthful fact that Deutch’s racks were made for use with Enerco’s heaters, not that the customer was confused.  As for the use of “Hunting” and “Big,” the court noted that Enerco’s registration for Hunting Buddy disclaimed “Hunting,” which made its claim to control “Hunting Hotrack” weak; likewise, “Big” was a generic adjective and a descriptive term which is unlikely, standing alone, to support a Lanham Act violation.  Deutch never used the term “Buddy” in his ad.

 

The disclaimer, along with a post from Deutch in response to an internet inquiry, “I am not affiliated with Mr. Heater/Enerco nor are they liable for my product,” also mattered.  Enerco argued that a website disclaimer didn’t reduce confusion as a matter of law, but the court reasoned that this was an issue to be resolved later, not at the TRO stage.

 

The court didn’t even mention the patent-related claim, which is about all the attention it deserved.

Nook shuts down in UK; another reason to hate DRM

But UK customers might get to keep access to certain books they "bought," if all goes well.  As usual, xkcd had it right years ago.

Initial comments on 1201: fixing what's broken

I’ve been reading through the initial comments on 1201 for the Copyright Office’s inquiry.  One overarching thought: current “winners”—successful exemption proponents—unanimously say the current process is broken.  Current losers—unsuccessful exemption opponents—occasionally express openness to minor tweaks, such as a meaningless presumption of renewal if there’s no opposition, but say the process is fine.  This rather unusual configuration of complaints suggests something about how inherently skewed the process is: spending roughly 500 hours per exemption (and that’s just on the proponents’ side, excluding opponents and the Copyright Office) to double the word count of last time’s exemption, increasing its complexity and decreasing its utility, is a victory only compared to the even worse alternative.

 

Also, a small but telling point: The Copyright Alliance touts Anyclip.com as a DRM success: “On this site, users are able to search an online library, which as of December 2011 included access to over 12,000 films and over 50,000 clips. The site allows users to compile clips into playlists (as a professor might wish to do for classroom use) and access the library with any API to incorporate clips into an application that the user is developing.”  Except that’s not what the site does in 2016; it’s an ad platform for integrating ads into “premium” clips, not a consumer site allowing users to compile playlists.  I guess DRM didn’t prove all that helpful after all.  More generally: copyright owners’ business models do not take care of fair use, and it’s past time to stop pretending that they can.  (Also, cite checking has relevance beyond law school.  Just sayin’.)

Copyright Office notice of inquiry on 1201

Comments I've seen so far:

Organization for Transformative Works comment (of which I am very proud!)

Public Knowledge

New America's Open Technology Institute

New Media Rights

Joint Libertarian Comments (R Street, FreedomWorks, and Niskanen Institute)

International Documentary Association

Consumers Union

Consumer Technology Association

Center for Democracy & Technology

University of Virginia Library

Harvard Cyberlaw Clinic

Library Copyright Alliance

Anonymous defamatory posts are "advertising or promotion" under Lanham Act

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 2016 WL 815205, No. 8-cv-0442 (S.D.N.Y. Feb. 29, 2016)

 

R&J sued Assara and a number of related people eight years ago.  The parties compete to offer laser hair removal services. Tayar, Shuman, and Jay Shuman were involved in Assara in various capacities.

 

Starting in 2006, negative posts about R&J appeared on the internet consumer forums HairTell.com, Yelp.com, CitySearch.com, and consumerbeware.com from anonymous users who claimed to have used the plaintiff’s laser hair removal services. The posts came from Shuman, Tayar, and Assara employees.  One, for example, said that the poster, claiming to be a “27 year old female” with “light complexion” and “black hair,” had heard “a horror story” about R&J—that he had heard from a former Romeo & Juliette technician that the plaintiff had over-applied EMLA cream to a client, who then “suffered a heart attack” and came “very close” to dying. There was no evidence of such an incident or that the true poster had heard that it occurred.  Others described R&J’s staff as unprofessional and rude; the service as expensive; and claimed that a test performed by R&J “burned” skin.  And so on.  Some of the posts promoted Assara instead.  Tayar even wrote that “criticisms” of R&J had been “blown out of proportion”: “Assara Laser is a good place, but so is Romeo.”  At the same time, he damned with faint praise, describing the plaintiff as “not that bad” while noting the plaintiff’s “staff turnover” and long waiting time.

 

R&J started off the case with claims for trademark infringement (based on keyword buys) and federal dilution, which have blessedly dropped out of the case, leaving only false advertising/disparagement-related claims, and only claims for injunctive relief and attorneys’ fees.  Defendant Will Shuman, appearing pro se and on behalf of the other defendants, informed the Court that Assara was no longer in business. In support of their motion to dismiss for mootness, the defendants submitted a two page “Covenant Not to Compete and Covenant Not to Disparage Agreement.” The Covenant provided that the signatories—the individual defendants—“shall not, for a period of 10 years, compete in the business and industry of laser hair removal ... and ... shall not publish, in any commercial context, any statements online regarding the quality or characteristics of the business or services of” the plaintiff.

 

Unfair competition under §43(a)(1)(B) and New York law: The court granted summary judgment against Assara and Shuman, but not against Tayar, Jay Shuman, or Dr. Tayar (Tayar’s father, an investor).  The court addressed whether pseudonymous comments on internet forums constituted commercial advertising and promotion, and held that they were. “In pursuit of their commercial interests, the defendants repeatedly posted disparaging comments to public fora used by consumers to select laser hair removal services. By anonymously disparaging the plaintiff’s business and simultaneously promoting Assara, the defendants acted in pursuit of their economic interests.”

 

Assara, through its employees and officers, and Shuman made literally false statements by describing experiences that hadn’t occurred, or a “horror story” he hadn’t heard and that hadn’t happened. “Most of these posts concerned essential characteristics of the plaintiff’s business, for instance, physical reactions to its treatments or rudeness by its staff.”  Literal falsity created a presumption of harm.  However, the court denied summary judgment as to Tayar, who was actually treated at R&J and whose postings principally said that service was slow and that the R&J employees were rude, which were largely matters of opinion.  There was also no evidence that Dr. Tayar or Jay Shuman made any of the challenged statements.

 

The New York common law unfair competition claim was resolved in the same way; it required bad faith in addition to the Lanham Act evidence, but that was shown because Assara and Shuman deliberately posted false statements.

 

Defamation: The bare accusation that a product does not conform to its advertised quality does not, without more, defame the owner of the product, but disparaging the integrity and professionalism of the competitor’s business is actionable as per se defamation, not requiring a showing of special damages.  The evidence showed that Assara and Shuman defamed R&J by claiming that its staff were unprofessional, intrusive, and dishonest, even causing physical injuries. The fact that the statements were purely fictitious showed actual malice.  Defendants argued that they were merely making statements of opinion, but the statements described fictitious treatments for fictitious clients.  That the clients didn’t exist and the treatment didn’t occur was readily falsifiable, making the statements at issue factual, not opinion.

 

Product disparagement: This requires proof of special damages, unless the statements at issue “impeach[ ] the integrity or business methods of the [entity] itself.”   This too had been shown.

 

Injunctive relief under §43(a): A permanent injunction against Assara and Shuman was warranted.  “Because comments posted on the internet will have a lasting impact on a business’s reputation, and because that impact will be impossible to measure, monetary damages are inadequate to compensate the plaintiff for the unlawful activities of the three defendants.”  Defendants would suffer no hardship from an injunction, given that they already pledged through the covenant that they would not further disparage R&J. An injunction would provide “greater peace of mind” to R&J and better protect its investment in its business.  The public interest also favored fair competition and the accurate description of business services.

 

An injunction was warranted even though the internet postings at issue ended in 2009.  Defendants denied their responsibility for many years, forcing R&J to engage in expensive and time-consuming third party discovery to pin the blame on them.  Only in 2012 did defendants begin to acknowledge authorship of at least some of the defamatory statements; because of this litigation strategy and the long pendency of the litigation, “there is no reliable inference to be drawn as to when the defendants altogether ceased the improper activities at issue here or the likelihood of their recurrence.”  Given these unique facts, the time gap didn’t preclude an injunction.

 

Defendants argued that there was no need for an injunction since Assara went out of business in 2015 and both Tayar and Shulman signed the covenant.  The court disagreed.  “This has been lengthy and hard fought litigation. Without the issuance of an injunction, reinforced by the contempt powers associated with an injunction, there will be inadequate protection against the recurrence of the defendants’ sharp business practices and the need for renewed litigation.”  Plus, R&J showed that Assara was still registered as an active entity with the New York Department of State, and Assara’s website was still live; there was also no impediment to Shuman opening another laser hair removal business, named Assara or something else.

 

Thus, Assara and Shuman would be enjoined from publishing false statements about R&J on internet forums. The court left the specifics for another order, which is sad because I wanted to know if they’d be required to delete/request deletion of the existing defamatory comments.

 

Defendants argued unclean hands because R&J’s owner engaged in “astroturfing” in praise of his business. Even assuming that to be true, R&J’s astroturfing wasn’t related to the defendants’ defamatory posts. No one testified that defendants’ posts were prompted or justified by R&J’s glowing descriptions of its own business.  And false accusations that R&J physically injured its clients “represent serious misconduct.”

 

Laches also didn’t apply; R&J had been seeking an injunction since it filed its 2012 motion for summary judgment, and anyway, defendants didn’t show how they’d been prejudiced.  Nor was the case moot, despite a declaration from Shuman stating that Assara ceased operations, that each of the defendants except Shuman had left New York, and that Assara “will never re-open.”  Nonetheless, defendants didn’t show that it was “absolutely clear” that their wrongful conduct would not recur. The covenant had “significant authenticity and execution issues.” Further, “the defendants’ misrepresentations during this litigation counsel against reliance on the representations they offer today.” Moreover, as recently as November 24, 2015, Shuman wrote to the supplier that he and Tayar were “discussing selling” an old laser and “purchasing or leasing a later model.” “Given the malicious nature of the internet postings, as well as the deceit involved in litigating this case, a simple promise by the defendants to cease their disparagement is not enough to moot this matter.”

Land o' (non)confusion: no dilution or reverse confusion with dissimilar goods

Hugunin v. Land O’ Lakes, Inc., No. 15-2815 (7th Cir. Mar. 1, 2016)

 

This opinion reflects what you might call Judge Posner’s trademark mix of good sense and arrogance/lack of reasons enabling one to formulate an actual rule for future application.

 

Since 1997, James Hugunin made and sold fishing tackle in a town in northeastern Wisconsin, which is called Land O’ Lakes because it is located in a region dotted with lakes; the region is also called Land O’ Lakes. He registered LAND O LAKES as the trademark of his fishing tackle in 2000; the registration lapsed, and his application to re-register was held in abeyance pending resolution of this suit.

 

Defendant, a large agricultural cooperative, sells butter and other dairy products throughout the United States, and has used the LAND O LAKES mark since the 1920s. In 1997, the dairy company became the “official dairy sponsor” of a sport-fishing tournament, the Wal-Mart FLW Tour, and began advertising its dairy products in fishing magazines. In 2000, it found out about Hugunin’s registration and threatened him with infringement liability/told him that he needed a license from the dairy company. After he refused to comply, the dairy company opposed his new registration.

 

The court expressed its puzzlement that the dairy company should have been worried, given the differences in the parties’ products. It doesn’t sell any fishing-related products that could be confused with Hugunin’s. “It would be strange indeed for a dairy company to manufacture a product so remote from milk, butter, and cream, and there is no sign that the dairy company intends to take the plunge.” The dairy company sponsored the fishing tournament and advertised in fishing magazines “because fishermen, like the rest of us, are consumers of dairy products.”

 

The court was equally puzzled as to why Hugunin sued the dairy company for trademark infringement. Hugunin claimed to have trouble attracting investors worried about being sued for trademark infringement/having the name enjoined. The dairy company counterclaimed for dilution. The district court dismissed the dilution claim as barred by laches, but the court of appeals—not even pausing to make clear that this was a proper ground—reached out to explain that, even without laches, the dairy company would have lost. In Ty Inc. v. Perryman, 306 F.3d 509, 511 (7th Cir. 2002), Judge Posner explained dilution as involving increased consumer search costs, such that consumers would have to “think harder—incur as it were a higher imagination cost—to recognize the name as the name of the store”; blurring “reduces the distinctness of the trademark as a signifier of the trademarked product or service,” and tarnishment is a subset of blurring. (Pause to note that this theory is not borne out by the evidence of how consumers actually think.)

 

Here, though, Judge Posner found a blurring theory implausible, because the goods were too different:

 

Everyone recognizes “Tiffany” as the name of a luxury jewelry store on Fifth Avenue in New York (with stores in other major cities), and seeing the name on a hot-dog stand a passerby might think of the jewelry store and of the incongruity of a hot-dog stand’s having the same name; he might think the jewelry store’s cachet impaired by the coincidence and switch his patronage to Cartier or Harry Winston. [Ed. note: Yeah, right.] Many consumers would recognize the name “LAND O LAKES” as referring to the dairy company, but we can’t see how the company could be hurt by the use of the same name by a seller just of fishing tackle. The products of the two companies are too different, and the sale of fishing tackle is not so humble a business as the sale of hot dogs by street vendors. And so it is beyond unlikely that someone dissatisfied with LAND O LAKES fishing tackle would take revenge on the dairy company by not buying any of its products, or that a customer would have difficulty identifying Land O’ Lakes’ dairy products because he had seen the LAND O LAKES mark used on Hugunin’s fishing tackle. … And the dairy company’s mark is itself derivative from Minnesota’s catchphrase “Land of 10,000 Lakes,” a phrase in such widespread use that the company could not insist that it was the sole lawful user of the phrase in advertising for all products.

 

Out of this mishmash of rationales, let me select a few possibilities: (1) While dilution doesn’t require similarity in goods and services, sufficient dissimilarity may preclude dilution. The reason why is left as an exercise for the reader. (2) Land O Lakes is not high-falutin’ enough to be blurred/tarnished the way a luxury brand could be by association with fishing tackle; no one would feel the dairy company was passé, and overexposure isn’t a concern for such a product. (3) Land O Lakes is already not unique and can’t suffer more from one more use. Other thoughts?

 

Meanwhile, Hugunin’s trademark infringement claim was based on his seniority in the fishing industry and alleged reverse confusion. “But the dairy company’s use of the same trademark is confined to products so different from Hugunin’s that few if any consumers would think that simply by virtue of having an identical trademark the dairy company was competing with Hugunin in a different industry.” The fishing-themed ads run by the dairy company showed things like the “Land O’ Lakes Walleye Pro,” “a champion fisherman whom Land O’ Lakes sponsors in fishing competitions in return for his promoting its dairy products.” He’s shown sitting next to packages of Land O’ Lakes butter and cheese, and the company’s logo is also on fishing boats during tournaments.

 

The Land O Lakes Walleye Pro

In a line that defendants are sure to love, Judge Posner writes, “But just as no one watching a NASCAR race and seeing a racing car emblazoned with Budweiser’s logo would think that the beer company had entered the automobile industry, so no one reading the ‘Walleye Pro’ ad or seeing a boat sponsored by the dairy company would think that the advertiser sells fishing tackle.”

 

Hugunin also objected that the dairy company “permitted” some competing producers and sellers of fishing tackle to use its trademark. If they were licensees, the court continued, that might justify a claim of trademark infringement—the dairy company might be intentionally encouraging those competitors to infringe Hugunin’s mark in order to increase its own revenues from licensing. “But there is no evidence that Land O’ Lakes has issued any such licenses or is even aware that other producers of fishing tackle have used its mark.”

 

Dismissal upheld.

Trademark defendant wins rare unclean hands defense to injunction

Cochran Firm, P.C. v. Cochran Firm Los Angeles LLP, --- Fed.Appx. ---, 2016 WL 770129, No. 15–55816 (9^th Cir. Feb. 29, 2016)

 

A rare unclean hands win for a trademark defendant!  The Cochran Firm appealed the district court’s order dissolving a preliminary injunction against Randy H. McMurray, P.C. and McMurray individually.  The majority found that the trial court implicitly made a finding of bad faith by the Firm, and considered “evidence of actual deception of consumers, such as when a former client attempted to obtain a judgment against the Firm.”  Moreover, the district court considered whether the Firm’s misconduct had an “immediate and necessary relation to the equity [it] seeks.”  In previous proceedings, the court of appeals had noted, “The structure of [the Firm’s] business is important in assessing whether [the Firm] has unclean hands. Specifically, [the Firm] may be misusing the trademark to deceive the public into believing it is a single, national firm, when in fact it is a network of separate partnerships.”  Indeed, the majority said in a footnote,

 

The Firm’s marketing of itself and its regional offices as a “single” law firm is likely to bear an “immediate and necessary relation” to the equity the Firm seeks. Given the singular form of the noun “firm,” “The Cochran Firm” trademark suggests that all practices bearing that mark are part of a single firm.

 

Nor did the district court abuse its discretion in using California’s Rules of Professional Conduct’s definition of a law firm or expert testimony to guide its findings.

 

Finally, McMurray’s own unclean hands didn’t bar him from raising the defense.  The district court didn’t abuse its discretion in finding that there was insufficient evidence to support the Firm’s unclean hands argument, and even if there were sufficient evidence, that the Firm was more culpable than McMurray.

 

Judge Callahan dissented, reasoning that unclean hands findings should be rare in trademark cases. “The Firm’s marketing is not misleading and has little to do with the trademark at stake.”  Worse, “[m]ulti-office businesses will be surprised to learn that they are misleading the public by advertising themselves as ‘single’ and ‘national’ in stature, and thus may not protect any right they hold to their company’s name.”  The dissent complained that the district court had wrongly federalized the definition of a “law firm.”

 

Initially, the dissent emphasized the “increasingly limited scope” of unclean hands in trademark infringement suits (as Mark McKenna might say, tracking the shift from a business to a consumer protection focus of the overall cause of action, given the dissent’s concession that unclean hands is an “established defense”).  A defendant must demonstrate by “clear, convincing evidence” that (1) plaintiff’s conduct is inequitable and (2) the misconduct relates to the subject matter of plaintiff’s trademark infringement claim.   Inequitable conduct requires a showing that the plaintiff used the trademark to deceive consumers. “[E]ven where bad intent is demonstrated, an appreciable number of consumers must also have actually been deceived for the defense to succeed.”  Then, the defendant must show that the plaintiff’s “misdeeds ... have an immediate and necessary relation to the equity that [the plaintiff] seeks in respect of the matter in litigation,” generally requiring the trademark itself to be misleading or the plaintiff to have acquired its rights with unclean hands.  Using the mark as part of misleading advertising is much less likely to have the requisite relation.

 

The district court’s findings that the Firm had misrepresented (1) that it was “national” and (2) that its offices were part of a “single” law firm were insufficient to the dissent.  First, the district court didn’t explicitly find that the Firm acted in bad faith in advertising itself as a single, national law firm, or any actual deception.  Second, the district court didn’t find that the Firm’s marketing had an “immediate and necessary relation” to the relief it sought—which was to stop McMurray from trading on the Firm’s goodwill and deceiving the public into believing that he is still a part of The Cochran Firm.

 

The “single firm” advertising wasn’t sufficiently inequitable to bar relief.  There was no survey evidence of deception, and the trademark itself wasn’t clearly misleading, so “courts should demand at least some comparable evidence of consumer deception.”  (Indeed, the dissent said, surveys should rarely be necessary, because only egregiously misleading marketing featuring the trademark should support an unclean hands defense.)  The evidence cited by the majority was that “a lawyer for a former client’s conservator named the Firm as a defendant in a lawsuit seeking to recover a judgment”; the dissent dismissed this as a mere litigation tactic, which didn’t show that the former client herself was misled. 

 

The dissent would also have found that the district court erred in relying on California’s Rules of Professional Conduct for lawyers to inform its understanding of how the public understands the term “law firm.”  Even if the public did follow that understanding, the dissent argued that the Firm’s “hub and spoke” structure wasn’t contrary to any rule.  An ABA opinion expressly condones, “at least from the ethical point of view,” the franchise-like “licensing” of a law firm’s name “to create a national network of firms, all of which will use the original firm’s name under a licensing agreement by which the original firm will provide all marketing for the firms in the network.”

 

The California Practice Guide to Professional Responsibility similarly provides that franchising of a law firm’s name is permissible where “the franchisor is in a partnership with each franchisee.” The dissent noted that the Firm complied with this guidance, and also highlighted the district court’s findings that the Firm had nationwide “prestige”; coordinated across offices on class actions and multi-district litigation; had numerous nation-wide standardized resources and procedures; required regional offices to carry liability insurance; vetted employees and ensured “that the regional offices are managed by a managing partner that Johnnie Cochran knew”; and exerted a degree of “control over the regional offices.”

 

Thus, neither the “single” nor “national” branding was inequitable, and “national” had no immediate and necessary relation to the trademark.   

 

The dissent closed by warning that many law firms use a similar structure.  “The closeness of bonds between the offices that comprise a firm varies significantly by office and firm. It does not follow that regional offices that operate more independently mislead the public or violate rules of professional conduct by holding themselves out as part of a larger, single law firm.”

Fraud claim by NY AG against Donald Trump revived on appeal

People ex rel. Schneiderman v. Trump Entrepreneur Initiative LLC, --- N.Y.S.3d ----, 2016 WL 783216, 2016 N.Y. Slip Op. 01430 (Sup. Ct. Mar. 1, 2016)

 

Snarky political note: It doesn't appear that Trump could object to this ruling on the grounds that the judges were "Hispanic."  (Looking forward to learning more about that recusal argument: Your Honor, my client is too biased to be judged by you.)

 

The AG sued Donald Trump individually and “several business entities bearing his name.”  Trump, with others, incorporated Trump University LLC in 2004; “Trump University purported, by way of seminars and mentoring programs, to instruct small business owners and individual entrepreneurs in real estate investing.”  In 2005, the NY State Department of Education notified Trump and Trump University that they were violating the New York Education Law by using the word “University” when it was not actually chartered as one, and by operating without a license to offer student instruction or training in New York State. Trump University would not be subject to the license requirement if it had no physical presence in New York State, moved the business organization outside of New York, and ceased running live programs in the State. Trump University thus told the state that it would merge its operation into a new Delaware LLC, and would stop holding live programs in New York State.

 

The AG alleged that Trump University failed to do as it promised.  New York learned in 2009 through newspaper advertisements and a student complaint to the AG that Trump University was continuing to provide live programming and instruction in New York.  In 2010, the Department of Education sent Trump University another demand letter; Trump University finally filed a certificate of amendment to its Articles of Organization, formally changing its name to TEI.  But TEI still lacked a license to operate, and the State sent another letter, at which point TEI informed it that TEI had ceased to operate.

 

In 2013, the AG sued for injunctive relief, restitution, disgorgement, damages, and civil penalties for conduct between 2005 and 2011, when respondents allegedly operated an unlicensed, illegal educational institution. In addition, respondents allegedly intentionally misled more than 5,000 students nationwide, including over 600 New York residents, into paying as much as $35,000 each to participate in live seminars and mentor programs that the students thought were part of a licensed university.  The ads represented that real estate experts “handpicked by Trump himself” would teach successful strategies for real estate investing, including quotes attributed to Trump such as “I can turn anyone into a successful real estate investor, including you” and “In just 90 minutes, my hand-picked instructors will share my techniques, which took my entire career to develop …. Then just copy exactly what I’ve done and get rich.” At the free seminars urging further investment, instructors played a video featuring Donald Trump telling prospective students, “We’re going to have professors that are absolutely terrific—terrific people, terrific brains, successful, the best” and noted that they were “all people that are handpicked by me.”

 

In fact, according to the AG, Trump did not handpick the instructors, participate in the creation of the content, or review any curricula; “indeed, only one of the live event speakers for Trump University had even ever met Donald Trump.”  But people still relied on these claims.  In an affidavit submitted to the Attorney General, one student stated that he “had some trust in the program because it was run by Donald Trump” and was “led to believe that ... based on Trump’s marketing materials, the course professors had been handpicked by Donald Trump.” The AG alleged that the instructors had been inadequately vetted and in fact had little or no experience in real estate investing, instead having prior work experience such as food service management and graphic design.  Moreover, the “free” seminars were merely extended ads attempting to induce students to enroll in increasingly expensive seminars.  While speakers represented that an initial three-day $1,495 seminar would teach students all they needed to know to be successful real estate investors, “the instructors at those three-day seminars then engaged in a ‘bait and switch,’ telling students that they needed to attend yet another seminar for an additional $5,000 in order to learn more about particular lenders.” They also urged students to sign up for “Trump mentorship packages, which ranged anywhere from $10,000 to $35,000” and supposedly provided “the only way to succeed in real estate investment.”

 

While not involved in selecting instructors or determining content, Donald Trump was allegedly significantly involved with the operation and overall business strategy, including “attending frequent meetings” with another key individual to “discuss Trump University operations.” Trump’s photographs and signature appeared on all of Trump University’s advertising; “Trump personally reviewed and approved all the ads that were in the newspapers.”

 

The AG brought claims for fraud under Executive Law § 63(12); fraudulent and deceptive practices under General Business Law § 349; false advertising under GBL § 350; violating Education Law § 224 by calling the business “Trump University” when it was not, in fact, chartered as a university; violating Education Law § 5000 et seq. by operating an unlicensed school that did not meet State standards; and violating 16 CFR § 429, which, in connection with a contract of sale, obliges a seller to include the buyer’s right to cancel the transaction within three days.

 

The trial court dismissed the Education Law § 224 claim in its entirety, and held that the AG was bound by a three-year statute of limitations on all the statutory claims in the petition. But the court also held that the Attorney General’s general fraud claims were viable and subject to the six-year statute of limitations governing fraud actions.  Then the court granted dismissal of the fraud claim under Executive Law § 63(12) (as opposed to the common law fraud), stating that the statute does not provide a standalone cause of action for fraud, and dismissed the claim for violation of 16 CFR § 429. The court denied the AG’s request for a summary determination of liability, except for the claim for violation of Education Law §§ 5001–5010.

 

This appeal followed.  Executive Law § 63(12) states, in relevant part:

 

Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts [and] directing restitution and damages ... and the court may award the relief applied for or so much thereof as it may deem proper.

 

“Fraud” is defined as “any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions.” Fraud under § 63(12) may be established without proof of scienter or reliance, making it different from common-law fraud.  The Supreme Court thus concluded that the trial court erred in dismissing that claim, because it can be brought as its own cause of action.  That fraud claim was subject to New York’s residual six-year statute of limitations, though material issues of fact precluded summary judgment in the AG’s favor.  The court also affirmed the dismissal of seven affirmative defenses, and commented that the court should have considered allegations relating to post-May 2010 conduct (after the second letter).

Hidden connections between doctors and the drugs they promote

The violations of the FTC Endorsement Guidelines seem very clear in the stories recounted by this Boston Globe investigation.  H/T ST.

Transformative work of the day, Chris Christie edition

How many references can you spot in this Washington Post column?  Until I got to the last line of the column, I had a different title for this post, but Alexandra Petri got there before me.

Open access-related jobs at Yale

Via Amy Kapcyzinski:

We are starting a new initiative here at Yale to do legal work and research to help improve access to clinical trial data.   We need to hire a stellar young attorney (ideally with at least 5 years of experience) who can help us map out a legal strategy around these issues.  The person will get to work closely with faculty and students here, and Dave Schulz (a great First Amendment lawyer), and the position pays well ($100 - $130k) and has three years of guaranteed funding. Job and project description is here: http://www.yaleghjp.org/#!job-openings/cf55

There are also fellow positions that would be great avenues for young JDs who are interested in open access and transparency issues, or regulatory issues, from a policy or academic bent!