When does a false advertising case create a right to a jury trial?

Ferring Pharmaceuticals, Inc. v. Braintree Laboratories, Inc., --- F.Supp.3d ----, 2016 WL 7223279, No. 13–12553 (D. Mass. Dec. 13, 2016)

The parties compete for the market in products used for bowel preparation before colonoscopies, and each alleged that the other had engaged in false advertising. Braintree’s moved to strike Ferring’s demand for a jury trial.  “Parties have the right to a jury trial when a statute or the Seventh Amendment so requires.” The Lanham Act does not create such a right if a plaintiff seeks “the remedy of an accounting of defendant’s profits,” nor does Massachusetts Chapter 93A, the coordinate state false advertsing law.

The key to the Seventh Amendment analysis here was whether the remedy sought was legal or equitable in nature.  If legal, then there would be a right to a jury trial; an equitable remedy can also be “of a legal nature” sufficient to entitle a party to a jury trial.  “For instance, an accounting of profits can act as a proxy for a legal claim in some circumstances.” The court determined that it would apply the proxy rationale “if 1) the case involves similar products, 2) there is no adequate remedy at law and 3) the products compete directly.”

Braintree argued that its requested disgorgement remedy was equitable. Ferring was entitled to a jury trial with respect to its defenses to Braintree’s counterclaims, which the parties agreed were legal in nature. But the proxy argument was closer—the first two factors weighed in favor of finding that Ferring’s claim was a proxy for legal damages. The competing treatments were very similar, and there was no alternative legal remedy, because Braintree’s purported false advertising began as soon as Ferring’s treatment entered the market, “making it impossible for Ferring to measure its alleged losses by decreased sales.”

However, it wasn’t clear if there was direct competition.  Though the two products perform the same function and were prescribed by the same doctors, and though Braintree’s advertising directly targeted Fering’s product, there were other colonoscopy preparation drugs on the market during the time period at issue.  [They’re direct substitutes.  They may be in head-to-head-to-head competition, but reading an extra requirement of being the only two competitors on the market into the standard for “direct competition” seems to need more justification.  I guess the justification would have to be that “direct competition” is a poor shorthand for the actual standard: you have to be relatively sure that any of defendant’s sales were taken from plaintiff’s hands, and that isn’t as clear when there are other competitors in the market.  But then, if there might well have been other victims, is disgorgement likely to be appropriate?  I’m not sure how the underlying standard for recovery interacts with the Seventh Amendment argument.]

The court decided to go ahead and have the jury trial first, as required no matter what.  “If Ferring has failed to show that it is entitled to a jury trial at that time, the Court will treat the jury’s verdict as advisory.”

Business betrayal isn't false advertising, could be TM infringement

Kische USA LLC v. Simsek, 2016 WL 7212534, No. C16-0168JLR (W.D. Wash. Dec. 13, 2016)

Kische alleged that former employees—Mr. Simsek and Ms. Walker—abused their positions to misappropriate Kische’s assets and found JD Stellar, a competing business. Kische accused Costanza, its former attorney, of participating in this misconduct, though he gets out of the case because Kische’s allegations did not dispel the reasonable inference that the ex-employees had apparent agency to do what they allegedly did.

Kische “design[s] and import[s] fashionable clothing from manufacturers in Turkey and [sells] them under the mark ‘KISCHE’ to prominent retailers in the U.S., including Nordstrom, T.J. Maxx, Marshalls, Ross[,] and others.” Mehmet Uysal is the owner and sole member of Kische. Simsek and Walker “served as managers and employees of [Kische] for over six years.”  While still employed by Kische, they allegedly (1) formed JD Stellar, a competing company; (2) assigned one of Kische’s registered trademarks—“Marseille”—to JD Stellar without Uysal’s approval; (3) registered the trademark “Dantelle,” which Kische alleges directly competed with Kische, on behalf of JD Stellar; (4) dissuaded Kische’s customers from doing business with Kische; (5) purposefully delayed Kische’s payments to manufacturers and vendors; (6) stole furniture, equipment, and clothing from Kische; (7) made payments from Kische to JD Stellar without authorization; and (8) otherwise improperly utilized Kische’s resources. Kische alleged that its annual revenue of $13 million from the “Kische” mark dropped to zero as a result.

The court found that Kische sufficiently pleaded infringement of the Kische mark, but not the Marseille or Dantelle marks. Even if Marseille was fraudulently transferred, Kische didn’t allege that it still owned the mark, and though Kische alleged ownership of Dantelle, it didn’t allege infringement.  As for Kische the mark, Kische properly alleged that the Stellar defendants sold identical products with an identical mark, supporting the claim of likely confusion.

False advertising claims did not fare so well. First, they’re subject to Rule 9(b), unlike trademark claims subject to Rule 8, because courts have said so.  The court found that Kische’s allegations, including use of the Kische mark as a keyword, use of the Kische address as JD Stellar’s address, and use of Kische’s clothing designs as JD Stellar’s, were not statements of “fact.”  There were no allegations of specific assertions that describe testable, “absolute characteristics” of the products.  [Stellar’s address is certainly a verifiable fact about Stellar’s services, though perhaps at some point it wasn’t false as to customers even if it represented a betrayal of Kische.]  At most, Kische was recycling its Dastar-barred reverse passing off claim, alleging that Stellar sold clothing embodying Kische designs under a different mark.

Kische also alleges that the Stellar defendants made false statements to Kische’s clients and cited the declaration of Lorraine Hooshyar, “[s]ales representative for specialty stores.” But the declaration stated only what buyers—not the defendants—told her: that Uysal “had shipped substandard product,” that Uysal and Kische “were closing their business,” and that a buyer had to “cancel [an order] because [Uysal and Kische] couldn’t meet the delivery or produce the garments.” Hooshyar’s statement “[e]ach and every buyer that I have reached out to has had a bad taste due to the ending and the untruths that have been spoken by [Walker and Simsek]” was about the, but was too conclusory to plead false statements of fact.  Also, the facts as pleaded didn’t justify the inference that the statements constituted advertising or promotion.

Trademark dilution: allegations that Kische’s marks were famous  “due to [Kische’s] reputation for high quality women’s fashion” were insufficient. These included allegations about a video in which a commentator calls Kische a “luxurious line,” customer ratings, purchase orders to “major women’s fashion retailers,” and an email in which “Taste of Eden show[ed that] it thought that [the] Kische cardigan was famous.” That wasn’t enough to show wide recognition by the general consuming public. 

The evidence on which Kische bases its factual allegations shows at most that fashion purchasers recognized Kische’s marks—not that the general consuming public widely recognized the marks. Similarly, the fact that a commentator called the Kische brand a “luxurious line” or that a few customers gave high ratings to Kische’s clothing do not lead to the reasonable inference that the marks are widely recognized by the consuming public.

As for the Washington Consumer Protection Act, Kische insufficiently alleged an unfair or deceptive practice, and separately failed to allege an impact on the public interest. There was no reason to think that the defendants deceived “a substantial portion of the public,” or that additional persons in the same situation would be injured in the same way.  Likewise, fraud claims failed because the relevant misrepresentations were made to the PTO and to Kische’s suppliers, retailers and customers, not to Kische—thus Stellar couldn’t have intended Kische to rely on them, and Kische would have known that the statements were false and couldn’t have relied on them.  As to allegations that the defendants made false representations to Kische about Kische’s financial status, Kische also failed to state a claim.

Allegations for breach of fiduciary duty and conversion of Kische’s assets, including “trademarks, money, and equipment,” did survive, and Kische was allowed leave to amend against the Stellar defendants.

Announcing the Open Source Property Casebook

Straight from Jeremy Sheff:

On behalf of myself and my co-authors (Steve Clowney, James Grimmelmann, Mike Grynberg, and Rebecca Tushnet), I am pleased to announce the immediate availability of Open-Source Property, a completely free casebook for the 1L Property Law course. We would like to ask you to share this announcement with readers of the PropertyProf Blog, and spread the word among your colleagues who teach Property Law.

Open-Source Property is a comprehensive, high-quality teaching resource with substantial advantages over commercial casebooks:

- It’s Free. Open-Source Property is distributed completely free online, in multiple formats.

- It’s Easy to Use. Open-Source Property comes with teacher’s manuals and slides. We also encourage adopters to submit their own teaching materials to be shared on the instructors page of our website. (The instructors page is password protected; please email me  from your institutional email account to request a password).

- It’s Flexible. You can choose to download a complete casebook that has already been tested in the field by the authors. Or you can mix, match, and edit chapters, right in Microsoft Word, to achieve your preferred coverage profile. Our individual chapters cover all the basics, from Finders to Future Interests to Takings, as well as more specialized topics such as Intellectual Property and Property Rights in Human Beings.

- It’s Open-Source. Open-Source Property is licensed under a CC-BY-NC 4.0 license. You are free to copy it, use it, redistribute it, and edit it under the terms of the non-commercial license. In fact, we encourage adopters to submit their own contributions and their own builds of the casebook to be posted on the casebook website.

We hope you will visit us at www.opensourceproperty.org to check out Open-Source Property and consider adopting it as your casebook. If you do, please let us know! And if you have any questions or comments regarding the casebook, or if you just need some encouragement and support to make the switch, feel free to email us at feedback@opensourceproperty.org, or to find me at the AALS Annual Meeting in San Francisco next month. We are here to make it easy for you to do your students and yourself a favor by moving to a free, open-source course text.

In the meantime, you can watch for updates by following us on Twitter  or liking us on Facebook.

As a personal note, I enjoyed writing the zoning chapter a lot.  It's a bit unusual--it focuses on the history of St. Louis and its suburbs as a way of telling the story of zoning; it includes several actual zoning codes and plans of various types, to give students a sense of what they're like; and it is deeply concerned with explaining how, in America, property law is racially inflected.  Feedback is welcome, on this or any other part of the casebook.

Reading list: why search engines shouldn't implement the right to be forgotten

Note structural similarity to arguments about copyright takedown notices.

Stuart Hargreaves, The Trouble with Using Search Engines as the Primary Vector of Exercising the Right to Be Forgotten, [2016] 19 Pandora’s Box 83-106

Abstract:     

European privacy law currently implements the ‘right to be forgotten’ by positioning commercial search engine operators as the initial site of decision-making regarding its exercise. This is problematic for a number of reasons. First, there are a number of structural flaws in the mode of this decision-making that make it unclear that search engines are capable of (or interested in) incorporating a robust account of competing interests. Second, right to be forgotten requests are not susceptible to the same kind of algorithmic techniques search engines use to deal with other kinds of removal requests, meaning large numbers of decisions must be made rapidly and primarily by staff lacking formal legal qualifications. When compounded with the possibility of heavy penalties for failure to comply with the right under European law, these two issues suggest there is a significant potential for bias toward deletion rather than preservation of borderline links. A third problem is that the simple online forms provided by search engines for European data users making a deletion request mask a complicated legal analysis, meaning those who properly structure their requests in an appropriately technical and legal manner may have a higher chance of success in their claims. This threatens to open up a new digital divide along the axis of reputation. Finally, the massive compliance costs associated with this new right may serve as a form of anti-competitive lock-in, preventing the emergence of innovative new companies in ‘search’. In sum, if the right to be forgotten is to have real meaning in European law, search engines are not the correct vector for its implementation.

NYIPLA IP writing competition

For current law students.  $1500/$1000 awards for the winners.  Deadline March 3, 2017.  Details here.

Trademark questions of the day, pictorial edition

Some photos I found in my end-of-year cleanup:

wine caddy in form of black shoe with red sole: infringement or dilution?

petco label, "because I'm worth it"

Copyright question of the day, Colting edition

Frederik Colting and his partner have a new line of books, KinderGuides, which are children's versions of classics like On the Road and Breakfast at Tiffany's.  Fair use?

Fifth Circuit reverses multimillion-dollar antitrust verdict based on false advertising, remands

Retractable Technologies, Inc. v. Becton Dickinson & Co., No. 14-41384, 2016 WL 7046601, -- F.3d – (5^th Cir. Dec. 2, 2016)

Regardless of the merits, courts don’t want plaintiffs bringing false advertising claims as antitrust claims.  Thus, they have imposed a number of empirically dubious, essentially random preconditions to treating false advertising as an antitrust violation; it is basically impossible for any plaintiff to show that all of the preconditions apply.  My usual approach is to say “the antitrust claims failed because they were antitrust claims,” but here the jury awarded RT treble damages for an antitrust claim based mostly on BD’s false advertising, so I’m going to say more.  This judicial hostility is enough to make me wonder whether antitrust law could be revived merely by making treble damages optional rather than mandatory, as they are in false advertising.

BD and RT are competitors in the market for safety syringes. A jury awarded $340 million (after trebling) against BD for its alleged attempt to monopolize the United States safety syringe market in violation of § 2 of the Sherman Act. The jury also found BD liable for false advertising under § 43(a).  The court of appeals reversed and vacated on §2, necessitating a remand for redetermination of whether disgorgement was now appropriate (given the disappearance of the antitrust damages) and whether injunctive relief should be reconsidered.

There are four main products in the safety syringe market: shielding needles, pivoting needles, sliding sleeve needles, and retracting needles, each of which is appropriate in specific hospital, clinical, or office settings. BD produced all four types and was also the major manufacturer of conventional syringes. RT’s principal product was the VanishPoint retractable syringe, which had a fixed, albeit retracting needle.  This protects against accidental injections but doesn’t work for other hospital and clinical uses.

In 2002, about five years after RT introduced the VanishPoint, BD created its own retractable syringe, the Integra. BD’s Integra suffered from design flaws such as leaking and failing to deliver a full dose of medicine. RT outsold BD in the retractable syringe sub-market: BD had a 1/3 share of the market, while RT’s market share was 2/3. By 2010, in the “relevant product market” for all safety syringes, BD’s market share was 49%, Covidien 30%, Smiths 10%, and RT 6%.

RT sued BD in 2001 for antitrust violations and product disparagement (based on the same advertising issues litigated here). The suit settled in 2004 and BD paid RT $100 million, with the parties releasing claims “which accrued on or at any time prior” to the agreement’s signing.

Three years later, RT filed the instant suit alleging patent infringement and antitrust and Texas common law violations. The district court tried the patent case first, and rendered judgment for RT (including “a mere $5 million in damages”) based on two BD versions of the Integra. On appeal in 2011, the Federal Circuit upheld the judgment only as to one model, which BD then removed from the market.

The non-patent claims continued.  RT argued that BD: monopolized and attempted to monopolize the markets for hypodermic syringes, safety needles and syringes, IV catheters, and safety IV catheters in violation of § 2 of the Sherman Act; excluded RT from these markets in violation of the Clayton Act §§ 1 and 3; violated the Lanham Act; and violated coordinate Texas law (later dismissed).

RT’s evidence “emphasized BD’s contract practices that allegedly foreclosed competition by offering customers sole source contracts, loyalty discounts, and market share rebates.” RT also invoked BD’s false advertising, patent infringement, and unfair competition.  The court submitted twelve separate antitrust interrogatories to the jury covering four liability theories—monopolization, attempted monopolization, contractual restraint of trade, and exclusive dealing—each relevant to three products—safety syringes, conventional syringes, and safety IV catheters. Antitrust damages went to the jury on two bases—“anticompetitive contracting damages” (for each product) and “deception damages” (only safety syringes). The Lanham Act false advertising claim went to the jury on representations that BD produced the “world’s sharpest needle” and its syringes have “low waste space.”

The jury held BD liable only for attempted monopolization in the market for safety syringes. It rejected all damages for “anticompetitive contracting,” but found that RT suffered “deception damages” over $113.5 million, and it found liability on all the misrepresentations.  The district court trebled the damages, added statutory attorneys’ fees, declined on equitable grounds to award disgorgement of profits for BD’s false advertising, and enjoined BD.

To prevail on an attempted monopolization claim, a plaintiff must show: “(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.”  BD didn’t challenge specific intent, and the court of appeals assumed that (3) was satisfied, meaning that BD had market power in the relevant US market for safety syringes.

The jury verdict “significantly narrowed the factual predicate for potential antitrust liability” by rejecting RT’s claims about exclusionary contracting practices by BD. BD offered the testimony of over a dozen purchasers of safety syringes that BD’s practices did not foreclose their ability to choose among competing products. Thus, the monopolization claim had to rest on three types of “deception”: patent infringement; two persistent false advertising claims; and BD’s alleged “tainting the market” for retractable syringes in which it alone competed with RT.

Exclusionary conduct must not only impair rivals’ opportunities but also not further competition.  “If the conduct has no rational business purpose other than its adverse effects on competitors, an inference that it is exclusionary is supported.”  But not all unfair conduct violates §2, and even aggregating a bunch of unfair competitive practices doesn’t turn into legally predatory conduct for §2 purposes unless it’s especially egregious. As the Supreme Court has said, “[e]ven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or ‘purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.’ ”

Patent infringement isn’t a basis for imposing antitrust liability, since patent infringement is actually procompetitive (patent law conflicts with antitrust law to an extent). 

False advertising: BD falsely advertised throughout the period under litigation that BD needles were the “world’s sharpest” (a proxy for patient comfort) and had “low waste space” (allowing more medicine to be dispensed from the syringe), and that BD’s data proved the claims.  By about 2003, BD’s tests began to show that competitors were equalling or surpassing BD needles on sharpness, and it didn’t change its ads.  Likewise, while the claim “lower waste space” than RT’s needles (the only competitor) was true when made, BD’s tests in 2003, 2005, and 2008 showed that the waste space measurement was no longer accurate. BD removed the inaccurate measurement from some materials but not from all, and showed erroneous waste space comparisons on its website. BD also applied the false claim to customer-specific comparative spreadsheets, and imbedded it in a “cost calculator” that sales representatives could use to demonstrate how much money customers would allegedly save with Integra syringes. Some distributors and resellers continue to use BD’s false claims in their promotional materials.

The bar to calling false advertising an antitrust violation is high because—um, because courts don’t like antitrust claims.  Previously, the Fifth Circuit said that sales pitches “may have been wrong, misleading, or debatable,” but they were all “arguments on the merits, indicative of competition on the merits,” as opposed to, say, bribes.  If a competitor loses out on a debate on the merits, the “natural remedy would seem to be an increase in the losing party’s sales efforts on future potential bids, not an antitrust suit.”  Similarly, the Seventh Circuit rejects Sherman Act claims based on false advertising because of what the court here called “traditional free speech principles”: “If [a competitor’s statements about another] should be false or misleading or incomplete or just plain mistaken, the remedy is not antitrust litigation but more speech—the marketplace of ideas.” False advertising “hardly ever operates in practice to threaten competition” because it “simply ‘set[s] the stage for competition in a different venue: the advertising market,’” and the victim can advertise right back to expose the dishonest competitor and “turn the tables.”  “Far from restricting competition, then, false or misleading advertising generally sets competition into motion.”  Also, it’s hard to determine whether falsity induced reliance, “or whether the buyer attached little weight to the statements and instead regarded them as biased and self-serving.” The latter was more likely where, as here, the relevant consumers were sophisticated, and though RT had surveys about materiality of sharpness & waste space, “not a single buyer’s representative came forward to testify to a purchase motivated by the ‘world’s sharpest needle’ and ‘lower waste space’ claims.”

Pause to note that the empirics are all against this: corrective advertising, especially by an inherently-less-credible-because-self-interested competitor, is unlikely to fix all the damage of false advertising.  [Now that we’re post-truth, is this problem worse?  Or is it not a problem because no factual claim would be believed in the first place?]  Also, the First Amendment doesn’t protect false or misleading commercial speech; if it did, it would threaten the Lanham Act even more than the Sherman Act, but the same Seventh Circuit that said “the remedy is more speech” accepts Lanham Act false advertising claims.  Similarly unpersuasive are the claims about reliance and materiality, which we consider ordinary matters capable of factual proof in the Lanham Act context (and which the jury found were proven here).  If the court were serious about its arguments, it wouldn’t allow Lanham Act false advertising claims either.  This is about the remedy, not the right, and it would be a lot more honest to admit that.

Still, the court here says, the broader point is that there’s a difference between business torts, which harm competitors, and “truly anticompetitive activities,” which harm the market. So an antitrust plaintiff has to show that a competitor’s false advertisements had the potential to eliminate, or did in fact eliminate, competition.  “RT may have lost some sales or market share because of BD’s false advertising, but it remains a vigorous competitor, and it did not contend that BD’s advertising erected barriers to entry in the safety syringe market.”

Moreover, there were no facts showing that BD’s ads in fact harmed competition, because RT remained dominant in the retractable syringe sub-market, selling up to 67% of all retractable syringes. Further, competition within the overall safety syringe market—particularly between BD, Covidien, and Smiths—remained robust. Some customers increased their purchases of RT syringes after being shown BD’s erroneous “waste space” comparisons.

“Tainting the market”: this theory was that BD produced flawed Integra retractable needles during the years covered by this litigation in order to persuade purchasers that all retractable syringes—including those of RT—were inherently unreliable, until RT’s patent expired and BD could take over the market.  The beginning of this theory had some record support, but the rest was illogical and incoherent (why would BD destroy its own future market?); even if true, the last part wasn’t anticompetitive, because “it is precisely the type of activity to be expected from competitors when valuable patent rights expire.”  The flaws in Integra needles, while apparently real, didn’t prevent them from getting 33% of the market, while RT’s market share increased and its sales nearly doubled. 

Bye-bye antitrust claim.

Lanham Act claim: BD sought judgment as a matter of law based on the affirmative defenses of res judicata and laches. The district court was correct that res judicata didn’t bar the claim because RT didn’t release claims for conduct post-settlement, and there was no indication that RT was on notice before the 2004 settlement that BD would continue to utilize the “sharpest needle” and “waste space” comparative advertisements in sales pitches and marketing materials.  

Laches: Without opining on the right statute of limitations to borrow, the court of appeals found that the district court didn’t abuse its discretion in concluding BD suffered no undue prejudice. “BD obviously knew from the parties’ just-concluded litigation that RT objected to the needle sharpness and waste space claims, and BD had every reason to know that its ongoing advertisements of the same claims, which continued through 2011, were inaccurate.”

Disgorgement under the Lanham Act: Also reviewed for abuse of discretion.  In the Fifth Circuit, willfulness isn’t required, but courts consider: “(1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.”  Even if disgorgement is appropriate, a plaintiff “is only entitled to those profits attributable” to the false advertising.

There was no clear error in the district court’s conclusion that at least some portion of BD’s profits were attributable to the false advertising. There was an expert witness’s opinion that $7.2 million in profits—netting to $560,000 after deductions for costs and expenses—could be attributable to the waste space advertisements. Nor was there clear error in the finding that BD had the intent to confuse or deceive by continuing to use advertisements it knew were false. Anyway, willfulness is not a prerequisite.

The district court declined to impose disgorgement because RT was adequately compensated by a $340 million antitrust award. This required remand “for a thorough re-weighing of the remaining factors and the entirety of the record to determine whether and how much profit BD should disgorge to compensate for the Lanham Act violations.”  The court cautioned that, in assessing sales diversion, “speculative and attenuated evidence of diversion of sales will not suffice.”

BD finally objected to the injunction requiring BD to “notify customers, distributors, and other market participants” that it “wrongfully made false and misleading advertising claims” in its “needle sharpness” and “waste space” advertisements. BD didn’t object to bans on use of the relevant advertisements or to required implementation of a training program to instruct employees and distributors not to use the old marketing materials.  Given that the district court’s order suggested that injunctive relief was granted to remedy antitrust violations, it was an abuse of discretion.  “It remains theoretically possible, while bearing in mind that equitable relief is normally appropriate only in the absence of an adequate remedy at law (i.e., money damages), that a viable injunction might still be an appropriate remedy for the Lanham Act violations.”  So remand on that too.

Mardi Gras bead dogs live

At least the trademark registration does.  Remember the Mardi Gras bead dog case, Nola Spice, in which the PTO accidentally accepted a Section 15 incontestability statement during the pendency of an appeal of an order cancelling the mark, even though the notice of suit was on file?  The PTO rescinded the acceptance after I blogged about it, but there's really nothing in place preventing other mistaken acceptances.

I was writing a bit about incontestability and I decided to check in on the bead dogs.  The district court ordered the marks cancelled in 2012--an order reflected in the form it sent to the PTO in 2012.  The court of appeals affirmed in April 2015.  After remand, the district court dismissed the case with prejudice that same month.

As of today, the marks still show as live in TESS and TSDR.

What went wrong, and can it be fixed?  I can think of a couple of possibilities for improvement, but I seek the input of registration experts.  I see why it makes sense to have the form for filing and resolving a TM case be the same.  ("Report on the Filing or Determination of an Action Regarding a Patent or Trademark," FYI.)  But is there some way they could be entered differently into the system depending on whether they were about filing or determination?  That could make it easier to flag the ones that need attention for human review, like this one.  How does the patent side do this?  Are there better mechanisms for catching cancellations ordered by a court?  I know they're rare, but that very rarity may mean that getting it right isn't resource-intensive once a proper procedure is in place.

Do most courts send a separate order along with the Report?  If so, do most courts know that the PTO wants them to do that?  I can't imagine that this order from an Article III court is not effective even if merely transmitted in the Report.

Just to look at another notable case, I looked at the TSDR history of the Louboutin red sole, Reg. No. 77141789.  A couple of observations: (1) No Notice of Suit Incoming (which is how they display regardless of whether they're about filing or resolution) showed up for the underlying litigation that led to the partial cancellation of the Louboutin mark.  I understand that this failure is not uncommon, though I'm also interested to learn of others' experiences.  (2) Because this was a partial cancellation, the parties in the underlying litigation engaged in some dispute over how the PTO should implement the 2nd Circuit's mandate, which seems likely to be unusual.  (3) The Second Circuit did forward notice of its order separately, and it's marked as "paper correspondence incoming" in TSDR.  I'm not sure if that's standard for cancellation orders, since most don't come from courts of appeal.  More information or thoughts would be appreciated.

... and the Best Title of the Year award goes to Mark Lemley

Inventor Sued for Infringing His Own Patent. You Won't Believe What Happened Next

Mark A. Lemley 

Stanford Law School
November 30, 2016

Update re: DMCA re-registration

I have updated my original post to include the information that the Library of Congress, not the CO, set the password requirements, and to add a rant about how re-registration should not be a thing.

Failing to disclose refund policy does not make price claims literally false

First Data Merchant Services Corp. v. SecurityMetrics, Inc., --- Fed.Appx. ----, 2016 WL 7010889, No. 15-2301, No. 15-2364 (4^th Cir. Dec. 1, 2016)

Lower court opinion discussed here.  The court of appeals affirmed the district court’s rejection of the parties’ claims against each other that were at issue on appeal (a major issue of settlement interpretation was not appealed).  First Data and SecurityMetrics are in the Payment Card Industry (PCI). In the PCI, issuers supply payment cards to consumers and collect amounts due; acquirers clear and settle payment card transactions on behalf of merchants; and processors facilitate the communication and settlement of payment. Some PCI providers outsource certain functions to third-party vendors. First Data is an acquirer and processor. SecurityMetrics is a third-party vendor.

The PCI Data Security Standard to help protect against credit card theft and fraud is universal, but the payment card brands each have different requirements for demonstrating or validating compliance with the standard. Acquirers, such as First Data, can impose noncompliance penalties and fees on merchants. Acquirers often rely on third-party vendors, such as SecurityMetrics, to validate merchants’ compliance.

The parties used to work together, with First Data listing SecurityMetrics as its preferred data compliance vendor in all communications with certain merchants. First Data charged merchants a PCI compliance fee and then paid SecurityMetrics for its compliance services on behalf of the merchants. When First Data decided to offer its own compliance service, it ordered SecurityMetrics to cease communication with its merchants; SecurityMetrics alleged First Data had breached their contract and stopped sending its weekly data feed. 

On appeal, SecurityMetrics argued (among other things) that First Data’s advertisements violated the Lanham Act. Some promotional materials stated that First Data merchants would have to pay First Data’s compliance fee regardless of whether the merchant also used a third-party compliance vendor, whereas First Data actually provided refunds to merchants who used third-party compliance vendors.

The challenged First Data ads said:

If you choose to use a third-party vendor for PCI DSS compliance services, you will need to contract with and pay that vendor directly. In addition to your alternate vendor’s charges for PCI DSS compliance services, you still will need to pay the Compliance Service Fee charged to you by your merchant services provider. The Compliance Service Fee is not affected by your choice to use a third-party vendor.* * *

If First Data’s PCI compliance services are contractually available to you, you will be charged an applicable annual compliance fee for those services, regardless of whether you use them or utilize the services of some other third-party PCI compliance services vendor. If you utilize the additional services of a third party vendor, you will pay that third party vendor’s charges for those fees in addition to First Data’s annual compliance fee.

The court of appeals agreed that these statements were ambiguous, not literally false.  It was undisputed that merchants had to pay a fee to First Data regardless of whether or not they paid a third party for the same services.  SecurityMetrics alleged that, in practice, First Data would refund a merchant that complained about being double charged.  But failing to state that a refund  might be available was not literally false.  By one reading, the service fee would change because of First Data’s refund policy.  But another reading was that, “because First Data’s refund policy was discretionary and not automatic, the advertisement is true on its face.” A customer who didn’t ask for a refund wouldn’t get one.  This wasn’t false by necessary implication, and there was no evidence of deception.

As for tortious interference claims, the court upheld the exclusion of recorded calls and emails from customers who cancelled contracts with SecurityMetrics as hearsay.  The evidence of causation, “why the merchants decided not to renew or sign a contract,” was relevant but inadmissible.  SecurityMetrics argued for admitting the calls and emails under the state of mind exception, since they were offered only to prove “what customers believed and why they did what they did.” “However, unless the statements are also offered for the truth of the matter asserted—that the merchants canceled their contracts with SecurityMetrics because of First Data’s misconduct—these customer statements do not show causation.”  [I have to admit, I don’t grasp this distinction.  Thoughts from people with more experience with evidence?  This seems like the kind of evidence routinely admitted in trademark cases.]

Saving people, suing things: TM lawsuit over -hunter suffix continues

Kenyon v. Clare, No. 16-cv-00191, 2016 WL 6995661 (M.D. Tenn. Nov. 29, 2016)

Sherrilyn Kenyon sued Cassandra Clare alleging trademark/copyright violations arising from Clare’s books, the “Shadowhunter Series”; this opinion addresses only trademark claims, where a motion to dismiss proves fruitless (though state law unfair competition was dismissed as time-barred under a one-year statute of limitations).

Kenyon published the “Dark-Hunter Series,” a series of books, short stories, and other original material and alleged that she owned the trademark rights to certain marks, such as “Dark-Hunter,” “Dream-Hunter,” and “Were-Hunter.” Kenyon used “dark-hunter.com” to promote her series and provide additional content regarding the Dark-Hunter world. Kenyon also produced several television commercials and videos, as well as a variety of Dark-Hunter merchandise, such as a line of collectible dolls, clothing, coloring books, jewelry, and novelty items.

In 2006, Clare began marketing a work that allegedly incorporated one of Kenyon’s Dark-Hunter trademarks as the name of one of Clare’s protagonists. At Kenyon’s demand, Clare replaced the term with “Shadowhunters.” Clare and her publishers allegedly assured Kenyon that “Shadowhunters” would be used solely for the name of Clare’s protagonists and that they would not expand the use of the “Shadowhunters” term or adopt it as a trademark.

A few years later, Clare’s publisher printed approximately 100,000 copies of a Shadowhunters book, mistakenly referring to the story’s protagonists as “Darkhunters” instead of “Shadowhunters” on the back cover. Kenyon demanded a correction and a recall.  Clare’s publisher destroyed some of the mislabeled books, but refused to recall the books already in stores or sold. These books allegedly led to confusion in the marketplace, where some purchasers thought that Clare was one of Kenyon’s pennames.

Recently, Clare began using the website domain name “shadowhunters.com” to promote her novels, which the website describes as “Cassandra Clare’s Shadowhunters.” A related movie, “Mortal Instruments: City of Bones,” was released in 2013 and was primarily promoted and discussed through the use of the term “Shadowhunters.” Clare also wrote a television series, titled “Shadowhunters: The Mortal Instruments,” which was released in 2015 and promoted on “shadowhunterstv.com.” Also in 2015, Clare released redesigned book covers that printed the words “A Shadowhunters Novel” along the right side or bottom of the covers.

Kenyon alleged that the books were similar, which enhanced confusion.  They were allegedly “promoted, discussed, and celebrated in similar online forums and at similar conventions”; shared similar themes, origin stories, and target audiences; used “shadow” (Kenyon’s “creed and tagline” said: “We are Darkness. We are Shadow. We are Rulers of the Night. We are the Dark-Hunters.”); and had similar visual representations.

The court refused to find laches on the trademark claims on the pleadings, even though Kenyon learned about the alleged infringement in 2006.  Without evidence about the reasonableness of the delay or evidence of prejudice, a ruling on laches was inappropriate.

Clare also argued that, as a matter of law, there could be no confusion between the marks because the proper author’s name is on the cover of her books, and that Kenyon couldn’t hold a “trademark monopoly” on the word “hunter” in the supernatural creative works context. Having the author’s names on the books wasn’t dispositive, because likely confusion extends beyond point of sale confusion.  Plus, Kenyon’s claims went beyond just the books to TV shows, movie, and merchandise.  And there wasn’t sufficient evidence to resolve whether Kenyon was wrongfully seeking a “trademark monopoly” for any –hunter suffixed word in the field of supernatural creative works; she did allege secondary meaning and confusion.

There’s a lot of room here for thinking about First Amendment constraints on trademark claims brought against expressive works.  Rogers, by its terms, doesn’t apply to title v. title contests, but this isn’t exactly a title v. title contest, more franchise v. franchise, and also the Second Circuit’s later Cliffs Notes decision points out that First Amendment principles should also affect analysis of title v. title claims, given that authors have expressive interests in naming and that interest doesn’t disappear when another author is the plaintiff.

Ugly facts doom "Life is Beautiful" infringement claim: fraud on the PTO bars claim

Amusement Art, LLC v. Life Is Beautiful, LLC, 2016 WL 6998566, No. 14-cv-08290 (C.D. Cal. Nov. 29, 2016)

Defendant LIB hosts the Life is Beautiful festival in Las Vegas. In developing the festival’s style, founder Rehan Choudhry collected digital images from Google searches related to his concept, which included artwork created by Thierry Guetta, aka Mr. Brainwash, including the phrase “LIFE IS BEAUTIFUL.”  Choudhry hired a graphic designer to develop the festival’s logo; the result was a heart made of splattered paint. The first festival was held in the fall of 2013, and repeated annually, featuring music, food and alcohol tastings, public speakers, and art exhibitions and installations.

festival logo

Example of Mr. Brainwash art using Life is Beautiful

Amusement Art licenses IP produced by artist Thierry Guetta. Guetta’s his first solo art exhibition in 2008, entitled “Life is Beautiful,” followed by six other exhibitions using that name through 2012.  In some of his artwork, Guetta incorporates phrases such as “Life is Beautiful.” In mid–2013, a common acquaintance introduced LIB to Guetta’s business associates and encouraged the two parties to consider possible collaboration.  But an in-person meeting a year later went badly.  After further discussions, Amusement Art sued for trademark and copyright infringement of “Life is Beautiful” and Guetta’s “splashed paint heart designs.”

Between 2011 and 2012, Amusement Art filed eight ITUs for “Life is Beautiful” covering paints, electronics and accessories, jewelry, paper goods and printed matter, rubber goods, leather goods, housewares and glassware, and textiles. AA executives filed Statements of Use, under penalty of perjury, asserting that AA had actually used the phrase “Life is Beautiful” as a trademark to sell approximately 257 categories of goods within the application classes. AA also submitted pictures of various goods with “Life is Beautiful” sales tags attached to them. In September of 2014, one month before suing, AA also filed an application for Life is Beautiful” for festival and community events.

When LIB determined that AA didn’t actually sell many of the goods on which it obtained registrations, it told AA that it was going to seek cancellation on the basis of fraud on the PTO. AA surrendered eight of the registrations, but retained its 2014 registration in connection with festivals and art events.

LIB argued that all of plaintiffs’ “Life is Beautiful”-based trademark claims were barred by unclean hands.   This requires clear and convincing evidence “[1] that the plaintiff’s conduct is inequitable and [2] that the conduct relates to the subject matter of [Plaintiff’s] claims.”  The inequitable conduct here was fraud on the PTO in claiming use.  AA argued that there was no evidence that its statements were made knowingly or with intend to defraud the PTO.

Fraud on the PTO in acquiring a patent can give rise to an unclean hands defense.  Similar logic bars recovery in trademark.  Cancelling a registration for fraud requires: “(1) a false representation regarding a material fact; (2) the registrant’s knowledge or belief that the representation is false; (3) the registrant’s intent to induce reliance upon the misrepresentation; (4) actual, reasonable reliance on the misrepresentation; and (5) damages proximately caused by that reliance.” The parties didn’t dispute that the statements of use submitted by AA were material false statements nor that the PTO reasonably relied on those misrepresentations.

As for knowledge and intent elements, “no rational jury could credit Plaintiffs’ claim that the false statements were innocent mistakes in light of the extent of the deception.”  AA filed eight separate registrations representing use on hundreds of categories of goods.  There was no evidence that AA mistakenly believed it actually sold most of the claimed goods.  Instead, AA argued that the executives who filed the applications were not native English speakers and that they filed the applications without the assistance of an attorney. “This explanation is implausible given that Plaintiffs have lived in the United States and spoken English for over 30 years and have also affirmed that they have filed trademark applications across the world.”  But the bigger problem was that AA didn’t explain the several “deceptive” photos submitted with the applications showing goods staged with “Life is Beautiful” tags though these goods were never actually sold.

 

specimen for sculpture

specimen for banners

specimen for handbags

first specimen for tape

second specimen for tape

Further, no reasonable jury could find that reliance on these false representations didn’t cause damage:

By falsely securing the registration of marks that they never used and then later suing LIB on the basis of those marks, there is no question that Plaintiffs have harmed LIB. But the more pervasive harm in this case is the cost imposed on a public that relies on the integrity of the [trademark] system…. Instead of furthering the Lanham Act’s goal of fostering competition in the marketplace, Plaintiffs attempted to secure a monopoly over most plausible uses of the phrase “Life is Beautiful” without actually investing any resources into developing the goodwill of their brand. Plaintiffs falsely claimed ownership over the mark in eight classes of goods covering nearly 250 specific items. In doing so, Plaintiffs may have chilled potential competitors from entering the marketplace and developing their own brand identifications across an array of goods. To put into perspective the extent of the fraud, Plaintiffs registered the mark in nearly one–fifth of all possible classifications, asserting use in goods as varied as food coloring, watch boxes, beach umbrellas, cleaning sponges, talking children’s books, and crime scene tape. In fact, after eliminating trademark classifications that would plainly be inapplicable to the phrase at issue or Plaintiffs’ business, the court could identify only four or five additional classifications in which Plaintiffs could have even conceivably registered this mark. While it is difficult to measure after the fact the precise magnitude of the harm of Plaintiffs’ actions, the court concludes that there is no triable issue whether Plaintiffs’ acted inequitably.

[Note that the specimen of use for sculpture at least raises issues of use as a mark v. ornamental use that really should have gotten more attention, while the specimen for “banners” doesn’t show the claimed mark at all!  The PTO is supposed to look at the specimen to make sure it shows use as a mark/to see issues that couldn’t have been resolved without a specimen … like whether the specimen shows the mark at all.  The specimen first shown for tape was initially refused, correctly, for mere ornamentality, and then AA submitted a revised specimen, so the examiner there got it right.]

Unclean hands also requires that the inequitable conduct “relates to the subject matter of [Plaintiff’s] claims.” AA argued that this requirement would only apply if “the plaintiff has engaged in precisely the same type of conduct about which it complains,” to wit, infringement.  Nope, fraud on the PTO in procuring the right asserted counts; “the relevant inquiry is ‘not [whether] the plaintiff’s hands are dirty, but [whether] he dirtied them in acquiring the right he now asserts, or [whether] the manner of dirtying renders inequitable the assertion of such rights against the defendants.’ ” AA dirtied its hands in acquiring at least eight of the registrations asserted against LIB.

There was a closer question as to the registration of the phrase “Life is Beautiful” in connection with exhibitions and festivals, which Plaintiffs filed shortly before filing suit.  This registration was the subject of cancellation proceedings before the PTO, but AA hadn’t surrendered it, and there was evidence of actual use with at least some claimed categories of goods/services.  Still, the fraud barred all of AA’s infringement claims.  The earlier filings potentially deterred competitors in hundreds of categories.  After that, AA became aware of LIB’s use in a category AA had yet to claim; it filed another application in that category; then it sued.  Under the circumstances, unclean hands applied.

Unclean hands also requires balancing the equities of the plaintiff’s and defendant’s wrongdoing.  Here, that weighed in LIB’s favor.  AA attempted to profit off its fraud “both by deterring competitors and by subjecting Life is Beautiful to the present litigation,” undermining “the sanctity of a trademark registration system that relies on parties truthfully representing which marks are bona fide source identifiers and which are not.”  AA’s weak trademark infringement claim didn’t offset that claim.

Indeed, the determination that AA didn’t actually use “Life is Beautiful” as a mark “would be fatal to any claim for trademark infringement of the ‘Life is Beautiful’ mark, and provides an alternative ground for resolving that issue.”  LIB argued that AA’s use was merely ornamental, just one of several positive phrases Guetta used in his artwork under the mark “Mr. Brainwash.”  LIB contended that use of the phrase as the title of an art show or as a mark on the back of canvasses didn’t qualify the phrase as a mark.

AA responded by asserting that its registration “constitutes prima facie evidence of the validity of the registered mark and of [Plaintiffs’] exclusive right to use the mark on the good and services specified in the registration.” But where one party has presented evidence rebutting a claim to a trademark, the registration is “merely evidence ‘of registration,’ nothing more.”  Given LIB’s evidence that AA’s mark was not actually a source identifier and that the majority of the marks at issue were fraudulently obtained, the presumption of validity alone was not sufficient to avoid summary judgment.

Although AA surrendered eight registrations, LIB still wanted summary judgment on its counterclaim for cancellation, to avoid any attempt by AA to file new statements of use and reassert the same infringement claims.  Before the TTAB, an attempt to surrender rather than face judgment would require the written consent of every adverse party to the proceeding, in order to prevent the creation of mootness and evasion of a judgment to which the adverse party was entitled.  That logic also applied here. 

“Without an entry of judgment, there is nothing to stop Plaintiffs from refiling their marks after the conclusion of this litigation, and once again fraudulently deter potential competitors from entering the marketplace or subject Defendants to renewed trademark infringement actions.”  True, “an ‘actual controversy’ must exist not only ‘at the time the complaint is filed,’ but through ‘all stages’ of the litigation.” Already, LLC v. Nike, Inc., 133 S. Ct. 721, 726 (2013). But “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued, and thus “a defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.”  If AA had no intention of fraudulent refiling, judgment would cause little harm, while giving LIB “substantial assurance” that it could build its business. Thus, the court granted the cancellation counterclaims.

The court also granted summary judgment on AA’s trademark infringement and copyright infringement causes of action based on an image of a “splashed painted heart.” For the first two years of the Life is Beautiful festival, LIB used a painted heart design as the logo; that image can still be seen in connection with the festival on social media.

 

Guetta heart

First, LIB argued that AA didn’t use the heart design as a mark, but rather as an ornamental element in works and on merchandise. The court found that corporate representative Deborah Guetta’s testimony constituted an acknowledgement that the heart design didn’t function as a mark; she said the image was a “copyright image” and not a “trademark image.”  Even crediting AA’s explanation that she was referring to registration, there still was no factual issue here.  The heart design would require secondary meaning to be protected as a mark, and the limited use here—also described by the court as “sporadic use of the mark in Guetta’s artwork”—was insufficient, despite a statement by one of LIB’s employees that the image was a logo.

Copyright infringement: LIB argued that they hired a designer who independently created the design. Even assuming the designer had access to AA’s heart, there was no substantial similarity. “Where the image at issue is ubiquitous, the copying must be exact.”  Plaintiffs argued that one AA employee couldn’t tell the difference (which really wasn’t the right interpretation of his statement), and that the fact that both parties used similar heart images along with the phrase “Life is Beautiful” supports a finding of substantial similarity.

No rational jury could find the two heart designs “virtually identical”:

Guetta’s heart is largely a monochromatic faded red while LIB uses at least two shades of two colors—red and purple—to depict their heart. Guetta’s heart is composed of a much more dramatic splash of plaint with splatters reaching across the canvas, compared to LIB’s more controlled drip pattern on the heart. Moreover, Guetta’s heart looks like a handmade image with no smooth portions in the heart outline, while LIB’s looks like it may have been computer–generated with extended smooth lines for several portions of the heart’s outline.

Finally, use in connection with “Life is Beautiful” didn’t support a finding of substantial similarity. The court didn’t like this “additive approach” to determining whether the images “actually in dispute” were themselves substantially similar. LIB also identified a logo from an uninvolved third party that also uses the phrase “Life is Beautiful” with a splattered heart design, “suggesting that such coincidences can occur without any further meaning.” 

unrelated design

DMCA agent re-registration process removes one annoyance, adds another

Apparently one no longer has to provide a fax number to have a complete agent designation, which is good news.  (Welcome to the 21st century!)  But take a look at this password requirement:

Anyway, consider this your reminder: DMCA agent re-registration is now a thing.

Update: The CO assures me that this password requirement came from the Library of Congress, not from the CO itself.  That's useful information and I apologize for directing my ire so directly at the Office, though I have to say I'm still not thrilled about the requirement to re-up every three years, which is exactly the kind of formality that we got rid of elsewhere in copyright because it rewards the strategic exploitation of screw-ups.  Since we've already seen copyright trolling around sites without perfect DMCA compliance, this database seems like an invitation for trouble.

So, kudos again for removing the fax requirement!  But the Office never explained why renewal was so important for DMCA agents.  The concern for updated information could be satisfied by, say, an email every three years suggesting that people check to make sure the information is accurate, and if it was no action need be taken.  That's how my domain name maintenance notices work.  I'm pretty sure that every site with an agent designation would be willing to pay $60 at the outset instead of $6 for more certainty that screwing up a calendar, or having an outdated credit card on file, wouldn't itself destroy DMCA protection.