occasional door-to-door false claims covered by state, but not federal, false advertising law

Vivint, Inc. v. Northstar Alarm Services, LLC, a Utah limited liability company, 2019 WL 1098986, No. 16-cv-00106-JNP-EJF (D. Utah Mar. 8, 2019)

The parties compete in the market for electronic home automation and security systems. They market themselves in various ways, but a majority of sales come from door-to-door or direct-to-home sales.. Vivint presented evidence of 216 individual Vivint customers who experienced deceptive sales practices by NorthStar representatives between 2012 and 2015.  It sued for deceptive trade practices in violation of the Utah Truth in Advertising Act; violation of the Lanham Act; unfair competition; and intentional interference with customer contracts.

Interpreting the Utah Truth in Advertising Act, which lists a number of banned deceptive practices, the court found that “advertising” was not a threshold requirement of each banned practice. Rather, if the listed item didn’t include “advertising,” then it was banned even if it occurred in door-to-door solicitation and not “advertising.” A previous federal district court had disagreed because the UTAA’s purpose statement “effectively imposes an overarching requirement that otherwise actionable conduct constitute advertising.” In the absence of a state court ruling, the court here reexamined the issue and determined that “the plain language of the statute does not limit the covered conduct to advertising.” The purpose statement says:

The purpose of this chapter is to prevent deceptive, misleading, and false advertising practices and forms in Utah. This chapter is to be construed to accomplish that purpose and not to prohibit any particular form of advertising so long as it is truthful and not otherwise misleading or deceptive.

There’s also a definition of “advertisement” that excludes “any oral, in person, representation made by a sales representative to a prospective purchaser.” But in Utah, “a statement of purpose is generally ‘not a substantive part of the statute’ ” and “cannot override the clear terms of the law.” The substantive part of the law listed twenty-odd “deceptive trade practices,” some of which included the words “advertisement” or “advertising” and others didn’t. The definition of “advertising” applied only where the term was used to define the deceptive trade practice at issue. “If the Utah Legislature had intended that limitation to apply to the entire statute, it would have been listed not in the definitions section, but in the section … titled ‘Exemptions.’”  Here, the alleged violations didn’t require “advertising,” e.g., causing confusion “as to the source, sponsorship, approval, or certification of goods or services”; representing “that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have”; and “disparag[ing] the goods, services, or business of another by false or misleading representation of fact.”

However, the Lanham Act claim failed for want of sufficient “commercial advertising or promotion.”  False statements made by NorthStar’s door-to-door sales representatives to 216 Vivint customers were not “disseminated sufficiently to the relevant purchasing public” to constitute commercial advertising or promotion.  “[T]here must be some statistical analysis of the number of alleged incidents in comparison to the relevant market, “and given the millions of pitches, NorthStar argued that this was only 43 customers per year, “less than 0.5%” of NorthStar’s total door-to-door sales in any given year and a small percentage of Vivint’s customers (as the relevant market). Vivint argued that this was just the falsity it had identified and that there was other falsity that it hadn’t caught, but the court found that speculative.  If there was a script or other direction to sales reps encouraging them to make the allegedly false statements, it seems to me that Vivint’s argument ought to work, but this was a motion for summary judgment and Vivint apparently hadn’t developed evidence about that.

Compounder's claims of FDA approval/legality were literally false and material

Allergan USA, Inc. v. Prescribers Choice, Inc., No. 17-cv-01550-DOC-JDE, 2019 WL 650424 (C.D. Cal. Jan. 11, 2019)

Allergan “markets a portfolio of leading medical brands and products.” Prescriber’s Choice and Sincerus have common ownership and work together: “Sincerus produces drugs; Prescriber’s Choice markets Sincerus’s drugs and makes them available to physicians.” Sincerus registered with the FDA as an “outsourcing facility” under Section 503B of the FDCA in March 2016. “Through the FDCA and its exemptions, Congress allows outsourcing facilities to produce certain bulk drugs when the FDA determines there is a drug shortage or a clinical need.” The presence of either obviates the need for an individual prescription before the drug is produced. Sincerus formulated, compounded, distributed, and sold drugs from 700 different drug formulations, and Prescriber’s Choice marketed Sincerus’s to 3,000 customers in 30 states.

Compounding involves combining ingredients to create a bespoke drug, which can occur when, for example, a patient who has an allergy to a certain dye and needs a medication to be made without it.  It’s not illegal, but there are supposed to be restrictions on it. The varied drugs Sincerus and Prescriber’s Choice sold were intended to treat many conditions; only one drug appears on FDA’s drug shortage list. At the relevant time, the FDA hadn’t found a “clinical need” for outsourcing facilities to use any bulk drug substances, which would have let them be used under the Section 503B statutory exemption. Basically, and without trying to get the details right, Allergan argued that Sincerus was going beyond what the law allowed for a Section 503B facility, and falsely advertising legality.

Defendants promoted their business and drugs by representing to their customers that they comply with the law, that it is legal for Sincerus to compound in large quantities, and that the business meets federal regulatory guidelines. Customers—“including those who asked for reassurance or had questions about FDA compliance”—were told that “[t]o demonstrate compliance, Prescriber’s Choice and Sincerus FL tasked one of the top international law firms, Ropes & Gray, to analyze whether the business model comports with FDA regulations,” and “[t]he resulting written memorandum concludes that if your practice follows the model outlined, you are compliant.” Other claims were that that the Sincerus drugs are “prepared in the FDA facility, Sincerus, so you have the supreme reassurance that the quality of the medication is made under CGMP manufacturing standards with federal oversight.” Another rep told a customer that defendants “have had over 400 independent healthcare attorneys from many states review our whole platform and they all recommend our platform.” An internal e-mail said “I of course did explain to [the customer] that everything comes from our 503B facility and is FDA approved.”

Defendants also claimed that “[t]he unique combination of active and inactive ingredients has been selected to produce an outcome that is clinically superior and materially different to that which is commercially available.” The truth or falsity of this was a disputed fact.

“The FDA does not ‘accredit’ or ‘approve’ Section 503B outsourcing facilities or pharmaceutical ingredients, although the FDA does register and inspect such facilities,” including those of Sincerus, which hasn’t had an FDA objection.

Sales reps made statements about compliance with the law “because they knew that compliance with the law was an important issue to customers when they make a decision.” FDA-approved ingredients are also important because “dermatologists are seeking safe medication.” Prescriber’s Choice’s National Director told the sales team that Sincerus’s status as a “503B FDA Facility” would provide “even more assurance to patients due to the fact that they are generally familiar with the FDA.”

Allergan commissioned a survey of 202 dermatologists which revealed that 25 percent of physicians “worry about the legality and tediousness of in-office physician dispensing”; 27 percent of the respondents agreed with the statement “I worry about the legality of in-office dispensing”; 18% of the respondents said that “state regulation/restriction concerns” was a challenge with recommending or prescribing Prescriber’s Choice’s products; and 24 percent of dermatologists who had been visited by a Prescriber’s Choice sales representative indicated that they had received “Guidance with governmental regulations” from Prescriber’s Choice.

Allergan argued that “mass manufacturing and marketing unapproved new drugs” violated California’s Sherman Law, which incorporates the FDCA’s requirements (thus rendering defendants’ conduct a violation of California’s UCL under the “unlawful” prong and providing Allergan with a private cause of action). Defendants use bulk drug substances to produce their drugs, but only one of these drugs is on the FDA’s drug shortage list, and they also made drugs nominated for inclusion—but not yet included—on the clinical need list. (They also allegedly made drugs that weren’t even in this category.) FDA’s exercise of its enforcement discretion was not enough, Allergan argued, to convert this into legal conduct.

Sincerus argued that the FDA is encouraging 503B compounders to use substances on the FDA’s nomination list until the FDA finishes its clinical need list. The FDA issued an Interim Policy in January 2017, asking industry participants to nominate bulk substances for consideration under Section 503B and then creating three categories to determine which bulk drugs the FDA would allow for compounding while it worked on the multi-year process of preparing the clinical need list. Category 1 is nominations for the clinical need list; Category 3 comprises nominated substances that require more information, and defendants allegedly made substances from both categories. Defendants argued that because Sincerus holds a California Outsourcing Facility license and the FDA eventually placed all the relevant bulk drugs in Category 1, there could be no violation of California law.

The court wouldn’t rely on FDA’s exercise of its discretion to deem Sincerus’s actions legal, but nor would it ignore the Interim Policy, which seemed to encourage use of Category 1.  However, to the extent that Sincerus failed to comply with the Interim Policy, it would violate federal and thus state law. The undisputed facts showed that Sincerus began compounding and distributing drugs before they appeared on the FDA’s Category 1 list, which violated the law. It wasn’t clear that they were still making drugs in violation of Section 503B and the Interim Policy, creating a dispute of fact for the jury to resolve.

Lanham Act/California FAL/fraudulent prong of the UCL: Allergan argued that defendants made literally false statements about the lawfulness of their business:

• Statements about legal compliance because Defendants do not comply with Section 503B’s requirements.

• Statements about FDA “approval” because the FDA does not approve any of Sincerus’s drugs nor approve or accredit businesses or drug ingredients.

• Statements that Sincerus is an FDA lab merely because Sincerus is a registered 503B outsourcing facility, accomplished by “sending certain information to the FDA through an electronic registration system”; and

• Statements that “hundreds of lawyers” including the law firm Ropes & Gray LLP have opined that defendants’ business is lawful because defendants were not able to name any lawyers who made this conclusion and the Ropes & Gray memorandum assumed compliance.

Allergan also argued that it was false to claim clinical/patient outcome superiority for their drugs without any basis for so claiming.

Defendants argued that no one could have been fooled because their customers were “a sophisticated group of licensed and board-certified dermatologists, not one of whom would believe that Defendants are operated by the FDA.”  They argued that “FDA approval” wasn’t false because every active ingredient was for a FDA-approved drug acquired from a FDA-registered source and each formula is submitted to the FDA for biannual review. They argued that their practices were reviewed by “countless medical practices (and their lawyers)” but that they did not “take a roll call” of their customers’ lawyers. For superiority, they argued that compounding clearly can improve patient outcome and that these weren’t falsifiable statements [classic legal strategy: both puffery and true!]. Finally, they argued that Allergan’s survey showed that most dermatologists didn’t care about these issues.

The court found that some of the challenged statements weren’t literally false. E.g., Sincerus was a 503B facility and 503B drugs don’t need an ANDA and can be compounded in large quantities. However, there’s a difference between describing the 503B exception and “representing to customers compliance with that exception or general FDA approval,” and Sincerus had been out of compliance. Moreover, even compliance wasn’t “FDA approval.” “It is literally false for a company to represent that a compounder is ‘FDA approved’ during this period of regulatory evaluation, especially when the compounder is not even complying with FDA’s interim guidance.”  FDA inspection isn’t approval either.

Despite Sincerus’s violation of the law, sales consultants represented that the medications “are FDA approved” and touted compliance, which just wasn’t true at least before July 2018 and maybe after. Further, FDA approval of ingredients didn’t change the analysis.  If FDA approval of ingredients were enough, there’d be no need for the FDA interim process determining whether such drugs should fall under the 503B exemption as a clinical necessity.

However, there was a factual dispute on the literal falsity of statements about drug superiority, “where the drugs may allow a patient relief where she cannot tolerate a more traditional prescription.”

Because of the literal falsity, the court used a rebuttable presumption of actual deception. Even without that, there was no factual issue on materiality: it was clear that compliance with the law was important to customers, who linked it to quality in numerous ways (as did sales reps).  Allergan’s survey didn’t show lack of materiality—to the contrary, it showed that dermatologists were very attentive to the perceived legality of Sincerus’s operations.

Sincerus counterclaimed about Allergan’s reps’ disparagement of Sincerus: an allegedly official policy to “spread doubt” about Prescriber’s Choice and Sincerus.  “[S]preading doubt about the legality of a company that is not complying with the FDA Interim Policy cannot give rise to a valid claim under the Lanham Act.” However, there was enough evidence that Allergan sales representatives went beyond that, working alongside competitors to “shut Prescriber’s Choice out of St. Louis.” Though it was close, a reasonable jury could determine that Allergan violated the UCL and Lanham Act.

supplement guide isn't "advertising or promotion" under the Lanham Act, even w/undisclosed affiliation

Ariix, LLC v. NutriSearch Corp., 2019 WL 1040135, No. 17CV320-LAB (BGS) (S.D. Cal. Mar. 5, 2019)

Previous iteration discussed here. Arrix competes fiercely with Usana in the nutritional supplement market.  NutriSearch publishes the NutriSearch Comparative Guide to Nutritional Supplements, a guide used by consumers and professionals that reviews various companies’ products, including both Ariix’s and Usana’s. It’s now in its sixth edition. In 2005, individual defendant/author MacWilliam was working directly as a sales representative for Usana and writing the Guide, which he had conceived as a way to promote Usana’s products. “At the time, the Guide could have been considered commercial advertising.” But after several editions, it no longer qualifies as such.

The fifth edition awarded the Gold Medal of Achievement designation to companies that meet particular standards; Ariix made a vigorous effort to qualify, but was denied while four other companies were given the award. NutriSearch allegedly admitted Ariix had met the standard, but refused to award the company the Gold Medal because it was reworking its criteria. The new sixth edition has bronze, silver, gold, diamond, and platinum award tiers. Usana was the only platinum medalist. Ariix didn’t allege that Usana didn’t meet the criteria for this award, or that Ariix or any other manufacturer did.

As in its previous order, the court held that  “the Lanham Act does not apply to reviews of consumer products. This is true even if they are alleged to be biased, inaccurate, or tainted by conflicts of interest.” However, self-labeling as a consumer product review isn’t all it takes to be protected. The ultimate question is whether a publication is a consumer product review or commercial advertising. This one is the former. Although “reviewers who have undisclosed conflicts of interest may be liable under other laws, such as the FTC Act or various states’ advertising or unfair competition laws,” Ariix could not bring a Lanham Act claim against them.

The Guide as a whole wasn’t advertising. It includes two major sections: a set of ratings of 1,500 different nutritional supplements sold by different companies, and general information about supplementation. “The only feature alleged to be commercial advertising are the Guide’s awards. But even if the awards were commercial advertising, this would not suffice to bring the entire book within the statute.”  Moreover, the sheer number of companies whose supplements were reviewed made it implausible that the purpose of the reviews was “merely” to urge consumers to buy Usana’s products. And the book was sold commercially as a guide to supplements, and “is regarded” as a standard guide on the subject, though the court doesn’t say by whom.

“The [fifth edition] Guide itself included a preliminary note, disclaiming any association between either MacWilliam or NutriSearch and any manufacturer or product the Guide reviewed.” This wasn’t a commercial ad because it was part of the Guide, even if it could be viewed by potential Guide buyers online.  And the removal of the statement from the sixth edition wasn’t an admission of falsity; it could be a nod to the fact of this litigation. Moreover, its omission made the sixth edition even less likely to be the basis of a valid claim.

After several companies won the Gold Medal award in 2008, Usana allegedly demanded that it be positioned ahead of its competitors; NutriSearch allegedly then created a new “Editor’s Choice” award and gave it to Usana. But Ariix didn’t allege what the criteria for that award were, or that defendants ever claimed objectivity; the name itself suggests subjectivity.  Then, for the sixth edition, NutriSearch allegedly failed to notify Ariix when its new criteria were finalized, preventing it from being listed as a medalist. But there were no factual allegations indicating Ariix had a right to be told about new criteria or prompted to submit an application, or that others were treated differently—and even if there were such allegations, that wouldn’t make a misrepresentation; Ariix was still just criticizing a product review. “[E]ven if Ariix thinks NutriSearch’s criteria were illegitimate, as a reviewer NutriSearch is entitled to decide what its criteria should be.”

Going further, the court’s broad latitude for product reviews made it hesitant to find that awards of this type are ever fully objective, even if they involve objective criteria.

Previously, the court held that the “cozy relationship” between NutriSearch and Usana wasn’t enough to make the Guide commercial advertising. There weren’t allegations plausibly suggesting that speaking fees or Usana’s purchases and recommendation of the Guide were “some kind of under-the-table payment for promoting Usana and its products.” The amended complaint’s new allegations were still conclusory. The only “payments” NutriSearch allegedly received were “Usana’s promotion of the Guide, its purchase of many copies of the Guide, and its use of the Guide to promote its products.” But this behavior was fully consistent with non-liability.  “A company whose products are favorably reviewed has every incentive to capitalize on those reviews by doing what Usana did, and the fact that it does so does not suggest it has entered into some kind of secret agreement with the reviewer.”

The amended complaint alleged that in 2009, after NutriSearch gave Usana the Editor’s Choice award, MacWilliam decided to cash in on it, asking Usana to send him on a speaking tour. Usana agreed, and paid him $90,000 that summer. But this occurred far too long before the fifth or sixth editions to count as payment in connection with them, and wasn’t alleged to reflect a previous understanding, only an “afterthought.”  “Furthermore, a recognized and knowledgeable author who has just favorably reviewed a company is a natural choice as that company’s promoter or spokesman.” The complaint alleged that Usana continued to pay MacWilliam to promote its products and to speak to its reps, but didn’t support the conclusion that these were payments for advertising in the Guide as opposed to payments for speaking as agreed.  “MacWilliam could be liable under the Lanham Act if, while speaking, he made misrepresentations of fact about Usana or Ariix. But the only allegations show expressions of opinion or value judgments, rather than facts.”

Assuming the truth of the allegations, MacWilliam could be criticized for an undisclosed bias or conflict of interest, but that wasn’t enough for a Lanham Act claim [where the result wasn’t a commercial advertisement].  It wasn’t enough to allege that defendants had a direct economic motive for their speech to make it commercial speech.

The complaint was dismissed, this time without leave to amend.

plaintiff suing for noncomparative false advertising fails to establish irreparable harm

True Organic Products, Inc. v. California Organic Fertilizers, Inc., 2019 WL 1023888, No. 18-CV-1278 AWI EG (E.D. Cal. Mar. 4, 2019)

If trademark owners have cause to bemoan eBay’s application to Lanham Act claims, false advertising plaintiffs have even more, as this case demonstrates. Plaintiff True sells organic fertilizers, and is one of the largest and most sought-after manufacturers of organic fertilizers on the West Coast. Defendant COFI directly competes with True for sales of organic liquid fertilizer containing at least 4% nitrogen.

COFI sells Phytamin Clear, whose label states that it contains 4% nitrogen, which is composed of 3% nitrate nitrogen and 1% ammoniacal nitrogen. Phytamin Clear’s label also reads: “Derived from mined seabird guano.” The Material Safety Data Sheet repeats the guano claim. “Phytamin Clear is appealing to growers because of its high nitrate nitrogen levels and because the clear liquid can be easily applied through irrigation systems.”

True’s most directly competing products don’t have nitrate nitrogen, to which plants more quickly than they do to the organic nitrogen in most organic fertilizers. True “controls over 50% of the market” for organic liquid fertilizers containing at least 4% nitrogen and there are only four other companies competing with it.

Based on True’s experience with seabird guano products, it thought the nitrate nitrogen content of Phytamin Clear wasn’t consistent with seabird guano. It raised concerns with the California Department of Food and Agriculture, but nothing happened.  True thinks COFI’s source uses sodium nitrate to nitrogenate the guano; sodium nitrate is approved for use in organic farming in the United States, but not in Canada.  Many organic users in the U.S. allegedly export to Canada and thus must comply with Canadian rules. True allegedly obtained five samples of what it alleged was Phytamin Clear that came from at least four different batches and compared them to other products and materials, including the accepted reference sample for Chilean sodium nitrate and fossilized seabird guano.  (COFI argued that there were substantial questions about the authenticity and/or purity about the samples because of chain of custody issues—for example, the lot numbers on the containers allegedly didn’t indicate a direct sale to the farms from which the samples were obtained and the containers weren’t labeled the way COFI labels its containers.) The test results were reviewed by a professor of soil biogeochemistry, who concluded that Phytamin Clear is not solely derived from mined seabird guano or a fossilized seabird guano extract, but the ingredients were consistent with a product made from Chilean sodium nitrate.

True alleged literal falsity.  The only issue the court resolved was irreparable harm. True argued (1) sales diversion and (2) lessened goodwill for True through the implication that the nutrient content of Phytamin Clear can be achieved through the use of seabird guano, when True can’t offer similar products because it’s impossible. “Further, the general goodwill associated with organic fertilizer products is lessened by misleading advertising that cause farmers to distrust organic fertilizers.”

“[B]ecause of the difficulty of valuing goodwill, a loss of or damage to goodwill can constitute an irreparable harm for purposes of a preliminary injunction.” Nonetheless, “concrete evidence” of harm to goodwill is still required, and it wasn’t present here. There was no likely confusion between the companies and no comparative references on COFI’s label.  The idea that COFI could damage True’s goodwill, or the credibility of organic fertilizers generally, was “counterintuitive and contrary to the concept of ‘goodwill,’” which refers to the reputation of an individual business entity. “[A]ny negative ramifications to goodwill due to a false label would fall on COFI alone.” [I’m not sure about this—although it might not happen here, the idea that a bad actor can taint the reputation of an entire industry is not ridiculous; that’s part of what gets us the famous market for lemons.]  There was no evidence of damage to True’s goodwill, and its market share suggested to the contrary even though Phytamin Clear has been on the market since 2010.

As for threatened lost sales/prospective customers, they could also support finding irreparable harm. But there wasn’t evidence that this had actually happened.  The fact that the parties competed directly was insufficient with four other companies on the market. Anyway, “lost profits due to lost sales generally constitutes the type of harm that is fully compensable through money damages and therefore does not support injunctive relief.” Trademark cases were of no assistance to the claim here.

sales show format and timing are functional, court finds

VBS Distribution, Inc. v. Nutrivita Laboratories, Inc., No. SACV 16-01553-CJC(DFM), 2018 WL 5274172 (C.D. Cal. Sept. 10, 2018)

The parties compete in the market for nutritional supplements and television programs. VBS sued for Lanham Act and California state unfair competition law violations, as well as other claims including trade secret misappropriation.  None worked.

VBS alleged two unlawful schemes, the first involving false advertising of a dietary supplement. The supplement defendants made and sold “Arthro-7,” a dietary supplement for joint relief, with 60% of the market (perhaps among elderly people/people of Vietnamese descent). VBS sold a competing dietary supplement called JN-7 Best, with 10% of the market.  Defendants allegedly falsely advertised that Arthro-7 is “100% natural herbal,” that over 8 million bottles have been sold, and that Arthro-7 has been “clinically tested” and is “Doctor Recommended.”

“100% natural herbal” was allegedly false because the product contains animal products. The challenged ad contains the following phrase in Vietnamese: “100% tu duoc thao thien nhien.” VBS argued that this phrase translates to “100% natural herbal,” whereas defendants argued that the correct translation of “duoc thao” was “dietary supplement,” not “herbal.” There was a disputed issue of fact on the translation, but defendants still got summary judgment for lack of evidence of harm from this one ad. Instead, the only relevant evidence was that VBS suffered no lost profits between 2013 and 2014, when the advertisement ran in the newspaper, because its sales of JN-7 Best actually increased in that time period.

“Over 8 Million Bottles Sold!”  Defendants provided evidence that they had sold this many bottles from 1998-2017, so it wasn’t false.

The Arthro-7 package states that Arthro-7 is “clinically tested” and “Doctor Recommended,” and that “Positive results utilizing Arthro-7 have been supported by a UCLA researcher.” [See xkcd on “clinically tested.”] The packaging also has a picture of a man in a doctor’s coat, identified as “Dr. John E. Hahn, Board certified foot surgeon.” Plaintiffs argued that this was misleading because Dr. Hahn is a Doctor of Podiatric Medicine, and not a medical doctor.  But defendants submitted an article on the results of a 12-week clinical study in China; four of ten authors were from the Department of Pathology and Laboratory Medicine at UCLA’s medical school. This wasn’t misleading just because the studies took place in China; nothing on the package indicated otherwise. Nor was the use of a podiatrist whose license had expired as a “doctor” false—“Plaintiffs provide no admissible evidence showing that ‘doctor’ necessarily means one who is currently licensed or one who has a medical degree.”

The second general scheme involved the parties’ respective television shows. VBS Television is “primarily aimed at the Vietnamese community and is broadcast primarily in the Vietnamese language.” It produces a show named “DAU GIA TREN TRUYEN HINH” (“Fight Price on Television”), a live auction program which primarily auctions diamonds. In 2012, Defendant Tram Ho became a host of the show.  In 2016, VBS discovered that Ho was appearing on a rival television show called “Diamond at a Surprise Low Price.” The two shows allegedly have the same hostess, some of the same vendors, the same technician, the same time slot of 5:00 p.m. to 7:00 p.m., “the least to most expensive format,” “the same auctioning of approximately 30 items each show,” and the same product price range from $300 to $3,000.

Plaintiffs alleged trade dress infringement based on a trade dress comprised of:

a) the unique style and format of the show, b) its time slot and date selection, each week on alternate weekdays, from 5 to 7 p.m., on Tuesdays and Thursdays, c) the price range for its auctioned items, ranging from about $300 to $3000, d) its “least to most expensive” format in which the least expensive items are sold first, ascending to the most expensive items at the end of the show, e) the length of the show, 2 hours, f) its focus on live TV auctions of jewelry, particularly diamonds, g) its carefully selected vendors, who appear on the show with the show’s host, h) unique and proprietary camera angle and special lighting techniques developed by Plaintiffs using an Apple ipad tablet, i) the number and selection of items sold, usually about 30 items.

VBS failed to show that the claimed trade dress had nonfunctional features or a nonfunctional arrangement of those features. VBS’s own CEO and Chairman explained in his deposition that the lighting techniques and camera angles function to make the diamonds on the television show “sparkle” and appear brighter and that the lighting techniques are common in jewelry stores, “which demonstrates that the techniques are intrinsic to the sale of jewelry.” He testified that the show times and dates were chosen as times that would maximize viewership and auction purchases; that the show sells thirty products per episode because it is the optimal amount to sell during a two-hour long show; and that the products are priced between $300 to $3000 because the range is what the average target consumer can afford. Finally, he testified that the products are shown in the order of lowest to highest price to maximize sales, because more viewers tune in towards the end of the show. That’s all functional.

(Some other claims failed because Ho didn’t quit or breach her contract because of any outside interference—she left because the CEO/Chairman “grabbed [her] boobs, put his hands on [her] butt and then put his hands into [her] groin area.”)

False advertising & TM fail as workarounds to 230 for software blocking

PC Drivers Headquarters, LP v. Malwarebytes Inc., 2019 WL 1061739, No. 18-cv-05409-EJD (N.D. Cal. Mar. 6, 2019)

PC Drivers alleged that Malwarebytes’ malware detection software wrongfully categorized PC Drivers’ “technical support” software as malware or a “Potentially Unwanted Program” (PUP), generating claims under the Lanham Act and for business disparagement, tortious interference with contractual relations, negligence and gross negligence, unfair competition, promissory estoppel, and declaratory relief. The court (after transfer from Texas where Malwarebytes already did well) granted Malwarebyte’s motion to dismiss based on § 230(c)(2)(B) of the CDA, but granted leave to amend.

Malwarebytes offers a free version of its software and then upsells premium versions, promoting them by allegedly identifying and quarantining alleged PUP and malware and their official websites. In 2016, Malwarebytes categorized PC Drivers’ DRIVER SUPPORT and ACTIVE OPTIMIZATION software products with a negative PUP rating and as a security risk to Malwarebytes’ customers. PC Drivers customers who received Malwarebytes’ warnings were allegedly deceived into removing PC Drivers’ software. Despite PC Drivers’ allegedly providing Malwarebytes with evidence of its compliance with industry standards and other anti-malware vendor certifications, Malwarebytes refused to change the rating.  A Malwarebytes staff member also posted “Removal instructions for Driver Support” on Malwarebytes’ message board forum, including allegedly false and misleading comments about PC Drivers’ products. Similar comments came from a post on another site by a person who allegedly (on information and belief) receives monetary or in-kind benefits from Malwarebytes for each sales lead or software download generated from his post.

All this allegedly resulted in trademark “misappropriation,” infringement, and dilution, and “diminution in the value of PC Drivers as a going concern.”

Malwarebytes sought and received CDA immunity from some of the non-trademark claims. The CDA states that “No provider or user of an interactive computer service shall be held liable on account of ... (B) any action taken to enable or make available to information content providers or others the technical means to restrict access to [material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected].” This could be evaluated on a motion to dismiss, taking all PC Drivers’ factual assertions as true.

PC Drivers argued that section 230(c)(2) immunity didn’t cover “stealing” click advertising services paid for by PC Drivers and making false and disparaging statements about PC Drivers’ Products. The “theft” was described as:

When a Malwarebytes free version software user opens a search engine in his own web browser and searches for DRIVER SUPPORT or ACTIVE OPTIMIZATION, PC Drivers’ ads or website links bearing the Marks will prominently appear in the search engine results. However, instead of going directly to PC Drivers’ official website when clicking these links, it redirects consumers to the Malwarebytes website for the purpose of executing a Malwarebytes sale. The result is that Malwarebytes obtains the benefits of a potential paying customer based on the acquisition costs paid by PC Drivers.

But the CDA immunizes “any action” as long as it was “taken to enable or make available to information content providers or others the technical means to restrict access to material.” The alleged redirection was “clearly” such an action. When a Malwarebytes user navigates to driversupport.com or a PC Drivers advertisement, Malwarebytes identifies the domain as associated with a PUP and then directs the user to a Malwarebytes page notifying them that the site was blocked “due to PUP.” Id. It also informers the user: “Learn about PUP. If you don’t want to block this website, you can exclude it from website protection by accessing Exclusions.” “The statute does not contain qualifiers, conditions, or exceptions for ‘actions’ that have the secondary effect of depriving PC Drivers of the benefits of the page-click advertising it purchased from a third party.”

As for the allegedly false and disparaging statements, they were found in Malwarebytes’ online explanation for the basis of its classification of Driver Support as a PUP: “Malwarebytes has determined that Driver Support is a ‘system optimizer.’ These so-called ‘system optimizers’ use intentional false positives to convince users that their systems have problems. Then they try to sell you their software, claiming it would remove these problems.”  This stated basis wasn’t necessarily an “action taken to enable or make available” the technical means to restrict access to objectionable material. It was premature to rule on §230 immunity for that statement.  By contrast, screenshots and instructions for removing Driver Support were “actions” taken to “make available ... the technical means to restrict access to” objectionable material.

PC Drivers argued that Malwarebytes did more than necessary to make available technical means to restric access to material by blocking access to PC Drivers’ website even to its paying customers and by making it hard to allow users to readily un-PUP individual sites, constituting tortious interference with contractual relations. The court disagreed.  These were all functions that flowed from Malwarebytes’ making available the technical means to restrict access, regardless of details of operation. Even if PC Drivers subscribers are forced to choose between quarantining all or none of the listed PUPs and are unable to override Malwarebytes’ block, that was ok; if that was unwanted behavior, the subscriber could get rid of Malwarebytes.

PC Drivers then argued that the statutory immunity didn’t apply because Driver Support is not “objectionable” and Malwarebytes “has not actually determined that PC Drivers is objectionable.” Unsurprisingly, the court declined to reject Malwarebytes’ characterization, since §230 grants providers and users discretion to determine objectionability.  Although a concurrence in Zango expressed concern about secret, anticompetitive blocking such as browsers that filtered out criticism of the browser company, secrecy (and competition) wasn’t alleged here.

False advertising/disparagement: The claim that Driver Support was a “system optimizer” that “uses intentional false positives to convince users that their systems have problems” was nonactionable opinion.  There was no explanation of why “system optimizer” was a verifiable characteristic or was false. And classification of the products as PUPs was protected by CDA §230 as well as by being nonactionable opinion.

Trademark dilution: not famous, not actionable.

Infringement: It is not trademark infringement to confuse the public “into believing PC Drivers’ website and [P]roducts are malicious, and that Malwarebytes’ premium product is the solution to resolve any future ‘malicious’ programs.” And the complaint pled nominative fair use: the associated screenshots showed that Malwarebytes uses “download.driversupport.com.” and “www.driversupport.com” to inform the user of the program that is being blocked. “PC Drivers does not explain how its products or services may be readily identifiable without use of the domain names.” There was no excessive use of the mark pled. Nor did the use suggest sponsorship or endorsement by the trademark holder: very much to the contrary.

Other non-TM workarounds also failed, such as negligence (no duty), common law unfair competition (no independent tort), promissory estoppel (insufficiently specific promise).

"local" is falsifiable but relative, meaning damages for false advertising must be limited

Bimbo Bakeries USA, Inc. v. Sycamore, 2019 WL 1058234, No. 13-cv-00749 (D. Utah Mar. 5, 2019)

Previously, Bimbo won a false advertising claim in front of a jury against U.S. Bakery for trade secret misappropriation and for falsely advertising its bread as “local.” Bimbo Bakeries’ false advertising damages were limited to Utah and southern Idaho.  At trial, Bimbo’s expert testified about consumer surveys performed on U.S. Bakery’s fresh/local tagline, and another expert offered damages testimony; U.S. Bakery offered conflicting expert testimony.  After the verdict judgment was entered against U.S. Bakery for $8,027,720 in false advertising damages and $1,578,942 in trade secret damages, plus exemplary damages of $789,471 for the trade secret claim.

U.S. Bakery argued that the verdict should be set aside because (1) the word “local” in U.S. Bakery’s tagline is not a specific geographic place, and therefore not false or misleading; (2) Bimbo Bakeries’ expert testimony couldn’t support the verdict; and (3) Bimbo Bakeries failed to present evidence that “localness” was material. These arguments had been made before and didn’t work now either.  “Local” has a relative meaning, but it’s still a factual meaning in its context, and Bimbo showed misleadingness through extrinsic evidence.  U.S. Bakery cited Forschner Group, Inc. v. Arrow Trading Co., a Second Circuit case, to argue that “local” is not a specific geographic location that can be verified objectively as either true or false. Even if it had been binding, it wasn’t relevant: the court there held that “Swiss Army knife” doesn’t falsely suggest Swiss origin, but “a term does not need to designate a specific geographic origin to be actionable.”  “Local” is geographically descriptive, and Bimbo presented evidence that U.S Bakery used the term deceptively, “to suggest that its bread products were particularly fresh and of high quality because they were baked within the geographic vicinity of where they were sold.”

At trial, Bimbo’s expert presented admissible results of consumer surveys performed demonstrating 28% consumer confusion. The jury properly found materiality through direct testimony as well as survey evidence.

However, remittitur was appropriate on the false advertising claim. Remittitur is appropriate if the jury award is “so excessive as to shock the judicial conscience and to raise an irresistible inference that passion, prejudice, corruption or other improper cause invaded the trial.” The expert’s damage calculation was based on U.S. Bakery’s profits from all eight states in which the misleading tagline was used, but only Utah consumers were surveyed.  (What makes Utah consumers different in their likely response to the use of “local”?  In the abstract, I don’t see why this isn’t legitimately extrapolable to the other areas using only common sense. The expert admitted that consumers in different states might have different perceptions of what constitutes being “local”; “for example, a consumer in Vancouver, Washington, may consider Portland, Oregon, to be ‘local.’” This would be meaningful to the case here if the products were baked in places that may have been “local” to some consumers within the slogan’s footprint.)  Bimbo’s evidence was sufficient, but only with respect to consumer confusion in Utah and damages from false advertising in Utah. Since the jury chose to adopt Bimbo’s expert’s method of calculation, and since he calculated $83,398 in profits from U.S. Bakery’s use of the disputed tagline in Utah, no new trial was necessary and the damages were remitted to that amount.

It wasn't malpractice to argue unauthorized use of name was false association, not false advertising

Majorsky v. Lieber, No. 798 WDA 2017, 2019 WL 1092543 (Pa. Super. Ct. Mar. 8, 2019)

Majorsky and two business partners, Douglas and Natale, purchased the D.J. Hess Advertising Company. “D.J. Hess is a partnership that sells promotional products, items such as keyrings and pens inscribed with a company’s name. Two years after acquiring the business, Douglas and Natale voted to change the compensation scheme for partners.” As a result, Majorsky left and formed other competing businesses, including, Peg’s Custom Products and sued Douglas and Natale for violations of the Pennsylvania Uniform Partnership Act, as well as damage to his business interests and reputation in the promotional products industry. Douglas and Natale counterclaimed, alleging that Majorsky’s new business competed with D.J. Hess in violation of his fiduciary duty to the partnership.

A consent verdict dictated that Douglas and Natale pay Majorsky $10,000 in damages. That action was discontinued, after which Majorsky retained Lieber’s legal services and filed a second suit premised on the dissolution of the partnership. A key cause of action was that Douglas and Natale allegedly continued to use Majorsky’s name on the company’s website during the previous litigation, in violation of the Lanham Act. 

The Lanham Act case was dismissed on summary judgment, and appeals were unsuccessful. The Majorskys then sued their attorneys for malpractice for failing to adequately argue a false advertising theory under the Lanham Act. The trial court dismissed the complaint.

On appeal, Majorsky argued that his attorneys should have argued “false advertising involving literal falsity” instead of a trademark infringement claim, and that failure to do so was malpractice. To win a malpractice case, a plaintiff must show by a preponderance of the evidence that they would have recovered a judgment in the underlying action—that is, that they had a viable claim. Thus, the court turned to the literal falsity theory.

Whereas a false association claim requires secondary meaning, false advertising does not.  However, the underlying claim here was “essentially a false association claim in disguise.” Majorsky didn’t allege untrue claims about the products D.J. Hess sold, only that he remained erroneously associated with the company due to the retention of his name on the company’s website. Thus, the false advertising claim was “groundless” and Lieber “wisely” limited the action.  [I don’t disagree with this result, not least because I think materiality is a barrier to a false advertising claim because of the lack of secondary meaning, but I must note that the Lanham Act covers material false statements about goods, services, and “commercial activities,” not just statements about products.]  The malpractice claim failed and the trial court’s decision was affirmed.

copying without infringement, falsity without materiality in adhesive case

J-B Weld Co., LLC v. Gorilla Glue Co., 2018 WL 6356768, No. 17-CV-03946-LMM (N.D. Ga. Oct. 17, 2018)

Among other things, this case is a reminder that when you sue a competitor for false advertising you can often expect counterclaims--here the only thing that (partially and provisionally) survives summary judgment.

J-B Weld sells a two-part epoxy adhesive: when epoxy resin and paste hardener are mixed together, a reaction produces a permanent adhesive bond. Both J-B Weld Original and its newer KwikWeld are sold in major retail stores and online sites.  The current Original trade dress dates from 2012, and J-B Weld defines it as: (1) two squeezable tubes in a clear blister package with the two tubes arranged in a “V-shape”; (2) red coloring on one tube and black coloring on the other tube; (3) a clear plastic blister package holding the tubes curved downward; (4) a drop-down technical information box, located between the two tubes, that has four lines of information separated by white lines; (5) a colored banner across the bottom end of the card; (6) a colored banner bar that includes “Weld” within the banner; (7) the phrase “Steel Reinforced Epoxy” and “World’s Strongest Bond” on the card; (8) a list of uses near the bottom right corner of the card; and (9) a card that is five inches.

J-B Weld’s packaging has described J-B Weld Original as a “Steel Reinforced Epoxy” and the resin tube was labeled with the word “STEEL” since 2009.  That was also when Gorilla Glue allegedly became aware that J-B Weld intended the word “steel” on its packaging to indicate the presence of an iron-containing additive. Gorilla Glue neither contacted J-B Weld about nor challenged its use of the word “steel” on its packaging until this case. J-B Weld has also featured “World’s Strongest Bond” on the packaging for all its adhesive products since 2011, including its two-part epoxy adhesive sold in a plunger syringe launched in 2012; Gorilla Glue learned of the use of the phrase when the packaging debuted. Gorilla Glue likewise didn’t object until this case.

In 2012, Gorilla Glue introduced a new Gorilla Epoxy formula, which improved performance and provided a clear, rather than yellowish, formula. It then began working on a two-part clear syringe product with methacrylate chemistry (MMA) that it referred to as “Plastic Plus” or “Heavy Duty Epoxy” during development and consumer testing. It ultimately became the two-tube adhesive product known as “GorillaWeld.” During the design process, Gorilla Glue’s Brand Manager instructed its graphic designer to develop three blister card designs, including one that was “Close to JB Weld brand” and that “should follow closely to going head to head with JB Weld and play with such elements as black and red color palate and bringing in some visual reference to steel reinforcement.” The graphic designer stated: “The objective of this project was to go straight up against the top competitor (JB Weld) and create packaging that mimics the competitor’s architecture. I was able to pull subtle elements into our package, but still keep our package looking tough and geared towards the Gorilla brand.”

The ultimate trade dress had: (1) a 5-inch-wide orange blister package card; (2) an image of a gorilla at the top next to the phrase “Gorilla Incredibly Strong”; (3) two squeezable tubes in a clear blister package in a V-shape; (4) a gray tube with red coloring on the bottom and a gorilla image next to the phrase “Gorilla Incredibly Strong” towards the top; (5) an orange tube with black coloring on the bottom and a gorilla image next to the phrase “Gorilla Incredibly Strong” towards the top; (6) a clear plastic blister package holding the tubes curved downward; (7) a drop-down technical information box located between the V-shaped tubes, that has four lines of information separated by white lines; (8) a gray banner across the bottom end of the card; (9) a gray banner across the top of the card that includes the name “GorillaWeld”; (10) the phrase “Steel Bond Epoxy” on the card; and (11) a list of materials to which GorillaWeld bonds on the card’s bottom right side.

[Note: the descriptions here are really not that helpful, though clearly carefully crafted to make J-B Weld’s case—the overwhelming fact is that the dominant colors create a completely different visual impression. Yes, they look like the same product, the way that different manufacturers’ light bulbs look like the same product, but they do not in any way look like they have the same source.]

Although whether GorillaWeld is an “epoxy” was disputed, the back of GorillaWeld’s packaging, the Safety Data Sheet (SDS), and Gorilla Glue’s website all state that GorillaWeld uses MMA chemistry.

J-B Weld sued for trademark infringement and false advertising of GorillaWeld as an epoxy adhesive containing steel. Gorilla Glue counterclaimed against (1) “World’s Strongest Bond”; and (2) “Steel Reinforced Epoxy.”

Trade dress first: the overall impression wasn’t similar.  Much explanation of why omitted, focusing on colors and their arrangement.  J-B Weld urged the court to find similarity “despite the brand names, logos, and color schemes.” But “it is precisely the prominent display of distinctive brand names and logos coupled with the use of radically different color schemes that negates any possibility of consumer confusion in this case—thus precluding a finding of similarity.” This wasn’t a swap of one name and logo for another, but a “radically different color scheme” and a prominent use of a distinctive logo “to cure the effect of any visual similarity.”

J-B Weld offered as actual confusion evidence three employees’ testimony.  One indicated that a Loctite sales rep asked if J-B Weld made Gorilla Glue’s “twin tube product for [Gorilla Glue]”; another had an encounter with a Loctite rep who asked if J-B Weld was “private labeling for GorillaWeld” after seeing the packaging; and another indicated a buyer from O’Reilly’s Auto Parts asked if J-B Weld had “anything to do with” Gorilla Glue’s product. These were admissible hearsay, going to state of mind and not the truth of the matter asserted.  But “[i]nquiries indicating that ‘consumers perceive a difference between the designations and are skeptical of the existence of a connection between users’ may not establish the existence of actual confusion.” Those inquiries indicate that the speakers actually know there’s a difference. They were inquiring into whether there was a possible collaboration, but they weren’t confused about source nor did they believe that there was a collaboration (if they did, they wouldn’t have needed to ask).  And there was no other evidence of confusion.

Intent: the Eleventh Circuit has held that: “If it can be shown that a defendant adopted a plaintiff’s mark with the intention of deriving benefit from the plaintiff’s business reputation, this fact alone may be enough to justify the inference that there is confusing similarity.” But the court here noted that “there is a difference between ‘intentional copying’ and adopting a design ‘with the intent of deriving benefit from’ another person’s design.”  Intent to copy aspects of a trade dress doesn’t show intent to derive benefit from J-B Weld’s reputation through confusion.  [Not unrelatedly, Gorilla Glue didn’t adopt J-B Weld’s mark, even if it copied aspects of that alleged mark.]  And bad intent is neither necessary nor sufficient for infringement. The instructions to Gorilla Glue’s graphic designer didn’t reveal an infringing/confusing intent. As she herself stated, “I was able to pull subtle elements [of J-B Weld’s Dress] into our package, but still keep our package looking tough and geared towards the Gorilla brand.” “The Eleventh Circuit has noted that public policy favors permitting companies to imitate the products of competitors—so long as there is no intent to deceive consumers as to the maker or origin of the product.”  Gorilla Glue intended to compete, for sure, but its use of its own well-known color scheme and distinct logo “clearly indicates that Gorilla Glue did not intend to confuse consumers as to GorillaWeld’s origin.”  In addition, certain design features may have had non-trademark functions, such as the V-shape showing consumers that the components need to be mixed together and preventing leakage. “Where, as here, ‘there may have been many other motivations for Defendant’s actions,’ intentional copying does not necessarily indicate a desire to capitalize on another’s goodwill.”

The remaining factors changed nothing. Gorilla Glue was entitled to summary judgment on the infringement claim.

False advertising based on Gorilla Glue’s use of the phrase “steel bond epoxy”: The court started with “epoxy.” Literal falsity requires an unambiguous message and is a “demanding” standard.  J-B Weld argued that Gorilla Glue’s use of “epoxy” is literally false because “epoxy refers to a polymer containing one or more epoxy groups.” Even if the court accepted that definition, the claim failed for lack of materiality. “[T]he presence of a false statement alone is not sufficient to prove materiality.”  J-B Weld’s consumer survey didn’t show materiality; it failed to show that consumers even understood “epoxy” as chemically defined. J-B Weld’s expert didn’t question survey respondents about whether an “epoxy resin has a specific type of chemistry to it”: as he said, “Do you really think [consumers] care at the end of the day if it takes two things, you put it together, and it stays there? They’re happy.” J-B Weld’s speculation that Gorilla Glue’s prior attempts to launch an MMA product under the name “Plastic Plus” and alleged repositioning of the product as an epoxy indicated that “epoxy” was material were insufficient.

“Steel bond”: J-B Weld argued misleadingness: a false suggestion that GorillaWeld contains steel. Again, assuming that its survey showed misleadingness, it still didn’t show materiality. The survey simply showed respondents both J-B Weld Original and GorillaWeld, and then asked which of the two products contained steel. (Amazon also originally categorized GorillaWeld as a “metal-filled epoxy” on its website, but a retailer’s misclassification wasn’t evidence of consumer deception.)  Nor would the court presume deception from Gorilla Glue’s deliberate conduct because the Eleventh Circuit hasn’t adopted that rule and in any case Gorilla Glue’s acts weren’t of an “egregious nature.” 

J-B Weld pointed to some 2009 evidence from Gorilla Glue employees noting that steel or a similar filler would provide “some advantage from a marketing standpoint.” But that old evidence wasn’t a direct indication of what actual consumers would do today.  [Quite notable how differently courts treat evidence of advertisers’ beliefs about consumers in advertising cases versus trademark cases. There’s no question that a substantial number of courts would treat similar evidence about the appeal of, e.g., a particular trade dress as indicating both an intent to deceive and likely success in doing so. I think those courts are wrong, but it’s also a bit bizarre to presume that active competitors in a market have no idea what might appeal to consumers.] Summary judgment for Gorilla Glue.

Counterclaims: J-B Weld argued that claims based on “steel reinforced” should be dismissed based on laches. In Georgia, the borrowed period for assessing laches is four years. Gorilla Glue argued that its awareness of the phrase did not ripen into a provable claim until the present litigation. The court agreed. In 2009, its reverse engineering attempts led to a report from an adhesive manufacturer in 2009 stating that the “one puzzle in this adhesive is presence of iron powder in the formula. It does not appear to add anything to the properties ... one clue to iron powder ... can be found in the name ‘steel’ that labels the resin.” But that didn’t mean that Gorilla Glue knew or should have known that it had a provable claim for false advertising simply based on a comment from a third-party that the presence of iron in JB Weld Original was “puzzling.” Even if it did delay, Gorilla Glue raised a material issue on excusability, because the parties weren’t directly competing on two-tube epoxy products until GorillaWeld was launched.  The Eleventh Circuit has held that delay is reasonable where a plaintiff waits to sue until coming into direct competition.

And there was a genuine dispute of material fact on literal falsity.  Gorilla Glue had evidence that the “presence of ‘steel’ in JB Weld glues has no significant overall reinforcing effect,” while J-B Weld’s expert said that the addition of steel “strengthens the adhesive, supports the adhesive, allows those steel-containing products to provide enhanced performance and improved mechanical behavior.”  [Is that the question?  I thought it was whether there was “steel” in there in the first place.] Anyway, could be literally false or misleading, although the court had “reservations” about ultimate materiality and would allow additional briefing on the matter. J-B Weld’s motion for summary judgment denied.

Claims based on “World’s Strongest Bond” were not only barred by laches, but also failed as a matter of law. Gorilla Glue learned of J-B Weld’s use of the phrase in 2011, discussed challenging it in 2013, and did nothing. Unlike with “steel reinforced,” J-B Weld was using the phrase on all its products, including those in direct competition with Gorilla Glue.  Gorilla Glue argued that it didn’t sue because a comparison between its Gorilla Epoxy product and J-B Weld’s competing ClearWeld showed comparable bond strengths. “Yet if the two products had comparable bond strengths, … it stands to reason that J-B Weld’s product could not literally create the ‘World’s Strongest Bond,’ because another product could create that very same bond.”

J-B Weld also showed prejudice because it “extensively used the J-B Weld Packaging Statements and built its brand around them,” spending millions on advertising and marketing its products between 2012-2017—all of which prominently feature the phrase “World’s Strongest Bond.” Gorilla Glue argued that there was no prejudice because J-B Weld knew from the beginning that it was a wrongdoer and had no testing supporting its claims. But J-B Weld argued that the phrase was puffery; it could hardly be said that J-B Weld would have spent the same amount of money and effort “notwithstanding any threat of litigation from Gorilla Glue.” [Really?  They might have changed that one phrase; the advertising/marketing is for the products as a whole, not a single phrase.]

Gorilla Glue argued that laches didn’t apply because it sought only injunctive relief, but that’s only the rule where the public interest in preventing consumer deception outweighs the effect of a plaintiff’s delay in bringing suit. Without strong evidence of likely or actual confusion, laches applied.

Anyway, “World’s Strongest Bond” was nonactionable puffery—exaggerated and general. Gorilla Glue argued that the strength of an adhesive bond is measurable and thus falsifiable. But it was too general, not a “detailed factual claim.”

Omission of side effects in lash "cosmetic" ads was plausibly false & misleading

Lewis v. Rodan & Fields, LLC, 2019 WL 978768, No. 18-cv-02248-PJH (N.D. Cal. Feb. 28, 2019)

Nine plaintiffs brought a putative class action alleging that defendant Rodan failed to disclose that its Enhancement Lash Boost eye serum, advertised as a cosmetic designed to make eye lashes longer and more beautiful, “had harmful side effects linked to an ingredient in” the product, a synthetic prostaglandin analog. One plaintiff’s eyes changed color, another “developed a grey spot in her vision and had central serious retinopathy,” another’s eye lashes fell out and not all of them have grown back, and another “developed a rash on her eyelid[,] [ ] her eyelid became discolored and darkened, ... and lashes no longer grow where [a] bump” developed. “Many of these side effects match those associated with all prostaglandin analogs.”

Indeed, for these reasons, the FDA previously warned another manufacturer of “cosmetic” lash-enhancement products that used the ingredient that the products violated the FDCA because they were unapproved new and misbranded drugs and failed to reveal important side effects. Rodan, too, didn’t disclose the serious side effects associated with the ingredient.  The warning states, as relevant here, “For external use only. Avoid getting in the eye; in the event of direct contact rinse with cold water. If you develop irritation or swelling discontinue product usage.” Rodan’s website and marketing materials did no better and, in some instances, affirmatively distinguished “drugs” that cause those side effects from Lash Boost’s side effects, e.g.: “The only serious side effects we have heard about are those associated with drug products, not cosmetics.” Rodan claimed the product was “a cosmetic.”

Plaintiffs alleged that, had Rodan included an adequate and “full[ ] disclos[ure about the] adverse side effects of Lash Boost, plaintiffs would have decided not to purchase Lash Boost.” And plaintiffs alleged that “they did not receive what they paid for when purchasing Lash Boost,” because they paid for a product with, at most, side effects limited to irritation but instead received a product that had serious and sometimes permanent side effects.  They asserted claims under various states’ common laws and false advertising laws, as well as a RICO claim that was dismissed because it was a RICO claim.

The false advertising claims were all based on an omission theory. For omission, Rule 9(b) “requires that the complaint adequately allege why the omitted fact is true, as well as being material to consumer decision-making.”  The complaint did so.  Plaintiffs plausibly alleged that the product could cause serious side effects, and that this is material in that reasonable consumers would have been likely to act differently because of this fact.  Given the materiality of the omission and the other allegations, it was plausible that, had Rodan reasonably and adequately disclosed the serious side effects, the plaintiffs would have been aware of the disclosure and acted differently. And plaintiffs adequately alleged injury: they didn’t receive the benefit of the bargain, a minimal-side-effect product.  Finally, as to the states that require some kind of intent, plaintiffs adequately alleged “that defendants were aware of or had [ ] reason to know of” the allegedly omitted information.

Belmora doesn't replace 43(a)'s usual requirement of protectable subject matter in standard trade dress case

Secret of the Islands, Inc. v. Hymans Seafood Company, Inc., 2019 WL 917209, No. 2:17-cv-342-BHH (D.S.C. Feb. 25, 2019)

SOTI sells salt scrubs and other body products; salt scrubs can be used as hand soap, but also exfoliate and moisturize. Hymans sells salt scrub and skin care products as Holy City Skin Care. Hymans initially displayed SOTI restroom samples in its Charleston, South Carolina restaurant and sold SOTI salt scrubs in its attached gift shop. After two years generating $100,000 in retail revenue from SOTI products, Hymans allegedly started relabeling SOTI products in its gift shop, and SOTI terminated the relationship.  After that, Hymans allegedly “misappropriated SOTI’s brand-value and goodwill by employing restroom-sample displays materially indistinguishable from SOTI displays, employing the same distinctive slogans that SOTI created to market its products to the hospitality industry, and duplicating SOTI’s distinctive packaging.” In July 2012, a SOTI manager informed Hyman’s marketing partner that Holy City’s products infringed on its rights.

The court first found that SOTI pled itself out of court on laches/statute of limitations issues.

The complaint clearly indicated that SOTI knew of the alleged infringement in 2011, when it terminated its relationship with Hymans, and then again in 2012. But SOTI didn’t file suit until 2017, well outside the three-year limitations period applicable to the South Carolina claims. The statutory unfair trade practices claim failed also because it didn’t allege sufficient facts to show an adverse impact on the public interest, as required. Claims of public confusion and deception weren’t enough to transform an “essentially private” business dispute into a matter that could cause “substantial injury to consumers.” There was no allegation that the Holy City scrubs were dangerous, or financially more costly to consumers.  Diversion of consumers and revenue, along with misappropriation of goodwill, were mere private wrongs.

The Lanham Act borrows state law statutes of limitation for measuring laches in the first instance.  Laches requires unreasonable delay by the plaintiff plus harm to the defendant from the delay.  Here, there was a nearly five-year delay between the latest point at which SOTI knew of Holy City’s allegedly infringing products and marketing practices, and the filing of suit.  Not only was there a presumption of unreasonable delay given the timing, but the complaint also pled events that established unjustifiable delay, given the prior relationship between the parties.  Even if it was reasonable not to sue when the relationship terminated, “it must have set off alarm bells for SOTI when, in July 2012, it subsequently discovered that a major corporate entity in the hospitality industry, U.S. Foods, was distributing Hymans’ now fully-branded competing product line—Holy City Skin Care—in notably similar mason-jar packaging.” Instead, SOTI waited to sue until “Holy City’s product line and business were successfully established. The Court finds that this delay was unreasonable, and would have the perverse effect of dramatically multiplying the damages to which SOTI might be entitled if the Lanham Act claims were permitted to proceed, damages which could have been easily mitigated if SOTI brought its claims when it knew they were ripe.” 

Prejudice to defendants was thus also shown by the allegations of the complaint: “Plaintiff … avers that by building a business model dependent upon SOTI’s trade dress and trademarks, Defendants have successfully supplanted hundreds of sales accounts, and diverted millions of dollars in revenue. Thus, the amended complaint demonstrates that Defendants, relying upon SOTI’s inaction, built a valuable business over the course of approximately six years, a venture that axiomatically required the commitment of substantial economic resources.” This was the rare case where no factfinding beyond that alleged in the complaint was required for laches.

Regardless, the Lanham Act claims were also substantively deficient. “The closest that SOTI comes to stating a plausible claim to relief based upon misappropriation of its intellectual property is its reverse passing off theory, where it alleges that Hymans, in 2011, took some amount of SOTI’s sample salt scrub product and placed it in jars with a different label for sale in the Hymans General Store.” But that claim was time-barred.

Instead, the core of  SOTI’s Lanham Act claims was that its marketing system of “providing salt scrub samples in hospitality business restrooms with signs encouraging users to purchase retail product in attached shops, its marketing slogans such as ‘Turn your restroom into a profit center,’ and its packaging the product in mason jars with an attached wooden spoon affixed by an elastic tie around the neck of the jar” was protectable.  But beyond conclusory allegations, SOTI failed to allege that its marketing system, marketing slogans, and mason-jar packaging “were anything other than generic, functional sales modalities.”

SOTI argued that Belmora didn’t require it to possess a protectable mark to proceed under §43(a), but Belmora “does not support the kind of open-ended unfair competition claims that SOTI suggests are permissible under Section 43(a).” Instead, Belmora allowed the owner of a foreign mark to proceed against a US user; it didn’t “open the door to ‘boundless application [of Section 43(a) ] as a remedy for unfair trade practices.’”

SOTI’s false advertising claim was premised on the fact that Holy City labels its salt scrub jars with a gross weight of 780 grams, whereas SOTI labels its packing using the net weight of the salt scrub itself, which is 455 grams. SOTI alleged that South Carolina’s Uniform Weights and Measures Law and implementing regulations to the federal Food, Drug, and Cosmetic Act require that consumer packing must state the net quantity of contents within a packaging container. But there was no showing that 780 grams was not the gross weight, and there was no private right of action to enforce the laws SOTI cited.

ICANN and the New Top-Level Domains, panel 2

ICANN and the New Top-Level Domains

“Walled Gardens:” Should gTLDs Become Private Platforms?

Becky Burr, ICANN Board & Neustar: We used to talk about .kids as a walled garden/moderated content for kids, a safe space. [Based on what we know about who abuses kids, it’s not surprising that it hasn’t worked all that well.] Others are more general—open to anyone to register, but with rules for registrants. Whether that’s good or bad has to be more granular.

Sarah Deutsch, ICANN Board: To me, depends on what the garden is: if it doesn’t allow other people in and there’s bad activity, such as anticompetitive activity, that wouldn’t be good. Other spaces might just be regulated. That could be a walled garden.  Worries: where someone gets exclusive rights to run a generic term as one competitor in the market.  [Example from Aufderheide: L’Oreal owning .beauty]

Kathy Kleiman, Center for Information Technology, Princeton University: When we started, gTLDs were to be managed in the public interest. We looked for abuse of the structure (malware, botnets) and not bad content (where laws differ worldwide and where it wasn’t our job to judge content). Country rejected SOPA/PIPA domain name blocking. We protected due process. But on the way to new gTLDs, ICANN decided to open up registry agreements to voluntary commitments.  Registry applicants slid a lot of other stuff into those agreements, which ICANN allowed.  Donuts, w/hundreds of TLDs, created a policy allowing it to block registrations based on agreements w/TM owners, a policy that had been rejected at the ICANN level.  Judge © and TM claims.  Minds + Machines promises to “constructively work with law enforcement to address reported cases of abuse”—law enforcement asks for a lot of things based on mere allegations, and no due process is mentioned.  Yet ICANN has a limited mandate.

Nonetheless, ICANN apparently embraced voluntary content regulation in its new bylaws.  Question for the panel: what’s left of the multistakeholder model and what is ICANN’s continuing role in protecting the open structure of the internet?

Jeff Neuman, Com Laude/Valideus: The ultimate end users are also of concern. (1) registries w/restrictions—only allow certain entities in. (2) closed generics: taking a generic word and using it w/in own organization/its affiliates. (3) ability to take down names that violate your policies.  All 3 of these can be and are good things. Organizations are facing increasing scrutiny for the content delivered through their platforms—FB, domain name registry [those actually have very different levels of control of individual posts/incentives to take users’ interests into account/levels of public exposure].  Have to think of it from their perspective. Wish it was as easy as saying we don’t regulate content. But there’s child porn, imminent threats of harm, counterfeiting and infringing movies. When things are that obvious, and you know that you will be criticized for allowing that activity through your platform, then the choice isn’t as simple as not looking at content.  He’s seen actual threats of car bombings [so he would have gotten rid of FB if he ran .com?] and he’d rather take that down than not do so.

Mitch Stoltz, EFF: Not super concerned with defining “walled garden.”  As a concept it’s useful to talk about gatekeepers of speech on the internet, of which there are many varieties. FB has an incredible amount of power over who gets to speak and who will hear it. It’s scary that registries can make your entire website disappear; registry is a private company w/its own business motivations exercising arbitrary power over speech.  It is important that different registries can do it differently--.com historically doesn’t have policies like those the new ones are adopting.  Cloudflare has immense power.  Content industry wants to leverage that to make it police for copyright if it polices for child porn/foreign pharmacies. But it’s easy to see where it goes from there.  If we built a smart highway would we want it to scan to make sure you were driving in an ok way? [Note that China’s social credit system is doing exactly that—you won’t be able to travel easily unless you have good social credit.]

Burr: There are enormous numbers of issues here.  ICANN shouldn’t have taken on the burden of trying to figure out compliance w/all these public interest commitments, which applicants made in order to get a competitive advantage.  Now that people used those to get a competitive advantage, holding them unenforceable is unattractive too. We grandfathered the existing commitments into the new bylaws in order to kick the can down the road (outsourcing compliance which isn’t great either).   

If there are lots of different registries then it might not be a big problem if they have varying rules.

Example of problem: something weird is going on in a set of domains. Sites selling every dog breed in the world to US consumers, shipping the puppies sight unseen. She didn’t buy a dog so she can’t say she was ripped off, but there was no question that this was a scam & we took them down. It’s critical that people be able to exercise that kind of judgment where consumer harms are involved. There’s no state action & scammers can go register on some other site; we aren’t going to protect it. She doesn’t think that’s a matter of free speech.

Deutsch: all sorts of third party sites have provisions about copyright & TM etc; DMCA gives you obligations for takedown.  It’s not that surprising for stuff to be in a contract. There is also more pressure on platforms, ISPs, even possibly registrars & registries to take more fiduciary responsibilities for what’s on their sites. But shadow regulation also tends to grow.

Neuman: .biz had a problem with being a known source of spam; made it hard for legit clients to get emails through.  Created an anti-abuse policy for acting on malware, phishing, spam: first policy in the big registries. Registrars would have 12 hours to take the domain down or we’d do it. That made us pariahs in the community. But there wasn’t a slippery slope. In 2005, took down 32,000 domains with zero complaints from the registrants.  We’ve taken down 100,000s of domains. Took .biz from most abusive to one of the safest TLDs. Not all slippery slopes have to be slid down.

Stoltz: There are issues of norms & due process. Should the power company combat fraud by accepting complaints about fraud & cut off a business’s electricity if it finds the complaint persuasive? That sounds bizarre. Power is used in the commission of all sorts of crimes, but it’s still not their role to police that.  There is space for competition among policies, but that only works if that’s evident to consumers—if people know what they’re buying, and if there is actual competition.  Donuts owns 1 of 6 of the new domains, and they use policy rejected by ICANN.

Kleiman: the key move here is ICANN’s abandonment of the principle that it was about regulating infrastructure and move into regulating content.  The attempt here is not just to get the regulations into the agreements but to get to ICANN to enforce content regulations.

Q: if an applicant made promises & got the domain b/c of the promises, it’s sensible for ICANN to be one of the entities that can hold them to its promise.  If Goodyear got .tires and biased the search within that gTLDs—that would be ok if it’s disclosed, but maybe ICANN should stop it from happening. FTC said it would watch and if there’s deceptive trade practices the US would enforce against it. That’s how it happened at ICANN; there’s no blanket prohibition on a competitor running a closed generic and we deal with problems after the fact; would it be better to have it otherwise?

Karanicolas: Infrastructure layer makes a difference: there’s a difference b/t Twitter kicking Milo off and Comcast installing a filter to prevent anyone on their network from seeing Milo’s content. But where do registries fall on that spectrum?  [Right, one of the distinctions to be made here is the puppy mill v. Craigslist, both of which might be offering scams.  Do we have any way of distinguishing that in order to protect Craigslist against a significant chilling effect?]

Q: We need to know what the rules are about people being kicked off. If there are pre-agreements w/certain TM owners, is the decisionmaker biased?  Is there any way to appeal? If you’re making government-like decisions then there should be government-like protective structures for decisions.

Deutsch: .bible—applicant wanted to exclude nonChristians and anybody of which it didn’t approve, and to make UDRP panelists sign a statement of faith. This is a real world example of what happens in a closed generic space and we need to be mindful of that.

Neuman: .disaster could easily be exploited for fraud.  But we need to look out for end users more than a right to register any name that you want. A closed generic could be a lot more useful for end users than what’s in the market now. If Amazon had .book and could give an official page to any author, is that better or worse than letting anyone register and maybe never getting .book into widespread use.

Burr: doesn’t like the power company metaphor b/c power is a utility; I don’t have a choice about where I get power from. Registries/registrars doesn’t fit into that paradigm.  DMCA issues: registries/registrars can’t simply take down one piece of allegedly infringing content: that makes them fit poorly into the DMCA framework.  Issues w/r/t copyright & TM are not the same as issues about what’s not legal in Thailand (criticizing the royal family) or consumer fraud.  [Which is very telling insofar as Donuts and similar agreements are about copyright and TM, and side agreements w/© and TM owners are what have brought us here.  Donuts didn’t make any agreements with the gov’t of Thailand, or with the FTC or even the BBB.]

ICANN and the New Top-Level Domains part 1

American University Washington College of Law

YouTube link

Welcome, Christine Haight Farley, American University Washington College of Law

We are in the midst of an historic expansion of internet domain names with more than 1200 new generic top-level domains (“gTLDs”) now competing with <.com>. This 5000% increase in gTLDs is the biggest change to the internet's domain naming system in thirty years (and more are coming soon!). Accompanying these new gTLDs, are new and innovative--but little known--IP rights protection mechanisms. These developments could have a profound impact on the rights of IP owners, domain name registrants, and the public, and on the architecture of the internet.

Trademark Protections in the New gTLDs

Mary Wong, ICANN

What is the TMCH? Ten years of history. One of the mechanisms developed at ICANN (not by ICANN necessarily) for the latest round of expansion of gTLDs.  ICANN has staff but can be described as a world wide community, always talking about participants—gov’ts, businesses, lawyers, civil society participants, academics, other individuals.  Participants develop policy, not ICANN staff (which would be easier and faster!).  These mechanisms were developed/agreed upon by a wide variety of interests.

TMCH is not a rights protection mechanism (RPM) as such, but supports other RPMs in that TM owners submit marks into the TMCH. Those marks (their existence in a national register somewhere, or b/c they’re protected by treaty) would be validated by Deloitte, the operator of the TMCH, and you end up with a global repository supporting Sunrise and Claims (of which more soon). Over 80% of marks submitted are validated; marks from over 100 jurisdictions; 10,000s have been submitted since establishment 5-6 years ago.  Allows three categories of marks: (1) protected by a national registration, w/no distinction across countries; (2) marks validated by a court of law; marks protected by a statute or treaty.

Brian King, MarkMonitor: What did TM owners want from the TMCH? Assume you’re in-house at Delta Airlines.  Responsible for brand protection: monitoring for infringement, TM registries around the world. You may have 100s or 1000s of domain names, including country code domain names (delta.co.uk), and have to monitor for similar/infringing names. Might hire MarkMonitor to help w/that. Privacy protections can help people hide identity of registration.  ICANN decides to multiply existing gTLDs by a lot.  Now I have to worry about .air, .flight, .sucks, .porn: concepts Delta doesn’t want the brand associated w/ and may have to register domain names in merely to preempt other people from doing so.  This is scary and new RPMs help address the fear.  Sunrise allows Delta to register before non-TM owners.  TMCH also provides a notification when someone else registers [an identical domain name] in a new gTLD.

Michael Karanicolas, University of Toronto (delayed due to weather; I was able to rely on his notes)

Kathy Kleiman introduced Sunrise in his absence. Mandatory 30-day period (some registries expand it to 60 days) that all new top level domains are required to provide to owners of trademarks, whereby any owner of a mark which is recorded in the TMCH may pay a special fee to the registry to register a domain matching their mark before they are opened for general sale.

Why 30 days? And not forever? A balance designed to give weight to the interests of current trademark owners, but also to the interests of other potential registrants -- the innovators, speakers, entrepreneurs who want to register in a new gTLD as well.  There are multiple entities with rights in Delta, for example: dental, educational, fraternity, etc.  Both Sunrise’s duration and its limits—requiring an exact match with what the trademark owner has registered—reflect the desire to balance these competing interests.

Griffin Barnett, Winterfeldt IP Group: Q to address: Purpose of TMCH for TM owners as it has turned out?  Keep in mind function of TMs, which is to protect consumers from cybersquatting/fraud etc.  Benefits to brand community: operationally, TMCH generally works well.  Sunrise allows defense against phishing.  Two aspects to claims service: one is notice to brand owner who’s recorded the mark if a domain name matching the registration is registered, but also during the first 90 days a potential registrant who tries to register a matching domain name will receive a claims notice setting out the registered mark with some details. Just a notification: does not block registration but makes them aware and hopefully they can make an informed decision.  They might be deterred based on the knowledge of rights out there.

Q: where are these TMCH registrations coming from? 

Barnett: Deloitte has a report: a lot of these TMCH records come from the US, Europe.  There are a number of Asian jurisdictions represented, but majority are US/Europe. Large corporations tend to be the ones recording multiple marks, but smaller/medium businesses can use it too.

Wong: Yes; likely to see other countries’ submissions go up b/c of increasing awareness of these kinds of protections. Most big companies don’t enter all their brands.

King: it’s not cost effective to enter all TMs, but the crown jewels deserve TMCH entry. There was an educational period, but people are aware of this now.

Rebecca Tushnet, Harvard Law School

New legal or quasi legal systems are often set up assuming that they will be used against, and not by, bad actors, because that’s the problem that is most salient before the new system exists.  Unfortunately, online is like offline: bad actors find ways to game the system whether that’s by disseminating fake news or by claiming rights far beyond what they actually have, and we need to take that into account in designing our systems.  Devil is also in the details: when a policy is written, it may change substantially depending on who is implementing it and with what expectations.

After Sunrise, there is a Trademark Claims period: when we talk about Trademark Claims notice, we mean the notice that goes to anyone who attempts to register a term that is an exact match to a mark in the TMCH. If they proceed to a final domain name registration then the TMCH mark owner also gets a notice so that it can take further action if it chooses to do so.  This second notice is called a NORN in case there weren’t enough acronyms around.  

Top ten queried entries in the TMCH that trigger a Trademark Notice when there’s a registration attempt: Cloud (which is a registered Swiss trademark for pens, registered by a trademark lawyer), smart, love, luxury, nyc, forex, hotel, one, london, abc. Other terms that reporting has identified as being in the TMCH: Cash, "RICH," "CREDIT, the word “the,” VIP, global, hotels, mobile, prime, uk, virtual, “Christmas”, “Insurance”, “Dating,” “Discount,” Direct, social, construction, BUILD, BET, VACATION, and WEDDING. Not exactly Microsoft or Xerox, though those are likely also in the TMCH.

The Trademark Clearinghouse adopts a “lowest bar” approach to registration, whereby if a mark can be protected under any jurisdiction, and in any context, it is eligible for inclusion globally under a universal standard of protection. Doesn’t matter if the mark isn’t eligible for protection in certain jurisdictions – geographic indicators.  Huge dispute elsewhere in ICANN and in TM law over whether geographic indications are “marks,” but resolved in implementation, outside of agreement by participants, in favor of including GIs.  Also doesn’t matter if a word is considered generic for the relevant goods or services, or for some other goods or services, in certain jurisdictions. If it’s protected anywhere it’s protected everywhere for everything.

Moreover, although not by design, the TMCH accepts design marks - Once a mark has been accepted, it is protected as a word mark without reference to any distinguishing design features, since domain names are a text-only medium. So even when the trademark itself does not protect the textual elements as text, the TMCH will extract the textual elements for protection, as Deloitte confirmed when we asked them what they’d do with various design and stylized marks.  Cars by Disney, Music by Parallel Music Entertainment – all eligible as word marks for trademark protection.

For example: the American Physical Society publishes a journal called, naturally enough, “Physics”. Their US registration for the logo used on that publication was required to disclaim the word “Physics”. However, since the EU does not have an explicit disclaimer procedure, even though the mark is just as limited in the EU—it is a figurative mark—they used their figurative EU registration to get their TMCH entry for the word “Physics” per se.

Q: Implementation v. policy development.

Wong: One of the most fascinating aspects of the job is looking how a policy is written, which goes through multistakeholder consultation process, a little bit like treaty negotiations.  The output might be fairly general and that’s what happened. The original policy recommendations were really really general. Protect legal rights of others.  Everything we’re talking about today was developed as minimum protections during implementation of the very general policy recommendation. Had to be turned into something workable.  Now there’s a policy working group looking at all of this and will hopefully develop policy recommendations that can be implemented.  Where things go too far they can be restrained, where not far enough extended.

Q: was this issue discussed in policy development then?

Wong: there was a very general policy; with respect to specific points about GIs and text, the group didn’t list all the different things that could or couldn’t be protected, but during implementation it was made very explicit that no jurisdiction should be excluded.  It was felt that neither ICANN nor Deloitte as the validator are in a position to determine which marks are protected trademarks.  So the rules were made fairly generic.

RT: Where there are gray areas, to say “we’re not making a judgment” actually admits of two approaches: you can say it’s in or it’s out.  Both of those approaches are “nonjudgmental”—and you really could have thought that “all TMs are in” clearly excluded GIs because there’s an entire class of people who think that GIs aren’t trademarks and have a different ordinal priority when it comes to rights conflicts. And where you have already a really expansive definition of rights (protected anywhere, protected everywhere; registered for any good, covered for all goods/services) then further expansive decisions have collateral consequences.

Barnett: Different jurisdictions approach things from different standpoints, especially with respect to GIs; the clearinghouse was intended as a baseline so no one would be left behind by the way they were accepting certain rights. Concrete hypothetical: if Italy protects parmesan as a GI in national law, based on the underlying concept: we did discuss that rights based in national law should be protected.  [“Rights” is not “trademark rights” which was the actual language. Rights of publicity is another easy example where rights but not TM rights exist.]  There are a lot of nonspecific new gTLDs but you still might encounter consumer protection issues e.g., for .web, .online, .llc. Can’t tie Delta Airlines brand to exclude those general websites.  On design marks: where there’s a textual element w/stylization—going back to policy rationale, this took expansive approach b/c the underlying approach is to protect consumers against confusingly similar uses in the DNS.  If someone registered cars.whatever and uses it in bad faith to target Disney’s Cars, it’s appropriate to have that in the TMCH for Sunrise and Claims. It’s up to the registrant to make an informed decision.

Kleiman: Rules in consensus policy adopted by ICANN.  Unanimously adopted by the GNSO council and Board. Two things it says: the name of the RPM should be the TMCH (not “IP clearinghouse as proposed”) to signify that only TMs should be included. Should be required to include “text marks.”  As a parenthesis: design marks provide protection for letters and words only in the context of the design or logo and the group was under a mandate not to expand trademark rights.  We also debated the secrecy of the TMCH and decided against it: the notice function is important.  What happened? This goes way beyond implementation: they accepted GIs, which WIPO says aren’t TMs; they accepted design marks; they decided to make the TMCH secret. Stopped making sense of “implementation.”

Wong: The implementation that Wong described started in 2008, and the policy was “protect the legal rights of others.” Kleiman’s team (quoted) happened during implementation. Took 4-5 years and there were multiple discussions. Coming back to consensus-building, at each step, all proposals were put out for feedback from stakeholders. Where we ended up was the Applicant Guidebook, reflecting a consolidated history of 5 years of implementation stemming from v broad policy. Not saying we got it right or wrong but that’s where we ended.

King: We protect TMs from any jurisdiction and not just from the US.  No one country’s law rules the internet, so it’s important for this community to allow TM registrations under the laws of all jurisdictions.

Barnett: Expanding rights: legit brand owners don’t want people having rights they don’t have. Consumer confusion and bad faith are the ultimate tests. If cars.whatever is confusingly similar and used and bad faith it shouldn’t be ok. Depending on the use, Disney might win a UDRP case.

RT: Letting everything in is a great way to get much, much further from the consumer protection basis of trademark. And every axis on which you decide to allow more in has effects on how much further away from protecting consumers you are. We’re already abstracting away from national rights and from goods and services.  Cars is a great example b/c the TMCH/Sunrise have already abstracted away from consumer confusion and bad faith.  How many cars.whatever websites would you have to look at before you found one that was infringing? (URS/UDRP is the right solution for the bad faith ones.)  And they’re all impacted by Sunrise and Claims.

Q: Global database of recordals would be really useful. So let’s talk secrecy.

King: Putting people on notice: TMCH does put potential new domain name owners on notice that they may infringe if they proceed.  That notice can then be evidence in a potential case.  90% bounce rate of those who put a domain in their cart, received a notice, then didn’t proceed to final registration.  That’s great for deterrence! TM is a clear way to cry foul but it’s impractical to go to federal court in every infringement case. 

RT: Abandonment rates are really unclear: 90% rate might be mainly for queries by automated programs, but we really don’t know. Also, that 90% rate refers to queries for cloud, hotel, one, london, abc—the idea that they were planning on being cybersquatters is simply not plausible. We were unable to survey actual cybersquatters and it’s hard for me to believe that someone who wants a phishing site is going to be deterred by a notice, but better data might convince me otherwise; the point is that making claims about deterrence is simply not supported by the current data.  We were able to survey ordinary registrants and their understanding of the notice was not much better than chance. 

Barnett: there are issues around gaming the register. We want a clean TMCH as much as we want a clean PTO register.  There is a mechanism that allows challenges to records in the clearinghouse—you can challenge a denial if you’re a TM owner, or a third party can challenge [if they learn of it]. If you’re attempting to register in good faith, then there is a mechanism to get that deactivated.

Confidentiality: there’s conflicting views on transparency. The idea of keeping it confidential is important b/c TM owners make strategic decisions. That reflects information from the brand owner; don’t want to provide road map to what gaps exist.

Farley: people monitor other countries’ registration systems for information already. 

[How would this “abuse of transparency” work exactly?  The abuse scenario is that they look at the TMCH, look at the PTO’s registration database, and register the domain names that aren’t in both? There is zero evidence that this is how anyone does anything, and zero explanation how knowing from the TMCH that Coca Cola might possibly consider Coke a more valuable mark than Vault would change anyone’s behavior.  Moreover, trying to register the domain names would itself reveal the relevant information to the putative abuser.]

Phil Corwin, working group co-chair at ICANN.  (1) Confidential, but if I want to know whether ACME has registered, I can simply go during the first 90 days and find out whether it’s recorded.  We suspect that some parties have done that. [So the point of the secrecy is ….?]  We don’t know how many queries were like this. (2) Domain names can be trademarked, as in booking.com.  (3) We are talking here about new gTLD policy not consensus policy: to get that through ICANN you need consensus—unanimous or near-unanimous; 80% support isn’t going to be good enough. [Clarification: consensus policy would mean that Sunrise, Claims, URS would all be applied to every gTLD, including the legacy TLDs like .com.]

RT: [Great points; (3) means that policy decisions made in implementation are likely to stick.]

Q: a brand is not a TM.  Delta.sex isn’t a problem if it isn’t confusing.  You don’t have rights against it even if you don’t like it.

Q from PTO person: GIs are not marks protected by statute/treaty. Way back when, we were thinking about Olympics, Red Cross etc. for those categories.  Has been handed her head for conflating GIs with marks—offends Europeans/WIPO. However, GIs can be protected as trademarks whether unregistered or registered if they are serving as TMs. This is a burning issue for the PTO. We are very concerned that when it says “marks,” “TMCH,” we want to be talking about marks and not GIs.  Is this still on the table with the working group at ICANN?

Q: how does GDPR affect rights protection mechanisms as we revamp WHOIS in a different PDP (policy development group)?

Michael Karanicolas: Manual input has determined some of the content of the TMCH, e.g., inclusion of Christmas and the like. Not a great oversight mechanism, though. Hard to get a broad understanding of how the system is working, which is vital to accountability and overall assessment: is abuse widespread or limited?  Corwin mentioned that if there isn’t consensus the status quo prevails, which is particularly problematic where the implementation drifted from the rules as originally designed, specifically for accepting design marks [and GIs].  Turns the original rules on their head.  Allows beneficiaries to block “consensus” even though that was the original consensus. Leads to larger Qs about ICANN and its role in internet governance. Transparency is fundamental to what ICANN does.  And it’s fundamentally problematic when used to maximize rights beyond what TM would grant (global rights, goods/services).

Wong: Yes, it is under consideration that GIs would be treated differently. Part of our discussions.  “Mark protected by statute or treaty” but the word mark isn’t defined.  May not be about whether something is a GI but whether it is a mark.  [But if GIs are not trademarks … I believe my logic class had something to say about this.]

Barnett: the wording of the claims notice can be improved, we all agree. 

King: “cloud” example—be careful b/c one of the most valuable TMs in the world is Apple.  [Though note it’s not at the top of the list of those queried in the TMCH the way “cloud” is, so a bit of a red herring, no pun intended.]  GDPR makes things a lot harder.