Rogers still mostly works in 9th Circuit, despite Honey Badger's best efforts

Caiz v. Roberts, --- F.Supp.3d ----, 2019 WL 1755421 (C.D. Cal. Apr. 17, 2019)

In Gordon v. Drape Creative, 909 F.3d 257 (9th Cir. 2018), the Honey Badger case, the Ninth Circuit began a process that could make Rogers v. Grimaldi as reticulated and difficult as nominative fair use has often become.  Fortunately, the court here sees past the FUD enabled by Gordon and finds that the use of “Mastermind” in connection with rap music is protected by Rogers.

Caiz has a registration for MASTERMIND for for audio and video recordings featuring music (applied 2005, issued 2013).  Roberts is a hip-hop artist known as Rick Ross (who also, incidentally (?), won a First Amendment defense over his use of that name). Rick Ross released an album entitled “Mastermind,” went on a “Mastermind” tour, and allegedly adopted the persona of “Mastermind.” After the court of appeals reversed the district court’s initial finding that the registration was invalid for descriptiveness, the case returned for further proceedings on the infringement and related claims.

Once a defendant shows that its challenged use is part of “an expressive [nonadvertising] work protected by the First Amendment,” the burden then shifts to the plaintiff claiming infringement, who must show “that the mark is either not artistically relevant to the underlying work or explicitly misleading as to the source or content of the work.”  “If the plaintiff satisfies both elements, it still must prove that its trademark has been infringed by showing that the defendant’s use of the mark is likely to cause confusion.” 

Caiz argued that Rogers doesn’t apply to reverse confusion claims, relying on Masters Software, Inc. v. Discovery Communs., Inc., 725 F. Supp. 2d 1294 (W.D. Wash. 2010), which so held because it reasoned that Rogers required a referential use.  Since the Empire case rejected that underlying rationale, Rogers applied. Twentieth Century Fox TV v. Empire Distrib., Inc., 875 F.3d 1192 (9th Cir. 2017).

The uses here were in connection with artistic works, so Rogers applied. “Minimal” artistic relevance is enough.  Six of the nineteen songs on the album make direct use of “mastermind” in the lyrics, and one song referenced the overall album itself by its title (“Mastermind, my 6th LP. Can’t believe we did it. Man, I thank everybody that played a part of this.”), all of which linked the title to its contents.  Plus, there was [completely unnecessary] evidence that other people use “mastermind” as “part of a larger, abstract theme used by artists in hip-hop claiming to be masterminds of music.”  That was enough.

But was the use “explicitly” misleading? Here, courtesy of Gordon, we descend into a theoretical wasteland in which the implicit can in theory be explicit.  Caiz argued that the title of the album was explicitly misleading as to source because Caiz had a registration for musical recordings.  The use of “Mastermind,” Caiz argued, was an explicit reference to him and thus misleading.  As the court noted, the usual rule is that “mere use of a trademark alone cannot suffice to make such use explicitly misleading,” but “each time it made that observation, the junior user had employed the mark in a different context than the senior user.”  [Gordon says this, but of course Rogers derives from a case in which Ginger Rogers, movie star, sued over use of her name in a movie; the Ninth Circuit rejected the Second Circuit’s exclusion of title-v-title disputes from Rogers, but Gordon allows the same argument to be resurrected in much broader, and worse, form.] Under Gordon, “identical usage” could be [but is not always as a matter of law] explicitly misleading.

Gordon added a mini-transformativeness inquiry into explicit misleadingness.  For “identical usage,” it’s now relevant how much creativity the junior user has added.  Worries over confusion are limited “when the mark is used as only one component of a junior user’s larger expressive creation, such that the use of the mark at most ‘implicitly suggest[s]’ that the product is associated with the mark’s owner.”  By contrast, the use of a mark “as the centerpiece of an expressive work itself, unadorned with any artistic contribution by the junior user,” may qualify as explicitly misleading. 

In contrast to the use in Gordon, where the allegedly source-indicating catchphrase was being used as the “centerpiece” of greeting cards [and thus not as a mark, sigh], Roberts used “Mastermind” as one album title out of six albums throughout his career, where he was established as Rick Ross.  “Mastermind” appeared nine times in the lyrics across nineteen tracks, and it was used “through” Roberts’ own artistic expression.  [This discussion really highlights the ©/TM mashup Gordon achieved.  Of course, neither party created the word “mastermind.”  The only way to use the word creatively is to use it.  Gordon was worried about the creativity behind “Honey Badger Don’t Care” and used TM to give the plaintiff a quasi-copyright in a short phrase; that concern is obviously irrelevant here, as it should have been in Gordon.]  The marketing of “Mastermind” the album attached Rick Ross’s persona and history to it. For example, www.rickrossmastermind.com, is titled “Rick Ross The Boss” and introduces him as “Rick Ross AKA Ricky Rozay AKA the Boss AKA The Mastermind.” “In short, Plaintiff’s music lists the artist as ‘Mastermind,’ while Defendants titled one of Roberts’ albums and tours ‘Mastermind,’ while retaining some sort of reference to “Rick Ross” as the artist and incorporating Roberts’ own artistic expression.”  [There are two argumentative threads here: the first one, forced by Gordon, is weird and about the fact that the album has songs in it and is thus more than Roberts just repeating the word “mastermind,” though that would also be a creative, albeit more boring, work protected by copyright.  The second, which goes more to the original Rogers title-v-title exception, is that the uses aren’t in fact the same. Thus the premise of Gordon isn’t even satisfied here and we don’t need all this handwaving about creativity.]

Caiz had no evidence that the use was “explicitly” or even “implicitly” misleading, only a declaration stating that his fans and fans of Rick Ross started asking him if a new album was coming out, “misleadingly thinking Defendant’s album was [his].” That wasn’t enough to avoid summary judgment.  There was no evidence of any explicit statements of association etc. by defendants (citing Novalogic, Inc. v. Activision Blizzard, 41 F. Supp. 3d 885, 901 (C.D. Cal. 2013) (“To be ‘explicitly misleading,’ a defendant’s work must make some affirmative statement of the plaintiff’s sponsorship or endorsement, beyond the mere use of the plaintiff’s name or other characteristic.”)).

It was not enough to argue that the use was explicitly misleading because reverse confusion was likely. Likelihood of confusion analysis isn’t part of Rogers prong two; indeed, avoiding a fullscale likely confusion analysis is the point of Rogers and the only thing that makes it protective of First Amendment interests rather than an additional overlay on a complex and fact-intensive balancing test.  Under Gordon, only after lack of artistic relevance or explicit misleadingess has been shown is a likely confusion analysis appropriate.

Finally, Caiz argued that even if Rogers protected the album name, it didn’t protect use of the term for the tour name or for Roberts’ persona in interviews and other live performances. But these were protected “extensions of the use of the mark in an effort to advertise and market the ‘Mastermind’ album,” just as in Empire appearances by cast members, radio play, online advertising, and live events were protected advertising for the expressive work.

The sensible reasoning of this opinion does a lot to indicate that, though Gordon was badly reasoned, it has limited application outside of the scenario in which the defendant basically just reproduces the plaintiff’s mark on the goods for which the plaintiff claims a mark.

Amazon strictly liable for product defect but 230 preempts failure to warn claim

Oberdorf v. Amazon.com Inc., No. 18-1041 (3d Cir. Jul. 3, 2019)

Oberdorf was injured by a retractable dog leash “sold” by Amazon on behalf of a third-party vendor, who shipped the leash directly to Oberdorf. The district court found that, under Pennsylvania law, Amazon was not a “seller” who could be strictly liable for Oberdorf’s injuries, and that the CDA barred her claims.  The court of appeals reversed the first finding and partially reversed the second.

As one might expect, the Amazon contract with vendors allows Amazon almost total control of the relationship between the parties.  The vendor chooses the products it sells and provides Amazon with a product description, digital images, shipping and handling options, and other information it requests. Amazon has sole control over the content, appearance, design, functionality, and all other aspects of its website. The vendor can choose the price, but can’t charge more on Amazon than in other sales channels.  [Hmm.  I can think of at least one wooden jigsaw puzzle vendor that seems not to follow this rule, but perhaps it’s actually some hidden-to-me arbitrage by a third party.] Vendors must communicate through the Amazon platform. When there’s a purchase, Amazon collects the payment and requires the vendor to send Amazon shipping information for each order. Of course, it also charges commissions and fees, and is the vendor’s agent for purposes of payments and refunds.  Amazon can, among other things, require vendors to stop or cancel orders of any product. It further requires that its vendors release it and agree to indemnify, defend, and hold it harmless against any claim, loss, damage, settlement, cost, expense, or other liability.

In Pennsylvania, strict products liability is limited to “sellers.”  The Pennsylvania Supreme Court identified four relevant factors in identifying a “seller”:

(1)       Whether the actor is the “only member of the marketing chain available to the  injured plaintiff for redress”;

(2)       Whether “imposition of strict liability upon the [actor] serves as an incentive to safety”;

(3)       Whether the actor is “in a better position than the consumer to prevent the circulation of defective products”; and

(4)       Whether “[t]he [actor] can distribute the cost of compensating for injuries resulting from defects by charging for it in his business, i.e., by adjustment of the rental terms.”

Under this test, Amazon is a “seller.”  First, Amazon isn’t like a brick-and-mortar auctioneer.  Even though every item on Amazon’s website can be traced to a third-party vendor, the only way to communicate with customers is through Amazon. “This enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor. There are numerous cases in which neither Amazon nor the party injured by a defective product, sold by Amazon.com, were able to locate the product’s third-party vendor or manufacturer.”  Amazon’s VP of Marketing Business “admitted that Amazon generally takes no precautions to ensure that third-party vendors are in good standing under the laws of the country in which their business is registered. In addition, Amazon had no vetting process in place to ensure, for example, that third-party vendors were amenable to legal process.  After Oberdorf was injured by the defective leash, neither she nor Amazon was able to locate The Furry Gang [the vendor].”  For compensation, it’s Amazon or nothing, weighing in favor of strict liability.

The dissent argued that “[t]o assign liability for no reason other than the ability to pay damages is inconsistent with our jurisprudence,” but it wasn’t just ability to pay that was Amazon’s problem.  “Amazon fails to vet third-party vendors for amenability to legal process. The first factor weighs in favor of strict liability not because The Furry Gang cannot be located and/or may be insolvent, but rather because Amazon enables third-party vendors such as The Furry Gang to structure and/or conceal themselves from liability altogether.”

Second, whether “imposition of strict liability upon the [actor would] serve[] as an incentive to safety”: Imposing strict liability on an auction house wouldn’t help because an auction house doesn’t design or make any particular product; Amazon too argued that it didn’t have any relationship with designers or manufacturers.  However, though Amazon didn’t directly control design and manufacture, it exerted “substantial control” over third-party vendors by virtue of its comprehensive, discretion-allocating agreement with them. “Amazon is fully capable, in its sole discretion, of removing unsafe products from its website. Imposing strict liability upon Amazon would be an incentive to do so.”

The dissent argued that this holding imposes a fundamentally new business model on Amazon because it presently “does not undertake to curate its selection of products, nor generally to police them for dangerousness.”  Echoing what I tell my students (there is no divine entitlement to a specific business model), the court said that Pennsylvania law does not shield a company from strict liability just because it chose a business model that fails to prioritize consumer safety. “The dissent’s reasoning would give an incentive to companies to design business models, like that of Amazon, that do nothing to protect consumers from defective products.”

Third, whether Amazon is “in a better position than the consumer to prevent the circulation of defective products.”  An auctioneer lacks an ongoing relationship with a manufacturer, and financing agencies perform only a “tangential” role in the sales process and ordinarily lacks a “continuity of transactions that would provide a basis for indirect influence over the condition and the safety of the product.” Here, by contrast, “while Amazon may at times lack continuous relationships with a third-party vendor, the potential for continuing sales encourages an on-going relationship between Amazon and the third-party vendors.”  In addition, “Amazon is uniquely positioned to receive reports of defective products, which in turn can lead to such products being removed from circulation.”  Amazon’s website is the “public-facing forum” for listed products; it collects customer feedback.  Third-party vendors are ill-equipped to do this precisely because Amazon controls the channels of communication.

The dissent argued that Amazon wasn’t better positioned than customers (!) to encourage product safety. But even the dissent noted one aspect of Amazon’s power relative to the consumers: Amazon, but not consumers, can eject sellers from the platform. “Imposing strict liability on Amazon will ensure that the company uses this relative position of power to eject sellers who have been determined to be selling defective goods.”

Fourth, whether Amazon can distribute the cost of compensating for injuries resulting from defects: Actually, it already has provided for indemnification in its agreements. And it can adjust the commission-based fees that it charges to third-party vendors “based on the risk that the third-party vendor presents.” By contrast, “Amazon’s customers are particularly vulnerable in situations like the present case. Neither the Oberdorfs nor Amazon has been able to locate the third-party vendor, The Furry Gang. Conversely, had there been an incentive for Amazon to keep track of its third-party vendors, it might have done so.”

This result was also consistent with other Pennsylvania cases, which established that a “seller” need never take title to or possession of the products at issue to be strictly liable. Amazon also argued that it wasn’t a sales agent because it works on behalf of numerous third-party vendors, not a single seller or manufacturer; this is not the law.

CDA §230: Bars some, but not all, of the claims. “The question that we must answer is ‘Would such an addition to the content be part of the editorial function of the Amazon website?’”  Not all of the claims were precluded.  “Amazon’s involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process. … Therefore, to the extent that Oberdorf’s negligence and strict liability claims rely on Amazon’s role as an actor in the sales process, they are not barred by the CDA. However, to the extent that  Oberdorf allged that Amazon failed to provide or to edit adequate warnings regarding the use of the dog collar, that activity fell within its editorial function. “That is, Amazon failed to add necessary information to content of the website.”  Such failure to warn claims were barred by the CDA. But the district court didn’t parse the claims to distinguish between “failure to warn” claims and claims premised on other actions or failures in the sales or distribution processes, so remand was required.

Judge Scirica dissented on the Pennsylvania law issue, but concurred in the “thoughtful” CDA analysis.

Warhol wins on fair use of photo (but should've won on substantial similarity)

Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, No. 17-cv-2532 (JGK) (S.D.N.Y. Jul. 1, 2019)

In some sense, this fair use case is a foregone conclusion; even the terrible Saderup decision made an exception for Andy Warhol, because we all know that his touch (filtered through the actual human touch of assistants) confers new meaning and value on an artwork.  The other thing this case illustrates is that courts are more comfortable with fair use than they are with a true infringement inquiry (did the defendant copy too much protected material from the plaintiff?) when the real problem with the claim is that the defendant copied without taking very much, if any, protected material.  The third factor analysis here even implicitly admits that the plaintiff hasn’t identified any expression that was taken from her photograph of Prince.  If we were really concerned that transformativeness has gone too far—I’m not, but I also think we should be serious about requiring substantial appropriation of protected expression—then one way to deal with that problem would be to take infringement more seriously rather than using fair use as a clean-up tool.  The finding of transformativeness here is in part the flip side of the lack of copying of protected expression: Warhol’s prints were readily able to bear new meaning and message because the expression in the original photo had been abstracted away, not because of a Sherrie Levine-style appropriation.

Anyhow, “Lynn Goldsmith is a photographer who has photographed numerous rock, jazz, and R&B performers,” and her work “centers on helping others formulate their identities, which she aims to capture and reveal through her photography.”  She uses both interpersonal techniques to establish rapport and photographic techniques with respect to lighting, camera position, and other elements to capture her subjects’ “true selves.” She photographed Prince in her studio on assignment from Newsweek in 1981. He arrived wearing makeup, and she applied more “to connect with Prince physically and in recognition of her feeling [that] Prince was in touch with the female part of himself” while also being “very much male.” He was photographed in his own clothes, except for a black sash that he picked from Goldsmith’s clothing room and wore around his neck. Goldsmith decided to use a plain white background and lit the shoot in a way that emphasized Prince’s “chiseled bone structure.” Goldsmith believed that the photographs from her shoot with Prince show that he is “not a comfortable person” and that he is a “vulnerable human being.”

 

1984 Vanity Fair portrait

In 1984, Vanity Fair licensed one of these studio portraits for use as an artist’s reference. Goldsmith’s photography agency submitted the photo; Goldsmith herself did not know at the time that the photograph had been licensed for use as an artist’s reference. Vanity Fair commissioned Warhol to create an illustration of Prince for an article titled “Purple Fame,” which stated that it featured “a special portrait for Vanity Fair by ANDY WARHOL.” The credit included: “source photograph © 1984 by Lynn Goldsmith/LGI.” Warhol then created the “Prince Series,” comprised of sixteen distinct works: twelve silkscreens, two screen prints on paper, and two drawings. Although Goldsmith alleged that Warhol bodily copied her photo as part of his creation process, defendant AWF didn’t concede this and it doesn’t matter, because any exact reproduction occurred 40 years ago, well beyond the limitations period.

color version of one of the images

 

Goldsmith first learned that Warhol created the Prince illustration for Vanity Fair after Prince’s death, when it republished the image online; initially, she told AWF that use infringed one of her colored Prince portraits but, after further comparison, identified instead the black and white photo at issue in this case. She then registered the photo as an unpublished work. AWF makes the Prince Series available for licensing to third parties for use in books, magazines, newspapers, and for other merchandizing purposes. Goldsmith licenses single images of her photography, and has issued 10 or 11 licenses for other photos of Prince in concert and at other venues, but hasn’t editioned or sold any prints of the photo here; she intends to start in the future, when prices will be higher. In 2004, she sold a fine-art print of Prince that she created in 1993 to a private collector who also owns three Warhol works of art.

Fair use factor one: the Prince Series is commercial, but public exhibition of art is in the public interest. Anyway, transformativeness trumps commerciality. The question is whether new meaning/message may reasonably be perceived and the answer is yes.  Goldsmith focused on revealing identity, and her photo illustrated that Prince was “not a comfortable person” and that he is a “vulnerable human being.”

Warhol’s Prince Series, in contrast, can reasonably be perceived to reflect the opposite. In all but one of the works, Prince’s torso is removed and his face and a small portion of his neckline are brought to the forefront. The details of Prince’s bone structure that appear crisply in the photograph, which Goldsmith sought to emphasize, are softened in several of the Prince Series works and outlined or shaded in the others. Prince appears as a flat, two-dimensional figure in Warhol’s works, rather than the detailed, three-dimensional being in Goldsmith’s photograph. Moreover, many of Warhol’s Prince Series works contain loud, unnatural colors, in stark contrast with the black-and-white original photograph. And Warhol’s few colorless works appear as rough sketches in which Prince’s expression is almost entirely lost from the original.

These alterations result in an aesthetic and character different from the original. The Prince Series works can reasonably be perceived to have transformed Prince from a vulnerable, uncomfortable person to an iconic, larger-than-life figure. The humanity Prince embodies in Goldsmith’s photograph is gone. Moreover, each Prince Series work is immediately recognizable as a “Warhol” rather than as a photograph of Prince - in the same way that Warhol’s famous representations of Marilyn Monroe and Mao are recognizable as “Warhols,” not as realistic photographs of those persons.

One could reasonably object to the last sentence as carving out an Andy Warhol exception, but the rest of it is hard to dispute (and provides some reason to think that Warholization is transformative, albeit not a tactic limited to Warhol himself).

Factor two: unpublished status would ordinarily weigh in Goldsmith’s favor, but “the reasons unpublished works enjoy additional protection against fair use - including respect for the author’s choices of when to make a work public and whether to withhold a work to shore up demand - carry little force in this case, where Goldsmith’s photography agency licensed the photograph for use as an artist’s reference.” Anyway, factor two is of limited relevance for transformative works. Favors neither party.

Factor three: Goldsmith argued that the Prince Series works contain the essence of the entire Goldsmith Prince photo.  Her best argument for this was apparently that Vanity Fair told him to use the photo, and thus must have required that he include the expression in the photo.  The court compared this case to the Seventh Circuit case of Kienitz v. Sconnie Nation LLC, and helpfully included the relevant images in the opinion to show why the comparison was apt. The Kienitz court, while—as the district court here specifically noted—criticizing Cariou, found fair use, placing particular emphasis on the third factor. The Warholization-like process employed “removed so much of the original that, as with the Cheshire Cat, only the smile remains,” even though it weighed against the defendants the claim that they didn’t need to use that particular photo “when so many noncopyrighted [sigh] alternatives (including snapshots they could have taken themselves) were available.” Here, by contrast, Warhol was required to use the photo.

 

Kienitz images

This case was Kienitz plus Cariou: Though the Goldsmith photo had protectable elements, which could include “posing the subjects, lighting, angle, selection of film and camera, evoking the desired expression, and almost any other variant involved,” “these creative elements are almost entirely absent from the Prince Series works.”  The cropping was different; Goldsmith’s photo included much of Prince’s torso.  The Prince Series softens, shades, or traces over the sharp contours of Prince’s face that Goldsmith emphasized in her photo. The 3D effect of the photo, produced by the background and lighting that Goldsmith chose, was replaced by “a flat, two-dimensional and mask-like figure of Prince’s head,” and mostly on a loudly colored background; the Warhol works that were in black and white “especially crude and the creative features of the Goldsmith Prince Photograph are especially absent.”  Here you see the flip side of transformativeness in the factor three analysis: “Ultimately, Warhol’s alterations wash away the vulnerability and humanity Prince expresses in Goldsmith’s photograph and Warhol instead presents Prince as a larger-than-life icon.”

The pose and angle of Prince’s head were copied, but “such a pose cannot be copyrighted” because copyright law “protect[s] only plaintiff’s particular photographic expression of [a] pose[] and not the underlying ideas therefor.” Several non-Goldsmith photographs also captured Prince in a similar pose, “indicating that the pose is not particularly original.” The distinctive way in which Goldsmith presented Prince’s uncopyrightable facial features was absent from the Warhol works, which each contained “little, if any, of the copyrightable elements” of Goldsmith’s photo (which is why this should be a non-substantial similarity case).  Heavily favors fair use.

Factor four: Goldsmith argued that the Prince Series harmed her licensing markets, which overlap with AWF’s licensing markets.” Her evidence didn’t show market substitution.  Although her photos and Warhol’s works have appeared in magazines and on album covers, “this does not suggest that a magazine or record company would license a transformative Warhol work in lieu of a realistic Goldsmith photograph.”  The licensing market for Warhol prints is for Warhols, not for portrait photos like Goldsmith’s. One collector who owned three of Warhol’s works of art also bought a fine-art print of Prince from her. “But as AWF persuasively argues, this does not suggest that the collector bought the works for the same reason, perceives the works similarly, or believes the works are substitutes for each other (the fact that the collector owns both of them suggests the opposite).” The court declined to rely on AWF’s expert report or on one of its fact witnesses on the market, and didn’t rule on excluding Goldsmith’s expert; even taking his opinions into account on licensing, the fourth factor favored AWF. “The evidence shows that the Prince Series works are not market substitutes that have harmed - or have the potential to harm Goldsmith.” And we’re done.

Flange wars: material misrepresentations aren't enough without causation

Boltex Manufacturing Co. v. Ulma Piping USA Corp., No. 17-CV-1400, 2019 WL 2723253 (S.D. Tex. Jun. 28, 2019)

More flanges! Boltex alleged that defendants misrepresented that they “normalized” their flanges. Normalization is a heat treatment process that makes steel more durable; it’s more expensive than not normalizing the flanges, and Boltex charges more for normalized than non-normalized flanges. ASTM has a published set of standards and specifications applicable to carbon steel flanges to ensure uniformity in the industry; some consumers only buy industry standard-normalized flanges. “[C]ustomers cannot simply look at a flange to determine whether it has been normalized,” but must rely on sellers.

Defendants allegedly misrepresent the normalization-status of their flanges “in the catalogs, brochures, price lists and websites of third-party distributors of Ulma flanges,” “in the MTRs [mill test reports, described as a “birth certificate” for a flange] that accompany each flange,” and by stamping A105N on each flange where N stands for normalized and A105 represents the relevant ASTM standard.

Ignoring Justice Scalia’s instruction not to call the issue in Lexmark “prudential standing,” the court found that plaintiffs did have standing for purposes of avoiding summary judgment. Article III: There was deposition testimony that “Ulma’s purported misrepresentations directly affect the market in which the Plaintiffs participate and that customers compare Ulma and Boltex prices,” and that had Ulma not advertised their flanges as normalized, “a portion of [the market] definitely would have come to Boltex.” They also provided a damages model as evidence of their purported losses.

Lanham Act “prudential” standing: Defendants argued that because Boltex is a domestic manufacturer and Ulma is a foreign manufacturer, the two companies weren’t competitors because customers usually choose either a foreign or domestic brand of flange and stick to it. Plaintiffs’ evidence was otherwise, creating a genuine fact issue. As competitors, they’d be within the Lanham Act zone of interests. There was also evidence supporting proximate cause; losing sales to a product of supposedly equivalent quality sold at a lower price is a classic Lanham Act harm story.

For similar reasons, there was a genuine issue of material fact on falsity. Defendants argued that their flanges were “normalized” via either the ASTM approved method or their own “proprietary method,” but whether that method counted as normalization was disputed, including by testimony from defendants’ own representatives. Defendants also argued that representations that appear on third-party websites or in third-party catalogs constitute commercial speech that couldn’t be attributed to them. However, there was evidence, including the inscriptions on flanges, that at a minimum supported a claim of contributory false advertising.

Defendants argued that the inscriptions on flanges and statements in MTRs weren’t commercial advertising or promotion because they were only provided to a customer after purchase. However, “the stamping and inclusion of MTRs confirm the assumption that consumers make when purchasing the flanges, namely that the flanges are of the quality and specifications that they purport to be.” There was evidence that “customers depend on the MTRs as an accurate reflection of what they purchased,” and that an MTR is a “birth certificate for a flange.”

As for deceptiveness, this is presumed for literal falsity. In addition, plaintiffs provided evidence that customers sought reassurance from Ulma that their flanges were in fact normalized in accordance with ASTM after the filing of this suit. A reasonable juror could use this to conclude that customers associated the “A105N” stamp with the ASTM normalization process specifically, rather than including Ulma’s proprietary method.

Materiality: similarly, there was evidence that ASTM-compliant normalization is an important standard upon which customers rely, and that consumers might have decided differently had they known the truth.

There was also “very thin” evidence of injury. Plaintiffs emphasized that Ulma specifically lists Boltex’s prices when responding to Requests for Quotes (RFQs). There was evidence that at least one of defendants’ customers actually compared the parties’ prices.

Prior proceedings before the ITC didn’t matter because the ITC had dealt with a claim that defendants were selling their flanges at an unacceptably low price; the Lanham Act claim wasn’t actually litigated nor were plaintiffs’ positions contradictory in a way calling for the application of judicial estoppel.

Boltex Manufacturing Co. v. Ulma Piping USA Corp., No. 17-CV-1400, 2019 WL 2723272 (S.D. Tex. Jun. 28, 2019)

Flanges, it turns out, are formed from rough steel forgings. Plaintiff “Weldbend buys forgings from domestic and foreign suppliers and manufactures the forgings into flanges in its Illinois facility. Boltex makes most of its own forgings domestically and performs its heat treating in one of its two plants located in Houston. In its second Houston plant, Boltex machines, finishes, and warehouses its flanges. Defendants produce their flanges in Spain.” Defendants allege that plaintiffs falsely advertise/falsely designate the origin of their flanges by falsely stamping/advertising flanges as “Made in the USA” or “American Made” when at least some of the steel in the flanges is internationally sourced. Weldbend’s packaging allegedly contains pictures of Uncle Sam and the American flag and that its social media accounts display representations such as, “This product [sic] Made in the USA with USA Steel.” In addition, Weldbend allegedly falsely advertises that its goods are made with “unquestionable traceablility.” Here, the court kicked out the false advertising claims except for “traceability,” on which it sought more briefing.

Initially, the court declined to rely on the FTC’s Enforcement Policy Statement on U.S. Origin Claims to define made in the USA. FTC standards don’t control in Lanham Act cases, which require showing falsity or misleadingness, not just a violation of the guidelines (although the guidelines indicate what the FTC considers false or misleading). The falsity had two aspects: (1) misrepresentation that flanges are “Made in the USA” when they are in fact made with imported steel and (2) implying that all of their flanges are “Made in the USA,” when in fact some are made using imported steel. The court found no evidence of literal falsity on (2); instead, while Boltex uses some internationally sourced steel, it didn’t mark those as “Made in the USA” and there was no evidence of an overall Boltex advertising scheme to the contrary. However, there was a genuine issue of material fact on falsity for Weldbend, which claimed that its “American Made line uses only top-quality steel from US mills, forged into fittings and flanges at Weldbend’s own plant in Argo, Illinois.” In this context, Weldbend defined “American Made,” removing potential ambiguity. There was testimony from a Weldbend executive that “American Made” flanges may use steel from either a US or an offshore mill, creating a fact issue on falsity. In addition, Weldbend admitted that it didn’t do any of its own forging.

Misleadingness: Defendants argued that there was a fact issue “as to whether [Plaintiffs’] use of unqualified and express U.S. origin claims, American iconography, and other statements leave a false and misleading impression that all of their products are manufactured in the U.S. with U.S.-sourced steel.” They provided deposition testimony from distributors who ordered plaintiffs’ flanges, one of whom who interpreted “Made in the USA” and similar statements as meaning “steel coming from the US” and two who didn’t. This wasn’t enough for misleadingness; “the Court must look for signs that consumers assume something incorrect about the product based on the language or imagery in the advertisement.” Anyway, the deponents were asked different questions and provided similar answers when they were asked similar questions.

The court also rejected screenshots of third-party social media posts that “juxtapose Weldbend and Boltex’s names with American imagery” and slogans such as “Buy American not dumped from China!” or “American Made Matters” as evidence of misleadingness; defendants didn’t explain who the poster was in relation to plaintiffs.

Finally, there was additional evidence about Weldbend individually that did demonstrate a fact issue as to whether consumers were confused by Weldbend’s use of the terms “Domestic” and “USA.” A distributor requested a quote for flanges and specified that “[r]aw material is required to be domestic.” A Weldbend customer service representative responded that “[e]verything [ ] quoted is U.S.A.” The distributor then sought to clarify whether “USA mean[t] the raw material as well,” to which Purpura responded “U.S.A. means it is melted and manufactured in the U.S.A.—Domestic means material from another country, manufactured here.” In a different email exchange, Weldbend informed a customer that he could not “guarantee that all material will be Melted and Manufactured in the USA” but that “[a]ll items which are not Domestic are noted as Import.” These representations seemed to conflict—both appear to define “Domestic” in different terms. Combined with evidence that Weldbend internally defined “American Made” as including flanges made in the US with imported steel but advertised the opposite, a reasonable fact-finder could find it misleading to call products made from non-U.S. sourced steel “American Made,” “Made in America,” or “Domestic” without clearly defining or qualifying those terms for consumers.

Materiality as to Weldbend: literal falsity would mean materiality, and at least one buyer insisted that the flanges sold to him be made in America with U.S. sourced steel.

Nonetheless, there was no direct evidence of injury. A damages model wasn’t enough. There was no evidence that plaintiffs’ profits resulted from the allegedly false advertising. And on this record, the customers misled by Weldbend’s “American Made” designation wouldn’t have accepted flanges produced by Ulma—a foreign flange manufacturer—as substitutes. One series of emails, for example, involved a bid that included a line stating that the “starting material [was] non-China.” The other party responded to the quote, stating: “I am concerned about the comment [regarding “non-China” material]. The starting material for these fittings and flanges MUST [sic] be from the USA not just non-China,” per her customer’s request; she did not “want to lose a customer over something like this.” There was no evidence in the record that this subset of customers would buy Ulma’s flanges as a substitute, even if the parties generally compete in the market for normalized flanges. Summary judgment granted (with the exception of “traceability”: plaintiffs didn’t adequately move for sj on this issue, which required more briefing).

Keurig unsuccessfully argues that false advertising law unconstitutionally compels speech

Smith v. Keurig Green Mountain, Inc., No. 18-cv-06690-HSG, 2019 WL 2716552 (N.D. Cal. Jun. 28, 2019)

Smith brought a putative class action against Keurig, alleging that its “recyclable” single-serve plastic coffee pods were mislabeled as such because they are not in fact recyclable, due to their size, composition, and a lack of a market to reuse the pods. Although the pods at issue are made from Polypropylene (#5) plastic—a material currently accepted for recycling in approximately 61% of U.S. communities—domestic municipal recycling facilities (MRFs) are allegedly not equipped to capture materials as small as the Pods and separate them from the general waste stream. Keurig’s instructions allegedly further impede the Pods’ recyclability by advising users that they need not remove the Pods’ paper filter, which ensures contamination. And due to the Pods’ design, their foil lids are allegedly difficult to remove, posing another risk of contamination.

Smith alleged reliance and that she wouldn’t have bought them/paid what she did for them absent the false representations. She allegedly desired to continue purchasing recyclable single-serve coffee pods and would purchase such products properly manufactured and labeled by Keurig in the future. She brought the usual constitutional claims.

The court declined to dismiss the complaint. Keurig argued that, because advertising for the Pods contained the disclaimer “check locally” regarding recyclability, Smith either ignored the qualifying statements or bought the Pods knowing that they may not be recyclable at her local MRF. She still alleged injury in fact.  She alleged that, in fact, the pods weren’t recyclable across the board, making a “check locally” disclaimer misleading.

Keurig also argued that its recyclable and nonrecyclable pods cost the same, so she couldn’t have been injured. This wrongly assumed that her only choice was between Keurig pods, but other coffee products are available and she allegedly would have sought them instead had she known the truth.

As for standing for injunctive relief, Keurig argued that there was no informational injury here, because the pods would have to be enlarged to make them recyclable so Smith can’t be fooled again.  But “Keurig could plausibly make recyclable Pods without changing their size: MRFs could evolve to be able to capture small plastics such as Pods, such that all Keurig would need to do is make it easier to clean out the Pods and remove their foil lids.”

Keurig also argued that its labeling was truthful and consistent with the FTC’s Green Guides.  Those say: “[i]f any component significantly limits the ability to recycle the item, any recyclable claim would be deceptive. An item that is made from recyclable material, but, because of its shape, size, or some other attribute, is not accepted in recycling programs, should not be marketed as recyclable.” They also state that when recycling facilities are available to less than 60% of consumers where the item is sold, all recyclability claims should be properly qualified.  Keurig couldn’t rely on the Green Guides at this stage of the proceedings.  “Setting aside the adequacy of Keurig’s qualifying statements, the Green Guides state that if a product is rendered non-recyclable because of its size or components—even if the product’s composite materials are recyclable—then labeling the product as recyclable would constitute deceptive marketing. And, among other things, the complaint alleges that the size and design of the Pods render them non-recyclable. Thus, even following Keurig’s logic that the Green Guides might operate as a liability shield, the allegations in the complaint are not precluded based on the Green Guides’s plain text.”

Keurig argued that it was implausible that a reasonable consumer under the circumstances—i.e. a consumer who wants to preserve the environment—would not understand the recyclability of the Pods in light of the disclaiming language that they are “[n]ot recyclable in all communities” and the directive for consumers to “check locally” to determine recyclability at their local MRFs. But, again, the complaint pled that the disputed Pods are not recyclable at all. Cases where disclaimers were sufficient to render an advertisement not false or misleading were thus irrelevant, and common sense “would not so clearly lead a person to believe that a package labeled ‘recyclable’ is not recyclable anywhere.”

Keurig also made an argument that we should expect more of: that Smith’s citation of the Green Guides sought to unconstitutionally compel Keurig’s speech by requiring a change in its labeling.  (Citing National Institute of Family & Life Advocates v. Becerra, 138 S. Ct. 2361 (2018), which is not a commercial speech case.) Keurig contended that California doesn’t have a compelling governmental interest in mandating the wording of Keurig’s qualifying statements, and that it would be unduly burdensome to require Keurig to [avoid deception and] monitor the number of MRFs at which the Pods are recyclable and revise its labeling accordingly.  Given the allegations of the complaint, Smith wasn’t seeking to compel Keurig to finetune its qualifying statement; she was seeking to stop Keurig from mislabeling the pods as recyclable. “And Keurig cites to no persuasive case law for the principle that a prohibition against deceiving consumers constitutes compelled speech.” [This argument is a reminder that all the action is in what constitutes “deceiving” consumers.  Of course a prohibition on deceiving consumers restricts speech! And if you want to get deception-adjacent, then the law is likely to constrain exactly what you can say.  Courts retain the intuition that there’s something different about saying “if you want to talk about X when you’re selling a product, you have to do it with these words/rules because otherwise you deceive consumers” from saying “salute the American flag or get expelled,” but given cases like NIFLA we are definitely heading for more fights attempting to recharacterize deception protections as unwarranted speech restrictions.]

good faith defense to false advertising may waive attorney/client privilege

In re Keurig Green Mountain Single Serve Coffee Antitrust Litig., 2019 WL 2724269, No. 14 MD 2542 (VSB)(HBP) (S.D.N.Y. Jul. 1, 2019)

In this antitrust claim, Keurig counterclaimed against plaintiff JBR for marketing its competing pods with allegedly false representations that its cups contain “no plastic” and are “biodegradable,” “compostable” and similar statements, in violation of the Lanham Act, Section 349 and 350 of New York’s General Business Law, and California’s Business and Professional Code. JBR asserted a number of affirmative defenses including that the counterclaims against it “are barred, in whole or in part, because JBR’s actions, if any, respecting the subject matters alleged therein were undertaken in good faith, with the absence of malicious intent, and constitute lawful, proper and justified means.” As the court pointed out, “it is doubtful that good faith is a defense to Keurig’s Lanham Act counterclaim,” but “it does appear to be relevant to Keurig’s counterclaim alleging a violation of Section 349 of New York’s General Business Law” (citing Samiento v. World Yacht Inc., 10 N.Y.3d 70, 81, 883 N.E.2d 990, 996, 854 N.Y.S.2d 83, 89 (2008) (“In order to assert a prima facie cause of action under General Business Law § 349, a plaintiff must be able to establish that a defendant intended to deceive its customers to the customers’ detriment and was successful in doing so.”).

The court found that JBR had to withdraw its good faith defense or hand over a bunch of otherwise privileged materials. During their depositions, JBR principals were asked about events in 2011 or 2012, when JBR was considering using the terms “biodegradable,” “compostable,” “ecofriendly” and similar terms on its packaging. JBR lacked expertise in the use of these terms and it hired an attorney -- Abrahamson -- for advice. JBR initially marketed its packaging as “compostable,” but switched to “biodegradable” upon the attorney’s advice, thinking “[it was] in the clear, because of the extensive research [it] had done and the extensive communication with this attorney.” JBR came to conclude that the advice was wrong (it was contacted by the Alameda County DA and told that its use of the term violated California law) and later asserted a claim against Abrahamson for malpractice that was resolved in arbitration.

Keurig argued that there had been a subject-matter waiver of the attorney-client privilege with respect to advice JBR received concerning the marketing of its cups as environmentally friendly and sought documents and testimony regarding that subject, as well as documents exchanged in the malpractice arbitration against Abrahamson. Under United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991), “the attorney-client privilege cannot at once be used as a shield and a sword. A defendant may not use the privilege to prejudice his opponent’s case or to disclose some selected communications for self-serving purposes. Thus, the privilege may implicitly be waived when defendant asserts a claim that in fairness requires examination of protected communications.” Under that rule,  “forfeiture of the privilege may result where the proponent asserts a good faith belief in the lawfulness of its actions, even without expressly invoking counsel’s advice.”  Here, the good-faith defense—if maintained—would result in waiver with respect to advice JBR received concerning whether it could advertise its products as “compostable” or “biodegradable” or as having other similar characteristics. JBR’s only basis for that defense seems to have been advice from the lawyer, rather than, for example, its own testing, making communications with counsel essential to evaluate its good faith.

JBR argued that there was no need for disclosure because the nature of the lawyer’s advice could be inferred from the chronology of events and the nature of its actions. But the existence of waiver doesn’t depend on what other evidence is available or what inferences can be drawn from the other evidence. Second, “[a] client does not always follow its lawyer’s advice.… Finally, the accuracy of a lawyer’s advice depends on both the lawyer’s knowledge and the accuracy and completeness of the information provided by the client. If, for example, JBR deliberately or negligently provided Ms. Abrahamson with material mis-information or omitted material information concerning the physical characteristics of its products, her advice might provide little support for a good faith defense.”  To evalute good faith, a fact finder would need to know both what JBR told the lawyer and what the lawyer told JBR>

Because JBR determined in 2015 to cease marketing its compatible cups with language describing them as environmentally friendly, the waiver applies to “all communications between JBR and any attorney concerning the marketing of JBR’s compatible cups or packaging as environmentally friendly that occurred prior to the date on which JBR made the determination to cease marketing its cups in that manner.”  JBR couldn’t claim good faith after that date so there was no waiver thereafter, and any advice it received in 2016 couldn’t bear on its good faith in 2015.

Finally, the court found that the waiver was revocable at this stage of the proceedings. “Waiver of the attorney-client privilege is, of course, a serious matter, and JBR may not have foreseen its waiver when it served its reply.” If JBR withdrew the defense asserted in the answer to the counterclaims, there’d be no waiver.

Finally, there was no waiver as a result of JBR principals’ deposition testimony.  Rule 502(a) provides that a waiver of the attorney-client privilege as a result of an intentional disclosure extends to undisclosed communication only if the disclosed and undisclosed communications “ought in fairness be considered together.” JBR wasn’t, at this stage, making any use of the deposition testimony; specifically, it wasn’t “attempting to use the testimony to tell part of the story while preventing Keurig from telling the whole story.” Most deposition testimony never goes before any decisionmaker.  “Thus, the mere fact that a party makes a partial disclosure of privileged or protected information in a deposition does not result in a subject-matter waiver because there is no use of the testimony by the party holding the privilege.”

dueling fake "independent" websites leads to unclean hands finding, but some injunctive relief

Grasshopper House, LLC v. Clean & Sober Media LLC, 2019 WL 2762936, No. 18-cv-00923-SVW-RAO (C.D. Cal. Jul. 1, 2019)

Previous discussion. A jury found in plaintiff Passages’ favor on its claims under the Lanham Act about false reviews of its addiction treatment services and on the Lanham Act counterclaim asserted against it by defendants (Cliffside) about Passages’ advertisements representing the existence of a “cure” for addiction.

In 2013, Richard Taite, the former CEO of Cliffside Malibu, created the entity Clean & Sober Media LLC, which purchased the website The Fix at a bankruptcy auction. The Fix published a Mission Statement saying “The Fix is the world’s leading website about addiction and recovery …. We also offer rigorously reported Rehab Reviews, with input from thousands of alumni…. Our stated editorial mission – and sole bias – is to destigmatize all forms of addiction and mental health matters, support recovery, and assist toward humane policies and resources.”  Its Process Statement said “To create our reviews, we invite selected centers to solicit former clients to complete a detailed, 20-question survey. The Fix requires at least five completed surveys before a review is generated. The surveys include questions about accommodations, meals, residents, staff, activities, and more. Alumni respond anonymously and confidentially, and reviews are written based on their responses and follow-up questions where applicable.”

When the acquisition occurred, there was a preexisting review of Passages Malibu, written by the previous editorial staff of The Fix in 2011.  It included quotes from people described as an “alum,” “former resident,” or “former client.” The review gave Passages an overall rating of 1 out of 5 stars. Over time, this rose to 2.5 stars. Passages made unsuccessful attempts to get the page changed. In response to Passages’ complaints, The Fix tried to find records of the reviews on which the rating was based, but couldn’t.

In addition, shortly after acquiring The Fix, Taite manually changed the overall star rating for Cliffside Malibu from 4 to 5 stars, without conducting any additional surveys of former Cliffside clients. Taite exercised other types of control but didn’t want his fingerprints on anything. 

The Fix also began to display banner ads for Cliffside Malibu at the top of the Passages review page and displayed links to the corresponding Rehab Review page for Cliffside Malibu.  This review made the first page of Google search results (at least for Passages’ CEO), and internal Cliffside emails revealed that Cliffside urged prospective clients to read the Passages review before making a decision as to whether to enroll with Passages or Cliffside; some of these clients chose Cliffside Malibu after reading the Passages review. Cliffside characterized other clients it received as “stolen” from Passages, including one who had believed she was calling Passages Malibu but instead had called the number for Cliffside Malibu.

Defendants concealed the relationship between Taite, Cliffside, and The Fix, including from editors at The Fix. The EIC (who was later replaced) sent an email bemoaning Taite’s “intention to manipulate the reviews” of addiction rehab centers on The Fix and Taite’s efforts to “pick and choose who can advertise” on The Fix and warned, "the likelihood is it would permanently crash ad sales and may even invite FTC investigation and lawsuits.” Taite successfully instructed the new EIC to remove an entire paragraph of an article The Fix had written regarding Cliffside Malibu. That EIC admitted that The Fix intentionally did not disclose its affiliation with Cliffside because “if people knew [The Fix] was associated with the rehab [Cliffside Malibu], they might question our articles.” 

In 2017, The Verge website exposed the financial connection between Cliffside and The Fix. Shortly thereafter, The Fix added a disclaimer to its websites.

Between 2014 and 2018, Cliffside paid C&S Media approximately $5 million for banner ads throughout The Fix’s domain. During that period, there were over 192,000 organic visitors to the Passages review (arriving via organic search results, not ads). The number of visitors to the Passages review page sharply increased following C&S Media’s acquisition of The Fix, as did Cliffside’s net income. Only a few hundred people viewed both the Passages review page and the Process Statement, the Terms and Conditions Page, or the Mission Statement.

Passages, meanwhile, ran its own unbranded website campaign.  A principal expressed his intent to “overcome” Cliffside’s alleged tactics and proposed that Passages “create our own referral sites, and get Fix off our back.” In response, an employee proclaimed, “We’ll beat them at their own game.” One of the unbranded websites Passages created was “baltimorehealth.org,” a webpage purporting to be the Baltimore Health Resource Center that included a picture of the seal of the City of Baltimore. Another was “denverijournal.com,” which purported to be an independent newspaper and published an article entitled “Passages Malibu – Revolutionizing Addiction Treatment.” There were a number of others; some provided directories of phone numbers to rehab centers and even included supposed referral services for addiction treatment, which were actually phone numbers connected to Passages. One such site received more organic traffic than Passages’ website for Passages Malibu as of October 2009.

Most of Passages’ unbranded websites didn't mention Cliffside at all, but one featured an article entitled “Top 5 Luxury Rehab Centers in Malibu, California”; its list of treatment centers was allegedly “[b]ased on reviews” but did not claim to rank the five centers from best to worst. The only comparison was the assertion that Cliffside’s facilities are “home-like and attractive without aspiring to the heights of interior décor you’ll find at the super-smart Passages center.” After Cliffside filed its counterclaims, Passages added disclaimers to their unbranded websites to disclose Passages’ ownership. 

In the post-trial briefs, the parties argued four equitable issues: (1) whether laches applies to bar any of Passages’ claims on timeliness grounds; (2) whether Passages is precluded from relief due to unclean hands; (3) whether and to what extent Passages is entitled to injunctive relief; and (4) whether Passages has provided sufficient evidence to recover equitable monetary relief.

Laches: The analogous California statute of limitations period, for claims of fraud, is three years. The central question was how much information a plaintiff must “know” about the existence of a Lanham Act cause of action to trigger the statute of limitations period. Generally, it is enough for the plaintiff to know about the general “essence” of its claim.

Laches didn’t bar the claims based on the Passages review not actually being based on alumni surveys; based on the review not complying with the site’s Process Statement; or based on The Fix’s claim of editorial independence. Passages didn’t have actual or constructive knowledge that Cliffside owned The Fix until 2017, and sued shortly thereafter. This is important because it is key to whether The Fix’s statements were made “in commercial advertising or promotion.” “[I]f The Fix maintained its status as an independent journal, unaffiliated with Cliffside, it is unclear to the Court how any false or misleading statements made by The Fix could ever be considered actionable ‘wrongdoing’ under the Lanham Act.”  It might be true that Passages could have sued for defamation in 2011, but “the focus is not on when the plaintiff knew that the defendant generally engaged in some ‘wrongdoing’ in the abstract,” but rather on the wrongdoing “at the heart of the particular cause of action to which the statute of limitations period applies,” which is false advertising.

Cliffside took the position that even an independent review could be “commercial speech,” but the court didn’t agree. Demetriades v. Yelp, Inc., 228 Cal. App. 4th 294, 310 (2014), held that the defendant’s representations about a review filter software, used to ensure that webpages for restaurants and other public establishments only showed customers “the most trusted reviews,” constituted commercial speech for purposes of an exception to California’s anti-SLAPP law because the statements were designed to get customers to use the defendant’s website and businesses to buy ads on the website. That wasn’t a Lanham Act case, and not all “commercial speech” is “commercial advertising or promotion.” [Even if The Fix’s statements about its own editorial policies were in some relevant sense commercial speech, that wouldn’t have made the statements about Passages—the key source of harm—commercial speech.]

And “even if Passages could have been more diligent in its investigation, Cliffside’s fraudulent intent in its efforts to conceal its affiliation with The Fix constituted clear and convincing evidence of unclean hands in reference to Cliffside’s laches defense.” Even though Passages suspected that there was something fishy about The Fix before 2017, “[h]ad Passages hastily sued The Fix under the Lanham Act and named many Doe defendants in the hopes of identifying The Fix’s ‘co-conspirator’ through discovery, a federal court rightfully would have dismissed Passages’ case on a motion under Rule 12(b)(6), because The Fix would not be a proper defendant to a Lanham Act cause of action as merely an independent journal not engaging in commercial advertising or promotion.”

Anyway, Cliffside didn’t show prejudice from the delay; had Passages sued in October 2017—three years from the publication of the Process Statement—no evidence would have been lost compared to when it did file, in February 2018, given that the core problem was that defendants couldn’t remember anything about/had no records of the surveys on which they claimed the review had been based.

Unclean hands: For a false advertising claim, “the defendant must demonstrate that the plaintiff’s conduct is inequitable and that the conduct relates to the subject matter of its claims.” A finding of “inequitable” conduct requires clear and convincing evidence that the plaintiff engaged in “wrongfulness, willfulness, bad faith, or gross negligence.” The defendant must also show that the plaintiff’s inequitable conduct caused injury to the defendant; harm to the public interest isn’t enough, but may be considered. “Factual similarity between the misconduct that forms the basis for an unclean hands defense and the plaintiff’s allegations in the lawsuit is not sufficient.” Instead, the plaintiff’s misconduct must be “directly related to plaintiff’s use or acquisition of the right in suit.”

Passages was indeed, by clear and convincing evidence, guilty of unclean hands as to the third Lanham Act theory (misrepresentations of independence) because of its own manipulation of internet sites. “Passages willfully intended for its websites to accomplish the same thing as what Passages correctly perceived The Fix to be—a purportedly independent website providing addiction treatment resources that was actually owned and operated by a competitor in the addiction treatment industry.” [I think the court overweighted the fact that Passages hid the ownership of the domain names rather than using its own or the names of people associated with Passages; even if it had done that, it would have fooled ordinary consumers who don't check things like that.] The success of these techniques—outstripping visits to Passages’ branded website in some months—was enough to establish some injury to Cliffside; no quantification was required. The late-added disclaimers weren’t enough to solve the problem.

However, unclean hands didn’t apply to the claims related to the review of Passages’ facility on The Fix and the representations in the Process Statement about how reviews were written. Nothing Passages said about Cliffside, or about how its sites created their reviews, was sufficiently similar to those misrepresentations. Although Passages behaved badly, it didn’t engage in the same level of culpable conduct as Cliffside. In addition, there was no evidence that there were even any visitors to the particular pages that actually mentioned the names of both Passages and Cliffside.

Injunctive relief was justified; the court found that the harm to Passages was irreparable, without further discussion.  Cliffside invoked the First Amendment, but there’s no First Amendment right to advertise falsely.  Passages’ unclean hands didn’t defeat the equitable considerations in favor of injunctive relief. 

Scope of relief: Cliffside was enjoined from continuing to publish the review of Passages’ facility on The Fix and all Cliffside-owned sources, but not enjoined to ensure that the review is not posted anywhere on the internet, which might be infeasible or outside of Cliffside’s control. In addition, the URL formerly associated with the review should contain no substantive content and instead should display a 404 error message “to communicate unequivocally to visitors that The Fix does not maintain any review of Passages Malibu whatsoever.”  However, Cliffside should be able to publish a future review that didn’t otherwise violate the representations it made in the Process Statement.  [What if it disavows the Process Statement? Can it make stuff up then?]  Nor was Passages entitled to an injunction about Cliffside’s use of metadata keywords, which wasn’t part of the jury’s findings.

Passages sought to recover its damages in the form of lost profits and to force Cliffside to disgorge its profits and pay attorneys’ fees.  But its damages expert had been excluded.  The only issue was disgorgement of Cliffside’s profits.  Passages showed willful violation of the Lanham Act as to journalistic independence but, because Passages acted with unclean hands with respect to that claim, it would be inequitable to award Passages any disgorgement for such a violation.

Also, Passages didn’t show the amount of Cliffside’s sales or profits that were attributable to Cliffside’s Lanham Act violations with respect to the Process Statement/the Passages review. And it didn’t show that Cliffside’s violation with respect to the Passages review was willful—Cliffside didn’t author the original review, which was written before Cliffside acquired The Fix. True, Cliffside actively maintained the Passages review and affirmatively changed Passages’ star rating in the review on several occasions, indicating that Cliffside deliberately intended to keep the Passages review on the website as a bona fide, factually-supported review. But that didn’t mean that Cliffside intended to deceive; “willfulness is measured in terms of whether Cliffside deliberately published a negative review of Passages’ facility without having a factual basis to support the statements made in the review, with the intent to cause harm to Passages’ brand.”  In response to Passages’ repeated requests for The Fix to remove the review, the then-EIC attempted to look for the original surveys but couldn’t find evidence they existed.  “The fact that [she] actually performed a search for surveys supports the conclusion that The Fix did not simply maintain the Passages review without caring about whether surveys were actually conducted, weighing against a finding that Cliffside deliberately intended to publish false statements in connection with the Passages review.” At most, leaving the review up was negligence, perhaps even gross negligence, but didn’t rise to the level of deliberateness required to find willfulness.

The strongest evidence was the email from Taite stating that he knew that Cliffside’s competitors “are trained to simply talk shit about Cliffside and why Cliffside is a piece of shit why they are better, … because before I had a commercial, I did the same thing, to promises and passages, that’s how I filled Cliffside!” This email was admission that Taite may have disparaged Passages in order to promote Cliffside, but the timeframe of Taite’s actions was unknown and couldn’t be attributed to the review. Although The Fix had actual knowledge that the Passages review didn’t conform to the Process Statement, its refusal to take down the Passages review after Passages’ repeated requests to do so wasn’t shown to have the deliberate intent to harm Passages and deceive visitors to The Fix as to the nature of the Passages review; it wasn’t required to believe Passages’ claims about who to ask for a review.

For now anyway (pending Supreme Court guidance), without willfulness, disgorgement wasn’t an available remedy. For extra certainty/guidance if there’s an appeal, the court went on to discuss causation. Although a plaintiff need only show defendant’s profits from the false advertising, shifting the burden to the defendant to show what wasn’t caused by the false advertising, a disgorgement award is limited to “the financial benefit [the defendant] received because of the advertising” constituting a Lanham Act violation.

Passages argued for a presumption of causation, arguing that the Passages review was comparative. The court didn’t agree, which I think is exceedingly strange.  It’s true that “the review itself did not juxtapose Passages’ services against those of Cliffside to conclude that Cliffside’s services are comparably better,” but it did directly disparage Passages’ services, and the webpage also included ads for Cliffside and links to (better) reviews of Cliffside—I can’t see why you wouldn’t analyze the webpage as a whole, at a minimum.  To do otherwise rewards Cliffside for feigning The Fix's independence.  Not every comparative ad succeeds—and yet the Ninth Circuit presumes causation in comparative advertising cases, even though it’s theoretically possible that the consumer would decide to go to a third party, or patronize the defendant for independent reasons.  The court pointed out that The Fix also reviewed other addiction treatment centers in its Rehab Reviews section aside from Passages and Cliffside, which is certainly worth considering, but I would say that’s what burden shifting is for. The court also rejected Passages’ argument that they were “functionally” the only two competitors in the local addiction treatment market; the parties repeatedly elicited testimony from witnesses during trial about Promises Malibu, a third treatment center.

Anyway, even if this were a comparative advertising case, Passages still had an obligation “to establish some causal link between the conduct underlying Cliffside’s Lanham Act violations and Cliffside’s profits for which Passages seeks disgorgement.” [I would think the testimony about reps using the review to convince customers to choose Cliffside should probably suffice to establish some causal link.] It wasn’t enough to show a sharp increase in Cliffside’s net income after the acquisition, since that was attributable at most to the overall acquisition, not specifically to the Passages review and the Process Statement. There was no evidence showing how much of Cliffside’s net income was derived in any way from The Fix compared to other sources of acquiring clients, and Cliffside advertised in other media and mostly got clients from sources other than The Fix. Nor was it enough to point to Cliffside’s ad expenses on The Fix (again, for the website as a whole rather than for the false parts).

The court also rejected a theory based on how much it would theoretically have cost in advertising to reach the same number of consumers as there were visitors to the Passages review. There was testimony that the average cost per click Passages paid for the keywords “Passages Malibu” since March 2017 was $40.00 per click. But it wasn’t correct to conclude that every visitor to the review was a consumer of an ad for Cliffside; there was no evidence suggesting how many people who read the review would have clicked on an advertisement for Cliffside Malibu had the viewer instead searched for “Passages Malibu” on Google. And this calculation had nothing to do with falsity; even if the review was truthful, it would still rely on the same assumption that Cliffside was benefitting from the Passages review the same as if a viewer had clicked on a link for a Cliffside advertisement.  Separately, the range of bids for a “top tier” advertising placement for “Passages Malibu” was between $7.99 and $35, and a bidder might be able to receive a lesser advertising placement for “a couple of dollars,” so the $40 amount wasn’t fair. 

What about adjusting the award, if the amount of recovery otherwise would be excessive or inadequate, to reflect “such sum as the court shall find to be just, according to the circumstances of the case”?  Well,  “Cliffside undoubtedly profited from its Lanham Act violations regarding the Passages review posted on The Fix in some manner.” Its expert testified that The Fix’s average revenue from a visitor to The Fix was always below $0.30 per click from 2014 to 2018. [This seems to be based on The Fix's ad revenues rather than Cliffside's revenues, but I'm not clear on that.] Multiplying that figure by the 192,434 organic visitors to the Passages review between 2014 and 2018, “The Fix could not have benefitted more than $60,000.” This was a sensible number: if Cliffside hadn’t violated the Lanham Act, “the Passages review would not have been posted at all during that time period, so any visitors to that website were unjustly benefitting The Fix.” Thus, the court awarded Passages $60,000 in disgorgement of The Fix’s profits.

No attorneys’ fees, though.  Cliffside’s defense wasn’t frivolous and its legal arguments weren’t objectively unreasonable. Nor were its (non-unclean hands-barred) violations willful.  (The court also noted that Passages had its own unclean hands and also didn’t litigate in the most pristine of ways, which further supported denying attorneys’ fees.)

Disturbingly, the court commented that “the public’s interest implicated in this case is less significant than a typical false advertising case” because the ads weren’t presented in a way that consumers couldn’t avoid, but instead could only be found by internet searches or deliberately clicking on links to the article.  This has to be wrong, since consumers performing searches are likely to be particularly interested in the subject matter rather than passively exposed to things they don’t care much about and thus more vulnerable to material deception; moreover, addiction treatment is a pretty significant topic.  The court concluded that “very few visitors to the Passages review on The Fix were exposed to a false advertising statement against their will,” but that’s silly—given the factual findings, they neither knew it was advertising, which is itself a problem, nor did they know that the review was false.  Both those problems violated consumers’ autonomy by interfering with their ability to decide for themselves what weight to give factual claims, and the fact that they could have not searched for addiction treatment should be no defense.  The court’s ultimate conclusion—that injunctive relief adequately protects the public—is sounder, but makes even clearer that the weird statements about the public interest were unnecessary. 

I was a bit surprised that there were remaining, un-tried state law claims for libel per se, false advertising under Cal. Bus. & Prof. Code § 17500, and unfair competition under Cal. Bus. & Prof. Code § 17200; the court remanded those claims to state court, which means that the parties can apparently go again if they want to.

Third Circuit requires showing irreparable harm in (c) case, rejects "compelled speech" argument

TD Bank N.A. v. Hill, No. 16-2897 (3d Cir. Jul. 1, 2019)

Commerce Bank, which merged with TD Bank, has been in a “bitter feud” with its former CEO, Vernon Hill II. TD Bank sued Hill, alleging that a portion of his 2012 book infringes a neglected manuscript that Hill co-authored while CEO of Commerce Bank. The trial court agreed, and granted a permanent injunction because there was irreparable harm inherent in violating the Bank’s “right to not use the copyright.” The court of appeals agreed that the bank owned the copyright (with a highly employer-friendly ruling that a failed WFH agreement evinced an intent to assign the copyright) and that Hill infringed, but found that the trial court abused its discretion in relying on a theory of irreparable harm that would apply to any infringement, in the process pointing out that infringers don’t compel copyright owners to speak in any way that implicates a First Amendment interest.

Hill was, according to American Banker, “the closest thing that the staid banking industry has to a rock star,” and in 2006 he decided to write a book about his business philosophy and more than 30-year tenure at the Bank. Commerce Bank supported him by hiring a business book author to collaborate with Hill in drafting the manuscript. Hill mostly worked on it during evenings and weekends; other Commerce Bank employees sometimes assisted by answering inquiries and providing feedback. “Resembling both an autobiography and a marketing tool, the 2007 manuscript included both a personal dedication to Hill’s wife and ‘the entire Commerce team,’ and a $20 gift certificate to open an account at Commerce Bank.” Commerce entered into an agreement with a division of Penguin Books as the “Author,” representing and warranting that it was the exclusive owner of all rights in the manuscript: “The Author [i.e., Commerce Bank] hereby represents and warrants . . . that Vernon Hill is the sole author of the Work; that the Work is or will be Vernon Hill’s next book length work . . . ; that the Author is the sole and exclusive owner of all rights granted to the Publisher … ; . . . that the Author has full power to enter into this Agreement and to make the grants herein contained.”  Hill also signed a guarantee that this was a WFH.

Hill and Commerce Bank broke up and, the 2007 manuscript was never published.  Commerce Bank terminated the publishing agreement.  Eventually, Hill sought to use portions of the manuscript in a 2012 book describing “Hill’s experiences founding Metro Bank UK, the British banking system, and Hill’s pet insurance company, Petplan USA.”  [This list is an example of how the Oxford comma does not in fact remove all ambiguity and you might be better off rewriting than relying on the comma for help; I’m guessing Hill did not actually found the British banking system.]  TD Bank admitted that, at most, 16% of the book infringed the 2007 manuscript, and that it has never published the 2007 manuscript or any competing work and has no interest in doing so. Still, the district court granted a permanent injunction when Hill apparently kept promoting the 2012 book.

First, the Copyright Act’s three-year statute of limitations doesn’t apply to Hill’s defense that he’s the co-owner of the copyright, regardless of whether it applied to his counterclaim for ownership; a statute of limitations precludes claims, not defenses.

Second, the WFH agreement failed as a WFH but succeeded as a written transfer of ownership. The book manuscript didn’t fall within the listed statutory categories that could be WFH by written agreement, so using the magic words was no help.  “Had Congress intended to permit parties to ‘deem’ works by employees as ‘for hire,’ it would have so specified in subsection 101(1), just as it did for independent contractors in subsection 101(2).” It might be a WFH as the work of an employee within the scope of his employment, but the district court did not so find; the parties could litigate the matter on remand if they cared to figure out the term of the copyright or whether Hill owned termination rights.

However, the Bank still won the issue because the agreement “operated as an assignment.” Hill “unconditionally guarantee[d] that the Work is a work made for hire within the meaning of the United States Copyright Law and that the Author is the owner of copyright in the Work and has full power and authority to enter into the Agreement.” His agreements “convey[ed] an unmistakable intent to effect a present transfer of any interest he possessed in the manuscript. Hill’s assurance that the manuscript ‘is a work made for hire,’ though insufficient to actually render it for hire, denotes an intent to relinquish his interest in the copyright.”  This strikes me as a reasonable, albeit not mandatory, interpretation of the parties’ intent.  A regime that would provide more protection to natural persons as authors would be a penalty for overreach: a failed WFH agreement would just disappear, not get reconceived of as an intent to transfer (the partial dissent seems to lean in this direction). To avoid just this problem, some contracts I’ve seen express the intent to (1) deem a work a WFH but (2) in the alternative, if it’s not, express the intent to transfer to the corporate owner.  Given that the Bank could’ve written that contract, I have some sympathy for the dissent.

Next, the court of appeals quickly disposed of merger/fair use arguments.  There were numerous ways for Hill to express his life story and business philosophy, and the 2012 book wasn’t transformative— “it did not imbue the prior work with ‘new expression, meaning, or message’—so the permissible scope of fair use is more circumscribed. Given this, as well as Hill’s commercial sales of the 2012 work, the unpublished nature of the 2007 manuscript, and the potential harm to the market for the original manuscript if TD Bank ever elected to publish it, the District Court correctly granted summary judgment to TD Bank on Hill’s fair-use defense.”

Nonetheless, the district court abused its discretion in granting a permanent injunction. First, eBay abrogated any presumption of irreparable harm in copyright cases. The district court found irreparable harm because the Bank was deprived of the “right to not use the copyright.” We get a very clear statement: “Neither the prospect of continued infringement nor the ‘right to not use’ a copyright establish irreparable harm.” Continuing infringement doesn’t itself make future injury irreparable. And “[h]olding that a violation of ‘the right to not use the copyright’ necessarily amounts to irreparable harm would not only resurrect the presumption of irreparable harm, but make it irrebuttable, even where, as here, the infringement bears only a tangential relation to the copyright holder’s business.”  Copyright protects incentives to create and publish, not privacy, reputation, or other interests.

The district court relied on dicta in the Second Circuit Salinger case, which mused that “a copyright holder might . . . have a First Amendment interest in not speaking” and later asserted that “‘[t]he loss of First Amendment freedoms,’ and hence infringement of the right not to speak, ‘for even minimal periods of time, unquestionably constitutes irreparable injury.’” The Third Circuit declined to take this musing seriously.  First, Salinger vacated a preliminary injunction and required a showing of irreparable harm.  “Equating copyright infringement with compelled speech would justify an injunction whenever, as in Salinger, an author chooses not to distribute a work.” Salinger also reiterated that copyright law aims to protect “the commercial interest of the artist/author” and “not to coddle artistic vanity or to protect secrecy.” The Third Circuit noted that “secrecy is exactly what would be protected if the unauthorized distribution of a work were deemed an irreparable violation of the original author’s right not to speak.”

A footnote pointed out that the “compelled speech” argument doesn’t make sense.  “Most obviously, copyright infringement generally lacks the state action needed to implicate the First Amendment.”  And even if there was state action, infringement wouldn’t be compelled speech because “regardless of whether the author takes offense, the infringer’s use does not coerce the copyright owner to ‘personally speak the government’s message’ or ‘to host or accommodate another speaker’s message’ so that ‘the complaining speaker’s own message was affected.’” Indeed, fair use provides special protection to uses like parodies, and the Copyright Act also provides for compulsory licensing; as the court of appeals pointed out, neither of these have ever been (or should ever be) seriously challenged as compelled speech for First Amendment purposes.

It was abuse of discretion to rely on a “right not to use” for irreparable harm.

Likewise, the district court was mistaken to conclude that there was no adequate remedy at law because Hill was handing out the 2012 book for free.  Actual damages would permit a reasonable royalty remedy, and statutory damages might also be available. TD Bank argued that it abandoned its request for statutory damages, so it lacks an adequate remedy at law. But where an adequate remedy at law exists, “the party seeking redress must pursue it.”

There’s no categorical rule that all infringement can be adequately remedied through damages. “But, at a minimum, where the copyright holder presents no evidence of actual harm and relies solely on the exclusive nature of the rights conferred by the Copyright Act, a district court abuses its discretion by concluding that the copyright holder lacks an adequate remedy at law.”

The balance of equities analysis was also flawed: It relied solely on TD Bank’s “property interest in its copyrighted material”—the right to exclude—and dismissed any interest that Hill might have because he had a property interest in the 2012 book only to the extent that it wasn’t infringing. “But by that measure, the balance of hardships would always favor the copyright holder.”  At least three factors go into a defendant’s claimed hardship: (1) whether the defendant’s own financial investment, effort, or expressive contribution eclipses the infringing aspect, (2) how easily the infringing content could be separated from the defendant’s product, and (3) the degree to which the defendant reasonably believed his conduct was non-infringing.  (Footnote: (2) differs from merger; merger is an ex ante issue about whether there was a different way to say the thing.  Separability for hardship purposes is about how hard it would be to extricate the infringing content, given obstacles such as sunk costs and path dependence.)  Here, the balance of equities favored neither party. There was no evidence of actual harm to the Bank and no more than 16% of the 2012 book infringed, while Hill’s unsuccessful ownership defense had “considerable merit,” but there was not much favoring Hill either. Late in the appeal process, the Bank conceded that a 2016 version of the book didn’t infringe, which suggested that the book could be noninfringingly rewritten in about a month (with the benefit of hindsight).

The public interest, however, favored access to the book.  “Copyright leaves a narrow but important role for weighing the public’s right to access expressive works, at least where a copyright owner pursues an injunction not to safeguard the commercial marketability of a work but merely to suppress unwelcome speech.”  Copyright isn’t “categorically immune from challenges under the First Amendment,” given its “built-in free speech safeguards.”  Still, “in exercising its remedial discretion, a court [need not] ignore whether an injunction would indefinitely preclude the public from accessing a work.”  In fact, the Supreme Court has suggested that injunction isn’t always consistent with copyright’s speech-generative functions; it and other courts of appeal “have emphasized the right of access to works of public interest.”

None of this was to “countenance blatant piracy or indulge in second-guessing of a copyright holder’s business model.”  Even with the public interest in access, injunctive relief might be appropriate. “But, at least where a copyright holder wields its exclusive rights to suppress unwelcome speech, a district court’s public-interest analysis should consider a work’s continued availability.”  Hill may not be a great author, but he had something to say and an audience that wanted to hear him. Meanwhile, the Bank wasn’t protecting the commercial value of its manuscript with this litigation: “By its own admission, TD Bank has no real intention of ever publishing or licensing that work.”

And the injunction—which was granted before the Bank conceded that the 2016 version didn’t infringe— “also inflicted a far more subtle and insidious harm on the public by placing Hill in jeopardy of a contempt finding for sharing anything that ‘sound[s] too much like himself in the 2007 manuscript.’” [Citing an amicus I worked on.] “In this manner, a copyright injunction can limit the public’s access to expressive content well beyond the work at issue in a lawsuit. Far from hypothetical, that danger came true here when TD Bank threatened to bring a contempt motion against Hill for the 2016 book, which it did not retract until its appellate response brief. A less financially secure defendant may well have given up.”

Ultimately, “no invocation of abstract principles can obscure that TD Bank suffered no actual harm from Hill’s infringement and the Bank had adequate remedies at law.”

A partial dissent by Judge Cowen would have found that the Bank waived any argument that there was an assignment.  In addition, Hill’s commitments failed to “convey an unmistakable intent to effect a present transfer of any interest he possessed in the manuscript”—the letter, written to a third party and using the language of “guarantee,” was “doubtful and ambiguous.” There was no manifestation of an intent to make a present transfer of rights.  WFH and assignment are very different things, with different consequences.