Tuesday, July 30, 2013

Slate on why marketers use "one weird trick" claims

Slate's Alex Kaufman sat through the pitches so you don't have to, then talked to some marketing experts about why they're so odd.  Cialdini's Influence explains it all, but if you don't have time to read that classic (though you should), here are some highlights from Slate's story:
“Research on persuasion shows the more arguments you list in favor of something, regardless of the quality of those arguments, the more that people tend to believe it,” Norton says. “Mainstream ads sometimes use long lists of bullet points—people don’t read them, but it’s persuasive to know there are so many reasons to buy.”
... The model also explains why some ads ask you to click on your age first. “Giving your age is low-stakes but it begins the dialogue. The hard sell comes later.”
Poorly drawn graphics are a deliberate choice as well. “People notice when you put something in the space that’s different, even if it’s ugly,” Urminsky says....
Plus, “if the ad were too professional, it might undermine the illusion that it’s one man against the system,” Norton says. Slick ads suggest profit-hungry companies, not stay-at-home moms or rogue truth-tellers trying to help the little guy.
There may be another reason for the length and shoddiness of the ads. “The point is not always to get the customer to buy the product,” Urminsky says. “It may be to vet the customer. Long videos can act as a sorting mechanism, a way to ‘qualify your prospects.’ Once you’ve established this is a person who’ll sit through anything, you can contact them by email later and sell them other products.”
“Those Nigerian prince scams are not very convincing,” he adds, “but they’re meant not to be. If you’re a skeptical person, the scammers want to spend as little time with you as possible. These videos may screen people in a similar way.”

transformative use of the day

Ida Frosk makes portraits on toast, to be eaten: are they fixed in a tangible medium of expression?  (Does the photo fix the toast portrait, or only the picture of the toast portrait?)

Primary jurisdiction doctrine prevents GMO/all-natural claim

Cox v. Gruma Corp., 2013 WL 3828800 (N.D. Cal. July 11, 2013)

Cox alleged that Gruma’s “All Natural” food labels were false and misleading because its products contain genetically modified organisms (GMOs) in the form of corn grown from bioengineered seeds. The court invoked the primary jurisdiction doctrine.  The FDA has regulatory authority over food labeling, and enforcement “is a matter that Congress has indicated requires the FDA’s expertise and uniformity in administration.”

There are no FDA rules requiring GMO labeling.  Nonbinding FDA guidance states that the agency “is not aware of any data or other information that would form a basis for concluding that the fact that a food or its ingredients was produced using bioengineering is a material fact that must be disclosed.... FDA is therefore reaffirming its decision to not require special labeling of all bioengineered foods.”  The FDA also has nonbinding guidance on “natural” defining that term to mean that “nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food,” but the FDA hasn’t addressed, even informally, whether foods with GMO/bioengineered ingredients can be labeled “all natural” or whether such ingredients are “artificial or synthetic.” This is a “gaping hole” in the current regulatory landscape, but nonetheless the FDA is clearly the agency charged with determining whether labels of foods containing GMO ingredients can use “all natural.”  Under these circumstances, the court determined that deference to the FDA’s regulatory authority was the appropriate course, to avoid usurping the FDA’s interpretive authority.

The court referred the question to the FDA and stayed the lawsuit for six months.

Brand guidelines v. brand reality

via Zachary Schrag:

NEH Rules for Use of NEH Logo: “The logo consists of the full name, National Endowment for the Humanities, as well as the symbol. These elements are combined in a special configuration to form the complete logo. Neither element may be used separately.”
NEH Twitter icon:

It might not be the best idea to try to stop people from doing what comes naturally.

Monday, July 29, 2013

Insurer has duty to defend in alleged trademark counterfeiting case

Travelers Indem. Co. of Connecticut v. Sterling Wholesale, LLC, 2013 WL 3816736 (E.D. Va. July 19, 2013)

Travelers brought a declaratory judgment so that it wouldn’t have to defend Sterling in underlying litigation; it lost.  Sterling is a small import/export company that supplies, among other things, OTC medical supplies such as blood glucose monitoring strips. The underlying litigation brought by J&J alleges a scheme involving a number of co-conspirators who acquired genuine OneTouch blood glucose test strips manufactured for sale in foreign markets, removed the original foreign-language labels, repackaged the products with English-language labels bearing counterfeit lot numbers and expiration dates, and then imported them into the United States.  Sterling and its principal Littman weren’t named as active coconspirators, but the complaint describes Sterling as a financial middleman, partnering with another distributor to import the test strips from South Africa.  There was no express allegation that Sterling knew that the strips were repackaged or otherwise counterfeit.  J&J sued Sterling and Littman for infringement, dilution, and related claims, including §43(a)(1)(B) false advertising.

Sterling’s policy defined “advertising injury” to include “Infringement of copyright, title or slogan.”  The analysis looks at the four corners of the policy and the four corners of the underlying complaint.  If coverage is in doubt, the insurer must defend.  The nature of the conduct alleged trumps the form of the action pleaded.

The underlying complaint alleged that genuine test strips had their labels removed and replaced with counterfeit labels, then were repackaged in counterfeit boxes, using a number of J&J registered trademarks. Sterling allegedly was part of buying over 20,000 boxes of the strips over an eight-month period that were then sold to wholesalers.  The complaint alleged generally that the defendants, including Sterling, used J&J’s marks in commercial advertising or promotion.  This fell within the scope of “infringement of copyright, title, or slogan.”  In the only state court decision on point, a Virginia circuit court considering identical language found the phrase broad enough to encompass trademark infringement.  Plus, though the only detailed description of the packaging at issue was a list of registered marks, a trademark may in some circumstances also constitute a slogan.  “The two terms--slogan and trademark--are neither coextensive nor mutually exclusive, and they may sometimes overlap.”  Plus, it was clear from the allegations of the underlying complaint that the counterfeit packaging at issue was modeled directly on genuine packaging.  “Notwithstanding the LifeScan complaint’s limited description of the contents of the counterfeit packaging, it is reasonable to infer that this counterfeit packaging also included any slogans or copyrighted material that may have been displayed on the genuine article.”

That hurdle jumped, the next question was whether the “advertising injury” arose from an “offense committed in the course of advertising [the policyholder’s] goods, products or services.” “Advertising” is an unambiguous term with a natural and ordinary meaning in the business world: “the widespread promotion of goods or services to the public at large, or to the company’s customer base.”  A prior case held that allegations of the sale of infringing items, without allegation of any facts about advertising or promotion, didn’t allege “advertising” for these purposes.  Likewise, solicitation of a formal written proposal tailored to a single customer isn’t “advertising.”  However, where a promotional communication is addressed to a small audience that nonetheless comprises all or a significant number of the speaker’s client base, that’s advertising.

The underlying complaint didn’t specifically allege advertising activity by Sterling, but it did allege a partnership in which Sterling contributed its importing expertise and contacts to the importation and sale of over 20,000 boxes, which were sold to at least four wholesale distributors.  The complaint didn’t detail promotional activities, but “expressly, albeit summarily, alleges that the … defendants, including Sterling Wholesale and Littman, engaged ‘in commercial advertising or promotion.’” There was nothing in the underlying complaint to suggest that Sterling’s sales to multiple customers were obtained exclusively by direct, one-by-one solicitation, nor that these distributors did not constitute a significant portion of the joint venture’s customer base. Thus, the alleged conduct was potentially an offense committed in the course of advertising.

Finally, coverage requires that the insured’s advertising activities cause the injury alleged, not merely expose it.  A patent infringement claim doesn’t trigger coverage even though the insured advertises the infringing product if the infringement claim is based on sale or importation rather than advertisement.  But here, the underlying complaint explicitly alleged commercial advertising activity, and the facts alleged implicated potential advertising activity by Sterling in promoting the sale of counterfeit products to multiple distributors.  “[L]ogic compels the conclusion that these alleged advertising activities are, at a minimum, the potential cause of injury” to J&J.

Headscratcher of the day: Court finds speech noncommercial because it's disparaging

SB Diversified Products, Inc. v. Murchinson, 2013 WL 3831315 (S.D. Cal. July 23, 2013)

The parties compete in the squirrel trap market.  Murchinson, an inventor who makes his own Black Fox product, allegedly disparaged SB’s Squirrelinator trap.  He began emailing SB’s customers and distributors negative commentary about the Squirrelinator, asserting it was inferior to the Black Fox and infrined Murchinson’s patent and sending videos purporting to show the Squirrelinator malfunctioning.  He also posted similarly disparaging comments on websites including Amazon and eBay.

The court found that SB failed to state a Lanham Act claim because Murchinson wasn’t engaging in commercial speech.  Ignoring the context (though the definition of commercial speech is supposed to be context-sensitive), the court found that disparaging a competitor did more than propose a commercial transaction, and commercial speech’s core is speech that does “no more than propose a commercial transaction.” Nissan Motor Co. v. Nissan Computer Corp., 378 F.3d 1002 (9th Cir. 2004).  Speech that does more than propose a transaction is noncommercial, so criticizing SB’s products made Murchinson’s speech noncommercial. 

Comment: Wow. Nissan, of course, is a case about noncompetitors; when a noncompetitor says nasty things about a producer, yes, that’s likely to be noncommercial speech.  But the point of saying nasty things about a competitor is to make purchases from it less likely and therefore purchases from you more likely.  Under this “the semantic content isn’t solely an invitation to purchase” logic, Pepsi’s ads showing people enjoying Pepsi or even advertising no-purchase-necessary contests aren’t “commercial speech”—after all, they do more than ask people to buy a product—and are entitled to full First Amendment protection.  That isn’t the law, as the many, many cases about commercial disparagement under the Lanham Act—amended in 1988 precisely to confirm that saying nasty things about the competition was actionable—reflect.

However, since amendment wouldn’t necessarily be futile, the claim was dismissed without prejudice, as was a similar UCL claim for failure to allege lost money or property.  (Hunh? What is missing from these pleadings?  If Murchinson said so much that his speech was noncommercial, how could that be pled around?  I think the court at some level understands that Murchinson’s statements are, in fact, likely to be commercial.

Multidistrict consumer false advertising case over DHA in milk proceeds

In re Horizon Organic Milk Plus DHA Omega–3 Marketing And Sales Practice Litigation, 2013 WL 3830124 (S.D. Fla. July 24, 2013)

Defendant WFC makes milk products fortified with algae-based DHA Omega–3 (“DHA”) under the brand names of “Horizon Organic” and “Silk.”  The cartons say “DHA Omega–3 Supports Brain Health.”  Plaintiffs from six states sued and their putative class actions were consolidated into one multidistrict litigation.

Initially, the court noted a dispute about whether Rule 9(b) applied but, like so many courts that find for plaintiffs, decided that even if it did apply it had been satisfied, so the question need not be resolved.

WFC argued that all the claims failed for failure to allege falsity/misleadingness or measurable injury or damage. The relevant states are Arizona, Arkansas, California, Florida, Illinois, and Missouri, and the court went in alphabetical order.

Arizona: Plaintiffs stated a claim under Arizona’s Consumer Fraud Act.  They alleged that WFC claimed that consuming its product would support brain health, but that this was not true. Not only did WFC allegedly lack competent and reliable scientific evidence to support its claims, but clinical studies had found no causal link between DHA algal oil supplementation and brain health.  Plaintiffs alleged that they relied on WFC’s claims in purchasing the milk.  They sufficiently identified the claims, where the claims were made (on the products—with pictures!—on WFC’s websites, and in ads), the period during which they purchased the products, and why the claims were false. They alleged injury in that they paid a significant price premium over comparable products, including WFC’s other organic and soy milk products without the brain health representations: on average, half a gallon of Horizon Organic Milk plus DHA retails at $0.20 to $0.50 more than Horizon Organic Milk without DHA, while the soy milk ranges from $0.20 to $0.70 more.  The results were similar under the other state laws.

Plaintiffs’ unjust enrichment claims also survived for Arizona, Arkansas, and Florida.  The results on the express warranty claims were more mixed.  In Arizona, privity is required and wasn’t alleged, though there’s an exception when a manufacturer’s warranty forms a separate, enforceable contract between manufacturer and buyer.  The complaint wasn’t very precise, but plaintiffs did allege that they had a contract with WFC and that the brain health representation was part of the basis of the bargain, which they accepted by buying the milk, so the motion to dismiss was denied.  In Arkansas, reliance is an essential element of an express warranty claim, and it was sufficiently alleged under that state’s law.  The California plaintiff, though, failed to allege facts demonstrating that he gave pre-suit notice of the alleged breach to WFC, which is a required element.  The motion to dismiss was granted with leave to amend.

Turning in the general direction of the merits, WFC argued that plaintiffs were proceeding on a barred “lack of substantiation” theory.  Such claims aren’t cognizable under some states’ consumer fraud statutes.  (The court noted that Arizona, Arkansas, and Florida hadn’t excluded lack of substantiation claims, though the other relevant states had precedent on point.  WFC argued that the fact that the FTCA lacks a private enforcement provision meant that no such claims under any state law were cognizable, but the court found that a non sequitur: plaintiffs weren’t suing under the FTCA.)  Regardless, plaintiffs alleged that WFC’s DHA-fortified products don’t support brain health; they alleged falsity, not just lack of substantiation, and cited studies finding no link between DHA algal oil supplementation and brain health.

WFC also argued that the state statutes’ safe harbor provisions for representations permitted by a relevant regulator barred the claims.  WFC pointed to letters it received from the FDA and the FTC.  In 2011, WFC responded to the FDA’s “concern regarding the adequacy of [WFC’s] evidence ‘to suggest that there is a relationship between DHA and brain and eye health in the targeted population,’” citing various studies.  In 2012, the FDA responded, stating that it had “performed a cursory review of the information [WFC] has submitted,” and that “[b]ased on the information [WFC has] provided, [the FDA] would not object at this time to the DHA claims regarding brain and eye health.”   Likewise, in 2011, the FTC sent a letter concerning “possible violations” of the FTCA, focusing on whether WFC had adequate substantiation for its brain claims.  The FTC “determined not to recommend enforcement action at [that] time” based on WFC’s “voluntary action to modify all advertising to ensure compliance with the FTC Act.” It cautioned that “[t]his action is not to be construed as a determination that a violation of the law did not occur.”

The letters were insufficient to trigger the safe harbor provisions, which apply only to conduct approved or specifically authorized by law.  Neither the FDA nor the FTC approved WFC’s labeling or ads or specifically authorized the brain health representations.  The FDA’s decision not to object “at this time” was not approval.  In any event, “statements made by the FDA in a letter to a corporation about its products are insufficient to accord those statements the weight of federal law to invoke the safe harbor provisions of the consumer fraud statutes.”  The same with the FTC letter.  A decision not to bring an enforcement action isn’t approval or agency action, but rather inaction.

Nor did the primary jurisdiction doctrine justify dismissing the claims.  WFC argued that whether a manufacturer could make brain health claims, and what substantiation is required to do so, was within the FDA’s jurisdiction and its realm of expertise.  But the primary jurisdiction doctrine isn’t designed to secure expert advice from agencies every time there’s an issue conceivably within the agency’s jurisdiction.  It’s only for resolution of issues of first impression or particularly complicated issues Congress committed to the relevant agency.  Whether the brain health representations were false or misleading, and whether consumers relied on them, weren’t technical areas in which FDA expertise was greater; courts judge misleadingness every day. 

In Chavez v. Nestle USA, Inc., 2011 WL 2150128 (C.D. Cal. May 19, 2011), aff’d in part & rev’d in part, 511 F. App’x 606, 607 (9th Cir. 2013), plaintiffs challenged similar DHA brain claims.  The Ninth Circuit reversed the dismissal of those claims based on the primary jurisdiction doctrine, noting that the claims didn’t necessarily trigger the doctrine and that the FDA had shown “virtually no interest” in regulating DHA in this context.  The cases on which WFC relied were distinguishable—e.g., they challenged whether a product could be marketed as safe, which requires the FDA’s expertise, or they involved impliedly false claims rather than literally false statements, or they involved ingredients that had been actively and specifically regulated for decades. 

WFC’s motion to strike class allegations was also premature; class certification is generally not addressed on a motion to dismiss.

Misattribution of "insider" status makes website literally false

Corizon, Inc. v. Wexford Health Sources, Inc., No. 4:10 CV 2430 (E.D. Mo. July 23, 2013)

Corizon sued Wexford for false advertising. The parties compete to provide healthcare services to correctional facilities.  Corizon was formed in 2011 from the merger of Prison Health Services and Correctional Medical Services (CMS).  Corizon had a contract with Maryland that extended until 2010, when Maryland issued a request for bids and both parties submitted bids.  In late 2010, Maryland announced its intention to award the contract to Wexford.  Corizon/CMS protested, and though Maryland denied the protest, Maryland informed Wexford that it was withdrawing the award because Wexford didn’t meet certain state requirements.  Corizon then extended its contract with Maryland.

While all this was going on, Wexford directed a PR firm, the CHT Group, to create a website.  CHT’s president Marlin Collingwood registered cmsdoesnotcare.com and, along with Wexford’s CEO, authored its contents.  The website was live from November 2010 to May 2011.  It was purportedly written by a Corizon insider and said many critical things about Corizon and its contract with Maryland.  CHT also created a website about the PHS/CMS merger, phscmergerconcerns.com, questioning the wisdom of the merger; it was removed when the merger was complete.

Because this is what defendants do now, Wexford argued that Corizon lacked standing, because it alleged no damages other than its demand for attorneys’ fees and investigative costs incurred determining the website’s creator.  Constitutional standing: an injury in fact is an invasion of a legally protected interest that is concrete, particularized, and actual or imminent but not conjectural or hypothetical. In false advertising cases, injury may be shown “by creating a chain of inferences showing how defendant's false advertising could harm plaintiff's business.” Direct competition is strong proof of injury in fact, and the parties agreed that they competed.  Direct competition plus falsity was enough to show likely confusion, which was sufficient for injury in fact.

Prudential standing: one test requires competition plus competitive injury; the other is Conte Bros.  The Supreme Court is going to decide a case on this, but it didn’t matter here.  For the first test, the parties were competitors, and competitive injury involves harm to the plaintiff’s ability to compete, which can be presumed when there’s direct competition plus misrepresentation, which there was here. Likewise, under Conte Bros., the court first considers whether the alleged injury was of a type Congress sought to redress with the Lanham Act, whose focus is on “commercial interests that have been harmed by a competitor's false advertising,” so the answer was yes.  The evidence supported Corizon’s claims for investigative and attorneys’ fees, which were available in false advertising cases, and there was no risk of duplicative damages or complexity in apportioning damages, meaning that Corizon also had prudential standing under the Conte Bros. test.

Corizon argued that the statements at issue were literally false, while Wexford argued that they were mere puffery.  In an argument that is structurally similar to an establishment/“tests prove” claim, Corizon focused on the statement that the website’s author was a “CMS insider.”  Wexford argued that this wasn’t literally false, since an “insider” can be a person who knows facts unavailable to the general public, and Wexford had such knowledge gained from Corizon employees and others involved in the relevant events. However, the context excluded Wexford “insiders” from being the purported “CMS insider,” implying that the author was a Corizon employee: The introduction stated, “I’ve been a [CMS] insider for quite a while now,” and “I decided to start this site to vent a little and give some of my insight into the CMS way of doing business.”  It continued, “[CMS’s] actions in Maryland are now directly affecting me and many of my colleagues and friends.” Colleague means coworker.  The website also said, “Many of us know the security officers in Maryland and even they are looking forward to the change in vendors.”  And it implied lack of affiliation with Wexford by “feigning uncertainty” about Wexford’s location.  Thus, the court found literal falsity.

Was the website a “commercial advertisement” under the Lanham Act?  One question was whether it was disseminated sufficiently to the relevant purchasing public within that industry.  Wexford argued that as few as two dozen people viewed the website, and that there was no evidence that any were from the relevant purchasing public.  But classification as an ad doesn’t turn on whether statements were read; it turns on the defendant’s efforts to make such statements available: the touchstone is whether there was an organized campaign to penetrate the relevant market.  Here, Wexford disseminated the statements to anyone with access to the internet.

The parties also disputed whether the website referred to products or services.  But it stated: “CMS decided to protest the award and they were denied. This was even though their price was lower than the Wexford company, Maryland decided not to go with CMS.”  Wexford argued that this wasn’t a reference to normal “services” (because certainly the well-being of the prisoners being treated is rarely first on anyone’s list!) but rather to Corizon’s practices as an employer and its failure to cooperate with the transition from CMS to Wexford, but that last bit didn’t make sense because the website was about Maryland’s decision to change the contract.  And even assuming that “services” referred to relations with Maryland security officers, not services as a healthcare provider, the website’s context indicated that working with security officers was part of the services.

The speech was also economically motivated. Wexford argued that it only created the website to facilitate the transition after Maryland announced its intent to award the contract to Wexford, and that assisting an incoming vendor to ensure continuity of healthcare is standard in the industry.  Transitioning could include employing existing personnel, buying existing equipment and supplies, and assuming existing leases—but that just meant that Wexford intended to use the website to facilitate multiple economic transactions. Also, the parties’ competitive relationship and the website’s content were circumstantial evidence of economic motivation.  Taken all together, the website was commercial speech.

Literal falsity allows a court to grant relief without evidence of actual deception, but the parties agreed that the presumption of deception was rebuttable.  The Eighth Circuit has used some loose language, once suggesting that proof of willful deception was required to presume deception, causation and injury, though most cases just say literal falsity, which isn’t coexstensive with willfulness.  To resolve the discrepancy, the court here stated that either willful deception or literal falsity would trigger the presumption of causation and injury.  Materiality was different.  (Note that this seems to be overlooking the content for the labels.  Causation is materiality, in false advertising: the deceptive statement is likely to cause a reasonable consumer to behave differently.)  Though some courts have presumed materiality on finding literal falsity, the weight of authority makes materiality separate.  The presumption of deception arose from concerns over the difficulty of proving deception, but “difficulty with obtaining proof is less likely to arise with the element of materiality, which may be determined by reference to the objectionable statements alone.”  (But presuming materiality from literal falsity has its own justification: an advertiser, who by hypothesis straightforwardly said something that turns out to be false, is in the best position to know what claims are likely to influence purchasers.)  The literal falsity here created rebuttable presumptions of deception and injury, shifting the burden to Wexford to prove the absence of deception and injury, but the burden to show materiality remained with Corizon.  (How Corizon would be injured in the absence of materiality is left as an exercise for the reader.)

Wexford argued that there was no evidence that any customer or potential customer saw the website, and that Corizon’s senior VP, its regional VP, and its regional administrator all said they’d never seen the website or knew anyone who had, but that wasn’t Corizon’s burden.  Also, Wexford didn’t produce corroborating evidence for the claim that there were only 20-25 website visitors (mostly representatives of the parties), and a Yahoo! Finance page and a Baltimore Sun article comment section each contained a link to the website.  Wexford had the burden of proof, and though the few-visitors claim would prove a lack of actual deception/tendency to deceive given how long the website was up, summary judgment was improper given the lack of corroborating documentary evidence about the level of web traffic.  Also, one could infer deception of at least one person (though not a consumer) by comparing the timing of the Baltimore Sun post and an email Wexford received from a Baltimore Sun reporter, which requested information regarding the contract and refers to “a source with the current vendor.” Thus, deception represented a genuine issue of material fact.

As for materiality, even if the website was just about Corizon’s conduct during the transition process, that could influence a purchasing decision.  No evidence of consumer decisionmaking was required, only a showing that Wexford misrepresented an inherent quality or characteristic of the product/service.  A reasonable factfinder could find materiality, given the website’s statements that Corizon’s executives said they didn’t care about customer preferences, that Maryland security officers repeatedly complained about Corizon, and that Corizon lied to its employees and to Maryland.

As for injury, Corizon mostly alleged the expenses it incurred finding the website’s author and removing the website.  The court found that damage control expenses were cognizable; they were similar to injunctive relief in the purpose of controlling lost sales and lost goodwill.  As the Sixth Circuit has held, “As is the case with plaintiffs seeking injunctive relief, plaintiffs engaging in damage control are still at a stage where substantial uncertainty exists as to the extent of the business harm being inflicted by the false advertising.”  Wexford argued that Corizon had no evidence of lost profits or goodwill, and that Maryland extended its contract after the website went live. But Wexford had the burden of proof, and it was also possible that Corizon lost profits or goodwill from other customers. Thus both actual and likely injury were disputed issues of material fact.

Wexford argued that Corizon manufactured its damages, because it knew that Wexford authored the website ten days after it went live.  Corizon argued that, though Wexford was a suspect, the true author remained a “mystery” until the deposition of the PR firm’s head. These questions of intent and reasonableness were for a jury.

Also, Wexford’s voluntary cessation didn’t moot Corizon’s request for a permanent injunction.  Wexford’s affiliation with the link postings on Yahoo! Finance and the Baltimore Sun website, plus the creation of phscmsmergerconcerns.com, was relevant to the likelihood that it would engage in similar conduct in the future, so it wasn’t “absolutely clear” that no injunction was required.

Friday, July 26, 2013

Houndstooth shows support for Alabama, not confusion

Via the TTABlog, this precedential case rejects the University of Alabama's claim to own a houndstooth pattern.  The fact that people may wear houndstooth to support the university/honor the famous coach Bryant isn't the same thing as the pattern functioning as an indicator of source or sponsorship, nor is intent to remind intent to confuse:
The testimony submitted by the parties is in agreement to the extent the parties agree that the public associates houndstooth with Coach Bryant’s hat and fans wear houndstooth apparel to the University’s football games to show support for the University because they know that is “what Coach Bryant wore.” Regardless of their reasons for wearing houndstooth apparel however, there is no evidence the houndstooth of the fans’ apparel functions as a source or sponsorship indicator for the University’s goods and services, or that it was authorized by the University....While applicants selected their mark because Alabama fans associate the Houndstooth Pattern with Coach Bryant’s patterned fedora, there is no evidence that applicants sought to confuse consumers as to the source or
sponsorship of their products and, more importantly, applicants’ HOUNDSTOOTH MAFIA and Design mark is not similar to any of opposers’ asserted marks.
Nice to see these distinctions actually made, though the TTAB limits the scope of this recognition by emphasizing that there are many sources of houndstooth out there.

Also, what's up with Alabama and overreaching trademark claims? Wouldn't it be more useful to concentrate on winning games?

question of the day, sex toy edition (NSFW)

Today’s trademark (and possibly copyright) issue is highly not safe for work, unless your work is like mine!  Super Hung Heroes are sex toys.  The Batman takeoff, who protects and serves GoodHead City, is kind of sculptural genius, as is the Iron Man takeoff.  There are also toys based on the Incredible Hulk and Spiderman, but I wonder if the Batman/Iron Man versions are more vulnerable to copyright claims because they’re so much more clever and thus arguably incorporate the characters in their sculptural elements, not just in their marketing.  See ConWest Resources, Inc. v. PlaytimeNovelties, 2006 WL 3346226 (N.D. Cal.).  (Also, that seems to be Batman on the Batman package, whereas the other characters on the packaging aren’t visually identifiable from what I can see.)  Still, given the way courts treat sex in fair use cases, I’d expect a fair use defense to go well—I hardly think DC/Marvel are likely to enter this particular market, for all that certain of their products are male masturbatory fantasies.

Thursday, July 25, 2013

suggestive mark is too weak for confusion

Action Ink, Inc. v. Anheuser-Busch, Inc., 2013 WL 3776548 (E.D. La.)

This case goes to show that defendants face extreme bars to getting attorney’s fees even in eyeroll-inducing cases.  Action Ink registered THE ULTIMATE FAN in 1985 for “promoting the goods and/or services of others by conducting a contest at sporting events.”  Action Ink worked with several NBA teams between 1983 and 1987 to hold THE ULTIMATE FAN contests and promotions, but other attempts to work on NBA promotions were unsuccessful, as were other endeavors.  In 1988, Action Ink’s president wrote to Anheuser-Busch requesting that it stop using the phrase “THE ULTIMATE CUBS FAN BUD MAN SEARCH.”  Counsel for the Chicago Cubs didn’t agree, arguing that the phrases were different and that “ultimate” was descriptive.  Action Ink submitted a declaration of incontestability and renewed the registration at the appropriate time.

In 1995, Action Ink learned that Major League Baseball was considering holding an “Ultimate Fan” contest. After a C&D, the MLB agreed to add language to its signs indicating that the phrase “Ultimate Fan” was being used with Action Ink’s permission.  Action Ink sent over 60 C&Ds between 2006 and 2012; some of the recipients agreed to stop using the phrase, and GEICO and the Louisiana Lottery settled with Action Ink.  After a C&D about past uses, Tulane contributed tickets to a charity as payment and signed a license agreement allowing it to use the mark from 2013-2014.  No one else licensed the mark.

In 2009, Action Ink contacted three NFL teams about contests it thought were infringing, and heard that Anheuser-Busch was responsible for two of them.  Action Ink sent a C&D related to the “Bud Light©/ Washington Redskins Ultimate Fan Sweepstakes.”  A-B responded asking for more information, but nothing else happened.  In 2011, Action Ink discovered A-B’s use of the phrase “Ultimate Fan Experience” during a Bud Light promotion advertised in supermarkets and in commercials aired during NFL games.  Action Ink sent a C&D, to which A-B responded that it would neither C nor D since it wasn’t infringing.  In early 2012, Action Ink sued; it filed a separate suit against the New York Jets in connection with the Jets’ registration of ULTIMATE FAN in connection with computer games.  In May 2013, the judge in the Jets case granted summary judgment for the Jets on the ground that Action Ink had abandoned the mark. 

The court here found that collateral estoppel applied to bar Action Ink’s claims against A-B, which were based on the same alleged mark.  Action Ink disputed the merits of the Jets decision, but the correctness of the earlier decision is not an issue in collateral estoppel.

In any event, Action Ink failed to show likely confusion. Its theory was reverse confusion.  Despite the similarity of the marks and the “concepts” (services?), the other factors favored A-B or couldn’t be assessed by the court for want of evidence, entitling A-B to summary judgment.

The commercial strength of Action Ink’s mark was “quite weak.”  A-B showed that many companies run “Ultimate Fan” promotions, including promotions held for sports fans.  “This significantly lessens the likelihood that the phrase, while known to the public, is associated with defendant specifically.”  The record showed dozens of examples from Action Ink’s own discovery production, as well as 157 other examples, including uses by the Los Angeles Angels, the Chicago Bulls, the New England Patriots, and the Seattle Seahawks.  The over 60 C&Ds in a 6-year period also showed the prevalence of the phrase.  Action Ink, by contrast, had no evidence of secondary meaning such as surveys or consumer testimonials.  This favored A-B.

As a side note, the court pointed out that it wasn’t clear that A-B was using the challenged term as a mark; all uses were accompanied by BUD or BUD LIGHT, its own strong marks; the court nonetheless assumed for these purposes that A-B was using the term as a service mark.

The court then evaluated A-B’s intent, and naturally there was no evidence that A-B wanted to take advantage of Action Ink’s goodwill.  “Indeed, plaintiff has not used the Mark in any recent public campaigns; this fact alone prevents the public from associating the Mark with plaintiff.”  Given the widespread use of the term, there was no support for a finding that A-B intended to “pirate” Action Ink’s goodwill.  The 1988 letter didn’t serve to show A-B’s awareness of the mark and subsequent bad faith, given the ten-year delay between the notice and the current dispute and Action Ink’s lack of use of the mark during that time.

Then, the court turned to the conceptual strength of the mark.  The pause to evaluate intent is another indicator that conceptual and marketplace strength simply don’t play well together.  A-B argued that the mark was descriptive without secondary meaning; Action Ink rejoined that incontestability meant a conclusive presumption of nondescriptiveness/secondary meaning.  (This is already a weird parsing of the law, but then again who really understands what incontestability means for strength?)  Assuming that the mark hadn’t been abandoned, “the Court will accord the Mark nondescriptive status.”  Nonetheless, the mark was entitled to “minimal” protection because it was at best suggestive, not fanciful or arbitrary. 

Digression: Given that courts regularly say that “descriptive with secondary meaning” means “relatively strong,” and that suggestive marks are “relatively weak,” are we developing a line of cases that flips two entries on the Abercrombie spectrum, so that it in practice goes suggestiveàdescriptive with secondary meaningàarbitraryàfanciful in terms of increasing (conceptual) strength?  That might make sense, especially given how little courts require to put a mark in the category of “suggestive” instead of “descriptive.” Conceptual and marketplace strength are supposed to be distinct, but a claimant needs some amount of marketplace strength to claim a descriptive term as a mark, so there has to be some crossover and the question is where to place a descriptive term that is in fact serving as a mark on the Abercrombie spectrum.  Hypothesis: if a trademark owner does the minimum needed to show that the symbol it claims as a mark is in fact serving as a mark, then just getting over the line “descriptive with secondary meaning” makes the mark stronger than just getting over the line “suggestive.”  Hmm … actually, that makes a fair amount of sense, though I still balk at calling a mark that’s only been shown to be descriptive with secondary meaning “relatively strong” without more.

Anyhow: THE ULTIMATE FAN is associated with a contest among sports fans.  “Ultimate” means “beyond which it is impossible to go” and “greatest or highest possible; maximum; utmost,” and it’s logical that an “ultimate fan” is either a big supporter or a winner of a fan contest.  The relationship between the phrase and the service took the mark out of the arbitrary/fanciful category, and thus it got less protection; this factor didn’t favor Action Ink.

There was no evidence of actual confusion, which “militate[d] strongly” against a finding of likely confusion.  “Indeed, plaintiff's inability to produce any evidence of actual confusion underscores the absence of its mark from the public eye.”  As for the other factors, such as retail outlets, purchasers, or media used, they were impossible to evaluate “because plaintiff has none to speak of for the Mark. … Plaintiff has not been involved in a promotion using the Mark in almost twenty years. Thus, there is no possibility that consumers have been unable to discern whether a contest called ‘The Ultimate Fan’ originates from plaintiff or another company because plaintiff has no public presence related to the Mark.”

A-B sought attorneys’ fees, which require bad faith.  Though Action Ink abandoned the mark, its claims weren’t so implausible as to necessitate an inference of bad faith.

User-generated content of the day

This bar mitzvah invitation made me see "We Are the Champions" in a whole new light. 

Farhad Manjoo on the perils of overpromising in ads

With reviews like this for NeverWet, can the lawsuits be far behind?  What advice would an advertising lawyer have given here?
NeverWet’s instruction leaflet warns that the product’s “Flat Frosted Clear appearance may cause an item’s color or sheen to change,” but there are lots of weasel words there (“may,” “clear”) that suggest that the difference will be minor. After spraying, waiting, and spraying and waiting again, I was surprised to see that it was anything but minor. Imagine your shoes covered in a fresh layer of volcanic ash. That’s what NeverWet looks like. ...In its demo, the company shows how you can turn a cardboard box into an ice chest by spraying the inside with NeverWet. I attempted the same thing, and while most of the bottom of the box became waterproof, the side panels didn’t. ... I wondered if I was missing something [in his tests on fabric]; maybe I wasn’t spraying a thick enough coat, or letting it cure long enough, or perhaps the fabric was too porous? Then I carefully read the can’s instructions once more, and saw a note to go to the company’s Web page for more info. On that page, I found this warning: “Not intended to be applied to electronic devices or clothing.” Huh. Note that in the two viral videos, NeverWet’s reps repeatedly show off its utility on clothing and electronics. In one, an employee takes apart an iPhone, sprays the inside with the NeverWet, then dunks in the phone in a water. But the company seems afraid to claim that it can protect your valuables, so its fine print walks back those videos. “Can NeverWet be used on electronics?” asks the product’s FAQ. “No, NeverWet should not be used on electronics.” I concur. When I sprayed NeverWet on an old smartphone, the device was so thickly covered with the rubber stuff that you couldn’t see anything on the screen. (That’s why, in the video, they have to take apart the phone and spray the inside.) Even despite the thick coating, NeverWet didn’t protect the phone: It survived an initial dunk in water, but water clearly seeped into the device, and after a half an hour or so, the phone froze.
Practice tip: don't make videos like the ones described, directly contradicting the fine print/instructions. Neither the FTC nor consumer lawyers will be impressed.

consumer claims aren't covered by advertising injury policy

National Union Fire Ins. Co. of Pittsburgh, Pa. v. Mead Johnson & Co., 913 F. Supp. 2d 682 (S.D. Ind. 2012)

National Union successfully sought a declaration that it had no duty to defend Mead Johnson in the follow-on consumer lawsuits stemming from the PBM v. Mead Johnson infant formula §43(a)(1)(B) false advertising litigation, where Mead Johnson was found to have falsely claimed a unique formulation unavailable in less expensive store brands.  The consumer plaintiffs based their claims on the same comparative advertising.  National Union argued that this wasn’t covered “personal and advertising injury.”

Under Indiana law, a duty to defend is triggered when the underlying complaint alleges facts that might fall within the coverage of the policy (or, when the facts are contested, the insurer must undertake a reasonable investigation into the underlying facts).  The relevant question was whether the underlying lawsuit alleged “[o]ral or written publication ... that slanders or libels a person or organization or ... disparages a person's or organization's goods, products, or services.”  Mead Johnson argued that the underlying complaints alleged that consumers suffered injury arising out of Mead Johnson’s disparagement of competitors’ lower-priced formula, e.g., “As part of its deceptive marketing campaign, Mead Johnson has disparaged competing products, particularly store brands....”

The court found this insufficient; to state a claim for libel, slander, or disparagement, the underlying plaintiffs would have to allege that the false statements were made about the plaintiffs.  Consumers wouldn’t have Article III standing to bring claims for disparagement of the competition, and their injuries were purely economic.  Since the statements at issue weren’t “of and concerning” the underlying plaintiffs, there was no coverage, and any economic injury they suffered didn’t fall within the scope of “disparagement.”  (I don’t really get this.  The policy by its terms doesn’t say that the “person” who is disparaged has to be the one who’s suing to trigger coverage; it just says that the injury has to arise out of disparagement, and the underlying plaintiffs here alleged that Mead Johnson’s denigration of competing brands caused them to pay more for Mead Johnson’s version.) 

No duty to defend and no duty to indemnify.

Wednesday, July 24, 2013

Misleading before and after photos

A personal trainer blogging at the Huffington Post has some striking before and after photos--before and after in less than a day.  His point, consistent with the FTC's guidance on endorsements and testimonials, is that it's easy to mislead about results with before and after photos.  Would reasonable consumers expect that lighting and positioning made all of the difference?

Tuesday, July 23, 2013

True product integration has arrived

On MTV's Teen Wolf, which really shouldn't surprise anyone.  Last night's episode featured one character very deliberately opening and eating a Reese's Peanut Butter Cup while delivering the plot-significant line, "Perfect combinations are rare in an imperfect world."  This line is, naturally enough, already in dozens of tweets/tumblr posts.  As much as it made me roll my eyes, I must congratulate the writers on doing far better than usual in substantive integration.

Monday, July 22, 2013

Inconsistent yogurt rulings, but no preliminary injunction for UCL case

Kane v. Chobani, Inc., 2013 WL 3703981 (N.D. Cal.)

This decision conflicts with one I blogged last week holding that the FDA didn’t have an enforceable position on evaporated cane juice.

Plaintiffs alleged that they bought multiple flavors of Chobani’s Greek Yogurt, and alleged that the labels were false and misleading in three ways: (1) The labels described their sweetener as evaporated cane juice (ECJ), which is just sugar, aka dried cane syrup; this term falsely concealed the nature of the sweetener and violated FDA regulations requiring ingredients to be identified by their “common and usual names,” as well as the standard of identity for yogurt, which doesn’t list ECJ as an authorized sweetener.

(2)  Chobani’s website said, “The 7g of sugar listed on the nutrition facts panels … comes from a naturally occurring type of sugar found in all dairy products called ‘lactose.’ This lactose often called ‘milk sugar,’ is the only sugar you'll find as we don't add sugar to our yogurt.”  It also said, “Does Chobani Champions contain extra sugar? No way! Just because Champions is made for kids doesn't mean that we need to add extra sugar. You won't find any high fructose corn syrup or artificial ingredients, flavors, or colors in our yogurt. Just low-fat milk … ; [and] real fruit, lightly sweetened with evaporated cane juice ….”

(3) Chobani allegedly falsely claimed that the yogurt contained “[o]nly natural ingredients” and were “all natural,” but actually included artificial ingredients, specifically the use of of “fruit or vegetable juice” “for color.”  

Plaintiffs alleged the usual California claims in the usual ways.  Chobani argued first that they failed to plead reliance.  Reliance can be shown if the defendant’s misrepresentation or nondisclosure was an immediate cause of the plaintiff’s injury-producing conduct.  The court found that plaintiffs showed reliance as to the ECJ claims: they alleged that use of the term concealed the fact that the ingredient was essentially white sugar or dried cane syrup; that, based on the labels, they believed that the yogurt contained “only natural sugars from milk and fruit and did not contain added sugars or syrups”; and that they wouldn’t have bought the products if they’d known the truth.

However, plaintiffs’ allegations suggested that they understood that dried cane syrup was a form of sugar, but “failed to allege what they believed evaporated cane juice to be if not a form of sugar.”  Thus, since ECJ was on the label, it was implausible on these allegations for them to conclude that only milk and fruit provided the sugars in the yogurt.  But the ECJ claims still survived, since plaintiffs sufficiently alleged that the term ECJ was deceptive, concealing that the ingredient is little different than ordinary white sugar and suggesting that it was akin to natural sugar cane.  Plaintiffs did allege that natural sugar cane is “healthy and nutritious, containing vitamins, minerals, enzymes, fibers, and phytonutrients,” unlike ECJ.  “Moreover, to the extent ECJ suggests that the product is derived from a juice, it may have plausibly suggested that the product is healthier than refined sugars and syrups.”

Also, the court found that plaintiffs didn’t sufficiently allege reliance on the “no sugar added” claims. They didn’t allege they ever saw Chobani’s website, on which the claims resided, and thus they couldn’t have relied on them.  In re Tobacco II didn’t change the result, since that case involved a long-term ad campaign; plaintiffs are still required to allege facts showing that the ads at issue were an immediate cause of the purchase decision.  Plaintiffs argued that the website statements violated FDA labeling requirements, rendering the yogurts misbranded and unlawful to sell; further, they alleged, they wouldn’t have bought the products if they’d known they weren’t lawfully on the market. But that wasn’t enough to show reliance; this theory would “eviscerate the enhanced standing requirements imposed by Proposition 64” and Kwikset, which requires actual reliance on the allegedly deceptive or misleading statements. Plus, there was no allegation of a duty to disclose the alleged noncompliance with labeling laws.

Likewise, plaintiffs failed to allege reliance on the “all natural” representations; allegations that they wouldn’t have bought the products if they’d known that some of the yogurts were colored “artificially” using “fruit or vegetable juice concentrate” were insufficient because the label explicitly disclosed that Chobani added “fruit or vegetable juice concentrate [for color].”  Thus, the reliance allegations were implausible.

With only the ECJ claims remaining, the court found that plaintiffs had adequately alleged injury, even though Chobani argued that the product contained exactly what was in the ingredient list.  That ignored the theory of harm accepted by Kwikset: plaintiffs wouldn’t have bought the product but for the alleged misrepresentation.

Plaintiffs didn’t allege they purchased all Chobani flavors, or any Chobani Champions products.  The allegedly deceptive use of ECJ was substantially similar across all the products, but plaintiffs didn’t allege facts sufficient to show that the products they didn’t purchase were substantially similar, and both kinds of similarity were required; claims based on unpurchased products were dismissed without prejudice.

The court then found that it was plausible that a reasonable consumer could be deceived by the misstatements: “it is plausible that Defendant's use of the term ECJ suggests that ECJ is a healthier alternative to refined sugar and may conceal the fact that ECJ is” basically white sugar (why do you think Chobani used the term, especially in the face of FDA guidance suggesting the contrary?).

The court also rejected Chobani’s preemption arguments, including the fruitless argument that the FDCA lacks a private cause of action and thus must intend that states not grant a cause of action for violating the law.  But the FDCA specifically contemplates state law enforcement of “identical” rules.  Pom Wonderful didn’t change that; it was limited to the Lanham Act and didn’t deal with the presumption against federal preemption of state health/safety law.  Cases involving Class III medical devices and fraud on the FDA claims were also inapposite; there was no “comparably rigorous review” or premarket approval for foods here, and the extensive regulation of Class III medical devices gave preemption a different context than the FDA’s “substantial, but more limited oversight of food labeling requirements” that explicitly recognized a state role.  Plaintiffs weren’t suing because the conduct at issue violated the FDCA, but rather because it violated state law identical to the federal requirements.

Chobani argued that express preemption applied.  Plaintiffs alleged that the use of ECJ violated the FDA’s requirement that ingredients be referred to by their “common and usual name.”  Chobani noted that plaintiffs were relying on draft guidance about ECJ specifically stating that it was nonbinding.  But this specific document was consistent with the general regulation about common and usual names, and an agency’s interpretation of its own regulation, even if set forth in an informal document, is “controlling unless plainly erroneous or inconsistent with the regulation.” The FDA also expressed the same view about ECJ in several warning letters, which while informal and advisory, also communicated the agency’s position.  For purposes of a motion to dismiss, this was sufficient to show that plaintiffs’ claims were identical to FDA regulations.

Plaintiffs also alleged that using ECJ in the ingredients violated the standard of identity for yogurt, which sets forth a list of approved “[n]utritive carbohydrate sweeteners” that may be included in a product designated as a yogurt.   The list includes “[s]ugar (sucrose), beet or cane,” but it wasn’t entirely clear that ECJ was permitted.  However, the court declined to resolve the issue, dismissing the claims on primary jurisdiction grounds.

The core ECJ claim wasn’t dismissed on primary jurisdiction grounds, because the informal guidance on ECJ meant that the court wouldn’t have to resolve an issue of first impression without the FDA’s input. But the FDA had proposed a new standard of identity for yogurt allowing any “safe and suitable sweetening ingredients,” and plaintiffs didn’t allege that ECJ wasn’t safe or suitable.  The FDA had also suggested that it wouldn’t enforce violations of the current standard of identity for companies complying with the proposed one, making the primary jurisdiction doctrine appropriate.

Nearing the end of the analysis: plaintiffs argued that Rule 9(b) didn’t apply to their UCL unlawfulness claim, since it wasn’t based on fraud. The court disagreed because the underlying allegations were that the product labels were misleading and deceptive and that’s what made them unlawful.  But plaintiffs did plead with sufficient particularity; they didn’t have to identify the exact days on which they bought the products and they did plead the general timeframe of purchases.  Chobani didn’t show that it used a term other than ECJ during the alleged purchase period, so plaintiffs didn’t need further specificity.

Kane v. Chobani, Inc., 2013 WL 3776172 (N.D. Cal.)

Plaintiffs sought a preliminary injunction against the sale of allegedly mislabeled yogurts, and the court denied the motion.

The court first rejected plaintiffs’ argument that, under California law, they weren’t required to show irreparable harm.  The court disagreed about the substance of California law, which generally does require irreparable harm.  Anyway, choice of law principles supported the application of federal law to this question of civil procedure, where the determination wouldn’t alter the final outcome of the litigation, since a permanent injunction would still be available if plaintiffs ultimately prevailed.

Accepting that plaintiffs had shown likely success on the merits, they still hadn’t shown irreparable harm.  The court rejected their arguments that they didn’t need to show irreparable harm because they were acting as private attorneys general (that’s not enough); because they were seeking to enjoin a public nuisance (there was no specific California law declaring mislabeled food to be a public nuisance, nor did plaintiffs plead the existence of a public nuisance or a special injury to the plaintiffs of a character different in kind from that suffered by the general public, as required for public nuisance standing); and that they were seeking to enforce statutory provisions, allowing an inference of irreparable harm.  This last argument in favor of a presumption of irreparable harm, even assuming the precedent behind it transferred from federal statutes to state ones, was probably no longer good law after eBay and Winter.  Those cases at least require strong evidence of a legislative intent to abrogate the irreparable harm element, and there was no such evidence with respect to the consumer protection claims.  (Also, California cases following the pre-eBay rule that no irreparable harm must be shown when an injunction is authorized by statute only apply that rule to government agencies, which plaintiffs weren’t.)

Anyway, California law requires courts to balance the harm to the parties, including by considering irreparable harm to the plaintiffs.  The harm here to Chobani would be great—relabeling in accordance with any injunction wouldn’t be possible before the yogurt expired, so it would lose millions.

And plaintiffs and other consumers were not likely to suffer irreparable harm.  Plaintiffs argued that Chobani’s labels deceived people into over-consuming sugar, which has a negative impact on public health.  The court wasn’t persuaded that consumers were likely to be confused about the sugar connection: “The fact that the name of the ingredient discloses that it is derived from cane seriously undermines any contention that consumers are unlikely to be under the impression that the ingredient is or contains sugar.”  More significantly, the labels explicitly disclose the total amount of sugar; failing to disclose the portion of sugar from ECJ—the added sugar—wasn’t a problem without any evidence that a consumer who knows the total amount of sugar would suffer health effects from not knowing how much is from ECJ.

The other harms plaintiffs identified—buying yogurt they otherwise wouldn’t have bought, and having competitors lose market position as a result of the mislabeling—were monetary and compensable with damages, thus not irreparable; also alleged harms to competition were vague and speculative.  (I thought in trademark cases market position was always irreparable!) 

alleged patent infringement doesn't violate Lanham Act

Seoul Laser Dieboard System Co., Ltd. v. Serviform, S.r.l., 2013 WL 3761535 (S.D. Cal.)

Seoul Laser alleged that defendants infringed its patents and violated the Lanham Act. Some of the patent claims survived the motion to dismiss, but not the Lanham Act claims.  The court found it unclear whether Seoul Laser raised a §43(a)(1)(A) or (a)(1)(B) claim, and, while other courts are more forgiving, noted that “[t]his ambiguity alone raises fair notice concerns.”  Regardless, Seoul Laser failed to state a claim.  As for §43(a)(1)(A), “origin” means the producer of tangible goods, not the author of ideas etc. embodied therein.  The allegations that the sale of infringing machines would confuse and deceive the public into thinking that defendants’ products were Seoul Lasers were insufficient.  Seoul Laser appeared to allege only that it owned the patents embodied by defendants’ machines, so defendants were creating confusion as to inventorship, and that’s Dastar-barred.

The complaint also failed to state a false advertising claim, which was subject to Rule 9(b)’s heightened pleading standard because district courts have said so.  Here, Seoul Laser failed to identify a particular false statement or explain why it was misleading.  Tortious interference claims failed for similar reasons.

intellectual property in the uncanny valley

Noel Cruz repaints dolls to make them look more like their models (that is, more like the actors as they looked when they played the relevant characters, or more like the celebrities).  The results are often uncanny.  Apparently there is an entire “repainting” community.  The first sale issues, both in terms of copyright and in terms of trademark, are quite intriguing—and I don’t recall that any right of publicity case has addressed first sale at all.  (For copyright, I’d argue that to the extent that Cruz makes the dolls resemble the relevant actors more, he is not changing anything a copyright owner could own, as the appearance of a real human being isn’t part of the protectable expression in a TV show or movie—but there is loose language in cases like X One X that could be read otherwise.  But if X One X is right—if MGM owns a copyright in Dorothy-who-looks-like-Judy-Garland—then that has interesting implications for §301 preemption, since courts in right of publicity cases usually hold to the contrary.)

Examples from people/characters involved in litigated right of publicity, copyright, and trademark cases:

Cruz also does black and white portraits, for those interested in Comedy III issues.

Side note of possible interest to Vampire Diaries fans—he did a great job on Stefan, but clearly understood that his Damon was subpar and has no closeup pictures of the less broody Salvatore.  That might be due to the underlying doll’s failure to replicate the actor’s distinctive facial structure, since I imagine there’s only so much repainting can do.  (If anything, that doll looks more like Joshua Jackson to me.)

Friday, July 19, 2013

The past is never dead, but it is de minimis

Faulkner Literary Rights, LLC v. Sony Pictures Classics Inc., No. 12-cv-00100 (N.D. Miss. July 18, 2013)

As someone said on Facebook, in an ideal world this would’ve been a two-page order with Rule 11 sanctions attached. Instead, we get a muddle saying that using a paraphrased Faulkner quote in a movie is a de minimis fair use, or maybe it’s just de minimis.  Here’s the court’s summary: “At issue in this case is whether a single line from a full-length novel singly paraphrased and attributed to the original author in a full-length Hollywood film can be considered a copyright infringement. In this case, it cannot.”  (Emphasis added.  How about in no imaginable case could it be?)  Also the trust’s Lanham Act claim based on the same facts failed, and here the court didn’t really bother to give a reason other than incredulity, raising the question: is it better that in copyright we have an elaborate schema for rejecting a terrible claim like this, but only after an extended analysis; or that in trademark we have a set of doctrines muddled enough that it’s hard to pick a clear doctrinal reason to reject a terrible claim like this even though it’s obvious that the trust has to lose, so it’s simpler just to say this is dumb and dismiss it?

(Bonus irony: of course, the opinion quotes a lot more of the Faulkner work at issue than the movie did, though a lot less than a standard college essay should’ve.  One hopes the trust isn’t going to sue the government for its judicial taking.  Of course, in all life + 50 jurisdictions, Faulkner’s works just entered the public domain, so plenty of people around the world can read the whole novel at will.  But in America, the past is never dead—it’s not even public domain.) 

In Faulkner’s Requiem for a Nun, a character says, “The past is never dead. It’s not even past.” In Midnight in Paris, a character says, “The past is not dead. Actually, it’s not even past. You know who said that? Faulkner, and he was right. I met him too. I ran into him at a dinner party.”  

Midnight in Paris is a whimsical Woody Allen film (is there any other kind?) involving time travel by a “Hollywood screenwriter with literary aspirations” who meets Cole Porter, Zelda Fitzgerald, and F. Scott Fitzgerald.  According to the court, the film has both a plot and a theme of longing for the past, with a character who coins the term, “Golden Age Thinking, the erroneous notion that a different time period is better than the one one’s living in. Ya know, it’s a flaw in the romantic imagination of those people who find it difficult to cope with the present.”  The first lines of the screenwriter’s novel are, “‘Out of the Past’ was the name of the store, and its products consisted of memories. What was prosaic and even vulgar to one generation had been transmuted by the
mere passing of years to a status at once magical and also camp.” The screenwriter’s friend says, “The past has always had a great charisma for me,” and they debate which era was the best.  The quote at issue comes in context of the screenwriter’s accusation that his girlfriend is having an affair; he got the idea from Hemingway, Fitzgerald, Gertrude Stein and Salvador Dali, “a notion Inez ridicules because they are all dead.”  He responds with the quote in suit.

Requiem for a Nun is part of Faulkner’s Yoknapatawpha cycle; Sony called it “relatively obscure,” but the court explicitly disagreed, because “[n]othing in the canon is obscure.”  Requiem is a cross between a novel and a three-act play.  Searching to help a nanny sentenced to death for the murder of a child, her defense attorney visits the child’s mother, who is “not without fault” in the death.  The mother “resists and distances herself from her past, stating that she is now Mrs. Gowan Stevens, not Temple Drake. Gavin Stevens [the attorney] retorts, ‘The past is never dead. It’s not even past.’” The novel has other references to the past, including Gavin Stevens’s statement to Gowan that “There’s no such thing as past either” and Gavin’s description of the past as a promissory note:

It was as though she realised for the first time that you – everyone – must, or anyway may have to, pay for your past; the past is something like a promissory note with a trick clause in it which, as long as nothing goes wrong, can be manumitted in an orderly manner, but which fate or luck or chance, can foreclose on you without warning.

The court decided the case on a motion to dismiss, but, since Sony didn’t contest any of the minimal facts alleged in the complaint, the decision would be the same on summary judgment.  (You will see below that this means the judge opines on the state of the copyright licensing world via plausibility.  If we have to have Iqbal/Twombly, then certainly copyright defendants shouldn’t be exempt from pro-defense bias.  But I think a better explanation of the outcome here is that Campbell can’t possibly mean what it says about requiring defendants who make commercial uses to present evidence on factor 4 to win, even though that was the basis for the remand in Campbell itself, because sometimes finding fair use on a motion to dismiss is appropriate.  Compare Brownmark v. Comedy Partners, also sketchy on this point and also correctly decided.)

The court first discussed Sony’s de minimis defense.  Substantial similarity is measured by considering the qualitative and quantitative significance of the copied portion in relation to the plaintiff’s work as a whole, which “mirrors the third factor of the fair use defense.” (It can’t really “mirror” it, or the two inquiries are duplicative.  Uses of an entire work can be fair.  And something that’s noninfringing isn’t necessarily a “fair” use—it may not be a “use” at all.  I could get behind the idea that there is some threshold beyond which only factor 3 matters and no consideration of the other factors is required—but that is to say, there is a de minimis doctrine separate from the multifactor fair use test.)  The parties agreed that the de minimis doctrine was separate from the affirmative defense of fair use, though the Fifth Circuit hadn’t ruled on the issue.  Here, the court considered the two analyses “fundamentally related,” with the former “wholly encompassed” within fair use.  Thus, it used the fair use factors “in making a determination on the de minimis and substantial similarity issues.”  (Emphasis added.)

A claim can be dismissed if a successful affirmative defense appears on the face of the pleadings.  But that didn’t matter anyway because “the court addresses the affirmative defense but disposes of its ruling on separate grounds.” 

Comment: As I read this, the court is saying that it is really ruling on the de minimis issue, which is part of the prima facie case of infringement, via the fair use factors.  The reason for this tapdance is that many courts say, without explaining why, that a de minimis use is one that’s not recognizable.  But the film attributed the quote to Faulkner, making this use recognizable, and it’s ridiculous to have a standard that any attributed use, however minimal, is infringing.  Back when courts didn’t think copyright owners would sue over sentence-long quotes, the recognizability standard didn’t do much damage, but it does now.  Then the question is what might be de minimis despite being recognizable, and the court is pulling in the fair use factors to make that determination.  But if it’s still a de minimis test rather than a variant of fair use—which it should be, and which it must be if we were really serious about the procedural difference between the prima facie case and affirmative defenses—then why the fair use factors other than factor 3 should be used is somewhat unclear.  A better rule would be that simple quotes, of the kind one would find in a review or yearbook collection, are de minimis, full stop.  The court gets there using fair use factors by fiating a result on factor 4, which confirms again that fair use is an awkward fit when all the defendant did was quote a line from a book.

Okay, fair use: the use was transformative because

[t]he speaker, time, place, and purpose of the quote in these two works are diametrically dissimilar. Here, a weighty and somber admonition in a serious piece of literature set in the Deep South has been lifted to present day Paris, where a disgruntled fiancé, Gil, uses the phrase to bolster his cited precedent (that of Hemingway and Fitzgerald) in a comedic domestic argument with Inez. Moreover, the assertion that the past is not dead also bears literal meaning in Gil’s life, in which he transports to the 1920’s during the year 2011. It should go without saying that this use is highly distinguishable from an attorney imploring someone to accept responsibility for her past, a past which, to some extent, inculpates her for the death of her child.

The characters used the quote for “antithetical” purposes of persuasion.  One was “a serious attempt to save someone from the death penalty,” the other was “a fiancé trying to get a leg up in a fleeting domestic dispute.”  This was undoubtedly transformative.  It was also relevant that Requiem was “a serious piece of literature lifted for use in a speaking part in a movie comedy, as opposed to a printed portion of a novel printed in a newspaper, or a song’s melody sampled in another song.”  The transformation of medium favored fair use.  (Newspapers can quote novels—they’re generally called “reviews”—and I’m pretty sure that Campbell involved some melody; I had thought that meaning rather than medium was significant.  Belt-and-suspenders distinctions are too often used to strangle a later litigant.)

Anyway, the changes in context and medium “coupled with the miniscule amount borrowed tip the scales in such heavy favor of transformative use that it diminishes the significance of considerations such as commercial use that would tip to the detriment of fair use.”  It wasn’t plausible that Sony “somehow sought some substantial commercial benefit by infringing on copyrighted material for no more than eight seconds in a ninety minute film,” since the 8 second clip wasn’t “a thematic catharsis or apex in plot” for either work. (And if it had been, it still would’ve been okay!)

Nature of the work: not helpful in transformative use cases.  Campbell’s statement to this effect was about a parody, but it also applied to “analogous” uses like this one; this factor was neutral.

Substantiality of the portion used: Faulkner argued that the quote was qualitatively important, containing “the essence of Requiem: there is no such thing as past, whether for Jefferson or Temple Drake. The events of the past (for better or worse) cannot be discarded and forgotten; the history of mankind just as the personal history of Temple Drake shapes and forms human relations and conduct.”  A critic has deemed the quote “central to the entire novel” – the “mainspring of both theme and narrative,” and the quote’s fame showed its unique expressiveness.  (The court considered the critic’s reaction and President Obama’s use of the quote in a speech to be outside the pleadings, but considering them would make no difference.)  As the court pointed out, however, this was an argument about the qualitative importance of the theme, “not the qualitative importance of the quote itself, however eloquent in conveying this theme the quote may be.”  Copyright doesn’t protect ideas.  The court focused on the qualitative importance of the theme’s expression.  But the quote constituted only a small portion of the expression of the idea in the novel, including the quotes above and also these:

“Because suddenly it could be as if it never been, never happened. You know: somebody – Hemingway, wasn’t it? – wrote a book about how it had never actually happened to a g- woman, if she just refused to accept it, no matter who remembered, bragged…. Then Gowan came to Paris that winter and we were married… and if that couldn’t fumigate an American past, what else this side of heaven could you hope for to remove stink?”  

… “Perhaps she was too busy between the three of them to be careful enough:… the doom, the fate, the past;…”  

The quote at issue was a fragment of the idea’s expression.  “[H]ad Sony copied half of these quotes, Faulkner might have a stronger argument under this element.”

Moreover, the 9-word quote’s “subsequent fame as a succinct expression of the theme” didn’t make it qualitatively important to the originating work; that was a matter of qualitative importance to society.  And of course the quantitative importance was miniscule.  This favored fair use, and “no substantial similarity exists between the copyrighted work and the allegedly infringing work.”

Despite having found no substantial similarity and thus no infringement in the first place, the court still considered factor 4.  Now, Campbell says that a proponent of fair use “would have difficulty carrying the burden of demonstrating fair use without favorable evidence about relevant markets” and that “a silent record on an important factor bearing on fair use disentitled the proponent of the defense….”  But here, despite the silence of the [nonexistent] record, “the court uses these factors to guide its determination under the de minimis and substantial similarity analyses” (emphasis added) so it’s ok.  And anyway factor 4 is a “non-issue” in light of the other factors and the court’s opinion about the market:

The court is highly doubtful that any relevant markets have been harmed by the use in Midnight. How Hollywood’s flattering and artful use of literary allusion is a point of litigation, not celebration, is beyond this court’s comprehension. The court, in its appreciation for both William Faulkner as well as the homage paid him in Woody Allen’s film, is more likely to suppose that the film indeed helped the plaintiff and the market value of Requiem if it had any effect at all. In fact, Faulkner has not pled any injury except for a statutory entitlement to an award. Such an entitlement does not hold up on a de minimis infraction, however. Had Faulkner pointed to compelling evidence that the markets for Requiem suffered a substantial harm as a result of the use in Midnight, this harm would be so anomalous that it would hardly undercut Sony’s justification in presuming fair use.

Faulkner argued that it would submit evidence of its licensing agreements, showing harm, but a copyright owner isn’t entitled to license fees for fair uses.

Faulkner also wanted discovery on Sony’s good faith, but that was irrelevant here. Sony attributed the quote, and the complaint didn’t allege facts from which bad faith could reasonably be inferred.  And even if Sony acted in bad faith, “the only relevant fair use factor … would be under the fourth factor regarding relevant markets, which, again, would not undercut the stark balance in favor of Sony.”  And even a bad faith attempt to injure Faulkner couldn’t help because “Sony would have had a good faith basis for believing it need not obtain permission for its use of the quote. That is, a bad faith effort to use a copyright holder’s work under the fair use factors would be a contrived dichotomy that would be harmless when the use is so apparently fair.”

Faulkner argued that Sony licensed other material for the film, such as Cole Porter’s “Let’s Do It (Let’s Fall in Love)” and Pablo Picasso’s artwork.  But that wasn’t relevant to whether the use of Faulkner’s quote was fair [or de minimis?], and the court noted the “obvious” distinction that Porter and Picasso’s works were used in their entirety, not just a fragment. Licensing these other works was therefore irrelevant.  “[N]o substantial similarity exists between the copyrighted work and the allegedly infringing work, and Sony’s use in this matter was de minimis.”

Now for the Lanham Act claim: “The court has no doubt that the interests of Sony in First Amendment protection outweigh Faulkner’s interest in pursuing a Lanham Act claim in this case. However, the court declines to engage in a thorough analysis of this issue because a Lanham Act claim has not been established in the first place.”  The mere allegations that the film would confuse “viewers as to a perceived affiliation, connection or association between William Faulkner and his works, on the one hand, and Sony, on the other hand” and that viewers might be deceived “as to the origin, sponsorship, or approval of Sony’s goods, services, or commercial activity by William Faulkner and/or his written works” were implausible.  The only facts alleged were the two works.  Looking at both, “largely in light of the court’s copyright analysis,” “no such misappropriation can possibly be inferred.”  Literary allusion—Faulkner’s name and a short paraphrase—couldn’t possibly confuse an audience about affiliation.  “Allusion is not synonymous with affiliation, nor with appropriation.”  Anyway, the allegations were wholly conclusory and failed Iqbal/Twombly.  Sony admitted all the facts in the complaint, and still no reasonable juror could find confusion.

The court declined to exercise jurisdiction over Faulkner’s state law claim for commercial misappropriation (essentially, a right of publicity claim).