Monday, May 30, 2011
Seen around town: today's TM hypo
The NASA reference seems to be classic nominative fair use. The logo, not so much.
Phto: Zachary Schrag
Court dismisses ridiculous TM claims added on to trade secret case
Dow Corning Corp. v. Xiao, 2011 WL 2015517 (E.D. Mich.)
Dow alleged that Xiao and related entities stole Dow’s trade secrets and misused its trademarks to lure customers away from Dow’s trichlorosilane ("TCS") and polysilicon businesses.
Xiao and Michael Little, a chemical engineer formerly employed by Dow for nearly 25 years before he left the company, started LXEng. Little led Dow’s TCS production facility for a period of time and signed nondisclosure agreements.
In the course of contracting with customers/potential customers, Dow alleged, Little and Xiao disclosed Dow trade secrets. Little also allegedly conducted aerial surveillance of Dow’s facilities in Michigan and used that information to explain the manufacturing process to prospective clients. Little then died in a plane crash. Xiao and his company contacted other Dow employees and placed ads in Michigan publications seeking to hire Dow employees with relevant experience. Dow’s counsel wrote to Xiao and LXEng expressing concern that Little may have shared Dow’s trade secrets. Dow asked them to consent to an independent inspection of Little’s laptop, but they refused.
Xiao, allegedly concerned about potential liability to Dow, formed a new company, LXE Solar, which continued LXEng’s business. Although Little was never affiliated with LXE Solar, Dow alleged that the trade secrets Little shared with Xiao and LXEng were still in use.
Dow alleged that the misuse of its trademarks and trade secrets had caused significant harm given Dow’s reputation and the fact that TCS and polysilicon manufacturing requires a multi-step process that has proven difficult to replicate.
Trademark: defendants argued that their use of the marks was not “in commerce,” but the court declined to construe this jurisdictional hook narrowly. The allegations sufficed to allege use in commerce: Dow alleged that, in recruiting new clients, defendants emphasized that they had "pull[ed] all experiences from Dow Corning" and that their technology was "based on both Dow Corning" and another company's products. Defendants allegedly repeatedly used Dow’s trademarks to identify their products, and admitted that that they used Dow’s name as a point of comparison, a source of Little’s experience, and an explanation of the services they could deliver: this was “in commerce.”
But does this state a claim for infringement? Confusion over sponsorship, affiliation or approval would be sufficient to be actionable. Dow argued that it had alleged that each of the factors tilted in its favor: fame, close relationship of the parties’ goods and services, defendants’ use of “Dow Corning” to describe “its” [sic] products, actual confusion (on information and belief), direct competition, likelihood of confusion among purchasers, who "may ... associate the quality" of defendants' goods and services with Dow Corning even if they realize there is no affiliation between defendants and Dow Corning, and specific intent to use the mark to profit from consumer associations. Dow alleged point of sale, post-sale, and initial interest confusion.
Defendants argued that the complaint did not include sufficient allegations to make the claim plausible, despite reciting the elements of a confusion claim. They pointed out that the relevant consumers are sophisticated businesses spending millions on highly technical products.
The court emphasized that this was not a typical trademark case. (Indeed, in other circuits, we’d call it a nominative fair use case.) The parties’ marks were not similar in any way. The only argument here was some kind of affiliation claim. If defendants weren’t using the Dow marks "in a way that identifies the source of [Defendants'] goods" or services, they weren’t using the marks in a "trademark way" and there could be no liability for trademark infringement. So, if they were using the marks only as a point of comparison and to identify the source of Little’s experience, there could be no Lanham Act liability. “Although the complaint alleges substantial wrongdoing by Defendants, it does not plausibly allege that Defendants' used Plaintiffs' trademarks in a
‘trademark way.’” The allegation of confusion as to source or association was implausible.
The Sixth Circuit has defined “non-trademark” use as truthfully describing a past association with another trademark owner. Here, Dow didn’t claim that defendants marked their products with Dow marks, or that they used a similar mark for their own products/services. Rather, it complained about defendants’ marketing materials, but none of those suggested that Dow was the source of defendants’ products or affiliated with Dow in any way.
For example, in one email, Xiao used Dow’s mark, but not in a way that could cause source confusion: “LX is focusing on getting all questions answered and inputs incorporated in designs by collectively pulling all experiences from Dow Corning (Mike downloaded most of his experiences into LX and CDI's process designs), REC and MEMC.” “While Defendants used the Dow Corning mark in marketing communications, they used it as a point of comparison and as a source of Mike Little's experience, but they did not use it to identify the source of their products or suggest an affiliation with Dow Corning. As such, they have not included factual allegations that ‘allow[ ] the court to draw the reasonable inference’ that Plaintiffs will be able to demonstrate likelihood of confusion.”
The court went on to reach the same conclusion using the multifactor test. Though the Dow mark was strong, at least within the relevant industry, and the parties compete, defendants didn’t use a similar mark. Actual confusion favored neither party at the pleading stage; Dow claimed that evidence of confusion would be revealed during discovery. (It’s pretty hard to do the multifactor test at the motion to dismiss stage! That the court is willing to do so, at least where there is a strong policy consideration (comparative advertising/nominative fair use) in play, is good evidence for the proposition that the multifactor test is not really about likely confusion in an empirical sense.)
The marketing channels factor favored defendants, since the challenged communications were “direct contacts targeted at specific consumers where the sender has been clearly identified. It seems that the consumer is less likely to be confused by a targeted communication than by a broad advertisement targeted at a general audience, such as one might see on the Internet or in a newspaper.”
Degree of purchaser care also strongly favored defendants. It was highly unlikely that such “sophisticated and focused consumers” would be confused. “Little's experience as a longtime Dow Corning employee is featured prominently in the materials to demonstrate LXEng's ability to compete in the industry. Sophisticated business clients are unlikely to mistake those references for a suggestion that Dow Corning is sponsoring LXEng or otherwise affiliated with the new company.”
Intent and bridging the gap were not particularly relevant. As to intent, it was clear that defendants referenced Dow’s marks (really, they referenced Dow, not its marks, which is the point of nominative fair use) in an attempt to compare their products favorably to Dow’s. But they didn’t deliberately choose a mark similar to Dow’s, and thus they can’t be said to have chosen a mark in an attempt to confuse consumers.
Defendants also argued fair use. Given the wackiness that is the Sixth Circuit’s handling of these issues, they couldn’t plead nominative fair use, even though that’s what it is. So the court held that they used the Dow mark “descriptively,” to identify Little’s former employer and the source of his knowledge. However, the court rejected the defense at this stage of the case: “While potential customers were unlikely to be confused about the affiliation or source of Defendants' products, they may nevertheless have been misled about the technology underlying the products. As a result, the descriptive use of the mark may not have been in ‘good faith.’” I’m not sure that “good faith” should extend to require the defendant to act above reproach with respect to non-trademark matters, but it doesn’t matter here.
False advertising: initially, the court rejected the attempt to require §43(a)(1)(B) claims to be pled with particularity, though my impression is that the trend is to apply Rule 9(b) to such claims.
Defendants first argued that their communications weren’t widespread enough to be “commercial advertising or promotion.” Here, the relevant market is extremely small, at most 128 companies who have made or will make multimillion-dollar investments and won’t respond to ads in general interest publications or even mass mailings. They require individual targeting in tailored communications. Under the circumstances, a handful of emails is enough to constitute commercial advertising or promotion.
Defendants next argued that Dow hadn’t properly pled actual or likely deception. Dow pled that element, and identified specific communications, such as one in which Xiao assured a reluctant customer following Little's death that Little had earlier "downloaded most of his experiences." But, while confusion about affiliation was unlikely, it was still plausible that sophisticated customers could be deceived “about the extent to which Little had access to Dow Corning's proprietary information and his ability to deliver that information to customers.” This could also plausibly be material.
Dilution: Dow argued blurring and tarnishment. There could be no traditional dilution claim because defendants’ marks weren’t similar to Dow’s marks. Dow nonetheless argued that using the actual Dow mark tarnished and blurred it.
In Audi AG v. D'Amato, 469 F.3d 534 (6th Cir.2006), D’Amato ran www.audisport.com, where he sold merchandise with the "Audi Sport" logo and Audi's distinctive "ring" mark. The site said: "Who are we? We are a cooperative with Audi of America, and will be providing the latest products for your Audi's [sic] and information on Audisport North America." This was not true. The Sixth Circuit found dilution.
Here, however, defendants didn’t use Dow’s marks to label their own product, pretend that they were Dow, or pretend that they were authorized or sponsored by Dow. They used Dow’s mark in a descriptive, comaparative manner, and emphasized differences between the products, “even suggesting that their products would be better than Dow Corning's products because they would combine the best of several available technologies.” This can’t be called dilution, and also it’s specifically exempted by the federal dilution statute in the provision for nominative or descriptive fair use. (Note the tension with the conclusion above that defendants didn’t make out a descriptive fair use defense as a matter of law on the pleadings; I think this time the court got it right.) “There is a difference between Defendants' suggestion to their customers that they had acquired proprietary Dow Corning technology and were prepared to capitalize on that technology to develop Defendants' own products, and the assertion by the defendant in Audi that their products were actually affiliated with or sponsored by Audi. While the latter is actionable under the dilution statute, the former is not.”
The court also commented that, while it was sympathetic to defendants’ arguments that Dow Corning was not a federally famous mark, Dow had properly pled federal fame.
Dow also properly stated a trade secret misappropriation claim and an unfair competition claim under Michigan common law. Dow’s Michigan Consumer Protection Act claim failed because neither party was engaged in “trade or commerce” as defined in the statute, which means “the conduct of a business providing goods, property, or service primarily for personal, family, or household purposes.”
Defendants argued that Dow’s tortious interference claim, which alleged that defendants persuaded Little to breach his confidentiality agreements with Dow, was preempted by the Michigan Uniform Trade Secrets Act. This was true only for alleged misappropriation of a trade secret; to the extent that Dow sought a remedy for disclosure of confidential information protected by the agreements that was not a trade secret, it could still bring its tortious interference claim. I’m not sure what confidential information would be protected but not be a trade secret, but I’m not up on the law of trade secret.
Dow alleged that Xiao and related entities stole Dow’s trade secrets and misused its trademarks to lure customers away from Dow’s trichlorosilane ("TCS") and polysilicon businesses.
Xiao and Michael Little, a chemical engineer formerly employed by Dow for nearly 25 years before he left the company, started LXEng. Little led Dow’s TCS production facility for a period of time and signed nondisclosure agreements.
In the course of contracting with customers/potential customers, Dow alleged, Little and Xiao disclosed Dow trade secrets. Little also allegedly conducted aerial surveillance of Dow’s facilities in Michigan and used that information to explain the manufacturing process to prospective clients. Little then died in a plane crash. Xiao and his company contacted other Dow employees and placed ads in Michigan publications seeking to hire Dow employees with relevant experience. Dow’s counsel wrote to Xiao and LXEng expressing concern that Little may have shared Dow’s trade secrets. Dow asked them to consent to an independent inspection of Little’s laptop, but they refused.
Xiao, allegedly concerned about potential liability to Dow, formed a new company, LXE Solar, which continued LXEng’s business. Although Little was never affiliated with LXE Solar, Dow alleged that the trade secrets Little shared with Xiao and LXEng were still in use.
Dow alleged that the misuse of its trademarks and trade secrets had caused significant harm given Dow’s reputation and the fact that TCS and polysilicon manufacturing requires a multi-step process that has proven difficult to replicate.
Trademark: defendants argued that their use of the marks was not “in commerce,” but the court declined to construe this jurisdictional hook narrowly. The allegations sufficed to allege use in commerce: Dow alleged that, in recruiting new clients, defendants emphasized that they had "pull[ed] all experiences from Dow Corning" and that their technology was "based on both Dow Corning" and another company's products. Defendants allegedly repeatedly used Dow’s trademarks to identify their products, and admitted that that they used Dow’s name as a point of comparison, a source of Little’s experience, and an explanation of the services they could deliver: this was “in commerce.”
But does this state a claim for infringement? Confusion over sponsorship, affiliation or approval would be sufficient to be actionable. Dow argued that it had alleged that each of the factors tilted in its favor: fame, close relationship of the parties’ goods and services, defendants’ use of “Dow Corning” to describe “its” [sic] products, actual confusion (on information and belief), direct competition, likelihood of confusion among purchasers, who "may ... associate the quality" of defendants' goods and services with Dow Corning even if they realize there is no affiliation between defendants and Dow Corning, and specific intent to use the mark to profit from consumer associations. Dow alleged point of sale, post-sale, and initial interest confusion.
Defendants argued that the complaint did not include sufficient allegations to make the claim plausible, despite reciting the elements of a confusion claim. They pointed out that the relevant consumers are sophisticated businesses spending millions on highly technical products.
The court emphasized that this was not a typical trademark case. (Indeed, in other circuits, we’d call it a nominative fair use case.) The parties’ marks were not similar in any way. The only argument here was some kind of affiliation claim. If defendants weren’t using the Dow marks "in a way that identifies the source of [Defendants'] goods" or services, they weren’t using the marks in a "trademark way" and there could be no liability for trademark infringement. So, if they were using the marks only as a point of comparison and to identify the source of Little’s experience, there could be no Lanham Act liability. “Although the complaint alleges substantial wrongdoing by Defendants, it does not plausibly allege that Defendants' used Plaintiffs' trademarks in a
‘trademark way.’” The allegation of confusion as to source or association was implausible.
The Sixth Circuit has defined “non-trademark” use as truthfully describing a past association with another trademark owner. Here, Dow didn’t claim that defendants marked their products with Dow marks, or that they used a similar mark for their own products/services. Rather, it complained about defendants’ marketing materials, but none of those suggested that Dow was the source of defendants’ products or affiliated with Dow in any way.
For example, in one email, Xiao used Dow’s mark, but not in a way that could cause source confusion: “LX is focusing on getting all questions answered and inputs incorporated in designs by collectively pulling all experiences from Dow Corning (Mike downloaded most of his experiences into LX and CDI's process designs), REC and MEMC.” “While Defendants used the Dow Corning mark in marketing communications, they used it as a point of comparison and as a source of Mike Little's experience, but they did not use it to identify the source of their products or suggest an affiliation with Dow Corning. As such, they have not included factual allegations that ‘allow[ ] the court to draw the reasonable inference’ that Plaintiffs will be able to demonstrate likelihood of confusion.”
The court went on to reach the same conclusion using the multifactor test. Though the Dow mark was strong, at least within the relevant industry, and the parties compete, defendants didn’t use a similar mark. Actual confusion favored neither party at the pleading stage; Dow claimed that evidence of confusion would be revealed during discovery. (It’s pretty hard to do the multifactor test at the motion to dismiss stage! That the court is willing to do so, at least where there is a strong policy consideration (comparative advertising/nominative fair use) in play, is good evidence for the proposition that the multifactor test is not really about likely confusion in an empirical sense.)
The marketing channels factor favored defendants, since the challenged communications were “direct contacts targeted at specific consumers where the sender has been clearly identified. It seems that the consumer is less likely to be confused by a targeted communication than by a broad advertisement targeted at a general audience, such as one might see on the Internet or in a newspaper.”
Degree of purchaser care also strongly favored defendants. It was highly unlikely that such “sophisticated and focused consumers” would be confused. “Little's experience as a longtime Dow Corning employee is featured prominently in the materials to demonstrate LXEng's ability to compete in the industry. Sophisticated business clients are unlikely to mistake those references for a suggestion that Dow Corning is sponsoring LXEng or otherwise affiliated with the new company.”
Intent and bridging the gap were not particularly relevant. As to intent, it was clear that defendants referenced Dow’s marks (really, they referenced Dow, not its marks, which is the point of nominative fair use) in an attempt to compare their products favorably to Dow’s. But they didn’t deliberately choose a mark similar to Dow’s, and thus they can’t be said to have chosen a mark in an attempt to confuse consumers.
Defendants also argued fair use. Given the wackiness that is the Sixth Circuit’s handling of these issues, they couldn’t plead nominative fair use, even though that’s what it is. So the court held that they used the Dow mark “descriptively,” to identify Little’s former employer and the source of his knowledge. However, the court rejected the defense at this stage of the case: “While potential customers were unlikely to be confused about the affiliation or source of Defendants' products, they may nevertheless have been misled about the technology underlying the products. As a result, the descriptive use of the mark may not have been in ‘good faith.’” I’m not sure that “good faith” should extend to require the defendant to act above reproach with respect to non-trademark matters, but it doesn’t matter here.
False advertising: initially, the court rejected the attempt to require §43(a)(1)(B) claims to be pled with particularity, though my impression is that the trend is to apply Rule 9(b) to such claims.
Defendants first argued that their communications weren’t widespread enough to be “commercial advertising or promotion.” Here, the relevant market is extremely small, at most 128 companies who have made or will make multimillion-dollar investments and won’t respond to ads in general interest publications or even mass mailings. They require individual targeting in tailored communications. Under the circumstances, a handful of emails is enough to constitute commercial advertising or promotion.
Defendants next argued that Dow hadn’t properly pled actual or likely deception. Dow pled that element, and identified specific communications, such as one in which Xiao assured a reluctant customer following Little's death that Little had earlier "downloaded most of his experiences." But, while confusion about affiliation was unlikely, it was still plausible that sophisticated customers could be deceived “about the extent to which Little had access to Dow Corning's proprietary information and his ability to deliver that information to customers.” This could also plausibly be material.
Dilution: Dow argued blurring and tarnishment. There could be no traditional dilution claim because defendants’ marks weren’t similar to Dow’s marks. Dow nonetheless argued that using the actual Dow mark tarnished and blurred it.
In Audi AG v. D'Amato, 469 F.3d 534 (6th Cir.2006), D’Amato ran www.audisport.com, where he sold merchandise with the "Audi Sport" logo and Audi's distinctive "ring" mark. The site said: "Who are we? We are a cooperative with Audi of America, and will be providing the latest products for your Audi's [sic] and information on Audisport North America." This was not true. The Sixth Circuit found dilution.
Here, however, defendants didn’t use Dow’s marks to label their own product, pretend that they were Dow, or pretend that they were authorized or sponsored by Dow. They used Dow’s mark in a descriptive, comaparative manner, and emphasized differences between the products, “even suggesting that their products would be better than Dow Corning's products because they would combine the best of several available technologies.” This can’t be called dilution, and also it’s specifically exempted by the federal dilution statute in the provision for nominative or descriptive fair use. (Note the tension with the conclusion above that defendants didn’t make out a descriptive fair use defense as a matter of law on the pleadings; I think this time the court got it right.) “There is a difference between Defendants' suggestion to their customers that they had acquired proprietary Dow Corning technology and were prepared to capitalize on that technology to develop Defendants' own products, and the assertion by the defendant in Audi that their products were actually affiliated with or sponsored by Audi. While the latter is actionable under the dilution statute, the former is not.”
The court also commented that, while it was sympathetic to defendants’ arguments that Dow Corning was not a federally famous mark, Dow had properly pled federal fame.
Dow also properly stated a trade secret misappropriation claim and an unfair competition claim under Michigan common law. Dow’s Michigan Consumer Protection Act claim failed because neither party was engaged in “trade or commerce” as defined in the statute, which means “the conduct of a business providing goods, property, or service primarily for personal, family, or household purposes.”
Defendants argued that Dow’s tortious interference claim, which alleged that defendants persuaded Little to breach his confidentiality agreements with Dow, was preempted by the Michigan Uniform Trade Secrets Act. This was true only for alleged misappropriation of a trade secret; to the extent that Dow sought a remedy for disclosure of confidential information protected by the agreements that was not a trade secret, it could still bring its tortious interference claim. I’m not sure what confidential information would be protected but not be a trade secret, but I’m not up on the law of trade secret.
Countersuit over press release not barred by Dastar
ZS Associates, Inc. v. Synygy, Inc., 2011 WL 2038513 (E.D. Pa.)
ZS sued Synygy for defamation, commercial disparagement, and violation of the Lanham Act. The parties are sales and marketing consulting firms that compete to sell “incentive compensation services” including consulting, administration, and software services. Synygy initially sued ZS and related defendants for a variety of business torts. In 2009, after amending its complaint, it issued a press release about the lawsuit.
The core of the press release repeated the allegations that ZS “knowingly and improperly copied and misappropriated components of Synygy's sales compensation software and other intellectual property, and in addition, intentionally hired former Synygy employees, despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy.” The press release explained that Synygy was asking for, among other things, punitive damages for acts of willful copyright infringement, and included a quote from the president/CEO that “The lawsuit we filed today contends that ZS knowingly copied our software and other confidential information with the intent to use our intellectual property in direct competition with us. Our position is that ZS continues to use our software and other confidential information, causing us to lose substantial revenue, profit, and company valuation, while they profit from its use ….”
Synygy argued that its press release was protected by the fair report privilege, kicking out the defamation and commercial disparagement claims. The Restatement (Second) of Torts says "[t]he publication of defamatory matter concerning another in a report of an official action or proceeding or of a meeting open to the public that deals with a matter of public concern is privileged if the report is accurate and complete or a fair abridgement of the occurrence reported." The court disagreed. Fair report is for unrelated third parties. Comment c says “A person cannot confer this privilege upon himself by making the original defamatory publication himself and then reporting to other people what he had stated.” The court predicted that Pennsylvania would adopt this rule and that it precluded Synygy’s claim to the fair report privilege.
Synygy moved to dismiss the Lanham Act claim because a press release isn’t commercial advertising or promotion. The court disagreed. Commercial advertising or promotion need not be a traditional ad campaign. The press release was (1) commercial speech; (2) by a defendant in commercial competition with the plaintiff; (3) for the purposes of influencing consumers to buy the defendant's goods or services; and (4) that is sufficiently disseminated to the relevant purchasing public to constitute advertising or promotion within the industry.
As to the commercial speech element, the relevant questions were whether the speech was an ad, whether it referred to a specific product or service, and whether the speaker had an economic motivation for the speech. The press release described Synygy’s services and was intended not only to set forth its legal claims but also to persuade potential clients to pick Synygy over ZS. It had a (plainly boilerplate) section labeled “About Synygy” that stated that “Synygy is the largest and most experienced provider of sales performance management (SPM) software and services” and that “Synygy has achieved 18 continuous years of success.” This was sufficient to be commercial speech. It was also sufficiently disseminated. Synygy submitted the release to “influential media outlets including Reuters, Yahoo Finance and Intellectual Property Today.” Given that those outlets target an audience that would be interested in Synygy’s services, that was advertising or promotion.
Synygy argued that Dastar precluded liability for the claims in the press release. The court followed the majority applying Dastar to 43(a)(1)(B) claims, despite what the Supreme Court said in what the court here called dicta. So: any misrepresentations about who created Synygy’s sales performance management solutions, or other misrepresentations of authorship, were not actionable. This was necessary because if a plaintiff were allowed to bring suit on the grounds that the defendant falsely advertised that it originated the ideas/creative content of goods, the plaintiff would have what was in effect a perpetual copyright.
Thus, some of the allegedly false claims were not actionable: anything that alleged that Synygy’s press release falsely attributed to Synygy the authorship of ZS’s products and services, including the claim that the press release "falsely suggest[s] and impl[ies] that Synygy was the market innovator and that ZS's products and services are knock-offs of products and services that Synygy developed," and that it was false to claim that "we have invested many years and a lot of money in product development, which led to Synygy creating the SCM software that has propelled our success year after year." These statements “can only be false insofar as they assert that Synygy, and not ZS, created the products and services offered by Synygy” and were thus barred by Dastar.
Other claims, however, were not barred. Allegedly false claims that ZS stole Synygy's software and confidential information and hired its former employees "despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy" implicated ZS’s “commercial activities.” Synygy argued that this was just repackaging false attribution, but the court thought this was of a “categorically different nature” because it alleged that ZS conducted its commercial activities unethically, not that it engaged in copyright or patent infringement. (Sounds a bit like an "extra element" test--but wouldn't knowing copyright/patent infringement of a competitor's IP always be unethical?) Also, the claim that ZS hired Synygy's employees in blatant disregard for the applicable non-competition agreements didn’t implicate Dastar in any way.
ZS also adequately alleged falsity/misleadingness to survive a motion to dismiss. “The fair import of the press release is that ZS stole software and confidential information from Synygy and that it hired Synygy's former employees in blatant disregard for their non-competition agreements.” Nor was specific evidence of actual deception or misleadingness required at the pleading stage. ZS alleged that the statements were false or misleading and that they harmed ZS’s reputation and goodwill, affecting sales demand.
ZS sued Synygy for defamation, commercial disparagement, and violation of the Lanham Act. The parties are sales and marketing consulting firms that compete to sell “incentive compensation services” including consulting, administration, and software services. Synygy initially sued ZS and related defendants for a variety of business torts. In 2009, after amending its complaint, it issued a press release about the lawsuit.
The core of the press release repeated the allegations that ZS “knowingly and improperly copied and misappropriated components of Synygy's sales compensation software and other intellectual property, and in addition, intentionally hired former Synygy employees, despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy.” The press release explained that Synygy was asking for, among other things, punitive damages for acts of willful copyright infringement, and included a quote from the president/CEO that “The lawsuit we filed today contends that ZS knowingly copied our software and other confidential information with the intent to use our intellectual property in direct competition with us. Our position is that ZS continues to use our software and other confidential information, causing us to lose substantial revenue, profit, and company valuation, while they profit from its use ….”
Synygy argued that its press release was protected by the fair report privilege, kicking out the defamation and commercial disparagement claims. The Restatement (Second) of Torts says "[t]he publication of defamatory matter concerning another in a report of an official action or proceeding or of a meeting open to the public that deals with a matter of public concern is privileged if the report is accurate and complete or a fair abridgement of the occurrence reported." The court disagreed. Fair report is for unrelated third parties. Comment c says “A person cannot confer this privilege upon himself by making the original defamatory publication himself and then reporting to other people what he had stated.” The court predicted that Pennsylvania would adopt this rule and that it precluded Synygy’s claim to the fair report privilege.
Synygy moved to dismiss the Lanham Act claim because a press release isn’t commercial advertising or promotion. The court disagreed. Commercial advertising or promotion need not be a traditional ad campaign. The press release was (1) commercial speech; (2) by a defendant in commercial competition with the plaintiff; (3) for the purposes of influencing consumers to buy the defendant's goods or services; and (4) that is sufficiently disseminated to the relevant purchasing public to constitute advertising or promotion within the industry.
As to the commercial speech element, the relevant questions were whether the speech was an ad, whether it referred to a specific product or service, and whether the speaker had an economic motivation for the speech. The press release described Synygy’s services and was intended not only to set forth its legal claims but also to persuade potential clients to pick Synygy over ZS. It had a (plainly boilerplate) section labeled “About Synygy” that stated that “Synygy is the largest and most experienced provider of sales performance management (SPM) software and services” and that “Synygy has achieved 18 continuous years of success.” This was sufficient to be commercial speech. It was also sufficiently disseminated. Synygy submitted the release to “influential media outlets including Reuters, Yahoo Finance and Intellectual Property Today.” Given that those outlets target an audience that would be interested in Synygy’s services, that was advertising or promotion.
Synygy argued that Dastar precluded liability for the claims in the press release. The court followed the majority applying Dastar to 43(a)(1)(B) claims, despite what the Supreme Court said in what the court here called dicta. So: any misrepresentations about who created Synygy’s sales performance management solutions, or other misrepresentations of authorship, were not actionable. This was necessary because if a plaintiff were allowed to bring suit on the grounds that the defendant falsely advertised that it originated the ideas/creative content of goods, the plaintiff would have what was in effect a perpetual copyright.
Thus, some of the allegedly false claims were not actionable: anything that alleged that Synygy’s press release falsely attributed to Synygy the authorship of ZS’s products and services, including the claim that the press release "falsely suggest[s] and impl[ies] that Synygy was the market innovator and that ZS's products and services are knock-offs of products and services that Synygy developed," and that it was false to claim that "we have invested many years and a lot of money in product development, which led to Synygy creating the SCM software that has propelled our success year after year." These statements “can only be false insofar as they assert that Synygy, and not ZS, created the products and services offered by Synygy” and were thus barred by Dastar.
Other claims, however, were not barred. Allegedly false claims that ZS stole Synygy's software and confidential information and hired its former employees "despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy" implicated ZS’s “commercial activities.” Synygy argued that this was just repackaging false attribution, but the court thought this was of a “categorically different nature” because it alleged that ZS conducted its commercial activities unethically, not that it engaged in copyright or patent infringement. (Sounds a bit like an "extra element" test--but wouldn't knowing copyright/patent infringement of a competitor's IP always be unethical?) Also, the claim that ZS hired Synygy's employees in blatant disregard for the applicable non-competition agreements didn’t implicate Dastar in any way.
ZS also adequately alleged falsity/misleadingness to survive a motion to dismiss. “The fair import of the press release is that ZS stole software and confidential information from Synygy and that it hired Synygy's former employees in blatant disregard for their non-competition agreements.” Nor was specific evidence of actual deception or misleadingness required at the pleading stage. ZS alleged that the statements were false or misleading and that they harmed ZS’s reputation and goodwill, affecting sales demand.
Friday, May 27, 2011
Sometimes, when someone has a crush on you, they'll make you a mix tape to give you a clue
Megan M. Carpenter, Space Age Love Song: The Mix Tape in a Digital Universe. Even though she doesn't cite me or the songs I cite.
Copying as free speech, today's version
Newsweek ran a story (apparently it was one of Newsweek's "content partners," but that wasn't so obvious) about dying cities, including Grand Rapids, Michigan. The citizenry of Grand Rapids, 5000 of them, responded with a "lip dub" to Don McLean's American Pie showing the city as a vital organism. I'm not quite sure why they picked American Pie, but I'd guess it has something to do with the song's position as iconic indicator of Americanness and persistence even when our best days might be behind us. So, who's going to do the fair use analysis?
Green drop greenwashing claim drops out
Hill v. Roll International Corp., --- Cal. Rptr. 3d ----, 2011 WL 2041574 (Cal. App. 1 Dist.) (N.B. Also owned by the owners of Pom--so possibly the hypothetical Pom litigation blog should cover Fiji litigation too.)
Hill bought bottles of Fiji water, on the label of which was a green drop, which allegedly represented that Fiji was environmentally superior to other waters and endorsed by a third-party organization. She filed a putative class action under California’s UCL, FAL, and CLRA, adding common-law fraud and unjust enrichment claims. The trial court found she failed to state a cause of action, and the court of appeals affirmed.
Hill began with the FTC’s Green Guides, arguing that the processes used to make Fiji cause as much, if not more, environmental damage as those of competitors. (Defendant disagreed with this, but the court accepted it on the pleadings. This article offers an overview of the pros and cons claimed for the water, and a pure critique (no pun intended) is here.) She alleged that the green drop violated the FTC guides by looking like a seal of third-party approval and a claim of superiority over other waters, and also pointed to defendant’s website fijigreen.com and the tagline “every drop is green.”
Hill alleged that she relied to her detriment on Fiji’s representations, paying 15% more than for other bottled water. The court responded that, taking all this as true, “no reasonable consumer would be misled to think that the green drop on Fiji water represents a third party organization's endorsement or that Fiji water is environmentally superior to that of the competition.”
Hill relied on the Environmental Marketing Claims Act, which incorporates the Green Guides into its definition of “environmental marketing claim.” The EMCA provides that advertisers who use various “environmentally friendly”-type claims must maintain specific written documentation supporting those claims, and also bans false or misleading environmental marketing claims generally. Still, the gravamen of a CLRA action based on the EMCA is that a claim must be untruthful, deceptive, or misleading.
Hill argued that the green drop was a general environmental benefit claim, which was deceptive because it was not qualified to explain the specific benefits and thus deceptively conveyed that the product was “green” across every relevant axis. She analogized to the FTC Green Guide example about an environmental seal with a globe icon and the text “Earth Smart.” The FTC says that this “is likely to convey to consumers that the product is environmentally superior to other products. If the manufacturer cannot substantiate this broad claim, the claim would be deceptive.” Specifically, Hill argued that the green drop implied an independent third-party endorsement of Fiji water’s environmental superiority.
But a reasonable consumer would not so conclude. The standard is not the least sophisticated consumer, unless the advertising is specifically targeted to such a consumer. It’s also true that a reasonable consumer “need not be ‘exceptionally acute and sophisticated’” and might not “necessarily be wary or suspicious of advertising claims"; indeed, “in these days of inevitable and readily available Internet criticism and suspicion of virtually any corporate enterprise, … a reasonable consumer also does not include one who is overly suspicious.” It’s the ordinary target consumer.
So, does the green drop convey to a reasonable consumer that the product is endorsed as environmentally superior by a third-party organization? The court had a simple answer: no. The drop bore no name or recognized logo of any group, no TM symbol, and no other indication that it was anything other than a symbol of Fiji water. The FTC Green Guides do talk about a globe icon, “but a symbol of the Earth is more suggestive of a seal of an environmental organization and … could suggest the established Green Seal logo, with a stylized check mark and the words "Green Seal" contoured around a globe.” A drop is the most logical icon for water. The court assumed that reasonable consumers would view the green drop as a reference to the environment, but the Green Guides don’t prohibit touting green features.
For further context, the green drop on the back of the bottle appears right next to the website address, fijigreen.com, “further confirming to a reasonable consumer that the green drop symbol is by Fiji water, not an independent third party organization--and, of course, inviting consumers to visit the website for product information, which includes Fiji Water's explanation of its environmental efforts.” The “every drop is green” slogan doesn’t alter the overall impression.
The court distinguished the refusal to dismiss the class action complaint in Koh v. S.C. Johnson & Son, Inc., 2010 U.S. Dist. Lexis 654 (N.D. Jan. 6, 2010), on the ground that the label there was very different: “It made express representations of environmental superiority, used the trademarked name ‘Greenlist,’ a name not immediately apt to be associated with the product or its manufacturers, and identified the name as a rating system, which further suggested an independent source that rated other manufacturers’ products as well.”
The court agreed that Fiji obviously put the green drop on the label for a marketing purpose, to signify “something to do with the environment.” But no reasonable consumer would think that the green drop represented a third party endorsement or a claim of superiority to the competition.
Hill bought bottles of Fiji water, on the label of which was a green drop, which allegedly represented that Fiji was environmentally superior to other waters and endorsed by a third-party organization. She filed a putative class action under California’s UCL, FAL, and CLRA, adding common-law fraud and unjust enrichment claims. The trial court found she failed to state a cause of action, and the court of appeals affirmed.
Hill began with the FTC’s Green Guides, arguing that the processes used to make Fiji cause as much, if not more, environmental damage as those of competitors. (Defendant disagreed with this, but the court accepted it on the pleadings. This article offers an overview of the pros and cons claimed for the water, and a pure critique (no pun intended) is here.) She alleged that the green drop violated the FTC guides by looking like a seal of third-party approval and a claim of superiority over other waters, and also pointed to defendant’s website fijigreen.com and the tagline “every drop is green.”
Hill alleged that she relied to her detriment on Fiji’s representations, paying 15% more than for other bottled water. The court responded that, taking all this as true, “no reasonable consumer would be misled to think that the green drop on Fiji water represents a third party organization's endorsement or that Fiji water is environmentally superior to that of the competition.”
Hill relied on the Environmental Marketing Claims Act, which incorporates the Green Guides into its definition of “environmental marketing claim.” The EMCA provides that advertisers who use various “environmentally friendly”-type claims must maintain specific written documentation supporting those claims, and also bans false or misleading environmental marketing claims generally. Still, the gravamen of a CLRA action based on the EMCA is that a claim must be untruthful, deceptive, or misleading.
Hill argued that the green drop was a general environmental benefit claim, which was deceptive because it was not qualified to explain the specific benefits and thus deceptively conveyed that the product was “green” across every relevant axis. She analogized to the FTC Green Guide example about an environmental seal with a globe icon and the text “Earth Smart.” The FTC says that this “is likely to convey to consumers that the product is environmentally superior to other products. If the manufacturer cannot substantiate this broad claim, the claim would be deceptive.” Specifically, Hill argued that the green drop implied an independent third-party endorsement of Fiji water’s environmental superiority.
But a reasonable consumer would not so conclude. The standard is not the least sophisticated consumer, unless the advertising is specifically targeted to such a consumer. It’s also true that a reasonable consumer “need not be ‘exceptionally acute and sophisticated’” and might not “necessarily be wary or suspicious of advertising claims"; indeed, “in these days of inevitable and readily available Internet criticism and suspicion of virtually any corporate enterprise, … a reasonable consumer also does not include one who is overly suspicious.” It’s the ordinary target consumer.
So, does the green drop convey to a reasonable consumer that the product is endorsed as environmentally superior by a third-party organization? The court had a simple answer: no. The drop bore no name or recognized logo of any group, no TM symbol, and no other indication that it was anything other than a symbol of Fiji water. The FTC Green Guides do talk about a globe icon, “but a symbol of the Earth is more suggestive of a seal of an environmental organization and … could suggest the established Green Seal logo, with a stylized check mark and the words "Green Seal" contoured around a globe.” A drop is the most logical icon for water. The court assumed that reasonable consumers would view the green drop as a reference to the environment, but the Green Guides don’t prohibit touting green features.
For further context, the green drop on the back of the bottle appears right next to the website address, fijigreen.com, “further confirming to a reasonable consumer that the green drop symbol is by Fiji water, not an independent third party organization--and, of course, inviting consumers to visit the website for product information, which includes Fiji Water's explanation of its environmental efforts.” The “every drop is green” slogan doesn’t alter the overall impression.
The court distinguished the refusal to dismiss the class action complaint in Koh v. S.C. Johnson & Son, Inc., 2010 U.S. Dist. Lexis 654 (N.D. Jan. 6, 2010), on the ground that the label there was very different: “It made express representations of environmental superiority, used the trademarked name ‘Greenlist,’ a name not immediately apt to be associated with the product or its manufacturers, and identified the name as a rating system, which further suggested an independent source that rated other manufacturers’ products as well.”
The court agreed that Fiji obviously put the green drop on the label for a marketing purpose, to signify “something to do with the environment.” But no reasonable consumer would think that the green drop represented a third party endorsement or a claim of superiority to the competition.
Advertising Law Treatise
At long last, David Bernstein and Bruce Keller's The Law of Advertising, Marketing and Promotions is being published. It's available in hard copy and online. I will do a longer review when I have the time to sit down with it, but I can already recommend it as a resource.
NYSE claims trademark rights in images of NYSE in news stories
Story here. Outraged? I'm barely surprised.
Thursday, May 26, 2011
Allegedly infringing video site cuts down TM, some copyright claims
Flava Works, Inc. v. Gunter, 2011 WL 1791557 (N.D. Ill.)
Flava Works produces adult entertainment, including video and photographs. Gunter owns myVidster.com, allegedly a social networking website through which site members can store and bookmark video files and post links to files on other websites. Another defendant, Voxel Dot Net, provided webhosting for myVidster, though something (possibly this lawsuit) led to the end of the relationship.
Flava Works alleged infringement of its registered copyrights and trademarks because members/users of myVidster, including John Doe defendants, uploaded its videos and images, or links thereto, to myVidster, without authorization. MyVidster encourages users to invite others to view videos and offers inexpensive storage space for videos. Flava Works argued that this “purposefully created a system that makes it more difficult for copyright owners to monitor the site for infringement.” Flava Works alleged that it sent Gunter and his webhosting companies DMCA takedown notices and identified alleged repeat infringers. It sent 7 DMCA notices between May and December 2010. Though there was no allegation of noncompliance with the DMCA, the website allegedly continued to be updated with more infringing material, and myVidster had no filters in place to prevent reposting and allegedly took no action to stop or ban repeat infringers.
Flava Works sued for direct, contributory, and vicarious copyright infringement, as well as for inducement, and trademark infringement/false designation of origin under the Lanham Act and the common law.
Gunter and another related defendant moved to dismiss.
The case law provided no support for direct copyright infringement based on these allegations. Allowing users to store files is not direct copying, which requires volitional conduct causing a copy to be made.
The contributory copyright infringement claim, however, survived. This requires pleading (1) direct infringement by a third party; (2) defendant’s actual or constructive knowledge of infringement; and (3) defendant’s material contribution. Defendants argued that an allegation that they received DMCA notices, without more, was insufficient to impute knowledge. The court assumed that this was true, but Flava Works alleged facts allowing a reasonable inference that defendants actually or constructively knew of copyright infringement on myVidster. Notification plus failure to act to prevent future infringing uses or willful blindness can be sufficient for contributory infringement. Seven notices over a seven-month period specified specific infringing files and users as well as specific repeat infringers, and Flava Works alleged failure to deal with repeat infringers and failure to implement filters to prevent future similar infringing content, which sufficed to allege knowledge.
As to material contribution, it was enough to allege that defendants provide a website that stores infringing material, allows backup copies to be made, and encourages sharing, with no action to filter infringing content or ban repeat infringers.
Flava Works fared less well on vicarious infringement. It failed to allege the right and ability to supervise myVidster users via the terms of service. And from the allegation that Gunter owned and operated myVidster, the court was unwilling to infer that defendants could block infringers’ access to the website or ability to post infringing materials. Right and ability to control requires more than mere ownership and operation, though it doesn’t require pervasive participation in the infringing activity either.
As to direct financial interest, the other element of vicarious infringement, Flava Works didn’t need to allege that customers subscribed to myVidster because of infringing material or cancelled their subscriptions when infringing material was no longer available. All it needed was the allegation that the availability of infringing material was a draw for customers. Flava Works failed to clear this low hurdle: “While the complaint does allege that that inexpensive storage space and the ability to share videos attracts customers to myVidster, it does not allege that the presence of the infringing material on the site enhances the site's attractiveness or draws customers.” This count was dismissed with leave to amend.
Inducement: Under Grokster, “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” “[M]ere knowledge of infringing potential or of actual infringing uses would not be enough ... to subject a distributor to liability,” nor would ordinary acts incident to product distribution, such as offering customers technical support; only “purposeful, culpable expression and conduct” counts. Flava Works pled a formulaic recitation of inducement, but no facts plausibly suggesting entitlement to relief on this theory. “It is not enough to allege that myVidster provides storage for video files and encourages sharing (or even that it also knew that the website could be used to infringe). No clear expression of an infringing purpose is alleged, and no active steps taken to foster infringement, such as advertising an infringing use or instructing how to engage in an infringing use, are alleged.”
Trademark/false designation of origin: Flava Works failed to allege that defendants used its marks in commerce. It alleged only that its copyrighted material posted to myVidster without authorization “often contains” its trademarks or trade dress and that defendants’ unauthorized distribution causes confusion about its origin. That’s not an allegation that defendants used plaintiff’s marks at all, or in commerce. (Dastar might merit a mention as much as use in commerce.)
Flava Works produces adult entertainment, including video and photographs. Gunter owns myVidster.com, allegedly a social networking website through which site members can store and bookmark video files and post links to files on other websites. Another defendant, Voxel Dot Net, provided webhosting for myVidster, though something (possibly this lawsuit) led to the end of the relationship.
Flava Works alleged infringement of its registered copyrights and trademarks because members/users of myVidster, including John Doe defendants, uploaded its videos and images, or links thereto, to myVidster, without authorization. MyVidster encourages users to invite others to view videos and offers inexpensive storage space for videos. Flava Works argued that this “purposefully created a system that makes it more difficult for copyright owners to monitor the site for infringement.” Flava Works alleged that it sent Gunter and his webhosting companies DMCA takedown notices and identified alleged repeat infringers. It sent 7 DMCA notices between May and December 2010. Though there was no allegation of noncompliance with the DMCA, the website allegedly continued to be updated with more infringing material, and myVidster had no filters in place to prevent reposting and allegedly took no action to stop or ban repeat infringers.
Flava Works sued for direct, contributory, and vicarious copyright infringement, as well as for inducement, and trademark infringement/false designation of origin under the Lanham Act and the common law.
Gunter and another related defendant moved to dismiss.
The case law provided no support for direct copyright infringement based on these allegations. Allowing users to store files is not direct copying, which requires volitional conduct causing a copy to be made.
The contributory copyright infringement claim, however, survived. This requires pleading (1) direct infringement by a third party; (2) defendant’s actual or constructive knowledge of infringement; and (3) defendant’s material contribution. Defendants argued that an allegation that they received DMCA notices, without more, was insufficient to impute knowledge. The court assumed that this was true, but Flava Works alleged facts allowing a reasonable inference that defendants actually or constructively knew of copyright infringement on myVidster. Notification plus failure to act to prevent future infringing uses or willful blindness can be sufficient for contributory infringement. Seven notices over a seven-month period specified specific infringing files and users as well as specific repeat infringers, and Flava Works alleged failure to deal with repeat infringers and failure to implement filters to prevent future similar infringing content, which sufficed to allege knowledge.
As to material contribution, it was enough to allege that defendants provide a website that stores infringing material, allows backup copies to be made, and encourages sharing, with no action to filter infringing content or ban repeat infringers.
Flava Works fared less well on vicarious infringement. It failed to allege the right and ability to supervise myVidster users via the terms of service. And from the allegation that Gunter owned and operated myVidster, the court was unwilling to infer that defendants could block infringers’ access to the website or ability to post infringing materials. Right and ability to control requires more than mere ownership and operation, though it doesn’t require pervasive participation in the infringing activity either.
As to direct financial interest, the other element of vicarious infringement, Flava Works didn’t need to allege that customers subscribed to myVidster because of infringing material or cancelled their subscriptions when infringing material was no longer available. All it needed was the allegation that the availability of infringing material was a draw for customers. Flava Works failed to clear this low hurdle: “While the complaint does allege that that inexpensive storage space and the ability to share videos attracts customers to myVidster, it does not allege that the presence of the infringing material on the site enhances the site's attractiveness or draws customers.” This count was dismissed with leave to amend.
Inducement: Under Grokster, “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” “[M]ere knowledge of infringing potential or of actual infringing uses would not be enough ... to subject a distributor to liability,” nor would ordinary acts incident to product distribution, such as offering customers technical support; only “purposeful, culpable expression and conduct” counts. Flava Works pled a formulaic recitation of inducement, but no facts plausibly suggesting entitlement to relief on this theory. “It is not enough to allege that myVidster provides storage for video files and encourages sharing (or even that it also knew that the website could be used to infringe). No clear expression of an infringing purpose is alleged, and no active steps taken to foster infringement, such as advertising an infringing use or instructing how to engage in an infringing use, are alleged.”
Trademark/false designation of origin: Flava Works failed to allege that defendants used its marks in commerce. It alleged only that its copyrighted material posted to myVidster without authorization “often contains” its trademarks or trade dress and that defendants’ unauthorized distribution causes confusion about its origin. That’s not an allegation that defendants used plaintiff’s marks at all, or in commerce. (Dastar might merit a mention as much as use in commerce.)
Wednesday, May 25, 2011
Boykin Anchor Co. v. AT&T Corp., 2011 WL 1930629 (E.D.N.C.)
Boykin sued in state court for unfair and deceptive trade practices, gross negligence, negligence, and libel. Defendants removed, and plaintiff added a Lanham Act false advertising claim and some more defendants.
Boykin makes seismic anchors for the telecom industry. As you might expect, they anchor equipment to concrete floors. Boykin’s anchors have been used since 1996 and approved for use by AT&T since 2002. Boykin’s sole competitor for AT&T-related business is Hilti, Inc.; Boykin alleges that Hilti’s anchors are inferior but cost more.
Defendant Wong is an employee of AT&T Services and “an industry insider whose advice has an impact on what products are used by telecommunications companies.” He developed a personal relationship with Hilti, and wrote an email stating that there were "concerns over product performance based on testing conducted years ago" over Boykin anchors, and recommended in internet postings that Boykin’s anchors shouldn’t be used because of “performance questions.” He also stated that consumers should only use Hilti anchors “per most recent AT&T requirements." However, there were no performance questions regarding Boykin anchors, nor was there any AT&T requirement to use Hilti anchors. Boykin alleged that distributors stopped buying Boykin anchors.
Some of Wong’s statements were inside the statute of limitations for libel, and so that claim survived for another day with respect to those more recent statements.
The Lanham Act claim foundered because it wasn’t made in a commercial advertisement. Using the Gordon & Breach Science Publishers v. American Institute of Physics, 859 F.Supp. 1521 (S.D.N.Y.1994), test, a commercial ad is (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services (4) which is disseminated sufficiently to the relevant purchasing public. Boykin argued that the court shouldn’t require commercial competition between the parties. Though there was no binding circuit precedent, other circuits’ decisions weighed strongly in favor of adopting the four-part test, and the court did so. (The dominant Gordon & Breach test is another reason the Conte Bros./Phoenix of Broward standing case law is so misguided.) The competition requirement was particularly consistent with the Fourth Circuit’s statement that the Lanham Act is for plaintiffs whose “commercial interests have been harmed by a competitor's false advertising." Made in the USA Found, v. Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir. 2004).
The Lanham Act claims failed. Wong’s statement wasn’t commercial speech, because it wasn’t speech that did no more than propose a commercial transaction, nor was it speech related solely to the economic interests of speaker and audience. Also, neither AT&T Services nor Wong was in commercial competition with Boykin. AT&T Services is a consumer of Boykin’s products, or an interested third party, and Wong was just an “employee attempting to influence the decisions of his employer and others in the industry to use a specific product.” There was no indication that Wong's internet postings were designed to influence consumers to buy products or services provided by Wong or AT&T Services.
Boykin argued that Wong counted as a direct competitor because of his personal relationship with Hilti employees. The court disagreed, because that didn’t make him an agent of Hilti’s.
Boykin also alleged that defendants acted negligently by making false statements about Boykin anchors, and then failing to retract these statements once notified of their falsity. The court held that these claims properly sounded in defamation, not negligence or gross negligence. There was no case law suggesting that an individual has a duty to avoid making false statements about others separate and distinct from defamation. “Courts have traditionally been very cognizant of the distinctions between defamation on the one hand and negligence on the other, and have resisted efforts by plaintiffs to recast an action sounding in the former into one sounding in the latter.”
Boykin sued in state court for unfair and deceptive trade practices, gross negligence, negligence, and libel. Defendants removed, and plaintiff added a Lanham Act false advertising claim and some more defendants.
Boykin makes seismic anchors for the telecom industry. As you might expect, they anchor equipment to concrete floors. Boykin’s anchors have been used since 1996 and approved for use by AT&T since 2002. Boykin’s sole competitor for AT&T-related business is Hilti, Inc.; Boykin alleges that Hilti’s anchors are inferior but cost more.
Defendant Wong is an employee of AT&T Services and “an industry insider whose advice has an impact on what products are used by telecommunications companies.” He developed a personal relationship with Hilti, and wrote an email stating that there were "concerns over product performance based on testing conducted years ago" over Boykin anchors, and recommended in internet postings that Boykin’s anchors shouldn’t be used because of “performance questions.” He also stated that consumers should only use Hilti anchors “per most recent AT&T requirements." However, there were no performance questions regarding Boykin anchors, nor was there any AT&T requirement to use Hilti anchors. Boykin alleged that distributors stopped buying Boykin anchors.
Some of Wong’s statements were inside the statute of limitations for libel, and so that claim survived for another day with respect to those more recent statements.
The Lanham Act claim foundered because it wasn’t made in a commercial advertisement. Using the Gordon & Breach Science Publishers v. American Institute of Physics, 859 F.Supp. 1521 (S.D.N.Y.1994), test, a commercial ad is (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services (4) which is disseminated sufficiently to the relevant purchasing public. Boykin argued that the court shouldn’t require commercial competition between the parties. Though there was no binding circuit precedent, other circuits’ decisions weighed strongly in favor of adopting the four-part test, and the court did so. (The dominant Gordon & Breach test is another reason the Conte Bros./Phoenix of Broward standing case law is so misguided.) The competition requirement was particularly consistent with the Fourth Circuit’s statement that the Lanham Act is for plaintiffs whose “commercial interests have been harmed by a competitor's false advertising." Made in the USA Found, v. Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir. 2004).
The Lanham Act claims failed. Wong’s statement wasn’t commercial speech, because it wasn’t speech that did no more than propose a commercial transaction, nor was it speech related solely to the economic interests of speaker and audience. Also, neither AT&T Services nor Wong was in commercial competition with Boykin. AT&T Services is a consumer of Boykin’s products, or an interested third party, and Wong was just an “employee attempting to influence the decisions of his employer and others in the industry to use a specific product.” There was no indication that Wong's internet postings were designed to influence consumers to buy products or services provided by Wong or AT&T Services.
Boykin argued that Wong counted as a direct competitor because of his personal relationship with Hilti employees. The court disagreed, because that didn’t make him an agent of Hilti’s.
Boykin also alleged that defendants acted negligently by making false statements about Boykin anchors, and then failing to retract these statements once notified of their falsity. The court held that these claims properly sounded in defamation, not negligence or gross negligence. There was no case law suggesting that an individual has a duty to avoid making false statements about others separate and distinct from defamation. “Courts have traditionally been very cognizant of the distinctions between defamation on the one hand and negligence on the other, and have resisted efforts by plaintiffs to recast an action sounding in the former into one sounding in the latter.”
Pom Wonderful hearing
Pom Wonderful FTC ALJ hearing, opening day
Personal milestone: my very first press pass! They were a bit confused about the status of bloggers, I think.
Complaint counsel’s opening statement: Rubies in the Orchard: a marketing book published by one of the individual defendants, Lynda Resnick, about marketing pomegranate juice and Pomx, a dietary supplement. Claims for scientific peer-reviewed research: there isn’t a man in America who shouldn’t drink 8 oz. per day because it keeps you from getting prostate cancer and keeps PSA from rising. False establishment claims and unsubstantiated health/efficacy claims lacking a reasonable basis.
Ads challenged focused on claims that Pom juice/Pomx prevent/treat heart disease, prostate cancer, and erectile dysfunction. The primary evidence of the claims made is the ad itself. [Showed an ad with a Pom bottle and a stethoscope with the tagline “Decompress.”] Claims and various characteristics can create an impression that claims are based on scientific proof. Intent is not required but if present is relevant to finding that claims were made and that they were material. Creative briefs from in-house ad agency show intent to make claims. Benefits to be communicated as stated in those briefs: general health/live forever and heart health/clean and healthy arteries/“floss your arteries daily”—reasons given were that healthy antioxidants fight free radicals which cause heart disease, premature aging, Alzheimer’s, and cancer. Other campaigns targeted men who are scared of prostate cancer, along with elderly supplement users and young health-conscious women. Strategies included having experts state that Pomx provides the same cardiovascular/prostate benefits as the juice.
Pom’s reasons to believe: backed by $25 million in research conducted using Pom juice; only guaranteed 100% pomegranate juice. Diabetes and other diseases associated with aging came up. Website’s health benefits section: tone was to be authoritative and approachable. Focus on heart disease, results of studies sponsored by Pom showing decrease in arterial plaque: patients who consumed 8 oz. daily for one year saw 30% decrease in plaque, and also improved blood flow. Prostate health: similar claims. Slower PSA doubling time could have a relationship to decreased cancer risk—headline was about “saving” men from prostate cancer.
Email to Linda Resnick about an LATimes article discussing problems with the Pom research—no placebo; article concluded that more research was needed and that eating healthy was better than obsessing over the superfruit of the moment. This shows knowledge of the flaws and the intent to convey the message.
Emails to consumers in response to questions from the public about an ad called “Cheat Death”—a Pom bottle with a hangman’s noose around the neck; controversial. Company’s response: our ad campaign is created with the intent of using imagery that irreverently and boldly conveys to the consumer that drinking our product may prevent disease. Pom has many distinct benefits that sets it apart from other products and research suggests it may reduce heart disease. Since heart disease is a big killer, it’s important to communicate to consumers the powerful benefits of drinking Pom.
Actual ads matched up with creative briefs: “drink and be healthy” has ad copy claiming medical studies show that 8 oz. daily minimize plaque buildup. References to clinical pilot studies reducing plaque up to 30%. Pom as “life support”—Pom bottle in place of IV bottle, with the same “reasons to believe” offered as dictated by the creative briefs. Floss your arteries daily: Pom bottle in the medicine cabinet. Amaze your cardiologist: Pom bottle with stethoscopes on it. “What gets your heart pumping?” Pom bottle in bikini—supported by $23 million of initial scientific research from leading universities which has uncovered evidence of cardiovascular and prostate health. Special “wrapped” editions of Time distributed to urologists’ offices claimed prostate health shown by studies.
Likewise, Pomx ads tracked the creative briefs, emphasizing scientific claims. “Hopeful results for men and prostate cancer.” Pomegranate juice may one day prove an effective weapon against prostate cancer. Another tagline: “Science not fiction.” The only pomegranates backed by $20 million in research. Medical imagery, highlighting the studies. “The only antioxidant supplement rated X”—a preliminary study on erectile function, reporting 50% more likely to get an erection compared to placebo, but that study had no valid endpoint and was not statistically significant. “24 scientific studies now in one easy-to-swallow pill.”
Reception and materiality: Pom’s own consumer research showed this. 86% said they bought Pom because it was good for their health, and over half of those said it was good for their hearts (close-ended/multiple choice questions). High percentage chose prostate claims. Many reported that they learned these claims from the ads. Traditional copy tests: Many reported based on exposure to ads that Pom had “proven” health benefits. Poster in urologists’ offices was also tested and many consumers received the prostate cancer treatment message.
Consumer communications with Pom show materiality. “I’m dosing my husband with your wonderful and hopefully miraculous juice”—he was treated for prostate cancer. (A lot of sad stories of people desperate for hope follow.) One inquiry asked about the 30% plaque reduction claim—if that’s true, if you take it for 4 years will the plaque all be gone? (This produced a rumble of amusement in the gallery, but seems a reasonable one to me.) Pom’s response: that was for people with severe arterial plaque and may not apply to all people, and it only followed 10 people for 1 year and 5 for longer, so it’s hard to extrapolate. Linked to a study but didn’t explain that the study showed no effect on people with mild to moderate heart disease.
The science: the appropriate level of substantiation for health claims is competent and reliable scientific evidence, based on the expertise of relevant professionals, conducted in an objective manner by qualified persons in a fashion generally accepted to yield reliable results. Advertiser must satisfy the relevant scientific community that the claim is true.
Not challenging claims about whole fruit or fresh fruit, but about Pom Wonderful juice and Pomx pills/liquid. Q: would they have the same problem with same claims about the fresh fruit? A: Some of the hard-hitting claims related to specific diseases/conditions; the point is that we aren’t challenging claims about the health benefits of fruits and vegetables. Their commercially manufactured juice doesn’t contain, for example, Vitamin C and fiber, two of the key reasons for eating fruits and vegetables. The product claims here must be supported by the testing on these specific products. Supplement claims should be made by testing on supplement; can’t go from whole pomegranate to the supplement, because they’re not the same any more than apples are the same as apple juice, which nutritionists generally agree is of little value.
Four experts in heart disease, prostate cancer, and epidemiology will testify about the level of substantiation they’d expect to support respondents’ claims. Studies are small—10 patients—and there were no controls in the key studies, including the arterial plaque reduction studies. Respondents touted 21% blood pressure reduction though it was actually 12% in 2 weeks. Another study was cut off after 3 months despite 12 month protocol; no change in blood pressure, though change in blood flow. Placebo-controlled test with 73 patients showed no change in blood pressure or plaque. 45-patient study showed no change in blood pressure or blood flow: unable to replicate small study. Largest study with endpoint in arterial plaque: 289 patients. No change in blood pressure. No change in arterial plaque reduction at 18 months. No replication of the 10-patient study used in the ads. Published 2009 (completed 2006). Other biomarkers analyzed: no changes. Another nonplacebo study of Pomx pills showed no change in blood pressure or other markers, except for one (a technical thing I didn’t get, something about T-bars). That’s the only study of Pomx.
Prostate cancer: one study, from UCLA, 48 subjects. Not placebo-controlled. Positive effect on mean PSA doubling time. Our experts: not a recognized biomarker for analyzing whether or not the product treats or prevents prostate cancer. Two ongoing studies are placebo-controlled, but we have no idea about the results. Another nonplacebo study shows increase in doubling time.
Erectile function: one was placebo-controlled, but not statistically significant. The respondents will say they got close to statistical significance, but only on an unvalidated measure, not on the validated one.
Summary of respondents’ own assessment of its science, prepared by respondents’ scientific director from 2005-2009, Mark Dreher. Shared with respondent Stuart Resnick to create strategic plan for medical research. Showed a lot of negative results. “Where do we go from here?” Options: prevent heart disease/lower blood pressure claim—need larger studies. Expensive/risky to do science necessary for it. Health claims: few options for health claims—could try reduce risk of heart disease/hypertension. Their own analysis: they needed 2 studies for either option: costs would be $3-5 million and 2 years for FDA approval. Assessment: probably not worth pursuing in part because claim wouldn’t be specific to Pom. Science risks: our data may not be strong enough. Another option: no more clinical research; publicize what we already have. That’s low risk, but our research has holes. Current research is only 3 on 1-10 scale according to doctors.
Produced similar assessment of prostate cancer studies. Prevent/treat claim would require 2 studies, 1000 patients; PSA wouldn’t be accepted as an endpoint. Pharma-grade manufacturing. Health claims would require 100 patients, with an endpoint of active surveillance of cancer. Another option: stick with what we have.
ED (erectile dysfunction): need a stronger study to get clinical significance. Again, another option would be to stick with what we have.
Respondents repeatedly ignored warning signs indicating that marketing didn’t match science. Had a keen understanding of the level of science required to make treatment/reduction of risk claims. 2 NAD decisions.
Ended with more clips from TV interviews showing the consistent message: there are health benefits, they’re proven by tests on humans, we’ve spent millions of dollars on this research.
Q: the government isn’t claiming that this is snake oil, but that they don’t have the right science.
A: yes, that they don’t have the science that they said they did.
Pom decided to wait for its opening statement until complaint counsel finished presenting witnesses.
Lynda Resnick, first witness (in response to various questions from complaint counsel):
Marketer in the family, building the brand. Opened a small ad agency in her late teens; 38 years ago switched to home-based business, then started running Teleflora. She believes that part of the intrinsic value of Pom is its “power to heal.” (Various statements made in her book.) 8000 year history of pomegranates as medicine, so it’s the entire body of evidence, not just research.
The fact that we’re so serious about our science is what makes us stand out from other fruits and vegetables—rarely see another natural food investing in science, and we want consumers to know about that.
Doesn’t specifically recall Oct. 2010 deposition in Tropicana case. Has been deposed in several Pom litigations. She doesn’t read all the body copy or hang tag or sales marketing sheet for the field force; hasn’t paid much attention to website for years. Her involvement since 2007 has decreased as she had more confidence in management of Pom. Looking at big picture and not minutia. Even before then she didn’t have final say on all marketing materials due to family and other brand responsibilities. Who did have final say over ad content? If she didn’t look at it, there were a couple of other people in marketing. People would sit down as a group and brainstorm big marketing initiatives.
Have a full-service in house ad agency that does PR, creative, and media buying.
Discussion of exhibits—she didn’t remember making various comments on proposed ad copy but considered it likely that they were hers; those comments reflected detailed involvement in the ad copy and in the health claims in particular.
I took off to get home in time for domestic responsibilities; I will probably check back in as the case continues.
Personal milestone: my very first press pass! They were a bit confused about the status of bloggers, I think.
Complaint counsel’s opening statement: Rubies in the Orchard: a marketing book published by one of the individual defendants, Lynda Resnick, about marketing pomegranate juice and Pomx, a dietary supplement. Claims for scientific peer-reviewed research: there isn’t a man in America who shouldn’t drink 8 oz. per day because it keeps you from getting prostate cancer and keeps PSA from rising. False establishment claims and unsubstantiated health/efficacy claims lacking a reasonable basis.
Ads challenged focused on claims that Pom juice/Pomx prevent/treat heart disease, prostate cancer, and erectile dysfunction. The primary evidence of the claims made is the ad itself. [Showed an ad with a Pom bottle and a stethoscope with the tagline “Decompress.”] Claims and various characteristics can create an impression that claims are based on scientific proof. Intent is not required but if present is relevant to finding that claims were made and that they were material. Creative briefs from in-house ad agency show intent to make claims. Benefits to be communicated as stated in those briefs: general health/live forever and heart health/clean and healthy arteries/“floss your arteries daily”—reasons given were that healthy antioxidants fight free radicals which cause heart disease, premature aging, Alzheimer’s, and cancer. Other campaigns targeted men who are scared of prostate cancer, along with elderly supplement users and young health-conscious women. Strategies included having experts state that Pomx provides the same cardiovascular/prostate benefits as the juice.
Pom’s reasons to believe: backed by $25 million in research conducted using Pom juice; only guaranteed 100% pomegranate juice. Diabetes and other diseases associated with aging came up. Website’s health benefits section: tone was to be authoritative and approachable. Focus on heart disease, results of studies sponsored by Pom showing decrease in arterial plaque: patients who consumed 8 oz. daily for one year saw 30% decrease in plaque, and also improved blood flow. Prostate health: similar claims. Slower PSA doubling time could have a relationship to decreased cancer risk—headline was about “saving” men from prostate cancer.
Email to Linda Resnick about an LATimes article discussing problems with the Pom research—no placebo; article concluded that more research was needed and that eating healthy was better than obsessing over the superfruit of the moment. This shows knowledge of the flaws and the intent to convey the message.
Emails to consumers in response to questions from the public about an ad called “Cheat Death”—a Pom bottle with a hangman’s noose around the neck; controversial. Company’s response: our ad campaign is created with the intent of using imagery that irreverently and boldly conveys to the consumer that drinking our product may prevent disease. Pom has many distinct benefits that sets it apart from other products and research suggests it may reduce heart disease. Since heart disease is a big killer, it’s important to communicate to consumers the powerful benefits of drinking Pom.
Actual ads matched up with creative briefs: “drink and be healthy” has ad copy claiming medical studies show that 8 oz. daily minimize plaque buildup. References to clinical pilot studies reducing plaque up to 30%. Pom as “life support”—Pom bottle in place of IV bottle, with the same “reasons to believe” offered as dictated by the creative briefs. Floss your arteries daily: Pom bottle in the medicine cabinet. Amaze your cardiologist: Pom bottle with stethoscopes on it. “What gets your heart pumping?” Pom bottle in bikini—supported by $23 million of initial scientific research from leading universities which has uncovered evidence of cardiovascular and prostate health. Special “wrapped” editions of Time distributed to urologists’ offices claimed prostate health shown by studies.
Likewise, Pomx ads tracked the creative briefs, emphasizing scientific claims. “Hopeful results for men and prostate cancer.” Pomegranate juice may one day prove an effective weapon against prostate cancer. Another tagline: “Science not fiction.” The only pomegranates backed by $20 million in research. Medical imagery, highlighting the studies. “The only antioxidant supplement rated X”—a preliminary study on erectile function, reporting 50% more likely to get an erection compared to placebo, but that study had no valid endpoint and was not statistically significant. “24 scientific studies now in one easy-to-swallow pill.”
Reception and materiality: Pom’s own consumer research showed this. 86% said they bought Pom because it was good for their health, and over half of those said it was good for their hearts (close-ended/multiple choice questions). High percentage chose prostate claims. Many reported that they learned these claims from the ads. Traditional copy tests: Many reported based on exposure to ads that Pom had “proven” health benefits. Poster in urologists’ offices was also tested and many consumers received the prostate cancer treatment message.
Consumer communications with Pom show materiality. “I’m dosing my husband with your wonderful and hopefully miraculous juice”—he was treated for prostate cancer. (A lot of sad stories of people desperate for hope follow.) One inquiry asked about the 30% plaque reduction claim—if that’s true, if you take it for 4 years will the plaque all be gone? (This produced a rumble of amusement in the gallery, but seems a reasonable one to me.) Pom’s response: that was for people with severe arterial plaque and may not apply to all people, and it only followed 10 people for 1 year and 5 for longer, so it’s hard to extrapolate. Linked to a study but didn’t explain that the study showed no effect on people with mild to moderate heart disease.
The science: the appropriate level of substantiation for health claims is competent and reliable scientific evidence, based on the expertise of relevant professionals, conducted in an objective manner by qualified persons in a fashion generally accepted to yield reliable results. Advertiser must satisfy the relevant scientific community that the claim is true.
Not challenging claims about whole fruit or fresh fruit, but about Pom Wonderful juice and Pomx pills/liquid. Q: would they have the same problem with same claims about the fresh fruit? A: Some of the hard-hitting claims related to specific diseases/conditions; the point is that we aren’t challenging claims about the health benefits of fruits and vegetables. Their commercially manufactured juice doesn’t contain, for example, Vitamin C and fiber, two of the key reasons for eating fruits and vegetables. The product claims here must be supported by the testing on these specific products. Supplement claims should be made by testing on supplement; can’t go from whole pomegranate to the supplement, because they’re not the same any more than apples are the same as apple juice, which nutritionists generally agree is of little value.
Four experts in heart disease, prostate cancer, and epidemiology will testify about the level of substantiation they’d expect to support respondents’ claims. Studies are small—10 patients—and there were no controls in the key studies, including the arterial plaque reduction studies. Respondents touted 21% blood pressure reduction though it was actually 12% in 2 weeks. Another study was cut off after 3 months despite 12 month protocol; no change in blood pressure, though change in blood flow. Placebo-controlled test with 73 patients showed no change in blood pressure or plaque. 45-patient study showed no change in blood pressure or blood flow: unable to replicate small study. Largest study with endpoint in arterial plaque: 289 patients. No change in blood pressure. No change in arterial plaque reduction at 18 months. No replication of the 10-patient study used in the ads. Published 2009 (completed 2006). Other biomarkers analyzed: no changes. Another nonplacebo study of Pomx pills showed no change in blood pressure or other markers, except for one (a technical thing I didn’t get, something about T-bars). That’s the only study of Pomx.
Prostate cancer: one study, from UCLA, 48 subjects. Not placebo-controlled. Positive effect on mean PSA doubling time. Our experts: not a recognized biomarker for analyzing whether or not the product treats or prevents prostate cancer. Two ongoing studies are placebo-controlled, but we have no idea about the results. Another nonplacebo study shows increase in doubling time.
Erectile function: one was placebo-controlled, but not statistically significant. The respondents will say they got close to statistical significance, but only on an unvalidated measure, not on the validated one.
Summary of respondents’ own assessment of its science, prepared by respondents’ scientific director from 2005-2009, Mark Dreher. Shared with respondent Stuart Resnick to create strategic plan for medical research. Showed a lot of negative results. “Where do we go from here?” Options: prevent heart disease/lower blood pressure claim—need larger studies. Expensive/risky to do science necessary for it. Health claims: few options for health claims—could try reduce risk of heart disease/hypertension. Their own analysis: they needed 2 studies for either option: costs would be $3-5 million and 2 years for FDA approval. Assessment: probably not worth pursuing in part because claim wouldn’t be specific to Pom. Science risks: our data may not be strong enough. Another option: no more clinical research; publicize what we already have. That’s low risk, but our research has holes. Current research is only 3 on 1-10 scale according to doctors.
Produced similar assessment of prostate cancer studies. Prevent/treat claim would require 2 studies, 1000 patients; PSA wouldn’t be accepted as an endpoint. Pharma-grade manufacturing. Health claims would require 100 patients, with an endpoint of active surveillance of cancer. Another option: stick with what we have.
ED (erectile dysfunction): need a stronger study to get clinical significance. Again, another option would be to stick with what we have.
Respondents repeatedly ignored warning signs indicating that marketing didn’t match science. Had a keen understanding of the level of science required to make treatment/reduction of risk claims. 2 NAD decisions.
Ended with more clips from TV interviews showing the consistent message: there are health benefits, they’re proven by tests on humans, we’ve spent millions of dollars on this research.
Q: the government isn’t claiming that this is snake oil, but that they don’t have the right science.
A: yes, that they don’t have the science that they said they did.
Pom decided to wait for its opening statement until complaint counsel finished presenting witnesses.
Lynda Resnick, first witness (in response to various questions from complaint counsel):
Marketer in the family, building the brand. Opened a small ad agency in her late teens; 38 years ago switched to home-based business, then started running Teleflora. She believes that part of the intrinsic value of Pom is its “power to heal.” (Various statements made in her book.) 8000 year history of pomegranates as medicine, so it’s the entire body of evidence, not just research.
The fact that we’re so serious about our science is what makes us stand out from other fruits and vegetables—rarely see another natural food investing in science, and we want consumers to know about that.
Doesn’t specifically recall Oct. 2010 deposition in Tropicana case. Has been deposed in several Pom litigations. She doesn’t read all the body copy or hang tag or sales marketing sheet for the field force; hasn’t paid much attention to website for years. Her involvement since 2007 has decreased as she had more confidence in management of Pom. Looking at big picture and not minutia. Even before then she didn’t have final say on all marketing materials due to family and other brand responsibilities. Who did have final say over ad content? If she didn’t look at it, there were a couple of other people in marketing. People would sit down as a group and brainstorm big marketing initiatives.
Have a full-service in house ad agency that does PR, creative, and media buying.
Discussion of exhibits—she didn’t remember making various comments on proposed ad copy but considered it likely that they were hers; those comments reflected detailed involvement in the ad copy and in the health claims in particular.
I took off to get home in time for domestic responsibilities; I will probably check back in as the case continues.
Monday, May 23, 2011
Failed false marking claim largely preempts related false advertising claims
Champion Laboratories, Inc. v. Parker-Hannifin Corp., 2011 WL 1883832 (E.D. Cal.)
Champion sued Parker for patent false marking, false advertising under the Lanham Act, and violation of California Business & Professions Code §§ 17200 et seq. The parties compete to sell auto parts to car manufacturers and have a history of litigation over patents and business practices. Both produce fuel filtration products for Ford trucks equipped with the Powerstroke diesel engine. Parker was the OEM and sold a replacement filter. Parker has and licenses a number of relevant patents, including '537 and '993 as relevant here. The patents, according to Parker, disclose a filter assembly that prevents an improper filter element from being used, reducing mess and environmental issues during an element change. It also sells other components of the filtration system and allegedly has the ability to control the design of the system.
Champion alleged that Parker falsely marked its replacement filter with the patent numbers even though the claims are inapplicable to that filter. Parker argued that a first-to-file limitation barred Champion’s false marking claim because a different plaintiff filed a separate false patent marking qui tam action against Parker based on the same material allegations three weeks before Champion filed. This claim was settled in January 2011.
One court has found the qui tam provision unconstitutional. Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc., --- F. Supp. 2d ----, No. 5:10-CV-1912, 2011 WL 649998 (N.D. Ohio Feb. 23, 2011), while several others subsequently rejected that decision. But the court could avoid the question, because the case law supported Parker’s argument that only one private individual can assert a qui tam cause of action under the statute. Champion argued that the prerequisites for claim preclusion weren’t satisfied, but it had no standing to challenge the earlier litigation (filed hours before this case) because the government was the real party in interest. Champion’s status as a competitor did not give it special status in a false marking case. Here, the government acknowledged the settlement and accepted its share (which was not disclosed), and relitigating the merits would be complex and burdensome.
Champion argued that the settlement was staged and lacked transparency. This was similar to the constitutional arguments that the government lacked sufficient control over the qui tam action. The court was unpersuaded (and noted the conflict between asserting that the statute is constitutional and that a settlement wasn’t fair to the government because of the government’s inability to control the terms). The government can assert its interests: it’s required to receive notice and it can intervene if it chooses. Thus, the false marking qui tam claim was dismissed with prejudice.
Champion’s Lanham Act and state law claims alleged an attempt to suppress competition through false and misleading patent claims about the replacement filter that were likely to cause consumer confusion. Champion also alleged as a basis of state law liability that Parker changed the filtration system to prevent competitors’ use of noninfringing replacement filters, incorporating meaningless features in order to suppress competition.
Parker argued that these claims were precluded because they were predicated on barred false marking claims. The court agreed that, to the extent that the claims were predicated only on false marking of the filters, they were preempted. It’s not enough to allege intentional or knowing false marking. The allegations that Parker incorporated a nonessential plastic structure into its filter design to "thwart competition from Champion's competing replacement filter" were also not specific enough under Iqbal and fell short of alleging “marketplace bad faith,” an additional element that avoids preemption.
The Lanham Act claim was also insufficient. Champion argued that it alleged that Parker wrongfully claimed patent rights through product packaging and other promotional material, but these allegations were conclusory and unclear; the alleged ad was apparently found inside the filter package and Champion didn’t explain how the consumer viewed the ad or how it impacted consumer choice. Also, the allegations relied solely on the alleged false marking, nothing more. They didn’t meet Iqbal’s standard for pleading facts instead of labels.
The non-false marking claims were dismissed with leave to amend to explain its claims with greater particularity.
Champion sued Parker for patent false marking, false advertising under the Lanham Act, and violation of California Business & Professions Code §§ 17200 et seq. The parties compete to sell auto parts to car manufacturers and have a history of litigation over patents and business practices. Both produce fuel filtration products for Ford trucks equipped with the Powerstroke diesel engine. Parker was the OEM and sold a replacement filter. Parker has and licenses a number of relevant patents, including '537 and '993 as relevant here. The patents, according to Parker, disclose a filter assembly that prevents an improper filter element from being used, reducing mess and environmental issues during an element change. It also sells other components of the filtration system and allegedly has the ability to control the design of the system.
Champion alleged that Parker falsely marked its replacement filter with the patent numbers even though the claims are inapplicable to that filter. Parker argued that a first-to-file limitation barred Champion’s false marking claim because a different plaintiff filed a separate false patent marking qui tam action against Parker based on the same material allegations three weeks before Champion filed. This claim was settled in January 2011.
One court has found the qui tam provision unconstitutional. Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc., --- F. Supp. 2d ----, No. 5:10-CV-1912, 2011 WL 649998 (N.D. Ohio Feb. 23, 2011), while several others subsequently rejected that decision. But the court could avoid the question, because the case law supported Parker’s argument that only one private individual can assert a qui tam cause of action under the statute. Champion argued that the prerequisites for claim preclusion weren’t satisfied, but it had no standing to challenge the earlier litigation (filed hours before this case) because the government was the real party in interest. Champion’s status as a competitor did not give it special status in a false marking case. Here, the government acknowledged the settlement and accepted its share (which was not disclosed), and relitigating the merits would be complex and burdensome.
Champion argued that the settlement was staged and lacked transparency. This was similar to the constitutional arguments that the government lacked sufficient control over the qui tam action. The court was unpersuaded (and noted the conflict between asserting that the statute is constitutional and that a settlement wasn’t fair to the government because of the government’s inability to control the terms). The government can assert its interests: it’s required to receive notice and it can intervene if it chooses. Thus, the false marking qui tam claim was dismissed with prejudice.
Champion’s Lanham Act and state law claims alleged an attempt to suppress competition through false and misleading patent claims about the replacement filter that were likely to cause consumer confusion. Champion also alleged as a basis of state law liability that Parker changed the filtration system to prevent competitors’ use of noninfringing replacement filters, incorporating meaningless features in order to suppress competition.
Parker argued that these claims were precluded because they were predicated on barred false marking claims. The court agreed that, to the extent that the claims were predicated only on false marking of the filters, they were preempted. It’s not enough to allege intentional or knowing false marking. The allegations that Parker incorporated a nonessential plastic structure into its filter design to "thwart competition from Champion's competing replacement filter" were also not specific enough under Iqbal and fell short of alleging “marketplace bad faith,” an additional element that avoids preemption.
The Lanham Act claim was also insufficient. Champion argued that it alleged that Parker wrongfully claimed patent rights through product packaging and other promotional material, but these allegations were conclusory and unclear; the alleged ad was apparently found inside the filter package and Champion didn’t explain how the consumer viewed the ad or how it impacted consumer choice. Also, the allegations relied solely on the alleged false marking, nothing more. They didn’t meet Iqbal’s standard for pleading facts instead of labels.
The non-false marking claims were dismissed with leave to amend to explain its claims with greater particularity.
Friday, May 20, 2011
Trump University loses early round in fraud claim
Makaeff v. Trump University, LLC, 2011 WL 1872886 (S.D. Cal.)
Another early loss for Trump. (This discussion of Trump’s real estate misrepresentation woes ends with a lawyer’s response that is, let’s say, unlikely to work. Stick to the procedural posture and some general disappointment/anticipation of the full day in court!)
This is a putative class action by people who enrolled in “Trump University” seminars “and now maintain they learned a much different lesson than they bargained for.” Plaintiffs claimed fraud and violation of various state consumer protection laws.
The court dismissed the claims for violation of New York's General Business Law § 349(a) with leave to amend because the complaint didn’t indicate that the misconduct alleged took place in New York. The seminars weren’t taken in New York. Though the law doesn’t only cover New York residents, it’s directed at deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in New York. Trump University offered and conducted seminars and “coaching sessions” in NY, the court only looked at named plaintiffs’ claims, and none of them took classes in NY. TU (rhymes with something, I’m sure) also used its New York address to send correspondence to Plaintiffs and putative class members nationwide, but that’s not enough for §349 to apply.
The fraud/misrepresentation claims were pled with sufficient particularity for most of the named plaintiffs. TU argued that plaintiffs couldn’t have relied on any alleged misrepresentations because they were made after plaintiffs already paid for the seminars. However, plaintiffs sufficiently alleged that the misrepresentations were used to “upsell” customers to the next level. TU also claimed that the statements were mere opinion or puffery and that plaintiffs didn’t explain why the statements were false. (So, apparently one of the subtler Iqbal/Twombly consequences is defendants’ idea that plaintiffs have to explain what makes an allegedly false claim false, though I haven’t seen this idea get very far in the opinions I’ve read. Alleging that a specific factual statement is false is generally the kind of thing that I expect courts are to take on the face of the pleadings even after Iqbal.)
Anyway, with the exception of one plaintiff who failed to specify the allegedly false claims adequately, these arguments failed to launch, much like Trump’s presidential campaign.
Tarla Makaeff alleged that Trump University speaker Tiffany Brinkman persuaded Makaeff to sign up for a $35,000 seminar by falsely "guaranteeing" her that her first real estate deal would earn her enough to pay for the seminar. Ed Oberkrom alleged that in order to persuade the students in his class to sign up for a $25,000 seminar, the speaker told them that "the first students to sign up ... would be the first to get the best properties on a list, and access to get the best buyers," as well as “first access to an exclusive website of properties hand-picked by Donald Trump." In fact, he alleged, the properties were not handpicked by Donald Trump, and the website was not exclusive but was accessible to anyone for $39 a month. Brandon Keller alleged that a speaker falsely told his class that if they signed up for the $1,500 seminar and brought five to ten real estate leads, Trump University trainers would call the leads, and that they were guaranteed to make $5,000 to $10,000 within 30 days.
These allegations satisfied Rule 9(b) and negated TU’s argument that the timing of the misrepresentations precluded reliance. The court had already in a previous opinion rejected TU’s argument that plaintiffs expressly disclaimed reliance on any guarantees when they signed up for the seminars. (One legacy of the 1960s/1970s push for specific consumer protection law was to blunt the effect of integration clauses and the like used to disclaim promises made by salespeople that were contradicted by the ultimate sales contract. Recognizing that consumers reasonably rely on many such promises, regardless of what the fine print says, consumer protection law generally treats the advertising/sales pitch as actionable if it is (1) misleading and (2) effective. Defendants don’t like this rule, but it is often still applicable.) Maybe some of the statements were puffery, but TU didn’t raise the argument until its reply brief and didn’t identify which ones anyway.
In addition, Makaeff stated a false advertising claim under California law (Business & Professions Code §17500) by alleging that TU’s oral misrepresentations constituted false advertising.
Breach of contract claims also survived, and the court denied TU’s motions to strike several allegations. Most notably, though an elder abuse cause of action was no longer in the case, allegations regarding TU’s targeting of senior citizens help give a full understanding of the complaint and may still be relevant. In addition, statements made by a person named Noah Herrara were not immaterial, though TU argued that Herrera was not its agent or employee. But Makaeff alleged that a TU instructor facilitated a deal between Hererra and Makaeff, which ended badly for Makaeff in part because Hererra committed fraud. The deal, and the instructor’s failure to disclose an alleged conflict of interest, supported the claims that TU misrepresented the quality of its seminars in violation of the CLRA.
Another early loss for Trump. (This discussion of Trump’s real estate misrepresentation woes ends with a lawyer’s response that is, let’s say, unlikely to work. Stick to the procedural posture and some general disappointment/anticipation of the full day in court!)
This is a putative class action by people who enrolled in “Trump University” seminars “and now maintain they learned a much different lesson than they bargained for.” Plaintiffs claimed fraud and violation of various state consumer protection laws.
The court dismissed the claims for violation of New York's General Business Law § 349(a) with leave to amend because the complaint didn’t indicate that the misconduct alleged took place in New York. The seminars weren’t taken in New York. Though the law doesn’t only cover New York residents, it’s directed at deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in New York. Trump University offered and conducted seminars and “coaching sessions” in NY, the court only looked at named plaintiffs’ claims, and none of them took classes in NY. TU (rhymes with something, I’m sure) also used its New York address to send correspondence to Plaintiffs and putative class members nationwide, but that’s not enough for §349 to apply.
The fraud/misrepresentation claims were pled with sufficient particularity for most of the named plaintiffs. TU argued that plaintiffs couldn’t have relied on any alleged misrepresentations because they were made after plaintiffs already paid for the seminars. However, plaintiffs sufficiently alleged that the misrepresentations were used to “upsell” customers to the next level. TU also claimed that the statements were mere opinion or puffery and that plaintiffs didn’t explain why the statements were false. (So, apparently one of the subtler Iqbal/Twombly consequences is defendants’ idea that plaintiffs have to explain what makes an allegedly false claim false, though I haven’t seen this idea get very far in the opinions I’ve read. Alleging that a specific factual statement is false is generally the kind of thing that I expect courts are to take on the face of the pleadings even after Iqbal.)
Anyway, with the exception of one plaintiff who failed to specify the allegedly false claims adequately, these arguments failed to launch, much like Trump’s presidential campaign.
Tarla Makaeff alleged that Trump University speaker Tiffany Brinkman persuaded Makaeff to sign up for a $35,000 seminar by falsely "guaranteeing" her that her first real estate deal would earn her enough to pay for the seminar. Ed Oberkrom alleged that in order to persuade the students in his class to sign up for a $25,000 seminar, the speaker told them that "the first students to sign up ... would be the first to get the best properties on a list, and access to get the best buyers," as well as “first access to an exclusive website of properties hand-picked by Donald Trump." In fact, he alleged, the properties were not handpicked by Donald Trump, and the website was not exclusive but was accessible to anyone for $39 a month. Brandon Keller alleged that a speaker falsely told his class that if they signed up for the $1,500 seminar and brought five to ten real estate leads, Trump University trainers would call the leads, and that they were guaranteed to make $5,000 to $10,000 within 30 days.
These allegations satisfied Rule 9(b) and negated TU’s argument that the timing of the misrepresentations precluded reliance. The court had already in a previous opinion rejected TU’s argument that plaintiffs expressly disclaimed reliance on any guarantees when they signed up for the seminars. (One legacy of the 1960s/1970s push for specific consumer protection law was to blunt the effect of integration clauses and the like used to disclaim promises made by salespeople that were contradicted by the ultimate sales contract. Recognizing that consumers reasonably rely on many such promises, regardless of what the fine print says, consumer protection law generally treats the advertising/sales pitch as actionable if it is (1) misleading and (2) effective. Defendants don’t like this rule, but it is often still applicable.) Maybe some of the statements were puffery, but TU didn’t raise the argument until its reply brief and didn’t identify which ones anyway.
In addition, Makaeff stated a false advertising claim under California law (Business & Professions Code §17500) by alleging that TU’s oral misrepresentations constituted false advertising.
Breach of contract claims also survived, and the court denied TU’s motions to strike several allegations. Most notably, though an elder abuse cause of action was no longer in the case, allegations regarding TU’s targeting of senior citizens help give a full understanding of the complaint and may still be relevant. In addition, statements made by a person named Noah Herrara were not immaterial, though TU argued that Herrera was not its agent or employee. But Makaeff alleged that a TU instructor facilitated a deal between Hererra and Makaeff, which ended badly for Makaeff in part because Hererra committed fraud. The deal, and the instructor’s failure to disclose an alleged conflict of interest, supported the claims that TU misrepresented the quality of its seminars in violation of the CLRA.
Boldly going!
These NASA mission posters, courtesy of the Christian Science Monitor, are a wonderful example of the human impulse to tweak popular culture to one's own needs. Even when one is already an astronaut. It's not just SF: there's Tarantino, the Beatles, Indiana Jones, and more.
Tuesday, May 17, 2011
Drop a camera, pick up a lawsuit
Post 2011 in 2011, Blogger tells me.
FLIR Systems, Inc. v. Sierra Media, Inc., 2011 WL 1832806 (D. Or.)
FLIR sued Fluke Corp. and its media consultant, Sierra, for false advertising under the Lanham Act, trade libel/commercial disparagement, intentional interference with prospective economic relations, and related claims.
FLIR and Fluke compete in the market for thermal imaging cameras, and Sierra and Fluke have worked together for 15 years. In 2009, they created a video showing a “drop test” of cameras, including three manufactured by FLIR, showing a two-meter drop. The Fluke equipment bounces, but appears to remain intact. The other products appear to either break or have battery covers come off and batteries eject, or both. The text reads: "Fluke thermal imagers. Rugged. 5 thermal imagers. 2 meter drop. Solid concrete floor. All products subjected to identical tests by third party. Fluke Ti32--17 drops and counting ... The ONLY rugged thermal imager. Why waste money on tools that break? ..." Below the video, there’s a link to the test methodology marked as such and stating that “Fluke Thermography contracted a 3rd party to perform and film this drop test video.” The methodology stated that it was an independent, third party test executed under controlled conditions with new or like-new imagers never used in commercial or industrial environments, and supplied further details. (This is the first time I’ve seen a court rely on a YT link, let alone a bit.ly link, to show material incorporated by reference into a complaint. Might be better practice for the court to host it itself, or maybe create its own YT channel, though I understand those have to be negotiated with YT when the government does it.)
FLIR alleged that defendants knew the representation of independence was false because Fluke controlled and revised the design of the test and participated in selectively editing the video. FLIR alleged that it lost a sale to a Fortune 100 company after a supervisor watched the video and stated that “FLIR's cameras are 'way too sensitive if they get dropped.'” FLIR alleged difficulties with two other potential customers because of the video.
Trade libel requires that the defendant (1) published (2) one or more false allegations (3) pertaining to plaintiff, (4) with malice, and (5) as a result, (6) the plaintiff suffered damages. FLIR identified the false statements as (1) Sierra conducted an independent, third party test, and (2) “17 drops and counting …The ONLY rugged thermal imager,” conveying that FLIR cameras break immediately by contrast. Defendants argued that failing to state how many times the FLIR cameras were actually dropped before they broke was just a nonactionable omission. But trade libel claims can be based on words, pictures, or a combination. A bare omission typically can’t serve as the basis of a trade libel claim, but the complaint alleges that the video and the methodology document taken together make affirmatively false statements by comparison.
FLIR also alleged that an email from Fluke's marketing manager stated the "Intent is to create the atmosphere of an independent testing lab" and "to load these Videos to YouTube so it looks like its coming from a user or independent source." Moreover, at oral argument, counsel for Fluke “stated that in at least some of the video of FLIR imagers, the footage showing some damage occurring was not on the first drop, but after multiple drops.” FLIR sufficiently alleged trade libel to survive a motion to dismiss.
Intentional interference with economic relations requires: (1) the existence of a professional or business relationship, (2) intentional interference with that relationship, (3) by a third party, (4) accomplished through improper means or for an improper purpose, (5) a causal effect between the interference and damage to the economic relationship, and (6) damages." Fluke argued that there wasn’t a sufficient relationship between FLIR and its unnamed potential customers and that FLIR didn’t allege that Fluke knew about the alleged relationship.
In Oregon, the tort aims to protect both parties to a prospective business relationship from a third party who would interfere. “This is different from inducing a potential customer who has had no contact with the plaintiff, whether initiated by the customer or the plaintiff, to purchase a competing product rather than plaintiff's product…. [S]ome kind of relationship must exist prior to the action that allegedly interferes and causes a third person to discontinue that relationship.” Even if FLIR is a large player in the thermal imager market, that doesn’t mean that anyone who buys one from any supplier has a sufficient relationship with FLIR to support the tort.
The allegations were insufficient with respect to the Fortune 100 company, as well as the other two potential customers (who allegedly stated that "the 'Drop Test' has got me sold on Fluke unless you can convince me otherwise" and "We … were impressed by its ruggedness and large screen. [Fluke’s rep] showed us a video of drop tests of the FLIR and Fluke products, where the Fluke bounced and the FLIR's broke ... very impressive"). They did not establish an existing business relationship with FLIR before the customers saw the video. Likewise, there was no allegation that Fluke knew about such a relationship. FLIR argued that the general existence of direct competition between the parties was sufficient, but the court disagreed.
Because the trade libel claim survived, the allegations of civil conspiracy/aiding and abetting against Sierra also survived.
FLIR Systems, Inc. v. Sierra Media, Inc., 2011 WL 1832806 (D. Or.)
FLIR sued Fluke Corp. and its media consultant, Sierra, for false advertising under the Lanham Act, trade libel/commercial disparagement, intentional interference with prospective economic relations, and related claims.
FLIR and Fluke compete in the market for thermal imaging cameras, and Sierra and Fluke have worked together for 15 years. In 2009, they created a video showing a “drop test” of cameras, including three manufactured by FLIR, showing a two-meter drop. The Fluke equipment bounces, but appears to remain intact. The other products appear to either break or have battery covers come off and batteries eject, or both. The text reads: "Fluke thermal imagers. Rugged. 5 thermal imagers. 2 meter drop. Solid concrete floor. All products subjected to identical tests by third party. Fluke Ti32--17 drops and counting ... The ONLY rugged thermal imager. Why waste money on tools that break? ..." Below the video, there’s a link to the test methodology marked as such and stating that “Fluke Thermography contracted a 3rd party to perform and film this drop test video.” The methodology stated that it was an independent, third party test executed under controlled conditions with new or like-new imagers never used in commercial or industrial environments, and supplied further details. (This is the first time I’ve seen a court rely on a YT link, let alone a bit.ly link, to show material incorporated by reference into a complaint. Might be better practice for the court to host it itself, or maybe create its own YT channel, though I understand those have to be negotiated with YT when the government does it.)
FLIR alleged that defendants knew the representation of independence was false because Fluke controlled and revised the design of the test and participated in selectively editing the video. FLIR alleged that it lost a sale to a Fortune 100 company after a supervisor watched the video and stated that “FLIR's cameras are 'way too sensitive if they get dropped.'” FLIR alleged difficulties with two other potential customers because of the video.
Trade libel requires that the defendant (1) published (2) one or more false allegations (3) pertaining to plaintiff, (4) with malice, and (5) as a result, (6) the plaintiff suffered damages. FLIR identified the false statements as (1) Sierra conducted an independent, third party test, and (2) “17 drops and counting …The ONLY rugged thermal imager,” conveying that FLIR cameras break immediately by contrast. Defendants argued that failing to state how many times the FLIR cameras were actually dropped before they broke was just a nonactionable omission. But trade libel claims can be based on words, pictures, or a combination. A bare omission typically can’t serve as the basis of a trade libel claim, but the complaint alleges that the video and the methodology document taken together make affirmatively false statements by comparison.
FLIR also alleged that an email from Fluke's marketing manager stated the "Intent is to create the atmosphere of an independent testing lab" and "to load these Videos to YouTube so it looks like its coming from a user or independent source." Moreover, at oral argument, counsel for Fluke “stated that in at least some of the video of FLIR imagers, the footage showing some damage occurring was not on the first drop, but after multiple drops.” FLIR sufficiently alleged trade libel to survive a motion to dismiss.
Intentional interference with economic relations requires: (1) the existence of a professional or business relationship, (2) intentional interference with that relationship, (3) by a third party, (4) accomplished through improper means or for an improper purpose, (5) a causal effect between the interference and damage to the economic relationship, and (6) damages." Fluke argued that there wasn’t a sufficient relationship between FLIR and its unnamed potential customers and that FLIR didn’t allege that Fluke knew about the alleged relationship.
In Oregon, the tort aims to protect both parties to a prospective business relationship from a third party who would interfere. “This is different from inducing a potential customer who has had no contact with the plaintiff, whether initiated by the customer or the plaintiff, to purchase a competing product rather than plaintiff's product…. [S]ome kind of relationship must exist prior to the action that allegedly interferes and causes a third person to discontinue that relationship.” Even if FLIR is a large player in the thermal imager market, that doesn’t mean that anyone who buys one from any supplier has a sufficient relationship with FLIR to support the tort.
The allegations were insufficient with respect to the Fortune 100 company, as well as the other two potential customers (who allegedly stated that "the 'Drop Test' has got me sold on Fluke unless you can convince me otherwise" and "We … were impressed by its ruggedness and large screen. [Fluke’s rep] showed us a video of drop tests of the FLIR and Fluke products, where the Fluke bounced and the FLIR's broke ... very impressive"). They did not establish an existing business relationship with FLIR before the customers saw the video. Likewise, there was no allegation that Fluke knew about such a relationship. FLIR argued that the general existence of direct competition between the parties was sufficient, but the court disagreed.
Because the trade libel claim survived, the allegations of civil conspiracy/aiding and abetting against Sierra also survived.
Sunday, May 15, 2011
National Research Council Study on the Economics of Copyright
The NRC has started a blog seeking feedback. There's one draft report up already. Interested parties are invited to comment.
Saturday, May 14, 2011
Brave new world of product relatedness
Every year I find more of these. Dogfish Head Beer soap (full interaction with the page requires login, presumably because most of the site sells real alcohol, but you can at least see it). How then should we think about Mountain Dew scented shampoo and lotion? Note that the shampoo seems to be bottled in actual recycled Mountain Dew bottles--fair use? What about that label on the lotion? The seller specializes in soaps shaped like video game controllers.
Initial link from Awesomer.
Initial link from Awesomer.
Friday, May 13, 2011
Steamed up: LG loses materiality-heavy case
LG Electronics U.S.A., Inc. v. Whirlpool Corp., 2011 WL 1760424 (N.D. Ill.)
LG sued Whirlpool for false advertising related to steam dryers. Discussion of several previous rulings.
A jury returned a verdict largely in Whirlpool’s favor, rejecting LG’s Lanham Act and Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) claims, though it did find in LG’s favor under the Illinois Uniform Deceptive Trade Practices Act (IUDTPA), which provides only for injunctive relief. The jury specifically found that LG had failed to prove by a preponderance of the evidence that it was entitled to lost profits, a remedy based on a price erosion theory, or Whirlpool’s profits. LG sought an injunction, which the court denied.
LG argued that Whirlpool falsely and misleadingly used the word "steam" in its advertisements and in the name of its Duet Steam Dryer, when the Duet Steam Dryer does not use steam, but instead uses a mist of cold water sprayed into a warm dryer drum. LG’s dryer boils water and then injects hot vapor into the dryer drum. Whirlpool never claimed to do this, or to make steam in the same way as LG; its promotional materials contain an explanation that it sprays a mist of cold water into the hot air in the drum. LG’s survey expert testified about likely confusion over the method Whirlpool used, but he studied an ad that Whirlpool hasn’t run for the past 18-24 months.
LG didn’t introduce its steam dryer into the US market until December 2007, two months after Whirlpool, which was the first company in the industry to market a steam dryer to satisfy customer desires for wrinkle reduction and odor removal.
In finding for LG on the IUDTPA claim, the jury found that LG established by a preponderance of the evidence that Whirlpool (1) represented that goods or services have characteristics, uses, or benefits that they do not have; (2) represented that goods or services are of a particular standard, quality, or grade or that goods are a particular style or model, if they are of another; or (3) engaged in any other conduct that similarly creates a likelihood of confusion or misunderstanding. But it didn’t explain the basis of its verdict.
LG sought a permanent injunction against the use of “steam” to describe Whirlpool’s dryers. LG’s witnesses testified that being able to offer a steam dryer was an important driver of sales, and that washers and dryers were often sold together, increasing the impact.
The court found that LG couldn’t get an injunction because the jury’s findings of nonliability on the other claims meant that the jury probably found that Whirlpool’s dryers do use steam. As a result, LG failed to establish conduct by Whirlpool that was likely to damage it even given a finding of an IUDTPA violation; injunctive relief requires a plaintiff to be “likely to be damaged by a deceptive trade practice,” and in any event the terms of any injunction must be “upon terms that the court considers reasonable." 815 Ill. Comp. Stat. 510/3.
LG argued that a finding of an IUDTPA violation entitled it to a presumption of irreparable harm, but the court disagreed. Proof of the violation didn’t require proof of harm under the jury instructions; the court explicitly instructed the jury not to consider the question of damages; and the jury returned specific findings that LG failed to prove lost profits, a price erosion theory, or entitlement to Whirlpool’s profits. In fact, given its other verdicts, the jury made an implied finding that the dryer uses steam—if it hadn’t, it should have found a violation of the CFA, given that if the Whirlpool dryer didn’t use steam not only falsity, intent that consumers rely on the representation, and harm would amply have been proved because Whirlpool well knew that consumers care about steam. (The court didn’t find that the jury would necessarily have found a Lanham Act violation because the issue of actual/likely deception was hotly contested, no pun intended; not sure how this squares with the harm conclusion.)
This was consistent with the IUDTPA verdict because the jury could have determined that an ad tested by LG created the false impression that Whirlpool’s dryers create steam by boiling, as LG’s survey expert concluded. “[T]he jury likely found that this advertisement created a likelihood of confusion or misunderstanding as to how the Duet Dryer operates, but also concluded that this was immaterial in light of the fact that the dryer does use steam.” This would support a finding of an IUDTPA violation given that law’s breadth, but would not be a deceptive act under the CFA and given its immaterial nature wouldn’t have caused LG to sustain actual damages, which would also prevent Lanham Act liability.
The court independently agreed that the dryer used steam under standard definitions of steam: water vapor produced by heat. “Ultimately, it would be nonsensical to assert that one does not create, and use, ‘steam’ when one injects cold water or ‘mist’ into a hot drum within which it indisputably evaporates.
What about the idea of a presumption of irreparable harm from false advertising? The court first dismissed the primary cited cases as involving the Lanham Act, rather than the IUDTPA, but did not explain what elements of the IUDTPA are distinct. Note that courts routinely say that state and federal false advertising causes of action are the same, even when they clearly aren’t; here the verdict forced the court to say there was a difference, but not why it mattered for a presumption of irreparable harm. One old Illinois case presumed irreparable harm, but that was for a preliminary injunction, not after a trial where a jury found against the plaintiff on various claims of harm.
Likely confusion is not enough; the plaintiff has to show likely harm in the future.
Also, LG failed independently to prove likely irreparable harm, and in any event the court would use its discretion to decline injunctive relief. There was no expert testimony or credible evidence of even a single Whirlpool customer, retailer, or trade representative who expressed confusion. All of LG’s evidence was that the use of steam mattered; since Whirlpool used steam, that wasn’t relevant. Even if misunderstanding about how the dryer created steam mattered, Whirlpool discontinued that ad.
Even if LG had established a likelihood of continued harm, the court would have declined to grant an injunction. (That’s what the court said, though in its discussion of the four-factor test it leaned heavily on the no-harm finding.) An injunction would subject Whirlpool to considerable costs in changing its ads and its product name as well as markings on the product itself and the associated literature, along with harm to its credibility and goodwill.
LG also didn’t get an award of attorneys’ fees and costs, because there was no showing of willfulness.
LG sued Whirlpool for false advertising related to steam dryers. Discussion of several previous rulings.
A jury returned a verdict largely in Whirlpool’s favor, rejecting LG’s Lanham Act and Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) claims, though it did find in LG’s favor under the Illinois Uniform Deceptive Trade Practices Act (IUDTPA), which provides only for injunctive relief. The jury specifically found that LG had failed to prove by a preponderance of the evidence that it was entitled to lost profits, a remedy based on a price erosion theory, or Whirlpool’s profits. LG sought an injunction, which the court denied.
LG argued that Whirlpool falsely and misleadingly used the word "steam" in its advertisements and in the name of its Duet Steam Dryer, when the Duet Steam Dryer does not use steam, but instead uses a mist of cold water sprayed into a warm dryer drum. LG’s dryer boils water and then injects hot vapor into the dryer drum. Whirlpool never claimed to do this, or to make steam in the same way as LG; its promotional materials contain an explanation that it sprays a mist of cold water into the hot air in the drum. LG’s survey expert testified about likely confusion over the method Whirlpool used, but he studied an ad that Whirlpool hasn’t run for the past 18-24 months.
LG didn’t introduce its steam dryer into the US market until December 2007, two months after Whirlpool, which was the first company in the industry to market a steam dryer to satisfy customer desires for wrinkle reduction and odor removal.
In finding for LG on the IUDTPA claim, the jury found that LG established by a preponderance of the evidence that Whirlpool (1) represented that goods or services have characteristics, uses, or benefits that they do not have; (2) represented that goods or services are of a particular standard, quality, or grade or that goods are a particular style or model, if they are of another; or (3) engaged in any other conduct that similarly creates a likelihood of confusion or misunderstanding. But it didn’t explain the basis of its verdict.
LG sought a permanent injunction against the use of “steam” to describe Whirlpool’s dryers. LG’s witnesses testified that being able to offer a steam dryer was an important driver of sales, and that washers and dryers were often sold together, increasing the impact.
The court found that LG couldn’t get an injunction because the jury’s findings of nonliability on the other claims meant that the jury probably found that Whirlpool’s dryers do use steam. As a result, LG failed to establish conduct by Whirlpool that was likely to damage it even given a finding of an IUDTPA violation; injunctive relief requires a plaintiff to be “likely to be damaged by a deceptive trade practice,” and in any event the terms of any injunction must be “upon terms that the court considers reasonable." 815 Ill. Comp. Stat. 510/3.
LG argued that a finding of an IUDTPA violation entitled it to a presumption of irreparable harm, but the court disagreed. Proof of the violation didn’t require proof of harm under the jury instructions; the court explicitly instructed the jury not to consider the question of damages; and the jury returned specific findings that LG failed to prove lost profits, a price erosion theory, or entitlement to Whirlpool’s profits. In fact, given its other verdicts, the jury made an implied finding that the dryer uses steam—if it hadn’t, it should have found a violation of the CFA, given that if the Whirlpool dryer didn’t use steam not only falsity, intent that consumers rely on the representation, and harm would amply have been proved because Whirlpool well knew that consumers care about steam. (The court didn’t find that the jury would necessarily have found a Lanham Act violation because the issue of actual/likely deception was hotly contested, no pun intended; not sure how this squares with the harm conclusion.)
This was consistent with the IUDTPA verdict because the jury could have determined that an ad tested by LG created the false impression that Whirlpool’s dryers create steam by boiling, as LG’s survey expert concluded. “[T]he jury likely found that this advertisement created a likelihood of confusion or misunderstanding as to how the Duet Dryer operates, but also concluded that this was immaterial in light of the fact that the dryer does use steam.” This would support a finding of an IUDTPA violation given that law’s breadth, but would not be a deceptive act under the CFA and given its immaterial nature wouldn’t have caused LG to sustain actual damages, which would also prevent Lanham Act liability.
The court independently agreed that the dryer used steam under standard definitions of steam: water vapor produced by heat. “Ultimately, it would be nonsensical to assert that one does not create, and use, ‘steam’ when one injects cold water or ‘mist’ into a hot drum within which it indisputably evaporates.
What about the idea of a presumption of irreparable harm from false advertising? The court first dismissed the primary cited cases as involving the Lanham Act, rather than the IUDTPA, but did not explain what elements of the IUDTPA are distinct. Note that courts routinely say that state and federal false advertising causes of action are the same, even when they clearly aren’t; here the verdict forced the court to say there was a difference, but not why it mattered for a presumption of irreparable harm. One old Illinois case presumed irreparable harm, but that was for a preliminary injunction, not after a trial where a jury found against the plaintiff on various claims of harm.
Likely confusion is not enough; the plaintiff has to show likely harm in the future.
Also, LG failed independently to prove likely irreparable harm, and in any event the court would use its discretion to decline injunctive relief. There was no expert testimony or credible evidence of even a single Whirlpool customer, retailer, or trade representative who expressed confusion. All of LG’s evidence was that the use of steam mattered; since Whirlpool used steam, that wasn’t relevant. Even if misunderstanding about how the dryer created steam mattered, Whirlpool discontinued that ad.
Even if LG had established a likelihood of continued harm, the court would have declined to grant an injunction. (That’s what the court said, though in its discussion of the four-factor test it leaned heavily on the no-harm finding.) An injunction would subject Whirlpool to considerable costs in changing its ads and its product name as well as markings on the product itself and the associated literature, along with harm to its credibility and goodwill.
LG also didn’t get an award of attorneys’ fees and costs, because there was no showing of willfulness.
Media Piracy in Emerging Economies
Social Science Research Council, Media Piracy in Emerging Economies: I took extensive notes for my own future reference, so this is long. Thanks for Sean Flynn for promoting it!
An extremely interesting study of piracy, defined as large-scale unauthorized reproduction both for profit and via free downloads, around the world. The authors conclude that piracy is largely a problem of a globalized Euro-American entertainment/industrial complex that has successfully generated demand for its products but unsuccessfully served that demand at prices people in other countries can pay, largely from refusal to price copies so they’d take roughly the same amount of purchasing power in poor nations. One example: converting prices as a percentage of per capita income, a Dark Knight DVD sold in India would cost $663 in the US; A Beautiful Mind would cost $421.
In part this is from fear of spillover to developed economies, in part resistance to lowering prices, in part inability to navigate the complicated informal economies of many of these nations. For software, piracy also helps keep open source software from competing with proprietary software, splitting the market into a formal sector with high prices and site licenses and an informal sector always at risk of prosecution but facing cheap prices. (See: “Free software in India means Microsoft Windows.”) The detailed case studies are fascinating, and generally conclude that enforcement is not the issue, given how persistent piracy is and how many other law enforcement priorities (e.g., violent crime) exist: the issue is serving the market with legitimate and acceptably priced copies.
The authors conclude that copyright education campaigns are useless because consumers aren’t ignorant, but rather like their cheap copies: “The consumer surplus generated by piracy is not just popular but also widely understood in economic-justice terms, mapped to perceptions of greedy US and multinational corporations and to the broader structural inequalities of globalization in which most developing-world consumers live. Enforcement efforts, in turn, are widely associated with US pressure on national governments and are met with indifference or hostility by large majorities of respondents.”
The spread of high bandwidth also has implications for the understandings of piracy and enforcement. Consumers aren’t so much collectors, as is generally imagined, because collections are so big that they really can’t be and aren’t curated. I was surprised to read that a UK survey found that the average digital library contained 8,000 songs, with 1,800 on the average iPod, most of which (2/3 in another study) had never been listened to. (True confessions: I’m kind of obsessive about my music, and I have 6,000 songs on my big computer, all of which have been listened to, though some only 5 times.) The study points out that readily available invitation-only sharing sites make it even harder to say what an individual’s collection size really is, even for the individual herself. Hard copies, however, remain important where broadband is limited, and CDs and DVDs circulate widely among poor people, serving a household or multiple households. Moreover, legitimate originals are still high-status forms of showing wealth or as the polite form for gifts. The authors argue that enforcement debates have ignored all these complexities in favor of a focus on the individual consumer as collector, “making deliberate choices to purchase, or pirate, specific goods for personal use.”
The time delay in getting licensed versions to other areas of the globe is, like price, a driver of piracy, along with what I learned to call fansubbing (though here often done for profit). “[G]lobal media cultures and global marketing efforts outstrip nationally bounded, time-delayed distribution channels.” There are anime fansubs, Bollywood subs for African and Asian audiences, and even a Brazilian site that distributes only subtitle files, producing a complete Portuguese version of Lost four hours after the US premiere. National torrent sites serve particular languages, with many users of DesiTorrents in India or Torrents.ru in Russia coming from diasporic communities, “who often live in high-bandwidth countries with limited access to music, television, and movies from home.”
There are multiple case studies, each of which offers its own insights. Local variation matters even as broader patterns appear.
For example, Brazil: though Brazil is a leading international voice for users’ rights, internally it’s much more complicated. “Domestic compliance enables Brazil’s progressive international role. Brazil can stand up in favor of the Development Agenda, in part, because it has appeased industry demands at home.” Cities are trying to formalize their informal sectors, which has big implications for tax/public order. Regulating piracy is a part and a consequence of that. Brazil also has a robust debate about academic book copying, with strong assertions by some universities of broad copying rights especially of books without authorized Brazilian distribution. “[W]here most university and publisher groups have sought to compromise—rhetorically, if not always in practice—the Brazilian situation is distinctive for having devolved into a serious and ongoing conflict.” There is serious public sentiment, as in the other Central/Latin American countries surveyed, that IP favors rich countries and people over poor ones and that piracy is a reasonable response.
In Russia, an authoritarian state favors centralized pirates and uses crackdowns to consolidate political and economic power, crushing the smaller pirates who can’t afford to pay off the police and allowing the price of pirate DVDs to stay relatively high. And, as has been reported, since rates of software piracy are so high, almost any person or institution is vulnerable to prosecution at the hands of a biased state, ultimately leading Microsoft to grant a blanket license to Russian activists and media so as not to be complicit in politically motivated prosecutions.
In Mexico, street vendors have a long history of political alliances that often effectively push back against antipiracy efforts. Meanwhile, the internet, while still relatively limited for direct-to-consumer copying, has disintermediated copying for low-level sellers, giving them direct access to the sources and reducing their need for distributors.
The chapter on Bolivia had a lot about local production, which involves new, low-cost local labels taking advantage of the declining cost of recording tech. These labels sell at very low prices that can compete with pirate products, but they neither pay taxes nor register recordings with performers’ rights organization. Some originated with (and some remain implicated in) pirate production as a source of capital. Thus, new music releases in Bolivia have increased even though the formal market has collapsed due to piracy and a number of internationally known groups have stopped recording for the domestic market. Profits are low, and artists have to take on a lot of costs and risks, which is mostly worth it to promote live performances. Successful pirate producers may want to go legit; the authors suggest that “the move from the informal to the formal economy is an important and widely held aspiration” in Bolivia generally.
Separately, the chapter discusses piracy of non-Bolivian music and video, which often includes “a new, color printed cover (lámina) by Peruvian graphic artists, using elements from the original cover or video images.” This is a contrast to other markets in which pirates favor artwork identical to that of the original, and the authors call it out as an element of creativity in the pirate distribution chain.
India: India has a particularly robust domestic content industry with its own interests, unlike many of the nations subject to IP arm-twisting by the US and Europe. “The gap between high-priced international media goods and very low-priced pirated goods is filled, in India, by Indian companies. The resulting turmoil around distribution and pricing resembles the current upheavals in the US and European markets, where the rollout of low-cost digital media services is throwing older business models into crisis—and a difficult process of reinvention.” This dynamism, the authors argue, makes India unique and suggests that the resolution will/must come through low-cost legal alternatives. Whereas pirate Hollywood movies cost ten times less than legit ones, pirate Bollywood movies may cost only half as much, and that’s enough to make the legit market much more successful. Indian content companies are also highly decentralized, compared to the consolidated Western competitors/potential allies, and so is enforcement. The report also notes that Bollywood movies have relatively extensive international markets, but very little enforcement outside India, even in places like South Africa where there have been general crackdowns on piracy.
And then there’s this instance of fans as enforcers: “Movie star fan clubs are important units of political organization in India, particularly in the south, where film culture and politics routinely mix. … In recent years, the clubs have also become involved in policing video piracy. … There have also been instances where members of fan clubs attacked video pirates and forced them to close up shop. … Although fan club surveillance is not a very effective form of enforcement, it is highly visible and provides the only grass-roots manifestation of the wider corporate culture of enforcement. None of the fan club efforts, however, have moved beyond the protection of the work of particular stars.”
Or if you like to chuckle at the ironies of software piracy:
The authors of that chapter (who include the provocative Lawrence Liang) emphasize that “the digital media revolution in India is not only a story about expanded opportunities for consumption, or corporate strategies for securing the distribution channel. It is also a story about the vast democratization of media production. Filmmaking, in particular, is no longer an elite industry practice, but an increasingly popular art form that circulates outside the traditional industry channels. Pirate and grey-market practices have been essential to participation and education in these contexts, both for artists and audiences.” They want to make clear that this is not a marginal experience for Indians: “Most independent media artists in India begin their careers in some close relationship to copyright infringement. The basic facts of low incomes and high prices make it impossible to avoid this pattern.” Making music requires software, unaffordable in the legitimate market; learning about film means watching VCR copies.
An extremely interesting study of piracy, defined as large-scale unauthorized reproduction both for profit and via free downloads, around the world. The authors conclude that piracy is largely a problem of a globalized Euro-American entertainment/industrial complex that has successfully generated demand for its products but unsuccessfully served that demand at prices people in other countries can pay, largely from refusal to price copies so they’d take roughly the same amount of purchasing power in poor nations. One example: converting prices as a percentage of per capita income, a Dark Knight DVD sold in India would cost $663 in the US; A Beautiful Mind would cost $421.
In part this is from fear of spillover to developed economies, in part resistance to lowering prices, in part inability to navigate the complicated informal economies of many of these nations. For software, piracy also helps keep open source software from competing with proprietary software, splitting the market into a formal sector with high prices and site licenses and an informal sector always at risk of prosecution but facing cheap prices. (See: “Free software in India means Microsoft Windows.”) The detailed case studies are fascinating, and generally conclude that enforcement is not the issue, given how persistent piracy is and how many other law enforcement priorities (e.g., violent crime) exist: the issue is serving the market with legitimate and acceptably priced copies.
The authors conclude that copyright education campaigns are useless because consumers aren’t ignorant, but rather like their cheap copies: “The consumer surplus generated by piracy is not just popular but also widely understood in economic-justice terms, mapped to perceptions of greedy US and multinational corporations and to the broader structural inequalities of globalization in which most developing-world consumers live. Enforcement efforts, in turn, are widely associated with US pressure on national governments and are met with indifference or hostility by large majorities of respondents.”
The spread of high bandwidth also has implications for the understandings of piracy and enforcement. Consumers aren’t so much collectors, as is generally imagined, because collections are so big that they really can’t be and aren’t curated. I was surprised to read that a UK survey found that the average digital library contained 8,000 songs, with 1,800 on the average iPod, most of which (2/3 in another study) had never been listened to. (True confessions: I’m kind of obsessive about my music, and I have 6,000 songs on my big computer, all of which have been listened to, though some only 5 times.) The study points out that readily available invitation-only sharing sites make it even harder to say what an individual’s collection size really is, even for the individual herself. Hard copies, however, remain important where broadband is limited, and CDs and DVDs circulate widely among poor people, serving a household or multiple households. Moreover, legitimate originals are still high-status forms of showing wealth or as the polite form for gifts. The authors argue that enforcement debates have ignored all these complexities in favor of a focus on the individual consumer as collector, “making deliberate choices to purchase, or pirate, specific goods for personal use.”
The time delay in getting licensed versions to other areas of the globe is, like price, a driver of piracy, along with what I learned to call fansubbing (though here often done for profit). “[G]lobal media cultures and global marketing efforts outstrip nationally bounded, time-delayed distribution channels.” There are anime fansubs, Bollywood subs for African and Asian audiences, and even a Brazilian site that distributes only subtitle files, producing a complete Portuguese version of Lost four hours after the US premiere. National torrent sites serve particular languages, with many users of DesiTorrents in India or Torrents.ru in Russia coming from diasporic communities, “who often live in high-bandwidth countries with limited access to music, television, and movies from home.”
There are multiple case studies, each of which offers its own insights. Local variation matters even as broader patterns appear.
For example, Brazil: though Brazil is a leading international voice for users’ rights, internally it’s much more complicated. “Domestic compliance enables Brazil’s progressive international role. Brazil can stand up in favor of the Development Agenda, in part, because it has appeased industry demands at home.” Cities are trying to formalize their informal sectors, which has big implications for tax/public order. Regulating piracy is a part and a consequence of that. Brazil also has a robust debate about academic book copying, with strong assertions by some universities of broad copying rights especially of books without authorized Brazilian distribution. “[W]here most university and publisher groups have sought to compromise—rhetorically, if not always in practice—the Brazilian situation is distinctive for having devolved into a serious and ongoing conflict.” There is serious public sentiment, as in the other Central/Latin American countries surveyed, that IP favors rich countries and people over poor ones and that piracy is a reasonable response.
In Russia, an authoritarian state favors centralized pirates and uses crackdowns to consolidate political and economic power, crushing the smaller pirates who can’t afford to pay off the police and allowing the price of pirate DVDs to stay relatively high. And, as has been reported, since rates of software piracy are so high, almost any person or institution is vulnerable to prosecution at the hands of a biased state, ultimately leading Microsoft to grant a blanket license to Russian activists and media so as not to be complicit in politically motivated prosecutions.
In Mexico, street vendors have a long history of political alliances that often effectively push back against antipiracy efforts. Meanwhile, the internet, while still relatively limited for direct-to-consumer copying, has disintermediated copying for low-level sellers, giving them direct access to the sources and reducing their need for distributors.
The chapter on Bolivia had a lot about local production, which involves new, low-cost local labels taking advantage of the declining cost of recording tech. These labels sell at very low prices that can compete with pirate products, but they neither pay taxes nor register recordings with performers’ rights organization. Some originated with (and some remain implicated in) pirate production as a source of capital. Thus, new music releases in Bolivia have increased even though the formal market has collapsed due to piracy and a number of internationally known groups have stopped recording for the domestic market. Profits are low, and artists have to take on a lot of costs and risks, which is mostly worth it to promote live performances. Successful pirate producers may want to go legit; the authors suggest that “the move from the informal to the formal economy is an important and widely held aspiration” in Bolivia generally.
Separately, the chapter discusses piracy of non-Bolivian music and video, which often includes “a new, color printed cover (lámina) by Peruvian graphic artists, using elements from the original cover or video images.” This is a contrast to other markets in which pirates favor artwork identical to that of the original, and the authors call it out as an element of creativity in the pirate distribution chain.
India: India has a particularly robust domestic content industry with its own interests, unlike many of the nations subject to IP arm-twisting by the US and Europe. “The gap between high-priced international media goods and very low-priced pirated goods is filled, in India, by Indian companies. The resulting turmoil around distribution and pricing resembles the current upheavals in the US and European markets, where the rollout of low-cost digital media services is throwing older business models into crisis—and a difficult process of reinvention.” This dynamism, the authors argue, makes India unique and suggests that the resolution will/must come through low-cost legal alternatives. Whereas pirate Hollywood movies cost ten times less than legit ones, pirate Bollywood movies may cost only half as much, and that’s enough to make the legit market much more successful. Indian content companies are also highly decentralized, compared to the consolidated Western competitors/potential allies, and so is enforcement. The report also notes that Bollywood movies have relatively extensive international markets, but very little enforcement outside India, even in places like South Africa where there have been general crackdowns on piracy.
And then there’s this instance of fans as enforcers: “Movie star fan clubs are important units of political organization in India, particularly in the south, where film culture and politics routinely mix. … In recent years, the clubs have also become involved in policing video piracy. … There have also been instances where members of fan clubs attacked video pirates and forced them to close up shop. … Although fan club surveillance is not a very effective form of enforcement, it is highly visible and provides the only grass-roots manifestation of the wider corporate culture of enforcement. None of the fan club efforts, however, have moved beyond the protection of the work of particular stars.”
Or if you like to chuckle at the ironies of software piracy:
In 2004, Microsoft sponsored an anti-piracy workshop at the prestigious National Law School in Bangalore to “sensitize” members of the judiciary to issues of software piracy. At the end of the workshop, company representatives offered to declare the law school a “piracy-free zone.” A subsequent software audit, however, revealed that only a handful of faculty members used licensed software. The company responded by offering a bulk license to the university at a discounted rate. The discounted price, however, still nearly equaled the annual budget of the library and was rejected by the university. After the university signaled that it would switch to open-source software, the company issued it a free blanket license—and “piracy-free” status.The India chapter is also the only one to mention the rise of the mobile phone (600 million users in India) as a major source of mp3 piracy as well as now half of the legit music market.
The authors of that chapter (who include the provocative Lawrence Liang) emphasize that “the digital media revolution in India is not only a story about expanded opportunities for consumption, or corporate strategies for securing the distribution channel. It is also a story about the vast democratization of media production. Filmmaking, in particular, is no longer an elite industry practice, but an increasingly popular art form that circulates outside the traditional industry channels. Pirate and grey-market practices have been essential to participation and education in these contexts, both for artists and audiences.” They want to make clear that this is not a marginal experience for Indians: “Most independent media artists in India begin their careers in some close relationship to copyright infringement. The basic facts of low incomes and high prices make it impossible to avoid this pattern.” Making music requires software, unaffordable in the legitimate market; learning about film means watching VCR copies.
Thursday, May 12, 2011
Bitchfest: court worsens Parks while refusing to enjoin TV show
Martha Elizabeth, Inc. v. Scripps Networks Interactive, LLC, 2011 WL 1750711 (W.D. Mich.)
Note: I’m generally sympathetic to First Amendment arguments in trademark, but I can’t help thinking that in America today it pays to be a big company facing a smaller foe. And when you see what the court does to the First Amendment test here, incorporating a confusion element that leaves defendants vulnerable to confusion evidence instead of protected by an explicit/implicit division, the outcome is clearly better for well-funded trademark owners seeking to suppress speech and able to bring in surveys purporting to show confusion than it is for defendants who may not be able to sustain a full-fledged litigation.
Scripps runs the Food Network and the Cooking Channel. Its codefendant B360, founded by Joshua Dorsey and Nadia Giosia, “provides integrated media services.”
Since 2002, plaintiff Rapp has run a business specializing in products for the home chef both at a physical store, the Bitchen Kitchen, in Pentwater, Michigan, and through the website http://www.thebitchenkitchen.com; the BK website opened in 2004, and by September allowed direct online purchases. BK sells products bearing the BK mark as well as kitchenware endorsed by/affiliated with celebrity chefs and “As Seen on TV”-branded items. The physical store had an estimated 30-50 thousand visitors in 2010 (details of the allegedly pleasant and unique shopping experience omitted; they sound hellish to me but I’m a misanthrope), and the online store has also grown. BK has sold products to customers in all 50 states and 91 foreign countries from Dec. 2009-Jan. 2011. BK allegedly advertises extensively online and off, with ads on cable TV including the Food Network (the scope is disputed: Scripps argued that plaintiffs bought local ads from local cable without Scripps’s knowledge), Fox News, and E! TV.
In August 2007, Rapp received a trademark registration for The Bitchen Kitchen, which is exclusively licensed to plaintiff MEI.
Sometime in 2007, B360 released its first podcast of a cooking show, Bitchin’ Kitchen, hosted by Nadia Giosia as Nadia G. Bitchin’ Kitchen is edgy, and “routinely employs sexual innuendo, provocative attire, and off-color humor; offers recipes entitled ‘Save-your-sex-life Souffle’ and ‘Save-your-sex-life Shepherd's Pie’ and ‘deflate your mate Part One’; … and has a Facebook page displaying photos of [Nadia G] wearing a negligee and high heels and carrying a whip.” One available video is called "I'm never drinking like that again" under the lead-in "Partied too hard last night? Hangover? Bitchin' Kitchen feels you….” The podcast uses http://www.bitchinlifestyle.tv and http://www.bitchinkitchen.tv, as well as Facebook.
There’s also a cookbook available on Amazon: "Bitchin' Kitchen Cookbook: Rock Your Kitchen--And Let the Boys Clean Up the Mess." Plaintiffs learned of the cookbook in 2008 when a vendor pitched it to them as a natural fit because of the same name. The cookbook was published in December 2008, and according to a B360 press release from 2010, this "best-selling cookbook ... has topped charts on Amazon and is available at Barnes & Nobles [sic], Chapters-Indigo [a major Canadian retail bookstore/music chain], Spencer's Gifts and over 1,000 specialty shops in North America and the U.K."
Rapp sent a C&D in July 2008. According to the complaint, B360 responded that it intended to use the phrase Bitchin’ Kitchen only for the podcast and the related cookbook, which it thought created no conflict. Rapp still objected, and B360 assured her that the Bitchin' Kitchen cookbook would be sold only in Canada and the mark would be used only in Canada, but refused to provide an initially promised written agreement and subsequently began selling the cookbook in the US.
B360 filed an unsuccessful application to register Bitchin’ Kitchen for “entertainment and educational entertainment programs in the fields of comedy, cooking ... and lifestyle", such as [b]ooks in the fields of comedy, cooking ... and lifestyle ...", recipe books, newsletters featuring so-called comedy cooking, printed recipe cards, recipe card holders, refrigerator decals, and aprons.” B360 actually offers spatulas, t-shirts and other kitchen items for sale online.
B360’s American trademark application claimed first use on June 1, 2002, which is the same date Rapp claimed first use, though the Canadian cable series didn’t begin until 2007. In April 2008 the PTO initially denied the application based on likely confusion with plaintiffs’ mark. B360 responded that the marks had peacefully coexisted for 18 months without any known consumer confusion, though it did not disclose that B360 had heard from Rapp about the possibility of confusion. The application is presently suspended.
In early 2010, Food Network Canada aired a thirty-minute cooking show of Bitchin’ Kitchen, and then Scripps announced and heavily advertised its October 2010 US premiere. After the premiere, customers of BK allegedly contacted Rapp and expressed concern about its content, which they erroneously assumed Rapp had sponsored. Rapp began receiving more complaints and questions about affilation or sponsorship. At least one consumer looked for defendants’ Facebook page and instead found plaintiff’s, and owners of other Michigan kitchen stores asked Rapp whether BK was connected to the racy TV series.
The Bitchin’ Kitchen TV series allegedly drove BK off the first page of search engine results for “Bitchen Kitchen.” Rapp reported that customers told her that they couldn’t find BK online, and one even drove to the physical store because he couldn’t find the website.
Scripps responded that more recent searches “tell quite a different story, with plaintiff MEI's Bitchen Kitchen showing up quite prominently and readily, both in absolute terms and relative to defendant B360's Bitchin' Kitchen websites and the Scripps Defendants' related websites.” My notes: What the defendants’ search results seem to show is bad results, except for Google. Bing: # 1 IKEA (comment: hunh? I couldn’t replicate this, but I also can’t exclude the possibility that IKEA has some sort of sponsorship relationship to defendant’s show; if not, this is a bizarre result and even if so it’s ugly product placement in the organic results), # 2 B360's Bitchin' Lifestyle website, and # 3 the plaintiffs' Bitchen Kitchen. Google: # 1 defendant Cooking Channel, # 2 defendant B360's Bitchin' Lifestyle, # 3 plaintiffs' Bitchen Kitchen, # 4 unspecified [I have my suspicions that this is an unrelated blog of the same name that neither party seems interested in talking about], and # 5 again plaintiffs' Bitchen Kitchen. Yahoo!: # 1 IKEA (again!), # 2 plaintiffs' Bitchen Kitchen, # 3 unspecified, and # 4 again plaintiffs' Bitchen Kitchen. Ask.com was the most terrible, though IKEA didn’t make it: plaintiffs' Bitchen Kitchen "on the first page as the seventh and tenth result[s] ... following Cooking Channel, antivirus software, cabinets, kitchen improvement, kitchen and bath remodeling, and defendant B360's Bitchin' Lifestyle website.”
The court also did its own searches. (Is this appropriate?) They showed a mix of plaintiffs’ and defendants’ sites on the first page of results for bitchin kitchen. Plaintiffs presented no evidence of search-engine rankings before the Bitchin’ Kitchen program began airing on TV and on the internet, nor even before the cookbook was published. Maybe plaintiffs’ business suffered, but the court concluded that the record didn’t support the “rather extreme” allegations that BK “all but disappeared” from search engine results and the court accorded little weight to the search engine evidence.
Comments: The search results are complicated by various forms of personalization/geolocation, and it seems to me a reliable foundation would have to be provided to show that any of these are the types of results a reasonable consumer is likely to get. For example, my own search for bitchen kitchen (I did not use quote marks) produced a first page with links only to defendants’ sites, which may be because Google autocorrected to bitchin kitchen (no apostrophe), and then offered me the opportunity to search instead for bitchen kitchen, which search did indeed provide top results for plaintiffs' site. Also, it seems like it’s about time to start including Facebook in these evaluations, especially here since (a) some of the confusion evidence here is about Facebook and (b) both parties encourage potential customers/viewers to use Facebook.
Anyway, of more help to plaintiffs, in Google’s sponsored links defendants misspelled the TV series name to Bitchen Kitchen, which plaintiffs suggested was a willful attempt to confuse consumers. Some blogs also used the spelling Bitchen Kitchen to refer to B360’s show, as did one B360 press release. The court’s own searches revealed that search engines respond to bitchen kitchen with a fair number of bitchin kitchin results.
Plaintiffs sued to enjoin any use of Bitchen Kitchen or any confusingly similar mark for any lifestyle-media product or program across all media, to require defendants to give MEI “all domain names, social-media identifiers or webpages which publish or containing the Bitchen Kitchen mark or any confusingly similar mark” on sites such as Facebook, Twitter, and YouTube, and to enjoin the defendants from using the BK or any confusingly similar mark from bidding on keywords or otherwise manipulating search engine results. They also sought treble damages and an award for corrective advertising.
Now we get to the PI standard, which requires an evaluation of irreparable injury as well as of likelihood of success on the merits, the balance of the equities, and the public interest. Loss of market share or sales typically isn’t irreparable harm. (Tell me again what goodwill is?)
On the merits, MEI argued reverse confusion, such that consumers would wrongly assume that defendants licensed, sponsored, or were otherwise affiliated with plaintiffs, denying plaintiffs control over their own reputation.
The Bitchen Kitchen mark is suggestive, and thus relatively weak. The court commented that, should the BK mark later achieve incontestability, it would get a presumption of relative strength, a weird rule from the perspective of any interest in actually sussing out likely confusion, but not relevant here. (The court did not discuss the difference between conceptual and marketplace strength and the different role those concepts play in reverse confusion cases, though its categorization of suggestive marks as relatively weak fits with the reverse confusion precedent.)
Most of the other factors favored the plaintiffs. The goods and services were highly related and even overlapping. The marks are almost identical, and “when one searches for one of the terms with an internet search engine, each search engine used asks something to the effect of "Did you mean [the other term]?" and/or states "We have included results for [the other term]." Even without that, the sight, sound, and meaning could readily be found confusingly similar. However, an ultimate similarity determination will require assessing the other elements, including fonts, colors, graphics, and other visual/textual elements, with which the marks are presented to consumers.
The court thought plaintiffs could ultimately make a strong case on actual confusion, given evidence that one or two specific consumers were actually confused. But if they failed to present additional evidence, this factor could cut the other way. Further inquiry was also justified about the kinds of confusion—short-lived confusion or confusion of individuals casually acquainted with a business are worthy of little weight. “Here the specific customer whom the plaintiffs present as confused between the two marks was apparently a regular customer of Rapp's Bitchen Kitchen store, rendering her confusion worthy of significant weight.”
The PTO’s determination of likely confusion also deserved “some weight,” though the examining attorney’s opinion is not binding. The court indeed cited precedent that in cases of doubt deference was due to the PTO, though they’re not really on point since the PTO is not deciding likely confusion of the mark as used but rather whether the two marks in the abstract are likely to be confused.
Anyway, the plaintiffs also showed similar marketing channels used to reach similar consumers. Scripps, however, presented uncontested evidence that Bitchin’ Kitchen personalities and Scripps personnel were not allowed to sell anything directly on B360’s cable show. (Interesting way to put it; I’m still wondering about that Ikea connection.)
But B360 sells very similar products to plaintiffs’. Though B360 argued that its target audience was dramatically different because it aimed at "fans of Nadia G and the online television series [podcast], typically young adults with Internet and/or mobile video access," this claim was unpersuasive in 2011. “Until and unless B360 presents competent evidence to the contrary, the court will not assume that only or even predominantly ‘young adults’, rather than the vast general population of nearly all ages, has and regularly uses access to the Internet and to video.” B360 had expanded far beyond the podcast, to the cable series. And both parties used their online stores, social-networking sites such as Facebook and MySpace, and sponsored links on search engines.
Degree of care: “the defendants have not yet mounted a particularly persuasive response to the plaintiffs' contention that consumers in the market for kitchen implements and cooking and recipe items are not likely to exercise a high degree of care as to the origin of the products which they purchase.” An ultimate factfinder would want evidence on the average price of items sold through the parties’ stores and/or with the parties’ marks attached.
Intent: there was evidence from which a factfinder “could readily conclude that defendant B360 chose the Bitchin' Kitchen mark in order to capitalize unlawfully on the goodwill and brand reputation and recognition which the plaintiffs had earlier built for the nearly-identical Bitchen Kitchen mark.” Comment: this explanation is completely inconsistent with the reverse confusion theory, which is that the defendant overwhelms the plaintiff’s mark. Bad faith in reverse confusion is willingness to trample established rights, not attempts to get the plaintiff’s goodwill, which in the reverse confusion scenario is tiny compared to what the defendant can develop using its own promotional resources.
There was more general evidence of bad faith: (1) The misstatement of first use dates in B360’s Canadian and American TM applications corresponding with plaintiffs’ first use date (though I will note that the first use date alleged in the application is of no legal significance in the US, given that if granted it’s the registration/application dates that create constructive nationwide rights, not the alleged first use date). (2) The misspelling Bitchen Kitchen in a sponsored search engine link ("Bitchen Kitchen Every Wednesday at 10:30 pm on Cooking Channel--Don't Miss It!")—“[a] reasonable factfinder might well disbelieve any claim that the defendants accidentally mis-spelled their own mark in a major advertisement (a sponsored link on a very widely used search engine), finding instead that the mis-spelling was intentional--and, in turn, that the very choice of a mark that is textually, aurally, and substantively effectively identical to an older, established, successful mark was intentional as well.” If you have low-level employees writing text for search engines, take note!
(3) As to B360, it continued and expanded its use of the mark after Rapp warned it that continued use would confuse consumers and harm plaintiffs. B360 argued that it considered the matter settled because plaintiffs didn’t respond to B360’s last communication, but 360 thereafter expanded its use. Under circuit precedent, use of a mark with knowledge of another’s prior use supports an inference of intentional infringement. “The fact that B360's president allegedly agreed to limit his company's use of the Bitchin' Kitchen mark to Canada strongly suggests that he knew or believed that that mark posed a substantial risk of consumer confusion and attendant harm to the holder of the senior mark.” (4) Likewise, B360’s continued use after it learned of Rapp’s registration could support an inference of bad faith.
Plaintiffs argued that any doubt about likely confusion should be resolved in favor of the senior user, but there was insufficient precedential support for that rule. And even if the tie-breaking rule were the law, that wouldn’t help on a motion for a preliminary injunction.
If the court considered only the likely confusion factors, it would be inclined to find a likelihood of success on the merits. Scripps, however, made a colorable argument that an injunction against running a TV show because of its title would violate the First Amendment, and thus that a PI was inappropriate against it.
Plaintiffs relied on the premise that, when a TV show and a store have the same name, consumers will believe that a single producer puts out both. In a prior reverse confusion case, Viacom was enjoined from expanding its TV Land programming brand to retail stores because of TV Land retail stores in Chicago. B360 similarly filed ITUs for many goods and services competing directly with plaintiffs, and there was actual and significant overlap between kitchenware offered by B360 and that offered by plaintiffs, including aprons, spatulas, cookbooks, and coffee mugs.
Given that many TV channels offer related stores (Disney, Discovery, and something I’d never heard of), the TV Land case found, consumers were likely to believe that networks and retail stores with the same names had the same source. The court signalled agreement in theory, but found it unclear whether the First Amendment barred an injunction. In Westchester Media v. PAL USA Holdings, 214 F.3d 658 (5th Cir.2000), where the owners of the Ralph Lauren Polo mark were unable to enjoin Polo magazine, which focused on the sport of polo and the related affluent lifestyle. This presented concerns beyond the usual Lanham Act question of likely confusion, since there is a First Amendment right to choose an appropriate title for literary works. Adopting the Rogers v. Grimaldi test in the Rosa Parks case, the Sixth Circuit held that a title is protected against a Lanham Act claim unless it has no artistic relevance or it explicitly misleads as to source or content.
The Bitchin’ Kitchen title “certainly has artistic relevance to the underlying work, that is, to the content, tone, style, purpose, and intended appeal of Nadia G's performance mixing comedic, informational, and titillating material and moods during the course of the show.”
What about explicitly misleading? The court found the waters “somewhat murkier.” It wasn’t clear whether the plaintiffs could establish that the title was explicitly misleading. Scripps made a colorable argument that the Nadia G character and setting “could not be more different” from the “tranquil Pentwater brick-and-mortar store described by Plaintiffs ....” Nadia G never pitches kitchenware, nor do the Cooking Channel or Food Network sites carry any products linked to the program or its title and the associated mark. In the context of what viewers see and hear on the show, the title may not explicitly mislead about content or source.
Comment: Argh! That’s not what “explicit” means! The considerations listed by the court—to be fair, perhaps invited by Scripps—have nothing to do with whether there is explicit deception as to source. They are about implicit cues that might associate the show with or distinguish it from the plaintiffs’ store. “Explicit” means “the authorized biography” or “the official show” or “based on the Michigan store.” Those are the contextual factors that could matter. Nothing mentioned by the court is “explicit” in any way. The court here has read “explicit” to mean “explicit, or something that’s contextually confusing enough,” which was precisely the result Rogers wanted to avoid so as to avoid having an expensive and speech-deterring battle over what the use of the title suggested to consumers. Rogers specifically said that Rogers’ proposed survey evidence of likely confusion didn’t matter!
In any event, the court refused to enjoin the TV show or its title.
The rest of B360’s conduct, however, was enjoined. Plaintiffs amply demonstrated “widespread consumer confusion causing grave harm to their brand reputation, identity and distinctiveness, and the customer loyalty and goodwill that are so closely dependent on and related to those qualities.” (The court said it didn’t need to get embroiled in the dispute over whether proof of trademark infringement gives rise to a presumption of irreparable harm, by which it meant that it in fact presumed irreparable harm from the invocation of the magic word “goodwill,” which means that harm is hard to quantify.) B360 could, however, market and profit from the Nadia G brand under a different name, and B360 knowingly assumed the risk it was taking.
By contrast, Scripps would suffer a great deal financially from taking the TV program off the air (and the name was presumably integrated into the program, though the court seemed to think that the problem could just be that a new name would make the program less popular; not clear what Scripps submitted on this point). Bitchin’ Kitchen runs four episodes a week in prime time, and was one of the top three shows in the Cooking Channel’s prime-time lineup, with over one million viewers. The balance of harms thus weighed against an injunction against the TV show, especially since the Scripps defendants have never themselves sold or advertised products bearing the Bitchin' Kitchen mark or connected in the consumers' mind with that mark.
Moreover, the public interest presumptively favored freedom of speech in choosing titles. The public interest doesn’t favor intentional trademark infringement, harm to a senior user, or consumer confusion about the origins of goods purchased “with their hard-earned dollars.” (Query: in what sense would confusion influence purchase decisions here?) But with no clear answer from Parks, the public interest didn’t favor the drastic remedy of a preliminary injunction, since there’s at least as much interest in the free exchange of ideas as in avoiding misleading advertising. We can’t assume that one can forbid particular words without running a substantial risk of suppressing ideas. Cohen v. California, 403 U.S. 15, 26 (1971). “Such relief is amply justified against B360, however, as to all conduct other than the title of its TV series.”
Note: I’m generally sympathetic to First Amendment arguments in trademark, but I can’t help thinking that in America today it pays to be a big company facing a smaller foe. And when you see what the court does to the First Amendment test here, incorporating a confusion element that leaves defendants vulnerable to confusion evidence instead of protected by an explicit/implicit division, the outcome is clearly better for well-funded trademark owners seeking to suppress speech and able to bring in surveys purporting to show confusion than it is for defendants who may not be able to sustain a full-fledged litigation.
Scripps runs the Food Network and the Cooking Channel. Its codefendant B360, founded by Joshua Dorsey and Nadia Giosia, “provides integrated media services.”
Since 2002, plaintiff Rapp has run a business specializing in products for the home chef both at a physical store, the Bitchen Kitchen, in Pentwater, Michigan, and through the website http://www.thebitchenkitchen.com; the BK website opened in 2004, and by September allowed direct online purchases. BK sells products bearing the BK mark as well as kitchenware endorsed by/affiliated with celebrity chefs and “As Seen on TV”-branded items. The physical store had an estimated 30-50 thousand visitors in 2010 (details of the allegedly pleasant and unique shopping experience omitted; they sound hellish to me but I’m a misanthrope), and the online store has also grown. BK has sold products to customers in all 50 states and 91 foreign countries from Dec. 2009-Jan. 2011. BK allegedly advertises extensively online and off, with ads on cable TV including the Food Network (the scope is disputed: Scripps argued that plaintiffs bought local ads from local cable without Scripps’s knowledge), Fox News, and E! TV.
Rapp sent a C&D in July 2008. According to the complaint, B360 responded that it intended to use the phrase Bitchin’ Kitchen only for the podcast and the related cookbook, which it thought created no conflict. Rapp still objected, and B360 assured her that the Bitchin' Kitchen cookbook would be sold only in Canada and the mark would be used only in Canada, but refused to provide an initially promised written agreement and subsequently began selling the cookbook in the US.
B360 filed an unsuccessful application to register Bitchin’ Kitchen for “entertainment and educational entertainment programs in the fields of comedy, cooking ... and lifestyle", such as [b]ooks in the fields of comedy, cooking ... and lifestyle ...", recipe books, newsletters featuring so-called comedy cooking, printed recipe cards, recipe card holders, refrigerator decals, and aprons.” B360 actually offers spatulas, t-shirts and other kitchen items for sale online.
B360’s American trademark application claimed first use on June 1, 2002, which is the same date Rapp claimed first use, though the Canadian cable series didn’t begin until 2007. In April 2008 the PTO initially denied the application based on likely confusion with plaintiffs’ mark. B360 responded that the marks had peacefully coexisted for 18 months without any known consumer confusion, though it did not disclose that B360 had heard from Rapp about the possibility of confusion. The application is presently suspended.
In early 2010, Food Network Canada aired a thirty-minute cooking show of Bitchin’ Kitchen, and then Scripps announced and heavily advertised its October 2010 US premiere. After the premiere, customers of BK allegedly contacted Rapp and expressed concern about its content, which they erroneously assumed Rapp had sponsored. Rapp began receiving more complaints and questions about affilation or sponsorship. At least one consumer looked for defendants’ Facebook page and instead found plaintiff’s, and owners of other Michigan kitchen stores asked Rapp whether BK was connected to the racy TV series.
The Bitchin’ Kitchen TV series allegedly drove BK off the first page of search engine results for “Bitchen Kitchen.” Rapp reported that customers told her that they couldn’t find BK online, and one even drove to the physical store because he couldn’t find the website.
Scripps responded that more recent searches “tell quite a different story, with plaintiff MEI's Bitchen Kitchen showing up quite prominently and readily, both in absolute terms and relative to defendant B360's Bitchin' Kitchen websites and the Scripps Defendants' related websites.” My notes: What the defendants’ search results seem to show is bad results, except for Google. Bing: # 1 IKEA (comment: hunh? I couldn’t replicate this, but I also can’t exclude the possibility that IKEA has some sort of sponsorship relationship to defendant’s show; if not, this is a bizarre result and even if so it’s ugly product placement in the organic results), # 2 B360's Bitchin' Lifestyle website, and # 3 the plaintiffs' Bitchen Kitchen. Google: # 1 defendant Cooking Channel, # 2 defendant B360's Bitchin' Lifestyle, # 3 plaintiffs' Bitchen Kitchen, # 4 unspecified [I have my suspicions that this is an unrelated blog of the same name that neither party seems interested in talking about], and # 5 again plaintiffs' Bitchen Kitchen. Yahoo!: # 1 IKEA (again!), # 2 plaintiffs' Bitchen Kitchen, # 3 unspecified, and # 4 again plaintiffs' Bitchen Kitchen. Ask.com was the most terrible, though IKEA didn’t make it: plaintiffs' Bitchen Kitchen "on the first page as the seventh and tenth result[s] ... following Cooking Channel, antivirus software, cabinets, kitchen improvement, kitchen and bath remodeling, and defendant B360's Bitchin' Lifestyle website.”
The court also did its own searches. (Is this appropriate?) They showed a mix of plaintiffs’ and defendants’ sites on the first page of results for bitchin kitchen. Plaintiffs presented no evidence of search-engine rankings before the Bitchin’ Kitchen program began airing on TV and on the internet, nor even before the cookbook was published. Maybe plaintiffs’ business suffered, but the court concluded that the record didn’t support the “rather extreme” allegations that BK “all but disappeared” from search engine results and the court accorded little weight to the search engine evidence.
Comments: The search results are complicated by various forms of personalization/geolocation, and it seems to me a reliable foundation would have to be provided to show that any of these are the types of results a reasonable consumer is likely to get. For example, my own search for bitchen kitchen (I did not use quote marks) produced a first page with links only to defendants’ sites, which may be because Google autocorrected to bitchin kitchen (no apostrophe), and then offered me the opportunity to search instead for bitchen kitchen, which search did indeed provide top results for plaintiffs' site. Also, it seems like it’s about time to start including Facebook in these evaluations, especially here since (a) some of the confusion evidence here is about Facebook and (b) both parties encourage potential customers/viewers to use Facebook.
Anyway, of more help to plaintiffs, in Google’s sponsored links defendants misspelled the TV series name to Bitchen Kitchen, which plaintiffs suggested was a willful attempt to confuse consumers. Some blogs also used the spelling Bitchen Kitchen to refer to B360’s show, as did one B360 press release. The court’s own searches revealed that search engines respond to bitchen kitchen with a fair number of bitchin kitchin results.
Plaintiffs sued to enjoin any use of Bitchen Kitchen or any confusingly similar mark for any lifestyle-media product or program across all media, to require defendants to give MEI “all domain names, social-media identifiers or webpages which publish or containing the Bitchen Kitchen mark or any confusingly similar mark” on sites such as Facebook, Twitter, and YouTube, and to enjoin the defendants from using the BK or any confusingly similar mark from bidding on keywords or otherwise manipulating search engine results. They also sought treble damages and an award for corrective advertising.
Now we get to the PI standard, which requires an evaluation of irreparable injury as well as of likelihood of success on the merits, the balance of the equities, and the public interest. Loss of market share or sales typically isn’t irreparable harm. (Tell me again what goodwill is?)
On the merits, MEI argued reverse confusion, such that consumers would wrongly assume that defendants licensed, sponsored, or were otherwise affiliated with plaintiffs, denying plaintiffs control over their own reputation.
The Bitchen Kitchen mark is suggestive, and thus relatively weak. The court commented that, should the BK mark later achieve incontestability, it would get a presumption of relative strength, a weird rule from the perspective of any interest in actually sussing out likely confusion, but not relevant here. (The court did not discuss the difference between conceptual and marketplace strength and the different role those concepts play in reverse confusion cases, though its categorization of suggestive marks as relatively weak fits with the reverse confusion precedent.)
Most of the other factors favored the plaintiffs. The goods and services were highly related and even overlapping. The marks are almost identical, and “when one searches for one of the terms with an internet search engine, each search engine used asks something to the effect of "Did you mean [the other term]?" and/or states "We have included results for [the other term]." Even without that, the sight, sound, and meaning could readily be found confusingly similar. However, an ultimate similarity determination will require assessing the other elements, including fonts, colors, graphics, and other visual/textual elements, with which the marks are presented to consumers.
The court thought plaintiffs could ultimately make a strong case on actual confusion, given evidence that one or two specific consumers were actually confused. But if they failed to present additional evidence, this factor could cut the other way. Further inquiry was also justified about the kinds of confusion—short-lived confusion or confusion of individuals casually acquainted with a business are worthy of little weight. “Here the specific customer whom the plaintiffs present as confused between the two marks was apparently a regular customer of Rapp's Bitchen Kitchen store, rendering her confusion worthy of significant weight.”
The PTO’s determination of likely confusion also deserved “some weight,” though the examining attorney’s opinion is not binding. The court indeed cited precedent that in cases of doubt deference was due to the PTO, though they’re not really on point since the PTO is not deciding likely confusion of the mark as used but rather whether the two marks in the abstract are likely to be confused.
Anyway, the plaintiffs also showed similar marketing channels used to reach similar consumers. Scripps, however, presented uncontested evidence that Bitchin’ Kitchen personalities and Scripps personnel were not allowed to sell anything directly on B360’s cable show. (Interesting way to put it; I’m still wondering about that Ikea connection.)
But B360 sells very similar products to plaintiffs’. Though B360 argued that its target audience was dramatically different because it aimed at "fans of Nadia G and the online television series [podcast], typically young adults with Internet and/or mobile video access," this claim was unpersuasive in 2011. “Until and unless B360 presents competent evidence to the contrary, the court will not assume that only or even predominantly ‘young adults’, rather than the vast general population of nearly all ages, has and regularly uses access to the Internet and to video.” B360 had expanded far beyond the podcast, to the cable series. And both parties used their online stores, social-networking sites such as Facebook and MySpace, and sponsored links on search engines.
Degree of care: “the defendants have not yet mounted a particularly persuasive response to the plaintiffs' contention that consumers in the market for kitchen implements and cooking and recipe items are not likely to exercise a high degree of care as to the origin of the products which they purchase.” An ultimate factfinder would want evidence on the average price of items sold through the parties’ stores and/or with the parties’ marks attached.
Intent: there was evidence from which a factfinder “could readily conclude that defendant B360 chose the Bitchin' Kitchen mark in order to capitalize unlawfully on the goodwill and brand reputation and recognition which the plaintiffs had earlier built for the nearly-identical Bitchen Kitchen mark.” Comment: this explanation is completely inconsistent with the reverse confusion theory, which is that the defendant overwhelms the plaintiff’s mark. Bad faith in reverse confusion is willingness to trample established rights, not attempts to get the plaintiff’s goodwill, which in the reverse confusion scenario is tiny compared to what the defendant can develop using its own promotional resources.
There was more general evidence of bad faith: (1) The misstatement of first use dates in B360’s Canadian and American TM applications corresponding with plaintiffs’ first use date (though I will note that the first use date alleged in the application is of no legal significance in the US, given that if granted it’s the registration/application dates that create constructive nationwide rights, not the alleged first use date). (2) The misspelling Bitchen Kitchen in a sponsored search engine link ("Bitchen Kitchen Every Wednesday at 10:30 pm on Cooking Channel--Don't Miss It!")—“[a] reasonable factfinder might well disbelieve any claim that the defendants accidentally mis-spelled their own mark in a major advertisement (a sponsored link on a very widely used search engine), finding instead that the mis-spelling was intentional--and, in turn, that the very choice of a mark that is textually, aurally, and substantively effectively identical to an older, established, successful mark was intentional as well.” If you have low-level employees writing text for search engines, take note!
(3) As to B360, it continued and expanded its use of the mark after Rapp warned it that continued use would confuse consumers and harm plaintiffs. B360 argued that it considered the matter settled because plaintiffs didn’t respond to B360’s last communication, but 360 thereafter expanded its use. Under circuit precedent, use of a mark with knowledge of another’s prior use supports an inference of intentional infringement. “The fact that B360's president allegedly agreed to limit his company's use of the Bitchin' Kitchen mark to Canada strongly suggests that he knew or believed that that mark posed a substantial risk of consumer confusion and attendant harm to the holder of the senior mark.” (4) Likewise, B360’s continued use after it learned of Rapp’s registration could support an inference of bad faith.
Plaintiffs argued that any doubt about likely confusion should be resolved in favor of the senior user, but there was insufficient precedential support for that rule. And even if the tie-breaking rule were the law, that wouldn’t help on a motion for a preliminary injunction.
If the court considered only the likely confusion factors, it would be inclined to find a likelihood of success on the merits. Scripps, however, made a colorable argument that an injunction against running a TV show because of its title would violate the First Amendment, and thus that a PI was inappropriate against it.
Plaintiffs relied on the premise that, when a TV show and a store have the same name, consumers will believe that a single producer puts out both. In a prior reverse confusion case, Viacom was enjoined from expanding its TV Land programming brand to retail stores because of TV Land retail stores in Chicago. B360 similarly filed ITUs for many goods and services competing directly with plaintiffs, and there was actual and significant overlap between kitchenware offered by B360 and that offered by plaintiffs, including aprons, spatulas, cookbooks, and coffee mugs.
Given that many TV channels offer related stores (Disney, Discovery, and something I’d never heard of), the TV Land case found, consumers were likely to believe that networks and retail stores with the same names had the same source. The court signalled agreement in theory, but found it unclear whether the First Amendment barred an injunction. In Westchester Media v. PAL USA Holdings, 214 F.3d 658 (5th Cir.2000), where the owners of the Ralph Lauren Polo mark were unable to enjoin Polo magazine, which focused on the sport of polo and the related affluent lifestyle. This presented concerns beyond the usual Lanham Act question of likely confusion, since there is a First Amendment right to choose an appropriate title for literary works. Adopting the Rogers v. Grimaldi test in the Rosa Parks case, the Sixth Circuit held that a title is protected against a Lanham Act claim unless it has no artistic relevance or it explicitly misleads as to source or content.
The Bitchin’ Kitchen title “certainly has artistic relevance to the underlying work, that is, to the content, tone, style, purpose, and intended appeal of Nadia G's performance mixing comedic, informational, and titillating material and moods during the course of the show.”
What about explicitly misleading? The court found the waters “somewhat murkier.” It wasn’t clear whether the plaintiffs could establish that the title was explicitly misleading. Scripps made a colorable argument that the Nadia G character and setting “could not be more different” from the “tranquil Pentwater brick-and-mortar store described by Plaintiffs ....” Nadia G never pitches kitchenware, nor do the Cooking Channel or Food Network sites carry any products linked to the program or its title and the associated mark. In the context of what viewers see and hear on the show, the title may not explicitly mislead about content or source.
Comment: Argh! That’s not what “explicit” means! The considerations listed by the court—to be fair, perhaps invited by Scripps—have nothing to do with whether there is explicit deception as to source. They are about implicit cues that might associate the show with or distinguish it from the plaintiffs’ store. “Explicit” means “the authorized biography” or “the official show” or “based on the Michigan store.” Those are the contextual factors that could matter. Nothing mentioned by the court is “explicit” in any way. The court here has read “explicit” to mean “explicit, or something that’s contextually confusing enough,” which was precisely the result Rogers wanted to avoid so as to avoid having an expensive and speech-deterring battle over what the use of the title suggested to consumers. Rogers specifically said that Rogers’ proposed survey evidence of likely confusion didn’t matter!
In any event, the court refused to enjoin the TV show or its title.
The rest of B360’s conduct, however, was enjoined. Plaintiffs amply demonstrated “widespread consumer confusion causing grave harm to their brand reputation, identity and distinctiveness, and the customer loyalty and goodwill that are so closely dependent on and related to those qualities.” (The court said it didn’t need to get embroiled in the dispute over whether proof of trademark infringement gives rise to a presumption of irreparable harm, by which it meant that it in fact presumed irreparable harm from the invocation of the magic word “goodwill,” which means that harm is hard to quantify.) B360 could, however, market and profit from the Nadia G brand under a different name, and B360 knowingly assumed the risk it was taking.
By contrast, Scripps would suffer a great deal financially from taking the TV program off the air (and the name was presumably integrated into the program, though the court seemed to think that the problem could just be that a new name would make the program less popular; not clear what Scripps submitted on this point). Bitchin’ Kitchen runs four episodes a week in prime time, and was one of the top three shows in the Cooking Channel’s prime-time lineup, with over one million viewers. The balance of harms thus weighed against an injunction against the TV show, especially since the Scripps defendants have never themselves sold or advertised products bearing the Bitchin' Kitchen mark or connected in the consumers' mind with that mark.
Moreover, the public interest presumptively favored freedom of speech in choosing titles. The public interest doesn’t favor intentional trademark infringement, harm to a senior user, or consumer confusion about the origins of goods purchased “with their hard-earned dollars.” (Query: in what sense would confusion influence purchase decisions here?) But with no clear answer from Parks, the public interest didn’t favor the drastic remedy of a preliminary injunction, since there’s at least as much interest in the free exchange of ideas as in avoiding misleading advertising. We can’t assume that one can forbid particular words without running a substantial risk of suppressing ideas. Cohen v. California, 403 U.S. 15, 26 (1971). “Such relief is amply justified against B360, however, as to all conduct other than the title of its TV series.”
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