Association of National Advertisers, Advertising Law and Policy Conference

Welcome from ANABob Liodice, President and CEO, ANA
Liodice made an interesting point: by taking the lead in self-regulation, US advertisers/groups become models worldwide, and that has important consequences for how self-regulation can substitute for government regulation in countries that don’t have a First Amendment and aren’t particularly constrained in what they could make advertisers do if they decided to.

Also said that taxes were a huge issue. The industry pays its fair share, but doesn’t want to fund government programs. Advertising powers 15% of American jobs, and taxes would drag on that.

Keynote Address
Edith Ramirez, Commissioner, Federal Trade Commission

Consumers have too much trouble understanding and managing their privacy options. Privacy by design: products and services should have privacy protection built in at the design stage, not in a retrofit. Good data practices: limit collection and retention, provide security, ensure accuracy. Simplified consumer choice: consumers shouldn’t have to sift through privacy policies that seasoned lawyers find confusing. Eliminate unnecessary information and options—don’t clutter policies with commonly accepted practices; notice and choice for things that fall outside common practices. Comprehensive privacy policies are useful, so they should be improved rather than eliminated—should be clear and easily compared.

(I’m reminded of the current problem with Etsy’s flip of a switch that revealed customers’ purchases and favorites to public view. Since etsy sells everything from tea cozies to customized dildos, this is not necessarily something the customers wanted.)

Transparency for brokers who have no direct contact with consumers but aggregate vast amounts of data. Should consumers have access for accuracy/transparency? How should such companies provide notice?

Do not track: why now? Methods used to capture information are becoming increasingly more powerful—scan consumer behavior in realtime, including what consumers type or where they place their mouse; can use browser configuration to identify consumer; deep packet inspection is poised for a comeback. Consumers aren’t in a position to deal with this. Also deanonymizing is developing—we can’t safely assume we’ll remain anonymous as we surf the web. With few legal limits on how online profiles may be used, this is especially unsettling. Frenzied competition for more and more data about consumers. Consumers need a counterweight to mining of their moment to moment thoughts and actions online—give consumers a say about what information is being collected and used.

Main objection: undermine availability of free online content and services. Advertising does support a great deal of content and targeted ads demand a premium; many consumers value personalized ads. But the concern is overstated. Digital Ad Alliance: consumers feel more positively towards brands with greater transparency and control, such as an ability to opt out. Do not track should not be all or nothing—consumers should be able to make more precise choices. Some may be comfortable based on interest in yoga or hiking but not based on demographics. Advertisers can create conditions of continued high participation.

For the moment, the ball is in industry’s court to deploy a solution that will avoid the need for legislation.

Yesterday, the FTC announced a complaint and settlement with an online ad network: Chitika offered consumers the ability to opt out but didn’t tell them the opt-out lasted for only 10 days. Prohibits future privacy misrepresentations and requires a permanent opt-out option, as well as requiring destruction of any data collected when the prior bad opt-out was in use.

Health claims in advertising—a lot of action. Is there a shift in the way the FTC has treated substantiation? No, not a heightened standard or an abandonment of flexibility. First, wanted brighter lines/greater clarity for companies under order, and greater ease of enforcement. Broad standard presented enforcement challenges—viewed as a license to continue making the same false claims that brought them to the FTC’s attention in the first place; relied on outlier studies; took many resources to enforce. FDA approval is a much simpler proxy. FDA approval is a form of fencing-in relief. Also note that back in 1994 the FTC made clear that FDA standards would be its principal guide in evaluating food marketing claims. Pom Wonderful: we aren’t seeking to ratchet up substantiation guidelines for companies not under order. Complaint advances same theory of liability that existed for decades: Pom made claims without sufficient substantiation.

Same thing for the two independent clinical studies requirement: our experts agreed that this was the appropriate level of substantiation for weight loss claims. It’s a transparent, clear standard for what competent and reliable substantiation means. It’s case by case. In some cases, a single study may be appropriate if experts in the field would agree that’s sufficient. But when evidence is mixed or claims are broad, two independent studies may be the level that experts agree on.

Endorsement: one marketer said, “Reviews are the new advertising.” Consumers trust other consumers’ opinions. This means increased potential for deception. Today, consent order with Legacy Learning—used blog posts, endorsements, and other online methods to promote guitar courses. Legacy paid its affiliates to write positive reviews, but failed to ensure they disclosed ties; many did not and passed themselves off as independents/ordinary consumers. FTC went after Legacy for failing to monitor affiliates; held Legacy liable for their undisclosed endorsements. Disgorgement remedy imposed. Don’t do this!

Green claims: resulted in greenwashing, which makes consumers skeptical/numb.

In Q&A, Ramirez said that the FTC distinguishes between disease claims and other health claims for purposes of fencing-in orders, thus explaining the difference between the FDA approval requirements for some claims and two good studies requirements for other health claims.

Q: does the FTC intend to give guidelines for microblogs/Twitter?

A: the key is whether the consumer would understand that there’s been payment; if not, disclosure is required. There are more examples on the FTC’s website.

Q: EU just issued a regulation on cookies—is the FTC considering anything like that?

A: following that very closely and working with Commerce Department here.

Keynote Address
Robert E. Cooper, Jr., Attorney General, State of Tennessee

Pay particular attention to companies that can influence competitors/set industry standards. Tenn. has played a leading role in multistate investigations of DirecTV and Dish Networks. Ads for “5 months free” of DirecTV. But what does it mean to get “5 months free with NFL Sunday Ticket”? Is the Sunday Ticket free, or do you get the 5 months free if you pay $60/month for the ticket? Is any of it free if the customer has to commit to a 2 year contract? Disclosure was tiny and confusing, and not in proximity to discussion of pricing and terms in main part of ad. AGs took the position that DirecTV failed to disclose material terms on total cost and term of contract, meaning consumers couldn’t get accurate picture of package/total obligations.

BlueHippo: computer retailer targeted low-income and credit-challenged consumers. Currently in bankruptcy. (Try this: search “Blue Hippo” and see what targeted ads you get. It sheds some light on what the AG says next.) Relatively small player, but Tenn. was concerned that the business model had been adopted by others—frontloading payments for goods that won’t be delivered for a year and that are charged inflated prices. “We don’t check your credit! Approval guaranteed!” Failed to disclose many things, including onerous default terms. $33 million judgment and permanent judgment prohibiting collection.

Lessons learned—what state AGs are looking for: material limitations should be clearly and conspicuously disclosed to consumers. When you advertise price, material terms must be disclosed in direct proximity. Businesses should be clear with consumers when entering into a contract. AGs often receive complaints that consumers weren’t aware they’d entered into a longterm contract. Clear language will help.

The AGs are interested in the same things the FTC is—multistate settlement with Danone based on the same Activia etc. claims. Also mentioned green claims as of particular interest.

AGs also took action against caffeinated/energy drink alcoholic beverages attractive to younger consumers.

ConsumerDepot: when consumers gave it bad reviews online, it would automatically give consumers retaliatory bad feedback, hurting the customer’s credibility among other users. AG argued that automatic retaliatory feedback was an unfair practice under state law and prevailed.

AGs also monitor class action settlements, many of which they receive automatic notice of under CAFA. Will oppose approval of bad settlements—coupon settlements that don’t provide value to consumers, as with claims that Honda exaggerated the cleanness of its cars. Not all coupon settlements are bad, but those that do nothing more than drive more business to the defendant are suspect. Also concerned where the claims seem strong but the relief is weak.

Sorrel v. IMS Health Inc.—whether a state can require market research firms/data miners to get permission of doctors before selling their prescribing histories to marketers. Tenn., and 34 other states, joined an amicus brief urging the SCt to reverse the invalidation of such a law. Prescription records are private and highly regulated; interest in preventing unauthorized use for marketing—data miners/pharmacies have no First Amendment right to buy/sell histories, but even if that is speech, it’s appropriately regulated as commercial speech. Invalidation puts into question many state laws protecting sensitive data from unauthorized disclosure for commercial purposes.

Q: comment on interaction between FTC, AGs, and class actions?

A: we like to work with the FTC when there’s an opportunity to share information/coordinate relief.

The Do’s and Don’ts in Managing Talent Agreements
Paul Muratore, President/CEO, Talent Partners (note: attributions may be wrong; there was a lot of back and forth and this is also outside my core areas, though I found it totally fascinating)

Covering mostly celebrities/over scale talent rather than noncelebrity talent. More a part of the business than ever before. 500% increase in Oscars in celebrities in commercials; 50% increase in Grammys. Celebrities can now show up anywhere in new media, increasing complexity.

Tips: be comprehensive with your needs. War stories from experienced clients with significant infrastructure and advertisers who’ve worked with celebrities in the past. Celebrity involved in a set of campaigns, well-clad in expensive designer clothes, which she decided were hers and walked off the set wearing them. Designer disagreed and was quite upset. Had to negotiate an addendum to sell the clothes at 50% discount. (Heidelberger interjected that he faced an inverse situation with a celebrity who insisted on wearing his own clothes, which were branded with someone else’s brand.)

Also: insurance—may not cover a print campaign, even though celebrities have issues and sometimes don’t show up.

Talent agreements are not always signed by the talent; important to be sure the talent is the one signing.

Spillover of knowing what you got yourself into. A bunch of scale performers hanging around while dealing with unhappy talent in high heat in Times Square—they invented “heat pay,” not part of the contract, and also delivered bottles of water.

Contract checklist—territory, number of days, etc. (Heidelberger pointed out that if you figure out later that you want something, it will be more expensive or even impossible to get it later.)

Have a backup plan: short list of other celebrities, though you can only negotiate with one at a time. (H: this is critical if you care about money. Because everyone is moving so fast, if there’s no backup plan, the talent has the advertiser over a barrel when the shoot is tomorrow. Your leverage is at the beginning. Companies pay too much because they have no choice at a late date.)

Brian Heidelberger, partner, Winston & Strawn LLP
Negotiating the best agreement: lawyer’s job to decide between letter of intent, deal memo, or formal agreement. You can do all three, but if you start that way, everyone will be exhausted by the time you get to formal agreement and that may collapse/take forever. Deal memo: short bullet points with material terms. People get tired of going to formal agreement; he likes to do the formal agreement first. If you can’t, then be clear on what goes in the deal memo: time, territory, exclusivity, confidentiality, disclosure of what celebrities have already done; do we say this is binding (subject to a more formal agreement) or that it isn’t binding until there’s a formal agreement? His experience: make it binding, because of the sunk costs. That’s why he doesn’t like letters of intent.

Social media: when you engage celebrities, there’s almost always a provision about Twitter/Facebook. Even if you don’t say, it’s likely they will act themselves. FTC Guides: everyone knows about disclosure. But the guidelines also require training. Attach your social media policy to the agreement and make the talent agree to it. Also you need to monitor: just because you have something in the contract doesn’t mean you have to monitor their Twitter feed for false/deceptive/unsubstantiated claims—you have to be able to cause them to take down problematic claims. If you’re dealing with someone on the edge, ask for their password. Two recent social media disasters: Gilbert Godfrey (voice of AFLAC duck) has been saying a lot of negative things about the Japanese situation; AFLAC dropped him, but it’s too late. Maybe they can terminate him for a morals clause violation, but were they monitoring? Did they have the ability to take down the tweets? Chrysler also had a problem with swearing in their official feed. This was a contract employee.

Muratore: this is consistent with what Commissioner Ramirez said about reviews being the new advertising.

H: exclusivity. Sometimes gets short shrift. Talent will want just exclusivity on the product, but that can be problematic. Nokia could get mobile phone exclusivity, but what if Apple engages that talent for their computers? Maybe should be “manufacturers of mobile phones,” or name specific companies you really hate; keep the list as short as you can because all of this costs. Sometimes advertisers get a little crazy on exclusivity. Individual celebrity sponsorships are actually few and far between, so you have to balance cost and risk.

M: Advertiser’s view: if you have a really good celebrity doing really good work, chances are no one else will want to hire them in the category because of the existing association—this means you can ask for exclusivity but be willing to give ground in negotiating.

Multiservice agreements for entertainers; nonentertainers/models have separate agreements—pro athletes. Advertising a product within the sport and without are treated differently. These are guidelines available on the ANA website, and there is arbitration available. Check those agreements and understand which aspects you’re working with.

H: If your agency is a signatory to SAG, SAG can see your contract even if you’re not a signatory. They take the position that a large portion of the agreement relates to TV, even if it’s really small. We had a case with Tiger Woods as an endorser, mostly print/airport dioramas. But they did create a TV commercial; SAG sued, saying that even if it was only 10% of budget, that wasn’t enough allocation (which has implications for payments owed to pension funds etc.). Have a separate contract for TV in a smaller deal, with a reasonable amount for the actual TV ad, and the other contract isn’t auditable by SAG. SAG takes the position that even the right to produce a TV ad should result in allocating money to SAG even if the right is never excercised.

M: new media uses: now there’s free bargaining with a floor. New way to pay talent and the rates have changed. You can negotiate exclusivity in the new media but there’s no definition, so we have to figure it out as we go.

Talent complaining about old ads on the internet: if you post it yourself, you will be liable, so don’t do that outside the paid-for term. But sometimes consumers post the ads to YouTube. Talent wants payments because the ads are running. Ongoing dispute. Advertisers don’t believe they’re liable for that, but not worth a fight with talent/SAG. While the takedown notice might not be legally required, if you send a takedown notice, you can remove your liability for that even if you can’t get the content removed. Ads go up in farflung countries, and they might ignore the notice, but you can stop liability if you send the notice. Key thing to know: you have to be the copyright owner; don’t send the notice unless you’re the copyright owner. SAG agreed that takedowns will not be considered precedential.

In your contract, you should write that you give a couple of hours of brand-specific media training. Overlooked a lot, but this person will be out and about, becoming part of the message.

Reasons not to ignore the guilds: if you use professional actors, you will bump into the union. If you’re going to direct people, even if you just get them out of a bar, there’s an opportunity for the union to ask questions.

H: talent will often ask for approval over everything. Need to push back at certain levels. Reasonable for them to have approval over beginning concepts. Creative copy—these days they probably will need approval over copy, but might be able to limit it to approval over how they’re featured. Exclude approval for rough cuts/final finished version. If Tom Cruise decides he doesn’t like the way he looks in the finished ad, big problem. Early stage approval is fine. Also provide that you don’t have to seek approval for changes made for legal/network approval/minor changes that don’t change substance.

M: need to say that there’s a time limit for approval and that the advertiser has final approval.

H: b roll approval: probably want to give them approval if you’re filming them in the makeup chair and you want to post that to your website.

Another problem: failure to include options. What if the TV commercial is successful? Then we’ll want a radio spot, tweeting, etc.—it will cost a lot more than what you could have negotiated before. Include the right to renew, at the same price, or maybe a 10% bump if they won’t take the same price. Old Spice guy—his contract is undoubtedly more expensive now than when they initially negotiated it.

M: pro athlete—negotiate options if they make it to the Superbowl, etc.

Don’t pay the talent upfront. How you track internet uses is of use.

H: talent will say that upfront is right because all their work is upfront. You say: but your work continues; that’s the morals clause. They may say: 80% of the total contract price should be considered earned on the date the ad was created, even if it’s paid over time; he would resist because the morals clause should trump that.

M: All things video: don’t assume it’s not subject to SAG. Many consumers follow the celebrity as a brand in themselves. Look at opportunities for soft news—how they made the commercial, how they got involved in an event (the celebrity might donate one day of a fee to charity)—look at how that will show up online and make sure you’re covered. You may say “that’s not an ad,” but if the agency creating it is a signatory then you’re in an argument. Just because it’s not 30 seconds on TV doesn’t mean it’s not an ad. SAG will take the position that even product placement, without a brand tag at the end, makes it an ad.

H: GM/Glee successfully blurred the lines between the show and the ads in the Superbowl presentation—multiple agreements were in play.

Don’t give up too easily on the morals clause. Kobe Bryant, Michael Jackson, Charlie Sheen. Don’t agree to convicted or even accused of a felony—anything that might damage your brand. Tell them this is a dealbreaker, but you’ve got to be consistent and serious. Nine times out of ten you’ll prevail if you hold your ground. Explain: costs us so much money to pull this that it’s not worth it if we can’t protect ourselves. If you lose on that point, you can pull your ads and still make additional payment to the talent; not the end of the world, but still worth fighting.

M: don’t confuse the celebrity with the character. May not want to be typecast; celebrities come with a bunch of their own issues, and may not want to do the things the character does.

H: note that the celebrity won’t have rights to the character, and the studios won’t do it for free. Also, networks won’t want to run ads using competitive characters promoting a show on a different network. Another problem he sees all the time: we make a firm offer, but the talent’s attorneys say: “as my client has yet to review the document I must reserve the right to make additional changes.” Under California law, an email that says we’ve agreed on material terms is binding. If the client/agency changes their mind, saying that we haven’t signed anything yet is insufficient. You have to say it’s a firm offer to be taken seriously, but you need to do what the talent’s attorneys do and say: “as is standard with my client, we cannot be fully bound until we formally execute an agreement.”

Failure to negotiate separately with identifiable singers: a gentleman out there is very good at finding singers you haven’t negotiated with. You get the rights from the publisher, and from the record label, but SAG requires you negotiate separately with identifiable singers. Many times that’s just contacting the singer who will take scale because they’re getting a cut from the record label. But if you don’t take care of this they’ll come back later and demand more. Pepsi commercial using the Flamingos—thought they didn’t need union jurisdiction because the song was so old; whoops. Because singers take minimum as a matter of rote, sometimes people just send the check, and one singer argued that merely cashing the check was not “negotiation.” In another case, the ad never even aired but they argued that SAG requires negotiation when the ad is produced, not when it’s aired.

Q: SAG/AFTRA—celebrities have obligations not to work nonunion; not all take them seriously but their agents generally do. Don’t assume that anything the celebrity does will be nonunion. Issue of allocation for union contributions—we have problems with intra-union allocation. A client who did all radio paid all to AFTRA; now SAG wants 90% of that money. (The contract says it should be 90/10, but the client thought that didn’t make sense for all radio.)

M: Try to stay out of that fight. Contact the joint committee for SAG/AFTRA—guidelines exist because people were getting harassed by the funds, and that’s worrisome because as ERISA plans treble damages might be at issue.

Q: third-party rights problems: do you need permission for all the cars/brands in a video?

A: that’s a trademark issue; their position is that incidental uses in a web video may be worth the risk. Debrand as much as possible, especially with competitors and other celebrities.

There are also certain landmarks you can’t use—narrow the field of vision/blur the background. The further you come out from under the radar, with the Eiffel Tower glowing behind you, the more risk you take on.

Q: creative competitions—those organizations take no liability for SAG; how should this be handled?

A: Agencies have the right to show ads for promotional purposes without SAG liability. Advertisers don’t have the same freedoms. We haven’t seen claims like that.

Q: if you don’t specify broadcast/nonbroadcast allocation, is there a risk SAG will demand 100% allocation to broadcast?

A: if you don’t allocate, they’ll take a position you don’t like about allocation. If it’s all TV and some media training, they’ll demand 100%. 4 days of TV and 2 days of personal appearances: will demand 80% because they don’t think that personal appearances count much. Specify in your agreement how much is allocated to union covered services, or do separate contracts if time permits/there’s big money, because they will dispute your allocation.

Q: at what point will we see celebrities using the new FTC guidelines? Questioner thinks they haven’t permeated.

A: celebrities say, yeah, yeah, yeah, we understand. That’s the lawyer talking. Is the celebrity going to think about that when they tweet? Well, Kim Kardashian is not going to be the subject of an FTC action—the FTC will go after the advertiser who fails to monitor. If you don’t trust them and you don’t believe your monitoring can handle them, start by making sure they put sponsor logos on their webpages. That’s not a perfect solution because twitter followers won’t see that; you need to monitor to make sure it’s in the tweet.

“Hidden Liabilities in Media Offerings of Integration and Adjacencies” or “Whatever We Call the Right of Publicity in Brand Integration”

Rick Kurnit, Partner, Frankfurt Kurnit Klein & Selz PC

Focus on commercial appropriation/right of publicity—the right has now expanded to almost anything, including a gesture. Case involving the Sugar Hill Gang led to $2.8 million in punitive damages, even though the Sugar Hill Gang had agreed to promote the product at a concert. Endorsement was worth $180,000, but the punitive damages dwarfed that. Another case: model put on Taster’s Choice can; $15.6 million because his expert claimed a percentage of worldwide sales. Reversed on appeal (note costs of appeal/bond): damages shouldn’t be the value of the label but the value of his face instead of someone else’s face. Lookalikes are also dangerous. (Woody Allen case: Allen claimed a copyright on the hapless Allen character; the judge denied that claim and even found that the lookalike wasn’t enough like Allen, but came up with a Lanham Act claim for false endorsement. Likelihood of endorsement confusion also contribued over $250,000 to the award in the Vanna White case.) Punitive damages of $2 million in Tom Waits case.

It doesn’t take a whole lot to make a Lanham Act claim, as we learned when the M&M Mars company got sued for making a Naked Cowboy M&M—Judge Chin dismissed the right of publicity claim, since New York knows the difference between a piece of candy and a person, but couldn’t dismiss the Lanham Act claim. In today’s world, what does the consumer think about the relationship between products and people? Do people think that M&M needs the Naked Cowboy’s permission to put a diaper on an M&M? Do people think that a company needs Lindsay Lohan’s permission to name a “milkaholic” baby Linsday?

Convergence: opportunities to put the brand’s message into content outside traditional ad formats. How do these old concepts of advertising and the right of publicity interact with the First Amendment? Nike v. Kasky said that everything is advertising. Infomercial: entire program may be an ad; what about when you sponsor a documentary, as in Facenda, where documentary about creation of Madden 06 was held to be an ad, creating a right of publicity claim for Facenda’s estate. Media look at these things as documentaries protected by the First Amendment.

Came to a head with adjacency case, Stewart v. Rolling Stone.  Under Stewart, the court approved a “wall” of separation, but what happens with brand integration into the program? Perfectmatch.com saw a Lifetime show about a dating service, and they paid to be featured. The head of the dating service made an outrageous statement about how many matches perfectmatch.com had. Competitor brought a NAD claim, but the NAD held that it wasn’t advertising because it wasn’t slanderous.

Merely commercializing content—selling comic book to hockey fans—can lead to a verdict for a hockey player whose name was used in a comic book, $15 million based on expert testimony that sports figures receive this much for their endorsements.

We have long dealt with the notion that the integration of content with marketing causes a possible right of publicity claim—even being featured in a calendar given as a gift to those who donated to an organization led to a successful claim.

Can you put user-generated content in a press release that truthfully reports on public events? People in PR have long been protected by submitting material to the media and using the First Amendment as a shield, but today press releases go up on the company’s website. Thus, Chuck Yeager sued Cingular successfully for using his name in a press release. People doing PR have rarely had training in the Lanham Act/right of publicity.

Rebecca Sanhueza, Vice President and Deputy General Counsel, Time Inc.

We have reader services like “celebrity looks for less”—no quid pro quo for advertisers or product placement; it’s editorial. We think advertisers like to advertise on our sites because we have credibility.

She would be hesitant about executions that blur the line between selling and editorial.

What about media tie-ins? Time clears photos that appear in its magazines even when celebrities attend Time events.

Kurnit: people in charge of websites think that they can do these things without clearance. Why can’t we do this? Well, are the other sites doing this good litigation targets? That which a judgment proof college student puts up on the internet is fair use. A company with a bank account and an address is an infringer. Summer intern: created a MySpace page for the company using its marketing materials, none of which were cleared for the internet.

Sanhueza: suppose Jordache reuses a picture of Hayden Panettiere from People wearing Jordache? Time would never give permission for reuse of its covers without rep/warranty and indemnity from advertiser for clearing the rights of publicity.

Kurnit: check the “in the news” feature on your website. Have you cleared the copyright in the paparazzi photograph? What about the celebrity appearance on the cover of the publication that features your product?

Facebook is not going to indemnify you for right of publicity claims by children (current class action!) who are featured in your ads as a result of Facebook’s promotion features.

Sanhueza: for social media use, we are pretty clear that we aren’t responsible for anything other than our own materials on the social media site/page. We don’t clear every context/potential use.

Kurnit: new service—allows tagging of photographs with information about products celebrities are wearing—their position is that it’s editorial, but the celebrities are likely to disagree.

Sanhueza: the key is independence. Are you writing about something because you’re interested in covering it or your readers are, or are you influenced by a media buy? (Can you really separate these?)

Kurnit: one case where ad agency was merely informed what the picture of the week would be—Kobe Bryant dunking—and agency created an adjacent ad for a camera saying “capture every bead of sweat.” Unfortunate for the agency that it submitted the two-page spread for an award.

Q: suppose a celebrity tweets “I love my new iPhone!”—can Apple reuse this?

Kurnit: truth is no defense to a right of publicity claim. (RT: Which, not for nothing, is why the current right of publicity is unconstitutional.) Don’t be lured into endorsement from an individual. Also keep in mind that the owner of the copyright in Cheers lost a case for licensing it for bars—there’s a presumption in California that this sort of thing goes to a jury.

Facebook again: NY law requires both written consent of child and written consent of parent; there’s a case finding a problem where there’s written consent from a 17-year-old but not the parent, when the minor was a professional model. This creates risks for use of profile pictures. With kids, there’s a presumption of punitive damages for wrongful use of name/picture.

Woody Allen’s last case, $5 million for using a picture of him on a billboard. Numbers keep going up and up.

Q: Suppose you have a Facebook page, in part to avoid others creating one for you. You post pictures from your public events. Do you need to clear rights under Nike v. Kasky?

Kurnit: never gives an opinion about California law, but you want to be very careful that you’re not doing that in conjunction with selling a product. It’s different where you are selling a product. We spend a lot of time convincing managers of the commerce part of the website that putting the “buy now” button on someone’s nose is going to far. Separate where people shop from the information. Ideally have them go back to a homepage/across the top bar to separate commerce from marketing; at that point he’s prepared to defend your First Amendment right as an entity to publish. If Nike v. Kasky were truly implemented there’d be no media in America.

Q: what about friends/fansites created by employees?

Kurnit: in the US, you have to assume that what your employees do is the responsibility of the company. We all have social media policies distributed to employees. If you don’t have one, get one.

And then, sadly, I had to leave to teach. So far, though, I’m enjoying the conference!

eBay and AdWords misuse?

Interesting tidbit from the eBay v. Craigslist litigation (in which the judge ruled that Craigslist’s majority shareholders breached their duty to minority shareholder eBay in adopting several share-related measures, but not by adopting a staggered board that would make it hard for eBay to install a director): eBay’s competitive site Kijiji ran a bunch of AdWord ads keyed on Craigslist. The court thought this was bad behavior, and that it justified much suspicion among Craigslist’s principal shareholders about what eBay might do next.

[The principal shareholders] received emails from concerned craigslist users who had run into what those users perceived to be a Kijiji subterfuge online. These users noted that when they typed "craigslist" or similar search terms into Google's search engine, their searches yielded Google AdWords results that contained links to what appeared to be craigslist.org or craigslist.com. Users who actually clicked on these links, however, were taken to Kijiji.com. [FN61] After confirming the accuracy of these reports, Jim sent [eBay CEO] Whitman an email demanding that the ads be removed. No one ever responded to Jim. [FN62]
FN61. See, e.g., DX-512 (writing to craigslist staff and noting the potential for monetary damages, a craigslist user explained the following: "I just searched Google about 1 minute ago and the top advertised link came in as: Sponsored Link Craigslist Com www.Kijiji .com 100% Free local classifieds site! Compare Kijiji & Craigslist. I clicked on it and it goes to Kijiji but I typed in [ ] my search on Google.com as: 'www.craigslist.com' You may want to have a word with someone. Best of luck, and 10% to me ..."); DX-514 (email from Terry Richards, administrator of the Fredericksburg, Virginia local online classifieds site BurgBoard.com, to Craig captioned "Kijiji or whatever the hell its [sic] called" stating: "Craig, How goes it? I was browsing some classified sites in VA and noticed this adsense ad that Kijijiji [sic] (WTF) is running ... I think it is unethical and unfair to your business to run ads with your brand in it." …
FN62. Whitman forwarded Jim's email to Aqraou's Kijiji team asking that a response be issued. There is no evidence a response was made, but employees with the Kijiji team noted that eBay could "turn off the U.S. paid stuff easily."

Is the ad text in fn. 61 misleading, especially after the ActiveBatch ruling? A good class hypo.

Anyway, the court also references this as behavior indicative of further potential perfidy:

Evidence presented in this case suggests that eBay liberally passed nonpublic craigslist information around within eBay's departments. Some of this nonpublic information was information eBay obtained at craigslist board meetings (e.g., craigslist's 2007 budget). It even appears that eBay used some of craigslist's nonpublic information to develop and launch Kijiji. Moreover, by the time Jim and Craig implemented the Staggered Board Amendments they were aware that Google AdWords were misdirecting internet users searching for "craigslist" to Kijiji. Jim and Craig had reason to suspect eBay was behind the misdirection, particularly because no one at eBay responded to Jim's accusation that eBay was misusing the AdWords. It was reasonable for Jim and Craig to further suspect that if eBay was willing to misuse AdWords to advantage Kijiji at craigslist's expense, eBay would also be willing to use, for its own advantage, nonpublic craigslist information obtained in craigslist board meetings.

Weak case is not exceptional for fees purposes

American Traffic Solutions, Inc. v. Redflex Traffic Systems, Inc., 2011 WL 772310 (D. Ariz.)

The parties compete to compete photo traffic enforcement services to governments, and until mid-2008, defendant Redflex did so with radar units that required, but lacked, FCC certification, but touted its compliance with applicable laws in its sales pitches. The court granted summary judgment on claims relating to about two dozen governments because plaintiff American lacked either prudential standing or evidence of “advertising.” The remaining claims, covering about a dozen governments, went to a two-week jury trial. At the close of American’s case, the court denied Redflex’s motion for judgment as a matter of law, while noting that American’s case was “weak at every point.” The jury found for Redflex. American sought attorneys’ fees and nontaxable costs.

Attorneys’ fees are available in exceptional cases, and an exceptional case is "groundless, unreasonable, vexatious, or pursued in bad faith." Redflex argued that the claims were grounless and unreasonable, because in many instances American did not compete for the relevant contract, it was not a viable candidate to win the contract, or the contract did not involve radar units. American allegedly presented a moving target with respect to its claims and its experts, which drove up Redflex’s litigation costs, and unreasonably waited until closing argument to drop claims regarding two governmental entities.

American argued that a significant portion of its case had merit, surviving motions for summary judgment and judgment as a matter of law; that Redflex is disingenuous because it’s pursuing its own Lanham Act claims against American based on American’s statements about the American-made nature of its systems; and that the court condemned both parties’ excessive approach to motion practice.

The court began: “The Lanham Act is a complex statute with a broad scope and low thresholds for liability. Unfortunately, this makes it susceptible to creative legal theories based on less than compelling facts. This is particularly true where, as here, a plaintiff can raise a genuine issue with respect to intentional deception and rely on a presumption of deception.” Here, however, while there was evidence that Redflex knew its radar units lacked FCC certification at the same time that it was touting its legal compliance, the jury apparently accepted Redflex’s evidence that FCC certification did not matter to the relevant entities. Regardless, “our inquiry is not whether plaintiff's case was strong or successful, but whether it was groundless or unreasonable.”

Redflex raised “significant issues” with American’s case. “Plaintiff's decision to put on an executive instead of its expert to discuss damages showed little faith in its theory of damages.” But Redflex also complained too much—it wasn’t entitled to rely on the claim that its statements weren’t false. Ultimately, American’s case was not groundless or unreasonable because, despite its weaknesses, it raised debatable issues of law and fact.

Redflex also argued that American’s case was vexatious and pursued in bad faith. “Defendant faults plaintiff for publicizing defendant's use of uncertified radar units, raising various state court and administrative challenges, and pursuing claims against two of defendant's executives.” But American retained experienced counsel on a contingency basis to pursue this action, “which would seem to cut against the presence of bad faith.” The parties also offered competing versions of a conversation between their CEOs about the likelihood of plaintiff's claims surviving summary judgment. “[T]he parties' approach to this action has been needlessly contentious. This is no doubt due, in part, to the related nature of their origins and their current status as the principal competitors in their industry.” But there wasn’t enough to convince the court that American litigated vexatiously or for an improper purpose.

Individualized sales pitches aren't advertising for insurance purposes

Santa's Best Craft, L.L.C. v. Zurich American Insurance Company, 941 N.E.2d 291 (Ill. Ct. App. 2010)

Santa’s Best was sued by a competitor for IP infringement and deceptive trade practices and tendered defense to its insurer Zurich. Due to a conflict of interest, Zurich agreed to reimburse plaintiffs for expenses incurred by independent legal counsel, but declined to pay the full amount billed. Santa’s Best sued. The court of appeals affirmed a verdict for Zurich. Zurich’s failure to immediately reimburse plaintiffs for all defense expenses was not a breach of duty, nor was Zurich obligated to reimburse plaintiffs for the amount of the settlement in the underlying lawsuit or the cost of defending a third party pursuant to a license agreement.

Santa’s Best makes Christmas lights sold to about 75-100 retailers. It doesn’t rely on mailers, fliers, or internet ads to sell. Rather, it invites retailers individually to its showrooms 18 months before the relevant Christmas season. At the appointments, retailers view prototypes and packages, and occasionally sales staff make presentations. In 2001, Santa’s Best made a brand called “Stay On,” which was supposed to remain lit even if one bulb burned out or was removed, in conjunction with GE, and agreed to indemnify GE from any claims arising out of the deal. Competitors JLJ and Inliten then sued alleging infringement of their “Stay Lit” trademark for lights along with false advertising, dilution, and related state torts.

The point of greater relevance here is that the court of appeals agreed that the allegedly infringing conduct didn’t arise out of an “advertisement,” because displaying the offending products and packaging in Santa’s Best’s showroom was not an advertisement. Under the policy, “advertisement” was defined as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers and supporters.” Addressing an issue of first impression, the court determined that an advertisement “must be widely disseminated to its intended audience, regardless of whether the audience is the general public or a specific market segment thereof.” With in-person promotion, and in the absence of wide dissemination, the insured is soliciting business, not engaging in advertising. This definition also helps preserve clarity and certainty in policy interpretation.

The court also found no coverage under the umbrella policy, which also covered advertising injury, defined in relevant part as “misappropriation of advertising ideas or styles of doing business” or “infringement of copyright, title or slogan." The umbrella policy didn’t require that advertising injury arise out of an “advertisement,” and Santa’s Best argued that, therefore, the policy should be strictly construed against Zurich to require coverage. The court disagreed. The policy was unambiguous: “the plain, ordinary meaning of an advertising injury requires that the injury result from an advertisement. … The advertisement is inherent in the nature of the injury; we cannot separate those concepts.”

Keyword advertising injunction reversed

Network Automation, Inc. v. CBM-CW Advanced Systems Concepts, Inc. (9th Cir. Mar. 8, 2011)

Even in the middle of a good decision reversing a finding of likely confusion based simply on targeting ads to the competitor’s trademark, the Ninth Circuit can manage to reach out and do silly things: for example, the court said that (declaratory judgment) plaintiff Network’s use of the mark to buy keywords was use in commerce, and further said that Google’s sale of keywords was the same (“We now agree with the Second Circuit that such use is a ‘use in commerce’ under the Lanham Act.”). I guess we’ve all just agreed secondary and primary liability are the same for keywords? But Google gets a big kiss for its sponsored links labeling later in the opinion doubtless of more practical significance to it than a mostly-lost conceptual battle about trademark use.

Because the panel can’t outright admit that Brookfield’s initial interest confusion analysis was just wrong, it increases the formal complexity of trademark law by hiving off metatag cases—they’re just different from keyword cases, which are different from domain name cases, for which the “internet troika” of similarity of marks, relatedness of goods, and simultaneous use of the internet still makes sense. Though of course we should at this point refer to the “internet duo” since it’s such a rarity to find a mark without an internet presence and the court explicitly endorses giving this factor “little weight”—indeed, the district court erred by weighing similar marketing channels against Network.

Comment: The way I teach the “quality of defendant’s product or service” factor, formally part of the multifactor test in the Second Circuit, is that it actually doesn’t matter because it never favors the defendant but, like an appendix, remains attached to the test because trademark doctrine never gets less complex. Perhaps it is time to recognize that, at least for products with standard marketing channels, the marketing channels factor is equally useless. I can’t remember what Barton Beebe found about this factor empirically, but there is really very little reason to have a factor for marketing separate from the relatedness of the goods/services. In those cases where the marketing distinguishes the parties, for example one sells wholesale and the other retail or where there are substantial geographic limits on the parties’ presence, there should be no problem incorporating that difference into the relatedness factor.

The court says that Brookfield and Playboy (specifically, Judge Berzon’s cautionary concurrence) are consistent because they’re both about poorly labeled results. A casual inspection of Brookfield shows the contrary, as indeed the court recognized just before it began its dance:

We did not find a likelihood of source confusion because the results list from a search for “MovieBuff” would result in a list that included both Brookfield’s and West Coast’s websites, and if the consumer clicked on West Coast’s site its own name was “prominently display[ed].” Thus a consumer was much less likely to be confused about which site he was viewing.
Finding no source confusion, we nonetheless concluded that West Coast’s use of MovieBuff in its metatags was likely to cause initial interest confusion.

As long as no one uses metatags to do anything relevant any more, as Eric Goldman has pointed out many times, then this leaves trademark more ridiculously complex but otherwise better off in terms of recognizing what keyword ads really do. (Of course, when the next thing comes, we will then have to argue whether the new thing is more like metatags, domain names, or keywords. Fun times!)

The likelihood of confusion test is flexible—so we get this statement about the relevance of strength, notable both for its, um, flexible understanding of the Abercrombie spectrum and its unevidenced hypothesizing about how people think about search results: “[Strength (by which the court logically has to mean distinctiveness at all, not strength, but okay!)] is probative of confusion here because a consumer searching for a generic term is more likely to be searching for a product category. By contrast, a user searching for a distinctive term is more likely to be looking for a particular product, and therefore could be more susceptible to confusion when sponsored links appear that advertise a similar product from a different source.” The best I can dig out of this is that sponsored links that appear in response to generic terms need not be well labeled, whereas sponsored links that appear in response to trademarked terms need to be.

Almost as an aside, the court concluded that a registered trademark is “inherently distinctive” and therefore strong (I take it that American Airlines is therefore inherently distinctive—happy news for it, but I have to find another teaching example now!), and that no commercial strength inquiry need be undertaken on a motion for preliminary injunction. I feel like I ought to be misquoting Chinatown: “It’s the Ninth Circuit.” (Okay, as I think about it, it seems to me there’s something going on in US law more generally about registration putting all marks on an equal footing; an almost European view of the matter, where registration dominates use, and I have no objection to this in a vacuum, but I worry about its interaction with dilution law if we interpret “registered” to mean “strong” on a regular basis.)

After suggesting that some interaction between consumer sophistication and strength was relevant, the court ended its discussion of strength. There’s a germ of an idea here, but sophistication isn’t the right concept. Indeed, in keyword cases, strength (marketplace or inherent) should make confusion less likely: the more consumers know about the mark, including its status as a mark, the easier they will find it to identify the official site and to recognize that sites not marked as the official site are offering alternatives, whether the product is Coca-Cola or ActiveBatch software.

The core of the case is this: “However, the proximity of the goods would become less important if advertisements are clearly labeled or consumers exercise a high degree of care, because rather than being misled, the consumer would merely be confronted with choices among similar products.” The same is true of similarity: the relevant similarity is not the similarity between the trademark and the keyword, but the trademark and what the consumer actually saw in response to the keyword.

Even more, the analysis must take into account the increased sophistication of internet users since Brookfield, as well as their experience of the relevant search engines: “Here, even if Network has not clearly identified itself in the text of its ads, Google and Bing have partitioned their search results pages so that the advertisements appear in separately labeled sections for ‘sponsored’ links. The labeling and appearance of the advertisements as they appear on the results page includes more than the text of the advertisement, and must be considered as a whole.”

So, our stripped-down test: “the most relevant factors to the analysis of the likelihood of confusion are: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.”

The district court abused its discretion by relying on the internet troika instead of these factors (it also wrongly inferred intent to confuse from deliberate purchase of the keyword, when it should have considered whether Network’s intent was to comparatively advertise).

Here’s one part of the decision I completely endorse: a ten-page appendix of how the ads looked.  Next up: the wonders of color printing!

Conference announcement: modest proposals, April 8

via Cardozo's Intellectual Property and Information Program

Some Modest Proposals 4.0: A Conference About Pouring Academic Ideas into Legislative Bottles

In Modest Proposals, Cardozo Law School's Intellectual Property and Information Program invites academics known for advocating thoughtful ways to improve intellectual property, technology, and information law to present ideas from their writing in the form of actual statutory, regulatory, or treaty language. Each proposal receives both scholarly and political commentary in a free-wheeling discussion among professors, current and former Capitol Hill staff, administration officials, and Washington activists. This round, Modest Proposals 4.0 will have a set of copyright, patent, trademark, and information law proposals.

Friday, April 8, 2011
10 am – 5 pm

Cardozo Law School
Benjamin N. Cardozo School of Law
55 Fifth Avenue
New York, NY 10003

Individual sessions of the conference are open to the public. Email [email protected] for more information or to RSVP.

On Friday, April 8, 2011 Cardozo will be hosting another “Modest Proposals” conference. Format: proposers suggest legislative text, commentators from academia and the Hill respond.

RSVPs to [email protected].

[1] Increasing Innovation by Reining in Copyright

Michael A. Carrier, Rutgers, proposer
Brett Frischmann, Cardozo
Peter Jaszi, American University
Aaron Cooper, Senate Judiciary Committee

[2] Patent Fair Use 2.0

Katherine Jo Strandburg, New York University, proposer
Daniel Ravicher, Cardozo
Clarisa Long, Columbia
Chris Hansen, American Civil Liberties Union

[3] Eliminating PACER Fees: Implications for the Public and for
Privacy

Stephen J. Schultze, Center for Information and Technology Policy (CITP),
Princeton, proposer
Susan Crawford, Cardozo
Neil Fried, House Commerce Committee (invited)

[4] Safe Harbors for Trademark Fair Use

William McGeveran, Minnesota, proposer
Felix Wu, Cardozo
Christal Sheppard, House Judiciary Committee
David H. Bernstein, Debevoise & Plimpton, LLP (invited)

Everybody has a ghost: no false advertising/infringement where p's goods are legitimate components of d's product

Montana Camo, Inc. v. Cabela's, Inc., 2011 WL 744771 (D. Mont.)

Interesting but odd licensor-licensee litigation here, where there was some confusion about the legal claims. At the dispute’s core, Montana Camo objected to Cabela’s use of Montana Camo’s marks for its clothes (Prairie Ghost and River Ghost for fabric, and use of “Montana Camo” as a trigger for sponsored links) and on Cabela’s use of its own neck labels on garments made from Prairie Ghost and River Ghost fabric.

The reverse passing off claims based on Cabela’s use of its own neck labels and advertising the garments as Cabela’s or Cabela’s Montana Camo Ghost series failed. Cabela was the producer of the finished garments. It put its own labels on garments it made, as the law allows. The parties agreed that Cabela’s would buy raw fabric from Montana Camo and use the fabric to make clothes:

Although Montana Camo claimed Cabela's was supposed to put Montana Camo neck labels on these garments, this was not part of the agreement because the parties never discussed neck labels. Consistent with it being the manufacturer of the garments, Cabela's put its own neck labels on them and advertised them as “Cabela's Montana Camo Ghost Series.” Consistent with its use of Montana Camo fabric, Cabela's put Montana Camo hangtags on the garments. As opposed to a neck label, which is sewn on the back of the collar on the inside of the garment and typically depicts the logo of the garment manufacturer, a hangtag is usually applied to the sleeve or zipper of a garment and depicts a particular proprietary technology utilized in the garment, such as "Gore-Tex," "Scent-Lok," or "Montana Camo Ghost Series."

There was no authority to support Montana Camo’s claim that there could be a likelihood of confusion as to origin, sponsorship, or approval where a company puts its own label on products it made. Likewise, since it made the goods, Cabela’s ads depicting the garments as Cabela’s or as Cabela’s Montana Camo Ghost Series were not misrepresentations. (Important conclusions, given claims by, among others, candy manufacturers to control whether ice cream makers can use a trademark to identify the candy in the ice cream.) “Although in hindsight Montana Camo may not be happy with the licensing agreement that it entered into, Cabela's actions were not inconsistent with the licensing agreement. Montana Camo made its bed with this licensing agreement and now it has to lay in it.”

In addition, false advertising claims based on Cabela’s purchase of sponsored links for “Montana Camo” failed. Montana Camo couldn’t prove a false statement of fact—buying a sponsored link isn’t a statement of fact, and Montana Camo products were indeed sold on Cabela’s website, so there was nothing false there. Any §43(a)(1)(A) claim based on sponsored links was also “meritless.” There was no evidence of any likelihood of confusion, mistake or deception as to the origin of the goods.

Buying keywords isn't deceptive; deceptive ads are deceptive

Federal Trade Commission v. Cantkier, 2011 WL 742647 (D.D.C)

The FTC alleged that defendant Scot Lady placed deceptive ads on search engines whose ad text used the well-publicized names, phone numbers, and official websites of federal programs created in response to the recent housing market crisis, including "makinghomeaffordable.gov" and "financialstability.gov." The ads were targeted on keywords related to the federal programs. The FTC alleged that Lady falsely represented that he operated federal homeowner relief or financial stability websites and had an affiliation with the United States government.

The ads actually directed searchers to Lady’s private websites, which collected marketing leads for mortgage modification or foreclosure relief services. The FTC alleged that the lead collection websites themselves were deceptive, falsely claiming to obtain modifications for consumers in all or virtually all instances to make their mortgage payments substantially more affordable, and further claiming “97% success” in helping clients obtain mortgage modification. Lady moved to dismiss for failure to state a claim; the court denied the motion.

The court had already granted a preliminary injunction, finding good cause to believe that Lady and others violated Section 5 of the FTCA by placing ads that diverted consumers searching for the relevant federal programs. The court enjoined Lady from placing internet ads using hyperlinks labeled "MakingHomeAffordable.gov," "financialstability.gov," or any other term that identifies a federal homeowner relief or financial stability program, or that contain the top-level domain name "gov," or otherwise misrepresent an affiliation with a federal homeowner relief or financial stability program. Lady was also barred from making any false representation that he was affiliated with the U.S. government or that he operated federal homeowner relief or financial stability programs.

Lady first argued that the FTC failed to allege “substantial injury” to consumers not “reasonably avoidable” by consumers themselves. Under the FTC’s standard set forth in In re Cliffdale Associates, Inc., 103 F.T.C. 110, 165 (1984), a finding of a deceptive act or practice under Section 5 requires (1) a representation, omission, or practice that (2) is likely to mislead consumers acting reasonably under the circumstances, and that (3) is material. A representation is material if it involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product. Neither intent to deceive nor proof of actual deception is required.

Lady argued that the FTC had to show “consumer detriment,” language also derived from the policy statement appended to In re Cliffdale Associates and sometimes used in place of a materiality requirement. However, with deception (as opposed to unfairness), a material misrepresentation is presumed to create consumer detriment. As the FTC explained, “Injury exists if consumers would have chosen differently but for the deception. If different choices are likely, the claim is material, and injury is likely as well. Thus, injury and materiality are different names for the same concept."

Lady’s proposed standard, that the FTC must also allege and prove that Defendant's act or practice "causes or is likely to cause substantial injury to consumers" that was not "reasonably avoidable by consumers themselves," comes from Section 5(n) of the FTCA, which governs unfairness determinations. By its plain terms, Section 5(n) is inapplicable to an action based on deception, which provides a distinct rationale for FTC enforcement. Lady’s idiosyncratic interpretation of the legislative history notwithstanding, Section 5(n) was enacted based on controversy specific to the FTC’s activities regarding unfairness. Nor should the FTC’s claims here be recharacterized as unfairness claims; the FTC can sue on any cause of action for which it is possible to allege the elements necessary to establish a claim for relief.

Lady next argued that the FTC failed to plead with particularity under Rule 9(b). (The court noted that, ordinarily, Rule 9(b) also requires a pleading of what was retained or given up as a consequence of the fraud, but, because reliance, intent, and injury are not elements of a Section 5 claim, the FTC can’t be required to plead them.)

The court noted that other courts are split on whether Rule 9(b) applies to Section 5 claims. By its terms, Rule 9(b) covers only claims for “fraud or mistake,” and a claim for deceptive acts or practices under Section 5 is not a fraud claim. Lady argued that it nonetheless was covered because it sounded in fraud. There were no relevant cases in the D.C. Circuit, but the court of appeals had identified Rule 9(b)’s underlying rationales: discouraging nuisance suits and protecting potential defendants against frivolous accusations of moral turpitude, as well as guaranteeing defendants sufficient information to prepare a response, given that “fraud” encompasses a wide variety of activities.

The court concluded that when “an agency of the federal government, with all of its concomitant force, brings an accusation of implicit dishonesty against an individual, even if short of moral turpitude, the heightened pleading requirements of Rule 9(b) may serve an important safeguarding function.” (A standard tension in American law: do we trust the government more than private citizens, or do we trust it less?) The FTC argued that reputational concerns are minimal because intent is not an element of a Section 5 violation. But the court thought that there was still a risk of reputational damage because the general public might not understand the difference between intentional deception and deception.

But anyway, the court didn’t need to make a definitive ruling, because Rule 9(b) was satisfied even if it did apply. Along with the other elements, the complaint included some allegedly deceptive ads and specified additional ad titles and text. Lady argued that “since at least 2008” was not a sufficiently specified time frame, but the court disagreed. “Defendant's statements, unlike traditional statements made orally or in a written document, are alleged to have been made dynamically online in response to search queries during the alleged time frame.” The complaint also specified the keywords on which Lady bid on various search engines, which included "financial stability.gov," "fha.com," "financialsecurity.gov," "hope now alliance," "hope for homeowners," "www.makinghomeaffordable.gov," and "makinghomeaffordable.gov." On Google, his advertisements displayed titles "Makinghomeaffordable.gov," "Financial Stability.gov," "Fha Gov," "wwwhud.gov," "www.995hope.org," and "www.hopenow.com/."

In a footnote of more general relevance, the court dealt with Lady’s argument that bidding on keywords is insufficient for Section 5 liability. The court agreed that bidding itself is not a deceptive act or practice. However, the key allegation was that “the advertisements purchased in connection with the keywords contained deceptive titles and hyperlinks that were likely to mislead consumers.” (If only courts dealing with other plaintiffs were as able to make this distinction!)

The other allegations of false or unsubstantiated claims about success also satisfied Rule 9(b). The court noted that not all the quoted statements appeared to be the kind that would mislead a reasonable consumer on their own, such as "Let Us Negotiate With Your Lender For You," “further facts about the overall presentation of these statements are required to assess how a reasonable consumer would interpret them.” The allegedly false or unsubstantiated statements included "97% Success Rate," and "Guaranteed Solutions to Lower Your Rate Today!" These representations were allegedly false because Lady did nothing directly, but simply sold consumers’ personal information to others, and they were unsubstantiated in terms of the high percentage of such consumers represented to have obtained a mortgage modification.

All of this satisfied Rule 9(b)’s purpose of giving adequate notice and ensuring that plaintiff had substantial prediscovery evidence of the facts.

Lady next argued that the complaint failed to state a claim. To the contrary, the pleaded facts allowed the court to draw the reasonable inference that he was liable. For example, a reasonable consumer might think that clicking on one of Lady’s “Makinghomeafforable.gov" ads that he or she would be redirected to that website or to a site affiliated with that website, but, in fact, he or she would be directed to a lead collection site. This was likely to be a material representation because a service’s affiliation with the federal government is important to consumers. (Interestingly, here we have the government as extra trustworthy, as well as extra dangerous.) The other challenged statements could also mislead a reasonable consumer; a servicer’s prior success rate and likelihood of success are material.

Lady argued that there was no likelihood of misleading reasonable consumers because the ads were labeled as such and because his websites weren’t alleged to have imitated actual government websites in any way that would mislead consumers into believing that they were visiting the website of a federal program.

The “ad” argument failed because the FTC wasn’t alleging that Lady misled consumers into thinking that his ads were organic search results. The alleged deception is that consumers were deceived into believing they were clicking on government-sponsored links or ads. “There is no reason for consumers to assume that search engines do not feature government-sponsored advertisements.”

Likewise, it didn’t matter whether Lady’s websites were designed to imitate federal program websites. “Internet users may not know what the real federal program website looks like until they successfully navigate to it. If they are diverted by advertisements bearing the name and web address of the federal program before ever reaching the program's actual website, reasonable consumers could assume they have reached their intended destination, when, in fact, they have reached a commercial service.” This also defeated Lady’s argument that there was no deception because his services were different from those offered by the federal government. “There is no reason to expect a consumer to know the precise services offered by the federal program until he or she actually reaches the program's website and obtains information about those services.” Deceptiveness was a factual question that couldn’t be resolved at the motion to dismiss stage.

The court also denied Lady’s motion to strike the portions of the complaint that sought equitable monetary relief. A motion to strike was inappropriate: seeking monetary relief wasn’t scandalous or prejudicial, nor was it clearly immaterial or impertinent. Lady admitted that his argument that the FTCA doesn’t authorize such relief contradicted three decades of unanimous precedent. At the least, the court wasn’t about to address the merits of the prevailing interpretation of the FTCA on a motion to strike.

Motion to dismiss still not easy to win in California

Peviani v. Natural Balance, Inc., --- F.R.D. ----, 2011 WL 754958 (S.D. Cal.)

Peviani filed a putative class action against Natural Balance under the standard California laws, alleging that Natural Balance’s Cobra Sexual Energy dietary supplement is labeled falsely and misleadingly.

Natural Balance moved to dismiss, first arguing that the court lacked jurisdiction because the allegation that the amount in controversy was over $5 million was speculative. But a federal court has subject matter jurisdiction under CAFA unless it’s obvious from the face of the complaint that the suit can’t involve the necessary amount. Given the allegations that thousands of individuals have bought the product, that wasn’t obvious.

Next, Natural Balance argued that Peviani failed to satisfy Rule 9(b)’s heightened pleading requirements. Among other things, Natural Balance argued that Peviani could not have relied on the statements because she is a woman, and the product is a men's formula. Also, Natural Balance argued that the product's labels contained adequate warnings and didn’t contain misrepresentations.

Peviani argued that she’d detailed why each challenged statement was deceptive, and that she had standing because she suffered an economic injury from purchasing the supplement, even if it was ultimately used by someone else in her household.

The court found that the complaint’s allegations satisfied Rule 9(b)’s heightened pleading requirements by, among other things, providing pictures of the product’s labels and listing each challenged statement with an explanation of why it is deceptive or fraudulent. She also properly alleged reliance and injury—specifically, an economic injury because she paid more for the product than she would have absent the deceptive statements. There’s no requirement that the purchaser of the product use the product herself to have relied on the label and suffered injury.

Natural Balance also argued that the label statements were nonactionable puffery. Although puffery may be decided as a matter of law on a motion to dismiss, that’s rarely appropriate under the UCL. The statements at issue here include: "Cobra Sexual Energy"; "'adphrodiasiac' plants to enhance ... sexual energy"; "Scientifically blending select, high-quality herbs"; "offering specialty supplements that work"; and "proprietary formulas." The allegedly deceptive statements were specific enough, not generalized or vague. Moreover, while other statements alleged to be false might constitute puffery standing on their own, they contribute to the deceptive context of the packaging as a whole. Natural Balance could raise the issue of puffery again on a motion for summary judgment. (What evidence could come in on this point?  Courts are pretty vague on this themselves.)

Likewise, Natural Balance’s arguments that plaintiff was not an appropriate class representative were also inappropriate for a motion to dismiss.

False Marking involving a Method Patent

Short blurb on a case finding false marking for failure to use the method here.  H/T a reader.  (I have noticed that many practitioner readers prefer not to be named as sources.  Thus, my general practice is not to name them unless asked!)

Cory Doctorow explains IP law to a Martian

Here. Predictably, my favorite part:

What is special about inventing this tiny piece of the chain that entitles it to special treatment and makes that which builds upon it less creative?

Umm, we say. Umm. Well. Uh, copyright recognizes expression, not ideas ....

But why does it recognize expression and not ideas?

Because no one would come up with expressions unless you gave them exclusive rights to them.

Except for fan-fic writers, who’ll risk censorship, fines, disapprobation and worse to create.

Well, fan-fic isn’t properly creative, not like a real story.

The Martian makes an awkward noise with hir suckers. I don’t mean to offend you, but that seems pretty circular. It sounds like you’re saying that we need to give exclusive rights to the kind of work that people who value exclusive rights typically make, and because those people won’t create without exclusive rights, they should get them?

But mightn’t there be a similar class of creators for all those things you treat as infrastructure? Maybe there’s someone who’d come up with a literary form as great as Cervantes’s novel if she could be assured that she’d get the exclusive right to it for life plus 70 years. Maybe there’s someone who’d come up with neologisms a hundred times as cool as ‘‘robot’’ if you’d give him the right to charge rent on those cool words. And if you discover such a wordsmith or form-inventor, it seems like consistency demands that you would treat his works as the real and valuable coinages and literary forms, and treat the stuff that people make for free as second-rate – demonstrably inferior because people are willing to invent them without exclusive rights!

Crickets.

In this vein, here's a great defense of the teen girl fanfic writer, who I wasn't brave enough to be:

One more word on that "stereotype" of fanfic as the domain of female teenagers -- of course it's an insult to adults who find fanfic to be a unique mode of criticism or a zero-g literary playspace or, sure, a sexual outlet; it's also an insult to female teenagers, a group who've seen enough insults, I think. The teen fic writer is finding her literary voice, learning to comment on mainstream fictions, finding a way to express her sexuality that's not entirely about recreating herself as a visual object for others' consumption. She is rarely a very good writer, because she's usually a very new one, but it's harsh to make her up into a symbol of writing as "fantasies" of "unlikely romantic pairings" and nothing more. She has an intellectual life, even if it's sometimes more potential than realized.

Shocker: Prudential standing dismissal reversed

Harold H. Huggins Realty, Inc. v. FNC, Inc., --- F.3d ----, 2011 WL 651892 (5th Cir.)

Four residential real-estate appraisers sought to represent a class under the Lanham Act. The district court dismissed for want of prudential standing, and the court of appeals reversed.

FNC develops mortgage software, including AppraisalPort and the National Collateral Database.AppraisalPort is a conduit between lending institutions and appraisers for ordering and receiving appraisals in industry-standard format. Plaintiffs are customers of FNC’s AppraisalPort service. FNC allegedly claimed that the data was confidential, secure, and private, and that only the lending institution would have access to the data transmitted via AppraisalPort. FNC allegedly further represented that it was not building a database with or otherwise using the data the appraisers transmitted via AppraisalPort. As a result, plaintiffs alleged, they provided FNC with data from residential appraisals they had performed.

However, as FNC's chief executive officer stated in an October 2005 interview, "when an appraisal is transmitted to the lender [via AppraisalPort], we are able to pop it open and suck all the data out." Thus, FNC copied and stored the data and used it to build the National Collateral Database. This is a real estate valuation service used as an alternative to paying an appraiser for an appraisal. The plaintiffs thus compete with the National Collateral Database.

FNC thus made misrepresentations to the plaintiffs as customers and caused them injury as competitors.

The court began with the now-familiar test for prudential standing: (1) the nature of the plaintiff's alleged injury: Is the injury of a type that Congress sought to redress in providing a private remedy for violations of the Lanham Act?; (2) the directness or indirectness of the asserted injury; (3) the proximity or remoteness of the party to the alleged injurious conduct; (4) the speculativeness of the damages claim; and (5) the risk of duplicative damages or complexity in apportioning damages.

Intriguingly, the court began by noting that “[w]hile a multifactor test such as this one inevitably entails some measure of internal redundancy, it is nonetheless a valuable heuristic. These factors do not pose five wholly distinct inquiries. Instead, each turn of the prism illuminates a slightly different facet of a single underlying question.” That question: whether there was a sufficiently direct link between the asserted injury and the alleged false advertising.

The nature of the injury favored standing. Alleged loss of profits from a weakened competitive position caused by a competitor’s false advertising is squarely within the scope of §43(a). Plaintiffs also alleged that FNC wrongfully diverted to itself plaintiffs’ goodwill and reputation. “By using the plaintiffs' appraisal data to build the National Collateral Database, FNC was able to misappropriate to itself the good will and reputation associated with the superior quality of in-person, on-the-ground appraisals. This injury, too, is a core concern of § 43(a).”

FNC argued that consumers lack prudential standing, and that its alleged misrepresentations were directed to plaintiffs in their capacities as consumers. But this factor focuses on the nature of the injury, not the identity of the message recipients. Consumers don’t have standing because their injuries—higher prices or lower quality—aren’t the kinds of injuries the Lanham Act was intended to redress. But a commercial interest in generating new clients is precisely the kind of injury the Lanham Act covers.

Factor two favored FNC: the relationship between plaintiffs’ injuries and FNC’s misconduct was relatively indirect. The paradigmatic case of directness is when the defendant’s false advertising about its own goods influences customers to buy its products instead of the plaintiff’s. This requires only three steps: (1) false ad, (2) which causes customers to switch, (3) which harms the plaintiff. (The quoted case, by the way, adds in “literally” in front of “false advertising,” for reasons that have never made sense to me: if the ad is misleading, then (2) and (3) follow in the same way. There’s some underlying distrust here of implicitly false claims, but implicature is a standard feature of human communication and anyway that distrust should at least be out in the open.)

On the other end of the spectrum are injuries suffered only by virtue of the intervening acts of a third party. In one case, Russian vodka distillers who didn’t sell in America alleged that they were injured by Smirnoff’s misrepresentations that its vodka was distilled in Russia because those misrepresentations made the American market for Russian vodka less profitable and importers less willing to import real Russian vodka. This was too indirect.

This case was in the middle. In the typical direct injury scenario, the false ad necessarily pertains to the same good or service as to which the parties compete; not so here. Moreover, loss of business because lenders choose to use FNC’s database was directly caused by FNC’s misappropriation of plaintiffs’ data, not by FNC’s false ads. “Without FNC's second, intervening wrongful act of misappropriating the plaintiffs' appraisal data, FNC's alleged violation of § 43(a) would have caused the plaintiffs no injury at all.” The court of appeals counted this out in six steps, which I’ll spare you. However, the injuries were more direct than in the Smirnoff case because the same entity that made the misrepresentations ultimately caused the injury.

(There’s something going on here about the consumer, and her belief in the false representations, disappearing from the analysis. In a very real sense, the competitive injury from false advertising is never direct, which is why the “direct” scenario involves three steps. Only the consumer is directly harmed by believing the falsehood. But if we acknowledged that, we’d have to consider giving consumers standing. We also might have to face up to the fact that the harm here comes from communication, which is why the rigid doctrinal distinction between false and misleading messages is so reality-distorting.)

In the end, the plaintiffs' injuries were only slightly more direct than the injuries of plaintiffs who have been held to lack prudential standing, and substantially less direct than the injuries of those plaintiffs who have been granted prudential standing. The second factor weighed against prudential standing.

Factor three, proximity or remoteness of plaintiffs to the alleged injurious conduct, favored the plaintiffs. There was no identifiable class of persons more immediate to the injury whose self-interest would normally motivate them to vindicate the public interest; customers are irrelevant because they lack standing. Here, the plaintiffs’ alleged injury was not derivative of an injury to some other party’s competitive position. “No identifiable class of persons can be more immediate to the misappropriation of work product than the persons to whom the work product rightfully belongs.”

The plaintiffs’ damages claim was not speculative. What’s required is pleading that the defendant’s anticompetitive conduct “either has caused the plaintiff to lose profits or has caused the defendant to gain profits in a definite and ascertainable amount.” The ‘or’ is important because proof of the plaintiff’s lost profits is not a prerequisite for recovery. As long as a plaintiff adequately pleads some kind of injury, defendants’ profits due to false advertising are a sufficiently non-speculative measure of the plaintiff’s damages (as long as the plaintiff doesn’t claim damages that any member of the public would be equally well-suited to claim).

Here, the plaintiffs pled lost business and profits from lending institutions that used the database instead of their services. In addition, they alleged that FNC earned substantial profits from the database that would have been unavailable if not for its misrepresentations about AppraisalPort. Both of those were personal to the plaintiffs because they allege unjust enrichment at plaintiffs’ expense.

The district court had concluded that the damages claim was too speculative, because each plaintiff would have to establish that (1) FNC used that plaintiff’s AppraisalPort data in building its National Collateral Database; (2) one or more lenders subsequently needed information pertaining to the same property and opted to use the database rather than an appraisal; and (3) had the information not been available in the database, the lender would have chosen him to provide an appraisal (rather than another appraiser). The district court thought that (3) was too tenuous.

The court of appeals found fault with this analysis. (1), while true, is about liability, not damages. (Note that this point conflicts with several (badly decided) prudential standing cases, where the courts have made exactly this mistake—see, e.g., Phoenix of Broward.) (2) omits half of plaintiffs’ allegations: the database competes with plaintiffs by enabling lenders to use an existing appraisal of a piece of property or by allowing them to use comparable properties in the same neighborhood to estimate. Thus, (2) understates “both the extent to which the plaintiffs suffered a personalized injury and the number of occasions on which the plaintiffs were injured.” And (3) “primarily speaks to the complexity of apportioning damages among the class members, not the speculativeness of the very existence of those damages,” so it should be considered in factor five.

In a footnote, the court pointed out that Iqbal and Twombly didn’t alter the rule that all well-pleaded facts must be accepted as true, and evaluated in the light most favorable to the plaintiff, on a motion to dismiss. The Iqbal/Twombly emphasis on plausibility “does not give district courts license to look behind those allegations and independently assess the likelihood that the plaintiff will be able to prove them at trial.” Plaintiffs pled that FNC caused them to lose business and profits because more lenders would have used plaintiffs’ services if the database had not been available. This was plausible and non-speculative. The plaintiffs alleged that FNC’s misrepresentations induced them to give FNC their data, that FNC used the data to build the database, and that lenders now use the database instead of the plaintiffs. Accepting those allegations as true, “it requires no speculation to conclude that FNC's conduct caused the plaintiffs to suffer damages in the form of lost business and diminished profits.”

The fifth factor considers duplicative damages/apportionment. This weighed in favor of standing, because there was little risk of subjecting FNC to a risk of duplicative damages or complex apportionment. The risk of duplicative damages comes from granting standing to remote plaintiffs at each level in the distribution chain who could assert conflicting claims to a common fund. This factor “takes stock of where the plaintiff is situated in the market vis-a-vis the defendant.”

The inquiry is “vertical, not horizontal. In other words, we are not concerned with whether there is a large number of potential claimants who occupy the same position in the market as the plaintiff.” (As the court noted, Phoenix of Broward said otherwise. But it was wrong, not least because its outcome rewards false advertising in competitive industries and makes it easiest for dominant firms in highly concentrated industries to sue for false advertising, not something you want from a competition law.) “This factor does not weigh against standing merely because the defendant competes in a crowded market in which its false advertisements might cause injury to multiple--or even numerous--direct competitors. As long as each plaintiff has suffered a distinct economic injury, we need not inquire into how many other similarly situated persons might also have prudential standing.”

Factor five “urges caution when there are other potential claimants who are closer in the market to the defendant than is the plaintiff. Under such circumstances, conferring standing on the plaintiff would a fortiori entail also conferring standing on any entity that has a more direct competitive relationship with the defendant.” That’s where the risk of duplicative damages comes in. By contrast, the risk is low where the plaintiff is the market participant most directly injured, and allowing the suit to proceed wouldn’t necessarily require allowing other differently situated plaintiffs to sue. “The fifth factor thus overlaps substantially with the third factor, which inquires into the proximity or remoteness of the plaintiff's injury to the defendant's misconduct,” as prior cases have implicitly recognized.

Given that the third factor favored standing, so did the fifth. “Residential real-estate appraisers were the only targets of FNC's misrepresentations, and the members of the putative class were the only appraisers who acted on those misrepresentations. Because there are no other potential claimants who are more proximate to FNC in the marketplace than the plaintiffs, there is no risk of FNC incurring multiple liability or of disparate groups of plaintiffs making conflicting claims to the common fund of FNC's profits from the National Collateral Database.

The court noted that a class of appraisers who never used AppraisalPort might also have lost business, but they weren’t injured by the false advertising, only by the response of other appraisers to the false advertising, which is too indirect.

The district court weighed factor five against standing because it was "too tenuous" to suggest that the plaintiffs would be able to show that "had the information not been available in the database, the lender would have chosen [that particular appraiser] to provide an appraisal (rather than another appraiser)." That is, it was concerned with allocating damages to particular appraisers. “But the fifth factor concerns itself with the complexity of allocating damages among differently situated claimants, not within a group or class of claimants who are similarly situated.” Allocation issues can be addressed in the motion for class certification.

On balance, the factors favored standing, which would promote the Lanham Act’s goal of ferreting out unfair competition and protecting unjust erosion of goodwill. Though the injury was less direct than is typical, it was critical that there was no market participant more directly injured. Moreover, each additional step in the causal chain involved a wrongful act by FNC. “FNC's decision to couple its false advertisements with other forms of anti-competitive conduct does not make false advertising any less unfair as a method of competition.”

The court concluded with a caution that the Lanham Act is not a general-purpose anti-fraud statute, and that it viewed the case as falling “just within the outer limits of the zone of interests protected by the Lanham Act.” But here, plaintiffs had a direct pecuniary interest at stake, a zero-sum competitive relationship between them and FNC’s database. There was a but-for relationship between the false advertising and the database’s ability to compete with plaintiffs.

In honor of this week's classes on substantial similarity

Capcom Co., Ltd. v. The MKR Group, Inc., 2008 WL 4661479 (N.D. Cal.)

This is an old case, but it was just so interesting I wanted to make a note of it: unprotectable scenes a faire can be extremely detailed.

MKR owns the copyrights and trademarks to the 1979 movie “George A. Romero's Dawn of the Dead,” a successful film (over one million DVDs sold plus $7 million in its first two years of release, and a licensing program for action figures, t-shirts, Halloween costumes, masks, and postcards). Capcom makes video games, including a survival horror game called “Dead Rising.” In a survival horror game, the player’s goal is to survive long enough to escape from an isolated location overrun with monsters such as zombies. Though Capcom earlier explored possible licensing of Dawn of the Dead, it ultimately didn’t go that route, and put a disclaimer on the box: “THIS GAME WAS NOT DEVELOPED, APPROVED OR LICENSED BY THE OWNERS OR CREATORS OF GEORGE A. ROMERO'S DAWN OF THE DEAD™[.]”

Plot: In Dawn of the Dead,

a plague reanimates the dead into flesh eating zombies and threatens to destroy the United States. After escaping from Philadelphia via helicopter, a television traffic helicopter pilot, Stephen, his pregnant girlfriend, Francine, and Philadelphia SWAT team members, Roger and Peter, land on a helipad on the top of a small town's shopping mall. Once in the mall, the four main characters barricade the complex, kill those zombies already inside, and then attempt to keep out others. Throughout the many months they are in the mall, the four main characters frequently visit its numerous abandoned shops in search of clothes, food, and weapons. Eventually, a motorcycle gang invades the mall, thereby opening the premises to a new zombie invasion. After the four main characters battle the intruders, Stephen and Roger fall victim to zombie bites and die agonizing deaths while Peter and Francine run to the mall's roof and escape in their helicopter.

In Dead Rising,

the video game player controls the main character, Frank West, a freelance photojournalist intent on photographing why the United States National Guard quarantined the fictional town of Willamette, Colorado. Frank discovers that the town is overrun with zombies. He takes pictures of the town from a helicopter and is then dropped off onto the rooftop of the town's shopping mall, which has a helipad. At this point, the player must battle nonstop against zombies and other characters to search for the truth behind the town's zombie infestation. The mall's stores provide Frank with the resources he needs to survive such as weapons and supplies. Throughout the game, the player must use Frank's camera to take pictures--more points are awarded for graphic photos. Depending in part upon critical choices made by the player, numerous characters of various kinds come and go as the game progresses. The ultimate goal is to survive for three days and return to the helicopter, having deciphered the cause of the zombie outbreak.

MKR eventually counterclaimed for copyright and trademark infringement and related torts. Capcom moved to dismiss, which meant that the court only looked at the works and not at other zombie movies and videogames that were allegedly “generally known.” Interestingly, the court also declined to consider something submitted as the “script” to Dead Rising, because the script didn’t indicate who wrote it, it was not filed with Capcom's pending copyright registration for Dead Rising, and “by its nature it may not track exactly how the game itself appears to the player.”

MKR argued that substantial similarity couldn’t be resolved on a motion to dismiss. But the works were before the court and could be compared; success on a motion to dismiss was possible if and only if the claim failed using the objective “extrinsic” test, focusing on similarities between the plot, themes, dialogue, mood, setting, pace, characters, and sequence of events in the two works. The question is whether there might be substantial similarity in the protectable elements, filtering out the unprotectable elements.

MKR identified the following similarities: (1) both works are set in a bi-level shopping mall; (2) the mall has a gun shop, in which action takes place; (3) the mall is located in a rural area with the National Guard patrolling its environs; (4) both works are set in motion by a helicopter that takes the lead characters to a mall besieged by zombies; (5) many of the zombies wear plaid shirts; (6) both works feature a subtext critique of sensationalistic journalism through their use of tough, cynical journalists, with short brown hair and leather jackets, as a lead male character; (7) both works feature the creative use of items such as propane tanks, chainsaws, and vehicles to kill zombies; (8) both works are a parody of rampant consumerism; (9) both works use music in the mall for comedic effect; and (10) Dead Rising's use of the word “hell” references the tagline for Dawn of the Dead's release (“When there's no more room in hell, the dead will walk the earth.”).

The court found these insufficient to indicate copying of protected expression. The similarities were driven “by the wholly unprotectable concept of humans battling zombies in a mall during a zombie outbreak.” Each similarity ultimately had to be filtered out as unprotectable.

Both works had a scene where the main characters arrive at a shopping mall by helicopter, but the circumstances were very different—Dead Rising used that as the start of the main quest, while Dawn of the Dead didn’t immediately start at the mall. (And, though the court doesn’t say this outright, arriving by helicopter is a method of transport that makes sense if zombies are going to attack ground transport, thus putting the helicopter into the scene a faire category. My husband actually looks out for ground transport scenes in movies, where a train/bus/subway car is destroyed/overrun/whatever: we call it “bad for transit.”) The plot or sequence of events in the two works was otherwise widely divergent.

The characters were also not substantially similar. Though one in each was male with short brown hair, wore a leather jacket, and undertook activities connected to journalism, these were “elements of a stock character expected to be present in any number of stories.” Significant differences: Dead Rising’s white guy was the center of the story and was “a fairly cynical and athletic young freelance photographer who wants to report what is going on in the small town” while Dawn of the Dead’s white guy was “a timid non-athletic middle aged television news helicopter pilot of equal prominence with the other three characters. Beyond some superficial, generic physical similarities of gender, hair color and wardrobe, therefore, nothing links one to the other.”

Each work also had a tall, athletic African-American man who knew how to handle weapons, who exuded confidence and kept a cool head when surrounded by zombies. But these were stock attributes as well. Neither were developed much—the Dawn of the Dead character Peter was nothing more than expertise with weapons and sardonic demeanor, while Dead Rising’s Brad “is not developed beyond his part as a member of the Department of Homeland Security determined to rescue another particular character and depart the mall safely.” What interests me here is that where, with the white male characters, it was differences that made them not substantially similar to each other despite shared features, here it’s simple lack of development—the reasoning here resonates with arguments that non-white characters are less likely to get unique character development, and more likely to stay stock figures.

The zombies were also different. “Dawn of the Dead has a number of distinctive zombies ranging from a Hare Krishna, an extremely overweight character, and a girl with a distinctive yellow and green striped shirt. Others are dressed in plaid shirts or are covered with gore and blood. By contrast, Dead Rising lacks any similar distinctive zombie characters. All appear to be stock elements with largely generic attire. While Dead Rising does sport some zombies in plaid and covered in blood, those attributes are too hazy to amount to substantial similarity.” Plus, dozens of other characters in Dead Rising had no counterpart in Dawn of the Dead.

Any similarity in theme came from the unprotectable idea of zombies in a mall. Dawn of the Dead allegedly critiqued consumerism—“zombies seek to enter the mall in a desperate search for the consumer goods that drove them while alive. Ironically … the survivors in turn are trapped in the mall with all the consumer goods they could ever want, but can only enjoy them in the restricted world of the shopping mall itself.” Dawn of the Dead “does not begin to try to duplicate such a message.” Its theme was simple: kill zombies (and try to find the cause of the outbreak).

The only similarity in dialogue was a reference to hell. That’s not enough.

The works’ moods were difficult to compare because one was a movie and the other a video game. But they weren’t substantially similar: Dawn of the Dead was “dark, horrific, but somewhat comedic in featuring the main characters struggling to survive for months in the mall.” Dead Rising had a mood of “adventure and mystery”—it focused on action and competition instead of Dawn of the Dead’s atmosphere of suspense and anxiety. Dead Rising had its comic moments, including the use of comedic weapons such as pies, but that’s common to the genre.

The setting was also not substantially similar: the rural two-story malls with a helipad on top and a gun shop and music playing inside were scenes a faire flowing from the unprotectable idea of zombies in a mall. And the malls were different: one was relatively small with a major department store and an ice rink, while the other was a mega-mall without a major department store or ice rink, but with separate theme-based sections including a roller coaster, theater, outdoor park, supermarket, and underground tunnel system. Escalators and a fountain in both were merely typical of malls.

There was also no substantial similarity in pacing. Dawn of the Dead took place over many months, while Dead Rising plays out over three days. As for what’s on screen, Dawn of the Dead moves from slow to fast, whereas Dead Rising is constant, fast-paced action “depending on the player's preference …, if the player chooses not to follow the storyline cues, then the pace slackens and the player wanders the mall and confronts zombies.” Even if we called that similarity, that wouldn’t create an overall issue of substantial similarity.

The total concept and feel also differed: “Dawn of the Dead is of a world under seige, while Dead Rising presents an environment to be conquered.”

MKR argued that the industry saw Dead Rising as an obvious rip-off of Dawn of the Dead. But that wasn’t the question, which was whether Dead Rising copied protectable elements. Since MKR flunked the extrinsic test, “the perception in the marketplace that a work has been lifted, accurate or otherwise, simply does not come into play.”

The Lanham Act claim was likewise dismissed, even though MKR successfully pled around Dastar by claiming that Capcom was misusing Romero’s name, the term “dead” in its title, and the zombie head design on its packaging. (MKR also pled infringement based on the “plaid boy” costume of a bloodstained plaid shirt and a zombie mask, but this use of a character within a visual work falls within the realm of copyright, not trademark.) These failed to rise to the level of a Lanham Act violation as a matter of law.

Using Romero’s name on the disclaimer was a nominative fair use. Though disclaimers might be disfavored as ineffective in cases where confusion has been found, this was different, and easily satisfied the New Kids test. The court applied the Rogers v. Grimaldi test to the use of “Dead” in the title—it had artistic relevance and didn’t explicitly mislead as to source. Moreover, the shared use of one word and the idea of zombies awakening wasn’t enough to plead infringement—MKR was unable to claim that the word “Dead” alone identified it.

Nor was there a zombie head problem:

Comparing the packaging of Dawn of the Dead with Dead Rising … reveals no use of the zombie head design. The cover of Dawn of the Dead contains half a zombie head looking over a horizon. The half of the head that appears is white colored, cartoonish, bald, with a portion of the face covered in blood. By contrast, the front and back of the Dead Rising box contains a picture of the character Frank attacking numerous zombies. Of the many zombies displayed, there is one bald zombie on the bottom left corner of the front cover, but the full head and torso of the zombie is portrayed without any blood, and most of the head is shadowed. The zombie presented also appears to be much more lifelike than the half of the zombie head on the cover of Dawn of the Dead. This comparison, therefore, reveals that there simply is no basis for claiming that the zombie head design itself appears anywhere on the packaging of Dead Rising.

(I think this is descriptive fair use, but calling it that would have made it awfully hard for the court to kick out the claim on a motion to dismiss, though maybe sustainable under Iqbal/Twombly.)

The remaining state law counterclaims were also dismissed, either because they were identical to the Lanham Act claims or because they were preempted by the Copyright Act. (Weirdly, the court says the common law trademark infringement/dilution claims are preempted by the Lanham Act, an odd bobble since the Lanham Act only preempts state law dilution claims against registered marks; the discussion quotes case law saying that state law can’t be allowed to free confusing or deceptive trademarks to compete with federal trademark rights, which isn’t the issue here.)