Wednesday, January 28, 2015

False PAC advertising?

This detailed Politico story suggests that there's a fraudulent misrepresentation problem, but that the FEC can't do much about it.

Monday, January 26, 2015

Distributor's TM registration blocks manufacturer's claim

Mighty Enterprises, Inc. v. She Hong Indus. Co. Ltd., 2015 WL 276771, No. 2:14–cv–06516 (C.D. Cal. Jan. 22, 2015)
Mighty distributes and services heavy machinery. She Hong makes heavy machinery under the name “Hartford.” Mighty sued She Hong for breach of contract and related claims, based on alleged breach of an oral contract granting Mighty exclusive rights to distribute and service Hartford machinery in the US. She Hong counterclaimed for false advertising and violation of California’s UCL.
She Hong alleged first sales of Hartford machinery in the US in 1982.  But in 2014, Mighty applied to register the Hartford mark in the US, attaching pictures of She Hong’s machinery to its application.  The registration was approved, and She Hong alleged that Mighty wrongfully applied for it.  Mighty allegedly used the Hartford marks in its advertising to attract She Hong’s consumers, falsely suggesting association with She Hong or that Mighty was the manufacturer of Hartford products.
The court rejected She Hong’s legal theory as alleged, because She Hong doesn’t “presently own” the rights to the Hartford mark.  Mighty’s registration was prima facie evidence of the validity of its mark.  Given that “admitted” ownership, the theory that use of the mark was false advertising couldn’t work.  It “put the cart before the horse—there can be no claim for false advertising against a company that advertises with a registered trademark it owns.”
She Hong’s position was “understandable,” but its legal theory depended on owning the rights to a mark it didn’t own.  Since the counterclaim was permissible, the court wouldn’t let She Hong amend without an “exceedingly persuasive” argument.  Comment: wouldn’t an “exceedingly persuasive” argument be: this registration is invalid because She Hong is the true owner; the registration should be cancelled/She Hong’s allegations if true would overcome the presumption of validity; after that the infringement/false advertising claims are cognizable?  I wonder why the court didn’t point to this alternative theory.

No standing for injunction-only class

Graiser v. Visionworks of America, 2015 WL 248003, No. 1:14–CV–01641 (N.D. Ohio Jan. 20, 2015)
Graiser sought an injunction on behalf of a putative class based on his false advertising claims, which alleged that Visionworks’s buy one get one free campaign for glasses was deceptive; Visionworks allegedly offered a single pair of glasses at a discounted price to customers who declined the “free” pair, and its disclaimers didn’t work.  Graiser was quoted a price of $410 for the BOGO offer, but then told he could get one pair for $246 if he gave up a claim for the “free” second pair.  He sought only injunctive relief under the Ohio Consumer Sales Practices Act.
Visionworks removed his state court complaint on the basis of diversity jurisdiction.  The court found that Graiser lacked Article III standing to pursue a claim for injunctive relief and remanded.
At least one named plaintiff in a putative class needs Article III standing: injury, caused by the defendant, that can be redressed by a favorable resolution of the lawsuit. Although Graiser didn’t disclaim an intention to purchase the product again, the court still found that he wasn’t likely to suffer future injury—a future injury can’t be conjectural or hypothetical.  He wasn’t at risk of being deceived again. A consumer not at risk of deception might still have standing—if the consumer prefers the product at issue for other reasons anyway, but is forced to pay a higher price because the deception allows the manufacturer to charge more.
The court thought that sort of analysis would provide Article III standing to “many” false advertising claims, when the false claim is about the product itself and the plaintiff intends to buy the product again.  If Visionworks’s ad campaign allowed it to charge a higher price for the single pair without the “free” pair, Graiser would likely have Article III standing, but it was “far from clear” that the BOGO campaign would have any effect on the price of a single pair, or whether it would make the single pair cheaper or more expensive.  (OK, that doesn’t make much sense.  Presumably, if Visionworks had a relatively cheap single-pair offer to tout, it would do so instead. Also, the whole point of regulating bait-and-switch tactics is that they allow the seller to charge more, by interfering with consumers’ search costs.)
Moreover, mere exposure to false advertising isn’t a harm for Article III purposes.  It doesn’t “guarantee the concrete adverseness that Article III standing requirements are meant to ensure.” 
Finally, one could argue that the BOGO campaign compelled Visionworks to offer a free pair when someone bought at the lower price Graiser paid.  This harm rests not on the misleading ad, but on Graiser’s failure to receive two pairs of glasses at the lower price.  Yet Visionworks was under no obligation to sell two pairs at the lower price unless it continues the BOGO campaign and continues to offer a single pair at a lower price, so “an unconditional injunction requiring Visionworks to offer two pairs of glasses at the lower price would be improper.” A conditional injunction against continuing both practices “would have virtually no chance of remedying Graiser’s harm,” since Visionworks could respond in a number of ways: it could discontinue the BOGO offer; it could change it to a permissible volume discount (e.g., 1 pair for $200, 2 pairs for $350), or by discontinuing the lower price single pair. “But Visionworks would certainly not begin offering two pairs of glasses for the discounted price.”  (If true, this seems to establish the misleadingness of the campaign.)
Thus, Graiser lacked standing in federal court.  And he lacked standing to seek an injunction based on likely future harm to unnamed class members. Damages would be available in federal court if sufficient amounts were in controversy, and state courts aren’t bound by Article III so they might still offer relief after remand.

Mapping the law prof twitterverse

Ryan Whalen maps the law prof Twitterverse.  My eccentricity turns out to be 4.0.  I’m not sure what that means, but based on the name, I probably would have guessed higher.

Friday, January 23, 2015

Tuesday, January 20, 2015

Q of the day: is this enough disclosure?

Steve Clowney argues that Prawsfblawg's disclosures of West-sponsored content aren't enough, given how much a sponsored post looks like a regular post.  How would you advise a client to comply with the FTC's guidance here?  Would the purported sophistication of legal readers matter?

Dial U for unfair competition?

Liveperson, Inc. v. 24/7 Customer, Inc., 2015 WL 170348, No. 14 Civ. 1559 (S.D.N.Y. Jan. 13, 2015)
LivePerson “provides customers with live-interaction and customer engagement technology for e-commerce websites, enabling businesses to interact in real-time with their website customers.”  Its competitor 24/7 used to provide human call-center operators for customers’ call centers, but more recently developed its own live-interaction technology. The parties entered into cooperative marketing/service contracts to serve certain customers in order to offer joint solutions—LP’s tech and 24/7’s call center personnel.  24/7 thus obtained a limited license to access and use LP’s IP.
24/7 allegedly misappropriated LP’s software and sold it as its own, along with other alleged wrongdoing: accessing LP’s back-end systems to copy LP’s technology and interfering with LP’s client relationships.  24/7 allegedly designed its competing software to interfere with LP’s software, so that a customer using both technologies would experience poor performance from LP, and also designed the software to collect performance data from LP’s data.  24/7 also allegedly poached LP employees, falsely claimed that its software was the “first predictive or smart chat platform,” and disseminated fabricated and disparaging LP performance metrics to clients.
First, the court dismissed LP’s copyright infringement claim as inadequately pled because it didn’t explain when the infringement allegedly took place, neither as a start time or a period of infringement.  However, alleging that 24/7 copied the entire software module adequately alleged that it copied protectable elements.
The DMCA claim was also inadequately pled.  While courts have have held that password protection, DVD encryption measures, activation and validation keys, and a “secret handshake” protocol have all been found to be protected technological measures, the complaint didn’t allege any of this.  LP alleged, somewhat contradictorily, that 24/7 had access to its back-end under their contractual relationship and misused its access and also that 24/7 improperly used its knowledge of LP’s customer-facing software to impersonate LP and gain unauthorized access to its secure internal system, at which point 24/7 allegedly installed spyware and code to degrade LP’s software’s functionality.  Also, LP alleged that 24/7 reverse engineered LP’s software after accessing LP’s internal system.
The complaint didn’t allege that 24/7 used reverse engineering to circumvent LP’s security measures, but rather that 24/7 breached its computers in order to carry out reverse engineering. This didn’t allege circumvention.  As for the alleged mimicking of LP to gain access to LP’s secure system, LP didn’t adequately allege what technological measure the mimicry circumvented.  Successful complaints have “explicitly referenced a password, encryption system, software protocol, validation key, or some other measure designed to thwart unauthorized access to a protected work.” Alleging that 24/7 “circumvented LivePerson’s security measures” didn’t provide adequate notice.
The CFAA claim was also inadequately pled because LP didn’t plead facts showing that 24/7 exceeded its authorization, and also didn’t adequately allege damages.  There’s legal uncertainty about whether a user who abuses authorized access can trigger the CFAA’s ban on exceeding authorized access.  The Second Circuit hasn’t ruled on the issue and other circuits and other district courts within the Second Circuit are split.  The court here joined the majority narrow approach, so that abusing authorized access isn’t actionable.  Among other things, this avoids adding a subjective intent requirement to the Act; comports with the type of “loss” against which the CFAA protects (which don’t include losses related to misappropriation of information); and complies with the rule of lenity governing ambiguous criminal laws.  Exceeding authorized access is therefore defined as having permission to access certain information on a computer, but accessing other information as to which there is no permission.  Here, LP’s allegations focused on 24/7’s misuse of data obtained through authorized access, or didn’t explain the means by which 24/7 allegedly gained unauthorized access.
In addition, LP didn’t adequately allege damage or loss over $5000, because actionable damage or loss under the CFAA has to relate to LP’s computer systems.  Allegations that 24/7’s conduct endangered LP’s relationships with several major clients, diluted its good will, injured its reputation, and misappropriated/devalued its IP didn’t qualify.
However, misappropriation of trade secrets and breach of contract were adequately pled, as well as some aspects of the intentional interference with prospective and existing economic relationships claims.  LP alleged improper interference from providing inaccurate performance data to LP’s clients, when the data required access to LP’s confidential system and differed significantly from LP’s performance data shown when its technology was used by other call-center labor providers/employees.  (Put that way, it sounds like LP did perform badly in conjunction with 24/7; inaccuracy isn’t really the complaint, but misleadingness about the source of the performance.)  LP also alleged that it found 24/7 code “expressly designed to suppress the proper operation of LivePerson’s technology, such as preventing livechat sessions from being initiated, and/or eliminating LivePerson’s ‘chat’ button from appearing altogether” on its clients’ websites. That would constitute improper interference.
By contrast, the alleged interference with LP’s employees wasn’t adequately pled.  LP didn’t allege noncompete agreements and failed to meet its high burden of alleging wrongful means, such as fraud or threats, to get employees to quit.  Raiding isn’t itself wrongful means.
Further, the Lanham Act claim was adequately pled.  LP alleged that 24/7 falsely claimed to have developed the first predictive chat platform, while LP actually did so, resulting in harm to LP’s goodwill and reputation as well as misappropriation and devaluation of its IP.  (Dastar problem, especially with the misappropriation/devaluation parts?)  LP didn’t provide the full context of the allegedly false ad, making it hard to evaluate the “entire mosaic” of the ad, as required.  24/7 correctly argued that context could establish truth, e.g., that 24/7 was promoting innovative, unique features; or “first” could be immaterial puffery, “considering the sophistication of the clients in this industry and the unlikelihood that claims of developing the ‘first’ such software would influence their purchasing decisions.” But materiality is generally a fact question not resolvable on the pleadings; LP was instead ordered to provide a more definite statement about context and materiality.
The common law unfair competition claim was also adequately pled.  Unfair competition is generally limited to passing off, acting solely to destroy a rival, and using independently illegal methods. Here, allegedly embedding spyware on LP’s clients’ websites to engage in reverse engineering, injecting tracking markers into LP’s systems to facilitate unauthorized data mining, manipulating LP’s software on client deployments to reduce its performance, and deploying software code designed to suppress the proper operation of LP’s technology, would either be independently illegal or would constitute passing off.  (Hunh? How is this passing off?)
Finally, unjust enrichment was adequately pled.

Pinterest, sponsorship, and copyright

Fascinating story on top pinners on Pinterest, which suggests that Pinterest’s policies deter people from disclosing sponsorships (which the FTC wants them to do; could it go after Pinterest for deterring users' compliance?), and also contains the interesting note that one of the top pinners prides herself on introducing new, previously unpinned images to Pinterest—which might have some copyright implications.

Thursday, January 15, 2015

Lexmark applies to false association, not just false advertising

International Foundation of Employee Ben. Plans, Inc. v. Cottrell, No. WDQ–14–1269, 2015 WL 127839 (D. Md. Jan. 7, 2015)
IFEBP sued Cottrel, d/b/a HR Vantage, for false advertising, trademark infringement, and related claims.  IFEBP is a nonprofit that trains and certifies professionals in employee benefits and compensation, with registrations for CEBS and Certified Employee Benefits Specialist (certification marks allowing certified individuals to use those designations). Cottrell provides disability retirement counseling to federal employees, and uses those designations on her website and LinkedIn profile, but doesn’t have certification from IFEBP.
IFEBP alleged harm in the form of “lost sales of [IFEBP’s] educational and examination fees,” as well as harm to its reputation because Cottrell “is providing substandard services,” and “customers receiving such sub-standard services from Cottrell will presume ... that [IFEBP has] certified [Cottrell’s] sub-standard services.”
Cottrell argued that IFEBP didn’t show harm causation from her alleged use of its marks and that its claims failed because they weren’t competitors. The court found that her competition-based argument applied to both the §43(a) false designation and the §43(a) false advertising claims. The court then reasoned that Lexmark applied to both prongs of §43(a).  The Supreme Court relied on the Lanham Act’s purpose, which applies to all its provisions; “there is no reason to think the Supreme Court would apply different standing requirements to a false designation claim.” Indeed, the Court then observed that “[m]ost of the enumerated purposes are relevant to false-association cases.”  Thus, direct competition wasn’t required for either claim.
IFEBP plausibly alleged a likelihood of confusion. And confusion wasn’t a necessary element of its false advertising claim; when a representation “is literally false, a violation may be established without evidence of consumer deception.” The allegations sufficiently delineated literal falsity.  Plus, IFEBP alleged economic and reputational injury: Cottrell displayed its certification without paying “educational and examination fees,” and customers would believe that IFEBP “certified [Cottrell’s] sub-standard services.”  (That first injury doesn’t really seem like Lexmark injury. It occurs to IFEBP as vendor of services, the flip side of injury suffered as a customer, which isn’t within the Lanham Act’s definition of harm according to the Supreme Court.)

Interpretation of alleged relabeling agreement is for jury

Ecore International, Inc., v. Downey, No. 12–2729, 2015 WL 127316 (E.D. Pa. Jan. 7, 2015)
Ecore makes recycled rubber flooring; defendants allegedly relabeled and resold Ecore’s goods as its own.  Downey owns an engineering consulting company that provided consulting services to Ecore, and founded and was the sole shareholder of defendant Pliteq, also in the business of sound-control flooring products.  Defendants bought Ecore products through third parties, first buying unlabeled goods and adding Pliteq labels.  Later, defendants had workers remove the Ecore labels and replace them with Pliteq ones. Defendants allegedly took precautions to prevent the relabeling from being discovered, including instructing employees not to mention Pliteq when communicating with Ecore. Defendants also published marketing materialis misrepresenting that Pliteq created and manufactured the products.
Defendants argued that there was an email agreement between Downey and Ecore to relabel to deal with some competitors, and that Ecore used similar private labeling strategies with other partners. Ecore denied this and denied that the relevant person even read the part of the message at issue. The court found that the relevant email, while it appeared to discuss competitors’ products, was “difficult to comprehend fully from an outside perspective, even with the benefit of some deposition testimony.”  The key portion says:
If Irvine is willing to accept alternates, I have told Mark that we will sell a private label of QT [Ecore’s product brand], called Pliteq GenieMat, through our distributor at $0.75/SF. It won’t have the same level of testing, or say QT on it, but at least is comparable with the SoundSeal testing, and we can provide a letter saying it is a private label as manufactured by Ecore. This should alleviate their need for lowest price.
Ecore’s response email said “F* * * them ... cut their throat on price....this is a war and our nuclear device is not ready yet. The USRR suit is going to cost a f* * *ing fortune to defend. Take no prisoners ... we’ll clean up the market mess once we have the reissue in hand” (ellipses in original).  Ecore said that the recipient didn’t even read the relevant portion of the email, and also noted that defendants’ conduct was inconsistent with the alleged proposal because the relabeling never came with any sort of “letter saying it is a private label as manufactured by Ecore.”  Plus, defendants resold the products at a higher price, which didn’t seem in keeping with the alleged agreement.
Given the highly factual nature of the dispute, the court denied summary judgment for Ecore. The court also noted that defendants’ argument that relabeling/private labeling was common wasn’t sufficiently shown.  They cited a case finding that, “because it was common in the clothing industry for retailers to add their own labels, retailer labels do not express or are not understood by consumers as a designation of origin at all, and thus they cannot constitute false designations of origin for the second element of a reverse passing off claim.”  But defendants only offered examples of Ecore’s own private labeling agreements; they didn’t show a common industry practice. Plus, defendants didn’t just relabel. They made express statements of origin on their website and in marketing materials. However, the existence of private labeling agreements did potentially enhance the credibility of the claim that Ecore had a similar agreement with defendants, further showing that the issue should be for the jury.
The false advertising claims were based on largely the same misrepresentations as to the source of the products in marketing materials.  Ecore argued that actual deception and materiality could be presumed given literal falsity. But this presumption only applied for injunctive relief, not money damages.  Ecore’s off-hand reference to evidence that two actual consumers were misled wasn’t enough to grant it summary judgment. Those incidents involved a sales rep who wrongly tried to push customers into buying defendants’ products rather than Ecore’s, which had little or nothing to do with the advertising statements at issue.

Wednesday, January 14, 2015

Passing off claim is subject to Rule 9(b) but passes

Medscript Pharmacy, LLC v.My Script, LLC, LLC, No. 14 C 0469, 2015 WL 149062 (N.D. Ill. Jan. 12, 2015)
The complaint alleged that Medscript was a Professional Compounding Centers of America (PCCA) certified compounding pharmacy, while defendants are compounding pharmacies/former owners and members of Medscript.  The non-pharmacy defendants sold their interests in Medscript and received a patient list containing health information to verify the amount of payments they’d get from Medscript post-closing.  The non-pharmacy defendants allegedly gave the patient list to My Script and defendant Valuscript to market those pharmacies and get prescribers to fill prescriptions with those pharmacies, in alleged violation of HIPAA.
My Script employees or agents allegedly falsely told Medscript patients and prescribers that (1) Medscript was out of business and My Script was taking over its patients and would fill the patients’ prescriptions, or (2) Medscript had changed its name to My Script, and My Script would fill the patients’ prescriptions going forward. My Script also made these false statements to prescribers. Also, Valuscript allegedly sent patients unauthorized prescriptions that were supposed to be filled by Medscript, and billed the patients’ insurance carriers for the prescriptions.  Finally, My Script and Valuscript allegedly sent their representatives prescription pads to give to prescribers that had Medscript’s name on them but My Script’s and Valuscript’s fax numbers. Thus, prescribers would believe they were filling prescriptions with Medscript but were unknowingly filling them with My Script and Valuscript.
First, defendants argued that the complaint didn’t plead with sufficient specificity under Rule 9(b), and the court agreed that allegations of false statements/passing off with the prescription pads triggered Rule 9(b).  But the complaint adequately alleged the who (My Script employees), what (out of business/name change/prescription pads—direct quotes not needed), where (to Medscript patients and prescribers), when (after they received the patient list), and how (use of the patient list).  Thus, the Lanham Act claims and related claims survived Rule 9(b) scrutiny.  (Note the interesting fact that the court applies Rule 9(b) to what’s ordinarily considered a classic trademark claim, passing off, and courts don’t often do that with §43(a)(1)(A) claims.)  But the civil conspiracy claim wasn’t pled with sufficient particularity.
Defendants argued that the allegations didn’t establish “commercial advertising or promotion” because the statements weren’t made to the general population or a significant portion of the industry, but were person-to-person communications.  Advertising or promotion is usually directed to a subset of the public.  But the Lanham Act requires that communications be made to a significant portion of the relevant industry. Here, the relevant industry was the compounding pharmacy industry. It was plausible that Medscript’s patients and prescribers contacted by defendants represented a significant portion of that industry, though factual development might ultimately show otherwise.  Thus both Lanham Act and related state law claims (including tortious interference) survived.

Pop quiz, hotshot

Who authorized the following promo?
"Winter is Coming" NHL/Reebok promo, seen on subway
Alternatively: the NHL and Reebok can take it, but they don't want to dish it out:
NHL/Reebok trademark statements on ad

Art objects and trademark infringement

Anthony Antonellis creates art objects/sculptures with bottles of Poland Spring water and knockoff wristbands.  Nestle objects, claiming likely confusion.  What is the appropriate test?  Rogers or something else?  Antonellis is looking for a pro bono lawyer.

Friday, January 09, 2015

Transformative work of the day

Six country songs from last year, played over each other.  I'm not a fan of the genre, but this strikes me as very well done as well as funny.

Thursday, January 08, 2015

Reading list: cheap books and scientific progress

Barbara Biasi & Petra Moser, Does Cheap Access Encourage Science? Evidence from the WWII Book Replication Program.

Policies that reduce the costs of accessing prior knowledge (which is covered by copyrights) are becoming increasingly prominent, even though systematic empirical evidence on their effects continues to be scarce. This paper examines the effects of the 1942 Book Republication Program (BRP), which allowed US publishers to replicate science books that German publishers had copyrighted in the United States, on the production of new knowledge in mathematics and chemistry. Citations data indicate a dramatic increase in citations to BRP books after 1942 compared with Swiss books in the same fields. This increase is larger for BRP books that experienced a larger decline in price under the program. We also find that effects on citations are larger for disciplines in which knowledge production is less dependent on physical capital: Citations to BRP books increased substantially more for mathematics (which depends almost exclusively on human capital) than chemistry (which is more dependent on physical capital).