Thursday, May 21, 2015

FDA pre-approval doesn't bar Lanham Act false advertising claim against device

Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GMBH, No. 14 Civ. 00585, 2015 WL 2359467 (S.D.N.Y. Mar. 24, 2015)
 
Earlier discussion.  SPD argued that the FDCA barred Lanham Act false advertising claims against it because the FDA had preapproved its pregnancy test and the labeling thereof.  Applying POM Wonderful, the court here disagrees.  SPD sold a home pregnancy test kit called the “Clearblue Advanced Digital Pregnancy Test with Weeks Estimator” that estimates the number of weeks that have passed since the woman last ovulated. However, C&D contended that the Weeks Estimator couldn’t provide a pregnancy duration estimate, because the medical profession doesn’t define pregnancy with respect to ovulation but rather at the time of a woman’s last menstrual period. Thus, the name and advertising of the product falsely conveyed the message that the product could tell a woman how many weeks she’d been pregnant.
 
The Weeks Estimator was a Class II medical device subject to the 510(k) process, which requires the party seeking to market a device to notify the FDA prior to marketing it.  The notification requires “a description of the device and a statement of the intended use of the device, the proposed labeling to be included on the device, and the information necessary for the FDA to determine if the device is ‘substantially equivalent’ to a pre-existing device.”  The evidence revealed that, “unlike the situation in POM Wonderful in which the challenged product labeling was merely consistent with existing FDA regulations, the Weeks Estimator’s product packaging and at least one internet commercial (though not all of its advertising) were subject to extensive FDA pre-approval.” 
 
The court found that the FDA’s involvement lay somewhere in between “full control” and “permission.”  For example, the FDA issued a “Hold Letter” due to a concern that women could misinterpret the results of the Weeks Estimator, with potentially adverse health consequences because the Weeks Estimator would under-estimate gestational age by an average of 2 weeks. The FDA identified specific changes it desired to the Indications for Use and labeling, including removal of the claim “Also Tells You How Far Along You Are.” The Hold Letter also rejected “Conception Indicator,” which was SPD’s initial name for the product.  The FDA ultimately accepted “Weeks Estimator,” but there was no indication that it would have rejected a third alternative.  Ultimately, SPD received clearance.  The Clearance Letter stated that “a new 510(k) is required before these limitations are modified in any way or removed from the device’s labeling.” Further, it said that “FDA’s issuance of a substantial equivalence determination does not mean that FDA has made a determination that your device complies with other requirements of the Act or any Federal statutes and regulations administered by other Federal agencies.”
 
C&D wrote to the FDA asking it to take “corrective action” against SPD for alleged violations of the Clearance Letter’s labeling restrictions. Its arguments overlapped with its claims in this lawsuit.  The FDA reached out to SPD and SPD submitted a “mitigation proposal” for changes in some of its labeling and advertising.  The FDA accepted some but not all of these suggestions. The FDA ordered SPD to stop airing its TV commercial because the commercial “still does not convey the limitations of your Week[s] Estimator completely, nor does it clearly state that the device can only estimate weeks since ovulation (and not weeks of pregnancy) and therefore does not present a balanced and accurate description of your device to consumers.” The FDA ultimately approved a modified commercial for internet use only, which “display[s] the [Indications for Use] statement in its entirety, in text and against a blank screen with sufficient time to allow the statement to be read by the viewer.”
 
The court concluded that there was no doubt that the FDA applied “an extensive pre-approval process.”  But did that preclude Lanham Act claims?  No. POM Wonderful applies with equal force to medical device labeling.  Fruit juice receives less oversight than medical devices, true, but the Supreme Court’s reasoning wasn’t limited to a specific area of the FDCA, and much of its analysis applied with equal force to the rest of the FDCA.

First, POM Wonderful focused on the two statutes as a whole,” emphasizing that they serve different, but complementary, purposes.” The Lanham Act is for competitors, and the FDCA is designed to protect the public health and safety. The Lanham Act uses private enforcement and the FDCA doesn’t. There is an overlap, but not a conflict.  Neither statute expressly limits the other, which is important because the two have coexisted since 1946, and Congress knew how to preclude other claims if it wanted to.  “By taking care to mandate express pre-emption of some state laws, Congress if anything indicated it did not intend the FDCA to preclude requirements arising from other sources.” Also, the FDA doesn’t have the same expertise as day-to-day competitors do, and those competitors may be more effective at getting rid of unfair competition.  “Allowing Lanham Act suits takes advantage of synergies among multiple methods of regulation.”
 
All these reasons applied with equal force to medical devices, regulation of which has coexisted with the Lanham Act for nearly 40 years.  Plus, “Congress amended the FDCA to include a pre-emption provision for medical devices that is substantially similar to the pre-emption provision for food labeling discussed in POM Wonderful.”  And “the FDA’s perspective and expertise as compared to the knowledge of day-to-day competitors is at least as limited with respect to medical devices as it is for food and beverage labeling.”
 
SPD argued that the POM Wonderful opinion carved out Lanham Act claims that challenge labeling the FDA has pre-approved because the opinion noted that “[u]nlike other types of labels regulated by the FDA, such as drug labels, it would appear the FDA does not preapprove food and beverage labels under its regulations and instead relies on enforcement actions, warning letters, and other measures.” However, the Supreme Court rejected almost identical arguments in two separate cases: First, in POM Wonderful itself, the Court rejected the Government’s position as amicus that distinguished label elements specifically authorized or required by FDA regulations from other label elements.  In addition to practical line-drawing concerns, that argument wrongly assumed that the FDCA was a ceiling on food and beverage regulation, but in fact the Lanham Act complemented the FDCA, making FDA pre-approval beside the point. 
 
Second, the Court rejected an almost identical pre-approval argument in Wyeth v. Levine, 555 U.S. 555 (2009), a preemption case otherwise on all fours with the facts here.  The Court declined to find pre-approval enough to preempt state claims, because state law remedies further consumer protection, and because Congress’s decision to expressly preempt medical device claims contrasted with its silence on drugs.  As in POM Wonderful, Congress’s silence in the face of its awareness of these causes of action, plus the FDA’s limited monitoring resources, justified the non-preemption of tort suits. “Since the FDA’s pre-approval of medical device packaging is at least as rigorous as its pre-approval of drug labeling, Wyeth’s pre-emption analysis informs this Court’s approach to FDCA preclusion of the Lanham Act.”
 
Although POM Wonderful didn’t involve pre-approval, the fact that the FDCA is not a ceiling on medical device regulation means that pre-approval isn’t a distinguishing element.  SPD argued that the FDA’s Hold and Clearance Letters indicated the FDA’s intent to be the final word, but “[i]t is for Congress, not the FDA, to determine whether the FDCA and its regulations are a ceiling on the regulation of medical devices.” Plus, the court doubted the FDA would agree with SPD’s position: the Clearance Letter expressly says that “FDA’s issuance of a substantial equivalence determination does not mean that FDA has made a determination that your device complies with other requirements of the Act or any Federal statutes and regulations administered by other Federal agencies.” There was no other indication that the FDA intended to preclude Lanham Act claims.
 
SPD finally invoked Geier v. American Honda Motor Co., 529 U.S. 861 (2000), which held that an “action was barred because it directly conflicted with the agency’s policy choice to encourage flexibility to foster innovation.” But, as in POM Wonderful, SPD couldn’t find FDA actions discussing the Lanham Act, and there was no indication that the FDA considered “the full scope of the interests the Lanham Act protects.”
 
Two post-POM cases raised similar issues.  Catheter Connections, Inc. v. Ivera Medical Corp., No. 2.T4–CV–70–TC, 2014 U.S. Dist. LEXIS 98206 (D.Utah July 17, 2014), found that the only precluded claim was an assertion that the defendant “has not complied with FDCA Section 510(k),” which would require the court to decide in the first instance whether Section 510(k) clearance is required—a determination left exclusively to the FDA. Claims focused on the “substance of [defendant’s] representations in the context of the medical device market and what drives buyers’ purchasing decisions” were not precluded—consistent with the holding here.
 
JHP Pharmaceuticals, LLC v. Hospira, Inc., No. CV 13–07460, 2014 U.S. Dist. LEXIS 142797 (C.D.Cal. Oct. 7, 2014), suggested that pre-approval could justify preclusion, but the court here disagreed; JHP didn’t address the Court’s rejection of the Government’s argument in POM or the similarity to Wyeth.
 
The only remaining question was whether C&D was trying to enforce the FDCA (not okay) or bringing a separate Lanham Act claim. C&D’s claims would only require the Court to “determine the message conveyed to consumers by SPD’s marketing and then determine whether that message is either literally false or likely to mislead and confuse consumers.” Nothing “requires the Court to interpret, apply, or enforce the FDCA, the FDA’s regulations, or the Clearance Letter.” SPD argued that, by challenging these claims, C&D inherently challenged the FDA’s approval of the safety/accuracy of the device.  But C&D wasn’t trying to overturn clearance of the device for pregnancy detection and estimation of weeks since ovulation.  The FDA didn’t indicate that SPD couldn’t change the label or the name (other than calling it “Conception Indicator”). 
 
True, SPD “might find itself stuck between a rock and a hard place, trying to honor the FDA’s wishes while avoiding Lanham Act liability.” But Wyeth indicates that’s not dispositive: “A mere finding that a medical device is falsely advertised does not necessarily proscribe use of a device that the FDA has pre-approved or labeling that the FDA has required … [T]here may be any number of ways to advertise the product that do not mislead consumers and comply with FDA requirements.”  SPD can make changes to the labeling with FDA approval, and there was no clear evidence that the FDA wouldn’t approve a change, which means that complying with both laws wouldn’t be impossible.
 

4th Circuit adopts Rogers, lifts injunction against disparaging reference to NAACP

Radiance Foundation, Inc. v. National Association for the Advancement of Colored People, No. 14-1568 (4th Cir. May 19, 2015)
 
The Radiance Foundation published an article online entitled “NAACP: National Association for the Abortion of Colored People” that criticized the NAACP’s stance on abortion. In response to a cease-and-desist letter from the NAACP, Radiance sought a declaratory judgment that it had not infringed any NAACP trademarks. The NAACP then filed counterclaims alleging trademark infringement and dilution.
 
The district court granted an injunction and the court of appeals reversed, saying some very useful things about trademark that I hope they’ll remember in other cases.  As usual, the conceptual tension between what gets said about First Amendment protections against confusion liability and what gets said about dilution was unaddressed, but that’s a small sour note.  On the plus side, the Fourth Circuit resoundingly endorses Rogers v. Grimaldi, I think for the first time.
 
The NAACP is the “oldest and largest civil rights organization” in the US, “and one that holds a place of honor in our history.” The Radiance Foundation is also a non-profit organization “focused on educating and influencing the public about issues impacting the African American community” from a Christian perspective. It runs two websites, TheRadianceFoundation.org and TooManyAborted.com, along with a billboard campaign for TooManyAborted.com. Radiance funds itself through licensing its artwork and through PayPal donations from visitors to its websites.
 
Radiance posted an article criticizing the NAACP’s annual Image Awards, entitled “NAACP: National Association for the Abortion of Colored People.” The article “lambasted the NAACP for sponsoring an awards event to recognize Hollywood figures and products that Radiance alleged defied Christian values and perpetuated racist stereotypes,” and criticized other NAACP positions, particularly its ties to Planned Parenthood and its position on abortion. Contrary to the NAACP’s claims of neutrality on abortion, Radiance contended that the NAACP’s actions actually demonstrate support for abortion.
 
National Association for the Abortion of Colored People next to billboard for TooManyAborted.com

Bumper sticker style "Civil Wrong" with "National Association for the Abortion of Colored People" label

The article appeared on Radiance’s site and the third-party site Lifenews.com.  On TheRadianceFoundation.com was also an image of a TooManyAborted billboard with the headline “NAACP: National Association for the Abortion of Colored People” repeated next to it. TooManyAborted.com used a graphic below of a red box with the words “CIVIL WRONG” followed by the modified NAACP name. Adjacent to the article on both pages was an orange button with “CLICK HERE TO GIVE ONE-TIME GIFT TO THE RADIANCE FOUNDATION” printed around the word “DONATE.” On LifeNews.com, the NAACP’s Scales of Justice appeared as a graphic underneath the headline.
 
This lawsuit resulted, and ultimately this appeal.  The court of appeals began with first principles.  “Much like advertising regulations that prohibit using false or misleading information, trademark infringement laws restrict speech in order to promote the government’s interest in protecting consumers from confusing misappropriations of product identifications.” [And dilution?] But this doesn’t impinge on the First Amendment rights of critics and commentators “so long as the Act hews faithfully to the purposes for which it was enacted.”  The use of trademarks to convey ideas, criticism, comparison, and social commentary must be carefully protected, through the use of the canon of constitutional avoidance.  Thus, an actionable use of a mark in commerce must also be “in connection with” goods or services in a manner that is “likely to cause confusion” among consumers as to the goods’ or services’ source or sponsorship.
 
So, was Radiance’s use of the NAACP’s marks was “in connection with the sale, offering for sale, distribution, or advertising of any goods or services”? To broadly construe this requirement would risk liability for many noncommercial expressive and charitable activities, risking a constitutional conflict.  At least five other circuits use this element to protect all noncommercial uses of marks against liability, though the Second Circuit doesn’t.  But at the very least, “in connection with” shouldn’t cover “broad swaths” of noncommercial speech.  (Here we get one of many cites to Rogers.)   “[T]his provision must mean something more than that the mark is being used in commerce in the constitutional sense, because the infringement provisions in § 1114(1)(a) and § 1125(a)(1) include a separate Commerce Clause hook.”
 
Thus, while the court did not hold that “commercial speech” according to First Amendment doctrine would always be coterminous with “in connection with,” it was the best guidance for applying the Act.  [I take it the hesitation is in order to provide some leeway for another United We Stand-type case, so that the Lanham Act could cover nonprofits using confusingly similar names to fundraise.]  “The ‘in connection with’ element in fact reads very much like a description of different types of commercial actions: ‘in connection with the sale, offering for sale, distribution, or advertising of any goods or services.’”  Thus, “if in the context of a sale, distribution, or advertisement, a mark is used as a source identifier, we can confidently state that the use is ‘in connection with’ the activity.” Even the Second Circuit, which rejects noncommerciality as a complete defense, held that a crucial factor was use not as commentary, but instead as a source identifier for the infringer.  Thus, a mere “strained or tangential association with a commercial or transactional activity” is insufficient, given the First Amendment risks.
 
Okay, but then the Act is designed to cover a wide range of products, and “goods or services” “remains a broad and potentially fuzzy concept.”  Thus, there must be “a real nexus” with goods or services to avoid a fatal First Amendment problem. 
 
Second, the use of a mark must be “likely to cause confusion” among consumers regarding the source or sponsorship of the goods or services. “Here it is important to remember that ‘trademark infringement protects only against mistaken purchasing decisions and not against confusion generally.’”  There are lots of tests for assessing this “inherently fact-bound and context dependent” question, but one must always bear in mind that specific purpose.  “When the infringer’s intent is something other than piggybacking off a mark holder’s success by tricking consumers into purchasing his goods instead, the other factors must be evaluated in light of that intent and purpose.”  That might not change the factors, but it does influence their application. “For example, the strength of the mark and the similarity between the marks often work in reverse for cases of parody and satire as compared to a standard infringement case.”  Similarity (as long as there are also differences) between a mark and a parody may only enhance the parody’s effect, and the strong mark’s strength is the mechanism by which confusion is avoided. 
 
When a mark is only being used to describe, rather than to identify the source of defendant’s things, “restricting speech does not serve the purpose of the Lanham Act.” As a result, “[e]ven some amount of ‘actual confusion’ must still be weighed against the interest in a less fettered marketplace of social issues speech.”
 
Given this background, the district court erred in several ways.  First [and this error was invited by prior Fourth Circuit precedent], the district court held that because the Radiance article appeared in a Google search for the term “NAACP,” it diverted “Internet users to Radiance’s article as opposed to the NAACP’s websites,” which created a connection to the NAACP’s goods and services. “But typically the use of the mark has to be in connection with the infringer’s goods or services, not the trademark holder’s.”  If the rule were otherwise, “even the most offhand mention of a trademark holder’s mark could potentially satisfy the ‘in connection with’ requirement,” which would make it equal or surpass the jurisdictional “in commerce” element, making the jurisdictional requirement superfluous and threaten the First Amendment.
 
True, in People for the Ethical Treatment of Animals v. Doughney, the Fourth Circuit stated that an infringer “need only have prevented users from obtaining or using [the trademark holder’s] goods or services, or need only have connected the [infringing] website to other’s goods or services” in order to satisfy the “in connection with” requirement. “But that rule applies specifically where the infringer has used the trademark holder’s mark in a domain name.” [Because why?]  That didn’t happen here.  [Translation: PETA was and remains wrong, as we already recognized in Lamparello, but we still don’t want to go en banc to tidy this up.]
 
The district court then found that Radiance’s use of the NAACP marks was also in connection with Radiance’s goods or services, but it failed to show a sufficient nexus between Radiance’s specific use of the marks and the sale, offer for sale, distribution, or advertisement of any Radiance goods or services. The district court first found that there was a sufficient nexus “with Radiance’s own information services” because Radiance “provided information” on its website. “That ruling, however, neuters the First Amendment. The provision of mere ‘information services’ without any commercial or transactional component is speech -- nothing more.”  Then the district court reasoned that Radiance’s use was “part of social commentary or criticism for which they solicit donations and sponsorship.”
 
While the court of appeals declined to make an “absolute” rule,
 
the specific use of the marks at issue here was too attenuated from the donation solicitation and the billboard campaign to support Lanham Act liability. Although present on the article page, the Donate button was off to the side and did not itself use the NAACP’s marks in any way. The billboard campaign was displayed on a different page altogether. A visitor likely would not perceive the use of the NAACP’s marks in the article as being in connection with those transactional components of the website.
 
[Query: So would a Radiance campaign raising money to fight this case against the NAACP qualify for protection against infringement liability?  My sense is no, not on this rationale, but what the court says later may make that kind of salami-slicing irrelevant.]  The court of appeals noted that the article was just one piece of Radiance’s larger content. “That the protected marks appear somewhere in the content of a website that includes transactional components is not alone enough to satisfy the ‘in connection with’ element.” Charitable appeals for funds are within the protection of the First Amendment, and not pure commercial speech. Courts should thus “tread cautiously when a trademark holder invokes the Lanham Act against an alleged non-profit infringer whose use of the trademark holder’s marks may be only tenuously related to requests for money.”
 
Not all solicitations by nonprofits are categorically immune from Lanham Act liability, if there’s a sufficient nexus between the unauthorized use of the protected mark and clear transactional activity. “Such a nexus may be present, for example, where the protected mark seems to denote the recipient of the donation.”  But here, the “in connection” requirement wasn’t met.
 
The district court further erred in its likely confusion analysis.  First, it found confusion based in large part on whether consumers thought “NAACP” actually stood for “National Association for the Abortion of Colored People.” But trademark infringement doesn’t protect against confusion about the marks themselves. “Thus confusion about what a particular trademark says or looks like is not relevant for infringement claims.” Nor is infringement law designed to protect mark holders from confusion about their positions.  If people took issue with the NAACP’s supposed support for abortion as a result of Radiance’s articles, that’s not trademark infringement.  More speech is the trademark owner’s only remedy.  The NAACP has a big megaphone of its own by which to correct any errors about its position by virtue of its status.  “‘Actual confusion’ as to a non-profit’s mission, tenets, and beliefs is commonplace, but that does not transform the Lanham Act into an instrument for chilling or silencing the speech of those who disagree with or misunderstand a mark holder’s positions or views.”
 
The district court also found potential confusion about affiliation between Radiance and the NAACP.  But that’s bizarre, given the article’s strong criticism of the NAACP.  The mark was used “primarily to identify the NAACP as the object of Radiance’s criticism, resembling a descriptive or nominative fair use albeit by employing a modified version of the name.”  True, internet attention spans may be short, “but the briefest familiarity with the article would quickly create the impression the author was no friend of the NAACP.”  Criticism isn’t confusion (citing New Kids).  Purpose is always essential; the district court stopped when it found that Radiance hadn’t engaged in successful parody.  But if “National Association for the Abortion of Colored People” isn’t parody, it’s still akin to satire, which “works by distort[ing] . . . the familiar with the pretense of reality in order to convey an underlying critical message.”  That may be distortion, but it’s effective distortion.  “[P]arody or satire or critical opinion generally may be more effective if the mark is strong and the satirical or critical version is similar to the original. The critical message conveyed by the satirical mark itself and in the commentary that follows ensures that no confusion about the source of the commentary will last, if in fact it is generated at all.”
 
Moreover, the full context diminished any likely confusion even further.  The domain names and webpage headings clearly denoted other organizations: The Radiance Foundation or TooManyAborted, and each site carried dozens of articles on social and political issues. But even if a viewer only caught the title, “NAACP: National Association for the Abortion of Colored People,” the claim would still fail.  “Titles, as part of expressive works, ‘require[] more protection than the labeling of ordinary’ goods.” Rogers.  Consumers understand titles to refer to the contents of a work rather than its author or publisher.  Under Rogers, if there’s a connection to the contents and no use in a way to clearly suggest authorship, use of a mark in a title won’t generally be confusing in the Lanham Act sense.  Here, the title conveyed the subject of the article.  The “satirical modification” of the NAACP’s name “was designed, as many titles are, to be eye-catching and provocative in a manner that induces the reader to continue on.” That didn’t create likely confusion.
 
Dilution: Radiance’s use fell squarely within the statutory exceptions.  Infringement protects consumers; dilution “defends the trademark itself.” [And survives First Amendment scrutiny because … never mind.] Tarnishment, alleged here, is an association “that harms the reputation of the famous mark.”
 
Unfortunately, the court of appeals accepted the idea that Radiance’s conduct did create a likelihood of tarnishment, because similarity between Radiance’s mark [which the court held above was not being used as a mark by Radiance] and the NAACP’s mark was likely to harm the reputation of the famous mark, because harming a famous mark’s reputation means “creat[ing] consumer aversion to the famous brand.”  That can happen when the famous mark is “linked to products of shoddy quality, or is portrayed in an unwholesome or unsavory context.” Radiance didn’t challenge the finding of likely harm to the NAACP’s marks. “Indeed, the whole point of the article was to criticize the NAACP [note: not to criticize the NAACP’s marks!], and Radiance attempted to accomplish that goal in part by playing off the NAACP’s name.”
 
But Radiance’s speech fell plainly within the fair and noncommercial use exclusions.  The fair use exclusion covers “[a]ny fair use, including a nominative or descriptive fair use,” and “including use in connection with,” among other things, “identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods or services of the famous mark owner,” as long as it’s not a designation of source of the diluter’s own goods or services.  Radiance used the NAACP’s marks to comment on what it deemed the NAACP’s policies.  Even taking the title out of context, the use was still nominative, because it explicitly referred to what Radiance believed the NAACP stands for.  Even if the use wasn’t a parody, it was still criticism or commentary, also covered by the exclusion.
 
The noncommercial use exclusion also applied.  The district court held that because Radiance “offered various opportunities for visitors . . . to donate to Radiance, pay to sponsor billboards, secure license content, or erect state-specific webpages for a fee,” the use of the NAACP’s marks was commercial. But the article itself wasn’t an ad and didn’t mention Radiance’s services, even if the websites generally provided opportunities to engage in financial transactions. “The key here is the viewpoint of a reasonable reader. A person navigating to the article, even if through a Google search for ‘NAACP,’ is highly unlikely to read the article as advertising a Radiance service or proposing a transaction of any kind.”

Wednesday, May 20, 2015

Pop goes the lawsuit: "original" ice pop claim could be false advertising

Conopco Inc. v. Wells Enterprises, Inc., No. 14 Civ. 2223, 2015 WL 2330115 (S.D.N.Y. May 13, 2015)
 
Wells makes the Bomb Pop, the first red-white-and-blue rocket-shaped ice pop sold in the US, created in 1955, and markets it as the “original Bomb Pop,” with “original” prominent on the packaging.  Wells owns nine trademark registrations for the name and design elements of the bomb pop.  Conopco (Unilever) sells a rocket pop, the Firecracker, which strongly resembles the Bomb Pop, but was introduced nearly thirty years after the Bomb Pop.  I found a blog post with some interesting background, including design patents for the pops and previous package designs. 
 
Bomb Pop "The Original" with blue package

Bomb Pop "The Original" with blue and yellow package

Popsicle "The Original Firecracker" yellow package

In 2014, Unilever sued Wells for trademark infringement etc., arguing that the Bomb Pop packaging was confusingly similar to the Firecracker trade dress.  Wells counterclaimed, alleging that Unilever “recently altered its Firecracker product packaging to prominently feature the phrase ‘The Original,’ knowing that the Bomb Pop was the first red-white-and-blue rocket shaped frozen ice treat,” and therefore engaged in false advertising. Wells argued that if a likelihood of confusion does exist, it does so as a “result of Unilever’s infringement of Wells’ trademarked Bomb Pop design.” [Given the long duration of both parties’ use, this strikes me as almost like a Shredded Wheat situation: given that both might be entitled to use their own rocket shapes, what duties to avoid other similar trade dress elements might they have?]
 
Wells argued that the words and pictures of the Firecracker packaging necessarily and falsely implied that the Firecracker was the first rocket ice pop. Unilever argued that “original” literally, clearly and truthfully indicated only that the product was the original Firecracker. Wells rejoined that, in the context of the whole package, “original” wouldn’t apply solely to the noun Firecracker, but would necessarily be associated with the rocket ice pops prominently displayed on the package.  The court found this sufficient to state a claim for falsity. “While it is true that manufacturers often deploy the term ‘original’ in a brand-specific way, to modify only the product name, it is not evident from the face of the pleadings that the word ‘original’ must be read in this manner.”  When used in a brand-specific way, “original” generally distinguishes between different versions, so “original” differs from, e.g., “diet,” “low-salt,” “baked,” “creamy,” or “fun-shaped” versions.  On the pleadings, the “original Firecracker” was the only Firecracker that existed, which made the brand-specific interpretation of the phrase tautological and suggested that “original” might differentiate “the original Firecracker” from other rocket ice pops instead of from other varieties of Firecracker.  This interpretation was further supported by Unilever’s use of “original” elsewhere on the package to indicate—truthfully—that Unilever’s “Popsicle” was “The Original Brand” of ice pop, that is, the first of its type.  The court found further support for its conclusion in other cases that found that “original” could be literally false in similar circumstances.
 
In the alternative, Wells sufficiently pleaded misleadingness, because it was plausible that consumer studies would show that consumers interpret “original” on the Firecracker’s packaging to indicate that Unilever’s “Firecracker” is the original rocket ice pop. Note that the court did not require Wells to have such studies in hand for plausibility—Wells was simply allowed to develop facts supporting its theory.
 
Unilever disputed materiality, but that’s generally a fact question.  Plus, “Unilever’s own decision to highlight the word ‘original’ on its packaging, at the forefront of the box and as the largest word other than the product’s name, suggests the relative importance, and hence materiality, of the claim to originality in its marketing of rocket ice pops.” Also, “given that very little distinguishes one rocket ice pop from another, it is plausible that such a claim to originality could sway a consumer, either by intimating that the manufacturer has a proficiency in producing ice pops that has withstood the test of time or by intimating that these ‘original’ ice pops are the ones the consumer remembers fondly from his childhood.”
 
Unilever argued that Wells failed to allege injury proximately caused by the alleged misrepresentation.  But Wells alleged that it had touted its own originality for 19 years, amassing goodwill, and Unilever’s claim could jeopardize that. At the pleading stage, this was enough.
 
NY GBL §§ 349 & 350: these provisions require consumer injury or harm to the public interest. Trademark infringement alone isn’t enough to state a claim.  Wells argued that its claims were about false advertising, but the harm wasn’t sufficiently directed at or borne by consumers to constitute the gravamen of Wells’s complaint.  False advertising claims come within the GBL when they pose a danger to consumers, but not when they “merely encourage consumers to buy an inferior product or buy a product from one company where they may have preferred to buy it from another.”  The harm alleged here wasn’t the type that would trigger FTC intervention or involve governmental functions or agencies, as has been found sufficient in other cases. The “lessened enjoyment of a confection of sugar, water, and flavoring from a company other than the one intended” just wasn’t significant; the primary injury was to Wells’s business.
 
Trademark infringement: Unilever argued that Wells failed to state a claim in that it was arguing only conditionally that, if likely confusion existed, the fault was Unilever’s. Wells was free to assert a counterclaim conditional on the outcome of Unilever’s infringement claim. Nonetheless, Wells didn’t make an affirmative allegation of consumer confusion; it could do so “by simply denoting that any allegations of consumer confusion are limited solely to this particular counterclaim.” Thus, the court dismissed the counterclaim without prejudice and with leave to amend.

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Tuesday, May 19, 2015

Garcia v. Google reversed; many sigh in relief

Garcia v. Google, Inc., No. 12-57302, -- F.3d – (9th Cir. May 18, 2105) (en banc)
 
Judge McKeown wrote the majority opinion. Garcia was fooled into taking part in a movie that turned out to be the awful Innocence of Muslims, and received death threats because of it. She sought an injunction on copyright grounds, which was first denied, then granted, now lifted as the en banc court affirms the district court’s denial of an injunction.
 
The court began by describing Garcia’s burden as “doubly demanding: Because Garcia seeks a mandatory injunction, she must establish that the law and facts clearly favor her position, not simply that she is likely to succeed.” It’s a mandatory injunction because it requires Google to take affirmative action to remove, and keep removing, Innocence of Muslims from Google sites. Mandatory injunctions are disfavored except on strong showings of entitlement.
 
Starting with likely success on the merits: Garcia’s five-second “acting performance” didn’t give her a claim in a copyright. She might have publicity, defamation, or contract claims, but not copyright.
 
Copyright subsists “in original works of authorship fixed in any tangible medium of expression . . . [including] motion pictures.” Fixation must be done “by or under the authority of the author.” Here, Innocence of Muslims is a motion picture and a derivative work of the script. Garcia was the author of neither, but instead claimed separate protection for her five-second performance. The Copyright Office found that her performance was not a copyrightable work of its own, explaining that its “longstanding practices do not allow a copyright claim by an individual actor or actress in his or her performance contained within a motion picture.” For copyright purposes, “a motion picture is a single integrated work.” The court credited this expert opinion, which “reflects a ‘body of experience and informed judgment to which courts and litigants may properly resort for guidance.’”
 
By contrast, the dissent’s invocation of the Beijing Treaty on Audiovisual Performances was misplaced. First, the treaty is not in force; only six of the necessary thirty countries have ratified it. Second, though the US signed the treaty, the Senate has not ratified it. Though the PTO issued a fact sheet saying that performers’ performances were protected by copyright law, the PTO lacks legal authority to interpret the Copyright Act. (RT: Also, it may still be the case that primary performances make performers co-authors or even sole authors where they control the recording—Garcia didn’t rely on joint authorship or sole authorship claims as to the film as a whole.)
 
Aalmuhammed v. Lee, 202 F.3d 1227 (9th Cir. 2000), was a useful starting point; the meaning of “work” is the first step in analyzing joint authorship.  When a work is “prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole,” the work becomes a “joint work.” But Garcia disclaimed joint authorship of the film.  Defining a “work” based upon “some minimal level of creativity or originality . . . would be too broad and indeterminate to be useful.”  Aalmuhammed’s animating concern was that a broad definition of “work” “would fragment copyright protection for the unitary film Malcolm X into many little pieces.” We shouldn’t splinter a film into many different “works” in the absence of independent fixation. “Treating every acting performance as an independent work would not only be a logistical and financial nightmare, it would turn cast of thousands into a new mantra: copyright of thousands.”
 
The dissent’s hypotheticals could be addressed with careful application of statutory definitions.  (The IP profs are still going at this, but I’m with the majority here.)  The dissent’s reliance on Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990) ([pointedly] Kozinski, J.), was inapposite, because no one in that case challenged the existence of an independent copyright on the special-effects footage that was independently fixed. 

Contracts and WFH govern “much of the big-budget Hollywood performance and production world,” and implied licenses often take care of the rest (the district court found one here). “But these legal niceties do not necessarily dictate whether something is protected by copyright, and licensing has its limitations. As filmmakers warn, low-budget films rarely use licenses.” Plus, contracts aren’t perfect, especially for third-party distributors like YouTube and Netflix, who won’t have easy access to any licenses; “litigants may dispute their terms and scope; and actors and other content contributors can terminate licenses after thirty five years. Untangling the complex, difficult-to-access, and often phantom chain of title to tens, hundreds, or even thousands of standalone copyrights is a task that could tie the distribution chain in knots.”  And filming group scenes “like a public parade, or the 1963 March on Washington, would pose a huge burden if each of the thousands of marchers could claim an independent copyright.”
 
In a footnote, the court of appeals found that the district court’s implied license finding wasn’t clearly erroneous.  “Although Garcia asked Youssef about Desert Warrior’s content, she in no way conditioned the use of her performance on Youssef’s representations.”
 
In addition, the court held, Garcia didn’t fix her acting performance in a tangible medium.  She wasn’t the one who did the fixation.  (The court noted the Copyright Office’s distinction between acting performances “intended to be an inseparable part of an integrated film” and “standalone works that are separately fixed and incorporated into a film,” the latter of which could be protected by copyright.)  Youssef and his crew did the fixation.  And Garcia claimed that she never agreed to the film’s ultimate rendition “so she can hardly argue that the film or her cameo in it was fixed ‘by or under [her] authority.’”
 
The district court didn’t err, and the law didn’t clearly favor Garcia.  But just in case, the court went on to address irreparable harm, because of the alleged threat to Garcia’s life. “Garcia understandably takes seriously the fatwa and threats against her and her family, and so do we.”  The problem was that there was no match between these risks and her substantive copyright claim. 
 
For irreparable harm in a copyright claim, as opposed to a fraud or false light claim, her harm needed to be “harm to her legal interests as an author.”  Copyright is supposed to promote progress and create an incentive to disseminate works; its justification is the protection of an author’s commercial interest, not the protection of secrecy.  Garcia’s “severe emotional distress, the destruction of her career and reputation,” and receipt of credible death threats, were “untethered from—and incompatible with—copyright and copyright’s function as the engine of expression.”  Copyright’s function is not to protect privacy or to guard against emotional distress: “such damages are unrelated to the value and marketability of [authors’] works.” US law doesn’t provide a right to be forgotten or moral rights. “We do not foreclose that in a different circumstance with a strong copyright claim, a court could consider collateral consequences as part of its irreparable harm analysis and remedy. But such a case is not before us.”
 
In addition, Garcia waited months to seek an injunction, and it wasn’t an abuse of discretion to weigh this delay undercut her irreparable harm claim.  Garcia acted once the film was translated into Arabic and sparked death threats against her. “But that proves the point: the gravamen of Garcia’s harm is untethered from her commercial interests as a performer, and instead focuses on the personal pain caused by her association with the film.”
 
The panel’s injunction, which ordered Google to take down all copies of the film from all platforms under its control, and take “all reasonable steps” to prevent further uploads, was wrongly granted.  Even in its amended form, which allowed the posting of any version of the film without Garcia’s performance, was wrong, putting the court “in the uneasy role of film editor.”  It would only matter if Google (or someone else) decided to edit another’s copyrighted film.  “To no one’s surprise, the end result was the same: the entire film remained removed from YouTube.”  Not only was this order incorrect as a matter of law, it disserved the First Amendment by suppressing a politically significant film.  Copyright isn’t categorically immune from First Amendment challenge, and the takedown order directed at “a film of substantial interest to the public” was a classic prior restraint.  A thin copyright claim was no warrant for such action.
 
Judge Watford concurred, and would have ruled solely on irreparable harm, reserving touchy copyright issues for later.  He would have accepted that the risk of death qualified as irreparable injury, but concluded that Garcia couldn’t prove a causal connection between the irreparable injury and the conduct she sought to enjoin: she couldn’t show that removing the film from YouTube would materially reduce the risk of death she faced. “Garcia is subject to the fatwa because of her role in making the film, not because the film is available on YouTube.”  Correcting misperceptions about her role in the film—she was duped into participating, she never said the offensive words her character speaks in the film, and she strongly opposed the film’s message—could help, but she’s already done everything within her power to dissociate herself from the film.  Garcia’s expert on Islamic and Middle Eastern law didn’t claim that removing the film from YouTube would likely cause the fatwa against her to be lifted, but merely opined: “If she is successful in pulling the content down from the internet, it will likely help her in terms of believability of her message condemning the film and its message.” That was too little in the way of evidence of likely impact on the key audience, especially given that demanding the takedown alone spoke of her sincerity.
 
Judge Kozinski dissented. Garcia’s dramatic performance had the minimal creativity to be copyrightable subject matter, it was original, and it was fixed at the moment it was recorded.  That’s enough.  [That’s enough to make it at least part of a work … but who’s the author of that work?]  The majority says that Garcia’s performance wasn’t a work, “apparently because it was created during the production of a later-assembled film. But if you say something is not a work, it means that it isn’t copyrightable by anyone.” So the majority’s definition of work means that no one has a copyright in any part of Garcia’s performance, “even though it was recorded several months before Innocence of Muslims was assembled.” If only the film is a work, then the copyrightability of “vast swaths of material created during production of a film or other composite work” is in doubt, such as every take that doesn’t become part of a final movie. “If some dastardly crew member were to run off with a copy of the Battle of Morannon [from Lord of the Rings], the dastard would be free to display it for profit until it was made part of the final movie. And, of course, the take-outs, the alternative scenes, the special effects never used, all of those things would be fair game because none of these things would be ‘works’ under the majority’s definition.”  The same for draft chapters of books, or parts thereof.
 
RT: There may be unusual cases, but most takes, for example, should be at least derivative works or reproductions of the script, which is copyrightable, so I don’t see a practical problem developing. The question is which hypotheticals you find most troubling/plausible, and I think the risk of making every five seconds into its own work—with corresponding effects on substantial similarity and fair use analysis—justifies taking the risks Kozinski identifies instead.
 
Effects Associates dictates a contrary result, because it held that a special effects company retained a copyright interest in its footage even though it became part of the film.  Like the special effects shots, Garcia’s performance was also “separately fixed and incorporated into” Innocence of Muslims.  Youssef could’ve sold the clip featuring Garcia to someone else; it might not have had much value, but then neither did the special effects from The Stuff. 
 
Here I think Kozinski cleverly equivocates between “Garcia’s performance” and “the footage.”  Garcia’s performance was not separately fixed from the other elements that made up the movie that were in the shots with her; it was fixed along with them.  That wasn’t true of the distinct shots created in a different place and at a different time in Effects Associates.  If (as Kozinski ten suggests) the effects had been later added into a greenscreened performance where the actors were staring at tennis balls, I think you’d get the Garcia result and not the Effects Associates result.  I don’t think we’ll ever get a perfectly pure rule here, but that’s copyright for you.
 
This isn’t an unfamiliar question. Statutory damages cases ask us to identify how many “works” are at issue, and while the statute provides an answer for compilations that are infringed, it doesn’t provide all the answers.  For example: suppose someone makes a for-profit, nontransformative, non-fair use Batman movie—alley, gunshot, pearls falling into a puddle, all that jazz.  I take it we wouldn’t want to say that the infringer had infringed each of the gazillion registered works that make up the Batman corpus and recount their own versions of this story.  What the infringer has done is infringe the Batman story (we can also count characters, but then we have to ask whether the characters are registered; anyway, counting by number of characters is a very different thing than counting by number of registered works).  By contrast, someone who reproduces the Dark Knight movies has copied specific works and the statutory damages should be calculated that way (and not as an infringement of all the other registered works that also tell the Batman story).  Of course we get slightly different definitions of “works” from the different situations, because we have different concerns about the interests invaded. But I don’t think that makes the whole edifice illegitimate.
 
Anyhow, back to the dissent: the majority erred in saying that Garcia couldn’t be an author because she didn’t play a role in the fixation.  A work is fixed when the fixation is by or under the authority of the author.  She’s an author because without her, there was only a script.  Her performance had at least “some minimal degree of creativity.” “To dispute this is to claim that Gone With the Wind would be the same movie if Rhett Butler were played by Peter Lorre.” (RT: Okay, that’s overblown. Innocence of Muslims is surely no GWTW, and Garcia’s 5-second character no Rhett Butler.  Actually, now that I’m thinking about this, isn’t Kozinski’s argument here a workaround for the rule that a character has to be sufficiently defined to be protected by copyright?  After all, Garcia’s physical characteristics aren’t “creative” or “original” in the copyright sense, so it’s just what she does in those five seconds that he argues makes her an author.)

Because Garcia didn’t sign away her rights, she acquired a copyright in her performance the moment it was fixed. “It’s not our job to take away from performers rights Congress gave them.” The Register of Copyrights was a member of the U.S. delegation that signed the Beijing Treaty on Audiovisual Performances, which would recognize Garcia’s rights in her performance because it provides that “performers” have the “exclusive right of authorizing . . . the fixation of their unfixed performances,” and “reproduction of their performances fixed in audiovisual fixations, in any manner or form.”  The PTO said that U.S. law was “generally compatible” with the Treaty, as “actors and musicians are considered to be ‘authors’ of their performances providing them with copyright rights.” The Copyright Office surely wouldn’t have signed on if it believed that the Treaty’s key provisions were inconsistent with U.S. copyright law. (Surely! After all, US negotiators are never captured and never engage in policy laundering of that type.)
 
The Copyright Office said “an actor or an actress in a motion picture is either a joint author in the entire work or, as most often is the case, is not an author at all by virtue of a work made for hire agreement.” But Garcia isn’t in either category, so she must be an author.  (It’s the “so” where we part company.  This really should be fixed by a better understanding of joint authorship.)
 
There’s not much risk of harm from Kozinski’s position, since “[t]he vast majority of copyright claims by performers in their contributions are defeated by a contract and the work for hire doctrine. And most of the performers that fall through the cracks would be found to have given an implied license to the film’s producers to use the contribution in the ultimate film.”  The remaining few wouldn’t be able to claim the “valuable” rights of joint authorship. (RT: Yeah, only total ownership of a chunk!  That doesn't pose any problems at all!) That’s why Effects Associates didn’t cause filmmaking to grind to a halt. Anyway, the Supreme Court said in Tasini that “speculation about future harms is no basis for [courts] to shrink authorial rights,” and neither the predicted database disasters or the disasters predicted by amici in CCNV took place.  (Actually, the Tasini situation is rather more complicated than that, and the case just ended after two decades—but at least that was susceptible to class treatment!)
 
The risks that this rule imposes on producers and ISPs is for them to fix by contract.  “Google makes oodles of dollars by enabling its users to upload almost any video without pre-screening for potential copyright infringement. Google’s business model, like that of the database owners in Tasini, assumes the risk that a user’s upload infringes someone else’s copyright, and that it may have to take corrective action if a copyright holder comes forward.”  (Takeaway: Kozinski really, really doesn’t like ISPs.)
 
Doomsday claims are overstated: “our injunction has been in place for over a year; reports of the internet’s demise have been greatly exaggerated.” Garcia’s copyright claim was likely to succeed and she made an ample showing of irreparable harm. “It’s her life that’s at stake.”

Monday, May 18, 2015

Close but no cigar: "worked closely" claim is puffery

Springbrook Software, Inc. v. Douglas County, 2015 WL 2248449, No. 13–cv–760 (W.D. Wis. May 13, 2015) (magistrate judge)
 
Springbrook sued Douglas County and the City of Superior for breach of contract and related claims after they stopped paying fees owed under a contract for Springbrook’s financial system software for local governments. Defendants counterclaimed for misrepresentation, fraudulent inducement, false advertising, breach of the covenant of good faith and fair dealing and unjust enrichment. The magistrate judge granted Springbrook’s motion for summary judgment on the breach of contract claim and got rid of the counterclaims except for the counterclaim for breach of the duty of good faith and fair dealing.
 
Defendants issued a formal Request for Proposals seeking bidders from qualified firms “to supply and install Financial System Software.” Springbrook, meanwhile, was developing a one-page flyer to promote its work specific to the needs of Wisconsin county highway departments, which it had done with assistance from the Wisconsin Department of Transportation. Springbrook’s product manager emailed Doug Meek at the state Department of Transportation to ask if Meek “would object to [Springbrook] including verbiage like ‘We worked closely with Doug Meek at the Wisconsin Department of Transportation to ensure our software meets the needs of Wisconsin county highway departments?’” Meek responded: “I don’t object to your referencing working with me, but I don’t think that ‘working closely’ is accurate.” In response to Meek’s request, the product manager replied that he would be happy to share a draft document and would use Meek’s name only in a manner that Meek approved.
 
However, Springbrook’s RFP response to the City included a one-page ad, “Highway Department Solutions,” in which Springbrook stated that it had “worked closely with the Wisconsin Department of Transportation to develop a highway department solution that is fully compliant with state requirements.”  Springbrook won the contract, but the relationship broke down and the defendants stopped paying, resulting in a lawsuit.
 
The court found that defendants’ claim under the Wisconsin Deceptive Trade Practices Act survived the economic loss doctrine, but failed on other grounds.  Defendants alleged that the “worked closely” claim was false, and provided affidavits from the City and County finance directors declaring that the ad was the “tipping point and the reason Springbrook was selected.”
 
First, the judge found this testimony “not specific enough to create a genuine dispute on the element of causation,” since the only thing Springbrook allegedly misrepresented was the closeness of its working relationship with the Wisconsin DOT. “After all, Meek did not deny that he had worked with Springbrook; he took issue only with the adverb ‘closely.’” Neither affiant stated that she would have voted against awarding the bid to Springbrook if she had been told simply that Springbrook had “worked with” WisDOT, rather than “worked closely” with it.
 
Relatedly, “worked closely” was puffery.  “The adverb ‘closely’ is not a term of art and it can mean different things to different people.” It expressed “only Springbrook’s judgment as to the nature of the relationship, not a specific fact that can be substantiated or refuted.” Even Meek has acknowledged that the question was a matter of opinion by stating that “I would not characterize my involvement as ‘working closely’ with Springbrook ..... [l]imited emails and phone calls answering questions is not my definition of ‘working closely’” (emphasis added). This “difference of opinion” wasn’t enough to constitute false advertising.
 
By contrast, Springbook’s representation that it had a highway department solution that was “fully compliant” with state reporting requirements arguably could have been substantiated or refuted, but the City didn’t press its argument about this claim.
 

Friday, May 15, 2015

Reading list: James Grimmelmann on Lauren Willis

Two great tastes that taste great together: The always-entertaining James Grimmelmann on the always-enlightening Lauren Willis:
Two decades ago, contract law ran headlong into online terms of service, looked around briefly in confusion, and announced that it needed to go take a nap. It has not been heard from since. In its place we have something that looks like contract law, and claims to be contract law, but is oddly ignorant of things that the real contract law would know. This usurper, part Martin Guerre and part pod person, is formalistic to a fault, obsessed with meaningless details, lazy beyond belief, and utterly devoid of human feeling.

ascertainability defeats class but EULA doesn't

Perrine v. Sega of America, Inc., No. 13-cv-01962, 2015 WL 2227846 (N.D. Cal. May 12, 2015)
 
Gearbox developed and Sega produced the game “Aliens: Colonial Marines,” “held out as the canon sequel to James Cameron’s 1986 film ‘Aliens.’”  The named plaintiffs purchased prerelease copies.  The complaint alleged a bait-and-switch in which defendants developed a “non-retail but technically superior version” of the game that featured, among other things, “advanced artificial intelligence programming, certain gameplay sequences drawn from the Aliens movie,” and “a highly advanced graphics engine (the ‘Demo Engine’),” and presented this version and described it to the public as “actual gameplay.” The retail version ultimately sold, however, allegedly “utilized different programming altogether and a different—and much less advanced—graphics engine (the ‘Retail Engine’).” Plaintiffs alleged the usual California claims.
 
The court adopted an ascertainability requirement for class certification and held that plaintiffs failed it. Defining the class as pre-release purchasers of the game would pose individualized questions of reliance.  A presumption of reliance “does not arise when class members ‘were exposed to quite disparate information from various representatives of the defendant.’” Limiting the class to people who saw an ad wouldn’t work because the court didn’t want to rely on affidavits from putative class members that they saw an ad.  (I wonder if there’s anything to be said about distrust of consumers versus moves towards voter ID.)  Here, the non-retail version was allegedly advertised in a series of demonstrations and an ongoing ad campaign. Many trailers and ads were released, and several pre-release videos contained footage from only the final retail version.
 
The named plaintiff moving for certification could not “answer ... with any degree of certainty” a question regarding which videos he saw before he preordered his copy of the game. Given the problems of subjective memory at issue, self-identification through affidavits was impermissible. As Judge Alsup noted, “[s]wearing ‘I smoked 146,000 Marlboro cigarettes’ is categorically different from swearing ‘I have been to Paris, France,’ or ‘I am Jewish,’ or even ‘I was within ten miles of the toxic explosion on the day it happened,” and the “memory problem is compounded by incentives individuals would have to associate with a successful class or dissociate from an unsuccessful one.” (Interestingly enough, that importance-based claim is completely inconsistent with what memory researchers say about memory.)
 
Certification was denied.  Separately, in an attempt to get nationwide application of California law, plaintiffs invoked Gearbox’s EULA, which had a California choice of law provision incorporated by reference from Sega’s EULA. Gearbox’s EULA, though, also has a mandatory arbitration provision and class action waiver.  The court found that this case fell outside the scope of those provisions. As used in the EULA, “dispute” is defined to mean “any dispute, claim, demand, action, proceeding, or other controversy between you and Gearbox concerning the Licensed Works....” “Licensed Works” referred to “the online features of Gearbox games and products.” 
 
Gearbox’s argument that “Licensed Works” included “Gearbox games and products” failed because the EULA stated that “Gearbox may limit or prohibit access to the Licensed Works in its discretion.” As the court noted, “[t]his makes sense only if ‘Licensed Works’ means the online features, which Gearbox could presumably control access to via log-in credentials, IP addresses, and the like. It makes no sense at all if it refers to Gearbox games and products already purchased and in the living rooms of consumers. Gearbox definitely does not have the right to go into consumers’ homes and remove their copies.” So Gearbox couldn’t win dismissal or judgment on the pleadings.

Thursday, May 14, 2015

New Jersey court rejects ascertainabilty requirement for class actions

Daniels v. Hollister Co., --- A.3d ----, 2014 WL 8808428, No. A–3629–13T3 (N.J. Super. Ct. App. Div. May 13, 2015)
 
Of interest because it’s a state court within the Third Circuit rejecting that circuit’s view of “ascertainability” in class actions.  In fact, the court holds, ascertainability “must play no role in considering the certification of a low-value consumer class action” (emphasis added).  This is a class action about gift cards.
 
In New Jersey, in the context of consumer transactions, “class actions should be liberally allowed ... under circumstances that would make individual actions uneconomical to pursue.” This policy furthers the creation of an “even playing field” for small claims.  In this case, “over $3,000,000 worth of $25 gift cards were voided,” and “numerosity, commonality, typicality, and adequacy of representation” were concededly present.
 
Hollister argued that certifying the class violated due process because it wouldn’t be able to test class members; absent class members couldn’t opt out; and the preclusive effect of any judgment would be unknowable and unenforceable.  But pre-certification ascertainability wasn’t a condition for certification, as long as the contours of the class were clearly defined. Ascertainability wasn’t a requirement of the New Jersey cases, and “federal experimentation with the ascertainability doctrine seems far from over and, indeed, this doctrinal wave may have broken before ever cresting.”  Even the Third Circuit seems unsettled on the issue.  The concerns expressed by Judge Ambro’s dissent in Carrera (adopting the requirement) and Judge Rendell’s concurrence in Byrd (limiting the requirement) were more in tune with New Jersey class action policy.  The whole point of the class action mechanism is to aggregate claims to make them easier to bring—or bringable at all. “[W]hen the concept of ascertainability is applied inflexibly it becomes a device that serves to burden or eliminate nascent class actions without providing any societal benefit.”  The equitable roots of the class action mechanism shouldn’t be overlooked.
 
Ascertainability was “particularly misguided when applied to a case where any difficulties encountered in identifying class members are a consequence of a defendant’s own acts or omissions.”  After all, if Hollister had obtained the identities of consumers when giving out $25 gift cards, it wouldn’t have an ascertainability problem.  Ultimately, ascertainability didn’t help the fair and efficient administration of justice.  “[T]he Third Circuit’s experiences suggest the doctrine is practically unworkable in application and is being exploited by defendants in unsuitable cases to evade liability.”
 
Even if ascertainability were relevant, it wouldn’t pose an obstacle to class certification, but would only be a matter for claims administration. Any future identification problems could be overcome with some ingenuity.  Members in possession of cancelled gift cards should probably not need to do anything other than present the card.  Members who discarded a gift card “because they were told that the cards expired or had been voided” “may need to show more, perhaps through submission of an affidavit; it has not been shown, however, how such a process unfairly hampers the defense.”
 
Though there were legitimate concerns about the preclusive effect of a judgment when class membership is uncertain, those concerns were outweighed by the benefits provided by class status, at least in low value consumer class actions.

Prior proceedings: no confusion where defendant existed for 100 years

Sovereign Military Hospitaller Order of Saint John v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John, 2014 WL 8804752, No. 09–81008–CIV (S.D. Fla. Aug. 19, 2014)
 
Westlaw just coughed this one up and I found it interesting because of prior proceedings (okay, fine, pun intended).  The district court initially found that the plaintiff had committed fraud on the PTO, and the Eleventh Circuit reversed the cancellation of plaintiffs’ word marks (later amending its opinion to deal with the admission of historical testimony by a group leader who didn’t have personal knowledge and wasn’t admitted as an expert, for those of you interested in evidentiary issues).
 
On remand, the district court analyzed plaintiff’s likely confusion claim against defendant and found it wanting.  Plaintiff had a design mark and four word marks (Knights of Malta; Sovereign Military Hospitaller Order of St. John of Jerusalem of Rhodes and of Malta; Hospitallers of John St. of Jerusalem; and Order of St. John of Jerusalem).  It challenged defendant’s design mark and word mark, Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem and Knights of Malta, the Ecumenical Order. (Pictures are in my earlier post.)
 
Plaintiff’s design mark was an eight-pointed cross (commonly known as a Maltese cross) on an unadorned shield, while defendant’s was a cross on a shield, superimposed over a larger Maltese cross with an outline. A crown is centered above the Maltese cross and shield.  The court pointed out that the Maltese cross design “has existed in one form or another for more than a thousand years.”  It was the insignia of Amalfi, Italy, “long before the original Knights of Malta adopted the symbol,” and is still in use there.  It “frequently appears in portraiture, ceremony, and trade.” Defendant’s parent began using its mark in the US as early as 1911, and defendant/those in privity with it used the mark continuously in Canada and the United States, including New Jersey, Pennsylvania, Delaware, Florida, Texas, North Carolina, South Carolina, the Rockies, Texas, and Louisiana. By contrast, plaintiff’s US use in commerce began in 1926.  As a result, the marks weren’t arbitrary or suggestive, given their widespread use, and they were weak.  (Note that the Abercrombie spectrum doesn’t work well for images, as the court implicitly holds by just saying “not strong” rather than “descriptive.”) 
 
However, plaintiff’s design mark was incontestable and thus “immune” to a mere descriptiveness challenge, so the “type of mark” weighed in plaintiff’s favor for the design mark. (This doesn’t make sense, but the Eleventh Circuit lets incontestability make a weak mark stronger, so it’s not the district court’s fault.)
 
Components of the word marks were also in widespread use.  “At least 20 charitable organizations can be found on the Internet that use the terms ‘Saint John,’ ‘Knights,’ ‘Hospitallers,’ and ‘Knights of Malta’ in the names…. In addition to other Orders of St. John operating in the United States, at least three United States groups and a Cuban association share the nonexclusive license to use Plaintiff’s name.”  This made the word marks weak, except that the second and third marks were incontestable and so “type of mark” weighed in plaintiff’s favor.
 
Similarity of marks: the design marks were visually dissimilar and easily distinguishable.  The word marks were unmistakably similar.  “The addition of the ‘Florida Priory’ and ‘Ecumenical Order’ language is insufficient to render the word marks dissimilar.”
 
Similarity of services: the parties both engaged in charitable activities, favoring plaintiff.  Similarity of trade channels and customers: Plaintiff claimed that “[b]oth parties seek the participation of persons who are inclined to perform charitable works or donate funds towards charitable works without regard to religion.”  The court found both similarities and differences in fundraising; plaintiff sought donations almost exclusively from its members, but not entirely, and defendant did the same. “Application of this factor … slightly favors Defendant’s organization, as Plaintiff directs some of its fundraising efforts to governmental and Catholic sources in a manner that Defendant does not, and Defendant’s parent has appeared on television, whereas Plaintiff has not.” Similarity of advertising media and communication: again there were similarities and differences, but plaintiff presented no evidence that the parties’ advertising reached the same individuals, thus favoring defendant.
 
Intent: Defendant preexisted plaintiff in the US, and thus didn’t have a bad intent.  Its parent even added “Ecumenical Order” to its unregistered word mark “to avoid any accusation that it was purposefully attempting to trade on Plaintiff’s name.”
 
Actual confusion: Here was the killer.  When plaintiff first attempted to register its marks, the examiner found defendant’s parent.  At that point, plaintiff argued that defendant’s mark, “Sovereign Order of Saint John of Jerusalem” wasn’t confusingly similar to “Sovereign Order of Malta.” The plaintiff also distinguished itself as a “charitable organization” as opposed to defendant’s parent’s “membership organization.” The plaintiff’s previous position on lack of confusion “lends support to a finding of absence of actual confusion.” Likewise, the oath about exclusive use executed by plaintiff’s counsel as part of its registration, while not constituting fraud on the PTO, showed that there was no confusion.  That oath said that, to the best of counsel’s knowledge, no one else had the right to use a confusingly similar mark. “Either Plaintiff was aware that Defendant’s parent existed but did not believe that the marks were confusingly similar, or Plaintiff was unaware that Defendant’s parent existed. Either scenario leads to a finding of absence of actual confusion.”
 
Plaintiff’s evidence of lack of confusion was insufficient.  Plaintiffs submitted a letter from King Michael of Romania (!) in which the King wrote that he has “always considered the Sovereign Military order of Malta as the only institution which is subject to international law in this field, and the only repository of the noble and ancient traditions begun in the 11th Century.” “King Michael is not located in the United States, nor is he a consumer,” and the letter didn’t indicate confusion anyway.  Defendant also solicited a donation from an individual who then contacted the Order of Malta’s American Association, but she was the cousin of Plaintiff’s American Association licensee’s president. There was no testimony that she was a donor or that she was confused about which entity was which. Her email showed that she immediately recognized the difference between “this group and your Order of Malta....” She even recalled seeing their separate and distinct presence in her worldwide travels.
 
The court concluded that confusion was unlikely: the most important factors, the type of mark and the absence of actual confusion (given 100 years in which to find some!), weighed in defendant’s favor.
 
Furthermore, the prior use defense overrode the incontestability of plaintiff’s incontestable marks. Under 15 U.S.C. § 1115(b)(5) and (6), “the record is clear that Defendant’s Order, or its predecessors in privity with it, have used the name ‘Knights of Malta’ and a Maltese cross in commerce since 1908 and thereafter incorporated in New Jersey in 1911.”  Plaintiff argued that there was no privity because there was no evidence that the earlier entities used the marks in connection with charitable or fundraising services, as opposed to corporate or club membership names. But the parties stipulated from the outset that both organizations are charities, and there was no evidence supporting plaintiff’s claim.  Given the nearly 100 years of activity before plaintiff’s registration, defendant could continue to use its marks in parts of the US where it had been active.  (The court is less than clear about whether this means defendant’s potential expansion is blocked, but I’d say given the lack of confusion defendant wins even in areas where it previously didn’t exist.)