Friday, November 17, 2017

We got the empire, now as then: Rogers precludes record label suit against Fox show

Twentieth Century Fox Television v. Empire Distribution, Inc., No. 16-55577 (9th Cir. Nov. 16, 2017) 

“Empire Distribution, founded in 2010, is a well-known and respected record label that records and releases albums in the urban music genre.”  Then came Fox’s TV show Empire, “which portrays a fictional hip hop music label named ‘Empire Enterprises’ that is based in New York” and “features songs in every episode, including some original music.” Columbia Records releases music from the show, and Fox promotes the show and its music through live musical performances, radio play, and consumer goods such as shirts and champagne glasses bearing the show’s “Empire” brand.  Fox sought a declaratory judgment of noninfringement and Empire counterclaimed for infringement and dilution. The district court granted summary judgment to Fox, relying on Rogers v. Grimaldi, and the court of appeals affirmed.

Empire argued that at least some of Fox’s uses weren’t part of expressive works and thus outside Rogers: Fox allegedly used the “Empire” mark “as an umbrella brand to promote and sell music and other commercial products.” The court of appeals found that these were only “technically” outside the title or body of an expressive work: works protected by Rogers “may be advertised and marketed by name.”  There was no reason to think the TV show was a pretextual expressive work “meant only to disguise a business profiting from another’s trademark”; Fox’s promotional activities, “including those that generate revenue, are auxiliary to the television show and music releases, which lie at the heart of its ‘Empire’ brand.”

A footnote in Rogers says that Rogers’ limiting construction of the Lanham Act wouldn’t apply to titles that are confusingly similar to other titles, because the public interest in sparing consumers this type of confusion outweighs the slight public interest in permitting authors to use such titles. But appellate courts haven’t cited this footnote, and even the Second Circuit applied Rogers in the subsequent Cliffs Notes case involving conflicting titles.  Any such exception might be “ill-advised or unnecessary,” and was anyway inconsistent with Ninth Circuit precedent speaking of Rogers as the test that applies when expressive works are accused.

Applying Rogers: Empire argued that, in order for Rogers to apply, the mark must have attained a meaning beyond its source-identifying function.  [Which, not for nothing, “empire” does—it just had that meaning before Empire entered the scene.] But that’s merely a consideration—expressive uses often, but not always, occur “when a brand name enters common parlance and comes to signify something more than the brand itself,” and Rogers is broader. Then, unfortunately, the court commented that “a mark that has no meaning beyond its source-identifying function is more likelyto be used in a way that has ‘no artistic relevance to the underlying work whatsoever,’ because the work may be “merely borrow[ing] another’s property to get attention’” (citing Dr. Seuss Enters. v. Penguin Books, sigh)—which of course is inconsistent; if the mark didn’t have some sort of meaning beyond source identification, it wouldn’t make sense to use it to get attention for an expressive work.

Here, Fox used the common English word “Empire” for artistically relevant reasons: “the show’s setting is New York, the Empire State, and its subject matter is a music and entertainment conglomerate, ‘Empire Enterprises,’ which is itself a figurative empire.”  Prong one was satisfied. There was no additional requirement, as argued by Empire, that the junior work refer to the senior mark. “A title may have artistic relevance by linking the work to another mark, as with ‘Barbie Girl,’ or it may have artistic relevance by supporting the themes and geographic setting of the work, as with Empire.”

The title wasn’t explicitly misleading.  Empire Distribution argued that the “relevant inquiry . . . is whether the defendant’s use of the mark would confuse consumers as to the source, sponsorship or content of the work.” But that’s the general likelihood-of-confusion test, which applies outside the Rogers context of expressive works. Likely consumer confusion wasn’t the key, but rather whether there was “an ‘explicit indication,’ ‘overt claim,’ or ‘explicit misstatement’ that caused such consumer confusion.” Fox’s Empire show contained no overt claims or explicit references to Empire Distribution, and thus wasn’t explicitly misleading; game over. 

Thursday, November 16, 2017

false advertising of copyright ownership of songs not preempted, court rules

Carter v. Pallante, 256 F. Supp. 3d 791 (N.D. Ill. 2017)

Tollie Carter sued, as relevant here, alleging that ARC, Fuji, and BMG infringed his copyrights in certain songs by selling unauthorized licenses to third parties, who in turn publicly performed the songs. Carter’s father, Calvin Carter, and his uncle, James Bracken, were songwriters, and Carter is their heir who allegedly recaptured rights in their works under §203 and §304.

Nonetheless, Carter alleged that the publisher defendants, “without [Carter’s] authorization or consent, represented to numerous third parties it could license—and did license to those third parties—the performance rights and other rights to [Carter’s songs].” The court found that claims for copyright infringement and contributory infringement were sufficiently pled.  Selling licenses plausibly violated Carter’s exclusive right to “distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” [Which right?  Authorization isn’t usually considered a separate right, but merely the foundation for secondary liability, which does seem adequately alleged here.] The court rejected defendants’ argument that Carter needed to state who the third parties were, which songs were licensed, or when the licenses were sold, none of which is required under Rule 8 for copyright claims. “He cannot be expected to know at this stage who the third parties were, when these sales occurred, or which of his songs were licensed. This information, if it exists, is exclusively within the Publisher Defendants’ knowledge, and Carter can obtain it only through discovery.”  So too with contributory and vicarious copyright infringement.

DMCA §1202: The claim for removing CMI also survived, even though the alleged removal here didn’t relate to “the Internet, electronic commerce, automated copyright protections or management systems, public registers, or other technological measures or processes as contemplated in the DMCA as a whole.” The plain text of the statute doesn’t require any of that.  Further, defendants argued that Carter didn’t plead that false copyright information was conveyed “with copies of the work.”  But under Rule 8 he didn’t to plead particularized facts as to how, when, and to whom the publishers communicated false information in connection with their purported licensing agreements. “In any event, Carter unmistakably alleges that false copyright information was conveyed with copies of the work by way of the licensing agreements he claims the Publisher Defendants entered into with third parties.” [That doesn’t seem right—again the court seems to be conflating authorization with actual exercise of a §106 right.]

State law claims, however, were mostly preempted, including tortious interference claims. The partial exception was deceptive trade practices under the Illinois Uniform Deceptive Trade Practices Act, which covers “pass[ing] off goods or services as those of another” and “caus[ing] likelihood of confusion or of misunderstanding as to the source ... of goods” as deceptive trade practices. The claim that publishers passed off the copyrighted songs as their own, so that consumers would license them, “falls squarely within the Copyright Act and is therefore preempted.”  However, allegations that the defendants “misrepresented that they owned the copyrighted songs in advertising material without infringing copyrights to the songs” were sufficient, since “[m]aking misrepresentations about a copyrighted work in advertising material—short of licensing the copyrighted works at issue or taking any other action in connection with a copyright owners exclusive rights—is not among the exclusive rights enumerated in § 106 of the Copyright Act.”  This doesn’t seem right under Dastar—the interpretation of “source” is usually the same under state and federal law, and Dastar’s reasoning should justify conflict preemption of state law anyway.

physical harm to the public isn't irreparable harm for competitor plaintiff

Nutrition Distribution, LLC v. Enhanced Athlete, Inc., 2017 WL 5467252, No. 17-cv-2069 (E.D. Cal. Nov. 14, 2017)

Defendants allegedly falsely advertised products containing 2,4-Dinitrophenol (DNP) to body builders, gym users, and the like. Defendants allegedly promote it as an ingestible fitness supplement that increases fat loss, despite the health dangers it poses. The plaintiff sells its own competing supplement, and sued for false advertising and RICO violations. The court found that there could be no preliminary injunction because the plaintiff hadn’t shown irreparable harm.  After eBay, the court declined to presume irreparable harm from falsity and materiality. Health harm to the public was third-party harm, relevant to the public interest but not to whether the plaintiff had shown irreparable harm to itself.  The plaintiff’s claim of lost sales since the introduction of DNP into the market didn’t show a causal connection between the two, and anyway lost sales could be remedied by money damages.

Wednesday, November 15, 2017

Church & Dwight not protected against challenge to "Made in USA" claim for condoms

Claiborne v. Church & Dwight Co., 2017 WL 5256752, No. 17-cv-00746 (S.D. Cal. Nov. 13, 2017)

At least two lines of Trojan brand male condoms have the words “Made in U.S.A.” printed on the packaging. This statement allegedly violates California law because more than ten percent of the condoms’ wholesale value allegedly derives from natural latex material produced outside of the United States.  Claiborne alleged that the condoms state that they contain natural latex, and that US domestic production of natural latex is minimal, with 90% of the global supply coming from Southeast Asia.  Further, the US is allegedly the largest consumer of natural latex—accounting for approximately 20% of global consumption. In addition, the natural latex is allegedly the only substantial component of the Condoms.

The court found that Claiborne plausibly alleged that more than ten percent of the condoms’ wholesale value comes from outside of the United States, which would make it unlawful to market as “Made in U.S.A.” in California.  It was true that Claiborne didn’t allege exactly what percentage of the wholesale value comes from abroad, but all he needed to do was plausibly allege that the foreign wholesale value was greater than ten percent, rather than an exact percentage above that.

Claiborne also plausibly alleged that he suffered damage: he alleged that, but for the “Made in U.S.A.” representation, he would not have purchased the condoms or he would have paid less. That’s enough under Kwikset.  He also had standing to pursue injunctive relief even though he now believed the representations were currently false (this opinion appeared to have been drafted before the 9th Circuit’s recent ruling on this, because the court says there’s no binding authority; fortunately the court’s reasoning is consistent with the current law).  “[W]here false advertising misleads a consumer, the consumer tends to suffer continuing injury in the form of a lessened ability to trust that any similar future representation is accurate.” Relief “could restore the consumer’s trust, thus aiding him in making informed purchasing decisions in the future.”  Claiborne didn’t need a present intention to purchase a Trojan product in the future; false advertising still injured him “because it lessens his ability to gather all relevant information and incorporate it into his future purchasing decisions.”

Church & Dwight argued that, even under this approach, the allegations of the complaint established that it is not possible for a natural latex condom to carry a lawful “Made in U.S.A.” label because of insufficient domestic natural rubber production. That wasn’t true; it merely alleged that, because of the current domestic supply/demand imbalance, C&D uses imported natural latex.  If C&D changed its sourcing, it could keep the label.

TM question of the day

Game of Bones (at the science museum):

Thursday, November 09, 2017

230 bars false advertising claim against antimalware provider

Enigma Software Group USA LLC v. Malwarebytes Inc., No. 5:17-cv-02915, 2017 WL 5153698 (N.D. Cal. Nov. 7, 2017)

Malwarebytes and Enigma compete in the anti-malware software market.  When Malwarebytes’s software detects an unwanted program, it displays a notification and asks the user if she wants to remove the program from her computer. Enigma alleged that, in 2016, Malwarebytes started to misleadingly identify Enigma’s software as a potential threat, in order to interfere with Enigma’s customer base and to retaliate against Enigma for a separate lawsuit Enigma filed against a Malwarebytes affiliate.  Enigma sued for false advertising under state and federal law, as well as tortious interference. The court found all claims barred by § 230(c)(2) of the Communications Decency Act, specifically subsection (B): “No provider or user of an interactive computer service shall be held liable on account of … any action taken to enable or make available to information content providers or others the technical means to restrict access to material [that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected].”

Zango, Inc. v. Kaspersky, 568 F.3d 1169 (9th Cir. 2009), indicated that “companies that provide filtering tools,” such as Kaspersky, are eligible for immunity under § 230(c). It found that Kaspersky qualified as a service provider, and “has ‘made available’ for its users the technical means to restrict items that Kaspersky has defined as malware.” Thus, Kaspersky qualified for immunity under § 230(c)(2)(B) “so long as the blocked items are objectionable material under § 230(c)(2)(A).” Kaspersky properly classified malware as “objectionable” material.

Enigma argued that Zango was distinguishable because malware, as defined by Malwarebytes’s criteria, wasn’t material that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” because it is “not remotely related to the content categories enumerated.” Zango did not address whether an anti-malware provider has discretion to decide what is “objectionable” because that argument was waived.  However, Zango clearly held that § 230(c)(2)(B) immunity applies to “a provider of computer services that makes available software that filters or screens material that the user or the provider deems objectionable.” Thus, Zango was factually indistinguishable.

Enigma then argued that Malwarebytes was entitled to § 230(c)(2)(B) immunity only if it acted in “good faith.” Subsection (A) protects “any action voluntarily taken in good faith” to restrict access to objectionable material, but subsection (B) has no good-faith requirement.  The court refused to imply one; Congress knew how to put one in if it wanted, especially given that subsection (B) includes an explicit reference to subsection (A) with respect to the types of material to which immunity applies.

Finally, Enigma’s Lanham Act claim didn’t entitle it to use the IP exclusion; a false advertising claim is not a trademark claim for §230 purposes.

Tuesday, November 07, 2017

Ad intermediary lacks standing under Lexmark to challenge false ads

Congoo, LLC v. Revcontent LLC, 2017 WL 5076397, No. 16-401 (D.N.J. Nov. 3, 2017)

A rare case discussing Lexmark’s proximate cause requirement in some detail. Congoo operates an online ad business as Adblade, an aggregator that serves as an intermediary between advertisers and publisher websites that display native ads on their pages.  Revcontent competes with Adblade.  Advertisers pay aggregators a fee based on the numbers of clicks on their ads. Publishers usually contract with the aggregator who “pays the higher rate, higher guaranteed minimums, or greatest revenue.” An aggregator may pay a publisher a fee calculated by multiplying a negotiated display rate, CPM/cost per 1000 impressions of an of an ad, by the number of times the aggregator’s advertising unit is displayed on the publisher’s website. In the alternative, an aggregator may pay a publisher a percentage of the revenue the aggregator received from advertisers for the display of the ads on the publisher’s website.

Adblade alleged that it avoids business with advertisers using false and deceptive ads, such as negative option membership charges or undisclosed automatic enrollment in expensive membership programs.  This is an issue in direct response advertising, “a subset of native advertising that seeks consumer action, e.g., an online purchase.” When a user clicks on a direct response ad, she navigates to a “landing page” that endorses the good or service, followed by an “order page” where she can buy. 

In 2015, Adblade allegedly discovered that Revcontent was promising Adblade publishers deals with better economic terms through its “use[ ] [of] false and misleading ads that obtain higher CPMs”; Revcontent allegedly also assisted with the creation of such ads.  Revcontent’s algorithm allegedly “automatically” displays “false and misleading” advertisements on publishers’ websites because they “have the highest CPM and revenue to be generated.” Adbeat, a well-known industry data source, allegedly confirmed that the most popular advertisements in Revcontent’s network were “false and misleading.” Its report stated that Revcontent’s top mobile ads included those for diet pills, muscle pills, and skin cream; Adblade provided hundreds of copies of such ads, and alleged that false and misleading ads appeared on five top Revcontent publishers that previously did business with Adblade. (Id. at ¶ 20.)
Lexmark requires plaintiffs’ interests to “fall within the zone of interests protected by the law invoked”:  “an injury to a commercial interest in reputation or sales.” In addition, a plaintiff must demonstrate that its alleged harm was proximately caused by the false advertising, though “the intervening step of consumer deception” does not necessarily break the chain of proximate causation. Economic or reputational injury “flowing directly from the deception wrought by the defendant’s advertising … occurs when deception of consumers causes them to withhold trade from the plaintiff.” By contrast, “[t]hat showing is generally not made when the deception produced injuries to a fellow commercial actor that in turn affect the plaintiff.”

For purposes of their motion for summary judgment, Revblade didn’t contest that Congoo’s interests fell with in the zone of interests protected by §43(a)(1)(A), or that there was a causal connection between deceptive native ads and Congoo’s loss of publisher clients.  However, the court agreed that the purportedly false advertising didn’t have a sufficiently close causal link to Congoo’s alleged harm.

In Lexmark, the connection between the actual competitors in the market and Static Control was very close: because Static Control seemed to be the only relevant supplier, every harm to the competitors was also inflicted on Static Control.  Here, however, there was a disconnect “between the injury to the direct victim”—here, competitors of falsely advertised goods—and Congoo’s own injuries as an indirect victim, “unlike the injuries to companies supporting those competitors in the marketplace.” The loss of publisher clients wasn’t “surely attributable” to injury to a competitor, but could have “resulted from any number of [other] reasons.”

Congoo’s expert stated that false and misleading advertisements deceive consumers into clicking on the advertisements and/or making purchases, thereby “enabl[ing] the unscrupulous advertiser to make high cost-per-click bids to an advertising aggregator, such as Revcontent, who in turn offers higher rates to a publisher to obtain its business. … In addition, native ads that are deceptive and misleading likely have higher click-through rates that also translates into a greater revenue to the publishers.” But this was a too-long chain of causation from higher sales/higher revenues to Revcontent’s ability to pass on more money to publishers.

Congoo’s state common law unfair competition claim also failed because standing wasn’t broader than under Lexmark. To the extent, however, that any allegations of fraudulent representations didn’t relate to consumer products but instead to statements to publishers, such claims survived.

Monday, November 06, 2017

Competitor can't challenge compliance w/certification standards

Board-Tech Electronic Co. v. Eaton Electric Holdings LCC, 2017 WL 4990659, No. 17-cv-5028 (S.D.N.Y. Oct. 31, 2017)

Board-Tech accused its competitor in the light switch market, Eaton, of false advertising because, while Eaton was authorized to apply the “UL” certification mark to certain products (as Board-Tech was), those Eaton products allegedly didn’t comply with the requisite safety standards. For the parties’ light switches, the prevailing standard is UL 20, required by the National Electric Code for new buildings; the NEC is state or local law in all 50 states, and even where its use is voluntary, consumers rely on UL 20 labeling for safety information; many retailers also require UL 20 labeling before they’ll sell a switch.

The UL certification mark, “certifies that representative samplings of the goods conform to the requirements” of Underwriters Laboratory.  Authorization requires a manufacturer to provide six sets of representative samples of switches they want certified, which must then pass a series of tests.  The testing can’t guarantee that the products actually sold comply with applicable safety requirements, merely that a purportedly representative sample did.  However, Board-Tech alleged (plausibly, to me) that consumers rely on the certification mark or listing, and base their purchases on the belief that every product containing a mark or that is listed actually complies with the applicable written safety standards. According to UL, “it is the responsibility of the manufacturer to ensure that all of the products it sells bearing the UL mark actually comply with the standards tested for, not just the samples that were tested.”

Board-Tech alleged that tested samples of UL 20-labeled switches sold by Eaton from the 7500, 7600, and 7700 series, and that all eight sets of six light swiches, 48 in total, failed the UL 20 standards.  However, the court dismissed the complaint for failing to specify the precise products at issue from the relevant series.  Board-Tech alleged that it had sufficiently alleged testing of a sample, but the court disagreed, because Board-Tech failed to specify what it had sampled.  Nor had it explained why it was plausible to extrapolate from a few non-specific switches to entire product lines—more than 125 of them.  Failure to provide any allegations as to which product(s) within a broader product line failed was also necessary in order for defendants to investigate the claim and prepare a defense. “If allowed to proceed in such a broad manner, plaintiff would no doubt seek access to the internal design of competitive products as well as highly sensitive technical data. Damages discovery would involve all of defendants’ sales of this series of products.”  The court wasn’t willing to let that happen without more specifics.

Separately, the court didn’t think Board-Tech could bring claims based on failure to meet the UL’s standards when the UL certification concededly existed.  “[P]laintiff’s claim is that even if defendants are authorized to use the mark, they are deceiving customers by using it.”  But Board-Tech didn’t allege there had been post-certification changes to the product, or that the UL had found Eaton non-compliant.  The authorized use of the mark was not “capable of being a deceptive use.”  The mark was limited by the scope of its registration, and it certified merely that (manufacturer-designated) representative samples conformed to UL’s safety requirements.  [Do consumers know this?  Why would they?]  Board-Tech conceded that Eaton’s switches had been through that process.  “[I]f defendants are authorized to apply the mark (which plaintiff concedes they are), then plaintiff is simply policing the mark. It is up to United Laboratories to police the mark.”  Board-Tech could only challenge UL’s policing by seeking to cancel the mark for failure to police. 

The court was unwilling to allow a competitor to police the use of a certification mark by a competitor, because “[p]rivate testing of a product against standards could be used to commence a lawsuit that could expose competitive design and information to precisely the entity that should not have it. While there are many cases in which competitors are proper plaintiffs – and do obtain discovery – one should not open the floodgates to such litigation without careful consideration.” Comment: Compare to the cases finding that claims requiring interpretation of FDA rules, or policing of compliance with the “organic” standard, can’t be brought under the Lanham Act because the enforcement of those rules has been delegated to an entity other than the court.

Friday, November 03, 2017

"look like new forever" might not be puffery in context of technological innovation claims

EP Henry Corp. v. Cambridge Pavers, Inc., 2017 WL 4948064, No. 17-1538  (D.N.J. Oct. 31, 2017)

Disclosure: I consulted on this case. 

EP Henry and Cambridge compete in the market for concrete pavingstones. Cambridge made superiority such as “only Cambridge pavingstones have ArmorTec - a unique process that guarantees the color will never fade, backed by our fully transferable, lifetime guarantee.” Cambridge also claimed that ArmorTec pavers would “always look like new,” they’d would “look like new forever,” and that their color “will never fade.” EP Henry alleged that consumers had told EP Henry distributors that they were misled, and that after purchase they discovered that the pavingstones didn’t continue to look like new and weren’t fade-proof.

The court ruled that, in context of additional claims about advanced technology, phrases like “they’ll look like new forever” and “the color will never fade” weren’t puffery as a matter of law, even though they would be without additional context. “[C]ourts around the country regularly find that, standing alone, language suggesting perpetuity or an indefinite period of time constitutes non-actionable puffery,” but Cambridge’s ad campaign allegedly touts its breakthrough technology, telling potential customers that ArmorTec is a “unique process.”  It was “plausible that a potential customer could reasonably come to the conclusion that Cambridge is not puffing, but has actually found the ‘secret sauce’ to enable pavingstones to ‘look like new forever’ or ensure that ‘the color will never fade.’”

With that out of the way, the New Jersey Consumer Fraud Act claim (if any) failed because the NJCFA only grants standing to consumers and commercial competitors “who are acting as consumers” or who are involved in a “consumer transaction,” but not to commercial competitors generally. Negligent misrepresentation and common law fraud claims failed because EP Henry couldn’t allege reasonable or justifiable reliance on the alleged misstatements. Though EP Henry argued that it reformulated its advertising campaign in response to Cambridge’s alleged misrepresentations, it didn’t allege that it relied upon or believed Cambridge’s alleged misstatements in doing so. The common law unfair practices claim wasn’t recognized by New Jersey, which limits common law unfair competition to (1) the “passing off” of goods or services; (2) unprivileged imitation; and (3) tortious interference.

The Lanham Act false advertising claim, however, survived.  EP Henry didn’t allege “a specific instance of a consumer choosing to purchase pavers from Cambridge over EP Henry because of Cambridge’s false advertising statements,” but that wasn’t required before discovery.  It sufficiently pled that, as a direct competitor, it suffered harm to its reputation and sales by losing customers as a result of Cambridge’s alleged misstatements. Without evidence from third parties and discovery, however, Cambridge could still be entitled to summary judgment.

Tuesday, October 31, 2017

Consumers can't recover for GM's self-tarnishment

In re General Motors LLC Ignition Switch Litigation, --- F.Supp.3d ---- 2017 WL 2839154, No. 14–MD–2543 (S.D.N.Y. Jun. 30, 2017)

This multidistrict litigation arose from the 2014 recall by General Motors LLC (New GM) of General Motors (GM) vehicles that had been manufactured with a defective ignition switch, which could cause moving stalls and disable critical safety systems such as the airbag. After that recall, New GM recalled millions of other vehicles, some for ignition switch-related defects and some for other defects. The putative class plaintiffs sought recovery on behalf of GM car owners and lessors, arguing that they were harmed by, among other things, a drop in their vehicles’ value due to the ignition switch defect and other defects.  While brand owners can be protected against reputational injury, the court here holds that a brand’s self-tarnishment provides its consumers no remedy. 

The lost brand value theory was “unprecedented and unsound.” Brand owners don’t have to provide an indefinite guarantee of both “the product’s resale value and the brand’s continuing good name.” It’s true that “labels and brands have independent economic value,” but “it does not follow that a consumer can recover if he or she buys a defect-free and functional product that performs as expected, but the company’s actions somehow affect the value of the company’s brand.” To do so might even over-deter manufacturers and “diminish the resources available to plaintiffs who have been more directly injured by the manufacturer’s products.”  

Plaintiffs attempted to amend their brand devaluation claims to only those putative class members who have or had defective cars, but there was no logical reason that only such people would have suffered from the brand devaluation.  In addition, plaintiffs pled facts from the work of a brand expert “about how the repeated recalls had a negative impact on the brands and models that were recalled, about the relationship of New GM to its sub-brands, about New GM’s brand architecture, and … the primary variables that will inform the calculation of the spillover effect of the ignition switch recalls to other recalled cars.”  These allegations merely provided a factual basis for the proposition that “labels and brands have independent economic value,” which the court accepted, while still rejecting the idea that consumers purchase a guarantee of both “the product’s resale value and the brand’s continuing good name.”

However, the court did allow certain claims to proceed, including claims for the value of time lost to repairs, and some state law claims if the relevant state allowed claims in the absence of a manifested defect; did not require a special trust relationship between the parties for a duty to disclose to arise; and/or permitted plaintiffs to plead both contract claims and unjust enrichment claims. Most of plaintiffs’ consumer fraud, fraudulent concealment, and breach of implied warranty claims survived, while most of their unjust enrichment claims didn’t.  As the court noted, “most state courts construe their consumer protection statutes to permit recovery beyond actual damages, including incidental and consequential damages,” which would generally permit lost time claims.

Nonetheless, plaintiffs who bought their cars before July 10, 2009—the date on which New GM purchased most of the assets of Old GM as part of the bankruptcy proceedings—couldn’t pursue claims for economic loss, because the economic injury took place at the time of sale. New GM’s alleged concealment of the ignition defect couldn’t cause economic injury to people who bought before New GM came into existence.  Likewise, plaintiffs who sold, traded in, or returned their vehicles prior to New GM’s announcement of the recalls beginning in 2014 couldn’t pursue such claims. Because they didn’t own any affected GM vehicles at the time of the recall, they couldn’t suffer diminished value as the result of the market correcting for the true value of the defective vehicles.  However, a plaintiff who bought her car after New GM bought GM and sold it before the recall was announced could still plead and prove damages in the form of out-of-pocket expenses and lost time, such as a plaintiff who experienced shutoffs while driving and had to go to the service shop often.

Just in time for Halloween, a Reese's question

Should Reese's object to the following description of candy molds?
The "Reese's Shape" version of the tartlet/candy mold
Nominative fair use?

Initial decision in FTC 1-800 case finding that anti-keyword agreements violated antitrust law

Agreed-on limits on advertising, like agreed-on limits on other inputs, risk being a per se violation of the antitrust laws.  Here, a blanket ban, including a negative keyword requirement (so that someone bidding on "contacts" wouldn't get ads run against "1-800-Contacts" based on broad matching), was not justified by fear of trademark infringement/confusing consumers.  The ALJ also notes that 1-800's extensive evidence that people often can't distinguish between organic and paid results has nothing to do with whether they can distinguish between results for 1-800 and results for its competitors.  Initial ruling here.  NB: I testified for the FTC, but the ALJ doesn't rely on my testimony.

Friday, October 27, 2017

Public disclosure of private facts

Setting FERPA aside, does Taiwan Jones have any claim based on the viral tweet about his failed midterm?  (Skepticism here.)

Website copying allegations allow potpourri of claims

DHI Group, Inc. v. Kent, No. 16-1670, 2017 WL 4837730 (S.D. Tex. Oct. 26, 2017)

DHI and Oilpro compete in the market for websites for oil and gas professionals that include job postings. DHI filed a lawsuit against Oilpro and others asserting that the defendants hacked into their system, and Oilpro counterclaimed for DHI’s alleged copying from Oilpro’s own website, alleging multiple claims, which the court refused to dismiss on grounds that give lots of leeway to website owners to make breach of contract, copyright, CFAA, and DMCA claims.

Breach of contract: Oilpro had a browsewrap agreement on its website, not requiring affirmative assent to access the website.  To enforce a browsewrap, “it is necessary to show the user had actual or constructive knowledge of the terms and conditions to prove a valid contract exists between the user and the owner of the website.” Oilpro plausibly alleged such knowledge by alleging that DHI “knew or should have known that Oilpro’s Terms and Conditions prohibited this conduct because [DHI’s] terms of use for [its] own website prohibit this same sort of conduct.” This was enough, where both parties were “sophisticated businesses that use browsewrap agreements on their websites.”
Copyright: DHI argued that Oilpro didn’t identify any material, information, or work that was both subject to copyright protection and actually copied by DHI. However, Oilpro alleged that it owned a valid copyright to its website and that DHI accessed it and copied data, member profiles, and other information from the website. Under the Twombly/Iqbal plausibility standard, it was enough to plead that the entire Oilpro website was an original work that includes a “distinctive page layout, design, graphical elements, and organization of member profile pages....” and that DHI “improperly downloaded data, member profiles, and other information from the Oilpro Website” and “then published information from the Oilpro Website on a website owned by DHI Group called Dice Open Web....” Since Oilpro alleged ownership of the entire website, and that DHI published Oilpro’s copied information on its own website, Oilpro stated a plausible claim for copyright infringement. [No no no—owning the overall layout doesn’t mean owning everything that might be copied.  The proper allegation would be that DHI copied copyrightable elements.]  DHI’s objections to the Magistrate Judge’s recommendation to deny its motion to dismiss the copyright infringement claim is OVERRULED.

The court also denied DHI’s motion to dismiss Oilpro’s DMCA counterclaim because it alleged that it “had technological measures in place, including a robots.txt file, monitoring software, and firewall software, to prevent automated technologies from accessing the website” and DHI “circumvented these technological measures to access the Oilpro website and download material that was then published on [DHI’s] own website.” Specifically, robots.txt was plausibly a technological measure, as other cases have held.  But note: The statute also requires that the measure “[e]ffectively controls access to a work” defined as a measure that, “in the ordinary course of its operation, require[ ] the application of information, or a process of treatment, with the authority of the copyright owner, to gain access to the work.” How does robots.txt require the application of information to gain access, as opposed to provide extra information to potential accessors?

Trademark infringement: Oilpro successfully alleged that it had a protectable mark that DHI used to cause confusion about the authorization/sponsorship of the DHI site.  [The court then proceeds to confuse nominative and descriptive fair use, applying the standards for descriptive fair use.] DHI argued that it used Oilpro’s mark to acknowledge Oilpro as the source of certain information, but the fair use defense was not available on a motion to dismiss because the complaint didn’t indicate on its face that DHI used the mark on its website in good faith—which, of course, is not an element of a nominative fair use defense.

CFAA and the coordinate state Texas Harmful Access by a Computer (THACA):  The court held that Oilpro’s allegations of a knowing violation of the terms and conditions of the website are sufficient to state a claim under both the CFAA and the THACA.

Misappropriation: Oilpro did enough by alleging that it expended time, skill, and financial resources to create the website and information on the website, that DHI wrongfully accessed the site without authorization and obtained Oilpro’s data without having the expend the same time, skill, and financial resources, that DHI was free-riding on Oilpro’s investment, that Oilpro has had to expend even more time and resources because of this alleged unfair competition, and that Oilpro has been and will continue to be damaged by the misappropriation. [However, there seems to be a serious copyright preemption problem with this misappropriation claim.]

Tortious interference: also ok.

Likely success & irreparable harm still doesn't justify ex parte TRO against false ad. given counterspeech

Verified Nutrition, LLC v. Sclar, 2017 WL 4785948, No. 17-cv-07499 (C.D. Cal. Oct. 23, 2017)

Verified sells ProstaGenix, which is “an all-natural supplement with a proprietary form of Beta-sitosterol” (BetaRexin). Verified primarily advertises ProstaGenix through an infomercial featuring Larry King, available on Verified’s website, Prostate Report.  Prostate Report also provides “reviews” of various prostate supplements on the market, including Verified’s product ProstaGenix and defendants’ competing product, Prostate Miracle. Plaintiff Buckley also publishes a magazine called “The Men’s Guide to Prostate Supplements,” which provides similar reviews. The website allegedly discloses that Buckley is the inventor of ProstaGenix and writes the reviews on the website, and that Verified Nutrition sponsors the website. Buckley claims he has “spent approximately $150,000 to have five reputable and independent laboratories conduct more than 280 laboratory tests on over 150 different prostate supplements.”

On Prostate Review, Buckley wrote about his determination that his product was superior to Prostate Miracle because ProstaGenix contained almost twice as much Beta-sitosterol.  He included Prostate Miracle’s ingredient list on Prostate Review (which the court suggests might be the source, however unjustified, of defendants’ “plagiarism” claim).

Defendants began operating three websites:,, and They take images directly from the Larry King infomercial and superimpose negative text over them. [Verified also sued for copyright infringement; even if the claims are false, it’s hard to see how this isn’t fair use—the problem if any is in the falsity, not in the exploitation of a market to which Verified has a right.] Defendants’ claims allegedly include: 1) calling ProstaGenix and Buckley’s business a “total scam;” 2) claiming that Verified Nutrition “does not exist;” and 3) calling Buckley a “liar, plagiarist, and conman,” a “career huckster,” a “slimeball,” a “serial fraudster,” a “career con artist,” a “despicable schmuck,” and a “sociopath.” They also accuse Buckley of pretending to be an “independent, unbiased 3rd party” reviewer, “fraudulently selling one bogus product after another, since 2005,” and having a “long history of defrauding consumers.”

Verified alleged that these negative statements were false and had an adverse effect on their sales and goodwill. Searches for “Larry King prostate,” among others, returned links to defendants’ websites, and a YouTube video that is also embedded on the websites, which states, among other things, that “In the Larry King Prostate report, Larry King stages a fake interview with career huckster Fred Buckley and partner in crime, wife Corinne Buckley.”

Verified sought the TRO based on its claims for false advertising, defamation, trade libel, and unfair competition.  The court found that falsity appeared likely, and that the allegedly false statements were material, because “statements that certain reviewers or distributors are fraudsters would be material.”  Plaintiffs submitted evidence that Verified Nutrition exists as a Nevada limited liability company, disproving the claim that it is a “fake company,” as well as evidence that they spent approximately $150,000 in testing the ingredients of prostate supplements to review them on Prostate Report, which goes to the “fake review” statements.

Thus, the court found likely success on the merits for false advertising, as well as for the defamation/trade libel claim, though I’m not sure where the special damages are alleged/proved—claims about general goodwill/reputation are usually insufficient to plead special damage. This is what happens when only one side shows up to litigate—which is why it’s good to be nervous about ex parte proceedings.  Plaintiffs were also likely to succeed on their UCL claim.

Plaintiffs claimed irreparable harm to their reputation and also the decline in sales of their product, but lost sales “is just the type of harm that could be remedied by monetary compensation after a full trial on the merits.” So, was potential harm to reputation enough?  Many of plaintiffs’ allegations of harm relied on the fact that defendants’ websites were “gaining traction on the Internet, and rising in the results when Buckley entered certain search terms on Google, which typically would have resulted in Plaintiffs’ websites being on the top of the list.” [At some point, courts are going to have to note the importance of personalized results—if Buckley clicked on defendants’ websites before, they’re going to come up again for him, but that’s less helpful evidence about what J. Random Searcher will see.]  In order to counter this false advertising, plaintiffs alleged that they’d have to spend a lot of money on ads, but money could be recovered after a full trial on the merits.  Only 400 people had seen the YouTube video at the time of filing, after about 30 days (so much for “rising in the results”). The court found that reputational harm could increase over time, tipping the irreparable harm factor in favor of plaintiffs.  [Not clear how this is less speculative than in other cases, but ok.]

Balancing the equities/public interest. The harm to defendants seemed limited, “given they do not have a right to disseminate allegedly false statements.” As for the public interest, “while the public has an interest in not being exposed to false information, currently the public is able to view both Plaintiffs’ and Defendants’ advertisements regarding their respective prostate supplements, and can come to their own conclusions. Much of the information Plaintiffs use to demonstrate their claims are true and that Defendants’ are false, is also available on Plaintiffs’ website, Prostate Report, and thus also available to consumers to weigh the parties’ claims themselves.”  This reasoning is interesting and troubling in equal measure; it seems to suggest that the parties ought to fight it out in the marketplace of ideas—but will consumers actually consult both websites?  The answer might well be yes, if this is the kind of product that consumers do seek to educate themselves a bit about, but applied outside the TRO context it would seem worrisomely in conflict with the basic premises of false advertising law.  However, applied to the ex parte TRO, where the speech ultimately might be true/nonactionable, caution is more understandable—and consistent with a First Amendment tradition of protecting speakers from speech-suppressive orders they have not been able to contest.

As the court noted, none of the defendants had yet appeared, and plaintiffs hadn’t filed proofs of service for the individual defendants. There’s no requirement of formal service of process before a TRO can issue, but the court was troubled by the possible lack of notice. On balance, the court found that a TRO was not indicated, but they did provide sufficient evidence warranting an order to show cause as to statements that Verified Nutrition “does not exist”; ProstaGenix is ineffective and “just a cheap imitation of Prostate Miracle”; Prostate Report is a “fake review site” using “fake lab tests” and fake lab reports, promoted through a “gang of fraudsters”; and Buckley is “a liar, plagiarist, and con man” as well as a “sociopath” who publishes plagiarized and “fake review magazines” promoting his business and ProstaGenix. [Query whether “sociopath” can be proven true or false, and thus capable of defamatory meaning.]