Thursday, May 31, 2007

It's just an interest. It doesn't mean what you think.

Livejournal retreats. Part of the problem was Livejournal's initial explanation: if you listed something as an interest, that meant you liked it, because that's the explanation Livejournal itself gave for the "interests" field. Thus, Livejournal had to treat you like a criminal for listing a crime as an interest. Good thing LJ didn't catch me with "false advertising" as an overriding interest! As a poster at Metafilter succinctly explained, users adapt tools for their own purposes, here: "interests" are things I am interested in/plan to talk about on Livejournal.

Once again, a mismatch between user practice and the expectations of those who supply the infrastructure.

Note: if you recognize the reference in the post title, you are my kind of person.

Concrete allegations: Inference of reliance allows class certification

McAdams v. Monier, Inc., --- Cal.Rptr.3d ----, 2007 WL 1545072 (Cal.App. 3 Dist.)

The trial court refused to certify a proposed Consumers Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) class action, based on the defendant’s alleged failure to disclose “that the color composition of its roof tiles would erode away, leaving bare concrete, well before the end of the tiles’ represented 50-year life.” The court of appeals reversed, following case law that a CLRA class can use an inference of common reliance, rather than showing actual reliance for each plaintiff, when the claim is that failure to disclose a fact constituted a material misrepresentation. This allows the class to meet the CLRA requirement that a consumer must have suffered damage as the result of the challenged unlawful act or practice. The court reached the same result for the UCL’s new requirement of injury in fact.

The trial court concluded that common issues didn’t predominate, because class members received different representations depending on whether they bought from Monier, from an independent distributor, from a home builder, or from a prior homeowner. Thus individual questions, particularly of liability and reliance, predominated. The court of appeals identified the omission above as the single, specific, alleged material misrepresentation. As to liability and reliance, the court looked to older cases holding that a class could establish causation by showing that the misrepresentation at issue was material to anyone interested in the product and that the class members acted in ways consistent with reliance. Plaintiff had evidence that Monier knew but failed to disclose that its tiles would erode to bare concrete well before their advertised 50-year-lifespan ended, and that this would be material to any reasonable tile buyer, and thus satisfied this standard.

As for damages, each class member must at some point show eligibility for recovery, but the claims all stem from the same source. So, even though each member will eventually have to show that she received a representation and suffered damage, those showings don’t make each case factually unique, and class certification shouldn’t have been denied.

The court reasoned that the same rationale applied to the UCL class. Both the CLRA and the UCL are “consumer protection statutes with traditionally less rigorous proof burdens than common law fraud.” Since Proposition 64 was enacted, their reliance language is similar – “damage” for the CLRA and “injury in fact”/“as a result of” for the UCL. CLRA and UCL claims are often found together, and a CLRA violation can be the “unlawful” or “fraudulent” conduct that supports a UCL claim. Finally, the court pointed out that, if reliance and causation can be inferred in a CLRA action, which allows for damages, it should be sufficient in a UCL class action, which is essentially limited to injunctive and restitutionary remedies.

Comment: the difference in treatment of affirmatively misleading statements and misleading omissions makes sense, if only because there are often lots of material omissions in any given ad. Price, for example, is always material, and yet often omitted, but that in itself is not misleading because we all know that products have prices. So we need some standard to identify when an omission crosses the line. An omission’s relationship to things actually said in the ad is a sensible measure of whether it should have been disclosed. And once we’ve determined that the omission is material and makes the affirmative representations misleading, it can be reasonable to infer both the advertiser’s intent to distort the truth and the consumer’s reliance – at least if the omission relates to the core of the ad.

Wednesday, May 30, 2007

Reading Lolita on Livejournal

Or, the perils of distributed law enforcement: Livejournal, a popular blog/journal site, was apparently targeted by a group with the laudable goal of protecting children from predators, but a sloppy and censorious method. [ETA: See comments for other possible goals of the group.] The group thus reported Livejournal accounts with "interests" (a category of profile information) relating to pedophilia to Livejournal's abuse team. No doubt aware of current controversies over MySpace and the like, Livejournal decided that the reported accounts had to be suspended. According to the explanation offered by the abuse team, listing illegal interests amounted to inciting illegality, and put Livejournal at legal risk. (Even with respect to child pornography, where government has huge leeway, this seems like a misstatement of US law to me, but (a) I'm sure it's different elsewhere, (b) it's understandable for Livejournal to be vastly overcautious on this point.)

Result: some very skeevy journals are gone, along with journals of rape survivors, journals maintained by people playing villains in online text-based roleplaying games, and a book group dedicated to reading Nabokov's Lolita. (On this last, I had to play a bit of a trick to get Google's cache to work; I kept getting redirected from the cached page to the current page, which says the account has been suspended. Does anyone know what's up with that? I thought Google either cached or didn't, depending on the robots.txt instructions involved.)

Another collision of user-generated information with the corporate form that often enables it, which is ordinarily invisible. When the corporate minders do intercede, the results can outrage and astonish the affected users.

[ETA: Per comments, Livejournal has attempted some damage control.]

Lawsuits still not so sweet for Splenda

McNeil Nutritionals, LLC v. Heartland Sweeteners LLC, 2007 WL 1520101 (E.D. Pa.)

Hard upon its settlement of Merisant's false advertising case against it (link goes to a tendentious press release by the Sugar Association, which has its own pending lawsuit against McNeil), the makers of Splenda artificial sweetener suffered another legal setback. (Thanks to Eric Goldman for the heads-up.)

McNeil sued for infringement of its Splenda (sucralose) trade dress under the Lanham Act and Pennsylvania state dilution and unfair competition claims, based on Heartland’s packaging for its private-label sucralose.

The court denied a preliminary injunction. Among the relevant findings: because there are a number of different artificial sweeteners on the market, color-coding in packaging differentiates products and quickly identifies the active ingredient in a given product. Sweet’N Low (saccharin) is red and pink, and the recognized industry standard is to sell house brands of saccharin in red and/or pink packaging. Equal (aspartame) is blue, and so are house brands of aspartame. Splenda is yellow.

The court also found that consumers are highly familiar with store-brand products, which are typically found on shelves next to the analogous national brand. Store-brand products often have “compare to” statements and similar packaging to national brands, as well as shelf-talker tags that call attention to the differences between the products. Consumers know this, and can easily see the price differences between the store and national brands. Nearly all grocery store chains sell private-label saccharin and aspartame sweeteners that compare to the national-brand products.

Heartland makes lots of store-brand artificial sweeteners for retailers; this litigation concerned only its sucralose for Giant, Stop & Shop, Tops, Food Lion, and Safeway. The packaging for the first three is identical except for the respective store names/logos. The packaging for the others is similar, using blue lettering (as Splenda does) and pictures of a white cup of coffee and other food (as Splenda does).
Most sugar and sugar substitute packages use pictures of foods and/or drinks.

In balancing the confusion factors, the court noted that similarity is the paramount consideration in product packaging trade dress cases. Though side-by-side comparisons are often disfavored, consumers do encounter the products at issue here side-by-side, so that is how the court evaluated them. The court then found both the store packaging and the individual sweetener packets not similar enough for this factor to weigh in McNeil’s favor, basically because of differences in lettering and layout, plus the addition of house brands, despite similar predominant colors.

The strength of the Splenda trade dress weighed in McNeil’s favor; even though McNeil’s advertising focused on its (litigation-spurring) slogan “Made From Sugar, Tastes Like Sugar” and even though other sugar and sugar-substitutes use a yellow and blue color scheme and images of coffee, fruit, and baked goods. In only six years on the market, Splenda has become the leading artificial sweetener, with 60% of the market, so it had a strong trade dress.

Though the goods are cheap, people buy artificial sweeteners for “health, fitness, and dietary considerations,” so the court found they’d exercise a heightened level of care. This factor didn’t weigh in favor of McNeil.

McNeil had evidence of one instance of actual confusion. A Pasadena consumer mistakenly purchased Safeway’s sucralose in December 2006, though she intended to buy Splenda. She was “just buzzing through the market ....” and didn’t look at prices, just grabbed the box and ran. She’s a self-described “surgical strike” shopper, intending to shop faster than others. She’s aware of store brands, but not aware they’re cheaper than national brands; she’s not a comparison shopper. And no surprise, since “[h]er yearly household income exceeds $300,000.” She wasn’t wearing her reading glasses when she bought Safeway sucralose, and testified that it would have been difficult for her to read the information on the store shelf without them. “Additionally, in preparation for her deposition, Mrs. Grossman purchased a 400 count box of Splenda because she thought her usual 200 count box was not available. However, during a deposition, when looking at a picture she herself took of the shelf on which the 400 count box was located, she noticed for the first time that the 200 count box was on the shelf and available for purchase.” I bet McNeil’s lawyers wish she’d been just a little bit less zealous in preparing for the deposition!

Unsurprisingly given the facts the court chose to emphasize, it found insufficient evidence of a likelihood of confusion by the ordinarily prudent consumer. Still, the short time the defendants’ products have been on the market, and the inexpensiveness of the products, made the actual confusion factor favor neither side.

If Barton Beebe is right, intent is often dispositive, though courts don’t say so. Here, then, it may have been crucial that the court distinguished intent to copy from intent to confuse. Defendants clearly indended to copy, but that’s common in the private label industry, and the court was unwilling to infer an intent to confuse.

I have a deep interest in private label strategies – I was once kicked out of a Walgreen’s for taking pictures of house brands next to national brands – and I found it interesting that the court treated both verbal and nonverbal “tools for making comparisons” as valid strategies. That is, it grouped “similar color, shapes, and sizes” with “compare to” statements. And I agree – if it is legitimate to signal “I have the same qualities as Brand X,” it shouldn’t matter how that signal is communicated. It’s the flip side of the refusal to divide marks into ontological categories (see Qualitex).

The channels of trade and advertising, targets of the parties’ sales efforts, and similarity of the goods favored McNeil.

The Third Circuit separately considers whether consumers might expect the plaintiff to make a product in defendant’s market or expand into that market. McNeil made an argument I’ve seen a few times before; it hasn’t worked yet, but trademark owners will surely keep trying: Because there are numerous partnerships and cross-promotions in modern marketing, consumers may believe that Splenda makes store-brand sucralose products for the grocery stores or that there’s some sort of affiliation or sponsorship. Because McNeil had no evidence of this (and no evidence that this belief would be affected by the trade dress of the store brand product), the court rejected the argument as speculative.

McNeil also argued that initial interest confusion was likely. Because of the “significant distinctions” between the parties’ products, including the house brand, price differences, and shelf labels; consumers’ high awareness of store brand products and of which store they’re shopping in; and the opportunity for side-by-side comparison, the court found no likelihood of initial interest confusion.

The same fate met McNeil’s post-sale confusion theory, because the store brand individual sweetener packets were not similar to individual Splenda packets. The court also pointed out that post-sale confusion could only harm McNeil if, due to a bad experience with defendants’ product, consumers avoided Splenda in the future, and McNeil had no evidence that defendants’ sucralose was inferior. (There’s another theory of harm from post-sale confusion: that people may buy knockoffs to get the cachet of a prestige brand without the prestige price. Perhaps the court wasn’t a fan of that theory, or perhaps it considered that type of harm unlikely when the prestige price here is less than a dollar more per 100 packets of sweetener.)

The state law dilution claim also failed. Pennsylvania’s antidilution law tracks the FTDA almost verbatim. That’s the FTDA, not the TDRA. Thus, because many courts had already held that the FTDA and Pennsylvania standards for determining dilution were identical, the Moseley rule requiring actual dilution still applies. McNeil argued, weakly, that because Congress changed the FTDA, the court should imply a similar rewriting of Pennsylvania law. (If that was McNeil’s position, why didn’t it bring a federal dilution claim? Why didn’t it bring a federal dilution claim anyway?) The court rightly rejected this invitation, since Pennsylvania’s legislature had made no such changes. McNeil had no evidence of actual dilution, so its claim failed.

Tuesday, May 29, 2007

It's not hip to be false

The HipSaver Company, Inc. v. J.T. Posey Co., --- F. Supp. 2d ----, 2007 WL 1417446 (D. Mass.)

The parties compete in the market for hip protectors, “padded garments used to prevent hip and femur fractures in the elderly.” They sued each other once before, resulting in a settlement in which Posey paid Hipsaver $360,000, agreed to discontinue certain advertising, and agreed to engage in corrective advertising. The parties released all claims, known or unknown, available to them at the time, and agreed to provide each other 30 days written notice before using the results of any further comparative testing of Posey and HipSaver products. They then sued each other again over new (and some continuing) ads.

After evaluating the effect of the previous release and eliminating certain claims that had been available to the parties at the time, the court turned to the remaining unreleased claims. (The court also refused to dismiss HipSaver’s claim for breach of the settlement agreement based on failure to provide new testing results in advance.)

HipSaver argued that six statements in Posey’s ads were literally false. The court treated the statements as making two claims: (1) tests prove Posey’s hipsters are the “best” and “most effective” at absorbing impact-force associated with a fall, and (2) tests have proven the general effectiveness of Posey’s hipsters, without any comparative claim. HipSaver argued both that the tests weren’t sufficiently reliable to justify the statements and that, even if they were reliable, they didn’t support the claims. Though the testing didn’t comply with ASTM standards, the court determined that material issues of fact remained on both issues.

HipSaver also challenged the statement that the testing demonstrated that Posey products were proven “most effective” and “reduced the impact force by 90%, the best results of any hip protector available.” According to HipSaver, the materials used in Posey’s garments placed third in Posey’s own tests, after HipSaver’s SlimSaver. Posey argued that “best” “refers not just to a garment’s impact-absorption potential, but also to other considerations such as comfort and price.” Posey also argued that “most effective” was mere opinion.

The court had little difficulty rejecting these bad arguments. In context, “best” was about reducing impact force, not other features, as was “most effective.” (What I don’t understand is why, if HipSaver was correct about the test results, it didn’t win summary judgment as to this statement.)

The court then dismissed HipSaver’s challenges to Posey’s non-comparative claims: Posey's hip protectors were “proven effective in laboratory tests,” “help protect against injury from falls,” and “showed excellent impact energy absorption.” It ruled that HipSaver hadn’t met its burden of producing evidence that Posey’s testing didn’t support those claims. But to the extent that material issues of fact remained about whether the testing was reliable, I would have thought that HipSaver’s first challenge to the non-comparative claims remained viable.

Posey also argued that HipSaver suffered no injury from the ads, because HipSaver’s sales continued to grow at a regular rate during the ad campaign and didn’t increase when the ads were withdrawn; the ads were ineffective at selling Posey products; and Posey earned only $32,000 in profits on hip protectors during the relevant period. HipSaver’s expert report on damages was much sloppier and less specific, but given that the parties are direct competitors, the court gave HipSaver leeway at this point in the litigation. To proceed with its claim for Posey’s profits, however, it will need to provide evidence on causation and damages.

Sunday, May 27, 2007

Grandmothers are doing it for themselves

Oral histories, that is, posted on YouTube (link to NYT story). I had no idea that YouTube included a vast new archive of oral history, and obviously trained interviewers would ask different questions, but it's an amazing potential resource.

The question is, who will preserve it and catalog it for historical uses? As my historian husband points out, this isn't a history question as much as it is a library question.

Saturday, May 26, 2007

NYT on user-generated ads

The High Price of Creating Free Content: The story is about the expenses associated with sorting through user-generated ads and finding ones good enough to adopt as one's own. It doesn't mention the potential false advertising issues. Currently I'm aware of only one case alleging that user-generated ads endorsed by the actual producer constitute false advertising, but we can expect more if the fad for such ads continues. Does section 230 immunize producers if the ads are internet-only, even if they single out certain ads and feature them heavily in their own advertising? That's certainly an unexpected result, but it might be the legally correct one.

Section 230 is like the DMCA's safe harbors: enacted before we had a good grasp on what the internet is for. And that's often true and often unavoidable, so I don't mean to suggest Congress erred. If these laws were enacted today, they'd have different contours, that's all.

Friday, May 25, 2007

Static Control v. Lexmark: not just for anticircumvention anymore

Static Control Components, Inc. v. Lexmark International, Inc., 2007 WL 1310134 (E.D. Ky.)

Lexmark sells certain printer toner cartridges pursuant to its “prebate” program; the cartridges are discounted from regular price but are only refillable by Lexmark. A shrinkwrap contract containing the refill restriction accompanies every prebate cartridge. About 90% of the cartridges Lexmark sells are prebated; despite claims on the contract that “[a] regular price cartridge without these terms is available,” Lexmark does not make “regularly” priced cartridges for at least five of its models. Lexmark designed a computer chip in the cartridges to enforce this contractual restriction. Static Control reverse engineered the relevant information and refills/remanufactures prebated cartridges, much to Lexmark’s chagrin. This spurred DMCA litigation, resolved in Static Control’s favor, but other aspects of the case continue.

Static Control’s remanufactured cartridges sell for $31, $10 less than Lexmark’s. Static Control alleges that the prebate program increased the price of remanufactured cartridges, due to the 90% loyalty Lexmark has among toner customers, up from 60% prior to the prebate program. The district court denied Lexmark’s motion for summary judgment on Static Control’s antitrust claims, but I will discuss only its analysis of the false advertising claims. (These claims are brought by a group of remanufacturers including Static Control.)

Because of the prebate program, Lexmark has accumulated a large number of empty cartridges. It doesn’t remanufacture all of these, and for cost reasons, when it does remanufacture cartridges, it doesn’t remanufacture all the parts. Hundreds of thousands of cartridges are incinerated, with their ash going to a landfill. Apparently, Lexmark sometimes calls incineration “thermally recycling.”

Lexmark’s prebate cartridges have a label about Lexmark’s “Environmental Program:” “We manage resources today to ensure a beautiful tomorrow. Small steps can have big rewards. Thank you for your ongoing support, together we have recycled millions of toner cartridges, one cartridge at a time. See details inside about how you can continue to participate in this important environmental initiative.” Lexmark’s website claims, “Return Prebate cartridges are a great choice for the environment.” It further states: “Lexmark Return Prebate Program Cartridges are sold at a discount in exchange for the customer's agreement to use the cartridge only once and return it only to Lexmark for remanufacturing or recycling,” and that “Lexmark recycles Return Program Cartridges, keeping them out of the waste stream.”

Lexmark conducted market research among people responsible for purchasing printers and physically replacing used cartridges with new or remanufactured cartridges. Responses to the “environmentally friendly message” included:

The green environmental label gives you a better conscience.

You want it to be green. You don't want this stuff out in the street. You want it to be recycled; you want it to be treated properly.

Focus groups asked to create their own names for the prebate program suggested names such as “Save the Toner Tree,” “Responsible Use of Resources,” “Environmental Express (so that people get the impression that it speeds up the process),” “Envirosave,” and "Save $ and the Environment.”

One remanufacturer, Wazana, sought summary judgment that the following claims were literally false: (1) all prebate cartridges will be remanufactured or recycled; (2) the cartridges will be disposed of in a manner different from regular household waste; and (3) regularly priced cartridges, or non-prebate cartridges, are available for purchase.

The court found that the statements that “Lexmark recycles Return Program Cartridges, keeping them out of the waste stream” and that regularly priced non-prebate cartridges were available were both unambiguous.

However, there were significant disputed facts about recycling v. the waste stream. Apparently, Lexmark’s “thermal recycling,” which sounds at best like Newspeak to me, could count as recycling under certain definitions. (Is there any evidence that any customers subscribe to those definitions? Lexmark’s own research suggests otherwise.) There is also a dispute over whether Lexmark’s partial recycling of used cartridges counts as recycling.

Likewise, Lexmark submitted some evidence that it made regularly priced cartridges available to customers who did not want to purchase the prebate cartridge kits, so summary judgment on claim (3) was also denied.

Lexmark cross-moved for summary judgment on Wazana’s claim that Lexmark falsely advertised when it told customers that its single-use restrictions on prebate cartridges were valid. Though the court thought it possible that single-use restrictions were invalid, the difficult question was whether this statement, if false, could have damaged Wazana. Lexmark questioned whether the validity of the restrictions was material to any purchasers. (Indeed, one would think that valid restrictions would discourage rather than encourage purchase, precisely because of the possibility of cheaper refills from other remanufacturers.)

Wazana submitted expert evidence that prebating increased Lexmark’s sales and decreased Wazana’s. The lost sales are not the first purchase, but the refill, so it’s easy to see how Lexmark could take business from Wazana. On materiality, the court found it reasonable to infer that the single-use restriction was valuable to the customer, because without it, the cartridge price could be significantly higher. It’s material, but not in the ordinary way: It’s material as part of an overall package. Thus, Lexmark wasn’t entitled to summary judgment. I’m not convinced this is right, though it’s a difficult issue. The question is what the proper counterfactual comparison is: the prebated cartridges without the allegedly false claim, or the cartridges as they’d be sold if the restrictions weren’t in fact valid? Usually, it’s obvious that the former is the proper comparison for Lanham Act purposes, but here the claim is about the terms of sale (rather than some other product quality), which would themselves change if the claim weren’t made.

Thursday, May 24, 2007

When self-promotion is other-disparagement

Tosoh SET v. Hartford Fire Ins. Co., 2007 WL 1242172 (Cal. App. 1 Dist.)

It seems that today’s advertising injury policies often exclude coverage for injuries caused by false statements about the insured’s own product, limiting coverage for false advertising to the traditional categories of product disparagement or trade libel. However, the standard rule that a policy is construed in favor of the insured, combined with the rule that a duty to defend arises when the complaint in the underlying case alleges facts that could trigger coverage, can blunt the force of this exclusion substantially.

In this case, Tosoh was sued by a competitor, essentially for reverse passing off. The court concluded that the insurer’s duty to defend “was triggered by an allegation that Tosoh falsely claimed it alone had developed the detailed specifications and tolerances required for certain replacement component parts used in semiconductor manufacturing equipment, a statement that disparaged its competitors' products and services by implying they were measurably inferior.” The implication of inferiority was enough – which means that affirmative claims of superiority may trigger coverage even without mentioning competitors.

Tosoh’s competitor Applied Materials develops and sells semiconductor fabrication equipment, and replacement component parts, to companies that use the equipment to make computer chips. Applied doesn’t make most of the component parts; rather, third-party vendors make the parts based on Applied’s specifications, under contractual obligations to keep the information confidential. According to Applied’s complaint, one such third-party vendor made component parts using Applied’s confidential information, then sold them to Tosoh. Along with trade secret and other state tort claims, Applied alleged false advertising under the Lanham Act. Among other things, Tosoh advertised that it was the “only company to develop all the detailed specifications and tolerances needed to perform true, comprehensive parts and inspections;” and that it could handle “any kit component redesign a customer might wish, calling upon our extensive design capabilities and knowledge and knowledge base of detailed kit specifications.”

Tosoh sought coverage from Hartford, its insurer, which Hartford denied. Its policies define advertising injury, in relevant part as “Oral or written publication of material in your ‘advertisement’ that slanders or libels a person or disparages a person's or organization's goods, products or services....” The policies define “advertising” as information disseminated via radio, TV, billboard, magazine, newspaper, or “[a]ny other publication that is given widespread public distribution,” but specifically exclude packaging and labeling.

Hartford argued that the underlying complaint didn’t contend that the disparaging statement appeared in an “advertisement,” and the parties operate in such a limited market that it is unlikely that any statements received widespread distribution. (If Tosoh doesn’t “advertise,” why did Hartford sell it advertising injury coverage?) The court was unimpressed, because the complaint’s generic allegation about “advertising” raises the potential for coverage, and that’s enough to trigger the duty to defend. “Tosoh need only show that the underlying claim may fall within the policy coverage; Hartford must prove that it cannot.” Despite the admittedly small market for the parties’ products, “it is at least conceivable the allegedly disparaging comments appeared in a trade magazine or other publication with widespread distribution.”

Hartford also argued that the statements at issue were self-promoting puffery, not disparagement. The court rejected Hartford’s argument that an underlying complaint must specifically target statements about a competitor’s goods or services. First, the cases are reasonably consistent in holding that a competitor need not be named to be disparaged for purposes of the duty to defend unless the policy specifically requires this. That being the case, if a statement implicitly disparages an unnamed competitor, the same rule applies. And the statement of superiority did implicitly criticize all competitors. (Comment: this chain of reasoning makes the most sense in a very small market like this one, though I can see it applying across the board, under the theory that the insurance companies can always rewrite the policy if they want to narrow coverage.) Here, the claims were factual, falsifiable assertions, not puffery – they referred to “detailed specifications and tolerances.” Tosoh’s claim to be the only company to have such specifications and tolerances necessarily implied that Applied didn’t have them; Applied’s complaint stressed that precise dimensions and tolerances are crucial to producing acceptable component parts. Thus, there was a clear disparaging implication, and Hartford had a duty to defend.

Tuesday, May 22, 2007

Maryland IP conference

I’ve been watching the University of Maryland University College’s 7th Annual IP conference via webcast. Highlights: the NBC/Universal representative’s characterization of semiotic democracy as “idiotic democracy,” paired with Ann Bartow’s pointed question: what are the semiotics of a photoshopped version of a Flickr photo showing a woman with a noose around her neck?

There was also the scholarly publishers’ representative on the open access panel whose talking points went something like this: government open access repositories of articles published by private publishers are (or at least invite) censorship. But government funding of research that results in a large supply of articles for private publication is great. Also, if you paid us, we’d be happy to participate in those censorious repositories! My evaluation: the PR pit bull the publishers hired to deal with open access has yet to refine the message enough.

And there was Susan Anthony, the USPTO representative. Based on her experience as a copyright owner – she wrote an article on an otherwise unexplored aspect of marital history – she was convinced that it is not fair use to make a photocopy of her article at a library for personal reading, because making a photocopy takes away all her hard work and makes it disappear. This is close enough to an exact quote to make me despair. (She also wanted to lay claim to the facts she’d uncovered through archival work. She did all the work, so she should be able to control the use of her article. And she said that she was glad to be a copyright attorney, because that was the only way she could understand her rights as an author. She apparently saw no irony of any kind in this statement.)

The guy from the Copyright Office, who talked about other countries’ private copying levies, announced his faith in the market to solve issues of access and freedom to incorporate existing works into “user-generated content.” I don’t dispute his point that administrative fee-setting has huge problems, but it’s kind of funny for a guy from the Copyright Office to talk about the “free market” as if private property rights in copyrighted works existed in any relevant sense without a background law defining the scope of those rights. I could just as easily say: the free market has decided that copyright owners should not control “user-generated” derivative works. And that would be nonsense too, since it’s the legislature and not the free market that decides what copyright covers.

Obviously, my summary has focused on the outrageous stuff said by the high-protectionist side. From my perspective, the low-protectionists were pretty conciliatory.

Everyone's a Captain Kirk

Anupam Chander & Madhavi Sunder, Everyone's a Superhero: A Cultural Theory of 'Mary Sue' Fan Fiction as Fair Use, 95 Cal. L. Rev. 597 (2007). Chander and Sunder argue for the value of fan fiction, even the much mocked Mary Sue genre in which an author adds a new female character who immediately gains the respect and love of the existing characters, as a practice of resistance to dominant culture. Mary Sues are generally understood to be instances of fairly naked authorial self-insertion. I had mixed reactions to this piece. On the one hand, it appears almost indifferent to the serious debates in fandom studies about whether fan fiction is in fact resistant to dominant values, and what resistance might mean. The issues are especially complicated with respect to race, since American online media fandom remains heavily white; for a recent debate over whether fan fiction actually does worse on racial issues than its (not particularly progressive) source text, see this discussion about Stargate: Atlantis fan fiction.

Relatedly, by treating Mary Sue as a metonym for fan creations more generally, Chander and Sunder’s piece discounts the complexities of identification. Thus, their definition of Mary Sue turns out to include slash fan fiction as well, because slash generally presents homosexual relationships in contexts where the mainstream forbids them. But women reading and writing slash, if they are identifying with the male characters, are, as Francesca Coppa says, identifying “up,” identifying with more socially valued bodies. (It’s no accident that the next line of the song that gives Chander and Sunder’s article its title is “Everyone’s a Captain Kirk.”) Even if focusing on male characters encourages slash fans to be progressive on gay rights – and it’s not clear that it does – they are not doing the same kind of rewriting as Mary Sue authors, who are putting bodies like their own at the center of their favored texts.

On the other hand, the piece made the useful point that the “aesthetic” arguments often deployed against fan fiction (why don’t you just write your own original work? etc.) are also legal arguments, and their legal flaws have something to say about the merits of the aesthetic objections as well. Moreover, and following up on something that came up often in my discussions of gender and fair use cases, I don’t believe that an unauthorized use has to be “resistant” to be fair. Fan fiction has liberating possibilities, but those don’t have to be realized for any particular work of fan fiction to be fair use.

Monday, May 21, 2007

Sunday, May 20, 2007

Yellow Book class action settlement upheld

Education Station Day Care Center Inc. v. Yellow Book USA, Inc., 2007 WL 1245971 (N.J. Super. A.D.)

The lower court approved a settlement of a certified class action for false advertising against Yellow Book USA. This appeal involved challenges to the fairness of the settlement, the sufficiency of notice, and the counsel fee, all of which were rejected (with some fee modifications).

The underlying false advertising claims arose from Yellow Book’s representations about usage of its telephone directories from May 2002 to July 2004; plaintiffs allegedly paid more than they would have if they’d known the truth. The settlement provided for relief for approximately half a million customers, about three-fourths of which are current Yellow Book customers. Current customers were eligible for a transferable credit voucher for future advertising purchases, with a fourteen-month expiration period, of between $48 to $720, depending on the amount of advertising purchased during the class period. Former customers were eligible for the same credit vouchers, or for a lower cash payment of between $22 to $265. The parties estimated the total potential value of the proposed settlement at between $65.7 and $71.9 million. As of the fairness hearing in August 2005, over 96% of the class members had been contacted, and about 15% (81,000 people, including 65,000 current customers seeking over $11.2 million in advertising credits) had filed claims.

Plaintiff’s counsel justified the settlement with an economist’s prediction that success at trial would produce maximum damages of 11% of what class members paid for their advertising. The settlement provided each class member with 50-80% of that amount, as compared to the average 9-12% recovery of maximum possible damages in a typical class action settlement. Credit vouchers for current customers were reasonable given that Yellow Book retains 70% of its customers.

One set of objectors proposed that the settlement should be amended to remove the disparity between former and current customers by giving everyone the cash option; this wouldn’t hurt Yellow Book, they argued, because current satisfied customers would choose the higher-valued vouchers. The court found that the trial court hadn’t abused its discretion, given all the facts. Indeed, the court found that “the settlement credit may even be better than a cash rebate for this vast majority of current customers who have an ongoing, recurring business relationship with Yellow Book.” Comments: the trial court may not have abused its discretion, but there’s no doubt that the settlement would have been better for current customers if it had given them the cash option. Even setting aside the thirty percent of non-repeat customers (who might even be extra revenue for Yellow Book if they take the settlement credit and spend a little more on a new ad), continuing customers couldn’t be made worse off by being able to choose credit or a smaller amount of cash. So the court’s comparison is beside the point.

Separately, 15% redemption is a pretty high percentage for a coupon settlement. Perhaps that's because the average recipient was a business rather than an individual?

Worm poop and the Lanham Act

TerraCycle sells fertilizer made from “worm poop.” Perhaps, then, it is well positioned to make promotional lemonade out of litigation lemons. It’s being sued by Scotts, the market leader in fertilizer, for trade dress infringement/dilution of the Scotts green-and-yellow trade dress and for false advertising. Coverage from Seattle TM Lawyer; TerraCycle's suedbyscotts website; example of columnist on TerraCycle’s side.

A Scotts spokeswoman emphasized the false advertising elements of the case: “‘We don't want to lose sight of the product claims,’ she said. ‘TerraCycle made broad claims that its products are more effective than synthetic chemical fertilizers. And they say industry research confirms this.’ … In its lawsuit, Scotts attacked TerraCycle's use of words and phrases such as ‘most efficient,’ ‘affordable’ and ‘more effective than synthetic chemical fertilizers.’”

From what I can see, the trade dress claims are weak, and may detract from the false advertising claims, which at least deserve consideration on their merits. At a minimum, TerraCycle’s PR seems to have successfully focused public attention on the weakness of the trade dress claims. Yet TerraCycle made establishment claims, and the law is that such claims must be substantiated by sufficiently reliable tests. Scotts could prevail by showing that the tests don’t prove what TerraCycle says they do, or that the better evidence is against TerraCycle’s claims. (Letter that TerraCycle relies on for substantiation here.)

The NYT article on TerraCycle in today’s magazine raises a different trademark issue: TerraCycle packages its products in recycled 20-ounce soda bottles. According to the article, this creates variation in the products’ appearance, since TerraCycle uses multiple bottle types. (TerraCycle’s acceptable bottle policy here. The text refers to “any 20oz Pepsi, Mountain Dew, Dr. Pepper bottle,” though the images of acceptable bottles clearly include distinctively shaped Coke bottles: On this page, mousing over the bottles reveals their origins as Pepsi bottles – except for the Coke bottle, whose logo has been blurred out. One wonders whether there is any history of contact between the Coca-Cola Co. and TerraCycle. And TerraCycle's packaging for its bottle collection program uses a clearly identifiable Pepsi logo -- a possible false endorsement problem?)

In any event, the NYT reports that “[inconsistent packaging] has become part of the brand’s look, and the company is trying to trademark the packaging style.” This raises fascinating questions. [ETA: see comment below for clarification. General-interest reporting often confuses types of IP protection. Still, I think the hypothetical trademark claim is of interest, and even without an affirmative claim of rights there are potential infringement and dilution issues.]

Could repackaging be infringing on the Coke or Pepsi trade dress? The silhouette of the plastic Coke bottle is quite recognizable, though not as iconic as the glass Coke bottle, and Pepsi probably has a fair amount of secondary meaning in its bottles as well. Nonetheless, especially given that a selling point is that the product comes in recycled bottles, it seems unlikely that consumers will be confused about the connection between soda and worm poop. Dilution? Perhaps a harder case for TerraCycle, though in context “worm poop” may be burnishing, not tarnishing – see this NYT article about Diet Coke with Vitamins for a suggestion that Coca-Cola might welcome association with an actual product of nature.

Would it be any defense that recycling bottles is a functional use of those bottles? That is, given that the point of the product is to minimize environmental impact, the quality of the product would be affected (and possibly also the cost of collecting the bottles would be increased) by a prohibition on the reuse of bottles that comprise a large percentage of the available empties. I have been increasingly interested in the idea of contextual functionality – cases in which some uses of a trade dress are functional but others aren’t. Examples include the iPod trade dress, lauded for its ease of use but also sometimes copied only for its source-identifying features, as well as the “ding” sound that Southwest has turned into a brand in its ad campaigns, which is actually the same sound heard on every Boeing plane, whether operated by Southwest or American. I am confident that Southwest can’t use its “ding” registration to force American to retrofit all its Boeing planes, or even to make Boeing change the sound it uses on new planes – but I’m equally confident that American can’t start using “ding” in its ads without a darn good reason. As branding permeates every aspect of production, contextual functionality situations may increase in number.

Setting aside any possible infringement of soda makers’ rights, TerraCycle could perhaps seek trademark protection not for any particular bottle shape, but for the idea of a product line of variable shapes. It seems unlikely that a product line could get trade dress protection in this way. We usually think of trade dress as a consistent presentation, but in the interests of ontological neutrality I will assume that variation can also be a distinctive signal. Still, the very reason behind the variation – eco-friendliness – presents the same functionality concerns that provide TerraCycle with its defense against the big bottlers.

Final note: If TerraCycle does not claim a trademark in its bottle shapes, or even in their variability, it may have a plausible defense to dilution that it isn't using the bottles as a mark for its goods.

Thursday, May 17, 2007

Thoughts on Perfect 10 v. Google

Tidbits from Google v. Perfect 10:

1. Footnote 8 may be of later interest. The court distinguishes Google’s comprehensive search engine that incidentally indexes some sites hosting infringing images from “a company whose business is based on providing scenes from copyrighted movies without authorization,” given that the latter is not proceeding in the spirit of good faith and fair dealing that underlies fair use. Google Book Search could be deemed more like than Google Images.

2. Then, the court says that a search engine may be more transformative than a parody, because a parody generally serves the same entertainment purpose as the original work but a search engine is a completely different type of work. Surely that language couldn’t possibly come back to haunt defendants making critical use of fictional works, especially in an environment when many copyright owners are willing to license just about anything, including parodies. This is another problem with trying to jam every fair use into the “transformative” category – it encourages unidimensional reasoning, so one kind of fair use has to step on others to prove its special worth. At this point, can we admit that “transformative” is the new “fair,” and try to find some other definitions of what we value in unauthorized uses?

Wednesday, May 16, 2007

Section 230 and defamation

Eric Goldman has extensive thoughts on the 9th Circuit's divided opinions on section 230 immunity (and the way to lose it) in the case. The one point I haven't seen made yet is that Judge Kozinski's "hypothetical" seems to hew very closely to aspects of the recent AutoAdmit nastiness. Kozinski's inducement theory leaves open the possibility that AutoAdmit might not be fully protected, in the 9th Circuit at least, contrary to what most of the discussions I've seen have assumed.

Advertising injury: No duty to defend in FDA proceeding

Pennfield Oil Co. v. American Feed Industry Insurance Company Risk Retention Group, Inc., 2007 WL 1290138 (D. Neb.)

Pennfield, the insured, was sued by Alpharma for Lanham Act and state-law false advertising claims based on Pennfield’s allegedly false advertising of one of its animal drug feed additives as approved for certain uses by the FDA. The underlying action continues, along with proceedings before the FDA in which FDA proposes to revoke Pennfield’s New Animal Drug Application for the additive; this litigation concerns the insurer’s duty to defend. The Eighth Circuit has ruled that the Lanham Act claim can proceed without final action by the FDA, given that whether the additive has been approved as safe and effective (the allegedly false claim) is different from whether it should be (the FDA’s jurisdiction).

Here, Pennfield sought a ruling that its insurance policy from defendant created a duty to defend the lawsuit and the FDA proceedings, based on its “advertising injury” coverage. Advertising injury was defined in the policy as, among other things, “injury arising out of ... oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services” as well as misappropriation of advertising ideas or style of doing business. Only “suits” were covered, defined as civil proceedings, including arbitration proceedings. As is standard, the policy excluded knowingly false statements and willful violations of penal statutes.

Defendant argued that there was no coverage and no duty to defend. The court refused to grant summary judgment with respect to the underlying lawsuit, because the relevant ads “implicitly disparage Alpharma's product because Alpharma is the only other manufacturer of the product with FDA approval.” Moreover, Pennfield’s representation of FDA approval “is arguably a misappropriation of Alpharma's advertising ideas or style of doing business.”

The exclusions were no help to the insurer. The policy excluded advertising injury arising out the failure of goods to conform with advertised quality or performance, thus excluding false claims about the insured’s own products, but Alpharma’s claim of implicit disparagement goes beyond alleging mere failure to conform. Alpharma’s injuries – lost sales etc. – would not go away if Pennfield’s products conformed to advertised quality (though its legal claim would go away, so I’m not quite sure about this reasoning).

As usual, the insurer also argued that Alpharma’s allegations of knowing falsity triggered the policy exclusion. But there are disputed issues of fact about both intent and falsity. (Also, Alpharma’s legal claims can succeed on a strict liability basis – here the court didn’t go far enough, since the insurer should be required to defend as long as the false advertising claims could succeed without a finding of intent, as they obviously can.)

The insurer did succeed in separating out the FDA proceeding, which isn’t a civil action and which would be a necessary cost of doing business for Pennfield regardless of the civil suit, even if it’s intertwined in practice with Alpharma’s lawsuit.

Some thoughts on taking my exams

Students occasionally use outlines from previous years. I don't object to this in theory -- there are lots of ways to learn the material, and as long as there is equal accessibility I see no harm in an additional source -- but it can cause problems in practice. For example, late in 2006 federal dilution law changed a lot. As a result, on my trademark exam this year, it was occasionally painfully obvious which students relied on earlier materials rather than on the current syllabus and class lectures. Dilution isn't a particularly easy beast to grasp to begin with, which surely made the problem worse, but now I have a cautionary tale for future years about old outlines.

More generally, I thought it might be worthwhile to write up what I want from a law school exam, for students' future reference and perhaps for comparison with other professors' ideas.

My theory of law school exams is this: in practice, clients come to lawyers with big messes of facts, from which the lawyer’s job is to extract the relevant ones and then apply the governing legal rules. A law school exam should resemble this experience, within the limits of the subject matter.

There will be some yes or no answers in the fact patterns, since there are a few places in which the law offers yes or no answers, but you’re also going to have to exercise your judgment. On issues like fair use in copyright or infringement in trademark, you need to analyze the relevant factors, but you also need to use your common sense. If the factors seem to point in a nonsensical direction, ask why: is there some other fact that ought to be taken into account in this particular circumstance? Thus, don’t be afraid to say “You’d have to be pretty stupid to think that Wal-Mart sponsored or endorsed the Wal*ocaust T-shirt, and to the extent that the standard confusion factors favor a confusion finding, that just shows that Rogers v. Grimaldi was right to create a separate standard for evaluating parody.” Or, if you think it’s the better result: “Because confusion is likely, there is no justification for a separate parody defense. If consumers are deceived, the parody is a failure and protecting it serves no social purpose.” Either way, you’ll have addressed the facts that are somewhat out of the ordinary.

A key point: It is not enough to say, “this is a hard case, and there are arguments on both sides.” I should never have to write on an exam, “How should a court resolve this issue?” Neither clients nor judges will be impressed by failure to take a position. Sometimes in practice, you may be asked for probabilities, but on the exam I’m looking for your assessment of which side has the better argument on balance.

Take a clear position immediately after setting forth your analysis. That is, if you are analyzing fair use and then covering some other issue, don’t leave me hanging: give me the right outcome on fair use, then move on. This makes me happy and improves your grade.

How much to write: As Dorothy Sayers wrote, begin at the beginning, go on until the end, and then, if you can, stop. In other words: I don’t generally use word limits because I think they add additional stress to an already stressful short time period. But really long exams generally mean the writer has disgorged everything s/he knows about the topic without stopping to think about what matters to the particular question I asked. I don’t give credit for knowing the difference between generic and descriptive terms in trademark if the question doesn’t require you to address that difference. In my experience, really long exams (generally, anything over about 21 double-spaced pages, 12 point font) tend to do no better, and often worse, than somewhat shorter exams because I question the relevance of much that’s in them.

Substantively, I reward uses of the relevant statutory text. Students understandably resist reading the statutes – it’s not the fun part – but in copyright it’s vital, and it’s extremely important in trademark as well. Recent Supreme Court trademark cases have turned on the precise statutory language, and forthcoming issues about dilution will also do so. Thus, if a question about copyright’s distribution right arises, it may be a good idea to quote the relevant statutory language – is there a sale or other transfer of ownership involved? Relatedly, specific is better than general. For example, tell me which statutory safe harbor you think applies to an online service provider’s conduct.

For my favorite trademark exam question, go here.

Thursday, May 10, 2007

Blogging slowdown

Grading has prevented me from blogging much of late; the next few weeks will also be slow as we bring our second child home from the hospital. In a few weeks, however, I should be back on track. Blogging turns out to be suited to 15-minute chunks of work. So check back soon!

Tuesday, May 01, 2007

News for storage jars who really want to direct

Frank Pasquale pointed me to this story on the effect of the EU Unfair Commercial Practices Directive on theater ads, which may no longer be allowed to quote positive tidbits from generally unfavorable reviews under the standard barring any claim that “deceives or is likely to deceive the consumer” so that it “causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.” Of course, that’s the basic consumer deception standard; I’m not sure this will raise the bar in any EU country. On the practice of selective quotation in the US, see this NYT story (also via Frank).