Friday, July 29, 2011

Advertising & Marketing Law casebook materials now available

The casebook Eric Goldman and I have been writing is now ready for its beta release. If you would potentially be interested in teaching the class, please let one of us know and we will send you the materials.

Shots across the bow: Energy companies lose various claims

Innovation Ventures, LLC v. Bhelliom Enterprises Corp., 2011 WL 3111961 (E.D. Mich.)

5-Hour Energy seems to be approaching Pom as a frequent flyer, which either says something about them as plaintiffs or the flux in their market segments. Innovation makes the two-ounce 5-Hour ENERGY shot, while Bhelliom makes energy pills and two-ounce energy shots using 8-HR and ENERGY on its products. The full name is Mr Energy® 8-HR MAXIMUM STRENGTH ENERGY, but "8-HR" and "ENERGY" appear in larger print. Innovation sued for trademark infringement and false advertising. Bhelliom counterclaimed for infringement and dilution of the registered Mr Energy mark.

On the infringement claim, Bhelliom argued that 5-hour ENERGY was generic, but failed to cite evidence. The court found it “apparent” that the mark was descriptive. The relatedness of the goods, marketing channels, and degree of purchaser care favored likely confusion, while likelihood of expansion and favored neither party. The strength of the mark favored nonconfusion, and similarity weighed “heavily” in defendant’s favor, “as the marks are decidedly dissimilar.” Examining pictures of the products, the mark was Mr Energy® 8-HR MAXIMUM STRENGTH ENERGY, even though 8-HR and ENERGY were larger. The 8 also contains a clock. Plus, the registered house mark Mr Energy® increased the differences.

Actual confusion also favored neither party, despite Innovation’s consumer survey and testimony from its CEO that Bhelliom received phone calls from consumers asking if it sold 5-hour ENERGY. The survey was conducted by a different expert in a different case, and the confusion between the parties’ marks was not analyzed in detail. Innovation’s expert said the survey was flawed and that if it had been properly conducted it would have found more likely confusion. The court wasn’t convinced that extrapolating from a concededly flawed survey was a good idea. As for the phone calls, mere inquiries are insufficient to demonstrate actual confusion: they didn’t show consumers’ beliefs, and the fact that consumers asked suggests that they may have been aware of different sources.

Intent also favored neither party. Bhelliom argued that it was using its registered mark with a descriptive term. Innovation argued that the court should infer bad intent from knowledge of Innovation’s mark and similarity between the marks. The court didn’t find sufficient similarity to draw that inference. (Um, why doesn’t this favor defendant?)

Based mainly on dissimilarity, Innovation failed to show likely confusion on summary judgment. “By selling its product under the descriptive name, ‘5-hour ENERGY,’ without further information as to the source of the product, Plaintiff necessarily assumed the risk of encountering competitive descriptive products in the marketplace.”

False advertising: Innovation alleged that Bhelliom falsely advertised the product as containing time-released caffeine and as being based on a 2004 study conducted by researchers at Harvard University. The Harvard study touted the superiority of ingesting low doses of caffeine over time as opposed to ingesting a large initial dose of caffeine. Bhelliom wanted to offer an 8-hour energy proposition, and asked a leading supplement manufacturer for quotes on two products, one containing timed-released caffeine and one containing conventional caffeine. Bhelliom decided to purchase a formulation containing conventional caffeine, but advertised its product as a “time released energy pill” based on a Harvard study finding that time-released caffeine was more effective at achieving sustained energy levels than single doses of caffeine. “Bhelliom also advertised on its website that its energy pill slowly released energy over time, as opposed to bombarding the consumer's system with caffeine in one large serving.”

Innovation also challenged a graph on Bhelliom’s website claming (1) to provide energy for 8 hours; (2) that “other shots” crash after two hours; and (3) that Bhelliom’s shot has the ability to provide consumers with energy for up to 10 hours as making false establishment claims. Innovation’s expert stated that there was no clinical research to support the claim of 8 hours of energy. Bhelliom argued that the graph didn’t purport to rely on data or studies, and that it is simply “a visual depiction of 8 hours.” (I don’t find this to pass the laugh test.)

The court found that Innovation failed to demonstrate a causal link between the alleged false advertising and its own harm. Claims seeking monetary damages require a higher level of proof, and Innovation had no proof of specific damages through lost sales or otherwise. Innovation sells more 5-hour ENERGY in one day than Bhelliom sold in six years. Moreover, the allegedly false statements appeared solely in press releases and websites, not product packaging, which affected the likelihood of harm, given Innovation’s position that purchaser care is extremely low for energy products. “If consumers typically purchase Plaintiff's and Defendant's products at convenience stores with minimal purchaser care, it is unclear how Plaintiff would suffer harm through statements that consumers could only observe by exercising a high degree of care, i.e., researching Defendant's press releases and website.” Summary judgment for Bhelliom.

Innovation relied on a presumption of harm for willful false comparative advertising, but failed to show that these ads were comparative. Stating that “other shots” crash after two hours doesn’t specifically compare 5-Hour ENERGY. (This seems inconsistent with the finding that Innovation is the market leader. Other cases say that you don’t have to name the market leader for a comparison to be understood to be to the market leader. Consumers will naturally infer that the comparison is relevant, and thus default to the market leader as the comparator. Also, I don’t think that courts should limit this presumption to comparative advertising. In willful cases, shouldn’t defendants assume the risk?)

Despite this result, I can’t see how Bhelliom’s statements are tenable or anything other than at least recklessly false, given the evidence recited here, and I doubt that the AGs or the FTC would be as forgiving as the court.

Counterclaims: Innovation uses a “running man” logo on its bottle and in ads, and calls him “The Energy Guy.” In 2009, Innovation added a website feature, “Ask The Energy Guy,” and called him “Mr. Energy Guy” in six instances. Bhelliom optimistically argued federal trademark dilution, which went about as well as you’d expect, since the trademark is not famous. Likewise, infringement failed because Innovation removed all the “Mr. Energy Guy” references and Bhelliom didn’t provide any harm evidence.

Native American organization has constitutional standing against competitor

Native American Arts, Inc. v. Bud K Worldwide, Inc., 2011 WL 2692962 (M.D. Ga.)

Plaintiff NAA is an Indian-owned arts and crafts organization composed of members of the Ho-Chunk Nation. It makes Indian-made products, including tomahawks, knives, belts, blankets, and artwork. Bud K operates an online and mail order catalog store selling cutlery, knives, swords, and other Indian-style merchandise. NAA sued for violation of the Indian Arts and Crafts Enforcement Act of 2000 (“IACEA”), alleging that Bud K goods in a manner that falsely suggested that they were Indian produced, Indian products, or the products of a particular Indian tribe or Indian arts and crafts organization.

Bud K argued that NAA lacked constitutional or prudential standing. The court first found that NAA had prudential standing, then assessed constitutional standing, treating this as a factual question. The court held an evidentiary hearing.

Constitutional standing requires (1) injury in fact—an invasion of a legally protected interest which is concrete and particularized, and actual or imminent; (2) a causal connection between the injury and the conduct complained of; and (3) a likelihood that the injury will be redressed by a favorable decision.

NAA argued that the IACEA gave it standing, because Indian arts and crafts organizations are explicitly included as a person who may initiate a civil action under the statute. But that’s not sufficient to provide constitutional standing.

However, NAA met its burden. Its witness testified that, as a result of Bud K’s offer of fake Indian goods, NAA had to lower its prices on certain items, including knives, tomahawks, and blankets, about 25 or 30 percent. He also testified to lost sales and sales opportunities because of Bud K’s conduct. This was enough to show an actual injury fairly traceable to Bud K's alleged misconduct, and if its requested relief of damages and an injunction were granted its injury would be redresssed.

Bud K argued that NAA didn’t provide sufficient evidence of standing in the form of sales journals, balance sheets, profit and loss statements, or tax records. “The Court does not believe that for purposes of a Rule 12(b)(1) motion, NAA was in effect required to prove its damages or try its entire case.”

Thursday, July 28, 2011

Blog comments not trustworthy evidence of consumer confusion

QVC Inc. v. Your Vitamins Inc., No. 10-4587 (3d Cir. July 14, 2011)

District court opinion discussed here.

Defendant Lessman owns Your Vitamins, which sells a product called “Healthy Hair, Skin, and Nails.” He used to sell his products on QVC, then switched to QVC’s rival HSN. Thereafter, QVC introduced its own competing Healthy Hair, Skin, and Nails product, and the parties also compete on their resveratrol supplements.

Shortly after QVC introduced its product, Lessman posted several blog posts on his site, complaining about QVC’s unfairness in using the same name and alleging that (1) QVC’s Healthy HSN is over 90% additives; (2) “there is a significant body of troubling research that connects hyaluronic acid, an ingredient in QVC’s Healthy HSN, to cancer, that “it is totally useless and potentially harmful,” and, while it “does not necessarily ‘cause’ cancer...credible research points to a relationship and mechanism, which should preclude its use in vitamins”; (3) Healthy Hair‟s silica is “more common[ly]” known as “sand or glass” and “We also use silica in our Healthy Hair Skin & Nails, but because we recognize its solubility limitations, we include our soluble organic silicon”; and (4) QVC’s resveratrol product includes 3 artificial colors, “is almost two-thirds additives,” comes frompolygonum cuspidatum , not Japanese knotweed, contains “an all but meaningless list of seven different botanicals—NONE of which states a standardization of any kind,” and (in drink form) contains 4 grams of sugar per serving from “a mystery source.” He also made a number of general pejorative remarks about QVC’s products, calling them “ridiculous,” “embarrassing,” “sad,” and “disturbing.”

QVC sued for state law and federal false advertising. The district court denied a preliminary injunction, and the court of appeals affirmed, finding no abuse of discretion.

The district court found that QVC hadn’t shown explicit falsity, even with respect to the most troubling statements about the relationship between hyaluronic acid and cancer. “If his statements concerning that relationship had been literally false, his later statement that the levels of the acid in QVC’s Healthy HSN were so low that it nonetheless would not have an effect would not be sufficient to save him from a finding of literal falsity. One cannot escape liability for a literally false claim by pointing to a later disclaimer.” However, the statements, “while somewhat difficult to parse, cannot be read as unambiguously false.” The court here deferred to the district court’s factual findings.

Misleadingness requires proof of consumer deception, which usually requires a survey. Comments on Lessman’s blog posts purportedly left by consumers were insufficient. The district court looked at the 60-odd comments and found only a handful suggesting consumers had been misled into a materially false belief, which wasn’t enough to show a likelihood of success on the merits. The court of appeals agreed.

The court of appeals further said that even more abundant comments would often be “of only limited value” because “[c]omments left on blog posts can be very difficult to authenticate. The use of false identities in Internet forums is now a well-known tactic for attacking corporate rivals.” (Wait, is the court suggesting that the negative comments were from defendants? If so, there’s a much bigger false advertising problem. Note also the negative implication that in “real name” situations, comments would be more persuasive, though I pity the lawyers who have to track down those commenters.) “Even if a poster is ‘legitimate,’ doubts will often remain as to the sincerity of the comment. And, finally, even if a poster is genuine and making a comment in good faith, whether he or she would fall in to the universe of consumers whose opinions are relevant (i.e., those who are or potentially might be purchasers of the products in question) often cannot be known. Given these considerations, it was especially appropriate for the District Court to give the blog comments only limited weight” (citations omitted).

There’s some internet exceptionalism going on, though maybe it’s justified. Courts routinely admit evidence of phone calls, email, and mail as evidence of deception, without worrying much about whether they’re likely consumers. It’s quite possible that online commenting culture is different enough that the distinction is justified. But, at the very least, decisions like this call into question the consistency of weighing evidence of confusion by conceded nonconsumers against defendants in Lanham Act trademark cases.

And speaking of how trademark plaintiffs have it easier despite proceeding under the same law: QVC argued that a single instance of confusion could be sufficient for liability. “However, every case it cites for this proposition concerns deception under the other branch of the Lanham Act—that is, with respect to trademark confusion. Even in that context, this proposition is not necessarily accepted.” The court of appeals didn’t find clear error in the district court’s holding that QVC hasn’t satisfied the burden of showing that the advertising was likely to deceive a substantial portion of the intended audience.

False marking misleadingness theory rejected; only explicit falsity counts

Public Patent Foundation, Inc. v. Quigley Corp., 2011 WL 3055382 (S.D.N.Y.)

PPF sued defendant (now known as Prophase) for false patent marking. The complaint alleged that defendant sells Cold-Eeze zinc gluconate glycine products to retail stores and on the internet, and promotes them through internet ads. The lozenges include labels that state, DEVELOPED UNDER PATENTS: 4,684,528 4,758,439. The former expired in 2005 and the latter no later than 2007. PPF alleged that the patent marking deceived the public into believing that something in the lozenges was protected by the listed patents. In addition, from 2005 to at least June 2008, defendant’s website said “The Cold-Eeze® patented, proprietary zinc gluconate glycine formula is believed to work by interfering with the cold virus.” PPF alleged that defendant, a sophisticated company, knew or should have known that the patents had expired, and that it made these statements for the purpose of deceiving the public.

Rule 9(b) applies to false marking claims. Though intent, knowledge, and other mental states may be alleged generally, a plaintiff has to provide specific underlying facts from which a court can reasonably infer the requisite intent.

False marking requires (1) advertising or use of the word 'patented' in connection with a device that is not patented; and (2) intent to deceive." Inadvertence or mistake is insufficient.

The court first found that the packaging stating “DEVELOPED UNDER PATENTS: 4,684,528 4,758,439” was not within the scope of the false marking statute because the statement was true. PPF argued that the claim was nonetheless misleading. Since the law bars the use of "any word or number importing" that an unpatented article is patented, this statement was actionable. But the court rejected the concept of misleadingness in false marking. It stated the true situation, and being “developed under” a patent “is different from (and does not imply) that something is ‘protected by’ a patent.” (Nice to know the court has figured out when claims do and don’t imply other claims. I hope it spreads the word!)

The website statements, however, referred to the formula as “patented.” This adequately alleged use of the word in connection with an unpatented device. PPF pointed to defendant’s public SEC filings. From 2005 to 2008, defendant’s 10-Ks expressly acknowledged that the patents expired in August 2004/June 2005 (except in Japan). The court took judicial notice of the contents of the filings, not their truth. These statements, coupled with the apparent fact of misrepresentation were sufficient to warrant an inference of fraudulent intent. Defendant could rebut that inference with credible evidence that it didn’t consciously desire public deception, but later.

Wednesday, July 27, 2011

Travel company falls into the gap: confusion, but not dilution

The Gap, Inc. v. G.A.P. Adventures Inc., 2011 WL 2946384 (S.D.N.Y.)

Congratulations to Bruce Keller & Debevoise & Plimpton, my former employers, on their victory on behalf of Gap.

You know the Gap brand. G.A.P Adventures Inc. is an Ontario company in the field of travel booking and travel agency services, founded in 1990 and making its first US sales in 1993. G.A.P (the last period is in the caption, but apparently not in the logo) was intended as an acronym for “great adventure people,” which was part of the logo underneath the company name. The company has grown consistently and made over $87 million (Canadian) by 2007, when The Gap sued, and has a significant US presence in advertising.

The court found that, throughout its history, G.A.P was aware that customers associate its name with Gap’s famous marks and are likely to be confused. Evidence for this included G.A.P’s choice of as its website since 1995. Its logo redesign in late 2008 “placed even more prominence on the word ‘gap’ and indicated an intention to increase the association with plaintiffs' name and trademarks.” It used bold font and lower-case letters and eliminated the periods between the G and the A and the A and the P, minimized the word “adventures,” and left out the “great adventure people” tagline. After Gap objected, G.A.P. modified the new logo, restoring the tagline, but “gap” was still the most prominent aspect. G.A.P often did not use the tagline on promotional items and advertising material, frequently calling itself “Gap Adventures.”

In 2010, G.A.P sent an email to its employees, instructing them to use the company’s name in full at all times, employees frequently disregarded this and used G.A.P instead; the company didn’t repeat the memo and had no compliance program to discipline employees for calling it G.A.P.

G.A.P also stocks clothing, such as T-shirts printed with “G.A.P Adventures”; it sold such clothing in 1998 and 2004. Despite testimony that it no longer offered clothing to the general public, an investigator visited the Toronto office in May 2011, “saw T-shirts in various colors in the reception area with G.A.P Adventures' new logo printed on the top back of the shirt, was given a T-shirt, and brought it to the trial.”

The court found actual confusion. A former principal testified that between 1991, and 1998, customers called G.A.P’s Toronto office looking for Gap clothing, and a search of computer records (revealed after discovery closed) covering 18 months in 2001-2002 found 11 potential customers requesting brochures who said they’d been looking for Gap clothes. (The court was not complimentary to G.A.P’s principal or counsel, who didn’t supplement the company’s answers to interrogatories when it found this information.) The court inferred that “a certain number of visitors to its website and readers of its brochures responded to G.A.P Adventures in the belief that there was a connection to plaintiffs.” I’ll omit discussion of other evidence (confusion by nonconsumers) but it was there.

Gap also presented a dilution survey by Gerald Ford covering people over 18 who reported that they were likely, within the next year, to use the Internet to search for information on travel tours outside the continental United States. The court found the more general question appropriate to define the survey population; though G.A.P promotes ecotourism, it offers a wide variety of travel tours to appeal to varying and extensive population segments. In the test cell, respondents saw an abbreviated version of G.A.P’s website with the old logo. In the control cell, respondents saw a site identical except for that Great Adventure People replaced every instance of “G.A.P” and the tagline was eliminated as redundant.

Respondents were asked "What company or brand, if any, comes to mind when you see the name on this website?" and then asked follow-ups if there was a positive response. In the test cell, 60.95% of respondents reported that Gap came to mind, while none did so in the control cell. (Are that many decimal points really statistically appropriate? It’d have to be a pretty big survey! Which is not to say I distrust the basic magnitude of the findings; I just suspect the decimal points are statistical mumbo-jumbo. I recommend Jacob Jacoby, Amy H. Handlin, & Alex Simonson, Survey Evidence in Deceptive Advertising Cases Under the Lanham Act: An Historical Review of Comments From the Bench, 84 Trademark Reporter 541 (1994), for an overview of relevant issues.) The court found the survey demonstrated that exposure to the old logo caused an association with Gap’s marks.

Ford also did a survey with the new G.A.P logo. In this case, the control cell replaced “gap” with “tap” and the tagline with “travel adventure people.” This test cell produced 38.61% who reported that Gap came to mind, while the control cell found 0.99% association. 37.62% of respondents who associated the new logo with Gap did so as a result of the “gap” in the new logo.

Defendant’s survey expert opined that the control should have included uses of “gap” to which Gap had not objected as a proper baseline, but the court disagreed. The expert also criticized the question as leading; Ford responded that it was appropriate in light of the survey’s purpose and that he’d asked the same thing of the control cell. (People have successfully argued that asking the same questions of the control cell avoids any problems with leading questions. I think that depends—if the question leads consumers to draw inferences they wouldn’t have drawn in ordinary exposure, then having a control cell doesn’t help cure the distortion from the real world. If the question just leads consumers to articulate things that they did think, but weren’t at the top of their minds, then having a control cell is quite useful. Trouble is: how do you know which situation you have?) The court concluded that a control cell with an open-ended question such as "What is the first thing that comes to mind when you see the name on this website”" might have been desirable. But “two different control cells could cause skewing in other respects and, by complicating and extending the questioning, affect the willingness of respondents to be questioned.” (Not sure I get this last point. If there’d been a separate third cell, why would the questions have been longer? Or does the court mean that open-ended questions lead to extended questioning?) The court found that the surveys were appropriate and relevant to show likelihood of association between the parties’ marks.

Hal Poret also conducted an infringement survey of people 18 or over who visited the area in which G.A.P’s NYC store is located and who were likely to shop for travel tours in the next 12 months. Defendant’s expert opined that intercepting those people on the streets near the store was inappropriate, because there were two Gap stores in the vicinity “and there was no way to control the effect of outside stimuli, e.g., passersby carrying Gap shopping bags or wearing Gap clothing.” The court disagreed because the method and locations “simulated the market conditions under which a consumer would see the G A.P Adventures storefront.” Poret initially just conducted a test, with no control, because Gap wanted to know whether it should worry about the NYC store. A year later, after Gap sued, Poret ran a control cell. Defendant’s expert argued that the time gap made it impossible to account for changes between cells, but the court found that the record didn’t show any change in context or environment that would be relevant.

The test cell used a photo of the front of the G.A.P NYC store. The control cell used a photo altered so that the storefront read “The Great Adventure People Adventures.” Defendant’s expert opined that the photo was not very clear and the nature of G.A.P’s business was not evident, but the survey was designed to test initial confusion and the photo was taken from G.A.P’s own website.

The survey asked respondents what services or products they would expect to be able to get at the store in the photograph; whether they thought the company that operates the store in the photograph also operates any other store or business, with followups if they said yes; and whether they thought that the company that operates the store in the photo got “authorization, that is, permission, from any other company to use their name, or not, or don't you know?” with followups if they said yes. The court found that the survey showed that 40.9% of respondents in the test cell were confused into thinking that (1) the G.A.P Adventures store was a Gap store, or (2) the G.A.P Adventures store was operated by the same company as Gap, or (3) the G.A.P Adventures store was authorized by Gap. None of the respondents in the control cell had the same reactions. The court credited this as evidence of likely confusion.

Defendant’s expert Yoram Wind used a marketing analysis to conclude that there were “dramatic” differences between the parties’ logos, target markets, store setup, goods and services, price range, means of distribution, number of stores, advertising, websites, value propositions, and overall messages. Thus, confusion and dilution were unlikely.

The court didn’t give this analysis significant weight because it didn’t address consumer perception “upon initially encountering G.A.P Adventures in the marketplace, as reflected by the evidence of actual confusion actually encountered by defendant throughout its history, and as measured by the survey evidence. The confusion arises from an association between plaintiffs and defendant that causes an attraction, because of the application of plaintiffs' famous marks to defendant's service offerings.”

Wind offered a very interesting survey showing that about 54% of respondents thought of Gap in reference to descriptive uses of “gap” such as "Watch the Gap" and "Bridge the Gap." (I personally remember the “Fall into the Gap” marketing campaign.) Wind argued that consumers think of Gap whenever the word “gap” is used, whether descriptively or not, and that if these association-evoking uses were benign, so was G.A.P’s. (I make a related point in my article arguing that dilution law is unconstitutional because it suppresses truthful commercial speech when there’s no evidence that commercial speech is more harmful than noncommercial speech; it’s also of some note that there is academic research using Gap as one of the test brands to determine whether dilution occurs, cited in the article.) The court found that the study merely confirmed the fame and strength of the Gap marks, and did not speak to likely confusion or dilution.

Gap knew about G.A.P for a while. It sought the domain name in 2005, and engaged in unsuccessful negotiations over its concerns with G.A.P’s use of the marks in Canada. Gap opposed G.A.P’s published application for US registration for G.A.P Adventures for travel services in 2006. G.A.P “opened a street-level concept store in New York City” in 2007 “to increase brand awareness.” Gap sued under three months after this event.

The court granted judgment in favor of Gap on its Lanham Act infringement claims, for the obvious reasons. Though some third-party registrations also use “gap,” G.A.P failed to introduce evidence that they were actually used, promoted, or recognized by consumers. The court found that proximity of goods and services weighed in Gap’s favor, “although only slightly.” There was no direct competition, but the customer classes overlapped, “as evidenced by G.A.P Adventures' 2007-2008 marketing plan, which describes G.A.P Adventures' ‘core user’ as someone who shops at Gap.” (Ouch!) “In addition. Gap and G.A.P Adventures both offer their products for sale on their websites and through retail stores. This minimal degree of proximity increases the likelihood of consumer confusion, but only slightly.” In terms of actual confusion, the court found initial interest confusion—increased credibility during the initial phases of a potential transaction. Consumer sophistication in making an expensive travel purchase doesn’t protect against this.

The court granted judgment in favor of G.A.P on the state and federal dilution claims. Gap failed to prove that the use of “gap” impaired the distinctiveness of Gap’s marks, “nor is defendant likely to do so, particularly in light of the injunction that will be issued.” Though both intent to create an association and actual association were present, association alone isn’t enough: the association has to be of the kind that can impair the distinctiveness of the famous mark. The court cited McCarthy and the Charbucks case. I really don’t know what to say about this: on the one hand, McCarthy is right; on the other, I don’t believe that junior uses can impair the distinctiveness of famous marks, for reasons given in the article above, and therefore anyone asked to prove something more than association is going to fail. I don’t know what evidence Starbucks had about Charbucks over and above what Gap proved; all I can think is that, similar to what happened in the Deere state-law case, the court thinks that Charbucks was actually tarnishing and this case is only about blurring, even though the Second Circuit explicitly rejected tarnishment in the Charbucks case.

The court then rejected G.A.P’s laches defense. Laches requires plaintiff’s knowledge of defendant’s use of the marks, inexcusable delay, and prejudice to the defendant. The court found that Gap acted in a commercially reasonable manner. It monitored G.A.P’s activities over time, opposed its US trademark application, and filed suit under three months after G.A.P opened its NYC store. Moreover, G.A.P clearly suffered no prejudice: it knew of Gap’s marks from the outset, and continued using its name “ever more intensively and provocatively, Whenever plaintiffs complained, defendant intensified its infringing conduct.”

The court granted an injunction. Initial interest confusion constitutes irreparable injury. Watch how free riding turns into injury: “Remedies at law will not compensate Gap for the boost in credibility that G.A.P Adventures receives as a result of this initial confusion as to its affiliation” (emphases added).

G.A.P was permanently enjoined from using “gap,” or any variation of the word “gap,” whether as an acronym, abbreviation, or otherwise. The court granted such a broad injunction because allowing something like G-A-P Adventures “could easily give way to an infringing use, as shown by the history of this case.” G.A.P has to transition to a new name in the US, and must instruct its employees not to use the word "gap" when referring to the company. It may use "formerly known as G-A-P Adventures," but only in connection with a new, non-infringing name. Further, G.A.P had to remove all articles of clothing from publicly accessible areas of its stores. (Presumably, that can’t cover clothing that doesn’t use “gap” or a variant. Or, you know, clothing that employees and customers are wearing. Somehow I don’t think that was worded the best way possible.)

Tuesday, July 26, 2011

Farhad Manjoo as unrepentant but less frequent Bittorrenter

Here. What I found particularly notable (other than his admission that he just downloaded the latest True Blood) was his emphasis on convenience--at least if you've got the money (a big if), the question is simply whether it's easier to download an unauthorized copy or download/stream an authorized one. He increasingly turns to authorized copies because "piracy is work."

I'm interested in this conception of work--it is work to make remixes and other transformative uses, but I generally think of that as a positive, both in terms of the legal argument (the fact that people put in lots of effort to make their noncommercial fanworks is evidence that doing so serves an important, First Amendment-favored communicative purpose) and a cultural one (creative work is good for you and for your community). Creativity is work too, and sometimes not that fun when you're staring at a half-finished story, but it seems to have intrinsic value where not all work does.

Failed Lanham Act case not sanctionable

Altvater Gessler-J.A. Baczewski International (USA) Inc. v. Sobieski Destylarnia S.A., 2011 WL 2893087 (S.D.N.Y.)

Defendants Sobieski and Adamba Imports filed post-trial motions against Gessler seeking sanctions, attorneys’ fees, and costs. Judge Baer awarded costs, but not sanctions or fees.

Gessler sued defendants, the manufacturer and importer of Old Krupnik Polish Honey Liqueur ("Sobieski's Krupnik"), alleging false advertising, trademark infringement, deceptive trade practices, and unjust enrichment. Gessler objected to internet ads in which an image of Sobieski's Krupnik appeared in close proximity to the description, "[o]nce produced by the famous Baczewski Distillery of Lwow, Poland, Krupnik is produced today according to its original recipe by Starogard Distilleries of Gdanks." Gessler claims trademark rights in Baczewski, and also argued that the text’s reference to “original recipe” was its own trade secret recipe for Gessler’s Krupnik.

The jury trial resulted in a verdict in favor of defendants on all counts.

Sanctions: attorneys who affix their signatures to papers filed in court have a duty to conduct a reasonable inquiry into their factual support (or likelihood of being supported after discovery). Continuing to espouse an untenable position is also sanctionable. Sanctions may not be imposed unless a particular allegation or legal argument is utterly lacking in support, and courts must resolve all doubts in favor of the party facing sanctions.

As to the false advertising claim, Sobieski argued that the prefiling investigation was unreasonable because Gessler had no evidence that Sobieski created or used the accused ad text, and that Gessler further engaged in sanctionable behavior by electing to proceed with trial after discovery, when Gessler found out that a non-party’s website was the source of the text and should have realized that its claims were no longer tenable.

The court disagreed. False advertising doesn’t require that the defendant have created or used the text. The Lanham Act allows vicarious liability, although Gessler did not plead this theory in the complaint or at trial. Gessler also claimed that Sobieski had control over its product, which it continued to supply to retailers knowing that one or more of them used the ad to sell it. Gessler argued that the jury could have found that Sobieski and its retailers were part of a common enterprise to market Sobieski's Krupnik using the ad; the non-party Sobieski claimed created the ad allegedly denies doing so. (Adamba’s motion failed on similar grounds—though it was clear that other retailers used the ad before Adamba did, that didn’t mean Adamba couldn’t have used the ad, and there was circumstantial evidence that it did.)

Gessler’s prefiling investigation included observing the proliferation of the ad text among retailers of Sobieski’s Krupnik, ordering bottles of it from NY retailers, and noting that it was advertised in multiple states. Gessler also presented circumstantial evidence at trial that Sobieski caused the text to be disseminated, including evidence that an entity affiliated with Sobieski had previously used similar language. Given the standard for sanctions, Sobieski failed to show that the initial investigation was unreasonable or that the allegation of false advertising was utterly lacking in support.

Similarly with trade secrets—before filing, Gessler knew that Sobieski had purchased the manufacturing facility which had previously been licensed to produce Gessler's Krupnik, and that retailers were using the ad, which by its own language indicated that Sobieski's Krupnik is manufactured according to Gessler's Recipe. Gessler presented more evidence at trial, including that Sobieski had a copy of Gessler's Recipe in its files and that Sobieski's promotional materials described Sobieski's Krupnik as being manufactured pursuant to an 18th century recipe.

And on trademark, Sobieski argued that Gessler failed to investigate the effect of the ad on the average purchaser or present confusion evidence, but juries can find confusion without survey evidence, and Gessler presented evidence that the ad was false on its face, allowing a presumption of deception. Gessler timely withdrew its dilution claim, immunizing it from sanctions on that claim.

What about attorneys’ fees, available in exceptional Lanham Act cases? The Second Circuit requires the prevailing party to show fraud or bad faith in bringing or prosecuting the suit. Sobieski made three arguments: (1) Gessler had an improper competitive purpose in bringing/prosecuting the suit, (2) its claims were meritless, and (3) it sued Adamba to gain jurisdiction.

As to (1), Sobieski argued that Gessler was simply frustrated by its competitive position and used this lawsuit to extract improper concessions based on unreasonable objections to Sobieski’s settlement offers. But Gessler provided reasonable explanations to avoid an inference of bad faith; Sobieski itself had initiated an earlier meeting at which it advised Gessler that Gessler couldn’t use “krupnik” to market a honey liqueur product that Gessler had been making and selling for decades, and Gessler argued that it rejected the settlement offer based on the offer’s insufficient terms. This was enough.

What about meritless claims? Cases awarding fees on this ground generally involve circumstances where the evidence was so thin that it was hard to imagine that the actions were brought for proper purposes. This theory failed for reasons similar to those in the Rule 11 analysis.

How about bringing in Adamba as an importer? Same thing: there was circumstantial evidence connecting Adamba to the ad text. A bad faith, baseless attempt to gain jurisdiction might justify a fee award, but that hadn’t been shown here; also, “while Gessler could theoretically have tried to chase down multiple parties in multiple jurisdictions, it instead elected to focus its limited resources on the supply chain of the product, as importers of liquor and cordials are generally responsible for promoting such products and are often contractually obligated to do so.” Thus the court would not infer bad faith in suing Adamba.

Adamba also sought fees and costs under Rule 68 pursuant to its offer of judgment. But Rule 68 only applies when the plaintiff obtains a judgment in its favor, which Gessler did not.

Other costs, however, were allowed to the prevailing party; this occurs as a matter of course unless the losing party convinces the district court to deny the award as an exercise of its equitable discretion. Perhaps of note, the court allowed Sobieski to recover $50,000 for the reasonable cost of trial technology consultants used to develop and present exhibits as “costs,” because the technology served the same function as exhibits and other papers used at trial and the visual aids were helpful to the jury and the court by focusing attention on salient documents and concepts.

False advertising claim for false development/exclusivity survives

Trident Prods. & Servs., LLC v. Canadian Soiless Wholesale, Ltd, 2011 WL 2938483 (E.D. Va.)

Trident sued for breach of contract, unjust enrichment, violation of Virginia’s trade secrets act, and false advertising under the Lanham Act. The court denied a motion to dismiss the false advertising and unjust enrichment counts. Trident alleged that it develops and sells soil additives designed to assist plants in the uptake of nutrients. One such confidentially formulated strain, EPG, allegedly is particularly effective at promoting root growth. In 1999, defendants began buying EPG from Trident, repackaging it in smaller containers under the name Voodoo Juice. In 2005, Trident disclosed its method of formulating EPG, and defendants agreed to keep it confidential and refrain from reformulating or manufacturing the additive or otherwise circumventing the supply agreement.

In 2007, defendants allegedly stopped ordering EPG because they began to produce their own soil additive using Trident’s proprietary information, still under the name Voodoo Juice. Further, Trident alleged that defendants published the confidential identity of the beneficial bacterial strains on their website, and falsely claimed that their employees discovered and developed the exclusive strains for Voodoo Juice.

Defendants argued that the Lanham Act claims were subject to Rule 9(b)’s heightened pleading standards. Though they cited some district courts (I think wrongly) agreeing with this argument, there’s no circuit precedent, and the court found that it didn’t need to resolve the issue because this complaint satisfied either pleading standard.

The complaint identifies the following statements:

• "Advanced Nutrients' scientists have devised formulas like Piranha, Tarantula, Voodoo Juice, Sensi Zym and other products that help hydroponics growers bring the benefits of live soil into the hydroponics root zone environment."

• "Advanced Nutrients [sic] scientists worked a long time to find new and more powerful strains of beneficial microbes that would make your roots bigger and more efficient."

• "Voodoo also gives your plants five exclusive strains of Bacillus microbes. When I say exclusive I mean no other product has them for you. Why? Because we specially bred these strains to help roots provide maximum support for larger harvests."

• "We're the only company that uses these highly effective strains because our scientists breed them just for us."

• "Voodoo Juice took 2 PhDs to create and formulate."

Defendants wanted the court to evaluate each statement individually for whether it satisfied each element of the false advertising test, but they were all from defendants’ website and related to the same thing, so should be considered together. It was “clear” that these allegations stated a false advertising claim: Trident alleged that the website statements were false or misleading; they’re material because “it is plainly evident that the alleged statements are aimed at promoting Voodoo Juice as an exclusive product, which demonstrates that the statements are likely to influence the purchasing decision and cause injury to Plaintiff.”

Comment: Defendants might have done better to argue the post-Dastar precedents that say that no false advertising claim can lie for a false designation of the origin of a product’s formula. I think those precedents are wrong because of exactly what the court says—in certain circumstances, claims of exclusivity can be material—but it’s an easily available argument.

The court refused to dismiss the unjust enrichment count because, though the trade secret statute would control if there were in fact a trade secret at issue, it was premature to decide the issue at the pleading stage.

Monday, July 25, 2011

Critic or competitor? Conspiracy allegation preserves Lanham Act claims

1524948 Alberta Ltd. v. Lee, 2011 WL 2899385 (N.D. Ga.)

This case concerns penny auction websites. Consumers purchase bids, usually for fifty cents or a dollar each, and place bids on individual items until a clock runs out and there’s a winner; bids extend the clock. Unsuccessful bidders must normally pay for the bids they placed. Plaintiff, doing business as Terra Marketing Group, runs the penny auction site SwipeBids.

Defendant Lee runs (PAW). Lee says the site is "a clearinghouse of information, comments and education on the penny auction industry" that "posts news, reviews and other reports of penny auction websites," while Terra calls this "a marketing gimmick[; i]n reality, Defendants generate revenue[ ] ... by selling advertising space ... to other penny auction site operations and third party affiliates ...." Lee admits that the site accepts advertisers, but says that it "does not endorse any advertiser and will remove advertisers who are found to engage in unfair or fraudulent practices."

SwipeBids didn’t like content posted on the site about it, and alleged a conspiracy against SwipeBids between PAW and other penny auction sites. Terra argued that PAW is a “fake gripe site,” purporting to be neutral but in fact a tool for disparagement of a competitor. PAW allegedly made defamatory statements about SwipeBids to divert potential customers to other sites. Terra also alleged that PAW “directs” customers to buy “bid packs” from PAW’s sponsors, who then pay PAW a fee. Moreover, PAW allegedly fills its message board with posts that purport to be from consumers but are mostly from defendants (including multiple John Doe defendants) themselves. Finally, Terra alleged that PAW uses SEO (which it calls “spam”) to improve its place in search results when people search for Terra’s trademark.

Terra alleged that defamatory statements on PAW caused lost business and caused Terra’s credit card processor to cancel its contract with Terra, resulting in millions of dollars in damages. Most importantly, PAW contains accusations that Terra engages in “bot bidding,” “in which the penny auction operator runs a program to artificially increase the numbers of bids on a product to the detriment of legitimate bidders.” Bot bidding is fraud, and can damage a penny auction site’s reputation. Other allegedly defamatory statements included that SwipeBids consists of "THIEVES" and that customers never receive products even if they win an auction.

Terra sued for false advertising, unfair competition, and trade libel under the Lanham Act, along with defamation, intentional interference with contractual relationships, negligent interference with contractual relationships, and tortious interference with potential business relations.

The court first held that Georgia’s anti-SLAPP statute didn’t apply because the requirement that a plaintiff file a written verification containing several certifications was a procedural requirement that directly conflicted with, and was therefore precluded by, FRCP 8(a).

Lee argued that it was improper for Terra to sue Lee and 50 unidentified defendants without specifying who is supposedly liable for what in seven causes of action, each purportedly incorporating every previously stated fact and count. Terra responded that it intended to amend its complaint once it found the identities of the Doe defendants, and that its pleading was ok.

Shotgun pleadings are unacceptable; they make it difficult to discern which allegations of fact correspond to which defendant or claim for relief and can make it impossible to frame a responsive pleading. The court found that this complaint was ok. Though it would be better if the complaint specifically cited facts in support of each count, Lee was able to frame a responsive pleading.

But did the complaint survive Iqbal? Lee argued that Terra offered no factual support for the allegations that PAW engaged in false advertising as a competitor, caused consumer confusion, contains defamatory statements “too numerous to include,” and induced others to terminate their contractual relations with Terra.

False advertising under the Lanham Act requires commercial advertising or promotion, which itself requires (1) commercial speech by (2) a defendant in commercial competition with plaintiff (3) for the purpose of influencing consumers to purchase the defendant's goods (4) disseminated sufficiently to the relevant purchasing public in such a way as to constitute advertising or promotion. (Compare to today's other case, from the same circuit, pointing out much more variation in the tests.) The court found this test satisfied by the allegations that Lee and others were involved in a conspiracy to defame SwipeBids “and thereby attract customers to penny auction websites in competition with SwipeBids.” PAW targeted penny auction customers and disseminated the allegedly false statements to anyone who visisted.

Terra also sufficiently pled facts to support the rest of its false advertising claim: false statements impugning SwipeBids’s trustworthiness that deceived consumers and had a material effect on their purchasing decisions.

What about trademark infringement? Terra sufficiently pled rights in SwipeBids. But does pleading “search engine spam” adequately plead likely confusion? More specifically, Terra pled that Lee uses the SwipeBids trademark “to cause search engines to make PAW one of the top search results for ‘SwipeBids.’” Lee argued that the allegation of confusion was unsubstanted and conclusory, and PAW on its face was not confusing.

Because N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008), held that including trademarked terms in metatags to influence search engines may result in a likelihood of confusion, Terra adequately pled infringement.

Comment: sigh. The other counts may or may not be valid; the fact that PAW allegedly defames SwipeBids should be enough to defeat the trademark infringement claim—under Iqbal, how could it be plausible that a site saying SwipeBids is populated by THIEVES causes confusion over source or sponsorship? Even assuming Axiom’s validity, the allegations here are very different.

Trade libel: as the court pointed out, this isn’t a separate cause of action under the Lanham Act. It’s §43(a)(1)(B), and thus this count was dismissed.

Defamation has four elements: (1) a false and defamatory statement concerning the plaintiff; (2) an unprivileged communication to a third party; (3) fault by the defendant amounting at least to negligence; and (4) special harm or the actionability of the statement irrespective of special harm. This was unproblematically alleged—even if you don’t think that the alleged conspiracy with Terra’s competitors justifies a Lanham Act claim, defamation applies to everybody, competitors or not, and has correspondingly higher barriers to recovery. Accusations of fraud and theft injure a business’s reputation; even if claims of lawbreaking are privileged because they’re related to petitioning the government, actual malice defeats the privilege and was properly alleged; the court didn’t need to determine whether Terra should count as a public figure for purposes of fault because Terra alleged the highest level of fault, actual malice; and allegations of fraud are per se actionable without requiring special damages to be shown.

Negligent interference with contractual relationships: this count was dismissed because the claim was not recognized in Georgia. Tortious interference with potential business relations is a viable claim, though, and the allegations were sufficient to cover the elements: a defendant must (1) act improperly and without privilege, (2) purposely and with malice with the intent to injure, (3) inducing a third party or parties not to enter into or continue a business relationship with the plaintiff, (4) causing some financial injury. For inducement, Terra would need to show that, absent Lee’s interference, business relations were in fact reasonably likely to develop. If the complaint’s allegations that SwipeBids was “the preeminent and most successful penny auction site[ ] in the world” were true, one could fairly infer that PAW might have dissuaded prospective customers.

As to interference with existing contractual relationships, Terra failed to plead how Lee knew about the contractual relationship with the credit card processor or acted with the intent to interfere with that relationship. Since knowledge and intent are required elements, Terra’s claim with respect to the credit card processor was dismissed, but not with respect to existing customers.

Note: obviously, being able to allege that a critic is really a competitor is pretty useful, and if you can allege only that the critic is in league with a competitor and survive a motion to dismiss, even better. I’m a bit disturbed by the potential scope of the principle here: suppose GM makes known to the NYT that GM will give it more ads in the future if the NYT reviews other manufacturers’ cars poorly, and the NYT goes along—is the NYT now in the same position as Ford with respect to a Lanham Act suit from GM? On the other hand, fake grassroots sites are a real problem, and if there’s in fact a very tight connection between PAW and Terra’s competitors then I think Lanham Act treatment (which only requires falsity, not malice) would be appropriate. Perhaps the potential risks should be policed by aggressive imposition of fee awards on plaintiffs who claim they’re suing competitors when they’re only suing critics.

Substitution as per contract terms was not infringing

Suntree Technologies, Inc. v. EcoSense International, Inc., 2011 WL 2893623 (M.D. Fla.)

Suntree sued its competitor and its competitor’s president for trademark infringement, false advertising, and deceptive/unfair trade practices. Wait ‘til you hear why.

The parties produce baffle boxes, which are stormwater treatment structures. In fall 2008, the City of West Melbourne began soliciting bids for a project that required nine baffle boxes. The specifications required that the boxes used either be Suntree’s “or equal” to Suntree’s. The project documents explained that this provision was "intended to establish the type, function, appearance, and quality required" for the baffle boxes. For a baffle box to be deemed equal, a request for approval had to be submitted by a defined process, and the box had to be approved by the project engineer.

A company called Derrico submitted a bid listing Suntree as the proposed baffle box supplier. Derrico won the contract and then sought approval to use the EcoSense box. The project engineer spent about forty hours analyzing EcoSense’s box and determined that, as a technical matter, they’d function the same, and he approved the substitution. At some point thereafter, Carolina Alvarez (presumably a city employee) requested that EcoSense create a presentation to show proper cleaning and maintenance procedures for baffle boxes. EcoSense put together a presentation including pictures of staff cleaning various baffle boxes, which it obtained by following the City of Rockledge’s maintenance crew around. EcoSense used Rockledge because it had a good relationship with the city, knew the city had a good maintenance crew, and its office was very close to the city. Because both parties’ baffle boxes are installed in Rockledge, the presentation included pictures of both parties’ products, but the presentation didn’t use Suntree’s name or logo. EcoSense gave the presentation to West Melbourne and the City of Titusville, two customers, and had the presentation on its site for at most a month. In addition, during the course of litigation, EcoSense found an old product brochure containing a single picture of a Suntree baffle box, and immediately destroyed all copies except one exemplar for litigation purposes.

Suntree alleged contributory and direct unfair competition/trademark infringement. (1) Suntree claimed that Derrico infringed its trademark by listing Suntree as the proposed provider on the bid form even though it planned to substitute with EcoSense. Suntree then claimed that defendants induced the infringement by supplying Derrico with baffle boxes even though they were aware of these allegedly infringing actions. (2) Suntree claimed that defendants directly infringed in the maintenance presentation and product brochure, which also allegedly constituted false advertising.

As usual, the state law claims have no separate legal theories and can safely be ignored.

Contributory infringement requires primary infringement, and then intentional inducement or knowing participation in an infringing scheme.

The court commented that Suntree didn’t claim that the city infringed by listing Suntree as its preferred vendor, “even though the City's use of Suntree's mark and Derrico's use of Suntree's mark, from an infringement standpoint, were identical. If the Court were to find that Derrico infringed on Suntree's trademark by listing it as a proposed vendor in the bid form, such a holding, taken to its logical conclusion, would result in everyone involved in the bid process-- both government entities and contractors--having to get permission from every vendor before listing it as a preferred or proposed vendor to avoid infringing on the vendor's trademark.” (This is a little extreme—if we accept the “intent not to use” theory then not everyone in this chain is infringing, but plaintiff’s claim certainly does seem like alleging that a Pepsi-serving restaurant infringed Coke’s trademark when a customer asked for Coke and was explicitly offered Pepsi instead.)

Confusion can be initial interest, point of sale, or post-sale. Suntree argued that the city was confused about the source of the baffle boxes at the point of sale, when the city accepted Derrico’s bid. But that wasn’t when the baffle boxes were sold. The agreement unambiguously gave Derrico the right to request an equal substitution for any of the proposed products in the bid.

So, any confusion would have to be initial interest confusion, and the court pointed out that Suntree’s confusion arguments sounded like a “bait and switch” claim, which is another way of describing initial interest confusion. The Eleventh Circuit hasn’t explicitly addressed IIC, but has suggested that it’s not sufficient when any confusion is remedied before sale. (Citing N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1224 n. 10 (11th Cir.2008) (stating that if "it will be clear to the consumer that there is no relationship between the defendant and the competitor" prior to a sale, then it is not likely to cause the type of confusion actionable under the Lanham Act) and Vital Pharm., Inc. v. Am. Body Bldg. Prods., LLC, 511 F.Supp.2d 1303, 1318 (S.D.Fla.2007) ("The Eleventh Circuit has not embraced [initial interest confusion], and I find it unpersuasive. When the bottom line is sales of a particular product, initial confusion prior to and concluding before the point of purchase does not seem dispositive in a likelihood-of-confusion analysis.").)

But it didn’t matter: assuming IIC was a valid theory, Suntree didn’t show it. The court noted that some of the traditional factors in the multifactor test didn’t work well in this case because it was a nominative fair use case, where defendants were using Suntree’s mark to identify Suntree’s product. Moreover, the strength of Suntree’s mark was “the very reason that its use is not confusing--Suntree is so well known in the industry that the City knew exactly what Derrico was referring to when it used Suntree's name.” This is not a case in which the parties’ marks are so similar that the consumer would initially become interested in EcoSense because it mistakenly thought EcoSense’s product was made by Suntree; the parties’ marks could not be confused.

Derrico’s use was nominative, which is not confusing (the court here cited both the Ninth and Third Circuits, which have different tests, because the doctrinal debris is not important in a case like this one). Suntree argued that Derrico wasn’t truthful because it proposed to use Suntree’s product and that it should have obtained preapproval to use EcoSense boxes instead rather than propose Suntree and later request an “equal” substitution. The court found that this argument was “irrelevant” to infringement, which focuses on confusion, and further found that it was “infeasible, and likely impossible, to obtain such pre-approval.” Aside from the practical difficulties (it would be pointless for a contractor who hasn’t won the bid yet to spend that kind of time and money), the project documents themselves said that “equal” approval wouldn’t be considered by the project engineer until the project agreement became effective.

Even accepting Suntree’s preplanned substitution theory, Derrico’s intent was not to confuse the city into thinking the parties’ products were related. And there was no evidence that Derrico’s use of Suntree’s marks “suggested affiliation, sponsorship, or endorsement by Suntree.” Suntree didn’t even allege that the city ever thought that the parties’ products were associated. The court also thought the planned substitution theory was irrelevant because the City, not the defendants, controlled whether substitution would be allowed. “[I]t does not matter what Derrico and Defendants did or did not plan, because they had no power to carry out that plan. Moreover, any plan that may have existed did not make it likely the City would believe that Suntree's and EcoSense's products were affiliated. On the contrary, the ‘or equal’ substitution process made it unmistakably clear that Suntree's and EcoSense's products were in no way related.”

The court rejected this attempt to stretch the definition of confusion “to include a contractor agreeing to use a more expensive product for a cheaper price and then convincing the fully-informed and sophisticated consumer to use a cheaper but technically equivalent product; this is not actionable confusion under the Lanham Act, it is merely a competitive business practice.” Unfortunately, it cited one of my least favorite cases, Norton Tire Co. v. Tire Kingdom Co., 858 F.2d 1533 (11th Cir.1988), which essentially approved bait-and-switch advertising under conditions where the customers had substantially less experience, control, and stake in their decisions, such that sunk costs of traveling to the defendant’s store instead of the plaintiff’s really did make customers vulnerable to being harmed by bait-and-switch. But, as the court pointed out here, the city knew exactly what it was getting, and held the power to refuse EcoSense boxes.

Without direct infringement by Derrico, there was no contributory infringement. Derrico’s bid was also not false advertising because it wasn’t an ad or promotion under the Lanham Act: Derrico isn’t in competition with Suntree, and the bid wasn’t sufficiently distributed to constitute commercial advertising or promotion.

Moving on to direct infringement by the maintenance presentation and the product brochure, this also failed. Even assuming that defendants falsely designated the origin of Suntree’s baffle boxes as EcoSense’s, there was no evidence of likely confusion or harm.

Consistent with Barton Beebe’s findings that intent is a huge driver of outcomes, the court began by finding that it was clear that defendants didn’t intend to pass off Suntree’s product as EcoSense’s (and the only other factor it discussed at all was actual confusion). The presentation was produced at the request of cities that already had baffle boxes in place, and defendants never expressly claimed that all the boxes pictured in the presentation were EcoSense boxes. (There’s a step missing here—shouldn’t Suntree also have had to prove that its boxes had secondary meaning? Under Dastar, using the picture might constitute false advertising if the boxes were materially different, but is there still a cause of action for using a picture of someone else’s product where the product itself lacks trade dress protection?) The pictures of Suntree’s product were in the presentation for good reasons unrelated to Suntree’s mark, and the purpose of putting the presentation on EcoSense’s website was not to “showcase” the products but to show potential customers that EcoSense would provide appropriate training and support for its products.

The sparse record evidence about that product brochure indicated that the use was a mistake rather than an intentional misappropriation of goodwill. The picture of Suntree’s baffle box was put in by a clerical staff member who was unaware that it was a Suntree product, and defendants destroyed all the other copies as soon as they became aware of the issue.

Suntree had no evidence of actual confusion, only the deposition testimony of a city project manager with minimal involvement in this project who saw the presentation for the first time at her deposition and, after being prompted by Suntree’s counsel, agreed that the presentation gave the impression that all of the photographs were of EcoSense's product. This was not evidence of actual customer confusion. The witness didn’t view the presentation under the normal circumstance of using it to learn how to clean baffle boxes, and she wasn’t involved in the choice of boxes. Even if she counted as a confused consumer, this was de minimis confusion.

With the brochure, Suntree didn’t even try to argue actual confusion. Its reverse passing off claim failed.

Even if Suntree had shown likely confusion, it failed to show harm. There was no evidence that any customers ever actually received the brochure or considered the maintenance presentation when deciding which baffle box to buy.

Were the presentation and brochure false advertising? Courts don’t treat the “commercial advertising or promotion” requirement consistently (and, by the way, state law is very likely to differ by not having such a requirement, not that plaintiffs’ pro forma recitations of state law claims are likely to point that out). At a minimum, the defendant has to be engaged in commercial speech, and then most circuits narrow that further.

The court adopted the popular test from Gordon & Breach Science Publishers S.A. v. American Institute of Physics, 859 F.Supp. 1521 (S.D.N.Y.1994). The first two factors were undisputed—this was commercial speech by a defendant in commercial competition with the plaintiff. But the last two favored defendants. The presentation was not made for the purposes of influencing consumers to buy defendants’ goods or services, and it was not sufficiently disseminated to the relevant purchasing public.

Surely the brochure was made for the purpose of influencing consumers? Yes, but Suntree failed to present any evidence relating to its dissemination—and then the court added in materiality: “due to the sophistication of the consumers, it is unlikely that a simple product brochure could influence them to purchase EcoSense's baffle boxes.”

Even assuming that the presentation and brochure were commercial advertising or promotion, they weren’t false advertising. Because they didn’t mention Suntree’s product, the only allegedly false statement was the juxtaposition of a picture of Suntree’s product to statements about EcoSense’s products, which was ambiguous and thus not literally false. (Hunh? What is the ambiguity? With the presentation, I can absolutely imagine different messages that consumers might take away—“this is how to maintain baffle boxes” is one, and “all the baffle boxes in this presentation come from EcoSense” is another, though I can’t imagine it’s top of mind. But unless the brochure is very unusual, a picture of Suntree’s product combined with statements about EcoSense products would necessarily imply that the statements referred to the thing in the picture. What’s really going on here is that the brochure is just not driving the case, and the court is kicking plaintiff for its overall anticompetitive lawsuit any way that it can.)

Without evidence of consumer reaction, which Suntree didn’t have (except for that one deponent), it couldn’t show that the presentation was misleading.

Suntree also failed to establish materiality. Neither the representations in the maintenance presentation nor those in the brochure were likely to influence purchasing decisions. “Bids for projects are mainly determined by the price of the overall bid, and decisions about which specific products will be used on these types of projects are made by engineers who look at product specifications, not advertisements.”

There was also no harm shown. EcoSense destroyed all the brochures except for the one in evidence, and, with the presentation off its website, it was likely that the only customers who’d see it would already have bought the product and clearly understand that EcoSense isn’t associated with Suntree.

Here’s my question: Why doesn’t defendant here deserve to have its fees paid?

Sunday, July 24, 2011

NYT study on why people share online

Nothing groundbreaking, but interesting to see how the human practice of sharing (aka copying) is getting translated into marketing wisdom.

Saturday, July 23, 2011

A competitor creates false images of your product

Sounds like it might implicate the Lanham Act, no? Well, maybe not. Salon almost certainly counts as a NY Post competitor, but it's hard to imagine the TM or false advertising claim that could succeed here. What about a copyright-based/CMI claim? (Check out Salon's July 10 cover in particular, and compare.)

Friday, July 22, 2011

Trademark bully of the day

Blue Cross/Blue Shield didn't like having its "name and brand" used in a study without its permission. As BCBS well knows, competitors get to use your name and brand in comparative advertising, subject to the Lanham Act. Why would it possibly think that it had any ground to stand on to object to a published study?

Thursday, July 21, 2011

Rereading the oral argument in Wal-Mart

As you do, and I had to quote my favorite wacky Justice Breyer question ever (and there are a lot of choices out there):

QUESTION: Well, why should [trade dress protection] always [require secondary meaning]? I mean, you could have a weird situation. Imagine you made a hair brush in the shape of a grape, you know, and they continuously--that was it. It's called the grape hairbrush, and that's it. I mean, that's so weird that I guess that people would pick it up.

MR. COSTON: I submit, Justice Breyer, that--that unless it had bristles, it wouldn't be--

QUESTION: It does. I mean, you know, that's not the point.

As I said at the time: only a bald man could imagine a hairbrush shaped like a grape. Justice Scalia went with the more plausible (indeed, extant) cocktail shaker shaped like a penguin in the written opinion.

ETA: They continued!

MR. COSTON: The--the grape brush I submit says nothing to the consumer about source.

QUESTION: Oh, yes, it does after a while.

MR. COSTON: After a while.

QUESTION: I mean, sure--no, no, no. All the products are grape. I mean, you know, you wonder what's it--going on here with this grape, et cetera. I mean--

MR. COSTON: Well, I--I agree--

QUESTION: It was like the--

MR. COSTON: --that after a while the market would acknowledge that the grape hairbrush came from a certain company, but that's the point of secondary meaning, that it has to show to the consumer--

QUESTION: It's a whole line. It's a grape hairbrush, a grape comb, a grape hair curler, and a grape--you know, et cetera. And so, almost instantly when you see it there, you get the idea.

Best copyright related story title of the year?

You Say It's Your Birthday: Slate gets into the weeds with the copyright in Happy Birthday, finding numerous versions in Google's archive adding further weight to Bob Brauneis's excellent research concluding that the familiar song lacks a valid copyright.

Wednesday, July 20, 2011

Counterfeit with actual counters

Fake Apple store in China. Counterfeiting on an impressive scale--and then you get to the end and find out there are two more in walking distance.

Tuesday, July 19, 2011

Fan fiction discussion on NPR

I participated in today's Colin McEnroe Show along with BethBethBeth, femmequixotic, and Lev Grossman. I had to leave early, but what I heard was good. (Doing that list alphabetically, but unfortunately doing that also makes a point about the authority usually granted to people who speak about subcultures (especially when they're white men) compared to the authority usually granted to those who populate those subcultures (especially when they're not white men). Don't get me wrong, Grossman's piece was well-written and he made a substantial and sincere investment in understanding his subject. But the cultural dynamics are such that he gets to be the expert.)

John Tehranian's Infringement Nation

John Tehranian, Infringement Nation: Copyright 2.0 and You: At the outset, I should note that in many ways it’s easier to critique a book by a fellow copyright restrictionist than something like, say, the output of the Progress & Freedom Foundation, whose suppositions about how the world works are so alien to my own that I just read it as wrong all the way down. So this review is largely about the narcissism of small differences.

Tehranian thinks that copyright has gotten out of control in the US, and starts off by offering a hypothetical in which an average professor John accrues potentially billions in liability by going about his day—forwarding emails, taking pictures, teaching by showing his class excerpts from other works, writing his own work with quotations, downloading music from a blog he likes, and so on. He argues that, though most or all of these activities are likely protected by various defenses if they were litigated to the hilt, the law is uncertain enough that his estimate of liability can’t be discounted. I think this is a big rhetorical mistake, as well as a series of smaller legal ones (while some of the examples he offers are tough cases, others are not “likely” protected; they really very clearly are, and litigating would be a good way for the plaintiff to get fees awarded against it, as Righthaven is now finding out to its sorrow). Rhetorically, this terror story is not convincing because we know John won’t be sued for any of this stuff; we also know that even people who are “misbehaving” a lot more than John, downloading full TV shows off of torrent sites for example, are really unlikely to get caught, and thus the hypothetical liability does very little to affect their level of activity. Fear of copyright liability does deter people; it’s just that they’re usually deterred in exactly the wrong way (from making public, transformative or educational uses that are fair or otherwise exempt from copyright control), and there Tehranian and I are in full agreement.

Tehranian also makes a move I’ve made as well, called out by Lawrence Liang: treating the Western autonomous consumer who is fully recognized as a legal citizen-subject as the ideal rights-bearer. So, transforming copyrighted works becomes part of the democratic project, since copyrighted works make up so much of the culture that surrounds us. “The majority of Americans may not exercise their political rights to vote at the polls biennially on election day, but we exercise our economic rights at the store (or cybershop) on a daily basis. And, through these myriad quotidian decisions, we cast our monetary votes by spending our dollars. These economic votes—cast as consumption decisions—are a central part of our individual definition.” Tehranian doesn’t have as much to say to you if you aren’t already a full citizen-consumer.

Tehranian argues that the US registration requirement, which requires registration within a few months of publication or before infringement commences before statutory damages and attorneys’ fees are available to prevailing plaintiffs, discriminates against small authors and in favor of large corporations. Corporations regularly register, and so when you download a song that’s available for 99 cents on iTunes they can threaten you with $150,000 in statutory damages. But individuals are unlikely to timely register, which allows large corporations to steal from them with impunity, since the costs of suit are usually too substantial to justify a lawsuit without the prospect of statutory damages and attorneys’ fees.

Despite the presence of footnotes (which generally deal with other aspects of his claims), he actually doesn’t have much evidence that this latter injustice happens on a regular basis. He argues, for example, that screenwriters are screwed by using the WGA registration system instead of actual copyright registration, but he doesn’t discuss Catherine Fisk’s empirical work which reveals the practical power the WGA system has had for writers (who do better negotiating as a group than using their individual copyrights to extract value from studios), nor does he note that California’s idea submission law packs some extra protective punch not available from copyright. I have no doubt that individual screenwriters have lost credit they should have had, but that’s not because of lack of copyright registration; it’s because of contracts and because any factfinding system is going to get stuff wrong sometimes.

He concedes that allowing every plaintiff to ask for statutory damages and fees would increase the speech-suppressive power of copyright, but proposes to mitigate this with a series of defendant-friendly reforms basically liberating noncommercial transformative use without any need for a case-specific fair use inquiry and allowing commercial transformative uses with mandatory profit-sharing. I could probably get behind that swap, but I wouldn’t pretend that it was a great blow for small artists. His argument is also weakened by his insistence that our failure to award statutory damages and attorneys’ fees to every copyright owner might violate the Berne Convention, a treaty that very clearly does not require that statutory damages or fees be available (and a good thing too for our co-signers, since, while fee-shifting is relatively common in other countries, statutory damages weren’t until we started pushing them on people). It’s true that later agreements like TRIPs do require that “effective” remedies be available, but Tehranian’s not willing to argue in the text that we’re in violation of TRIPs on that front (in part perhaps because other aspects of TRIPs, particularly the three-step test, arguably constrain our ability to adopt the kinds of restrictionist reforms he wants). As we’ve discovered in various TRIPs-related disputes, it’s a lot harder to tell a country its legal system isn’t “effective” than it is to get law on the books.

Weirdly, Tehranian’s proposed profit-sharing system would only apply when the secondcomer had registered its transformative work as a transformative work with the Copyright Office. Except that he’s just spent a great deal of time explaining why small artists don’t know about and won’t comply with a registration requirement, so that won’t be too much protection.

Tehranian has a lot of good arguments (thus, the narcissism of small differences). As he points out, the district court in the Wind Done Gone case bizarrely conflated characters with actual people, along with conflating canon with non-canonical versions, in concluding that Alice Randall’s decision to kill off/marry her versions of Gone With the Wind characters made it impossible for the Mitchell estate to authorize future novels in which the O’Hara/Butler romance continued. Then, for extra credibility, he points out that the authorized Star Trek movies killed both Kirk and Spock at different points, with no apparent harm to the franchise. (Maybe Tehranian’s not a Kirk/Spock fan, but I liked the resonances there, though one could also discuss Stephen King’s narrator in Misery and his ability to resurrect his O’Hara-like character from the dead when necessity required.)

I also particularly liked Tehranian’s point that songwriters in the US are writing in great quantity despite their inability to control who makes a cover version of their songs after first publication. The fact that anyone can mangle their “babies” simply by paying the going rate is a strong argument against the claim we sometimes hear that artists won’t create if they can’t control what happens to their works after they’re released into the world. Maybe the mix is different—maybe you don’t go into songwriting if you can’t handle cover versions—but the overall level, which is what copyright purports to be interested in, is still pretty high. What would be really useful for this discussion is some empirical work on the practices and reasoning of songwriters. I’m willing to bet some of them really hate the cover right, because, sure, they’d like to be able to say no to some covers, but what’s the range of opinions, and why do the ones who hate the cover right keep composing anyway?