Friday, September 28, 2012

Not sure I would have done this in a moral rights jurisdiction

A Québécoise reports: my local news report did a report on pedophiles and this is the picture they used:
If you're a Supernatural fan, this is instantly recognizable as a picture of Dean Winchester, played by Jensen Ackles, mugging for his mug shot (and, apparently, standing on a platform wishing he was 6'3") in episode 2x19, Folsom Prison Blues:

So, how would the moral rights analysis go?

Thursday, September 27, 2012

No contract?

I heard Omri Ben-Shahar present a really interesting paper he’d done with Oren Bar-Gill, No Contract, about the rise of “no contract” cell phone service, etc., where the selling point is that there’s no early termination fee.  This wasn’t his focus, but I was intrigued by the question of whether the fine print for these contracts—because there is fine print—could include an enforceable mandatory arbitration clause.  My inclination is no, at least when the promise is “no contract,” especially coupled with an image (“no termination fee” would be a different matter).  Plainly, there is a rudimentary contract between the parties: the customer pays the advertised price and gets the advertised service.  But are there any other terms?  The explicit promise seems to be no, and I don’t see how the fine print can add in a term that would undoubtedly surprise many consumers (a ban on litigation and an arbitration requirement).




Imagine if the Constitution were the story of a small boy growing up in Kansas....

Marty Schwimmer has some nice commentary on the Yeti Town copyright infringement case, discussing what's protectable (relational similarity or attribute similarity, a cognitive psychologist might say) in games and in novels, and how some changes bring others with them--as changing Gone with the Wind to an Alaskan setting is likely to do.  He picks up on Eric Goldman's comments.

Explicitly false, but not misleading

When you get to the end of this Mitt Romney mash-up, the voiceover says "I'm Mitt Romney, and I approved this message," while the visual discloses the obvious truth that the ad (a combination of his recent ad and some other more off-the-cuff statements he's made) comes from the Democrats.  Joe Isuzu?

Wednesday, September 26, 2012

Transformative artist of the day

Isaac Brynjegard-Bialik makes papercuts out of comics.  Here's the Tree of Life using The Incredible Hulk--I like the choice not just for the color but because it's Bruce Banner, scientist, integrated into a religious concept:

And Pillar of Cloud, Pillar of Fire:
How would one articulate the argument for transformativeness?  What about de minimis use?  More on the artist.

Monday, September 24, 2012

Advertising and copyright stories in Slate

First, Slate has this story about how anti-circumcision activists apparently hijacked the book reviews at Amazon for a book about AIDS policy writ large; Amazon refuses to act (and none of this would appear to run afoul of the FTC's endorsement guidelines, unlike some other forms of getting reviews from people who haven't read the book).

Second, Slate has a story about competing models for royalty payments for streaming sound recordings, and comes down firmly on the side of "a lower rate that allows new entrants to survive."

Worth a read!

Collaborative problem solving becomes non-collaborative, but still jointly authored

Greene v. Ablon, 2012 WL 4104792 (D. Mass.)

Ross Greene sued J. Stuart Ablon, a fellow doctor, and Massachusetts General Hospital (MGH).  Greene alleged copyright infringement, breach of fiduciary duty, unjust enrichment, tortious interference, conversion, unfair competition, and trademark infringement.  He sought dissolution of a corporation, the Center for Collaborative Problem Solving, jointly owned and directed by Greene and Ablon.  MGH counterclaimed for trademark infringement, false advertising, and unfair competition.

In 1993, Greene “created a treatment approach for collaboratively resolving problems between children with social, emotional and behavioral challenges and their caregivers,” which came to be known as the Collaborative Problem Solving Approach, though when exactly this name developed was disputed. 

In 1993, Greene also opened an unaffiliated private therapy practice and also began work part-time at MGH, using the CPS Approach as part of his outpatient therapy services.  He agreed to abide by MGH’s rules.  He successfully reapplied for his position at MGH several times, each time agreeing to abide by MGH policies.  MGH’s intellectual property policy said that “[t]rademarks shall be owned by MGH if they are created by [professional staff] Members in the course of their employment or affiliation with an [MGH-affiliated] Institution or if they are used to identify any product or service originating with or associated with [such] an Institution,” and “[a]ny Intellectual Property not specifically covered by the [express terms of the 1995 IP Policy] shall be owned by an [MGH-affiliated] Institution if it is created in the performance of Sponsored or Supported Activity at that Institution,” with “Supported Activity” defined as “activity that receives direct or indirect financial support from an [MGH-affiliated] Institution” and “Sponsored Activity” defined as “any activity that is subject to a grant, contract or other arrangement between an [MGH-affiliated] Institution and a third party.”  (A later version of the policy altered the wording but was substantively the same for these purposes.)

In 1997 and 1998, Greene wrote The Explosive Child: A New Approach for Understanding and Parenting Easily Frustrated “Chronically Inflexible” Children for adult caregivers.  It was published by HarperCollins in 1998.  Greene had registered copyrights to four editions of the book.  He also created a series of slides summarizing and excerpting content from various editions, but didn’t register a copyright for the slides.

In 1998, Greene was the principal investigator for a study at MGH testing the CPS approach, and he supervised Ablon, a post-doctoral fellow at MGH.  Their relationship grew, and Ablon rentered office space from Greene where they both ran private practices.  They worked together to promote the CPS approach, and Greene referred patients and speaking engagement opportunities to Ablon. In 2001, Greene filed an application to register “Collaborative Problem Solving Approach”; the application was denied on descriptiveness grounds, but subsequently registered on the supplemental register

In 2002, Greene and Ablon jointly founded the Collaborative Problem Solving Institute as a part of MGH's Department of Psychiatry. The CPS Institute used MGH's non-profit status and MGH's development office to solicit tax-deductible contributions, donations to the Institute were held in an MGH-administered fund, and the MGH logo was on the Institute's website. Greene was the director.  In the same year, Greene and Ablon incorported the CPS Clinic, with 50% ownership for each.  Through both the Institute and the Clinic, Greene and Ablon “provided trainings, seminars, workshops and consulting services, and created and distributed DVDs and other training materials, all using and promoting the CPS Approach.”  They showed slides to trainees and seminar participants; these slides had been jointly refined over years.

They also prepared a prospectus of a book “geared toward clinicians actively trying to implement the CPS model with their patients.”  Greene stated that the work was anticipated to be “a genuine work of co-authorship.”  They signed a contract with Guilford Publications to publish the book, Treating Explosive Kids: The Collaborative Problem Solving Approach. The contract identified Greene and Ablon as the authors.  The extent of Ablon’s actual contribution to Treating Explosive Kids was disputed—Greene said it was less than 15 pages out of 226, while Ablon said that he provided “most if not all of the treatment vignettes” that appear on “about 145 pages of the book,” “took the lead in writing Chapter 8 ... which wound up being 25 pages long,”“wrote significant portions of other portions of the book,” and “reviewed and made suggestions for many other sections.”  When the book was published in 2005, Guilford registered the copyright in its name, rather than those of the “author’s” [sic] as specified in the contract, though the registration did list Greene and Ablon as the authors and the book itself identified them as co-authors throughout the book, including the use of authorial “we” and “us” in the acknowledgments and epilogue.  Consistent with their contract with Guilford, Greene and Ablon also worked on a book discussing the use of the CPS approach in schools, but Greene ultimately asked Ablon to remove his name from the book, and Ablon agreed.

In 2007, Ablon and Greene, with “assistance from marketing and branding professionals hired through and ultimately paid by MGH,” allegedly rebranded the CPS Institute at MGH under the name “Think:Kids.” Its website said that “Think Kids is an initiative of the nonprofit Collaborative Problem Solving Institute in the Department of Psychiatry at Massachusetts General Hospital, Boston, Massachusetts.”  The CPS Institute at MGH also applied to register Think:Kids: Rethinking Challenging Kids and Think:Kids; these registrations ultimately issued.  In 2007, Greene and Ablon also merged the CPS Clinic into the CPS Center, leaving only the Center as a private, MGH-unaffiliated organization run by Greene and Ablon.

Unfortunately, by 2008, the relationship had soured, requiring work through attorneys and by a mediator.  In 2008, Greene again attempted to register “Collaborative Problem Solving” and “Collaborative Problem Solving Approach” on the principal register, again denied on descriptiveness nouns.  Greene’s responses argued that the marks had substantially exclusive use in commerce in connection with “my model of care,” but didn’t mention MGH. MGH opposed registration.  Ablon resigned from the CPS Center in late 2008, and began working full-time as the director of MGH’s Think:Kids program.  In early 2009, MGH terminated Greene’s employment.

The court first analyzed the copyright claims.  The CPS approach itself was an unprotectable idea.  Furthermore, any claims by Greene had to be based on The Explosive Child, not the related Powerpoint, since there was no registration for that.  The court then turned to whether Treating Explosive Kids was a derivative work, but found that the question could not be resolved on the summary judgment record.  The ideas of The Explosive Child were surely incorporated into Treating Explosive Kids, but that wasn’t enough.  The Treating Explosive Kids registration certificate didn’t claim derivative work status, and the prospectus indicated that the book would “provide mental health clinicians with an intensive, in-depth orientation to CPS,” which the prospectus described as a model “first articulated by Ross W. Greene, Ph.D., in his highly acclaimed book The Explosive Child,” but didn’t indicate that the proposed book would in any way incorporate text from The Explosive Child.  This was evidence that what was borrowed was ideas, not expression.  However, a cursory comparison of the works did show sufficient similarities between the two works to create a fact issue, apparently focused on descriptions, organizations, etc.  Moreover, though subjective intent wasn’t determinative, Greene averred that he intended to include portions of The Explosive Child and that he and Ablon agreed that the new book would be “derived from [Greene's] earlier works” and would “contain material derived and copied from [Greene's] prior works.”

But that didn’t preclude summary judgment, since Treating Explosive Kids was a joint work (thus entitling Ablon to do whatever he wanted with it subject to a duty to account to Greene).  The essence of joint authorship is joint labor to produce a unitary work.  Equal contributions aren’t required as long as a joint author’s contribution is more than de minimis.  The First Circuit hasn’t addressed whether the contribution must itself be copyrightable, but that wouldn’t affect the outcome here, since even accepting Greene’s characterizations Ablon’s contributions, including treatment vignettes, were significant enough to be copyrightable as well as more than de minimis.

Greene argued that there was a material factual dispute over whether the parties intended the book to be a joint work.  “The key legal question is not whether the parties intended Treating Explosive Kids to be a joint work in any colloquial sense, but rather whether they intended their individual contributions to be ‘merged into inseparable or interdependent parts of a unitary whole’ rather than into separable and distinct works.  And on this there was no jury-worthy dispute.  “[W]hile Greene's affidavit may suggest at points that he was frustrated with the quantity and quality of Ablon's early contributions to the book and thus believed that the authorship process was not a truly joint enterprise, there is no evidence that either Greene or Ablon believed that Treating Explosive Kids was anything other than a unitary book, and there is abundant evidence that Ablon's contributions to the book would be interdependent with Greene's contributions.”

MGH also successfully moved for partial summary judgment on the argument that Greene’s employment agreements meant that MGH owned the CPS and Think:Kids service marks.  His formal notices of appointment (he applied and reapplied ten times over the years) was the equivalent of an employment contract, and imported by reference MGH’s IP policies.  Greene argued that he wasn’t subject to the IP policies because they didn’t exist when he first came to MGH.  But he agreed to abide by them when he submitted his appointment applications after they came into effect.  His argument that MGH didn’t tell him about the IP policies didn’t help, because in two of his applications he specifically agreed to read MGH’s policies, and also because even in the absence of that promise a party to a contract is assumed to have read and understood its terms.

The court agreed that two separate parts of the policies gave MGH ownership of the CPS marks: they were used to identify services associated with MGH, and they pertained to/were created during the performance of significant activities that received financial support from MGH and funding from outside sources that was subsequently administered by MGH. 

Likewise, under the later version of the policy, which was in place when the Think:Kids rebranding occurred, MGH owned the Think:Kids marks.  The CPS Center registered those marks on the principal register, creating a rebuttable presumption of ownership, but under the terms of the employment agreements, the marks were created in the course of Greene and Ablon's affiliation with MGH, not as part of their affiliation with the CPS Center; they were used to identify services associated with MGH; and the marks pertained to significant institutional activities.  Each finding brought them within the scope of the IP policy. 

How do you plead "commercial advertising or promotion" in a small industry?

Synthes, Inc. v. Emerge Medical, Inc., 2012 WL 4205476 (E.D. Pa.)

Synthes, a medical device company, sued competitor Emerge (founded in part by former employees) for various torts, including false advertising, which is all I'll discuss.  Emerge allegedly falsely claimed that its products were “identical,” of “statistical equivalence,” or made in the same location as Synthes's products, and that the FDA had determined that Emerge's drill bits and guide wires were substantially equivalent to Synthes's drill bits and guide wires.  Emerge moved to dismiss this claim because Synthes hadn’t alleged that the statements were made in “commercial advertising and promotion.”  Under Gordon & Breach, neither private statements to competitors nor isolated statements to potential customers suffice.  The statements, though not necessarily part of a classic ad campaign, must be widely disseminated and part of an organized campaign to penetrate the relevant market.

The specifics alleged were that “labels bearing Emerge's name and logo that directed Synthes customers to reorder Synthes' surgical drill bits from Emerge appeared in a Synthes Inventory Management System (‘SIMS’) cabinet in an account in [one defendant’s] former territory in Arizona as well as on product sealed in Synthes packaging. … Since that time, Emerge's labels have begun to appear in additional SIMS and sets stored at other of Synthes' customers' facilities ….”  The complaint also generally alleged that the defendants had made identical/equivalence claims.  Synthes’ brief also referred to an e-mail to a customer, a video broadcast distributed by a well-known publisher in the orthopedics industry, and a PowerPoint presentation made to a health system.

The court thought that “[a]t first blush—and taken in isolation—these allegations appear to identify only sporadic instances of dissemination, in lieu of the requisite public dissemination of the purportedly false advertising.”  But closer reading suggested that they were examples of a broad and widespread dissemination to the relevant purchasing public.  “A requirement that Plaintiff describe in detail the precise scope of Emerge's advertising campaign would far exceed the pleading mandates under the Federal Rules of Civil Procedure and the Twombly/Iqbal standards.”  Discovery could be used to test the truth of the idea that there was a relatively large-scale marketing campaign at work.

Friday, September 21, 2012

When does "Zero trans fat" mean "just a little trans fat"?

Reid v. Johnson & Johnson, 2012 WL 4108114 (S.D. Cal.)

J&J makes Benecol and Benecol Light Spread.  Benecol is “a margarine-like, vegetable-oil-based spread sold in eight-ounce tubs with the following labels: ‘Proven to Reduce Cholesterol’; ‘No Trans Fat’; ‘No Trans Fatty Acids’; and ‘Each serving contains .85g of Plant Stanol Esters.’”  Reid alleged that, despite Benecol’s premium price, he bought it in reliance on its representations that (1) plant stanol esters may reduce the risk for coronary heart disease; (2) Benecol is proven to reduce cholesterol; and (3) Benecol contains no trans fat or trans fatty acids.  He alleged falsity and misbranding because: (1) Benecol does not contain sufficient plant stanol esters per serving; (2) Benecol does not contain the minimum amount of vitamin A required prior to any nutrient addition; and (3) Benecol's label contains an inaccurate level of recommended consumption of plant stanol esters pursuant to federal law. Separately, he alleged that “Proven to Reduce Cholesterol” was false and misleading because no studies support the claim that Benecol—as formulated—effectively reduces blood cholesterol, though studies have shown that plant stanol esters, in certain forms, may reduce LDL/bad cholesterol.  Reid also alleged that the “Proven” claim made Benecol into a misbranded drug because it made a structure/function claim of reducing bad cholesterol.  Finally, he alleged that Benecol was misbranded because of its “no trans fat” and “no trans fatty acids” labels, since the FDA has not yet defined “no trans fat” and “no trans fatty acids” and since Benecol actually contains small amounts of artificial trans fatty acids. He brought the usual California claims.

The court found that the complaint satisfied Rule 9(b), but failed anyway.  J&J argued that Reid didn’t adequately plead reliance.  He didn’t allege physical harm (failure to receive the health benefits), but that’s not required by consumer protection law.  Reliance plus financial harm was sufficient.  But no reasonable consumer could be deceived by “No Trans Fat” and “No Trans Fatty Acids”:

Benecol's ingredient list, although in smaller print than the larger font on the lid of Benecol's container and immediately above the nutrition facts panel, shows that it contains a small amount of partially hydrogenated oils and trans fats. A reasonable consumer would be unlikely to incorrectly interpret “No Trans Fat” to mean that Benecol products do not contain any trans fat.

Okay, (1) this presumes, without evidence, that consumers understand what “partially hydrogenated” means, and (2) isn’t this inconsistent with the 9th Circuit’s rule that consumers aren’t required to read an ingredient list to find information that contradicts the explicit claims on the front of the package?  (See below for the better preemption argument.) 

Anyway, because he didn’t allege that Benecol’s statements could deceive a reasonable consumer, he didn’t have standing.  (Hunh, what?  Why is that a standing question now as opposed to alleging the elements of the claim?  Or are we just going to use “standing” to mean “you lose” from now on?)

Separately, the court evaluated J&J’s express and implied preemption argument.  The NLEA expressly preempts non-identical state labeling requirements, but Congress specifically indicated its intent not to occupy the field, and there’s a presumption against other kinds of preemption.

According to the FDA’s 2000 regulations, “[s]cientific evidence demonstrates that diets that include plant sterol/stanol esters may reduce the risk of [coronary heart disease]” and also “helps to lower blood total and LDL cholesterol levels” if a person consumes “3.4g or more per day of plant stanol esters” in “two servings eaten at different times of the day with other foods.”  Food products can bear these health claims if they contain “[a]t least 1.7g of plant stanol esters” per serving and meet a minimum nutrient contribution requirement, which bars health claims unless “the food contains 10 percent or more of the Reference Daily Intake ... for vitamin A, vitamin C, iron, calcium, protein, or fiber per reference amount customarily consumed prior to any nutrient addition.”  In 2003, the FDA issued a letter lowering the amount of phytosterols required to make claims as long as the food contained at least 400 mg and the claim specified that the daily dietary intake of phytosterol that may reduce the risk of chronic heart disease was 800 mg or more per day.  Benecol contained 850 mg per serving, which was consistent with the 2003 letter, which governs until a final rule is issued.  The FDA issued such a proposed final rule in 2010, but announced that it wouldn’t be enforced until Feb. 2012, and would exercise enforcement discretion in the intermediate period.  Public comments closed in April 2012.

The court held that Reid was asking the court to rule on non-final FDA issues and impose an outdated interim rule.  Although the letter wasn’t formal notice and comment rulemaking, that wasn’t required for preemption.  Given Benecol’s compliance with the letter, the claim that Benecol didn’t contain enough plant stanol esters per serving was preempted.  (The parties didn’t address the separate argument that Benecol couldn’t make these claims because J&J only achieved 10% of Vitamin A by adding it, contrary to the regulation.)

Separately, Reid alleged that Benecol's “Proven to Reduce Cholesterol” label was false and misleading, because despite the existence of general studies on the potential for plant stanol esters to reduce cholesterol, there was no study supporting the conclusion that Benecol, “as formulated,” effectively reduces blood cholesterol.  In any event, the claim was “highly misleading” because “the trans fat would negate much of the claimed impact of Benecol on cholesterol” and may even “expose [the consumer] to increased risk of many other diseases.”  Also, Reid alleged that the claim made Benecol a misbranded drug by suggesting it could treat the condition of high cholesterol.

The FDA has found that the evidence supports the link between plant stanol esters and lower cholesterol levels.  Under the FDCA, a food product can make certain approved health claims without being regulated as a drug.  The regulations require a minimum amount of plant stanol esters before a food can make the cholesterol claim, but don’t require specific evidence that each food works “as formulated.”  Because the regulations allowed Benecol to make the health claim at issue, Reid’s cholesterol claims were preempted.

Reid argued that, since the FDA hadn’t defined “No Trans Fat” and “No Trans Fatty Acids,” Benecol was misbranded because it bore unauthorized nutrient content claims.  The FDA requires the disclosure of trans fat content where it is meaningfully present in a food.  But the regulations say that if a serving contains less than 0.5 gram, the content in the nutrition information section shall be labeled zero.  Statements of this sort on the label (except the nutrition information section) are nutrient content claims, and nutrient content claims can’t be made except in accordance with regulation.  The regulations give requirements for some nutrient content claims (“high,” “no fat,” etc.), but have no definition for “No Trans Fat.”

Benecol contains less than 0.5 gram of trans fat per serving, and, following the law, says “Trans Fat 0g” in its nutrition facts.  Since it was required to say this in the nutrition facts, it could say the same thing on the label, and any California law to the contrary was preempted.  “A consumer would not be confused by the representation of ‘No Trans Fat’ on the packaging of Benecol with the term ‘0 grams trans fat’ found on the Nutrition Facts panel.” (Okay, confusion isn’t part of preemption—although I agree with the preemption analysis.  The problem is that the FDA requires some products with a teeny bit of trans fat to say they have zero grams of trans fat.  A consumer might well be "confused" into thinking that zero means zero.  But that’s the FDA’s problem, not defendants’.)

As a side note, the court declined to dismiss the case under the primary jurisdiction doctrine, since despite the significant amount of rulemaking and scientific research surrounding the issue, consumer protection claims didn’t require or benefit from FDA expertise.

Disparaging reference can't infringe as a matter of law

Invent WorldWide Consulting, LLC vs. AbsolutelyNew, Inc., 1:11-cv-01619 N.D. Ill. 9/19/2012

Invent and AbsolutelyNew compete in the market for “consulting with inventors of ideas to assist them in obtaining legal protection for their idea, and to locate manufacturers and retailers who may be interested in the new product.”  AbsolutelyNew’s website,, included a copy of Plaintiff’s trademark, followed by this negative commentary about Invent:

This company has been in business for only 7 months, but the testimonials on their website are from customers that have been satisfied with them for over 3 years in some cases. Obviouslythese are fake testimonials. This company is lying to misrepresent their potential clients,they're not certified by the BBB or the United Inventors Association. Invent Worldwide Consulting has scam and fraud written all over it! Here is the link to their “testimonials.” [link provided]

When Invent complained, AbsolutelyNew removed the logo, but added, “We cannot post up the testimonials that are clearly fake because of a copyright complaint from his company.  Obviously they're not happy with this website exposing their shady business practices and protecting inventors from scams.” 

Invent also alleged that Googling “Invent Worldwide Consulting” could take a user to AbsolutelyNew’s site, and Invent believed that AbsolutelyNew engineered this result by using Invent’s trademark in its source code.  One of Invent’s clients allegedly reported that a representative of AbsolutelyNew spoke to the client by telephone and told the client that Invent was a “scam” and a “clearinghouse,” reducing the client to tears. 

The court’s brief decision held that Invent’s bogus trademark claim couldn’t survive a motion to dismiss: these allegations could not plausibly support a claim for likely confusion.  Allegations of false and disparaging statements about Invent couldn’t support the conclusion “that AbsolutelyNew has attempted to use Plaintiff’s mark as its own or that consumers will otherwise be confused by the source of the services either party provides. 

While the federal and state false advertising claims did survive the motion to dismiss, the dropped copyright claim could come back to haunt Invent, depending on the facts.  If Invent initially asserted a copyright over the testimonials (which, of course, couldn’t possibly be infringed by a link to Invent’s own site on which the testimonials were posted) … who was the author of those testimonials?  Or is this just another case of copyright abuse?  (Invent did allege a copyright claim, but didn't argue against dismissal on the motion to dismiss.)

"Sporty Car at a Great Value Price" may imply driving safety

Kesling v. Hubler Nissan, Inc., 2012 WL 3801325 (Ind. Ct. App. Sept. 4, 2012)

According to the version of the facts favoring Kesling, against whom summary judgment was granted, in late 2007 Hubler inspected a 1996 Mitsubishi Eclipse and accepted it as a trade-in, then advertised it as a “Sporty Car at a Great Value Price,” $2981.  Kesling soon thereafter saw the ad and went to the dealership.  She test drove the Eclipse and noticed trouble idling.  She asked Hubler’s salesperson if there was anything wrong with the vehicle, and he responded that it had been “sitting for a while and probably just needed a tune-up.” She bought it for $2322.88.  In 2009, she sued.  In 2010, she obtained an inspection report noting that the Eclipse was covered in dust and had only been driven 44 miles since Kesling purchased it (based on a comparison of the sales report with the odometer).  The inspector discovered numerous problems with the Eclipse, some of which could have caused the vehicle to catch on fire or lose steering control.  The inspector’s opinion was that the car was unsafe to drive, and that many of the issues—including the safety problems—would have been “obvious to anyone who would have inspected or serviced the Eclipse at a dealership.”

The trial court granted summary judgment to Hubler, reasoning that there was no representation that the car was safe to drive.  The Deceptive Consumer Sales Act prohibits representations that the subject of a consumer transaction has, among other things, “performance, characteristics, accessories, uses, or benefits it does not have which the supplier knows or should reasonably know it does not have”; the Act is to be liberally construed to protect consumers.

The court of appeals agreed that a trier of fact could reasonably infer from the “Sporty Car at a Great Value Price” that Hubler was implicitly representing that the vehicle was safe to operate.  Under the statutes, misrepresentations can be implied, so long as the implication occurs orally, in writing, or by electronic communication. 

Given the meanings of “value” and “sporty,” a finder of fact could reasonably determine that the ad “implied that the Eclipse was a good car for the price and thus, at a minimum, safe to operate. How else could it have ‘great value’ and be a ‘sporty car’?”  The phrase went beyond “a bare ‘1996 Mitsubishi Eclipse for $2981’ and thus can be read to mean more.”  On another aspect of her deception claim, the court commented, “[h]ad Hubler merely listed the vehicle’s specifications and features, Kesling likely would not have a viable case. … A fact-finder could reasonably conclude that [the tagline] is an indication that it is a good car for the price and that, at a minimum, it is safe to operate. A fact-finder could also reasonably conclude that a used vehicle being advertised for $2981 with numerous mechanical issues that could result in total loss of steering control or cause it to burst into flames while driving is not a good car for the price.”  Comment: while “great” is generally puffery, there are situations where the claims are so out of whack with reality that courts are willing to find claims of this sort false.  Dangerous items are more likely to fall into that category. 

Hubler argued that the Act didn’t apply to nondisclosure.  But it does apply to representations (including implied ones), so there was a jury issue.  There was also enough evidence to go to a jury as to whether the Eclipse was safe to operate when Kesling bought it. 

A dissent argued that “Sporty Car at a Great Value Price” didn’t convey anything at all about drivability or safety.  “Sporty” just meant having a sports car style, and “Great Value Price” just meant “low relative to the vehicle’s market value.” (But what’s the market value of a car that might catch on fire while you drive it?)  The dissent maintained that “this very generic advertising phrase is widely regarded as typical used-car-sales puffery that conveys virtually nothing about the particular vehicle to which it is attached,” and was also “devoid of content relative to the vehicle’s operating status.”

Wednesday, September 19, 2012

The market for lemons/law schools

One of the premises of advertising regulation is that law is one necessary weapon against the pollution of the information environment, a pollution that seriously harms the sellers who have truthful claims to make but whose claims buyers should rationally disbelieve in the absence of any credible means of sorting the high performers from the lemons.  Brian Tamanaha makes the argument that the dismissals of the false advertising claims against various law schools put us into just this market for lemons: the judges are saying that potential students shouldn't believe law schools' claims.

Trouble brewing in coffee TM/advertising case

Keurig, Inc. v. Sturm Foods, Inc., 2012 WL 4049799 (D. Del.)

Previous opinion, finding nominative fair use of some of Keurig’s marks on a motion for preliminary injunction. Keurig sued Sturm based on Sturm’s manufacture and sale of single-serve beverage cartridges for use in Keurig’s machines.  This opinion dealt with cross motions for summary judgment on Keurig’s patent, Lanham Act, and related state law claims, along with some counterclaims by Sturm, and related motions.

Keurig and its licensees make K-Cups for use in its machines.  K-Cups are sold under various brand names and produce various beverages, from coffee to hot chocolate and tea.  Not all K-Cups contain ground coffee and/or a filter, though many do.  Sturm’s Grove Square line of cartridges say: “For use by owners of Keurig coffee makers.”

Keurig’s patent claims were defeated because its patents, which were on the machine and on a method of using the machine and not on the cartridges, were exhausted by the sale of its machines.  “Here, plaintiff is attempting to institute a postsale restriction that prevents non-Keurig cartridges from being used in Keurig brewers. Supreme Court precedent prevents plaintiff from undertaking such an end run.”

Sturm sought to cancel Keurig’s trademark registrations for K-Cup and K-Cups as generic.  Keurig argued lack of standing: it was only claiming infringement based on the Keurig mark, and Sturm hadn’t sought to use the K-Cup mark or something similar, so it lacked standing to sue even though it was a direct competitor that would sure like to use the term. 

Sturm’s false advertising/unfair competition claim was that Keurig falsely represented that all of its K–Cups contain 1) a filter and 2) ground coffee.  Various Keurig brewer packages referred to the K–Cups’ “paper filter,” “technically advanced filter” and “internal filter,” and stated that: 1) “the K–Cup design holds fresh roasted coffee;” “K–Cups contain the ideal grind and measure of fresh 100% Arabica beans;” and “Each K–Cup contains the perfect grind and measure.” A press release said, “The K–Cup serves as a mini-brewer complete with a filter and fresh ground coffee[.]”

Though some K-Cups don’t have a filter or coffee, Keurig argued that there was no literal falsity, but that it was rather describing the typical or flagship product. Both parties focused on one case: In Schering-Plough Healthcare Products, Inc. v. Neutrogena Corp., 2010 WL 1992247 (D. Del.), defendant advertised that its suntan lotion contained Helioplex®, defined Helioplex publicly (though not on the bottles), and conceded that there was no Helioplex on those bottles.  The court rejected the argument that the Helioplex formula was “sufficiently elastic” to encompass a similar, but not identical, formula.  Because defendant never provided the public a definition elastic enough to cover the other formula, “the public has no basis on which to perceive the ‘flexibility’ in the formula advocated by defendant.”  The Schering-Plough court found literal falsity.  Here, by contrast, Keurig argued that the consuming public already had a “flexible” understanding that powdered beverages such as hot cocoa or chai latte don’t include ground coffee and need not be filtered. The court agreed that the statements were not unambiguously false.  None of the statements said that every K-Cup had coffee and a filter, and in the context of the brewer packaging (as opposed to packaging on cartridges) the statements were clearly “meant to generally describe how the brewing process works; they are not meant to explain how the process works with respect to specific beverage cartridges.”

The court turned to Keurig’s trademark claims, based on the statement on Sturm’s packaging, “For use by owners of Keurig® coffee makers.”  Puzzlingly, despite its separation of likely confusion from nominative fair use (a defense, in the Third Circuit), and its statement that not all the usual factors are relevant in nominative fair use cases, the court then found that the multifactor test is clearly an issue for the jury, making summary judgment inappropriate.  (Always?  That would be odd.)  Keurig had raised genuine issues of material fact, particularly with respect to actual confusion (it had a survey, as to which Sturm’s criticisms went to weight rather than admissibility, along with consumer testimony/complaint evidence).  For whatever reason, this opinion did not separately resolve the nominative fair use defense, despite the fact that the defense trumps confusion under the Third Circuit standard and that the court had previously ruled on nominative fair use.

Similarly, the court denied summary judgment on the trade dress claims.  Trade dress infringement requires the plaintiff to show nonfunctionality plus source significance and likely confusion.  Protecting an entire product line, however, is very difficult given the Third Circuit’s concern for protecting competition.  A plaintiff must first demonstrate that the line has a “recognizable and consistent overall look.”  Sturm argued that there was no consistent overall look across all K-Cup product lines; Keurig agreed, but argued that it was seeking protection for a narrower product line. It defined its trade dress as:

[1] an image of single-serve beverage cartridges, with at least one beverage cartridge depicted on its side and one beverage cartridge depicted right-side up, and a tagline below the image of the cartridges that states they are for use in Keurig brewers, [2] an image of spilled coffee beans, [3] an indication of the coffee's roast strength on a graded bar with shading varying from light to dark, along with an indication whether the coffee is caffeinated, [4] perforations for opening the package that form an opening that is tapered in a vshape and ending in a u-shaped tab, [5] prominent lettering displaying the name of the beverage, and [6] another face of the packaging providing a product story.

Its Green Mountain line did contain all these features, so there was a genuine fact issue on the existence of a consistent overall look. 

Again, this motion apparently didn’t address nonfunctionality or source signification; the court found issues of fact on likely confusion as well given the fact-intensive nature of the inquiry and Keurig’s evidence that Sturm’s marketing team “originally set out to model their packaging off the Green Mountain packaging display.”

Keurig also alleged false advertising in that “For use by owners of Keurig® coffee makers” was false and/or misleading because the Strum cartridges often fail to work properly with Keurig brewers.  The court again found genuine issues of fact.  Though the claim wasn’t literally or unambiguously false, Keurig presented evidence suggesting that the Strum cartridges fail at a significantly higher rate than those manufactured by plaintiff, which would be “unanticipated and unacceptable” to consumers.

Welcome to Scotland! (or somewhere else)

The ASA just upheld a complaint against an anti-wind turbine ad run by Trump captioned "Welcome to Scotland!" showing rusty turbines, with mouse print: "Photo not taken in Scotland."
While I'm amused by the classic Trump bluster, the ASA's routine adjudication of disputes over political ads--wind turbines are common, but this week also features a union ad--highlights just how different America is in its advertising regulation, or relative lack thereof.

Tuesday, September 18, 2012

Adobe crumbles: litigation mistakes allow reseller to prevail

Adobe Systems Inc. v. Christenson, --- F. Supp. 2d ----, 2012 WL 3994285 (D. Nev.)

Adobe sued Christenson and his now-defunct corporation, Software Surplus, for copyright and trademark infringement based on unauthorized sales of legitimate copies of Adobe software that Software Surplus bought from third parties.  And then Adobe had some trouble.  Defendants counterclaimed against Adobe and third-party defendant Software & Information Industry Association (“SIIA”), the “principal trade association for the software and digital content industry,” for various business torts based on a SIIA press release announcing the filing of six “software piracy” lawsuits on Adobe's behalf against various online sellers of Adobe software, including plaintiffs. 

The magistrate judge granted defendants’ motion to preclude Adobe and SIIA from using various contracts/license agreements that it had failed to identify in its Rule 26(a) disclosures or to produce.  Defendants moved to strike from Adobe and SIIA's briefs and exhibits “all documents covered by the order, as well as all factual assertions, references and arguments that relate to Adobe's licensing agreements with its distributors and users.”  Adobe and SIIA argued that the discovery order didn’t preclude testimony from their declarants or use of documents for limited or illustrative purposes, including as exemplars to illustrate the testimony of witnesses concerning Adobe's licensing agreements. No go. “[U]nder the best evidence rule, which Adobe and SIIA fail to address, the licenses themselves are required to prove their terms and, by extension, their legal effect.” Motion to strike granted.  (I skip over defendants’ objections to the proof of validity of the copyrights and trademarks at issue, but apparently Adobe’s submissions of registration certificates were at least questionable there too, though of course that’s not vital for trademark.)

With that out of the way, Adobe had nothing left.  It argued that defendants violated Adobe’s distribution right through their online sales, and that first sale was inapplicable because (1) the licenses meant that there had been no first sale, and (2) some of the products at issue were manufactured outside of the US.  (Note that if Kirtsaeng goes as the publishers want it to, you will be hard pressed, no pun intended, to find domestic manufacture of copyrighted works for this very reason.)  Defendants pointed out that, without the licensing agreements, Adobe couldn’t prove that it licensed rather than sold its products, and argued that Adobe hadn’t met its burden of proof to show that the products were manufactured outside the US (and, as the Ninth Circuit holds, not first subject to a voluntary/authorized domestic first sale).

So the case turned on the burden of proof.  The Ninth Circuit hasn’t explicitly addressed who has the burden of proof on first sale.  The legislative history suggested that the defendant bears the burden of at least proving “whether a particular copy was lawfully made or acquired,” based on the idea that burdens shouldn’t be put on litigants to establish facts particularly within an adversary’s knowledge.  However, “a defendant's production of evidence that the plaintiff made first sales of the copies in question, or that the defendant acquired his copies from a legitimate source, can shift the burden of production to the plaintiff to trace title backward to an illegitimate acquisition.”

Here, it was uncontroverted that defendants “lawfully purchased genuine copies of Adobe software from third-party suppliers before reselling those copies.”  Adobe didn’t contend that defendants’ purchases were unlawful or that the copies were not genuine.  Thus, the copies were lawfully made and acquired. 
The benefits of first sale are limited to owners, not licensees, and the Ninth Circuit has said that a software user is a licensee “where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.”  Adobe argued that it only licensed, never sold, copies.  But there was no admissible evidence in the record on that point.  Examination of the licenses would be necessary to determine whether Adobe’s terms satisfied the Ninth Circuit’s test (which is phrased entirely in the affirmative, suggesting something about the proper allocation of the burden).   “[T]he copyright holder should bear the burden of producing evidence to establish that it retains title in and only licenses the copies it sells because any restrictions on ownership, transfer and use affirmatively imposed by the copyright holder in its dealings with its distributors are particularly within the copyright holder's knowledge.”

As for foreign manufacture, there were equally fatal problems.  Among other things, Adobe failed to specify which copies defendants sold weren’t made in the US, and for first sale purposes each copy is distinct.  It only presented evidence about one copy, but that evidence only addressed where the software was authorized for distribution, not where it was made.  If it was made here and came back in a round trip, first sale applied. Summary judgment for defendants.

Unsurprisingly, the trademark claims proceeded similarly.  The multifactor test doesn’t apply in nominative fair use cases.  When the defendant shows that it was using the mark to refer to the trademarked good, the burden shifts to the plaintiff to show that the use wasn’t nominative fair use.  This Adobe could not do. 

Given occasional discussion about what the “how much” factor of New Kids really means, the court’s rejection of Adobe’s bad argument on this point is worth noting: Since Adobe’s products have multiple marks on them, Adobe argued that defendants could have identified them using only some of Adobe’s marks and not others.   “The use of a trademark need not be absolutely necessary.  It is sufficient that the defendants ‘needed to communicate’ that they were offering Adobe software for sale and that using Adobe's marks accomplished this goal.”  And on the third factor, the use didn’t imply sponsorship or endorsement “to a reasonably prudent consumer in the online marketplace,” the Tabari standard.  “Indeed, the very domain name——from which Defendants sold Adobe software would notify a reasonably prudent online consumer that Defendants were merely resellers of ‘surplus’ software.”

Adobe argued that nominative fair use didn’t apply because defendants engaged in false advertising about the versions or features of the software it was selling.  The court deemed that to be “mixing claims.”  While these alleged misrepresentations might support a false advertising claim, Adobe failed to allege false advertising in the complaint, even though it then moved for summary judgment on its false advertising claims.  (Adobe apparently not only didn’t use the term “false advertising” in the complaint, it didn’t even allege misrepresentations about features or versions, only “use [of] images confusingly similar or identical to Adobe's Trademarks” and alleged confusion or deception “concerning ... source and sponsorship” or “affiliation, sponsorship, endorsement or approval.”)  False advertising is distinct from confusion over sponsorship or endorsement by the TM owner.  “Adobe has not alleged that Defendants used its marks to falsely identify the origin or make of Adobe software, and it has failed to produce evidence that the use of its marks created any likelihood of confusion regarding sponsorship or endorsement.”  Summary judgment for defendants (and against Adobe’s “non-existent claim”).

Adobe’s day didn’t get better on the defamation/disparagement/etc. counterclaims.  SIIA’s press release, which indicated that SIIA had filed six “piracy” lawsuits on behalf of its member Adobe, called defendants “Software Pirates” and “Fraudulent Online Venders” who “swindled both consumers and Adobe by illegally copying or selling” Adobe's software and “knowingly engag[ed] in copyright infringement through the fraudulent sales of Adobe software.”  It said that defendants “either sold infringing copies, including counterfeit versions, or illegally sold educational and OEM versions without authorization.”

Adobe and SIIA moved for summary judgment, claiming that the statements were truthful/opinion; that the statements were privileged; that defendants weren’t injured; and that Adobe couldn’t be liable because it didn’t draft or publish the press release.  The court disagreed.

As to truth, those arguments were derivative of the merits of the infringement claims, which had been resolved against Adobe.  (And frankly, conflating “unauthorized sales of legitimate software” with “unauthorized copying” is inconsistent with the generally recognized meaning of “piracy,” as much as SIIA would like to change that.)  Adobe couldn’t prove truth.  (Hmm. An interesting First Amendment question: suppose you engage in such litigation misconduct that you're subjected to discovery sanctions preventing you from presenting your evidence of truth to counter plaintiff's evidence of falsity.  Does the First Amendment prevent this type of discovery sanction?  What if it's just incompetence, not deliberate abuse of the discovery process?  Just how far does the court's ability to protect its own processes go in a defamation case?)

Adobe and SIIA argued that the statements that defendants “swindled both consumers and Adobe by illegally copying or selling well-known Adobe software products,” and that “Software that seems too cheap to be legitimate probably is not” were nonactionable opinion.  The first statement wasn’t just opinion: a reasonable person would be likely to understand it as a statement of fact, and even if it were ambiguous that would be a matter for the jury.  Likewise, the second statement, in context with the other parts of the press release, could be understood as an implicit false statement of objective fact that defendants’ products were not legitimate. And the remaining statements challenged weren’t opinion either.

Nor were the statements conditionally privileged as statements made in good faith on a subject matter in which they had an interest.  Even if Adobe and SIIA could show good faith/interest in the subject matter, they didn’t even try to show that they made the statements to a person with a corresponding interest or duty, a necessary element of this conditional privilege. “Indeed, it would be difficult, if not impossible, to do so, as the communication here was a press release posted on the internet for widespread dissemination.”  Nor did the litigation privilege (assuming the California version applied) protect the press release.  That privilege allows parties to inform third parties of the pendency of litigation, not to to beyond the allegations in the lawsuit by labeling defendants as swindlers, fraudsters, and pirates.  “[S]uch ‘litigating in the press’ that bears no ‘functional’ connection to the litigation is not immune, even under California's expansive litigation privilege.” 

On injury, Adobe and SIIA made various arguments, including that there couldn’t be general damages because defendants didn’t request a correction, and that defendants' suppliers stopped doing business with them because of the litigation, not because of any defamatory statements in the press release.  Again the court disagreed.  On the first, the relevant Nevada statutory provision limiting general damages requires that a correction be demanded only for “the publication of a libel in a newspaper, or of a slander by radio or television broadcast,” which didn’t happen here.  Defendants sued the non-media sources of the internet press release, not media outlets that then reported on the story.  “Neither Adobe nor SIIA is a newspaper publisher or radio or television broadcaster, and the statute, enacted in 1969 and last amended in 1975, neither addresses in its text nor could contemplate a non-media entity's dissemination of information over the World Wide Web.”  Thus, defendants weren’t limited to special damages for failing to request a correction, and since the statements were defamatory per se no proof of special damages was required.

Adobe tried to throw SIIA under the bus, arguing that SIAA “independently developed the concept for, drafted, approved and published the press release,” which contained no statements by Adobe or its personnel.  But disputed issues of material fact precluded summary judgment on this basis.  The lawsuit was filed in Adobe’s name, but the press release issued two weeks later states that SIIA acted “[o]n behalf of SIIA member Adobe Systems Incorporated” in “investigat[ing] and fil[ing]” this lawsuit and five others. Other record evidence showed that SIIA's representation of Adobe's interests was not unique to this lawsuit; SIIA regularly acts on behalf of Adobe in investigating and suing alleged infringers.  It would be reasonable to infer that SIIA acted as Adobe’s “investigator, prosecutor and spokesperson.” “Also, Adobe's blanket denial of any active participation regarding the press release is belied by its own evidence, which establishes that the press release was sent to Adobe for review before being issued and that SIIA and its public relations firm may have made revisions in response to feedback from Adobe.”  SIIA’s lead role didn’t mean that Adobe wasn’t a material participant or otherwise involved enough to be liable.

Comment: I wonder if Adobe’s lawyers have contacted their insurers.

Copyright hypo of the day

Consider the influence of Irving Berlin's White Christmas on Randy Newman's I'm Dreaming and evaluate the potential infringement claims/defenses.  For your consideration: Abilene Music Inc. v. Sony Music Entertainment, Inc., 320 F. Supp. 2d 84 (S.D.N.Y. 2004) (fair use of small portion of "What a Wonderful World") and Newton v. Diamond, 349 F.3d 591 (9th Cir. 2003) (separating out composition and performance elements; Newman's performance allegedly has performance elements that highlight the similarities).  Of course there is the logically prior question of substantial similarity, but for some reason that rarely detains courts in musical quotation cases.

Monday, September 17, 2012

Being an expert witness as commercial speech under the Lanham Act

LidoChem, Inc. v. Stoller Enterprises, Inc., 2012 WL 4009709 (6th Cir.)

The parties compete in the market for farm chemicals in Michigan.  LidoChem and individual plaintiff/chemist Frank Dean sued Stoller Enterprises, McKenzie Wright Laboratories, and various individuals: Jerry Stoller (Stoller’s owner), David Alexander (sales rep), and Michael Wright (president of McKenzie Wright).  The district court rejected plaintiffs’ Lanham Act, tortious interference, injurious falsehood, defamation, and civil conspiracy claims. The court of appeals affirmed in part and reversed in part.

Frank Dean and sales rep Gerry Gelder worked for Stoller Enterprises before they joined LidoChem.  LidoChem’s products were blended by The Andersons, a large midwestern chemical manufacturer, then sold to Michigan distributors, including Zeeland Farm Services and Green Valley Agriculture.

LidoChem’s owners joined a business venture in 2000 to form a new corporation, Nutrecology, which employed Dean to develop a liquid fertilizer, Nutrefol, to compete with Stoller Enterprises' similar product, FoliZyme. They utilized LidoChem's distribution network in Michigan to market the product.  Gelder and a Zeeland salesman met with the owners of Boersen Farms, one of Zeeland’s largest customers.  Gelder asked them to try LidoChem/Neutrecology’s products instead of the Stoller products they’d been using. Dennis Boersen alleged that Gelder told him that Nutrefol would work like FoliZyme to enhance the growth of soybeans, but Gelder denied this. Boersen agreed to try Nutrefol and did so.  But when Boersen sprayed Nutrefol and Roundup on soybeans, the plants “turned yellow and became stressed.”  A Stoller distributor “recommended the use of Stoller products to encourage plant recovery.”  Stoller then assured Boersen that Nutrefol contained a substance that was harmful to soybeans.

LidoChem and Dean alleged that Stoller “orchestrated a plan to ruin their reputations within the farm chemicals industry by making misrepresentations that Nutrefol contained ‘poison.’”  They provided evidence that Stoller advanced a scheme to represent falsely that Dean added a particular chemical to Nutrefol; Stoller claimed that this chemical was toxic and caused the reduced soybean harvest.  As a result, Nutrecology pulled Nutrefol from the market.  LidoChem and Dean also showed that Stoller repeatedly encouraged Boersen Farms and its attorneys to file a lawsuit against LidoChem, Dean, etc. LidoChem alleged that, once the lawsuit became public, LidoChem lost business relationships and goodwill.

Stoller sent several communications alleging Nutrefol was toxic.  After one test he commissioned didn’t find any toxic chemicals, he ordered that a different lab re-test the sample, allegedly because he knew that the lab would provide the results he wanted because it had provided favorable results for him in the past when other labs had failed to satisfy.  Stoller also allegedly directed Wright to issue a false report finding that the Nutrefol sample taken from Boersen contained the toxic chemical, which Wright did; Stoller then told several people, including Boerson, about the results.  Stoller’s sales rep Alexander met with Boerson’s attorneys three times and agreed to serve as an expert witness in the case against LidoChem etc. “It was common knowledge in the very small industry for farm chemicals that Stoller pushed the lawsuit against LidoChem and the other defendants.”  Stoller sent several letters to the attorneys claiming that Nutrefol had falsified key safety documents, that Gelder falsely represented to Boersen that Nutrefol was the same as Foli–Zyme, that Dean had a history of using “customers as an experimental laboratory,” that Stoller had worked for months, employing “numerous lab analyses and specialized equipment,” to isolate the damaging, “cleverly disguised” ingredient in Nutrefol, agreed to serve as an expert witness, etc. (and requested compensation based on results, leading him later to concede that he had a proprietary interest in the lawsuit).

When a distributor, Gerst, started distributing LidoChem products, Stoller denied him the right to access research samples of Stoller products because Gerst was doing business with Dean, telling Gerst that Dean had stolen “private information” from Stoller and calling Dean “a dishonest person and a thief” and “a known crook who stole from me.”

Stoller ultimately withdrew as an expert witness for Boerson, and the state trial court barred Wright from testifying as an expert because he got rid of the Nutrefol samples Stoller gave him to test and then claimed that his computer “crashed” so that he no longer possessed the underlying data and testing procedure that formed the basis for his opinion. Boersen and LidoChem ultimately settled the lawsuit.

Lidochem produced evidence indicating that Stoller’s statements were false.  Side-by-side tests by Green Valley produced virtually no difference in crop production between Nutrefol and Foli–Zyme.  LidoChem's insurer had an independent lab test Nutrefol; though the sample contained two substances not listed on its material safety data sheet, neither was a threat to soybeans, and additional expert testing failed to detect the allegedly toxic chemical at the part-per-trillion level.

LidoChem also produced evidence of economic harm, including the end of its relationship with The Andersons (which had blended its products), and trouble making sales.

LidoChem alleged that Stoller, Alexander, Stoller Enterprises, Michael Wright, and McKenzie Wright Laboratories violated the Lanham Act.  But were the statements “commercial advertising or promotion”?  The phrase goes beyond the classic advertising campaign; most courts follow Gordon & Breach.  At a minimum, covered speech has to target a class or category of customers, not merely particular individuals, though the required level of dissemination varies according to the industry at issue.  In a small enough market, even a single promotional presentation to an individual purchaser can be enough.

Applying Gordon & Breach, the court of appeals concluded that Wright and McKenzie Wright Laboratories didn’t engage in commercial advertising or promotion by providing Stoller with a false laboratory report “because Wright was not engaged in promotion to influence consumers to purchase goods or services from McKenzie Wright Laboratories.” The same was true when Wright participated as an expert witness in Boersen’s lawsuit.  But Stoller Enterprises was in commercial competition with LidoChem, and could be vicariously liable for the conduct of its owner Stoller and employee Alexander.  A reasonable factfinder could conclude that Stoller was engaged in “commercial speech for the purpose of influencing consumers—not just the end-use farmer, but also the farm-chemical distributor—to buy Stoller Enterprises products and that Stoller's statements were disseminated widely enough to the relevant purchasing public to constitute promotion within the relatively small western-Michigan farm-chemical industry,” based in particular on the statements to Boersen and Gerst.

Because the claim that Nutrefol contained a toxin was false, actual deception could be presumed.  “Further, Stoller disparaged LidoChem in another way by casting doubt on Dean's honesty and on the validity of his patents.”  LidoChem produced evidence of materiality in its subsequent difficulty making sales.  Whether the causation analysis with respect to the amount of damages was affected by Nutrefol’s removal from the market was a factual question for the jury.

Defendants argued that many of Stoller’s statements went to Boerson’s attorney and therefore weren’t commercial speech, but here the attorney was Boerson’s agent for dealing with Stoller, “and the evidence suggests that Stoller fully expected his statements to the attorney to reach farmer Dennis Boersen and the farm-chemical industry in western Michigan.”  A reasonable jury could believe what Stoller said: “that he intended to instigate litigation to inflict severe competitive injury on LidoChem and disrupt its business relationships,” especially given his admission that he had a financial interest in the litigation’s success.  “The district court's belief that Stoller made the false statements to the attorney simply to promote himself as a consultant and expert may be one reasonable interpretation of the evidence, but it is not the only one.”

Plus, there was evidence that Alexander directly gave false information to Boerson and other Michigan growers. Alexander “admitted that he discussed the facts underlying the Boersens' lawsuit with Michigan growers to whom he sold Stoller products.”  Thus, summary judgment against Stoller, Alexander, and Stoller Enterprises was improperly granted.  (The partial dissent thought that Alexander should be out of the case because counsel didn’t mention some of these facts to the district court, but the majority said that it was legitimate to consider the entire summary judgment record given the de novo standard that applied.)

On tortious interference, the court of appeals also reversed; a reasonable jury could find that any/all of the defendants tortiously interfered with LidoChem’s business relationships with Boersen Farms, Zeeland Farm Services, Gerst, and The Andersons by falsely stating that Nutrefol contained a toxic chemical. However, there wasn’t enough evidence to warrant trial on any separate claim by Dean.  Likewise, while the district court ruled that LidoChem’s injurious-falsehood claim failed for want of proof of causation—inducing others not to deal with LidoChem—the court of appeals thought that there was enough evidence to go to trial, except on the argument that Stoller and Wright committed perjury during their depositions, because of immunity for testimony given during a legal proceeding.  

Defamation: Dean alleged that Alexander defamed him during a meeting with Gelder by telling Gelder that, if he would work for Alexander, then Alexander would reveal to him what “really” happened in the Boersen litigation and Gelder would be shocked. Gelder didn’t accept the invitation.  This wasn’t enough to show a false and defamatory statement concerning Dean, nor did Dean show damages.

As noted above, there was a partial dissent on the procedural issue.  The majority, the dissent thought, had improperly searched the record for contrary evidence against Alexander, even though it wasn’t mentioned in the briefs or argument to either court.  The legal question is an important one for procedure-loving types and the dissent is impassioned; I commend it to interested readers.

Filtered honey is honey despite Cal. law to the contrary

Brod v. Sioux Honey Ass'n Co-op., 2012 WL 3987516 (N.D. Cal.)

Brod filed a putative class action against Sioux for the usual California claims, alleging that it violated California law by marketing its “Sue Bee Clover Honey” as “Honey,” despite the fact that it did not contain pollen, as required by the standards for honey in California’s Food and Agricultural Code.  The court found preemption.

According to the Code, no pollen may be removed from honey unless the removal was “unavoidable in the removal of foreign inorganic or organic matter,” but all the pollen was filtered out by Sioux, and under the Code it’s unlawful to sell honey or a product marked as honey that doesn’t comply with the Code.

Sioux first argued that Brod and other class members lacked Article III standing for want of injury in fact.  Brod alleged that, had he known that Sue Bee Honey didn’t comply with California standards, he wouldn’t have bought it, though he didn’t identify any more specific injury.  Sioux argued that there was no injury in fact if the honey was “indiscernibly dissimilar” from what he thought he was buying; he didn’t allege that the honey was inferior, that he overpaid, or that he was otherwise harmed.  In the Kwikset case, the California Supreme Court held that consumers are injured when they’re deceived by mislabeling into buying things they otherwise wouldn’t have bought, even if someone else might “objectively view the products as functionally equivalent.”  As in that case, Brod alleged that Sioux mislabeled its product as honey, that this was false as a matter of law, that consumers saw and relied on the label, and that they wouldn’t have bought it otherwise. That was enough for standing under Kwikset, and thus for Article III.

Preemption, however, was a fatal barrier.  The NLEA added a preemption provision expressly preempting certain state laws, including labeling requirements, that weren’t identical to federal requirements.  The key provision here, 21 U.S.C. § 343(i), provides in relevant part that “a food shall be deemed to be misbranded “[u]nless its label bears (1) the common or usual name of the food, if any there be ….”  Honey is not apparently subject to any more specific regulatory definition.  Thus, Sioux argued that the law required its product to be labeled as “honey” as its common or usual name.  The court agreed.  The parties didn’t dispute that the product met the typical dictionary definition of honey.  Many states have defined honey similarly to the dictionaries; none required honey to contain non-filtered pollen.  Furthermore, prior regulations on grades of honey reinforced the idea that the common or usual name for the product was “honey.”  These former standards, which used to be part of the CFR until removed as unnecessary regulations, established a voluntary grade system for honey, and they had a grade for honey with only a trace of pollen.  Thus, “even filtered honey was considered honey.”  Finally, Sioux could not identify an alternative common or usual name for the product. Thus, under the FDCA, Sue Bee Clover Honey had to be labeled “honey.”  Since California law prohibited this very labeling, California law was preempted.

California was not powerless to act in this area: a requirement of a disclosure that the honey was filtered or pollen free wouldn’t expressly conflict with § 343(i). But the state couldn’t ban the use of the label “honey” for products which are commonly and usually called honey.

Brod suggested that this wasn’t a labeling issue, but a substantive ban on the sale of filtered honey.  But the complaint made clear that the violation here turned not on the content of the product but on its label.

Given this ruling, Sioux’s Dormant Commerce Clause argument was moot.

6th Circuit finds "5 Hour Energy" suggestive for energy shot; overbroad recall potentially misleading

Innovation Ventures, LLC v. N.V.E., Inc., --- F.3d ----, 2012 WL 4039843 (6th Cir.)

Innovation (doing business as Living Essentials) alleged that NVE’s 6 Hour POWER energy shot infringed its trademark in 5-hour ENERGY.  After LE won a case against a different competitor, LE distributed a “recall notice” stating that NVE's “‘6 Hour’ energy shot” had been recalled.  NVE alleged that this constituted false advertising and a violation of the Sherman Act.  The district court granted summary judgment rejecting everyone’s claims; the court of appeals reinstated the trademark infringement and false advertising claims, but affirmed on the Sherman Act.

The PTO initially denied LE’s 2004 application for registration on descriptiveness grounds.  Starting in 2005, LE marketed 5-hour ENERGY nationwide.  In March 2006, NVE introduced 6 Hour Power:

On appeal, NVE argued that LE failed to show that it had acquired distinctiveness before NVE entered the market.  The district court emphasized the descriptiveness of LE’s mark as key in its award of summary judgment, but that was in the context of an infringement inquiry, not a protectability inquiry.  (The court of appeals noted that NVE has claimed in other litigation that 6 Hour POWER is inherently distinctive, a “contrast” in position, though presumably NVE would like to distinguish between power and energy.)  Unfortunately, the court of appeals erred in the basic test of descriptiveness: knowing the goods/services, is further inference or imagination required to connect the alleged mark to the goods?  That is why “apple” is generic for apples, descriptive for the color of lipstick, and arbitrary for computers.  Sadly, though the court began by noting that 5-hour ENERGY “simply describes a product that will give someone five hours of energy, it continued:

But that is not the end of such an inquiry. The first question one would ask is how would the energy be transferred? Through food? Through drink? Through injections? Through pills? Through exercise? Also, one would ask what kind of energy is the mark referring to? Food energy (measured in Calories)? Electrical energy? Nuclear energy? With some thought, one could arrive at the conclusion that the mark refers to an energy shot. But it is not as straightforward as NVE suggests. Such cognitive inferences are indicative of “suggestive” rather than descriptive marks.

As applied to a beverage, the “how” question is answered by knowing the goods; the “what kind of energy” is not answered by imagination but rather by basic knowledge of human physiology shared by average consumers who understand that neither electric shocks nor nuclear radiation are generally delivered, or desirable, via beverages.  “With some thought,” one could also arrive at the conclusion that the mark refers to socks, or batteries, or any other good (at least any other good as to which the term wouldn’t be deceptive).  Compare “Chicken Poop” for lip balm.  That’s both an actual example and arbitrary, though in the abstract, without knowing the product, one would probably assume it’s generic for chicken poop.  Or compare “Best” for anything.  Since you couldn’t figure out what the goods were from the simple term “best,” the court’s test implies that “best” is suggestive rather than, as it is, highly descriptive.  That’s why marks are not classified in the abstract, without reference to the goods or services for which they are claimed.  “Cognitive inferences” are properly only assessed in the goods/mark connection, not in inferring what goods might be named.

Regardless, the court of appeals held that 5-hour ENERGY was suggestive “‘because of the degree of inferential reasoning necessary for a consumer to discern’ that the ‘5–hour ENERGY’ mark relates to an energy shot.  The connection between ‘5–hour’ and ‘ENERGY’ is ‘not so obvious that a consumer seeing [5–hour ENERGY] in isolation would know that the term refers to’ an energy shot rather than, for example, a battery for electronics, an exercise program, a backup generator, or a snack for endurance sports” (citation omitted).  Thus, though the suggestive/descriptive line is hazy, the mark is suggestive and protectable.

The court of appeals then turned to the confusion analysis.  The district court found dissimilarity of the marks plus descriptiveness pivotal in its conclusion, along with NVE’s lack of intent to confuse.  LE focused mostly on intent, since there were diverging accounts of the origin of the name from NVE President Robert Occhifinto and former NVE Vice President Joe Palmeroni.  Occhifinto claimed that he chose the name because the caffeine’s effects last about 6 hours and because the rhyming scheme of an earlier product named “TOWER OF POWER” led them to use the term “POWER.”  The court thought this earlier product was a “convenient coincidence.”  (Okay, if the generic name of the category is “energy shot,” and they can’t use the term “energy” because it’s too close to a suggestive mark, then why isn’t “power” a distinct alternative?  In other words, why is the use of “power” any problem at all?)  Palmeroni testified that he investigated the growing energy shot market and that his market research focused on LE’s product, as it was “really the only one that we took seriously” and the one whose sales ‘were blowing up.”  In name choice, he testified that he focused on having a shot that was better than a shot that lasted only five hours.  He agreed that he believed that “the name 6 Hour Power was selected by N.V.E. to trade off of the success and reputation of 5–Hour Energy.”

The court of appeals thought that Palmeroni’s testimony wasn’t particularly helpful and reflected NVE’s search for ways to compete with LE, not to copy it.  “In fact, when Palmeroni raised possible issues relating to likelihood of confusion between the products, Occhifinto discussed ways to differentiate the products, e.g., using a different color, to eliminate possible grounds of confusion.”  NVE also challenged Palmeroni’s testimony, given that he was fired before it adopted the 6 Hour POWER name, though he was involved in discussing 5-hour ENERGY earlier.  Also, he’s involved in apparently vicious litigation against NVE on other matters.  Assuming its accuracy, this testimony still didn’t impress the court of appeals: the focus on 5-hour ENERGY “focused on its large market share and the need to catch up, rather than to copy it” and showed intent to compete, not to copy.

The court of appeals deemed likely confusion a close call.  But the factors were “so evenly balanced”—4 to 3 as the 6th Circuit counts factors, with an additional factor not at issue—that “precedent counsels in favor of not granting summary judgment.”  (Perhaps oddly, the court of appeals didn't discuss the effect of the suggestiveness finding; but then, a borderline suggestive/descriptive mark can be considered relatively conceptually weak.) Comment: Other courts hold that it is perfectly fine to give heavier weight to certain factors, depending on the particular facts.  For example, imagine a plaintiff with a famous mark suing a direct competitor with a completely dissimilar mark: while a number, even a majority, of the factors would favor the plaintiff, mere counting wouldn’t reflect much about likely confusion.  But here, the district court gave little weight to much of LE’s evidence, including “a survey that used ‘highly leading questions,’ evidence of confusion from ‘third party witnesses,’ and forty alleged instances of consumer confusion. This was “the wrong posture to take on summary judgment.”  The case had to go to a full trial.

The court then turned to the false advertising claims.  Other parties made “6 Hour” energy shots—LE sued two others in separate cases over the “6 Hour Energy Shot” and “6 Hour ENERGY!” A court issued a preliminary injunction against the sale of 6 Hour Energy Shot and a recall order, but it found in LE’s favor on the trade dress claims; it didn’t find trademark infringement. 
LE thought that the recall order coming from the defendants didn’t go far enough—defendants didn’t send it to retailers who bought the product from third parties.  Thus, after the recall had been completed, LE “took it upon itself to send an additional recall notice … to 110,000 convenience stores and truck stops and to place a notice in retailer magazines.”  This notice said:


Court orders immediate stop to manufacturing, distributing and sale of 6 Hour Energy shot.

Dear Customer,

We are pleased to announce that we won a decision against a “6 Hour” energy shot that closely mimicked 5–Hour Energy®. The United States District Court, in Case No. 08–CV–10983, issued a preliminary injunction ordering the immediate recall of the “6 Hour” product, and told its manufacturer to stop making, distributing and selling it.

If you have any of the “6 Hour” energy shots in your store(s) or warehouse(s) contact the product's manufacturer or your distributor to return the product immediately.

DO NOT RETURN ANY 5–HOUR ENERGY ®. It can be difficult to tell 5–Hour Energy® apart from the “6 Hour” knockoff product….

The producer of 6 Hour ENERGY!, BDI, sued LE for false advertising based on this recall notice.  The district court in that case granted a preliminary injunction, since LE didn’t win a decision against “a ‘6 Hour’ energy shot” as stated, but rather won an injunction against the use of a confusingly similar overall trade dress.  The court there pointed out that LE could easily have avoided confusing consumers by identifying the actual manufacturer and product enjoined—as the court of appeals, indeed, did here (yay!) by including pictures.

The district court in NVE’s case found that the recall notice was neither false nor misleading.  Because LE was awarded an injunction against the producer of an energy shot with the name 6-Hour, the notice was not literally false, even if it lacked clarity.  The court of appeals here found that the recall notice was almost—but not quite—literally false.

“First, the notice could be viewed as either ambiguous or false with respect to how the product is named.”  The notice used quote marks that could be read broadly to say that any energy shot whose name included “6 Hour” had been recalled and never referred to the product actually recalled in one complete phrase.  At the time, there were several other energy shots along with NVE’s with that phrase in the title, so this was important.  Relatedly, LE said that it had won a decision “against a ‘6 Hour’ energy shot.”  But that wasn’t literally true: it won a decision against the use of an overall product image—label and bottle.

Also, the use of the indefinite article “a” was a problem.  “a ‘6 Hour’ energy shot” suggests that there might be more than one, but at other points the notice used “any,” e.g., “If you have any of the ‘6 Hour’ energy shots in your store(s) or warehouse(s) contact the product's manufacturer”—whoever they may be—“or your distributor to return the product immediately.”  That suggested that any 6 Hour shot was subject to recall, as did the use of “the” to describe the recalled product.  As Justice Kagan has recently noted:

“Not an” sometimes means “not any” …. If your spouse tells you he is late because he “did not take a cab,” you will infer that he took no cab at all (but took the bus instead).… Suppose your spouse tells you that he got lost because he “did not make a turn.” You would understand that he failed to make a particular turn, not that he drove from the outset in a straight line.

Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S.Ct. 1670, 1681 (2012). Because “what does this article mean?” must be answered “it depends,” the notice couldn’t be literally false.  Comment: This is skipping the follow-up: depends on what?  In the examples above, the context is provided by the nature of the question, not by further evidence of audience reaction; in none of Justice Kagan’s examples, including the ones I’ve omitted, was there any ambiguity in what the article meant in that particular sentence, because humans are context-making machines. Thus, it’s not enough to create ambiguity for a word to have multiple meanings in the abstract.  If I say “I ate an apple for lunch” to you (so you can’t hear capitalization or lack thereof), you could not seriously believe that there is any question about whether I ate a fruit or a computer, despite Apple’s fame.  Likewise, were a laptop to advertise MORE PROCESSING POWER THAN AN APPLE, without any indication that this was a joking reference to a piece of fruit, there’s no ambiguity.  The doctrine of falsity by necessary implication recognizes this function of context. 

That said, while I think this is a case of falsity by necessary implication, it’s a closer call than some others.  LE clearly took a victory against one competitor as a chance to harass a wider segment of the competition, and I’d be inclined to take into account that they easily could have specified more clearly.  In these circumstances, rather than—as the court of appeals did—ruling that this was only a factual dispute over misleadingness, I would leave it to the finder of fact to decide whether this “close question” involved literal falsity, misleadingness, or nonmisleading communication.  The court of appeals, however, held that misleadingness was the issue for the finder of fact.

The district court excluded as inadmissible hearsay all of NVE’s evidence that various unidentified retailers contacted them over the notice.  NVE only named one distributor out of over 100,000 retailers nationwide.  But its witnesses testified that NVE and its distributors received a number of calls “from convenience stores and truck stop retailers—the very people that received the recall notice—who wanted to return ‘6 Hour POWER.’ One NVE employee stated that the notice caused a ‘huge nightmare’ and the phones were ‘blowing off the hook’ with calls to return the product. NVE claimed that at least one sales program … ‘just died’ after the recall notice.”  One witness stated that she received “phone calls from brokers and customers and faxes of this legal notice sent to us and that's when the nightmare began.... [I]nitially, we started getting faxes and inquiries from our customer base, and then the phone calls just started pouring in from all little mom and pop shops all over the United States, you know, asking if they should pull our product.”  Others testified similarly about needing to send out notices to customers and being “inundated” with calls.  Emails a month after the initial notice indicated that there were continuing questions about sending back NVE products.

This was not inadmissible hearsay.  It was too heavy a burden to expect a sworn statement from a retailer who calls a distributor and claims confusion; the calls were relied on not to show the truth of the statements but to show the state of mind of the speakers.  “The fact that so many people called NVE immediately after receiving the notice at the very least raises a genuine issue of material fact as to whether a significant portion of the recipients were misled.”

LE said that these were non-actionable inquiries, not evidence of confusion.  But these weren’t mere inquiries; the testimony was that many distributors called to stop buying NVE’s product.  NVE claimed that after the recall, its sales growth for 6 Hour POWER dropped from 13.7% to 1.1%.”  “NVE's damages expert estimated that NVE lost $3.4 million in sales as a result of the recall notice. A jury could find that these were not just inquiries; they were calls that resulted in lost sales. All of these calls evidence a belief that ‘6 Hour POWER’ had been recalled. Had the callers lacked such a mistaken belief, such phone calls would not have occurred.”

NVE’s own corrective advertising was also relevant, not for its truth but to provide circumstantial evidence that some retailers believed that there was in fact a recall on “any of the ‘6 Hour’ shots in your store.” Together, there was more than enough evidence to survive summary judgment.

NVE also argued that the false advertising, along with other bad acts (including exclusivity requirements and registering and, violated the Sherman Act.  But NVE only presented evidence of damages from the recall notice.  False advertising isn’t actionable under the Sherman Act unless it’s so difficult for the plaintiff to counter that it could potentially exclude competition. “Isolated business torts, such as falsely disparaging another's product, do not typically rise to the level of a Section 2 violation unless there is a harm to competition itself.”  The Sherman Act protects competition, not competitors.  It was relatively simple for NVE to counter the recall notice by sending its own notices; that was enough to end the antitrust claim.  (Comment: I understand the desire to deal with false advertising on its own merits, given the existence of the Lanham Act.  The offered reason for excluding it from antitrust law, though—that false advertising generally doesn’t harm competition—contradicts the underlying theory of the Lanham Act, and in particular the idea that it was easy for NVE to fix the problem contradicts NVE’s evidence that despite its corrective actions it suffered millions of dollars in damages.  I’m just saying, a better reason would be better.)  So that was the only part of the district court’s decision that was affirmed.