Wednesday, October 26, 2016

Republication of online articles was commercial speech and not protected by CDA

Western Sugar Coop. v. Archer-Daniels-Midland Co., 2015 WL 12683192, No. CV 11-3473 (C.D. Cal. Aug. 21, 2015)

More belated blogging.  The sugar industry and the corn refining industry accused each other of falsely advertising  high-fructose corn syrup (HFCS).  Plaintiffs were manufacturers, trade groups, and associations active in the sugar industry; defendants ditto for the corn and HFCS industry. Plaintiffs alleged three types of false and/or misleading representations about HFCS in the Campaign: (1) use of the term “corn sugar;” (2) statements that HFCS is a “natural” product; and (3) representations that “sugar is sugar” and that “your body can’t tell the difference” between sugar and HFCS. The counterclaim alleged that plaintiff Sugar Association falsely represented that HFCS causes obesity, cancer, and cirrhosis of the liver, among other things, when in fact, HFCS and sugar are nutritionally equivalent.

The court found that, even if defendants’ statements that HFCS is “natural” were in accordance with policies and guidance promulgated by the FDA, that didn’t preclude a Lanham Act falsity/misleadingness claim under Pom Wonderful.  There were genuine issues of material fact on falsity as to the claims and counterclaim.

Plaintiffs argued that they were entitled to a presumption of injury because this was a false comparative advertising case.  By contrast, recovery of damages in a false non-comparative advertising case requires “actual evidence of some injury resulting from the deception is an essential element of the plaintiff’s case.”  Defendants argued that the challenged campaign didn’t directly compare HFCS to any particular sugar product or brand.  However, the campaign directly compared defendants’ sweetener product, HFCS, to plaintiffs’ competing sweetener product, sugar.  According to defendants’ own evidence, the creative messaging strategy was to “directly compare HFCS and sugar.”  From 2008 to 2011, key campaign messages included that HFCS is “nutritionally the same as sugar,” and the “facts prove there is no difference between HFCS and other sugars.”  This was not a case where defendants merely emphasized the positive aspects of their own products; they specifically claimed that HFCS was equivalent to and the same as sugar.  The aim was to stop consumers from switching from using HFCS to using sugar, and thereby to stop plaintiffs from gaining market share.  “Thus, while the instant case is not a typical comparative false advertising case in that it does not involve comparisons between name-brand products, the Court finds that the presumption of causation and injury applies because the products are in head-to-head competition and Defendants’ Campaign directly targets Plaintiffs’ competing product.”

The court also addressed defendants’ argument that the Noerr-Pennington doctrine precluded liability for First Amendment-protected petitioning conduct, which can include “concerted efforts to influence ... government [ ] through direct lobbying, publicity campaigns, and other traditional avenues of political expression,” as well as litigation. Private petitioning conduct “incidental to a valid effort to influence government action” can’t be the foundation of liability.  Defendant CRA filed a “Citizens Petition” with the FDA on September 14, 2010, seeking to allow food and beverage manufacturers the option of using the name “corn sugar” to identify HFCS on ingredient labels, and the court found that certain challenged materials were incidental to the Citizens Petition and protected under Noerr-Pennington.  By contrast, statements challenged in the counterclaim weren’t “incidental to valid efforts to influence” the FDA or the prosecution of the instant lawsuit.

Counterclaim defendant SAI argued that its reposting and dissemination of articles wasn’t actionable commercial advertising or promotion under the Lanham Act.  The counterclaim challenged, inter alia, statements in articles authored by non-parties, Dr. John McElligott and Linda Bonvie: “Dr. John McElligott weighs in on the high fructose corn syrup debate in Land Line Magazine,” and Bonvie’s blog post, “The Corn Processors ‘get their way’ with UCLA, or do they?” SAI republished the articles on its website and distributed them in its electronic monthly newsletter, “The Sugar Packet.”  (Cute!)  SAI argued that reposting didn’t transform otherwise protected, non-commercial articles into “commercial speech” because SAI didn’t alter or incorporate the articles into traditional advertising, or distribute them to targeted potential customers, with a commercial motive.

The articles, as noted, were available on SAI’s website, and the Sugar Packet was distributed to approximately 3,500 recipients, including approximately 1,750 individual consumers and members of the media. “SAI had a clear economic motive for distributing the Articles—to promote the consumption (and thereby sales) of sugar.” The Sugar Packet itself stated, in the same issue that disseminated the McElligott article, that  SAI is “on a mission to educate consumers and promote the consumption of sugar through sound scientific principles.”  Citing Gordon & Breach, the court concluded that SAI’s republication promoted its own business and was commercial in nature.

SAI also raised a CDA defense.  Under Batzel v. Smith, 333 F.3d 1018, 1032 (9th Cir. 2003), the question of whether SAI was an “interactive computer service” for these purposes is whether under the circumstances, “a reasonable person ... would conclude that the information was sent [to them] for internet publication.”  The court found that SAI hadn’t shown that its website or electronic distribution service qualified as a “provider[ ] or user[ ] of an interactive computer service” within the meaning of the CDA.  Moreover, “[i]f information is provided to [SAI] in a capacity unrelated to [its] function as a provider or user of interactive computer services, then there is no reason to protect [it] with the special statutory immunity.” SAI showed that it obtained permission to republish the articles.  That was not evidence that SAI “passively displayed Articles from third parties who actively provided them to SAI in its capacity as a user or provider of interactive computer services.”  Thus, SAI wasn’t entitled to CDA immunity.

Monday, October 24, 2016

Third party lacked standing to challenge allegedly misleading use of abandoned mark

578539 B.C., Ltd. v. Kortz, 2014 WL 12572679, No. CV 14-04375 (C.D. Cal. Oct. 16, 2014)

Westlaw is doing something to surface all sorts of old cases, but this one covers an issue about abandoned marks that often comes up in my class on abandonment, so here goes.

Plaintiff, trading as Canadian Maico, filed a trademark infringement claim against Kortz, d/b/a SoCal Maico.  Maicowerk A.G. was a popular German motorcycle manufacturer founded in 1926; it went out of business in the 1980’s.  Plaintiff was founded in 1996 with the goal of rebuilding Maicowerk’s business by restoring and selling genuine Maicowerk motorcycles, as well as parts that could be used by others to restore and maintain Maicowerk motorcycles. Canadian Maico now serves Maicowerk motorcycle enthusiasts in the US and Canada, as well as internationally.  It had registrations for the word Maico and a large “M” superimposed over a shield (the “Maico marks”) for relevant goods.

Plaintiff alleged that Kortz observed its success and decided to copy it under the name SoCal Maico. In 2014, Kortz sought to register MAICO in connection with “on-line retail store services featuring new and used Maico motorcycle parts” and his website Kortz’s logo allegedly incorporated Maico’s federally registered trademarks; Kortz petitioned to have the USPTO cancel Maico’s registration.  Kortz also allegedly made false and damaging statements about Maico and its goods to potential customers.

Kortz alleged, in his counterclaims, that Maico registered Maicowerk’s abandoned trademarks despite the fact that it had not received an assignment of any of Maicowerk’s rights, reputation or goodwill, even though that reputation and goodwill persists.  He alleged that Maico traded on Maicowerk’s goodwill and caused consumer confusion as to the source or origin of its goods and services.

The court found that Kortz lacked Article III standing to bring his counterclaims.  He lacked allegations of injury to himself that was “concrete and particularized” and “actual or imminent” in order to satisfy the injury in fact requirement of Article III standing. Kortz wasn’t Maicowork’s successor in interest:

Because Kortz admittedly has no protectable legal interest in Maicowerk’s purported goodwill and reputation, he cannot assert injury based on damage to that goodwill and reputation. Because he sues as a competitor, and not as a member of the public confused by Maico’s use of the Maico marks, he cannot assert injury to consumers as a basis for his claims.

H didn’t plead that Maico’s customers would otherwise do business with him or that its use of the marks otherwise injured him in his business.  Lexmark analysis would reason likewise.

Later, the court commented that the fact of Maicowerks’ persistent goodwill would not, in itself, make Maico’s adoption of the Maicowerks marks invalid, quoting McCarthy: “Once abandoned, a mark may be seized immediately and the person doing so may build up rights against the whole world.” “After abandonment, those who then adopt the mark must turn to the basic rules of trademark priority to determine priority of use and ownership.”  True, parties who adopt an abandoned mark “must take steps to avoid a likelihood of confusion arising from an association with the former owner,” but that’s the former owner’s business, and even the former owner won’t win without use that fraudulently trades on its reputation.

Press release constituted commercial advertising or promotion

Engineered Arresting Sys. Corp. v. Runway Safe LLC, No. 1:15-CV-546, 2016 WL 6087906 (W.D. Tex. Sept. 19, 2016)

Engineered materials arrestor systems (EMAS) are installed at the end of airport runways in order to safely stop an aircraft that fails to stop before the end of the runway by absorbing the energy of the aircraft. For over 15 years, plaintiff ESCO was the only supplier of EMAS for US airports, but Runway Safe entered the market in 2014.  ESCO sued for direct and indirect patent infringement; Runway Safe brought various counterclaims, including a false advertising counterclaim based on ESCO’s press release announcing this lawsuit.  (Including: “As a new and untested entrant into the marketplace, Runway Safe apparently hopes to capitalize on the goodwill and reputation of [ESCO] by misappropriating [ESCO’s] valuable intellectual property ….”) 

The court declined to dismiss that counterclaim, adding to the small but reasonably consistent jurisprudence on press releases: at least when the target market is small enough that press releases are a good way to communicate with consumers, they can constitute advertising or promotion. The press release, which also says that “[c]ustomers desiring the aircraft arresting system that provides proven safety records with successful arrestments should ensure that they are purchasing the EMASMAX® manufactured only by [ESCO],” directly targets EMAS customers and encourages them to buy from ESCO.  It was published on ESCO’s website where any potential purchaser of an EMAS would be able to view it.  Thus, Runway Safe properly pled commercial advertising or promotion.

Likewise, Runway Safe properly alleged that statements such as that Runway Safe has copied features of ESCO’s EMAS and that Runway Safe is an “untested entrant into the marketplace,” were false and misleading.

Runway Safe also alleged that this conduct was likely to cause “confusion, mistake, or deception as to the origin, sponsorship or approval of the nature of the services offered by Runway Safe.”  Hello, Dastar.  Here, the court reasoned that §43(a)(1)(A) required statements about the speaker’s own goods, not statements about someone else’s goods, which are covered by §43(a)(1)(B).

Friday, October 21, 2016

At the USPTO Trademark Expo

Well, here I am at the National Trademark Expo

Here is a giant registration symbol character costume

Musical pairing, which seems really really functional to be at a TM expo, but emphasizes its patents, copyrights, and word marks

Metrorail Map and Logo usage guidelines

USAF: An Emblem of Power & Protection

Did you know that sounds can be trademarks?

DC Rollergirls, for Dave Fagundes

Velcro: There is only one.  I asked the rep, "One what?" and she said "it's the original hook and loop fastener."

Velcro mascot with kids throwing balls at its chest

The power of the Navy brand

How to report a Coke bottle lookalike (it's right side up on my computer, sorry)

NOT AUTHORIZED versions of bottles Coke finds unacceptable

More on the DC Rollergirls, for Dave Fagundes

Did you know that color can be a trademark?

Benefits of federal registration

Here I am. Considering making this my new profile picture.

Swag: UPS plane, Idaho stuffed potato (get it?), Velcro branded Velcro, sunscreen from the Global IP Protection Council (protect yourself)!

I heart IP and IP in heart tattoos--I got a few extra if anyone must have them
Modern Velcro usage guidelines

Thursday, October 20, 2016

A transformative purpose fair use finding

Wong v. Village Green Owners Association, No. CV 14-03803, 2015 WL 12672092 (C.D. Cal. Mar. 20, 2015)

This transformative fair use case just showed up in my Westclip search.  Wong, who owned a unit in Village Green, prepared a National Historic Landmark nomination on behalf of VGOA, a homeowners association, which subsequently posted the nomination on its website. Wong sued for copyright infringement, and the court found fair use.

Wong prepared the NHL nomination on her own initiative, knowing that VGOA wouldn’t pay her, because she believed that, “[f]rom a moral viewpoint, [she] had no choice.” The nomination consists of a 78-page form and 38 pages of photographs. It contains “purely factual information, such as information about the property’s location, the structures on the property, the materials used to build the property, and its architecture, history, and impact and legacy on the community.” The Village Green became a certified National Historic Landmark in 2001.

Since 2005, Wong has made the nomination available for free to the general public through her website. Another copy is also available for free to the general public through the National Park Service’s website, and Wong understood that the general public would eventually have access to the document for free while she was preparing it.

The court found that VGOA’s use of the nomination as an “Important Document[]” on its website was transformative. Wong’s purpose in making the work was to obtain a NHL certification on behalf of the Village Green, which was granted.  VGOA’s purpose in posting the document was “so the Village Green community and the general public may have access to the document as an information and educational resource.” This substantially different purpose weighed heavily in favor of fair use.

VGOA’s use was also entirely noncommercial: VGOA neither charged for nor received profits from or revenues from the use.  The tax benefits VGOA received from the certification decision were irrelevant. Anyway, even counting those benefits wouldn’t render VGOA’s use of the nomination commercial, in the sense of “unfair[ly] exploit [ing] the monopoly privilege that belongs to the owner of the copyright.” Village Green, as a National Historic Landmark, was eligible for a tax break, but Wong, as an individual, was not.

Nature of the work: highly factual, favoring fair use. Amount used: the whole thing, which was reasonable in relation to the purpose of the copying, so this factor didn’t weigh in favor of either party.

Market effect: there was none because the nomination had no market value and Wong already made it available for free, as did the NPS.  Although someone had to pay for the work’s preparation, the fourth fair use factor “has nothing to do with the cost of preparing the copyrighted work.”

Package size can be false advertising

In Re: Mccormick & Company, Inc., Pepper Products Marketing & Sales Practices Litigation, 2016 WL 6078250, No. 15-cv-2188 (D.D.C. Oct. 17, 2016)

Watkins, which produces black pepper, alleges that its largest competitor, defendant McCormick (which has 70% of domestic black pepper sales), deceptively “slack-filled” its black pepper containers, confusing consumers and causing a loss in Watkins’ pepper sales. Consumers can’t see inside McCormick’s containers before they buy. In early 2015, McCormick allegedly reduced the amount of actual pepper in each of its pepper tins by 25% but “misleadingly continued to use the same traditional-sized tins” and reduced the quantity of peppercorns in its grinders from 1.24 ounces to 1 ounces, again without changing the size of the containers. McCormick did print the reduced quantity on the containers. Watkins also alleged that McCormick kept the price the same, though it didn’t specify wholesale or retail price.  Under 21 C.F.R. § 100.100, “A container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill. Slack-fill is the difference between the actual capacity of a container and the volume of product contained therein.” 

McCormick challenged Watkins’ Article III standing. In a false advertising suit, a plaintiff can demonstrate injury by showing that “ ‘some consumers who bought the defendant’s product under a mistaken belief’ fostered by the defendant ‘would have otherwise bought the plaintiff’s product.’ ” The court here quoted Judge Bazelon’s statement that “all claims of competitive injury are to some extent speculative, since they are predicated on the independent decisions of third parties; i.e., customers. However, ... it is the stuff of the most elementary economic texts that if two firms are offering a similar product for different prices, the firm offering the lower price will draw away customers from its competitor.” Given the purpose of the Lanham Act to protect producers against unfair competition, the court adopted the Ninth Circuit rule that “[a] plaintiff who can’t produce lost sales data may ... establish an injury by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.”  That’s what happened here.  Watkins alleged that consumers bought containers that looked like they delivered more bang for the buck and wouldn’t have done so if they’d known the truth; that was an adequate allegation of injury fairly traceable to McCormick’s conduct.

Statutory standing: Lexmark allowed Watkins standing. Lexmark noted that “potential difficulty in ascertaining and apportioning damages is not ... an independent basis for denying standing where it is adequately alleged that a defendant’s conduct has proximately injured an interest of the plaintiff’s that the statute protects.”  Sales diversion from a direct competitor was a “paradigmatic” direct injury for Lanham Act purposes.

On the merits, Watkins also stated a claim.  McCormick argued that slack-fill packaging wasn’t “commercial advertising or promotion.”  “McCormick’s insistence that the size of its containers does not constitute advertising or promotion defies common sense and the law.”  McCormick argued that the size of its containers didn’t propose a commercial transaction.  But “advertising includes statements about the product to be sold, not merely a proposal to sell.” Moreover, “[t]he size of a package signals to the consumer vital information about a product and is as influential in affecting a customer’s choices as an explicit message on its surface.” As Watkins argued, “[t]he size of McCormick’s containers is exactly what makes them misleading, because consumers cannot see the amount of their contents.” (We might more properly call McCormick’s actions communicative conduct, but that hardly helps its argument.  Compare this wrongly decided case about how color and price aren't falsifiable claims.) 

Watkins properly alleged falsity, given federal law about nonfunctional slack fill.  “[T]he slack-fill regulations do not include an exception for containers which accurately state the product amount.” The court articulated the reason for this rule:

An accurate statement of weight does not necessarily correct a consumer’s misimpression of product quantity based on the size of a container, because consumers are accustomed to seeing how much space a product occupies but may not know how that relates to its weight. Moreover, as plaintiff has alleged, the history and iconic, recognizable size of the McCormick containers creates a misleading impression.

McCormick argued that Watkins needed to plead “facts showing that identifiable consumers were actually confused.”  But Watkins could rely on the allegations in the parallel consumer class actions against McCormick, and anyway, the regulations consider nonfunctional slack fill to be deceptive as a matter of law, “ so there is nothing implausible about allegations of actual, widespread deception among McCormick’s customers.”

State law claims under various deceptive trade practices laws also survived.

Transformative work of the day, Dilbert edition

Dilbert is mine now: art, appropriation, and politics.

Tuesday, October 18, 2016

Spy Phone v. spy phone: Google loses motion to dismiss TM and other claims

Spy Phone Labs LLC. v. Google Inc., No. 15-cv-03756, 2016 WL 6025469 (N.D. Cal. Oct. 14, 2016)

The plaintiff here, an app maker with a registered mark for Spy Phone for a monitoring app, squeaks past dismissal of its trademark secondary liability claim, and gets a win on §230(c)(2)(A) by alleging that Google acted in bad faith—another for Eric Goldman’s tally.  Spy Phone offers its free app on Google’s Play Store and generates revenue through AdSense ads on its website.

Spy Phone alleged that, between November 2012 and May 2013, it discovered other monitoring apps that used or incorporated the “Spy Phone” trademark.  It submitted trademark infringement complaints to the Google Play Team, and Google removed the apps.  But in May 2013, Google delayed removal for 27 days, and then Spy Phone received an email from the developer of the challenged “Spy Phone App” complaining about the removal.  At that point, Google allegedly began retaliating against Spy Phone, taking actions orchestrated by the developer and the Google Play Team. [I imagine the developer is thrilled to learn of its power over Google.]

In June 2013, Spy Phone submitted a trademark infringement complaint regarding the “ Brutal Spy Phone” app. Google took no action, responding that: “Google is not in a position to mediate trademark disputes between developers and trademark owners. As a courtesy we have considered your claim, but are unable to determine its merits at this time.”  Later that month, Google removed Spy Phone’s app on the ground that it violated Google’s anti-spyware policy, even though Spy Phone alleges its app was in full compliance with Google’s Developer Distribution Agreement.  Spy Phone alleged its belief that the complaint that triggered the removal was submitted by the angry developer, the Google Play Team, or a Doe defendant in retaliation for Spy Phone’s trademark infringement complaints.

After Spy Phone sued, Google clarified that the app itself did not violate the anti-spyware policy, but that the app title was in violation because “[a]pp titles should not be misleading or represent the product as being spyware and/or capable of surreptitious tracking.” Spy Phone’s counsel pointed out that other monitoring apps contained the word “spy” in the title, and Google responded that it intended to prohibit all developers from using the word “spy.” In October, Google reinstated Spy Phone’s developer account, but deleted all of the consumer reviews and records for the original “Spy Phone” app.

Spy Phone relaunched its app as “Phone Tracker,” but got many fewer downloads and lost much advertising revenue.  Other apps allegedly continued using “spy” in their titles.  Thus, beginning in January 2014, Spy Phone began submitting complaints about apps using the word “spy” in their title, asserting violations of the anti-spyware policy. Google allegedly removed only some of these apps, and many of the apps that were removed were re-listed afterwards.  In July 2014, Spy Phone complained about a monitoring app developed by that same angry developer, and then Google suspended Spy Phone’s developer account and removed its app for violating Google’s spam policy. Again, Spy Phone alleged its belief the removal was based on a complaint submitted by the angry developer, a Google Play Team member, and/or a Doe defendant. Spy Phone still filed complaints against other monitoring apps to test whether the anti-spam policy was being applied uniformly, but alleged that none of these apps were removed.  “A month after having its developer account terminated, Plaintiff received a letter from a ‘Concerned Google Play Member,’ which ‘confirmed Plaintiff’s belief’ that Plaintiff was being singled out for submitting trademark infringement complaints.”  After Spy Phone sued, Google removed an app that Spy Phone identified as an infringing app, and also removed at least five apps that infringed without Spy Phone’s specific request.

Contributory trademark infringement: Previously, Judge Grewal dismissed this claim because Spy Phone had not alleged Google had notice of the specific acts of infringement because Spy Phone made spyware complaints instead of trademark complaints.  For the Brutal Spy Phone complaint, Google didn’t ignore the trademark complaint but investigated and found that it could not assess the merits of the claim.  Because “Spy Phone” could have been a descriptor, Google didn’t have actual notice. 

Here, Spy Phone argued that Google failed to act promptly to suspend services to known infringers, citing (1) the 27 days it took Google to remove “Spy Phone App” after Plaintiff filed a trademark complaint on May 17, 2013, and (2) the 18 days it took Google to remove an infringing app identified in Plaintiff’s First Amended Complaint on January 23, 2015.  This allegation wasn’t addressed by the previous order.  Cases have found action within three days to be sufficient to avoid liability, but six to nine months of delay have been found sufficient to allege contributory copyright infringement.  Here, the court found that “whether this delay is actionable cannot be decided at the pleading stage.” 

However, the court rejected Spy Phone’s disagreement with Judge Grewal about the app.  Mere assertion by a trademark owner that a domain name infringes isn’t sufficient to impute knowledge of infringement, without more knowledge of the relevant goods and services; so too here.  Spy Phone didn’t allege that Google knew the app was a parental monitoring app or make factual allegations regarding the likelihood of confusion factors.

Spy Phone also alleged willful blindness to ongoing infringement. “Plaintiff is essentially alleging that Google had a duty to preemptively remove apps that infringed on Plaintiff’s trademark, on the basis that it has alleged that the Google Play Team is a small group who was put on notice that Plaintiff possessed the ‘Spy Phone’ trademark.” Spy Phone also alleged that Google had engaged in human review to ensure compliance with the Google Play’s Developer Program Policies, which meant that “Google knew the names of all infringing apps before they were listed on Google Play.” That wasn’t enough; at most, it was generalized knowledge insufficient to impute actionable knowledge without something more.  Spy Phone argued that Google was like a flea market operator who has been put on notice that a particular vendor is selling counterfeit goods, but continues to allow that vendor to sell counterfeit goods. “Not so. Plaintiff seeks to require the flea market operator not to just police specific vendors who it has been put on notice of selling counterfeit goods, but to also preemptively check over the goods of every vendor to ensure they are not also selling counterfeit goods. This is the type of generalized notice that Tiffany rejected.”

However, Spy Phone did allege a claim as to apps from developers that Plaintiff had previously reported to have infringed on its trademark, such as the defendant angry developer. Thus, the motion to dismiss was denied.

State claims and the CDA, section 230(c)(2)(A) (immunity for good faith removals): Spy Phone argued that Google was an information content provider (of the source code that enables apps to use Android), not an interactive computer service. Opperman v. Path, Inc., 84 F. Supp. 3d 962, 987 (N.D. Cal. 2015), found that Apple was an information content provider because it controlled the development of the apps that were being challenged. But “development” means material contribution to the alleged unlawfulness, and providing neutral tools isn’t “development.”  Opperman involved Apple’s “iOS Human Interface Guidelines,” which included “several suggestions that do, on their face, appear to encourage the practices Plaintiffs complain of in this case.” Not here.

However, the court found that it couldn’t resolve the issue of whether Google acted in good faith at the motion to dismiss stage.  Google argued that selective enforcement of its spyware polic was not actionable. But Spy Phone argued that Google’s claim that Plaintiff’s app violated the spyware policy was entirely pretextual. Google would have to return to § 230(c)(2)(A) on summary judgment.

Tortious interference with contract: Spy Phone relied on its contract with Google through AdSense.  Google can’t interfere with its own contract, even when the allegedly tortious actions are committed by a different department (the Google Play Team).  Dismissed with prejudice.

Breach of contract and the covenant of good faith and fair dealing: “[t]he general rule regarding the covenant of good faith is plainly subject to the exception that the parties may, by express provisions of the contract, grant the right to engage in the very acts and conduct which would otherwise have been forbidden by an implied covenant of good faith and fair dealing.” Google’s developer agreement says it has the right to take down content that, among other things, “is deemed by Google to have a virus or is deemed to be malware, spyware or have an adverse impact on Google’s or an Authorized Carrier’s network …. Google reserves the right to suspend and/or bar any Developer from the Market at its sole discretion.” But Spy Phone alleged that Google failed to exercise this right in good faith and that Google didn’t actually find the app in violation of the anti-spyware policy (as no such policy allegedly exists).  Thus this claim survived.

Tortious interference with prospective economic advantage: Google argued that its developer agreement precluded recovery for consequential and lost profits damages. Spy Phone argued that this section was unconscionable or should be interpreted as applying only to good faith acts.  Though the contract might be procedurally unconscionable, Spy Phone didn’t explain why the limitation on liability provision was substantively unconscionable.  These provisions “have long been recognized valid in California” and “are particularly appropriate where, as here, one party is offering a service for free.” However, the limitation of liability provision couldn’t be applied to intentional wrongs.  Motion to dismiss denied.

The coordinate California UCL claims based on the above also survived.  However, the court declined to allow Spy Phone to add a new claim for false advertising under the Lanham Act and California’s False Advertising Law. Spy Phone wanted to argue that when Google AdWords sold the keywords “Spy Phone” to other developers, Google was engaging in false advertising because Google had previously told Plaintiff that the term “spy” was misleading as it deceives people into thinking that such apps are spyware and/or capable of surreptitiously monitoring data.  Thus, allowing others to buy priority placement in response to a search for those keywords put Spy Phone at a competitive disadvantage by falsely suggesting that the competing app associated with the keywords “Spy Phone” was “capable of surreptitious tracking.”

But Spy Phone’s allegations of falsity were too clever by half; it alleged that Google had no reason to believe its own statement that use of “spy” is misleading.  Also, Spy Phone didn’t allege facts that would establish materiality or injury caused by the allegedly false statement that the apps shown in response to the search would allow surreptitious monitoring. “In fact, the only ad listed above Plaintiff’s app when using the ‘Spy Phone’ keyword search is an app that is clearly labeled as the ‘Best Parental Control App,’ the same function as Plaintiff’s app.” Amendment to allow the false advertising claim would be futile. 

Copyright nerd question of the day

Lin-Manuel Miranda and Renee Elise Goldsberry perform a revised version of Ten Duel Commandments about Hillary Clinton.  Miranda licensed Ten Crack Commandments--does the license cover this/is it fair use?  What language would you require for a license?

Monday, October 17, 2016

Initial interest confusion rides again: law school ordered to re-change name

Board of Regents of the Univ. of Houston Sys. v. Houston College of Law, Inc., No. 16-CV-1839 (S.D. Tex. Oct. 14, 2016)

UH sought and received a preliminary injunction to prevent the former South Texas College of Law from using the mark HOUSTON COLLEGE OF LAW.  UH has had a law school since 1947 and is ranked 50th in the USNWR law school rankings; defendant HCL is a private, unranked law school.  UH had protectable marks in its names and also alleged common law rights in its colors, red and white.
The parties' logos
UH argued both initial interest source confusion and association confusion.

UH’s mark was relatively strong commercially, especially within the most relevant legal industry and geographic markets—both UH and HCL “overwhelmingly” target prospective students in Texas and Florida.  HCL argued that extensive third party use, even use outside UH’s particular industry, was “impressive evidence that there would be no likelihood of confusion,” relying on Florida International University Board of Trustees v. Florida National University, Inc., 2016 WL 4010164, --- F.3d ----, No. 15-11509 (11th Cir. Jul. 26, 2016).  More than 25,000 registered businesses use the word “Houston” in their names.  But not all third-party uses have equal weight.  Though a number of Houston-based institutions of higher learning that use either “University” or “Houston” in their name, “none has law schools and there is no evidence that any are well known in the marketplace. To the extent consumers  are unaware of third-party use, the logic behind the third-party use rule is inapplicable; the consumers have not been conditioned to distinguish among the marks.”

Similarity of marks: strikingly similar. The word overlap was obvious; “[f]ar more troubling, however, is the way in which Defendant deploys its mark in the marketplace.”  HCL’s logo, like the UH logo, uses block letters, emphasizes the word “HOUSTON,” and uses a red  and white color scheme, and the logo was “ubiquitous” in HCL’s marketing materials.  Small differences, including the generic image of the scales of justice, were insufficient to counter the overall impression of similarity.  Anyway, even if the differences were enough to prevent source confusion, they weren’t enough to prevent affiliation confusion.

The meanings of the marks were practically identical, “and this alone presents a source of  potential confusion.”  Compounding the confusion was the fact that universities “often serve as umbrella organizations to multiple colleges that are each responsible for educating students within certain academic disciplines.”  UH is home to, along with its Law Center, the University of Houston College of Arts, the University of Houston College of Education, and the University of Houston College of Pharmacy. “‘Houston College of Law’ fits almost perfectly within this framework, creating a substantial risk that potential purchasers will ‘think [Defendant’s] services [have] some connection with [UH],’” especially given HCL’s use of “the red and white colors commonly associated with UH.”

Similarity between the parties’ services: practically identical, making affiliation confusion more likely.  Customer base: the same.  Marketing efforts: the same.  All weighed heavily in favor of confusion.

HCL argued that advertising in the same media would help students compare and contrast, as in the USNWR rankings.  “But this argument would only apply to instances where students see the two marks side-by-side, which would seem to be exceedingly rare. Indeed, even Defendant’s example of the U.S. News rankings seems inapplicable—the Law Center is ranked 50th, while Defendant is unranked and referenced on a separate page.”

Intent: “[A] junior user’s knowledge or awareness of the senior user’s trademark” is insufficient to create an inference of intent.  HCL argued that it intended to align its name with its location; a market survey it commissioned in 2013 favored a name change because “South Texas College of Law” can  lead people to mistakenly believe that the school is located in the Rio Grande Valley. When respondents were asked to suggest a new name, the most frequently mentioned suggestion (32%) was to “include [a] reference to the location in Houston.”

However, the most common reason respondents gave to change the name was “that the name South Texas College of Law is often confused with other schools, particularly Texas Southern University.”  This “detracts from STCL’s prestige and national reputation.”  UH presented evidence that a perceived affiliation with UH would, by contrast, enhance HCL’s prestige.  The survey included many respondents who mentioned a name change if HCL affiliated with a university, and HCL had actually discussed doing so over the past two decades.  “The benefits of affiliation were thrown into sharp relief for Defendant when the entity formerly known as Texas Wesleyan University Law School leapfrogged South Texas in the U.S. News rankings shortly after affiliating with Texas A&M.”  Shortly after this event, when South Texas fell out of the rankings entirely, it decided to change its name.

The court found that “UH’s theory is rooted in highly circumstantial evidence that would [alone] be insufficient to meet the substantial burden imposed at this procedural stage.”  But an additional fact directly called HCL’s intent into question: in conjunction with the name change, HCL also adopted a new red and white color scheme closely resembling UH’s.  HCL’s official school colors are red and gold, but in practice, its use of red was inconsistent throughout the years and in the past the red was dark crimson, accompanied by gold. Not so now. Even accepting HCL’s argument that white provides a better contrast, the similarity was striking.  UH presented numerous images of HCL promotions next to its South Texas College of Law merchandise, and the current shade of red was “unmistakably brighter than the classic South Texas crimson.”  HCL argued that the varied shade of red was the result of using a variety of vendors and inconsistent paper quality.  But it lacked credible testimony from a witness about that and internal documents corroborating that testimony. 

HCL was at least aware of the likelihood of mistaken association; though it was a close call, the court declined to find an intent to derive benefit from UH’s reputation.  “Defendant’s rationale for emphasizing ‘Houston’ in its name is entirely plausible, and the Court is wary of relying too heavily on select snapshots of promotions and merchandise produced by various vendors on various types of materials.”  Given the variety of merchandise that showed up in my own search, the court’s caution seems more than justified.
old student handbook

2015 calendar

old merchandise

old logo

old merchandise: bright red?

old merchandise: crimson?

old merchandise: red?

Actual confusion: Initial interest confusion counts.  So does confusion among people other than prospective law students.  So do surveys. 

UH’s expert, Hal Poret, found net confusion of 25%.  HLC’s expert found a net confusion rate of only 6%. HLC objected the way in which the survey participants in Poret’s “Webpage Test Group” were questioned. These participants were shown an image that was identical to the Houston College of Law homepage, but with one exception: the image omits two banners that rotate prominently across the webpage (“South Texas College of Law Changes to Houston College of Law” and “Houston College of Law Stands Behind Name Change; Is Prepared to Defend Decision in Court”).  HLC argued that the survey thus failed to “test the alleged infringing use as it’s actually seen in the real world today.”

The court disagreed, given the multiple uses of the mark outside the webpage; HLC has already begun “aggressively marketing its new name by advertising on large billboards on major Houston highways, sending out mailers to prospective law students and members of the legal community, and selling merchandise bearing its new name and logo.” None of those uses contained HLC’s purported disclaimers. Even people who clicked a direct link from Google to the “Admissions” page would never see the banners. By contrast, the only image of the webpage that respondents saw in HLC’s survey included the prominent “South Texas . . . Changes to Houston College of Law” banner, and not the two other rotating banners (one unrelated to the name change).

And the court didn’t think the banners worked as disclaimers; though they were prominent, the most prominent feature was a series of eight rotating banners that tout Defendant’s primary selling points.  “[E]ven if a consumer’s initial-interest confusion only persists long enough to lead him to the homepage, then Defendant has ‘br[ought] the patrons   in the door. . . . [T]he confusion has succeeded.’”  Poret’s survey was thus substantially stronger.

UH also submitted anecdotal evidence of confusion. (1) The United States Postal Service misdelivered a letter to HCL to UH. (2) A law firm mistakenly changed a South Texas College of Law alumnus’s profile to indicate that he graduated from UHLC and was on the Houston Law Review. (3) HLC sent an email to the members of the Sunbelt Consortium, an organization comprised of seventeen law schools in the region, informing them of the name change and asking that the change be reflected on the organization’s website. The email used HCL’s logo (including “formerly South Texas College of Law”), was sent from an “@stcl” email address, and even included a link to Nevertheless, the Sunbelt Consortium thought the email came from UH and changed UH’s name by mistake.  (4) The Texas Board of Law Examiners mistakenly sent UH an email regarding a student who actually attends HCL. (5) SMU Law School hosted a workshop and provided a HCL professor with a placard identifying him as a professor at “University of Houston Law Center.” (6) A UH student mistakenly selected the HCL location rather than the UH location when signing up for the Multi-State Professional Responsibility Exam.  (7) At the 2016 Graduate and Professional School Fair in Lubbock, Texas, an attendee approached a representative from UH’s College of Social Work and mentioned that he had just spoken to a representative from “your law school.” UH’s law school didn’t attend the fair, but HLC did. (8) A prospective law student contacted UH’s admissions department asking for a  waiver of the application fee; UH doesn’t have an applicatino fee, but the student “reiterated that she was on the Law School Admission Counsel’s website and was being charged a $55 application fee.”  When questioned, the student said she meant to contact HCL.

Though a lot of this was not evidence from prospective students, “evidence of confusion in others permits the inference of confusion in purchasers.”  The first two instances deserved “relatively little weight—they involved individuals who are unfamiliar with the legal education industry.”  But “mistakes made by individuals who are active participants in the field” were much more noteworthy, and the last two instances of actual confusion by prospective law students were even more important, and “even suggest that the confusion is not quickly dispelled…. The fact that confusion could persist at the point of paying to apply for admission is particularly significant in the context of initial-interest confusion.”

Degree of care exercised by purchasers: not enough to overwhelm the other factors:

Prospective law students are not endowed with an inbuilt knowledge of the legal education industry. It is only after their interest in legal education is first piqued that they begin the process of becoming sophisticated. In other words, there exists a  period of time in every prospective law student’s career where, not only is he unsophisticated, he knows practically nothing about the industry and is particularly susceptible to confusion. 

The court focused on how to weigh the factors in the context of initial interest confusion.  There was no need to show that a sale occurred as the result of the confusion.  Fifth Circuit precedent suggests that competition isn’t required; “a plaintiff need only show that the junior user achieved some financial benefit as a result of the confusion, regardless of any potential pecuniary effects on the senior user.”  But here, even imposing a competition/ “possibly precluding the plaintiff from being considered by the purchaser” requirement would lead to a finding in UH’s favor.  [Note contrary precedent, developed to cabin the scope of IIC, in cases such as the Third Circuit’s Checkpoint v. Checkpoint.]

Multiple factors favored finding likely confusion, and only degree of care cut against UH’s case.  UH cautioned against a broad application of IIC, and its point was “well taken.” There is a difference between initial interest confusion and initial interest.  But UH offered more here: “Prospective students  are likely to further investigate Houston College of Law not necessarily because of their initial interest in the law school, as Defendant suggests, but rather because the mark seemingly bears  the imprimatur of UH’s well-known brand—in other words, because of initial-interest confusion.”  And the stronger brand from whose goodwill HCL benefited was a direct competitor, which was particularly relevant to IIC. Indeed, “the most prominent portion of the webpage is essentially a list of the best reasons to choose Defendant’s law school over UH’s.”

The court rejected the cases HLC offered to show that the sophistication of purchasers rebuts initial-interest confusion, but the authority is unpersuasive. Three of the four cases involved commercial purchasers, “who are far more likely to be familiar with the relevant market at the outset of their purchasing process, and therefore less susceptible to confusion throughout it.”  Also, in each case, the courts rejecting IIC theories also relied on several additional factors, none of which supported HLC here.  If sophistication were enough, “sellers of goods or services that involve extended purchasing processes would be effectively outside the ambit of the Lanham Act’s protection, leaving competitors free to appropriate the senior user’s goodwill with impunity, and allowing them to gain ‘credibility during the early stages of a transaction.’” But it’s the early stages of the transaction that prospective law students “are the least sophisticated and most susceptible to confusion.”  Nor is intent required to win on IIC, and, anyway, intent didn’t weigh against HLC, but that didn’t mean it weighed for HLC.

Regardless of any presumption of irreparable harm, the court found that monetary damages wouldn’t adequately compensate UH.  First, lack of control over the quality of HLC’s conduct, which prospective law students would likely attribute to UH, was irreparable injury.  [Not clear why this would be irreparable if it is literally corrected before purchase, or that HLC’s conduct has caused or is likely to actually cause any harm in need of repair.]  HLC’s law professors may speak to audiences that include prospective law students, and HLC’s recruiting department attended school fairs at which its representatives directly interacted with prospective law students. Second, UH’s “time, effort, and expense exerted to create and define its brand has been unfairly exploited,” which monetary damages cannot compensate.  [Note that this isn’t about harm to UH but benefit to HLC.  Does this require a finding that UH would be entitled to disgorgement?  If not, where is the harm to UH?]

Anyway, the court wasn’t impressed, given HLC’s own motivation for the name change: if confusion with other schools, particularly Texas Southern University, was a problem for HLC, then it was a problem for UH.

The court also was unimpressed by the costs of an injunction to HLC.  In June 2016, HCL’s Dean said, “I feel safe in saying we haven’t spent $35,000 to $40,000 extra over anything we would have spent anyway. And so the biggest cost that we see going forward is changing the external signage.”  True, those subsequent changes proved costly: $458,000 in additional costs to publicize the name change. But that had little weight given that HLC knew about UH’s objection—indeed, its intent to sue—and proceeded anyway.  Only after news of UH’s objection did HCL destroy “[m]uch of the older stationary and signage bearing the name ‘South Texas College of Law.’”  HCL “opted to double down, yet cites to the high stakes of the game as a reason to call off the bet.”

Since the public interest is always served by avoiding confusion, the court issued the requested injunction against the renaming.

Initial interest false advertising (aka bait and switch) in Google ads

Beacon Plumbing & Mechanical Inc. v. Sposari Inc., 2016 WL 5795282, No. C15-1613 (W.D. Wash. Mar. 17, 2016)

Beacon sued defendants, including Sposari, which does buisiness as Mr. Rooter Plumbing Services, for trademark infringement and dilution (federal claim dismissed) and related claims.  The internet ads at issue said “Call 24/7 Beacon Plumbing” and displayed the address “”  However, the ads eld to a website advertising “Mr. Rooter Plumbing.”  The court found that the false advertising allegations plausibly alleged materiality.  It was plausible that a consumer who clicked on this ad could experience actual confusion and “conclude that Beacon Plumbing and Mr. Rooter Plumbing are the same entity.” This mistake, “combined with intent to purchase plumbing services from Beacon Plumbing,” would likely influence a purchasing decision.  Though Beacon didn’t cite cases finding initial interest confusion cognizable as such for a false advertising claim, the argument made sense. (It’s also usually known as “bait and switch” in false advertising law.)

The ACPA claim failed, however, because “beacon” in “”—is a third-level domain, and third-level domain names aren’t within the ACPA’s reach.

The Washington Consumer Protection Act claim required, along with falsity causing harm to the plaintiff, a public interest impact.  A practice must have “the capacity to deceive ‘a substantial portion’ of the public.” Relevant factors include: “(1) Were the alleged acts committed in the course of defendant’s business? (2) Did defendant advertise to the public in general? (3) Did defendant actively solicit this particular plaintiff, indicating potential solicitation of others? (4) Did plaintiff and defendant occupy unequal bargaining positions?” Also, “intentional trademark infringement can satisfy the public interest impact element.” Given that (1) and (2) were allegedly present, and the allegations of intentional infringement, the court found that the CPA claim could continue.

Don't sell a business and then keep running it

Electrology Laboratory, Inc. v. Kunze, 169 F.Supp.3d 1119 (D. Colo. 2016)

Larry Paul Kunze a/k/a Lorenzo Kunzel sold his family business, plaintiff ELI (d/b/a Rocky Mountain Laser College/RMLC), “but couldn’t give it up. So, as the evidence revealed, even while negotiating the sale of ELI to the purchasers … , Mr. Kunze was trying to figure out how to continue the same business he was selling.”  The purchasers sued and, understandably, prevailed on most of their claims (though the court admirably resists the temptation to condemn all his conduct together, even the parts that would be unobjectionable on their own); Kunze did, however, show that he was entitled to relief on his counterclaim and third-party claim for breach of the Promissory Note given in partial payment for the purchase of ELI.

ELI operated RMLC to provide aesthetic laser use education and training; provided aesthetic laser services to clients; and earned income from the sale of laser equipment.  The laser education course provided 40 hours of training with a curriculum approved and regulated by the Colorado Department of Higher Education.  To market classes and sell laser equipment, ELI maintained a customer list identifying students who took the RMLC laser education course. ELI the files under lock and key and protected the lists on the computer system with a password.  ELI awarded its students “Certified Laser Specialist” or “CLS” certificates, showing they were trained at RMLC. The website at was the primary source of ELI’s ads, though it also used a number of other domain names.  Because of his many years in the industry, Kunze was well known in the aesthetic laser education industry. But:

While Mr. Kunze was a “gifted” teacher, he was not as educated or experienced as he touted. While ELI’s business and Certified Laser Specialist were recognized by some in the industry, they were also not as Mr. Kunze represented. Instead, Mr. Kunze intentionally made numerous misrepresentations … , including misrepresentations concerning the extent of his education, experience, and certifications; the number of CLS certifications that ELI had awarded to RMLC students; and that Certified Laser Specialist was a registered trademark when it was not.

After the sale, Kunze kept teaching students, employees of a former ELI student, who thought that they were getting an education from RMLC. The former ELI student believed that “what was important was receiving a certificate from ROCKY MOUNTAIN LASER COLLEGE and being taught by Mr. Kunze.” She also thought that the Certified Laser Specialist certification was important because Kunze said it was. 

Kunze taught a shorter class for his own business, American Laser College, but still used ELI’s RMLC marks and curriculum as if they were his own. He handed out RMLC business cards, and used RMLC interchangeably with American Laser College so that the students thought the entities were the same. He awarded the students CERTIFIED LASER SPECIALIST certificates, and issued the certificates under RMLC’s name. Kunze backdated the certificates as if they were issued in 2010 and put a stamp on those certificates implying the certificate or course was sanctioned by the Texas Department of Education when it was not.

Kunze also made disparaging remarks about ELI and its new owners.  He continued to compete with ELI, using its curriculum, marks, pictures, and/or information to do so.  He used RMLC interchangeably with the name of his entity, American Laser College, as if they were affiliated. “He directed customers to contact him for laser education, but used ELI’s refund and other policies along with pictures of ELI’s facilities and students to do so.” The website had no working link to ELI’s website, even though ELI was relying on the website to drive student traffic to its business.  Some of the students Kunze taught were surprised or confused when they received Certified Laser Technician certificates from an entity they had never heard of, Rock Creek.  However, the students were seeking laser certification and didn’t really care whether whether they’d be deemed Certified Laser Technicians or Certified Laser Specialists (the latters was what had been respresented to them).

After saving the information for his own account, Kunze also deleted about 60 gigabytes of data from ELI’s server, which included a list of ELI’s customers—its students and clients. There were other problems, but you get the idea.

For some of Kunze’s misrepresentations (e.g., his background and qualifications, the need for a CLS certificate), the court found no connection between them, even assuming the purchasers relied on them, and plaintiffs’ damages.  Also, ELI’s purchasers were skeptical of Kunze’s financial claims and conducted their own due diligence.  Kunze knowingly falsely represented to the purchasers that Certified Laser Specialist and CLS were registered trademarks, and these were material claims on which the purchasers relied.  ELI itself suffered damage from this—its diminished ability to protect its interest in the marks in this very suit and Kunze’s post-sale attempt to register the marks on his own behalf—but the purchasers didn’t establish damage in their own rights.  Kunze also knowingly concealed his failure to file ELI’s tax returns or pay ELI’s taxes, but that wasn’t material or harmful to the purchasers since ELI owed that amount anyway (and paying the resulting penalties only harmed ELI).  The court found that there were some breaches of contract, but not everything that plaintiffs alleged.

Defendants argued that the economic loss rule barred all of plaintiffs’ claims, including statutory claims, except for those based on breach of contract. However, a breach of a duty arising independently of any contract duties between the parties may support a tort action.  And “if the legislature intended to provide a remedy in addition to a contractual one, the statutory remedy would trump the economic loss rule.”

For trade secrets: neither ELI’s written materials nor the curriculum as a whole were trade secrets. Protection efforts were minimal, and the effort a competitor would require to recreate the materials wasn’t that great. Also, there wasn’t evidence of any “unified process, design and operation of which, in unique combination,” gave ELI a competitive advantage. “[W]hat ELI seeks to protect and to preclude Mr. Kunze from using are his skills and experience as a teacher—his interactive or engaging teaching style acquired over years of teaching the course. This is what was of great value to ELI.” But his general skill and experience isn’t a trade secret.

The student/customer list could be, and was, a trade secret, given ELI’s efforts to keep control over it.  ELI was entitled to injunctive relief and damages, including exemplary damages, for Kunze’s misappropriation of the list and use of the list to sell equipment to students.  This wasn’t precluded by the economic loss rule because state trade secret law created a duty on Kunze independent of his contractual duties.

So too with the Lanham Act claims, which didn’t arise from any contractual duty. Even if the Lanham Act claims had been within the scope of the contract, Congress intended to provide statutory rights and remedies independent of breach of contract. 

Here, Kunze’s use of the RMLC marks constituted false designation of origin, though his use of Certified Laser Specialist and CLS did not.  The RMLC marks had secondary meaning and Kunze’s use caused confusion.  But Certified Laser Specialist and CLS weren’t protectable marks, on this record.

False advertising: The Tenth Circuit hasn’t yet decided whether materiality is required separately from falsity/misleadingness, but even without materiality, ELI couldn’t win most of its claims.  ELI’s damages didn’t arise from Kunze’s misrepresentations about his “pedigree.”  Kunze intentionally and willfully

made numerous false and/or misleading statements concerning the nature, characteristics, or qualities of his goods and services. Such statements included his credentials to support his skills/abilities to perform laser education services (some false, others misleading); his affiliation with ROCKY MOUNTAIN LASER COLLEGE and ability to issue CERTIFIED LASER SPECIALIST certificates (false); that ROCKY MOUNTAIN LASER COLLEGE and American Laser College are affiliated or the same (false); and that CERTIFIED LASER SPECIALIST is a registered trademark (false).

The RMLC affiliation-related claims were material, but not the others. “[W]hile the evidence supports that receiving some certification was important to the consumers, for many consumers it mattered not whether it was a CLS or a CLT.”  Since the RMLC affiliation-related claims were literally false and intentional, no evidence of confusion was required; ELI was damaged thereby because students signed up for Kunze’s courses thinking they were RMLC courses but didn’t get RMLC certificates, so RMLC suffered in both sales and reputation.

The court exercised its equitable discretion to treble the damages it found ELI to have suffered (lost class revenues) because overall damages were hard to ascertain and Kunze’s actions were willful.  Because this was an “exceptional” case, the court also awarded attorneys’ fees.  Kunze “intentionally used ELI’s marks for his own benefit … and he continued to use the marks even after the Amendment was terminated and ELI requested Mr. Kunze to stop doing so. Mr. Kunze offered no credible explanation as to why he was entitled to do so.”  The court also awarded prejudgment interest.

Colorado Consumer Protection Act: The CCPA requires a significant impact on the public, for which relevant considerations include: “(1) the number of consumers directly affected by the challenged practice, (2) the relative sophistication and bargaining power of the consumers affected by the challenged practice, and (3) evidence that the challenged practice has previously impacted other consumers or has the significant potential to do so in the future.” Making defamatory statements about ELI was purely a private wrong.  However, the false website advertising directed to the market generally had a public impact, given the length of time and the number of websites on which Kunze posted his false and misleading advertisement.  Students were likely to be unsophisticated consumers with bargaining weaknesses, and some enrolled believing they’d get a RMLC certificate.  However, there was insufficient evidence that Kunze’s false claims about his affiliations with other organizations, his credentials, and the like affected any consumers.  Given the court’s finding of bad faith in the actionable misrepresentations, it also trebled ELI’s damages under state law.

Kunze also lost on defamation/libel per se based on statements to ELI’s landlord, one plaintiff’s banker, ELI’s laser supplier, and ELI’s students.  The plaintiffs were private figures, and the statements were defamatory per se (about ELI’s financial solvency), so defamation was presumed; the court awarded a total of $50,000.

The court also granted injunctive relief.  ELI would suffer irreparable harm because competing sales of laser equipment would erode its customer base, and damages would be difficult to determine because ELI wouldn’t be able to monitor Kunze’s sales.  “ELI presented insufficient evidence of continuing sales to support an award of damages subsequent to the termination of the parties’ relationship, but it is this very difficulty in discovering Mr. Kunze’s use (and resulting damages) that supports the issuance of injunctive relief.”

Friday, October 14, 2016

GW Design Law: Ecommerce remedies

AFTERNOON SESSION 1: Design Patents & Ecommerce

Moderator: Judy Yee, Microsoft

Howard Hogan, Gibson, Dunn & Crutcher: Counterfeiting is a growing problem, but sometimes they don’t use a copyrighted work of authorship but are still selling a knockoff of a design. © and TM have more developed bodies of law on secondary infringement.  Contributory & vicarious liability—right to supervise & financial interest in continuing infringement = liability.

Gucci v. Frontline (SDNY 2010).  Companies that process credit card payments are effectively giving loans to merchants. We looked at merchants’ applications; they weren’t particularly shy about the fact they were selling fakes. Used words like “replica” or admitted sourcing Gucci from China.  Entity called Durango, going out to midmarket banks, saying you only get 2% on a typical transaction, but if you take a high risk credit card merchant you can get 4-5%. Asserted Durango was inducing infringement, encouraging banks to get in the business of helping the sale of infringing goods. Against banks, we asserted contributory infringement. Opposite to Perfect 10, you’re allowing sites to take orders/materially contributing to the infringement.  SDNY issued a decision that purports not to disagree w/Perfect 10 but really does; cites a lot to the dissent. Can be held contributorily liable if they help sites take orders w/ their eyes open.

Christopher V. Carani, McAndrews, Held & Malloy, Ltd.: WD Wash, Milo & Gabby v. Amazon, fully briefed at the 9th Circuit though no argument scheduled. Design patent case: not interested in selling on Amazon, only boutique children’s items.  Found third-party seller using pictures of makers’ own children using the pillows. No dispute that there is infringement of registered design patents (though we don’t know what people actually received).  Is this “offering for sale” when Amazon provides its website?  Amazon calls itself a virtual shopping mall, which isn’t liable for goods particular vendors sell, pre-notice. They don’t have title or the ability to transfer title. This case could open up the floodgates/create a firewall for the gears of commerce. [Not sure about these metaphors.]  District court rules that Amazon isn’t liable, but said it was troubled by that conclusion and impact on small retailers. Amazon can disavow responsibility for offering to sell.  The statute requires: make, use, offer to sell, sell, or import; also a specific provision for active inducement of a patent. Requires knowledge of the patent, knowledge of the infringement for inducement. 

What about fulfilled by Amazon?  3d party sellers who put their products up on Amazon: seller uses Amazon as a warehouse.

When ecommerce sites appear notice: different from TM situation b/c word searching can easily find Tiffany knockoffs.  Design patent infringement analysis requires more expert analysis.  Not conducive to spot judgment. Customs also knows this—will allow © and TM as predicate but they won’t use design patent, patent, or even trade dress w/o order from court or ITC.  Amazon points out that it took down M&G copiers within a week.

Hogan: Taking the patentee position in this debate; not always his position.  Brick & mortar principles not automatically abrogated online. There’s no intent element.  Liability exists if you do infringe/sell infringing goods. Mom & pop shops on a larger scale; they don’t have teams of att’ys go through each product, but can be liable if they sell infringing goods.  Customer doesn’t care who has title to the good or in whose warehouse it sits. Online marketplace should also be held liable like a brick and mortar store.

Carani: that same theory would apply without any knowledge at all. Craigslist would have the same liability. FedEx sells a package and delivers it.

Yee: but Amazon takes a portion of the sale.

Carani: but that’s a factor independent of knowledge—it would sweep even the NYT, FedEx, etc.  A lot of design patent att’ys are filing junk claims on partial designs.  Impact on damages is huge, but consider partial designs & injunctive relief.  You’re asking us to pull stuff down, but you might not even be able to get an injunction. Why should we have to police when we wouldn’t be ordered to take it down?

Yee: Staff required to respond to requests is an issue, but TM and © takedowns do work. Can imagine a similar system for design patents where you have to provide the claim chart. Shouldn’t be as rigorous as on the utility side.

Carani: Congress did respond with the DMCA, and Congress didn’t do that for design patent. eBay came up with VERO, self-regulation. A little of fox guarding henhouse—false positives. Concept fallacy: people have a design patent on a multicomponent tool and think they can stop any other version of the tool.

Hogan: there is a difference in kinds of online mktplaces. The more involved the platform is in determining what consumers see, the more it’s fair to hold them liable for infringing products. eBay and Amazon both have algorithms to get consumers shown products they’re likely to want. Agnostic as to which merchant makes the sale. Alibaba is different.  Biggest retailer in the world. They make their money selling “assessed status” to merchants—paying Alibaba to come up in searches on their site. They go to factories, create videos, involved in marketing. Then get a percentage of all transactions through their payment system.

Carani: we don’t hold the NYT liable for advertising, or for housing a product in their warehouse, or for delivering a product.  The ability to combine all these services into a convenient one-stop shop shouldn’t be penalized—it’s efficient.

Yee: what about a company whose product is knocked off by hundreds of companies through your website? What should they do?

Carani: look at reviews of sellers. Some of the responsibility is on the consumers.  Buyer beware. But ultimately you may have to go to the source.

Hogan: courts in the US are there to protect US businesses and US consumers. Companies that invest in developing products deserve protection. Who should bear the burden? The company that can more easily write the algorithm to identify goods being sold at suspiciously low prices/coming from incorrect sources? [How does the algorithm know suspicious prices or sources?]  On eBay, more than 70% of sellers are from outside the US.

Carani: ITC is active here; Razr scooters.  China does include design patents etc; it creates painful problems in China where they just don’t have the information to make the difficult conclusions—just too cumbersome to take on, especially given Amazon’s size.

Hogan: it used to be easier to store large quantities of infringing goods: trucks, warehouses. Increasingly, products are drop-shipped one at a time.  So customs will always be important, but more come through small orders shipped directly to the buyer.  You don’t want to hold customs liable for a mistake; but a physical store would be liable if it let an infringing good through.

Carani: indemnification is a real thing that can flow down. Box stores are in much the same situation—Wal-Mart is selling 50 million products. We like the online marketplace b/c of the variety.  There is much more of a vetting process; if we impose liability on Amazon, there will be more vetting of everyone and that will increase transaction costs/the overall costs of the products themselves.

Q: images are misleading—can you get them taken down?

Yee: Online marketplaces respond more quickly to TM/© takedowns, but they give the sellers the opportunity to respond and come back with just slight changes. Design patent requests come down and stay down if they come down at all.

Hogan: M&G case: they didn’t assert © in the Cozy Critters themselves, but in images of their son in front of the pillow. Image search tech is growing by leaps and bounds.  Often the most dangerous third-party merchants are taking photos right off of brand website. Does require diligence; counterfeiters are inventive in getting around screening.

Q: complaint about Amazon’s algorithm suggesting cheaper knockoffs even when a person has made an effort to find the seller’s actual page.

Q: another wrinkle is that there are a lot of grey market goods out there; may be represented as grey market goods even if they aren’t.

Q: Note that you can find the M&G pillows with the M&G pictures on Amazon right now, with a sale/review from August—isn’t Amazon on notice?

Yee: Amazon may not know that particular store is infringing.

Carani: that’s part of the case; every time they’ve been given notice, Amazon has taken the store down.  Survey of other countries: Japan, Europe, Korea—they all look at notice; once there’s notice, they attach liability.  Purist approach to US statute: even knowledge might not be enough.  Clarification: Notice means notice specific to the location/seller, not notice “this product is counterfeit”; may also require attention to sellers with previous strikes.

Q: platforms play games—they take down a seller but allow it to come back under a new name.

Carani: the problem is that they create new entities/new names.  If you see someone who’s never sold a good before, some of the responsibility rests with the consumer.

Q: unrealistic to expect brand owner to file serial DMCA notices.  Is it more onerous to platform or brand to but the duty on them? It’s not a close question.

Carani: Rests w/consumers as well.  Birkenstock pulled out of Amazon.

Q: not every brand has that market power.

Hogan: anonymity is an issue; we have to keep in mind the value of anonymity as well as the risks it creates.

Carani: Legal title was the key to the analysis in the M&G case below.

Hogan: statute doesn’t define “sale” or “offer for sale.”  Analogy: consignment stores.