Monday, March 31, 2014

tuna surprise: undisclosed slack fill was plausibly misleading

Hendricks v. StarKist Co., No. 13–cv–729, 2014 WL 1244770 (N.D. Cal. Mar. 25, 2014)

Hendricks brought the usual California claims against Starkist alleging that its canned tuna products were underfilled (anywhere from 1.1% to 17.3% less tuna than there was supposed to be), as confirmed by independent lab testing using the weighing methodology and standard of fill set forth in the referenced federal regulations. The FDA has the power to promulgate regulations establishing reasonable standards of container fill for any food, and the FDA has done so for canned tuna.  Filling a container in a manner that is misleading is considered “misbranding.”

Starkist argued preemption. The claims weren’t expressly preempted because they relied on FDA standards.  And they weren’t impliedly preempted because Hendricks wasn’t suing to enforce the FDCA directly (he can’t); he was suing to enforce identical state law, threading the “narrow” gap allowed. Pom Wonderful doesn’t change that; it was limited to the Lanham Act.  Though Starkist argued that it and other tuna manufacturers had petitioned the FDA to change the standard of fill, that wasn’t relevant to whether the claims here were preempted.

Starkist also argued that the claims should be dismissed/stayed based on primary jurisdiction.  “Given that the applicable FDA standard here is clear, detailed, and long-standing, the Court sees no reason to stay or dismiss the complaint pending any resolution of the issue before the FDA.” Though canned tuna manufacturers filed a citizen’s petition requesting that the FDA amend or suspend the regulation, the FDA hasn’t done anything.  “Unless and until there is some indication beyond mere speculation that the FDA may change the regulation, the Court sees no need to defer under the primary jurisdiction doctrine.”

Deception: StarKist argued that the FDA standard of fill didn’t require any information be communicated to consumers or that the products be labeled in any particular way. Starkist isn’t required to, and doesn’t, include pressed weight on the can, but rather says “NET WT 5 OZ (142g)” and “Serv[ing] Size: 2oz drained (56g—about 1/4 cup); Servings about 2.” Hendricks didn’t allege that these were false or how they misled him.  But that missed the point of the allegations: he alleged that the cans contained less tuna than would be expected from a 5-ounce can.  The reasons the feds regulate fill is so that tiny amounts don’t get misleadingly placed in large containers.  If fill is substandard, the label has to say so.  Starkist argued that injury wasn’t plausible; the court disagreed.

As a result, various warranty and consumer protection claims survived, though the unjust enrichment claim was dismissed as duplicative. Fraud was sufficiently pled with particularity, given the allegations above.

Starkist also sought to dismiss claims based on products Hendricks didn’t buy. He bought Chunk Light Tuna in Water, but not Solid White Albacore Tuna in Water, Solid White Albacore Tuna in Vegetable Oil, and Chunk Light Tuna in Vegetable Oil.  Whether these products should be included depends on whether common misrepresentations were the crux of his case and whether there was sufficient similarity between purchased and unpurchased products.  Starkist argued that solid tuna was governed by different pressed weight standards from the product Hendricks bought. The court disagreed that this mattered—there was sufficient similarity, given that he alleged the same misrepresentation as to all four varieties.

"I wouldn't have bought it if I'd known" is enough for standing, 9th Circuit says again

Galope v. Deutsche Bank National Trust Co., No. 12–56892, 2014 WL 1244279 (9th Cir. Mar. 27, 2014)

The court of appeals reversed a grant of summary judgment in favor of Deutsche Bank and other defendants.  Galope adequately alleged that she had standing to sue on her LIBOR-based consumer protection and related claims: she alleged that she wouldn’t have taken her loan had she known of defendants’ manipulation of LIBOR.  Her cognizable injury occurred when she bought the loan, not when she paid manipulation-affected interest.  The sale of her house was rescinded, but that didn’t moot her claims for damages.  (Certain defendants apparently sold her house in violation of the automatic stay in bankruptcy; Galope sufficiently alleged a violation of the covenant of good faith and fair dealing because there was sufficient evidence to support a reasonable inference that they had notice of the automatic stay when they executed the trustee’s sale of the home.)

Judge Nguyen dissented in part on standing grounds.  Galope didn’t allege loss from deceptive conduct because her payments were never affected—“she paid a fixed interest rate and defaulted before the allegedly manipulated LIBOR rate went into effect on her loan; she then was granted a loan modification with a (lower) fixed interest rate that likewise was unrelated to the LIBOR rate and defaulted again.”  She might have alleged but-for causation, but she didn’t allege loss from the manipulation, so her injury was too attenuated for Article III standing.

promotion of expensive device for off-label uses not shown likely to deceive

Zeltiq Aesthetics, Inc. v. BTL Industries, Inc., No. 13–cv–05473, 2014 WL 1245222 (N.D. Cal. Mar. 25, 2014) (magistrate judge)

Zeltiq sued defendants for allegedly falsely advertising that a BTL medical device was FDA approved for fat reduction and body contouring.  The court denied a preliminary injunction.

Class I and II medical devices don’t need premarket approval, only premarket notification to the FDA.  If the FDA deems a Class II device to be “substantially equivalent” to a preexisting cleared device, it can be marketed without further regulatory scrutiny.

Zeltiq sells a medical device known as CoolSculpting, which is intended to cause fat cell elimination without causing scar tissue or damage to the skin, nerves or surrounding tissue. It’s been FDA-cleared for cold-assisted lipolysis of the flank and the abdomen.  Zeltiq alleged that it obtained clearance by submitting clinical studies and other data, because clearance of a device for treatment of body fat lends instant and substantial credibility.  As a result, CoolSculpting allegedly became the leading noninvasive fat reduction medical device, with huge sales jumps in a year.

BTL submitted a notice of intent to market the BTL Elite, asking for FDA clearance to market the device for applying heat to body tissues for pain relief, treating muscle spasm, increasing range of motion for joints, and increasing blood flow to tissues.  The FDA cleared the BTL Elite for these uses. Zeltiq alleged that BTL was unlawfully marketing a device called the Vanquish—the BTL Elite by another name—for fat reduction and body contouring. Both parties sell to doctors, not patients.

Zeltiq alleged that BTL didn’t promote Vanquish at all for treating muscle aches and spasms, but instead touted it for fat reduction while touting it as “FDA-cleared,” attempting to mislead doctors into believing that Vanquish was FDA-approved for fat reduction.

BTL didn’t dispute that it promoted Vanquish for fat reduction, an admittedly off-label use, nor that it only intended to do so (and not for muscle aches).  Its trademark registration describes Vanquish as a “[b]ody treatment device using heating and cooling for fat cell reduction.”  However, defendants argued that they’d stopped promoting Vanquish in the US for off-label use, and that they never represented that Vanquish had FDA clearance for fat reduction/body contouring.

Judge for yourself: in October 2013, as a sponsor of the annual meeting for the American Society for Dermatologic Surgery, BTL invited doctors to a private demonstration by stating: “Join us for a private demonstration of a newly FDA cleared technology ... The only complete solution for non-invasive body shaping.”  Unless what comes between the dots is a discussion of the clearance for ache treatment (which BTL admitted wasn’t promoted) and clarification of what the FDA clearance was for, this is classic implicature; any linguistically competent English speaker should’ve taken away the implication that the clearance was for fat reduction. 

BTL also promoted fat reduction to end consumers, e.g., the technology “is proven to destroy fat cells.”  In addition, BTL allegedly recruited doctors to promote Vanquish to patients, and BTL didn’t dispute its involvement with (though it did dispute its involvement with other sources that promoted Vanquish to consumers for fat reduction). On that website, a doctor stated that he had “heard about a new, fat zipping device that’s about to receive FDA approval,” and the same doctor created a “Vanquish Fat” Facebook page and claimed that “Vanquish Melts Fat With No Pain.”

Also, BTL argued that in 2014, it hadn’t done anything in the US to promote Vanquish for fat reduction.  In rebuttal, Zeltiq submitted evidence that BTL planned to exhibit at two shows in February and April, displaying the Vanquish device “obscurely described as delivering ‘sub-cutaneous heating for body treatment based on induced apoptosis using a contract-free operator-monitored clinical approach.”

BTL has both a US website and a non-US website, and respectively.  (Um, that looks an awful lot like one website.)  BTL argued that it only controlled the content of the US website, and the content of the non-US website was controlled overseas by a related company and directed at a worldwide audience. Only the non-US website presently promotes Vanquish for fat reduction explicitly, though the US site allegedly used to do so by showing a video from a Texas doctor who said it “shrinks fat cells,” and quoting a number of other U.S. doctors extolling its fat reduction benefits.   

BTL modified the US website after this lawsuit was filed, and BTL said that it sought out help for training about its marketing obligations.  Now, the US website describes Vanquish as “a revolutionary selective radiofrequency system” that “delivers a non-invasive solution with unparalleled efficacy” and “is the first and only non-invasive body treatment finally integrating all the most desired features.” The website states that “Vanquish is FDA cleared for deep tissue heating.”  Fine print describes its specific intended FDA-cleared indications.  (Wow, that really has the feeling of code.  How the heck would a consumer know what Vanquish was for? And why would you only describe what it was really for in fine print, unless you expected that consumers would already have something in mind, or would click around until they found real information, perhaps on the non-US part of the site?)  The website also said that it was for US medical professionals only, and wasn’t cleared for treating adipose tissue (fat).

Zeltiq argued that despite the purported two-site solution, the non-US website was actually intended to promote to the US.  For example, BTL sent invitations to doctors to attend open houses, and only listed the address for the non-United States website on the invitation.  “Moreover, until recently, the largest and boldest text on the United States website was a link in the middle of the page that stated, ‘Go to Non-US Website.’”  In fact, the US website contained hardly any information—most of it is quoted above.  The non-US site promotes Vanquish for fat reduction, including a page that links to magazine articles and videos quoting United States doctors who promote Vanquish for fat reduction.  The “international” website also used to include a page for seminars for doctors, listing five conferences in the US.  A version listing conferences in 2014 showed conferences planned both inside and outside the US.

A new US-targeted website, which BTL denied any control over, promoted Vanquish for fat removal, including links to two video clips—allegedly the same clips that were deleted from BTL’s original website.  In one, a doctor appears on Fox News. When he’s asked whether Vanquish is safe, he responds:

This is exceptionally safe. The FDA basically is there to provide safety, it is not so much there to provide efficacy. So when they do these FDA approval studies, the number one, two and three thing they are looking at is safety, and this is exceptionally safe. They—even in the animal models, they looked at every part of the animal to ensure that there was no damage to anything other than the fat.

Zeltiq, understandably, argued that this was misleading, suggesting that the FDA approved Vanquish for the purpose for which it was being promoted.  (Query: after Lexmark, can Zeltiq sue individual doctors making claims about Vanquish?)

But what do doctors think? Both sides submitted declarations from doctors. Zeltiq’s declarant said that doctors make off-label uses, but that they generally only develop after doctors have experience with a new device for its approved use, and that information about a new device is generally scant.  She concluded that when a manufacturer promotes a new device in the early stages after device is launched, physicians would presume that the new device has been approved by the FDA for the promoted use.   BTL submitted declarations from two other doctors.  One noted that both parties’ devices cost approximately $80,000 to $90,000, and both said that before they bought the Vanquish device they were made aware of the scope and limits of FDA clearance.

BTL argued preemption.  The court found this a serious question, but better dealt with on a full record.  For one thing, the core claim—a false or misleading representation of clearance for fat reduction—wasn’t preempted regardless. Also, since BTL didn’t dispute that it promoted Vanquish for a non-FDA-cleared use, interpretation of FDA rules wouldn’t be required to decide the false advertising claim.

However, the court concluded, Zeltiq didn’t show literal falsity.  Instead, the “newly FDA cleared technology” invitation wasn’t literally false because Vanquish was FDA cleared, even if not for body shaping.  (Ugh.  That’s sophistry, which is the point of having a doctrine of falsity by necessary implication.)  Nor does the current website contain literal falsity. Zeltiq argued falsity by necessary implication, but the court didn’t buy it, stating without further explanation that none of the identified statements necessarily implied FDA clearance for fat reduction.  Half-truths aren’t literally false.

Zeltiq did show that BTL’s promotions were potentially misleading, and its use of FDA clearance as a selling point in promotional materials was evidence of materiality. But Zeltiq didn’t show that any doctors had been fooled. “At best, Zeltiq’s evidence shows that physicians in general presume the Vanquish device is FDA cleared for fat reduction because it was marketed for that use in the early stages after its launch.” This evidence was too general—it didn’t show that actual purchasers believed the Vanquish was FDA cleared.  BTL’s evidence suggested that “at least one group of physicians decides to purchase such an expensive medical device only after fully evaluating the device’s efficacy and safety for patients and understanding the official FDA clearances.” 

In light of the device’s high cost and limitation to doctor-purchasers, Zeltiq wasn’t likely to prove deception. Still, there were serious questions going to the merits.

Zeltiq brought a serpate claim under the California UCL’s “unlawful” prong.  While the UCL prohibits the sale of an uncleared device, the Vanquish was cleared, and the statute wasn’t use-specific. Zeltiq also argued that the Vanquish was misbranded because its labeling fails to include “adequate directions for use” in fat reduction procedures. “In light of the fact the FDCA regulations require instructions to be catered to ‘the purposes for which [the device] is intended,; Zeltiq raises an interesting argument.”  But the “labeling” was the targeted source of misbranding, and the operator’s manual included instructions detailing the FDA-cleared uses and providing directions for such uses.  Zeltiq didn’t convince the court that misbranding can come from overall promotional practices, though it did raise serious questions going to the merits.

But the balance of hardships didn’t tip sharply in Zeltiq’s favor.  Zeltiq could suffer without an injunction, losing its unique place in the market.  But BTL would endure hardship from an injunction, which as Zeltiq proposed would require delinking the US and non-US websites and providing written notification to every doctor who bought the Vanquish that it’s not FDA-cleared for fat reduction. Zeltiq also wanted to bar BTL from selling Vanquish for non-cleared uses, but doctors have the right to make off-label uses.

Also, Zeltiq didn’t show irreparable injury. Though lost market share can be irreparable harm, Zeltiq didn’t show actual lost market share. Zeltiq argued that it could show likely irreparable injury by showing that the parties competed and that there was a logical causal connection between the false advertising and its own sales position.  But the court thought that this wasn’t enough in light of Winter, which held that a showing of irreparable injury is always required.  “Merely showing that the parties are competitors and that there is a logical connection between the false advertising and the plaintiff’s sales may be sufficient to show a possibility of irreparable harm, but is insufficient to show a likelihood of irreparable harm without additional evidence.”  (Again, I wonder when if ever this kind of reasoning will hit trademark.)

Must false advertising claims always be pled with particularity?

LT Int’l Ltd. v. Shuffle Master, Inc., 2014 WL 1248270, No. 2:12–cv–1216 (D. Nev. March 26, 2014)

Here, the court disapproved a five-page complaint, finding that the false advertising and related claims sounded in fraud but didn’t satisfy Rule 9(b), and dismissed with leave to amend. LT sells gaming products, including an electronic interface that allows gamblers at a casino table to simultaneously place bets at other tables.  LT’s direct competitor Shuffle Master allegedly disparaged LT’s products and services.

The court found that LT was bringing a Lanham Act false advertising claim.  While neither fraud nor mistake is an element of a Lanham Act false advertising claim, and thus it doesn’t inherently trigger Rule 9(b), in the 9th Circuit Rule 9(b) is triggered when the complaint uses the language of fraudulent conduct.  (Why? This has never been adequately explained to me.)  So once a complaint uses the word “misrepresentation,” that’s a species of fraud. Only the fraudulent conduct allegations have to satisfy Rule 9(b), and if they’re inadequate they should be stripped.  Comment: See, this is what’s really weird to me about how this principle is applied (well, this and why trademark plaintiffs never run into this problem).  The difference between “intentionally false” and “unintentionally false” is intent, right?  And intent and knowledge may be averred generally even under Rule 9(b), correct?  So why does alleging intent convert a claim based purely on falsity—where intent isn’t required to prevail under the statute—to a claim sounding in fraud?  What am I missing?

Anyway, the fraud-based allegations were conclusory, referring to “an international campaign of disparagement,” claiming “misrepresentations regarding Plaintiff’s business and products, including Plaintiff’s LT Game Live Multi–Table System, at international trade shows, including at the G2E gaming trade show in May, 2012 in Macau, and directly and indirectly to Plaintiff’s current and prospective customers in the gaming and casino industry.”  LT identified two customers as among those to whom the misrepresentations had been made.  Even if this constituted the who, where, and when, it didn’t explain how the statements were made, and LT didn’t allege the factual content of any statement, even though LT was required to allege with particularity “what is false or misleading about the purportedly fraudulent statement, and why it is false.” This also disposed of the Nevada and Macao unfair competition claims, though LT did plead a plausible claim for tortious interference with prospective business and contractual relations.

Friday, March 28, 2014

A mocking Snickers ad and Google v. Garcia

Sociological Images covers a Snickers ad that apparently shows real women responding to supportive, nonsexist comments from construction workers. "The first thing women do is get uncomfortable, revealing how a lifetime of experience makes them cringe at the prospect of a man yelling at them.  But, as women realize what’s going on, they’re obviously delighted.  They love the idea of getting support and respect instead of harassment from strange men. This last woman actually places her hand on her heart and mouths 'thank you' to the guys. And then the commercial ends and it’s all yanked back in the most disgusting way." Tagline: "You're not you when you're hungry." SocImages: "I wonder, when the producers approached them to get their permission to be used on film, did they tell them how the commercial would end? I suspect not. And, if not, I bet seeing the commercial would feel like a betrayal."

What result in the 9th Circuit, if one of the women sues for infringement based on fraudulent inducement of her participation?

Organic v. natural

Via an eagle-eyed student, a great video on misleading “natural” claims.  Note that the organization promotes organic products—is it subject to Lanham Act claims by a producer of “natural” foods?

Thursday, March 27, 2014

Relevant to my interests: Jensen Ackles and the right of publicity

It is a truth universally acknowledged that Jensen Ackles is a very attractive man.  So attractive that he tends to show up in a variety of advertising contexts that, I suspect, his agent does not know about.  Consider this example, apparently based on fan art, according to the poster appearing at a Rite Aid (but sadly, not near me):
More examples at the link.  So we have fan artist, photographer, and celebrity rights potentially implicated.  I wonder what kind of representations the display provider made to Rite Aid.

Taco Bell endorsed by Ronald McDonalds

H/T Deborah Gerhardt. Via AdAge:
Ronald McDonald loves Taco Bell's breakfast. That's what Taco Bell is saying in its campaign introducing its biggest menu rollout yet. The Mexican food chain located a slew of actual Ronald McDonalds and got them to appear in new ads for its breakfast launch proclaiming their love for Taco Bell's new breakfast menu.
You might wonder what Taco Bell was thinking.  I think it might've been thinking Marriott Corp. v. Ramada Inc., 826 F.Supp. 726 (S.D.N.Y. 1993) (finding that ads featuring actual people Frank and Cindy Marriott and Donald and Sally Hyatt, and stating "Why the Marriotts [Hyatts] Stay at Renaissance," didn't violate the Lanham Act).  There, the court said:
It is obvious from even a cursory reading that they are clearly tongue-in-cheek. I cannot see that any reasonable person would be misled—even absent the disclaimer—into believing that the Marriotts or Hyatts featured in the advertisements are in any way related to plaintiffs Marriott Corporation, J.W. Marriott, Jr. or Hyatt Corporation or that the Renaissance Hotels have their "origin" in or their "sponsorship[] or approval" from those corporations. Accordingly, there is no "likelihood of confusion", and plaintiffs' Lanham Act claims must be dismissed as a matter of law.

Wednesday, March 26, 2014

use of an established mark as false advertising

Topek, LLC v. W.H. Silverstein, Inc., No. 12–cv–494, 2014 WL 1124311, 2014 DNH 060 (D.N.H. Mar. 20, 2014)

This colorful business dispute caught my eye because “false advertising through use of a trademark” cases are so rare, and this opinion shows why—courts are often unwilling to regulate use of a mark through false advertising law.

Topek presently has a lot, if not all, of the assets of Yankee Barn Homes, “a nationally-recognized builder of custom-designed post and beam homes” founded in 1969.  In 2011, it was unable to pay its creditors; its debt to its primary lender was secured by security interests in virtually all of its assets, including its “intellectual property, trade names, design templates, and goodwill” as well as its real property.  Shortly after Yankee began experiencing difficulties, Silverstein contacted it, and they signed a letter of intent “essentially ceding control of Yankee to Silverstein.” The lender learned of the proposal and refused to approve it, as was apparently its right under its security instruments.  Yankee and Silverstein moved forward anyway; Silverstein began integrating its operations with Yankee’s and began holding itself out to the public as Yankee Barn Homes.

The lender fought back, filing suit against Silverstein.  Yankee apparently realized that it couldn’t actually follow through on its deal without the lender’s approval, and conveyed to the lender all or virtually all of its assets.  The lender then conveyed the same assets, including all of Yankee’s general intangibles such as “copyrights, trademarks, and trade names, including the name Yankee Barn Homes,” as well as its existing inventory, machinery, manufacturing equipment, customer lists, computer records, phone numbers, and ICC certifications—to Topek.  Topek re-opened Yankee’s facility and rehired many of Yankee’s former employees.

Soon thereafter, “Topek concluded that despite a state court order directing Silverstein to stop doing so, Silverstein continued to exercise (or attempt to exercise) control over former assets of Yankee and, in so doing, was interfering with Topek’s ownership of those assets.” It intervened in the ongoing lender-Silverstein litigation.  The state court in that case found that Yankee conveyed all its real and personal property to the lender, and that the lender conveyed all fixed assets to Topek.  However, Silverstein retained the phone numbers from the former Yankee; represented itself to outside parties as “Yankee Barn Homes”; used Yankee certifications; and  interfered with Topek’s Facebook page by claiming copyright infringement of photos used by Topek of Yankee Barn Homes.  The state court, finding likely confusion and irreparable harm, enjoined Silverstein “from (A) representing to anyone that [Silverstein] has purchased Yankee Barn Homes or has any authority to act on behalf of Yankee Barn Homes; and (B) from using or exerting any control over property owned by Yankee Barn Homes, including, but not limited to, the Yankee Barn Home website.”  

The present litigation mostly concerned Topek’s infringement claims.  I will only discuss Silverstein’s motion for a preliminary injunction against Topek’s allegedly false advertising.  Silverstein argued that, while Topek may have bought Yankee’s assets, it didn’t buy the company by acquiring the stock, and therefore wasn’t a successor in interest. Thus, it wasn’t entitled to “hold itself out to the public as ‘Yankee Barn Homes,’ or say that it has been in business since 1969, or claim that it has built award-winning homes throughout the country, or display pictures of homes that it never actually built, or display testimonials from clients who purchased their homes from what Silverstein considers to be the ‘true’ Yankee Barn Homes.”

The court quickly distinguished  Paper Thermometer Co. v. Murray, 2012 WL 194369, 2012 DNH 017 (D.N.H. Jan. 23, 2012), a reverse passing off case involving a defendant who purchased plaintiff’s goods, re-labeled them, represented to the public that it (rather than plaintiff) had engineered and manufactured them, and then sold those products as its own.  Topek argued that its purchase of Yankee’s assets resulted in a “de facto merger,” reasoning that if Topek could be liable for Yankee’s financial obligations, it necessarily can hold itself out to the public as Yankee.

The court found this unpersuasive too; the cases about successor liability weren’t really on point to a question about what name Topek could sell under, or whether it could “claim to manufacture the same high-quality homes today that Yankee Barn produced for many years.”

Fortunately, the court found guidance from Callman on Unfair Competition.  Callman says that it’s

patently misleading to advertise a false date of establishment or to suggest, without warrant, that the reputation of a newly established business is well-known to the public. Reference to an early date of establishment suggests that the business is an experienced, firmly established, successful and reliable concern. Therefore, the dispositive question in any case is whether the business enterprise, as a unit, including all its human elements and its corporeal and incorporeal values, has continued, substantially unchanged, since its inception.....

Many status changes don’t break continuity.  These include “its development from a small craft shop to a big industrial unit; a change in its legal form, e.g., from individual ownership to a partnership or corporation; a change of firm name or trademark; a change of ownership; expansion to other lines of business; bankruptcy; or the transfer of the old business to a new corporation.” Retention of firm name or trademark also evidences continuity.  “Such continuity, however, may be broken by the removal of the business to another country, by its conversion to an entirely different product line, or by its division into several parts transferred to different successors.”

Silverstein didn’t allege any factors indicating a break in business continuity, and several factors suggesting such continuity were present.  Topek bought all or virtually all of Yankee’s assets, including domain names, copyrights, trademarks and service marks, and goodwill. And it operated the same manufacturing facility from which Yankee operated since 1972, using much of Yankee’s former workforce.  Since neither party adequately addressed the relevant issues, and since Silverstein bore the burden, the motion for preliminary injunction was denied.

We all stand: Static Control can sue

Lexmark International, Inc. v. Static Control Components, Inc., No. 12–873 (March 25, 2014)

Justice Scalia, writing for a unanimous Court, affirmed the Sixth Circuit, in the process articulating a new standard: “To invoke the Lanham Act’s cause of action for false advertising, a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.”

I’m not surprised that the result of the Court taking the case was a new articulation of the standard; it’s the kind of thing only the Supreme Court can do. Like it or not, the Supreme Court just has a different view of cases than district or appellate courts, and can make very big moves even in statutory interpretation. (Side note: I literally used to think that this day would never come.)

This opinion bears some similarities to another Lanham Act Scalia opinion, Wal-Mart v. Samara Bros., also for a unanimous Court, also presenting itself as simple statutory interpretation, also adopting a standard for which no party advocated. In Wal-Mart, the new rule was designed to limit the post-Taco Cabana flood of unmeritorious claims. Here, the new standard could mean that more plaintiffs get past the pleading stage, though it remains to be seen whether the Second Circuit in particular will read this as a signal to cut back on its own “reasonable interest” results and whether lower courts will read Iqbal/Twombly aggressively to achieve the same results as Conte Bros.-type tests through proximate causation rulings. Also, it remains to be seen whether courts will apply this reasoning, which speaks in terms of §43(a) generally and not §43(a)(1)(B), to trademark cases and require plaintiffs to allege proximate causation of their claimed harms.

Brief reminder: Lexmark makes laser printers and toner cartridges. Remanufacturers refill used Lexmark cartridges and sell them; Lexmark has tried various means to stop this, including a microchip designed to disable empty cartridges until replaced by Lexmark, as part of its “Prebate” line. Static Control isn’t a remanufacturer, but it’s the market leader in selling cartridge components, including chips that can be used to defeat Lexmark’s scheme. Lots of litigation ensued; here we consider only Static Control’s false advertising counterclaim.

Section 43(a) “creates two distinct bases of liability,” false association and false advertising. Static Control alleged the latter, with two types of claims: (1) Lexmark purposely misled users to believe that they were legally bound by Lexmark’s Prebate terms and obliged to return cartridges to Lexmark after one use. (2) Lexmark sent letters to most remanufacturers falsely advising them that it was illegal to sell refurbished Prebate cartridges. This allegedly was a misrepresentation of “the nature, characteristics, and qualities” of both its own products and Static Control’s products. In a footnote, the Court noted that Lexmark argued that this wasn’t “commercial advertising or promotion,” but that question was not before the Court. (As the law professors’ amicus brief I worked on noted, at least one element of the standard Gordon & Breach test for commercial advertising or promotion will quickly need revisiting—the part that requires that the plaintiff be in commercial competition with the defendant; if that sticks, then all this ink spilled on standing will be irrelevant.)

The Court first makes its (Scalia’s) displeasure with the concept of “prudential standing” known. The label is misleading. Article III limits federal courts’ jurisdiction to cases and controversies, so there’s an “irreducible constitutional minimum of standing.” That is a concrete and particularized injury in fact fairly traceable to the defendant’s action, likely to be redressed by a favorable decision. Static Control concededly had Article III standing based on its allegations of lost sales and damage to its business reputation. The idea of nonetheless refusing to decide a case on prudential grounds is in tension with the Court’s statement that “a federal court’s ‘obligation’ to hear and decide” cases within its jurisdiction “is ‘virtually unflagging.’” However, the Court has also used the language of prudential standing. But really, what the Court was properly doing in cases such as Associated General Contractors (the antitrust case from which Conte Bros. derived its Lanham Act standing test) was statutory interpretation of the scope of the remedy created by the underlying statute. Static Control argued that prudential standing should be measured by the “zone of interests” test, and though the Court has used the language of prudential standing in the past, zone of interests isn’t really a prudential test either. Instead, whether a plaintiff is within a statute’s zone of interest “is an issue that requires us to determine, using traditional tools of statutory interpretation, whether a legislatively conferred cause of action encompasses a particular plaintiff ’s claim.” So we ask whether Static Control falls within the class of plaintiffs Congress authorized to sue under §43(a). “Just as a court cannot apply its independent policy judgment to recognize a cause of action that Congress has denied, it cannot limit a cause of action that Congress has created merely because ‘prudence’ dictates.” This inquiry shouldn’t really be labeled “statutory standing” either, since the absence of a valid cause of action doesn’t implicate subject matter jurisdiction.

We can’t read the statute’s reference to “any person who believes that he or she is likely to be damaged” by a defendant’s false advertising literally, since that would allow anyone who satisfied Article III to sue, and we’re sure Congress didn’t mean that, given zone of interests analysis and proximate causation as a background principle.

Zone of interests: plaintiffs can only sue if their interests fall within the zone protected by the law under which they’re trying to sue. This is a background rule of general application, no matter what.  The breadth of the zone varies according to the statute at issue. Fortunately, identifying the Lanham Act’s zone of interests is easy, because of the “unusual, and extraordinarily helpful,” detailed statement of the statute’s purposes in §1127:

The intent of this chapter is to regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce; to protect registered marks used in such commerce from interference by State, or territorial legislation; to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce by the use of reproductions, copies, counterfeits, or colorable imitations of registered marks; and to provide rights and remedies stipulated by treaties and conventions respecting trademarks, trade names, and unfair competitionentered into between the United States and foreign nations.

Mostly these purposes relate to false association, and a typical false-advertising case implicates only the goal of “protect[ing] persons engaged in [commerce within the control of Congress] against unfair competition.”  Unfair competition was a “plastic” concept in common law, but “was understood” (nice passive voice!) to cover “injuries to business reputation and present and future sales.” (Citing the YLJ in 1929.)  Thus, to come within §43(a)’s zone of interests, a plaintiff “must allege an injury to a commercial interest in reputation or sales.” Consumers, including business consumers, may have injuries in fact, but can’t bring Lanham Act claims.

Next, we presume that a statutory cause of action is “limited to plaintiffs whose injuries are proximately caused by violations of the statute.”  Reading a proximate cause requirement into §43(a) is therefore also appropriate.  Proximate cause can be tricky, but the basic question is “whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits.”  Harm that’s too remote isn’t actionable, and that usually includes harm derivative of “misfortunes visited upon a third person by the defendant’s acts.” True, “all commercial injuries from false advertising are derivative of those suffered by consumers who are deceived by the advertising.” But because the Lanham Act allows only those who are injured commercially to sue, that intervening step isn’t fatal to showing proximate cause: a plaintiff can be directly injured (for our purposes) by a misrepresentation even when a third party was the one who relied on the misrepresentation.  (Hey, this is an argument for a reliance requirement in trademark as well as false advertising: without consumer reliance of some sort, the plaintiff can’t have been injured!)

As a result, a §43(a) plaintiff “ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.”  Ordinarily, that won’t cover injuries to a fellow commercial actor that then hurt the plaintiff—a competitor forced out of business by false advertising can sue, but not the landlord or others who suffer from the competitor’s “inability to meet [its] financial obligations.”  In a footnote, the Court emphasized that Iqbal/Twombly require proximate cause to be adequately alleged in the complaint.

Lexmark argued that the antitrust-based test of Conte Bros. was the way to implement these principles, or that only competitors should be able to sue. Some amici argued for the reasonable interest test instead.  None of these tests was meritless, but no. “[A] direct application of the zone-of-interests test and the proximate-cause requirement supplies the relevant limits on who may sue.”

Why not Conte Bros.? That test had five factors: (1) Is the plaintiff’s injury of a type that Congress sought to redress in providing a private remedy? (2) The directness or indirectness of the asserted injury. (3) The proximity or remoteness of the party to the alleged injurious conduct. (4) The speculativeness of the damages claim. (5) The risk of duplicative damages or complexity in apportioning damages.  While this approach “reflects a commendable effort to give content to an otherwise nebulous inquiry,” it’s still not quite right.  (1) seems to be about the zone of interests, and (2) and (3) relate, redundantly, to proximate causation.  But these aren’t factors to be weighed; they’re requirements to be met in every case. 

And (4) and (5) really go off the rails.  Though difficulty of ascertaining damages caused by a remote injury is one reason we have a proximate cause requirement, difficulty in ascertaining and apportioning damages isn’t “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.” Even when losses aren’t sufficiently quantifiable for damages, injunctive relief or disgorgement of defendant’s profits may still be available.  “Finally, experience has shown that the Conte Bros. approach, like other open-ended balancing tests, can yield unpredictable and at times arbitrary results. See, e.g., Tushnet, Running the Gamut from A to B: Federal Trademark and False Advertising Law, 159 U. Pa. L. Rev. 1305, 1376–1379 (2011).”

The direct competition test provided a bright line, but only at the expense of distorting the statutory language.  A noncompetitor would have a harder time establishing proximate cause, but a blanket rule would read too much into the phrase “unfair competition,” which—by the time the Lanham Act was adopted—“was understood not to be limited to actions between competitors.” “One leading authority in the field wrote that ‘there need be no competition in unfair competition,’ just as ‘[t]here is no soda in soda water, no grapes in grape fruit, no bread in bread fruit, and a clothes horse is not a horse but is good enough to hang things on.’”

The reasonable interest test was vague, and could be understood to require only Article III standing.  Courts were tired of grappling with it.  Also, the relevant question isn’t whether the plaintiff’s interest is reasonable, but whether the Lanham Act protects that interest; likewise, it’s not whether there’s a reasonable basis for the plaintiff’s claim of harm, but whether there is proximate cause.  Thus, zone of interests plus proximate cause provides clearer and more accurate guidance.

Applying these principles to the present case, Static Control was within the zone of interests protected by Congress.  Its alleged injuries, “lost sales and damage to its business reputation” were injuries to “precisely the sorts of commercial interests the Act protects.” And it sufficiently alleged proximate cause.  Though sales diversion from a competitor might be the paradigmatic direct injury, it’s not the only kind.  First, Static Control alleged that Lexmark disparaged it by asserting that its business was illegal.  “When a defendant harms a plaintiff ’s reputation by casting aspersions on its business, the plaintiff ’s injury flows directly from the audience’s belief in the disparaging statements.”  (Note that this discussion might seem to make the Lanham Act available to beef producers aggrieved by news stories about pink slime—but there “commercial advertising or promotion” will have to play the leading role.)

As a result, §43(a) is available not only when a product is denigrated by name, but also when “the defendant damages the product’s reputation by, for example, equating it with an inferior product.” (Citing false equivalency claims.) A defendant who “seeks to promote his own interests by telling a known falsehood to or about the plaintiff or his product” proximately caused the plaintiff ’s harm.  (Delete “known” for Lanham Act liability.) “[W]hen a party claims reputational injury from disparagement, competition is not required for proximate cause; and that is true even if the defendant’s aim was to harm its immediate competitors, and the plaintiff merely suffered collateral damage.”  A carmaker who disparages the airbags in a rival’s cars proximately harms both the rival carmaker and the airbag supplier.

Also, Static Control adequately alleged proximate cause by alleging that it made microchips that were necessary, and only useful for, refurbishing Lexmark cartridges.  Any false advertising that reduced the remanufacturers’ business therefore necessarily injured Static Control as well.  As alleged, “there is likely to be something very close to a 1:1 relationship between the number of refurbished Prebate cartridges sold (or not sold) by the remanufacturers and the number of Prebate microchips sold (or not sold) by Static Control.” Given such an integral injury, proximate cause would exist.  Sure, there’s an intervening link of injury to the remanufacturers, which might ordinarily destroy proximate cause, but that’s because there’s ordinarily a discontinuity between the injuries of the direct and indirect victims, such that injury to the latter might have resulted from any number of reasons.  Here, though, “Static Control’s allegations suggest that if the remanufacturers sold 10,000 fewer refurbished cartridges because of Lexmark’s false advertising, then it would follow more or less automatically that Static Control sold 10,000 fewer microchips for the same reason.”  This wouldn’t require speculative or uncertain inquiries. 

However, Static Control would ultimately have to show injury proximately caused by Lexmark’s alleged misrepresentations. It was just entitled to a chance to prove its case.

How will proximate cause work with “affiliation confusion,” I wonder?  Many judges, I expect, will continue to be sympathetic to trademark plaintiffs’ harm stories.  But if being in the zone of interests protected isn’t enough, and you also need proximately caused harm, that at least opens up some space to contest these trademark narratives.

ASA approves Microsoft's ad accusing Gmail of creepy spying

Microsoft Corporation, No. A13-251580: Microsoft ran an ad beginning, "Ymay ivatepray e-mailway isway onway ofway eirthay usinessbay." It continued: "Pig Latin may be hard to understand, but you probably need it if you use Gmail, because Gmail scans every word of your e-mails to sell ads. But doesn't. And you can choose to opt out of personalised ads. To stop Gmail from using your e-mails, use Learn more at and keep your e-mails ivatepray".  Complainants challenged the ad because Microsoft scans email too. 

Microsoft rejoined that scanning email for ad targeting was different than standard scanning for viruses and spam, which consumers expect and which doesn't involve data retention.  (What about scanning emails for trade secret leaks?)  The ASA agreed: the ad specifically mentioned scanning for ad targeting, rather than "protective" scanning, and consumers would perceive ad targeting as raising privacy issues (that, by implication, virus/spam scanning does not, though carried out through the same automated mechanisms).  Thus, the ad was not misleading.

Tuesday, March 25, 2014

Monday, March 24, 2014

show me how you do that trick: magic performance copyrightable, infringed

Teller v. Dogge, No. 12-cv-00591 (D. Nev. Mar. 20, 2014)

Teller sued Dogge for infringement in two YouTube videos offering to sell the secret to a signature Teller illusion, Shadows.  This illusion

consists of a spotlight trained on a vase containing a single rose. The light falls in such a manner that the shadow of the rose is projected onto a white screen positioned some distance behind it. Teller then enters the otherwise still scene, picks up a large knife, and proceeds to use the knife to dramatically sever the leaves and petals of the rose’s shadow on the screen slowly, one-by-one, whereupon the corresponding leaves of the real rose sitting in the vase fall to the ground, breaking from the stem at the point where Teller cut the shadow. The scene closes with Teller pricking his thumb with the knife, and holding his hand in front of the canvas. A silhouette of a trail of blood appears, trickling down the canvas just below the shadow of Teller’s hand. Teller then wipes his hand across the “blood” shadow, leaving a crimson streak upon the canvas.

Shadows was registered as a dramatic work in 1983. The registration “describes the action of the performance down to its most subtle detail.”  Dogge’s YouTube videos showed a “strikingly similar illusion”:

His videos open with a spotlight trained on a glass bottle containing a single rose. The light falls in such a manner that the rose of the flower is projected onto a white screen positioned some distance behind it. Dogge then enters the otherwise still scene, picks up a large knife, and proceeds to use the knife to dramatically sever the leaves and petals of the rose’s shadow on the screen slowly, one-by-one, whereupon the corresponding leaves of the real rose sitting in the bottle fall to the ground, breaking from the stem at the point where Dogge cut the shadow. After all of the petals are severed from the rose, Dogge removes the stem from the bottle and pours the water from the bottle into a drinking glass.

Dogge’s keywords included Penn and Teller.  His caption stated “I’ve seen the great Penn & Teller performing a similar trick and now I’m very happy to share my version in a different and more impossible way with you.”

Though Teller didn’t register within five years of first publication (the court apparently considered his performances starting in 1976 constituted publication, not a foregone conclusion), the court found that he’d shown that he was the creator and owner of Shadows.

Though magic tricks aren’t copyrightable, dramatic works and pantomimes are; the mere fact that a dramatic work/pantomime centrally features a magic trick doesn’t destroy copyrightability.  (What is the underlying unprotectable “magic trick” that others are free to use?)

Nor did Teller abandon his rights by allegedly failing to take action against other infringers, or challenging others to copy him.  Even if that were a way to waive copyright protection, his partner Penn Jillette’s public statement “No one knows how ‘Shadows’ is done and no one will ever figure it out” “makes no indication that any other individual should publicly perform the work, and only demonstrates confidence that the illusion is so clever that its secret cannot be discovered.”  Copying the secret of the illusion wouldn’t necessarily entail publicly performing the work.

Dogge’s contradictory accounts of whether he copied were of no avail given his YouTube caption.

Substantial similarity: Ideas, concepts, themes and scenes a faire aren’t copyrightable. However, even overlooking their unprotectable elements (not specifically identified), the two works were “nearly identical twins.”  Each begins with a rose sitting on a table—one in an opaque vase, another in a transparent bottle. Each involves the projection of the rose’s shadow onto a screen behind the table.  Each has a lone performer who enters, “observes the rose, then takes hold of a knife sitting on the table and shows it to the audience.”

The performer proceeds to use the knife to cut the shadow of the rose: starting with the branch on the audience’s left, then branch on the right, and finally the flower on top. As the performer cuts the shadow of the rose, the corresponding parts of the real rose fall onto the table.

Teller’s performance ends in blood, while Dogge’s piece ends when he pours the water from the bottle into a glass, but the “events and dramatic progression” are nearly identical. Both had the same “mysterious mood” and a similar pace.  The only differences were “slight differences in props” and the variance in the performer’s actions in the final seconds. These minor differences were “inconsequential” compared to the “significant and subtle similarities.” Thus, they were substantially similar under the extrinsic test, and a reasonable audience would find them to have the same total concept and feel, being based on the “incredibly unique concept of a performer methodically cutting parts of a rose’s shadow, thereby severing the corresponding parts of a real rose.”  (What is the unprotectable magic trick, then? How could it be done without infringing?)  They’d be indistinguishable to an ordinary observer. 

Dogge argued that his method differed from Teller’s, but that’s not the performance perceivable by the audience—substantial similarity involves comparing observable elements.  Even if he used real magic, that would avail him not.

However, the court found material issues on damages.  Teller argued that the infringement was willful because Dogge was informed that he was infringing but didn’t take down one of the videos for seven more days.  Dogge claimed to have responded to the notification by requesting a copy of the copyright registration, and also claimed that the continuing availability was a mistake.  This created a genuine dispute of material fact.

Teller was entitled to attorneys’ fees, because he won; he had a proper motivation (protecting his exclusive rights); and a fee award “advances the public interest in promoting protection of creative works and deterring potential infringers.”

The court denied summary judgment on Teller’s unfair competition claim.  Though Teller submitted evidence that Shadows was his signature trick and widely associated with his celebrity persona, Dogge questioned the reliability of these claims.  “The testimony of Teller’s expert certainly serves as evidence from which a reasonable person could conclude that there is a likelihood of confusion as to Teller’s involvement with Dogge’s videos.” But the relevant question here was not similarity, but whether a reasonable consumer would likely think Teller endorsed the video’s content.  There wasn’t record evidence that any viewer was confused about endorsement, and Dogge’s caption, “I’ve seen the great Penn & Teller performing a similar trick and now I’m very happy to share my version in a different and more impossible way with you,” “potentially clarified that the videos were not supported by Teller.” The court also found it important that Dogge didn’t use an image or likeness of Teller in the video.

Misleading health plan names

NYT on how health plan names confuse and deceive consumers.

Consumer law and copyright conferences in April

Making the Fine Print Fair, Georgetown Law symposium, April 4

The Georgetown Consumer Law Society and Citizen Works are hosting a symposium, Making the Fine Print Fair, at Georgetown on April 4 from 8:30 a.m. to 6:30 p.m.  From the Consumer Law & Policy Blog: Speakers include FTC Chairwoman Edith Ramirez; Ralph Nader; Georgetown Dean William Treanor; Associate Dean Gregory Klass; Professors David Vladeck, Adam Levitin; CL&P bloggers Deepak Gupta, Scott Michaelman, and Jeff Sovern; NACA Executive Director Ira Rheingold; Citizen Works Executive Director Theresa Amato; Professors Nancy Kim, Omri Ben-Shahar, Margaret Jane Radin, Florencia Marotta-Wurgler, Michael Rustad, and Lauren Willis; former Illinois Attorney General and Justice Neil Hartigan; PIRG's Ed Mierzwinski; Arent Fox's Marc L. Fleischaker, ALICE's Peter Bailon; Public Justice's Matt Wessler; columnist Bob Sullivan; Consumers Untion's George Slover and others.

And also:

18th Annual BCLT/BTLJ Symposium: The Next Great Copyright Act, held in Berkeley at the Claremont Hotel on April 3 and 4, 2014. In March of 2013 Maria Pallante, the Register of the U.S. Copyright Office, expressed her interest in working toward a comprehensive revision of U.S. copyright law, which she has optimistically called “the next great copyright act.”  Congressman Goodlatte, chair of the Subcommittee on Courts, Intellectual Property and the Internet of the House Judiciary Committee, has decided to explore this idea by holding a series of hearings about copyright reform issues.  The Department of Commerce has recently published a Green Paper about the need for some updates to U.S. copyright law.  Although the drafters of the Copyright Act of 1976 hoped that this legislation would prove to be flexible and forward-looking enough to serve the country well over time, consensus has been building in recent years that the current law needs an overhaul so that it is more comprehensible and provides a better framework for enabling copyright law to adapt to the challenges posed by emergent technologies.  This conference will bring together scholars, policymakers, and representatives of various stakeholder groups to consider what changes would make for a next great copyright act.

For more information, visit the website.

Friday, March 21, 2014

I *am* only cheerleading: uniforms not conceptually separable

Varsity Brands, Inc. v. Star Athletica, LLC, No. 10-cv-02508 (W.D. Tenn. Mar. 1, 2014)

“Classical philosophy does not often come to play in the field of mundane legal analysis.” But here the court was called on to identify the essence of a “cheerleading uniform,” for purposes of conceptual separability.  Here, the court thoughtfully, and I hope with some enjoyment, considered the idea of garments without any of the designs and colors ordinarily printed on (or otherwise applied to) them that generally identify an “unavoidably imperfect reflection of the ideal” of a “cheerleading uniform.”  Because the absence of such designs and colors means that the garment doesn’t signal the presence of a cheerleading uniform, it follows that the presence of such designs and colors is at the core of cheerleading uniform-ness.  Thus, the colors and designs could not be conceptually separated from the utilitarian object themselves: the color and design components were therefore not copyrightable.

Star Athletica published a catalogue of cheerleading uniforms.  Varsity Brands sued for copyright infringement (and trademark infringement, which the court grants summary judgment on without discussion since Varsity apparently stopped fighting; other state law tort claims get dismissed because the court declines to exercise its jurisdiction).


One of plaintiff's designs
Allegedly infringing design
Varsity uses two methods to incorporate a design into a uniform: cutting and sewing (more common) and sublimation, which involves printing the design onto a piece of paper, which is then heated and the ink infused into fabric by pressing paper and fabric together. Varsity uses designers to create new uniforms, sketching them over a model of a cheerleader; the designers are not instructed to adapt their designs to the realities of production. 

Varsity registered five uniform designs, using a sketch as deposit for three of them and the nature of the work/authorship listed as “2-dimensional artwork.” For the remaining two, Varsity submitted a photograph of a completed uniform incorporating the design as deposit material, the nature of the work is listed as “fabric design (artwork)” and the nature of authorship is listed as “2-dimensional artwork.” Varsity argued that it was entitled to a presumption of validity because it registered within five years of first publication of three of the works at issue, but this presumption is “fairly easy to rebut because the Copyright Office tends toward cursory issuance of registrations.” Because of the record evidence that the works at issue were non-copyrightable utilitarian articles, the presumption was “easily dispensed with.” The shape, style, cut, and dimensions for converting fabric into a finished garment are not copyrightable, but a pattern to be imprinted on a fabric, such as a flower, may be copyrightable if it’s conceptually separable.  Conceptual separability is a bear of an issue (RT: though maybe more important to actually litigated cases than we think).

The court canvassed the variety of judicial approaches to separability, though none from the Sixth Circuit.  The Seventh Circuit finds separability when “the artistic aspects of an article can be conceptualized as existing independently of their utilitarian function.” In Pivot Point, that court found separability in a mannequin head when the designer was simply told to create a model reflecting the “hungry-look” of high fashion, and was free to implement that concept as he wished without regard to specifications for how far the mannequin’s eyes needed to be apart, or how high the eyebrows should be. Because the mannequin’s creative aspects “were meant to be seen and admired,” its sculptural features existed independently from its utilitarian features.  Dissenting, Judge Kanne criticized the test because all functional items have aesthetic qualities, but Congress chose to give them less protection. 

The Fifth Circuit declined to apply the aesthetic influence test to garment design in Galiano, a case about casino uniforms.  Instead, for garment design only, the Fifth Circuit adopted the marketability test, as proposed by Nimmer: “[C]onceptual severability exists where there is any substantial likelihood that even if the article had no utilitarian use it would still be marketable to some significant segment of the community simply because of its aesthetic qualities.”  This, Nimmer says, harmonizes various holdings, but does have weaknesses (including restrictively favoring more conventional forms of art).  The Fifth Circuit reasoned that “all lawmaking with respect to PGS works is interstititial, and most of it [is] freewheeling,” and that the theoretical unfairness to some art forms was outweighed by the interest in having a clear rule, at least for garments if not for all applied art.

The Fourth Circuit found conceptual separability in two furniture collections with decorative carving.  The designs were “superfluous nonfunctional adornments for which the shape of the furniture (which is not copyrightable) serves as the vehicle. . . . the designs are ‘wholly unnecessary’ to the furniture’s utilitarian function.”  Though the designer was necessarily influenced by function, his judgment was sufficiently independent because his aim was not to improve utility but to make the pieces pretty.

The Second Circuit, meanwhile, found that elements of a plush sculpted animal costume could be separable from the overall design because they were physically separable.  By contrast, it found that a prom dress design was uncopyrightable: the arrangement of sequins and crystals on the bodice, ruching at the waist, and layers of tulle on the skirt were neither physically separable (the remaining dress wouldn’t function as well as a prom dress) nor conceptually separable, because “the artistic judgment exercised in applying sequins and crystals to the dress’s bodice and in using ruched satin at the waist and layers of tulle in the skirt does not invoke in the viewer a concept other than that of clothing.”  The decorative elements instead enhanced the dress’s functionality for a special occasion, merging aesthetics and functionality in an attractive way.  Though they were artistic, “the decorative choices . . . merge with those that decide how (and how much) to cover the body. Thus, a jeweled bodice covers the upper torso at the same time that it draws attention to it; a ruched waist covers the wearer’s midsection while giving it definition; and a short tulle skirt conceals the wearer’s legs while giving glimpses of them.” Because the aesthetic and functional effects were inseparable, the dress wasn’t copyrightable.

The court here recognized “considerable disagreement” on the standard. It determined to start with “just what Varsity has copyrighted, and how Star is claimed to have violated these copyrights.”  Varsity claimed copyright in five uniform designs; Star allegedly infringed by making similar uniforms, photographing models wearing those uniforms, and publishing photos of the uniforms in its catalog. The court turned to the language of the statute: “the design of a useful article, as defined in this section, shall be considered a [PGS] work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.” The first clause implied conceptual separability, while the second implied physical separability. Though there’s considerable overlap, the court thought the two were separate.

Varsity argued that, because its designers sketched independent of functional influences, its designs were conceptually separable.  Varsity argued that “the outer edge of the garment merely operates as the edge of a canvas, with unlimited possibilities therein.”

The court was unpersuaded that Varsity had engaged with a key issue: “can a cheerleading uniform be conceived without any ornamentation or design, yet retain its utilitarian function as a cheerleading uniform?”  As with the Second Circuit’s prom dress case, “the combination of braids, chevrons, and stripes on the sketches does not invoke any concept other than that of clothing.” Those supposedly unconstrained sketches “are clearly of clothing, in that they depict cheerleading uniforms on young women who appear to be cheerleaders.” Like a prom dress, a cheerleading uniform is “a garment specifically meant to cover the body in an attractive way for a special occasion.”  The artistic judgment involved “does not invoke in the viewer a concept other than that of clothing,” and the designers always seemed to be thinking of cheerleading uniforms.  “Put another way, a cheerleading uniform loses its utilitarian function as a cheerleading uniform when it lacks all design and is merely a blank canvas.”  Without the familiar ornamentation, the silhouette no longer evoked the utilitarian concept of a cheerleading uniform. Though it might cover the body to the same degree and withstand the rigors of cheerleading, “the utilitarian function of a cheerleading uniform is not merely to clothe the body; it is to clothe the body in a way that evokes the concept of cheerleading.”  Artistic judgment was undeniably important here, but that didn’t make it separable. 

While a desk with carved designs on it is still a desk without those carvings, “a blank silhouette of a purported ‘cheerleading uniform’ without team colors, stripes, chevrons, and similar designs typically associated with sports in general, and cheerleading in particular, is not recognizable as a cheerleading uniform.”  Thus, the design merges with the utilitarian function here.

If the court were to apply the marketability test, the result would be the same: “it is unlikely that the designs in this case would be marketable outside of their utilitarian function as cheerleading uniforms.” The lack of physical separability also supported the court’s conclusion.  Even if you could metaphysically allow the designs to float free in space, or place them on a different “canvas,” they’d still look like cheerleading uniforms, as the sublimation process demonstrated: even physically separated from a uniform, the design “evokes the image and concept of a cheerleading uniform and proves the difficulty of removing the design from the utilitarian article. In short, the concept remains the same, even if the medium changes.”

Thursday, March 20, 2014

infringement can occur even if consumers don't remember it

Beastie Boys v. Monster Energy Co., No. 12 Civ. 6065 (SDNY Mar. 18, 2014)

The Beastie Boys sued for copyright infringement and trademark infringement based on Monster’s allegedly unauthorized use of Beastie Boys music to accompany a video promoting a Monster-sponsored snowboarding competition. Here, the court takes care of some pretrial matters relating to both sets of claims.

First, the court excluded evidence of two videos/sets of videos that allegedly infringed Beastie Boys copyrights and for which Monster was allegedly responsible.  One instance involved videos posted by athletes sponsored by Monster to, a website Monster created to promote the athletes and Monster.  Monster encouraged sponsored athletes to post videos, but didn’t create or edit the videos.  Six videos allegedly synchronized Beastie Boys music to film of the athletes performing.  Another video using a Beastie Boys song was created in connection with a sporting event that Monster sponsored and promoted; the Beastie Boys alleged that Monster “was aware of the [video] while it was being produced” and participated in its production.

The Beastie Boys sought to offer these to establish that Monster’s alleged infringement was willful and not negligence or based on a good faith but mistaken belief, “based on communications between Monster employee Nelson Phillips and disk jockey Z-Trip, that it had a valid license to make such use of the Beastie Boys’ music.” The court found that the probative value was outweighed by the prejudicial effect. The probative value of the other videos was limited; the Beastie Boys didn’t explain why those incidents shed light on Monster’s state of mind with respect to the video here.  Unlike the video in suit, these videos weren’t created by Monster, and there was no allegation that the Monster personnel at issue here played any role in the other incidents; that the unauthorized use resulted from similar control deficiencies internal to Monster; that Monster had a practice of using Beastie Boys or other music to promote its products without regard to legality; etc.  The episode at issue here “appears to be an idiosyncratic, singular event, as do, for that matter, the episodes leading to the creation and posting of the other two videos or sets of videos.”

The “faint” probative value here was dwarfed by the risk of unfair prejudice, confusion, and delay. To establish that the other videos infringed and that Monster could be tied to them in a way that would support a willfulness finding would require a mini-trial for each. “Presentation of the proof as to the other two episodes at trial could easily take much more time than the proof as to the [video in suit], particularly insofar as the Monster Army Videos were made by six separate athletes. Under these circumstances, admission of evidence of these other videos would present a substantial risk of trial delay and confusion, and the jury could well lose focus on the distinct episode at issue in this case.”  The Beastie Boys had no demonstrated plans to “thoughtfully litigate” the facts and context of the other videos, such as calling the athletes who created the Monster Army videos as witnesses.  They apparently just wanted to introduce the “bare fact” of these other videos, then argue to the jury that the videos infringed and that Monster’s conduct was therefore willful.  This “clipped” presentation would limit the delay occasioned by the evidence, but only “at grave risk to the truthseeking process.”

The court did grant the Beastie Boys leave to add a claim of infringement of an additional, fifth song based on evidence found in discovery, almost 2 years after the case began.  Though the issue was close, the court found that the Beastie Boys acted with sufficient diligence in pursuing this claim, given that Monster suffered no prejudice from the timing.  Also, though the Beastie Boys acquired an interest in this sound recording only after they filed the complaint, they were assigned the right to sue for accrued infringement.

The court mostly denied the Beastie Boys’ motion to exclude the testimony of Monster’s marketing expert Erich Joachimsthaler, in the process reaffirming that infringement has been completely detached from harm.  Joachimsthaler’s testimony was about (1) “the likelihood of a consumer association between the Monster brand and the Beastie Boys as a result of watching” the Video; and (2) the impact on, and the value of the Video to, the Monster brand. Joachimsthaler opined that the video didn’t transfer any association between the parties into consumers’ long-term memory, because the video wasn’t itself memorable or part of a sustained ad campaign that would tend to associate them. The court found that this testimony rested on a reliable foundation—“academic research concerning the circumstances under which consumers remember advertisements.” While the Beastie Boys argued that this research was too general, that went beyond admissibility and could be tested by cross-examination and competing evidence.

The court found this testimony relevant to the issue of actual damages, and to recovery of Monster’s profits.  It could also be relevant to statutory damages to the extent they were measured based on Monster’s profits.

However, the court found that Joachimsthaler’s “likelihood of association” testimony, as formulated, might confuse or mislead the jury as to Lanham Act liability.  Likelihood of association was not likelihood of confusion (wait for it!).  “‘Confusion’ refers to a viewer’s reaction upon seeing an advertisement, while ‘association’ relates to the durability of that reaction. An advertisement can be confusing without being memorable; a defendant does not escape liability under the Lanham Act merely because his advertisement is not memorable.”  Sigh.  Once again, harm/materiality takes a hammering because the claim is §43(a)(1)(A) and not §43(a)(1)(B), for no good reason.  Anyhow, the court wouldn’t allow Joachimsthaler to testify about likelihood of confusion, and would instruct the jury that his testimony was relevant solely to damages.

Joachimsthaler also proposed to testify on the Video’s impact on and value to the Monster brand. This was plainly relevant to Monster’s profits, and thus to statutory damages.  The Beastie Boys objected that his methodology was “nonrandom” and “unscientific.”  The court mostly disagreed—his experience and research in marketing qualified him to opine on these matters, even without constructing a formal model.  “Technical . . . or other specialized knowledge,” may be relevant and reliable, and therefore admissible under Daubert, “even if the field of knowledge, be it marketing or plumbing, does not readily lend itself to a formal or quantitative methodology.” But one aspect of the testimony was “plainly unreliable.”  He stated that he obtained expertise about consumer perceptions of Monster’s brand by “ask[ing] people in my office . . . [who] have an age range from 18 to 55 . . . to help me understand the Monster Energy brand.”  This was “unreliable and blatantly non-rigorous,” and indeed didn’t pass the laugh test.  As he had been in a previous case, Joachimsthaler was precluded from offering expert testimony that recited or relied on his conversations with co-workers.

On to damages: In the Second Circuit, until 1999, the longstanding common law rule prevailed: to prove liability and obtain injunctive relief under the Lanham Act, a plaintiff need only show a likelihood of confusion, but to obtain monetary relief he or she was required to show either (1) actual confusion; or (2) bad faith, meaning intentional deception or willfulness.  In 1999, however, Congress amended 15 U.S.C. § 1117, the provision of the Lanham Act which provides for damages, to state that damages may be obtained for willful violations of § 1125(c) (dilution). Judges have disagreed about whether adding a specific reference to a willfulness requirement for dilution damages altered the common law rule that actual confusion or willfulness was required for confusion damages.  Some cases, including in the Third Circuit, have held that the plain language abrogated the prior rule, applying the canon that when Congress uses particular language in one section of a statute but omits it in another, it’s generally presumed that Congress acted intentionally. But a number of judges in the Second Circuit have disagreed: because Congress is assumed to have been aware of existing law when it passes or amends legislation, and because it did not expressly change the requirements for damages under § 1125(a), the old rule about confusion damages should stay the same.  Plus, the legislative history and headings of the dilution amendment indicate that Congress was only concerned about dilution, not §1125(a), when it added that language. The court here agreed with the latter view. Thus, to receive damages under the Lanham Act, the Beastie Boys would have to prove actual confusion or intentional deception.  For a profits award, the Beastie Boys would have to prove willful infringement.

Also, Monster argued that the Beastie Boys only owned 50% of each copyright and had to limit their recovery accordingly. The court agreed with the Beastie Boys that their 50% interest wasn’t relevant to the jury’s damages calculation.  Any award would simply have to be discounted, if not already reflected in the jury’s award.

The court also rejected Monster’s argument that the Beastie Boys were entitled to only one award of statutory damages per work, because “[w]here the same plaintiff owns both the musical composition copyright and the sound recording copyright, awarding damages on a per work—or per song—basis is appropriate.” The court found Monster’s factual predicate to be wrong: Monster hadn’t challenged the Beastie Boys’ assertion that the sound recording copyrights were owned by one entity but the musical composition copyrights were owned by another.  Monster could attempt to show that the parties were so closely affiliated as to be considered one company for statutory damages purposes. 

Note: I haven’t looked up the case law, but I don’t see why separate ownership matters: the statute says “the copyright owner may elect … an award of statutory damages for all infringements involved in the action, with respect to any one work …. For the purposes of this subsection, all the parts of a compilation or derivative work constitute one work” (emphasis added).  Since it’s common to have separate ownership for contributions to compilations and the compilations themselves, or for underlying works and derivative works, this last sentence seems clearly to contemplate that there will be multiple copyright owners whose rights are infringed, but only one award of statutory damages.  I imagine the argument to the contrary is predicated on the phrase “the copyright owner,” but singular usually means plural too in these situations.