Wednesday, November 25, 2015
Monday, November 23, 2015
Makaeff v. Trump University, LLC, 2015 WL 7302728, No. 10cv0940 (S.D. Cal. Nov. 18, 2015)
Charlatan and budding fascist Donald Trump failed to get rid of many consumer protection claims against him and his “Trump University” (now renamed). Can’t wait to see how he’ll explain why this means he’s great.
In 2004, Trump helped found Trump University, a private, for profit entity offering real estate seminars and purporting to teach Mr. Trump’s “[i]nsider success secrets.” TU shifted to live events in 2007. Consumers were first invited to a ninety-minute Free Preview, preceded by an orchestrated marketing campaign:
For example, consumers were sent “Special Invitation[s] from Donald J. Trump” which included a letter signed by Mr. Trump that stated “[m]y handpicked instructors and mentors will show you how to use real estate strategies.” Newspaper advertisements displayed a large photograph of Mr. Trump, stating “[l]earn from Donald Trump’s handpicked expert,” and quoted Mr. Trump as saying: “I can turn anyone into a successful real estate investor, including you.” Similarly, TU’s website displayed large photographs of Mr. Trump and included statements such as “Learn from the Master,” “It’s the next best thing to being his Apprentice,” and “Insider success secrets from Donald Trump.” Further, TU advertisements “utilized various forms of recognizable signs to appear to be an accredited academic institution” such as a “school crest that was ubiquitous and used on TU letterhead, power point presentations, promotional materials and advertisements.” Plaintiffs have provided evidence that Mr. Trump reviewed and approved all advertisements.
The free previews began with a promotional video of Trump saying the things you’d expect Trump to say, minus the racism. E.g., “We’re going to have professors and adjunct professors that are absolutely terrific. Terrific people, terrific brains, successful. ... The best. ... we’re going to teach you better than the business schools are going to teach you and I went to the best business school.” The cost of the next step was $1,495. At that “seminar,” consumers were invited to sign up for the Trump Elite Program for up to $34,995, which allegedly promised unlimited mentoring for an entire year.
Named plaintiffs—California, Florida, and New York residents—purchased and were dissatisfied with TU programs. After Makaeff initially sued, TU countersued Makaeff for defamation. Claims at issue here: the usual California claims; financial elder abuse in violation of Cal. Welf. & Inst. Code § 15600 et seq.; deceptive acts and practices in violation of § 349 of New York’s General Business Law; violation of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA); and misleading advertisement in violation of Florida’s Misleading Advertising Law (MAL)/elder abuse.
The court partially certified a class of buyers from the three relevant states based on certain “core” misrepresentations: “(1) Trump University was an accredited university; (2) students would be taught by real estate experts, professors and mentors hand-selected by Mr. Trump; and (3) students would receive one year of expert support and mentoring.” Subclasses were divided by state and by age for the elder abuse claims. The class was certified for liability only, but decertified for damages. The opt-out period has expired.
The court first found that plaintiffs, who were now aware of TU’s misrepresentations, lacked Article III standing to seek injunctive relief. Fair warning: Trump testified at his 2012 deposition: “Do we plan to start [TU] again after this lawsuit is won and after we bring the lawsuit against your firm. I would say probably yeah.” He also told reporters that TU was “on hiatus.”
Trump argued that he was entitled to summary judgment because he did not personally make the alleged “core” misrepresentations to the class representatives, nor did the class representatives rely on misrepresentations made by him. He also argued that the representation that he “hand-picked” TU instructors was true.
Trump stated in interrogatory responses and deposition testimony that he “attended periodic meetings with various experts responsible for drafting and developing Trump University course materials” and that he saw resumes of instructors. However, though he said he was personally involved in the selection of four people who developed TU course materials, he also stated that “most if not all speakers, instructors and mentors were selected by Trump University representatives ....” Several instructors testified that they never met with Trump. There was a genuine dispute of material fact as to whether the representation that students would be taught by real estate experts, professors and mentors “hand-picked” by Mr. Trump was true.
Trump also argued that he wasn’t liable for restitution because the plaintiffs paid money to TU, not to him directly. However liability under the UCL and FAL “ ‘may be imposed against those who aid and abet the violation,’ ” there was a genuine issue of fact about Trump’s personal participation: (1) Trump was the founder and Chairman of TU, and authorized TU to use his name, photos, and quotes for all TU seminars and presentations; (2) TU’s materials all prominently feature Mr. Trump’s quotes, image, logo, and signature; (3) Trump reviewed and authorized advertisements; (4) Trump personally financed TU and reviewed financials; and (5) Trump represented that he hand-picked the TU instructors and mentors. Trump’s weak response that he didn’t control the day-to-day operations of TU was insufficient to win summary judgment, given his involvement in the alleged core misrepresentations.
Similar challenges to Trump’s direct responsibility for the named plaintiffs’ enrollment also failed. True, they didn’t talk to Trump directly. But, for example, Makaeff saw slides with statements by Trump, including that “[t]his is the next best thing to being my apprentice,” “[y]ou’ll learn inside secrets from me,” and “he was going to provide his hand-picked instructors.” Makaeff testified that it was important to her that Mr. Trump would hand-pick the instructors because “that’s a promise he made, and I would think that he would have the ability to pick the best people since that’s his expertise.” Likewise, plaintiff Low testified that he received a letter signed by Trump which included the statement that “[m]y handpicked instructors and mentors will show you how to use real estate strategies,” that the signed letter was the “[n]umber one” reason why Low decided he wanted to buy a TU program, and that Low “took it as being very significant that [Mr. Trump] signed it” because “I got that from him.” Low further testified that he considered all TU communications as coming from Mr. Trump. Under California law, a material misrepresentation can be actionable even if it wasn’t the sole cause of the plaintiff’s injury.
Florida plaintiff Everett similarly testified that the “Trump name, the Trump reputation, the Trump-backed program” played a “huge role” in and was the “only ... reason” for her decision to purchase TU programs, and it was important to her that she would be working with Mr. Trump’s “handpicked” instructors and mentors. She further testified that the name “University” implies an “educational program” with a “full staff of ... handpicked experts that understand real estate investing” and she thought it was “like a real estate school or a special school that has certification and follows certain guidelines for the state.” Florida and NY claims survived, the NY claims based on similar testimony.
As for the elder abuse claim, California law defines elder abuse as occurring when a defendant “[t]akes, secretes, appropriates, obtains, or retains real or personal property of an elder [65 or over] ... for a wrongful use or with intent to defraud, or both” or “assists” in doing so. The statute defines “wrongful use” as if the defendant “knew or should have known that this conduct is likely to be harmful to the elder ....” Trump argued that he didn’t know how many TU students were senior citizens and there was no “target market” for TU. But plaintiffs offered evidence that TU ads could be interpreted, and were interpreted by Low, as targeting seniors, and that Trump approved all ads. That raised a triable dispute as to whether Trump “should have known” the conduct was likely to harm elders. The same result occurred for the Florida elder abuse claims.
Arandell Corp. v. Walker, 2015 WL 7308649, No. 14-C-1279 (E.D. Wisc. Nov. 19, 2015)
This case illustrates that lawyering matters a lot; courts don’t always know the most recent circuit precedent. Here, the only purported federal claim was false advertising under the Lanham Act. But the court found the claim “insubstantial in the sense that ‘prior decisions inescapably render the claim[ ] frivolous.’” The reason was that “the purported false statements were made in person-to-person communications to specific customers, rather than in promotional materials disseminated to anonymous recipients.” And, in First Health Group Corp. v. BCE Emergis Corp., 269 F.3d 800, 803–04 (7th Cir. 2001), the Seventh Circuit “held” that only the latter form of communication was “commercial advertising or promotion.” Then, Sanderson v. Culligan International Co., 415 F.3d 620, 624 (7th Cir. 2005), “described as frivolous an argument that a person-to-person communication is actionable under § 43(a)(1)(B).”
However, neither the plaintiff nor the court apparently considered Neuros Co., Ltd. v. KTurbo, Inc., 698 F.3d 514 (7th Cir. 2012), in which the Seventh Circuit fixed this outlier holding (if holding it was):
[First Health and Sanderson] do not hold that “advertising or promotion” is always limited to published or broadcast materials—an interpretation that would put us at odds with all seven other federal courts of appeals to have considered the issue. … The cases from the other circuits are not inconsistent with the holding in Sanderson that three person-to-person communications at trade shows do not add up to commercial advertising or promotion or the holding in ISI Int'l that letters threatening suit for patent infringement are not commercial advertising or promotion; and in First Health the Lanham Act was held applicable.
A classic advertising campaign is not the only form of marketing embraced by the statutory term “commercial advertising or promotion.” Podiatrist Ass'n required merely “some medium or means through which the defendant disseminated information to a particular class of consumers.” And the most recent case, LidoChem, explained that “the required level of dissemination to the relevant purchasing public ‘will vary according to the specifics of the industry.’ ”
If “advertising or promotion” just meant “advertising,” then “promotion” would do no work in the statute. More important (because of the frequency of redundant language in statutes), there are industries in which promotion—a systematic communicative endeavor to persuade possible customers to buy the seller's product—takes a form other than publishing or broadcasting.
KTurbo held that a “road show” involving multiple presentations to individual customers was sufficient “advertising or promotion” to trigger the Lanham Act. Without further attention to the allegations of the complaint, it’s hard to tell whether this is a KTurbo situation. Since the plaintiff only argued that “advertising or promotion” was a jury question, the court didn’t have the chance to consider the issue—though I think failure to do so probably justifies reconsideration, if the allegations are appropriate.
Riverdale Mills Corp. v. Cavatorta North America, Inc., 2015 WL 7295541, No. 4:15-CV-40132 (Nov. 18, 2015)
Riverdale makes welded wire mesh for use in marine traps using a “galvanized after welding” (GAW) process followed by a polyvinyl chloride (PVC) coating (GAW + PVC). The combination extends the durability and longevity of the wire mesh in marine environments. A cheaper, less effective method involves galvanization before welding, which leaves the mesh more prone to corrosion even if it’s then coated in PVC. Riverdale has extensively educated customers on the difference between GAW and GBW mesh.
Cavatorta distributes Italian-made wire mesh. Its main focus is on GAW + PVC mesh, used for making marine traps, but it also makes non-GAW products to serve the fence and cage industries. Its GAW products were used interchangeably with Riverdale’s by fishermen and marine trap distributors, and prominently advertised as GAW + PVC. Its products are sold to companies that buy rolls of wire mesh and then use the mesh to build marine traps for sale to fishermen.
Between April of 2014 and May of 2015, the mesh producer made a significant manufacturing error and produced about three million pounds of mesh that was GBW, not GAW, but was packaged as GAW (sold under the name SEAPLAX). When one of Cavatorta’s customers complained, Cavatorta contacted each of its nine customers. It reached agreements with some of these customers regarding discounts and other forms of monetary compensation for the error, and it repossessed much of the mistaken product and transported about 1.5 million pounds to a warehouse. One of its customers, Ketcham, has not yet been satisfied with Cavatorta’s offers to make him whole, but he knew of the mistake and wasn’t not using or selling mislabeled product.
Riverdale sued for violation of the Lanham Act, seeking to require Cavatorta (a) to cease all sales, including any importing of the falsely labeled Seaplax product [not clear whether the comma after ‘importing’ was deliberately missing, but the court treats it as present]; (b) to avoid false advertising, including false GAW claims; (c) to recall all the falsely labeled product; (d) to prominently label [mislabeled] SEAPLAX as GBW; and (e) to issue corrective advertising. Cavatorta consented to (a), (b), and (d), but contested the recall and corrective advertising.
The parties agreed on falsity and materiality; literal falsity gave a presumption of consumer deception. However, though there could be no doubt of initial deception, “Cavatorta has since taken significant steps to remedy any resulting confusion.” It told all its customers and took custody of all the mislabeled product that its customers wished to return. “[I]t is in the best interest of Cavatorta’s customers who received mislabeled product to alert their own customers who may be affected. Credible testimony was presented during the hearing that the lobster-fishing industry is a tight-knit community and is generally aware of the issue through word-of-mouth communication.” Thus, the court was convinced that Cavatorta took sufficient corrective action to make ongoing confusion unlikely.
Riverdale argued that it was suffering ongoing injury because it has built its reputation on the superiority of the GAW process:
The lobster fishing season is currently nearing its end in New England. Riverdale predicts that when the traps are pulled out of the water and stored for the winter, those made from GBW mesh will develop blooms of rust. Riverdale further predicts that this will cause fishermen who thought that their traps were made from GAW mesh—but who actually received mesh from one of Metallurgica’s failed production runs—to doubt Riverdale’s claims about the long-lasting nature of the GAW product. In turn, this will harm the reputation that Riverdale has worked so hard to form.
The court conceded that reputational harm was difficult to prove, and that an erosion of consumer confidence in a product could take time to fully develop. Still, the court concluded, this was nothing more than conjecture, and in fact Riverdale experienced an increase in sales since the industry became aware of Cavatorta’s mistake. This would be a completely different case if Cavatorta were still selling mislabeled mesh, but the court predicted that, on these facts, the industry wouldn’t blame the GAW process, or Riverdale by association, for any prematurely rusting marine traps. Thus, there was no likelihood of injury to Riverdale’s reputation.
The status quo had been restored without need for injunctive relief. Cavatorta’s existing actions were sufficient to protect consumers from the harm of false advertising.
Friday, November 20, 2015
Purposes and limits (or not) in modern trademark law: Wendy Gordon, Rebecca Tushnet
RT: Stacey Dogan’s statement that as a practical matter we need justifications for copying/free riding—I didn’t want to believe it, but I’m coming around to that view. Mark Lemley says no, all we need to make the trademark system work is protection of consumers, properly understood. But I don’t think that’s sustainable in part because there are so many different ways to protect consumers, so many aspects on which competition might help or hurt them—price, quality, diversity. Because of the factual indeterminacy of many consumer protection justifications, we have a hard time making headway on consumer protection “properly understood.” So, it’s much better to admit that sometimes we are letting other interests serve as trumps. Not everyone will agree on what’s a useful heuristic for determining likely trademark meaning or likely confusion; therefore concepts like trademark use (which implicitly accepts the difficulty and expense of factfinding as a reason that consumer confusion can’t always be the relevant inquiry) should be supplemented with other structuring purposes.
[A different point about static efficiency than Bone made: Strong TM/dilution as producer protection: it struck me how static that language is: when in fact protecting a producer who already exists is narrowing the choices of future producers. Maybe we get at that by talking about competition, not competitors, but is that enough? The static/dynamic tradeoff is better accepted in copyright and patent; does it have a role in TM? I don’t think TM as incentive makes any sense (and listening to Europeans talk about it just puzzles me further), but incentive isn’t the only way to produce dynamic effects.]
What I’m particularly interested in now are the functions served by the registration system. Registration in a consumer-protection-only world has a very limited and puzzling role—it isn’t actually a signal of rights or lack of rights. Usual American suspects for non-confusion-related purposes are free speech and competition/protection of the utility patent and copyright systems. I would add notice and signalling, a main function of registration—allowing businesses to order their affairs as among one another. International trade/extension of protection is a related function of registration. These are different flavors of producer protection even as there are different flavors of consumer protection. Registration is inside the system, not external as McKenna has said of other limits; maybe the other limits are internal too.
Things I learned by doing the reading for this discussion:
From the law reviews: Edward Rogers, primary drafter of Lanham Act: 1909 article. Very interesting that he didn’t see any problem with granting plaintiffs practical monopolies over particular products—that’s not his problem. If secondary meaning is shown, he advocates, then no one can use the term. Trademark is not a consumer protection device at all in this view. Producer protection, with the consumer as the mechanism by which harm is done to producers. Note that this didn’t entirely prevail, either in the Lanham Act then or now—the legislation, like much legislation, represents a series of compromises in many cases kicking the policy questions that the legislature couldn’t resolve into the courts, which turn out not to be able to resolve them either.
Milton Handler & Charles Pickett, Trade-Marks and Trade Names-An Analysis and Synthesis: I, 30 Colum. L. Rev. 168 (1930)
See the development of the idea that arbitrary use doesn’t mean actual monopoly (as with what would come to be called descriptive or nominative use, but they called non-trademark or non-denominative use), therefore there is no need to exclude descriptive terms w/secondary meaning from the category of protectable trademarks and no need for the category of technical trademarks. Also argued that court should grant relief as far as possible to the senior user in restricting TM like or large print uses on D’s goods of descriptive terms w/secondary meaning. Again saw less concern for competition.
Milton Handler & Charles Pickett, Trade-Marks and Trade Names-An Analysis and Synthesis: II, 30 Colum. L. Rev. 759 (1930)
Dilution is a component of this approach: don’t require confusion when there’s uniqueness—not when there’s technical TMs.
From the cases: NY & R Cement Co v. Coplay Cement Co., 44 F 277: no cause of action for false advertising of geographic origin b/c of Pandora’s box—no one can sue for public nuisance w/o specific injury/invasion of property right. Still an issue today! Big split, finally resolved by Lexmark, holding that standing for false advertising requires proximate causation, but what proximate causation is in a multicompetitor market remains really, really unclear. Maybe all we can do is shift the same considerations around in a hydraulic legal system.
Incredibly important to keep talking about harm. It’s problems with confining the concept of harm that lead us to have to fight about purposes, it seems to me. Classic statement: Yale Elec. Corp. v. Robertson, 26 F.2d 972 (2d Cir. 1928): “If another uses [the trademark], he borrows the owner’s reputation, whose quality no longer lies within his own control. This is an injury, even though the borrower does not tarnish it, or divert any sales by its use ….” [Compare to debate over whether Congress can create standing for a party when their injury would not satisfy Article III in the absence of a statutory right (Spokeo): this is Hand literally admitting that the only harm is the loss of the legal right to control. That loss of control may if it is really true impose other risks but risks and actual harm are not, we are usually told, the same thing. Back to Felix Cohen’s transcendental nonsense: the modern conception that the TM owner suffers harm from loss of control/free riding is a result of allocating the legal right to the TM owner, but the “property” concept obscures that the exact same dynamics are operating here as where Congress creates legal rights for consumers. The political implications for a conservative legal system that recognizes property rights but not other forms of rights as important and “natural” or prepolitical, even when recognized by the legislature, are obvious.]
Gordon: TM law is a form of speech regulation with a property label, which makes it hard to call for recognition of the P’s interest. And that is political.
Internalization of positive effects: money can come in that becomes too great/non-incentivizing—super-high salaries. Surprised that the understanding in copyright is so much more advanced—some commentators seem to think you may have perfect internalization, but it’s always two people who create any effect. Therefore the allocation of all the benefit to the TM owner is likely to be unjustified.
Can’t expect perfection in incorporation of various doctrines. Doctrines don’t have to be fully protective to be considered by courts—it’s not persuasive to say that “if courts considered this a value they’d be making different decisions across the board.” They might have reasons to limit.
Our rights are most stable when different policies converge to support them. No such convergence in the modern cases. Persuading judges will require greater clarity on the purposes.
McKenna: at the core, interests of producers and consumers do converge. You do open up a gap at the periphery. His reading of Lackawanna Coal is that the courts were interested in a particular kind of deception—deception about identity, not about other aspects of the goods. Not surprising that courts then developed a common law of false advertising that could address other kinds of deception.
Every type of doctrine will have some things and cases that don’t fit perfectly. I’m just looking for a better fit. I think my account fits more naturally to more of the cases.
Bone: American Washboard: court’s policy reasons to refuse to allow P to proceed against falsely advertising competitor, maker of zinc washboards advertised as aluminum, are not reasons but rhetorical questions. There’s clearly a concern that if we extend this cause of action to false advertising, we’ll end up with anticompetitive effects, b/c pure aluminum washboard P could go after others w/perfectly good products that are only partially aluminum. But what’s wrong with that if they’re advertising falsely? We don’t want courts mucking around in degrees of aluminum? [Note later development of materiality/puffery to deal with this.]
Dogan: Political aspect—idea that when people have something that they’ve invested in developing, or that they inherited, it’s theirs, regardless of the structures that nurtured it and the contributions others made (keep your hands off my Medicare!). Even if you accept that, shouldn’t be transferrable to the IP context. Visceral in many courts’ minds, and certainly in TM holders’ minds: it’s mine.
Silbey: feeling that it’s mine v. feeling that something is being taken. When a big Apple store opens up, the restaurant next door benefits. The restaurant is free riding, but we don’t think that restaurant owes anything to Apple. But if I trespass on your property, we recognize a harm and a cause of action even though there’s been no change in wealth.
Dogan: courts intuitively think that “happening” to be next door is different.
McKenna: but we can give an example where the person just moves in afterwards to take advantage. Any time there’s a Walgreen’s, there’s a CVS on the other corner. One of them does market research and the other free rides on the information about the local market on which the other relied. There’s no instinct that this was unfair.
Discussion about whether free riding on a trademark can ever occur without the risk of harm. [What if it's not confusing? Then the "bad publicity from bad quality" risk can't materialize.] Students are attracted to the idea that there's always some risk of harm if someone else is using the same mark on the same goods [presumably without further identifying marks].
The role of justifications and equitable considerations in trademark law: Stacey Dogan
Many of the early cases are limiting protection b/c of some interest they’re trying to protect on the other side—Borden is an exception. Maybe a public right to use the term—e.g., American Washboard. Troubled by recognizing a right in a private party that would preclude others from truthfully describing their goods.
From Borden to Aunt Jemima: in the latter, the court says there doesn’t seem to be a reason for the D’s use of the TM—there’s consumer deception, there’s possible harm to the P, and there’s no reason to give access to this term w/singular meaning. Concept of justification does help explain case law through early-mid 20th-c. Courts start thinking in terms of likely confusion—instinctive/intuitive feeling that unexplained/unjustified Ds who are trying to free ride create a costless case for judicial intervention. That takes us through much of the contemporary case law as well, even in cases involving counterfeit goods, post-sale confusion. Courts are moved by a natural rights feeling that TM owners are entitled to the fruits of their labor unless the D has some justification.
Courts initially responded to use of keywords in search engines as “unfair,” using guise of confusion; as courts have been educated about the value of these uses for competing or complementary products, they scaled back the scope of TM rights, insisting on a showing of real likely confusion. Amazon v. MTM; Tiffany v. eBay; even Rescuecom. Most limits have been imposed in the expressive use context. Increasingly Rogers v. Grimaldi: very defendant-protective, and the reason courts do this is that they see the speech value of allowing people to incorporate TMs into expressive works.
Wendy Gordon: Boston Hockey—merchandising right. Investment protection rationale? Hard to tell a good incentive story. Cheaper sweatshirts for poorer people—better access to status competition.
Dogan: Natural experiment? Europe has broad protection for design; US has less protection for designs that integrate form and function. Design patent does protect design, but much design developed in last ½ of 20th century is no longer protected if it ever was. Lots of furniture still under protection in Europe but not here—someone should do empirical work to figure out effects on product diversity, price spectrum. Recent injunction against generic manufacturer of a drug that just went off patent—a purple pill, and the plaintiff/brand owner sued when the generic manufacturer used the same color, and got a PI. There has been some work done suggesting that old people in particular really rely on pill color. Compliance w/drug regimen declines if people aren’t allowed to use pills. [McKenna interjects that it also supports drug effectiveness.] To the extent that we can harness evidence like this and present it to courts, they might be more persuaded about the costs associated with recognizing rights.
Bone: Dogan is describing sort of a presumption of protection; he would say today’s TM is about worrying about risk. Smack Apparel: the D had justifications, they were just ignored. [So basically TM owners and the courts that enable them are as lily-livered as Donald Trump and his ilk’s fear of refugees.] P had an established licensing market, and if that were impaired, who knows what would happen? Erring on the side of the TM owner. Same w/prestige goods—court isn’t going to say that signalling status through purchases is wrong. If the Ferrari gets too plentiful, then prestige plummets, and we don’t want that risk. Tarnishment/dilution is the same.
Dogan: these aren’t unrelated. Tarnishment is distinct because while she doesn’t like it, there is a theoretical harm narrative there [just one whose mechanism violates the First Amendment, NBD].
McKenna: courts are relying more on justifications, but the problem is that courts don’t uniformly accept those justifications—they don’t buy the argument for competition in luxury markets. They buy the harm argument that P will lose customers who want snob appeal. You need justifications, but you also need to know when justifications will trump the harm story, and courts ever expand their willingness to accept ever more fanciful harm stories. We don’t need to figure out what TM law was once about to make TM law now, but the reason he wrote was that the dominant discourse was that TM law was about search costs and we should get rid of doctrines that don’t further that. Courts don’t think they’re doing search costs so they won’t be responsive to those arguments. Bone/McKenna dispute is a conclusive argument against originalism, but agreeing w/him isn’t key—wants to convince people to take on the harm story on its own terms rather than just say cts aren’t doing what they’re supposed to do. And you can’t do that if you say the doctrine has abandoned its old consumer protection rules. There is both continuity and a radical shift.
Gordon: remember that Holmes reminds us that just b/c something has value doesn’t mean that it should be property; and there are complicated questions about courts v. legislatures.
McKenna: note that 1-800 (10th Cir.) channels its concerns through the harm story—it doesn’t say “keyword ads are good so this is ok” it says no one is clicking on these ads and therefore there’s no confusion/no harm.
Dogan: what is it that TM law ought to do? Unrealistic to go back to trade diversion.
Silbey: Take seriously the idea that consumers are harmed when they get the wrong thing.
Silbey: better explanation for why mistake is a problem when we buy. Take the idea of impersonation seriously—is that a consumer interest apart from market balance issues, if the consumer is otherwise satisfied.
Gordon: should the P have to show that the D is making something whose purchased by a confused consumer would hurt the consumer in some relevant way? Hand says TM owner shouldn’t have to be at risk, have to wait for bad quality to materialize, but over time Hand began to think that was too generous for Ps. Sees the point of allowing P to vindicate rights before the harm materializes, once you accept the theory that if it materializes it will do P harm.
Dogan: there’s also a consumer autonomy interest in preventing a purchase that is caused by deception.
Bone: Autonomy is a description of information/choices. Why do we care? Maybe b/c it makes market work better—allocative efficiency. We might care if consumers have the right to perfect information, but that’s impossible. Third reason: more to do with enforcement costs—ideally, we wouldn’t give protection where products are of equal quality, but broader rule has fewer error and enforcement costs.
RT: Autonomy is more than a descriptive term.
Silbey: early cases focus on manufacturer autonomy. The taking of the name is a harm in itself, and I don’t understand that for the reasons Bone articulates for dismissing consumer autonomy standing alone. [That is, it can either be market based or rights-based, and neither work well.]
McKenna: we can sweep consumer autonomy under the rug if you focus on lost sales/harm to TM owner. Also, quality concerns: you have to start thinking about what the components of quality are—conditions of production. There’s no a lot of real diving into where real consumer autonomy is.
Dogan: Ferrari case is an example where the harm story is not really doing the work—it’s about free riding, and the court sees no social value in this form of copying.
McKenna: features of TM promote informational clouding, not clarity. For example, Clorox is no different from other bleach (Posner thinks there’s more of a guarantee that it won’t explode but nobody else thinks this—people buy Clorox because that’s what they’ve always done). It’s also easy for TM owners to obscure true ownership of company. It’s easy to change a TM to disguise your identity. If goal were info clarity, TM law would restrict these things.
Bone: it just doesn’t go as far as it could. That’s not clouding.
Dogan: provisions for information—nominative fair use, allowing communication about TM owners—enable others to correct problems.
McKenna: mismatch exists though. Comparative advertising can reach particular components. But you can’t get the limits of TM law from “it’s about promoting the flow of information” b/c then you need to know why it’s about this kind of information rather than others and why it doesn’t cover other uses involving a TM (e.g., your health insurer’s use of a TM with its incomprehensible disclosures).
Gordon: Social welfare v. formalists. Formalists would say you have a right b/c you have a right. Consequentialism asks why these people have these rights in these conditions. Law & economics answer: usually starts w/sharp distinction b/t distribution and allocation. Distribution = who is richer & poorer. Allocation = how is a particular resource being used. We seem to usually make policy arguments in TM that say let us give rights to people who will use them in a way that gets resources to higher-valued uses. That’s allocation, but we also worry about the distributional aspect. So we tend to react to changed circumstances—we thought copying facts was great—with changed law—1918, SCt says that problems w/news services justify new allocation. And yet: We don’t want people who have vested rights to suddenly lose what they have simply b/c they’re not economically useful. We have a few ways of protecting that. One is the takings clause. The other is the gradualism w/which law operates.
One difficulty w/TM is that we can see distributions being made w/out any allocational justification, b/c we assume that past allocations had some social welfare justification. New prestige goods/merchandising rights etc. evolve w/o any clear sense of why it helps society. Its recency makes it hard to credit the distributional claims made for it. Similar w/publicity rights.
Bone: Another piece is that we’re starting to enlist TM law for dynamic efficiency purposes, which is a new thing. Some people are concerned about incentives in a dynamic way—merchandising rights. Goes beyond incentives to maintain product quality.
Dogan: In an unexamined way—implicit in the opinions rather than explicit and examined and challenged.
Meurer: Merchandising rights might be justified by claiming that sports teams capturing more rents leads to bigger stadiums, bigger payouts to players (I’m sure they’ll start building their own stadiums any day now). Maybe more plausible w/r/t George Lucas and the next Star Wars movie. Affects incentives about which kinds of movies to invest in.
Many economists think the more ads, the better, b/c ads are typically informative. Strong protection for goodwill might induce more investment in advertising, which is better for society. If you think ads are bad you’d reach an opposite conclusion.
IP Conversations: Trademark Law’s Fundamental Purposes, Boston University School of Law
The debate over normative foundations: Mark McKenna: up until the 1920s-40s, courts uniformly understood that unfair competition was about trade diversion, illegitimately getting business that should have gone to someone else. Structuring competitive relationship between commercial actors. Case from 1871: in all cases, invariably held that essence of wrong is sale of goods as those of another. Direct competition was required; source confusion was required, not something like affiliation confusion.
Difference b/t TM and unfair competition in this light, oversimplified, was about being attentive to the fact that attempts to divert trade by competitors is the definition of competition: unfair competition had to be distinguished from competition. Focus on deception allowed these distinctions. Where P’s mark didn’t indicate anything about the goods, no plausible explanation of use of same mark for same goods, so illegitimacy could be presumed. “Trademarks” or “technical trademarks”—no separate need to prove intent to pass off. But other designations, like geographic references, descriptive terms, trade dress: more ambiguous, could be used in deceptive or nondeceptive ways, and courts dug into the use more deeply: that was the law of unfair competition. Initially had to show intent to pass off/rule out legitimate explanation.
Confusion of consumers was not itself enough to intervene—these courts weren’t unclear about why they denied relief. Deception wasn’t enough; if you couldn’t show that deception was going to divert your customers, or if you couldn’t show that it wasn’t deception that diverted your customers, then you lost—American Washboard, false use of “aluminum” wasn’t actionable even though consumers might well be confused. Fraud on the public isn’t enough; incidental effect of protecting P’s property right is to protect the public. Consumers might have their own claims, or the gov’t might intervene on behalf of consumers to protect them.
Natural rights reasoning shifted to legal realism; also the commercial marketplace changed compared to the 19th century—geographic and product markets expanded. Modern branding put pressure on courts maintaining their notion of harm. The earlier courts clearly understood and ruled out claims involving noncompeting goods. Also, they didn’t encounter noncompeting goods cases very often because companies didn’t often offer multiple products. Later courts didn’t want to stop there, not because of harm to the consumer but because of more recognition of harms to producers. Bone documents the rise of the previously unneccessary likelihood of confusion factors—weren’t needed in a world where TM is about direct competition, and the only question is whether there’s sufficient similarity. When courts started considering other harms, they were thinking of harms to producers—market foreclosure, reputational harm.
Radical shift therefore is not that they started caring more about mark owners than they used to—the Progressive era didn’t care more about producers than the Lochner era courts did. But that means the law hasn’t recognized many limits—confusion itself is the harm, rather than confusion being a predicate to some other harm. That has proven infinitely pliable to mark owners. Often they don’t have to be pinned down about the consequence of that confusion. Paying more attention to harm = progress. Also limiting principles from outside: interference w/patent, copyright. Increasingly necessary because there are no internal limits. Doesn’t think we should go all the way back to trade diversion, but there has to be something in between.
Robert Bone: Interpretive exercise: what did the late 19th century/early 20th century courts think they were doing? Distinguish 2 questions: (1) Why do we condemn certain practices as TM infringement/unfair competition. (2) What are the requirements for a private right of action. Some judges during this period separated these questions—we might call (2) today standing. Guard against anachronism. We are policy analysts, but they didn’t think of themselves that way.
His interpretation of the history: One reason for (1): protect sellers from harm to reputation, loss of sales. Another reason, equally important: to protect purchasing public from fraud—not prioritized behind protecting sellers. Why protect reputation? Labor/desert. Consumers? Morality, and promoting market competition, both.
McKenna recognizes both purposes but wants to prioritize seller protection; Bone doesn’t see that. Canal Co. v. Clark: no secondary meaning = no injury from appropriation; nor can the public be deceived—no need to say the second thing if only the first mattered. [I myself think that courts do the “have your cake and eat it too” thing all the time.]
Common law was natural law—TM was property right. McKenna and Bone disagree—McKenna sees it as a right to customer flow/patronage, w/harm being trade diversion. Bone sees it as a right to goodwill as property. Trade diversion isn’t at the core of unfair competition, but rather appropriation of/injury to reputation/goodwill. Goodwill is the thing drawing customers, not the customers themselves. He doesn’t want to accept that taking customers away could, even at the beginning of the analysis, impair a property right. More importantly, McKenna’s focus on deception doesn’t come from the nature of these rights. It’s superimposed on the right to customer flow. But why deception, if it doesn’t follow from the nature of the right? Because of public harm. Bone’s approach derives the deception limitation from the right itself: the goodwill of the 19th c. is the goodwill of the product sold by the seller. The way you take that goodwill is by representing yourself to be the seller.
McKenna’s concerns go to (2)/standing—Bone doesn’t think answers to (2) tell us enough about (1). Aluminum Washboard court finds no private right of action, even though there’s trade diversion. If you didn’t buy an aluminum washboard from P, you had to buy one (marked as such) from D. No property right, so no cause of action, not that there’s no fraud. Fear of vexatious litigation. FTC doesn’t change the name of the thing it can pursue—unfair competition. If trade diversion were the essence, we wouldn’t call the thing the FTC goes after is unfair competition.
Borden is the strongest case for McKenna—the court says there’s no property right; you need direct competition. This follows from notion that goodwill was limited to the P’s particular product. That goodwill wasn’t taken. At the end of the opinion, the court says there might be some equity jurisdiction if the defendant’s products were inferior, notwithstanding lack of competition.
Bone also thinks the noncompeting goods expansion was earlier than McKenna does—could be accommodated easily by expanding goodwill of product to goodwill of firm, which was logical once firms diversified. Natural property right superstructure was jettisoned, as a major change, resulting from legal realists’ attack on natural common law property right. Period of policy-based functionalism, no longer limited because there was no “property.” Policies were in conflict; needed to be balanced. But the same 2 policies hung around in a general sense—protecting consumers and protecting sellers. What’s changed: mainly, once we start looking at those policies, views about appropriate balance/weighting differ across different folks. One big thing is the rise of psychological advertising. Notion that advertising can give you an “identity.” Concerns about monopoly weigh on the other side.
Multifactor confusion test tries to paper over the underlying policy conflicts, but that conflict remains. Goodwill gets expanded even further, from firm goodwill to “inherent” goodwill—popularity/value of the mark itself.
McKenna: doesn’t think we can say about the later 19th c. cases that the problem was lack of a property right—that was the whole difference between TM proper and unfair competition—if property were the real explanation, we wouldn’t have an unfair competition cause of action. Bone says it’s hard to think that competition is a harm, but McK’s point is that the idea was to protect legitimate exercises of one’s own property interests, not a stream of consumers—Keeble v. Hickeringell is about when it’s legitimate to divert ducks—yes by building your own duck pond, no by firing guns. So deception does naturally limit the scope of the right.
Unfair competition: Bone has a whole article about the changing meaning of “goodwill”—so too the meaning of “unfair competition” changed over time. You can see in the same era, FTC hearings, child labor, convict-made goods—at the beginning, somebody suggests that we call that unfair competition. At the beginning of that period, people say that’s crazy, unfair competition is about passing off. A few years later, people say “if my competitor can use child labor in another state, that’s unfair competition,” and everyone nods—a big shift.
Bone: yes, unfair competition is expansive. But American Washboard is an unfair competition case that rejects a claim b/c there’s no property. There’s no uniform view of this in 19th c—there are tensions. It wasn’t stable.
Prof. Chronopolous: English common law allowed tort of deceit, to be brought by consumer.
Wendy Gordon: One thing that intrigues her was the rise of rights in marks as such/licensing marks as objects of value. What policies should TM serve, regardless of the history?
Prof. Alexandra Roberts: What did practitioners, producers, consumers think? Are the judges similar? Assumption of consistency: can we make overarching claims about what the goals of TM were? Modern doctrines—no such consistency.
Dogan: relationship between normative/policy considerations driving doctrine and doctrine itself. Natural rights approach/Lockean labor approach—to its logical conclusion, that doesn’t have limiting principles either, certainly not limited to trade diversion. Given that goodwill, as long as enough and as good is left for others, I should be entitled to prevent others from appropriating it. Doctrinally, the early cases did tend to limit rights to trade diversion, but that can’t be equated to a natural rights theory that is limited to trade diversion as a matter of principle. Relatedly, in terms of what’s driving expansion of TM in 20th c, the likelihood of confusion standard is loosey-goosey and enabled expansion, but when we think about what motivated that expansion, the cases that push the boundaries involve explanations that aren’t focused on confusion so much as they are focused on a kind of natural rights impulse—Boston Hockey, Smack Apparel, early initial interest confusion cases. Courts seem to be interested in protecting producer’s ability to capture full value associated with their reputation. Likely confusion is enabler, but not the real focus of courts that want to protect producers.
Jessica Silbey: What work is the word property doing in the early cases, in the story Bone is telling? The market has a character and she can see how that moves doctrine, but not property. In the early cases she sees impersonation, taking people’s names. Relation to defamation, injury to reputation, might give us more information about ephemeral harms/kinds of harms that do produce standing. (Robert Post’s excellent article about legal models of reputation has a lot of relevance here.)
Michael Meurer: what was the mix between consequentialism & deontology among judges at this time?
Rebecca Curtin: Both McKenna and Bone commented on relation between commercial practice and law. But why? What are the consequences of that for principled limits on TM?
Wednesday, November 18, 2015
Service Jewelry Repair, Inc. v. Cumulus Broadcasting, LLC, 2015 WL 7112334, No. 14–cv–1901 (M.D. Tenn. Nov. 13, 2015)
Service Jewelry provides jewelry sales and services; from 2010-2014, it promoted its products on a local radio station, WWTN-FM, by buying ads from the station’s owner, Cumulus. Cumulus sells ad time to many Nashville-area businesses, including thirteen different jewelry sales and services companies. This action sprang from a May-July 2014 campaign by Service.
The campaign was prompted by an investigative news report on WSMV–TV, the Nashville NBC-affiliated television station, which questioned the manner in which a major competitor of Service Jewelry, Genesis Diamonds, graded the quality of its diamond products. In response, Service decided to run a series of on-air ads highlighting the report and directing consumers to Service Jewelry for assistance if they had concerns regarding the quality of their diamonds. The spots included pre-recorded advertisements and live radio endorsements by a WWTN radio personality, DelGiorno. Service Jewelry provided DelGiorno with a list of talking points about the investigation and about how people might have been misled or gotten diamonds that were “hugely overgraded,” contrasted to Service Jewelry’s honesty.
To better understand the context of these talking points, DelGiorno reviewed a video of the investigative report, but didn’t conduct an independent investigation into the truth or falsity of the allegations made about Genesis in the video, and Service didn’t ask him or Cumulus to refrain from using Genesis’ name. The contract didn’t impose obligations on content aired by Cumulus outside of paid ads or require Cumulus to use only language provided by Service Jewelry in the pre-recorded advertisements and live endorsements.
The first few live endorsements (out of a total of 16) didn’t mention Genesis by name. Service Jewelry’s CEO then emailed DelGiorno, writing:
Genesis, once again, is advertising that “if you find a certified diamond that is similar to ours for a cheaper price, we will give you ours for free.” We want to take this guy completely down for this. I would like for you to add to your talking points, something to the effect, that we would like for anyone to take him up on this offer.
DelGiorno then mentioned Genesis by name in four live endorsements for Service Jewelry. But Genesis was another of Cumulus’ advertisers, and a Genesis representative objected. Cumulus agreed to air apologies for these endorsements:
We at WTN want to apologize for some very negative and unfair comments about Genesis [D]iamonds made during a series of advertisements by our host, Michael DelGiorno. Michael has apologized to the staff at Genesis for reading a commercial by a competitor which included some very strong and disparaging comments. We are proud to be associated with Genesis Diamonds and hold them in the highest regard. Genesis has a strong and positive reputation …. You don’t get to that level without doing business the right way, with integrity, superior products and unmatched customer service. We wish them years of continued success.
DelGiorno’s personal apology was similar, and included the statement: “To be honest, I did not do my own investigation about Genesis. I was given some commercial copy by the other jeweler and I relied entirely on the information provided in doing the commercials.… I should never have made such serious comments about another business in town, especially without doing my own homework.” These were on the station’s website and DelGiorno read his apology 14 times on air. WWTN-FM continued to air other ads for Service Jewelry that didn’t refer to Genesis; Service Jewelry had an upaid invoice of nearly $13,000 when it cancelled all its ad business with Cumulus.
Service Jewelry sued for (1) breach of contract; (2) defamation; (3) violations of the Tennessee Consumer Protection Act (TCPA); and (4) false advertising under the Lanham Act. As evidence of its damages, it submitted a declaration indicating that a “[r]eputation for honesty is of primary importance in the jewelry industry,” and that the apologies “harmed Service Jewelry’s reputation and standing in the community and in the industry, ... [leading] to actual financial damages, including significant costs and expenses in attempting to set the record straight.” It presented no consumer surveys or market research demonstrating consumers’ reaction to the apologies.
False advertising: First, the court found that the statements in the apologies weren’t literally false. Service Jewelry apparently challenged the attribution of DelGiorno’s statements about Genesis to Service Jewelry as well as the labeling of those statements as “untrue,” “unfair,” “derogatory,” and “disparaging.” The apologies referred to “another jeweler in town” who gave DelGiorno “some commercial copy” containing the information on which he relied in commenting about Genesis, and also said that “a commercial by a competitor” was the subject of the Apologies. “None of these statements are literally false. The Apologies do not actually attribute the content in the commercials that were the subject of the Apologies to the other jeweler referenced”—dubious, but all right, but here’s the bit that goes against most Lanham Act cases: Also, the apologies didn’t name Service Jewelry. Listeners would have to remember the advertiser’s identity from a month prior, and would have to “infer that all negative statements were provided to Mr. DelGiorno by that jeweler.” Usually, if there’s one competitor to whom a comparison clearly points, given other facts about the industry, that’s deemed a reference to that competitor. Plus, DelGiorno’s statement that he “relied entirely” on Service Jewelry’s information could have multiple meanings—it could mean that the statements came from a script, or that he based his statements on information Service Jewelry provided. “Based on the ambiguity in the language and the degree to which the listener must integrate statements in the Apologies with prior knowledge of Service Jewelry’s advertising, the court cannot conclude that the portions of the Apologies that allegedly attributed Mr. DelGiorno’s statements about Genesis to Service Jewelry were literally false.”
As for the characterization of the statements about Genesis as “unfair,” “derogatory,” and “disparaging,” those were unverifiable statements of opinion. The use of “untrue” was also too ambiguous, since it was combined with “untrue or unfair.” “A listener could also understand this language to mean, however, that Mr. DelGiorno simply did not know whether his statements about Genesis were untrue, whether they were only unfair, or whether they were both untrue and unfair.” Service Jewelry didn’t show evidence of actual consumer deception, so it couldn’t prevail.
Its defamation claim failed for the same reason: there was no evidence that Service Jewelry’s reputation was injured or that it suffered damages. Its sole declaration on the subject contained just the sort of “[c]onclusory statements unadorned with supporting facts [that] are insufficient to establish a factual dispute that will defeat summary judgment.” The TCPA bars “unfair or deceptive acts or practices affecting the conduct of any trade or commerce,” including “[d]isparaging the goods, services or business of another by false or misleading representations of fact.” But it too requires damages, specifically an ascertainable loss of money or property.
The court also found that the apologies didn’t breach any contractual term.
From a ruling on a sponsored Instagram post for Britvic soft drinks:
We considered consumers needed to be aware that they were viewing marketing content prior to engagement, meaning that they should know that they were selecting an ad to view before they watched it. We considered the branded shot clearly contributed to the ad being identifiable as such, but that it was nevertheless not sufficient to ensure that was obvious, because it appeared at the end of the video. In addition, we considered it was unlikely to be immediately apparent to consumers what the hashtag “#sp” was intended to refer to and, as such, it was also not sufficient to ensure it was obvious the post was a marketing communication. While we understood that “#sp” was intended to communicate that the material was a ‘sponsored post’, sponsored content was a category distinct from that over which an advertiser retained editorial control. We therefore considered it was not a sufficiently accurate label for the ad, even if the meaning had been immediately apparent to consumers. Finally, we considered the text “More of my #BlendRecommends with @drinkj2o Spritz to come!”, in particular because it identified Millie Mackintosh’s relationship “with” J2O, might indicate to some consumers that the brand had been involved in the process but that it did not clearly indicate that the post was a marketing communication, as opposed to, for example, material that had been financially sponsored, but over which the creator retained editorial control. For the reasons given, we considered consumers would not be aware before engagement that the post was an ad.
Tuesday, November 17, 2015
Yes, this is a Hamilton blog for the foreseeable future. As they say, sorry not sorry. Last night, Bernie Sanders sent me this email:
Fellow Hamiltunes fans (many of whom are almost certainly in Sanders' target demographic, like me) will recognize the subject line. Does the First Amendment protect Sanders' use? I'll tell you this: he earned a bunch of goodwill with me!
Monday, November 16, 2015
GOJO Industries, Inc. v. Innovative Biodefense, Inc., 2015 WL 7019836, No. 15 Civ. 2946 (S.D.N.Y. Nov. 12, 2015)
Defendant IBD moved for a preliminary injunction against GOJO and nonparty distributors of GOJO products barring them from making representations that GOJO products are FDA approved and from using government agency logos in an online video. The court denied the motion.
GOJO sued IBD for falsely advertising that its Zylast hand sanitizing products were “FDA approved” and for deceptively using the FDA logo in ads, as well as for making false claims about GOJO’s Purell hand sanitizing products. The parties stipulated to an order preliminarily enjoining IBD and its authorized agent from representing that Zylast products were FDA approved and from using the FDA logo in advertisements. IBD then sought a preliminary injunction against similar “FDA approved” representations in the sale of GOJO products and use of CDC, World Health Organization, and Health Canada logos in an educational handwashing video on the Purell website. IBD’s evidence about “FDA approved” was from websites belonging to nonparty distributors and a nonparty independent sales rep. A March 2014 email chain between GOJO’s National Account Director and an independent distributor in which the GOJO employee provided instructions on the correct names for GOJO products and also provided current product images.
GOJO argued that the nonparty distributors were not GOJO’s agents or under GOJO’s control and that it had removed the logos from the educational video on the Purell website. “In order for a nonparty to be bound, that entity must either aid and abet the defendant or be legally identified with it.” IBD didn’t introduce evidence of an agency relationship with any of the distributors. Providing basic information about product names and images wasn’t enough.
Balsam Brands Inc. v. Cinmar, LLC, 2015 WL 7015417, No. 15-cv-04829 (N.D. Cal. Nov. 12, 2015)
Balsam sought a TRO based on claimed patent rights in an invertible artificial Christmas tree, the “Flip Tree,” that includes a “pivot joint” in the trunk that separates the trunk into two parts and allows the tree to fold for simplified set up and storage. They sued Cinmar, aka Frontgate, for selling allegedly infringing artificial Christmas trees, as well as for false marking/false advertising.
Plaintiffs failed to show standing to sue for patent infringement, and also defendants raised a substantial question of whether the accused trees were infringing. For the non-patent claims, Balsam didn’t show irreparable harm. Balsam alleged that (1) Frontgate has marketed the accused trees as “featuring patented inversion technology,” but Frontgate lacks patent rights in the inversion technology featured in the trees; and (2) Frontgate has marketed the accused trees as featuring “exclusive inversion technology,” but the inversion technology featured in the trees is not exclusive to it, because plaintiffs also use the same technology.
The only evidence of irreparable harm came from Balsam’s CEO, whose declaration said:
Based on Frontgate’s holiday marketing promotions in past years, Balsam expects Frontgate to advertise a variety of price promotions and discounts throughout the Christmas selling season. For example, over the October 24 weekend, Frontgate is offering $50 back for every $200 spent, resulting in a 25% discount. Balsam will soon need to decide whether to lower its own prices to compete with Frontgate’s infringing products.
Frontgate’s sale of infringing invertible trees, and its false advertising claiming it’s the exclusive provider of such trees and that it even owns the patent on them, erodes Balsam Hill’s identity as an innovation leader. Frontgate’s actions also discredit our marketing campaign promoting our exclusive right to the Flip Trees.
Frontgate’s actions are also costing us sales and market share. Catalog and ecommerce businesses depend on acquiring new customers and then benefiting from the lifetime value of those customers. Typical ecommerce or catalog retailers like Frontgate may break even or even lose money on initial sales to new customers. Their strategy is to acquire customers and then build lifetime relationships that lead to downstream sales. Former Frontgate employees have told me that Frontgate in particular uses trees as its acquisition tool, and then later sells décor and many other products to those customers.
Each lifetime customer relationship Frontgate builds using infringing trees and false advertising is a lifetime relationship potentially lost to Balsam Hill. And because our brand and not just our Flip Tree is under fire, we also stand to lose downstream customers and sales across our whole product line. This includes conventional Christmas trees, wreaths, garlands, ornaments, stockings, tree skirts, and other products. These losses may last a lifetime.
Christmas trees are highly seasonal. Our business grows tremendously each week in October and November and hits a fever pitch by the Thanksgiving holiday weekend. Based on 2013 and 2014 sales data, … A single poor Christmas season could be devastating to the company.
Whether the false advertising claims actually go to anything material, you have to admit, that’s a lot better than many harm declarations do. However, the court noted, the majority of the irreparable harm came from the fact of the allegedly infringing sales, not from the allegedly false advertising. Without additional evidence of “eroded identity as an innovation leader,” “discredited exclusive right,” or “lost lifetime customer relationships” actually occurring, the claim of immediate irreparable harm was too speculative.
In addition, Frontgate submitted a declaration that its description of its trees as “featuring patented inversion technology” was based on its misunderstanding that the pending application on the slotted hinge technology had already issued, and that it had since removed the offending language from its website. The only allegedly false statements in Frontgate’s catalogs were that Frontgate’s trees feature “exclusive, state-of-the-art technology guaranteed to make setup a snap,” and that Frontgate’s “exclusive new Inversion tree goes from packed-away to put-up in about a minute.” Plaintiffs didn’t show a likelihood of immediate harm from those statements that couldn’t be adequately addressed by money damages.
Finally, plaintiffs’ delay in seeking a TRO was also noticeable. Plaintiffs allegedly learned on August 18, 2015 that Frontgate was selling the accused trees, and presumably learned of the alleged false advertising around the same time. But they didn’t file their complaint until October 20, 2015 and did not seek a TRO until October 26, 2015, just days before the start of the month when Balsam alleged that they generally earn approximately 50 percent of their annual revenue. A ten-week delay “would be of little if any concern in most circumstances, given the extent to which plaintiffs emphasize the importance of the holiday shopping season in claiming that they will suffer irreparable harm, their failure to seek injunctive relief sooner further weighs against this claim.”