Thursday, July 24, 2014

FTC announces settlement with "official" ticket seller that wasn't

Details at the FTC's site.  I was interested in this because usually the FTC leaves alone cases in which a business victim is a likely plaintiff; it makes sense to use government resources to go after defendants who otherwise would be ignored.  Here, the defendant impersonated Radio City Music Hall, selling marked-up tickets in a way that looked like they were direct from the venue.  This would've been fodder for an ordinary trademark suit by the various affected venues, but apparently either the trademark owners weren't interested/aware enough (since they were getting paid anyway) or the FTC determined that the separate consumer injury of overpayment justified action. 

Trademark exceptionalism wins another round in Maryland

Hershey Co. v. Friends of Steve Hershey, 2014 WL 3571691, No. WDQ–14–1825 (D. Md. July 17, 2014)
Thanks to prodding from Eric Goldman for me to blog about it, here’s a case where we learn that the only constraint on political speech left is intellectual property. Steve Hershey is a local Maryland politician who’s scrapped with Hershey Co. for years about his brown, Hershey-wrapper-esque signs. In 2010, they came to an agreement that Hershey would change the design of his materials. But in 2014, he campaigned for state senate using a campaign logo with a Maryland flag in dual tone brown as the background, the word HERSHEY in white Impact or Helvetica Nueue font, and STATE SENATE in smaller font below.
Hershey Co. sued for trademark infringement and dilution and breach of contract. The court granted a preliminary injunction on infringement grounds (also proving that there is no work left to be done for dilution in modern law).
“In commerce” is a jurisdictional requirement, so that’s not a barrier. The court found substantial similarity between the campaign sign and the widely known Hershey trade dress. “The Maryland flag design is subtle, and would likely be difficult to notice, especially when viewed on a lawn sign from a passing car.” Differences in the parties’ goods and services didn’t matter because confusion over sponsorship or affiliation is also actionable. “On the basis of the substantially similar campaign design, a member of the public could easily—and mistakenly—believe that Senator Hershey is in some way affiliated with Hershey.”
The court also found that Hershey provided “anecdotal” evidence of actual confusion. The problem is that this claim is a huge stretch. Even Hershey’s filing has to conflate recognition of similarity with confusion to get anywhere. From Hershey’s papers:
Online news publications, for example, have referred to Defendants’ “brown campaign signs made to look like the popular chocolate bar” and to “Steve Hershey, who features a modified version of the chocolate bar in his campaign signs.” One online blog has similarly commented on Senator Hershey’s copying of Hershey’s trade dress. And, a number of consumers have contacted Hershey and commented on the similarity of Senator Hershey’s signs to, for example, the Hershey milk chocolate bar wrapper, and/or expressed confusion as to whether Hershey endorsed Senator Hershey or authorized him to use Hershey’s trade dress.
That “and/or” is doing a huge and unwarranted amount of work. Curiosity isn’t confusion, especially since consumers readily understand that most international companies don’t endorse local politicians; confusion is confusion.
I looked at the exhibits cited in this paragraph of Hershey’s submission, which was what the court cited in claiming that there’d been actual confusion. The first is a news article which has a quote from Hershey that the signs are confusing; neither the author nor anyone else expresses confusion. The second is a follow-up article that says nothing about confusion, but states that Steve Hershey has been in negotiations with Hershey for a while. The third is an email asking if Hershey is endorsing Steve Hershey (and how Steve Hershey could have the same last name as the company’s founder, since the founder had no children). It says “One would think so [that Hershey is endorsing Steve Hershey] since the sign is an exact copy of the wrapper (lettering and color),” but it’s not clear that the writer is such a one. The fourth is an email that expresses no confusion, just wants a “footnote” to Hershey. The fifth, another email, isn’t confused, but wants Hershey’s “legal team” to know about the use. The sixth is a letter asking for clarification: “Does he have permission to do this? Is this ok with your company?” The seventh is a report from a customer service call, where the caller reported “blatant copyright infringement” (confused about the law, but not about source or sponsorship). The eighth is a news article about signs “made to look like the popular chocolate bar”; no mention of confusion.
That’s it. The only arguable evidence of actual confusion is the third email, which is from a person who apparently thinks all the other Hersheys in existence should have changed their name. (P.S. to Hershey: the filing didn’t successfully remove identifying information from the emails.)
The weight of the evidence, the court concluded, showed likely confusion.
Defendants argued that they didn’t use the mark in connection with the sale or advertising of goods or services.  But “services” has been interpreted broadly, to noncommercial and political speech. “Defendants used their design to promote a political candidate, disseminate political information, host campaign events, and solicit donations,” and that was sufficient.
The First Amendment defense also failed, because First Amendment protection “does not apply when the trademark is used to associate a political candidate with a popular consumer brand.”  (Citing Am. Family Life Ins. Co. v. Hagan, 266 F. Supp. 2d 682 (N.D. Ohio 2002), which actually doesn’t say that, but rather sides with a First Amendment defense in a similar case on the ground that contrary cases where the plaintiff won involved direct source confusion over who was speaking to the audience—which, given the court’s reliance on association/affiliation theories, actually cuts the other way here.)  Here, the court concluded, defendants weren’t using the trade dress “for parody, political commentary, or other communicative purposes.”  (What was it communicating, then?  Even if it was confusing people, it was only doing so through communicating.  The court’s not alone in misusing “communicative” to mean “expressive in an okay way,” but that doesn’t make it right.)
Irreparable harm followed almost automatically from a showing of likely success on the merits in a trademark case.  (eBay/Winter?  Never mind.)  The balance of equities also therefore favored Hershey.  The additional cost of distributing new campaign materials was a self-inflicted harm that didn’t outweigh the irreparable harm to Hershey (not further explained) of continued use.  Defendants didn’t identify any voter information they could only provide through use of the Hershey trade dress, and the general election is almost four months away, giving them enough time to distribute new materials.  Plus, the general election won’t be seriously contested, showing the minimal risk of harm to the defendants in changing campaign materials.  And the public interest favors avoiding confusion.
The defendants offered a disclaimer in addition to the existing sign, stating “Our Senator, not Big Chocolate ... we’re not confused.” But that was still substantially similar, and the disclaimer was “vague, unclear, and would do little, if anything, to reduce public confusion with respect to Hershey’s affiliation with Senator Hershey.”

Wednesday, July 23, 2014

Pom doesn't change preclusion analysis for medical devices

Catheter Connections, Inc. v. Ivera Medical Corp., 2014 WL 3536573, No. 2:14–CV–70 (D. Utah, July 17, 2014)
The parties compete in the medical device market for infection-control devices.  At issue here are disinfectant caps incorporated into intravenous (IV) lines that deliver fluids and drugs to patients. Ivera markets its product as Curos Tips (Rev. G model).  Before marketing the predecessor model X13 and the Rev. G, Ivera submitted a prototype (known as X10) to the FDA for 510(k) approval and received a clearance letter.  This letter contained an “Indications for Use Statement”:
The Curos Tips are intended for use as a disinfecting cleaner for male luer connectors. Curos Tips will disinfect the male luer (3) minutes after the application and will cover the luer until removed. The effectiveness of the Curos Tips was tested in vitro against Staphylococcus aureus, Staphylococcus epidermidis, Escherichia call, Pseudomonas aeruginosa, Candida glabrata, and Dandida albicans. The Curos Tips may be used in the home or healthcare facility.
When Ivera began marketing its new X13, it used this language on its website and product packaging.  After the X13 was enjoined in related patent litigation by Catheter Connections, Ivera marketed the Rev. G, and represented or implied to customers that no additional 510(k) clearance was necessary.
Catheter Connections claimed that Ivera engaged in false advertising by claiming (1) that Rev. G doesn’t need further FDA clearance; (2) that Rev. G keeps its disinfectant from leaking into the infusion line and posing a risk to the patient; (3) that Ivera tested Rev. G and found it to be effective against six specific microorganisms; and (4) that the FDA has found that Rev. G is effective against six specific microorganisms.
Ivera argued FDCA preclusion, contending that all these claims required interpreting FDA regulations, specifically that all the claims were based on Catheter Connections’ argument that a new 510(k) approval was required for the new model.  By regulation, new approval is required where a design modification “could significantly affect the safety or effectiveness of the device.”
The Tenth Circuit has a pre-Pom framework for FDCA/Lanham Act preclusion cases: affirmative misrepresentations are generally actionable even if the product is FDA-regulated.  But FDCA violations can’t be pursued using the Lanham Act, nor can claims that require “direct interpretation and application of the FDCA.”  Catheter Connections argued that Pom meant that the Lanham Act overlaps with the FDCA in “marketing and advertising” matters, thus allowing all its claims to go forward.  It pointed to the language in Pom indicating that the FDA “does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess.”
However, the court found that the first claim—that it was a misrepresentation to claim that no new 510(k) clearance was required—was precluded.  Catheter Connections argued that the court had all the necessary facts to determine that new clearance was required as a matter of law, given that Ivera admitted that it had changed the design elements that it represented to the FDA gave it its “theory of operation.”  However, these facts didn’t answer the question whether the design change “could significantly affect the safety or effectiveness of the device.” That was a decision for the FDA.
By contrast, the remaining claims were within the scope of the Lanham Act, and resolving them wouldn’t require interpretation of the FDCA or FDA regulations. Those claims focused on the substance of Ivera’s representations “in the context of the medical device market and what drives buyers’ purchasing decisions.”  The issue of whether the Rev. G model kept the disinfectant on the exterior of the connector was “fundamental to the attractiveness” of the device, and resolving the claim would require determining facts about how the device worked, not interpretation or application of FDA policy or regulations.  Likewise, whether Ivera tested the Rev. G model for effectiveness on six specific microorganisms, and whether it got the touted results, was an issue going to marketability.  And the fourth claim, about a misleading representation of FDA approval, also went to marketability, since affirmative FDA approval of effectiveness would attract customers.  “The question is not whether the FDA should have granted approval, but whether FDA made a finding of fact about the product.”   (Note that allowing claims based on implicit misrepresentations of FDA approval can have potentially much broader effects.)
Ultimately, “[a]nalysis of the three claims will focus on the effect such representations have on Catheter Connections, as Ivera’s competitor, in the market. Accordingly, they are not precluded by the FDCA.” 
State law duties imposed on medical device makers can only be parallel to the requirements of the FDCA/FDA.  However, the state false advertising laws at issue here didn’t regulate medical devices, only the alleged misrepresentations to consumers.  Thus, the preclusion analysis applied with equal force to the state law claims: there was no preemption of the nonprecluded claims.

regulating TM owner's confusing use of TM doesn't violate First Amendment

AEP Texas Comm. & Indus. Retail Ltd. P’ship v. Public Util. Comm’n, 2014 WL 3558763, No. 03–13–00358–CV, -- S.W.3d – (Tex. Ct. App. July 17, 2014)
A complicated regulatory background is the setting for this case about the evidence required to deem commercial speech—here in the form of trademarks—misleading, and thus its prohibition exempt from Central Hudson review.  Texas deregulated retail energy supply in the 1990s.  Doing so required breaking up vertically integrated entities that previously had been exclusive suppliers to their areas.  Transmission/distribution networks remained monopolies, but networks were required to sell nondiscriminatory access to different energy suppliers.  The issue here concerns “retail electric providers” (REPs), which sell power to end users, and transmission/distribution utilities (TDUs), which were restricted from owning generation assets or selling electricity themselves.  However, separate affilated companies owned by a common holding company were allowed, so holding companies could own both TDUs and REPs.
In order to prevent the unbundled units from retaining market dominance, Texas required a REP affiliated with a TDU to charge an above-market price within the TDU’s service area for a period after customer choice began.  And Texas authorized the Commission to regulate to control market power and protect consumers. The Commission enacted various rules to regulate REPs.  Among other things, a REP’s business name can’t be “deceptive, misleading, vague,” or “otherwise contrary” to the Code of Conduct.
AEP provides retail electric service to industrial and large commercial customers under the name AEP Retail Electric (AEP REP); it would like to expand to all customers under that name.  AEP REP is a subsidiary of AEP; the name it sought to use was “an important part” of a “multi-market, multi-state marketing” strategy of the AEP corporate family that was aimed at “promot[ing] brand name recognition” in the retail electric markets. Members of the AEP corporate family commonly utilize uniform branding that emphasizes the “AEP” abbreviation and a distinctive logo consisting of a red parallelogram with a white “AEP” inside.  AEP REP intended to use the same sort of branding, alongside the “AEP Retail Electric” name.
The Commission, and about 20 other REPs, opposed the use of this name, in the context of the ongoing activities of two other AEP subsidiaries.  AEP previously acquired two TDUs and affiliated REPs; it then sold the affiliated REPs and changed the names of the TDUs to AEP variants which do business under the shared name “AEP Texas” and red parallelogram logo. 
The factual issues centered on evidence that retail consumers in the service areas of the “AEP Texas” TDUs already had extensive familiarity with the AEP name and branding from a decade of use on vehicles, employee uniforms, electric meters on consumers’ properties, a website, and a Facebook page, along with ads and community and charitable contributions.  An AEP REP survey in the AEP Texas service areas indicated that 73% of respondents were already familiar with both the name “AEP Texas” and the name “AEP Retail Energy,” even though the latter had yet to operate as a mass-market REP.  Those entities thus tied for third in market recognition out of a list of fourteen, behind only the two largest REPs.  They were about 20 points higher than the next highest, which happened to be the areas’ original incumbent REPs.  The Commission found the AEP logo to be “omnipresent” in the relevant areas.
The other key piece of evidence was that retail customers tended to overlook the different roles of TDUs and REPs.  Over one-third mistakenly believed that the REP from which they bought electricity also owned the wires that delivered the electricity, and 32% believed that “AEP Retail Energy” provided electric transmission and distribution services.  The opponents argued that this showed that a shared name would exacerbate confusion, while AEP REP cited evidence suggesting that these misunderstandings would exist no matter what name the REP used.
The formerly affiliated REPs contended that using the AEP name for a REP would confuse consumers into thinking that “AEP Retail Electric” and “AEP  Texas” were one and the same or that customers of “AEP Retail Electric” otherwise stood to benefit from that company's affiliation with the TDU.  The Commission agreed that sharing the name and branding would amount to prohibited “joint advertising or promotional activities,” discriminating in favor of the affiliated REP.
The court first rejected statutory/administrative law challenges to this decision (and the dissent would have resolved the administrative law issues in AEP’s favor).  Basically, AEP argued that “joint advertising or promotional activities” had to be something more than sharing a brand name, and that even if shared branding did qualify, it didn’t “favor” AEP REP relative to competitors, which was required for it to be unfair discrimination.  The court found that the Commission didn’t err in considering how retail consumers would likely understand AEP’s marketing strategy.  Even if there were no “direct or overt” attempts by AEP Texas to favor its affiliate, retail consumers would likely perceive that AEP Texas’s use of the shared name, logo, and branding was promoting all of the affiliated entities collectively.  Since a central concern of the regulations was to prevent cross-subsidization between regulated and competitive activities (TDUs and REPs, respectively), this was within the Commission’s power to regulate.  The Commission reasonably found that the “AEP” name and branding would “have the practical effect of promoting both the ‘AEP Texas’ TDUs and AEP REP and leveraging each other”s notoriety and goodwill to benefit the other,” and thus reasonably found a prohibited cross-subsidy.
Given all that, was the regulation nonetheless a violation of the First Amendment?  AEP conceded that its business name and logo were commercial speech.  Central Hudson only protects commercial speech that isn’t unlawful or misleading.  The Commission found as a fact that the use of the name “AEP Retail Electric” and related branding would be misleading in the context of Texas’s retail electric market.  Retail customers would likely to perceive incorrectly that the REP and the TDU were the same or that they otherwise stood to benefit from the entities’ affiliation, such as by receiving more reliable service.  Thus, the name was not entitled to any First Amendment protection at all.
AEP argued that this rationale was mere paternalism.  But past paternalism cases involved the suppression of truthful information.  The regulation here wasn’t just designed to influence consumers’ decisions, but rather to ensure that their decisions weren’t influenced “in a manner that undermines competition itself.” 
The analysis concluded with a big quote from Friedman v. Rogers (another case out of Texas), which allowed the state to ban the use of certain trade names.  Such a ban had only an incidental effect on the content of commercial speech, since “a trade name conveys information only because of the associations that grow up over time between the name and a certain level of price and quality of service,” and the information conveyed is “largely factual, concerning the kind and price of the services offered for sale.”  The same factual information could be communicated to the public in other ways.  The state merely required the information to be presented in a nondeceptive form.  (This informational understanding of trademarks is pretty deeply inconsistent with the modern idea of goodwill.  Also, to the extent that AEP wants to communicate that the TDU and the REP are related—that “largely factual” aspect of trademark—I don’t see how it has any alternatives to communicate that message to the public, since it’s that communication that the Commission found confusing/deceptive.)

Tuesday, July 22, 2014

FTC goes after misleading certification mark

Here's some discussion of the FTC's complaint from the FTC itself, with a link to the proposed settlement.  Unsurprising takeaway: If you purport to certify products as "Made in the USA," it is a good idea to do some verification of the manufacturers you accept into your program.  Manufacturers who licensed the mark from "Made in USA Brand" might want to inform their insurers.

Presumably the certification mark is also now eligible for cancellation.  What effect does the settlement have on a potential cancellation proceeding?  (One possibility under the settlement is for the company to disclose that licensees self-certify.  If the company chooses this option, isn't it engaged in naked licensing and therefore abandoning the mark?)

Monday, July 21, 2014

Georgetown Law's new Center on Privacy and Technology

Learn more here. All my colleagues who worked on this deserve congratulations--Professors Julie Cohen, David Vladeck, Laura Donohue and Angela Campbell worked tirelessly for this achievement.

trademark beats copyright at surviving motion to dismiss

Gorski v. Gymboree Corp., 2014 WL 3533324,  No. 14-CV-01314 (N.D. Cal. July 16, 2014)
Via Eric Goldman.  Gorski and Gymboree both make shirts that feature the phrase “lettuce turnip the beet.” Gorski sued for copyright and trademark infringement; Gorski owns trademark registrations for LETTUCE TURNIP THE BEET for “[p]aper for wrapping and packing”; “tote bags” and “[w]earable garments and clothing, namely, shirts”; and “[o]n-line retail store services featuring clothing, accessories and art.”  She alleged that her “light grey heather shirt for children is widely considered one of the most popular children's products ever pinned on Pinterest under their ‘Popular’ heading and has over 120,000 product views on Etsy making it one of the most popular products ever on Etsy.”  In addition, she alleged that “the overall arrangement, shapes, typefaces, sizes and placement of the design elements” of Gymboree’s shirt were “substantially similar” to Gorski’s design.
Gorski Design

Gymboree design
Copyright: This can be resolved on a motion to dismiss in appropriate cases.  The court agreed with Gymboree’s argument that Gorski failed to plead substantial similarity by identifying any protected elements that were copied.  Short phrases can’t be copyrighted, even if they’re distinctively arranged or printed.  The claim about similarity in “overall arrangement, shapes, typefaces, sizes  and  placement  of  the  design  elements” merely amounted to arrangements of the short phrase “lettuce turnip the beet.”  That wasn’t protectable.  Because all the alleged similarities related to the arrangement of a short phrase, she didn’t allege copying of anything protected by copyright.  But the court granted leave to amend, because she might be able to allege substantial similarities to other protectable elements. 
Query: what other protectable elements?  I don’t know why the court invited repleading.  As my 7-year-old daughter said on looking at the shirts, the only similarity is the unprotectable words.  Her immediate reaction: “they’re different colors, the letter shapes are different, and the words are different sizes.”  My 8-year-old son concurred.  What possible additional facts could change what the shirts look like?
Gorski’s trademark claim fared much better. On the motion to dismiss, Gymboree only argued fair use.  Descriptive fair use requires a defendant to show that it’s not using the term as a mark, it’s using it fairly and in good faith, and it’s using it only to describe its own goods and services.  Plus, the court continued, the Ninth Circuit has held that “the classic fair use defense is not available if there is a likelihood of customer confusion as to the origin of the product.”  (Citing Transgo, Inc. v. Ajac Transmission Parts Corp., 911 F.2d 363, 365 n. 2 (9th Cir. 1990); Lindy Pen Co. v. Bic Pen Corp., 725 F.2d 1240, 1248 (9th Cir. 1984).)
Note: Whoa, Nelly!  The Supreme Court subsequently informed the 9th Circuit that it was wrong about that, and although the 9th Circuit essentially defied the Court on remand by reinstating confusion as an important consideration and making it impossible to win a descriptive fair use defense on summary judgment, I would at least have expected a citation to KP Permanent instead of to these overruled precedents.
The court then found that descriptive fair use didn’t apply as a matter of law such that the complaint had to be dismissed.  The complaint alleged that Gymboree had appropriated the cachet of Gorski’s products and created confusion, so that’s that.  Gorski alleged that consumers had contacted Gorski, showing actual confusion—though ultimately we need to know the content of the communications; if consumers are contacting Gorski saying “Gymboree is selling shirts with the same phrase,” that doesn’t evidence confusion at all.  And Gorski alleged that consumers associate the phrase only with Gorski.  Note: had the court properly applied KP Permanent, I suspect that the complaint still survives the motion to dismiss because trademark infringement doctrine is just so broad and forgiving.  But this analysis is quite plainly incomplete under the actual governing law, which does require toleration of some confusion in order to protect descriptive uses; pleading confusion by itself shouldn’t be enough, though pleading bad faith might be.
The court proceeded to discuss nominative fair use, which just isn’t an applicable theory here—I don’t see how one could plausibly argue that Gymboree’s use was a reference to Gorski’s mark.  Unfortunately, the court said more than that.  It defined the third element of nominative fair use as requiring Gymboree to show that its use of the phrase “makes no suggestion of sponsorship or endorsement by Gorski,” and of course Gorski’s pleading of confusion trumped that on a motion to dismiss.  (Citing an increasingly appalling list of precedents: Estate of Fuller v. Maxfield & Oberton  Holdings,  LLC, 906 F.Supp.2d 997, 1012 (N.D.Cal. 2012) (holding that an allegation of likely confusion over endorsement was sufficient to deny a motion to dismiss; product name); Yeager v. Cingular Wireless LLC, 627 F.Supp.2d 1170, 1178 (E.D.Cal. 2008) (same; mention of plaintiff in press release); Films of Distinction, Inc. v. Allegro Film Productions, Inc., 12 F.Supp.2d 1068, 1076 (C.D.Cal. 1998) (same, use of “The Crime Channel” in a film as the name of a channel a character watches (!)).
This is why this common restatement of the third element of nominative fair use, eliminating the requirement of some affirmative act indicating endorsement other than the use of the mark itself, is so destructive.  New Kids identifies the third element as “the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement.”  If the use of the mark itself can prevent the third element from kicking in, nominative fair use collapses on itself, as many scholars have noted.  I part ways with them insofar as I think that nominative fair use need not collapse on itself, but I can’t deny that lower courts keep inventing new ways to muck it up. Tabari tells us that you can’t use the multifactor test to figure out whether there’s likely confusion over source or sponsorship.  If the courts also abandon the distinction between explicit sponsorship claims (“authorized biography”) and implicit ones, then guessing is the best they can do, and it’s not likely to go that well.

allegations about fake reviews can support false advertising claim

American Bullion, Inc. v. Regal Assets, LLC, 2014 WL 3516252, No. CV 14–01873 (C.D. Cal. July 15, 2014)
The parties compete to sell gold and other precious metals as retirement investments.  Plaintiff (ABI) advertises online using third-party affiliates, who get paid for referrals.  ABI alleged that defendants created and operated such affiliate websites.  (I believe, based on this description, that ABI may be alleging that defendants were involved in some competing endeavor that paid affiliates via the same affiliate arrangement as ABI uses, but it's not very clear.)  These sites allegedly purport to contain independent consumer reviews, but falsely advertised for Regal and disparaged ABI.  ABI allged that the websites weren’t independent, but that Regal didn’t publicly disclose its connections thereto.  Reviews on the websites praised Regal and gave ABI negative reviews. Some reviews were allegedly false, others allegedly plagiarized.  Some sites claimed that ABI was a defendant in a fraud suit, was found guilty, and was sued by the Commodities Futures Trading Commission.  ABI alleged that this was false, and that a business with a similar name, American Bullion Exchange, was in fact the party found guilty in that action.  In addition, many of the websites allegedly used ABI’s name in a bait and switch: they urged customers to “click here to visit American Bullion,” but customers were linked to Regal’s website upon clicking. (Were those the same sites that disparaged ABI as a fraudster, or different ones?)
Defendants argued that the Lanham Act claim had to fail because ABI didn’t allege trademark ownership, and because the alleged statements were just designed to influence consumers to refrain from buying from ABI, not to induce purchases from Regal.  First, although I must say that the bait and switch allegations would seem to support a traditional trademark claim, the court noted that ABI wasn’t bringing a trademark claim; it didn’t need to own a mark to prevail on a false advertising claim.  Second, as to the disparagement-not-promotion argument, so what?  (Certainly after Lexmark, that’s good enough.)  Also, the complaint clearly alleged that Regal disseminated ostensibly independent reviews promoting its own services.
Regal argued that the litigation privilege protected certain alleged conduct.  This was meritless, since neither side was a party to the fraud claims brought by the CFTC against American Bullion Exchange, and Regal didn’t identify any other relevant proceeding.
Unsurprisingly, trade libel, defamation, and state law unfair competition claims also survived. The court was also forgiving with respect to intentional interference claims—though defendants argued that the complaint failed to identify specific economic relationships with a third party, as is usually required, the complaint did allege that ABI lost several customers to Regal who cited Regal’s “review sites” as their reason for switching.  That was enough.

Wednesday, July 16, 2014

Uber/under: false advertising and association claims against Uber continue

Yellow Group LLC v. Uber Technologies Inc., No. 12 C 7967, 2014 WL 3396055 (N.D. Ill. July 10, 2014)
Taxi medallion owners, taxi affiliations (taxi dispatch services), and livery service providers sued Uber, alleging that it competed unfairly by misrepresenting certain features of its service, misleading customers as to an association between Uber and plaintiffs, and encouraging taxi drivers to breach their agreements with plaintiffs.  People who use Uber’s app may end up getting a driver associated with one of plaintiffs Flash Cab, Yellow Cab, or Your Private Limousine, and take their rides in vehicles bearing one of those plaintiffs’ marks.  The court partially granted Uber’s motion to dismiss.
Treating the Lanham Act and state law as identical in relevant part, the court first addressed claims regarding alleged misrepresentations of rates, licensure, and insurance.  Plaintiffs alleged that Uber deceptively advertised that Uber taxis charged “standard taxi rates,” when in fact riders were charged the meter fare plus a 20% ”gratuity” that was split between the driver and Uber.  They also challenged an Uber blog post stating that all uberX vehicles were “licensed by the city of Chicago, and driven by a licensed chauffeur.”  And they alleged that Uber misrepresented the scope of insurance coverage for uberX drivers and passengers as $2 million and then $1 million, whereas Uber doesn’t provide any insurance coverage.
Uber argued that plaintiffs lacked standing because they weren’t direct competitors at the same level of business.  But then Lexmark happened, so plaintiffs needed only to an allege “an injury to a commercial interest in reputation or sales, and that the injury must flow directly from the deception wrought by the defendant’s advertising, such that the false advertising directly caused consumers to divert their business from the plaintiff.”
Uber argued that bexause the taxi affiliation plaintiffs and Your Private Limousine didn’t receive a percentage of drivers’ fares or a dispatching fee, they couldn’t allege harm from the false advertising.  But at this stage, they plausibly alleged that Uber’s deceptive advertising has caused customers to refrain from using their dispatch services, harming the economic value of their business and their reputation.  Plus, the taxi affiliation plaintiffs are direct competitors on these pleadings, since Uber exercises control over vehicles for hire that compete with plaintiffs. 
But—and here the proximate causation reasoning of Lexmark starts to have bite—the medallion owner plaintiffs didn’t have standing, because they didn’t allege direct injury.  They argued that Uber’s presence decreased the value of medallions by allowing drivers of non-commercially licensed cars to pick up fares.  But that wasn’t injury directly flowing from Uber’s misrepresentations.
As to stating a claim, Uber again argued that plaintiffs’ income came from lease payments from drivers, not a percentage of fares or a dispatch fee, so they couldn’t lose income from diverted fares. However, the taxi affiliation plaintiffs alleged damage because the value of their business depended on the number of passengers; more passengers meant more goodwill.  If customers use Uber instead, their reputation would be damaged and, more importantly, they wouldn’t be able to charge drivers as much for the right to participate in plaintiffs’ services, including dispatching taxis and livery vehicles. They thus plausibly alleged that misrepresentations regarding Uber’s rates and uberX drivers’ licensure and insurance caused them harm.
What about the $2 million/$1 million claim?  Uber didn’t say it would provide the insurance policy.  Rather it said that there would be an insurance policy covering drivers and riders of at least $1-2 million, and plaintiffs didn’t allege this was false.  That claim was dismissed.
§43(a)(1)(A): Plaintiffs alleged that Uber misrepresented an association with them by occasionally referring to its “fleet partners,” and using a yellow colored SUV in one of its advertisements that evoked Yellow Cab. The SUV in the ad didn’t have Yellow Cab’s logo or name, but did include a taxi number 1317, which was assigned to a Yellow Cab of the same make and model. They also alleged that confusion was exacerbated by the fact that “when a customer orders a taxi or livery vehicle via Uber, a vehicle bearing the Flash or Yellow trademarks will often arrive to pick up the fare.”
Mark McKenna and Mark Lemley will be sad (compare a previous Uber case): this plausibly alleged a §43(a)(1)(A) violation.  Plaintiffs plausibly alleged that “Uber’s representations and the very nature of its service is likely to confuse Uber customers regarding an association between Uber and Flash or Yellow Cab, and that this confusion harms Flash and Yellow Cab’s taxi dispatch business.”  Likewise with the taxi affiliation plaintiffs. 
However, the medallion owner plaintiffs didn’t state a claim because they didn’t allege harm from the misrepresentations. Harm from Uber’s existence in the market depressing the value of medallions was insufficient.
Livery services were also different: Your Private Limousine alleged that confusion was even worse in the livery context “[g]iven that trademarks and trade dress are not as prevalent on the livery side of transportation services.”  But that didn’t work, because Your Private Limousine didn’t allege that its cars bore its mark or any other indicia of ownership/operation by Your Private Limousine. Its claims were therefore limited to its allegations that Uber improperly referred to its “fleet partners.”  And that wasn’t enough to plausibly allege likely confusion.  On its own, that’s not a misrepresentation, “as it could accurately refer to the owners and drivers of independent livery vehicles that have contracted directly with Uber.” Without identifying markings, “it is highly unlikely that a customer would even know that he or she was riding in a Your Private Limousine vehicle and would therefore infer that Your Private Limousine is one of Uber’s ‘fleet partners.’”  Plus, “fleet partners” wasn’t a specific, concrete, or measurable statement.  (This is applying §43(a)(1)(B) puffery analysis to a §43(a)(1)(A), but given that this should be a §43(a)(1)(B) claim, I’m not too saddened.)  So there was no plausible allegation of misrepresentation or confusion from “fleet partners” alone.
The plaintiffs who could proceed with these claims could also maintain a common law unfair competition claim.
Tortious interference with contract: This claim included allegations that Uber encouraged drivers to violate the trademark clause in the drivers’ taxi affiliation contracts by providing drivers with Uber branded “hangtags” to suspend from the cabs’ interior rearview mirrors.  Uber also allegedly encouraged drivers to use their cell phones while driving and required drivers to process credit card transactions via the Uber app, actions that violate local laws which are incorporated by reference into the contracts. Plus, these plaintiffs alleged that by subscribing to Uber in the first place, drivers violate their agreements that they will not use competing dispatch services. Uber argued that the plaintiffs didn’t allege harm, but the court inferred damages to their business through losing customers from their dispatch services and refused to dismiss the claim. 
Again, though, the medallion owner plaintiffs lost out. Their argument was based on their licensees’ agreement to abide by Chicago’s rules and regulations, and Uber’s alleged inducement to disobey the same (rules banning use of cell phones while driving and a regulation requiring that taxis “must process electronic forms of payment through their affiliations or licensed medallion managers”).  But the medallion owners didn’t plausibly allege reputational or economic harm from the violation of these contractual provisions.  (Could the medallion be seized if a driver were arrested for using a cell while driving? Would that be enough?)
Finally, Uber argued that the court should dismiss the entire complaint based on Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484 (D.C.Cir. 1996), which held that a limousine service could not bring a Lanham Act claim against a competing taxicab company when the plaintiff sought only to enforce violations of local taxicab ordinances and regulations. The DC Circuit declined to interpret or enforce municipal regulations; instead, the plaintiff should take its argument to the Taxicab Commission.
However, the point of this complaint was not that Uber’s service was illegal.  Rather, plaintiffs alleged misrepresentation separate from the legality of the service.  To the extent that the complaint alleged that Uber violated the Lanham Act or its Illinois counterpart simply by operating illegally or misrepresenting the legality of its service, those allegations would fail.  (Note that this would not be the result in California, which does allow its consumer protection law to borrow violations of other laws.)

Using up most of settlement fund shows settlement is reasonable

Larsen v. Trader Joe’s Co., No. 11-cv-05188, 2014 WL 3404531 (N.D. Cal. July 11, 2014)
This is a final settlement approval of claims based on products labeled “All Natural” or “100% Natural,” when they allegedly contained synthetic ingredients.  The settlement provided for the discontinuance of the use of those terms on the products, and created a settlement fund of $3.375 million.  Proof of purchase entitled a class member to full reimbursement, while absence thereof allowed reimbursement for up to 10 products.  Leftover amounts were to be distributed in the form of products to cass members.  Notable here are the claim rates: As of June 2014, class members made 59,830 claims representing a value of $1,906,884,75.  Twenty-three members opted out and 18 objected.  The court here rejected the objections and granted the attorney fees requested of $950,000, or 28% of the settlement fund as consistent with the lodestar and the success achieved.  The remaining amount in the fund to be distributed as product was about $55-85,000.
Some observations: as to the strength of the case, the court noted that “recent decisions have made class certification in food labeling cases an uncertainty.”  Given the uncertainties and risks, the settlement was reasonable for both sides.  Plus, the settlement fund was represented to be 50% of what would be available had the case gone successfully to trial.  (Although wouldn’t the lawyers get paid separately in that circumstance?)  It was also large enough to compensate all the claimants.  This, plus the change in labels, discernibly benefited class members.
In addition, the size of the claimant pool weighed in favor of finding the settlement favorable. And the fact that there were a few opt-outs and objectors indicates that class members read the notice and understood it enough to make an informed decision about whether to participate. 
The court rejected objections that the suit was frivolous; it had already decided that the claims were meritorious enough to proceed with discovery, which was what then produced the settlement: 
Objections directed to the merits of the claim are objections on behalf of Trader Joe’s and not the class. The objectors referenced above disagree with this lawsuit as a matter of principle. While I understand this perspective, in determining whether the settlement is fair, adequate and reasonable, I am not acting as a fiduciary to the defendant, which is represented by able counsel and capable of making decisions to protect its own interests.
The court also rejected objections based on the idea that the bulk of the settlement would be distributed in the form of products, which was disproved by the claim numbers.  (Interestingly, the court doesn’t say whether the claim rate represented a high percentage of actual purchasers. The parties represented that the fund was equal to 50% of Trader Joe’s profits on the products. But we’d need more information to understand what that implied about the percentage of purchasers who made a claim.)

Tuesday, July 15, 2014

on Thursdays, we're teddy bear doctors

The Hollywood Reporter on a lawsuit alleging infringement by the 2012 film Ted of a foul-mouthed teddy bear character that lives with humans.  This post brought to you by a reminder that Supernatural did it in 2008:
Giant teddy bear asking "Whyyyy?"

Sam and Dean: On Thursdays, we're teddy bear doctors
Yes, this is an actual line from the show.
THR says the characters allegedly share "a penchant for drinking, smoking, prostitutes," "similar physical attributes and similar vulgar traits, and that both live in a similar environment, have human friends and maintain an active social media presence."  Idea/expression and scenes a faire, anyone? 

Monday, July 14, 2014

Reading list: food law

Regent University’s law review had a symposium on food law.  Here are the resulting articles, essentially all about advertising/disclosures:
Michael T. Roberts
Nicole E. Negowetti
Fraud in the Market (about fraud in farmers’ markets)
Samuel R. Wiseman
Donna M. Byrne
Jennifer L. Pomeranz

Twiqbal kills consumer class action in 2d Circuit

DiMuro v. Clinique Laboratories, LLC, --- Fed.Appx. ----, 2014 WL 3360586, No. 13–4551 (2d Cir. July 10, 2014)
The Second Circuit quickly affirms the dismissal of a putative consumer class action based on Clinique’s marketing of seven different “Repairwear” cosmetics. First, the named plaintiffs only bought three of the seven.  They argued that they had standing for products they didn’t buy under NECA–IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 162 (2d Cir. 2012).  (Of note because it suggests a securities law crossover that Ann Lipton would probably have a lot to say about; securities law is very different from consumer protection law and standing analysis should probably differ.)  The court of appeals didn’t disagree with the comparison, but held that the case was no help, because that case involved sales of related securities where the misrepresentations were nearly identical; different offering documents were insufficient to distinguish them.  By contrast, each of the seven products here had different ingredients and Clinique made different claims for them. 
The remaining consumer fraud claims were properly dismissed for failure to plead with particularity.  The complaint failed to disaggregate the different products or explain why the claims were false, beyond saying that the products can’t work:
Plaintiffs allege … that the products “do not and cannot live up to [Clinique’s] efficacy claims,” and that “no ingredient in any of the Repairwear Products can actually ‘de-age’ the skin.” Plaintiffs fail to allege what the specific ingredients in each product are and that these ingredients lack the ability to improve skin appearance. This bare-bones pleading is thus inconsistent with Rule 9(b).
The complaint also failed to allege that the plaintiffs used the product as directed, and to specify the claims on which they allegedly relied. Plaintiffs argued that they sufficiently specified because they alleged that Clinique’s advertised results could only be achieved by drugs, and since these were cosmetics these claims must be false.  This was both conclusory and implausible; plaintiffs didn’t allege facts to show, for example, that if the claim to “smooth out laugh lines” were true, the cosmetics would “affect the structure or function of the human body and therefore [would] be regulated as a drug.”
Finally, the plaintiffs alleged that Clinique’s dramatizations were fraudulent.  “But there is nothing misleading about a dramatization that presents ‘average results’ as long as the dramatization accurately depicts the average results consumers may achieve.”  (Note the weirdness introduced by “may” in describing an “average.”)  Anyway, the plaintiffs didn’t allege more than conclusorily that the dramatization was overly optimistic or portrayed effects that are above average.
Unjust enrichment and breach of warranty claims also failed; Rule 9(b) doesn’t apply to breach of warranty claims, but the allegations were too conclusory to survive Iqbal/Twombly because they just said that the products didn’t and couldn’t provide the promised anti-aging results.  (The court did not explain what more should have been said.)

Amended aggravation: Garcia v. Google

Never say an opinion (previously discussed here) can’t get worse. The amended opinion in Garcia v. Google manages that feat:
Nothing we say today precludes the district court from concluding that Garcia doesn’t have a copyrightable interest, or that Google prevails on any of its defenses. We note, for example, that after we first issued our opinion, the United States Copyright Office sent Garcia a letter denying her request to register a copyright in her performance. Because this is not an appeal of the denial of registration, the Copyright Office’s refusal to register doesn’t “preclude[] a determination” that Garcia’s performance “is indeed copyrightable.” OddzOn Prods., Inc. v. Oman, 924 F.2d 346, 347 (D.C. Cir. 1991). But the district court may still defer to the Copyright Office’s reasoning, to the extent it is persuasive. See Inhale, Inc. v. Starbuzz Tobacco, Inc., 739 F.3d 446, 448–49 (9th Cir. 2014).
Then why in blazes is she likely to succeed on the merits of her claim that her performance is copyrightable and owned by her?  (Implicitly, the majority must be saying that the Copyright Office is legally wrong in its analysis of the separate copyrightability of a performance fixed in a larger AV work, but it doesn’t address the Copyright Office’s reasoning on that point, presumably considering it pre-addressed in its original analysis.  But if individual performances are copyrightable as a matter of law, on what basis could the district court defer to the Copyright Office’s reasoning to the contrary, especially in a non-rulemaking context?)  (Oh and also, that opening clause “Because this is not an appeal …” is completely wrong/unnecessary, according to the cited case, but then why would this opinion be correct in a detail of copyright law when it can’t get the big picture right?)  The dissent nails it:
[T]he amended portions of the majority opinion only confirm that the law and facts do not clearly favor Garcia: “Nothing we say today precludes the district court from concluding that Garcia doesn’t have a copyrightable interest, or that Google prevails on any of its defenses.” Where the law and facts must clearly favor Garcia in order for her to prevail, the majority’s equivocation cements its error.

Friday, July 11, 2014

Self-promotion: ABA Blawg 100

So it's come to this: the ABA Blawg 100 is coming around again, and if you like 43(b)log, I'd love your help staying on it!  You can nominate by following this link.  Thanks!