Regression damages model fails to convince court

Reed Const. Data Inc. v. McGraw-Hill Companies, Inc., — F.Supp.3d
—-, 2014 WL 4746130, No. 09–CV–8578 (S.D.N.Y. Sept. 24, 2014)
 
Reed sued McGraw-Hill for violations of the Lanham Act, the
Sherman Act, and various state law torts. The parties are the only two
competitors in the business of providing construction product information
(CPI), which allows subscribers in the building trade to bid for jobs.  They sell subscriptions to “nationwide
searchable databases that can filter projects based on the user’s preferences.
For example, a user can search for library projects in Topeka, Kansas, worth
more than three million dollars, that need plumbing in the next two months.”
The CPI services provide plans, bidding information, and contact information
for the planner, architect, or general contractor on the job. Reed alleged that
McGraw-Hill surreptitiously accessed Reed’s database (Connect) and used that
access to generate false or misleading product comparisons with McGraw-Hill’s
Dodge Network that it distributed to prospective Reed customers.
 
CPI customers prefer a service that lists more projects over
one that lists fewer, so the parties compete to have the most projects in their
databases. Their user agreements limit permissible use of the information, and
the agreements don’t include “creating comparisons with competing CPI
providers.”  (That prohibition of
comparisons seems anticompetitive and against public policy, as opposed to a
prohibition on scraping data, which has different justifications.)
 
Around 2004, McGraw-Hill began to access Reed Connect in
order to create favorable comparisons; to do so, it needed to know how many
projects were listed on Reed Connect.  It
also wanted to be aware of changes in the marketplace and to ensure that Reed
was not listing significant projects that it had missed. McGraw–Hill paid
consultants—“referred to internally as ‘spies’”—to subscribe to Reed Connect. They
would sometimes falsely claim that the fake entities they created to subscribe
were associated with actual builders and contractors. McGraw–Hill paid these
consultants $3.45 million in cash and personal checks and listed the expenses
on its books as “Stationery and Supplies,” or “Magazines and Books.”
 
McGraw-Hill hired Roper to generate product comparisons,
but, according to Reed, Roper wasn’t independent, as it claimed. Rather, Roper
“did little more than send someone to sit in a room and watch a McGraw–Hill
employee run searches on the two services,” without ensuring that the two
searches were fairly comparable. McGraw–Hill allegedly used one of its
other  products in the tests but said
that it had used the Dodge Network.  The
searches were selected so as to emphasize McGraw–Hill’s strengths and minimize Reed’s
by limiting comparisons to projects worth more than $1 million, whereas Reed
was stronger below $1 million.  In
addition, McGraw-Hill allegedly ran searches to get projects that needed to be
completed expeditiously (ASAPs) from its database but not from Reed’s database.
The result was a report in which McGraw–Hill boasted “71% more planning
projects, 78% more bidding projects, and 71 % more digitized plans and
specifications.”
 
McGraw-Hill also made ad hoc comparisons of the services in
response to questions from customers. McGraw–Hill frequently advised customers
to search for a particular project in both services, knowing that the suggested
project would be found only in the Dodge Network, as well as suggesting state
and local comparisons that were generally similar to the Roper reports in both
content and methodology. McGraw–Hill touted a five-to-one advantage in projects
“exclusive” to McGraw–Hill. Reed alleged that the true ratio was closer to
2.6–to–1.
 
“On at least a few occasions, McGraw–Hill used its access to
Reed Connect to find new projects.” McGraw–Hill said these were “isolated
potential violations of McGraw–Hill’s rules in which McGraw–Hill may have used
Reed Connect to obtain a source of project leads.” The parties agree that
McGraw–Hill broke its own rules at least a few times and used its access to
Reed Connect for purposes other than generating comparisons.
 
Reed sued in 2009; its RICO claims were dismissed, but the
other claims proceeded. At the motion to dismiss stage, Reed alleged that no
fewer than 231 customers reported noticing the Roper Reports and were
influenced by their contents. “Discovery has not borne out that claim,” though
Reed had one customer declaration showing that the Roper reports influenced
purchases.  Reed also argued that it was
injured because it was forced to price its services lower than it otherwise
would have absent the misconduct. It offered Dr. Frederick Warren–Boulton’s
testimony in support of this claim; McGraw-Hill moved to exclude his testimony.
 
Dr. Warren-Boulton opined on four questions: Was there a
distinct national market for CPI sufficient to trigger § 2 of the Sherman Act? Did
McGraw–Hill exercise power in that market? Did McGraw–Hill’s misconduct allow
it to keep its market power? Did McGraw–Hill’s misconduct damage Reed? To
support his opinions, he conducted statistical regression analyses of the
parties’ pricing and service data in an attempt to isolate the effect of the
variable at issue here (McGraw-Hill’s alleged misconduct).
 
In order to isolate the price effects of the misconduct,
Warren-Boulton compared the parties’ prices for national services during the
relevant period with the parties’ prices for local services during the relevant
period.  This was based on the assumption
that national pricing was affected by McGraw–Hill’s misconduct significantly
more than local pricing, and that the effects of McGraw–Hill’s misconduct would
grow weaker over time (because the misconduct ceased in approximately 2008). If
the difference between each party’s price index declined over the relevant
period, and that decline couldn’t be attributed to any other observable factor,
then Warren-Boulton would consider that proof that McGraw–Hill’s malfeasance
worked a price effect.
 
McGraw-Hill objected to the assumptions of the model.  Warren-Boulton acknowledged that Reed
presumably had been becoming a more effective competitor, though the local
market had always been effective; if that were true—and the evidence suggested
it was—McGraw would have to cut its national prices but not its local prices,
adequately explaining the narrowing gap without the presence of any misconduct.
This was a significant flaw that, coupled with other flaws, rendered the model
inadmissible.
 
McGraw-Hill also argued that Warren-Boulton’s model had to
be wrong because he found a price effect with no corresponding quantity effect:
he found that “the misconduct differentially affected the prices that customers
were willing to pay for each of the two competitors’ services, but had no
effect on how much customers chose one over the other.”  That contradicted standard microeconomic
theory, which predicted that in almost all markets (excluding perfectly
inelastic goods, Giffen
goods
, and Veblen goods, none of which were involved here), increased price
decreases consumption.
 
Warren-Boulton responded that the CPI market had negotiated
prices, so there could be a price effect without a quantity effect “because the
price each consumer is willing to pay is a function of the price of the
competing product and the relative value of the competing product and the
negotiated product.”  But that would only
be true if Reed and McGraw-Hill had a bigger range of prices they’d accept than
prices that consumers would offer to pay. 
But there was no evidence to support that, and no reason to believe that
the CPI market had these “unusual economic characteristics.”
 
McGraw-Hill also convinced the court that construction
volume was an important omitted variable in the analysis. National firms were
hit harder by the 2008 recession than state and local firms, and price indices
were in fact highly negatively correlated with construction volume data. The
omission of a major variable was fatal to one of Warren-Boulton’s models.
 
When he added construction volume data, “a new problem
arose: multicollinearity.” This happens when the independent variable is
correlated with one of the control variables, making it impossible to isolate
the effect of the independent variable on the dependent variable. “Because of
the correlation between the explanatory variables, there is insufficient
variation in the data set to produce statistically significant results.”  As it turns out, construction volume was
highly correlated with both the independent and dependent variables. This made
the independent variable (here, the misconduct) appear not to have statistical
significance.
 
Warren-Boulton defended his choices by showing that using
construction volume alone didn’t explain the prices and in fact had weird
results (increasing prices for one party but decreasing them for another, and
vice versa in different markets), but the court was unconvinced.  Among other things, Warren-Boulton was unable
to explain his decision to pool local and national data in light of his
expertise, and running the numbers without pooling produced opposite results
(no price effect). Although there was no reason to believe that his judgment
was “anything other than perfectly sensible,” he had no methodological
explanation for his judgment, and a different judgment would also be reasonable
and totally change the outcome.
 
Finally, and relatedly, the methodology he used was too
manipulable to qualify as “scientific.” 
The choice of end dates for measuring when the effect of McGraw-Hill’s
misconduct fully dissipated was more or less arbitrary. That’s not fatal on its
own; any statistical model requires some judgment. As long as the model is
“robust with respect to different choices of arbitrary points, there is no
pressing issue.” But here the choice of the end-date had an
outcome-determinative effect; changing the end dates within a “very
conservative” range produced a result of no price effect.  Generally, choice of a reasonable timeframe
is an issue of credibility for the jury. 
“But where, as here, very minor changes in arbitrarily selected model
parameters can entirely alter the model’s conclusions, that model is
insufficiently robust to withstand the scrutiny of Rule 702.”
 
Thus, Reed failed to meet its burden of showing that
Warren-Boulton’s testimony was sufficiently reliable to be admissible.
 
Turning to the false advertising, Reed identified a number
of false or misleading statements:
 
First, the court had to identify what was “advertising and
promotion”; McGraw-Hill argued that only some of the misrepresentations were
sufficiently disseminated to count. Should the ad hoc statements be considered
together or separately? The court decided to take McGraw-Hill’s promotional
efforts as a whole.  Unlike individual
conversations that aren’t advertising or promotion, “the ad hoc comparisons at
issue in this case were an undisputed part of a broader campaign to compete
with Reed and to tout the supposed advantages of the Dodge Network over Reed
Connect.”  There was also evidence that
McGraw–Hill management directed individual salespeople to disseminate several
of the allegedly false or misleading statements. “There is little difference
between this and a traditional advertising campaign in either purpose or
effect. … [T]he mere fact that the promotional campaign took the form of
individual conversations does not mean that it is not advertising when taken as
a whole.”
 
Turning to falsity, the court began with Roper’s involvement
and the representations that Roper, an “independent” firm, “oversaw the entire
comparison process [and] ensured that comparable categories were used” to
evaluate the competing services. McGraw–Hill similarly represented that the
reports were “independent,” “objective,” “audited,” and “unbiased.”  Roper’s “project director” testified that he
made sure that the searches conducted were “worded similarly,” but he also told
a colleague that McGraw–Hill paid Roper “just to say we oversaw the whole
process.” He testified that he “did not know if [the searches were conducted]
using Network or Dataline, another McGraw–Hill service.” Though the McGraw-Hill
employee who conducted the comparisons testified that Roper “verified the
numbers,” “made sure that they were not being misrecorded,” and “ensured that
the comparisons were run in similar ways and that one search mirrored another search,”
that didn’t make the truth of the claims uncontroverted. A reasonable jury
could find literal falsity in the claims that the reports were “independent,”
“objective,” and “overs[een]” by Roper.
 
Next set of statements: The Roper Reports and the ad hoc
comparisons allegedly overstated the number of projects in McGraw Hill’s
database as compared to Reed’s database by using the wrong database; exluding
some Reed projects (including some utilities projects and the ASAP projects it
counted for itself); double-counting some McGraw-Hill projects; and selecting
search criteria designed to highlight its relative strengths. Reed alleged
literal falsity in the use of a different database, Dataline, for at least one
Roper Report, the double-counting of some of McGraw-Hill’s projects, and the
imbalanced treatment of ASAP projects. 
Reed failed to provide evidence that the Dataline listings weren’t in
fact included in “Dodge electronic listings,” so its first literal falsity
claim failed.  Likewise, the Dodge
network listed some projects on dual tracks as multiple projects, but this is a
perfectly sensible way to count: a school might seek asbestos removal while
simultaneously planning a new wing.  Reed
didn’t provide evidence that “projects” couldn’t have this meaning, so that
single institutions could have multiple “projects.”
 
It was undisputed that a search for projects whose bid date
was ASAP would yield more results in McGraw-Hill’s database, because Reed
listed ASAP projects by simply leaving the bid-date field blank. McGraw–Hill characterized
that as an error in Reed’s search algorithm. Reed didn’t offer evidence that
the statement that both comparisons were based on searches for projects whose
bid-date was listed as “ASAP” was false.
 
What about stale “Executive Briefs” citing data from a
“recent” comparison from 2007 when there were more recent comparisons?  The briefs didn’t claim to use the most recent comparison, and words like
“recent” are subject to a range of reasonable interpretations, so even in 2012
that wasn’t literally false. “[T]he Lanham Act does not require that
comparisons listed as recent be based on the most current available data.”
 
False claims of exclusivity: Reed offered some
circumstantial evidence that projects that McGraw-Hill claimed were exclusive
to it were also in Reed’s database. On at least one occasion, Reed searched its
database the day after McGraw–Hill told a customer that seven projects were
exclusive to its service and found six out of the seven purportedly exclusive
projects. A reasonable juror could find literal falsity.
 
Claimed project ratios of 5:1 in exclusive projects and 3:1
in all projects: Reed’s expert came up with substantially smaller ratios, but
McGraw-Hill argued that she just used different means of calculation. Reed
presented “plenty” of evidence that McGraw–Hill’s employees did not know how
the ratios were calculated when they distributed them. So, the evidence was that
other calculations, of contested accuracy, showed significantly lower
advantages for McGraw–Hill than the ratios it touted, but there was no evidence
on how it calculated those ratios. A reasonable juror could find literal
falsity.
 
For the literally false statements, consumer deception would
be presumed. For the rest, evidence of deliberate deception or consumer
confusion would be required.  Reed first
tried to show deliberate deception.  (1)
McGraw-Hill spent a lot of money getting access to Reed Connect and generating
the Roper Reports. (2) McGraw–Hill conducted its comparisons when they would be
most advantageous to McGraw–Hill and “crafted search queries designed to
maximize the McGraw–Hill projects counted while minimizing the projects counted
for Reed.” (3) McGraw–Hill convinced consumers that the Roper Reports were
independent. The court found this evidence insufficient to allow a reasonable
jury to find deliberate deception, only recklessness.
 
As for consumer confusion, Reed submitted one declaration to
show confusion.  But McGraw-Hill’s
evidence of lack of confusion was “overwhelming” and one declaration was not
enough for a reasonable jury to find that a substantial number of consumers
were misled by the challenged statements. 
Reed identified one customer “out of a national market that both parties
concede contains at least 70,000 customers,” and the declarant might not
actually have made the purchasing decisions at his company.
 
The court then analyzed the materiality of the remaining,
possibly literally false, statements: (1) the statements about Roper’s
involvement, (2) the statements touting exclusives to certain individual
customers, and (3) the statements about the 5:1 and 3:1 project ratios. No
reasonable juror could conclude that any of these statements was material.  Interpreting the Second Circuit’s adherence
to older language about misrepresenting “an inherent quality or characteristic
of a product,” the court concluded that this phrase meant “likely to influence
purchasing decisions.”
 
Reed’s evidence failed for the same reason its evidence of
deception failed: at worst, one customer relied on the misrepresentations.  “Every other customer testified that the
Roper Reports and ad hoc comparisons were immaterial.” Summary judgment on the
Lanham Act claims was granted.
 
McGraw-Hill also sought to get rid of claims that its
disparaging ads constituted monopolization and attempted monopolization in
violation of Section 2 of the Sherman Act. It is very hard to show an antitrust
violation through misleading advertisements, because the test has a bunch of
weird presumptions that aren’t really consistent with how false advertising
works. You’re better off with the Lanham Act.
 
In the Second Circuit, “a plaintiff asserting a
monopolization claim based on misleading advertising must overcome a
presumption that the effect on competition of such a practice was de minimis”
and therefore insufficient to sustain an antitrust action. To rebut that
presumption, a plaintiff must show that the challenged statements were “[1]
clearly false, [2] clearly material, [3] clearly likely to induce reasonable
reliance, [4] made to buyers without knowledge of the subject matter, [5]
continued for prolonged periods, and [6] not readily susceptible of
neutralization or other offset by rivals.” 
Reed’s arguments that the use of Roper as a third party guarantor
triggered special rules, and that an exception should exist for two-competitor
markets, were unavailing.
 
Plaintiffs don’t need to win on every factor to rebut the
presumption. The inquiry is simply “whether a disparaging advertisement is so
deceptive as to constitute anticompetitive exclusionary conduct.” The
presumption formalized the rule that “[i]solated business torts, such as
falsely disparaging another’s product, do not typically rise to the level of a
Section 2 violation unless there is a harm to competition itself.”
 
There was, as noted above, sufficient evidence of literal
falsity for some statements.  But literal
falsity is not clear falsity—otherwise the word “clear” would be meaningless.
(This seems to me an example of courts seizing on terms that were basically
accidental. The literally false/misleading distinction in Lanham Act jurisprudence
is relatively new; and anyway there is no reason to think that courts deciding
antitrust cases were thinking about the Lanham Act in when they were
formulating the antitrust test.)  So what
does “clearly false” mean?
 
Epistemologically speaking, falsity
is an absolute: a statement is either false or it is not. But the level of
justification of one’s belief in a statement’s falsity can vary by degree.
Thus, while a statement is either false or it is not, it can be more or less
“clearly” false, as measured by how much thought or effort one has to put into
determining its veracity or how confident one is in its falsity—or, put another
way, how obvious or apparent its falsity is in light of the statement itself
and its relationship to the state of the world.
 
A reasonable person could believe that Roper’s involvement
in its reports was not a sham, given that a Roper employee was present during
the challenged comparisons and made sure that the individual search terms used
were comparable.  A reasonable person
could likewise believe from the evidence that, “upon learning that McGraw–Hill
was touting exclusive projects that Reed did not have in its database, Reed
scurried to add them, and, therefore, the claim of exclusivity was true when
made.” And there was still no evidence in the record about how the claims about
the 5:1 and 3:1 ratios were calculated.  So the evidence was insufficient to show that
the challenged statements were clearly false.
 
Obviously, the evidence also didn’t show that the statements
were clearly material or likely to induce reasonable reliance.  As for customers’ knowledge, Reed argued
that, because its customers lacked knowledge of complex data and statistical
analysis, they were unable to discern the accuracy of McGraw–Hill’s claims.  The court disagreed—“buyers do not need a
degree in statistics to count how many projects of a given type, value, and
location appear in either service,” and there was evidence that “plenty of
buyers conducted their own analyses when deciding which service to purchase.”
 
Exposure to the claims was prolonged, but that didn’t
help.  Reed argued that McGraw-Hill’s
statements weren’t susceptible to neutralization because they couldn’t easily
be disproven and because McGraw-Hill tried to keep some of the comparisons from
Reed.  But the challenged statements were
simple sums of how many projects were in each database, and Reed definitely
knew about them. As a result of the combination of the factors, the presumption
of de minimis effect on competition held and McGraw-Hill got summary judgment.
 
Only state law claims remained:  (1) fraud, (2) misappropriation of trade
secrets, (3) misappropriation of confidential information, (4) unfair
competition, (5) tortious interference with contractual relations, and (6)
unjust enrichment. Only Reed’s unfair competition claim survived.
 
Fraud: Reed alleged that McGraw–Hill defrauded it by falsely
representing that the “consultants” McGraw–Hill hired to access Reed Connect were
not McGraw–Hill employees. New York law, which applied because the fraud was
carried out in New York, requires that the alleged losses stemming from a fraud
“be the direct, immediate, and proximate result of the misrepresentation,” and
that those losses be independent of other causes. But Reed alleged lost profits
due to lost customers stemming from McGraw–Hill’s misleading ads, based on
information gathered from the fraud. 
That wasn’t sufficiently proximate.
 
Trade secrets and misappropriation of confidential
information: information in the database was not secret. “Reed’s CPI lost its
trade-secrets status—if it ever had any—when Reed gave out free trial
subscriptions unaccompanied by any contractual restrictions on their use.” Tortious
interference: Reed couldn’t prove injury to its business relationship with
customers, because of the lack of harm evidence detailed above. Unjust
enrichment:  Again, the undisputed
evidence suggested that the only customer Reed allegedly “lost” because of
McGraw–Hill’s misconduct didn’t make any purchasing decisions.
 
Unfair competition: McGraw-Hill conceded that on “two or three
isolated” occasions, McGraw-Hill employees used project leads that they
acquired through their illicit access to Reed Connect in their own database.
Reed argues this constituted misappropriation. Applying New York law again as
the principal locus of the defendant’s conduct, this claim survived. INS v. AP provided the framework, though
large portions of New York’s unfair competition jurisprudence are preempted by
the Copyright Act. Still, New York protects business people from “all forms of
commercial immorality, the confines of which are marked only by the
‘conscience, justice and equity of common-law judges.’” The defendant must have
taken something in which the plaintiff had a property right, and that
constituted free riding on the plaintiff’s efforts.
 
McGraw-Hill argued that there was no property interest in
project counts, but there could be in the underlying data.  “McGraw–Hill used phony entities to
surreptitiously subscribe to Reed’s database service, then took the projects it
found there and added them to its own database. The project listings are the
parties’ stock in trade. Reed has a property interest—or at least a “quasi”
property interest—in its project leads.” When McGraw–Hill put those leads into
its own database, it “free r[ode]” on the significant effort Reed expended to
collect projects. Lack of significant damage or broad scope wasn’t dispositive
at this stage.

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Third Circuit clarifies its ascertainability rule but doesn’t remove it

Byrd v. Aaron’s Inc., 2015 WL 1727613, No. 14–3050 (3d Cir.
Apr. 16, 2015)
 
The Byrds filed a putative class action against Aaron’s for
violating the Electronic Communications Privacy Act of 1986. The court of
appeals reversed the district court’s finding that the proposed class was not
ascertainable.
 
Aaron’s rented a laptop to the Byrds.  They discovered that the laptop was
delivering screenshots of websites they visited as well as pictures of users to
Aspen Way (which collected for Aaron’s) through spyware called “PC Rental
Agent,” which could also collect keystrokes. In total, “the computers of 895
customers across the country … [had] surveillance conducted through the
Detective Mode function of PC Rental Agent.”
 
The Byrds proposed two classes:
 
Class I—All persons who leased
and/or purchased one or more computers from Aaron’s, Inc., and their household
members, on whose computers DesignerWare’s Detective Mode was installed and
activated without such person’s consent on or after January 1, 2007.
Class II—[The same, but including
Aaron’s Inc. franchisees].
 
The district court concluded that the proposed classes were
underinclusive because they did “not encompass all those individuals whose
information [was] surreptitiously gathered by Aaron’s franchisees,” and
overinclusive because not “every computer upon which Detective Mode was
activated will state a claim under the ECPA for the interception of an
electronic communication.”
 
The majority reasoned that the source of the circuit’s
ascertainability requirement was “grounded in the nature of the class-action
device itself.” A plaintiff must show that: (1) the class is “defined with
reference to objective criteria”; and (2) there is “a reliable and
administratively feasible mechanism for determining whether putative class
members fall within the class definition.” Plaintiffs don’t have to identify
all class members at class certification—a plaintiff need only show that “class
members can be identified.”
 
Carrera v. Bayer Corp.
rejected certification of a class of consumers who purchased Bayer’s One–A–Day
WeightSmart diet supplement in Florida. In that case, the court reasoned that retailer
records and class member affidavits attesting to purchases of the diet
supplement were insufficient.  Though retail
records “may be a perfectly acceptable method of proving class membership,” the
plaintiff’s proposed retail records did not identify a single purchaser of the
Bayer diet supplement.  And affidavits
risk relying on no more than potential class members’ say-so; there was no
reason to think plaintiffs’ proposal for screening out false affidavits would
work. “Remarkably, even the named plaintiff could not recall whether he had
purchased the diet supplement.”
 
However, Carrera specified
that “[a]lthough some evidence used to satisfy ascertainability, such as corporate
records, will actually identify class members at the certification stage,
ascertainability only requires the plaintiff to show that class members can be
identified.” Thus, the court here said, “there is no records requirement.” Carrera stood for the proposition that “a
party cannot merely provide assurances to the district court that it will later
meet Rule 23’s requirements,” or propose a method of ascertaining a class
without any evidence supporting the idea that the method will succeed.
 
Ultimately, ascertainability focuses on “whether individuals
fitting the class definition may be identified without resort to mini-trials.”  This is closely tied to the provision of a
proper class definition, using objective criteria and offering some assurance of
“a reliable and administratively feasible mechanism for determining whether
putative class members fall within the class definition,”  Ascertainability thus prepares a district
court to “direct to class members the best notice that is practicable under the
circumstances” if there is certification. 
 
The district court erred first by conflating standards
governing class definition with the ascertainability requirement.  It next abused its discretion in determining
that the proposed classes weren’t ascertainable because they were
underinclusive, since non-buyers/lessees might have had their information
surreptitiously gathered.  But the Byrds
asked for a class of all buyers/lessees exposed to the program.  “[R]equiring such specificity may be
unworkable in some cases and approaches requiring a fail-safe class.”  Having objective criteria isn’t the same as
defining a class in terms of legal injury. Those who are injured but excluded
from the class are simply not bound.  “Requiring
a putative class to include all individuals who may have been harmed by a
particular defendant could also severely undermine the named class
representative’s ability to present typical claims.”
 
In addition, the district court abused its discretion in
finding that the proposed classes weren’t ascertainable because they were
“overly broad.” Defendants argued that the class wasn’t ascertainable because
the definition was decoupled from the underlying allegations of harm. But
predominance and ascertainability are separate issues. They also argued that
the class was overbroad when putative members lack standing or haven’t been
injured, but that again conflated ascertainability, predominance, and Article III
standing.  Potential differences between
the proposed class representatives and unnamed class members “should be
considered within the rubric of the relevant Rule 23 requirements—such as
adequacy, typicality, commonality, or predominance.” If defendants want to
argue that all putative class members must have standing, that issue should
first be decided by the district court. 
(Nice dodge, there.)
 
The proposed classes of “owners” and “lessees” were
ascertainable. There are “objective records” that could “readily identify”
them, and finding to the contrary was abuse of discretion, as was the finding
that “household members” weren’t ascertainable. The district court thought that
this was too vague and hard to prove, but the Byrds argued that the plain meaning
was “all of the people, related or unrelated, who occupy a housing unit,” as
shown by multiple definitions used in government documents for census,
taxation, and immigration purposes. Though these documents contained slight
variations, there were various ways in which household members could be
identified and verified.  A form similar
to the government forms could be used to identify household members, and that
was a “far cry” from an “unverifiable affidavit” or lack of a methodology to
identify class members. Because the location of household members was already
known, there were unlikely to be serious administrative burdens.
 
There will always be some level of inquiry required to
verify class membership, but that doesn’t necessarily mean a mini-trial. “Carrera does not suggest that no level
of inquiry as to the identity of class members can ever be undertaken. If that
were the case, no Rule 23(b)(3) class could ever be certified.” Defendants
argued that their due process rights were at risk, but the Byrds weren’t
relying solely on unverified affidavits. 
“Any form used to indicate a household member’s status in the putative
class must be reconciled with the 895 known class members or some additional
public records.”  Defendants could
challenge the methods the Byrds used to identify them—after the other issues
were resolved on remand.
 
Judge Rendell concurred to note that “the lengths to which
the majority goes in its attempt to clarify what our requirement of
ascertainability means, and to explain how this implicit requirement fits in
the class certification calculus, indicate that the time has come to do away
with this newly created aspect of Rule 23 in the Third Circuit. Our heightened
ascertainability requirement defies clarification. Additionally, it narrows the
availability of class actions in a way that the drafters of Rule 23 could not
have intended.”  Paper trail requirements
were ill-advised, because most low-value consumer class actions don’t involve
such records. Judges worried about a mere say-so might require an affidavit
from another household member, or a doctor, or something else.

The justifications for this rule were insufficient.  First, the claim that it avoided
administrative burdens really meant “short-circuiting the claims process by assuming
that when individuals file claims, they burden the court. But claims
administration is part of every class action. Imposing a proof-of-purchase
requirement does nothing to ensure the manageability of a class or the
‘efficiencies’ of the class action mechanism; rather, it obstructs
certification by assuming that hypothetical roadblocks will exist at the claims
administration stage of the proceedings.”
 
Denying certification to later avoid problems with notice
also was senseless.  Rule 23 required the
“best notice that is practicable under the circumstances.”  Potential difficulties with providing
individualized notice to all class members shouldn’t be a reason to deny
certification of a class. Due process is satisfied when notice is “reasonably
calculated” to reach the defined class.
 
Finally, the Third Circuit expressed concerns for the due
process rights of defendants, but “there is no evidence that, in small-claims
class actions, fabricated claims impose a significant harm on defendants.” The
chances of perjury to receive “a windfall of $1.59” were “far-fetched at best.”
Although most injured people won’t take the effort to claim a few dollars, “in
the aggregate, this sum is significant enough to deter corporate misconduct.”
By “focusing on making absolutely certain that compensation is distributed only
to those individuals who were actually harmed,” the Third Circuit’s
ascertainability requirement “ignored an equally important policy objective of
class actions: deterring and punishing corporate wrongdoing.”
 
The due process concern was also overblown because damages
under Rule 23 are assessed in the aggregate, so whether an individual can show
membership in a class doesn’t affect defendants’ rights to avoid paying more
than they’re liable for. The related concern for diluting “deserving” class
members’ recoveries “is unrealistic in modern day class action practice, and it
makes little sense when used to justify the wholesale dooming of the
small-value class action such that no injured plaintiff can recover at all.”
This was in any event an implementation issue, not an ascertainability
issue.  The Third Circuit’s rule cut at
the heart of the class action mechanism, which makes the most sense when
individual claims are small but aggregate injury is large.  As Judge Rakoff wrote, “[w]hile a rigorous
insistence on a proof-of-purchase requirement … keeps damages from the
uninjured, it does an equally effective job of keeping damages from the truly
injured as well, and ‘it does so with brutal efficiency.’”

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Territoriality is no bar to keeping up with the Kardashians in Kroma dispute

Kroma Makeup EU, Ltd. v. Boldface Licensing Branding, Inc., No.
6:14–cv–1551, 2015 WL 1708757 (M.D. Fla. Apr. 15, 2015)
 
A foreign licensee of a US trademark sued US citizens for
alleged infringement abroad, and sued its licensor for refusing to share in the
proceeds of a settlement in a separate lawsuit about the infringement.  The court here found that it had subject
matter jurisdiction and that the foreign licensee could state a Lanham Act
claim. Plus, the licensee could proceed against its licensor under a breach of
contract theory.
 
Defendant Tillett owns a registration for Kroma for makeup,
used for a premium, all-natural makeup brand. “Kroma products sell from between
$19 and $100 and have been featured at high-profile fashion events throughout
the United States and the world, including the Oscars and the Emmys.”
 
According to the complaint, Plaintiff Kroma EU had an
exclusive license from Tillett to import and sell Kroma products in the EU,
with a guarantee from Tillett that it owned the Kroma mark.  This was a thriving business by late 2012,
with Kroma EU negotiating to place Kroma products in a number of upscale
British and European retail stores.
 
Enter Khroma, a new makeup line backed by defendants Kim
Kardashian, Kourtney Kardashian, and Khloe Kardashian and defendant Boldface.
The new line was released in the US and Europe in late 2012, priced between $6
and $20.  It was of inferior quality
compared to Kroma, and Kroma suffered severe consumer confusion.  Boldface sued Tillett for a declaration of
noninfringement.  Tillett counterclaimed,
and in 2013, the district court preliminarily enjoined Khroma.  Tillett and the other defendants eventually
settled.  Prior to the settlement,
Tillett allegedly promised to seek damages on Kroma EU’s behalf and sought information
from Kroma EU regarding its claimed damages. 
However, after winning the motion for a preliminary injunction, Tillett
allegedly abandoned Kroma EU’s interests, and the ultimate settlement didn’t
include a release of Kroma EU’s claims.
 
Thus, Kroma EU sued everybody, alleging trademark claims
against Boldface and the Kardashian defendants, and promissory estoppel against
Tillett. Boldface defaulted.
 
The Kardashian defendants suggested that Kroma EU lacked
standing to bring vicarious trademark infringement claims because Tillett was
the registrant and owner of Kroma in the US, and because Kroma EU couldn’t
enforce either a registered or unregistered foreign mark.
 
Although a licensee doesn’t own the mark it licenses, §43(a)
doesn’t require a “registrant,” but speaks of “any person who believes that he
or she is or is likely to be damaged.” Thus, ownership is irrelevant, and “courts
frequently find non-owners—such as manufacturers, competitors, distributors,
and others—to have standing under § 43(a).” 
Lexmark required “statutory
standing”—what the court here characterized as “more of a refinement to what
federal courts have called ‘prudential standing’ over the years.” (Of course
Justice Scalia insisted that he wasn’t engaged in a “standing” inquiry at all,
but this court, like many others, isn’t interested in changing the label.)
 
A plaintiff must demonstrate a cognizable “commercial
interest in reputation or sales” to fall within § 43(a)’s zone of interest, and
show that its injuries were proximately caused by the defendant’s wrongful
conduct. Kroma EU was not trying to enforce a foreign trademark in a US court,
but rather a domestic trademark.  (That
skips over territoriality completely. 
Kroma EU doesn’t have any rights to sell Kroma in the US, according to
the description of the license.  The mark
may have originated in the US, but when used in the EU it’s an EU mark.)  Kroma sufficiently satisfied the zone of
interests tests because of its commercial interest in selling Kroma. “Kroma EU
is exactly the type of commercial actor who § 43(a) of the Lanham Act envisions
protecting.”  And Kroma EU alleged
proximate cause: consumer confusion that cost it significant business and
revenue.
 
Nor did res judicata bar Kroma EU’s claims, since Kroma EU
was never a party to the prior litigation.
 
But did the Lanham Act reach the Kardashians’ conduct
abroad? Steele v. Bulova Watch Co., 344 U.S. 280 (1952), held that the Lanham
Act regulates not only domestic conduct, but also foreign conduct of U.S.
citizens where the conduct involves U.S. commerce and does not otherwise
interfere with the rights of foreign nationals in their own countries. Relevant
factors: (1) whether the defendant is a U.S. citizen, (2) whether the foreign
conduct had a substantial effect on U.S. commerce, and (3) whether adjudicating
the claim would interfere with another nation’s sovereignty.
 
Because all the alleged conduct occurred outside the US, the
Kardashians argued that there was no substantial effect on US commerce, and
also they contended that allowing Kroma EU to proceed would interfere with the
sovereignty of the United Kingdom and the European Union, as Kroma EU’s
trademark interests are based under the laws of each entity and all of the
alleged infringement occurred within these entities’ respective territorial
boundaries.
 
U.S. citizens should not be allowed to “evade the thrust of
the laws of the United States in a privileged sanctuary beyond our borders.”  Some courts call this the paramount
factor. 
 
Moreover, Kroma EU alleged conduct with a substantial effect
on US commerce.  If foreign conduct
creates confusion among American consumers, there can be little doubt of a
substantial effect on US commerce. This usually occurs when there’s intentional
importation of infringing goods into the US, or when infringing goods seep into
the US via third parties. In addition, the Eleventh Circuit also holds that the
Lanham Act also protects non-American consumers from confusion created by
American infringers. Babbit Electronics, Inc. v. Dynascan Corp., 38 F.3d 1161
(11th Cir.1994) (per curiam) (affirming extraterritorial application of the
Lanham Act where a U.S. corporation purchased infringing products to sell
exclusively to consumers in South America). Nonetheless, “global consumer
confusion is insufficient by itself to sustain a finding of a substantial
effect; there must be other connections to U.S. commerce.” Another connection
can be found through a defendant’s significant commercial activity within the US
to advance its infringing conduct abroad.
 
Kroma EU “more than adequately” alleged global consumer
confusion, including failed negotiations with a high end retailer that stated
that it didn’t want to be associated with the Kardashians or to be perceived as
selling discount or inferior-quality products, along with other confused
customers.  The court also inferred that
Kroma EU suffered confusion in the US too. 
(Except that it didn’t have any rights in the US!) “Because of Khroma’s
pervasive Internet presence around the world, the Court can reasonably infer
that some American consumers intending to purchase Kroma products were confused
into purchasing deeply discounted European Khroma products through the European
websites and that … these infringing makeup products seeped back into the
United States.”  (But, had Kroma EU tried
to sell back into the US, it would likely have violated its licensing
agreement.) 
 
Plus, Kroma EU alleged significant
commercial conduct by the Kardashians within the US to further their infringing
activities in Europe. They engaged Boldface to make the Khroma line and exerted
control over all aspects of the brand from within the US, chose the Khroma
name, marketed the brand through their personal celebrity, etc. Given the
policies underlying the Lanham Act—protecting consumers and securing the
rewards of trademark—it was appropriate to find a substantial effect on US
commerce. Given the defendants’ awareness of the Kroma mark, “U.S. trademark
law has a considerable interest in protecting U.S. trademarks regardless of
where an American infringer’s conduct occurs.”
 
Nor would enforcing Kroma EU’s interest interfere with the
sovereignty of another nation, which generally occurs “where the parties are
engaged in parallel litigation within the foreign nation or where the foreign
nation takes action against the interest which the plaintiff seeks to assert in
the United States court.” There’s no parallel litigation or foreign action
against the marks here. Because Kroma EU is the licensee of a US mark, the US
had the greatest interest in enforcing the mark.
 
As to the promisory estoppel claim, Kroma EU would need to
show: (1) the plaintiff relied to its detriment on a promise made by the
defendant, (2) the defendant should have reasonably expected the plaintiff to
rely on the promise, and (3) injustice can be avoided only by enforcing the
promise. However, promissory estoppel is unavailable where a written contract
governs the parties’ relations. 
 
All exclusive trademark licensing contracts provide as a
matter of law that the licensor is “under an implied good faith obligation not
to do anything that would impair or destroy the value of [the] exclusive
licensee’s rights.” The Eleventh Circuit has specifically held that a licensor must
share its proceeds from the settlement of a trademark infringement action with
its exclusive licensee where the exclusive licensee can show its damages. Thus,
contract law could adequately fashion an appropriate remedy, making promissory
estoppel unavailable.
 
But the plaintiff’s label for its claim was not dispositive.
Kroma EU’s factual allegations clearly set forth a claim for breach of contract
against Tillett.

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Lanham Act injunctive relief available without proof of injury

Cascade Yarns, Inc. v. Knitting Fever, Inc., 2015 WL
1735517, No. C10–861 (W.D. Wash. Apr. 15, 2015)
 
This is another round of an “extensive” lawsuit between the
parties, who compete to sell yarn. Relevant here are Cascade’s claims against
KFI under the Lanham Act and Washington state law for for false advertising
related to the country of origin labels on KFI’s Katia and Mondial yarns. KFI
had previously admitted that certain yarns were sold by KFI in limited
quantities in 2012 without labels properly reflecting their Chinese origins.
 
KFI argued that Cascade’s false advertising claims had to
fail because Cascade had no evidence of injury, despite its assertion of sales
diversion.  Cascade argued that it was
pursuing a theory of disgorgement, which didn’t require direct injury. To get
money damages, Cascade needed to show actual injury; literal falsity leads to a
presumption of consumer deception, but not a presumption of damage to the
plaintiff when the literal falsity is noncomparative and there are numerous
competitors in the market. This principle avoids awarding plaintiffs a windfall
that would be punitive rather than compensatory. “The fact that failure to
designate country of origin may be actionable under the Lanham Act does not
mean that any competitor in the market is entitled to recover.” Thus, the
Lanham Act damages claim was dismissed.
 
In a footnote, the court rejected KFI’s argument that
Cascade lacked Lanham Act standing under Lexmark.
“Cascade’s allegations of lost profits and damage to its business reputation
satisfy the requirements of Article III standing, and as a direct competitor
alleging diversion of sales, Cascade meets the prudential standing requirements
that its claim fall within the ‘zone of interests’ protected by the Act and
that its alleged injuries be proximately caused by the Act’s violation.”
 
As for the availability of injunctive relief, competitors
need not prove injury. “Cascade’s failure to raise a triable issue of fact as
to causation and injury does not affect the viability of its Lanham Act claim
to the extent that Cascade seeks injunctive relief.”  However, Cascade still needed to show the
other elements of a false advertising claim.
 
The court first rejected KFI’s unclean hands defense.
Although Cascade admitted to having briefly sold four King Cole yarns that were
not properly labeled as to country of origin, that didn’t foreclose its claim
for injunctive relief.  “Indeed, there is
good reason to permit an injunction action to proceed where a monetary action
would be barred: in the former case the Court must take into account the
public’s interest in being freed from deceptive practices in addition to a
litigant’s interest in being compensated where harmed by them.” (Query how this comports with eBay and Winter.)
 
KFI admittedly mislabeled three yarns when they were first
imported in 2012, but they bore corrected labels by the end of 2012, and there
was no evidence of further mislabeling. Cessation alone didn’t moot the claim
for injunctive relief; the burden is on the defendant to show that its reform
is “irrefutable and total,” and injunctive relief may also be appropriate for a
terminated but willful violation. There was no evidence of willful violation
here. “KFI has provided ample assurance that it will not again sell these three
Mondial yarns without properly designating their Chinese origin.” Thus, the
court wouldn’t “waste judicial resources in fashioning an entirely superfluous
remedy” as to those yarns.
 
However, there was a genuine issue of material fact as to
continued mislabeling of another variety of yarn. A witness admission that it
was made in Turkey rather than Italy raised a question of proper labeling. KFI
continued to list the yarn on its website “without assurance that any past
mislabeling has been irrefutably addressed.” Cascade would be allowed to seek
equitable relief from the court (not a jury). 
The state law claims received the same treatment.

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Campbell conference: beyond transformative use

Panel VII. Beyond Transformative Use—Other Fair and Permitted Uses (Moderator, Professor Gomulkiewicz) (partial: I had to leave early, sorry)
 
Gomulkiewicz: sometimes licenses get a bad rap but they can be a powerful engine for creativity.


Jessica Litman, University of Michigan: Campbell was set up and constrained by Sony.  Sony was filed only a few weeks after the 1976 Act became effective.  Issues Congress hadn’t considered: liability for personal uses; liability for manufacturers of devices. Members of Congress believed that personal copies were noninfringing; they assumed the extant 1909 Act and the Act they were working on wouldn’t reach those copies.  The scary new techs when Congress was working on the Act were photocopying and magnetic audiotape. Congress talked about them a great deal; consumers were using them extensively in the 1960s, and witnesses assured Congress that they wouldn’t face infringement suits. Instead they were worried about institutional/business substitutionary copying—most witnesses said we have copiers in the office and tape machines at home and think they’re great. Didn’t suggest liability for uses. Not arguing that Act contains implicit exception for personal copying: more modest argument—b/c Congress believed that personal copying didn’t mean liability, and b/c no one suggested device maker liability, Congress had no opportunity to craft relevant exceptions, limitations, or remedies.
 
The thrust of copyright owner lobbyists had still been to ensure that © rights were expressed in very broad language so that it would be clear that the same rules would apply to the next new scary technology.  So it became necessary to use fair use to protect individuals and device makers; Court ended up settling on noncommercial use = fair presumption, but the inverse presumption was disastrous, so 10 years later Souter disavowed Sony, without repudiating its result. Consumers meanwhile internalized the principle that recording was fair use; AHRA was supposed to give consumers a free pass for recording music. 
 
It became clear that applying the clear language of the statute wasn’t going to work in a lot of situations, but it was hard to get Congress to enact exceptions for clearly noninfringing uses b/c of fierce opposition from copyright owners.  E.g., Register of Copyrights suggested an express privilege for backing up copies on one’s computer, since backing up files is really important and people should do it.  §117 doesn’t do it if what you’re backing up is not a computer program. Probably it’s fair use, but then those copies are “lawfully made” and then those copies could be disposed of.  If it wasn’t lawfully made, but then we’re sending the message that this good, important, harmless thing is illegal, which is either bad for good data practices or for legitimacy or for both. Yet the opposition was vehement: no one is actually suing over this, so there’s no harm; any new exception to reproduction right, whatever it was, would pose a grave risk of encouraging rampant piracy.  Computer game makers suggested Congress should just repeal §117 entirely since media were now much more durable and no one needed to back up programs.
 
This story repeated again and again.  All new suggested exceptions are unnecessary and dangerous. Consider failure of telephone unlocking bills: everyone agreed it was fine and no one wanted to put it in the statute.  But there are always © owners who sue over stuff Congress didn’t intend to cover; that’s the point of the broad language. As © expands further, fair use has to stretch to match. If © owners mean that it’s important to constrain fair use to its mid-20th c. limits, we need to constrain copyright accordingly, or have a host of new express exemptions and limitations that would make it feasible to make fair use relatively narrow.
 
Anthony Reese, U.C. Irvine: Campbell transformed factor three: seems to boil down to how much the D took and how important it was. Relatively easy in most cases to measure how much D took but gives little guidance on how much is too much.  SCt before Campbell had no guidance at all; Sony involved 100% copying.  Said that 100% didn’t have the “ordinary effect” of militating against fair use.  Harper & Row wasn’t much help either, b/c it was on the other extreme of the spectrum: 400 words out of 200,000, or 0.2% of the work.  Court acknowledges this is insubstantial in absolute terms but was “qualitative” heart. 
 
Campbell changes all that in a few swift strokes: reasonable in relation to the purpose of the copying.  He’s studied results in appellate cases, 61 in 21 years.  Reviewed 4 judgments on pleadings, 14 on preliminary injunction, 33 summary judgment, remainder trials.  Fair use found by 30 dcts, 26 not fair use, 1 mixed and 4 no reaching of merits.  Appellate: 24 fair use, 31 not fair use, 3 mixed and 3 merits not reached. Not all affirmances despite similarity.
 
Half the cases (52.5%) explicitly state the reasonableness principle, quoting Campbell directly or indirectly.  28 of 61 cases with one or more uses found fair, 22 of 28 state the reasonableness principle.  33 of 61 finding not fair, or dct erred in finding fairness, quote reasonableness in 10 of 33 cases. This says nothing about the direction of causation of course.
 
35 of 61 involve uses of P’s entire work. 15 Still images: 10 photos/5 graphics. 10 involve texts: 6 books/manuscripts/dissertations (remainder journal article, student paper, etc.); 10 TV programs, software, sculptural works, music, sound recordings (Swatch conference call)
Entire work case: 18 not fair use, 5/18 mention reasonableness.  Fair use/mixed 16: 13/16 mention reasonableness. (1 didn’t reach the merits.)
Heavy number of new tech uses involve entire work—search cases; plagiarism search case of iParadigms; Swatch conference call (new tech b/c Bloomberg wouldn’t have used the whole call in any other reporting medium); then Napster & Gonzales, two P2P filesharing cases. In all but the filesharing cases, there’s a finding of fair use with an express reliance on reasonableness. Campbellgives structure to analyze how much is too much.
 
Rebecca Curtin, Suffolk: Transactional origins of authors’ rights. Don’t mean to imply that commercial norms do or should equal legal norms. Statute of Anne expressed concerns about social value.  Nonetheless, interesting questions about origins, because if you look just at court cases and statutory recognitions of literary property, authors are invisible from 1557 to 1710 and then they pop up.  Was this a cover for publishers’ interest? Idea that commercial practices didn’t change used to suggest that reference to authors was a sham.
 
If you look at commercial practices before the Statute of Anne, looks less like a cover story and more like a business model.  Petition for copyright from Stationers: emphasizes detriment to authors, but also the importance of © to their ability to carry on their business to create alienability: authors who used to dispose of their copies for consideration or reserved some part for the benefit of themselves have been harmed by other printings.  What did they mean “reserved some part”?  Something more than mere conveyance of the physical manuscript, even before there was a concept of literary property.  (Couldn’t that just be payment over time, like a loan?)
 
Is there evidence on the Register that publishers thought about copyright, not just physical manuscripts, being purchased? Is there evidence of sharing of contingent value after publication?  Examples: never print again without consent of the author—dated 1607.  Atypical entry in the Stationers’ Register. Contracts became more complex over time, such as Milton’s 1667 contract.  Building the rise of the idea of literary property. Idea of subscription projects: authors extend into the market and interact w/readers: 1694 contract to translate Virgil w/upfront milestone payments. Printer agrees to make best efforts to get certain number of subscribers, preserve exclusivity for subscribers until the edition is done. Once orders are filled, Dryden (author) can advertise himself for a second subscription. And if the publisher failed to get the subscription fully subscribed, Dryden had clawback rights.  Conceptualizing author’s right prior to codification again.  Contract language doesn’t use “copy” terminology, but “sole benefit of printing.”  Other contract language resembles a covenant of seizin: given the investment, author may need to indemnify publisher if there’s no legal right to sell literary property.
 
Post 1710 contracts sound very similar.  “Copy” means more than the physical manuscript.

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Campbell conference: IP and cultural expression

Panel VI. IP and Cultural Expression (Moderators, Professor Said and Professor Margaret Chon)
 
Mark McKenna, Notre Dame: Influence of Campbell outside copyright/in right of publicity: the First Amendment cases in which there’s an arguably expressive use of someone’s identity—movie, song, video games.  Courts use a lot of tests; consensus in TM developing around Rogers, but no such consensus exists in RoP despite the fact that these cases are almost always brought as RoP and §43(a) cases. One approach uses Rogers for both, which makes sense since Rogers itself involved both claims.
 
Comedy III is another option. But the problem is that a person is not a work, so it’s impossible to do a true transformativeness analysis. Courts don’t evaluate whether a defendant’s work is transforming the P’s identity, but rather how creative the d’s work is.  This means that this is essentially productive use; it’s a terrible approach to the RoP. It’s unclear whether we look at the creativity in depicting the person, or creativity in the work as a whole. The recent sports videogame cases make this conflict apparent.  You could ask how much of the work as a whole consists of the identity, but the courts don’t do that. That would still be a poor test because it would still be hard to know when a painting of a celebrity was protected. In both video game cases, creators were penalized for the realism of the game.  Suggests that least worthy would be biography and documentary film, which should be instead at the core of the First Amendment.  Of course a court is unlikely to find a violation here, but why not?  What work is transformative use doing?  Courts are actually judging the value of the work: video game exceptionalism notwithstanding SCt’s directive to the contrary.  That’s a story of Campbell’s influence, but not a happy one.
 
Lateef Mtima, Howard University: Hathitrust as template for social justice arguments in copyright.  If print-disabled access is non-transformative, but fair use, that opens other arguments. The EU doesn’t have flexible fair use, but rigid limitations.  Several cases in ECJ are doing the same thing of purposive interpretation: Decma v. Vandersteen: court has to interpret the application of the exceptions under Art. 5 of harmonization directive, as to whether or not an unauthorized use of an altered cartoon was a parody.
 
A social justice use, like the use of rendering books available to the blind, can be defended by looking at the objectives of an expressly articulated law or gov’t policy; there should be a nexus between the social utility objectives of the law or policy and the copyright law.  Finally, the last question is whether the specific use isn’t antagonistic to the overarching objectives of copyright.  The fourth fair use factor does look after the rights of the copyright holder, but we need to ask this again because copyright holders have noncommercial interests that should be respected. Often when copyright owners complain they’re getting no money we can sometimes point to noncommercial benefits they may nonetheless be getting. 
 
Access/cultural preservation is another worthy goal, for significant cultural events/documents, e.g., women’s rights events.
 
Christopher Newman, George Mason: Fair use is not holistic enough.  Factors still being weighed against each other, however minimally. Souter avoids this in Campbell; remains holistic, w/ glaring exception being factor two, the neglected middle child of fair use doctrine. Factor 2 = dean’s speech at graduation: a customary part of the ceremony, but has limited variation and no one ever expects to learn anything from it; its greatest virtue is usually that it’s short.  Kienitz: “Factor two is unilluminating” is the sum of the discussion.
 
Why? We’ve made the mistake of thinking that each factor must have weight rather than being a lens through which we should triangulate the whole. So we only say things that weigh for or against fair use.  Not only is Campbell’s factor two analysis incoherent, Souter goes on to say it’s irrelevant.  If the question is fairness, how do you decide the nature of the original work/what it was doing before it was transformed?  Ought to ground the rest of the analysis, rather than a factor that weighs for or against fair use. Should instead provide a qualitative baseline: calibrate the scale, not put a thumb on the scale. Instead these discussions take place under the rubrics of the other factors.  But it would improve analysis by making sure we’re taking the time to look at the problem from various distinct angles.  If we spent more time focusing on the original work on its own terms, we could ID and create bodies of doctrine showing works/characteristics of works that add to the analysis.
 
Why don’t we talk about what kind of work it is?  The ways in which we process and draw meaning from a work vary depend on type: music/writing. Amount of work necessary to transform may vary: relatively small alterations to an image may have a profound impact on its meaning in ways that wouldn’t happen w/text or sound.  Kelly etc. are often cited as complete copying cases, but actually the resolution was altered in ways that make transformation a more plausible conclusion. Be careful in analogizing types of cases across types of works. 
 
What’s the work’s expressive purpose?  Current analysis is undisciplined, failing to distinguish between the purpose of expression embodied in the work and all the instrumental ways in which that expression might be used.  Irrelevance of good faith: we want to be able to look at objective qualities of two works and not at what’s going on in people’s heads.  Expressive content of photos can be entirely unaltered—Dillon v. Doe, headshot of politician to ID her, used for the same purpose: to physically identify the person under discussion. The effort to convey positive/negative meanings was separate; there was no transformation.  You might say once a politician chooses to make an image identify her, that image is fair game. Okay. But then we need to know when secondary associations should be considered part of a work for fair use purposes.
 
Factor two could also ground the discussion of factor four. What kind of market are © owners trying to participate in, and how are they using it to further expressive aims? Doesn’t see why market has to mean economic value, but rather some other kind of gain.  We shouldn’t categorically opposed to let artists use exclusive rights to protect whatever idiosyncratic values they have. If artists want to be paid in attribution, and release work under CC licenses, then someone who copies w/o attribution shouldn’t win fair use automatically b/c there’s no market harm.
 
Moral rights through the back door? What I’m suggesting doesn’t increase scope of author’s §106 rights just because of objection.  Fair use is like nuisance law.  Requires actual harm to use & enjoyment of property, which isn’t limited to ability to profit. But owner doesn’t have carte blanche to define use & enjoyment—depends on the character of the neighborhood and the neighbors’ interests. Violation of a ban on criticism shouldn’t be honored, but that’s not true of all idiosyncratic values. So discuss what sorts of use & enjoyment authors value in this space, and is there any reason to stop them from using exclusive rights to further those values.
 
Betsy Rosenblatt, Whittier: Young women’s voices on fair use.  People make things they may not realize they’re making, including community or themselves.  Fanworks, overwhelmingly female communities under investigation. Deep dedication to gift economy.  In post-Campbellworld, these fanworks pretty uncontroversially don’t infringe, even resisting the temptation to separate the factors out from each other. Transformative of meaning; noncommercial; small portions; don’t compete in the market.  There has never been a lawsuit about a noncommercial fanwork (despite threats and rumors).
 
Skin in the game: Organization for Transformative Works legal committee head; OTW runs the Archive of Our Own w/over 400,000 registered users, 1.3 million works, 5.8 million unique visitors/month. 107 responses to our call for fan stories to submit as part of our response to the USPTO/NTIA Green Paper call for comments on remix.  We had to depend on self-identification as women/girls. We only asked about benefits of creating remix, not drawbacks: reflects our pro-fanwork agenda.
 
We found very powerful trends in the responses. Particularly: creating fanworks provided unique opportunities for developing selfhood, emotional maturity, and professional skills.  Broad fair use permission for noncommercial derivative works promotes expression by often marginalized speakers and offers benefits otherwise unavailable.  Fandom helped them understand themselves. Many had a narrative of fandom as rescuer—literally lifesaving in some cases.  Felt they were not alone in the world; helped them find their voices; taught them to value their own expression and their own opinions, which served them later in life.
 
Women believed fandom allowed them to talk back to mass culture, especially one that didn’t adequately represent them. Claim agency around popular narrative, explore issues of gender and sexuality by working with popular characters; nonheteronormative narratives; issues of race and disability. Infinite diversity in infinite combination.  The derision of fanworks was often bound up with other negative attitudes towards feminine pursuits. The young writer in any genre will not start out good; she finds her voice and that’s a benefit.
Remix taught important skills—language, writing and editing w/ the system of beta reading in fandom, critical thinking, visual art, programming/coding, other fields that could be used in professional lives.  The rewards are support and feedback, a community/culture of learning. Transformativeness, because community that supports empowerment through changing the original, comes disproportionately from underrepresented groups.  Permission culture would make this all difficult/prohibitive.
 
Margaret Chon: Legal transplantation, examined by McKenna—we’ve seen this in other contexts such as the three-step test of Berne being implemented in national legislation.  Mtima is talking about similar issues: © looking outside of itself and even IP as a whole, towards other kinds of laws and policies.  Specifically the ADA.  Perhaps IP isn’t the be all and end all for innovation—think about leveraging and connecting other social policies.  McKenna isn’t a cheerleader for transplantation, whereas Mtima is.
 
Newman and Rosenblatt do deep dives into two fair use factors, which Leval urged us to consider as deeply connected.  Chon also has the tendency to handwave factor two; Newman’s project is to bring factor two back into the fold. Rosenblatt/Tushnet also dive deeply into the transformativeness factor: how do these two impact each other?  How would Newman’s approach deal with the Rosenblatt/Tushnet process-oriented approach to transformativeness.  Is there value to Newman’s approach for thinking about fanworks?
 
Breathing space may tie this all together.  We tend to think of this as tied to First Amendment/free expression goals, but “breathing space” is open enough to capture many ideas expressed on the panel.  Securing copyright is good, but one must not put manacles on science: quote from older case is her favorite part of Campbell.  Fair use had earlier precedents, not just in America.
 
McKenna: not averse to transplantation in itself. Courts often don’t think nearly carefully enough about what they’re doing when they transplant something. E.g., courts often pretend they’re just using tort principles in secondary liability cases, but they don’t. Most likely to go awry when court is unfamiliar with the borrowed-from body: Cal. SCt doesn’t get very many copyright cases! Likewise, the SCt doesn’t get many tort cases, but thinks it knows torts.  No rhyme or reason. Mtima wasn’t advocating borrowing willy-nilly but was arguing for borrowing w/relation to copyright.
 
Mtima: we all seem to be saying that the nature of the work matters.  The right type of access to works—being able to get them and then to reuse them—helps continue the evolution both individually and as a society.
 
Newman: People usually think about fair use w/regard to fan fiction as copyright being a looming, never materializing threat.  Newman takes strict view of idea/expression and thinks fanworks usually don’t count as derivative works.  Super rich depiction of artistic community: I’m curious to know to what extent is © useful, not because I have to shield myself from it, but perhaps because they want to keep it noncommercial/constitutive of their personhood.
 
Rosenblatt: Very suspicious of considering intent of original creator, but intrigued by considering purpose as something different from intent. Expressive substitution may not just be for what the original work says, but for what the original work does.  Wary of importing moral rights through the back door. But these communities depend on certain things they want their works to accomplish for themselves and others.  Recent ebooksTree issue of copying fanworks to attempt to convince people to pay for “free” ebooks. Fans definitely want their works to remain free.
 
Yen: If the phenomenon you observe with transformativeness in RoP cases mimics the problem w/transformative use being so broadly applied that it loses coherence and simply becomes a result announced in advance.  Public pressure to compensate NCAA players; this just happens to be our vehicle.
 
McKenna: it’s true, that seems influential—and I want them treated fairly too. But there is a core way in which it makes sense for copyright; it doesn’t make sense at all in the RoP.  It is in some ways announcing a result b/c it’s hard for Ds to win.  On the very same day the 9th Circuit announced that the videogame wasn’t transformative for RoP purposes, it announced that it would use Rogers for 43(a) claims against the same conduct.
 
Besek: Factor two/coursepack cases: some texts are created specifically for the educational market; that’s an important aspect of their nature. Is there a place for the publishers’ goals? Courts have rejected authors’ own desires for wide dissemination as probative.
 
Newman: should start by understanding what role © actually plays in enabling and encouraging the people who are trying to cultivate the value of the work doing what they’re doing, which includes publishers/intermediaries. 
 
(RT: Barthes’ readerly and writerly texts as a factor two consideration?  That would tie in with the fan communities that respond to certain works. Except it turns out that almost texts can be writerly.  Newman might not be into that, b/c he seems to look at “purpose” as something objective about the creators/publishers, rather than purpose as function in the reader-writer interaction.  Readerly/writerly might fit into the fact/fiction, published/unpublished distinctions we have though.)

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Campbell conference: copyright and music licensing

Panel V. Copyright and Music Licensing (Moderator, Dean O’Connor)
 
Peter Menell, U.C. Berkeley: We seem to approach fair use depending on how we approach our careers. Lawyers: fair use is attractive b/c it has so much potential.  Social science: not so perfect b/c it doesn’t solve core problems in many areas.  Selma: director concluded (whether correct or not) that she couldn’t use real MLK speeches. This is a lost opportunity to portray history, with no arts-promoting benefits.  Jimi Hendrix biopic opens without his music, thanks to copyright. Fair use needs help. 
 
Another pocket of law: mashup as the breakout musical genre of this generation, just as hip hop was of a previous area. Sampling was channeled into licensing but never achieved all that it could, since labels wouldn’t release uncleared content. Internet/digital tools: new wave didn’t need labels.  No big threats of lawsuits.  But then you can’t monetize and distribute—that’s the boundary.  Norwegian Recycling: example of pop subgenre.  Sees copyright as an impediment. If you make it to the top of the remix world, you can perform for $100,000 a night, but many people would like to put their work out in recorded form, and that’s hard to do with no ability to monetize. They can do it live b/c there’s no public performance rights in sound recordings and the clubs already have blanket licenses. (They may bring in recorded remixes but no one has made a stink about it.)
 
Remix is in state of unrelievable tension: some think it’s all fair use, others think it’s morally and legally indefensible.  Girl Talk sometimes takes big chunks; not clear how that would come out under fair use. Solution might be compulsory licensing, as several studies of remix artists suggest—artists are happy to share some of the revenue without being fettered in creation.  Cover right = kind of remix that is unfettered in that way.  Many might be fair uses, but covers don’t seem to bother people; help promote the older versions too.  Rethink our exceptions for revenue sharing: complement to fair use; use limitations with no ads, no synch.  No statutory damages for mashups.  There are objections but we won’t get perfection, and we’ve already been waiting years for some help. 
 
Moral rights: William Hung did a Xmas album; we live with the cover right.  We could be explicit that there’s no cutback on fair use.  Many remix artists would go along without demanding fair use rights—less pressure on the doctrine.
 
Eric Priest, Oregon: Music in China. Creators do produce works in China despite difficulty monetizing them. China’s film industry is booming.  Basically no money from online music. One revenue stream: exists by happy circumstance, b/c Chinese consumers happen to really like ringback tones.  Those aren’t piratable unless you hack your phone; centrally controlled by mobile provider. But mobile providers do a lot of record label style accounting, so record labels don’t get much, and artists get less still—2% of the revenue generated by the providers.  Labels lack leverage to renegotiate deals/enforce deals they already have b/c this is their sole source of revenue.
 
When there’s only one revenue stream, you force people to accept that stream.  As you get monopsony intermediaries, that vests tremendous power and leverage in that intermediary. We’re seeing glimpses of that in the US.  One Amazon, one Google, one dominant player per space—not clear who that’ll be in music distribution, though some will say YouTube has won. YouTube can say: agree to our terms or your videos will be private. Strongarm negotiating is part of the model, when revenue streams dry up.
 
Kristelia Garcia, Colorado: We don’t want to limit the cover right by forcing any distance at all from the first performance.  But what does that mean for other issues, like the Blurred Lines case?  We don’t normally see 10% similarity analysis in substantial similarity in music: what does it mean to say that Blurred Lines “sounds and feels” like Got to Give It Up?  Not at all clear how people are throwing around these musicological terms.  Also a bunch of nonsense phrases, including in instructions to the jury—“a constellation of distinctive and important elements,” “vocal and instrumental themes,” “unusual cowbell and instrumentation” as opposed to the standard cowbell, copying of “omission of guitar,” and use of male falsetto, which seems unfair. “The very essence of the work”?  Is that because it’s in the genre?  There is substantial similarity of feel in the works, but so what?  Sub Pop: Do you hope the artist you hear next sounds completely new?  Answer: No, we hope they sound like artists who sound like the artists we have who are already successful.  We have records to sell. Don’t have time to risk with artists doing completely new things.  Does that create risks of label mates suing each other?  Universal’s acts are suing each other: Marvin Gaye & Robin Thicke.  Substantial similarity is the equivalent of fair use in music; that’s the only tool we have.
 
Olufunmilayo Arewa, U.C. Irvine: Music and similarity. Part of what we’re dealing with is that a lot of music is very similar. Not just pop music: historically, a lot of music has been similar. We tend to interpret music through the lens of the canon: we ignore 1000s of composers in classical, blues, jazz.  But that means we forget a bunch of similarities. If you play a bunch of music from Robert Johnson’s time, it’s not clear how he differs from other contemporary artists, which is not to say he wasn’t a great artist.  Rise of African-American influence in music: popular western music used to sound very different, a century ago.  Not just in US.  Think of change in assumptions about how we create, which we don’t think about enough from a © perspective.
 
Lawyers and writing. We think about lyrics. But Campbell and other cases, when they talk about musical features, courts lose their way—much less sophisticated and nuanced. Reflects that lawyers are trained to focus on writing.
 
Notation, and its use in unintended ways in legal cases. Notation is a particular kind of writing with a specific historical trajectory of trying to write down Western art music, as something that singers and instrumentalists can both use. Rhythm is very hard to notate.  A lot of rhythm is learned orally, even today.  Notation is a shortcut, not a complete embodiment.  That impacts popular music today, because a lot of infringement cases are about the musical work. Courts would often play the music and tell jurors to abstract out different portions to get to some kind of essence. That’s very difficult, b/c there are important cognitive/perception aspects of music that we need to think carefully about. Music writings and music sounds are processed in different parts of the brain.  Reactions to music can be highly individualized.  Courts don’t have a good enough understanding of how writing v. sound is processed.  Notation is representation, and what it means varies a lot, especially for African-American music where the lead sheets don’t fully embody the written music.  Sound recording copyright doesn’t really help because most infringements aren’t verbatim copies of the sound recording.
 
Underlying assumptions. Need to think about the relationship between musical sound and musical writing. Influence of things like genre, musical perception/cognition. How do we think about and measure musical relationships.
 
O’Connor: example of musician who shows her bass playing by playing it over a recording of I Wanna Be Sedated—doesn’t fit into conventional categories, but maybe we want to allow it, including under Menell’s proposal.
 
Heald: Maybe one way to look at it is whether there are local borrowing norms that allow a certain amount of copying.  Argument: Berne should be held to mandate this b/c it says it’s permissible to quote a work lawfully made available to the public provided this conforms w/fair practice.  Not limited to just words.
 
Arewa: sounds good, but look at Rolling Stones, who borrowed heavily from blues traditions but then enforced heavily against, e.g., Bittersweet Symphony. 
 
Heald: maybe they’re hypocrites.
 
(Other discussion: the labels/publishers sue; their norms are different/are they even relevant since they benefit from the artists’ underlying acts?)
 
(I’m really intrigued by Garcia’s suggestion that substantial similarity serves the fair use role (well or badly) in music infringement cases. This gets to something often missed by ideas about parody/transformation that reduce it to criticism.  Sometimes quotation is a way of participation in a conversation; it doesn’t have to be critical for there to be a transformative new work created.  To the extent that similarities situate a work within a genre—similarities that might be called tropes or scenes a faire in non-music cases—they do serve one function of quotation that might in other contexts be analyzed as fair use.  The problem in music cases seems to be insufficient appreciation that substantial similarity is also serving the fair use role, though I’m not quite sure what should be done about that given that breaking out fair use would also require articulating the musical concepts that Arewa points out judges/courts don’t understand all that well.)

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