Reading list: women in technology

Sacha Judd on where to point the “pipeline”: fandom–includes discussion of the Organization for Transformative Works’ AO3.  Also worth reading is the linked talk from the founder of Pinboard, who writes hilariously and respectfully about fans’ ability to self-organize and also has the deliciously (no pun intended) subversive title “Fan is a Tool-Using Animal.”

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Bridging the Gap Between the Federal Courts and the U.S. Patent and Trademark Office

Boston University Journal of Science and Technology Law
Symposium
Sorry, guys, I did not follow the patent panels.

Panel III: Trademarks
Rebecca Tushnet, Fixing Incontestability: The Next Frontier
Incontestability is a nearly unique feature of American
trademark law, with a unique American implementation.    Even if a symbol is merely descriptive and
lacking secondary meaning, incontestability means that federal law will treat
the symbol as if it were functioning as a mark. 
This is a powerful protection, given that descriptive terms lacking
secondary meaning are otherwise free for all competitors to use, and that
competitors are likely to have good reasons to do so—after all, the symbol
describes relevant features of the product or service.  Although competitors retain the defense of
descriptive fair use, this defense is difficult to prove and often requires at
least extensive discovery .
Given the power of incontestability, one might think it
would be carefully granted. 
Unfortunately, claims of incontestability are not subject to substantive
examination at the PTO.  Moreover,
because incontestability has specific legal requirements that may be unfamiliar
to lawyers who aren’t trademark specialists, it’s simple for negligence alone
to produce invalid incontestability filings, which then appear on the Register
and may distort decisionmaking, both by competitors and by courts. 
Worse, and of particular relevance to this Symposium, courts
may misunderstand either the prerequisites for or the meaning of
incontestability, allowing trademark claimants to assert rights that they don’t
actually have.  Courts even appear to be
inconsistent about meeting their statutory duty to notify the PTO about the
filing and conclusion of all actions concerning registered trademarks, which
has implications both for validity in general and for incontestability in
particular.  Competitors, many of them
likely to have little in the way of sophisticated trademark advice, are in an
even worse position to evaluate the validity of incontestability.
In the last two years, several legally significant
cases—including one that went to the Supreme Court on apparently mistaken
premises—were complicated by unwarranted Section 15 approvals.  I’ll talk about one, but my paper discusses a
few others. 
The most striking example of apparently mistaken
incontestability comes from B&B v. Hargis.  
This case has a complicated procedural history, and it went to the
Supreme Court in 2015 on the question of whether preclusion applies to TTAB
rulings in subsequent infringement litigation. 
The Supreme Court answered in the affirmative, at least for some
situations.  That result makes the stakes
of registration higher, and reinforces the need to have the register reflect
reality.  However, the course of the
B&B case itself reveals trouble with the accuracy of incontestability
claims.  B&B registered SEALTIGHT for
fasteners in 1993 and then sued Hargis for infringement in 1998, relying on its
registration.  In 2000, Hargis proved at
trial that SEALTIGHT was descriptive without secondary meaning for
fasteners.  Yet neither the district
court, nor the court of appeals that affirmed the ruling, ordered the PTO to
cancel the registration, despite that registration’s invalidity.   Meanwhile, Hargis filed a petition to cancel
B&B’s mark, which proceeding was suspended pending the resolution of the
infringement lawsuit. 
When the infringement lawsuit was resolved in favor of
Hargis, Hargis attempted to amend its cancellation petition to add the ground
of invalidity on the basis of mere descriptiveness, but the TTAB denied the
motion to amend because by that point B&B’s registration was more than five
years old, and thus could no longer be challenged on mere descriptiveness
grounds.   B&B subsequently renewed
its registration in 2003, and filed a Section 15 affidavit in 2006 claiming
that the requirements for incontestability had been satisfied.   (As a reminder, those requirements include
that there be no pending challenge to the validity of the mark, or successful
and final challenge to validity.) 
Hargis applied for a registration of its own, which was
rejected by the TTAB on grounds of likely confusion with B&B’s registered
mark.  After filing for incontestability,
B&B sued Hargis again in 2006, and the court of appeals found that
preclusion from the first trial didn’t apply because of the change in the
mark’s circumstances from contestable to incontestable.  Then, after the Supreme Court decision, the
court of appeals found that preclusion from the TTAB ruling did apply, meaning
that Hargis was an infringer. B&B, that is, filed an affidavit claiming
that there had been no final decisions adverse to its ownership of the
SEALTIGHT mark, after losing an infringement case on the ground that it did not
own a protectable mark.  Then it parlayed
that affidavit into a decade of new litigation, including a successful TTAB
opposition and a duplicate infringement suit, having precluded its opponent’s
previously successful defense. 
Hargis contributed to the debacle by not seeking an
order  cancelling B&B’s trademark
registration upon its initial victory.  
But this too was almost certainly a function of the relative exoticism
of registration practice to ordinary trial lawyers : It is not necessarily
obvious to non-registration specialists that a final order from an Article III
court finding a claimed trademark to be merely descriptive needs to be followed
up by another order from the court directing the PTO to cancel the registration
in order to have preclusive effect. 
This comedy of errors ended in further farce when B&B
failed to renew its registration during the pendency of the Supreme Court
litigation.  As a result, the
registration expired.  The trial court
then held that, without the incontestable registration, B&B was once again
bound by the earlier trial result finding that it had achieved no secondary
meaning and thus no protectable mark. 
All of this could have been stopped much earlier if either the PTO had
possessed sufficient information to see that the statutory requirements for
incontestability had not been met or the courts had understood those statutory
requirements and independently examined whether they’d been satisfied.
There are other recent examples with similarly tortured
histories.  And one recent Sixth Circuit
court case apparently had no understanding at all of incontestability, deeming
it applicable to a mark that had been cancelled (and then subsequently
registered by the same party, but not for five years).
General unfamiliarity with incontestability probably
explains why many parties who would benefit from pointing out erroneous
incontestability designations fail to do so. 
The cases I have found are examples that turned up in my research
fortuitously; they were not produced from any attempt to determine how often
problems with Section 15 affidavits occur. 
Moreover, each case appears to involve courts that didn’t pay detailed
attention to, and were almost certainly unfamiliar with, the legal
prerequisites for incontestability.  If a
Section 15 affidavit is mistaken (whether or not knowingly false), then the
requirements of Section 15 haven’t been met, and thus courts should not accord
the affected registration an irrebutable presumption of distinctiveness. But it
is a disturbing fact that the error has been repeated multiple times by
different courts in case-dispositive ways, including in a case that made it all
the way to the Supreme Court and through two trials. 
What might we do?  Changes
to the process for Section 15 affidavits similar to those already underway for
Section 8 renewal filings could help registrants avoid the kinds of inadvertent
errors that may well have underlain these cases.  Fundamentally, while a mark that has become
incontestable cannot be challenged on the ground that it lacks secondary
meaning, it should be possible for challengers to identify marks that never
satisfied the statutory prerequisites for incontestability. Specifically,
possessing secondary meaning isn’t itself a prerequisite for
incontestability.  But lack of a pending
challenge or final successful challenge to validity is.  A mark that was in fact subject to such a
successful or pending challenge, therefore, has not satisfied the statute and
is not entitled to the cloak of incontestability.
Nor should courts be precluded by the statute from asking
the relevant questions about incontestability. 
Incontestability is for marks that have satisfied all the requirements
thereof, not just for marks that happen to have a Section 15 affidavit on
file—should be the same.  As the Second
Circuit court commented in a very slightly different context, it would be a
“perverse result” if the use of “recording—a ministerial act—[was transformed]
into a mechanism for conclusively defeating allegations … challenging the
legality of the assignment.”   So too
with the ministerial act of accepting a Section 15 affidavit, or counting the
years a registration has been on the record.
The PTO has discovered significant overclaiming through
random audits of renewal filings. 
Although incontestability is rarer than mere renewal, the cost to the
public of a single faulty incontestability designation may be higher than the
cost of a single extra goods or services designation, given the ability of a
registrant to use incontestability as leverage in disputes and the ongoing
confusion in the courts about the effect of incontestability on a mark’s
strength.
Small steps could prevent many of these mistakes in the
first place.  The PTO has made changes to
the standard declaration that an applicant signs under penalty of perjury when
filing a trademark application or renewal. Instead of a traditional block of
text, the form now presents a separate series of clauses with check boxes next
to each statement.  The applicant should
now more readily understand that it must claim use, or intent to use, the mark
on every good or service it lists in the application.  Similar measures could improve
incontestability by making the requirements of Section 15 more salient.  For example, the affiant could be required to
check a box, yes or no, about whether there are any pending or resolved cases
involving the mark.    If the answer is
yes, the form could ask the affiant to provide more information.  Alternatively, the affiant could be required
to list all proceedings, pending and terminated, involving any challenge to the
validity or ownership of the mark in question, and state the status or outcome
of the proceeding with respect to the mark.  
Random audits of trademarks for which the PTO has received a “Notice of
Suit Incoming” could also improve the situation, assisting the PTO and
registrants in determining when the register needs to be updated to reflect
reality.
Likewise, the PTO’s proposal to institutionalize random
audits of trademark maintanence filings could be expanded to a percentage of
Section 15 affidavits, at least to the extent of having examiners run a Westlaw
search and check whether any pending cases appear in TSDR and then, if the
trademark appears to be the subject of litigation, asking the trademark owner
to explain why the cases aren’t relevant. 
The PTO could also consider a similar procedure for verifying
incontestability if a question arises, making a more formal practice of the
correction it made in response to my blog post on one such case.
Most registrants who provide incorrect information are not
determined to distort the register. 
Negligence and ignorance are bigger problems.  It is therefore worth giving more detailed
cues about the statutory requirements for a Section 15 affidavit to affiants at
the moment those cues are most needed. 
Trademark attorneys can improve their procedures as
well.  Registration counsel is sometimes,
but not always, litigation counsel.  When
lawyers discuss renewals and Section 15 affidavits with their clients, they
should take care to ask about whether there is any pending litigation or PTO
proceeding involving the mark, not just whether the client is still using the
mark and wants the registration renewed.
The courts also have a role to play.  Under current rules, notices should be sent
to the PTO about pending cases involving registered trademarks.   In theory, the plaintiff should file the
relevant form with its complaint, and the clerk’s office should pass the form
on to the PTO.  These forms are then
recorded by the PTO and become part of the formal record for the registration
at issue.  The form should be filed
again, with appropriate updates indicating the outcome, when the case is
terminated.
If a mark’s record is complete, then it will be a simple
matter to identify whether further inquiry is required to evaluate whether the
requirements for incontestability have been met.  Although the notification process is already
in place, experience indicates that compliance is spotty: many litigated cases
involving registered marks never show up in the registration record.  For example, the highly significant case
Christian Louboutin S.A. v. Yves Saint Laurent America Holding, Inc.,  which involved a partial cancellation of
Louboutin’s red sole mark for its shoes, never showed up in the PTO’s records
until correspondence between the parties about how to implement the partial
cancellation order.  If litigators and
clerks’ offices around the country became more aware of the problem, the
records could be improved.  I have a
research project ongoing to figure out where the notice of suit falls through
the cracks and whether there are steps that the PTO or clerks’ offices could
take.
Similarly, it would be beneficial to improve judicial
understanding of the requirements for incontestability.  Even though courts do not evaluate whether an
incontestable mark has secondary meaning, they can and should evaluate whether
incontestability was properly secured. 
Fundamentally, no one should be made better off by providing
inaccurate information to the PTO. 
Unfortunately, it is currently possible to benefit from doing so. Incontestability
offers low-hanging fruit for improving the accuracy of the trademark register
and the courts’ understanding of what registration means.
Q: petition to cancel incontestability as a possible
solution?
A: good idea.  Similar
to a random audit; I’m more interested in things that the PTO could do in the
absence of congressional help.
Q: patent cases—it’s second entry in the docket in the
federal district court; why is it not showing up in the PTO’s records.  Also, why require act of PTO to make it
incontestable?
A: The form might be in all the TM dockets in federal
district court—the gap may be between the dcts and the PTO, and I want to find
out where that gap is.  I neglected to talk
about the fact that no act of the PTO is necessary to make incontestability
apply in cancellation proceedings, which is what happened to Hargis.  We could do the same with incontestability
for litigation purposes, but the incontestability filing may be our only chance
to get TM owners to look at this and see whether they actually meet the
requirements, so I’ve now talked myself into wanting to keep the affidavit—and maybe
to expand it to the cancellation context.
Alex Roberts: Your proposals are conservative; what would
you do if you could rewrite the law?
A: I might keep incontestability as part of a more
substantive approach to registration. That said, I’d want to have clear
requirements for substantive examination that the prerequisites had been
satisfied.
Christine Farley, American University Washington College of
Law, No Trademark—No Problem: About Belmora,
cert petition pending.  Today is the day
it was distributed for conference. 
Flanax: Bayer had no rights; Belmora didn’t look too good as a
copier. 
Person’s: strict territoriality (CAFC); Grupo Gigante,
famous marks (9th Cir.); Punchgini, no such exception to
territoriality for famous marks even if it would be a good idea (2d Cir.).

4th Circuit discussion was unsophisticated and
didn’t engage w/territoriality at all; TTAB discussion was much more nuanced
and understanding of the waters in which it was wading.  TTAB knew: territoriality is definitely a
hurdle and TM rights arise solely from use in commerce in the US.  Case law didn’t address whether Bayer’s use
in Mexico would be enough for a claim, but they decide to extend the law—unlike
Person’s, there was a reputation in the US, and Belmora was exploiting that
reputation.
Why didn’t Bayer act earlier?  They probably didn’t think they had a
successful claim to bring, until there was enough advertising to act on. That’s
reflected in the kind of petition/complaint they filed—named 3 different int’l
treaties as basis of claims, one of which Mexico wasn’t even a signatory
to.  Also, series of TTAB decisions
granting Bayer’s motion to amend again and again until everything was gone but
misrepresentation of source based on the goodwill that flowed across the
border. 
TTAB 2000: found for a TM owner with no registration in the
US and allowed them to cancel under a little-known treaty (Belmont); again in
2008, Cuban coffee company used same path; in 2009, the claim was unsuccessful
b/c there was a requirement to pay a fee to a Bureau that didn’t exist to take
advantage of Inter-American treaty.
Why is the TTAB willing to go out on a limb?  She thinks it’s standing.  TTAB requirement: real interest.  TTAB in Belmora: “petitioner has shown that
it has an interest in protecting its Mexican FLANAX mark”—a relatively low
standard. But SCt just addressed this under the Lanham Act §43—Lexmark asked claimants to focus on zone
of interests protected by the statute. 
You’d think there’d be no basis for adjudicating a dispute w/o a use in
commerce. Maybe that should inform how the standing requirement is being
addressed.  
Given the outcome, you should go from TTAB petition to EDVA
to 4th Circuit.  The TTAB
stuff is very significant, because this can throw open the doors to a wider set
of claims.
Arti Rai: The TTAB standing requirement: why is there a
requirement for an administrative agency?
A: Because the Act says any person who would be
damaged.  TTAB has said Lexmark standard
doesn’t cover its proceedings–§43(a) is different, but the “damaged” language
is the same.
RT: zone of interests: people protected by §2 that don’t
have commercial interests.
A: treaty obligations—obligated by treaty to protect state
emblems and well-known marks, maybe that’s w/in the zone of interests in the
Lanham Act.
Stacey Dogan: whether the interests at issue in a
cancellation proceeding may be distinct from infringement?  TTAB as protecting integrity of the Register,
for example by barring registration of deceptive marks. 
A: it’s still the same priority battle in both cases.  Becomes confusing to have a different
standard/answer at the TTAB.
Q: curious about unfair competition aspect.  Seems strong rationale for protecting rights
of foreign user w/famous mark even w/o use in the US.
A: goodwill is the reason to protect.  There might be a public policy in favor of
this, but there has to be some rationale, and the 4th Cir. simply
deleted territoriality instead.
Alexandra Roberts, University of New Hampshire School of Law,
Trademark Failure to Function
What do we talk about when we talk about use as a mark?
Relative size, color, distinctive font, stylization, prominent placement in TM
spot, set off by itself, use of TM or ®, all caps or initial caps.  Lee et al. study: consumers are likely to
perceive most non-generic terms as TMs when they are in the right “place” on
the package.  Even w/o distinctive font,
70% said “Wonderful” was a brand name when it was large and placed right.  Smaller, lack of prominence—much less likely
to say it looks like a brand name. 
Small: 33% brand name; small and placed along the bottom edge of the
package: only 27% said brand name.
Maybe best way to think about this is ex parte v.
adversarial.  Applicant sought to
register icon of toilet for call devices used in hospitals.  Refused. 
Spectrum, in colors, but used in a sentence—TTAB rejected even though it’s
not just for a word mark; it was a design/composite mark using color.  Still not using it as a mark/fails to
function.

In re Chemical Dynamics (Fed. Cir. 1988): applied to
register dropper and droplet, not full image. 
The court (and PTO) said you aren’t using that separately, it’s part of
the whole mark—no separate commercial impression.  Often the applicant can file a new specimen to
rebut a failure to function refusal.  In
re Eli Lilly (TTAB 2015). Statement: “syringe contains a solution of Trulicity™ or placebo.”  Just plain text, part of sentence.  TTAB says: this is inherently distinctive;
distinctiveness creeps into use as a mark analysis. 
Ex parte failure to function: administrative expertise—examiners
do this every day; but: limited guidance/tools for identifying failure to
function v. tons of tests, factors for distinctiveness.  Lists in TMEP of what might fail to function;
language is super tautological: does it look like a TM?  Not actually that helpful!  Doctrine creep: mixing use w/use in commerce,
inherent distinctiveness, acquired distinctiveness, functionality. Ex parte =
closed universe of evidence for applicant’s specimen. Atty can manipulate that
by working w/client to generate a specimen that looks trademarky.  Examiners have incentive to work quickly—they
have a quota.  There’s also an ITU
handicap: a huge # are filed on ITU basis; initial application occurs w/o
specimen. We expect the review of the specimen won’t be as thorough—may even be
completed by paralegal and not examining atty, so will sail through w/o anyone
really examining function as a mark.
Adversarial proceeding: open universe of evidence; context
is cancellation, infringement, priority; divergent guidance/tools for
identifying failure to function; doctrine creep is similar; greater resources
but less expertise.  More nontraditional
marks–§43(a) unregistered trade dress. 
Rights defined around/against opponent. 

Starting to code cases: a lot of overlap w/other use issues
and w/distinctiveness.

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Blast from the past: pleading falsity based on scientific claims

Biolase, Inc. v. Fotona Proizvodnja Optoelektronskih Naprav
D. D., No. CV 14-0248, 2014 WL 12579802 (C.D. Cal. Jun. 4, 2014)
A rare case applying the Second Circuit’s ONY case and perhaps suggesting why that case wasn’t
a blockbuster.  Biolase and Fotona sold
lasers used in dentistry. Jeff Jones used to be Biolase’s CEO, and Keith
Bateman used to be Biolase’s VP of Sales. They were fired in 2007; Jones then
founded and became CEO of T4Med, and Bateman became Executive VP. T4Med was a
sub-distributor for Lares, which was a distributor for Fotona.
Biolase alleged that Fotona and T4Med used false and
misleading advertising to get customers to switch from using Biolase dental
lasers to Fotona dental lasers by claiming Fotona’s lasers are safer, faster,
more precise, and less painful than Biolase’s lasers. Defendants allegedly represented
that these advertising claims are based on independent scientific articles, but
the articles are written by Fotona affiliates and published in a journal
established by Fotona. Only one of the authors  disclosed their affiliation with Fotona.  Biolase also alleged that defendants made
false and misleading oral statements, including that Biolase’s technology was
faulty and worthless, and that Biolase’s management was incompetent.
The court dismissed the complaint.  Some of the statements at issue were puffery:
Fotona’s “… patented VSP (Variable Square Pulse) technology … maximize[s]
patient safety …,” “QSP (Quantum Square Pulse) … allows for exceptionally
fast laser drilling speed with unmatched efficiency and precision,” and
“Fotona’s patented QSP (Quantum Square Pulse) mode allows the laser to ablate
more efficiently and with greater precision.”
There were nonpuffing, measurable statements: “Up to 20
W[atts] of Er:YAG laser power provide an exceptionally wide range of fast, safe
and effective treatment options,” and Fotona’s laser has “superior clinical
results.” However, the court found these statements non-actionable because they
restated scientific research.
Under Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134 (9th
Cir. 1997), allows a false advertisement claim where a plaintiff alleges that
the tests supporting the challenged claim “are not sufficiently reliable to
permit one to conclude with reasonable certainty that they established the
claim made.” Biolase alleged that defendants’ advertising statements were based
on “junk science,” and were unreliable.  But ONY, Inc. v. Cornerstone Therapeutics,
Inc., 720 F.3d 490 (2nd Cir. 2013), affirmed a district court’s decision to
grant a motion to dismiss Lanham Act claims because the advertising statements
were based on accurate descriptions of conclusions from peer-reviewed
scientific journal articles. 
Statements in journals themselves aren’t actionable; then
the question was whether advertising statements “based on research published in
scientific journal articles” were actionable. ONY concluded that the answer was no, absent allegations “that the
promotional materials misstated the article’s conclusion” or “distorted [the]
article’s findings.”  The same logic
applied here.  The tests in Southland Sod Farms were distinguishable because they were done by the company
doing the advertising, and weren’t studies and conclusions published in
peer-reviewed scientific articles. “A Southland
Sod Farms
type claim is appropriate for Courts to decide, but attacking the
validity of experiments and conclusions published in peer-reviewed scientific
journal articles is better done in the scientific, not legal, realm.”  For example, Biolase alleged that the
articles’ conclusion that Fotona’s laser has a higher absorption of water at
room temperature was misleading because dental lasers are not used at room
temperature. But Biolase didn’t allege that the study didn’t actually find a
higher absorption of water at room temperature. 
[Note this—it will become important in the next iteration, showing the
way to plead around ONY.]
Also, the court commented that, to the extent that T4Med’s statements
accurately represented the published studies’ findings, it was questionable
whether a substantial segment of the sophisticated target audience would be
deceived, “since dentists would likely be educated enough to see the alleged
weaknesses in the studies.”
The defamation claim failed for lack of sufficient
specificity about who made the allegedly defamatory statements, where they made
them, when they made them, or to whom they made them.
Biolase, Inc. v. Fotona Proizvodnja Optoelektronskih Naprav
D. D., 2014 WL 12577153, No. 14-0248 (C.D. Cal. Sept. 15, 2014)
Biolase amended its complaint and tried again, with greater
success.  Here, Biolase alleged that the
published article at issue was “based upon and presents fraudulent data, and
contains several false statements,” and that the article’s conclusions didn’t
support claims of any clinical advantages. Further, Biolase alleges that the
Journal of Laser and Health Academy, where the article was published, was controlled
by Fotona and not peer-reviewed, though JLHA’s website states that it is an
“international peer reviewed journal.”
To rebut the court’s earlier concern that sophisticated
dentists wouldn’t be confused, Biolase alleged that “dentists are not usually
introduced to or trained in lasers … in dental school, and so lack sufficient
expertise to understand the differences and details of laser technologies.” It
also alleged a statement by T4Med’s CEO that “only a small percentage of
dentists use lasers to perform dental procedures.” “Based on these allegations,
it is plausible that dentists would be deceived by false advertising concerning
lasers.”

As for the ONY problem,
here, Biolase alleged that the article’s data were fraudulent and that it didn’t
support defendants’ superiority claims. The court had “concerns” with the
fraudulent data allegations, but the other allegations stated a plausible
claim. Biolase alleged that defendants falsely advertised its lasers as safer
than, faster than, and clinically superior to Biolase’s lasers, and that there
were “no scientific studies, experiments, or other evidence” supporting these
claims.  The JLHA article on which
defendants relied “never clearly concludes that Defendant’s lasers are safer
than, faster than, and clinically superior to Biolase’s lasers, nor did
Defendants show that the article supports such statements.”  Indeed, Biolase alleged that at least some of
the tests reported in the article were performed in settings inapplicable to
clinical use.  For example, the article’s
conclusion that defendants’ laser required less energy and time to cut tissue
was allegedly based on testing at a temperature not seen in clinical uses.  ONY
avoided. 

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Craigslist credit scam by affiliate leads to FTC action

Federal Trade Commission v. Credit Bureau Center, LLC, 2017
WL 680344, No. 17 C 194 (N.D. Ill. Feb. 21, 2017)
I think Eric Goldman will see a §230 issue here. The FTC
sued CBC, Michael Brown, Danny Pierce, and Andrew Lloyd seeking a permanent
injunction and equitable relief for violations of section 5(a) of the FTC Act, the
Fair Credit Reporting Act (FCRA) and associated rules, and the Restore Online
Shoppers’ Confidence Act (ROSCA), which regulates negative option offers.
CBC does business as eFreeScore.com, Creditupdates.com, and
FreeCreditNation.com.  It has one member/owner
who is also the sole employee, Brown; it uses independent contractors for
sales, marketing, customer service, and accounting.  CBC offers online credit scores and credit
monitoring services to consumers. Brown claimed that there were two primary
lines of business: (1) offering credit monitoring solutions directly, and (2) offering
credit monitoring solutions through an affiliate marketing program to
consumers.  This case concerns (2).  CBC hired affiliates or affiliate networks to
attract consumers and drive traffic to its websites in return for commissions.
CBC hired Revable Network LLC, which was owned and run by
Pierce, to perform affiliate marketing. Pierce hired Lloyd, who established and
ran a fraudulent advertising campaign: he posted Craigslist ads purporting to
offer attractive rental properties:
When a consumer responded to one of
these ads, Lloyd replied by impersonating the owner or manager of the purported
rental property—which did not actually exist—and inviting the consumer to take
a tour of the property. Visiting the property, however, was conditioned on the
consumer first obtaining his or her credit report.  The phony landlord letter included a link
that Lloyd identified as a credit report service. When the consumer clicked on
the link, she would arrive at a landing page that showed an offer from CBC for
a free credit report and credit score. When the consumer signed up, she
received a free credit score but was also enrolled in CBC’s credit monitoring
service, which carried an automatic monthly charge of twenty to thirty dollars.
From December 2014 to January 2017, Pierce and Lloyd
generated over 146,000 sales for CBC, representing at least $6.8 million for
CBC, which paid Pierce approximately $2.3 million, of which Lloyd received $1.9
million.
CBC and Brown conceded that Pierce and Lloyd defrauded
customers but denied any involvement or knowledge of the fraud.  The court found that the FTC was likely to
succeed in showing that Pierce and Lloyd CBC’s agents.  To bind a principal, the “agent must have
either actual authority, apparent authority, or the principal must ratify [the
agent’s] actions.” “[R]atification requires that the principal have full
knowledge of the facts and the choice to either accept or reject the benefit of
the transaction.” Ratification can be shown through circumstantial evidence,
“including long-term acquiescence, after notice, to the benefits of an
allegedly unauthorized transaction.”
Pierce and his affiliate network had express authority to
use ads to direct traffic to CBC’s websites, and Pierce was permitted to
delegate that work to others.  “Pierce
was fully aware of Lloyd’s fraudulent advertisements from the inception of
Lloyd’s Craigslist campaign. Pierce was directly involved in aspects of Lloyd’s
mailing campaign, such as giving Lloyd his approval to continue mailing
advertisements.”  And there was evidence
that CBC and Brown were involved in the Lloyd/Pierce marketing campaign,
including instructions from Brown to increase or decrease the level of traffic
to its website depending on CBC’s needs.  Perhaps enough to overcome Eric Goldman’s objections:
Another text message indicates that
Brown, on behalf of CBC, directed Pierce to change the content of the landlord
letter that directed consumers to its website. Specifically, Brown advised
Pierce to change the wording of the offer made in the landlord letter in order
to reduce complaints of phishing against CBC, saying, “Please change your
template to say something [like] don’t email me the report just print it out.”
This was enough to show express or implied actual authority,
and there was also a likelihood of success on the ratification pathway to
agency, which I predict Eric Goldman will not like at all.  Of the over 10,000 recorded calls in the
60-day period preceding the filing of the lawsuit, at least 87 calls were
marked in CBC’s call logs under the disposition, “Cancellation—[Craigslist]
Post.” Brown also testified that in 2015 he read a complaint about a fraudulent
advertisement that traced back to Craigslist, “asked for more information on
the matter, did not receive the information, but simply stopped investigating.  He also admitted that in July 2016, the BBB
informed him that CBC had a pattern of complaints regarding fraudulent
Craigslist advertisements. CBC had the ability
to trace any particular BBB complaint to the responsible affiliate, but didn’t do
that or take any other remedial action. 
Brown tried to claim that CBC’s customer service center was never
directed to advise Brown about complaints in specific or in general.  At the hearing, Brown “seemed to change
course, saying that some types of complaints were to be ‘escalated’ to him, but
he was vague on what these were.” The court found a reasonable likelihood that
the FTC would show that “CBC hid its head in the sand and deliberately avoided
knowledge of complaints so that it could keep raking in the benefits of Lloyd’s
and Pierce’s activities.”
Brown was also individually liable given his direct
participation/control and actual/constructive knowledge, which can be shown by “reckless
indifference to the truth or falsity of such misrepresentations, or an
awareness of a high probability of fraud along with an intentional avoidance of
the truth.”  Brown had the ability to
control Pierce and Lloyd’s marketing activities; CBC’s tracking system monitored
sales and refunds per affiliate and it had the power to deactivate an affiliate
at any point in time. Although Pierce and Lloyd had their own custom landing
page, CBC had authority to modify it; Brown also had the ability to control the
volume of traffic generated by Pierce and Lloyd to CBC’s websites and the
content of Lloyd’s ads.
“Brown either read BBB complaints regarding the fake
advertisements or deliberately or at least recklessly ignored them.” When he
received three complaints from the BBB, Brown wrote back, “It’s our policy that
once we identify a pattern of potential abuse we disable the offending party
which we have done.” But he testified that he looked at only two of the
complaints, and he made no effort to search CBC’s internal tracking system to
find out which affiliate(s) were responsible. Brown’s establishment of and
dealings with CBC’s customer service center “seemed geared toward preventing
knowledge of fraud-based complaints from filtering up to him.” And his texts
suggested “some level of knowledge on Brown’s part” of the deceptive conduct.
FCRA: the websites failed to prominently disclose that free
credit reports are available under Federal law at: AnnualCreditReport.com, as
required by law. Brown and CBC were directly responsible for the content of the
website.
ROSCA: ROSCA outlaws negative options without clear and
conspicuous disclosure of all material terms before obtaining a consumer’s
billing information and without express informed consent before the consumer’s
card/account is charged.  The CBC landing
pages made bold, large-type offers: “Get Your Free Credit Score and Report as
of [Date].” The consumer was required to provide her credit card information for
a $1.00 refundable charge.  Just below the
credit card entry, in smaller, fainter print, the websites state: “When you
place your order here you will begin your membership in eFreeScore.com. You
will be billed $1.00 today and start your trial membership. After your 7-day
trial period you will be charged $29.94 every month.”  The FTC was reasonably likely to show that
this disclosure didn’t disclose all material terms and obtain informed consent;
CBC’s offer didn’t actually describe the membership.

CBC alleged that no injunction should issue because of harm
to its allegedly untainted line of business offering credit monitoring services
directly.  But there was a serious
concern about the receiver’s ability to obtain restitution—it had gotten approximately
$2.1 million from CBC, but consumer damages might be as high as $6.8 million. Also,
following entry of the TRO, Brown transferred over $40,000 to a newly formed
company, Credit Data Center LLC, as well as $150,000 to his attorney (held in
the attorney’s trust account). Although CBC argued that many of its customers
actually wanted the credit monitoring service that they signed up for, it didn’t
provide the receiver with usable information that would allow anyone to
determine whether this was true.  And the
receiver couldn’t distinguish the allegedly separate line of business “due to
the state of CBC and Brown’s accounting records,” so there was no way to figure
out what was untainted.  The public
interest, including preserving funds for consumer redress, outweighed the
private interests cited at stake, unless defendants offered a workable method
to separate and preserve a legitimate line of business.

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Re:Create features fan vidders for fair use week

See (and watch!) here.  Lim’s Marvels is my favorite of her work, but her editing is generally flawless.  I find it a particularly good example for fair use week because of the way it shamelessly panders to the female gaze, all the way through, no longer making us look for scraps.

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Court won’t hear false advertising and contributory liability claims based on tinnitus credentialing

Academy of Doctors of Audiology v. International Hearing
Society, 2017 WL 679354, No. 16-13839 (E.D. Mich. Feb. 21, 2017)
IHS held a training program on tinnitus care in Orlando,
Florida, stating that it would provide a “Tinnitus Care Provider Certificate”
to people who completed the program and passed an examination. Before the
program was held, plaintiff ADA sued for false advertising. The court dismissed
the complaint on standing and other grounds.
According to ADA, hearing health care is provided mainly by
doctors; audiologists; and hearing aid dealers/specialists.  Doctors can treat tinnitus, which is the
phenomenon of hearing sound when no sound is present—the classic “ringing in
the ears.”  According to the CDC, nearly
15% of the general public experience some form of tinnitus. Twenty million
people have chronic tinnitus, while 2 million have extreme and debilitating
cases. More than 99% of tinnitus is subjective, audible only to the patient,
while under 1% is objective—sounds usually produced by the body’s circulatory
and somatic systems. There’s no scientifically validated cure, but tinnitus can
be treated, including by sound generation systems and hearing aids.  The treatment can be complex, and tinnitus
can also be a sign of other problems.
Audiologists provide clinical services related to
identifying and preventing hearing loss and related impairments, and can also
provide treatment for tinnitus.  Since
2007, audiologists entering the profession have been required to have the
degree of Doctor of Audiology, usually requiring four years of postgraduate
education, including a clinical externship; past practice generally required a
two-year Masters degree or a Ph.D. in Hearing Sciences.  
In Michigan, as in many other states, dealers can be
licensed if they’re graduates of an accredited high school or secondary school,
have served as a salesperson under a licensed dealer for two years, and pass a
written examination.  Outside of North
Carolina, dealers aren’t licensed to treat tinnitus.  Sound masking devices incorporated into
hearing aids are regulated by the FDA, and can only be sold on the prescription
or order of a licensed practitioner—and outside of North Carolina, only doctors
and audiologists can order such use.
IHS is a Michigan nonprofit with about 3000 members, a large
number of whom are dealers. ADA is a nonprofit dedicated to audiology, though
the complaint didn’t allege facts about the professions or educational backgrounds
of ADA’s own members, or what services ADA’s members provide to their patients. 
ADA challenged IHS’s intended “Tinnitus Care Provider
Certificate.”  Although the program
description advised participants to check what are permitted practices as to
tinnitus care under their state licensure, IHS intended to issue the
Certificate to to qualifying dealers regardless of whether they were licensed
to provide tinnitus care.  ADA alleged
that, outside of North Carolina, the Certificate would falsely or misleadingly
convey to the public that the dealer holding it was legally permitted to
provide tinnitus care.  Further, ADA
alleged that the program wouldn’t provide dealers with sufficient knowledge and
skill to provide appropriate tinnitus care, so the Certificate would falsely or
misleadingly indicate competence to provide tinnitus care.
ADA also brought claims for contributory false advertising
under the Lanham Act, alleging that IHS would be responsible for dealers’
misleading display/advertisement of Certificates, as well as a claim under Michigan’s
Consumer Protection Act and the common law of unfair competition.
IHS challenged ADA’s constitutional standing.  ADA argued that, on its own behalf, it would
suffer harm “in the form of costs to respond to the audiology profession and
the public about Dealers beginning to offer tinnitus care with the Certificate
to Dealers,” but this resource-diversion theory wasn’t alleged in the
complaint.  ADA also argued that it had
representative standing, which required it to show that 1) its members would
otherwise have standing to sue in their own right; 2) the interests it seeks to
protect were germane to its purpose; and 3) neither the claim asserted not the
relief requested required the participation of the individuals in the lawsuit.
ADA’s claim failed at the first part: it didn’t properly
allege that individual members would have standing.  The complaint alleged that the public would be
harmed by poor care, and that ADA’s members would be harmed by the diversion of
tinnitus care patients to dealers holding the Certificate.  However, the complaint didn’t allege that ADA’s
members directly compete with dealers in the hearing healthcare industry; 2) didn’t
allege that ADA members would suffer competitive injury; and 3) didn’t allege
that ADA’s members would suffer a loss of business customers or a loss of
financial revenue.  Lost sales would only
result if the number of licensed members available exceeded the amount of
services sought/if there was actual competition for tinnitus patients, which
wasn’t alleged. The court wouldn’t assume facts not alleged, and IHS argued the
contrary, given that “the need for devices and other non-medical management for
the approximately 30 million American tinnitus sufferers outweighs the number
of licensed audiologist and hearing instrument specialists available to provide
such care and relief.”
ADA also failed redressibility, because enjoining the
issuance of the Certificates would do nothing to prevent any dealers who attended
the Dec. 2016 program from advertising their completion thereof.  They could advertise “the very substance of
what the Certificates would presumably say” even if the requested injunction issued.
Separately, the Michigan Consumer Protection Act claim had
to be dismissed because that law covered only consumer purchases, not business
seminars.
The common-law unfair competition claim was treated like the
Lanham Act claim, which also failed. 
First, ADA failed the Lexmark
zone-of-interests/proximate cause test. 
Even if ADA could bring suit in a representational capacity under Lexmark, a theory of which the court
seemed skeptical, it couldn’t succeed here for failure to actually allege that
its members would suffer a competitive injury. 
There was also a “solid argument” that ADA didn’t allege proximate
cause: its injury didn’t “flow directly” from IHS advertising.
Moreover, ADA didn’t identify sufficient falsehoods.  The two things consumers would allegedly be
misled about were (1) non-North Carolina dealers being legally permitted to
provide tinnitus care, and (2) the same being competent to do so based on advertising
acquisition of the Certificates.  Because
the certificates at issue hadn’t yet been drafted, “ADA has not alleged any
specific statement that is likely to lead anyone to conclude that there is
‘legal permission’ or ‘competence’ to provide” tinnitus care. Moreover, false
advertising claims based on allegations of implied government approval aren’t
allowed, because they interfere with regulatory enforcement: the Lanham Act can’t
be used to indirectly enforce other government regulations.  The true harm, in ADA’s view, was provision of
tinnitus treatment by dealers, but that’s not the concern of the Lanham Act;
moreover, the complaint didn’t even allege that it was illegal for dealers
outside North Carolina to provide treatment—“the real issue here is that most
state statutes are silent as to whether or not Dealers can provide tinnitus
care.”
As for the allegedly false implication of competence, that’s
a nonfactual opinion.

Sealing the deal—and here’s the only part of the ruling I
find really shaky—the court held that ADA couldn’t sue for contributory false
advertising after Lexmark;
contributory trademark infringement is ok but not contributory false
advertising.  The court didn’t explain
why; Lexmark’s statutory analysis is
directed at language that applies to §43(a)(1)(A) and even to §32.  But the court here declined to join Duty Free
America, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248 (11th Cir. 2015),
recognizing such a claim.

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Reading list: aesthetic nondiscrimination and fair use

 Brian L. Frye, Aesthetic Nondiscrimination & FairUse,  3 Belmont L. Rev. 29 (2016)
ABSTRACT
While courts do not
consider the aesthetic value of an element of a work in determining whether it
is protected by copyright, they do consider the aesthetic value of the use of a
copyrighted element of a work in determining whether that use is a fair use.
This asymmetry improperly and inefficiently discriminates in favor of copyright
protection and against fair use. Moreover, the fair use transformativeness
inquiry discriminates against marginalized authors, because courts are less
likely to appreciate the aesthetic value of their uses of copyrighted works.

Courts should apply
the aesthetic nondiscrimination principle to both copyright and fair use. In
other words, “transformative” should just mean “different,” and courts
evaluating a fair use claim should simply ask whether the use changes the
copyrighted work in any way, including context, and should not ask whether that
change is substantial or valuable. While this would substantially narrow the
scope of the derivative works right, it would almost certainly increase social
welfare by encouraging the production of derivative works without materially
affecting the incentives to create works of authorship.

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