Domain name initial interest confusion isn’t dead

Posted on May 31, 2019 by rtushnet

Platinum Properties Investor Network, Inc. v. Sells, 2019 WL
2247544, No. 18-61907-CIV-GAYLES/SELTZER (S.D. Fla. Apr. 11, 2019) (magistrate
R&R)
Rival real estate investors Hartman and Sells apparently
developed a “personal feud,” and Sells allegedly initiated a campaign to harm
Hartman’s reputation and steal his clients. Defendants allegedly set up websites and email addresses using plaintiffs’
registered trademarks to confuse consumers and divert internet traffic.  Defendants argued that their websites were
noncommercial, nonconfusing gripe sites.
The registered marks were “Jason Hartman” and “JasonHartman.com,”
and defendants allegedly combined them with generic terms such as “property,”
“media,” “investments,” and “real estate investments” to create web and email
addresses.  Defendants’ emails and
websites, they argued, contained “a litany of derogatory information about Mr.
Hartman,” as well as phrases such as “investigation,” “bad news,” and “the
truth about.” Thus, they contended that confusion wasn’t plausible.
Plaintiffs responded that the disparaging terms weren’t contained
in the domain name itself, and argued that defendants’ acts were commercial and
competitive.  Because plaintiffs alleged
initial interest confusion, the absence of disparaging terms in the domain name
made confusion plausible, sigh.  Only upon
reaching the landing page would consumers find out that these were gripe sites.
 The allegations apparently included that
defendants “harvested” the personal data of actual visitors to solicit
competitive business opportunities—but there’s no suggestion in the report that
consumers would have been confused when entering contact information, which seems
like an important question about whether the confusion could have caused harm. “Based
on Axiom, Promatek, and Brookfield, the undersigned concludes that a financial
injury that results from an indirect or suggestive use of a trademark may supply
the necessary predicate for a Lanham Act claim.” [A dose of the Ninth Circuit’s
post-Brookfield domain name realism would be really, really helpful here.]
Dilution: Federal law requires federal fame and state law
requires state fame. Since “Plaintiffs repeatedly indicate that the fame of
their marks is limited to a niche segment within real estate investing circles,”
the claims should be dismissed. 
Plaintiffs alleged a couple of million dollars in advertising and
millions in revenue, but Hartman’s alleged “guru” status was limited to “his
trade.” Conclusory allegations of “famous[ness]” were insufficient.
Separately, and interestingly, the magistrate revived a pre-federal
dilution argument that I haven’t seen in a while, but that I like: “principles
of trademark dilution have no application in scenarios where, as here, the
owner of the mark, and the infringer, are involved in the same trade.” Dilution
is for noncompeting goods/services. 
Infringement was the proper remedy, if any remedy is required for
defendants’ conduct.
False advertising/common law fraud/negligent
misrepresentation: Florida requires that a plaintiff plead its own justifiable reliance
to make out these claims, which plaintiffs here did not do.  Civil conspiracy and unfair competition,
however, survived because the infringement claims did, and tortious interference
was sufficiently pled because the complaint alleged that “Defendants’
activities did either break contractual agreements with Plaintiffs and/or
stopped doing business with Plaintiffs as a result of Defendants’ intentional
and unjustified interference …. For example, one client of Plaintiffs’
canceled a speaking engagement … worth tens of thousands of dollars ….”
Invasion of privacy: The complaint alleged that defendants’
website “was, and still is, completely devoid of any privacy policy …. and
solicited visitor[s’] information through a ‘Contact Us’ fill-in webform.” Defendants
allegedly fraudulently obtained and published Hartman’s “personal IP address,
email address, and personal information, which was obtained when Mr. Hartman
sent the cease-and-desist demand through the Infringing Website’s ‘Contact Us’
webform” and the “Infringing Website publicly disclosed Plaintiffs’ private
information.”  But plaintiffs didn’t
allege a right of publicity claim, and it wasn’t clear what they were alleging.  Allegedly false statements about plaintiffs’ “business,
financial history, litigation history, commercial dealings, alleged prurient
nature, credibility, and trustworthiness” couldn’t be the basis of an invasion
of privacy claim. And plaintiffs alleged that they voluntarily disclosed Hartman’s
“personal IP address, email address, and personal information” when they sent a
demand letter through the “Contact Us” webform. 
They couldn’t reasonably expect information voluntarily disclosed to
competitors and adversaries to remain private. 
Moreover, in Florida, residential addresses and contact information “do
not typically fall within the parameters of “private” information.” And “professionals
cannot reasonably expect that this type of information will remain private
given the necessity of certain disclosures for state licensing applications,
such as those relevant to the real estate and investment sectors,” which was
the case here.  And further, Hartman
disclosed the same information when he filed a criminal complaint against defendants.
“Hartman’s expectations of privacy, even if reasonable, are ultimately
irrelevant as these quintessentially public records are not entitled to privacy
protection under Florida’s Sunshine Laws in any event.” However, the magistrate
recommended allowing leave to replead a claim for commercial appropriation
[which would have serious First Amendment problems if there wasn’t a false
endorsement; you shouldn’t be able to avoid negative comparative advertising by
using your name as your business name].

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Placebo effect is ok by CLRA: Homeopathic remedy wins jury trial on false advertising, still needs to defend against “unfairness”

Posted on May 20, 2019 by rtushnet

Allen v. Hylands, Inc., — Fed.Appx. —-, 2019 WL 2142843,
No. 17-56184 (9th Cir. May 15, 2019)
Allen, on behalf of a class, appealled following a jury’s
verdict in favor of Hyland’s. “The gravamen of [Allen’s] claims is that
Hyland’s [homeopathic] products are ineffective at providing the promised
symptom relief.” The district court framed the argument as: “Defendants made
material misrepresentations about products which do not work and cannot
possibly work as a matter of scientific principle, given the level of dilution
of their active ingredients.”
“The parties submitted conflicting jury instructions:
Allen’s proposed instructions stated that Allen needed to prove that Hyland’s
products ‘did not’ work, while the instructions proposed by Hyland’s stated
that Allen had to show that the products did not and ‘cannot relieve symptoms
as represented.’”  The court went with
“cannot,” and declined to give Allen’s proposed instruction that the jury “may
not take into consideration the placebo effect in determining whether
[Hyland’s] products provided relief.”
The jury returned a verdict for Hyland’s on the
Magnuson-Moss Warranty Act claim, express warranty claim, and CLRA claim.
Relying on the jury’s express and implicit findings of fact, the district court
found for Hyland’s on the equitable FAL and UCL claims and denied Allen’s
motion for a new trial.
If “cannot” was error, it was probably harmless, because the
parties used “do not” and “cannot” interchangeably throughout. As for the
placebo effect instruction, Allen relied on FTC v. Pantron I Corp., 33 F.3d
1088 (9th Cir. 1994), rejecting the placebo effect as a way a product could
“work.” But CLRA, Magnuson-Moss Act, or express warranty cases haven’t adopted
this holding [nor have they rejected it, for the record], so the proposed
instruction wasn’t supported by law.
Admitting Hyland’s expert was also not an abuse of
discretion.  He was a board certified
expert in toxicology who’d published extensively; several of his works
concerned the principles of hormesis (Wikipedia: “any process in a
cell or organism that exhibits a biphasic response to exposure to increasing
amounts of a substance or condition,” in particular, a response at low doses
that would be reversed or not observed at high doses), about which he was
called to testify; and his testimony on the relationship between hormesis and
homeopathy was derived from a literature review citing to several peer-reviewed
sources in his field.
There was a reasonable basis for the jury’s verdict, and no
abuse of discretion in denying Allen’s Rule 59 motion.
As to the equitable claims, the district court should follow
the jury where it found facts, but if “determining the equitable claims
requires proof of a fact that the jury did not implicitly or expressly find,
the district court must make its own determination.”  The FAL claims required proof of the same
facts as the legal claims, so that was ok. But the UCL claim had both deceptive
advertising and unfairness theories, and the latter was broader than the CLRA,
Magnuson-Moss Warranty Act, or express warranty claims. The UCL’s unfair prong
can apply to business practices that are against public policy, that are
“immoral, unethical, oppressive, unscrupulous or substantially injurious,” or
that cause unforeseeable injuries to consumers that are not outweighed by
countervailing benefits. The jury’s “narrow” findings on deceptive advertising
didn’t resolve the broader unfair practices theory. Thus, the district court
erred in granting judgement to Hyland’s without further analysis and that part
of the case was reversed.

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call for law student papers: Harvard J of Law & Tech

Posted on May 20, 2019 by rtushnet

Harvard Journal of Law & Technology Student Note Submission
Deadline: June 17, 2019
The Harvard Journal of Law and Technology (JOLT) is excited
to announce our student note submission is open for our Fall 2019 issue.
Submissions should be 4,000 to 6,000 words and engage with novel issues at the
intersection of law and technology. Topics may include but are not limited to
cybercrime, biotechnology, space law, entertainment and new media, comparative
legal approaches to intellectual property, the law of the Internet, and
technology in the public interest. We encourage creative approaches.
The deadline for submissions is 11:59 PM Eastern Time on
June 17, 2019. Submissions will be evaluated on a rolling basis but all
pre-deadline submissions will be considered! 
Download the volume 33.1 student note application at
bit.ly/studentnotefall2019. You can find the application link, full rules, and
eligibility requirements on JOLT’s website at
http://bit.ly/2VRv6j0. Email JOLT’s Notes & Comments
Editor at joltstudentnotes@gmail.com with any questions.

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AARP endorsement of insurer doesn’t inherently represent that AARP chose disinterestedly

Posted on May 17, 2019 by rtushnet

Levay v. AARP, Inc.,
2019 WL 2108124, No. 17-09041 DDP (PLAx) (C.D. Cal. May 14, 2019)
Plaintiffs are AARP
members who allege to have “joined and paid to be AARP members” after being allegedly
“induced … through unlawful, misleading and/or unfair representations of
products, services and endorsements by AARP and/or concealment of AARP’s
unlawful ‘for profit’ business activities.” Specifically, they alleged reliance
on “AARP’s misrepresentations that it protected seniors and that it put their
interests first ahead of ‘for profit’ business ventures, and about its
endorsements of insurance products.” Plaintiffs alleged that AARP’s stamp of
approval was only a “stamp indicating the winner of [a] bidding war,” rather
than a true endorsement on the merits. They brought California UCL and FAL
claims.  The court found they failed to
state a claim.
Initially, the court
rejected the argument that the complaint didn’t allege any “statements by AARP,
only advertisements run by United Healthcare and New York Life ….” The
relevant representations were (1) solicitations and ads from AARP in which it
represents its status and role as an advocate for seniors, and (2) AARP
endorsements on United and New York Life insurance advertisements. “AARP does
not dispute that it permits its name to appear on the advertisements and that
AARP in fact endorses these products. Therefore, the endorsements constitute
AARP’s representations even though they appear on United and New York Life
advertisements.”
But was there an
actionable misrepresentation?  Plaintiffs
alleged that they “believed that AARP endorsed products and services, such as
insurance products, were products and services that were the best for seniors.”
But “best” was too vague ans subjective a promise of superiority, even if
implied, to be actionable. By contrast, in Hanberry v. Hearst Corp., 276 Cal.
App. 2d 680 (1969), the Hearst Good Housekeeping seal of approval could have
deceived someone who bought defective shoes. The court held that “[i]mplicit in
the seal and certification is the representation [that] respondent has taken
reasonable steps to make an independent examination of the product endorsed,
with some degree of expertise, and found it satisfactory.” But it was key that
Good Housekeeping magazine stated: “ ‘This is Good Housekeeping’s Consumers’
Guaranty’ and ‘We satisfy ourselves that products advertised in Good
Housekeeping are good ones and that the advertising claims made for them in our
magazine are truthful.’ ” “The seal itself contained the promise, ‘If the
product or performance is defective, Good Housekeeping guarantees replacement
or refund to consumer.’ ” These express guarantees “made a consumer’s reliance
on Good Housekeeping’s independent examination reasonable.”  And even if an implied promise of superiority
was actionable, plaintiffs didn’t identify any defects in these insurance
policies.
What about an
implied representation that AARP had evaluated the insurance plans for
suitability for seniors, “irrespective of profits”?  AARP wasn’t a fiduciary just because it was a
nonprofit. Plaintiffs allegedly saw “solicitations and ads from AARP … in
which AARP represented its non-profit status and advocacy role for seniors and
that it provide[d] endorsements for products and services as a benefit of
membership, which [Plaintiffs] believed meant that AARP would [ ] make
endorsements and stamps of approval based on what was best for seniors, rather
than based on profits.”
“A representation
that a product is selected irrespective of profits could be an actionable
misrepresentation because it is sufficiently specific and objectively
determinable such that a consumer could reasonably rely on such representation.”
But the complaint didn’t sufficiently allege such a representation. Sample ads
in the complaint said that United Healthcare and New York Life Insurance
Companies “pay[ ] royalty fees to AARP for the use of its intellectual
property.” “Therefore, it would not be reasonable for a consumer to believe
that AARP was not engaged in revenue generating activities,” and there was no
allegation of any representation that revenue concerns played no role in its
endorsement decisions. “It would be foolish indeed for an enterprise,
regardless of its status as a non or for-profit entity, to be blind, all other
factors being substantially equal, to revenue generating opportunities. In
short, there is nothing nefarious about AARP making endorsement decisions, or
any other business decisions, based on generating maximum revenue that will be
used to support its activities, absent some allegation that such decision
resulted in articulable harm to its members.” It wasn’t enough to allege that
AARP benefited.
Separately, the
court found that plaintiffs didn’t plead with particularity the ads they relied
on or when/how they became AARP members.

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blog posts on company’s site are “commercial advertising or promotion” under Lanham Act

Posted on May 17, 2019 by rtushnet

Luminati Networks
Ltd. v. BIScience Inc., 2019 WL 2084426, No. 18-CV-00483-JRG (E.D. Tex. May 13,
2019)
Mostly a
jurisdictional challenge; the court found it had specific personal jurisdiction
over Luminati’s claims for patent infringement and false advertising and
supplemental jurisdiction over the remainder of Luminati’s claims, though it
declined to exercise supplemental jurisdiction over Luminati’s claim for
tortious interference with employment agreements, “as determination of that
claim is best left to the judicial authority of the State of Israel.” There was
personal jurisdiction because BIScience has sold its allegedly patent-infringing
proxy service to at least 52 customers in Texas, and its service allowed
customers all over the world to utilize residential proxy devices in ten Texas
cities, which BIScience advertised (at least in terms of allowing them to use
US addresses).
Luminati
sufficiently alleged the falsity of blog posts on BIScience’s website stating:
“Some proxy providers look great and fancy until you try to integrate them.
Some—such as Luminati—are very difficult to integrate, as they require you to
install complex proxy managers and to ultimately modify your entire solution.” Luminati
sufficiently alleged falsity by alleging that its residential proxy service didn’t
require installation of Luminati’s proxy manager.

BIScience argued that a blog post on its own site wasn’t “commercial
advertising or promotion.” Yes, they were. 
The blog posts were commercial speech by a company in commercial
competition with Luminati, made for the purpose of influencing customers to use
BIScience’s GeoSurf service. Shortly after the statements at issue, the blog
posts continue: “In short, stay away from these proxies. Instead, go for
easy-integration proxies that support whatever your needs may be. GeoSurf, for
instance, takes less than 5 minutes to integrate….” Moreover, “while company
blog posts may not be traditional ads, they are a quintessential type of
informal promotion.” BIScience allegedly purchased search engine ads for terms
like “luminati” so that potential customers would be directed to its
website.  “Thus, Luminati has alleged
that these blog posts are disseminated sufficiently to the relevant purchasing
public.” [Note an emerging divergence on this: some courts would want evidence
that lots of people landed on the blog posts, which I think is probably an
issue of damages rather than “commercial advertising or promotion”; it’s still
an ad even if everyone successfully avoids reading it.]

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law firm alleging clients lost to competitor satisfies Lexmark, in part

Posted on May 14, 2019 by rtushnet

Brave Law Firm, LLC v.
Truck Accident Lawyers Group, Inc., No. 17-1156-EFM-JPO, 2019 WL 2073872 (D.
Kan. May 10, 2019)
Brave, a personal
injury firm, sued various parties for violating the Lanham Act and Kansas state
law.  
It alleged that “from
2007 to at least 2017, Defendants created and disseminated false and misleading
advertisements regarding the amount of money they obtained as settlements and
jury verdicts for their clients.” For example, one ad claimed that they
obtained a settlement of $9 million for a past client, but Brave alleged that
they didn’t because they were fired by the client. They also allegedly falsely
advertised gross recoveries of $4.1 million, $2.4 million, $2.1 million, $1.1
million, and $1.6 million.
Brave pled three
specific examples of past clients who relied on the allegedly false
advertising. One hired one of the defendants in 2011. “During mediation, the
mediator told her that her case had a value of $360,000, but the highest
settlement offer [defendant’s entity] AAPLO obtained was $225,000 in exchange
for a full release to the tortfeasor. Consolver rejected that offer and
terminated AAPLO as her legal counsel. …. Consolver then hired Brave, who
pursued a different theory of recovery and obtained a settlement amount of
$360,000.”  Defendants/their entities filed
an attorney’s lien, reducing the amount of Brave’s fee.  The other examples were very roughly similar
though more complicated.

The court rejected defendants’ arguments that the statute of limitations barred
a Lanham Act claim relating to the first client and that it wasn’t sufficiently
pled under Rule 9(b). On the limitations issue, the court borrowed the Kansas
period for fraud, 2 years; Kansas uses a discovery rule, and Brave alleged that
defendants’ injury-causing conduct wasn’t reasonably ascertainable until within
the two-year period for filing.  Brave
hadn’t pled itself out of court by alleging facts making it clear that a
reasonably prudent person would have investigated Defendants’ actions in 2007
or 2012, when Consolver hired Brave.

Brave also identified specific allegedly false ads.  Although Brave didn’t allege which exactly
Consolver viewed or when she viewed them, it was enough to allege that defendants
“engaged in a false advertising scheme that exposed potential clients, such as
Consolver, to numerous false advertisements over a period of time. The
requirements of Rule 9(b) are relaxed when the alleged fraudulent acts are
numerous and occur over an extended time period.  Here, it would be unduly burdensome to
require Defendant to specify every false advertisement that Consolver relied
upon and when she saw that advertisement.”
Brave also
sufficiently alleged falsity by identifying specific claims about verdicts or
settlements achieved by defendants and alleging that they were false. For
example, ads reporting the $9 million settlement were allegedly “literally
false” because “the person that actually reached the settlement had terminated [defendants/their
entities] prior to any settlement being reached.” Defendants argued that the
claim was true because they were able to assert an attorney’s lien against the
former client when settlement was eventually reached and thus they contributed
to the ultimate resolution.  The court
wasn’t persuaded. The ad didn’t identify defendants as causally helping to
obtain a settlement: it said that one of them did obtain it.
As to another
client, defendants argued that the claim failed to satisfy Lexmark. The alleged “injury to a commercial interest in reputation
or sales” was that because it had ended up embroiled in litigation about the
attorney’s lien on that client’s recovery that (1) it “has been embroiled in
litigation and forced to deal with the abandoned lien issue for years”; (2) it
“has sustained injury to its reputation as well as been forced to spend
considerable time and expense defending frivolous litigation”; (3) “the
allegations that Brave Law Firm, LLC and its employees acted ‘illegally,
unethically[,] and immorally’ have been disseminated far and wide and damaged
its reputation both within the Kansas legal community and [with] potential
clients.” Proximate cause ordinarily requires “economic or reputational injury
flowing directly from the deception wrought by the defendant’s advertising; and
that occurs when deception of consumers causes them to withhold trade from the
plaintiff.” Here, the allegations of injury were “simply too remote” from the false
advertising.  Brave didn’t allege losses
of fees from an attorney’s lien, but rather from losses due to fighting with
defendants about the underlying case.
As for the third
client, it was sufficent to allege that Brave “likely” would have been her first
choice in the absence of advertising; it was not required to allege that she
definitely would have been. This third client’s claim was dismissed, allegedly because
of defendants’ missed deadlines, and allegedly would have resulted in a
multimillion-dollar recovery. Defendants argued that it wasn’t plausible to
conclude that Brave would have won, and won so big.  But it was enough to allege that the client’s
“case would not be one that was particularly difficult to win and, if properly
handled, would have generated a substantial attorneys’ fee upon successful
resolution.”
However, Brave didn’t
successfully plead tortious interference. Even if Brave pled the existence of a
business relationship or expectancy with the clients, nothing indicated that
defendants were aware of that when those clients initially hired defendants.

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CopyrightX: Article 13

Posted on May 14, 2019 by rtushnet

Panel Two: Online
Service Providers, Automated Anti-piracy Systems, and Article 13 [like CDA 230,
it may never lose the initial number even if it no longer fits the statutory
numbering]
Moderator: Jennifer
Esch
Giancarlo Frosio:
Copyright and Article 13
Summary of current
provisions.  Automated technology is the intended
effect. Hard to see how that can be done without general monitoring of all
contents of a platform for unlimited times. 
Scarlett court made clear that
fundamental rights are implicated—freedom of information and expression—and automated
technologies are not proportional, especially given that they might jeopardize a
business.  Limitations and exceptions
also need to be accommodated somehow.
Ginka Hristova: The
Effects of EU Article 11 and Article 13
Content ID is the
prime example that people give of how it should be done but Content ID works
badly—it’s not a good model.  [And the
same content owners complain bitterly about Content ID not being good
enough!]  Burden of proof is reversed
from the Electronic Commerce Directive. 
Now platforms will have to prove that they’re making enough efforts to
avoid direct liability.  Collisions
w/GDRP as well.  Especially when determining
whether exceptions and limitations apply, much information will need to be
collected.
Mohammed Iriqat:
Copyright Piracy in the Arab World
Extensive unlicensed
downloading of music, movies, software. 60% of software running in the Arab
world is unlicensed.  Millions of DVDs.  Gov’t institutions and universities participate.  Microsoft Office $5 an unlicensed CD,
compared to $70 authorized price.  $2
billion in calculated economic loss. 
Possible solutions: collective management organizations, but there are
just 5 Arab CMOs and 22 Arab countries. Raise awareness. 95% of Arab citizens
don’t see a problem with illegal downloads. 
Internet laws like DMCA, which are lacking in the Arab world.  Customs authorities: no control over entry of
pirate CDs.  World Cup 2018: Four
countries blockaded Qatar, which had the rights to broadcast; they made sites
to distribute the World Cup w/o authority of the Qatari rightsowner. Intergovernmental
conflict.  Qatar went to WIPO for
arbitration, but WIPO hasn’t made a final decision.
Jordan Gimbel:
Twitch and the Likely Effects of Article 13
Wide spectrum of
online service providers and treatments of unauthorized use/debates w/ different
rightsholders: music, film, gaming.  Twitch
isn’t YouTube or Twitter; has some features but also Patreon-like.  You can live broadcast your gaming.
Streaming could
infringe, but game publishers/developers often license streaming—an attractive
complement to their titles.  Many license
monetization by individual streamers. But we’re not immune from unauthorized
works appearing.  We do see notices for
(1) livestreaming sports; (2) violations of embargo conditions on new games;
(3) user disputes over emotes (users who create designs for the overlay).  Twitch as complement: NBA brought its
G-League (farm team) cames to Twitch, allowing others to costream it (add it to
their own channel with their own overlays). 
NFL selected a few costreamers who could stream it to their own audience
w/their own commentary.
We process DMCA
notices in minutes; suspend live broadcast for 24 hours. For VOD works we mute
the songs—if you create an archive of a live broadcast, we scan & create
audio fingerprints w/Audible Magic and mute portions for matches.  Some rightsholders have priority access—soccer
leagues, game companies—to act w/o needing to send notice.
How does this change
under Art. 17/13?  Obligation to license,
notice and staydown: filters are the only option.  Reference files aren’t available for
livestreams so that’s a challenge. This content is yet to be created.  And the overlays are different digital
assets. We can scan the audio, but scanning images on overlays from multiple
sources are a challenge. Scratching our heads. 
Algorithmic tools are going to be needed; taking $ from other
developments. Open Qs.  Mistakes in
livestreams lead to suspension of channel, which impacts people’s
livelihoods.  Filter’s false positives
are therefore concerning. Crossborder implementation challenges: different
rightsholders across Europe.  GEMA
(German PRO) announced that it thought it should be given a larger negotiating
power on behalf of images as well as music. That’s great, but only for Germany.
Q: what could gov’ts
do/what are the missed opportunities?
Hristova:
implementation legislation.
Q re real people
depicted in games.
Gimbel: US-centric
answer: right of publicity is what’s debated.
Q: where do you get
the filters from? Google?
Gimble: question of
market power.  Content ID has been around
for a while and they’re set on approach. Compliance w/best efforts: we’re
trying to figure out whether that means we can engage in licensing from a
vendor, but may have to develop a filter that maps to your service using your
reference materials. Open Q: does the law require us to build our own tech to
do that because we have a different way in which we serve content, w/overlays
that are different from other services. [One of my biggest questions about all
this is how licensing is going to work for visual works—is there just going to
be a wealth transfer from platforms to the small percentage of visual artists who
are represented by PROs and to the PROs themselves based on the overall “value”
of visual works?  Whereas music really
does have a high percentage of covered material deliberately part of a PRO,
visual works don’t and won’t.]
Terry Fisher: some
suggestions about implementation: make platforms responsible for costs of
wrongful blocking of noninfringing materials in order to incentivize balancing
and use of mechanisms such as arbitration or option system to reduce social
costs of this regime.

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CopyrightX: UGC panel

Posted on May 14, 2019 by rtushnet

Panel One:
User-generated Content, Digital Labor, and Collaborative Authorship
Moderator: Bethany
Rabe
Rebecca Tushnet: Fanworks,
Fair Use, and Self-Actualization Through Transformative Expression
Title assigned a few
months ago is a little misleading because I actually wanted to take the
opportunity to talk about the Copyright Office’s recent report on moral rights, though I’m happy to talk about anything
fanwork related during the panel discussion and Q&A.  I was one of the founders of the nonprofit
Organization for Transformative Works.  OTW runs the Archive of Our Own, which hosts
noncommercial transformative works by fans of existing works, of people, or
really of anything about which one might create new art. From our recent fact sheet I can
tell you that we have over 1.2 million registered users and 4.7 million
fanworks, as well as tens of millions of visits per week. “Our open-source code
was built from the ground up by fans for fans…. Our users are fans of every
sort—teenagers and grandparents, first-time writers and professional
authors—from all around the world, creating fanworks” for nearly 32,000
different fandoms.  From the beginning,
it was a priority to be ad-free and noncommercial, not under the control of
advertisers.  Instead, the priority was authorial
control: AO3 was designed to give creators the ability to post and edit their
works flexibly, to orphan their own works to preserve access to them without
connecting them to the author, and to exclude search engines or non-Archive
users from reading.
One of the most
distinctive features of the Archive is the curated folksonomy used to tag individual
works: “Users are able to tag in whatever format is most useful or natural to
them, and our team of over 350 tag wranglers link these tags together into
easily searchable concepts.”  If you
misspell Harry Potter’s name—or put it in kanji—we’ve got you covered.  Creators can use tags to allow other users to
find exactly what they want to see—or to exclude exactly what they don’t.
“[U]sers can easily create specific searches, including all Sherlock Holmes
works posted in 2018 that are exactly 221 words long and Lord of The Rings/Game
of Thrones crossovers that don’t include either Frodo Baggins or Arya Stark.” “Related
concepts are also linked: Space Opera and Space Battles are both found under
the metatag Outer Space, along with other related terms like Astronauts,
Spaceships, and even Space Whales.”
Fanworks provide incredible
benefits in literacy, sexuality education, language learning, community
building, and other good things that come from making something you love and
sharing it with other people who might just love it too.
On the content v.
tech distinction that Maria Strong made: we consider ourselves content folks
who use tech.  But importantly, we rely
on fair use: our basic purpose is to host transformative noncommercial works. Gives
us a particular perspective on various copyright controversies.  For example, recent Copyright Office report
on moral rights, which you’ve just heard about. 
The Office did a lot of good work pulling together the legal background
both internationally and in the US, covering many issues that go beyond
copyright into other regimes that affect authors.  A moral right of integrity that would protect
authors against uses of their works they found offensive would be incompatible with
US fair use and the First Amendment and the Office didn’t suggest any basic
changes to that system, to the Office’s great credit.
It is definitely
true that norms of fairness matter a lot in authorship, including attribution
in many circumstances—but not necessarily in the rigid categories formal law
might use.  For example, fans regularly describe
authors of books, but generally identify performers of songs rather than
songwriters. More generally, attribution practices in and out of fandom are
highly context specific—what works for one group might not work for
another.  Hollywood screenwriters have an
arbitration system for assigning credit that is often needed because fights regularly
break out.  Similarly, the Office pointed
out that, “in legal writing, attribution norms for academic articles are quite
rigid, whereas practicing lawyers routinely copy without attribution ‘the form
and language of legal instruments.’” Attribution turns out to be the kind of
inquiry that isn’t well suited to the American legal system, because modern
copyright statutes and regulations tend to make big, specific lists of required
information.  The Office wisely
recognized that antiplagiarism norms work about as well as anything can work,
and that the context of attribution would be essentially impossible to write
into law.
Nonetheless, and
without showing that there was a noticeable unmet need for new protections, the
Copyright Office has just suggested that the federal Lanham Act can &
should be used against unattributed copying of digital works, in defiance of
the Supreme Court’s decision in Dastar
and its own stance on digital first sale. 
[I should note I think the Office is completely right in saying (1)
§43(a)(1)(B) claims should survive Dastar
where false attributions are material to consumers and (2) Dastar applies to in-copyright works as well.  It’s just disingenuous at best in endorsing a
distinction between nondigital and digital copies that does not make sense of
the Supreme Court’s interpretation of “origin,” especially in light of the
Office’s (correct) position in discussions of first sale that a digital copy stored
on a computer is a reproduction.  The “origin”
of a digital copy is the host computer, and maybe stretching it could be the
sending computer, but there is a physical instantiation and that instantiation is
what the Lanham Act covers in “origin” under Dastar.  Specifically, the
origin of the creative work contained in that copy is not the same thing as the
origin of the physical copy, no matter whether the copy is on a general-purpose
computer, a videotape, or a DVD, and thus failure to attribute the origin of
the creative content is not actionable under §43(a)(1)(A) per Dastar.]
It also stated that Congress
might want to consider amending the Lanham Act to create new causes of action
to cover false representations regarding authorship of expressive works, even
without a showing of harm to consumers. The Office suggested amending the
Copyright Act to provide damages when a defendant knowingly removed or altered
copyright management information (“CMI”) with the intent to conceal an author’s
attribution information even if there was no intent to conceal infringement,
and possibly even adding a federal right of publicity.  In addition, the Office suggested some
changes to the more limited Visual Artists Rights Act. 
Aside from the
suggestions about VARA, the rest of the Office’s ideas are a classic case of proposing
to use a missile against a gnat—likely to the detriment of small and
noncommercial creators, who are the ones who can neither afford to bring claims
nor fight claims brought against them. 
And the specific suggestions lack exactly the kind of context
sensitivity the Office acknowledged was needed—for example, the proposed CMI
provision on its face makes it illegal for an app to remove identifying
information of people submitting anonymous videos of police brutality—and if
you think that enterprising prosecutors wouldn’t use this law against the ACLU,
you haven’t been paying attention.  [The
CO says that the intent requirement would mean that automated removal wouldn’t
be actionable unless it was designed to remove authorship information … but anonymous
reporting apps are designed to do that. And for what it’s worth, the complaints
the CO reported receiving about removing authorship information were mostly
about automated processes—the proposed remedy doesn’t even match the thing
that’s being complained about.]
It’s also worth
pointing out the solution that the Copyright Office didn’t suggest for congressional intervention: although its
discussion of authors’ rights mentioned attribution and integrity rights
secured by labor law and collective bargaining, both in the US and elsewhere,
the Office didn’t suggest that strengthening authors’ positions could be
achieved by strengthening the position of workers, even though the most
vulnerable authors are labor and not management.   The
problems the Office identified in securing attribution for certain groups, like
freelancers, are labor problems—authors after all make copyrighted works, and we should not allow the
concept of the “work” to disappear as if authors were mystical beings with no
connection to other forms of labor, other forms of production, that do things
in the world.  Our desire to highlight
the process of creation was in fact one of the reasons that we called our
nonprofit the Organization for Transformative Works: whether made for profit or
not, creative works are the product of labor. 
Remembering the inherent dignity of that labor, and its value whether or
not there is a market for the resulting creativity, is a goal that the OTW
shares with the Copyright Office.
Stacey Lantagne:
Internet Memes, Fanworks, and Copyright’s Authorship Challenges
Memes regularly
involve © works; one opinion expressed: the public “owns” the meme because the
public authors the meme even if not the underlying photo.  Fox defended an infringement case juxtaposing
9/11 and WWII images—court didn’t like the fair use defense b/c didn’t see the
transformativity, but it turns out that the range of “memes” is very
broad.  Knowyourmeme has no
definition.  When Trump (or a Trump fan)
adds CNN’s logo to a clip of wrestling so that it looks like Trump is beating
up “CNN,” that’s what’s adding the meaning especially after it’s been shared by
Trump himself. Similarly, Pepe the Frog became a white nationalist symbol and
created contests over ownership w/initial artist and those who altered it. Gab
now uses a frog logo and claims that frogs have been symbols of free speech for
a long time (narrator: they have not), and it’s a reference but not all that
similar to Pepe.  Then the distracted
boyfriend meme, which comes from a stock photo with a © owner, who is fine with
most uses but not w/objectionable ones (which may be censorial).  As the distracted boyfriend meme develops,
responses to it/reworkings of it are based on transforming the meme rather than
on the photo alone, which has become subsumed into the meme and the idea of the
meme. 
The internet thus
exposes that the mastermind narrative of single creation is wrong. We knew that
but dealt with it mostly by contract, and then we have this control test for
noncontractual situations but it still wrongly assumes that there is a “boss”
in control of everything. When you don’t have contracts, when you don’t have
lawyers, we don’t know what we’re doing in terms of ownership. Garcia v.
Google: opinions don’t make sense internally and are conflicting all over the
place.
Capitalism makes
everything worse/more exploitatitve: Swedish company used distracted boyfriend
meme for job searching and ad regulator called it sexist and said it couldn’t
be used in ads. There is a pending case against a MAGA poster by Pepe’s
original creator Matt Fury; there’s a fair use argument but also the defendant
argues that Fury abandoned the © (which is not a thing).  There’s a lot of unsettled territory here.
Hilary Richardson:
Google Open Source and Collaborative Authorship
Writing a casebook
on open source legal issues: opensource.google.com/docs/casebook: you can send
us edits or additions in a GitHub pull request. 
Current joint authorship standards give equal rights to all
authors.  Some projects list all
“authors” giving them shared control. Some may have 100% consensus, but for a
growing project that can be unsustainable, and some institutions may not want
the potential liability/disputes that comes from open source authors’ potential
for contestation.  Current doctrine
(Al-Muhammad etc.) looks for a mastermind—important contributions can still
avoid being authorial. Court was concerned about discouraging future
editing/feedback if joint authorship was a possible consequence. Creative
control/direction mattered, versus value of contributions and impact on final
version. Spike Lee had the control (although it was a work for hire) and the
court found that determinative.  Other
jurisdictions also use editorial control over final piece as part of the test,
but with more focus on intent to be co-author. 
Control can be evidence of intent, but intent could also be evidenced
by, e.g., registering the © in a person’s name.
Clarity can come
from legal agreements: two popular mechanisms, developers’ certificate of
origin (Linux) which doesn’t say anything about retaining © but does grant an
explicit license.  Is everyone a joint
author?  Contributor license agreement:
says that © stays with contributor but they grant a license.  That makes it clear that people aren’t
considered joint authors.  More
light-weight approaches: root license of a project is used to cover
contributions. Can be used to imply effects on individual contributions;
sometimes licenses say “if you contribute, you do it on these terms.”  The
Stuff case about contributing special effects to a larger film: helps
explain the effects of an implied license to use a contribution.
Katrina Geddes:
Should User-Generated Content Be Compensated?
UGC: just about
everything you find on the internet.  Childish
Gambino’s This is America was a canrivalesque commentary on police
brutality, fetishization of black performers, modern-day minstrelsy. People
responded w/, e.g., This is Nigeria: commentary on police brutality, corruption,
poverty, Boko Haram, and other Nigerian issues. Similar music and choreography
but different lyrics (both set in warehouse). 
Why do we value things like fan fiction? 
People get to see themselves where they don’t get to see themselves in
mainstream works: LGBTQ people, people of color. Challenge racial and social
assumptions of mainstream works; challenge the monopoly on cultural production
of large producers. Can also maintain the cultural relevance of works, such as
maintaining interest in the Star Trek
universe.  Satisfies demands for
variation and personalization, rather than works manufactured for a huge
audience. Democratizes creativity—authorship is diverse and diffuse.  Meme authorship can often be indeterminate. 
Content ID: used
algorithmically mostly for commercial content. 
400 hours to YouTube uploaded per minute. Fanmade videos for Harlem
Shake were matched to the song, allowing the song © owner to generate millions
of revenue with no allocation between the music and the video created by fan
labor. Under 1% of Content ID matches are disputed.  Fair use can’t reliably be done by
algorithms; Content ID is black box governance, unaccountable—even when the
uses removed or monetized may be perfectly lawful.  Expands scope of © by making it difficult for
users to rely on exceptions like fair use.
Locke and labor
theory: just reward of labor should extend to fan creations that are
monetized.  Eric Posner etc. have argued
that not just UGC but our labor online, clicking and producing valuable data,
should be understood as compensable.
Canadian UGC
provision: protects UGC made by an individual, though there’s usually more than
one author.  Also protects UGC only when
© subsists, which bakes in originality. 
Requires noncommerciality—no pro-rated advertising revenue.  Also bars anything with a vague, broad
“adverse effect, financial or otherwise” on the © owner—that could include
offending the original © owner.
Should users be compensated?  The labor
of users should be recognized and respected, and possibly compensated. But
commercialization is part of the fair use inquiry; it may weigh against fair
use.  Commercialization may result in
reduction in expressive diversity: anticipation of paid markets may affect
content and willingness to participate/be spontaneous in creativity.  Distinguishing when compensation would be
paid would require resources, negotiation in allocation between different
owners. Right now it’s 100% to the original claimant, but other points on the
spectrum are possible. Don’t just assume that everything with a match should be
100% monetized by the © owner.  We could
ask users to categorize their works to claim a share; this would allow more
information and an algorithm could at least look for percentages/set things up
for human review.
Q: fair use is
important; from litigator’s perspective, one downside is expense to
determine.  Oh, the Places You’ll Boldly
Go! was found to be fair use on summary judgment, but not at the MTD stage
which was 1½ year earlier.  Is there a
way to get to fair use faster?  Market
harm may require discovery—that’s the most expensive part of most lawsuits.
RT: sadly, not a
lot.  There are uses that are fair as a
matter of law, including parodies.  Big
data, purpose-transformation uses are for better or worse somewhat easier to
identify as fair use as a matter of law. 
Sometimes you are going to have to evaluate the transformativeness of an
individual work.  [We can have rules that
help, like the Second Circuit’s rule that you can’t avoid a fair use finding by
offering  a license for something that is
in fact transformative—that helps draw the sting of some market evidence.] Small
claims: 40% of Americans can’t come up with $400 for an emergency.  A “small claims” court that allows $30,000 in
statutory damages is not a small claims court. It’s just another way to harass
individuals.  [I forgot to add: best
practices in fair use for different fields—also very helpful.]
Lantagne: education,
nonprofits like OTW/EFF.
Geddes: Canadian UGC
exemption needs some time to develop. 
Education is also important.  People want rules like “30 seconds is ok.”
Richardson: people
do want rules: are 3 lines of code ok? 
Depends on what the 3 lines are!
Kimberly Isbell:
proposed 1202A.  The reason we made it a
new provision is b/c it’s narrower and specifically exempts criminal
enforcement.  The only person who could
bring a claim would be the uploader. The ACLU has terms of use: if you provide
content it will be anonymous.
RT: Disagree.  The statutory language is “any person injured
by a violation,” and the police will say they’re injured by the inability to
investigate the circumstances under which the video was taken further.  The injured person doesn’t have to be the
author (or heirs) under this proposal.  There
is a long tradition of (mis)using civil awards to silence speakers, e.g. NYT v.
Sullivan.  The proposal does not exempt
information submitted by someone who wants to be anonymous or who doesn’t know
or care about stripping of metadata [nor does it limit enforcement to the
author, which would also be a potential fix, though I still don’t see the
evidence that an additional cause of action is needed].
Q: software should
just be patentable, not copyrightable.
Richardson: the law
says copyrightable and she’s ok with that.
Q: memes &
defamatory content. There are a lot of really awful Helen Keller memes out
there.  What should happen when there’s a
historical figure & derogatory content.
Lantagne: a lot of
times people bring © claims that should be more personal tort based.  She hasn’t come across non-© meme cases, but
she wasn’t specifically looking for them. 
Unless publicity rights outlast death, there are few remedies for the
dead.
Richardson: revenge
porn is an example of where © was deployed even though it wasn’t intended for
those situations; you shouldn’t need to register an explicit photo to deal with
the problem of revenge porn, and new laws and platform policies are recognizing
that.

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CopyrightX summit: Keynote by Maria Strong

Posted on May 14, 2019 by rtushnet

CopyrightX summit
Keynote: Maria
Strong, Director of Policy & International Affairs, U.S. Copyright Office
Update on elements
of protection, exceptions/permissible uses. 
Biggest news in 20 years: Music Moernization Act, including many
recommendations from the CO.  Blanket
license for digital music providers: new way for tech platforms and music
providers to unite online. CLASSICS Act: pre-72 recordings partially into the
federal © system, with some exceptions/limitations.  Requires a lot of rulemaking by CO, including
exceptions for noncommercial use and designating licensing coordinators.  New spirit of cooperation and momentum in
Washington.  Could this lead to more
openness to action on things like felony streaming of infringing public
performances?  That died along with SOPA
but maybe there’s an appetite for it now, or for something on small ©
claims.  $350,000 is average ©
litigation.  New legislation was just
introduced in House and Senate on small claims.
DMCA: continue to
work on policy study examining effectiveness of §512.  92,000 comments received and several
roundtables.  Often oversimplified by 2
sides.  Content folks feel 512 is broken
and tech feel its fine. Large content providers have different concerns than
small providers, and so too with tech companies. Many different kinds of users.
Moral rights: 30
years since we joined Berne under a “patchwork” of moral rights. Tech changes, Dastar, state law changes, new int’l
treaties chane things.  Did notice &
comment.  Report identified key
principles: maintain First Amendment & fair use, copyright’s limited term,
importance of attribution to creators. US legal framework provides important
protection, but there’s room for improvement if Congress wants.  Identifies several legislative paths:
amending the Lanham Act; VARA fixes; §1202 copyright management tweaks in new
1202A; federal right of publicity.
Proposed changes to
Compendium of office practices; currently seeking comments. Also post review
letters for appeals from denial of registration.  And we’ve prepared a Fair Use index:
summaries of over 200 fair use cases, searchable by court and type of
work. 
Int’l: WIPO.
Broadcasting Treaty negotiations, going on for more than 20 years at WIPO.  US supports a signal-based approach to the
treaty. More guidance coming in October. 
Second, IGC (intergovt’l committee) tackling connections b/t cultural
identity and mobility. Current focus: distinction b/t traditional knowledge and
traditional cultural expressions and possibility of different treatment of
those.  Most important politically:
decide on recommendation on scope of group’s mandate.
Activities related
to exceptions/permissible uses: Marrakesh Treaty was adopted rapidly.  US amended law to comply, last October, just
in effect on May 8.  From nondramatic
literary works, expanded coverage. New 121A deals with export and import of
accessible works by authorized entities.
1201: Policy study
to streamline the process, which is long/arduous [co-signed!].  Proposed some streamlining for renewals of
unopposed exemptions, which was implemented. Split process into looking at unopposed
v. new proposals/data. Many of the new exemptions built on prior rulemaking.
Recommended 9 classes for exemptions. 20% faster than previous. 329 pages this
time versus 400+ last time.  It’s a
fulltime yearlong process; we realize it’s challenging for participants.
MMA: permits
unoncommercial uses of pre-72 sound recordings not being commercially exploited
under certain circumstances.  CO now
accepts Notices of Noncommercial Use: document users can file to become
eligible for safe harbor. CO doesn’t verify information in NNU.  User has to conduct good faith, reasonable
search & rightsowner must not object w/in 90 days of filing of NNU.  Detailed instructions for good faith search:
example—for recordings of recognized Alaska Native or American Indian tribes,
search must be done through contacting the relevant tribe, association, or
holding institution.
Section 108:
discussion document stating CO’s belief that 108 needs revision for libraries
and archives.  Wanted a framework for
further discussion among stakeholders and Congress: preservation,
security.  CO provided model statutory
language to jumpstart the discussion.
Working on better
public access to records. Digitized over 41 million © card catalogs, 1870-1977.
Now browsable. MMA outreach: we have tutorials, dedicated website,
participation in events around the country.
Q re digitization: did
you get everything?
A: we got all of one
type of record, but there are 2 other types we’re digitizing.
Q: museum
exceptions?
A: a major
modification we’d like to make is to include museums specifically, not just
libraries/archives.
Q: moving CO out of
Library of Congress?
A: awkward Q! Two
years ago, there was uncertainty when Register left and House passed a bill to
make the Register a Senate appointed position. That didn’t pass and hasn’t been
reintroduced. Near future: that issue is probably not going to be engaged.  [I think there’s a huge separation of powers
issue in giving the CO rulemaking etc. powers as an entity in the legislative
branch but that’s not a political or policy question in the ordinary sense and
there’s no reason Strong needs to have a position on it.]

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She don’t lie, but the pharmaco might: cocaine false advertising case continues

Posted on May 8, 2019 by rtushnet

Genus Lifesciences Inc. v. Lannett Company, Inc., 2019 WL
1981186, No. 18-cv-07603-WHO (N.D. Cal. May 3, 2019)
Genus competes with Lannett in the market for cocaine
hydrochloride nasal spray. It sued Lannett for false advertising and
maintaining a monopoly related to Lannett’s production of C-Topical, a cocaine
hydrochloride solution that competes with Genus’ own cocaine hydrochloride
solution, Goprelto. At its core, the complaint alleged that Lannett falsely advertised C-Topical as FDA-approved. Genus also sued First Databank, “a pricing list company
that compares drug products and their prices so that wholesalers and customers
can see all the alternatives available for a particular medication,” for false
advertising and contributory false advertising. Here, Judge Orrick declined to
dismiss all claims against Lannett, but kicked First Databank out because its challenged
statement in the pricing list was not “commercial speech” and First Databank
did not influence Lannett’s alleged false advertising.
  
In 2017, the FDA granted approval of Goprelto’s New Drug
Application, which required five clinical trials and ten non-clinical trials
involving over 700 human subjects. The FDA approved Goprelto “for the induction
of local anesthesia of the mucous membranes when performing diagnostic
procedures and surgeries on or through the nasal cavities in adults.” “As the
first FDA approved cocaine product, Goprelto was awarded new chemical
exclusivity, which bars any third-party applicant from seeking FDA approval
until December 14, 2022.”  C-Topical and
Goprelto have the same active ingredient, the same strength, and the same
dosage form, and are interchangeable for certain medical uses, including
Goprelto’s approved indicated use.
As the court explained, legal marketing of drugs in the US
requires approval of an NDA or ANDA or exemption from the NDA requirement.  Exemptions include “grandfathered” drugs and
drugs subject to an ongoing drug efficacy study implementation proceeding. A
drug is grandfathered if, among other requirements, its composition and labelling
have not changed since 1962. In 2006, the FDA stated that in cases where one
drug was approved but had unapproved competitors, there would generally be a
grace period of one year before the FDA initiated enforcement action against
the unapproved drug, but the FDA hasn’t yet acted against Lannett.
C-Topical has been on the market at least since 2008, and
Lannett was the sole supplier of cocaine hydrochloride solution products to ear,
nose and throat doctors from 2012 until Genus’s launch of Goprelto. In 2015,
the FDA rejected Lannett’s request that C-Topical be grandfathered. Despite
that, Lannett claimed that C-Topical was grandfathered in a number of SEC filings
and investor calls in 2017 and 2018. Lannett also allegedly advertised C-Topical
as being legally marketed under a “preliminary new drug application” in a
number of SEC filings, “a fictitious regulatory category.”
In addition Lannett’s meta description for its C-Topical
webpage states, “Learn more about the facts and characteristics of the generic
pharmaceutical C-Topical® Solution CII,” although C-Topical is not a generic
pharmaceutical product because it does not have an approved ANDA.
Lannett also allegedly intentionally misled customers by
making the product packaging look like an approved FDA drug, maintaining a
website with the package insert information that looks like an FDA-approved
insert, and registering a trademark for C-Topical. 
Lannett’s website also allegedly “identifies it as a generic
pharmaceutical manufacturer whose leadership is committed to adherence to FDA
standards and compliance with regulatory requirements,” as does its subsidiary
Cody’s, but both sites list C-Topical as one of their products. In addition,
Lannett advertised C-Topical as a “topical solution … indicated for the
introduction of local (topical) anesthesia of accessible mucous membranes of
the oral, laryngeal, and nasal cavities.” This allegedly falsely implied that a
cocaine hydrochloride solution product has been approved by FDA for oral or
laryngeal uses, when no such product has ever been approved in that way. This
allegedly further misled customers into believing that C-Topical had more uses
than Goprelto, making it a more desirable and better product.
Lannett also allegedly provided incomplete or false
information to third party intermediaries in the supply chain of pharmaceutical
products. For example, Lannett sold C-Topical to McKesson Corp., a wholesaler whose
website indicated that C-Topical is generic and does not state that it is
unapproved by the FDA. Intermediaries rely on companies that aggregate
third-party drug pricing information, such as First Databank. “These companies,
including First Databank, assign unique identifying codes for each drug,
allowing for price comparisons of equivalent products.” Because Lannett didn’t
identify C-Topical as unapproved, intermediaries were allegedly unable to
accurately describe it. Genus cited “a study that states that in a nationwide
survey of pharmacists, 91% thought all products pharmacists dispense are FDA
approved.” Customers were allegedly misled to believe that C-Topical is FDA
approved and choose to purchase C-Topical over Goprelto on that basis.
First Databank allegedly assigned a unique clinical
formulation ID (CFI) to drugs based on ingredients, strength, dosage form, and
route of administration. Drugs with the same attributes were assigned the same
CFI and “linked” so that a search for one would produce the other as a
substantive alternative. But, since C-Topical’s route of administration is
listed as “topical” and Goprelto’s is listed as “intranasal,” the two drugs are
given different CFI numbers. Consumers would allegedly be misled into thinking
that C-Topical is the only cocaine hydrochloride drug available on the market. Genus
allegedly notified First Databank about the misleading advertisement, providing
First Databank with knowledge.
Genus also alleged anticompetitive conduct in the market for
cocaine hydrochloride solution, which is allegedly unique because it is the only
nasal product that is both a vasoconstrictor and local anesthetic, unlike any
other drugs on the market. Lannett allegedly schemed to use a different CFI
number to prevent the parties from competing on price. “But because the CFI
numbers are different, and C-Topical had a monopoly on the market for a number
of years, customers are generally not aware that Goprelto exists and will not
find it when searching for or reordering C-Topical.” Between June 2018 and
September 2018, Genus sold only 544 bottles of Goprelto while Lannett sold over
45,000 bottles of C-Topical, despite Goprelto’s lower price.
“Lannett’s core argument is that absent an affirmative
representation of approval, marketing an unapproved drug is not actionable
under the Lanham Act.” It’s not enough to put an unapproved drug on the market
with a FDA-ish package insert, according to Mylan Labs., Inc. v. Matkari, 7
F.3d 1130 (4th Cir. 1993). Genus pointed out that the Lanham Act covers more than
affirmative, literally false statements. Par Sterile Prod., LLC v. Fresenius
Kabi USA LLC, No. 14-cv-3349, 2015 WL 1263041, at *4 (N.D. Ill. Mar. 17, 2015),
agreed that mere alleged implication that a drug was approved by the FDA was
insufficient to state a Lanham Act claim, but also found that the implication was
enough when combined with allegations that (i) buyers believe all prescribed
drugs identified on the Price Lists are FDA approved and (ii) that in some
surveys 91% of pharmacists are actually confused about whether all drugs that
appear on industry price lists are approved. This was enough to survive a
motion to dismiss, though not necessarily to survive summary judgment.
What about the false statements in SEC filings and investor
calls?  [As Matt Levine of Money Stuff
says, sounds like securities fraud because everything is securities
fraud.]  That didn’t seem like
“commercial advertising or promotion.” Genus failed to allege “that the SEC
statements and investor calls were made for the purpose of influencing
consumers to buy its goods or services, or that they were disseminated
sufficiently to pharmacists, doctors, and hospital groups.”
And the cases were on Lannett’s side. For example, Sigma
Dynamics, Inc. v. E. Piphany, Inc., No. 04-cv-0569-MJJ, 2004 WL 2648370 (N.D.
Cal. June 25, 2004), held that in order for statements on the investor calls to
be actionable, “plaintiffs would need to allege that consumers attended the
investor conference calls and that the purpose of the investor calls was to
influence customers to buy defendant’s goods or services.” Sigma did hold that statements on websites and in press releases
available to the public were commercial speech for purposes of a motion to
dismiss, but Judge Orrick disagreed [he didn’t really disagree, he just thought
that commercial speech was a broader category than “commercial advertising or
promotion”]: “in order to be actionable, the statements must be accompanied by
specific allegations that they were made for the purpose of influencing the
customers of cocaine hydrochloride solutions to buy C-Topical, or were
disseminated sufficiently to the relevant purchasing public (pharmacists,
hospitals, and doctors) to constitute ‘advertising’ or ‘promotion’ within the
pharmaceutical industry.”
Alleged falsity of labeling for oral, laryngeal, or nasal
administration: Lannett argued that the mere fact of broader labeling than
Genus wasn’t actionable, and that there were no false comparative
statements.  But the FDA says that a
“topical” route is “[a]dministration to a particular spot on the outer surface
of the body[.]” Lannett’s label states that C-Topical is “indicated for the
introduction of local (topical) anesthesia of accessible mucous membranes of
the oral, laryngeal and nasal cavities.” Mucous membranes are not the outer
surface of the skin; this affirmative misrepresentation allegedly harmed Genus
by inducing customers to believe that C-Topical is different and superior to
Goprelto because of its additional routes of administration. The court agreed
that this was sufficiently pled.
Failure to affirmatively disclose unapproved status to third
parties and intermediaries: Lannett argued that it had no duty of disclosure
under the Lanham Act. It also argued that the materials it sent to the third
party intermediaries explicitly state that C-Topical lacks FDA approval and the
product information on First Databank and other price lists made this clear as
well.
Genus didn’t state a claim for false advertising to price
lists and other third party intermediaries because there are weren’t supporting
allegations, such as the surveys Genus cited for pharmacists. The court
commented that an allegedly “buried” disclosure would “support a finding that
Lannett has correctly informed the price lists,” which I don’t quite get—is it
not plausible that price list operators would miss fine print?  Seems like an odd thing to say on a motion to
dismiss, but perhaps the court just wanted that spelled out in the allegations.
Website statements: Lannett argued that the meta description
on its C-Topical website describing the drug as generic wasn’t misleading, read
in context with Lannett’s landing page that states that the FDA has not
approved C-Topical. But Genus alleged that the landing page didn’t say that.
Instead, one had to click on a “package insert” link.  While initial interest confusion cases say
that a landing page can dispel potential trademark confusion, Lannett’s landing
page “would not disabuse a consumer of the notion that C-Topical is generic
based on the meta description.” Thus, the allegedly false statement in its
website’s meta description could be the basis for a false advertising claim
under the Lanham Act. [The court doesn’t discuss whether the description was
visible in search results—for what it’s worth, when I searched Lannett’s
current page didn’t use the term “generic.”]
General statements on Lannett’s websites about FDA
compliance: Lannett argued that its statements weren’t specific to C-Topical
and that compliance with FDA requirements was within the FDA’s primary
jurisdiction. Genus responded that Lannett’s website makes no carveout for
C-Topical and that because the FDA denied Lannett’s application to grandfather
C-Topical, Lannett’s statement of legal compliance was false.  The court found that Genus’s argument
stretched the FDA’s denial too far. The FDA rejection didn’t explicitly say
that C-Topical couldn’t be marketed, only that it couldn’t be described as
“grandfathered.”
The court turned to statements about making compliant,
generic products, e.g., “[i]t’s important to remember that generic medicines
are made to meet the same standards, as provided by FDA, as brand name
medicines. Customers may rest assured that generic pharmaceuticals are produced
with the same active ingredients and attention to quality as branded versions.”
Those weren’t false, and Genus didn’t plausibly allege that the statements
actually conveyed the implied message that C-Topical was grandfathered or sold
with FDA approval, and deceived a significant portion of recipients.
However, on subsidiary Cody’s website, the statements that “Cody
Laboratories is committed to compliance with all Local, State, and Federal
requirements and regulations governing our business, especially FDA, DEA …”
and that Cody’s “active pharmaceutical ingredients are used in FDA approved
commercial drug products,” combined with its identification of “Cocaine
Hydrochloride USP” as one of those ingredients plausibly added up to an
affirmatively false or misleading statement. Genus sufficiently alleged
materiality: “FDA approval status of a prescription drug is material to
customers because approved drugs provide customers assurance as to the quality
of the product not afforded to unapproved prescription drugs.”
Appearance and content of C-Topical’s labeling and
packaging: Resembling FDA-approved drug packaging wasn’t enough to plausibly
allege deception. There weren’t sufficient allegations of intentional deception.  “[W]hen the alleged representation is not an
overt false statement but is merely misleading in context as it is here, the
pleading standard is higher and allegations that the advertising actually
conveyed the implied message and deceived a significant portion of recipients
is required.” Genus made only conclusory statements such as, “On information
and belief, Lannett’s and Cody’s packaging and packaging insert deceives, or
has the capacity to deceive, a substantial segment of customers, including
pharmacists, into believing that Lannett’s and Cody’s C-Topical has FDA approval.”
More specific allegations were mandatory without an affirmative misstatement.
The antitrust claims failed because they were antitrust
claims. Specifically for the false advertising part, even though Genus
adequately alleged that the statements were (1) clearly false, (2) clearly
material, (3) clearly likely to induce reasonable reliance, and (4) made to
buyers without knowledge of the subject matter, that’s not enough to avoid a
presumption that the effect on competition was de minimis.  The false advertising must also have (5)
continued for prolonged periods, and (6) not have been readily susceptible to
neutralization or other offset by rivals, and Genus didn’t allege those. It
wasn’t enough to allege that “Lannett makes it prohibitively difficult for customers
to find a competing product,” and that “customers” tend to repeat their last
order or search directly for [C-Topical],” making it difficult to rebut the
false promotions. It also alleged that “[w]holesalers, GPOs, and IDNs use, or
rely upon, First Databank’s CFI codes to compare products” making other
marketing methods less useful.  “But
these allegations do not show why other efforts to promote its product, other
than its attempt to get First Databank to change C-Topical’s CFI number, have
failed or would not be successful,” e.g., an ad campaign touting Goprelto as
the only FDA approved cocaine hydrochloride product, or efforts to educate
customers that C-Topical is unapproved or that its route of administration is
misleading.
California FAL and UCL claims survived because the Lanham
Act claim did.
First Databank: Genus sued for false advertising of
C-Topical as having a “topical” route of administration and for contributory
false advertising based on Lannett’s primary conduct.
Direct false advertising: this wasn’t commercial advertising
or promotion as to First Databank because the price list wasn’t meant to
influence purchasers to buy First Databank’s goods or services; it was what First Databank sold. Although
the Gordon & Breach test for
“commercial advertising or promotion” likely needed modification after Lexmark to remove the requirement of
speech by a competitor, that didn’t
affect the outcome here.
Genus argued that First Databank wasn’t a “mere reference
database” because it derives millions of dollars from licensees to access the
pricing list and that it failed to identify any statements of public importance
that would make the pricing list non-commercial speech. Customers allegedly relied
on pricing lists for the purely commercial purpose of comparing products and
prices. Still, under Bolger, First
Databank’s pricing list didn’t propose a commercial transaction between First Databank and customers of cocaine
hydrochloride. Genus didn’t allege that First Databank had a monetary interest
in whether customers chose C-Topical over Goprelto. Though Genus argued that
“First Databank’s business involves a quid pro quo in which information is
provided to First Databank in exchange for First Databank utilizing the data,
including assigning its own CFI codes, and targeting and distributing it to the
relevant consumers,” that “would be true for every drug listed on the pricing
database, including Goprelto, and cannot reasonably be characterized as a quid
pro quo relationship for the purposes of this case.” Although First Databank allegedly
had an economic motivation to make representations about specific drugs in
order to maintain its market position in the pharmaceutical supply chain, that
didn’t show a profit motive in any particular representation.
Contributory false advertising: Genus argued that First
Databank contributed to Lannett’s alleged false advertising by knowingly and
materially participating in it. The court thought that contributory false
advertising couldn’t apply to non-commercial speech in any context because “the
Lanham Act, as a whole, applies only to commercial speech.”  [Side note: hotly contested or just wrong on
the TM side of the Lanham Act!  But to
the extent that we’re talking about contributory liability, we may be talking
about acts that are not even commercial speech, like ordinary contractual
language or other economic activity carried out through speech.]
Out of an abundance of caution (and perhaps an eye for
interesting arguments), the court analyzed contributory false advertising
without reference to commercial speech. In Duty Free Ams., Inc. v. Estée Lauder
Cos., 797 F.3d 1248 (11th Cir. 2015), the Eleventh Circuit held that
contributory false advertising requires a showing of (1) direct false advertising
by a third party and (2) defendant’s contribution to that conduct “either by
knowingly inducing or causing the conduct, or by materially participating in
it.” Genus satisfied (1) but not (2). 
Material participation, analogizing from trademark, can occur
where a defendant directly controlled or monitored the third party’s false
advertising, or maybe even when the defendant provides a necessary product or
service without which the false advertising would not be possible. The Eleventh
Circuit suggested looking at “the nature and extent of the communication”
between the third party and the defendant regarding the false advertising;
“whether or not the [defendant] explicitly or implicitly encouraged” the false
advertising; whether the false advertising “is serious and widespread,” making
it more likely that the defendant “kn[ew] about and condone[d] the acts”; and
whether the defendant engaged in “bad faith refusal to exercise a clear
contractual power to halt” the false advertising. Genus’s allegations didn’t
meet this standard. “The allegations in the complaint do not suggest that First
Databank’s conduct was persuasive in inducing Lannett to do what it did.”
First Databank pointed to the test used in ADT Sec. Servs.,
Inc. v. Sec. One Int’l, Inc., No. 11-cv-05149-YGR, 2012 WL 4068632 (N.D. Cal.
Sept. 14, 2012), which held that a claim for contributory false advertising
requires that the defendant: “(1) intentionally induced the primary Lanham Act
violation; or (2) continued to supply an infringing product to an infringer
with knowledge that the infringer is mislabeling the particular product
supplied.” Under that test, Genus’s claims also failed.  The tests were different, but they had the
same theory: “the party accused of contributorily infringing essentially drives
the infringing party’s conduct.” Genus’s theory was the opposite. Its
contributory false advertising claim against First Databank was dismissed with
prejudice.

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