burden is on Ds to show unprotectability of what they copied

Compulife Software
Inc. v. Newman, 2020 WL 2549505, No. 18-12004, No. 18-12007 (11th Cir. May 20,
2020)
The opinion sums up:
The very short story: Compulife Software, Inc., which has developed and
markets a computerized mechanism for calculating, organizing, and comparing
life-insurance quotes, alleges that one of its competitors lied and hacked its
way into Compulife’s system and stole its proprietary data. The question for us
is whether the defendants crossed any legal lines—and, in particular, whether
they infringed Compulife’s copyright or misappropriated its trade secrets,
engaged in false advertising, or violated an anti-hacking statute.
The court of appeals
reversed the magistrate judge (which held a bench trial on consent) on copyright infringement and trade
secret misappropriation, though it upheld the finding of no false advertising.
Compulife sells
access to a database of insurance-premium information, the “Transformative
Database,” which contains up-to-date information on many life insurers’
premium-rate tables and thus allows for simultaneous comparison of rates from
dozens of providers. “Although the Transformative Database is based on publicly
available information—namely, individual insurers’ rate tables—it can’t be
replicated without a specialized method and formula known only within
Compulife.” Insurance agent clients can input demographic information and get
insurance rate estimates from the database; Compulife also licenses a “web quoter”
that allows the licensee to offer quotes directly to prospective purchasers who
enter their own demographic information on the licensee’s site. And Compulife sells
a more expensive license that allows licensees to create addons and sell access
to other Compulife licensees. It also gives consumers direct access to
life-insurance quotes on its own website, referring prospective life-insurance
purchasers to agents who pay Compulife for the referrals.
The defendants are
also in the business of generating life-insurance quotes at naaip.org. “NAAIP”
stands for National Association of Accredited Insurance Professionals, but as
the court below found, “NAAIP is not a real entity, charity, not-for-profit, or
trade association, and is not incorporated anywhere.” The defendants offer a
service similar to—and at least partially copied from—Compulife’s web quoter,
which they call a “Life Insurance Quote Engine,” and any agent can sign up for
a post-domain path on the site. If a visitor to an NAAIP site uses its link to
buy insurance, the defendants receive money for the referral. Defendants also
operate beyondquotes.com, which generates quotes and then generates revenue by
selling referrals to affiliated insurance agents.
I have to admit that
the process by which Compulife creates its database sounds either useless or
actively harmful to truthful comparison to me, though I don’t have all the details.
To create the database, Compulife’s CEO “draws on insurers’ publicly available
rate information, but he also employs a proprietary calculation technique—in
particular, a secure program to which only he has access and that only he knows
how to use.” But if he inserts a proprietary calculation technique, why are his
results predictive of rates that insurers would actually quote for given
demographics?
Anyway, Compulife argued
in one case that the defendants gained access to the Transformative Database
under false pretenses by purporting to work for licensed Compulife customers. Defendants
undoubtedly copied some of Compulife’s HTML source code. In the other case,
Compulife alleged that defendants hired a hacker, Natal, to “scrape” data from
its server via programming a bot to send automated requests, creating a partial
copy of the database, in particular all the insurance-quote data for two zip
codes—one in New York and another in Florida, for every possible combination of
demographic data within those two zip codes. The total was more than 43 million
quotes. “The HTML commands used in the scraping attack included variables and
parameters—essentially words (or for that matter any string of characters) used
to designate and store values—from Compulife’s copyrighted HTML code. For example,
the parameter ‘BirthMonth’ in Compulife’s code stores a number between one and
twelve, corresponding to a prospective purchaser’s birth month.)” [That …
really sounds unprotectable by copyright.] Compulife alleged that defendants
used the scraped data to generate quotes, though defendants claimed they didn’t
know the source of the data, which was contested by other evidence.
Copyright
infringement: the defendants had the burden to show that what they took wasn’t
protectable, so the magistrate judge erred. The usual requirement is
substantial similarity “between the allegedly offending program and the
protectable, original elements of the copyrighted works.” The higher standard
of virtual identicality was not the standard here; that standard is limited to “analyzing
claims of compilation copyright infringement of nonliteral elements of a
computer program.” Copying source and object code, “even nonliterally,” is
subject to substantial similarity analysis.
Still, unprotectable
elements have to be filtered out.  But
the magistrate “improperly placed the burden on Compulife to prove, as part of
the filtration analysis, that the elements the defendants copied were
protectable; we hold that he should have required the defendants to prove that
those elements were not protectable.” There’s lots of stuff that’s unprotectable,
including “ideas, processes, facts, public domain information, merger material,
scènes à faire material, and other unprotectable elements.”
The magistrate
wrongly faulted Compulife for having “made no attempt to identify the
protectable elements of the 2010 HTML Source Code.” But, the court of appeals
held, “after an infringement plaintiff has demonstrated that he holds a valid
copyright and that the defendant engaged in factual copying, the defendant
bears the burden of proving—as part of the filtration analysis—that the
elements he copied from a copyrighted work are unprotectable.” Nimmer says so,
and it would be unfair to make the plaintiff prove a negative, since “[p]rotectability
can’t practicably be demonstrated affirmatively but, rather, consists of the
absence of the various species of unprotectability.” [I thought protectability
was a function of creativity, not the absence of unprotectability.] A plaintiff
couldn’t be expected to present the entire public domain to show that her work
was new! Nor could she “reasonably introduce the entire corpus of relevant,
industry-standard techniques” just to prove that none of the material copied was
scènes à faire. Placing the burden on the defendant allows the plaintiff to just
respond. [That seems to conflate the burdens of production and proof.]
Resulting approach:
Once the plaintiff has proven that he has a valid copyright and that
the defendant engaged in factual copying, the defendant may seek to prove that
some or all of the copied material is unprotectable. If the defendant carries
this burden as to any portion of the copied material, that material should be
filtered out of the analysis before comparing the two works. After filtration
is complete, the burden shifts back to the plaintiff to prove substantial
similarity between any remaining (i.e., unfiltered) protectable material and
the allegedly infringing work…. [W]here the defendant’s evidence is
insufficient to prove that a particular element is unprotectable, the court
should simply assume that the element is protectable and include that element
in the final substantial-similarity comparison between the works.
In a footnote, the
court commented that the defendant wouldn’t always need to introduce evidence;
argument alone might suffice. “For example, no evidence would be necessary to
convince a court that alphabetization is an entirely unoriginal method of
arranging data and thus unprotectable as a structural element of a work. But
where evidence is required to determine whether some element is protectable, it
is the defendant who must advance it or risk abandoning the issue.”
In addition (at
least for software?), plaintiffs can concede unprotectability by providing a
list of program features it believes to be protectable, which constitutes an
implicit concession that elements not included on the list are unprotectable. [Perhaps the court is thinking that, for cases of alleged comprehensive nonliteral similarity, the plaintiff will have to provide a list, and the defendant may well be able to say–without providing further evidence–“those are just ideas,” and the defendant will often be right. I still think “the burden is on the defendant” is a real overstatement given the variety of ways infringement claims are stated.]
On reassessment/retrial
(the original magistrate retired), some filtration would be warranted; some
unprotectable elements were so obvious that no proof was necessary, such as the
need to collect a consumer’s state of residence, and alphabetization of the
states/assignment of a corresponding number. “A closer question, however, is
whether Compulife’s inclusion of the District of Columbia in the list of states
and the bifurcation of New York into business and non-business categories are
protectable elements of structure.” [Did the underlying insurance companies
include the District of Columbia or divide NY into business and non-business?
If they do, how could the decision to do so be protectable for Compulife? Also,
as a DC native, this is pure discrimination: why isn’t the choice not to exclude
the tinier Vermont and Wyoming just as choice-y? Does being able to vote for Senators
and Representations make you more entitled to life insurance? Later, the court
of appeals says the NY business/non-business decision was “obsolete” by the
time that defendants copied it, but was it original to Compulife or based on
past insurance company practice? Although based on this description, even if
defendants copied the HTML, did they copy any underlying database structure?]
The court of appeals
vacated & remanded to give the district court a chance to make the missing
findings.
The magistrate also
erred by evaluating “the significance of the defendants’ copying vis-à-vis
their offending work, rather than Compulife’s copyrighted work” in assessing
substantial similarity. After all, “adding new material to copied material
doesn’t negate (or even ameliorate) the copying.” And finally, the magistrate
didn’t provide sufficient factual analysis to allow meaningful appellate review.
This would require the magistrate to indicate unprotectable elements in more
detail; evaluate the importance of copied protectable elements as part of a
substantial-similarity analysis; and identify, at the threshold, which elements
of Compulife’s code the defendants had copied as a factual matter.
The court noted that
the burden was still on Compulife to show either the quantitative or
qualitative substantiality of the copying, but it provided at least some evidence
of both: it provided the texts of both works, which allowed the quantitative significance
to be evaluated, and qualitative significance “is often apparent on the face of
the copied portion of a copyrighted work.” Moreover, a witness “testified that
part of the code copied by the defendants includes variable names and
parameters that must be formatted exactly for the web quoter to communicate
with the Transformative Database at all. At a minimum, this testimony is some
evidence of the qualitative significance of the copied portion of Compulife’s
work.” [Or of merger/functionality, I suppose, though perhaps we’ll learn more
about this after Google v. Oracle.]
Trade secret: that’s
remanded too. Probably the most broadly applicable holding: the public
availability of quotes on Compulife’s consumer-facing site didn’t preclude a
finding that scraping those quotes constituted misappropriation. “[W]hile
manually accessing quotes from Compulife’s database is unlikely ever to
constitute improper means, using a bot to collect an otherwise infeasible
amount of data may well be—in the same way that using aerial photography may be
improper when a secret is exposed to view from above.” However, the court of
appeals said it wasn’t expressing an opinion about whether enough of the database
was taken to amount to acquisition of the trade secret, nor as to whether the
means were improper; it’s just that public availability of quotes didn’t
resolve that question.
False advertising:
affirmed. Compulife didn’t identify any particular statement alleged to
constitute false advertising. Compulife asserted that “[e]nticing … users”
with “quotes for term life insurance where the source of those quotes is
infringing software and stolen trade secrets is … unquestionably unfair
competition and false advertising.” But hosting a website without disclosing
that Compulife was the ultimate source of the quotes, “doesn’t imply the
existence of any advertisement, let alone a false one.”  [Dastar!]
NAAIP may have advertised
that its quote engine was a “key benefit,” but that had no capacity to deceive
and wasn’t material to any purchasing decision. “[M]erely claiming to have a
quote engine is unlikely to mislead anyone into assuming anything about the
ultimate source of the software or the quotes that it generates.… Consumers
have good reason to care about the quality of the quote engine, but not the
identity of its author or the host of the server with which it communicates.”
The Florida Computer
Abuse and Data Recovery Act states: “A person who knowingly and with intent to
cause harm or loss … [o]btains information from a protected computer without
authorization … [or] [c]auses the transmission of a program, code, or command
to a protected computer without authorization … caus[ing] harm or loss … is
liable to … the owner of information stored in the protected computer.” A
“protected computer” is one that “can be accessed only by employing a
technological access barrier.” But Compulife didn’t attempt to argue that the
defendants penetrated a “technological access barrier.”

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court rejects HomeAdvisor’s First Amendment defense of its misleading ads

People ex rel. Gascon
v. HomeAdvisor, Inc., A154960, 2020 WL 2486970 (Cal. Ct. App. May 14, 2020)
HomeAdvisor appealed
an injunction barring it from broadcasting certain ads (except with a disclaimer,
for a limited time). HomeAdvisor argued that the order was vague, indefinite,
overbroad, and unconstitutional; the court disagreed.
San Francisco’s DA
sued HA for violating the FAL and UCL, alleging that its ads were “false and
misleading because they are likely to deceive consumers into believing that all
service professionals hired through HomeAdvisor who come into their homes have
passed criminal background checks. That is not the case. The only person who
undergoes a background check is the owner/principal of an independently-owned
business.”
For example:
In “Carl,” a middle-aged man explains he can’t always be there when his
mother needs help: “So when her roof started to leak I went to HomeAdvisor and
found the right pro to help. They are background checked.”
In “Happy Homeowners,” a woman standing with two young children states:
“As a single mom, I love that HomeAdvisor does background checks on pros.” The
words “background checks” appear on the screen, and then the advertisement cuts
to a man who says, “Gives me peace of mind.”…
In “TV Ad Featuring Jason Cameron,” a television show host tells the
viewers, “With HomeAdvisor you know that you’ll get a reliable pro because they
must pass criminal and financial background checks before they’re listed.” Then
a woman says, “As a single mom I have to be careful with who I invite to my
home.”
In “HomeAdvisor Testimonials,” another television show host, Amy
Matthews, states: “HomeAdvisor pros pass criminal and financial background
checks before they’re listed.” In “Pros You Can Trust,” the same host states
HomeAdvisor “instantly connects you with top-rated pros who have passed
criminal and financial background checks.” In “HomeAdvisor Testimonials,” a
woman standing in her bathroom says, “I love the fact that they have been
background-checked—that’s a great feeling.” In the same advertisement, another
woman standing in her kitchen says, “You can feel safe with them coming into
your home.”
HomeAdvisor’s mobile
application also stated, “Nationwide, we have a network of hundreds of
thousands of background-checked pros specializing in more than 500 home
renovation projects.”
However, HA only performs
a background check on the “owner/principal” of the businesses that are members
of its network. Its terms & conditions stated that HA performs no
background check when the businesses are “employees, franchisees, dealers, or
independent contractors … of larger national or corporate accounts.” HA also
screened “ (1) the license holder if there is a state-level license, and (2)
anyone whom the [business] adds to the account for administrative purposes
(e.g., putting the account on hold).” However, if a “franchisee or a dealer is
a corporate account,” then they are not subject to HomeAdvisor’s background
check policy.  Extending the background
checks to all employees would be expensive and difficult, and HA has no plans
to do it.
The court found that
the ads were misleading, but that “the statements on the website cure that
misleading nature except that they’re not in the ads themselves and they’re not
conspicuous.” The People proposed a disclaimer: “HomeAdvisor background checks
business owners but not employees.” HA objected that some employees, albeit a
“limited” number, are checked. The court adopted the People’s proposal over “
‘HomeAdvisor background checks business owners and limited employees,’ ” or “
‘HomeAdvisor background checks business owners and account manager employees.’
Along with enjoining
specific ads, the court enjoined HA from “[i]ncluding in the description of the
HomeAdvisor App in the Apple App Store and the Google Play store words that
state or imply that all service personnel who come to consumers’ homes as a
result of consumers’ having used the HomeAdvisor service have been
background-checked.” However, there was a safe harbor for ads that didn’t state
or imply that all service personnel have been background-checked, and for
advertisements with disclaimers. HA could continue broadcasting eight of the
enjoined advertisements for a period of over four months, and nine of the
enjoined advertisements for a period of over seven months, “as long as a clear
and conspicuous visual disclaimer appears in each television and Internet
advertisement that states: ‘HomeAdvisor Background-Checks Business Owners But
Not Employees.’ ”
HA complained that
the direction not to “imply” that background checks were conducted on all
personnel was impermissibly vague and overbroad, so that it couldn’t tell the
difference “between advertisements that ‘state or imply that all service personnel’
are background-checked and those that merely mention the phrase ‘background
checks.’ ” Not so. The district court reviewed a lot of ads and modified
versions and approved some for a certain period of time with a disclaimer. The
injunction was “sufficiently definite to provide a standard for HomeAdvisor to
use in developing new advertisements, and for the court to ascertain any
alleged violations of the injunction.” The mere mention of background checks
wasn’t enjoined, but rather ads that refer to “background-checked pros,” or its
variants, such as background-checked or prescreened “ ‘home-improvement
professionals’ ” or “ ‘home-improvement pros,’ ” because these terms imply that
the person who comes to the consumers’ home has been background-checked.
Nor did the
preliminary injunction violate the First Amendment. Commercial speech that is
actually or inherently misleading can be banned outright, while potential
misleadingness requires the state to try correction by disclaimer (at least
initially). HA claimed that references to “ ‘background-checked pros,’ ” or “
‘prescreened’ pros” were “entirely truthful information about HomeAdvisor’s
business” because HomeAdvisor “maintains a network of approximately 200,000
service professional businesses that have been background-checked.”
Nope.
The enjoined advertisements and descriptions are inherently likely to
deceive because they exploit the ambiguity of the term “pro.” According to
HomeAdvisor, it offers a service that connects “consumers with providers of
home services such as plumbers, painters, [and] contractors,” but, when
HomeAdvisor uses the term “pros,” it means “service professional businesses,”
not the plumbers, painters, or contractors working for these businesses.
But a “professional”
“is commonly understood to be a person, not a business.” [citing dictionary] A
reasonable consumer “would likely understand ‘pros’ to mean the persons or
professionals coming to their home, not the businesses for whom they work.” HA
argued for the first time in its reply brief that even if the phrase was
misleading, it was nonactionable puffery. 
This is a contradiction in terms, but the court declined to address the
new argument on the (un)merits.
The court noted that
other aspects of the ads made deception even more likely. Many of the TV ads
showed search results, which included images of individuals, not businesses. “Pros
You Can Trust” refers to pros “who” have passed background checks, not pros
“that” have done so. And a number of the ads implied that consumers can feel
more comfortable about the people who come into to their homes because of the
background checks. True, “Pros You Can Trust” was discontinued, but the trial
court took that into account in granting HA time to continue broadcasting
non-discontinued ads with disclaimers to give it time to make new ads/lessen
financial harm to HA.
HA argued that there
was no evidence that its ads caused actual harm. But that’s not required for a
finding of inherently deceptive commercial speech. On a de novo review of the
record, the court of appeals agreed that HA’s references to “background-checked
pros” or its variants were inherently likely to deceive reasonable consumers,
and nothing more was required for a preliminary injunction. [Nothing more
should be required for a permanent injunction, either!]  When a government entity seeking the
statutorily authorized remedy of injunctive relief shows a reasonable probability
of success on the merits, “a rebuttable presumption arises that the potential
harm to the public outweighs the potential harm to the defendant.” The trial
court found that HA failed to rebut the presumption.
Nor was the order an
unconstitutional prior restraint on speech. “The special vice of a prior
restraint is that communication will be suppressed, either directly or by
inducing excessive caution in the speaker, before an adequate determination
that it is unprotected by the First Amendment.” But once specific speech is
properly ruled unprotected, there’s no problem with an injunction. When it
comes to commercial speech, “[t]he government may ban forms of communication
more likely to deceive the public than to inform it.” While an injunction may
not be “broader than necessary to provide relief to plaintiff while minimizing
the restriction of expression,” the injunction here was fine.
HA argued that the
safe harbor disclaimer was misleading and was unconstitutional compelled
speech. These arguments were moot. The safe harbor expired in January 2019,
over a month before the opening appeal brief was filed.

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Descriptive fair use on a motion to dismiss

Outhouse PR, LLC v.
Northstar Travel Media, LLC, No. 19-cv-05979-NRB (S.D.N.Y. May 15, 2020)
A motion to dismiss
granted on descriptive use: impressive! Outhouse is a digital media company
that runs womenyoushouldknow.net, which “posts editorial content, such as
interviews and profiles of women with various backgrounds,” and it also posts
links to its content on social networking platforms. It has a registration for
WOMEN YOU SHOULD KNOW for: (1) online social networking services and (2)
entertainment services, including provision of continuing segments featuring
news and commentary delivered by the internet.
 

Outhouse registration

as shown on website

Northstar publishes Business
Travel News. In 2016, it published an article, “2016 WOMEN YOU SHOULD KNOW” on
its website, featuring this banner as well as “photos and biographical
information of some women participating in the travel industry”:

In 2017, it published
“2017 WOMEN YOU SHOULD KNOW” featuring a different set of women and this
banner:

Outhouse sent a
C&D, to which BTN didn’t respond. In 2018, BTN published “2018 WOMEN YOU
SHOULD KNOW” with another set of women and a banner, which was also posted to
BTN’s Facebook and Twitter pages.  

Outhouse sent two more C&Ds and a proposed complaint in 2019; BTN
responded that Outhouse had no viable claim and that it would seek its
attorneys’ fees and costs in the event of a suit. It then published “2019 WOMEN
YOU SHOULD KNOW” with another set of women and a banner, which it also shared
on its Facebook page:

On the same page, it
created “Check Out Other Years” tab with a list of buttons that would redirect
the readers to BTN’s “WOMEN YOU SHOULD KNOW” article for a particular year.
Despite the “extremely
lenient pleading standard,” the court was skeptical that confusion was
adequately pled, but it didn’t matter because this was descriptive fair use.
Use other than as a
mark: The articles were published on a website that displayed a sizable and
conspicuous “BTN” masthead at the top to identify its source:

The social media
pages also unambiguously identified BTN as the source:

The “ways by which
defendant presented” the phrase further undermined an intent to indicate
source. The visual presentations differed, including the dominant “making connections”
in 2016, and the size was smaller than BTN’s masthead. The 2019 version was
“BUSINESS TRAVEL NEWS’ 2019 WOMEN YOU SHOULD KNOW,” suggesting an intent to identify BTN as the source.  
You might wonder
whether, as Outhouse argued, Kelly-Brown v. Winfrey, 717 F.3d 295 (2d Cir.
2013), warrants a different conclusion. In that case, Kelly-Brown “plausibly
alleged that Oprah was attempting to build a new segment of her media empire
around the theme or catchphrase ‘Own Your Power,’” particularly that “defendants
were trying to create, through repetition across various forms of media, …
association between Oprah and the phrase ‘Own Your Power.’” True, this case
involved one time per year for four years, but it was different: the alleged
uses “do not even remotely approach the level of ‘wide-ranging and varied’ use
of the trademark at issue by the defendants in Kelly-Brown,” which
included various events and not just articles. 
Use in the headline of articles under a prominent masthead display of
its own mark “falls far short of establishing an effort by defendant to create
an association between the Mark and defendant that would serve as a symbolic
identifier of any article that contains the phrase ‘WOMEN YOU SHOULD KNOW.’”
Outhouse argued that
In re Scholastic, Inc., 23 U.S.P.Q.2d 1774, 1992 WL 215313 (T.T.A.B. 1992),
supported its claim. That proceeding found that the phrase “THE MAGIC SCHOOL
BUS” could be registered as a trademark despite that the phrase constituted
only a portion of the title of each book in a series. But registrability
determinations are different. (I see why Outhouse cited this; the real question
is whether there is any normative limit on claims that the defendant is using a
term “as a mark” even if book series and even newspaper column titles are
registrable. Rogers v. Grimaldi has a title-v-title exception, but it’s
actually not clear to me that the Second Circuit would (or should) consider “website
title” to be the same thing as “article title” for purposes of applying that
exception. As my reference to Rogers suggests, lurking First Amendment
concerns support the court’s application of this defense on a motion to
dismiss.)
Is defendant’s use
descriptive? Yes. Ridiculously, Outhouse argued that BTN’s use wasn’t
descriptive because “no reader of defendant’s articles is under an obligation
to know the women presented therein.” The court pointed out what “should” reasonably
means.
Good faith: This is
about whether defendant intended to create confusion, but, given the nature of
the question, “the same contextual considerations that apply in considering the
likelihood of confusion and assessing the similarity of two marks— namely, the
overall context in which the marks appear and the totality of factors that
could cause consumer confusion—also apply to a court’s analysis of good faith
in the context of fair use defense.” Assuming the truth of the allegations in
the complaint, there was good faith, given the literal descriptiveness of the
use and conspicuous BTN masthead. Moreover, the phrase appeared in “a font and
shape that are completely dissimilar to the plaintiff’s presentation of it to
the public.”
The repeated use of
the phrase and knowledge of Outhouse’s ownership weren’t evidence in support of
an inference of bad faith. Given the descriptive nature of the use, repetition
was insufficient to infer bad faith. (Kelly-Brown didn’t refer to
repetition in its reasoning on bad faith, and without use seeking to create a
source-related association between the phrase and the defendant, there was no
reason to infer bad faith.) “Inferring bad faith from descriptive uses of word
mark for being repeated would be inconsistent with the fundamental framework of
trademark law.” Nor did knowledge of Outhouse’s ownership support a bad faith
finding. “Failure to perform an official trademark search . . . does not,
standing alone, prove . . . bad faith,” and “simply sending a cease-and-desist
letter cannot create trademark rights that do not otherwise exist and,
therefore, cannot by itself constitute a basis for finding bad faith.”       

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Navigating NAD’s new fast track program for challenging advertising

“Navigating SWIFT –
An Inside View of NAD’s Fast-Track Process”, presented by Laura Brett, Vice
President, NAD, BBB National Programs, and moderated by David Mallen, Co-Chair,
Retail and Consumer Brands, Loeb & Loeb LLP.
[Despite its cutesy
name, I am hopeful that NAD’s SWIFT
(Single Well-defined Issue Fast Track) will be able to address some common
claims more expeditiously than ordinary NAD proceedings.]
Eligible claims: (1)
prominence/sufficiency of disclosures including in influencer marketing, native
advertising, and incentivized reviews; (2) misleading pricing and sales claims
(e.g., “free” that has persisted for 3 years and is thus just part of the price
of the package; discounts that don’t adequately explain/account for the claimed
discount); (3) misleading express claims that don’t require review of complex
evidence or substantiation (not whether or not that specific claim can be
substantiated with sufficient evidence). 20 business days to decision. If advertiser
is claiming to cure coronavirus, that could be reviewed under (3) even though
actual substantiation would require complex evidence.
Requirements: provide
advertiser’s contact info (can be very hard to find the right person at the
advertiser if they’re a first time participant in NAD—marketing counsel or
other right person would be ideal; can delay start of case); copy of challenged
ads w/date/platforms; brief statement of SWIFT appropriateness; brief
description of facts showing how ad is likely controlled by advertiser;
exhibits to show challenged claim is not substantiated (if applicable). So for
coronavirus, you’d say “virus has not been around long enough for this claim to
be substantiated.” 5 pages, no more than 5 supporting exhibits (not including
the advertising itself).
Day zero: case
starts when NAD determines SWIFT is appropriate. Advertiser has 4 days to
object to SWIFT process; if objects, NAD will decide in 2 days. Should not delay
preparing substantive response—objecting to jurisdiction doesn’t toll time to
substantive response. Substantive response is due day 10, limited to 5 pages/5
additional exhibits. Phone/video meetings held at NAD’s discretion, and they’re
usually held—though they may not need to be for some SWIFT cases. Decision will
not be held up if meetings can’t be scheduled.
Day 20: decision
sent to both parties at same time; advertiser statement is optional. Assume
compliance; if they don’t comply, there will be referral to FTC. Press releases
issued afterwards; anticipate releasing them in bulk. Will be available in the
online archive.
Q: Is 20 days
aspirational or a promise?
A: we are confident
we can deliver.
Q: how will NAD
evaluate whether the issue is simple? Will decisions provide written guidance?
A: we will look at
that twice. If advertiser shows us complexity of substantiation required, and
it’s not as simple as challenger said, we’ll close it as a SWIFT case. If that
happens either at the outset (challenger’s initiation) or when advertiser
objects, challenger can either close case/refile or transfer to a standard
challenge.
Q: if there’s a transfer,
can the challenger add claims?
A: you’d have us
close the SWIFT case, return the filing fee (or use it as part payment of
standard track fee), and refile.
Written decisions
will explain why case was accepted into SWIFT. We anticipate that we might be
able to include some analysis in transferred cases about why it was inappropriate
for SWIFT.
Q: is SWIFT
appropriate for challenging an influencer campaign across multiple platforms?
A: potentially. If
the advertiser just requires #spon for all influencers, that’s a single issue.
If some of the influencers are good and some are bad and have different
problems, that could get beyond a single issue.
Q: how much detail
will appear in the ultimate decision? Will it have the same kind of precedential
value?
A: we have removed
party positions from regular NAD decisions, and will do so for SWIFT too. Will
be in database and separately searchable as SWIFT cases. But we will lay out
the arguments on both sides in order to allow guidance/precedential value.
Competitors should be able to get guidance.
Q: tension b/t speed
and voluntariness. What will happen if advertiser seeks extension?
A: will entertain
requests. But are committed to 20 days on our end. Shouldn’t need consumer
perception studies, though extenuating circumstances do matter. NAD would have
to shorten its window for decision. FTC is very supportive of process and remains
willing to be the “stick.”
Q: will press
releases be the same?
A: Different. Plan
is monthly release of all SWIFT cases resolved that month. Wary of competitor
shaming given speed of process.
Q: why can’t you
decide all your cases this quickly?
A: we’re committed
to improving that, learning from this.
Q: any insights on
what’s not appropriate for SWIFT/whether this might expand?
A: we thought about
different categories, e.g. implied claims. Implied claims are more complicated,
may require legal analysis/consumer perception surveys. Didn’t want to start
w/something controversial to regular NAD users. We also considered “clear
violations of FTC Guidelines,” but that seemed too open to argument to start.
Q: how do you get
advertisers to participate?
A: we generally see
5-10% refusal/noncompliance; does not expect that to change. Companies even
unhappy w/process often see tremendous value in having a level playing field;
new participants often bring challenges of their own once they see the process.
Q: stats?
A: two cases so far,
both determined appropriate. One resolved so far, on consent of both parties.
Q: do you have the
resources to do this w/o delaying other cases?
A: potentially will
hire more, after we see how users respond. Can retask attorneys.
Q: will there be a
special SWIFT department?
A: that’s our
intent. One person will oversee appropriateness of SWIFT.
Q: what feedback have
you heard so far?
A: positive so far.
See what happens in 6 months.
Q: any difference in
appeals? Advertiser won’t be able to appeal appropriateness decision, but when
you reach decision, what then?
A: similarly 20
days. 3 person panel, remote hearings (which we now have experience w/). Even
issues that don’t require complex substantiation may be hard cases.

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“100% Natural” might be deceptive as applied to food w/bioengineered ingredients

Lee v. Conagra
Brands, Inc., No. 17-2131 (1st Cir. May 7, 2020)
Lee alleged that
Wesson’s supposedly “100% Natural” vegetable oil contained GMOs, which she
regarded as “quite unnatural,” in violation of Mass. Gen. Laws ch. 93A.  She also alleged that surveys showed that many
scientists and consumers don’t consider GMO-containing products to be natural.
The district court found that the term wasn’t actionable because it conformed
to FDA standards. The court of appeals reversed. Given Lee’s allegations, it
was plausible that the label could have deceived a reasonable consumer.
Chapter 93A
interpretation is guided by FTC interpretations; the FTC has an agreement with
the FDA to let it take the lead on food. 
Conagra argued that a GMO disclosure obligation would contradict FDA
policy that (1) GMO products may be advertised as natural; and (2) the unannounced
presence of GMOs in a product never causes the product’s label to mislead a
reasonable consumer. “Conagra mischaracterizes Lee’s complaint and the FDA’s views.”
As to the complaint,
it sought damages and an injunction against deceptive marketing, not an
injunction requiring disclosure; Conagra could most obviously comply with a verdict
against it by removing “100% Natural.”
As for the FDA: “The
FDA has not said that GMOs are natural and may be advertised as such. Conagra
does not cite any binding FDA guidance defining ‘natural,’ nor could it — that
guidance does not exist.” The FDA does have a policy that a product may not be
labeled as “natural” if it contains anything “artificial or synthetic
(including all color additives regardless of source).” See Food Labeling:
Nutrient Content Claims, General Principles, Petitions, Definitions of Terms;
Definitions of Nutrient Content Claims for the Fat, Fatty Acid, and Cholesterol
Content of Food, 58 Fed. Reg. 2,302, 2,407 (Jan. 6, 1993); see also Food
Labeling: Nutrient Content Claims, General Principles, Petitions, Definition of
Terms, 56 Fed. Reg. 60,421, 60,466 (Nov. 27, 1991) (noting that the “FDA has
not attempted to restrict the use of the term ‘natural’“ and that its informal
policy has been to interpret natural “to mean that nothing artificial or
synthetic . . . is included in, or has been added to, the product that would not
normally be expected to be there”).
An informal policy “not
to restrict the use of the term ‘natural’” is not a rule defining that term. “Where,
as here, an agency has issued no binding rule defining a term, the agency’s
pronouncements do not dictate whether a representation has the capacity to
deceive a reasonable shopper under Chapter 93A.” Indeed, the FDA’s “far more
recent request for comment as to whether GMOs are natural implicitly
acknowledges that the agency has not yet ruled that they are.” In a footnote,
the court pointed out that the comment period closed nearly four years ago, but
nothing has happened yet.
Nor has the FDA
blessed “wholesale nondisclosure.” Its nonbinding statements don’t say that,
but rather say that “food labelers have no general freestanding duty to disclose
on a product’s label whether it contains GMOs.” That is not the same thing as
saying “labelers never need to disclose whether their products contain GMOs,
even when those labels might otherwise violate generally applicable consumer
protection laws.” FDA’s draft guidance says that “the use, or absence of use,
of bioengineering in the production of a food is not a fact that is material
either with respect to consequences resulting from the use of the food or due
to representations on the labeling.” But “[e]ven if that guidance generally
blesses silence regarding GMO ingredients, it falls far short of blessing an
affirmative misrepresentation concerning the presence of such ingredidents.” 
Indeed, the FDA also
suggested that labels indicating GMO absence could be misleading, for example “if
they imply that the food is superior because the food is not bioengineered.”  Lee’s argument was that Conagra “misled
customers in an analogous way, with a similar—albeit somewhat vaguer—representation.”
Conagra also tried
to rely on the National Bioengineered Food Disclosure Standard (NBFDS): in
2016, Congress required USDA to come up with a method for disclosing “bioengineered”
ingredients in food products. The Final Rule establishes that, where “[a
refined] food does not contain detectable modified genetic material,”
bioengineered disclosure is not required. Additionally, “some oil refining
processes may effectively eliminate all DNA” in the product, so “degummed refined
vegetable oils and various other refined ingredients are unlikely to require
[bioengineered] food disclosure . . . .”  
But, even assuming
that the USDA rule frees Conagra of any disclosure obligation, “it says nothing
of representations suggesting GMOs’ absence.” The rule specifically says that
it covers “mandatory and voluntary bioengineered . . . claims,” and that there
is no authority for an “absence claims regime,” over which FDA retains
authority.  True, the NBFDS forbids
states from directly or indirectly establishing “any requirement relating to
the labeling of whether a food . . . is genetically engineered . . . or was
developed or produced using genetic engineering.” But Lee wasn’t seeking a
disclosure requirement and the NBFDS doesn’t cover absence claims, so there was
no preemption.

[I see the preemption argument, but do we really think that states could not act against literally false “not bioengineered” claims on food that was concededly made with bioengineered ingredients?  That seems an extreme reading of the statute, which was designed to prevent states from requiring disclosure of bioengineering (even on the theory that failure to disclose was inherently a misleading omission), not from regulating falsity in general. If we think that states could act against such claims, then the question is whether “100% Natural” means “not bioengineered” to a substantial number of reasonable consumers.]

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A few thoughts on the Booking.com argument

The Justices were engaged and asking the right questions, despite everyone’s use of “trademark” as a verb to mean “register.” With a putatively generic term the equation is perhaps understandable since if it is unregistrable it will also be unprotectable as a trademark, albeit unfair competition remedies may still be available to constrain the way in which it is used by others.

At a post-argument discussion, the EFF’s lawyer pointed out some important things: (1) in the past, Booking.com has argued that “booking” is legally identical to booking.com for purposes of tacking. While it may have gotten religion on the narrowness of its claimed mark now, the lateness of its conversion is a bad sign for the future–and for what other claimants in .com marks may assert, especially in contexts like C&D letters that are harder to regulate. (2) The Freecycle Network, after losing a genericity battle on “freecycle,” apparently obtained a trademark registration for Freecycle.org and is now using that to argue that Facebook groups–which only use the “freecycle” part and not the .org–are infringing. So the idea that the matter behind the dot is some sort of constraint is unlikely to hold.

I still can’t get any comfort with Booking.com’s position that there is nothing that is definitively unregistrable–applicants would always get to argue that things have changed in the market. And the fact that the PTO doesn’t do its own surveys (not to mention the Federal Circuit’s pro-applicant interpretations) means the PTO is structurally disadvantaged in dealing with survey evidence. 
Speaking of surveys, I appreciated the government’s focus on the “washingmachine.com” example in the survey.  This was a group of respondents who’d been trained on the generic/nongeneric distinction; they’d successfully distinguished Kellogg/cereal in the screening question, and none of them got supermarket wrong–no one was even unsure about its status. Yet even among this trained group, 33% thought washingmachine.com was a trademark, and an additional 6.3% weren’t sure.  When over 1/3 of the qualified survey participants get the answer that all the lawyers agree is wrong, the survey is not asking ordinary people a question they are in a good position to answer: surveys may simply be the wrong form of evidence.
No problem, Booking.com says: just remove those nearly 40% of people from the analysis, and they still show high secondary meaning in the remainder. I see a couple of problems with that approach: (1) Those people don’t disappear from the market.  Ordinarily removing a small percentage of people who flunk the survey’s integrity checks (whether out of deliberate choice or misunderstanding) doesn’t substantially change the population of interest. Here, it pretty clearly does. It’s like saying “sixty percent of geometry students got this question right, therefore more than half of math students got it right.” (2) Relatedly, these people were deemed qualified by the training/screening questions that supposedly assessed understanding of the relevant distinction; to remove them now smacks of result-oriented manipulation.  (3) The justification for doing this given in the surveyors’ amicus brief is that a genericity evaluation is noncausal, so no control is necessary. I don’t get that. We are interested in whether it’s actual secondary meaning or conflation of .com with trademark status that triggers consumers’ response “this is a trademark,” which seems pretty causal to me.
That being said, I really do wonder what a screening question that had been washingmachine.com/Amazon.com would have done to the results. And I wonder: if that produced a high percentage of initial disqualification of respondents, how should we think about that fact? Trademark law is not a purely empirical endeavor!

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Forthcoming article: Michael A. Carrier & Rebecca Tushnet, An Antitrust Framework for False Advertising

Michael A. Carrier
& Rebecca Tushnet, An Antitrust Framework for False Advertising, Iowa Law
Review, Forthcoming
Abstract:

Federal law presumes
that false advertising harms competition. Federal law also presumes that false
advertising is harmless or even helpful to competition. Contradiction is not
unknown to the law, of course. This contradiction, though, is acute. For not
only are both regimes at issue designed to protect competition, but they are
both enforced by the same agency: the Federal Trade Commission, which targets
“unfair competition” through antitrust and consumer protection enforcement.
 Courts’ treatment of
false advertising in antitrust cases makes no sense. While courts have
reasonably evidenced concern that not all false advertising violates antitrust
law, the remedy is not to abandon the false advertising/antitrust interface.
Instead, the solution is to focus on the actors most likely to harm the market:
monopolists and attempted monopolists.
 This Essay proposes
an antitrust framework for false advertising claims. It introduces a
presumption that monopolists engaging in false advertising violate antitrust
law and a rebuttal if the false advertising is ineffective. The framework also
applies to attempted monopolization by incorporating factors such as falsity,
materiality, and harm inherent in false advertising law, along with
competition-centered issues like targeting new market entrants.
 Antitrust has
dismissed false advertising that entrenches monopoly power for too long. This
Essay seeks to resolve the contradiction in the law by showing how false
advertising threatens the proper functioning of markets. Such an approach
promises benefits for false advertising law, antitrust law, and consumers.

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