Transformative work of the day, Dilbert edition

Posted on October 20, 2016 by rtushnet

Dilbert is mine now: art, appropriation, and politics.

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Carl Oppedahl on ITUs and specimens of use

Posted on October 19, 2016 by rtushnet

Good practical advice showing the function of an ITU in stabilizing priority.

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Spy Phone v. spy phone: Google loses motion to dismiss TM and other claims

Posted on October 18, 2016 by rtushnet
Spy Phone Labs LLC. v. Google Inc., No. 15-cv-03756, 2016 WL
6025469 (N.D. Cal. Oct. 14, 2016)
The plaintiff here, an app maker with a registered mark for
Spy Phone for a monitoring app, squeaks past dismissal of its trademark
secondary liability claim, and gets a win on §230(c)(2)(A) by alleging that
Google acted in bad faith—another for Eric Goldman’s tally.  Spy Phone offers its free app on Google’s
Play Store and generates revenue through AdSense ads on its website.
Spy Phone alleged that, between November 2012 and May 2013, it
discovered other monitoring apps that used or incorporated the “Spy Phone”
trademark.  It submitted trademark
infringement complaints to the Google Play Team, and Google removed the
apps.  But in May 2013, Google delayed
removal for 27 days, and then Spy Phone received an email from the developer of
the challenged “Spy Phone App” complaining about the removal.  At that point, Google allegedly began
retaliating against Spy Phone, taking actions orchestrated by the developer and
the Google Play Team. [I imagine the developer is thrilled to learn of its
power over Google.]
In June 2013, Spy Phone submitted a trademark infringement
complaint regarding the “Reptilicus.net Brutal Spy Phone” app. Google took no
action, responding that: “Google is not in a position to mediate trademark
disputes between developers and trademark owners. As a courtesy we have
considered your claim, but are unable to determine its merits at this time.”  Later that month, Google removed Spy Phone’s
app on the ground that it violated Google’s anti-spyware policy, even though Spy
Phone alleges its app was in full compliance with Google’s Developer
Distribution Agreement.  Spy Phone
alleged its belief that the complaint that triggered the removal was submitted
by the angry developer, the Google Play Team, or a Doe defendant in retaliation
for Spy Phone’s trademark infringement complaints.
After Spy Phone sued, Google clarified that the app itself
did not violate the anti-spyware policy, but that the app title was in
violation because “[a]pp titles should not be misleading or represent the
product as being spyware and/or capable of surreptitious tracking.” Spy Phone’s
counsel pointed out that other monitoring apps contained the word “spy” in the
title, and Google responded that it intended to prohibit all developers from
using the word “spy.” In October, Google reinstated Spy Phone’s developer
account, but deleted all of the consumer reviews and records for the original
“Spy Phone” app.
Spy Phone relaunched its app as “Phone Tracker,” but got
many fewer downloads and lost much advertising revenue.  Other apps allegedly continued using “spy” in
their titles.  Thus, beginning in January
2014, Spy Phone began submitting complaints about apps using the word “spy” in
their title, asserting violations of the anti-spyware policy. Google allegedly removed
only some of these apps, and many of the apps that were removed were re-listed
afterwards.  In July 2014, Spy Phone
complained about a monitoring app developed by that same angry developer, and
then Google suspended Spy Phone’s developer account and removed its app for
violating Google’s spam policy. Again, Spy Phone alleged its belief the removal
was based on a complaint submitted by the angry developer, a Google Play Team member,
and/or a Doe defendant. Spy Phone still filed complaints against other
monitoring apps to test whether the anti-spam policy was being applied
uniformly, but alleged that none of these apps were removed.  “A month after having its developer account terminated,
Plaintiff received a letter from a ‘Concerned Google Play Member,’ which
‘confirmed Plaintiff’s belief’ that Plaintiff was being singled out for
submitting trademark infringement complaints.” 
After Spy Phone sued, Google removed an app that Spy Phone identified as
an infringing app, and also removed at least five apps that infringed without
Spy Phone’s specific request.
Contributory trademark infringement: Previously, Judge Grewal
dismissed this claim because Spy Phone had not alleged Google had notice of the
specific acts of infringement because Spy Phone made spyware complaints instead
of trademark complaints.  For the
Reptilicus.net Brutal Spy Phone complaint, Google didn’t ignore the trademark
complaint but investigated and found that it could not assess the merits of the
claim.  Because “Spy Phone” could have
been a descriptor, Google didn’t have actual notice. 
Here, Spy Phone argued that Google failed to act promptly to
suspend services to known infringers, citing (1) the 27 days it took Google to
remove “Spy Phone App” after Plaintiff filed a trademark complaint on May 17,
2013, and (2) the 18 days it took Google to remove an infringing app identified
in Plaintiff’s First Amended Complaint on January 23, 2015.  This allegation wasn’t addressed by the
previous order.  Cases have found action
within three days to be sufficient to avoid liability, but six to nine months
of delay have been found sufficient to allege contributory copyright
infringement.  Here, the court found that
“whether this delay is actionable cannot be decided at the pleading stage.” 
However, the court rejected Spy Phone’s disagreement with
Judge Grewal about the Reptilicus.net app. 
Mere assertion by a trademark owner that a domain name infringes isn’t
sufficient to impute knowledge of infringement, without more knowledge of the
relevant goods and services; so too here. 
Spy Phone didn’t allege that Google knew the Reptilicus.net app was a
parental monitoring app or make factual allegations regarding the likelihood of
confusion factors.
Spy Phone also alleged willful blindness to ongoing
infringement. “Plaintiff is essentially alleging that Google had a duty to
preemptively remove apps that infringed on Plaintiff’s trademark, on the basis
that it has alleged that the Google Play Team is a small group who was put on
notice that Plaintiff possessed the ‘Spy Phone’ trademark.” Spy Phone also
alleged that Google had engaged in human review to ensure compliance with the
Google Play’s Developer Program Policies, which meant that “Google knew the
names of all infringing apps before they were listed on Google Play.” That wasn’t
enough; at most, it was generalized knowledge insufficient to impute actionable
knowledge without something more.  Spy
Phone argued that Google was like a flea market operator who has been put on
notice that a particular vendor is selling counterfeit goods, but continues to
allow that vendor to sell counterfeit goods. “Not so. Plaintiff seeks to
require the flea market operator not to just police specific vendors who it has
been put on notice of selling counterfeit goods, but to also preemptively check
over the goods of every vendor to ensure they are not also selling counterfeit
goods. This is the type of generalized notice that Tiffany rejected.”
However, Spy Phone did allege a claim as to apps from
developers that Plaintiff had previously reported to have infringed on its
trademark, such as the defendant angry developer. Thus, the motion to dismiss
was denied.

State claims and the CDA, section 230(c)(2)(A) (immunity for good faith
removals): Spy Phone argued that Google was an information content provider (of
the source code that enables apps to use Android), not an interactive computer
service. Opperman v. Path, Inc., 84 F. Supp. 3d 962, 987 (N.D. Cal. 2015), found
that Apple was an information content provider because it controlled the
development of the apps that were being challenged. But “development” means
material contribution to the alleged unlawfulness, and providing neutral tools
isn’t “development.”  Opperman involved Apple’s “iOS Human
Interface Guidelines,” which included “several suggestions that do, on their
face, appear to encourage the practices Plaintiffs complain of in this case.” Not
here.
However, the court found that it couldn’t resolve the issue
of whether Google acted in good faith at the motion to dismiss stage.  Google argued that selective enforcement of
its spyware polic was not actionable. But Spy Phone argued that Google’s claim
that Plaintiff’s app violated the spyware policy was entirely pretextual.
Google would have to return to § 230(c)(2)(A) on summary judgment.
Tortious interference with contract: Spy Phone relied on its
contract with Google through AdSense. 
Google can’t interfere with its own contract, even when the allegedly
tortious actions are committed by a different department (the Google Play Team).  Dismissed with prejudice.
Breach of contract and the covenant of good faith and fair
dealing: “[t]he general rule regarding the covenant of good faith is plainly
subject to the exception that the parties may, by express provisions of the
contract, grant the right to engage in the very acts and conduct which would
otherwise have been forbidden by an implied covenant of good faith and fair
dealing.” Google’s developer agreement says it has the right to take down
content that, among other things, “is deemed by Google to have a virus or is
deemed to be malware, spyware or have an adverse impact on Google’s or an
Authorized Carrier’s network …. Google reserves the right to suspend and/or bar
any Developer from the Market at its sole discretion.” But Spy Phone alleged
that Google failed to exercise this right in good faith and that Google didn’t
actually find the app in violation of the anti-spyware policy (as no such
policy allegedly exists).  Thus this
claim survived.
Tortious interference with prospective economic advantage: Google
argued that its developer agreement precluded recovery for consequential and
lost profits damages. Spy Phone argued that this section was unconscionable or
should be interpreted as applying only to good faith acts.  Though the contract might be procedurally
unconscionable, Spy Phone didn’t explain why the limitation on liability
provision was substantively unconscionable. 
These provisions “have long been recognized valid in California” and
“are particularly appropriate where, as here, one party is offering a service
for free.” However, the limitation of liability provision couldn’t be applied
to intentional wrongs.  Motion to dismiss
denied.
The coordinate California UCL claims based on the above also
survived.  However, the court declined to
allow Spy Phone to add a new claim for false advertising under the Lanham Act
and California’s False Advertising Law. Spy Phone wanted to argue that when
Google AdWords sold the keywords “Spy Phone” to other developers, Google was
engaging in false advertising because Google had previously told Plaintiff that
the term “spy” was misleading as it deceives people into thinking that such
apps are spyware and/or capable of surreptitiously monitoring data.  Thus, allowing others to buy priority
placement in response to a search for those keywords put Spy Phone at a
competitive disadvantage by falsely suggesting that the competing app
associated with the keywords “Spy Phone” was “capable of surreptitious tracking.”

But Spy Phone’s allegations of falsity were too clever by
half; it alleged that Google had no reason to believe its own statement that
use of “spy” is misleading.  Also, Spy
Phone didn’t allege facts that would establish materiality or injury caused by
the allegedly false statement that the apps shown in response to the search
would allow surreptitious monitoring. “In fact, the only ad listed above Plaintiff’s
app when using the ‘Spy Phone’ keyword search is an app that is clearly labeled
as the ‘Best Parental Control App,’ the same function as Plaintiff’s app.” Amendment
to allow the false advertising claim would be futile. 

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Copyright nerd question of the day

Posted on October 18, 2016 by rtushnet

Lin-Manuel Miranda and Renee Elise Goldsberry perform a revised version of Ten Duel Commandments about Hillary Clinton.  Miranda licensed Ten Crack Commandments–does the license cover this/is it fair use?  What language would you require for a license?

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Initial interest confusion rides again: law school ordered to re-change name

Posted on October 17, 2016 by rtushnet
Board of Regents of the Univ. of Houston Sys. v. Houston
College of Law, Inc., No. 16-CV-1839 (S.D. Tex. Oct. 14, 2016)
UH sought and received a preliminary injunction to prevent
the former South Texas College of Law from using the mark HOUSTON COLLEGE OF
LAW.  UH has had a law school since 1947
and is ranked 50th in the USNWR law school rankings; defendant HCL
is a private, unranked law school.  UH
had protectable marks in its names and also alleged common law rights in its colors,
red and white.
 

The parties’ logos
UH argued both initial interest source confusion and
association confusion.
UH’s mark was relatively strong commercially, especially
within the most relevant legal industry and geographic markets—both UH and HCL “overwhelmingly”
target prospective students in Texas and Florida.  HCL argued that extensive third party use,
even use outside UH’s particular industry, was “impressive evidence that there
would be no likelihood of confusion,” relying on Florida International
University Board of Trustees v. Florida National University, Inc., 2016 WL
4010164, — F.3d —-, No. 15-11509 (11th Cir. Jul. 26, 2016).  More than 25,000 registered businesses use
the word “Houston” in their names.  But
not all third-party uses have equal weight. 
Though a number of Houston-based institutions of higher learning that
use either “University” or “Houston” in their name, “none has law schools and
there is no evidence that any are well known in the marketplace. To the extent
consumers  are unaware of third-party
use, the logic behind the third-party use rule is inapplicable; the consumers
have not been conditioned to distinguish among the marks.”
Similarity of marks: strikingly similar. The word overlap
was obvious; “[f]ar more troubling, however, is the way in which Defendant
deploys its mark in the marketplace.” 
HCL’s logo, like the UH logo, uses block letters, emphasizes the word
“HOUSTON,” and uses a red  and white color
scheme, and the logo was “ubiquitous” in HCL’s marketing materials.  Small differences, including the generic
image of the scales of justice, were insufficient to counter the overall
impression of similarity.  Anyway, even
if the differences were enough to prevent source confusion, they weren’t enough
to prevent affiliation confusion.
The meanings of the marks were practically identical, “and
this alone presents a source of 
potential confusion.”  Compounding
the confusion was the fact that universities “often serve as umbrella
organizations to multiple colleges that are each responsible for educating
students within certain academic disciplines.”  UH is home to, along with its Law Center, the
University of Houston College of Arts, the University of Houston College of
Education, and the University of Houston College of Pharmacy. “‘Houston College
of Law’ fits almost perfectly within this framework, creating a substantial
risk that potential purchasers will ‘think [Defendant’s] services [have] some
connection with [UH],’” especially given HCL’s use of “the red and white colors
commonly associated with UH.”
Similarity between the parties’ services: practically
identical, making affiliation confusion more likely.  Customer base: the same.  Marketing efforts: the same.  All weighed heavily in favor of confusion.
HCL argued that advertising in the same media would help
students compare and contrast, as in the USNWR rankings.  “But this argument would only apply to
instances where students see the two marks side-by-side, which would seem to be
exceedingly rare. Indeed, even Defendant’s example of the U.S. News rankings
seems inapplicable—the Law Center is ranked 50th, while Defendant is unranked
and referenced on a separate page.”
Intent: “[A] junior user’s knowledge or awareness of the
senior user’s trademark” is insufficient to create an inference of intent.  HCL argued that it intended to align its name
with its location; a market survey it commissioned in 2013 favored a name
change because “South Texas College of Law” can 
lead people to mistakenly believe that the school is located in the Rio
Grande Valley. When respondents were asked to suggest a new name, the most
frequently mentioned suggestion (32%) was to “include [a] reference to the
location in Houston.”
However, the most
common reason respondents gave to change the name was “that the name South
Texas College of Law is often confused with other schools, particularly Texas
Southern University.”  This “detracts
from STCL’s prestige and national reputation.” 
UH presented evidence that a perceived affiliation with UH would, by
contrast, enhance HCL’s prestige.  The
survey included many respondents who mentioned a name change if HCL affiliated
with a university, and HCL had actually discussed doing so over the past two
decades.  “The benefits of affiliation
were thrown into sharp relief for Defendant when the entity formerly known as
Texas Wesleyan University Law School leapfrogged South Texas in the U.S. News
rankings shortly after affiliating with Texas A&M.”  Shortly after this event, when South Texas fell
out of the rankings entirely, it decided to change its name.
The court found that “UH’s theory is rooted in highly
circumstantial evidence that would [alone] be insufficient to meet the
substantial burden imposed at this procedural stage.”  But an additional fact directly called HCL’s
intent into question: in conjunction with the name change, HCL also adopted a
new red and white color scheme closely resembling UH’s.  HCL’s official school colors are red and
gold, but in practice, its use of red was inconsistent throughout the years and
in the past the red was dark crimson, accompanied by gold. Not so now. Even
accepting HCL’s argument that white provides a better contrast, the similarity
was striking.  UH presented numerous
images of HCL promotions next to its South Texas College of Law merchandise,
and the current shade of red was “unmistakably brighter than the classic South
Texas crimson.”  HCL argued that the
varied shade of red was the result of using a variety of vendors and
inconsistent paper quality.  But it
lacked credible testimony from a witness about that and internal documents
corroborating that testimony. 
HCL was at least aware of the likelihood of mistaken association;
though it was a close call, the court declined to find an intent to derive
benefit from UH’s reputation.  “Defendant’s
rationale for emphasizing ‘Houston’ in its name is entirely plausible, and the
Court is wary of relying too heavily on select snapshots of promotions and
merchandise produced by various vendors on various types of materials.”  Given the variety of merchandise that showed
up in my own search, the court’s caution seems more than justified.
 

old student handbook

2015 calendar

old merchandise

old logo

old merchandise: bright red?

old merchandise: crimson?

old merchandise: red?

Actual confusion: Initial interest confusion counts.  So does confusion among people other than
prospective law students.  So do
surveys. 
UH’s expert, Hal Poret, found net confusion of 25%.  HLC’s expert found a net confusion rate of
only 6%. HLC objected the way in which the survey participants in Poret’s
“Webpage Test Group” were questioned. These participants were shown an image
that was identical to the Houston College of Law homepage, but with one
exception: the image omits two banners that rotate prominently across the
webpage (“South Texas College of Law Changes to Houston College of Law” and
“Houston College of Law Stands Behind Name Change; Is Prepared to Defend Decision
in Court”).  HLC argued that the survey
thus failed to “test the alleged infringing use as it’s actually seen in the
real world today.”
The court disagreed, given the multiple uses of the mark
outside the webpage; HLC has already begun “aggressively marketing its new name
by advertising on large billboards on major Houston highways, sending out
mailers to prospective law students and members of the legal community, and
selling merchandise bearing its new name and logo.” None of those uses
contained HLC’s purported disclaimers. Even people who clicked a direct link
from Google to the “Admissions” page would never see the banners. By contrast,
the only image of the webpage that respondents saw in HLC’s survey included the
prominent “South Texas . . . Changes to Houston College of Law” banner, and not
the two other rotating banners (one unrelated to the name change).
And the court didn’t think the banners worked as
disclaimers; though they were prominent, the most prominent feature was a
series of eight rotating banners that tout Defendant’s primary selling points.  “[E]ven if a consumer’s initial-interest
confusion only persists long enough to lead him to the homepage, then Defendant
has ‘br[ought] the patrons   in the door.
. . . [T]he confusion has succeeded.’”  Poret’s survey was thus substantially
stronger.
UH also submitted anecdotal evidence of confusion. (1) The United
States Postal Service misdelivered a letter to HCL to UH. (2) A law firm
mistakenly changed a South Texas College of Law alumnus’s profile to indicate
that he graduated from UHLC and was on the Houston Law Review. (3) HLC sent an
email to the members of the Sunbelt Consortium, an organization comprised of
seventeen law schools in the region, informing them of the name change and
asking that the change be reflected on the organization’s website. The email
used HCL’s logo (including “formerly South Texas College of Law”), was sent
from an “@stcl” email address, and even included a link to http://www.stcl.edu.
Nevertheless, the Sunbelt Consortium thought the email came from UH and changed
UH’s name by mistake.  (4) The Texas
Board of Law Examiners mistakenly sent UH an email regarding a student who
actually attends HCL. (5) SMU Law School hosted a workshop and provided a HCL
professor with a placard identifying him as a professor at “University of
Houston Law Center.” (6) A UH student mistakenly selected the HCL location
rather than the UH location when signing up for the Multi-State Professional
Responsibility Exam.  (7) At the 2016
Graduate and Professional School Fair in Lubbock, Texas, an attendee approached
a representative from UH’s College of Social Work and mentioned that he had
just spoken to a representative from “your law school.” UH’s law school didn’t
attend the fair, but HLC did. (8) A prospective law student contacted UH’s
admissions department asking for a  waiver of the application fee; UH doesn’t have
an applicatino fee, but the student “reiterated that she was on the Law School
Admission Counsel’s website and was being charged a $55 application fee.”  When questioned, the student said she meant
to contact HCL.
Though a lot of this was not evidence from prospective students,
“evidence of confusion in others permits the inference of confusion in
purchasers.”  The first two instances
deserved “relatively little weight—they involved individuals who are unfamiliar
with the legal education industry.”  But “mistakes
made by individuals who are active participants in the field” were much more
noteworthy, and the last two instances of actual confusion by prospective law
students were even more important, and “even suggest that the confusion is not
quickly dispelled…. The fact that confusion could persist at the point of
paying to apply for admission is particularly significant in the context of
initial-interest confusion.”
Degree of care exercised by purchasers: not enough to
overwhelm the other factors:
Prospective law students are not
endowed with an inbuilt knowledge of the legal education industry. It is only
after their interest in legal education is first piqued that they begin the
process of becoming sophisticated. In other words, there exists a  period of time in every prospective law
student’s career where, not only is he unsophisticated, he knows practically
nothing about the industry and is particularly susceptible to confusion. 
The court focused on how to weigh the factors in the context
of initial interest confusion.  There was
no need to show that a sale occurred as the result of the confusion.  Fifth Circuit precedent suggests that competition
isn’t required; “a plaintiff need only show that the junior user achieved some
financial benefit as a result of the confusion, regardless of any potential
pecuniary effects on the senior user.” 
But here, even imposing a competition/ “possibly precluding the
plaintiff from being considered by the purchaser” requirement would lead to a
finding in UH’s favor.  [Note contrary
precedent, developed to cabin the scope of IIC, in cases such as the Third
Circuit’s Checkpoint v. Checkpoint.]
Multiple factors favored finding likely confusion, and only
degree of care cut against UH’s case.  UH
cautioned against a broad application of IIC, and its point was “well taken.”
There is a difference between initial interest confusion and initial
interest.  But UH offered more here: “Prospective
students  are likely to further
investigate Houston College of Law not necessarily because of their initial
interest in the law school, as Defendant suggests, but rather because the mark
seemingly bears  the imprimatur of UH’s
well-known brand—in other words, because of initial-interest confusion.”  And the stronger brand from whose goodwill
HCL benefited was a direct competitor, which was particularly relevant to IIC.
Indeed, “the most prominent portion of the webpage is essentially a list of the
best reasons to choose Defendant’s law school over UH’s.”
The court rejected the cases HLC offered to show that the
sophistication of purchasers rebuts initial-interest confusion, but the
authority is unpersuasive. Three of the four cases involved commercial
purchasers, “who are far more likely to be familiar with the relevant market at
the outset of their purchasing process, and therefore less susceptible to
confusion throughout it.”  Also, in each
case, the courts rejecting IIC theories also relied on several additional
factors, none of which supported HLC here. 
If sophistication were enough, “sellers of goods or services that
involve extended purchasing processes would be effectively outside the ambit of
the Lanham Act’s protection, leaving competitors free to appropriate the senior
user’s goodwill with impunity, and allowing them to gain ‘credibility during
the early stages of a transaction.’” But it’s the early stages of the
transaction that prospective law students “are the least sophisticated and most
susceptible to confusion.”  Nor is intent
required to win on IIC, and, anyway, intent didn’t weigh against HLC, but that didn’t mean it weighed for HLC.
Regardless of any presumption of irreparable harm, the court
found that monetary damages wouldn’t adequately compensate UH.  First, lack of control over the quality of
HLC’s conduct, which prospective law students would likely attribute to UH, was
irreparable injury.  [Not clear why this would
be irreparable if it is literally corrected before purchase, or that HLC’s
conduct has caused or is likely to actually cause any harm in need of repair.]  HLC’s law professors may speak to audiences
that include prospective law students, and HLC’s recruiting department attended
school fairs at which its representatives directly interacted with prospective
law students. Second, UH’s “time, effort, and expense exerted to create and
define its brand has been unfairly exploited,” which monetary damages cannot
compensate.  [Note that this isn’t about harm
to UH but benefit to HLC.  Does this
require a finding that UH would be entitled to disgorgement?  If not, where is the harm to UH?]
Anyway, the court wasn’t impressed, given HLC’s own
motivation for the name change: if confusion with other schools, particularly
Texas Southern University, was a problem for HLC, then it was a problem for UH.
The court also was unimpressed by the costs of an injunction
to HLC.  In June 2016, HCL’s Dean said,
“I feel safe in saying we haven’t spent $35,000 to $40,000 extra over anything
we would have spent anyway. And so the biggest cost that we see going forward
is changing the external signage.”  True,
those subsequent changes proved costly: $458,000 in additional costs to
publicize the name change. But that had little weight given that HLC knew about
UH’s objection—indeed, its intent to sue—and proceeded anyway.  Only after news of UH’s objection did HCL destroy
“[m]uch of the older stationary and signage bearing the name ‘South Texas
College of Law.’”  HCL “opted to double
down, yet cites to the high stakes of the game as a reason to call off the bet.”

Since the public interest is always served by avoiding
confusion, the court issued the requested injunction against the renaming.

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Initial interest false advertising (aka bait and switch) in Google ads

Posted on October 17, 2016 by rtushnet
Beacon Plumbing & Mechanical Inc. v. Sposari Inc., 2016
WL 5795282, No. C15-1613 (W.D. Wash. Mar. 17, 2016)
Beacon sued defendants, including Sposari, which does
buisiness as Mr. Rooter Plumbing Services, for trademark infringement and
dilution (federal claim dismissed) and related claims.  The internet ads at issue said “Call 24/7
Beacon Plumbing” and displayed the address “beacon.callnow-plumber.com.”  However, the ads eld to a website advertising
“Mr. Rooter Plumbing.”  The court found
that the false advertising allegations plausibly alleged materiality.  It was plausible that a consumer who clicked
on this ad could experience actual confusion and “conclude that Beacon Plumbing
and Mr. Rooter Plumbing are the same entity.” This mistake, “combined with
intent to purchase plumbing services from Beacon Plumbing,” would likely influence
a purchasing decision.  Though Beacon
didn’t cite cases finding initial interest confusion cognizable as such for a
false advertising claim, the argument made sense. (It’s also usually known as “bait
and switch” in false advertising law.)
The ACPA claim failed, however, because “beacon” in “beacon.callnow-plumber.com”—is
a third-level domain, and third-level domain names aren’t within the ACPA’s
reach.

The Washington Consumer Protection Act claim required, along
with falsity causing harm to the plaintiff, a public interest impact.  A practice must have “the capacity to deceive
‘a substantial portion’ of the public.” Relevant factors include: “(1) Were the
alleged acts committed in the course of defendant’s business? (2) Did defendant
advertise to the public in general? (3) Did defendant actively solicit this
particular plaintiff, indicating potential solicitation of others? (4) Did
plaintiff and defendant occupy unequal bargaining positions?” Also, “intentional
trademark infringement can satisfy the public interest impact element.” Given
that (1) and (2) were allegedly present, and the allegations of intentional
infringement, the court found that the CPA claim could continue.

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Don’t sell a business and then keep running it

Posted on October 17, 2016 by rtushnet
Electrology Laboratory, Inc. v. Kunze, 169 F.Supp.3d 1119
(D. Colo. 2016)
Larry Paul Kunze a/k/a Lorenzo Kunzel sold his family
business, plaintiff ELI (d/b/a Rocky Mountain Laser College/RMLC), “but
couldn’t give it up. So, as the evidence revealed, even while negotiating the
sale of ELI to the purchasers … , Mr. Kunze was trying to figure out how to
continue the same business he was selling.” 
The purchasers sued and, understandably, prevailed on most of their
claims (though the court admirably resists the temptation to condemn all his conduct together, even the parts that would be unobjectionable on their own); Kunze did, however, show that he was entitled to relief on his
counterclaim and third-party claim for breach of the Promissory Note given in
partial payment for the purchase of ELI.
ELI operated RMLC to provide aesthetic laser use education
and training; provided aesthetic laser services to clients; and earned income
from the sale of laser equipment.  The
laser education course provided 40 hours of training with a curriculum approved
and regulated by the Colorado Department of Higher Education.  To market classes and sell laser equipment,
ELI maintained a customer list identifying students who took the RMLC laser
education course. ELI the files under lock and key and protected the lists on
the computer system with a password.  ELI
awarded its students “Certified Laser Specialist” or “CLS” certificates,
showing they were trained at RMLC. The website at laserlaser.com was the
primary source of ELI’s ads, though it also used a number of other domain names.  Because of his many years in the industry,
Kunze was well known in the aesthetic laser education industry. But:
While Mr. Kunze was a “gifted”
teacher, he was not as educated or experienced as he touted. While ELI’s
business and Certified Laser Specialist were recognized by some in the
industry, they were also not as Mr. Kunze represented. Instead, Mr. Kunze
intentionally made numerous misrepresentations … , including misrepresentations
concerning the extent of his education, experience, and certifications; the
number of CLS certifications that ELI had awarded to RMLC students; and that
Certified Laser Specialist was a registered trademark when it was not.
After the sale, Kunze kept teaching students, employees of a
former ELI student, who thought that they were getting an education from RMLC.
The former ELI student believed that “what was important was receiving a
certificate from ROCKY MOUNTAIN LASER COLLEGE and being taught by Mr. Kunze.” She
also thought that the Certified Laser Specialist certification was important
because Kunze said it was. 
Kunze taught a shorter class for his own business, American
Laser College, but still used ELI’s RMLC marks and curriculum as if they were
his own. He handed out RMLC business cards, and used RMLC interchangeably with
American Laser College so that the students thought the entities were the same.
He awarded the students CERTIFIED LASER SPECIALIST certificates, and issued the
certificates under RMLC’s name. Kunze backdated the certificates as if they
were issued in 2010 and put a stamp on those certificates implying the
certificate or course was sanctioned by the Texas Department of Education when
it was not.
Kunze also made disparaging remarks about ELI and its new
owners.  He continued to compete with
ELI, using its curriculum, marks, pictures, and/or information to do so.  He used RMLC interchangeably with the name of
his entity, American Laser College, as if they were affiliated. “He directed
customers to contact him for laser education, but used ELI’s refund and other
policies along with pictures of ELI’s facilities and students to do so.” The
laserlaser.com website had no working link to ELI’s website, even though ELI
was relying on the website to drive student traffic to its business.  Some of the students Kunze taught were
surprised or confused when they received Certified Laser Technician
certificates from an entity they had never heard of, Rock Creek.  However, the students were seeking laser
certification and didn’t really care whether whether they’d be deemed Certified
Laser Technicians or Certified Laser Specialists (the latters was what had been
respresented to them).
After saving the information for his own account, Kunze also
deleted about 60 gigabytes of data from ELI’s server, which included a list of
ELI’s customers—its students and clients. There were other problems, but you
get the idea.
For some of Kunze’s misrepresentations (e.g., his background
and qualifications, the need for a CLS certificate), the court found no
connection between them, even assuming the purchasers relied on them, and
plaintiffs’ damages.  Also, ELI’s
purchasers were skeptical of Kunze’s financial claims and conducted their own
due diligence.  Kunze knowingly falsely
represented to the purchasers that Certified Laser Specialist and CLS were
registered trademarks, and these were material claims on which the purchasers
relied.  ELI itself suffered damage from
this—its diminished ability to protect its interest in the marks in this very
suit and Kunze’s post-sale attempt to register the marks on his own behalf—but
the purchasers didn’t establish damage in their own rights.  Kunze also knowingly concealed his failure to
file ELI’s tax returns or pay ELI’s taxes, but that wasn’t material or harmful
to the purchasers since ELI owed that amount anyway (and paying the resulting penalties
only harmed ELI).  The court found that
there were some breaches of contract, but not everything that plaintiffs
alleged.
Defendants argued that the economic loss rule barred all of
plaintiffs’ claims, including statutory claims, except for those based on
breach of contract. However, a breach of a duty arising independently of any
contract duties between the parties may support a tort action.  And “if the legislature intended to provide a
remedy in addition to a contractual one, the statutory remedy would trump the
economic loss rule.”
For trade secrets: neither ELI’s written materials nor the
curriculum as a whole were trade secrets. Protection efforts were minimal, and
the effort a competitor would require to recreate the materials wasn’t that
great. Also, there wasn’t evidence of any “unified process, design and
operation of which, in unique combination,” gave ELI a competitive advantage. “[W]hat
ELI seeks to protect and to preclude Mr. Kunze from using are his skills and
experience as a teacher—his interactive or engaging teaching style acquired
over years of teaching the course. This is what was of great value to ELI.” But
his general skill and experience isn’t a trade secret.
The student/customer list could be, and was, a trade secret,
given ELI’s efforts to keep control over it. 
ELI was entitled to injunctive relief and damages, including exemplary
damages, for Kunze’s misappropriation of the list and use of the list to sell
equipment to students.  This wasn’t
precluded by the economic loss rule because state trade secret law created a
duty on Kunze independent of his contractual duties.
So too with the Lanham Act claims, which didn’t arise from
any contractual duty. Even if the Lanham Act claims had been within the scope
of the contract, Congress intended to provide statutory rights and remedies
independent of breach of contract. 
Here, Kunze’s use of the RMLC marks constituted false
designation of origin, though his use of Certified Laser Specialist and CLS did
not.  The RMLC marks had secondary
meaning and Kunze’s use caused confusion. 
But Certified Laser Specialist and CLS weren’t protectable marks, on
this record.
False advertising: The Tenth Circuit hasn’t yet decided
whether materiality is required separately from falsity/misleadingness, but
even without materiality, ELI couldn’t win most of its claims.  ELI’s damages didn’t arise from Kunze’s
misrepresentations about his “pedigree.” 
Kunze intentionally and willfully
made numerous false and/or
misleading statements concerning the nature, characteristics, or qualities of
his goods and services. Such statements included his credentials to support his
skills/abilities to perform laser education services (some false, others
misleading); his affiliation with ROCKY MOUNTAIN LASER COLLEGE and ability to
issue CERTIFIED LASER SPECIALIST certificates (false); that ROCKY MOUNTAIN
LASER COLLEGE and American Laser College are affiliated or the same (false);
and that CERTIFIED LASER SPECIALIST is a registered trademark (false).
The RMLC affiliation-related claims were material, but not
the others. “[W]hile the evidence supports that receiving some certification
was important to the consumers, for many consumers it mattered not whether it
was a CLS or a CLT.”  Since the RMLC
affiliation-related claims were literally false and intentional, no evidence of
confusion was required; ELI was damaged thereby because students signed up for
Kunze’s courses thinking they were RMLC courses but didn’t get RMLC
certificates, so RMLC suffered in both sales and reputation.
The court exercised its equitable discretion to treble the
damages it found ELI to have suffered (lost class revenues) because overall
damages were hard to ascertain and Kunze’s actions were willful.  Because this was an “exceptional” case, the
court also awarded attorneys’ fees.  Kunze “intentionally used ELI’s marks for his
own benefit … and he continued to use the marks even after the Amendment was
terminated and ELI requested Mr. Kunze to stop doing so. Mr. Kunze offered no
credible explanation as to why he was entitled to do so.”  The court also awarded prejudgment interest.
Colorado Consumer Protection Act: The CCPA requires a
significant impact on the public, for which relevant considerations include:
“(1) the number of consumers directly affected by the challenged practice, (2)
the relative sophistication and bargaining power of the consumers affected by
the challenged practice, and (3) evidence that the challenged practice has
previously impacted other consumers or has the significant potential to do so
in the future.” Making defamatory statements about ELI was purely a private
wrong.  However, the false website advertising
directed to the market generally had a public impact, given the length of time
and the number of websites on which Kunze posted his false and misleading
advertisement.  Students were likely to
be unsophisticated consumers with bargaining weaknesses, and some enrolled
believing they’d get a RMLC certificate. 
However, there was insufficient evidence that Kunze’s false claims about
his affiliations with other organizations, his credentials, and the like
affected any consumers.  Given the
court’s finding of bad faith in the actionable misrepresentations, it also
trebled ELI’s damages under state law.
Kunze also lost on defamation/libel per se based on
statements to ELI’s landlord, one plaintiff’s banker, ELI’s laser supplier, and
ELI’s students.  The plaintiffs were
private figures, and the statements were defamatory per se (about ELI’s financial solvency), so defamation was presumed; the court awarded
a total of $50,000.

The court also granted injunctive relief.  ELI would suffer irreparable harm because
competing sales of laser equipment would erode its customer base, and damages
would be difficult to determine because ELI wouldn’t be able to monitor Kunze’s
sales.  “ELI presented insufficient
evidence of continuing sales to support an award of damages subsequent to the
termination of the parties’ relationship, but it is this very difficulty in
discovering Mr. Kunze’s use (and resulting damages) that supports the issuance
of injunctive relief.”

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GW Design Law: Ecommerce remedies

Posted on October 14, 2016 by rtushnet
AFTERNOON SESSION 1: Design Patents & Ecommerce
Moderator: Judy Yee, Microsoft
Howard Hogan, Gibson, Dunn & Crutcher: Counterfeiting is
a growing problem, but sometimes they don’t use a copyrighted work of
authorship but are still selling a knockoff of a design. © and TM have more
developed bodies of law on secondary infringement.  Contributory & vicarious liability—right to
supervise & financial interest in continuing infringement = liability.
Gucci v. Frontline (SDNY 2010).  Companies that process credit card payments
are effectively giving loans to merchants. We looked at merchants’
applications; they weren’t particularly shy about the fact they were selling
fakes. Used words like “replica” or admitted sourcing Gucci from China.  Entity called Durango, going out to midmarket
banks, saying you only get 2% on a typical transaction, but if you take a high
risk credit card merchant you can get 4-5%. Asserted Durango was inducing
infringement, encouraging banks to get in the business of helping the sale of
infringing goods. Against banks, we asserted contributory infringement. Opposite
to Perfect 10, you’re allowing sites to take orders/materially contributing to
the infringement.  SDNY issued a decision
that purports not to disagree w/Perfect 10 but really does; cites a lot to the
dissent. Can be held contributorily liable if they help sites take orders w/
their eyes open.
Christopher V. Carani, McAndrews, Held & Malloy, Ltd.: WD
Wash, Milo & Gabby v. Amazon, fully briefed at the 9th Circuit
though no argument scheduled. Design patent case: not interested in selling on
Amazon, only boutique children’s items. 
Found third-party seller using pictures of makers’ own children using
the pillows. No dispute that there is infringement of registered design patents
(though we don’t know what people actually received).  Is this “offering for sale” when Amazon
provides its website?  Amazon calls
itself a virtual shopping mall, which isn’t liable for goods particular vendors
sell, pre-notice. They don’t have title or the ability to transfer title. This
case could open up the floodgates/create a firewall for the gears of commerce.
[Not sure about these metaphors.] 
District court rules that Amazon isn’t liable, but said it was troubled
by that conclusion and impact on small retailers. Amazon can disavow
responsibility for offering to sell.  The
statute requires: make, use, offer to sell, sell, or import; also a specific
provision for active inducement of a patent. Requires knowledge of the patent,
knowledge of the infringement for inducement. 
What about fulfilled by Amazon?  3d party sellers who put their products up on
Amazon: seller uses Amazon as a warehouse.
When ecommerce sites appear notice: different from TM
situation b/c word searching can easily find Tiffany knockoffs.  Design patent infringement analysis requires
more expert analysis.  Not conducive to
spot judgment. Customs also knows this—will allow © and TM as predicate but
they won’t use design patent, patent, or even trade dress w/o order from court
or ITC.  Amazon points out that it took
down M&G copiers within a week.
Hogan: Taking the patentee position in this debate; not
always his position.  Brick & mortar
principles not automatically abrogated online. There’s no intent element.  Liability exists if you do infringe/sell
infringing goods. Mom & pop shops on a larger scale; they don’t have teams
of att’ys go through each product, but can be liable if they sell infringing
goods.  Customer doesn’t care who has
title to the good or in whose warehouse it sits. Online marketplace should also
be held liable like a brick and mortar store.
Carani: that same theory would apply without any knowledge
at all. Craigslist would have the same liability. FedEx sells a package and
delivers it.
Yee: but Amazon takes a portion of the sale.
Carani: but that’s a factor independent of knowledge—it would
sweep even the NYT, FedEx, etc.  A lot of
design patent att’ys are filing junk claims on partial designs.  Impact on damages is huge, but consider
partial designs & injunctive relief. 
You’re asking us to pull stuff down, but you might not even be able to
get an injunction. Why should we have to police when we wouldn’t be ordered to
take it down?
Yee: Staff required to respond to requests is an issue, but
TM and © takedowns do work. Can imagine a similar system for design patents
where you have to provide the claim chart. Shouldn’t be as rigorous as on the
utility side.
Carani: Congress did respond with the DMCA, and Congress
didn’t do that for design patent. eBay came up with VERO, self-regulation. A
little of fox guarding henhouse—false positives. Concept fallacy: people have a
design patent on a multicomponent tool and think they can stop any other
version of the tool.
Hogan: there is a difference in kinds of online mktplaces.
The more involved the platform is in determining what consumers see, the more
it’s fair to hold them liable for infringing products. eBay and Amazon both
have algorithms to get consumers shown products they’re likely to want.
Agnostic as to which merchant makes the sale. Alibaba is different.  Biggest retailer in the world. They make
their money selling “assessed status” to merchants—paying Alibaba to come up in
searches on their site. They go to factories, create videos, involved in
marketing. Then get a percentage of all transactions through their payment
system.
Carani: we don’t hold the NYT liable for advertising, or for
housing a product in their warehouse, or for delivering a product.  The ability to combine all these services
into a convenient one-stop shop shouldn’t be penalized—it’s efficient.
Yee: what about a company whose product is knocked off by
hundreds of companies through your website? What should they do?
Carani: look at reviews of sellers. Some of the
responsibility is on the consumers. 
Buyer beware. But ultimately you may have to go to the source.
Hogan: courts in the US are there to protect US businesses
and US consumers. Companies that invest in developing products deserve
protection. Who should bear the burden? The company that can more easily write
the algorithm to identify goods being sold at suspiciously low prices/coming
from incorrect sources? [How does the algorithm know suspicious prices or
sources?]  On eBay, more than 70% of
sellers are from outside the US.
Carani: ITC is active here; Razr scooters.  China does include design patents etc; it
creates painful problems in China where they just don’t have the information to
make the difficult conclusions—just too cumbersome to take on, especially given
Amazon’s size.
Hogan: it used to be easier to store large quantities of
infringing goods: trucks, warehouses. Increasingly, products are drop-shipped
one at a time.  So customs will always be
important, but more come through small orders shipped directly to the buyer.  You don’t want to hold customs liable for a
mistake; but a physical store would be liable if it let an infringing good
through.
Carani: indemnification is a real thing that can flow down.
Box stores are in much the same situation—Wal-Mart is selling 50 million
products. We like the online marketplace b/c of the variety.  There is much more of a vetting process; if
we impose liability on Amazon, there will be more vetting of everyone and that
will increase transaction costs/the overall costs of the products themselves.
Q: images are misleading—can you get them taken down?
Yee: Online marketplaces respond more quickly to TM/©
takedowns, but they give the sellers the opportunity to respond and come back
with just slight changes. Design patent requests come down and stay down if
they come down at all.
Hogan: M&G case: they didn’t assert © in the Cozy
Critters themselves, but in images of their son in front of the pillow. Image
search tech is growing by leaps and bounds. 
Often the most dangerous third-party merchants are taking photos right
off of brand website. Does require diligence; counterfeiters are inventive in
getting around screening.
Q: complaint about Amazon’s algorithm suggesting cheaper
knockoffs even when a person has made an effort to find the seller’s actual
page.
Q: another wrinkle is that there are a lot of grey market
goods out there; may be represented as grey market goods even if they aren’t.
Q: Note that you can find the M&G pillows with the
M&G pictures on Amazon right now, with a sale/review from August—isn’t
Amazon on notice?
Yee: Amazon may not know that particular store is
infringing.
Carani: that’s part of the case; every time they’ve been
given notice, Amazon has taken the store down. 
Survey of other countries: Japan, Europe, Korea—they all look at notice;
once there’s notice, they attach liability. 
Purist approach to US statute: even knowledge might not be enough.  Clarification: Notice means notice specific
to the location/seller, not notice “this product is counterfeit”; may also
require attention to sellers with previous strikes.
Q: platforms play games—they take down a seller but allow it
to come back under a new name.
Carani: the problem is that they create new entities/new
names.  If you see someone who’s never
sold a good before, some of the responsibility rests with the consumer.
Q: unrealistic to expect brand owner to file serial DMCA
notices.  Is it more onerous to platform
or brand to but the duty on them? It’s not a close question.
Carani: Rests w/consumers as well.  Birkenstock pulled out of Amazon.
Q: not every brand has that market power.
Hogan: anonymity is an issue; we have to keep in mind the
value of anonymity as well as the risks it creates.
Carani: Legal title was the key to the analysis in the
M&G case below.

Hogan: statute doesn’t define “sale” or “offer for sale.”  Analogy: consignment stores.

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GW Design Law conference: current state of the law

Posted on October 14, 2016 by rtushnet
Morning Session 2: The Current State of the Law Under 35
U.S.C. § 102, 103 and 112
Moderator: Daniel Gajewski, Sterne, Kessler, Goldstein &
Fox: Issues include continuation practice; maybe new rules coming.  Skechers sought invalidation of a Nike
patent, alleging noncompliance w/ the written description requirement in 112 by
the introduction of new matter.  Nike changed
a photo to a line drawing, and dotted some lines out.  IPR case. 
Changing certain lines, and changing lines to dotted lines claimed new
matter.  Board found 112 satisfied
despite relatively minor differences in way line drawing represented photo—Skechers
went into too great detail rather than looking at it like an ordinary designer.  “Range of reasonableness” enough to provide
sufficient written description via photos. 
“Show and delineate” requirement—the shoe upper was reduced to broken
lines; Skechers argued that one wouldn’t have recognized the design from the
disclosure. Board disagreed.  We aren’t
persuaded that the photos fail to clearly show and delineate the claimed
midsole elements of the design in addition to the upper and outsole elements,
showing that the inventor had possession of the invention.
Perry J. Saidman, Saidman DesignLaw Group: Black letter:
must disclose every element. To anticipate a claim, the disclosure must
anticipate each element of the claim.  1997:
Anticipation requires the earlier design to be identical in all material
respects to the claimed design.  Int’l Seaway
v. Walgreens, Fed. Cir. 2009: the worst decision from the Fed. Cir.  What happened to the law of anticipation:
ordinary observer test must logically be the sole test for anticipation.  If two designs are substantially the same
there’s infringement; thus if the prior art is substantially the same as the
design, the design is anticipated by prior art. 
No longer required to be identical. But these are not the same
things. 
Some people say this is no big deal.  Actual 102 rejections by the PTO show
appalling consequence where prior art has an extra element that the design
doesn’t.  Net effect: more anticipation
rejections than ever before. Very subjective: no analysis necessary.  102 rejections w/o 103 rejections: Alice in
Wonderland effect.  The PTO is now in the
business of deciding infringement, if the anticipation test and the infringement
test are the same. [Shouldn’t there be the possibility of 102 rejections w/o
103 if they are in fact separate bases?] 
By focusing on 102, PTO avoids the rigorous test of 103 for primary and
secondary references.  [Note that if
vagueness is a First Amendment problem for TMs, design patent might have the
same problems.]  Egyptian Goddess says you look at patented design and accused design
in the context of the prior art.  This is
now not being done, so if you get a 102 reference you should tell the PTO to
evaluate the prior art in light of its prior art.
What is the basis for Int’l Seaway?  Peters v. Active, 1889 SCt case.  Maxim: that which infringes, if later, would anticipate,
if earlier.  Graver Tank, 1950, created
doctrine of equivalents for utility patents: substantially the same function in
substantially the same way to produce the same result.  Fed. Cir. said in Lewmar, 1987, said that
Peters v. Active had to be adjusted to take doctrine of equivalents into
account. That which would literally
infringe if later in time would anticipate if earlier.  Lee v. Dayton-Hudson, Fed. Cir. 1988, Gorham test inherently makes doctrine of
equivalents inherent in infringement test. 
The problem: the test for design patent infringement is doctrine of
equivalents, but only in cases of literal infringement is there anticipation.  So infringement isn’t the same as
anticipation.
Elizabeth Ferrill, Finnegan: Examples of obviousness from
recent PTAB decisions. Design patent prosecution isn’t public unless the patent
issues. Affirmance of rejection: we never see that unless there’s an appeal to
the Fed. Cir.  PTAB heard about 15
appeals in design cases last year; ½ never become public.  PTAB cases also create bigger chances for
argument—long briefs, long explanations of decisions.
Obviousness is not as simple as anticipation. Primary
reference, from perspective of ordinary designer: design characteristics have
to be basically the same as the claimed design: (1) does it discern the correct
visual impression created by the patented design as a whole; (2) is the
secondary reference creating “basically the same” visual impression.  Secondary reference can modify the primary
reference to create a design that has the “same overall visual appearance” of
the claimed design.  Appearance of
certain ornamental features in one reference would suggest the application of
another.  Even if one side looks very
similar, other views might not.
Caterpillar v. Miller: Design is a warning triangle applied
to a curved surface of a coupler for an excavator. Invalidated for obviousness.
The appearance of the prior art doesn’t have to be identical to the claimed
design.  Basically the same, but not
exactly.  Secondary reference was another
type of coupler which did show a curved surface.  Coupler manual + curved surface = motivation
to combine. 
Premier Gem v. Wing Yee Gems: picking and choosing secondary
references. Petitioner wasn’t successful in challenging registration of jewelry
design; petitioner shouldn’t choose certain features from secondary references
while ignoring others – hindsight bias.
William LaMarca, USPTO, Office of the Solicitor: We still
apply the same test from the perspective of the ordinary skilled
designer/artisan.  Int’l Seaway impacted
anticipation, not obviousness. 
Ferrill: how could Int’l Seaway override a previous panel
decision? 
LaMarca: previous SCt precedent controls. PTO is correctly following
statute in applying ordinary skilled artisan for 103 obviousness; also
following the Fed. Cir. We think we’re consistent even if there are problems.  Examiner can’t just ignore the legal
standard. 
Ferrill: if the test is the same, you should have to apply
it the way the courts should apply it.
LaMarca: MPEP does discuss and give examples of how they
apply anticipation; they do say it doesn’t have to be identical. There is the
further point that close but slight differences = view it in context of prior
art; if you feel the examiner hasn’t done that you should argue it to the examiner
and in your appeal.
Saidman: expresses doubt that an examiner taking the
perspective of an ordinary observer would behave/react differently than an
examiner taking the perspective of an ordinary designer.

Ferrill: depends on the degree of crowding in the art, but
probably applied very similarly.

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Design Law at GW Law: Design Patent Damages

Posted on October 14, 2016 by rtushnet
Design Law 2016, GW Law
MORNING SESSION 1: Design Patent Damages
Moderator: Robert Katz, Banner & Witcoff: Recap of the
patents in suit and damage award. Text of 289: whoever applies the patented
design or colorable imitation thereof to any article of manufacture for the
purpose of sale etc. shall be liable to the extent of his total profit.  Can’t twice recover profits.  $250 floor for damages, back to the 1890s,
closer to $9000 today.  Maybe that doesn’t
work today, though Samsung argued that other parts of the statute were
outdated.
Christopher Burrell, Director & Senior Counsel, Samsung
Electronics: Quoting Giles Rich, “the name of the game is the claim.” That’s
the core of our position.  You can
potentially get a design patent on the entire article/product being sold or
smaller articles/components. W/the PTO allowing design patents on increasingly
smaller components/tiny components that go into a larger product, to stay
commensurate w/the scope of the rights and the statute, that needs to be the
focus for the question “what are you getting total profits on?”  A multicomponent device can be comprised of
many articles of manufacture; look at the patent claims to figure what
components the design is applied to. From our perspective, that still provides
a windfall in the sense that you get the total profits on that article, for
example a scratch resistant touchscreen also subject to a design patent where
the design only contributes some of the value—more than a reasonable royalty.  Another thing to keep in mind: the rulings
about which infringed which patents are hard to understand; Apple got total
profits on one phone and nothing for one highly similar phone; we think that
cautions in favor of a more careful approach to design patents.
Jeff Myers, Lead Patent Counsel, Apple: Not going to
relitigate the case.  The Justices talked
about the VW Beetle example.  Instructive
example: when you hear VW Beetle, you think of the iconic image, rather than
about what’s in it.  Design drives a lot
of what’s in the vehicle.  Shell has a
peculiar value. Same thing for the iPhone. We think the statute is super clear.
Infringer’s profits should be awarded as a whole. Congress had good reasons to
do that: difficult to disentangle design from the overall value of the product;
functionality is easier to separate.  If
the patented design gives infringer’s product its peculiar/distinctive
appearance, total profit should be awarded.
Three things that could occur: Justices might just say “law
is law”; might say we need more facts; might say we need a new standard. If
they do, what would that mean?  Design
patents are about deterrent value. Big companies like Samsung and Apple can
survive, but small/moderate companies w/o resources to bring massive survey
evidence could have problem. Don’t want a situation where people don’t even
bother with design patents, given their increasing use in fashion where there
hasn’t been protection in the past. 
Congress is the better place for questions.
Brian Racilla, USPTO, Office of the Solicitor: Historical
context.  Article of manufacture as a
signpost—Justices seemed amenable to using that.  The objective was to figure out what the article
of manufacture is. Always construed broadly—factfinder should identify what
most fairly may be said to embody the D’s appropriation of the P’s design. Factors:
Scope of the claimed design in drawing/written description; relative prominence
of design in product as whole; whether design conceptually distinct from
product as a whole; physical relationship b/t claimed design and product as
whole—separability, separate manufacture, whether there’s a market for
replacement parts.  We’re focusing on the
accused infringer’s product here.
Burdens that US suggested: plaintiff to show overall,
defendant to show article of manufacture.
Mark S. Davies, Orrick: Designers’ brief.  This isn’t a big case for the SCt.  Challenge for amicus: why should anyone read
it? Our strategy: prominent names from the design community, over 100 great
names.  Design sells the product; Samsung
sales went up 20% after copying Apple’s product.  Second point: the design becomes the
product.  The point of Coke example: the
design becomes so famous that the taste doesn’t matter.  [This is an argument for functionality and
indicates part of why design patent functionality is so screwed up.]
Mark Janis, Maurer School of Law: Themes distilled by
reading group of amicus briefs, not including his.  Plain meaning/briefs focused on “total
profits,” which seemed to be what the case was about until Tuesday’s
argument.  Deterrence: purpose of 289 is
not merely compensatory, but deterrent of counterfeiting/induce
settlement.  Troll behavior: responsive
arguments were that troll concerns were unfounded: there isn’t a design patent
market b/c they protect brand identity; hard to use design patents to threaten
entire mkt b/c designing around is easy; to the extent we think troll behavior
is from nuisance suits from end users, they don’t have much profits to give, so
disgorgement isn’t any worse for them. 
Lots of pages on the general argument that design patents are important
in a variety of ways to a variety of industries—brand maintenance; small
businesses getting leverage v. large businesses; particular industries. 
Eclecticism: when you interpret 289, you have to understand
that design patent law isn’t utility patent law + different modifier. It’s a
mishmash of English law, utility patent, copyright, unique concepts. One should
not take it as a given that just b/c apportionment works in utility patent for
multicomponent innovation it is necessarily workable in design patent.  Congress certainly thought it wasn’t workable
for designs.  Text/structure/history: “total
profits” focus; article of manufacture issues—look at the statutory text.
Clearly referring to the infringer’s article of manufacture.  Statute also says that it imposes liability
on applying design to any article of
manufacture. Have to conclude this calls into question the proposition that the
name of the game is the claim for 289—it says “any” article of manufacture—at least
needs to debate that. We think that the proposed test on article of manufacture
is an invitation for courts to engage in the equivalent of apportionment. What
I find strange about that is that under the guise of interpreting the statute,
we’re going to say that Congress slammed the door on apportionment by using “total
profits” but opened the door wide by incorporating “article of manufacture,” allowing
the same thing through a different analytical route, which seems policy-driven
result.
You could say it’s still good policy to rely on article of
manufacture b/c avoids absurd results, such as the cupholder on the car.  We argue that the policy consequences might
be more mixed than that.  History:
Congress was focused on another type of result that it deemed absurd, which is
the carpet manufacturer who proves infringement and gets nothing.  Congress makes a choice between risks of
absurd results.  Choice is a legislative
matter.
Rebecca Tushnet, Georgetown Law: Concerns of those
supporting Samsung: Now that the seal on mentioning trolls has been
broken.  Design patent trolls are a real
threat: one example that surfaced for me quite by accident was someone who has
a relatively recent design patent for novelty sunglasses with plastic slats
across the opening for the lenses, which I seem to recall being a thing for
Devo in the 1980s—and yet the patentee was extracting licensing fees from and even
suing retailers around the country. 
Compare to the concern for small designers: the US fashion industry as
an industry has been pretty innovative for a while without historical reliance
on design patents—Chris Sprigman and Kal Raustiala have a book about this.
History has already mentioned: historically, no protection
for small parts of an overall design; now that’s patentable, and there is a
strong equitable and logical argument that patentees shouldn’t be able to have their
cake and eat it too: that is, claim rights in just the corners of a design,
which is only a small part of the overall appearance, but profits from the
whole product sold to the consumer.  Design
patent for a logo: carpet mfgr gets a design patent on the logo it puts on the
label, on the underside. Then what?
Another possibility, of course, would be to go back to the
historical practice of not granting design patents except on an entire
design.  That would also require
difficult decisions about what the protected design is, but the damages
discussion clearly demonstrates that difficult decisions are inescapable.
IP professors: use causation to create awards only for
profits attributable to the infringement—the reference in the statute to not
allowing double recovery for profits attributable to the infringement indicates
a causation requirement.  Constitutional
basis for this idea in ideas of due process as well as the Patent &
Copyright Clauses.  Not much interest in
that at oral argument, but an understandable definition of article of
manufacture could accomplish much of the same goal in many cases where design
patents are for small elements of an overall product.
A few other points about article of manufacture: figuring
out the defendant’s article of
manufacture as the measure of total profits might theoretically differ from the
plaintiff’s article of manufacture;
in most cases, though, they should be the same, although this is also tied into
the question of whether the design must relate to a particular article of
manufacture. For example, look at Janis’ “any article of manufacture” argument:
could I get a design patent for a USB drive in the shape of a rubber duck
because no one had ever applied the rubber duck to a USB drive?  If that’s the case because prior art
inquiries should be limited to the general area of the article claimed,
presumably only another USB drive could infringe my design patent and not a bar
of soap in the shape of a rubber duck. 
This is another way for me to say that while damages issues may seem
separable from scope and validity, they aren’t really.
Question for discussion: what might the article of manufacture
be where the infringing design is the icon for an app that doesn’t ship with
the device but is downloaded from the app store?  Does the defendant even have an article of
manufacture in that case?  Does the
plaintiff?
Q: anything surprising at oral argument?
Davies: that the Justices weren’t particularly interested in
the details of this particular case. 
Apple argued that article of manufacture had not been raised below, but
the Justices didn’t seem to care.  4-5
Justices embraced design as in itself valuable.
Burrell: encouraging that Justices grappled w/practice of
granting partial design patents in tension w/historical practice.  There’s no dispute here that both parties
think design is valuable.  Samsung’s #1
US holder of design patents; 1700 designers around the world. The question is
the appropriate measure of damages, and Justices were rightly focused on that.
Janis: had hoped for some question about whether this was an
exercise in statutory interpretation or trying to amend the statute.  I didn’t know that Samsung would go just to
article of manufacture, though not terribly surprised given the gov’t’s
advocacy of that as middle ground was very effective advocacy. 
Q for Davies: facts of the case—last design patent case?
Davies: 1880s.
Q: that’s what they do, ignore the facts of the case.
Davies: as a process matter, if you’re going to make
complaints about suitability for review, it’s too late after cert is
granted.  DIG is a possibility and a
nonzero chance that they could decide they’re mistaken, but it’s not what he
would predict.
RT: Push back against Janis’ statutory amendment argument.
It’s perfectly normal for certain elements to overlap as between different
possible tests.  Lexmark/Lanham Act: a lot of what was rejected in the prudential
standing test comes back as causation, which Scalia heartily approves.  So the fact that you’d get some overlapping
deductions from apportionment and from article of manufacture—but not identical—doesn’t
make this anything other than an exercise in standard statutory interpretation.
Janis: there was partial claiming/design patents on logos at
the time. Was Congress thinking about that? I doubt it.  We’ve asked that question; a lot of the
design patents are on carpets, wallpapers, silverware, so when they say design
drives demand, that’s what they’re thinking about. But again, if we say today
their baseline assumption was incorrect, we should go back to Congress.
RT: But you don’t need to say Congress’ baseline assumption
was incorrect if you focus on article of manufacture!  If it was just the logo on the label of the
carpet that was infringed, you can look at the label to award total profits.
And that is perfectly consistent w/what we think Congress was thinking—about a
design patent covering the whole carpet—when it made the total profits rule.
Burrell: Gov’t’s brief did a nice job on the historical
context.  Waiver etc. of issues raised
below is also addressed in Samsung’s briefing.
Katz: we don’t like the idea of apportioning design—take burden
from patentee to prove how much the design contributed.  Patentee has burden to prove total sales, but
infringer has burden to prove deductions. 
Gov’t suggests a similar rule w/r/t article of manufacture: is it
unreasonable to shift the burdens to show what the infringer’s article of
manufacture is?
Racilla: burden of proving infringement and damages falls to
patentee.  Preponderance of evidence:
total profits of defendant; most patentees will go for the full product sold to
the market.  Maybe different if it’s just
a cupholder.  Burden of production shifts
to infringer w/superior knowledge of why they chose certain components.
Davies: experts’ reports all assumed that the article of
manufacture was the phone; Samsung’s position was that it hadn’t been allowed
to present evidence of anything else.
Burrell: There is some disagreement among the parties about
how burdens would play out. Our view: correct rule is that article of
manufacture would be first determined. Consistent w/patent cases, burdens
largely on P both for establishing infringement and predicates for determining
damages—proving up quantum of profits and article of manufacture.  Our view, esp. in our reply brief, is that
burdens rest on P. Not fundamentally different than for utility patents.
Katz: but this was a special provision for design patent
damages to remedy the inadequacy of utility patent damages.
Burrell: We don’t disagree that the statute was enacted in
the wake of Dobson.  But unlike in ©, where there is explicit
burden shifting, there is no such thing in the patent statute, which speaks to
congressional intent given ordinary rules of litigation.
Davies: risk is that we parse SCt’s 100-year statements for
every little nuance. The SCt will say something very high level and the Fed.
Cir/dist. cts will have to work out the practicalities.
Katz: both sides can afford big teams of lawyers. Enforcing
against small infringers, the Qs are different. Proving article of manufacture
w/survey evidence or expert testimony as mentioned at oral argument=over
$100,000. Would Ps ever get relief under this type of test?  If you’ve disclaimed part of the design, you
could have difficulty defining the article and would have to take that into
account before sending a C&D.
RT: Same as other issues you think about—asserting rights in
an unregistered trade dress even though proving it up at trial might be
expensive.
Myers: it depends on the product/its importance to the
company.  Other companies would struggle
with that b/c they are smaller.
Burrell: types of considerations: we would largely view it
the same way. Refrigerator latch case, the piano case cases—the damages statute
was applied in ways consistent w/ the rule we’re arguing for. Will this change
the incentives? No, b/c we think this is where we’re already at fundamentally
as the statute reads.
Katz: Refrigerator latch involved de minimis
infringement.  [?]  In rare circumstances, there could be some de
minimis approach where we keep enforcement as it is but a de minimis exception—is
that workable, compared to the gov’t’s proposed 2-part test each of which has 4
subparts and may require accountants as well as survey evidence to define the
article of manufacture?
Racilla: Kennedy floated de minimis idea and it didn’t seem
to work.
Myers: it could be that in some situations a small part does
make the product distinctive, so that would cause questions of its own.
Katz: we’re seeing more copies of car designs.  Recent Range Rover Evoque/compare Chinese Landwind
E32.  Is the article of manufacture the
shell of the auto body?  How would the
gov’t’s test work with that?
Davies: have to show that someone was induced to purchase
the product b/c of the design—have to prove deception.  [I think this is a misdescription as
reflected by the jury verdict, and I think he might agree if I understand him
correctly; can’t really be asking the jury that if we also have lots of design
patents on parts—we’re asking “deceptive in isolation,” or whatever that means.]  Don’t know how the gov’t’s test applies with
that standard.
Racilla: we’d look at what’s actually claimed—the wheels?  Whether it’s a prominent factor—the shell of
the body of a car lends a lot to the visual appearance overall.
Katz: why does that matter as to whether it’s the article of
manufacture?  If I make an ugly car
w/great innards, and someone copies the appearance, why should the relationship
matter to what the article of manufacture is?
Racilla: test is prominence in overall appearance, not
driving sale. We look back to Gorham:
the design is what gives distinctive appearance overall. [Which forces us to
ask why if at all the PTO should be granting patents on small
portions/logos/etc.  If that’s the design, then anything that
doesn’t give the article its distinctive appearance overall should not be
patentable!]
Burrell: By definition, if directed to entire exterior of
car, then the article of manufacture is the entire exterior of the car. Not
very hard to prove.  Profit calculation—we
don’t necessarily think the statute proscribes any particular methodology. 
Katz: isn’t that just a forced royalty?
Burrell: No.  Key
distinction is that under article of manufacture test, it’s the total profits
on that article, including those that relate to contributions to its value
coming from utility/function.  Front
glass of phone as example: shape, scratch resistance, etc. Quite different from
reasonable royalty which is focused on incremental value of patent.
Katz: Gorham patent covers handle, but not the entire
flatware—spoons, forks not claimed. How would that work out in the gov’t’s
test?  Is the article of manufacture the
spoon or the spoon back?  [I can’t figure
out what the argument for making it less than the spoon would be under the gov’t’s
test.]
What about a Fendi bag? 
The whole bag even if it’s got a nice interior?  [The panel isn’t willing to commit; this is
my point about the lack of fit b/t granting patents on partial designs and then
trying to figure out damages using a standard that assumes, with Gorham, that the design is that which
gives the article its distinctive
appearance.] [And this is why abandoning point of novelty, while understandable
on its own, is messing with the overall design patent scheme—we need point of
novelty in order to make design patents on a whole article possible in many
cases.]
Perry Saidman: Small/medium clients: Wrote amicus on their
behalf.  If the SCt adopts something like
the four-factor analysis, it will break the system for these small/medium
clients in the real world. Some say that their only ability to bring Wal-Mart to
the table in $40,000 infringement case is the total profit rule.  They say: if you start slicing and dicing and
giving retailers ammunition to slice and dice; we won’t even be able to get
them to the table, and we’ll stop getting design patents and copying will become
rampant.  Gov’t wrote: no
apportionment.  That’s right. Second
part: but, we can slice and dice the article of manufacture can be less than
that to which the patented design is applied/the accused infringer is selling.
That sounds like apportionment.  Justice
Kennedy also asked that. How does the gov’t reconcile that?
Racilla: the definition of article of manufacture is how we
reconcile that.  It may be a component of
a larger product that’s sold. Or it may not be. There’s a fundamental
difference b/t looking at the amount of design that drives sale v. looking at
total profits of an article of manufacture, which is a component of a product,
to which a design has been applied.
Q: interesting point from oral argument: residual
effect/windfall; then we get to claim on entire article—there seems to be
agreement that you’d get more than exoskeleton of the car itself, the
functional aspects. No one would ever claim the car w/ the undercarriage.  Dishwasher: you never claim the back
housing.  That’s the reality—it’s the
appearance for the consuming public. There will always be dotted lines.  [For certain classes of goods; not so much
carpets and wallpaper.] In reality, how will this work?
Burrell: point of clarification: our view: functional
aspects whose contributions is ignored in our scheme would be the functional
aspects of the article, which is VW’s body—the fact that the door opens &
closes, not the functional aspects of the engine. Our view is that it depends
on the claim—all the exterior portions to which the design is applied. If it
turned out that the Beetle was basically just things for selling the shell, you
could probably show that the profits from the exterior are very high. Our rule
is commensurate w/article of manufacture that PTO is allowing the person to
claim.

Katz: maybe we could craft a system where innocent
infringement/infringement that didn’t drive sale would get lesser damages; we
could think about alternatives in the statute.

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