Design Patent Damages event in DC, Aug. 2

Posted on July 29, 2016 by rtushnet

Details/RSVP here.

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Court of appeals says FU to state university’s TM claim

Posted on July 28, 2016 by rtushnet
Florida International University Board of Trustees v. Florida
National University, Inc., 2016 WL 4010164, — F.3d —-, No. 15-11509 (11th
Cir. Jul. 26, 2016)
FIU sued FNU for changing its name from Florida National
College to Florida National University; the district court rejected FIU’s
claims and the court of appeals affirmed. 
FIU is a public university founded in 1965.  “It has grown to become one of the nation’s
largest public four-year universities, with over 50,000 full-time students
enrolled in the fall of 2012.”  FNU is a
for-profit higher education institution that, when founded in 1987, offered
only associate’s degrees.  It began as
Florida International Institute, changed to Florida International College, then
changed again to Florida National College when FIU sued for trademark
infringement.  In the 21st
century, Florida National College became accredited to offer bachelor’s degrees
and a master’s degree, and in 2012 it changed its name to FNU.  It had 2,795 students enrolled in a recent
winter term; it currently operates two campuses in Miami-Dade County – one of
which is less than two miles from FIU’s main campus – and also offers online
courses.  FIU has opposed FNU’s 2012
applications for the word mark “Florida National University” and a related
design mark.
In the confusion analysis, the strength of the accusing mark
is the second most important factor.  In
the 11th Circuit, incontestability enhances strength, and FIU’s word
mark was incontestable.  The reasoning
here is not logical but the result is sensible:
The district court observed that,
viewed in isolation, the terms comprising FIU’s word mark were either generic
or descriptive. But, in light of its incontestable status, the court
appropriately presumed that FIU’s mark was relatively strong. Nonetheless, it
determined that FNU had rebutted the presumption of strength by showing
extensive third-party use of the mark, explaining that FNU had identified “13
other entities using the terms ‘Florida’ and ‘University’ – all of which are
aimed at the same education marketplace as FIU.” Thus, the district court
adjudged FLORIDA INTERNATIONAL UNIVERSITY and the attendant acronym to be
“relatively weak.”
Note: it seems a little odd to treat incontestability, which
is an irrebuttable presumption of
distinctiveness, as creating a rebuttable
presumption of “relative” strength, but not a lot odder than treating it as an
uptick in strength.
The court of appeals agreed that the evidence of third-party
use was “an essential factor in determining a mark’s strength.”  Here, the district court’s findings of
diminished strength of the name and acronym were reasonable.  Florida A&M University (FAMU), Florida
Atlantic University (FAU), Florida Christian University (FCU), Florida Gulf
Coast University (FGCU), Florida Memorial University (FMU), Florida Polytechnic
University (FPU), Florida State University (FSU), University of Central Florida
(UCF), University of Florida (UF), University of North Florida (UNF),
University of South Florida (USF), and University of West Florida (UWF), were geographically
proximate and offered the same services, which was sufficient to weaken the FIU
marks.  “[I]n context, it seems to us
that FIU operates in a crowded field of similar names.”
FIU argued that the district court focused too much on
conceptual strength and not on commercial strength.  “The practical problem with FIU’s argument,
however, is that FIU didn’t offer any direct evidence of commercial strength.”  Yes, FIU spends millions annually on
marketing, but that “tells us precious little about the efficacy of those
efforts in creating marketplace recognition of FIU’s mark. Absent comparative
evidence establishing that FIU has spent substantially more on advertising than
its competitors in the field of higher education, or ‘direct evidence of
consumer recognition,’” FIU’s promotional efforts didn’t count as evidence of
commercial strength that would require the district court to ignore third-party
uses. 
The district court also, inconsistently, accepted FIU’s
claim to own a famous mark within the meaning of the Florida Anti-Dilution Act,
which requires  that a mark be very
strong and distinctive. Third-party use cuts against a finding of fame, but
there was no error in the court’s ultimate conclusion that FIU’s mark was
weak.  The court relied in its dilution
reasoning on FIU’s duration and extent of use, duration and extent of advertising,
and federal registration, ignoring the other five factors identified by the
state legislature in the statute. Also, the district court didn’t give full
attention to the fame inquiry because it found FIU’s dilution claim failed on
other grounds.  There was no clear error
in the finding that FIU’s mark was relatively weak.
Similarity of marks: The district court reasoned that there
were similarities in sound and appearance, but that the antonymic meaning of
the words “national” and “international” outweighed any similarity. This was a
reasonable conclusion,
especially in a field where so many
competitors have names that appear and sound similar. Moreover, in a crowded
field of similar acronyms, the district court reasonably found that the
addition of one more school identifying itself with an acronym containing the
letters F and U would not materially add to the confusion. This is especially
true in a field like post-secondary education, where the primary consumers –
potential students (and likely their parents too) – generally spend a
substantial amount of time and energy learning about their options before
choosing a school and are, therefore, unlikely to be confused by similar names.
Note: consumer sophistication comes in here because the 11th
Circuit doesn’t have that as a separate factor.
Similarity of goods/services: Favored FIU. 
Similarity of retail outlets and customers: The district
court found that the student populations were significantly different: “most
FNU students are seeking associate’s degrees or ESL programs that FIU doesn’t
provide; FIU targets students who are directly out of high school and seeking a
four-year degree, whereas most FNU students have been out of high school for an
average of ten years; and, unlike FIU, FNU doesn’t require students to submit
standardized test scores prior to admission.”  But, both schools offer bachelor’s and
master’s degrees as well as online courses and, therefore, they have some
potential overlap in prospective students. This favored confusion but not
heavily so.
FIU argued that the district court underweighed this factor
because of the substantial overlap in students and campuses.  The court of appeals disagreed, because
nearly half of FNU’s students sought an associate degree, which FIU doesn’t
offer.  (If FIU is like many other state
schools, though, it admits plenty of students with associate degrees.)  Over 21% were enrolled in ESL programs; though
FIU offered ESL as well, that was only for students “seeking to enter college
or professional schools.” Also, while FIU generally offers a “traditional”
four-year college experience, including living on campus, almost all of FNU’s
students commute to class at night after work.  The campuses and websites for students were
also dissimilar. FIU has a “342-acre metropolis” containing residential halls,
an eight-story library, a nature preserve, an athletic stadium, and an art
museum. FNU has two main campuses, each consisting of a single building.  And each offers online courses through their
own websites, which “would dispel rather than cause confusion … because the
websites are separate and distinct, suggesting two completely unrelated [ ]
entities.” The district court didn’t clearly err in assigning little weight to
this factor.
Similarity of advertising media: the parties advertised in
the same types of printed publications, “there was no evidence that any of the
readers of FIU’s publications were likely to also read magazines or other publications
in which FNU advertises.” They do advertise on the same South Florida NPR station.  Again, the district court reasonably found
that this favored confusion, but had little weight overall.
FNU’s intent: The district court found that FNU’s knowledge
of FIU’s marks, and the prior litigation between the parties, wasn’t evidence
of improper intent because the parties had peacefully coexisted for more than
twenty years after settling that lawsuit. FNU’s shifting explanations for its
name change—it first said that it had to do so to be accredited, and when that
proved false it said that “university” was more attractive to foreign students—could
support a finding of bad intent.  But the
district court’s finding to the contrary was not clear error, given FNU’s
reasonable explanation for adopting “university.”
Actual confusion: There was no evidence of actual confusion
among prospective students at either institution.  However, there was one email from a FedEx
employee to an FIU administrator asking whether FNU “is accredited with FIU”;
and one letter sent to FNU from a California high school student who requested
information regarding “both admission to and programs at Florida International
University” because she was investigating “the various colleges and
universities [that she was] considering attending” as part of a sophomore class
project. Also, a radio announcer who was reading an FNU advertisement once said
“Florida Int — Florida National University.” 
The district court found that the FedEx employee wasn’t shown to be an
actual consumer; that the student’s letter was de minimis evidence; and that
the announcer’s “flub” wasn’t evidence of confusion. Thus, actual confusion
didn’t weigh in favor of FIU, and this conclusion wasn’t clear error, especially
given the sophistication that a reasonable consumer would exercise in deciding
among institutions of higher education.
Given all this, there was no clear error in the district
court’s balancing of the factors.
Along with its classic trademark infringement claim, FIU
argued that “FNU’s name change, its intentional omission of its for-profit
status, and its adoption of the course numbering system of Florida’s state
universities were all part of an attempt to falsely associate itself in the
public eye with Florida’s state universities.” 
The district court recognized that “a significant portion of the public
may be confused about FNU’s affiliation with the State of Florida,” but
concluded that this confusion had not resulted in confusion over FNU’s
affiliation with FIU.  (Sounds like a job for the Florida AG—except the
Florida AG doesn’t have a great record of pursuing for-profit educational
institutions.)
The court of appeals affirmed on other grounds.  “The district court’s construction of Section
43(a) of the Lanham Act would render that cause of action wholly duplicative of
a trademark infringement action for trademark holders, when in fact the language
of Section 43 is much broader.”  The
language of §43(a) “seems to encompass FIU’s false association theory that FNU
has used a name, symbol (its logo), and device (the course naming and numbering
system) that create the false impression that FNU is associated with the State
of Florida.”  But the court of appeals
didn’t resolve the issue, because FIU didn’t explain how it was harmed by FNU’s
acts associating itself with Florida public universities.  FNU’s expert testified that 30% to 50% of
survey respondents thought that the State of Florida or some other government
entity operates FNU, but less than 1% of survey respondents associated FNU with
FIU.

Dilution: Lack of similarity; lack of intent to piggyback on
FIU’s name or goodwill; and lack of risk of association doomed the claim. 

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Incentivizing creativity through suffering?

Posted on July 26, 2016 by rtushnet

Ana Swanson at the Washington Post reports on a study that appears to connect unhappiness with greater creativity.  If we care about incentivizing creative output, should we therefore deliberately torment artists?

Borowiecki’s analysis suggests that negative emotions are not just correlated with creativity but that they actually have a causal effect on it. Using econometrics, he calculates that a 9.3 percent increase in negative emotions leads to a 6.3 percent increase in works created in the following year. To generate an entire important composition in the next year, the composer would need to see his negative emotions increase by about 37 percent.

“Creativity, measured by the number of important compositions, is causally attributable to negative moods, in particular to sadness,” he writes.

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Reading list: the First Amendment and the FDA

Posted on July 26, 2016 by rtushnet
Christopher Robertson, A Trojan
Horse? How Expansion of the First Amendment Threatens Much More than the
Regulation of Off-Label Drugs, forthcoming, __ Ohio State Law Journal __
(2017)
Abstract:
Scholars, advocates, and courts
have begun to recognize a First Amendment right for drugmakers to promote their
products “off-label”, without proving safety and efficacy of new intended uses.
Yet, so far, this debate has occurred in a vacuum of peculiar cases, where
convoluted commercial speech doctrine underdetermines the outcome. Review of
the seven arguments deployed in the off-label domain finds that they cannot be
so limited. Instead, if they were valid, they would undermine the FDA’s entire
premarket approval regime, reopening the door to a snake oil market where hype
replaces science. Even more, if valid, this First Amendment logic would
undermine a wide range of statutory regimes that have similar intent-based
structures and rely on speech as evidence of intent. Ultimately, with relevance
to First Amendment theory, this article reveals a broad and longstanding
coherence in the law.

I find Robertson’s argument compelling as a matter of logic,
though I think at least some judges are likely to treat unapproved drugs as
just different and therefore think that Caronia
and Amarin can be limited to
substances approved as drugs for some purpose even absent a sensible theoretical distinction.

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Failure to do anything to show damages leads to fee award in false advertising case

Posted on July 26, 2016 by rtushnet
Gravelle v. Kaba Ilco Corp., No.13-CV-642, 2016 WL 3920208
(E.D.N.C. Jul. 15, 2016)
Bringing false advertising claims isn’t risk free for the
plaintiff. Not only may the defendant scrutinize the plaintiff’s own
advertising for counterclaims, attorney’s fee awards against a losing plaintiff
are not unknown, and here’s one. 
Gravelle, pro se, made two electronic key cutting machines, the CodePro
4500 and later the RapidKey 7000.  Kaba
makes key blanks and key cutting or duplication machines, and bought  the right to manufacture and sell a key
cutting machine, now known as the EZ Code, from Gravelle a decade ago. 
Gravelle alleged that Kaba falsely labeled two features on
its EZ Code machine as “patent pending,” despite the fact that Kaba never filed
an application for a patent for those features, and that defendant’s use of
that false mark diverted sales away from Gravelle’s company. He alleged false
marking under the Patent Act and false advertising under the Lanham Act, as
well as state-law unfair competition. 
Kaba won summary judgment because Gravelle couldn’t show competitive
injury or damages proximately caused by Kaba’s conduct.

“Exceptional” cases allow fee awards in patent and false
advertising cases.  Octane Fitness says that an “exceptional” case is “one that stands
out from others with respect to the substantive strength of a party’s
litigating position (considering both the governing law and the facts of the
case) or the unreasonable manner in which the case was litigated.”  Here, the claims were “exceptionally
meritless” for two reasons: first, Gravelle couldn’t produce any evidence of
harm to sales of his older machine; sales numbers were consistent and only
tapered off at the end of the machine’s useful life. Second, he couldn’t show
any harm to sales of his new machine or any connection between his sales and
Kaba’s use of “patent pending.”  The fact
that the court granted summary judgment weighed in favor of finding
exceptionality. Though it’s regularly the case that reasonable arguments
ultimately fail, here there were no reasonable arguments.  “Plaintiff’s lack of evidence demonstrated a
lack of thoughtful consideration about the quantum of evidence necessary not
only to prove his claim but to substantiate it at the most basic level.”  A fee award would also discourage further
frivolous claims.  The court considered
Gravelle’s pro se status as well as the parties’ relative disparity in
resources, but found that fees should be awarded anyway, given that “no
litigant could have reasonably believed that plaintiff had been damaged by
defendant’s conduct” on this record.

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Settlement class can’t stand where settlement notice gave mistaken info

Posted on July 22, 2016 by rtushnet
Duran v. Obesity Research Institute, LLC, No. D067917, 2016
WL 3913205 (Cal. Ct. App. Jun. 23, 2016)
Duran sued ORI and Wal-Mart for allegedly falsely
advertising the weight loss benefits of Lipozene and MetaboUp. The court
approved a claims-made settlement providing that class members submitting a
claim without proof of purchase would receive $15, and those submitting
receipt(s) would receive one refund of double the unit price paid. (A
claims-made settlement isn’t a fixed fund but depends on the number of claims
submitted; “[s]uch settlements may promise far more than they deliver because
the claiming rate is notoriously low.”) The settlement also provided that ORI
would cease making certain advertising claims, and that defendants wouldn’t
oppose a motion seeking $100,000 in attorney fees to class counsel.  The class is estimated at between 400,000 and
600,000 consumers.  In total, 895 claims
were submitted, in the total amount of $31,800, or 0.179% of the class
(assuming 500,000 class members)—about six cents per class member.  Objectors appealed, and the court ruled that
the notice, which was emailed to consumers who bought online directly from ORA
and also appeared in USA Today, was
insufficient.
The notice here depended on the settlement website.  The email, which went to 237,334 class
members, didn’t include the terms, but just told recipients to click on a link
to the settlement website.  The USA Today notice explained the method of
calculating settlement payments and generally described the injunctive relief,
but also referred readers to the settlement Web site “[f]or additional
information on submitting a claim ….“ The settlement Web site said that
submitting a valid claim form was the only way to get a cash payment.  But the downloadable claim form, integral to
the settlement, was wrong.  Instead of
stating that class members who submitted receipts would get one refund of
double the purchase price, it said they’d get a refund of all products bought
during the class period, resulting in overvaluing or undervaluing claims.
The online claim form also misstated the product involved—it
referred to Hydroxycut products, not involved here—and the scope of the release
involved in taking the settlement (the trial court had rejected a release of
unknown claims, but the claim form included it).  These issues weren’t raised in the trial
court, even by objectors, but class counsel and defendants argued that the
settlement was fine and a remand was necessary only to decide the “details and
logistics“ of giving corrected class notice. 
The court disagreed.  “The judgment
must be reversed because the class notice failed in its fundamental purpose—to
apprise class members of the terms of the proposed settlement.”
The court found that the problems its independent review of
the claim form revealed weren’t waived.  The
relevant facts were undisputed and couldn’t have been changed by presenting
addditional evidence.  And the trial
court couldn’t have cured the error at the final approval hearing because the claims
process was over.  Further, “[t]he
court’s responsibility to protect absent class members” justified an exception
to waiver or forfeiture.
Defendants and class counsel argued that, even though the
notice was bad, the finding that the settlement was reasonable, fair, and
adequate should be left untouched.  But the
adequacy of class notice of settlement was too intertwined with the
reasonableness of the settlement to accept that argument, since, among other
things, “the amount offered in settlement“ and “the reaction of the class
members to the proposed settlement” are relevant to the court’s assessment.
As for notice to class members, “process which is a mere
gesture is not due process. The means employed must be such as one desirous of
actually informing the absentee might reasonably adopt to accomplish it.”  ORI sent notice by email to its direct
website customers.  Objectors argued that
Wal-Mart.com purchasers could have been given email notice too, and that the
parties should have subpoenaed records from other retailers, such as Amazon,
CVS, and Walgreens, to obtain addresses of other class members.  Wal-Mart argued that it couldn’t get
addresses for those who purchased from its online store because the entity
operating Wal-Mart.com—Wal-Mart.com USA, LLC—wasn’t the entity Duran sued,
which was Wal-Mart Stores, Inc.  ORI’s
attorney filed a declaration stating he “reached out“ to “several retailers“ to
obtain customer contact information, but was told that “obtaining such
information is illegal, unavailable or improper.”
“On remand, class counsel and defendants will have to provide
a better foundation to support a ruling that direct notice need not be given.”  Among other things, the fact that the brick
and mortar store was owned by one entity, and the online store by another, didn’t
by itself establish the requested information wasn’t reasonably obtainable.  What’s required is “a notice plan that one
would implement if one genuinely wanted to inform someone, all relevant factors
considered.”  It wasn’t enough to say,
vaguely, that counsel “reached out to several retailers.”  Direct notice might not be required for
online purchasers other than those who used ORI’s website, but the court needed
more information.
Objectors also submitted a declaration from a media expert asserting
the USA Today notice reached only approximately 1.06% of class members. She
used “industry-standard research data” about “demographic, lifestyle, product
usage and exposure,” using data for audiences targeted with a definition of
“Meal/Dietary/Weight Loss Supplements Used For Weight Loss in Last 6 Months.”  There was no evidence disputing her opinion
or even evidence that Lipozene was advertised in USA Today.  ORI didn’t
explain how a settlement class member who didn’t receive e-mail notice and who didn’t
read the notice in USA Today would even know to look for a Lipozene settlement
Web site.  The idea of using publications
targeting class members needed to be explored.
As for injunctive relief, the settlement required ORI to
change its advertising and some other business practices.  Among other things, ORI agreed to add a
disclaimer regarding Lipozene’s effectiveness, including links to studies about
Glucomannan, an ingredient contained in Lipozene. It would also add, “For best
results, use in conjunction with reasonable diet and exercise.“ ORI also agreed
to end its pay-per-click Internet advertising, increase its return policy from
30 to 45 days to claim a refund, and use “best efforts“ to “eliminate all
testimonials created prior to January 1, 2010.”
Objectors argued that the injunctive relief was illusory; on
this record, the court of appeals agreed. 
Adding language about how “study participants” had been helped by
Lipozene wasn’t helpful in correcting the allegedly false claims.  Nor was changing that  Lipozene has “effectively helped millions of
people”  to Lipozene has “effectively
helped countless people.”  There was no
evidence that the extra 15 days in the return period offered any material
benefit to consumers.  As for the
diet/exercise statement, ORI was already working under a stipulated judgment
with the FTC prohibiting ORI from representing that Lipozene or MetaboUp
products “[c]auses rapid or substantial weight loss without the need to reduce
caloric intake or increase physical activity.” Requiring ORI to obey an
existing judgment didn’t add value.

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IP Professors’ Amicus in Star Athletica v. Varsity Brands

Posted on July 22, 2016 by rtushnet

Filed today: Mark McKenna, Chris Sprigman, Mark Lemley, Tyler Ochoa, Betsy Rosenblatt, Pam Samuelson, Kathy Strandburg, and I submitted a brief in this copyright separability case, arguing that conceptual separability is simply a coda to physical separability, dealing with situations in which physical separation couldn’t be accomplished without destroying the useful article–regardless, there must be something other than the design of the article itself that can be identified as a protectable work.  The existence of design patent also sheds important light on the limited role Congress intended copyright to play for useful articles.

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Don’t send a TM to do a (c)’s job: 7th Circuit rules in Slep-Tone case

Posted on July 22, 2016 by rtushnet
Mark McKenna organized an amicus
brief in this case, which was not cited by the court but advocated a
position similar to that adopted by the panel.
Phoenix Entertainment Partners, LLC v. Rumsey, No. 15-2844
(7th Cir. July 21, 2016)
Slep-Tone and its successor in interest Phoenix argued that
defendants, a pub and its owner, infringed Slep-Tone’s trademarks by passing
off unauthorized digital copies of Slep-Tone karaoke files as genuine Slep-Tone
tracks. The court of appeals concluded that Slep-Tone hadn’t “plausibly alleged
that the defendants’ conduct results in consumer confusion as to the source of
any tangible good sold in the marketplace.”
Slep-Tone is a serial litigant that distributed karaoke
accompaniment tracks under the trademark “Sound Choice.” The audio component of
the track is a re-recorded version of a popular song that omits the lead
vocals, while the graphic component displays the lyrics to the song as well as
a variety of visual cues (including color coding and various icons) that are
synchronized with the music. Slep-Tone alleged that it had a distinctive trade
dress in the typeface, style, and visual arrangement of Slep-Tone tracks, along
with the entry cues for singers (a series of vanishing rectangles) and the
Sound Choice mark is typically shown with the song lyrics.  According to Slep-Tone, its trade dress was “sufficiently
recognizable to karaoke customers to enable them to distinguish a track
produced by Slep-Tone and a track produced by a competitor even if the Sound
Choice mark itself were not displayed.” 
However, Slep-Tone didn’t own any relevant copyrights.
Slep-Tone sold physical media such as disks to customers,
but karaoke customers now prefer to use hard drives with hundreds or thousands
of accompaniment tracks to cut down on the time and effort of loading a new
disk.  Media-shifting is necessary to
accomplish this for Slep-Tone tracks.  In
2009, Slep-Tone adopted a media-shifting policy that permitted customers to
copy tracks, under specific conditions including paying for each copy and
providing notice to Slep-Tone. “It should come as no surprise that not all
operators comply with Slep-Tone’s media-shifting policy,” allegedly depriving
it of revenue.  The Basket Case, and its
principal Rumsey, allegedly had one or more hard drives containing copies of
Sound Choice tracks made in violation of Slep-Tone’s media shifting policy.
Slep-Tone’s theory of confusion was that, when unauthorized
copies were played at the pub, pub customers would see Slep-Tone’s Sound Choice
mark and trade dress “and believe they are seeing and hearing a legitimate,
authentic Slep-Tone track, when in fact they are seeing an unauthorized copy.”  This was fundamentally flawed because
Slep-Tone’s allegations didn’t plausibly suggest that confusion was likely
among Basket Case customers “as to the source of any tangible good containing
the karaoke tracks they are seeing and hearing.” Dastar makes clear that it’s “consumer confusion about the source
of a tangible good that a defendant sells in the marketplace” that matters for
purposes of trademark infringement.  But
defendants don’t sell any relevant tangible good; they just play unauthorized
copies:
What pub patrons see and hear is
the intangible content of the karaoke tracks. They will see SlepTone’s trademark
and trade dress and believe, rightly, that Slep-Tone is the source of that
intangible content. But patrons will neither see nor care about the physical
medium from which the karaoke tracks are played; consequently, any confusion is
not about the source of the tangible good containing the karaoke tracks.
Slep-Tone argued that an unauthorized copy of a Sound Choice
track was a new good that would look and sound like a genuine Sound Choice
track; in addition, customers might mistakenly believed that Slep-Tone “sponsored
or otherwise approved the defendants’ services and commercial activities.”  
The parties don’t compete in the market for karaoke tracks,
but Slep-Tone argued that Basket Case’s failure to pay gave it a competitive
advantage as against compliant karaoke establishments.  If legitimate operators were discouraged from
paying for genuine Slep-Tone tracks, Slep-Tone could lose sales.  Plus, Slep-Tone argued that “unauthorized
copying may result in inferior knock-offs that will injure its reputation for
quality karaoke tracks.” 
This chain of causation was indirect, but the court accepted
it, noting however that it was important that unauthorized copying of the
karaoke tracks (not the trademark or trade dress as such) was the core of the
injury-producing conduct.  These tracks
were copyrightable works, and copying a creative work is ordinarily a matter of
copyright law.
There was therefore a mismatch between Slep-Tone’s problem
(unauthorized copying) and the legal right it invoked.  The court noted that one oddity of
Slep-Tone’s theory is that a legitimate customer would also make a “new good” according to Slep-Tone’s theory when it
loaded a Slep-Tone track onto a hard drive, as it was allowed to do.  The only thing distinguishing the
legitimate from the illegitimate copy was authorization to make the copy—and
that’s really about copyright.  Copyright’s
limited term is one reason it’s important to distinguish copyright and
trademark; trademark could allow a perpetual monopoly if applied to creative
works.
But how to draw the line? 
The court noted that, “where, as here, the protected mark (including the
trade dress) is embedded in the good’s creative content, such that the mark is
invariably displayed along with the content, it can be particularly difficult
to decide whether the unauthorized copying of the good presents a claim of trademark
infringement or one of copyright infringement.” 
However, Dastar made clear
that trademark couldn’t be used to assert what’s “really” a copyright
claim.  Dastar wasn’t directly controlling, because this case didn’t
involve reverse passing off, but it was helpful.  Dastar
specifically rejected a broader understanding of the “origin of goods” “for
communicative products that consumers will value more for the intellectual and
creative content they convey than for their physical form.” Karaoke tracks were
such a product. 
Thus, the court’s job was, first, to identify the “tangible
product sold in the marketplace” at issue here, and second, to ask whether the
confusion alleged would be about who produced the good, or whether it would
really be about the source of the creative content in the good.  Only the former would be actionable under the
Lanham Act.
The court accepted that a digital file could
count as a tangible good for these purposes. 
However, defendants didn’t sell these files.  They allegedly played unauthorized copies to
patrons, encouraging alcohol and food sales. 
“[W]hat the pub patrons see is the performance of the creative work
contained on the copies: they hear the musical accompaniment and they see the
corresponding lyrics and graphics.”  They
didn’t encounter the physical good in question, even if they might be aware
that such a file exists; from their perspectives, it wouldn’t matter whether
the track came from a disk, a hard drive, or from streaming video.
True, the Sound Choice mark and trade dress would be
displayed, and patrons might assume that they were seeing “a genuine, authorized
Slep-Tone product when in fact it is a bootleg copy.”  But here’s the relevance of the second part
of the inquiry: what (if anything) is the patron confused about at that
point? 
On seeing the Sound Choice mark, a
patron may believe that she is seeing and hearing content that was created by
Slep-Tone. And she is. But what Dastar
makes clear is that a consumer’s confusion must be confusion as to the source
of the tangible good sold in the marketplace. A consumer of karaoke services
like a patron of The Basket Case never sees a disc that is wrapped in Slep-Tone
or Sound Choice packaging. He never sees a website offering downloads of Sound
Choice tracks.… Any confusion, in short, is not about the source of the
tangible good sold in the marketplace, as Dastar requires.
Nor did the embedding of the Sound Choice mark in the
creative content of the track allow Slep-Tone to plausibly allege that
consumers would likely be confused about its endorsement of the pub.  “The producers of communicative goods often
embed their marks not only on the packaging of the good but in its content.”  Films have studio marks in their credits, and
yet, when the copyright expires, “it is not a trademark violation simply to display
the work without first deleting the mark that was inserted into its content.” For example, when a Universal film enters the public domain,
“[s]o long as Universal’s mark is not overtly used to market the performance,
there is no risk that a theater patron might think that Universal is sponsoring
or endorsing the performance.”  Others
are free to make and sell copies of the film without permission and without
deleting Universal’s mark from the credits. 
The court of appeals then cited nominative fair use cases—which actually
supports a broader point, which is that Universal’s mark could be “overtly
used” to market the performance as long as it was a truthful description of the original source of the creative content.
In the case at bar, there was no allegation that Basket Case
promoted itself as offering Sound Choice karaoke products, so there was “no
reason to believe that its patrons will think that Slep-Tone is sponsoring the
performance of the copied karaoke tracks.” Likewise, because patrons saw only
the creative content of the tracks rather than the particular medium from which
the tracks are played, there was no reason to think that they believed that the
digital file was itself produced or approved by Slep-Tone.

The court then addressed Slep-Tone’s concern about degraded
quality. Not only did Slep-Tone fail to allege that defendants’ copies were
noticeably inferior in the perception of patrons (something that’s presumably
against defendants’ own interests), but that concern still didn’t involve a
tangible good in the marketplace. 
Defendants—or the people from whom they got their hard drives—might have
committed a wrongful act, but not one that was actionable as trademark
infringement.

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court grants motion to dismiss on nominative fair use grounds

Posted on July 21, 2016 by rtushnet
Beachbody, LLC v. Universal Nutrients, No. 16-02015, 2016 WL
3912014 (C.D. Cal. July 18, 2016)
Beachbody sued Universal and Wal-Mart for using its “shakeology”
mark on product packaging and purchase receipts. The court granted defendants’
motion to dismiss—apparently the standard is higher when you sue Wal-Mart.

Trademark infringement: the court found nominative fair use on the allegations
of the complaint.  First, Beachbody
alleged that its “shakeology” meal replacement shakes had a unique blend of
ingredients that weren’t comparable to the ingredients in defendants’
OmniHealth shakes, and that its shakes were widely recognizable. However, the court
found that Beachbody didn’t plead facts showing that consumers would readily
identify Beachbody’s shakes without the use of “shakeology,” making the use
necessary to identify Beachbody. 

Second, Beachbody alleged that defendants’ use of the term
was almost identical to Beachbody’s.  But
defendants said they didn’t use the same logo, font, or coloring scheme, and
the court found that Beachbody didn’t plead facts showing that defendants used
more of the mark than reasonably necessary to identify Beachbody.
Third, Beachbody alleged that the phrase “compare to the
ingredients in shakeology” on the OmniHealth packaging would confuse consumers
about Beachbody’s endorsement of the OmniHealth meal replacement shakes.  I would have called this “implausible,” but
the court said that Beachbody didn’t provide evidence of actual association,
and noted that the back of the OmniHealth boxes “clearly stated” the lack of
association.  Moreover, Beachbody’s shakes
are only sold on its own website, and they are sold for much more than defendants’
product.  Therefore, Beachbody didn’t
sufficiently allege likely confusion about affiliation.
The use on the receipts was different (and I would have
advised against this)—allegedly, receipts for purchases of the OmniHealth
shakes say only “shakeology” as the product description.  But the court found that Beachbody didn’t
allege any facts to show that consumers would likely associate the products based
on the receipts.  Absent sufficient
allegations to defeat the nominative fair use defense, the trademark
infringement claim had to be dismissed.
Related claims such as contributory infringement and
state-law unfair competition also failed, for the same reasons.
False advertising: “compare to the ingredients of
shakeology” allegedly falsely suggested to consumers that the ingredients in OmniHealth
shakes were comparable or similar to those in Plaintiff’s shakes. “Compare to
…” statements can convey a specific message and thus can be falsifiable.  However, such a claim of implicit falsity
requires extrinsic evidence of consumer deception, and Beachbody didn’t plead any.
 “Simply making the conclusory statement
that Defendants’ ingredients are incomparable to Plaintiff’s proprietary blend
of ingredients does not establish a plausible claim for false advertising.”  (So it has to have a survey in hand to sue?) 
Nor did the use of “shakeology” on Wal-Mart receipts
constitute false advertising, because the use of the name on the receipt “would
not be a significant factor in a consumer’s purchasing decision,” and therefore
wouldn’t be an advertisement. 
[Hunh?  This is under-reasoned; it
first sounds like materiality (which is bold on a motion to dismiss).  The argument that a receipt isn’t “commercial
advertising or promotion” is reasonable, but given that meal-replacement shakes
are probably supposed to be purchased multiple times, a receipt might serve as
a kind of ad for the next purchase.  The
real problem is that this is really a trademark claim; the alleged falsity is
about the source of what the consumer bought, and if anything a receipt that
said “shakeology” would probably make it harder for the consumer to figure out that
she can only get OmniHealth shakes at Wal-Mart.]

Commercial disparagement/trade libel failed too: Beachbody
didn’t plead facts that if believed, could prove any special pecuniary damages
from the Wal-Mart receipts. 

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Standard competitive bluster can be used as evidence of bad faith

Posted on July 14, 2016 by rtushnet
Hillman Group, Inc. v. Minute Key Inc., 2016 WL 3654437,  No.13-cv-00707 (S.D. Ohio Jul. 8, 2016)
Hillman makes duplicate keys, sold in at mass merchants,
home centers, automotive parts retailers, franchise and independent hardware
stores, grocery/drug chains, parcel shipping outlets, etc.  Key duplication has traditionally been
manual; a human identifies the proper blank key that fits the one the customer
hands over, then cuts the duplicate. 
Hillman has 60% of that market.
Self-service, automatic key duplication is a new trend.
Kiosks allow retailers to devote fewer employees, less inventory, and less
floor space to the process. Minute Key patented such a kiosk and sought to
displace Hillman and its FastKey kiosk. 
Minute Key placed 19 kiosks in Walmart stores across the country, then
in 2012 signed a Walmart contract for a national rollout of 1000-1600
kiosks.  The rollout was delayed, and
Minute Key found that it would have to compete against Hillman in a 100-store
head to head pilot.  Minute Key believed
that Hillman’s “very good relationship” with Walmart’s Tire Lube Express (TLE)
team was at the root of the decision to extend the pilot and, in turn, delay
Minute Key’s national rollout, which “practically put minuteKEY out of
business.”
A Minute Key board member and investor, as part of
discussions about the Walmart pilot, asked if its patent applications could be
used to create “some FUD” about Hillman with Walmart.  In late 2012, Hillman won the pilot, with 900
stores going to Hillman and 300 to Minute Key. 
A Minute Key principal responded, “in every retailer where we have gone
head to head with fastkey @ Lowes, Menards, Meijer, Orchard Supply Hardware;
our machine has won in every category; revenue, reliability, customer
experience and accuracy. Is there anything we can do here to improve our
position?”  (Etc.)  Discussions with Walmart revealed that
Hillman succeeded in stores that also used Hillman’s transponder key program in
their auto departments.  Another Minute
Key person questioned whether it was time for Minute Key to consider
“how/whether to use our patents to play offense.” There was further discussion
of the patents, the threat they might pose to Hillman, and when the “patent
card” should be played.
And there were some of the usual insider comments, which are
almost inevitable; generally just bluster; and yet can be made to look
bad.  E.g., “Fuck Hillman, they don’t
know they are messing with a pirate.”/ “Ha…love it. Always need a competitor
and we will whack them in time,” to which another responded, “Need to whack
them now!”
The Walmart employee responsible for the Walmart decision
then took a job at Hillman; his replacement looked at the trial and concluded
that, based on revenue per square foot, downtime, returns, and customer experience,
Minute Key, rather than Hillman, should have won:
In terms of profit per square foot,
[Minute Key] was 25 percent more per machine per store. The customer experience
was a little over a minute compared to between a little over three minutes. The
downtime was a fracture [sic] of what the Hillman machine was. And the returns
was [sic] significantly less, which all factor into customer experience.
Based on this, he started talking with Minute Key about
rolling out at 1000 more stores, though Walmart had a three-year commitment to
Hillman. 
In September 2013, Minute Key emailed Walmart that it would
be sending Hillman a patent infringement notice when its patent was
issued.  The email continued:
Our investment is only protected by
our intellectual property, and thus we have no choice but to enforce our
intellectual property against anyone who attempts to misappropriate it, such as
by infringing our patent rights. The patent to be issued next Tuesday is only
the tip of the iceberg of our intellectual property, and there are many more on
the way.… It is flattering to be imitated by others, but it also is evidence of
the significance of the contribution that MinuteKey’s technology has made to
the industry, and our technology must be protected.
Walmart responded by deciding to give all kiosks at new
stores/stores that requested kiosks to Minute Key, while Hillman would continue
to install in its approved locations. 
Walmart also requested a claim chart indicating which claims Minute Key
alleged Hillman to be infringing.
Hillman sued for a declaration of noninfringement; Minute
Key then provided Hillman with a covenant not to sue and argued that no case or
controversy existed.  Hillman then sought
to amend its complaint to add federal and state false advertising claims.
Courts have decided that, in cases involving statements
about patent infringement, Lanham Act plaintiffs have to show bad faith in
order to “give effect both to the rights of patentees as protected by the
patent laws under ordinary circumstances, and to the salutary purposes of the
Lanham Act to promote fair competition in the marketplace.”   The court found genuine issues of material
fact precluding summary judgment.
First, Minute Key argued that its statements were opinion,
not fact. In context, they were claims of fact, clearly declaring that Hillman
was a patent infringer, and a jury could readily conclude that Walmart
understood these as statements of fact. 
Walmart’s counsel responded by asking Minute Key for a claim chart and
Hillman to acknowledge its indemnification obligation; then Walmart suspended
the deployment of key kiosks based on the patent claim.
Were the statements “commercial advertising or promotion”?  The relevant customer base as the market for
self-service kiosks, not key duplication equipment generally. Hillman argued
that Minute Key only seriously tried to get Walmart’s business (though why this
should matter is unclear, since the key is distribution in the market, whatever
that is, not how many entities in that market the defendant targeted).  Whether the market at issue was limited to
Walmart was a factual question for the jury.
Bad faith: Minute Key argued that there could only be bad
faith if its patent infringement claim was “objectively baseless.”  But Minute Key’s representation in marketing
that its machine was fully automatic, while Hillman’s was not, could be taken
into account in determining this, as well as the board member’s speculation
about using patents to create “FUD” and “quips from its CEO such as ‘Fuck
Hillman, they don’t know they are messing with a pirate’ and ‘Need to whack
them now!’ and ‘Thinking about raising the patent card.’”

There were also questions of fact about damage to Hillman;
though Hillman wasn’t guaranteed any extra stores, Walmart decided to use
Minute Key for new stores/requests the day after Minute Key confirmed that it
would be issuing a patent infringement notice to Hillman; before that, Hillman
was the vendor of choice.  There was a
dispute about whether Walmart offered, as a custom though not a contractual
obligation, a “right of first refusal” to existing vendors for future business.  There was also a factual question about
whether a delay in the already-promised kiosk rollout was due to the
infringement claims, or whether the Hillman kiosks were still in production and
then blocked by Walmart’s blackout period from mid-October to mid-January
during which no vendor is allowed to place any kiosk.

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