When are lost sales consequential damages?

Posted on February 29, 2016 by rtushnet
BPI Sports, LLC v. Labdoor, Inc., 2016 WL 739652, No.
15-62212 (S.D. Fla. Feb. 25, 2016)
 
BPI makes supplements, including “Best BCAA,” which contains
branched chain amino acids (BCAAs) in multi-chain peptide form, rather than
isolated, free-form BCAAs. LabDoor’s website purports to rank and grade
supplements after detailed chemical analysis by an “FDA-registered” lab,
including Best BCAA.  The lab apparently
is Avomeen Analytical Services, co-founded by LabDoor’s CEO in 2010. BPI
alleged that research, clinical trials, or human studies “are more appropriate
methods of testing the safety and efficacy of the supplements being tested and
compared.” Nonetheless, LabDoor created a list of the best BCAA supplements,
and Best BCAA got a grade of “D.” BPI alleged that LabDoor’s analysis failed to
account for the nutritional value of the multi-chain peptides, compared to the
individual BCAAs in other supplements.  “In
an interesting twist, LabDoor sells the product it ranks and grades as number
one.”
 
BPI sued for false advertising under the Lanham Act,
violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), and
tortious interference.  In a
demonstration of the value of Lanham Act claims in overcoming traditional
barriers, the court grants LabDoor’s motion to dismiss the FDUTPA and tortious
interference, with leave to amend.
 
Claims of tortious interference with BPI’s relations with
its “targeted consumer base” were speculative and insufficient.  Existing customers would be readily
identifiable, but any reference to them in the complaint was vague and really
about “hypothetical consumers generally.”
 
FDUTPA: Florida amended its law in 2001, changing references
to “consumer[s]” to “persons” who suffered losses as a result of a violation of
the law.  Federal courts are split on
whether non-consumers can now sue; the court agreed with the majority (and one
state court that considered the issue). 
Given the statutory requirement that FDUTPA be construed liberally, the
shift in language allowed non-consumer plaintiffs.  BPI also sufficiently alleged causation,
since the Eleventh Circuit has held that FDUTPA doesn’t require proof of actual
reliance but only likely consumer deception.
 
However, BPI failed to plead actual damages
sufficiently.  Generally, actual damages
are the difference in market value between what was promised and what was delivered.  Of course that doesn’t make sense here.  BPI alleged diverted sales and lost goodwill,
which the court deemed to be consequential damages, which don’t count as actual
damages.  That … really doesn’t make much
sense.  If you’re going to expand FDUTPA
to cover competitors, then actual damage to them must by definition be measured
differently than the damage suffered by a deceived consumer.  Otherwise, there’s no point.  They’re both harmed by false advertising, but
their harms are different, as Lexmark
made clear in the Lanham Act context.  “Consequential”
is a way of expressing a limit on tracing harm, so that if I was defrauded when
I bought a car, the lost profits from my inability to make work appointments in
my unreliable car would not ordinarily be recoverable damages. By contrast, the
honest dealer’s direct damage is the sale she would have made to me but for the
fraud. That lost sale should not be
excluded as “consequential” even if my own lost sales should be. But, because
BPI didn’t plead that LabDoor’s conduct “affected the market value of BPI’s
product,” (which would, given the causal mechanism, still be “consequential” by
the court’s reasoning) the court dismissed the FDUTPA claim.

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Ingredient supplier has standing to challenge supplement claims

Posted on February 29, 2016 by rtushnet
Obesity Research Institute, LLC v. Fiber Research
International, LLC, 2016 WL 739796,  No.
15-cv-00595 (S.D. Cal. Feb. 25, 2016)
 
Fiber Research alleged that Obesity Research made claims for
its weight loss product, Lipozene, touting clinical testing supporting the role
of “Propol glucomannan” in promoting weight loss, but that Lipozene didn’t
contain any Propol glucomannan or any substantially equivalent glucomannan.  In particular, Fiber Research alleged that
Obesity Research claimed that Lipozene was “clinically proven,” when, in fact,
the clinical studies it relied on used Propol. Further, Obesity Research
allegedly falsely claimed that at least one of the clinical studies was
“sponsored by [Obesity Research]” and that it falsely referred to one of the
clinical studies of Propol as a “Lipozene Clinical Study.”   Finally, Fiber Research alleged that Obesity
Research falsely stated on its label that there were “[n]o known allergens in
this product” when, in fact, there were enough sulfites in Lipozene to warrant
a warning.  Fiber Research is the
exclusive licensee for Propol in the US.
 
Under Lexmark,
Fiber Research had standing to challenge the advertising. It alleged an injury
to a commercial interest in reputation or sales and proximate cause based on
Obesity Research’s alleged passing off of an inferior product as Propol.  Obesity Research argued that it wasn’t in
direct competition because Propol is only sold to manufacturers as an
ingredient, while Obesity Research sells directly to consumers. But there’s no
direct competition requirement after Lexmark.
 
As for Fiber Research’s California UCL and FAL claims,
standing requires lost money or property, which can include “lost sales,
revenue, market share, and asset value.” Ineligibility for restitution is not a
basis for denying standing under either the UCL or FAL, though Fiber Research
couldn’t argue that it was injured indirectly as an assignee; it had to rely on
injuries has suffered directly as the exclusive seller of Propol in the United
States.
 
Failure to state a claim: The court characterized this as
both a false designation of origin and a false advertising claim, using the likely
confusion multifactor test as a useful framework even though some of the
factors weren’t helpful.  Fiber Research
alleged sufficient similarity between Propol and Lipozene to state a claim for
false designation of origin, especially given that purchasers can’t determine
for themselves the actual ingredients. 
Likewise, Fiber Research sufficiently alleged false advertising.  It identified the particular studies to which
Obesity Research allegedly referred in its advertising, and alleged that those
were Propol studies.  The UCL/FAL claims
survived for much the same reasons, though not the UCL unfairness claim because
Fiber Research didn’t allege antitrust-like injury.

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Cardozo Law Advertising Conference Panel 2: Native Advertising

Posted on February 26, 2016 by rtushnet
Moderator
Felix Wu | Professor and Faculty Director, Cardozo Data Law
Initiative, Benjamin N. Cardozo School of Law
 
Panelists: Shelly Paioff | Deputy General Counsel & Head
of Legal, US, Taboola: Taboola is a content recommendation platform—publishers like
NBC, Microsoft, USA Today—widget at bottom of article pages with links to
third-party content from publishers/advertisers.  “From around the web” or “other content you
make like.”  Never thought of ourselves
as native advertisers, but content discovery platform; we’ve opened up a native
platform, which to us means mid-article or section-front or home-page placement:
ads/content integrated w/in the webpage, within the flow of what the user is
already reading.  Others may define
custom content as native advertising—done to create brand awareness, as
w/Netflix sponsored article on NYT to promote Orange is the New Black.
 
Rick Kurnit | Partner, Frankfurt Kurnit Klein & Selz, PC:
Debate over definition was whether or not the curation aspect is a problem.
Everyone accepts that influence over content is a concern.  The issue with the Taboola case in NAD was
whether merely influencing curation of content, financing content, distributing
reprints is also advertising.  That’s
where we are today w/a huge problem facing the media. NYT created the Food
section to create an environment for advertising—is that native advertising?
Influence over curation exists—that’s over the top.
 
Po Yi | Partner, Venable LLP: brands are content marketing—creating
or distributing it to target a particular audience; may be no reference or
relationship to their product. May be cause-related.  Not necessarily native
advertising/advertising at all.  Shouldn’t
think of native advertising interchangeably with content marketing.
 
Kurnit: Whether the First Amendment permits the government
to permit curation raises question under Sorrell
and the campaign finance rules—if I just want to finance another speaker, is
that something the FTC can regulate?  FTC
did say they were going to regulate whether or not consumers choose to interact
w/content; whether the action of a brand affects the decision/content regarding
the advertising, not just the product/brand. 
Thus, how can you communicate to readers the difference between brand
voice and content influenced by brand v. brand’s decision to provide
information that has nothing to do w/product or service. FTC is still wrestling
with that despite the guidelines. 
 
Fireside chat: FTC indicated they aren’t particularly
interested in going after items that don’t speak to product, service, brand or
competitor.  FTC embraced disclosures.  FTC wants disclosure to be the focal point of
the ad, and the marketing people don’t have a warm fuzzy feeling about giving
that space to legal.  Not just whether
the consumer gives it greater credence but also whether the consumer would have
chosen not to interact with it if they’d known it was from a brand/company—want
a skull and crossbones.  This is in a
state of flux; FTC asks whether the consumer would be surprised to find out the
truth. Media wants to create a context in which their users understand the
differences between brand voice and something that a brand supports or wants as
a context for its ads.
 
One prior industry practice: “Sponsored” content as curated
versus “sponsor” content as a label to indicate brand voice—that’s silly to
assume people will distinguish those. 
FTC doesn’t like “promoted by” either unless it’s restricted to where
advertiser had no influence.  Still,
expanding materiality to cover consumer’s choices regarding advertising, not
choices about purchases—that is a big content-based regulation that goes beyond
protecting consumers against material deception in purchase decisions,
overstepping.
 
Wu: what’s wrong with not fooling consumers into thinking it’s
an ad?
 
Kurnit: as long as an ad is a material claim about a product
or service, yes, but not if it’s just corporate speech.
 
Yi: Also: what are you promoting?  If P&G is promoting a diaper v. if it’s
the content created by P&G that you’re promoting.  Which does the FTC care about?  If you paid someone to distribute content,
you have to say that you paid to distribute content.  That’s the FTC’s core focus.
 
Ellen P. Goodman | Professor, Rutgers University Law School:
The guidelines say if it’s obvious the speaker is P&G, the consumer won’t
be confused.  Also if the speaker isn’t
making product claims, she reads the guidelines to say, disclosure won’t be
required. True that FTC is going further on consumer confusion.  But that’s not reaching so far as to cover
all kinds of branded content.
 
Yi: but it’s how you deliver the branded content.
Brand-created content; using paid media rather than organic to distribute that—the
FTC wants readers to know that brand paid money to distribute the content, not
because the content itself is advertising but b/c you are paying someone to
distribute the content.
 
Kurnit: in a perfect world, when consumers read disclaimers,
that’d be nice. FTC failed to take into account that it’s next to impossible to
make the distinction with “this is content with complete integrity, from the
NYT, and you can trust it to the extent you trust the NYT, and I am simply
making it available to you.”  If we put “ad”
on the top of everything, how does that help the consumer?  Mashable/Buzzfeed could label everything ads.
 
Yi: that would be misleading in itself.  Distinguish what’s in the content from the
brands behind it; how much the brand is behind it is the question. What
terminology will satisfy the FTC?  I don’t
want my clients to use “advertising” on everything.
 
Kurnit: everything I publish is “advertising” because it
enhances my brand. Should I have to disclose all my ulterior motives?  Disclose before a click?
 
Paioff: makes you have to worry about releases, SAG issues—wouldn’t
want to get those for certain content.
 
Kurnit: using Mary Engle’s name in my article = right of
publicity problem?
 
Wu: is the point to actually inform consumers?  Do they even care?
 
Jeremy Sheff | Professor of Law, St. John’s University and
Director, St. John’s Intellectual Property Law Center: It’s not clear that we
should care.  Why would it be important? B/c
that affects whether consumers choose to interact w/it and the
weight/credibility they give it.  Not
clear that this empirical claim is true. Are consumers more skeptical of “sponsored”
content?  There is some question—evidence
is mixed. We tend not to be good at monitoring the sources of our beliefs; we
think we’re better than we are; we’re heterogeneous in our capacity.  [I think that makes the case for
pre-interaction disclosure stronger.  If
we have sourcing difficulties, then choosing not to interact with claims that
might be misleading is our best way to protect ourselves, which is why I skip
ads.]  Disclosures are just a bad way of
dealing with this in many cases.  In
certain contexts, disclosures make things worse, as w/dietary supplements.  May not help v. false advertising law
generally—if the claims are true and you believe them, that’s good. If it’s
false and you believe it, that’s bad, but already actionable.

We need a deeper theory of autonomy, given that all our exposures
affect/influence us.  What we want for
ourselves to be protected from, at least w/o our knowledge.
 
Kurnit: 2 levels of protection. Concern w/truth, integrity
of content—if a brand wants to redistribute content, it makes the content its
own; it’s responsible for ensuring it has substantiation.  That’s the key consumer interest—being misled
about truth of claim.  Problem I have is
when FTC says we also have to provide them with info so they can choose whether
to interact w/ad: prevents exposure to truthful speech just b/c it’s
annoying.  [But isn’t the consumer making
the choice, not the gov’t, in the “prevention”? 
Gov’t can regulate time, place and manner so as to preserve privacy/consumer
choice about interaction in many circumstances.]  YouTube video created by monkey isn’t more “useful”
to consumer than an ad created by a major advertiser.  Made it impossible for media to create the
user experience they want: Taboola needs 3 disclosures: ad from Taboola;
publisher is advertiser; third party wanted you to read this article. All this
communicates it’s all bad and people walk away. That doesn’t protect the truth.
 
Goodman: you’re assuming these warning signs are effective
and turn people off; Sheff assumes the alternative.
 
Kurnit: Do I really need to be warned about “it’s an ad, don’t
read it”?  Wouldn’t I much rather know it’s
good content?  Do I really care how much
someone paid for the ecosystem?  [Suppose
someone runs an ad that says “this is a public service announcement” that makes
factual claims about fruit juice and soda and how they contribute to obesity,
but it’s actually a seller of bottled water. 
Do you think that’s a problem?]
 
Sheff: sometimes it’s reasonable for people to care about
source.  Question is how we want to
engage with one another in our interactions.
 
Wu: Imagine that a brand distributes some form of content
and says “this is not an ad, this is not being distributed by any commercial
speaker and hasn’t been influenced by any brand owner.”  But the content has been paid for and
influenced by the advertiser. Should that be permissible?  [This is another version of my question; my
question involves both truth and competition.]
 
Yi: Wrong question. Creative community: they don’t really
care about being told to disclose. 
Marketers: they’re willing to disclose. It’s the how that matters to
them more. They don’t want to create something that somehow makes what they do
inauthentic or impedes the message. 
[Well, the lie Wu discusses would un-impede the message, right?]  They want a way to disclose that doesn’t
interfere with the message.  Seamless,
organic, but transparent.  Your example
will never fly b/c it’s too many words and not creative enough.
 
Wu: but the point is that it’s a blatant lie, but only about
source and creation of content.  Assume
the content is truthful, but there are blatant lies about source.
 
Kurnit: if it’s material to purchasing decision, if it
enhances the credibility of a claim about the product or service, it’s
deceptive and illegal. But if the content has nothing to do with the product or
service, no problem. We don’t have a perfect world; content is always
influenced by editor’s decision to not piss off an advertiser. Editor has
curated publication to attract the kind of advertisers they want to have.  Those editorial decisions are not “pure”;
there are no editors free from publishers. Even Consumer Reports
advertises.  Notion of purity in curation
will make it impossible to provide protection against deception, which is a
materially false claim.  It would be nice
to get informed consent before we read anything.
 
[Part of the problem is that this model is algorithmic; some
of these articles will be
product-relevant, and you can’t easily label only those in the algorithm.]
 
Goodman: has been mission creep; there’s a long history of
requiring disclosure—for example, lower postal prices for newspapers that wasn’t
available to pure ads. Their concern wasn’t just with the truth of a product ad
or promotion but broader concerns w/ a right to know who’s talking to you.
Similar to our concerns about dark money. It’s not b/c we think that people
would make decisions differently if they knew, but b/c we think transparency is
important and that the consumers aren’t necessarily the direct consumers but
citizens who want to know what’s going on. FTC is now the only entity standing
with jurisdiction over the digital world. 
It’s going beyond consumer protection to deal w/these other concerns.
 
Paioff: a lot of concerns are addressed in the endorsement
guidelines already; additional disclosure shouldn’t be required in native ad
guidelines. That’s where the confusion is. 
American Express runs a forum for interesting content targeted at small
businesses; NAD said they had to disclose its sponsorship: American Express
Open Forum instead of Open Forum.  [Why would
they resist that?]
 
Yi: FTC thinks that brand as publisher should be treated
differently than traditional publisher.  But
Red Bull TV isn’t all about Red Bull.
 
Kurnit: huge problem for media trying to create a
context/format that’s a good user experience. The word “ad” is a complete
negative.  That’s why my clients have
done everything in their power to try to not use that word; it interferes
w/that communication.  Has embraced NAD’s
notion that when a brand creates content, that should be avoided.
 
Wu: if the FTC decides that people do care about source and
want to know, and that it’s material to them to know where the money flows, can
it decide that?
 
Kurnit: No, it’s a content-based regulation that isn’t the
less restrictive alternative to protect the consumer interest in not being
deceived or misled in a purchasing decision. 
Interest in not clicking on something without informed consent b/c it
might be an ad [is less strong]—if it’s a NYT link, do I need Tabooleh’s name
on it?
 
Wu: but it’s about greater credence.  Under that standard, should the FTC be able
to decide that the answer is yes in all circumstances? 
 
Kurnit: old law—you could disclose before purchase. You just
needed, before purchase/call to action, that they knew clearly what the source
was.
[different version of Wu’s question: the item appears in
your feed: this is not an ad, so you should click on it.  Ok?]
 
Goodman: but the reason for the change is the new world of
mobile, disaggregated content, where disclosures are often separated.  Harder to know who’s talking to you in your
feed.  Trying to tackle that new environment.  Once they’ve decided it’s material to
consumers—I think they’ve gone too far, but it’s not unconstitutional. They’re
overreaching b/c much of this isn’t trade regulation.  This goes more to our discourse
environment.  All editors may be
influenced as Kurnit says; FCC said that consideration was different than
wanting to suck up to your advertisers, and those institutions developed codes
of ethics.  Everyone wants to disclose
some things here, all industry organizations largely in agreement; it’s mostly
the “how.”
 
Yi: It’s also the “when.” 
FTC went pretty far on the when.
 
Sheff: consistent w/ psychology research—how and when matter
more than whether, and can be outcome-determinative on materiality.  Something other than materiality is driving
this.
 
Yi: telling people ahead of time what they might be clicking
on is treating the content itself like the ad. The FTC is giving credence to
people’s limited time; if you want to distribute content, consumer has right to
know what it is before they view.
 
Kurnit: and that’s my problem, b/c Scalia wouldn’t have
wanted to read a NYT story.
 
Goodman: but he’d want to know it was NYT.
 
Kurnit: but the FTC won’t protect him from that, only from non-media
advertisers.  There’s additional
regulation on those who sell products, which is a content based regulation.
[Put like that, it’s not a content based regulation, it’s a behavior based
regulation, which makes it not speech based at all.  Your promotional speech doesn’t trigger the
regulation, and in fact we’re completely content-indifferent (according to this
discussion of the FTC); the fact that you sell a nonexpressive product is what
triggers the regulation.] You have to label your content as a skull and
crossbones.  [Wow, advertisers must
really hate themselves: they sell poison.]
 
Wu: Note that under that reasoning all commercial speech
regulation is content based.
 
Kurnit: we’re all fine with having a disclosure when a brand
pays an influencer to tweet about it; that goes to credence.
 
Sheff: some evidence suggests that disclosure in advance of
placement doesn’t work, only disclosure afterwards.
 
Yi: FTC is asking for both/in the content.
 
Wu: Bait and switch?
 
Kurnit: It’s only illegal when the consumer relies to
detriment on the deception.  The
difference is: clicking on a link—is that the same as a door-opener?  [Yes?] 
Unless it makes it hard to click back, that’s not the same thing.  In a perfect world that would be great, but
they’re asking for too much.
 
Paioff: No problem with disclosing when the content really
is an ad. You should disclose who the advertiser is. But when it’s not used as
an ad, why do you need to disclose the source? By virtue of calling it
advertising, you’re assuming the issue.
 

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Advertising law at Cardozo

Posted on February 26, 2016 by rtushnet
Cardozo Law Conference: New Impressions of Advertising Law
 
Panel 1: False Advertising (herein of Pom Wonderful v. FTC)
Moderator: Brett Frischmann | Professor and Director,
Cardozo Intellectual Property & Information Law Program, Benjamin N.
Cardozo School of Law
 
Panelists: Jen Lavie | Partner, Manatt, Phelps &
Phillips, LLP
 
2003-2010 ads touting medical studies that allegedly showed
that daily consumption of their products could treat or reduce the risk of
diseases such as prostate cancer and erectile dysfunction. Eventually, the FTC
sued.  Pom spent $34 million on these
studies, but the evidence wasn’t good. E.g.: Prostate cancer: patients who used
concentrated juice had already been treated for prostate cancer or had prostate
removed, so hard to say prevention of prostate cancer came from juice.  For erectile dysfunction, Pom used a measure
that the industry doesn’t accept as reliable. 
Artery thickness: sample size too small.
 
On appeal, Pom scored a small victory: one randomized
clinical trial (RCT) was enough in some cases, not the 2-RCT remedy imposed by
the FTC for disease claims.
 
Jeffrey A. Greenbaum | Managing Partner, Frankfurt Kurnit
Klein & Selz, PC: Pom is a “best of” case—so many issues on disclosure,
substantiation, standard of review.  Issue
at FTC: approach to its own guidance. 
Connection between Pom and
native advertising.  Pom is about the FTC’s announcement of a new rule, functionally.
2-study requirement when making a disease claim.  FTC also came out with a native advertising
policy statement, also announcing a new rule in effect, about where to put
disclosures in native advertising. Just as Pom
was very specific about substantiation, native advertising guide is very
specific about the type of disclosures you need, and even where in needs to
be.  FTC adjudication/enforcement
statements are issuing new rules, but they aren’t really rules b/c FTC lacks
real rulemaking authority—has to go through torturous proceeding basically
impossible to issue effective rules.
 
Aren’t we sort of acting as if the FTC is making rules?  Ad lawyers responded to Pom as if it were a new rule. 
How else are we interpret FTC taking a position in a particular
enforcement action or guide? This question for advertisers is very significant,
b/c of FTC’s interpretation of §5.  They
have to do this if they can’t make real rules—adjudications, settlements,
guidance are their only ways to communicate in persuasive ways.  Remarkably few enforcement policy statements
over the last 40 years; interesting to consider what was so important about
native advertising to justify one.  But
also industry guides, consumer guides—w/o the traditional protections for
rulemaking—notice and comment, openness.
 
One of the things we saw in the Pom case is that the court gives the FTC tremendous deference in
findings of fact and interpretations of law. 
Courts are deferring to how the FTC interprets the rules [as
applications of §5].  The law is very
simple: prohibition on unfair/deceptive acts or practices. It makes sense given
this breadth that you want information about specific practices. But when the
FTC makes up rules, like where native advertising should be disclosed, what’s
the appropriate level of deference?
 
What’s the impact on advertisers? The chilling effect is a
real concern. The FTC takes very aggressive positions on what’s potentially
deceptive when it’s not at all clear there’d be a real violation of §5. Trying
to avoid being on FTC’s radar, you don’t just have to worry about §5, you have
to worry about what the FTC thinks is unfair/deceptive even though Congress/a
court hadn’t decided.  FTC is taking a
more restrictive position than really required under §5.
 
Shouldn’t the FTC have real rulemaking authority?  Should Congress look again at the FTC’s
authority?
 
FTC’s 2-study requirement is clearly wrong.  A claim is either true or false. All that §5
prohibits is unfair/deceptive.  Question:
whether the claims are false/whether they had sufficient substantiation. FTC
standing in shoes of scientists and demanding 2 studies every time was
wrong.  FTC was trying to prevent
mistakes.  Pom had lots of studies and
2-study requirement wouldn’t have solved the problem.  Fencing-in relief might have justified a
2-study requirement—to prevent problems with this particular advertiser in the
future.  We see the FTC pushing the
boundaries of §5, and advertisers don’t have an effective remedy to challenge that.  People have to be more conservative, afraid
that until a company has a big enough budget they can’t fight.
 
I love the FTC! Do a good job, but preventing more speech
than they need to.
 
Rebecca Tushnet | Professor, Georgetown University Law
Center  
 
Benefit of being an
academic: I get to take as unrealistic a position as I like, at least for
purposes of argument.  Then again, given
current political events, maybe unrealistic and extreme positions are no longer
the sole province of academics.  Two topics
today: (1) the role of disclaimers and (2) the role of constitutional scrutiny
of scientific factfinding more generally.
 
The DC Circuit has
shown indifference to whether disclaimers actually work when it mandates that
regulators use them.  In Pearson v. Shalala, for example, the DC
Circuit decided that a disclaimer requiring more than college level reading
comprehension was appropriate instead of a ban on a statement misleadingly
indicating that selenium had been shown to reduce cancer risks.  The FDA tested these disclaimers; not only
did they fail; they backfired—people exposed to them had increased confidence that the FDA had reviewed and agreed with the
main cancer claim.  Reality-based
decisionmaking would lead to substantially less elaborate disclaimers; more
readiness to uphold bans or FDA-specified wording.  However, reality-based decisionmaking plus
rigorous First Amendment scrutiny would be a double-edged sword.  While courts should hesitate to hypothesize
that a disclaimer can substitute for a regulatory prohibition by avoiding
deception, that also means that regulators’ choice of disclaimers instead of a
ban should be dubious.  Regulators often
compromise on requiring a disclaimer instead of banning an activity
outright.  But disclaimers may rarely be
a worthy compromise—mostly they impose a burden without doing too much good,
though there are important exceptions. The privileged status of disclaimers
represents a hope that we can have our cake and eat it too, and if we’re
demanding lots more evidence in other aspects of commercial speech regulation
it seems odd not to do it here too. 
 
The question of
whether all FTC remedies are now subject to Central
Hudson-style assessment of whether they’re minimally restrictive.  Two sub-issues: first, generally, are
regulators entitled to any deference on factfinding?  The Pom
Wonderful court reasoned that even the FDA sometimes allows a claim based
on less than two randomized controlled trials, and hypothesized that there
might be one really amazing RCT that everyone agreed was conclusive, so the
theoretical existence of that RCT invalidated the FTC’s 2-RCT requirement.  Does that mean that the FDA’s general 2 RCT requirement is
constitutionally invalid for the same reasons, rebuttably unconstitutional, or
unconstitutional if and only if the evidence supports an exception to the usual
rule?  All of these possibilities represent
substantial incursions on FDA authority and should be deeply troubling,
especially if it’s the court and not the FDA that decides how strong the
evidence is in the absence of 2 RCTs, or whether the RCTs were in fact
conducted in a proper way.  Like the FTC,
the FDA does make individualized determinations about whether a given drug is
safe and effective.  Once you constitutionalize
an issue, factfinding itself receives constitutional scrutiny.  (And it’s worth noting that the DC Circuit
has already revealed its innumeracy in Pearson
v. Shalala, when it ruled that the existence of one positive trial and a
number of negative trials meant that it wasn’t true to say that the positive
claim was unsupported by the evidence—the whole
point of having a concept of a p-value to indicate statistical significance
is that you expect false positives if
you run a sufficient number of trials.)
 
Second, with respect
to remedies specifically: Historically, once regulators found that an
advertiser violated the law, that violation provided justification for future
prophylactic measures.  The DC Circuit’s
opinion gave weight to Pom’s repeated, extensive violation of the law and
demonstrated intent to keep on with its practices to any extent it could only
in allowing the imposition of a RCT requirement for all disease claims, as if
that requirement wouldn’t have been justified for disease claims in the absence
of persistent deceptive conduct. 
Why?  In the RICO case against
tobacco companies, the same court of appeals found that the companies’ repeated
violations of the law justified some mandatory disclosures, but they’ve
likewise been allowed to litigate every word—literally!—and so years after the
primary liability finding they have yet to make the corrective disclosures ordered
by the district court.
 
Conclusion: The
First Amendment is strong medicine.  Greenbaum
and I are probably a lot closer than we sound on policy questions; I just don’t
want them constitutionalized.  I often
hear the representatives of mainstream businesses, the kinds that hire the
lawyers represented on this panel, say that all they want is reasonable
freedom, that of course they wouldn’t abuse it because they are responsible
businesses.  While the record of large established
businesses speaks for itself, I think that’s ultimately beside the point.  The First Amendment doesn’t follow the
contours that “respectable” businesses are willing to accept; marginal
businesses will take advantage of these rules, because that’s what the First
Amendment is for—protecting marginal
speakers.  That’s why the lack of constitutional
protection for false and misleading commercial speech, plus freedom for administrative
agencies with competence in the relevant field to make factual determinations
of what is false and misleading, is so important to preserve the regulatory
state against a reimposition of Lochner.
 
Ashima A. Dayal | Partner, Davis & Gilbert LLP: Pearson and Pom: the FTC’s conclusion that the use of one or two adjectives
doesn’t alter the net impression: “promising,” “initial,” “preliminary.”  Court says those can’t cure the impression
made by the ad, especially when the chosen adjectives provide a positive
spin.  Effectively, said in dictum that
if there’d been a disclaimer like “evidence in support of this claim is
inconclusive” that would have been a safe harbor.  Even if that language is good: We’re saying “drink
Pom and you won’t get cancer,” but in a footnote we say “this evidence is no
good.”  That makes no sense. How can you
make a claim in the body copy and then disclaim its import?  It’s a contradiction, not a cure.
 
What is the difference between a claim “evidence in support
of this claim is inconclusive” and “these studies are promising”?  These are not different.  Body copy is at least more likely to be
seen.  This is terrible advice—encouraging
use of disclaimers rather than body copy. 
Why is the court writing this copy? 
They’re not good at it.
 
Bayer case, dietary supplement: FTC’s position on 2 RCTs
again rejected for a dietary supplement case. 
Supplements are regulated differently than drugs.  Bayer says you don’t need 2 RCTs for making a
supplement claim; not good to impose that on a food product.  One of the justifications the FTC gave was
that this was a repeat offender. 
Punitive: these decisions/effective rulemaking has some stare decisis
effect.  Similar to SEC/IRS letter
rulings—we read these and advise our clients. 
 
Lavie: disclaimers should be qualifications for the main
claim, not contradiction.
 
Q: what’s the role of disclaimers?
 
Lavie: advertiser is responsible for all reasonable
interpretations.  Disclaimer should help,
not contradict.
 
Dayal: lots of functions, but not reject/rebut plausible and intended interpretations.
 
Greenbaum: I thought disclaimer issue in Pom was interesting—but the court asked
for an effective disclaimer.  We hear something different from courts and
FTC.  If we take a step back and ask:
what is the right standard?  Clear &
conspicuous, says FTC—seen, read, and understood in context. Disclaimer
standard doesn’t match up w/general standard, which is reasonable
consumer.  FTC says: Consumer might
glance at headline & turn the page—but that’s not reasonable consumer.
 
Dayal: Effective has to mean clear & conspicuous.  “Studies show drinking 8 ounces of Pom can
treat, prevent, or reduce the risk of …” 
Then at the bottom: “evidence is inconclusive.”  That’s a rebuttal.  Can’t imagine how putting it in 12 point type
would help. 
 
RT: Effective disclaimer: is a great idea; now we have to
convince the courts that they can’t just eyeball or imagine an effective
disclaimer.  On supplements being
regulated differently than drugs: wait a year or so!  On §5: FTC understands it still has to prove
a violation of §5; if it did have rulemaking authority, and announced the native
advertising guidance as a rule, should the DC Circuit uphold it under the
APA?  Deference would in theory be
required.
 
Q: How is/should we draw the line between RCT-required
claims and non-RCT-required claims? Is this a scientific question? A marketing
question?  Legal?  Who
should decide? 
 
Dayal: The FTC doesn’t take enough of a practical approach.
If I’m drinking a juice, I have a different expectation than a drug I got from
a doctor or OTC.  It’s appropriate to
evaluate the claims being made requiring less proof.
 
Lavie: distortion of market as between Pom and orange juice.
 
Dayal: is that consumer protection?
 
Lavie: yes!  Money is
consumer protection too.
 
Greenbaum: The FTC would say they don’t make policy.  Their role is §5.  FTC prohibits a number of claims, like
biodegradability, where consumers are more likely than not to throw it away in
a place that it won’t biodegrade.  Better
to prevent deception by consumers who think it will biodegrade in a landfill
than to encourage biodegradability claims.
 
RT: scientific and marketing/linguistic/psychological
question: truth and perception.  Supplements
v. pharmaceuticals: people have no idea about the regulatory difference and
think the FDA has approved it all!  Food:
we don’t really know.  Food claims could
be just as convincing as supplement claims; we need to know more about
that.  They can distort the market, directing
people away from doctors/other treatments.
 
Q: most people don’t take out the little insert to read any
kind of warnings on pharmaceuticals. But if you watch a TV ad, you get mixed
messages.
 
RT: FDA required Seasonale to do corrective ads; sometimes
disclaimers do serve the function of saying “this is complicated/important; you
need to think hard about this” even if they aren’t comprehended in specific.
 
Dayal: note that other countries don’t allow TV ads for
drugs. There’s only so much you can do in 15 seconds; you can give a heads-up.
 
Jeremy Sheff: Most of the largest advertisers in spending
are DTC ads.  Fact of disclosure might
trigger a consumer reaction, but not necessarily one we like—the DSHEA
disclosures may make supplement ads more convincing/trustworthy. 
 
Greenbaum: the problem is that the FTC has research showing
they’re so ineffective—50 years of FTC cases, never found one where a
disclaimer worked.  FTC endorsement
guides tested print ads—tested with a “results not typical” that was big; even
those still aren’t all that effective. 
You can’t make consumers read stuff, but is that the advertiser’s
fault?  [RT: Yes.]
 
Q: Aren’t the constitutional standards for commercial speech
relatively low as for other speech?  [Yes
if false and misleading, no if not—that
makes the question of who sets the false/misleading line and what standard of
review is applied to their factual finding of misleadingness incredibly
important.]
 
Q: Vitamin-type products often have certifications,
self-certifications—how does the law deal with those?
 
Q: compare SEC’s standards for forward-looking statements
w/the FTC’s standards.
 
Q: is the court separating above the line/below the line
honesty?
 
Q: if the FTC is really aiming to protect consumers, the 1-
or 2- study question misses the point if they’re sponsored by the companies.
Can we standardize the studies?
 
Dayal: double-blind should be theoretically indifferent to
sponsorship.  Pom has an interesting discussion about cherry-picking
evidence.  Defer to what scientists think
is accurate/reliable.

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8th Circuit finds copyright preemption of publicity claim

Posted on February 26, 2016 by rtushnet
Dryer v. National Football League, No. 14-3428 (8th Cir.
Feb. 26, 2016)
 
I blogged
about the district court ruling and wrote an
amicus brief in the appeal; now the 8th Circuit affirms the
rejection of football players’ right of publicity and Lanham Act claims based
on clips in which they appeared in films by NFL Films.  The films depicted “significant games,
seasons, and players in the NFL’s history” via compilations of game footage and
interviews with players, coaches, and other individuals involved in the game.  NFL Films sells copies to consumers and
licenses performance rights to distributors, as well as broadcasting some films
on its own TV network and website.  The
appellants appeared in game footage and interviews in the films; they didn’t
challenge that NFL Films had consent to use the interviews, but based their
claims on appearances in the game footage.
 
On the right of publicity claim, the court of appeals
affirmed the district court’s copyright preemption holding.  Appellants argued that their performances in
football games were part of their identities rather than “fixed” works eligible
for copyright protection.  Nope—copyright
specifically includes fixed recordings of live sports performances.  NFL Films had permission to record those live
performances, and had valid copyrights to its footage.  Thus, the right of publicity claims were
based on a work within the subject matter of copyright.
 
The remaining §301 question was whether there was any “extra
element” to save the claims.  The purpose
of copyright is to “suppl[y] the economic incentive to create and disseminate
ideas.” The purposes of the right of publicity are “the desire to provide
incentives to encourage a person’s productive activities and to protect
consumers from misleading advertising.” Because of the state’s consumer
protection interests, a right of publicity claim based on use of a copyrighted
work in an ad could have purposes unrelated to copyright’s aims (I like that “could”—there
are cases in which no consumer protection purpose would be implicated, even in
an ad).  But for noncommercial uses, such
a claim “seeks to subordinate the copyright holder’s right to exploit the value
of that work to the plaintiff’s interest in controlling the work’s
dissemination” and thus attempts to claim “exclusive rights within the general
scope of copyright,” triggering preemption.
 
Appellants argued that the films were commercial speech because
they were ads for “NFL-branded football,” a specific product that the films
promote for the NFL’s economic benefit. 
But the films didn’t propose a commercial transaction; they didn’t refer
to the NFL as a specific product but rather as part of historical events; and
the consumer demand for the films demonstrated that they existed as “products”
in their own right. “[T]he NFL’s economic motivations alone cannot convert
these productions into commercial speech.”
 
On the Lanham Act claims for false endorsement, the court of
appeals for some reason applied the §43(a)(1)(B) literal falsity/implicit
falsity distinction while identifying the claims as being based on §43(a)(1)(A).  It further noted circuit precedent that evidence
that some consumers “misunderstood” a statement is insufficient to overcome
summary judgment where the statement is not objectively “misleading [or]
false.”  Appellants relied on “survey
evidence showing that a statistically significant number of survey participants
concluded upon viewing the films that the depicted players endorsed the NFL.”  But there was no evidence that the films
included misleading statements about the players’ current relationship with the
NFL.  There was no evidence of literal
falsity, and no evidence that the films “implicitly convey a false impression,
are misleading in context, or [are] likely to deceive consumers.”  (Um, other than the surveys, which is why you
need Rogers under current trademark
law; this is screwy logic for the right result, and maybe it’s better to frame
it this way because it may provide a basis for a broader attack on the
laughably broad concepts of false endorsement that other courts have accepted.)  The films showed only their actual
performances in past NFL games. “Although the films as a whole may portray the
NFL in a positive light, nothing in the films implies that the appellants share
that perspective,” especially not the clips of their game performances. Thus,
the false endorsement claim failed as a matter of law.

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National Review reports on false advertising suit against Trump University

Posted on February 25, 2016 by rtushnet

Hey, the
National Review found a consumer protection lawsuit it likes: the one against
Trump University.  If he’s elected,
do we get to call him the Conman-in-Chief?

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Another court finds keyword buys don’t cause likely confusion

Posted on February 24, 2016 by rtushnet
USA Nutraceuticals Group, Inc. v. BPI Sports, LLC, 2016 WL
695596, No. 15-CIV-80352 (S.D. Fla. Feb. 22, 2016)
 
Plaintiff, here “Beast,” sells sports nutrition supplements
using trademarks such as “Beast,” “Beast Sports,” “Beast Mode,” and “Train Like
a Beast.” They’re packaged with the color “Beast Blue” and “a prominent ‘B’ in
black lettering.” Beast has used the “B” since 2008.  BPI sells competing products under the marks “BPI”
and “Be Better. Be Stronger. BPI,” the former of which was registered in 2012
and used since 2009.  BPI began using the
Better/Stronger mark on its products in early 2015.
 
BPI allegedly found that Beast had been buying keywords on
Amazon that included the BPI mark, along with “BPI Sports” (another BPI federally
registered mark), as well as “Best BCAA,” “Best Creatine,” and “Whey HD,” products
sold by BPI.
 

The banner redirects to a website offering Beast products
(though it was contested whether this meant a Beast-operated website or an
Amazon page).
 
In addition to its keyword buys, Beast allegedly infringed the
Be Better Be Stronger mark by using a tagline incorporating the stylized “B”
followed by the words “Original,” “Genuine,” and “More.”  This could be interpreted to read as “B
Original B Genuine B More,” allegedly confusingly similar to Be Better Be
Stronger BPI.
 

Beast argued that BPI lacked rights in the Better/Stronger
mark.  BPI’s CEO attested, under penalty
of perjury, that BPI had been using that mark “on all of its product labels,
product packs, advertisements, billboards, videos, and other promotional
materials” since April 7, 2015, which was enough to constitute evidence of
adoption.  Was the use sufficiently
public to identify the products to the public? Yes, because BPI showed that it used
the Be Better Be Stronger Mark on social media such as Facebook and Instagram,
in widely distributed print media such as Men’s Fitness Magazine, as well as in
other print advertisements, at trade shows, and on promotional items. Even
without sales volume evidence, this was enough to show that BPI targeted the relevant
public.  (The mark seems clearly
descriptive to me under the “general laudatory terms” rule—the use may be
public use, but public use doesn’t mean the public understands a trademark
meaning; but see below for the court’s conclusion.)
 
BPI argued initial interest confusion based on the keyword
buys; the Eleventh Circuit hasn’t adopted IIC as an independent theory, so
district courts in the circuit are reluctant to find it actionable.  BPI argued that North American Medical Corp.
v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008) “conclusively determined
that the purchase of ‘meta tags’—a piece of code akin to the use of advertising
keywords here—was actionable under the Lanham Act.”  As the court explained, “Not so.”  In Axiom,
a search using the plaintiff’s marks “yielded a result containing not only the
defendant’s competing website but, also, a description of the website which
included and highlighted the plaintiff’s trademarked terms.”  Thus, the Axiom
court found that consumers would believe that defendant’s products had the same
source as plaintiff’s, or at least that defendant distributed plaintiff’s
products, so there was regular source confusion.
 
By contrast, the banner ads didn’t refer to any of BPI’s
marks.  Thus, even assuming that IIC is a
valid theory, Beast’s keyword buys didn’t cause it.  BPI couldn’t find any cases indicating that
buying keywords, without more, suffices to cause IIC, which involves “luring”
consumers via similarity to another mark. 
“[T]he use of a keyword encompassing a competitor’s terms does not
necessarily produce an infringing advertisement; it is the content of the
advertisement and/or the manner in which the mark is used that creates initial
interest confusion.”  The court politely
referred to the Ninth Circuit’s “continued examination” of keyword ads culminating
in Network Automation to bolster its
conclusion.

Beast’s banner ads clearly contained Beast’s mark, “Click to Save on Fitness
Supplements,” and a clear identification of the advertisement’s sponsor, “Beast
Sports Nutrition.” Plus, the distinct markings of the banner ad, contrasting to
search results, “alerts the consumer viewing the page to the fact that the
image is an advertisement for products separate from those already listed in
the website’s organic search results.”  BPI even submitted evidence that keyword buys
were standard in the internet advertising industry, and the court declined to adopt
a premise that “logically culminates in the destruction of common Internet
advertising methods and unreasonably encumbers generally accepted competitive
practices.”
 
Turning to the Better/Stronger mark, the court found the
mark suggestive because it identified the intended results of the product, not components of the product.  However, the mental leap required was “minor,”
so the mark was only weakly suggestive. 
No discussion of market strength.
 
Similarity: BPI argued that the B Original tagline copied
the Be Better Be Stronger Mark’s cadence and sound.  The first version was most logically read to
incorporate a repeated “B” sound, which did create a similar impression to the Be
Better Be Stronger mark, and “even the second rendition seems to require an
articulation with a repeating ‘B’ sound.” 
Thus, the sound was “strikingly similar.”  Nonetheless, other elements created
dissimilarity, especially the use of each party’s house mark, with which the
taglines were exclusively used.  The
house marks clearly identified the respective sources of the parties’
goods.  Plus, the recurring syllable was
just a common verb, which made the similarity less relevant.  In addition, “the number of syllables present
in each mark undoubtedly affects the tempo of the mark’s pronunciation, as well
as the mark’s intonation, depending on the speaker, thereby altering the
overall impression of the respective marks.” 
Thus, similarity was a neutral factor in the court’s analysis.
 
Channels of trade/advertising methods: The products were the
same and sold in the same retail outlets to the same consumers.  Favored a confusion finding.
 
Intent: There was no evidence of intent to capitalize on the
goodwill of the Better/Stronger mark.  Actual
confusion: BPI had no evidence.  Neither
favored a confusion finding.
 
Overall, the court found confusion unlikely given the
relative weakness of the BPI mark and the dissimilarity between the parties’
uses.
 
The court rejected Beast’s unclean hands defense related to
BPI’s alleged purchase of Beast-related keywords, but this was a disputed
factual issue.
 
 

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Second Circuit upholds law against “credit surcharges” that allows “cash discounts”

Posted on February 22, 2016 by rtushnet
Expressions Hair Design v. Schneiderman, 803 F. 3d 94 (2d
Cir. 2015)
 
Somehow I missed this when it came out last September! New
York General Business Law § 518 provides that “[n]o seller in any sales
transaction may impose a surcharge on a holder who elects to use a credit card
in lieu of payment by cash, check, or similar means.” The district court
enjoined this law on First Amendment grounds, and the court of appeals
reversed.
 
The background:
merchants pay swipe fees to credit card issuers, 2-3% of a transaction.  Merchants would like to pass these costs on
to consumers using credit and let them know about the charge in order to
convince them to pay cash, so they’d like to impose a “surcharge.”  A discount for cash can also be offered, but
we know behaviorally it’s less effective of a frame.  It’s also plausible that people who were
deterred from using credit cards would buy less (since we find it harder to
spend cash than to use credit), thus dampening retail sales.  (Though presumably the merchants who want to
“surcharge” will take that into account for themselves.)  Proponents of bans on surcharges also argue
that they “tend to exceed the amount necessary for the seller to recoup its
swipe fees, meaning that sellers will effectively be able to extract windfall
profits from credit-card users.”  By contrast,
cash discounts won’t be set higher than the marginal cost of credit.  (Citing my
colleague Adam Levitin and spelling his name correctly this time!) Plus,
because credit-card surcharges (unlike cash discounts) offer a means of increasing customers’ bills, “dishonest
sellers may attempt to profit at their customers’ expense by imposing
surcharges surreptitiously at the point of sale.”
 
Federal law used to ban surcharges; when that law expired in
1984, eleven states, including New York, enacted their own no-surcharge
rules.  The law wasn’t very significant
for a while because of no-surcharge contracts imposed by credit card issuers,
but now those aren’t in effect any more because of antitrust law, and the NY AG
went after a few sellers for imposing “surcharges” to listed prices.
 
Plaintiff Expressions alleged that its current policy is to
charge two different prices, one for credit-card customers and one for cash
customers. But it was concerned that describing this difference as a “surcharge,”
or “say[ing] that credit is ‘extra’ or ‘more,’” might violate § 518.
Expressions would like to charge credit-card customers 3% more than cash
customers, and to display a sign that “characterize[s] the price difference as
a 3% credit-card surcharge on top of the listed cash price” without “displaying
the total credit-card price as a dollar figure.”
 
The court began by noting that § 518’s use of the word
“surcharge” “assumes that a seller to which the statute applies will have a
‘usual or normal’ price that serves as a baseline.”  This isn’t the ultimate price charged to cash
customers, but is the “regular” price. 
So, “if a seller’s regular price is $100, it may not charge credit-card
customers $103 and cash customers $100, but if the seller’s regular price is
$103, it may charge credit-card customers $103 and cash customers $100.”  Sellers who post single prices are posting
the “regular” price, and can’t charge credit-card customers more than the
sticker price if cash customers aren’t also charged. But the state law, unlike
the federal law before it, didn’t explicitly use the term “regular price,” and
didn’t deal with the issue of whether a seller can post a double sticker price,
one with the credit price and one with the cash price.
 
However, plaintiffs were seeking to invalidate the law’s
prohibition on advertising a single price plus a credit-card surcharge, not
just the arguable prohibition on dual sticker prices.  The court concluded that §518 was constitutional
as applied to single-sticker price sellers; the double-price advertising
challenge failed because §518 could readily be construed to be limited to the
single-sticker context.
 
The court concluded that §518 regulated conduct, not
speech.  Prices aren’t speech, though
they are communicated through speech. 
While advertising lawful prices is protected by the First Amendment, setting prices can be regulated
directly.  “If prohibiting certain prices
does not implicate the First Amendment, it follows that prohibiting certain
relationships between prices also does not implicate the First Amendment.”  Plaintiffs conceded that a flat ban on any
discounts or surcharges for credit-card use wouldn’t trigger First Amendment
scrutiny.
 
Plaintiffs responded that, because credit-card surcharges
and cash discounts “ultimately amount to equivalent differences between the
price charged to credit-card customers and the price charged to cash customers,”
§518 burdened speech by drawing a line based on words, rather than on economic
realities.  But by its terms, §518 didn’t
bar any referring to credit-cash price differentials as credit-card surcharges,
“or from engaging in advocacy related to credit-card surcharges; it simply
prohibits imposing credit-card surcharges.”  
 
Whether a seller is imposing a credit-card surcharge can be
determined without reference to the words the seller uses to describe its
pricing scheme: “If the seller is charging credit-card customers an additional
amount above its sticker price that it is not charging to cash customers, then
the seller is imposing a forbidden credit-card surcharge.”  Thus, the only relevant words and labels were
(1) the sticker price and (2) the price charged to credit-card customers.  Those prices aren’t speech, and regulating
the relationship between them didn’t regulate speech.
 
[Though I can see the argument that marking the product with
the (cash) price is speech, because it’s a statement “this is the price” as
well as being the price (unless there’s a credit surcharge).  It’s a performative speech act—but
interestingly, it is only performative so long as the law says so.  So we could say that the law is regulating
the performative part of the price: the law is specifying what the “price”
is.  Without the anti-surcharge law, the
seller could say “I didn’t mean to say that was the ‘price’ just because I put
it on the sticker.”  But that would raise
pretty obvious issues of consumer deception. 
In consumer protection law, we generally don’t let sellers redefine
words just because they would like to, even if there’s a small-print
disclosure—what a reasonable consumer would take away is the measure.]
 
Plaintiffs erred in insisting that imposing a surcharge (an
amount over sticker price) was equivalent to the words used to describe that
pricing scheme, “credit-card surcharge.” 
The law didn’t “favor” using the term “discount.”  It simply regulated the relationship of
sticker price to the price charged to credit-card customers.  A seller who does this could call it a
“discount” or a “cabbage” and would still violate the law.  A seller who offered a discount on its
sticker price to cash customers could call it a “surcharge” and would be acting
lawfully.  Of course, it might be more
natural to use more common labels, but the fact that each pricing scheme has a
label doesn’t mean it is the label.
 
Plaintiffs argued that “credit-card surcharges” were the
same thing as “cash discounts” because consumers react differently to
them.  (Put that way, that argument sounds
counterintuitive, because you might ordinarily think that people react
differently for some reason; the
implicit argument is that there is a predictable cognitive error (though maybe
it’s just a heuristic that is useful in many situations) and that government
cannot intervene to ensure that the consumer will perceive the baseline in a
particular way.)  But that argument
assumed that NY had regulated the labels, and not the prices.  The presumption against content regulation
doesn’t help answer the question of whether the law at issue regulates speech
or conduct.  Consumers can be made
unhappy lots of ways; “the mere fact that consumers react negatively to
surcharges thus does not prove that surcharges are speech.”  Consumers just don’t like being charged extra,
because of loss aversion.  Consumers are
annoyed when the sticker price is lower than the price they’re charged. If the
sticker price is $103, credit-card customers won’t be particularly annoyed by
having to pay $103, even if cash customers get a discount, and nothing about
that “turns on any words uttered by the seller.” [Other than the sticker price,
which created the initial expectation.] “[W]e are aware of no authority
suggesting that the First Amendment prevents states from protecting consumers
against irrational psychological annoyances.”
 
Moreover, it’s fine to ban certain prices because of how
consumers react to them.  The Supreme
Court has explicitly approved price controls designed to suppress consumer
demand.  The First Circuit allowed
Providence to ban discounts for tobacco products based on evidence that such
discounts would lead “to higher rates of tobacco use among young people.” Although
sellers could have lowered list prices to achieve the same dollar amounts as
the discount price, that fact doesn’t change the regulation from a price
regulation to a speech regulation.  New
York can likewise decide to spur demand for credit-card use without violating
the First Amendment, as applied to single-sticker sellers.
 
The court of appeals also reversed the finding of
unconstitutional vagueness. Section 518 plainly has a “core meaning that can
reasonably be understood”: “sellers who post single sticker prices for their
goods and services may not charge credit-card customers an additional amount
above the sticker price that is not also charged to cash customers,” just like
the lapsed federal ban.
 
In a footnote, the court noted plaintiffs’ argument that the
surcharge ban is a naked giveaway to the credit-card lobby.  However, the legislature identified a number
of “public-regarding” aims as well, and anyway, “a panel of this Court has
recently expressed the view (that we need not address) that even unadulterated
‘economic favoritism’ is a sufficiently rational basis to justify a state law
regulating economic activity,” because we don’t like Lochner.  Anyway, plaintiffs
didn’t bring a rational basis challenge; the wisdom of §518 was not for the
court of appeals to judge.

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WIPIP Session 7: International issues

Posted on February 20, 2016 by rtushnet
Session 7 Room 145: International IP
 
Sean Flynn, Mike Palmedo, & Walter Park, Creating a
Database of Changes to Copyright User Rights in 40 Nations
 
Fair dealing is flexible (uses a balancing test) but not
open (limited classes of acts).  There
are counts of industries in different countries; empirical question: how does
the law actually impact behaviors? 
Scattered data, such as lack of enforcement of German ©s in US during
WWII, but not broad data.  Existing
surveys are static, not dynamic.  There
are various exceptions around the world; South Africa’s quotation exception,
cabined only by fair practice, not criticism/review—looks like fair use in its
openness internally.  Looking for whether
this openness has consequences for innovation.
 
Calboli: Do you find major differences b/t common and civil
law?  Portugal has adopted something like
fair use.
 
A: We’re finding openness within civil law as well.  Civil law systems often say “we don’t use
abstract norms,” but even w/o multifactor test there’s often flexibility.
 
Lunney: You show larger revenues for big content industries
in nations with fair use v. those without, but you aren’t making causal claims.
 
A: not yet.
 
Lunney: How do I figure out for the US whether flexibility
is increasing?  Not sure you can get a
map of equivalent changes v. each district court/court of appeals cases in the
US.  Explain how you will map
changes/growth in fair use.
 
A: regionalization is extremely difficult, but the key
aspects are use of citations—we probably will look for circuit court level
stuff. In Brazil we’re looking at court changes—3-4 decisions opened up
interpretations of exceptions.
 
Alexandra George, Alternative Dispute Resolution in
International Intellectual Property Disputes: A Solution to Jurisdictional
Challenges?
 
Conciliation: like mediation, but conciliator puts forward a
nonbinding settlement proposal at some point—can be good if conciliator is an
expert in the field.
 
MedArb: blend of mediation and arbitration; binding if
mediation doesn’t work. The neutral may be the same at both stages (mediator
hears your secrets, finds your bottom line, and that’s controversial) or may be
different.
 
Expert determination: usually binding unless otherwise
agreed; expert has inquisitorial powers to gather info; usually only decides
issue w/in their area of expertise; can be useful in patent cases.  Mutuals generally can be experts, which may
be an improvement on judges.
 
Benefits: certainty; few avenues of appeal exist. Cost,
confidentiality, control over neutrals, location, date, even outcomes for mediation/conciliation.  Outcomes that wouldn’t be available in court;
speed; high resolution rate—80% for mediation, nearly 100% for arbitration.
 
WIPO is involved in ADR: maintains a list of neutrals &
matches them to cases; domain name dispute resolution; trade mark office
mediation.  ADR hubs: major cities like
London, Paris, Geneva, NY, Tokyo, Singapore—but Hong Kong, Delaware, etc.
promote themselves as good places—stable & predictable legal system, lack
of corruption, high quality lawyers, perception of neutrality, arbitration law
based on UN model law, geographic convenience.
 
Int’l dimension: mediation gets more complicated, but if we
get a treaty allowing settlements to be enforced worldwide, could be an important
development. Another possibility: ADR divisions of courts.  Online ADR: newly developing.  Model: UDRP through WIPO.  Small parties w/o much money may be able to
solve int’l problems this way.
 
Q: worried about capture of ADR by well-resourced interests
like TM bullies that then skew the results. 
Concerted effort by large corporations in US to mandate arbitration in
consumer contracts—less fair to smaller parties/more vulnerable groups.
 
A: Agree it’s an issue. 
When both parties seek arbitration, it works a lot better.
 
Peter Yu: Dealing with distrust of developing countries’
legal systems doesn’t deal with the choice of law issue.
 
A: Depends on how arbitration agreement is drawn up.  May allow arbitrator to choose equitably.
 
Kamil Kiljanski & Benedikt Herz, Survey of IP Piracy in
the EU: Actually about displacement rates of consumption of AV content—unpaid consumption
is common in Europe, but effect on movie sales is unclear.  Existing studies find very different
displacement rates, 0.27 to 1—all over the place for movies.  Our study is the first to use consistent
methodology and a big sample.

Dataset: survey.  6 different European
states.  Post-treaty/recent.  Surveyed minors: 14-17, also not done
before.  Survey how much unpaid and paid
consumption each had; don’t ask them what-if questions.  Trying to find if an individual consumers
more unpaid content consumers less paid content.  Endogeneity problem: Individuals differ in
unobserved tastes for films.  If you don’t
control for this, you get bias and more modest displacement rates than the
truth.  Control: some sort of supply
instrument.  Event study: close of
MegaUpload may give you more truthful estimate of displacement. But we didn’t
have such events systematically across member states. Control for broadband,
but density is now very high/not good any more. 
Use Rob/Waldfogel methodology: exploit the fact that most films are seen
in the year of release.  Except they did
it for 500 US students and we did it for 30,000 people in Europe.
 
Germany, Spain, France, UK, Poland, Sweden; 2014.  Report the way they saw the movies surveyed.
What about underreporting? We ensured anonymity; avoided terms w/negative
association, such as “illegal” and “piracy,” embedded questions in other
questions; specifically named known sites in each country.
 
Results: big differences b/t countries.  Much less illicit consumption in Germany than
in Sweden or Spain.  1/7 movies viewed
through illegal means.  1 illegal 1st
view reduces legal 1st views by 0.416 units.  Estimated displacement rate is higher than
with cross-sectional approach.  Illegal
first view slightly increased 2nd legal view: 0.04 units.  Higher in Spain than France or Germany.  For the whole sample, we estimate lost movie
sales to be 4.27%.  Germany v. Spain: 4x
difference in percentages.
 
Bartow: kind of movie? Blockbusters/special effects v.
romantic movie?  Some movies have staying
power.
 
A: this is just blockbusters/biggest sellers in the
country.  If it’s the rate for
blockbusters, it’s probably lower for other movies, because blockbusters are
the most-pirated.
 
Q: Are you just looking at movie attendance?
 
A: Cinema attendance, DVD, legal download—etc.
 
Q: what about delayed release of DVD?
 
A: we used release date country by country.
 
Q: Views v. downloads: people download stuff they don’t
watch.
 
Peter Yu, The Investment-Related Aspects of Intellectual
Property Rights:
 
Eli Lilly’s $500 million complaint against Canadian gov’t;
challenges against plain packaging by tobacco companies.  Concerns: (1) process—high arbitration cost,
$8-10 million on average and up to $30 million, compared to $300,000-400,000 in
TRIPS WTO dispute; (2) impartial/unaccountable artibrators; lack of transparent
proceedings; frivolous disputes; (3) interpretation: lack of binding precedent,
no appeallate process, oversimplified view of IPRs; ignore TRIPS flexibilities
and safeguards; narrow focus on IP side of bargain.
 
Outcome: large awards, $50 billion to Yukos Oil; used to
challenge legit regulations: environmental, labor; more forums to sue gov’t;
more lawsuits by private actors; more coverage beyond TRIPS based IPR;
rewriting TRIPS and other multilateral bargains.
 
TPP: says hearings will be open and available to public; all
submissions will be published for US cases. 
Attorneys’ fees for unreasonable claims. 
Amicus submissions allowed for stakeholders.  Right to regulate in public interest for
public health, safety, financial stability, and environment; also a
tobacco-specific measures allowing regulation. 
Burden on claimant in all instances to prove all elements of claims;
investor expectations aren’t enough.

Remaining concerns: Some improvements in TPP, but still concerns—high arbitration
costs; ignore TRIPS flexibilities and safeguards. To prevent forum shopping, a
claimant must waive the right to institute parallel proceedings in other
forums.
 
Suggestions for improvement: interrogate whether IPRs at
issue constitute investment.  Rights don’t
equate to investment in a country—investment protection focuses on investment
being taken away.  Registration of
patents, for example: you can register based on foreign examination in some
cases; just claiming patent rights shouldn’t be enough.
 
Contingency: there are a lot of contingencies in IPRs—invalidation;
maintenance/renewal fees; free speech and competition law constraints. This should
be recognized.  Many patentees will stop
paying maintenance fees if patent not valuable. 
 
IP investment protection—might need to look at overall
protection for investor, such as FDA protection, or understand that competition
law reduces protection.  State: recognize
state’s foundational contribution to registration and enforcement
infrastructure; bargain-based contribution—some companies might get tax
concessions/free land and that should be considered.
 
Examine relationship between TPP and other int’l agreements
like TRIPS.
 
Institutional improvements: Advisory center, similar to WIPO’s.
Small claims arbitration.  Appellate
process improvements.
 
Silver lining: TPP investment chapter maybe can be baseline
for ISDS safeguards.  Developing
countries may make traditional knowledge/traditional cultural expression claims
and may be able to use ISDS against them. 
May reduce WTO litigation as home gov’ts say: bring your own claim!  Benefits to small/medium enterprises if costs
of arbitration can be limited.
 

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WIPIP session 6: IP Theory

Posted on February 20, 2016 by rtushnet
Session 6 IP Theory 3
 
BJ Ard, More Property-Like than Property: The Asymmetry of
Remedies in Tangible and Intellectual Property
 
Real property remedies are less “property-like” than IP
remedies.  Property v. liability rules.
Real property often much more forgiving of unwitting trespasser than IP
is.  Putting a permanent structure
accidentally on a neighbor’s land.  If
you’re unwitting, court is more likely to enforce a liability rule: require you
to compensate your neighbor for lost land: involuntary sale.  In ©, by contrast, subjective innocence is
unlikely to entitle you to the innocent infringer defense.  In patent, you could do a good faith search
and still miss; though you might be spared punitive damages, an injunction can
still likely issue.  Adverse possession:
intentional trespass may become nonactionable. 
 
(1)  
It seems backwards that “property” rules would
be more prevalent in IP.  Proponents of
right to exclude: added security provides incentives to invest; remedies force
would-be takers to negotiate in the market; property rules can even secure
personality rights by protecting non-economic value invested in certain forms
of property. Nonetheless, tangible property law recognizes strong
justifications to depart.  Curious b/c
infringements in IP are often more socially efficient than the equivalent
taking in real property, because creativity is often iterative and builds upon
previous work.  In addition, nonrivalry
means that there’s no deprivation of use value as there is in real property
trespass.  Boundaries of IP are
communicated relatively poorly relative to boundaries of tangible property, so
unwitting infringers are more likely and harder to deter because they don’t
know.  Incumbent on property rule proponents
to justify.
(2)  
Pro-propertization rhetoric is missing context—many
argue that IP should be enforced by injunctive remedies/property rule
regularly.  Against the history of real
property remedies, it’s weird to derive rules for IP based on abstract theories
of property.
(3)  
Questioning IP’s current strategy of dealing
with these excesses. Congress occasionally acknowledges the problem, but its
go-to fix is piecemeal solutions—excused specific kinds of literal copying;
DMCA safe harbors.  Liability rules in
the form of compulsory/statutory licenses where transaction costs of property
rule seem unworkable. Startups, consumers, others who lack political voice can’t
get the exceptions they need.
 
Sheff: How does eBay
play into all this, if the quintessential property rule is injunction and eBay is decimating injunctions?
 
A: if courts apply it consistently, it goes a substantial
way to remedying this disparity (except for statutory damages). Patent comes
close to liability, but whether that works in practice comes down to
technicalities of calculation, which can sometimes be supercompensatory.
 
Calboli: Caps on infringement damages exist across
jurisdictions.  These are countries with
strong property rhetoric/traditions. Is the problem the property theory or the
structure of remedies?
 
A: You see in some jurisdictions a better sense of proportionality
in the remedies, missing in American context. 
If property is a right to exclude, that’s tightly linked to injunctive
relief.
 
RT: Dave Fagundes’
paper on this?  Patrick Goold’s
argument that copyright is really negligence, properly seen.  IP = patent, copyright.  Trademark?
 
A: Similar to Fagundes and Michael
Carrier—the wisdom of limits built into real property; good to build them
into IP.  Goold: the problem is that fair
use doesn’t have enough flexibility to deal with all the issues you might want in
a liability regime.  Not much familiarity
with TM (which might mean the paper should specify about ©/patent versus TM).
 
Q: Laches, estoppel as relating to adverse possession—which usually
requires open & notorious use.  Also,
there’s a reason for stronger remedies in patent b/c patent is temporally
limited as real property is not.
 
A: Could more equitable discretion in remedies help
this?  Petrella is one thing he worries about—no laches in ©. 
 
Tonya Evans, Reclaiming Copyright in the Age of Celebrity
Loan-Outs & Other Gratuitous Transfers
 
Intersection of property succession laws and ©, specifically
testamentary freedom v. right of statutory heir to terminate author’s transfers
during lifetime, specifically to an author-controlled, author-benefiting
vehicle.  Thesis: such transfers should
be treated equally; the latter should also not be subject to termination by
statutory heirs.  Apparently unintended
disparity between non-probate assets and probate assets, and the solution is to
except non-probate assets from termination rights inherited by heirs.  (So, to disinherit your heirs from your
literary estate, you have to hang on to your copyrights until death.)
 
Termination may be effected notwithstanding any agreement to
the contrary.  Loretta Lynn, Tom Petty,
Village People, Bruce Springsteen have successfully terminated, having survived
long enough. But what happens when an author passes away before the window
opens?  A small subset of heirs can
terminate.  Ray Charles: created a
private foundation funded solely by his royalties, designated sole heir in his
will.  His 12 kids got irrevocable trusts
after they waived any further right to his estate.  After he died, 7 children promptly served
notices of termination.
 
Current law includes gratuitous transfers made by the author
to a wholly controlled loan-out company, self-settled trust, private foundation
or similar will substitute.  Sometimes
they create future works as WFH for the trust/foundation, but will still want
to transfer existing works/rights to royalties. 
Useful for tax, estate planning, privacy—probated wills are public.  Unintended consequence: not honoring testator’s
well-planned intent.
 
Testamentary freedom: how do we identify what things might
be accepted, given the problem of the industry creating wiggle room against
Congress’ intent.  Solution: certain
gratuitous author transfers in the same way that wills are treated, exemption
from termination of transfers. A lot of artists transfer assets into their own
music publishing company; a critical means of asset protection along with
loan-out companies—financial/tax benefits to setting up that way.
 
RT: Really interesting project of evident practical
significance.  The industry evasion
concern is what jumps out at me: how should a gratuitous transfer be defined?  Can a proper definition do the necessary
work?
 
A: “author controlled, author-benefiting”—focused on that,
with concrete examples, is a good start.
 
Q: Entertainment label could work with that.  Are we more worried about transfers close to
the initial license period?
 
Ard: you’re concerned with the economic consequences of
interference w/Ray Charles’ intent. Is there an expressive component?  Marvin Gaye might have wanted a specific
approach to claims about copyright infringement that would be frustrated by the
kids.
 
A: Yes, that’s a primary concern.  The problem occurs b/c of financial/tax
issues, but as a property professor I’m concerned with parity for the treatment
of non-probate and probate assets.
 
Q: is there anything
courts can do if Congress won’t act?
 
A: will try to give some guidance to courts: w/Ray Charles
Foundation case, the court found that the Foundation had standing to fight
termination, but much remains to be decided. Heirs that agreed to do something
= doesn’t matter given the statutory language. 
[Maybe that should mean or be amended to mean notwithstanding any
agreement to the contrary before the author’s death.]
 
Betsy Rosenblatt, Belonging as Intellectual Creation: What
are we creating when we engage in creative endeavors?  First, stuff, the thing law has been most
concerned with—works, marks, inventions. 
But other things—communities—aren’t well served by incentives for
creation of stuff. But “progress” could embrace harder to quantify things like
human flourishing.  Money isn’t
everything for everyone.  One possible
creation of intellectual endeavor is a sense of belonging, and this can factor
into IP law and policy as we go forward. 
 
Belonging: personally and contextually mediated emotion felt
when people feel connected w/group, values in harmony w/group, etc. Basic human
need & value.  Vital component of
mental health.  One of the few universals
across cultures.  Strongly tied to
whether people find their lives to be meaningful.  IQ, motivation, physical health, life
expectancy can all be affected.  Ability to
participate in creative decisionmaking + reward, which reward is rarely
remunerative—being recognized/acknowledged as member of community, or
experiencing status, success, sense of accomplishment.  Synergy between reward and trust;
gatekeepers/barriers to entry can promote belonging w/in and inhibit w/out.
 
Creative communities are well-suited to developing senses of
belonging: unite people; opportunities for sense of belonging; opportunities
for status/recognition; if there are shared norms/trust that promotes belonging
even more.  Belonging is one of the
things that creative communities create. 
Amateur and professional.  Professional
artists often value sense of belonging from creating in ways stronger or
synergistic w/professional goals.  Lady
Gaga & her fans both get a sense of belonging from sharing the creation.
 
Law can promote or undermine belonging.  You can make it harder for people to be
recognized for their work.  I think WFH
may be a terrible idea for belonging; but maybe that’s not so if people even
within corporate communities can develop a sense of belonging based on other
factors.  Formal law can break
down/disrupt communities’ common norms/governance systems.  When we privilege creation by firms instead
of innovation by innovation in WFH, §1201, TM overreach, lack of experimental
use exception in patent—those things likely undermine belonging by discouraging
creative endeavor by individuals; firms may or may not choose to promote belonging
within themselves.
 
Adds an axis to our understanding of why we may want certain
IP rules. When we regulate away communities, we may be doing harm.  Need law to regulate among groups, but maybe
not so much w/in groups.
 
Q: Individual creation focus is quixotic—how does individual
creation turn into group creation?
 
A: The kind of belonging I’m talking about is situating
oneself w/in a creative community. Corporations can’t experience belonging, but
people can.  There is group creation, but
our law doesn’t account well for that.
 
RT: what if belonging is so strong people make it up no
matter what?  Slavery, prisons.  Then the reason for protecting belonging
would be more dignity-based than utilitarian.
 
A: we shouldn’t be trying to undermine it b/c it has benefit
in itself—it’s something that people need/seek out—don’t need to incentivize
it, just need not to harm it.
 
Q: Privacy literature has a lot about belonging.  Is belonging dependent on exclusion?
 
A: I think it doesn’t require exclusion, but empiricial
literature is internally contradictory.
 
Q: what if oppression brings people together as “pirates”
etc.
 
Jeremy Sheff, Progress for Future Persons
 
Normative commitments/debates that underlie our choices
about creativity policy: philosophical underpinnings.  Future persons: people who may exist in the future
but don’t right now. When we decide on certain policies, we have to decide
whether and how to account for those future people.  But for earlier authors, would we have
Shakespeare?  Would we have Romeo & Juliet?  He probably would have written something else—but
it’s not clear it makes our world better or worse—a problem of counterfactual
valuation. How should we think about these futures when we account for the
lives they will live/who they will be? 
What’s the moral implication of the non-identity problem—that if your
parents hadn’t gotten together, you wouldn’t be here and it’s not clear that we
wrong anyone by failing to bring them into existence, or by bringing into
existence someone whose life is worse than the life of another person we could
have brought into existence instead.
 
Economic response: count future lives, but discount them
according to some function; but that means welfare of future generations
asymptotically approaches zero very quickly. That seems morally troubling:
spend $1 now to save a billion lives later. 
Response in environmental law discussions: but it deals w/rights and
norms.  It’s not clear it makes sense
unless we’re talking about whether human life will be at all possible, v.
choosing among different types of suffering to invest in preventing.  Theory may be no help; we are indulging our
own normative commitments, and that’s ok. It may be inescapable; but then it’s
important to design social institutions to bring together disagreements and decide.
The future has no vote/can’t bargain with us, so we need a moral commitment to
an other-regarding view of the future.

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