Notice and Notice Failure at BU, Panel 4

Posted on September 25, 2015 by rtushnet
Orly Lobel – Enforceability TBD: From Status to Contract in
IP and Human Capital Law
 
Noncompete agreements: used to blur lines of IP regimes,
make it harder to tell what is owned/ownable. 
Trade secret lawsuits are used in anticompetitive ways, to put startups out
of business.
 
Amazon’s standard contract: during employment, “employee
will devote employee’s entire productive time, ability, attention, and effort
to furthering Amazon’s best interests” … amazingly broad.  Innovation assignment contracts don’t care
about definition of IP; they list everything, whether patentable or not,
copyrightable or not, reduced to practice or not, trade secrets, confidential
business information, know-how, etc. 
NDAs are equally capacious.
 
New empirical study: 34% of employees asked to sign
noncompete after they accepted the job; large majority have no
negotiation/bargaining is rare; electronic contracts with pop-up notifications
to “accept” all terms—“cubewrap”; handbooks, policies, manuals containing
noncompetes.
 
80% didn’t know the state law; majority didn’t know if
noncompetes were enforceable; actual signing wasn’t more likely to occur in
enforcing states than nonenforcing; even among CEOs, 60% in California were
required to sign noncompetes.
 
Notice is important: but we have lots of rules that have to
be available to employees.  (Cue
discussion of disclosure literatures.)
 
Hot moment for reform: complete ban in California; Mass. bill
(unsuccessful so far). Dozens of state statutes restrict assignment clauses.  Some jurisdictions differentiate between high
salary earners or tech v. other industries—Hawaii banned noncompetes in tech
industry; MOVE Act would ban noncompetes for low-paid workers.  Statutory notice requirement: 2007 Oregon law
requires 2-week advance notice or an adequate salary raise when the employer
introduces a noncompete; MOVE Act would also require employers to disclose
noncompete restrictions.
 
Would notice help?  Traditionally:
Employment contracts are vague, open-ended. Sides prefer flexibility inherent
in evolving relationship. Actual terms unfold over time; not presented at point
of entry. Relational opportunism. Unknown facts: Q about what knowledge is
secret, what’s been developed, what competition looks like, employee’s plans
and options, training, skills.  Law
notice is interlocked w/fact notice. 
Courts considering reasonableness consider reasonableness at the time of
drafting of contract plus everything that happened since.
 
James Bessen: Most of the discussion about notice/notice
failure is about regulators/administrative agencies that fall down on the job
somehow; here we see private actors having an incentive to obscure notice.  Harm to wages is one negative aspect of noncompetes;
drags on innovation is another aspect. 
Reduce’s employee’s incentive to invest effort in training. 
 
Typewriter’s success was delayed for decades until keyboards
were standardized, at which point it made sense to invest in learning how to
type. Changed that industry and role of women more generally. This pattern
repeats over and over again: those issues are related to portability of skills.
Social value of large, trained workforce goes beyond particular
employers/employees.
 
Lawsuits over noncompetes has tripled over past few years—litigation
pace is increasing.
 
R. Anthony Reese – Reforming Termination Formalities
 
Termination of post-1978 transfers requires complicated
formalities. How clearly does the law notify the would be terminator of how
exactly to accomplish termination? In the law as usable, or as window
dressing?  If the former, we want the law
to be clear.  If the latter, the hoops
should be very hard to jump through. 
Second, termination causes a change of ownership of some copyright
rights—how well do formalities provide notice to others of the changes that
result? 
 
Fairly complicated: identify party/parties entitled to
terminate and their shares; calculate time period in which termination can
occur and choose a valid effective date; calculate when advance notice can be
served; identify the party/parties who must be served; properly draft and serve
a termination notice; timely record the termination with the Copyright Office.
 
Timing of notice is timed based on the execution of the grant,
and when that was can be hard to find—undated grants; oral grants of
nonexclusive licenses; implied in fact grants of nonexclusive licenses—the brawling,
boisterous world of facts. 20-30 years later, can you figure out the date on
which the oral license was granted/the conduct of the parties gave rise to the
nonexclusive license/the check was endorsed? 
What about grants in yet-to-be-created works?  Are they completed when signed or when the
work was created, and when did it finish being created? CO takes the view that
it’s not completed until the work and its © come into existence.  How easy will determining that be?
 
Even if you have the simplest case: a signed, dated
agreement for an existing work—there’s still a question about what the “end of
35 years from the date of execution of the grant.”  The legislative history contradicts
itself.  Transfer of Sept. 2, 1987: does
the window open Sept. 2, 2022?  Sept. 3,
2022?  Or, puzzlingly, Sept. 1,
2022?  Legislative history mentions Sept.
1 and Sept. 2 in the same paragraph. 
Luckily, you can pick a date that’s not right at the beginning if you
know that’s a problem.
 
We could (1) allow terms to run to the end of the year, as
w/duration; (2) allow judicial reformation: judge could pick a valid date; (3)
not close the termination window, letting them pick a new date.
 
Service of notice on the grantee or grantee’s successor in
title. Which does that mean? Does the serving party get to choose?
Unclear.  Judicial interpretation
limited. Even if we can identify who’s served, we have to find that
person.  The grantee doesn’t have to tell
the terminating party about any subsequent transfer.  Here, there is some guidance from CO: service
is ok if you do a reasonable investigation, if there’s no reason to believe
there’s been a transfer then you can serve a grantee by first class mail to the
last known address.  If you have reason
to believe there’s been a transfer you serve the transferee.
 
What about notice to the person whose rights are being
terminated and to the world at large?  If
a grantee is really interested in notice, they can record at the CO.  If they don’t, we may feel less sympathetic
to them.  As for the rest of the world,
notice must be recorded at the CO.  May
be the first time there’s any entry on the public registry about this
work.  (How often is that true for the
works that are now terminated?)  But
there’s no requirement of any contact info for the terminating party.  Also it need not identify w/specificity the
rights that have been recaptured—must specify the grant, but can say “publishing
agreement,” and we won’t know the content.
 
Could (1) require contact info to be included; (2) encourage
identifying w/particularity rights claimed, though terminating party may not
know what they are.
 
Alfred Chueh-Chin Yen: Extreme act of gov’t paternalism.  There are any number of doctrines outside
termination that exacerbate problems of notice failure Reese identified: work
for hire doctrine for example; contract will say it’s a WFH but if not you
assign anyway. Or you may be the joint author and get a contract that says you
acknowledge you don’t have authorship rights. These are both ways of getting
people not to terminate. Not only do the doctrines themselves create
ambiguities, but the contracts make ambiguities worse.  Ordinary author will not have the
sophistication Reese has brought to bear. 
The termination provisions are thus backwards; termination should
automatically happen, whenever.  The
acquiring party is better equipped to figure out what’s going on than an
individual author. 
 
Second solution: judicial. If we understand these measures
as ways to get people to drop termination rights, we can have courts reject
them.
 
Mark Lemley: Notice fatigue. 
(I feel it too.)  Does notice solve
anything? We’ve placed a lot of faith in notice, which can be ineffective,
maybe merely because of cumulative effect of all these notices.
 
[RT: My comments on Lobel’s paper were the same as Lemley’s:
 Compare to wage theft: overt violation
of the law, like inclusion of noncompete clause in California.  Notice in this sense has the classic problems
of disclosure.  Lauren
Willis: incentives to avoid providing effective notice of the rights of the
consumer (or the employee).  Instead of trying
to educate employees further, especially given the fluidity that Lobel
identifies, what about actual enforcement with penalties—deterrence is the real
goal.]
 
Lobel: This is a big issue. On the particular issues I’ve
been thinking about: notice about the terms of the contract—if you’re signing a
significant agreement, there is value in inducing awareness of its provisions.  (But how do we do that?)  Employees in many circumstances can ask
questions about the provisions.  Also, if
what you sign isn’t enforceable, that’s effective.  Experimental study: people reported that they
wouldn’t even consider a job offer when they sign restrictive covenants—needed a
much higher raise to consider it than a control group. But once they learned
the covenant wasn’t enforceable they behaved like the control group. But if a “reasonable”
restriction was enforceable that wouldn’t help them much.
 
Kate Darling: what if termination is a terrible answer to
the starving creator, not because of paternalism, but because 35 years later is
a terrible time to renegotiate/create a holdup situation (unless they set their
works free).
 
Reese: normatively I’d prefer a reversion system where
renewal happened automatically—either the work goes into the public domain or
it gets renewed and the rights return to the author.  It’s not implausible to conclude that the
continuing value of the work comes more from the author than the publisher; in
many cases people make these contracts when they have a difficult time valuing
their work.  If the statute required
ongoing royalty payments, we might feel comfortable saying that you could
transfer rights away forever.
 
But if termination is window dressing, we should just remove
it.  Make a good deal or suck it up,
rather than pretending that you’ll have another chance.  (Termination as the disclosure of copyright
transfers?)
 
Q: similarities b/t noncompete contracts and confidentiality
agreements?  Most trade secret law goes
against former employees.  But
contractual provision just says “stuff that you learned is confidential if
valuable” and there’s no notice about what’s protected—difficult problem to
solve because how do you specify it in advance?
 
Lobel: problems in espionage prosecutions—courts and juries
may just accept that what companies say is confidential is so: companies stamp “confidential”
on everything.
 
Loren: recognized that valuation is difficult before
exploitation; not paternalism to allow revaluation.  Another notice problem: we get these
assignment contracts that say they’re in perpetuity/not terminable. But they
are.  You need to know these things aren’t
enforceable!
 
Reese: so we need to get info out to authors.  Guilds can help.  Of the 8000 terminations studying, a lot of
them are music, and a lot use forms provided by the songwriters’ guild.  Authors’ Alliance, etc.—sites to tell
authors/successors that this is available, notwithstanding anything in the
contract that says it’s not terminable.
 
Bone: Limit termination to higher value works.  Is that wrong
 
Reese: some of this is a problem that it’s technical; another
problem is that it is badly drafted and ought to be better; another problem is
that the relevant facts are long-ago and far-away—look at the amount of digging
required to answer (or not answer) questions about the Happy Birthday copyright—might want to tie rights to dates that are
more obviously discoverable.  Modern
possibilities for termination might make us nervous about termination as a screen—if
academics are terminating transfers to release them, and if we make termination
difficult as a screen, they’ll be screened out so it only happens for
blockbuster songs and we don’t get the CC releases we want.
 
Litman: Low-value works are exactly the ones that should be
terminated b/c the current proprietor lacks incentive to make them available
b/c they’re low value and might compete w/ high value newer works; author might
have more incentive to make them available. 
Public may get better access.
 
Q: Notice window opening isn’t a huge issue b/c you can pick
any time w/in a five year window. Shoot for day 5 to be sure.
 
Gordon: Speaking as someone who practiced copyright law—termination
notices are incredibly ambiguous all the way through.  Empirical implications: assume that
incentivewise, there’s no effect on the amount of money they’re willing to pay,
what then?
 
Reese: on average, value for women ought to be higher b/c
women live longer and we’re now measuring by life plus.  You could disprove the proposition that a
lump sum price really represents value over the full length of the copyright
term—lots of confounding factors.  Not
aware of anything but publishers’ anecdotal statements that they’re interested
only in the short term.

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Notice and Notice Failure at BU, panel 3

Posted on September 25, 2015 by rtushnet
Pamela Samuelson – Notice Failures Arising from Copyright
Duration Rules
 
Agrees w/ other expressions of concern about notice failures
in copyright—here she focuses on notice failures related to the long duration
of copyrights.  More information about
work’s © status was available with fixed duration. Life plus models took over
for understandable reasons.  But then you
need lots more complexity, including means for determining the death of obscure
people—only 37 people have registered death dates with the CO.  (These are people who died.)
 
Extended collective licensing? Fair use is better. What
about tax incentives to devote work to public domain?  Promising idea.  Rights reversion: get more people to
terminate transfers and then, esp. for scholarly authors, dedicate it to public
domain or put it under a CC license. 
Institutional policies for open access, also a good thing. But how do we
get some sort of registry of when authors died so we can then at least try to
calculate their terms?  Not enough
incentive for any one institution, but possibly crowdsourcing. 
 
Extended collective licensing
 
Tun-Jen Chiang – Trolls and Orphans
 
Trolls: appear in patents after an investment has been
made.  Orphans: in ©–use would be valuable
but author can’t be found. Implication: not being able to find © owner is
itself problematic.  Holdup by patent
trolls is problematic because you make fewer investments in useful
technologies, though you can’t tell which specific patent holder will hold you
up.  Orphan: parent is permanently gone,
and gone for no specific reason.  If that’s
the situation, Copyright Office suggests that the solution is for the user to
search, and to create a registry of users that would facilitate search.  That could work if search costs are feasible,
which they probably aren’t.
 
But there are other solutions to holdup problems.  You could prevent ex post assertion of rights
through a liability rule standard. 
Laches as a solution to the orphan works problem—could work quite well
(if not for the SCt).
 
Commentators: David Olson: Real presence of a moral rights
approach reflected in life plus system. 
Instead of “keep working” it’s “author should be able to live off work
she did when she was 20,” not a utilitarian view.  As for “orphan works,” Chiang seems to want
to change the name—Loren suggested “hostage.” 
Dangerous works—bastard works?  Troll
works?
 
For patents, the issue is not just surprise but lack of
deterrence.  Large competitor in the field
is constrained by mutually assured destruction. 
What’s the frequency w/which inventors who obtain patents do holdups?
 
Michael Meurer: We usually think that people in the industry
are problems when we think about standard setting organizations—Rambus, for
example.  But Chiang’s message is about
the language of orphan v. troll.  Need
more evidence of how language makes a difference, perhaps in the political
arena—arguments being made in policy arenas. 
(Orphans needing to be cared for by someone.)  Can we show how language makes a
difference?  (I wonder if the George
Lakoff/Frank Luntz line of political discourse/punditry can teach us something
about that.)
 
Both parties need to be involved in search: Chiang’s
message. Calculate where we should expect more and from which party. Similar to
questions of gatekeeper liability/ISPs. Who is in the best position to monitor?
Same Qs about responsibility for monitoring/matching is important in many areas
of the law.  Stolen art also provides another
example.
 
Chiang criticizes Copyright Office’s putting burden of
search on user—they seem to be looking at this as a holdup/surprise problem,
though.  So somewhat sensitive to holdup
concerns.
 
Bargaining: sometimes parties don’t show up to bargaining
directly b/c they’d like to push issue to legislature or executive. Google Book
Search, perhaps.  Sony’s issues with Digital
Audio Tape—© owners managed to push the issue into Congress. In Europe, pushed
into parliament and the result was a tax, both for photocopying and for videos.
Not clear whether this is more democratic or more corrupt.
 
Peggy Radin: Rhetorical capture—the word cybersquatting was
invented; took an asset that was unknown and allocated it to TM owners as soon
as it was “born.” So that was successful. Doesn’t like the word holdup because
that may just be the normal practice of competition/exploiting a resource that
I own that is valuable. Is it wrong to buy up land that I think will quickly
become valuable because of development? 
Isn’t that just savvy?
 
Chiang: I agree that labels matter.  Economic theory provides enough content to
what is wrong w/the behavior. Not simply buying up farmland. Buying up
farmland, knowing that someone else will be using it, not knowing that you own
it.
 
Radin: why is that morally wrong?
 
A: after the investment has already been made by the third
party, who has assembled a bunch of different components. It doesn’t matter if
it’s morally wrong; it’s economically problematic.
 
Radin: but some of the things called holdup are just
distributional issues.
 
Meurer: Chiang’s paper discusses this—the economists who
came up with this are simply looking at contract difficulties where ex ante
complete contracting is difficult/impossible. The holdup notion, at least
before law profs got hands on it, had no moral judgments.
 
Radin: so let’s use the economist’s notion.  If we can’t get the efficient result because
of holdups, that’s one thing, but if we have other situations it’s another—becoming
confused in the public sphere.
 
Meurer: Chiang’s paper helps us moves in this direction: we
should be looking at behavior, not status. 
 
Bracha: usually two problems w/holdups: one of them is
surprise after sunk costs.  Another is
the necessity of a particular resource for a particular project that can’t be
designed around, and then it’s worse if there are many of them (stacking
problem). 
 
Chiang: Is it a problem if we have uses which the owner is
not inclined to give permission even if you didn’t have surprise/info problems:
All rights allocations could be known and negotiations wouldn’t go through.  That’s not the problem we’re interested in at
this conference—it’s just an issue of allocation of rights.
 
Olson: You can always have trouble when you’re trying to
assemble resources—someone can decide to behave strategically.
 
Chiang: short-term rentals—no incentive to improve the
property even if that would be good for society.  That’s hold-up without surprise—if you
improve the property then your rent will increase.  That’s a different problem from the troll/orphan
problem he’s trying to name.
 
Olson: we’re talking about rent-seeking and that’s bad
because free market transactions require free exchange; rent-seeking is when
someone figures out how to extract money without giving something of equal value
to the buyer.
 
Radin: but all markets have rules—you are making assumptions
about what the rules are, and you should just make it explicit.
 
Olson: having you over a barrel: making you an offer that
you wouldn’t have taken if you’d been given the information beforehand.
 
Samuelson: Orphan works folks see the edge case as the
late-arriving author, but that’s not the main issue, which is that there are a
lot of culturally and historically valuable resources that are not being made
available, and you either really don’t know who the author is or really can’t
find them. It’s an institutional risk assessment. While there’s risk assessment
on the patent side too, want to put in the record that orphan works is not as
similar as Chiang’s paper suggests. 
There’s a dimension of the long term of © that also plays a role.
Patents will at least expire at some point, much faster than ©, especially
since we can’t easily know death dates.

Wendy Gordon: Cousin to the hold-up problem is lock-in. Many managers are
taught how to create lock-in—how to surprise their suppliers or customers or
other entities with relationships that in fact make it difficult for them to
switch to more efficient/desirable entities. 
Has potential for an independent ground of defense in IP suits, such as
in Oracle v. Google. 
 
Bone: If something’s an orphan work, then shouldn’t we just
treat it as in the public domain?  Why
spend all this energy?  Won’t impair
incentives to consider it in the public domain—if you don’t want work to be
orphaned, keep using it.
 
Samuelson: we could, as a policy matter.  There are true orphans but also concerns for
being respectful of ©.

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Notice and Notice Failure at BU part 2

Posted on September 25, 2015 by rtushnet
Annemarie Bridy – Three Notice Failures in Copyright Law
 
Challenge of making online copyright enforcement meaningful.
Notice is intimately connected to justice: usually required (except with strict
liability).  Failures to appreciate its
necessity/failures to appreciate its sufficiency.
 
Uncertain: the construct of red flag knowledge in the
DMCA.  No notice: lack of notice in
seizure of domain names under criminal © law. 
Naked notice: in preliminary injunctions against nonparty service
providers in pirate site cases.
 
Purpose of DMCA safe harbors was certainty for ISPs in the
face of evolving secondary liability in cyberspace.  In practice, years of litigation have
clarified the test to be part subjective/part objective. Does the service
provider have subjective knowledge of facts that would give objective knowledge
of infringement to a reasonable person. 
Red-flag knowledge as a safe harbor disqualifier can preclude summary
judgment; undermines certainty of notice and takedown framework; creates risk
for ISPs and encourages proactive takedowns outside the DMCA checks and
balances.
 
The fix: make actionable knowledge under the DMCA synonymous
with the knowledge that comes from receipt of compliant knowledge.
 
Notice failure #2: PRO-IP Act added asset seizures and
forfeitures to remedies available in criminal © cases. Get an in rem arrest
warrant for the domain name, w/o notice to registrant—civil forfeiture even if
gov’t never charges or proves an underlying crime.  2010-2013, FBI/DOJ/ICE went after 1700 domain
names.  Tend to get active around the
holidays.  Megaupload, 2012, actually
accompanied by an indictment.  Sept.
2015: ShareBeast.
 
Notice failure under both 1st and 5th
Amendment, which requires notice and opportunity to be heard before property
seizure, unless exigent circumstances exist where property could be moved
before seizure.  Domain names aren’t
movable property, though the content to which they provide access is. Seizing a
domain name does nothing to prevent underlying content from being moved.  First Amendment also requires notice and
opportunity to be heard before a seizure of expressive property—if the gov’ts
reason for seizing expressive property is to take it out of circulation (as
opposed to evidentiary).  Domain names
are expressive property b/c they provide a gateway to vast repositories of
speech.
 
The fix: apply the correct legal standard and provide notice
and an opportunity to be heard; more than probable cause. Pending legislation
would increase the burden of proof for all covered crimes, including ©, though
it may not go anywhere.
 
Naked notice: Site-blocking TROs and PIs purporting to
enjoin search engines, payment processors, ad networks, domain name registrars
and registry operators if they have notice of the injunction under the All
Writs Act. These are improper.  Due
process, separation of powers issues. 
Only nonparties so closely identified w/the defendant that their
interests can be considered to be represented can be bound—notice and a finding
that the nonparty was in active concert w/defendant in the illegal conduct—aiding
and abetting. Arms’ length provision of tech services to infringers is not
active concert.
 
Michael Fricklas, GC of Viacom: Most of what we do doesn’t
happen in cases—negotiated outcomes in disputes; our decisions on what to put
on the air. Some failures are litigated, and others aren’t.  Every area of the law has some level of
uncertainty.
 
Copyright’s strength is that you don’t need gov’t support—a plebiscite
every day where people decide what to watch and what to pay.  In that context, courts have been struggling
with importance of certainty, but in the cases Bridy addresses, what we’re
doing day to day doesn’t constitute a notice problem at all. The targets of our
enforcement efforts have no doubt about infringement.  Even injunctions against nonparties aren’t
serious b/c the courts are asking only for an administrative act.  Not finding that nonparties have violated
copyright law (though they might be if they continue to provide services after
an adjudication of infringement).
 
Last year we took down 1.8 billion pieces of content, with
100 million IP addresses.  If we made a
mistake you can email us and don’t need to wait for counternotification on
YouTube. We can’t do fair use analysis at this volume.  So we took simpler rule: we care mostly about
entire/substantial part of content posted w/o alteration.  Not interested in mashups.  Viacom uses fair use every day: Jon Stewart
and Stephen Colbert—we get sued a lot. 
 
Certainty isn’t the most important value embodied in the
DMCA.  Also: balance interests of ©
owners and ISPs by creating strong incentives for them to cooperate in dealing
with infringement.  Red flag knowledge is
a boundary case.  We spent way too much
money on YouTube case, but the court
was basically thinking about who were the good guys and bad guys.  Court didn’t understand problems with notice
and takedown—no one has to notify us where they’re posting; people can do all
sorts of things to hide from automatic detection; ISPs will limit how much you
can search, and will hide the source of the infringement for a fee.  Senate anticipated some of these issues
(heh), striking the right balance with red flags.  ISPs not required to make discriminating
judgments, but seeing an obviously pirate site may be all that’s needed.  Doesn’t mean they’re liable, but that the
safe harbor no longer applies.  Actual
knowledge will also disqualify you.  The
cases have said that vicarious liability still exists if there’s intent to
infringe. 
 
Notice cases in SCt were about due process, not about
boundary of copyright—SCt says due process is flexible and requires the
protections demanded by the situation. Balances private interests
w/administrative costs imposed on gov’ts interest and risk and probable value
of additional safeguards.  1700 seizures
of domain names, but only 2 problems. 
Don’t forget the obvious cases, where people have full-fare information
about what they’re doing.  Megaupload:
indictment says they knew they were infringing. 
Seizing a bank account from a bank doesn’t require that the bank was
involved in a conspiracy.  (Ok, that wins
for most misleading analogy, since the seizure of the domain names (bank
account) is precisely done b/c the “bank” (registrant) is a wrongdoer.)
 
Joseph Liu – Notice Failure, Fair Use, and the Limits of
Property: Literature discusses fair use uncertainty (and counterliterature,
including from Pam Samuelson, discusses how that may be overclaimed).  Questions about validity of © are typically
not at issue b/c of low © standard; issues of ownership can be troublesome
given length of © and transfers, but not generally implicated by fair use
disputes; the one area where there is potential notice failure is the Q of
clearly delineating the boundaries of the entitlement.  Even here, one might ask whether notice
failure adds much to our discussion, b/c issue is not so much metes and bounds
of particular © as with patent, but rather w/the structure of © law itself.
Uncertainty may be only that caused by standard and not rule.
 
Core is relatively well-defined: generally can’t make large
numbers of full copies and sell them w/o permission, or make major motion
picture based on film. But at the boundaries there is uncertainty.
 
Information burden isn’t evenly distributed. Larger/more
sophisticated parties can mitigate more easily by seeking custom legal advice
or by bearing transaction cost of licensing. Unsophisticated parties have
trouble getting either.  Tech changes
have exacerbated disparities because fair use used to be less relevant to the
general public—personal use and other ways of engaging with © works and more
directly subject to ambiguities. Core and periphery have shifted.
 
Dealing w/uncertainty: more best practices? Again, less
available to the public.  Ask market/tech
to cure—costless licensing/technological fences that specify what people can
do. But © owners’ troubling tendency to fence in what they don’t own weighs
against that.
 
What if instead of trying to clarify the boundaries,
particularly for less sophisticated parties, we considered alternative
frameworks for liability?  Ask whether
fair user had adequate notice of the boundaries of the entitlement—for an
unsophisticated party the answer will often be no.  © for general public bears little resemblance
to property as clear rights with robust transactional markets.  Confront notice failure directly: try to
conform standards to people’s expectations/negligence or tort approach.
 
Jessica Silbey: Sidestepping incentive talk and focusing on
the way that © affects us all; notice doesn’t necessarily work for us but on
us. How does the fair user understand the scope of property rights? How does
the fair user understand what © is for? 
The second question gets to a similar place, but framing can teach other
lessons.  From property/markets to
culture/fair, creative practices—creator in the community.  Many creators she talked to have high
tolerance for copying because everyone borrows; they demand a high standard for
originality, reciprocally. If they find unfair copying, they want attribution
and proportional remuneration—profit-sharing or even nominal, dignitary
fee.  Do they think about fuzzy
boundaries? No, but every day © users tolerate a less than perfectly understood
system, largely by intuiting rules that are misaligned with the © system. They believe
that infringement and damages incorporate reasonability determinations.  It would make sense to base fair use on
reasonability determinations.  Copyright
owners do not have rights where fair users do; fair use is the baseline. 
 
Samuelson: Molly van Houweling has a similar project—also,
what do you think of Tim Wu’s “tolerated use”?
 
Liu: van Houweling’s work on new servitudes is important for
tracing rights/impact on unsophisticated parties.  Thinking more expressly about distributional
impacts—empowers certain people to do more, which may be an important value
independently.  On tolerated uses: still
grappling with that. One response to this is that maybe we don’t need to worry
about unsophisticated users b/c we deal with that through underenforcement/no
one sues individuals. I resist that b/c it’s so clearly second-best solution to
problems w/actual standard; fuzziness and underenforcement might not match
up.  Custom and toleration might affect the
fair use line.
 
Orly Lobel: continued discussion of distributional effects
from previous panel.  Sophisticated/unsophisticated
creators; developed/less developed countries; employer/employee. It’s not just
repeat players and institutional planners shaping the substance of the law and
notice can counter that; they also will be shaping notice itself/what notice
is.  When we consider
over/underdeterrence, consider the expressive function of law in general.  The psychological effects of the FBI warning.
 
Liu: copyfraud/addressing misinformation might be part of a
solution. Copyright Office could play an educational rule on what people can
and can’t do.  Copyright ombudsperson:
role to look after the public interest.
 
Litman: Implicit in all 4 talks was that their either should
be or already is an unacknowledged mens rea requirement for ©
infringement.  If that’s right, what
ought it to be.
 
Fricklas: take into account there’s misinformation on both
sides—users think they can post a whole work if they comment on it.  Intent may apply more to intermediaries than
initial infringers.  Suppose my search
finds a 100% complete match—how do I do a mens rea analysis w/o a complete
collapse of the system? Mens rea can be important, but sometimes res ipsa
loquitor. 

Bridy: we want a higher standard for secondary liability—should it be higher
for direct infringement as well?  It’s
not always so obvious what’s obvious to a reasonable person; the edge cases are
what lead to the super-expensive litigation. 
YouTube case settled w/still opened questions; Veoh got litigated into
bankruptcy; Vimeo might give us some more info if the Second Circuit ever
decides it. I favor more certainty—rules over standards. So that would drive me
to higher mens rea. 
 
Silbey: intent to copy v. intent to harm—unreasonable position
to say that people should have to not intend to copy to avoid infringing; most
copiers intend to copy.  I would want a
harm requirement instead. People who think they’re not doing anything wrong are
applying a harm standard.
 
Liu: on effective mens rea standard: my sense is when it
comes to whether bad faith is an element, Beebe found it generally wasn’t.
Should be: tricky.  Not willing to go that
far.  For unsophisticated, modify
standards/remedies?
 
Bridy: sophisticated = proxy for knowledge.
 
RT comments on Bridy’s paper: red flag as unworkably
uncertain.  Strikes me as an overstatement,
given litigation outcomes and the current persistence of competition.  A slightly different diagnosis, and one that
might point to competition policy for help: When you get big, you have to cut a
deal w/big studios/music companies or go out of business because they will
litigate you to death.  Also: Consider Joe
Singer’s interesting
argument that in property, standards can be more predictable than highly
complex rules.  One reason his
argument is relevant is that the incentive to litigate is huge in this context—the
content cos behave as if it’s bet the company litigation and the ISPs know it
is—and thus rules may be no better because compliance with rules is so often
debatable.
 
Bridy: rules around notice and takedown isn’t unworkably
complex—rules can become unworkable. But there’s less litigation about what a
compliant notice is, but she thinks the law has become clear (not sure I agree)
whereas “obvious to a reasonable person” is going to be a jury question.
 
Ginsburg: you could have more notice—in Europe, a closed system.  Fair use is more flexible which is why some
in this room advocate for it. Desire for more certainty = careful what you wish
for.
 
Liu: certainly there is the persuasive argument that clarity
and open texture of fair use may trade off. 
But he’d like to raise the freedom of movement.

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Notice and notice failure at BU: panel 1

Posted on September 25, 2015 by rtushnet
Graeme Dinwoodie – Trademarks and Commercial Reality: registration
systems/use systems; Industrial policy/consumer protection and
registered/unregistered affect notice, but not sure how much compared to
patent.  Costs of inadequate notice may
not be as great.  Efforts to ensure
adequate notice need to be balanced w/other objectives.
 
EU has first to register; US (alone in world) has first to
use system.  Different historical view of
registration. Pre-Lanham Act, clear that registration merely confirmed common
law rights.  Conventional wisdom about
current state of law is that’s still true, but that should be questioned—now
confers some substantive rights. If registration is notice of anything, is it
notice of legal rights or of something else? 
Does it constitute rights or reflects them?  In EU, the registration defines the rights.  Primary value on public notice.  Unfair competition is national, by contrast.
 
Evolution means convergence in regimes, though. Unfair
competition & TM have always accommodated some consumer protection goals
and some industrial property/market structuring goals. 
 
Even if registration is only signpost, should be as accurate
as possible. Registration is not the only way of providing notice: the use
requirement provides notice, especially secondary meaning requirements.  Actual use may be as effective as notice as
registration, depending on how the rights are structured.  It doesn’t work as well when the rights
extend to dissimilar products (e.g., dilution). Actual and constructive notice
can work together—the register may help you figure out what the mark actually
is, particularly w/non-word marks.
 
Distinguish notice of existence v. notice of scope.  Beebe’s studies on applications that are
abandoned—astronomically high.  Huge amount
of deadwood even in the US use-based system. 
EU has the problem of submarine marks. 
The problem in TM is scope is determined in two ways that make it hard
for register to be helpful: metric is external to the register, consumer
understanding, which is also dynamic/evolving.
 
In Europe, graphic registration requirement does some
work.  Applied to bar registration of
something we could easily recognize in practice: purple as the predominant
element of a package for chocolate; UK court considered “predominant” too
vague. Forced Cadbury to use passing off, with higher proof requirements,
causal nexus, more proof of reliance/damage.
 
In the US: from 20th c. and now, we’ve
assimilated §32 to §43.  Should we
revisit that question of whether the unregistered mark requires more proof
before asserting rights.  Two areas in
particular: trade dress. Defensive registration?  Australia allows you to say ‘I’m not using
this mark in this area, but if someone else does, I will make a dilution claim.’
 
Barton Beebe: how does notice affect the dynamics of the
opposing interests Dinwoodie identified, such as industrial policy/consumer
protection.  This topic demands a
comparative approach between registration-based and use-based.  What about Canada’s weird hybrid system?  One of the most shocking extensions granted
by registration is nationwide priority, even if you are really only using the
mark in NY.  US also has an examination
system that considers both absolute (scandalous, descriptive) and relative
(likely confusion) grounds for refusal. European system is more rubber-stamping;
no relative examination. But how rigorous is the US review?  Fromer and Beebe are working on that.
 
Distinction between reactive and proactive functions of TM
law.  Should TM be structured reactively
to protect whatever consumer understanding develops, or proactively seek to
structure the ways in which consumers shop/producers sell, and thus order how
the economy functions?  Key question
Dinwoodie has asked.  How do constraints
associated w/notice affect that? 
Registration is signpost, not fencepost; it must be thus if the
existence/scope of TM protection informed by consumer understanding (instead of
TM law operating on consumer understanding).
 
We have to accept that TM law is reactive in nature,
Dinwoodie suggests. Notice compels us to recognize that.  In comparison to the Europeans, the US
use-based system is especially reactive. 
Perhaps now we can recognize that notice might be one of the main policy
levers by which TM policy can inform consumer understanding.  [Would like to hear more about that.]
 
Can it be said that the Europeans, w/more formal approach to
TM, are ultimately presenting a more proactive system?  Is this a good thing?  Reaching out into the economy a bit
more.  Industrial policy orientation in
EU is greater.
 
Little points: In TM context, to what extent is PTO’s TESS
the main resource for notice, versus Google? What is the effect of massively
indexed online databases? Our concept of notice was formed in the offline
context.  False positives are a big deal
there.
 
Irony Dinwoodie identifies: EU is giving European-wide
rights, but political events/multilingual nature suggest this might not be
totally appropriate: use in one country gives you rights all over.  Whereas in the US, use in NYC gives you
rights to the nation, but that is appropriate. 
Here the American use-based system is inconsistent w/ how we approach
geography; European system is also.
 
Jessica Litman – What Notice Did
 
Most scholarship on © notice talks about role dividing what’s
protected by © from what’s in the public domain.  Some writers think notice’s function in
moving works to public domain is great, others that it’s terrible.  Also may have distorting/shaping effects on
other parts of copyright law.
 
Existence of notice prerequisite may have allowed US to
tolerate broader sphere of potentially copyrightable subject matter. 
 
Rule that notice had to accurately name the © owner created
enormous pressure on courts to find that the person named in the © notice was
actually the owner, in order to avoid forfeiture.  Since this is peculiarly w/in control of
publisher, © notice tended to name publisher; led courts to figure out how
author had transferred her © to the publisher, even when she hadn’t. Their
innovations have stuck with us, messing up the law even now that the
justification is gone.
 
Only tiny number of maps and charts were registered, less
than 1%. In 1802, Congress sensibly required that small number of works that
did claim protection to include a notice. 
1820s-30s = court decisions require strict compliance
w/formalities.  1850s: no court had
squarely held that statutory language about assignment in presence of two
witnesses required a writing, but then it came up in a case about a license to
publish a medical book.  B/c author saw
the notice, can be inferred that he transferred the rights.  Before a © was registered, author could part
w/right w/o any written agreement—writing requirement only kicked in after
registration. Seemed to be motivated by third parties’ arguments that copyright
were void b/c the person named in the assignment had never secured a written
assignment. The parol transfer doctrine took on a life of its own, though, and thus
in Parton v. Prang, landscape painter sold painting, which was resold to
lithgraph publisher who made lithographs and registered ©. Parton argued he’d
never transferred the copyright, but the court said no writing was required for
transferring © in an unpublished painting; transfer of painting is transfer of ©
in the absence of express reservation: could presume that owner of unpublished
work automatically acquired right to © it in his name.  By end of century, this was “well-settled”
according to Eaton’s treatise.
 
SCt adopted this reasoning. 
In one case, defendant said that copyright in cookbook written by a
woman was invalid b/c she had no right to transfer it (she was married); the
SCt implied her husband’s consent/endorsement to transfer. Then courts invent
work for hire doctrine out of whole cloth when there isn’t evidence even of an
oral agreement.
 
What about making sure the publisher prints the author’s
name in the notice and registers the copyright in her name?  Harriet Beecher Stowe & Oliver Wendell Holmes
Sr. both had serials published in the Atlantic, registered in their name, but
Atlantic included © notice in its own name in the issues in which the serials
were published.  If the Atlantic owned
the ©, then Stowe and Holmes forfeited their rights by putting notice in the
wrong name when they published the full book; but if Stowe and Holmes owned the
©, then the Atlantic put the works in the public domain by publishing them with
the wrong notice.
 
Ultimately, Congress responded trying to fix this; but
courts didn’t change course—courts kept applying the presumptions to
unpublished works, finding parole transfers on little or no evidence.
 
Not a matter of pro-publisher and anti-author. Instead,
courts were trying to preserve © from forfeiture.  Author-unfriendliness was an accident of path
dependence.
 
Jane Ginsburg: Author-unfriendliness is another nasty effect
of the notice requirement.  Effects on
recordation requirement as well—must record transfer of federal ©, but the
gambit she described involved a transfer of a common-law ©, so there was
nothing to be recorded. Our recordation system has many problems; Litman has
identified this one in addition.
 
Doesn’t think we should have mandatory notice at risk of
losing copyright or author’s right. But current problems exist even for
voluntary notice.  We now have a system
of divisible ©.  But divisibility can
mean that any ambiguity should be construed against transfer and remains
w/author.  That has possible unfortunate
effects on notice: how do you know who owns which rights?  If the basic notice doesn’t specify which
rights the notice-giver owns, can have trouble.
 
Imagine: A work is created but not published before 1978.
There’s a transfer agreement for the rights in that work.  In 1978, unpublished works get vested
w/federal ©.  Is the grant of rights in
that work subject to termination under §203? 
It’s not §304-terminable, which is based on the renewal term. How do you
date the grant of rights?  One could
argue that the relevant date is not the pre-1978 agreement, but the date
federal © came into being, Jan. 1, 1978—making termination possible as of
2008.  Potentially good news for an author,
but the clock is ticking—only until July 1, 2016 to serve a timely notice of
termination. If there’s anyone in this situation—granted rights in unpublished
work before 1978—act quickly!
 
Ruth Okediji – Form versus Function in The Berne
Convention’s Notice Regime: Reclaiming the Public’s Interest in the
International Copyright System
 
Since 1908, int’l © framework eschewed formalities.  Art. 5 of Berne: enjoyment/exercise of rights
shall not be subject to any formality. 
Protection in the country of origin is governed by domestic law.  Specific goal: protect works in countries
other than that of the author; not inherently anti-formality.  Didn’t address how foreign authors might
prove compliance/ownership/authorship.  Historically
didn’t eliminate all formalities: Art. 11: it will be sufficient (in absence of
proof to contrary) to put name on work in customary manner; if pseud/anon,
publisher would be deemed owner (in the absence of other proof)—deemed to be
notice to public of another’s claim of right. Art. 7: articles from
newspapers/periodicals could be reproduced, unless there was printed notice to
the contrary.  Art. 9: unpublished
musical work: could indicate on title page that author rejected public
performance.
 
So notice was a big deal until 1908.  Then the practical effect in most countries
was to eliminate most formalities; maintaining them for domestic authors would
have led to political backlash in many countries.  Political/pragmatic sense: formalities had
fallen out of favor in many Euro. countries. But formalities served so many
functions and had such a long/storied history in Europe; struck by relative
ease w/which this article got rid of this significant institution.
 
Notice = important part of human society. Indigenous
communities had forms of notice. Notice/property rights have a strong
historical link.
 
In fact, notice is alive and well, but hidden/dispersed in
different functions.  Formalities are not
neutral, and neither is notice—cf. Litman’s paper. Across countries/authorial
classes.
 
Lack of notice burdens limitations and exceptions; just as
L&E do lots more work because of lack of notice.
 
Global enforcement regime will compel/justify a return to
formalities. In the absence of int’l rule for notice, we’ll end up with costly
forfeitures/greater burdens than notice itself caused.
 
Berne Act had formalities of its own, and current iteration
allows for some formalities.  Esp. for
exercise of L&E.  Original Berne
Convention was directed at facilitating crossborder exchange, but allowed
national reservations to tailor solutions. Of all the formalities we don’t see
retained, most important to ©’s goals is notice.  A point of intimacy b/t authors and the
public.  Public relies on notice; notice
facilitates transactions; channeling function b/t fair and permitted etc. uses.  Notice should also be considered a
fundamental right of the public. Can also facilitate rights across countries—where
authors from other countries claim that American authors have lifted melodies,
etc.
 
Not always benign.  In
developing countries, elimination of formalities was particularly disruptive of
authorial class formation—notice and other formalities were abolished to
destroy the rights of local authors. 
1934 decree forbade filming in French African colonies without prior
authorization; Africans were precluded altogether from producing films, and
often restricted from viewing films. French officials were to maintain strict
vigilance over stray Europeans w/photographic equipment wandering to remote
corners of a colony.  African authors
denied opportunity to register in their own names.  In art, local authors couldn’t register works
of art in the UK, France.  The first real
orphan works: they didn’t exist for purposes of colonial law, thus freely
available for appropriation. They also killed irrepressable authors, which didn’t
help.
 
Also distorted the notion of ©. Infringement is rampant in
developing nations not b/c of culture of theft but b/c ingrained notion of
boundaries has never been built into the authorial etc. classes. 
 
Hidden culture: notice abounds in technical rules in the
enforcement space. 
 
Berne: no bar on notice for domestic authors; notice from
users; on making protection for TPMs contingent on notice; etc.   But we need to address differential burdens
on new authors, poor authors. 

TRIPS art. 41: members shall ensure
enforcement procedures available (mandatory); procedures must be fair and
equitable; can’t be unnecessarily complicated or slow.  Art. 43: Have to present reasonably available
evidence to support claims.  So
agencies/enforcers look for some easy to process form of evidence—and that’s
formalities.  Thinks you can’t comply
w/TRIPs w/o some sort of formalities. But doing it through trade law is a bad
way.  High-cost way for users; high-cost
for finding authors.  Benefits of
formalities are unavailable at the exact time they’d be most beneficial—before suit.
Then resurrected at enforcement, when most costly for authors/users.
 
At the end of the day, shouldn’t tiptoe around Berne. If we
think formalities are problematic, global enforcement makes them even more so.
Need notice’s benefits w/o defects—nothing wrong w/asking authorial class to
play a role in ensuring that © system serves its functions.
 
Jane Ginsburg: Original Berne convention cut back
significantly on formalities; situation before was that, to the extent that one
country would protect the author from another, it may have been necessary to first
publish in that country, conform to its formalities; generally it didn’t work.
Initially it was sufficient to comply w/country of origin’s formalities, but
that proved too difficult in practice.
 
Finds reading of TRIPs problematic: incorporates and makes
enforceable Berne norms apart from moral rights.  Yes, you still have to prove your claims, but
that’s not a reintroduction of mandatory formalities.  As to notice being good, yes it is, but what
are the consequences if one doesn’t provide it? 
Berne’s art. 6bis on moral rights provides for attribution—right to
claim authorship.
 
Ginsburg on Dinwoodie: difficulty of ascertaining scope of
TM through notice comes down to the two things Dinwoodie identifies: consumer
perception and the dynamism thereof. Could you make notice track scope? Maybe a
strictly enforced rule of speciality: the only rights you have are the
goods/services listed in the registration. That wouldn’t work b/c it would
destroy dilution (so sad!) but also b/c it doesn’t map onto reality, which
results in the EU situation, where you have TM rights + lots of pressure on
domestic unfair competition regimes to absorb the shock to the protection of
consumers that would be the consequence of a system in which the registration
corresponded to the scope of the TM.
 
Lydia Loren: © papers have unintended consequences as their
themes—unintended consequence of requiring notice, then of eliminating
notice.  Given the return of the
repressed formalities, © owners should want more transparency about what the
formality requirements are.  Reform of
int’l agreements?  Any chance of
that?  [That’s why they want the mythical
Copyright Hub/celestial jukebox]
 
Okediji: when you speak w/authors in developing countries—they
are working w/out registration and judges are saying ‘how do I know you’re the
author?’  They want documents.  So to avoid the requirements of Berne, they’re
showing up in regulations—that you only hear about when you file a
complaint.  One country formed a
collective society; had to create a registry just for the purposes of the
lawsuit.  Striking disparity of regimes—South
Africa differs from Zambia differs from Brazil. So a US author wanting to
assert a claim in these countries will face the same situation she did 100
years ago.  That’s worse than a minimal
notice requirement in int’l law. We can avoid problems of overenforcement, but
the notice requirement is back at the most inopportune time.
 
Ginsburg: Berne has an answer for foreign authors. Countries
demanding registration is contrary to art. 15. 
Shall, in the absence of proof to contrary, be regarded as author and
entitled to institution of proceedings if name appears on work in traditional
manner.
 
Okediji: but if your name isn’t on it, then what?  People are downloading; they circulate
without info.  One case where three
people each claim to be the author.  The
courts are entirely focused on enforcement—they just want to make the system
work.  One country asked for access to
the US CO’s registry; that won’t help.
 
TJ Chiang: What do you mean by formality?  To have standing in court, you need to
produce an instrument?  Or, to file a
claim, you need to comply with FRCP? 
Okediji seems to treat those as formalities, though he wouldn’t have
traditionally thought of them as Berne formalities.
 
Okediji: To the extent that courts/admin tribunals are
asking for proof of ownership, that goes too far and is clearly a
formality. 
 
Gordon: TM is a notice regime for the physical world:
consumers see identical machines, pills—only the TM tells them which of these
surfaces can be relied on to come from a reputable maker. TM helps markets in
physical goods work.
 
TM has expanded well beyond this notice function, borrowing
legitimacy in areas where lawsuits bring dubious advantage.  Does this interfere w/classic function of TM
to specify origin of makers.
 
Dinwoodie: answer may be different in Europe/US. There are
different forms of dilution.  Blurring is
potentially on the edges of the same justification, esp. in Europe where we
have a narrower conception of confusion. Tarnishment is doing something very
different.  No need for it in the
US. 
 
RT: Beebe said notice might be one of the main policy levers
by which TM policy can inform consumer understanding. Say more?
 
Dinwoodie: might depend how high in the hierarchy of values
you think notice comes in TM.  Maybe it’s
very low.
 
Beebe: §2 could be a place where we do a lot of our policy
work.  Through the registration
standards, we allow certain conduct to occur or not in the market; consumers
then adjust their expectations through that. Our registration doctrine affects
firm conduct which then affects consumer protection.
 
Dinwoodie: Maybe think of the potential issue of running
that to §43(a)—do you need to preempt causes of action that rely on
unregistrable marks.
 
Bone: Firms strategically respond to consumers; consumers in
a certain sense act strategically, or at least responsively, by appropriating
marks. What we miss in proactive/reactive is that we live in between those two.
Commercial reality is the product of all those interactions.
 
For Litman: You’re saying the doctrine favors the ©/owner
over the public, but © was a statutory exception to the common law.
 
Litman: the public’s not there. The court has the parties
before it. Once courts upheld the ©, courts imposed all sorts of conditions on
the publisher to exercise its rights for the benefit of the author; that then
died out in the 1920s when they forgot why they were giving rights to the
publisher.
 
Bone: strict compliance requirements had something to do
with the deviation from the common law.

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Notice and Notice Failure in Intellectual Property Law at BU, keynote

Posted on September 25, 2015 by rtushnet
Boston University School of Law
 
Welcome and introduction: Dean Maureen O’Roarke
New clinic w/MIT—representing MIT students who need legal/IP
help.  Searching for an exec. director now—encourages
applications.
 
Stacey Dogan: Meurer & James Besson’s book on patents: pointed
out that patent lacked clear boundaries as real property has; making true
owners costly/impossible to identify. 
This conference focuses on notice issues across IP topics. 
 
Michael Meurer – Bargaining Failure and Failure to Bargain
Tom Brady was a victim of notice failure, according to the
judge who overturned the suspension imposed by the NFL for Deflategate. 
 
Wants to distinguish between bargaining failure and failure
to bargain ex ante.  In law &
economics we think a lot about why people who have a dispute fail to do the
efficient thing, which is stay out of the courtroom.  Should we reform IP law to encourage early
bargaining? 
 
Betamax example: ex ante patent cross-license; developed
Betamax machine; then ex post copyright litigation. Why not resolve the
copyright dispute ex ante?  Sony could
have made commercial skipping difficult; omitted recording feature.  Macrovision could have been introduced early
on; introduced later.  Not suggesting
this would have maximized joint value, but just that there was no opportunity
for bargaining early on. Maybe they could have avoided a standards war between
VHS and Betamax; hastened pre-recorded movie market for sale or rental.  Hollywood was cooperating with videodisc
manufacturers at the time to make titles available.
 
Sony knew where to find Hollywood just as they knew where to
find Matshusita or Philips.  Why didn’t
they go bargain with © owners as with patent owners?  Network effects favor early and rapid growth
of market share.  Plaintiff side free
rider problem might diminish threat of © lawsuit.  It will take those guys a while to get their
act together.  Reason for © owners to
wait and have someone else shoulder the burden of providing the “public good”
of new law favorable to © owners. Defendant-side free rider problem too—Sony would
rather wait for Matshusita etc. 
 
Antecommons problem for Hollywood: several different parties
could veto sale of Betamax; could recognize that Sony wouldn’t want to bargain
one by one.  Did execs believe Betamax
would work, be accepted by consumers, and create a significant infringement
problem? Early bargains are rare b/c © owners see lots of starry-eyed
entrepreneurs who think they have the next big thing.
 
What changes in the law could have nudged parties toward
early bargaining?  [I’m still not clear
on why we would want to do that, especially if ‘we’ are happy with the outcome
of Sony, which did after all provide
a public good.  There are positive
externalities as well as costs to litigation.] Antitrust safe harbor for joint
litigation and settlement negotiation on either side?  Adjust remedies to reward early
bargaining?  Private ordering: ASCAP for
video.
 
Descriptively: what causes IP litigation? Bargaining
failure; also failure to bargain ex ante. 
Bargaining failure results from three asymmetries: asymmetric stakes (most
important factor in patents: pharma and generics—pure bargaining failure; not
much failure to bargain, because notice is super clear and early bargaining is
easy—under Hatch-Waxman); asymmetric information (law & econ people think
this is where most of the action is in terms of causes of litigation: asymmetric
knowledge of info relevant to validity, value, design-around cost); asymmetric process
(credible threat to impose big costs on defendant).
 
Failure to bargain ex ante: hidden patents, design patents,
trade dress. Do the parties find each other? 
Search by IP users—but there’s a numbers problem/strangers out
there.  IP owners may hide or publicize
their rights; neither side necessarily has good info and either side could invest
in search and possibly match.  Old-style
Lemelson submarine patents are still possible in the design patent
context.  In utility patents: can change
language as a patent is pending.  Trade
dress: we don’t require registration to get TM rights.  Secondary meaning requirement is some limit
(for product design)—the law is imposing an obligation on rights owners to
publicize their product with the associated trade dress.  Rounded edges of smartphone would require
secondary meaning—but not with design patent. TM pushes to the bargaining table
by letting people know the counterpart exists, but not design patent.  Patents & design patents have numbers
problems.  In patent lawsuits, about ¼ time,
parties in dispute aren’t really in the same industry—strangers. Compare
nuisance: your neighbors are the ones who will sue, not strangers.  Numbers and low quality compound the other
issues; discourages search intensity.
 
IP owners sometimes have incentives to publicize rights: If
I want to be bought out by Cisco or Johnson & Johnson.  Other patent owners have no technology as
such, only a veto right. They want to use that veto right for post-investment
decisions by IP users: the holdup problem. 
The related tactics lead them to hide their rights.
 
Preference for ex post bargaining: Sony, Disney, and
Universal could have found each other. 
Failure to bargain wasn’t a failure to match. 
 
If we understand the causes of IP litigation: standard
models say that if the size of the stakes increase relative to litigation cost,
you get more bargaining failure. If you instead think of failure to bargain,
the reverse would be true. My incentive to search goes up if the stakes of
litigation go up.  Possible to look to
see what kind of litigation we actually have.
 
Number of IP rights: as number of patents goes up, shouldn’t
impact number of lawsuits per patent (bargaining failure) but increases failure
to bargain.
 
Chose this topic b/c frustrated with tone of patent reform
debate.  Litigation explosion was not
about trolls; explosion predates significant troll activity.  Trolls are bad b/c raise tax caused by patent
law/litigation. But even without them there’d be too much patent litigation.  Bottom feeder trolls are mostly cases of
bargaining failure. Chem/pharma: no explosion, not much failure to
bargain.  Other industries probably both
bargaining failure and failure to bargain. 
So we should think about core patent form, not just procedural reform.
 
Normatively: need to convince you there’s a benefit to early
bargaining; need incentives to bargain in good faith; incentive to publicize IP
rights and ownership; incentive to search for IP rights and their owners.
Compare what private parties do to what some social planner would do—do private
decisionmakers fully internalize the gains & costs a social planner would
recognize? Where there’s a divergence, may need intervention to encourage
increased search/early bargaining.
 
Early bargaining: avoids holdup costs, especially w/r/t/
standard-setting organizations. Want to encourage intermediaries and
aggregators to work with IP owners on © and TM. 
There’s no benefit from early bargaining to the IP owner who only wants
to exclude.  W/a bargain, also, each side
only captures some of the benefit of the match—a double moral hazard that
decreases the incentive to invest in search.
 
User: too much or too little search?  Too much search through private pursuit of
stronger bargaining position.  Too little
search is more common: innovator doesn’t appropriate full social value from
joint creation (double moral hazard). So we need public investment to make
search easier; transparency to make search easier; fewer IP rights—each IP
right generates notice externalities: burden of greater future search costs on
others.
 
Policy levers: make injunctions contingent; aggregator
liability can be affected by law of indirect infringement/safe harbors;
declaratory judgment
 
Keynote response, Honorable William G. Young, U.S. District
Court, District of Massachusetts
Almost impossible to overstate importance of notice &
study of notice.  In the wake of Twombly/Iqbal, problems of notice are
vitally important.
 
Bargaining in good faith is good, but it is not a good.  He would consider antitrust more of a problem
in this area. If you think you can get safe harbors, Congress will be the
entity to do that after Actavis.  Maybe we ought to take more account of
innocent infringement. Academics have the right and duty to express views about
what the law should be.  However, must
also keep in mind that jurors and judges rely on the parties to give them the
facts.
 
Calibrating remedies to bargaining/penalizing those who
reject early bargains—opposed to that as a policy matter. Cost and delay are
the real problems of adjudication today—including mediation, and TTAB, and PTAB,
and all our other ways to resolve disputes. 
Don’t build in anything to make it worse, like a bargaining component.  Requiring bargains also is destructive of
personal/property rights: if he doesn’t have to bargain, he can choose not to
do so. 
 
Need nuanced view of litigation—not as ultimately leading to
trials, appeals.  In 38 years as a judge,
we have utterly deconstructed the role of the trial judge and turned his role into
an administrator of dispute resolution. The institutional judiciary is not much
interested in trials. 

Bargaining is good, but bargaining is itself not evidence of good faith.
Bargaining to what end?
 
1/3 of pending cases are subject to multidistrict litigation
orders, like a roach motel.  Cases go in
but none come out.  The system
overemphasizes settling.  If you’re never
going to get actual legal review, bargaining takes on a whole different context
and economic power tends to predominate.
 
Mark Lemley: Meurer seems to be of the view that it’s better
to seek permission than forgiveness, but the adage is the reverse for a
reason.  Suppose we had in fact had ex
ante bargaining with © and Sony: we would never have had a VCR with a record
button. The evidence comes from subsequent contexts with ex ante bargaining
w/Hollywood for new digital music/video services. They all fail. The only ones
that succeed launch first and resolve disputes after.  His preferred framework seems to presuppose
both a legitimate number and scope of rights, and that’s not the world we live
in for either © or patent.  To say “bargain”
puts the cart before the horse; efficient ex ante bargaining requires reasonable
number and scope. In second-best world we might not be best off encouraging
bargaining ex ante.
 
Meurer: fair points. 
I was being an economist and assuming that rational people would bargain.
But optimistic that people if they do meet early will often find ways to create
value.  Despite what Valenti said,
Hollywood was already seeing the viability of getting titles onto videodisc;
might have found it mutually beneficial to speed the tech. But we might not
have gotten the record button initially; somehow that would come along.  (RT: Through someone acting and then waiting
to be sued, I take it?)  Consumers would
want to make copies of their wedding videos.  
 
Oren Bracha:  One kind
of notice failure is whether something is w/in patent entitlement; another kind
is whether there is an IP right or whether there’s an owner.  Betamax is about notice failure about the
law. Not a matching problem. Other examples are about both legal entitlement
and more factual details.  Another
positive externality that we lose if we push people to bargain is that a court
of law tells us what the law is!  W/o Sony we wouldn’t have a record button,
and we also wouldn’t have Sony v.
Universal’s rule.
 
Meurer: Yes, I acknowledge there are tradeoffs, and law is a
public good. It’s underprovided b/c it’s a public good; yes, I am advocating further
discouraging some of that. Maybe it wouldn’t have been so bad, given that Euro.
jurisdictions were also litigating the issue. 
Euro. courts found that the Betamax was infringing, so be mindful of
that.  In the American arena particularly,
we should have less litigation/earlier bargaining.  (And deprive the world of the American
example?)
 
Notice means many different things in the law.  Failure to bargain/bargaining failure as
distinct varieties.
 
Wendy Gordon: many property rights have conditions.  Why not have a condition that the right be
exercised in a socially beneficial way, which might include a bargaining
requirement if we so decided?
 
Judge Young: true, he was trying to characterize what he
understands as our system.
 
Bob Bone: Having a bit of trouble distinguishing bargaining
failure and failure to bargain. Understands the matching problem—but once I
find a match, there are reasons I might have not to bargain with a party, or
not to reach an agreement when we’re at the table, and he’s not sure there are
differences between them.  Trolls are a
special problem; we handle it as a targeted issue. Then, it’s not clear that it’s
more efficient to tinker to create search incentives ex ante versus allowing ex
post rights assertion. If it’s more efficient to have ex ante search, that will
be so contingent on context he’s not sure we can say general things about it.
 
Meurer: He’s working on the generalities issue.  When I’m sued, I know I’ve matched.  Bargaining failure thus involves no matching
problem.  But matching is a pervasive
problem in patent law, predating the appearance of trolls.

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Just another lawsuit out of Boston

Posted on September 24, 2015 by rtushnet
Scholz v. Goudreau, 2015 WL 5554012, No. 13-cv-10951 (D.
Mass. Sept. 21, 2015)
 
Scholz and Goudreau were both members of the band
Boston.  Goudreau played guitar on the
band’s first two albums, performing with it from 1976-1979 before leaving it in
1981.  He sued Scholz and other band
members in 1982, and the parties settled, giving Goudreau 1/5 of the royalties
for the songs on the first two albums. 
 

Band logo
The settlement agreement provided that “the parties
acknowledge that Goudreau is no longer, and he has ceased to be, a partner in
Boston, and as such shall have no interest, right nor title to the name ‘BOSTON’…”  It further provided that “Goudreau may use
the term ‘Formerly of Boston’ for and in conjunction with any biographical
usage with respect to future performances, but, except to this extent, Goudreau
shall have no other interest, right or title to the name ‘BOSTON.’ Without
limiting the foregoing, Goudreau may not use the name ‘BOSTON’ for or in
conjunction with any advertisement or promotion.”
 
Scholz sued Goudreau for trademark infringement/unfair
competition, dilution, contributory and vicarious infringement, false
advertising, violation of Massachusetts’ Truth in Music Statute, breach of
contract, and breach of the implied covenant of good faith and fair dealing.
Goudreau counterclaimed for breach of contract, breach of the implied covenant
of good faith and fair dealing, false advertising, and abuse of process.
 
What triggered the lawsuit? 
Goudreau continued his musical career, and Scholz’s complaint focused on
ads associated with five groups: performances at the Cannery Casino Hotel,
promoted by Paul Curcio; “The Best of Boston” performances, promoted by Maximus
Entertainment and its Chief Executive Officer, Robert Devine; a musical revue
called World Class Rockers (WCR); the James Montgomery Blues Band (JMBB); and
Ernie and the Automatics (EATA). Basically, Scholz alleged that Goudreau
violated the settlement agreement by using descriptive terms other than “formerly
of Boston.”  This lawsuit followed
numerous suits/threats of suits from 2009 on. 
Goudreau’s counterclaims were basically premised on Scholz’s
litigiousness and efforts to thwart Goudreau’s ability to promote himself.
 

One challenged ad: Best of Boston, allegedly imitating Boston logo

Another challenged ad, repeating allegedly iconic first line from Boston song “Just another band out of Boston”

Another challenged ad: “from the band Boston”

Another challenged ad: “original member of Boston,” and “playing the hits of Boston” with Boston allegedly overly large

Direct trademark infringement: The court found that the
infringing ads Scholz targeted resulted from the actions of third parties, and
that Scholz failed to offer evidence that Goudreau was responsible for them.  For example, for the “Best of Boston” series,
Goudreau testified that he didn’t perform in any shows so promoted because he
concluded that the proposed promotional materials were “asking for trouble,”
and he demanded that he be omitted from any ads already created. For other
instances, Scholz didn’t provide evidence tying Goudreau to the ads.
 
Scholz argued that Goudreau’s use of metatags such as
“BOSTON,” “band BOSTON” and “Tom Scholz” on his website demonstrated trademark
infringement. While use of a mark is evidence of intent to use a mark, “the
only relevant intent is intent to confuse.” There was no evidence that the
content of the website was likely to confuse a reasonably prudent purchaser.
The website identified itself as the website of “former BOSTON guitarist” and
“[t]he OFFICIAL website for former BOSTON guitarist, Barry Goudreau!”  The URL was Goudreau’s name. Even if the
website diverted consumers who searched for Scholz or the band Boston, “[m]ere
diversion, without any hint of confusion, is not enough.”
 
Contributory/vicarious infringement:  For contributory infringement by a service
provider, liability requires inducement or “direct control and monitoring of
the instrumentality used by a third party to infringe the plaintiff’s mark.” There
wasn’t evidence of inducement.  Allegedly
infringing ads didn’t show that Goudreau urged the creation of such ads.  However, a dispute of material fact precluded
summary judgment on the extent of Goudreau’s control and monitoring. 
 
For most of the examples, the facts didn’t show that
Goudreau continued to perform at shows that he knew were promoted in an
infringing manner. For example, Goudreau performed on the Legends of Rock
Cruise 2, where he was promoted as an original BOSTON Member. But he testified
that he instructed the promoters to bill him only as formerly of BOSTON,
consistent with the Settlement Agreement, and there was no evidence he had
control over the ads.  However, Goudreau
acknowledged that he was a member of EATA. Though he insisted he was not
involved in securing performances or promoting EATA and that he informed those
who were that he must be promoted only as “formerly of BOSTON,” he didn’t
immediately them that the Settlement Agreement prohibited any description of
Goudreau other than “formerly of BOSTON.” There was at least a dispute about
whether he had the requisite ability to directly control and monitor EATA’s
promotions.  Given the admission that the
person doing promotions did promote Goudreau as an “original” member of Boston,
it could reasonably be inferred that Goudreau did not attempt to prevent Boch
from promoting him as an “original” member for some period of time. When he did
weigh in, the evidence showed that he was diligent in instructing on the
appropriate description.  Unfortunately
for Goudreau, the promoter’s responsiveness to his requests lent credence to
the idea that he had direct control over EATA’s promotions.
 
Another instance was not evidence of contributory liability,
however.  An email to Goudreau requested
that he “[c]hoose a photo” and asked, “Do you want a small Boston logo?”
Goudreau responded, “The color shot with the Boston logo would be great.”  But there was no evidence that the photo of
Goudreau with the Boston logo was used in an infringing manner, “i.e., in
connection with the sale of goods or services or in a way likely to cause
confusion.”  (I applaud the district
court’s care here.  Not every court would
be so careful.)
 
Vicarious liability:  There
was no evidence of an actual partnership between Goudreau and an infringer or
of joint ownership of the infringing promotions, so Scholz’s case turned on
apparent authority of the alleged infringers to act for Goudreau.  Goudreau noted that he had not had a manager
or agent since the 1990s. The court found that, with one exception, the
evidence didn’t reveal conduct by Goudreau that resulted in a third party—whether
a performance venue or anyone else—reasonably believing that an alleged
infringer was acting on Goudreau’s behalf.
 
As with contributory liability, Goudreau’s membership in the
EATA band raised factual issues that prevent summary judgment in his favor.
Goudreau performed with EATA in as many as 60 shows per year at the height of
their popularity. A third party could thus reasonably infer that representatives
of EATA acted on Goudreau’s behalf.  (Who? The ultimate consumer/audience
member?  Possible.)
 
Trademark dilution: At a political event for
then-presidential candidate Mike Huckabee, Goudreau was filmed answering a
query regarding where he was from and why he was in attendance with the
response, “Barry Goudreau from Boston. I like Mike.”  This was not enough to make out a claim for
trademark dilution or tarnisment. 
Goudreau’s statement didn’t use the Boston mark in commerce, because it
was in a political context, even if it had created a false endorsement.  The court applied the federal dilution
exception, but apparently assumed without further discussion that Massachusetts
dilution law—which does not explicitly contain such an exception—did so by
implication.
 
Unfair competition: Goudreau argued that Scholz lacked
standing under Lexmark, which held
that “a direct application of the zone-of-interests test and the
proximate-cause requirement supplies the relevant limits on who may sue” for
unfair competition under Section 43(a).  Goudreau
argued that Scholz had no evidence of injury and thus no proximate cause.  Scholz alleged harm to his reputation, but, “at
the summary judgment stage, Scholz needs to point to actual evidence of
reputational injury.”  Bye-bye unfair
competition claims!  (Note lack of
application of this rule to the §32 claims, though it’s not clear how the
parties argued it.)
 
Breach of contract:  Scholz
argued that Goudreau wrongly used Boston in ads and promotions, despite the settlement
agreement’s prohibition on use “for or in conjunction with any advertisement or
promotion.”  But that prohibition is
expressly limited by his right to use “formerly of Boston” in conjunction with
biographical usage with respect to future performances, which includes ads and
promotions of same in order to avoid making that right meaningless.  As for the use of descriptive language other
than “formerly of Boston,” Scholz didn’t provide evidence that Goudreau, and
not third parties, violated the agreement.
 
The Massachusetts Truth in Music Statute, Mass. Gen. L. c.
93, §§ 12 & 43B, bars “advertising a live musical performance or production
in the commonwealth through the use of a false, deceptive or misleading
affiliation, connection or association between the performing group and the
recording group.” “Performing group” is defined as “a vocal or instrumental
group seeking to use the name of another group that has previously released a
commercial sound recording under that name.”  The statute applies only to performances in
Massachusetts, so only EATA and the JMBB were implicated. Neither group sought
to perform under the BOSTON name and so neither was a “performing group” under
the statute.
 
Because Scholz’s claims for contributory trademark
infringement and vicarious liability survived summary judgment as to EATA, his
claim for breach of the covenant of good faith and fair dealing based upon the
same facts also survived.
 
Chapter 93A: Unfair or deceptive acts/practices liability
under Massachusetts law requires that the alleged conduct “(1) falls within the
penumbra or some common-law, statutory, or other established concept of
unfairness; (2) is immoral, unethical, oppressive, or unscrupulous; and (3)
causes substantial injury to consumers or other business persons.”  This failed because there was no evidence of
direct infringement. Scholz emphasized that Goudreau consummated his business
transactions with a handshake rather than a written agreement, but that didn’t violate
Chapter 93A.
 
Goudreau’s counterclaims: First, Goudreau argued that the
settlement agreement ambiguous and that he should be able to use a broader
array of terms than the language specified, “formerly of Boston.” The court
disagreed; the language was clear, and Scholz had also entered into an
agreement with another former BOSTON member permitting him to use the
description “formerly of Boston or similar designation.”  Even if the agreement were ambiguous, there
was little extrinsic evidence supporting an alternative reading.
 
Breach of contract: Goudreau argued that Scholz breached the
Settlement Agreement by interfering with Goudreau’s right to describe himself
as “formerly of Boston” and by threatening promoters and venues who wished to
hire Goudreau. If a jury rejected the secondary liability claims relating to
EATA, it could reasonably conclude that Scholz failed to honor his own
contractual obligations “by endeavoring to deny Goudreau the right to promote
himself in conformance with the Settlement Agreement.”  Although Goudreau might not be able to show
damages, “[u]nder Massachusetts law, a person who is injured by a breach of
contract has a right to judgment even if the breach caused no harm.” This
reasoning also preserved Goudreau’s claims for breach of the implied covenant
of good faith and fair dealing and for violation of Chapter 93A.
 
Finally, the court rejected Goudreau’s abuse of process
counterclaim. An abuse of process claim requires a showing “‘that ‘process’ was
used, for an ulterior or illegitimate purpose, resulting in damage.’” The
alleged collateral benefits of the process must be “clearly outside the
interests properly pursued in the proceeding.” The evidence didn’t support the
claim that Scholz was trying to get an indirect benefit by reclaiming all
royalty rights to and copyrights in BOSTON’s first two albums; that was a clear
goal of his attempted remedy of recission of the settlement agreement. Goudreau
didn’t explain how this purpose wasn’t properly part of the proceeding or not
“a legitimate purpose of the particular process employed,” given that Scholz
brought claims related to the contract between the parties.  Though it was questionable whether recission
would ultimately be available as a remedy, Goudreau hadn’t challenged the
general availability of recission for breach of contract.
 
Goudreau also suggested another ulterior motive: Scholz’s
efforts to obtain discovery related to a defamation lawsuit brought by Scholz
against the Boston Herald. But Massachusetts favors broad latitude in discovery
of any relevant, nonprivileged matter, so that couldn’t support the abuse of
process claim either.
 
Did all this litigation really accomplish anything other
than making Goudreau wish the settlement agreement were drafted more like
Scholz’s other settlement agreement?

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omission from “comprehensive” database wasn’t actionable misrepresentation

Posted on September 24, 2015 by rtushnet
Alexso, Inc. v. First Databank, Inc., 2015 WL 5554005, No.
CV 15-01893 (C.D. Cal. Sept. 21, 2015)
 
Alexso makes kits that pharmacies use to compound
prescription drugs.  FDB publishes databases
that provide information about drug products to the healthcare industry. Alexso
requested inclusion of eight of its kits in FDB’s database; FDB requested
additional information, including whether the kits were FDA approved.  Alexso responded that the kits didn’t require
additional FDA approval because they were already FDA approved for marketing in
the United States as a “Bulk Ingredient for Human Prescription Compounding.” FDB
refused to list the kits unless and until Alexso received notice from the FDA
that the kits could be marketed without approval. FDB did at some point list
kits manufactured by Alexso’s competitors.
 
Alexso argued that the exclusion of the kits from FDB’s
database violated the Lanham Act and California’s UCL, intentionally and
negligently interfered with Plaintiff’s prospective economic advantage, and
committed a prima facie tort. Because FDB provides information for hospitals,
physicians, pharmacies, and other health care providers, Alexso alleged that
its exclusion put at a “fatal competitive disadvantage,” and that consumers
interpret the exclusion of the kits as a representation that the products weren’t
approved for sale by the FDA.
 
The court held that the complaint failed to allege that FDB
made any representation about Alexo’s products. The database just doesn’t mention
Alexso’s compounding kits. Although FDB advertising touts the databases as
“more comprehensive” and providing “comprehensive drug knowledge,” the
complaint didn’t allege that FDB ever purported to offer an exhaustive listing
of FDA-approved products or suggested that products not listed in the database weren’t
FDA-approved. “Absent any such statements, and given the myriad reasons why a
for-profit informational database or catalogue might list certain products and
not others, FDB’s exclusion of Alexso products cannot plausibly be read as an
affirmative representation of any kind regarding those products, let alone a
representation that would lead database subscribers to wrongly believe that
Alexso’s kits are not approved by the FDA.” Alexso alleged that California’s
Medicaid program relies exclusively on FDB’s database, and wouldn’t reimburse
providers for products not listed in the database. That might be a problem, but
the Lanham Act wasn’t the appropriate vehicle for relief.  With the Lanham Act claim gone, the court
declined to consider the state-law claims (or the anti-SLAPP defense thereto,
which sidesteps an interesting question about whether the speech challenged is
commercial).

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xkcd on Happy Birthday

Posted on September 23, 2015 by rtushnet

As usual, xkcd has a great take.

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New paper on deceptive advertising from Seana Shiffrin

Posted on September 23, 2015 by rtushnet

Seana Shiffrin, Deceptive Advertising and Taking Responsibility for Others, Oxford Handbook of Food Ethics, ed. Tyler Doggett, Anne Barnhill and Mark Budolfson, Forthcoming:

This paper considers how the law of deceptive advertising embeds within it an extended form of responsibility, making advertisers sometimes responsible for the mistakes of consumers. The paper defends this pattern of liability as an attractive form of social cooperation and answers worries about paternalism and freedom of speech.

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Google can’t avoid class action just because damages are variable

Posted on September 22, 2015 by rtushnet
Pulaski & Middleman, LLC v. Google, Inc., No. 12-16752
(9th Cir.  Sept. 21, 2015)
 
From 2004-08, many advertisers used Google’s AdWords to bid
for Google to put their ads on websites. Pulaski sued under the California UCL
and FAL, alleging that Google misled them as to the types of websites on which
their advertisements could appear. Under Google’s auction system, the price of
a click varied based on several factors: other bidders’ maximum bids, the ad’s quality
score, and a “Smart Pricing” discount applied to the website where the ad was
placed.  This discount comes from a ratio
calculated by dividing the conversion rate for a lower-quality website by the
conversion rate of google.com.  Although
Google’s registration process only discussed Search Feed and Content Network
placement—the first where the ads varied by the nature of the user’s search,
and the second where the ads were determined by the content on the rest of the
website, such as nytimes.com—AdWords also ran on parked domain pages and error
pages.
 
After Google changed the AdWords program to let advertisers
exclude parked domain and error pages, Pulaski sought only the equitable remedy
of restitution. The district court held that common questions didn’t
predominate because of damages issues, rejecting Yokoyama v. Midland National
Life Insurance Co., 594 F.3d 1087 (9th Cir. 2010).  The court of appeals reversed.
 
Pulaski proposed three different methods for calculating
restitution, all of which were based on a “but for” or “out-of-pocket loss”
calculation: the difference between what advertisers actually paid and what
they would have paid had Google informed them that their ads were being placed
on parked domains and error pages.  One
was based on the Smart Pricing discount ratio; a second method factored in the
lower bidding that would have occurred had advertisers been allowed to bid
separately on parked domains and error pages. A third method would provide full
refunds for clicks on ads placed on parked domains and error pages. Each method
would provide better results for different subgroups than the other methods.
 
The district court found that Rule 23(a) was satisfied in
terms of numerosity, commonality, typicality, and adequate representation. However,
for Rule 23(b)(3) predominance, the district court found that ascertaining who
was even entitled to restitution would require individual inquiries, since “many
advertisers … have no legal claim to restitution because they derived direct
economic benefits from ads placed on parked domains and error pages.”  Individual questions would also arise in
determining the amount of restitution owed. 
Yokoyama held that damages
calculations alone cannot defeat class certification, but that case involved a
“workable method for calculating monetary recovery.” Here, the district court
held, plaintiffs lacked such a workable method, given differing costs for each
advertiser, each ad, and each click, overlaid with an auction process.
 
The court of appeals reversed. Entitlement to restitution
was a common question.  The UCL and FAL
are worded broadly; for false advertising claims, all a plaintiff must show is
likely deception, not “individualized proof of deception, reliance and injury.”
“[I]n effect, California has created what amounts to a conclusive presumption
that when a defendant puts out tainted bait and a person sees it and bites, the
defendant has caused an injury; restitution is the remedy.”
 
Google argued that class members were exposed to different
information and thus couldn’t be treated together.  Pulaski responded that the conduct at issue
was consistent: “all AdWords customers could select Search Feed pages, Content
Network pages, or both; parked domain and error pages were never mentioned in
AdWords’s sign-up materials; Google’s contracts with advertisers never
disclosed that Google would place their ads on parked domains and error pages …;
and Google’s materials answering frequently asked questions did not disclose ad
placement on parked domain and error pages.”   Because Pulaski’s claims were based on the
AdWords sign-up materials, “all of which were presented to putative class
members through the same online portal,” Google’s argument failed.

The UCL and FAL provide for restitution as a remedy.  Courts need not make individual
determinations about entitlement to restitution, which is available classwide
once there’s a threshold showing of liability.
 
What about damage calculations?  Yokoyama
held that “damage calculations alone cannot 
defeat  certification.”  Google argued that Comcast Corp. v. Behrend,
— U.S.—, 133 S. Ct. 1426 (2013), displayed Yokoyama,
but that case involved a failure to provide a damages model that could link the
plaintiff’s legal liability theory to only those damages attributable to that
theory.  Comcast didn’t overrule Yokoyama
as long as plaintiffs can show that their damages stemmed from the defendant’s
actions that created the legal liability. Other circuits have agreed.
 
Google then argued that Pulaski’s proposed method for
calculating restitution was “arbitrary,” but the court of appeals
disagreed.  Restitution is “the return of
the excess of what the plaintiff gave the defendant over the value of what the
plaintiff received.” Restitution aims “to restore the defrauded party to the
position he would have had absent the fraud,” and “to deny the fraudulent party
any benefits, whether or not for[e]seeable, which derive from his wrongful
act.”  In cases of deception, the
consumer buys a product that he or she pays more for than he or she otherwise
might have been willing to pay if the product had been labeled accurately.  This harm can occur even if the court views
the products as functionally identical (as with two wines from different
vintages), as long as the consumer wouldn’t. 
Thus, UCL and FAL restitution is based on what a purchaser would have
paid at the time of purchase had the purchaser received all the information.
 
California “requires only that some reasonable basis of
computation of damages be used, and the damages may be computed even if the
result reached is an approximation.” “[T]he fact that the amount of damage may
not be susceptible of exact proof or may be uncertain, contingent or difficult
of ascertainment does not bar recovery.”  Pulaski’s proposed method wasn’t
arbitrary.  It didn’t need to account for
post-purchase benefits, because the focus is the value of the service/what the
consumer would have paid at the time of purchase. 
 
Pulaski’s main method of calculating restitution for Google’s
placement of ads on lower-quality-than-expected web pages used Google’s Smart
Pricing ratio, “which directly addresses Google’s alleged unfair practice by
setting advertisers’ bids to the levels a rational advertiser would have bid if
it had access to all of Google’s data about how ads perform on different
websites.” Using a ratio that adjusts for web page quality “is both targeted to
remedying the alleged harm and does not turn on individual circumstances.” The
court therefore didn’t need to address the alternative methods.

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