Puerto Rico registration can’t constitutionally extend elsewhere

Posted on December 17, 2015 by rtushnet
Puerto Rico Coffee Roasters LLC v. Pan American Grain
Manufacturing Co., Inc., 2015 WL 8551102, No. 3:15–CV–02099 (D.P.R. Dec. 11,
2015)
 
P.R. Coffee Roasters, which sells “Café Rico” coffee in
P.R., sued Pan American for trademark infringement, false advertising, and
related claims under federal and Puerto Rico law based on Pan American’s
conduct in the coffee industry, specifically its Florida sales of “Rico Coffee”
 using the same name, packaging format,
and color scheme as P.R. Coffee Roasters’ Café Rico,” along with alleged
disparagement of P.R. Coffee Roasters. P.R. Coffee Roasters further alleged
that the statement on packages of Rico Coffee, that “it is no accident
Puertorrican coffee is the preferred coffee of Popes and Kings” infringed P.R.
Coffee Roasters’ trademark in the slogan “The Coffee of Popes & Kings,” on
packages of “Alto Grande” coffee, another P.R. Coffee Roasters brand.  (I imagine the nominative use argument might
be an uphill battle here, but it’s an interesting thought.)
 

Plaintiff’s Café Rico
Plaintiff’s Alto Grande, The Coffee of Popes & Kings
 



Defendant’s Rico Coffee
Defendant’s coffee: It is no accident that Puertorrican Coffee is the preferred coffee of popes & kings

Also, P.R. Coffee Roasters alleged that Pan American was waging
a “defamation campaign” that accusds P.R. Coffee Roasters of “using child
labor,” “selling imported coffee as local coffee,” and “participating in
efforts to undermine the Puerto Rico coffee industry,” etc.  The court pointed out that, to some extent,
the allegations were that Pan American’s wrongs were at cross-purposes: seeking
to benefit from, but ultimately destroy, the reputation of P.R. Coffee
Roasters’ coffee brands.
 
P.R. Coffee Roasters alleged that Pan American knew of its
Café Rico trademark due to a series of deals and litigation by Pan American
involving the mark. Pan American’s Rico Coffee was allegedly marketed to the
same type of consumers as P.R. Coffee Roasters’ brands, such as “the Puerto
Rican community in Florida, who know and have been consuming Café Rico for more
than 70 years.”  
 
Pan American argued that it had senior rights, but that
certainly couldn’t be resolved on the pleadings. Plus, Pan American seemed to
base its claim on its incontestable right to use the trade dress for “Arroz
Rico,” a brand of packaged rice.  But
P.R. Coffee Roasters alleged the use of its Café Rico mark for coffee since
“approximately 1936” and that it was the senior user of the mark for coffee.
 
P.R. Coffee Roasters thus sufficiently pled infringement of
its registered and unregistered marks/designs, though it didn’t allege a
separate trade dress claim and would be held to that concession.  “Café Rico” was unregistered under federal
law, so P.R. Coffee Roasters would ultimately have to prove secondary meaning
under a rigorous standard, but it adequately pled secondary meaning by alleging
that the word mark had been in continuous use since the 1930s, such that “the
Puerto Rican community in Florida … know[s] and ha[s] been consuming Café
Rico for more than 70 years,” and by appending to the complaint historic
examples of the advertising and promotion of the mark.  Thus, P.R. Coffee Roasters sufficiently
alleged that its mark could identify the source of coffee in Florida.
 
The false advertising claim was also sufficiently pled.  P.R. Coffee Roasters alleged that the
falsities were “disseminated under the Facebook accounts for Pan American’s
brand Café Mami and the campaign ‘Salvemos el café 100% puertorriqueño,’
controlled by Pan American’s public relations team.”  “Whether a P.R. Coffee Roasters coffee is
cheap or good, imported or local, adulterated or pure, destructive of Puerto
Rico or supportive of it, and complicit in child labor or standing against it
are all material representations about the coffee because they all ‘relate[ ]
to a characteristic that defines the product at issue, as well as the market in
which it is sold.’” The alleged accusations struck at the heart of P.R. Coffee
Roasters’ brand.  And the allegations
were of explicit falsity, requiring no extrinsic evidence of consumer
deception.  Likewise, P.R. Coffee
Roasters properly alleged that Pan American made false statements about itself:
that it was protecting locally produced coffee, using the “slogan ‘Salvemos el
Café 100% puertorriqueño’ (Save the 100% Puertorrican Coffee),” while at least two
of the three brands affiliated with Pan American, Del Patio and De Mi Tierra, used
imported coffee. P.R. Coffee further alleged that Pan American was abusing its
control of 90% of the fertilizer market to harm P.R. coffee growers, contrary
to its representations.
 
Pan American argued that the court lacked jurisdiction
because all the allegedly disparaging statements occurred in Puerto Rico and
were directed at the consuming public there. 
But Congress legislated to the full extent of its Commerce Clause power
in the Lanham Act.  Pan American
allegedly waged part of its defamation campaign through online “ads and
sponsored social media sites.” And anything that has “traveled via the
Internet” has “traveled in interstate commerce.” Separately, “an adverse effect
on the sales or goodwill of one whose trademark is used in interstate commerce
is a sufficiently substantial effect on interstate commerce to entitle [P.R.
Coffee Roasters] to invoke the protection of the Lanham Act, even if the [acts]
of [Pan American’s] are wholly intrastate.”
 
The court also rejected Pan American’s First Amendment
defense at this stage, since the First Amendment didn’t give Pan American a
right to engage in misleading commercial speech.
 
However, P.R. Coffee Roasters couldn’t bring a Puerto Rico
trademark claim, because Puerto Rico trademark law didn’t apply
extraterritorially, both on statutory interpretation and Dormant Commerce
Clause/First Amendment grounds. (Note interesting invocation of the First
Amendment here—as we’ll see, the court suggests that there is a First Amendment
right of others to use descriptive terms without secondary meaning.  That would suggest some trouble for
incontestability.)  Extraterritorial
application of trademark rights in “Café Rico” would conflict with the PTO’s
holding that P.R. Coffee Roasters was required to disclaim rights in the word
mark, other than as shown in the design mark, because “Café Rico” is a
descriptive phrase in Spanish, meaning “delicious, rich coffee.” “The
extraterritorial application of Puerto Rico law in this case would not only
unravel the delicate balance between free speech and property rights struck in
the Lanham Act, but it would also unconstitutionally impede interstate trade
and speech.”

The court dismissed P.R. Coffee Roasters’ trademark misuse claim, because there
was no cause of action for that. 
However, P.R. Coffee Roasters could bring Puerto Rico tort claims to the
extent that they adopted the Lanham Act—so P.R. Coffee Roasters could sue
another Puerto Rico citizen, as Pan American was, for conduct in the state of
Florida that violated the Lanham Act. 
The court reserved the question of whether, if Puerto Rico law provided
extra remedies (as it might), such remedies would be preempted.
 
By contrast, P.R. Coffee Roasters’ defamation claim under
Puerto Rico law failed.  Although Pan
American didn’t show it was a public figure, P.R. Coffee Roasters still needed
to plausibly allege negligence. 
Negligence is assessed based on the “nature of the published
information,” the “[o]rigin of the information and reliability of its source,”
and the “[r]easonableness of the process for checking the truthfulness of the
information.”Although discovery would be required to prove negligence, P.R. Coffee Roasters still had the burden at this
stage to plead negligence in a non-conclusory manner supported by pertinent
facts. This it did not do.

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California false advertising requires “advertising,” but unfair competition doesn’t

Posted on December 15, 2015 by rtushnet
Golden v. Sound Inpatient Physicians Medical Group, Inc., No.
14-cv-00497, 2015 WL 8539034 (E.D. Cal. Dec. 11, 2015)
 
Golden, a medical doctor, was a VP of medical affairs/chief
quality officer at Dameron Hospital from 2008-2012.  Golden was also the majority shareholder of
the California Hospitalist Physicians, Inc. (CHP), a medical corporation
providing primary care medical services, which contracted with Dameron to
provide services from 2009-2012, at which point Dameron chose Sound Inpatient
as the new hospitalist group for Dameron. 
Golden had entered into agreements with several doctors to provide
hospitalist services for their patients, competing with Sound Inpatient.
 
Golden posted a list in the emergency room of doctors who
designated her as the hospitalist for their patients.  But Sound Inpatient sent letters to providers
saying Golden did not practice at Dameron anymore; sent a nurse to visit
offices of providers stating Golden was not practicing at Dameron anymore; and told
employees to inform Dameron emergency room staff not to check anymore whether Golden
was designated as hospitalist for patients, because all those patients were now
assigned to Sound Inpatient.
 
Golden sued for violation of the California consumer protection
laws.  She had standing to sue because she
alleged that she lost money as a result of patients not seeking her services
anymore.
 
Under Cal. Bus & Prof. Code § 17500, it’s “unlawful for
any person [or] corporation … with intent directly or indirectly to dispose of
real or personal property or to perform services … or to induce the public to
enter into any obligation relating thereto, to make or disseminate … any
statement, concerning that real or personal property or those services … which
is untrue or misleading, and which is known, or which by the exercise of
reasonable care should be known, to be untrue or misleading.”  However, a close reading of the statute
convinced the court that the statements had to be made in “advertising,” which
these statements were not.  The relevant
language from Section 17500 refers to false statements disseminated: “in any
newspaper or other publication, or any advertising device, or by public outcry
or proclamation, or in any other manner or means whatever, including over the
Internet.” The all-inclusive language of “any other manner or means whatever”
could include letters, a nurse’s statements to providers, and instructions to
employees not to check whether Golden had been designated as the hospitalist. But
section 17500 as a whole clearly referred to advertising, and there was a “common
sense” difference between the communications at issue here and advertising. If
Golden could sue here, “nearly any false statement connected with the sale of a
product/service constitutes false advertising.” 
(Which would be a problem because …)
 
The language of the statute clearly referred to harm to the
public, and Golden didn’t show that the public was induced or that a false
advertisement was disseminated to the public. Instead, Sound Inpatient
allegedly targeted individual providers and employees.   “[T]hese sporadic, infrequent means were not
directed at the public for purposes of section 17500.”  Moreover, the complaint didn’t allege how
consumers such as patients were deceived or harmed, just that medical providers
and staff were the recipients of false statements.  (If they didn’t get the hospitalist they’d
chosen, why isn’t that harm?)
 
Section 17200 prohibits “any unlawful, unfair or fraudulent
business act.”  “Unlawful” borrows
violations of other laws, and without a 17500 predicate claim, there was
nothing there.  As for “fraudulent,” that
requires actual and justifiable reliance, and Golden didn’t allege that she
relied on Sound Inpatient’s false statements. 
Nor did most of the facts alleged amount to “unfair” conduct, which
requires “an incipient violation of an antitrust law, or that violates the
policy or spirit of [such] laws because its effects are comparable to a
violation of the law, or that otherwise significantly threatens or harms
competition.”

However, alleged false statements that Golden wasn’t practicing at Dameron
anymore nudged the complaint based on 17200 past the threshold of plausibility.
 Repeatedly making such false statements
with the aim of drawing patients away from Golden stated a claim for unfair
competition.

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Transformative work of the day, Omelas edition

Posted on December 14, 2015 by rtushnet

I know I do a lot of these from The Toast, but that’s kind of their thing.

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Soliciting lawsuits against TM owner isn’t confusing use of TM owner’s mark

Posted on December 14, 2015 by rtushnet
AMCOL Sys., Inc. v. Lemberg Law, LLC, No. 3:15-3422, 2015 WL
8493955 (D.S.C. Dec. 10, 2015)
 
AMCOL provides debt collection services and is subject to the
Fair Debt Collection Practices Act (FDCPA)’s ban on “harassment” in debt
collection. AMCOL alleged that it had substantial goodwill associated “recognized
by the relevant consumers, including AMCOL’s clients and debtors.”  (Seems unlikely that the debtors have much
goodwill towards AMCOL, though.)  Lemberg
allegedly used the internet to advertise its services using AMCOL’s marks,
interfering with internet users’ ability to reach AMCOL’s own website, and
misleading potential clients into believing that AMCOL’s services violated
applicable laws such as the FDCPA. 
 
Lemberg runs “several websites soliciting potential clients
to file lawsuits against debt collectors, including http://ift.tt/1RO20qI
and http://www.debtbulldog.com.” One of its headings was “Stop AMCOL Systems
Harassment,” which allegedly defamed AMCOL by suggesting a violation of the
FDCPA.  The “heading” for Lemberg’s
YouTube Channel stated “Amcol Systems Calling You? Sue Amcol Systems for
Harass[ment].” Debtors would allegedly choose to retain Lemberg rather than
working with AMCOL. [Debtors are involuntarily involved with AMCOL.  Query whether debt sellers, AMCOL’s actual
customers, would care what happens after sale, as long as AMCOL pays them for
the debt.]
 
The court kicked out the Lanham Act claims and declined to
exercise jurisdiction over pendent state law claims.  First, likely confusion: Lemberg was using
AMCOL’s marks in connection with advertising their own services, but AMCOL
still failed to allege actionable consumer confusion.  Both Radiance Foundation, Inc. v. N.A.A.C.P.,
786 F.3d 316 (4th Cir. 2015), and Lamparello v. Falwell, 420 F.3d 309 (4th Cir.
2005), hold that criticism of a plaintiff “via use of its marks” does not
equate to consumer confusion.  Although
those cases involved “First Amendment issues” [and this doesn’t?], the broader
holding is that trademark law doesn’t affect the rights of critics and
commentators, because it requires use that is likely to cause confusion as to
source or sponsorship.
 
Allied Interstate LLC v. Kimmel & Silverman P.C., No. 12
Civ. 4204(LTS)(SN), 2013 WL 4245987 (S.D.N.Y. Aug. 12, 2013), and NCC Business
Services, Inc. v. Lemberg & Associates, LLC, No. 3:13-cv-795-J-39MCR, 2014
WL 5510892 (M.D. Fl. June 6, 2014), adopted by 2014 WL 5514247 (M.D. Fl. July
23, 2014), similarly found no plausible allegations of likely confusion based
on lawyers’ websites targeting particular debt collectors.  The websites made clear that they belonged to
law firms that sued debt collectors like AMCOL, and references to its name were
“merely for the purpose of advertising Defendant’s services and generating
leads for potential lawsuits.”  [This could
be taken care of as nominative fair use, possibly even under the Third Circuit’s
restrictive test which requires that the defendant need to use the plaintiff’s
mark to explain the defendant’s own goods and services.  Interesting that the court doesn’t even need
to do that, and can rely on basic plausibility.  Seriously, why isn’t this fee-worthy?  Rule 11-worthy?]
 
It was implausible that the relevant consumers—businesses seeking
to hire AMCOL to collect debts—would be confused as to the source or
sponsorship of Lemberg’s services based on its use of AMCOL’s marks. Nor could debtors
be said to be part of the relevant consuming public even if they “choose” to
work with Plaintiff to pay off debts. They were subjects, not customers.
 
How about false advertising, such as allegations that AMCOL
harassed debtors in violation of the FDCPA? 
AMCOL didn’t specifically identify false or misleading representations
of fact. The two identified headings – “Stop AMCOL Systems Harassment” and “Sue
AMCOL Systems for Harassment” – wouldn’t be enough to mislead the relevant
consumers, given the context.  Although
AMCOL claimed damages from debtors refusing to work with it, the relevant
damage would have to come from the merchandising context—from AMCOL’s
consumers.  [Here the court repeats its
no-confusion-as-to-source conclusion, though that’s wrong for false
advertising.  The basic Lexmark reasoning, that AMCOL needs to
plausibly allege a competitive injury, still seems obviously correct.]

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Reading list: Redskins as insult and brand

Posted on December 12, 2015 by rtushnet

C. Richard King, Redskins: Insult and Brand (2016)

Passionate, if somewhat repetitive (as perhaps all moral calls to action are), argument about the poisonous nature of the Washington football team’s name. King argues that the name isn’t just about insulting Native Americans, but about white people owning them, propertizing their images and getting to decide what “counts” as a real problem, and that this ownership itself is one of the benefits the name provides in bolstering white supremacy. Claiming Indianness becomes a privilege of white masculinity, the mascot now a trophy. (Notably, the team was famously racist towards African-American players and the last in the NFL to integrate, with an anthem that not only stereotyped “braves on the warpath” and used mock pidgin but also urged the players to “fight for old Dixie.”) The name, and the images with which it is associated, combine a “paradoxical love of imagined Indians and a loathing of actual, embodied Indians that continues to this day.” That love is indifferent to the fact that, for example, the team currently plays on the ancestral territory of the Piscataway Tribe, or that DC is where the Patawomeck used to live. And as hard as the team tries to remove the stereotypes and leave only tribute, as late as December 2014, fans ran a “Scalp Out Cancer” fundraiser. When defending the name, team fans speak of their own hurt and pain—what King calls “playing Indian and playing the victim.” It’s their power to name and claim that’s threatened, and that’s all they see—as when fans consider protesters inauthentic because they don’t look “Indian” enough then claim that they have 1/16 Cherokee blood.

Along with the privileging of whiteness, King also discusses the harms directly done by stereotypical images: making Native Americans feel worse and triggering disparaging stereotypes in whites. I learned that owner Dan Snyder’s Original Americans Foundation, while launched to huge hoopla, appears to have gone completely dormant in terms of carrying out any charitable activities. I also learned more about the history of the term that arose “to accommodate an increasingly racialized European and European American view of the world which was imposed on a broad range of peoples who only gradually developed a sense of a collective identity in response to it.”

King also discusses Native Americans who don’t mind the team name, or like it. It’s a useful point: “how could there not be some American Indians who support it?” There’s a lot of diversity among any group of people; some don’t think about it; some have family connections to the team; and, “in a society that offers so few images of American Indians, … that has so fully erased living indigenous people in favor of imaginary versions of them, why wouldn’t some number of Native Americans come to accept, endorse, and even identify with” the team? King further suggests that Native Americans living on reservations experience racism differently than Native Americans living in large cities, who see the logo regularly and don’t have the insulating counter-narratives that might surround them in their communities. So, while three high schools with a majority Native American student body still use the same name, their communities and audiences wouldn’t use the stereotypes that white football fans do.

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Reading list: empirically testing tarnishment of movies

Posted on December 9, 2015 by rtushnet
Christopher Buccafusco, Paul J. Heald, & Wen Bu, Testing
Tarnishment in Trademark and Copyright Law: The Effect of Pornographic Versions
of Protected Marks and Works:
 
This Article [reports] the results
of two novel experiments designed to test the effects of pornographic versions
of creative works on the value of the underlying works. In our experiments,
subjects viewed movie posters of pornographic versions of popular movies before
they were asked questions about those movies. Our data show little if any
support for the tarnishment hypothesis and some significant support for an
alternative enhancement hypothesis: Some of our subjects actually perceived
more value in the “tarnished” movies. We believe the results of these
experiments put the ball back into the court of tarnishment theorists to prove
their anxiety has a factual basis.
 
Good to see some empirical confirmation of the position
I’ve long taken (wow, I’ve had this blog for more than ten years!).

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6th Circuit holds that targeted ads are commercial advertising or promotion

Posted on December 8, 2015 by rtushnet
Grubbs v. Sheakley Gp., Inc., 2015 WL 7964109, — F.3d – (6th
Cir. Dec. 7, 2015)
 
District
court’s ruling covered here (with my raised eyebrow).  The court of appeals affirms the dismissal of
the RICO claims (they’re RICO claims), but reverses the dismissal of Lanham Act
claims based on the consequences of a mass employee departure.
 
Grubbs owns Tri–Serve, Ltd.; TriServe # 1, LLC; and Capital
Concepts, Inc.  Capital Concepts is a
financial planning, wealth management, and tax preparation firm, while the
other firms were successors to four professional employment organizations,
which are a type of Ohio regulated entity to which employers may outsource
certain administrative tasks, such as payroll, workers’ compensation, and
benefits.  Tri-Serve provides PEO
services to the greater Cincinnati, Ohio market.
 
After she purchased Tri-Serve, Grubbs asked Defendant Strunk–Zwick
to manage the newly acquired companies because of her expertise with PEOs.
Strunk–Zwick was subject to a non-competition agreement.  Defendant Larry Sheakley owns and operates
the Sheakley Group of Companies, which also provide “401(k) services, flexible
benefit plans, workers’ compensation, payroll, [and] human resources
outsourcing solutions,” headquartered in Cincinnati.
 
One of the Sheakley defendants solicited Strunk–Zwick to ask
for her assistance with Sheakley’s PEO division while she was still employed by
Tri-Serve. “During March and April 2009, Strunk–Zwick was paid by Sheakley on a
consulting basis, and was sometimes absent from the Tri–Serve office during
business hours in order to provide services to Sheakley.”  Sheakley solicited Strunk-Zwick and other
Tri-Serve staff members to join Sheakley, and coordinated the transfer of
Tri-Serve clients to Sheakley.  Defendant
Steve Wolf, a Sheakley VP, suggested that Strunk–Zwick tell Tri–Serve clients that
“we are partnering with Sheakley and that we may transition them over to give
them better service etc.”  For example,
Strunk-Zwick sent an email to 22 Tri-Serve clients:
 
We are moving! In order to better
serve you, we are partnering with Sheakley HR and moving our offices. As many
of you know, we have partnered with Sheakley over the years with regards to our
workers compensation and unemployment management. We have been blessed to have
experienced tremendous growth over the last 6 months. We find ourselves needing
more office space and more resources to ensure that our customer service level
continues to meet your expectations. By moving into Sheakley Group we will be
able to provide you and your employees with additional resources, services, and
benefits, while continuing to provide you with the service that you have grown
accustomed to expect from TriServe. Nothing will change from your standpoint.
We will have new contact information, but nothing else will change. You will
begin to see the Sheakley HR name and we will be introducing new benefits and
new services to assist you with growing your business. …
 
Effective Monday, July 6, 2009 our
Contact Information will be:
TriServe LTD c/o Sheakley HR
Solutions…
 
“Several Tri–Serve clients expressed dissatisfaction with
the move, were upset that they had received no notice, and worried that all of
their information had been transferred to Sheakley.”  At that point, Strunk-Zwick resigned from
Capital Concepts.  Before she left
Capital Concepts, she removed all files, including all customer files; took
Tri-Serve’s 2009 tax returns; and deleted computer files and e-mails.  Sheakley continued to use the Tri–Serve name
thereafter.
 
Grubbs had sporadic contact with Strunk–Zwick and Sheakley for
the next several months as they tried to work out various issues with payroll,
taxes, and similar matters for 2009. As of August 2009, health insurers and
workers’ compensation departments were still sending third-quarter invoices to
Tri–Serve at Grubbs’ office, but Sheakley, not Grubbs, received the client
payments.  Strunk-Zwick denied possessing
Tri-Serve’s own tax documents; Grubbs continued receiving bills for Tri–Serve, “which
she paid from her retirement account.” 
(Nice detail, plaintiff’s lawyers!)
 
Grubbs sued in 2013. 
The district court dismissed her Lanham Act and RICO claims, and
declined pendent jurisdiction over 15 state-law claims.
 
False designation of origin: Grubb argued that Strunk-Zwick’s
conduct could be imputed to Sheakley. 
Vicarious liability exists when “the defendant and the infringer have an
actual or apparent partnership, have authority to bind one another in
transactions, or exercise joint ownership or control over the infringing
product.”  The “partnership” email sent
to 22 clients used that language at Wolf’s suggestion.  “The intent to create an apparent partnership
in the eyes of the Tri–Serve clients is self-evident from this language.”
 
Next, the court considered whether there was “trademark use”
or instead use in a “non-trademark way,” which would fall outside the Lanham
Act. “This finding may be dispositive: plaintiffs cannot succeed on a trademark
claim where trademark law does not apply.” The district court found that the
email used Tri-Serve’s mark in a non-trademark way, as a source of comparison
between the two organizations.
 
Hensley Manufacturing v. ProPride, Inc., 579 F.3d 603 (6th
Cir. 2009), found no actionable trademark use where an inventor, Jim Hensley,
left the company bearing his name and designed products for its rival, who
described the products by identifying Jim Hensley as the designer, with a
disclaimer that Jim Hensley was no longer affiliated with Hensley Manufacturing.  This was not trademark use.  However, Hensley
was inapposite.  The email provided a new
address of Tri-Serve at Sheakley HR Solutions at One Sheakley Way, designating
geographic source and implying that those services would be originating from
both Tri–Serve and Sheakley HR. Likewise, including a link to http://www.triservehr.com
suggested that Tri–Serve would still be the source of payroll services, as
before. Domain name use was use “in a trademark way.”
 
Likely confusion:  Tri-Serve is a suggestive mark, “toward the
stronger end of the spectrum,” and “Tri–Serve customers were perfectly
acquainted with the name.”  The services
directly compete, making confusion likely in cases of sufficient
similarity.  Mark similarity: defendant
copied “wholesale,” favoring confusion.  Actual confusion: Some clients expressed
dissatisfaction and worry, and they started sending payments to Sheakley,
indicating that they were duped. 
Marketing channels/customer base: the same.  Degree of customer care: there was no
evidence that business owners purchasing HR services need to be held to an
unusually high standard—the question was whether “a typical buyer exercising
ordinary caution receiving Strunk–Zwick’s e-mail could be confused as whether
the HR services were coming from Sheakley or Tri–Serve.”  Intent: “The use of the Tri–Serve name cannot
have been anything other than purposeful; we therefore read Strunk–Zwick’s
e-mail as calculated to mislead the Tri–Serve clients into diverting their
business to Sheakley.” 
 
All the factors supported a finding of likely confusion, and
this was not in any way counterintuitive. 
“Taking the facts in the light most favorable to Plaintiffs, as we must,
we read the frequent use of the first person plural throughout the e-mail to
mean Tri–Serve, not simply Strunk–Zwick and the other Tri–Serve staff members
who were entering Sheakley’s employ; according to the e-mail, all of Tri–Serve
was moving, and was partnering with Sheakley.” 
The email was chock full of ambiguous (at best) references, which could
sow confusion and strongly implied affiliation, even though Grubbs—the actual
owner of Tri-Serve—did not affiliate with Sheakley.
 
False advertising:  The district court used the Gordon & Breach test for “commercial
advertising or promotion.”  The Sixth
Circuit hasn’t adopted Gordon & Breach,
but circuit precedent was silent about what constitutes “advertising or
promotion.”  The court of appeals here noted
the Seventh Circuit precedent stating that advertising was “promotion to
anonymous recipients,” but (like other courts) didn’t note that the Seventh
Circuit subsequently walked that back a bunch. 
(Does this failure by subsequent courts to notice later refinements tend
to happen more with Seventh Circuit cases because they are so breezy about
precedent generally and thus it’s harder to tell when they’re
limiting/contradicting earlier precedent?) 
The Second Circuit has adopted most of Gordon & Breach in Fashion Boutique of Short Hills, Inc. v.
Fendi USA, Inc., 314 F.3d 48 (2d Cir.2002), requiring that “the contested
representations are part of an organized campaign to penetrate the relevant
market. Proof of widespread dissemination within the relevant industry is a
normal concomitant of meeting this requirement.”
 
Like the Second Circuit, the court of appeals adopted the Gordon & Breach requirements that
“commercial advertising or promotion” must consist of “ ‘commercial speech’
that is made for the purpose of influencing the purchasing decisions of the
consuming public.”  Likewise, it adopted
the “organized campaign to penetrate the relevant market” standard, which need
not entail widespread, market-wide dissemination.  “[P]roducers today employ data as never
before to track our consumption habits, especially on the Internet, and send
out personalized promotional material accordingly.”  Targeted promotion to a discrete segment of a
larger market could be an organized campaign even without “flooding” the
market.  “[T]he plain meaning of the
terms ‘commercial advertising’ or ‘commercial promotion’ accommodates targeted
communications to a substantial portion of a company’s existing customer or
client base.” 
 
Still, not all commercial speech should be actionable under
the Lanham Act (because …?). Thus, the appropriate definition was:
 
(1) commercial speech; (2) for the
purpose of influencing customers to buy the defendant’s goods or services; (3)
that is disseminated either widely enough to the relevant purchasing public to
constitute advertising or promotion within that industry or to a substantial
portion of the plaintiff’s or defendant’s existing customer or client base.
 
No competition was required. 
(This is also entailed by Lexmark,
as other courts have observed.)
 
The letter to all of Tri-Serve’s clients fit squarely within
this definition.
 
The complaint sufficiently pled that the emails contained
several false and misleading statements of fact about Tri-Serve’s services and
its “partnership” with Sheakley.  “Tri–Serve
was not moving and the companies had no relationship whatsoever.” The new
address at One Sheakley Way “was also a false representation of the geographic
origin of the PEO services and could also have created a further misimpression
as to the relationship between the companies.” 
There was also evidence of actual deception, necessary for a damages
claim.  Health insurers and workers’
compensation departments billed Tri–Serve at Grubbs’ office, but clients paid Sheakley,
not Grubbs. 
 
What about interstate commerce? Grubbs didn’t allege that
the e-mail, or the mailed versions thereof, ever traveled outside Ohio, or
where any of the relevant e-mail servers might have been.  However, a civil plaintiff need not allege
that an e-mail crossed state lines to survive a motion to dismiss; stating that
an email was sent was enough to allow the reasonable inference that the
allegedly false advertisements were introduced into interstate commerce.

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California claims against false use of “organic” not preempted

Posted on December 7, 2015 by rtushnet
Quesada v. Herb Thyme Farms, Inc., 2015 WL 7770635, No.
S216305 (Cal. S.Ct. Dec. 3, 2015)
 
Labels matter to consumers, and misrepresentations on labels
hurt consumers in their search for information and also disadvantage honest
producers attempting to differentiate themselves.  Thus, the Supreme Court of California concluded,
federal law didn’t preempt claims against allegedly intentional
misrepresentations of organic status by an herb grower.  Congress only preempted state law on matters
related to certifying production as organic, rather than also reaching out to
preempt action against abuse of the “organic” label.  Such state claims further Congress’ purpose
of having a clear national definition of organic production, allowing consumers
to rely on organic labels.
 
According to the complaint, Herb Thyme has multiple
conventional farms and one farm that is properly certified as organic by a
registered certifying agent. When it comes time for distribution and marketing,
however, Herb Thyme allegedly brings its conventionally grown and organic herbs
to the same packing and labeling facility, processes them together, and sends
blended conventional and organic herbs out under the same “Fresh Organic” label
and packaging. Herb Thyme also allegedly packages and labels as organic some
herbs that are entirely conventionally grown.

The trial court and court of appeals found preemption of the state-law consumer
protection claims based on the Organic Foods Production Act of 1990.  The Supreme Court recounted the history
behind OFPA: the rise of consumer demand for “organic” food, but the
persistence of consumer confusion and deception in the absence of uniform
standards.  States reacted first, but
created inconsistent standards.  Congress
responded by creating national standards for the production, labeling, and sale
of organic products. Producers may label products as organic only if they comply
with an approved organic plan; approval must come from either state officials
or private certifying agents.
 
California became the first state to have its own organic
program approved.  Approved state
programs take principal responsibility for certifying growers and instituting
administrative proceedings for noncompliance with the governing standards.
California’s state program authorizes anyone to file a complaint about
noncompliance, and various state authorities may bring enforcement actions and
impose penalties.
 
Express preemption applies to federalize (1) the term
“organic”—a state can’t allow something the feds don’t, and (2) certification
for growers, which must be carried out only by certifying agents who themselves
have been federally accredited.  Whether
production processes qualify as organic is to be measured “only … in
accordance with” the provisions of OFPA. 
However, no such language of exclusivity appears in the provisions
governing sanctions for misuse of the organic label.  There was no reason to conclude Congress
wanted these sanctions to be a ceiling as well as a floor, especially since the
law permits states to adopt more stringent standards governing “organic”
production. Other courts to consider the issue have found no no express
preemption of state consumer protection lawsuits.
 
Herb Thyme argued that obstacle preemption applied.  There’s a presumption against preemption, and
the longstanding interest of the states in protecting consumers against
deception in food labeling makes preemption especially unlikely.  Even if the minority on the Supreme Court who
advocate for removing the presumption against preemption were in charge, it
wasn’t clear that they’d apply a presumptionless test in matters of obstacle
preemption.  State consumer fraud
lawsuits promote Congress’ goals of avoiding consumer deception, building
consumer trust in a standard definition of “organic,” and protecting legitimate
organic producers from having their prices undercut by sharp dealers.  Indeed, the USDA’s final rule adopting
implementing regulations emphasized that a standard definition of “organic”
would aid state enforcement of consumer fraud laws by providing a clear
benchmark.  Because OPFA has no private
right of action, implied preemption “would render organic labeling uniquely
immune from suits for deception because of legislation Congress passed, in
part, to prevent food from being ‘deliberately mislabeled as “organic.”’”  It seems unlikely that Congress intended to do
so. 
 
The Eighth Circuit preempted only consumer protection claims
asserting the defendant dairy should not have been permitted to sell milk as
USDA Organic because its production methods were not actually consistent with
federal regulations—“that is, claims making a frontal assault on the validity
of the organic producer’s government certification.” Nor could consumers sue
the certifying entity on the grounds that it erred either in initially granting
certification or in not revoking certification. But that case expressly
distinguished state law claims that merely challenged the truth of facts
relating to certification.  Herb Thyme
argued that the claims here went to split operations involving both
conventional and organic produce, which are required by regulation to institute
precautions against inadvertent commingling, and thus allowing the case to
proceed would conflict with organic regulations.  If the claim was that Herb Thyme’s
anti-commingling protocols were inadequate for “true” organic production, notwithstanding
the plan’s approval by a federal certifying agent, that might well be
preempted.  But that wasn’t the argument
here: the complaint accepted Herb Thyme’s certification and compliance with
federal regulations on its certified
organic farm.  It claimed intentional
mislabeling of conventional herbs as organic. “The Organic Foods Act cannot be
interpreted, under the guise of obstacle preemption, as shielding from suit the
precise misconduct Congress sought to eradicate…. [T]hese claims do not
contest Herb Thyme’s ability to do anything its federal certification actually
permits it to do.”
 
Further, the overall scheme was inconsistent with Herb
Thyme’s claim that only one “umpire”—the federal government—should have a say,
since it already delegated lots of decisions to certified growers, state and
local officials, and certifying agents.
 

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is “this video has been removed for violating the ToS” commercial advertising?

Posted on December 7, 2015 by rtushnet
Darnaa, LLC v. Google, Inc., 2015 WL 7753406, No.
15-cv-03221 (N.D. Cal. Dec. 2, 2015)
 
Darnaa posted a music video, Cowgirl, to YouTube.  At one point, YouTube removed the video from
its original location, later reposting it at a new URL with its view count
reset to zero because of an alleged violation of section 4.H of YouTube’s Terms
of Service, which prohibits the use of automated tools for increasing the view
count of videos posted on its site. 
Darnaa denied any such attempt and alleged that the removal, and YouTube’s
posting of a notice that the video had been removed because it violated
YouTube’s Terms of Service, harmed its business and reputation.
 
Darnaa argued that YouTube’s terms of service were
unconscionable and thus unenforceable, because they granted Google unlimited
discretion, limited Google’s liability, and shortened the statutory limitations
period for all claims to one year. 
Indisputably, the ToS were a contract of adhesion, which is enough to
establish some degree of procedural unconscionability.  Here, though, the degree was slight.  There are alternative websites for sharing
music videos, so Darnaa had meaningful choices. 
YouTube didn’t hold Darnaa’s job hostage to agreeing, as in other cases,
and Darnaa was free to take its content elsewhere.  Even if Darnaa didn’t read the terms, these
terms weren’t hidden in the contract; Darnaa had a real opportunity to read the
terms.
 
Substantively, the terms weren’t so one-sided as to be
unconscionable.  None of the three
provisions challenged by Darnaa shocked the conscience.  As for YouTube’s unbounded discretion, it was
reasonable for YouTube to retain broad discretion and minimize its exposure to
damages because it offers its hosting services for free.  Some California courts have found certain
contractually shortened statutes of limitations to be unconscionable and
unenforceable. But shortening the period to one year in this case was not
unreasonable.
 
Darnaa’s claims were therefore dismissed as time-barred,
unless Darnaa could amend the complaint to show that it was entitled to
equitable tolling (based, I assume, on a timely filed state court suit prior to
this one).
 
Google argued that the breach of contract and tortious
interference claims were barred by the ToS’s Section 10: “In no event shall
YouTube … be liable to you for any direct, indirect, incidental, special,
punitive, or consequential damages whatsoever resulting from … (iv) any
interruption or cessation of transmission to or from our services … [or] (v)
any errors or omissions in any content … whether based on warranty, contract,
tort, or any other legal theory[.]”  Such
exculpation clauses were particularly appropriate where, as here, Google
offered its service for free.  Darnaa
argued that all of its claims—with the exception of negligent interference with
prospective economic advantage—were intentional torts, which prevented the ToS
from exculpating Google under California law. 
This was correct—in California, “contractual releases of future
liability for fraud and other intentional wrongs are invariably invalidated”—so
only the negligence-based claim was barred.
 
As for the breach of the implied covenant of good faith and
fair dealing, Google argued that the ToS allowed it to relocate or remove
videos in its sole discretion “at any time, without prior notice and in its
sole discretion,”  and to “discontinue
any aspect of the Service at any time.” Darnaa argued that the relevant terms
applied only to content, not to services such as video hosting, and that Google
reserved only the right to terminate any aspect of its service as to all users,
not to terminate service for a particular user. The court found the relevant
terms ambiguous, because the provision for “Content” that violates the ToS
didn’t include view counts in the definition of “Content.” Even if view counts
were “Content,” it wasn’t clear that the ToS authorized the removal of the
associated video, not just the offending view count.  It was also ambiguous whether the ToS
permitted YouTube to remove any “Content” without prior notice, or whether it
referred only to the Content that “infringes on another’s intellectual property
rights.”  Further, it was not clear that
YouTube reserved the right to discontinue any aspect of its service provided to
a particular user, without restriction. Thus, it wasn’t clear that YouTube
eliminated the implied promise of the good faith and fair dealing normally
contained in every contract.  Thus, the
contract must be interpreted against the drafter, and the implied covenant of
good faith and fair dealing applied.
 
As for intentional interference with prospective economic
advantage, Google argued that tortious interference didn’t apply to alleged
interference with a large, anonymous group such as the public or a musician’s
fanbase.  The claim based on Darnaa’s
relationship to its fans was thus dismissed with prejudice.  However, Darnaa sufficiently pled Google’s
knowledge of its relationship with Clear Channel and independently wrongful
conduct (breach of the implied covenant of good faith). Darnaa alleged that
“Clear Channel constitutes a major advertising industry competitor of Google”
and that “[t]hrough the use of sophisticated tracking software,” defendants
were “able to ascertain that the large majority of the viewers accessing the
‘Cowgirl’ video on YouTube came to the video by clicking links embedded in
various of the hundreds of Clear Channel Internet radio websites.” Darnaa
referred to Clear Channel in its email to YouTube protesting the removal of the
video.
 
Defamation and Lanham Act claims were based on YouTube’s
posting, at the original URL, of a message that the video had been removed for
violation of the YouTube Terms of Service. 
Google argued that Darnaa hadn’t pled “commercial advertising or
promotion.”
 
Darnaa argued that the notice was inserted, at least in
part, if not in whole, to influence viewers to buy or use Google’s goods or
services because it showed that “defendants are on the job policing the Website
and enforcing their policies for the protection of the Website and its users.” The
complaint, however, alleged that the notice was made as part of YouTube’s
service, perhaps for the purpose of “disparag[ing] the integrity” of Darnaa,
which wasn’t enough; the court dismissed the claim with leave to amend. 
 
Defamation: Darnaa didn’t sufficiently plead that the notice
was “of or concerning” them, that it had defamatory meaning, or that it
suffered special damages.  Because the
plaintiff was Darnaa, LLC, not the recording artist, there was no allegation
that the plaintiff was a public figure; it need only plead negligence as to the
truth or falsity of the statement. 
However, the notice referred to the video, rather than the poster of the
video.  There were no allegations about
how the notice identified Darnaa, LLC. 
Other courts have found that a statement alleging breach of contract or
policy, including a breach of ToS, isn’t defamatory per se.  In the absence of any detail about the type
of violation allegedly underlying the removal, a notice that a “video has been
removed for violation of the YouTube Terms of Service” couldn’t constitute
defamation per se.  Danaa would have to
plead extrinsic circumstances that would make the notice defamatory is granted,
as well as special damages.

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Court mashes up Dastar and commercial speech doctrine to protect book from Lanham Act

Posted on December 7, 2015 by rtushnet
Keel v. Axelrod, No. 15-1507, 2015 WL 7733973 (E.D. Pa. Dec.
1, 2015)
 
Political operative David Axelrod wrote a book, Believer: My
Forty Years in Politics. Frank Keel, a political and media consultant, sued
under state and federal law for reverse passing off, claiming that Axelrod
falsely took credit for political consulting during the 2003 reelection
campaign of former Philadelphia Mayor John F. Street, which Keel identified as
a pivotal moment in his consulting career. 
Street was in a close race with his Republican challenger, Katz, when members
of the Philadelphia Police Department discovered an FBI listening device in
Mayor Street’s City Hall office, reportedly placed there as part of a “federal
investigation into City Hall corruption.”  The media wanted to know why Street was the
target of an FBI investigation, and Street held an impromptu press conference,
where he assured the public he had “done nothing wrong.”
 
In the hours after this press conference, Keel allegedly
proposed, “[a]s part of the consulting services he was providing to Mayor
[Street],” that the campaign “publicly announce that the bug was part of a ‘Republican
dirty-tricks’ strategy” from high in the George W. Bush administration.  Keel alleged that he “conceived and
implemented” the “Republicans Did It” strategy on his own, without any “input
or involvement” from Axelrod.
 
Axelrod’s book, by contrast, says:
 
As we approached the final month of
the campaign, I got a call from George Burrell, Street’s savvy political deputy
at City Hall.
“I think we have a problem.”
“Problem?” I asked warily.
“Yes, it seems we’ve found a bug in
the mayor’s office.” “A bug?”
“Yes, a listening device.”
“And who do we think this bug
belongs to?” I said. I really didn’t have to ask, but was hoping against hope
for an unexpected explanation.
“It appears to belong to the United
States government,” Burrell said, slamming the door on my wishful thinking.
Four weeks before the election, the
news would be filled with headlines about a federal investigation of the mayor
and his administration. It struck me, as I thought about it, that this was our
problem but also our opportunity. In an overwhelmingly Democratic town, a probe
launched by the Republican Justice Department in Washington would surely be
greeted with skepticism, perhaps even outrage. I called Burrell back. “We need
to hold a press conference on the steps of City Hall and accuse John Ashcroft
of trying to steal this election.” (Attorney General Ashcroft, a well-known
conservative ideologue, was highly unpopular among Democrats.) When Street
confronted reporters, frantic over the news, he came armed with a line I had
written for him: “I’m happy to speak into a microphone I can see!”
 
Keel alleged that, in fact, right after the press conference,
Axelrod demanded that Keel “immediately” stop implementing the “Republicans Did
It” strategy. Keel also alleged that Axelrod “plainly also intended the book to
provide advertising for promoting his political consulting business,” which was
still active, and that he and Axelrod competed for potential clients.  The publisher was allegedly contributorily
liable for failing to fact-check.
 
Why not just Dastar
this?  The court mentions Dastar, but uses its general rationale
that there’s a need to limit the scope of the Lanham Act to harmonize with the
requirement of a majority of circuits that there be a “threshold commercial
element” to the defendant’s activity. 
True, the Second Circuit has indicated that “use in commerce” is broader
than “commercial speech,” United We Stand America, Inc. v. United We Stand,
America New York, Inc., 128 F.3d 86, 92–93 (2d Cir. 1997) (Lanham Act isn’t
limited to “profitmaking activity”).  But
all the relevant cases “involve trademark name infringement or the direct solicitation
of clients, neither of which have been pleaded here.” Apparently, uses on the
front cover of a magazine and online “present a much greater risk of deceiving
potential customers as to the proper origin of the slogan than the facts
presented in this case.”   Direct
solicitations to potential customers can be “use in commerce,” but “a single
passage in a nationally marketed book cannot be viewed as a direct solicitation
of services to specific clients,” and anyway the book didn’t refer to any
trademarked services of Keel, so even in the Second Circuit this claim wouldn’t
work.  [This reasoning is extremely
shaky, because it doesn’t explain why trademark infringement gets to cross the
commercial speech barrier but other causes of action don’t. Not to mention its
indifference to the head of §43(a) under which this claim is brought—either
reverse passing off is actionable or it’s not, and if passing off would be
actionable under the same circumstances I can’t see why the court’s logic works–nor, of course, should passing off be actionable even if the passage had stated that Axelrod was endorsed/sponsored by Keel.] 
 
The Third Circuit has yet to impose an explicit commercial
use requirement, but the allegedly misleading use “must have a clear,
promotional purpose to attract customers.” Also, a number of district courts in
the circuit have found that “[t]he Lanham Act regulates only commercial
speech.” Other district courts in the Third Circuit have also found that claims
under the Lanham Act must concern commercial speech.  Here, there wasn’t “quasi-commercial
activities such as trademark infringement or the direct solicitation of clients,”
so Keel needed to plead commercial use.

Lanham Act disputes between nonprofits are actionable, but “commercial use”
doesn’t depend on the legal status of a defendant.  Instead, it requires promotional use of the
plaintiff’s proprietary material. Trademark infringement or the direct
solicitation of customers “are clear, promotional and advertising
activities.”  [This is the wrong way to
the right result, because trademark infringement is only “clearly” promotional
if you (a) sufficiently constrain what you’re willing to call infringement (a
desideratum in itself, but achieved via Rogers
or some other means that itself requires application of commercial speech
doctrine), or (b) adopt a circular definition: that which causes confusion is
by definition promotional.  (b) should
lead you to the same holding with respect to other kinds of falsity with
commercial effects, though.]
 
So, was the book passage in question commercial speech?  Under Third Circuit precedent, this question
involves a “commonsense distinction between speech proposing a commercial
transaction…and other varieties of speech.” Compared to the special on an
upcoming NFL video game that the Third Circuit found was an ad in Facenda, the passage in Axelrod’s book
didn’t note the availability of his consulting services, nor did it describe
unique features of his services.
 
Keel argued that the unique nature of political consulting
made false credit claims actionable, citing Gensler v. Strabala, 764 F.3d 735
(7th Cir. 2014).  Though both political
consultants and architects rely on their records to acquire customers, “Gensler is distinguishable from the
facts of this case because of the defendant’s commercial use of proprietary
material.”  [Again, this is a classic
example of letting property rhetoric distort analysis—yet so unnecessary to the
outcome!  It doesn’t even work,
conceptually: since Axelrod is describing the services he provided (according
to him), then to the extent that his services also have a reputation he is using “proprietary material” in the
sense that the court means it.  It’s
“commercial” that’s doing the work here, because Gensler involved the
defendant’s use of claims on his business website and associated Flickr account.]  Thus, it was unnecessary to reach the
question of whether a reverse passing off claim based on services survived Dastar.
 
“[C]ommunications made primarily for expressive purposes,
like the political and narrative purposes of Believer, enjoy broad First Amendment protection, and therefore,
are generally not actionable under federal statutes such as the Lanham Act”
[citing, among others, Citizens United].
 Only if Axelrod plausibly wrote Believer to promote his consulting
services to potential clients would his speech be actionable.  Although Axelrod had an economic motivation
to sell as many copies as possible, that doesn’t make the contents of the book
commercial speech.  The specific disputed
passage also lacked an obvious economic motivation to further Axelrod’s
political consulting services.  (The
court expressed doubt whether the passage even referred to Axelrod’s services,
though I think it did; the passage did not, of course, refer to Keel’s services.)
 
Most troublesome, however, was that the excerpt simply
wasn’t an ad: “a message with a clear, promotional purpose.” Believer didn’t explicitly tout the
availability of Axelrod’s consulting services, and couldn’t fairly be
characterized as an “infomercial.”  This
contrasted to “the unauthorized use of a trademarked name in a prominent
location, such as the front cover of a magazine, or in the domain name for a
business website,” which could be deemed ads. 
Instead, Believer expressed
Axelrod’s political views, and the challenged excerpt was a biographical
anecdote.
 
Keel also didn’t allege other facts linking Believer to the promotion of Axelrod’s
consulting services. He didn’t allege that Axelrod solicited clients at his
book signing or otherwise stated that Believer
was a marketing tool.  And now we’re
back to Dastar, mushing together the
predicate “commercial advertising and promotion” with the substance of the
claim: if attending book signings were enough to trigger a Lanham Act claim,
then any number of authors could be held liable for mischaracterizations of
past events; but requiring “this degree of accuracy in crediting strategies,
ideas, and/or services mentioned in a larger expressive work” would be the Dastar-barred “search for the source of
the Nile and all its tributaries.”

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