Trademark Law’s Fundamental Purposes, part 2

Posted on November 20, 2015 by rtushnet
The role of justifications and equitable considerations in
trademark law:  Stacey Dogan
 
Many of the early cases are limiting protection b/c of some
interest they’re trying to protect on the other side—Borden is an exception. 
Maybe a public right to use the term—e.g.,
American Washboard.  Troubled by recognizing a right in a private
party that would preclude others from truthfully describing their goods. 
 
From Borden to Aunt Jemima: in the latter, the court
says there doesn’t seem to be a reason for the D’s use of the TM—there’s
consumer deception, there’s possible harm to the P, and there’s no reason to
give access to this term w/singular meaning. 
Concept of justification does help explain case law through early-mid 20th-c.  Courts start thinking in terms of likely
confusion—instinctive/intuitive feeling that unexplained/unjustified Ds who are
trying to free ride create a costless case for judicial intervention.  That takes us through much of the contemporary
case law as well, even in cases involving counterfeit goods, post-sale
confusion.  Courts are moved by a natural
rights feeling that TM owners are entitled to the fruits of their labor unless
the D has some justification.
 
Courts initially responded to use of keywords in search
engines as “unfair,” using guise of confusion; as courts have been educated
about the value of these uses for competing or complementary products, they
scaled back the scope of TM rights, insisting on a showing of real likely
confusion.  Amazon v. MTM; Tiffany v.
eBay; even Rescuecom.  Most limits have been imposed in the
expressive use context.  Increasingly Rogers v. Grimaldi: very
defendant-protective, and the reason courts do this is that they see the speech
value of allowing people to incorporate TMs into expressive works.
 
Wendy Gordon: Boston Hockey—merchandising right.  Investment protection rationale? Hard to tell
a good incentive story.  Cheaper
sweatshirts for poorer people—better access to status competition.
 
Dogan: Natural experiment? Europe has broad protection for
design; US has less protection for designs that integrate form and
function.  Design patent does protect
design, but much design developed in last ½ of 20th century is no
longer protected if it ever was. Lots of furniture still under protection in
Europe but not here—someone should do empirical work to figure out effects on
product diversity, price spectrum.  Recent
injunction against generic manufacturer of a drug that just went off patent—a purple
pill, and the plaintiff/brand owner sued when the generic manufacturer used the
same color, and got a PI.  There has been
some work done suggesting that old people in particular really rely on pill
color.  Compliance w/drug regimen
declines if people aren’t allowed to use pills. 
[McKenna interjects that it also supports drug effectiveness.]  To the extent that we can harness evidence
like this and present it to courts, they might be more persuaded about the
costs associated with recognizing rights.
 
Bone: Dogan is describing sort of a presumption of
protection; he would say today’s TM is about worrying about risk.  Smack
Apparel: the D had justifications, they were just ignored.  [So basically TM owners and the courts that
enable them are as lily-livered as Donald Trump and his ilk’s fear of
refugees.]  P had an established
licensing market, and if that were impaired, who knows what would happen?
Erring on the side of the TM owner.  Same
w/prestige goods—court isn’t going to say that signalling status through purchases
is wrong.  If the Ferrari gets too
plentiful, then prestige plummets, and we don’t want that risk. Tarnishment/dilution
is the same.
 
Dogan: these aren’t unrelated.  Tarnishment is distinct because while she
doesn’t like it, there is a theoretical harm narrative there [just one whose
mechanism violates the First Amendment, NBD].
 
McKenna: courts are relying more on justifications, but the
problem is that courts don’t uniformly accept those justifications—they don’t
buy the argument for competition in luxury markets. They buy the harm argument
that P will lose customers who want snob appeal. You need justifications, but
you also need to know when justifications will trump the harm story, and courts
ever expand their willingness to accept ever more fanciful harm stories.  We don’t need to figure out what TM law was
once about to make TM law now, but the reason he wrote was that the dominant
discourse was that TM law was about search costs and we should get rid of
doctrines that don’t further that. 
Courts don’t think they’re doing search costs so they won’t be
responsive to those arguments. 
Bone/McKenna dispute is a conclusive argument against originalism, but
agreeing w/him isn’t key—wants to convince people to take on the harm story on
its own terms rather than just say cts aren’t doing what they’re supposed to
do. And you can’t do that if you say the doctrine has abandoned its old
consumer protection rules.  There is both
continuity and a radical shift.
 
Gordon: remember that Holmes reminds us that just b/c
something has value doesn’t mean that it should be property; and there are
complicated questions about courts v. legislatures.
 
McKenna: note that 1-800
(10th Cir.) channels its concerns through the harm story—it doesn’t
say “keyword ads are good so this is ok” it says no one is clicking on these
ads and therefore there’s no confusion/no harm.
 
Dogan: what is it that TM law ought to do?  Unrealistic to
go back to trade diversion. 
 
Silbey: Take seriously the idea that consumers are harmed
when they get the wrong thing.
 
Dogan: Materiality!
 
Silbey: better explanation for why mistake is a problem when
we buy.   Take the idea of impersonation seriously—is that
a consumer interest apart from market balance issues, if the consumer is
otherwise satisfied.
 
Gordon: should the P have to show that the D is making
something whose purchased by a confused consumer would hurt the consumer in
some relevant way?  Hand says TM owner
shouldn’t have to be at risk, have to wait for bad quality to materialize, but
over time Hand began to think that was too generous for Ps.  Sees the point of allowing P to vindicate
rights before the harm materializes, once you accept the theory that if it materializes it will do P harm.
 
Dogan: there’s also a consumer autonomy interest in
preventing a purchase that is caused by
deception.
 
Bone: Autonomy is a description of information/choices. Why
do we care? Maybe b/c it makes market work better—allocative efficiency.  We might care if consumers have the right to
perfect information, but that’s impossible. 
Third reason: more to do with enforcement costs—ideally, we wouldn’t
give protection where products are of equal quality, but broader rule has fewer
error and enforcement costs.
 
RT: Autonomy is more than a descriptive term.
 
Silbey: early cases focus on manufacturer autonomy.  The taking of the name is a harm in itself,
and I don’t understand that for the reasons Bone articulates for dismissing
consumer autonomy standing alone.  [That
is, it can either be market based or rights-based, and neither work well.]
 
McKenna: we can sweep consumer autonomy under the rug if you
focus on lost sales/harm to TM owner. 
Also, quality concerns: you have to start thinking about what the
components of quality are—conditions of production.  There’s no a lot of real diving into where
real consumer autonomy is.
 
Dogan: Ferrari case is an example where the harm story is
not really doing the work—it’s about free riding, and the court sees no social
value in this form of copying.
 
McKenna: features of TM promote informational clouding, not
clarity.  For example, Clorox is no
different from other bleach (Posner thinks there’s more of a guarantee that it
won’t explode but nobody else thinks this—people buy Clorox because that’s what
they’ve always done).  It’s also easy for
TM owners to obscure true ownership of company. 
It’s easy to change a TM to disguise your identity.  If goal were info clarity, TM law would restrict
these things.
 
Bone: it just doesn’t go as far as it could. That’s not
clouding.
 
Dogan: provisions for information—nominative fair use,
allowing communication about TM owners—enable others to correct problems.
 
McKenna: mismatch exists though. Comparative advertising can
reach particular components. But you can’t get the limits of TM law from “it’s
about promoting the flow of information” b/c then you need to know why it’s
about this kind of information rather than others and why it doesn’t cover
other uses involving a TM (e.g., your health insurer’s use of a TM with its
incomprehensible disclosures).
 
Gordon: Social welfare v. formalists.  Formalists would say you have a right b/c you
have a right.  Consequentialism asks why
these people have these rights in these conditions.  Law & economics answer: usually starts
w/sharp distinction b/t distribution and allocation.  Distribution = who is richer & poorer.
Allocation = how is a particular resource being used. We seem to usually make
policy arguments in TM that say let us give rights to people who will use them
in a way that gets resources to higher-valued uses.  That’s allocation, but we also worry about
the distributional aspect.  So we tend to
react to changed circumstances—we thought copying facts was great—with changed
law—1918, SCt says that problems w/news services justify new allocation.  And yet: We don’t want people who have vested
rights to suddenly lose what they have simply b/c they’re not economically
useful.  We have a few ways of protecting
that. One is the takings clause.  The
other is the gradualism w/which law operates.
 
One difficulty w/TM is that we can see distributions being
made w/out any allocational justification, b/c we assume that past allocations
had some social welfare justification. 
New prestige goods/merchandising rights etc. evolve w/o any clear sense
of why it helps society. Its recency makes it hard to credit the distributional
claims made for it.  Similar w/publicity
rights.
 
Bone: Another piece is that we’re starting to enlist TM law
for dynamic efficiency purposes, which is a new thing.  Some people are concerned about incentives in
a dynamic way—merchandising rights. Goes beyond incentives to maintain product
quality.
 
Dogan: In an unexamined way—implicit in the opinions rather
than explicit and examined and challenged. 
 
Meurer: Merchandising rights might be justified by claiming
that sports teams capturing more rents leads to bigger stadiums, bigger payouts
to players (I’m sure they’ll start building their own stadiums any day
now).  Maybe more plausible w/r/t George
Lucas and the next Star Wars
movie.  Affects incentives about which
kinds of movies to invest in. 
 
Many economists think the more ads, the better, b/c ads are
typically informative. Strong protection for goodwill might induce more
investment in advertising, which is better for society. If you think ads are
bad you’d reach an opposite conclusion. 

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Trademark Law’s Fundamental Purposes at BU

Posted on November 20, 2015 by rtushnet
IP Conversations: 
Trademark Law’s Fundamental Purposes, Boston University School of Law
 
The debate over normative foundations:  Mark McKenna: up until the 1920s-40s, courts
uniformly understood that unfair competition was about trade diversion,
illegitimately getting business that should have gone to someone else.
Structuring competitive relationship between commercial actors.  Case from 1871: in all cases, invariably held
that essence of wrong is sale of goods as those of another.  Direct competition was required; source
confusion was required, not something like affiliation confusion. 
 
Difference b/t TM and unfair competition in this light,
oversimplified, was about being attentive to the fact that attempts to divert
trade by competitors is the definition of competition: unfair competition had
to be distinguished from competition. 
Focus on deception allowed these distinctions.  Where P’s mark didn’t indicate anything about
the goods, no plausible explanation of use of same mark for same goods, so
illegitimacy could be presumed.  “Trademarks”
or “technical trademarks”—no separate need to prove intent to pass off. But
other designations, like geographic references, descriptive terms, trade dress:
more ambiguous, could be used in deceptive or nondeceptive ways, and courts dug
into the use more deeply: that was the law of unfair competition.  Initially had to show intent to pass off/rule
out legitimate explanation.
 
Confusion of consumers was not itself enough to intervene—these
courts weren’t unclear about why they denied relief.  Deception wasn’t enough; if you couldn’t show
that deception was going to divert your
customers, or if you couldn’t show that it wasn’t deception that diverted your customers, then you lost—American Washboard, false use of “aluminum”
wasn’t actionable even though consumers might well be confused.  Fraud on the public isn’t enough; incidental
effect of protecting P’s property right is to protect the public.  Consumers might have their own claims, or the
gov’t might intervene on behalf of consumers to protect them.
 
Natural rights reasoning shifted to legal realism; also the
commercial marketplace changed compared to the 19th century—geographic
and product markets expanded.  Modern
branding put pressure on courts maintaining their notion of harm.  The earlier courts clearly understood and
ruled out claims involving noncompeting goods. 
Also, they didn’t encounter noncompeting goods cases very often because
companies didn’t often offer multiple products. 
Later courts didn’t want to stop there, not because of harm to the
consumer but because of more recognition of harms to producers.  Bone documents the rise of the previously
unneccessary likelihood of confusion factors—weren’t needed in a world where TM
is about direct competition, and the only question is whether there’s
sufficient similarity.  When courts
started considering other harms, they were thinking of harms to producers—market
foreclosure, reputational harm.
 
Radical shift therefore is not that they started caring more
about mark owners than they used to—the Progressive era didn’t care more about
producers than the Lochner era courts
did.   But that means the law hasn’t recognized many
limits—confusion itself is the harm, rather than confusion being a predicate to
some other harm.  That has proven
infinitely pliable to mark owners. Often they don’t have to be pinned down
about the consequence of that confusion. 
Paying more attention to harm = progress.  Also limiting principles from outside:
interference w/patent, copyright. 
Increasingly necessary because there are no internal limits.  Doesn’t think we should go all the way back
to trade diversion, but there has to be something in between.
 
Robert Bone: Interpretive exercise: what did the late 19th
century/early 20th century courts think they were doing?  Distinguish 2 questions: (1) Why do we
condemn certain practices as TM infringement/unfair competition. (2) What are
the requirements for a private right of action. 
Some judges during this period separated these questions—we might call
(2) today standing.  Guard against
anachronism.  We are policy analysts, but
they didn’t think of themselves that way.
 
His interpretation of the history: One reason for (1):
protect sellers from harm to reputation, loss of sales.  Another reason, equally important: to protect
purchasing public from fraud—not prioritized behind protecting sellers.  Why protect reputation?  Labor/desert. 
Consumers?  Morality, and
promoting market competition, both.
 
McKenna recognizes both purposes but wants to prioritize
seller protection; Bone doesn’t see that. 
Canal Co. v. Clark: no secondary meaning = no injury from appropriation;
nor can the public be deceived—no need to say the second thing if only the
first mattered.  [I myself think that
courts do the “have your cake and eat it too” thing all the time.]
 
Common law was natural law—TM was property right.  McKenna and Bone disagree—McKenna sees it as
a right to customer flow/patronage, w/harm being trade diversion.  Bone sees it as a right to goodwill as
property. Trade diversion isn’t at the core of unfair competition, but rather
appropriation of/injury to reputation/goodwill. 
Goodwill is the thing drawing customers, not the customers
themselves.  He doesn’t want to accept
that taking customers away could, even at the beginning of the analysis, impair
a property right.  More importantly,
McKenna’s focus on deception doesn’t come from the nature of these rights. It’s
superimposed on the right to customer flow. But why deception, if it doesn’t
follow from the nature of the right? 
Because of public harm.  Bone’s
approach derives the deception limitation from the right itself: the goodwill
of the 19th c. is the goodwill of the product sold by the
seller.  The way you take that goodwill
is by representing yourself to be the seller.
 
McKenna’s concerns go to (2)/standing—Bone doesn’t think
answers to (2) tell us enough about (1). 
Aluminum Washboard court finds
no private right of action, even though there’s trade diversion.  If you didn’t buy an aluminum washboard from
P, you had to buy one (marked as such) from D. 
No property right, so no cause of action, not that there’s no fraud.  Fear of vexatious litigation.  FTC doesn’t change the name of the thing it
can pursue—unfair competition. If trade diversion were the essence, we wouldn’t
call the thing the FTC goes after is unfair competition.
 
Borden is the
strongest case for McKenna—the court says there’s no property right; you need
direct competition. This follows from notion that goodwill was limited to the P’s
particular product.  That goodwill wasn’t
taken.  At the end of the opinion, the
court says there might be some equity jurisdiction if the defendant’s products
were inferior, notwithstanding lack of competition. 
 
Bone also thinks the noncompeting goods expansion was
earlier than McKenna does—could be accommodated easily by expanding goodwill of
product to goodwill of firm, which was logical once firms diversified. Natural
property right superstructure was jettisoned, as a major change, resulting from
legal realists’ attack on natural common law property right. Period of
policy-based functionalism, no longer limited because there was no “property.”  Policies were in conflict; needed to be
balanced.  But the same 2 policies hung
around in a general sense—protecting consumers and protecting sellers. What’s
changed: mainly, once we start looking at those policies, views about
appropriate balance/weighting differ across different folks.  One big thing is the rise of psychological
advertising. Notion that advertising can give you an “identity.”  Concerns about monopoly weigh on the other
side. 
 
Multifactor confusion test tries to paper over the
underlying policy conflicts, but that conflict remains.  Goodwill gets expanded even further, from
firm goodwill to “inherent” goodwill—popularity/value of the mark itself.
 
McKenna: doesn’t think we can say about the later 19th
c. cases that the problem was lack of a property right—that was the whole
difference between TM proper and unfair competition—if property were the real
explanation, we wouldn’t have an unfair competition cause of action.  Bone says it’s hard to think that competition
is a harm, but McK’s point is that the idea was to protect legitimate exercises of one’s own property
interests, not a stream of consumers—Keeble
v. Hickeringell is about when it’s legitimate to divert ducks—yes by
building your own duck pond, no by firing guns. So deception does naturally
limit the scope of the right.
 
Unfair competition: Bone has a whole article about the
changing meaning of “goodwill”—so too the meaning of “unfair competition”
changed over time.  You can see in the
same era, FTC hearings, child labor, convict-made goods—at the beginning,
somebody suggests that we call that unfair competition. At the beginning of
that period, people say that’s crazy, unfair competition is about passing
off.  A few years later, people say “if
my competitor can use child labor in another state, that’s unfair competition,”
and everyone nods—a big shift.
 
Bone: yes, unfair competition is expansive. But American Washboard is an unfair
competition case that rejects a claim b/c there’s no property. There’s no
uniform view of this in 19th c—there are tensions.  It wasn’t stable.
 
Prof. Chronopolous: English common law allowed tort of
deceit, to be brought by consumer.
 
Wendy Gordon: One thing that intrigues her was the rise of
rights in marks as such/licensing marks as objects of value.  What policies should TM serve, regardless of the history?
 
Prof. Alexandra Roberts: What did practitioners, producers,
consumers think?  Are the judges
similar?  Assumption of consistency: can
we make overarching claims about what the goals of TM were?  Modern doctrines—no such consistency.
 
Dogan: relationship between normative/policy considerations
driving doctrine and doctrine itself. 
Natural rights approach/Lockean labor approach—to its logical
conclusion, that doesn’t have limiting principles either, certainly not limited
to trade diversion.  Given that goodwill,
as long as enough and as good is left for others, I should be entitled to
prevent others from appropriating it. Doctrinally, the early cases did tend to
limit rights to trade diversion, but that can’t be equated to a natural rights
theory that is limited to trade diversion as a matter of principle. Relatedly,
in terms of what’s driving expansion of TM in 20th c, the likelihood
of confusion standard is loosey-goosey and enabled expansion, but when we think
about what motivated that expansion, the cases that push the boundaries involve
explanations that aren’t focused on confusion so much as they are focused on a
kind of natural rights impulse—Boston Hockey, Smack Apparel, early initial
interest confusion cases.  Courts seem to
be interested in protecting producer’s ability to capture full value associated
with their reputation.  Likely confusion
is enabler, but not the real focus of courts that want to protect producers.
 
Jessica Silbey: What work is the word property doing in the
early cases, in the story Bone is telling? 
The market has a character and she can see how that moves doctrine, but
not property.  In the early cases she
sees impersonation, taking people’s names.  Relation to defamation, injury to reputation,
might give us more information about ephemeral harms/kinds of harms that do
produce standing.  (Robert Post’s excellent
article about legal models of reputation has a lot of relevance here.)
 
Michael Meurer: what was the mix between consequentialism
& deontology among judges at this time? 
 
Rebecca Curtin: Both McKenna and Bone commented on relation
between commercial practice and law. But why? 
What are the consequences of that for principled limits on TM?

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Statement isn’t literally false when plaintiff can’t definitely be identified from it

Posted on November 18, 2015 by rtushnet
Service Jewelry Repair, Inc. v. Cumulus Broadcasting, LLC, 2015
WL 7112334, No. 14–cv–1901 (M.D. Tenn. Nov. 13, 2015)
 
Service Jewelry provides jewelry sales and services; from
2010-2014, it promoted its products on a local radio station, WWTN-FM, by
buying ads from the station’s owner, Cumulus. 
Cumulus sells ad time to many Nashville-area businesses, including
thirteen different jewelry sales and services companies. This action sprang
from a May-July 2014 campaign by Service.
 
The campaign was prompted by an investigative news report on
WSMV–TV, the Nashville NBC-affiliated television station, which questioned the
manner in which a major competitor of Service Jewelry, Genesis Diamonds, graded
the quality of its diamond products. In response, Service decided to run a
series of on-air ads highlighting the report and directing consumers to Service
Jewelry for assistance if they had concerns regarding the quality of their
diamonds. The spots included pre-recorded advertisements and live radio
endorsements by a WWTN radio personality, DelGiorno.  Service Jewelry provided DelGiorno with a
list of talking points about the investigation and about how people might have
been misled or gotten diamonds that were “hugely overgraded,” contrasted to
Service Jewelry’s honesty.
 
To better understand the context of these talking points, DelGiorno
reviewed a video of the investigative report, but didn’t conduct an independent
investigation into the truth or falsity of the allegations made about Genesis
in the video, and Service didn’t ask him or Cumulus to refrain from using
Genesis’ name.  The contract didn’t
impose obligations on content aired by Cumulus outside of paid ads or require Cumulus
to use only language provided by Service Jewelry in the pre-recorded
advertisements and live endorsements.
 
The first few live endorsements (out of a total of 16) didn’t
mention Genesis by name.  Service Jewelry’s
CEO then emailed DelGiorno, writing:
 
Genesis, once again, is advertising
that “if you find a certified diamond that is similar to ours for a cheaper
price, we will give you ours for free.” We want to take this guy completely
down for this. I would like for you to add to your talking points, something to
the effect, that we would like for anyone to take him up on this offer.
 
DelGiorno then mentioned Genesis by name in four live
endorsements for Service Jewelry.  But
Genesis was another of Cumulus’ advertisers, and a Genesis representative
objected.  Cumulus agreed to air
apologies for these endorsements:
 
We at WTN want to apologize for
some very negative and unfair comments about Genesis [D]iamonds made during a
series of advertisements by our host, Michael DelGiorno. Michael has apologized
to the staff at Genesis for reading a commercial by a competitor which included
some very strong and disparaging comments. We are proud to be associated with
Genesis Diamonds and hold them in the highest regard. Genesis has a strong and
positive reputation …. You don’t get to that level without doing business the
right way, with integrity, superior products and unmatched customer service. We
wish them years of continued success.
 
DelGiorno’s personal apology was similar, and included the
statement: “To be honest, I did not do my own investigation about Genesis. I
was given some commercial copy by the other jeweler and I relied entirely on
the information provided in doing the commercials.… I should never have made
such serious comments about another business in town, especially without doing
my own homework.”  These were on the
station’s website and DelGiorno read his apology 14 times on air.  WWTN-FM continued to air other ads for
Service Jewelry that didn’t refer to Genesis; Service Jewelry had an upaid
invoice of nearly $13,000 when it cancelled all its ad business with Cumulus.
 
Service Jewelry sued for (1) breach of contract; (2)
defamation; (3) violations of the Tennessee Consumer Protection Act (TCPA); and
(4) false advertising under the Lanham Act. 
As evidence of its damages, it submitted a declaration indicating that a
“[r]eputation for honesty is of primary importance in the jewelry industry,” and
that the apologies “harmed Service Jewelry’s reputation and standing in the
community and in the industry, … [leading] to actual financial damages,
including significant costs and expenses in attempting to set the record straight.”
It presented no consumer surveys or market research demonstrating consumers’
reaction to the apologies.
 
False advertising: First, the court found that the
statements in the apologies weren’t literally false.  Service Jewelry apparently challenged the
attribution of DelGiorno’s statements about Genesis to Service Jewelry as well
as the labeling of those statements as “untrue,” “unfair,” “derogatory,” and
“disparaging.”  The apologies referred to
“another jeweler in town” who gave DelGiorno “some commercial copy” containing
the information on which he relied in commenting about Genesis, and also said
that “a commercial by a competitor” was the subject of the Apologies. “None of
these statements are literally false. The Apologies do not actually attribute
the content in the commercials that were the subject of the Apologies to the
other jeweler referenced”—dubious, but all right, but here’s the bit that goes
against most Lanham Act cases:  Also, the
apologies didn’t name Service Jewelry. Listeners would have to remember the
advertiser’s identity from a month prior, and would have to “infer that all
negative statements were provided to Mr. DelGiorno by that jeweler.” Usually,
if there’s one competitor to whom a comparison clearly points, given other
facts about the industry, that’s deemed a reference to that competitor.  Plus, DelGiorno’s statement that he “relied
entirely” on Service Jewelry’s information could have multiple meanings—it could
mean that the statements came from a script, or that he based his statements on
information Service Jewelry provided.  “Based
on the ambiguity in the language and the degree to which the listener must
integrate statements in the Apologies with prior knowledge of Service Jewelry’s
advertising, the court cannot conclude that the portions of the Apologies that
allegedly attributed Mr. DelGiorno’s statements about Genesis to Service
Jewelry were literally false.”
 
As for the characterization of the statements about Genesis
as “unfair,” “derogatory,” and “disparaging,” those were unverifiable
statements of opinion.  The use of “untrue”
was also too ambiguous, since it was combined with “untrue or unfair.”  “A listener could also understand this
language to mean, however, that Mr. DelGiorno simply did not know whether his
statements about Genesis were untrue, whether they were only unfair, or whether
they were both untrue and unfair.”  Service
Jewelry didn’t show evidence of actual consumer deception, so it couldn’t
prevail. 
 
Its defamation claim failed for the same reason: there was
no evidence that Service Jewelry’s reputation was injured or that it suffered
damages.  Its sole declaration on the
subject contained just the sort of “[c]onclusory statements unadorned with
supporting facts [that] are insufficient to establish a factual dispute that
will defeat summary judgment.” The TCPA bars “unfair or deceptive acts or
practices affecting the conduct of any trade or commerce,” including
“[d]isparaging the goods, services or business of another by false or
misleading representations of fact.”  But
it too requires damages, specifically an ascertainable loss of money or
property. 
 
The court also found that the apologies didn’t breach any
contractual term.

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UK ASA rejects “#sp” as insufficient to show editorial control over endorser

Posted on November 18, 2015 by rtushnet

From a ruling on a sponsored Instagram post for Britvic soft drinks:

We considered consumers needed to be aware that they were viewing marketing content prior to engagement, meaning that they should know that they were selecting an ad to view before they watched it. We considered the branded shot clearly contributed to the ad being identifiable as such, but that it was nevertheless not sufficient to ensure that was obvious, because it appeared at the end of the video.

In addition, we considered it was unlikely to be immediately apparent to consumers what the hashtag “#sp” was intended to refer to and, as such, it was also not sufficient to ensure it was obvious the post was a marketing communication. While we understood that “#sp” was intended to communicate that the material was a ‘sponsored post’, sponsored content was a category distinct from that over which an advertiser retained editorial control. We therefore considered it was not a sufficiently accurate label for the ad, even if the meaning had been immediately apparent to consumers.

Finally, we considered the text “More of my #BlendRecommends with @drinkj2o Spritz to come!”, in particular because it identified Millie Mackintosh’s relationship “with” J2O, might indicate to some consumers that the brand had been involved in the process but that it did not clearly indicate that the post was a marketing communication, as opposed to, for example, material that had been financially sponsored, but over which the creator retained editorial control. For the reasons given, we considered consumers would not be aware before engagement that the post was an ad.

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Trademark question of the day, Hamilton edition

Posted on November 17, 2015 by rtushnet

Yes, this is a Hamilton blog for the foreseeable future.  As they say, sorry not sorry.  Last night, Bernie Sanders sent me this email:

Fellow Hamiltunes fans (many of whom are almost certainly in Sanders’ target demographic, like me) will recognize the subject line.  Does the First Amendment protect Sanders’ use?  I’ll tell you this: he earned a bunch of goodwill with me!

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Manufacturer not liable for distributor’s false ads

Posted on November 17, 2015 by rtushnet
GOJO Industries, Inc. v. Innovative Biodefense, Inc., 2015
WL 7019836, No. 15 Civ. 2946 (S.D.N.Y. Nov. 12, 2015)
 
Defendant IBD moved for a preliminary injunction against
GOJO and nonparty distributors of GOJO products barring them from making representations
that GOJO products are FDA approved and from using government agency logos in
an online video. The court denied the motion.
 
GOJO sued IBD for falsely advertising that its Zylast hand
sanitizing products were “FDA approved” and for deceptively using the FDA logo
in ads, as well as for making false claims about GOJO’s Purell hand sanitizing
products. The parties stipulated to an order preliminarily enjoining IBD and
its authorized agent from representing that Zylast products were FDA approved
and from using the FDA logo in advertisements.  IBD then sought a preliminary injunction against
similar “FDA approved” representations in the sale of GOJO products and use of
CDC, World Health Organization, and Health Canada logos in an educational
handwashing video on the Purell website.  IBD’s evidence about “FDA approved” was from
websites belonging to nonparty distributors and a nonparty independent sales
rep.  A March 2014 email chain between
GOJO’s National Account Director and an independent distributor in which the
GOJO employee provided instructions on the correct names for GOJO products and
also provided current product images.
 
GOJO argued that the nonparty distributors were not GOJO’s
agents or under GOJO’s control and that it had removed the logos from the
educational video on the Purell website. “In order for a nonparty to be bound, that
entity must either aid and abet the defendant or be legally identified with
it.” IBD didn’t introduce evidence of an agency relationship with any of the
distributors. Providing basic information about product names and images wasn’t
enough.

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Christmas in November: No TRO for alleged false advertising because no showing of irreparable harm

Posted on November 17, 2015 by rtushnet
Balsam Brands Inc. v. Cinmar, LLC, 2015 WL 7015417, No.
15-cv-04829 (N.D. Cal. Nov. 12, 2015)
 
Balsam sought a TRO based on claimed patent rights in an
invertible artificial Christmas tree, the “Flip Tree,” that includes a “pivot
joint” in the trunk that separates the trunk into two parts and allows the tree
to fold for simplified set up and storage. They sued Cinmar, aka Frontgate, for
selling allegedly infringing artificial Christmas trees, as well as for false
marking/false advertising.
 
Plaintiffs failed to show standing to sue for patent
infringement, and also defendants raised a substantial question of whether the
accused trees were infringing.  For the
non-patent claims, Balsam didn’t show irreparable harm.  Balsam alleged that (1) Frontgate has
marketed the accused trees as “featuring patented inversion technology,” but
Frontgate lacks patent rights in the inversion technology featured in the
trees; and (2) Frontgate has marketed the accused trees as featuring “exclusive
inversion technology,” but the inversion technology featured in the trees is
not exclusive to it, because plaintiffs also use the same technology.
 
The only evidence of irreparable harm came from Balsam’s
CEO, whose declaration said:
 
Based on Frontgate’s holiday
marketing promotions in past years, Balsam expects Frontgate to advertise a
variety of price promotions and discounts throughout the Christmas selling
season. For example, over the October 24 weekend, Frontgate is offering $50
back for every $200 spent, resulting in a 25% discount. Balsam will soon need
to decide whether to lower its own prices to compete with Frontgate’s
infringing products.
Frontgate’s sale of infringing
invertible trees, and its false advertising claiming it’s the exclusive
provider of such trees and that it even owns the patent on them, erodes Balsam
Hill’s identity as an innovation leader. Frontgate’s actions also discredit our
marketing campaign promoting our exclusive right to the Flip Trees.
Frontgate’s actions are also
costing us sales and market share. Catalog and ecommerce businesses depend on
acquiring new customers and then benefiting from the lifetime value of those
customers. Typical ecommerce or catalog retailers like Frontgate may break even
or even lose money on initial sales to new customers. Their strategy is to
acquire customers and then build lifetime relationships that lead to downstream
sales. Former Frontgate employees have told me that Frontgate in particular
uses trees as its acquisition tool, and then later sells décor and many other
products to those customers.
Each lifetime customer relationship
Frontgate builds using infringing trees and false advertising is a lifetime
relationship potentially lost to Balsam Hill. And because our brand and not
just our Flip Tree is under fire, we also stand to lose downstream customers
and sales across our whole product line. This includes conventional Christmas
trees, wreaths, garlands, ornaments, stockings, tree skirts, and other
products. These losses may last a lifetime.
Christmas trees are highly
seasonal. Our business grows tremendously each week in October and November and
hits a fever pitch by the Thanksgiving holiday weekend. Based on 2013 and 2014
sales data, … A single poor Christmas season could be devastating to the
company.
 
Whether the false advertising claims actually go to anything
material, you have to admit, that’s a lot better than many harm declarations
do.  However, the court noted, the
majority of the irreparable harm came from the fact of the allegedly infringing
sales, not from the allegedly false
advertising.  Without additional evidence
of “eroded identity as an innovation leader,” “discredited exclusive right,” or
“lost lifetime customer relationships” actually occurring, the claim of
immediate irreparable harm was too speculative.
 
In addition, Frontgate submitted a declaration that its description
of its trees as “featuring patented inversion technology” was based on its
misunderstanding that the pending application on the slotted hinge technology
had already issued, and that it had since removed the offending language from
its website.  The only allegedly false
statements in Frontgate’s catalogs were that Frontgate’s trees feature
“exclusive, state-of-the-art technology guaranteed to make setup a snap,” and
that Frontgate’s “exclusive new Inversion tree goes from packed-away to put-up
in about a minute.” Plaintiffs didn’t show a likelihood of immediate harm from
those statements that couldn’t be adequately addressed by money damages.
 
Finally, plaintiffs’ delay in seeking a TRO was also
noticeable.  Plaintiffs allegedly learned
on August 18, 2015 that Frontgate was selling the accused trees, and presumably
learned of the alleged false advertising around the same time. But they didn’t
file their complaint until October 20, 2015 and did not seek a TRO until
October 26, 2015, just days before the start of the month when Balsam alleged that
they generally earn approximately 50 percent of their annual revenue. A ten-week
delay “would be of little if any concern in most circumstances, given the
extent to which plaintiffs emphasize the importance of the holiday shopping
season in claiming that they will suffer irreparable harm, their failure to
seek injunctive relief sooner further weighs against this claim.”

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Up stone creek without a paddle: Dawn Donut precludes relief for distant plaintiff

Posted on November 16, 2015 by rtushnet
Stone Creek Inc. v. Omnia Italian Design Inc., 2015 WL
6865704, No. CV-13-00688 (D. Az. Nov. 9, 2015)
 
Stone Creek makes and sells furniture in Arizona, operating
only out of Phoenix, except for a short-lived 2004-2008 expansion to Dallas,
Texas.  Its mark, as of 1990, was a “red
oval- shape circle around the words ‘Stone Creek.’ ”  It has a registration (filing date 2011) for
furniture for STONE CREEK in standard character form as well as for its logo.  The defendant copied its logo exactly and
used it for furniture sold in the upper Midwest; the court denies all relief, reaffirming
Dawn Donut’s applicability in the
internet age, and reinforcing that the “exclusive nationwide rights” granted by
a federal registration are only as exclusive as courts allow.
 

The court found that household furniture “is typically sold
locally to customers living within a drivable radius from the furniture outlet
retail store,” given the size, weight, and shipping costs of furniture, as well
the customers’ preference to see and sit on the furniture.  Stone Creek had a website, but didn’t sell
furniture directly through its site or otherwise sell via the internet.  Stone Creek would have liked to expand, but
there were no actual plans to do so after the closing of the Dallas operations.
 
Meanwhile, defendant Bon-Ton was a large retailer that
operates furniture galleries in Illinois, Wisconsin, Pennsylvania, Ohio, and
Michigan.  Defendant Omnia’s products were
sold to purchasers living within 200 miles of a Bon-Ton Furniture gallery, including
portions of Iowa, Indiana, Ohio, Wisconsin, Pennsylvania, Illinois, and
Michigan, aka the Bon Ton trading territory (BTTT).  The parties’ territories were separated by
over 1000 miles at the closest.
 
In 1993-1998, Stone Creek advertised in Southwest Airlines Spirit
magazine and America West’s in-flight magazine, whose airlines travelled
throughout the BTTT.  Still, the airline
magazines and Stone Creek’s other advertising venues didn’t have a significant
presence in the BTTT, and the court found that none of them created awareness
of Stone Creek in the BTTT.
 
Stone Creek put its mark on its website, stonecreekfurniture.com,
as early as 2000, and hired a SEO firm, which enabled consumers to find Stone
Creek’s website by going to stonecreekfurniture.com or by searching for “stone
creek” and “leather,” “furniture” or “sofa.” 
Nonetheless, the court found that the website didn’t create awareness of
Stone Creek in the BTTT, and that the “vast majority” of Google searches for
Stone Creek Furniture originated in Arizona; only a negligible number were from
the BTTT.  Many non-furniture businesses
in the BTTT used the name “Stone Creek.” 
In defendants’ survey, 99.75% of BTTT respondents were not familiar with
Stone Creek in Arizona.
 
Stone Creek’s sales were over $200 million since inception,
but only approximately 0.3% of its total sales occurred in the BTTT.  The largest sales were in Illinois, with
about $350,000 in sales from 1996-2009 and 2011-2013, representing more than
half of the total BTTT sales.  The total
came from approximately 150 customers, out of 65,000 transactions total since
Stone Creek’s inception. These numbers were “trivial,” the court said, and
there was no evidence about how these 150 customers discovered Stone Creek.
 
In 2003, Stone Creek met Omnia, a California-based
manufacturer of leather furniture, at a trade show in San Francisco. They
entered into an agreement that Omnia would make leather branded with Stone
Creek’s mark for Stone Creek, an agreement that lasted until 2012. 
 
Bon-Ton had been one of Omnia’s significant customers since
2008, and it wanted a private label brand to avoid competition with Omnia’s
other customers, ideally a label with an “American made name.” Omnia’s
president offered several suggestions, including STONE CREEK, which Bon Ton
liked; Omnia offered it because it “sounded American” and because marketing
materials and a logo were already prepared. Omnia copied the mark from Stone
Creek-provided materials, including the identical logo. However, the court
found that Omnia didn’t intend to trade off Stone Creek’s goodwill. Omnia never
consulted an attorney about this. Omnia’s president understood that Stone Creek
sold in the Phoenix area, but he never researched where Stone Creek sold its
furniture.
 
From 2008-2013, Omnia sold leather furniture to Bon-Ton
branded with the STONE CREEK mark. That year, after inquiries from individuals
in the BTTT, Stone Creek asked Omnia if it sold products under the STONE CREEK
mark to other companies. Stone Creek’s president also fielded a telephone call about
a customer concerned about a warranty issue on a leather sofa. The customer indicated
that he purchased the sofa from a Bon-Ton store in Chicago and that he had a
warranty document with the STONE CREEK mark on it, from which he ended up at
Stone Creek’s website.
 
Omnia’s VP of sales confirmed to Stone Creek: “Ron, yes, we
do sell our products to those stores under their marketing name ‘Stone Creek
Leather.’ … In this day of internet shopping and surfing, it is unfortunate and
probably a nuisance for you that your stores are receiving inquiries regarding
these products due to the similar name…” 
 
After Stone Creek complained, Omnia changed Stone Creek to
Red Canyon. The court found that Stone Creek’s mark had no goodwill,
reputation, or consumer recognition in the BTTT, and that there was no actual
confusion by a consumer who bought Omnia Stone Creek furniture in the BTTT.
 
Stone Creek failed to meet its burden of showing likely, not
merely possible, confusion.  Even if
Stone Creek had shown that a trivial number of purchasers had been actually
confused, a trivial number wasn’t enough.
 
Although the Stone Creek mark was strong in Arizona, it wasn’t
recognized in the BTTT for its relationship to Stone Creek; the goods and marks
were the same, but the parties had distinct marketing channels “with no
opportunity for crossover” because of the local nature of the furniture
industry.  Because furniture is
expensive, consumers are supposed to exercise greater care.  Bon-Ton selected the mark because it had an
American sound to it, and because the marketing material and logo already
existed and were in the possession of Omnia, without intent to trade off of Stone
Creek’s goodwill.  And Stone Creek had no
plans to expand.  Thus the factors
favored Bon-Ton.

Under Dawn Donut, “Even where the Sleekcraft factors weigh in favor of the
[plaintiff],…territorial divisions may prevent confusion. An unauthorized
junior mark user…can contest likelihood of confusion by arguing that, since
‘the registrant and the unauthorized user are confined to two sufficiently
distinct and geographically separate markets,’ there is no likelihood of
confusion.” Also, though the court doesn’t discuss this, because of the timing
of the registration application, it appears that Bon-Ton was a §33(b) local
user, protected against liability because it began use before the application
date.  (Though no longer protected, because its use has now ceased.)  Thus, even likely confusion wouldn’t
have entitled Stone Creek to prevail … but if I were Bon-Ton, I’d be pretty mad
at Omnia for getting us into this.

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FTC is entitled to presumption of reliance in enforcing consent order

Posted on November 10, 2015 by rtushnet
FTC v. BlueHippo Funding, LLC, No. 1:08-cv-01819 (S.D.N.Y.
Nov. 6, 2015)
 
BlueHippo stipulated to a final judgment and permanent
injunction against certain sales practices. 
The FTC moved for a contempt finding based on the practices described
below, which was granted in part and denied in part; the Second Circuit vacated
the damages portion of the order (the denial) and remanded for consideration of
whether a presumption of consumer reliance applied to the facts of the case.  The court here held that it did.
 
The facts: BlueHippo was an installment credit company that
marketed computers and other electronic products to “credit-challenged”
consumers who’d make an initial down payment followed by thirteen additional
payments.  Consumers who successfully
made that series of payments would get a computer and would be enrolled in
BlueHippo’s financing plan to pay the remaining balance.
 
BlueHippo’s challenged store credit and refund policy was to
refuse a refund after seven days of the first payment, instead offering store
credits.  But BlueHippo didn’t tell
consumers at the time of their initial payment that store credits could not be
applied to any applicable shipping and handling fees or taxes. The FTC alleged
that BlueHippo had violated the part of the consent order enjoining it from
making representations about its “refund, cancellation, exchange, or repurchase
policy without disclosing clearly and conspicuously, prior to receiving any
payment from customers all material terms and conditions of any refund,
cancellation, exchange, or repurchase policy.” The FTC sought $14 million in
damages, which represented the losses of the 55,892 customers that had made at
least one payment in the relevant time period, but had received neither a
computer nor store merchandise.
 
Previously, the court awarded $610,000 in damages,
representing the losses of the 677 consumers who had made all of the requisite
installment payments to qualify for BlueHippo’s financing plan but had received
neither a computer nor store credit.  But
it held the FTC failed to show damages for the others.  The Second Circuit, in vacating, emphasized
that information about the shipping and handling fees and taxes, “if it had
been revealed to consumers before they purchased computers from BlueHippo, in
all likelihood would have influenced their purchasing decisions.”
 
Recognizing the “inherent difficulty of demonstrating
individual harm,” the Second Circuit wrote that “[p]ermitting a presumption of
reliance in FTC claims for contempt damages would thus further the Commission’s
statutory purpose to protect consumers.” The presumption is triggered by “showing
that (1) the defendant made material misrepresentations or omissions that were
of a kind usually relied upon by reasonable prudent persons; (2) the
misrepresentations or omissions were widely disseminated; and (3) consumers
actually purchased the defendants’ products.”  If the presumption is satisfied, then the FTC
starts with the defendant’s gross receipts and the defendant can prove offsets.
 
At this point, defendants argued only that the FDC didn’t
meet its burden of showing misrepresentations or omissions of the kind usually
relied upon by reasonable prudent persons. 
The FTC didn’t show that BlueHippo actually charged shipping, handling,
or taxes to a significant number of consumers, so there was nothing “usual”
about the omissions.  But “the injury to
the consumer (and thus BlueHippo’s violation) occurs at the moment the consumer
makes his or her initial payment.”  Consumers were led to believe that they were
making essentially risk-free payments: they’d either get a computer or they’d
be able to apply their payments to purchases from the online store.  But in fact consumers would have to make
additional payments in the form of shipping, handling, or taxes if they sought
to utilize the online store option.  “Even
if few or no consumers actually paid shipping, handling or taxes … , that says
nothing about whether those fees, when eventually disclosed, deterred cash-strapped
consumers from making online purchases at all. Indeed, the FTC introduced
evidence of exactly that occurring.” Thus, the FTC was entitled to a
presumption of reliance and damages starting with defendants’ gross receipts.

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Why we need an anti-SLAPP law: skeptic’s articles still not commercial speech

Posted on November 9, 2015 by rtushnet
Tobinick v. Novella, No. 9:14–CV–80781, 2015 WL 6777458
(S.D. Fla. Sept. 30, 2015)
 
This case is a good example of the need for a federal
anti-SLAPP statute.  Although many claims
have been dismissed, the court here finally resolved Lanham Act false
advertising/state law unfair competition claims against Dr. Steven Novella, who
wrote two articles published online atsciencebasedmedicine.org. Both articles
address the practice of Dr. Edward Tobinick, who provides medical treatment to
patients with “unmet medical needs.”  The
first article, “Enbrel for Stroke and Alzheimer’s,” responded to a piece
published in the Los Angeles Times. As Novella described it,
 
The [Times ] story revolves around
Dr. Edward Tobinick and his practice of perispinal etanercept (Enbrel) for a
long and apparently growing list of conditions. Enbrel is an FDA-approved drug
for the treatment of severe rheumatoid arthritis. …Tobinick is using Enbrel for
many off-label indications, one of which is Alzheimer’s disease (the focus of
the LA Times story).
 
The allegedly false statements concerned the viability of Tobinick’s
treatments, the scientific literature discussing those treatments, the size and
locations of Tobinick’s businesses, and the categorization of Tobinick’s
practice as “health fraud.” Novella’s second article, “Another Lawsuit To
Suppress Legitimate Criticism – This Time SBM,” came out after Novella first
sued. It largely restated the content of the first, and also said Novella
couldn’t find double-blind placebo-controlled clinical trials for the treatment
provided by Tobinick.
 
Gordon & Breach
supplies the test for what’s commercial advertising or promotion, but post-Lexmark, it’s minus the commercial
competition prong.  So: (1) commercial
speech; (2) for the purpose of influencing consumers to buy defendant’s goods
or services; (3) disseminated sufficiently to the relevant purchasing public to
constitute “advertising” or “promotion” within that industry.
 
“Commercial speech” was dispositive here. Central Hudson described commercial
speech as “expression related solely to the economic interests of the speaker
and its audience.” Bolger “suggest[s]
certain guideposts for classifying speech that contains both commercial and
noncommercial elements; relevant considerations include whether: (1) the speech
is an advertisement; (2) the speech refers to a specific product; and (3) the
speaker has an economic motivation for the speech.”   
 
The articles here proposed no commercial transaction, and
weren’t related solely to the economic interests of the speaker and its
audience. They clearly intended to raise public awareness about issues
pertaining to Tobinick’s treatments. 
They were also unlike the commercial speech in Bolger: they were not concededly advertisements; the only products
referenced were Tobinick’s treatments; to the extent the second article
referred to Novella’s practice, “it is in direct response to the instant
litigation as opposed to an independent plug for that practice.” 
 
Finally, the court didn’t find that the alleged “economic
motivation” for the speech was sufficient, even though SGU Productions, a
for-profit company controlled by Novella, earns money by selling advertisements
on its website (skepticsguide.net), advertisements in a podcast, memberships, and
goods such as t-shirts.  Speech isn’t
commercial speech just because it’s sold for profit.  Plus, the specific evidence here didn’t point
to a strong economic motive for the speech: there was no evidence that Novella
earned any money from SGU, whose goal was “to educate people in science and
critical thinking.”
 
The state law claims fell because the Lanham Act claims did.
 
The court has already denied a fee request in another iteration of this case, which seems odd to me, but that just highlights the insufficiency of speech protections for critics under current law.

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