2(a) avoids First Amendment challenge, for now

Posted on April 21, 2015 by rtushnet
In re Tam, — F.3d –,  No. 2014-1203 (Fed. Cir. Apr. 20, 2015)
 
The Federal Circuit affirmed the refusal to register THE SLANTS for entertainment (a band) because it was disparaging, with “additional views” from one judge suggesting that it’s time for the Federal Circuit to reconsider its precedent upholding §2(a) against First Amendment challenge.
 
The TTAB pointed to record evidence that THE SLANTS would likely be perceived as referring to people of Asian descent, and that this was offensive to a substantial component of such people.  The band’s website displayed the mark next to “a depiction of an Asian woman, utilizing rising sun imagery and using a stylized dragon image,” and the applicant said that he selected the mark in order to “own” the stereotype it represents. Nonetheless, “[t]he dictionary definitions, reference works, and all other evidence unanimously categorize the word ‘slant,’ when meaning a person of Asian descent, as disparaging,” and there was record evidence of individuals and groups in the Asian community objecting to Tam’s use of the word.
 
The test for disparagement asks “(1) what is the likely meaning of the matter in question, taking into account not only dictionary definitions, but also the relationship of the matter to the other elements in the mark, the nature of the goods or services, and the manner in which the mark is used in the marketplace in connection with the goods or services; and (2) if that meaning is found to refer to identifiable persons, institutions, beliefs or national symbols, whether that meaning may be disparaging to a substantial composite of the referenced group.”
 
The TTAB appropriately took into account evidence gathered with respect to a prior abandoned application for a version of the mark with an Asian-inspired graphic; evidence outside the application can be relevant to determine the manner of a mark’s use.  Substantial evidence supported the Board’s finding that the mark referred to people of Asian descent.  Though the term “slant” has a number of alternative meanings, one of them is (according to Tam’s own cited dictionaries) “a disparaging term for a person of East Asian birth or ancestry,” (The American Heritage Dictionary of the English Language), and “[a] person with slanting eyes, spec. one of Oriental descent” (Oxford English Dictionary).  Its innocuous meanings, and trademarks based thereupon, don’t prevent it from being used in an offensive manner. Instead, those meanings require the PTO to examine how the applicant uses the mark in the marketplace to determine its likely meaning.
 
The factual record included Tam’s explanation of the band’s name: “I was trying to think of things that people associate with Asians. Obviously, one of the first things people say is that we have slanted eyes. . . .” and “We want to take on these stereotypes that people have about us, like the slanted eyes, and own them. We’re very proud of being Asian—we’re not going to hide that fact. The reaction from the Asian community has been positive.” The band’s website sets the mark against “a depiction of an Asian woman, utilizing rising sun imagery and using a stylized dragon image.”  Individuals and Asian groups perceived the term as referring to people of Asian descent.
 
Likewise, substantial evidence supported the finding of likely offensiveness to a substantial composite of people of Asian descent. The definitions in the record “universally characterize the word … as disparaging, offensive, or an ethnic slur when used to refer to a person of Asian descent.” The Japanese American Citizens League published a brochure describing the term as a “derogatory term” that is “demeaning” and “cripple[s] the spirit.” The  offensive  nature  of  the band’s name led to the cancellation of the band’s scheduled performance at a conference for Asian youth. No survey or other quantitative measure was required. 
 
Tam’s constitutional challenges were also unavailing. Binding precedent establishes that §2(a) doesn’t violate the First Amendment because it doesn’t ban use of a mark. In re McGinley, 660 F.2d 481 (C.C.P.A. 1981). (Note that the majority doesn’t say anything about whether §43(a) might provide protection; the reasoning that “lack of registration doesn’t bar use and so it’s not a problem” is equally applicable to refusing §43(a) protection.)  Nor was the §2(a) disparagement standard unconstitutionally vague.  Although there is inherent difficulty in finding an objective measure, the two-part test is “sufficiently precise to enable the PTO and the courts to apply the law fairly and to notify a would-be registrant that the mark he adopts will not be granted a federal registration.”
 
Tam argued that the arbitrary application of the standard, allowing registrations for “slurs against homosexuals such as DYKES ON BIKES,” violated due process. But due process was satisfied by a full opportunity to prosecute an application and appeal any denial. Moreover, “allegations regarding similar marks are irrelevant because each application must be considered on its own merits.” Past errors don’t bind the PTO to improperly register an applicant’s mark.
 
Tam finally argued that the rejection hinged on his and his bandmates’ ethnic identities, thus denying him equal protection.  Instead, the registration was rejected because it used the mark in a disparaging matter; as the TTAB said, “[a]n application by a band comprised of nonAsian-Americans called THE SLANTS that displayed the mark next to the imagery used by applicant . . . would also be subject to a refusal under Section 2(a).”
 
Judge Moore offered “additional views,” though this isn’t styled a concurrence or a dissent.  Judge Moore wrote to argue that it was time to revisit McGinley’s holding on the constitutionality of §2(a).  First Amendment jurisprudence on unconstitutional conditions and commercial speech, she noted, has evolved significantly since McGinley.
 
First, Judge Moore noted, trademarks are commercial speech and thus “unquestionably … protected” (skipping over the question of whether a mark is truthful and nonmisleading, but ok). And the mark here was more than a source identifier.  (Which, incidentally, undermines the articulated justification for commercial speech—that it provides consumers with useful information.)  Instead, Tam sought to “reclaim” and “take ownership” of Asian stereotypes. This name “weigh[ed] in on cultural and political discussions about race and society that are within the heartland of speech protected by the First Amendment.”
 
True, banning registration doesn’t mean banning use.  But, as B&B v. Hargis just told us, “[t]he  Lanham  Act  confers  important  legal  rights  and benefits on trademark owners who register their marks.” These benefits were both substantive and procedural, including nationwide rights even without nationwide use and a presumption of validity/possible incontestability. 
 
Moreover, “[n]ot only is a disparaging trademark denied federal registration, but it cannot be protected by its owner by virtue of a § 43(a) unfair competition claim.”  We know this because the Supreme Court made “clear” in Taco Cabana “that § 43(a) protection is only available for unregistered trademarks that could have qualified for federal registration.” See also Donchez v. Coors Brewing Co., 392 F.3d 1211, 1215 (10th Cir. 2004) (plaintiff must establish that its mark is protectable to prevail in a claim under § 43(a)); Yarmuth-Dion, Inc. v. D’ion Furs, Inc., 835 F.2d 990, 992 (2d Cir. 1987) (requiring a plaintiff to “demonstrate that his [unregistered] mark merits protection under the Lanham Act”).  “Thus, no federal cause of action is available to protect a trademark deemed disparaging, regardless of its use in commerce.”
 
And further, the Model State Trademark Bill was patterned after the Lanham Act and includes similar prohibitions.  “[V]irtually all states have adopted the Model Bill and its disparagement provision. Thus, not only are the benefits of federal registration unavailable to Mr. Tam, so too are the benefits of trademark registration in nearly all states.”  Plus, the common law mirrors the Lanham Act, so that means any state protection is unlikely. The denial of any rights “severely burdens” the use of disparaging marks.  Indeed, the content-based restrictions of §2(a) were adopted to reduce use of government-deprecated marks, creating a chilling effect.
 
The unconstitutional conditions doctrine says that the government cannot deny access to a benefit because of the recipient’s exercise of constitutionally protected speech. Of course the government can grant benefits predicated on compliance with certain policies, so “when the Government appropriates public funds to establish a program it is entitled to define the limits of that program.” However, Congress does not have the authority to attach “conditions that seek to leverage funding to regulate speech outside the contours of the program itself,” and outside the spending power.
 
Here, Judge Moore reasoned, “[b]ecause the government denies benefits to applicants on the basis of their constitutionally protected speech, the ‘unconstitutional conditions’ doctrine applies.”  The benefits of registration, while valuable, weren’t monetary.  “Unlike tangible property, a subsidy, or a tax exemption, bestowal of a trademark registration does not result in a direct loss of any property or money from the public fisc. Rather, a trademark redefines the nature of the markholder’s rights as against the rights of other citizens, depriving others of their rights to use the mark.” This was a regulatory regime, not a government subsidy program.  And registration doesn’t drain the public fisc; PTO operations are funded by registration fees. There might be an attenuated connection to spending, such as when ICE agents seize counterfeit goods because of a registration, but that wasn’t enough.
 
Thus, §2(a) had to survive First Amendment scrutiny, and as a content-based and viewpoint-based regulation it was presumptively invalid. One can register a mark referring to a certain group in a positive, nondisparaging manner, but not a mark referring negatively to the same group.  “Section 2(a) discriminates against disparaging or offensive viewpoints,” contrary to R.A.V. v. City of St. Paul, which doesn’t allow the government to punish only fighting words directed at one group. It was thus presumptively invalid and had to satisfy strict scrutiny.
 
Comment: this is the wrong comparator.  Defamation carried out with actual malice is actionable, but lying positively about someone with actual malice is not actionable, absent associated fraud (see Alvarez).  The government may punish fighting words without punishing hugging words, as long as it punishes all fighting words, or some subset that’s related to the reason it can punish fighting words in the first place.  By the same logic, the mere fact that only disparaging marks are barred is not itself a constitutional problem.
 
Regardless, Judge Moore continued, §2(a) couldn’t even survive Central Hudson.
 
Note an interesting presupposition here: that the bar on registration restricts or suppresses commercial speech.  Arguably the better analogy is a mandatory disclosure requirement, which may raise the cost of commercial speech—just as denying registration may raise the cost of using a particular disparaging symbol as a mark—but is not judged under Central Hudson, but rather under a test much closer to rationality review.  We’d ask if the cost-raising requirement was reasonably related to the government’s legitimate interests, and if it was not so unduly burdensome as to be functionally speech-suppressive.  One could come out either way on this inquiry, it seems to me, but it’s not Central Hudson.
 
Anyway, Judge Moore continued, the speech here—the use of a disparaging mark—was lawful and not misleading.  The governmente thus needed a substantial interest independent of disapproving the speech’s message to justify the regulation. There was none; Congress disapproved of the message carried by disparaging marks.  That’s not a legitimate government interest. The Supreme Court has “consistently held that the fact that protected speech may be offensive to some does not justify its suppression.” It is a “bedrock principle underlying the First Amendment . . . that the Government may not prohibit the expression of an idea simply because society finds the idea itself offensive or disagreeable.” (Note again the suppression language here.)
 
The alleged interest in not devoting government resources to disparaging marks is makeweight/bunk.  Nor did the ban harmonize longstanding state and federal law, because §2(a) didn’t codify a common law bar on disparaging marks (which are different from vulgar and misleading marks, which do have a history of state refusal to recognize); §2(a) created new law.  (Of course, the ban does harmonize now, as she pointed out above.) 
 
Further, trademarks aren’t government speech.  Publication on the Principal Register is not for the purpose of communicating a particular message or viewpoint; it is for providing notice that a mark has been registered.  (That actually seems like a particular message.)  The government would only have a substantial interest in avoiding the appearance of giving a stamp of approval to disparaging marks if the public believed that trademarks carry the stamp of government approval.  But that’s not what registration is.  The PTO’s job is to register marks that are functioning to identify and distinguish goods and services in the marketplace. “The purpose served by trademarks, to identify the source of the goods, is antithetical to the notion that the trademark is tied to the government.”
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Regression damages model fails to convince court

Posted on April 20, 2015 by rtushnet
Reed Const. Data Inc. v. McGraw-Hill Companies, Inc., — F.Supp.3d
—-, 2014 WL 4746130, No. 09–CV–8578 (S.D.N.Y. Sept. 24, 2014)
 
Reed sued McGraw-Hill for violations of the Lanham Act, the
Sherman Act, and various state law torts. The parties are the only two
competitors in the business of providing construction product information
(CPI), which allows subscribers in the building trade to bid for jobs.  They sell subscriptions to “nationwide
searchable databases that can filter projects based on the user’s preferences.
For example, a user can search for library projects in Topeka, Kansas, worth
more than three million dollars, that need plumbing in the next two months.”
The CPI services provide plans, bidding information, and contact information
for the planner, architect, or general contractor on the job. Reed alleged that
McGraw-Hill surreptitiously accessed Reed’s database (Connect) and used that
access to generate false or misleading product comparisons with McGraw-Hill’s
Dodge Network that it distributed to prospective Reed customers.
 
CPI customers prefer a service that lists more projects over
one that lists fewer, so the parties compete to have the most projects in their
databases. Their user agreements limit permissible use of the information, and
the agreements don’t include “creating comparisons with competing CPI
providers.”  (That prohibition of
comparisons seems anticompetitive and against public policy, as opposed to a
prohibition on scraping data, which has different justifications.)
 
Around 2004, McGraw-Hill began to access Reed Connect in
order to create favorable comparisons; to do so, it needed to know how many
projects were listed on Reed Connect.  It
also wanted to be aware of changes in the marketplace and to ensure that Reed
was not listing significant projects that it had missed. McGraw–Hill paid
consultants—“referred to internally as ‘spies’”—to subscribe to Reed Connect. They
would sometimes falsely claim that the fake entities they created to subscribe
were associated with actual builders and contractors. McGraw–Hill paid these
consultants $3.45 million in cash and personal checks and listed the expenses
on its books as “Stationery and Supplies,” or “Magazines and Books.”
 
McGraw-Hill hired Roper to generate product comparisons,
but, according to Reed, Roper wasn’t independent, as it claimed. Rather, Roper
“did little more than send someone to sit in a room and watch a McGraw–Hill
employee run searches on the two services,” without ensuring that the two
searches were fairly comparable. McGraw–Hill allegedly used one of its
other  products in the tests but said
that it had used the Dodge Network.  The
searches were selected so as to emphasize McGraw–Hill’s strengths and minimize Reed’s
by limiting comparisons to projects worth more than $1 million, whereas Reed
was stronger below $1 million.  In
addition, McGraw-Hill allegedly ran searches to get projects that needed to be
completed expeditiously (ASAPs) from its database but not from Reed’s database.
The result was a report in which McGraw–Hill boasted “71% more planning
projects, 78% more bidding projects, and 71 % more digitized plans and
specifications.”
 
McGraw-Hill also made ad hoc comparisons of the services in
response to questions from customers. McGraw–Hill frequently advised customers
to search for a particular project in both services, knowing that the suggested
project would be found only in the Dodge Network, as well as suggesting state
and local comparisons that were generally similar to the Roper reports in both
content and methodology. McGraw–Hill touted a five-to-one advantage in projects
“exclusive” to McGraw–Hill. Reed alleged that the true ratio was closer to
2.6–to–1.
 
“On at least a few occasions, McGraw–Hill used its access to
Reed Connect to find new projects.” McGraw–Hill said these were “isolated
potential violations of McGraw–Hill’s rules in which McGraw–Hill may have used
Reed Connect to obtain a source of project leads.” The parties agree that
McGraw–Hill broke its own rules at least a few times and used its access to
Reed Connect for purposes other than generating comparisons.
 
Reed sued in 2009; its RICO claims were dismissed, but the
other claims proceeded. At the motion to dismiss stage, Reed alleged that no
fewer than 231 customers reported noticing the Roper Reports and were
influenced by their contents. “Discovery has not borne out that claim,” though
Reed had one customer declaration showing that the Roper reports influenced
purchases.  Reed also argued that it was
injured because it was forced to price its services lower than it otherwise
would have absent the misconduct. It offered Dr. Frederick Warren–Boulton’s
testimony in support of this claim; McGraw-Hill moved to exclude his testimony.
 
Dr. Warren-Boulton opined on four questions: Was there a
distinct national market for CPI sufficient to trigger § 2 of the Sherman Act? Did
McGraw–Hill exercise power in that market? Did McGraw–Hill’s misconduct allow
it to keep its market power? Did McGraw–Hill’s misconduct damage Reed? To
support his opinions, he conducted statistical regression analyses of the
parties’ pricing and service data in an attempt to isolate the effect of the
variable at issue here (McGraw-Hill’s alleged misconduct).
 
In order to isolate the price effects of the misconduct,
Warren-Boulton compared the parties’ prices for national services during the
relevant period with the parties’ prices for local services during the relevant
period.  This was based on the assumption
that national pricing was affected by McGraw–Hill’s misconduct significantly
more than local pricing, and that the effects of McGraw–Hill’s misconduct would
grow weaker over time (because the misconduct ceased in approximately 2008). If
the difference between each party’s price index declined over the relevant
period, and that decline couldn’t be attributed to any other observable factor,
then Warren-Boulton would consider that proof that McGraw–Hill’s malfeasance
worked a price effect.
 
McGraw-Hill objected to the assumptions of the model.  Warren-Boulton acknowledged that Reed
presumably had been becoming a more effective competitor, though the local
market had always been effective; if that were true—and the evidence suggested
it was—McGraw would have to cut its national prices but not its local prices,
adequately explaining the narrowing gap without the presence of any misconduct.
This was a significant flaw that, coupled with other flaws, rendered the model
inadmissible.
 
McGraw-Hill also argued that Warren-Boulton’s model had to
be wrong because he found a price effect with no corresponding quantity effect:
he found that “the misconduct differentially affected the prices that customers
were willing to pay for each of the two competitors’ services, but had no
effect on how much customers chose one over the other.”  That contradicted standard microeconomic
theory, which predicted that in almost all markets (excluding perfectly
inelastic goods, Giffen
goods, and Veblen goods, none of which were involved here), increased price
decreases consumption.
 
Warren-Boulton responded that the CPI market had negotiated
prices, so there could be a price effect without a quantity effect “because the
price each consumer is willing to pay is a function of the price of the
competing product and the relative value of the competing product and the
negotiated product.”  But that would only
be true if Reed and McGraw-Hill had a bigger range of prices they’d accept than
prices that consumers would offer to pay. 
But there was no evidence to support that, and no reason to believe that
the CPI market had these “unusual economic characteristics.”
 
McGraw-Hill also convinced the court that construction
volume was an important omitted variable in the analysis. National firms were
hit harder by the 2008 recession than state and local firms, and price indices
were in fact highly negatively correlated with construction volume data. The
omission of a major variable was fatal to one of Warren-Boulton’s models.
 
When he added construction volume data, “a new problem
arose: multicollinearity.” This happens when the independent variable is
correlated with one of the control variables, making it impossible to isolate
the effect of the independent variable on the dependent variable. “Because of
the correlation between the explanatory variables, there is insufficient
variation in the data set to produce statistically significant results.”  As it turns out, construction volume was
highly correlated with both the independent and dependent variables. This made
the independent variable (here, the misconduct) appear not to have statistical
significance.
 
Warren-Boulton defended his choices by showing that using
construction volume alone didn’t explain the prices and in fact had weird
results (increasing prices for one party but decreasing them for another, and
vice versa in different markets), but the court was unconvinced.  Among other things, Warren-Boulton was unable
to explain his decision to pool local and national data in light of his
expertise, and running the numbers without pooling produced opposite results
(no price effect). Although there was no reason to believe that his judgment
was “anything other than perfectly sensible,” he had no methodological
explanation for his judgment, and a different judgment would also be reasonable
and totally change the outcome.
 
Finally, and relatedly, the methodology he used was too
manipulable to qualify as “scientific.” 
The choice of end dates for measuring when the effect of McGraw-Hill’s
misconduct fully dissipated was more or less arbitrary. That’s not fatal on its
own; any statistical model requires some judgment. As long as the model is
“robust with respect to different choices of arbitrary points, there is no
pressing issue.” But here the choice of the end-date had an
outcome-determinative effect; changing the end dates within a “very
conservative” range produced a result of no price effect.  Generally, choice of a reasonable timeframe
is an issue of credibility for the jury. 
“But where, as here, very minor changes in arbitrarily selected model
parameters can entirely alter the model’s conclusions, that model is
insufficiently robust to withstand the scrutiny of Rule 702.”
 
Thus, Reed failed to meet its burden of showing that
Warren-Boulton’s testimony was sufficiently reliable to be admissible.
 
Turning to the false advertising, Reed identified a number
of false or misleading statements:
 
First, the court had to identify what was “advertising and
promotion”; McGraw-Hill argued that only some of the misrepresentations were
sufficiently disseminated to count. Should the ad hoc statements be considered
together or separately? The court decided to take McGraw-Hill’s promotional
efforts as a whole.  Unlike individual
conversations that aren’t advertising or promotion, “the ad hoc comparisons at
issue in this case were an undisputed part of a broader campaign to compete
with Reed and to tout the supposed advantages of the Dodge Network over Reed
Connect.”  There was also evidence that
McGraw–Hill management directed individual salespeople to disseminate several
of the allegedly false or misleading statements. “There is little difference
between this and a traditional advertising campaign in either purpose or
effect. … [T]he mere fact that the promotional campaign took the form of
individual conversations does not mean that it is not advertising when taken as
a whole.”
 
Turning to falsity, the court began with Roper’s involvement
and the representations that Roper, an “independent” firm, “oversaw the entire
comparison process [and] ensured that comparable categories were used” to
evaluate the competing services. McGraw–Hill similarly represented that the
reports were “independent,” “objective,” “audited,” and “unbiased.”  Roper’s “project director” testified that he
made sure that the searches conducted were “worded similarly,” but he also told
a colleague that McGraw–Hill paid Roper “just to say we oversaw the whole
process.” He testified that he “did not know if [the searches were conducted]
using Network or Dataline, another McGraw–Hill service.” Though the McGraw-Hill
employee who conducted the comparisons testified that Roper “verified the
numbers,” “made sure that they were not being misrecorded,” and “ensured that
the comparisons were run in similar ways and that one search mirrored another search,”
that didn’t make the truth of the claims uncontroverted. A reasonable jury
could find literal falsity in the claims that the reports were “independent,”
“objective,” and “overs[een]” by Roper.
 
Next set of statements: The Roper Reports and the ad hoc
comparisons allegedly overstated the number of projects in McGraw Hill’s
database as compared to Reed’s database by using the wrong database; exluding
some Reed projects (including some utilities projects and the ASAP projects it
counted for itself); double-counting some McGraw-Hill projects; and selecting
search criteria designed to highlight its relative strengths. Reed alleged
literal falsity in the use of a different database, Dataline, for at least one
Roper Report, the double-counting of some of McGraw-Hill’s projects, and the
imbalanced treatment of ASAP projects. 
Reed failed to provide evidence that the Dataline listings weren’t in
fact included in “Dodge electronic listings,” so its first literal falsity
claim failed.  Likewise, the Dodge
network listed some projects on dual tracks as multiple projects, but this is a
perfectly sensible way to count: a school might seek asbestos removal while
simultaneously planning a new wing.  Reed
didn’t provide evidence that “projects” couldn’t have this meaning, so that
single institutions could have multiple “projects.”
 
It was undisputed that a search for projects whose bid date
was ASAP would yield more results in McGraw-Hill’s database, because Reed
listed ASAP projects by simply leaving the bid-date field blank. McGraw–Hill characterized
that as an error in Reed’s search algorithm. Reed didn’t offer evidence that
the statement that both comparisons were based on searches for projects whose
bid-date was listed as “ASAP” was false.
 
What about stale “Executive Briefs” citing data from a
“recent” comparison from 2007 when there were more recent comparisons?  The briefs didn’t claim to use the most recent comparison, and words like
“recent” are subject to a range of reasonable interpretations, so even in 2012
that wasn’t literally false. “[T]he Lanham Act does not require that
comparisons listed as recent be based on the most current available data.”
 
False claims of exclusivity: Reed offered some
circumstantial evidence that projects that McGraw-Hill claimed were exclusive
to it were also in Reed’s database. On at least one occasion, Reed searched its
database the day after McGraw–Hill told a customer that seven projects were
exclusive to its service and found six out of the seven purportedly exclusive
projects. A reasonable juror could find literal falsity.
 
Claimed project ratios of 5:1 in exclusive projects and 3:1
in all projects: Reed’s expert came up with substantially smaller ratios, but
McGraw-Hill argued that she just used different means of calculation. Reed
presented “plenty” of evidence that McGraw–Hill’s employees did not know how
the ratios were calculated when they distributed them. So, the evidence was that
other calculations, of contested accuracy, showed significantly lower
advantages for McGraw–Hill than the ratios it touted, but there was no evidence
on how it calculated those ratios. A reasonable juror could find literal
falsity.
 
For the literally false statements, consumer deception would
be presumed. For the rest, evidence of deliberate deception or consumer
confusion would be required.  Reed first
tried to show deliberate deception.  (1)
McGraw-Hill spent a lot of money getting access to Reed Connect and generating
the Roper Reports. (2) McGraw–Hill conducted its comparisons when they would be
most advantageous to McGraw–Hill and “crafted search queries designed to
maximize the McGraw–Hill projects counted while minimizing the projects counted
for Reed.” (3) McGraw–Hill convinced consumers that the Roper Reports were
independent. The court found this evidence insufficient to allow a reasonable
jury to find deliberate deception, only recklessness.
 
As for consumer confusion, Reed submitted one declaration to
show confusion.  But McGraw-Hill’s
evidence of lack of confusion was “overwhelming” and one declaration was not
enough for a reasonable jury to find that a substantial number of consumers
were misled by the challenged statements. 
Reed identified one customer “out of a national market that both parties
concede contains at least 70,000 customers,” and the declarant might not
actually have made the purchasing decisions at his company.
 
The court then analyzed the materiality of the remaining,
possibly literally false, statements: (1) the statements about Roper’s
involvement, (2) the statements touting exclusives to certain individual
customers, and (3) the statements about the 5:1 and 3:1 project ratios. No
reasonable juror could conclude that any of these statements was material.  Interpreting the Second Circuit’s adherence
to older language about misrepresenting “an inherent quality or characteristic
of a product,” the court concluded that this phrase meant “likely to influence
purchasing decisions.”
 
Reed’s evidence failed for the same reason its evidence of
deception failed: at worst, one customer relied on the misrepresentations.  “Every other customer testified that the
Roper Reports and ad hoc comparisons were immaterial.” Summary judgment on the
Lanham Act claims was granted.
 
McGraw-Hill also sought to get rid of claims that its
disparaging ads constituted monopolization and attempted monopolization in
violation of Section 2 of the Sherman Act. It is very hard to show an antitrust
violation through misleading advertisements, because the test has a bunch of
weird presumptions that aren’t really consistent with how false advertising
works. You’re better off with the Lanham Act.
 
In the Second Circuit, “a plaintiff asserting a
monopolization claim based on misleading advertising must overcome a
presumption that the effect on competition of such a practice was de minimis”
and therefore insufficient to sustain an antitrust action. To rebut that
presumption, a plaintiff must show that the challenged statements were “[1]
clearly false, [2] clearly material, [3] clearly likely to induce reasonable
reliance, [4] made to buyers without knowledge of the subject matter, [5]
continued for prolonged periods, and [6] not readily susceptible of
neutralization or other offset by rivals.” 
Reed’s arguments that the use of Roper as a third party guarantor
triggered special rules, and that an exception should exist for two-competitor
markets, were unavailing.
 
Plaintiffs don’t need to win on every factor to rebut the
presumption. The inquiry is simply “whether a disparaging advertisement is so
deceptive as to constitute anticompetitive exclusionary conduct.” The
presumption formalized the rule that “[i]solated business torts, such as
falsely disparaging another’s product, do not typically rise to the level of a
Section 2 violation unless there is a harm to competition itself.”
 
There was, as noted above, sufficient evidence of literal
falsity for some statements.  But literal
falsity is not clear falsity—otherwise the word “clear” would be meaningless.
(This seems to me an example of courts seizing on terms that were basically
accidental. The literally false/misleading distinction in Lanham Act jurisprudence
is relatively new; and anyway there is no reason to think that courts deciding
antitrust cases were thinking about the Lanham Act in when they were
formulating the antitrust test.)  So what
does “clearly false” mean?
 
Epistemologically speaking, falsity
is an absolute: a statement is either false or it is not. But the level of
justification of one’s belief in a statement’s falsity can vary by degree.
Thus, while a statement is either false or it is not, it can be more or less
“clearly” false, as measured by how much thought or effort one has to put into
determining its veracity or how confident one is in its falsity—or, put another
way, how obvious or apparent its falsity is in light of the statement itself
and its relationship to the state of the world.
 
A reasonable person could believe that Roper’s involvement
in its reports was not a sham, given that a Roper employee was present during
the challenged comparisons and made sure that the individual search terms used
were comparable.  A reasonable person
could likewise believe from the evidence that, “upon learning that McGraw–Hill
was touting exclusive projects that Reed did not have in its database, Reed
scurried to add them, and, therefore, the claim of exclusivity was true when
made.” And there was still no evidence in the record about how the claims about
the 5:1 and 3:1 ratios were calculated.  So the evidence was insufficient to show that
the challenged statements were clearly false.
 
Obviously, the evidence also didn’t show that the statements
were clearly material or likely to induce reasonable reliance.  As for customers’ knowledge, Reed argued
that, because its customers lacked knowledge of complex data and statistical
analysis, they were unable to discern the accuracy of McGraw–Hill’s claims.  The court disagreed—“buyers do not need a
degree in statistics to count how many projects of a given type, value, and
location appear in either service,” and there was evidence that “plenty of
buyers conducted their own analyses when deciding which service to purchase.”
 
Exposure to the claims was prolonged, but that didn’t
help.  Reed argued that McGraw-Hill’s
statements weren’t susceptible to neutralization because they couldn’t easily
be disproven and because McGraw-Hill tried to keep some of the comparisons from
Reed.  But the challenged statements were
simple sums of how many projects were in each database, and Reed definitely
knew about them. As a result of the combination of the factors, the presumption
of de minimis effect on competition held and McGraw-Hill got summary judgment.
 
Only state law claims remained:  (1) fraud, (2) misappropriation of trade
secrets, (3) misappropriation of confidential information, (4) unfair
competition, (5) tortious interference with contractual relations, and (6)
unjust enrichment. Only Reed’s unfair competition claim survived.
 
Fraud: Reed alleged that McGraw–Hill defrauded it by falsely
representing that the “consultants” McGraw–Hill hired to access Reed Connect were
not McGraw–Hill employees. New York law, which applied because the fraud was
carried out in New York, requires that the alleged losses stemming from a fraud
“be the direct, immediate, and proximate result of the misrepresentation,” and
that those losses be independent of other causes. But Reed alleged lost profits
due to lost customers stemming from McGraw–Hill’s misleading ads, based on
information gathered from the fraud. 
That wasn’t sufficiently proximate.
 
Trade secrets and misappropriation of confidential
information: information in the database was not secret. “Reed’s CPI lost its
trade-secrets status—if it ever had any—when Reed gave out free trial
subscriptions unaccompanied by any contractual restrictions on their use.” Tortious
interference: Reed couldn’t prove injury to its business relationship with
customers, because of the lack of harm evidence detailed above. Unjust
enrichment:  Again, the undisputed
evidence suggested that the only customer Reed allegedly “lost” because of
McGraw–Hill’s misconduct didn’t make any purchasing decisions.
 
Unfair competition: McGraw-Hill conceded that on “two or three
isolated” occasions, McGraw-Hill employees used project leads that they
acquired through their illicit access to Reed Connect in their own database.
Reed argues this constituted misappropriation. Applying New York law again as
the principal locus of the defendant’s conduct, this claim survived. INS v. AP provided the framework, though
large portions of New York’s unfair competition jurisprudence are preempted by
the Copyright Act. Still, New York protects business people from “all forms of
commercial immorality, the confines of which are marked only by the
‘conscience, justice and equity of common-law judges.’” The defendant must have
taken something in which the plaintiff had a property right, and that
constituted free riding on the plaintiff’s efforts.
 
McGraw-Hill argued that there was no property interest in
project counts, but there could be in the underlying data.  “McGraw–Hill used phony entities to
surreptitiously subscribe to Reed’s database service, then took the projects it
found there and added them to its own database. The project listings are the
parties’ stock in trade. Reed has a property interest—or at least a “quasi”
property interest—in its project leads.” When McGraw–Hill put those leads into
its own database, it “free r[ode]” on the significant effort Reed expended to
collect projects. Lack of significant damage or broad scope wasn’t dispositive
at this stage.

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Third Circuit clarifies its ascertainability rule but doesn’t remove it

Posted on April 20, 2015 by rtushnet
Byrd v. Aaron’s Inc., 2015 WL 1727613, No. 14–3050 (3d Cir.
Apr. 16, 2015)
 
The Byrds filed a putative class action against Aaron’s for
violating the Electronic Communications Privacy Act of 1986. The court of
appeals reversed the district court’s finding that the proposed class was not
ascertainable.
 
Aaron’s rented a laptop to the Byrds.  They discovered that the laptop was
delivering screenshots of websites they visited as well as pictures of users to
Aspen Way (which collected for Aaron’s) through spyware called “PC Rental
Agent,” which could also collect keystrokes. In total, “the computers of 895
customers across the country … [had] surveillance conducted through the
Detective Mode function of PC Rental Agent.”
 
The Byrds proposed two classes:
 
Class I—All persons who leased
and/or purchased one or more computers from Aaron’s, Inc., and their household
members, on whose computers DesignerWare’s Detective Mode was installed and
activated without such person’s consent on or after January 1, 2007.
Class II—[The same, but including
Aaron’s Inc. franchisees].
 
The district court concluded that the proposed classes were
underinclusive because they did “not encompass all those individuals whose
information [was] surreptitiously gathered by Aaron’s franchisees,” and
overinclusive because not “every computer upon which Detective Mode was
activated will state a claim under the ECPA for the interception of an
electronic communication.”
 
The majority reasoned that the source of the circuit’s
ascertainability requirement was “grounded in the nature of the class-action
device itself.” A plaintiff must show that: (1) the class is “defined with
reference to objective criteria”; and (2) there is “a reliable and
administratively feasible mechanism for determining whether putative class
members fall within the class definition.” Plaintiffs don’t have to identify
all class members at class certification—a plaintiff need only show that “class
members can be identified.”
 
Carrera v. Bayer Corp.
rejected certification of a class of consumers who purchased Bayer’s One–A–Day
WeightSmart diet supplement in Florida. In that case, the court reasoned that retailer
records and class member affidavits attesting to purchases of the diet
supplement were insufficient.  Though retail
records “may be a perfectly acceptable method of proving class membership,” the
plaintiff’s proposed retail records did not identify a single purchaser of the
Bayer diet supplement.  And affidavits
risk relying on no more than potential class members’ say-so; there was no
reason to think plaintiffs’ proposal for screening out false affidavits would
work. “Remarkably, even the named plaintiff could not recall whether he had
purchased the diet supplement.”
 
However, Carrera specified
that “[a]lthough some evidence used to satisfy ascertainability, such as corporate
records, will actually identify class members at the certification stage,
ascertainability only requires the plaintiff to show that class members can be
identified.” Thus, the court here said, “there is no records requirement.” Carrera stood for the proposition that “a
party cannot merely provide assurances to the district court that it will later
meet Rule 23’s requirements,” or propose a method of ascertaining a class
without any evidence supporting the idea that the method will succeed.
 
Ultimately, ascertainability focuses on “whether individuals
fitting the class definition may be identified without resort to mini-trials.”  This is closely tied to the provision of a
proper class definition, using objective criteria and offering some assurance of
“a reliable and administratively feasible mechanism for determining whether
putative class members fall within the class definition,”  Ascertainability thus prepares a district
court to “direct to class members the best notice that is practicable under the
circumstances” if there is certification. 
 
The district court erred first by conflating standards
governing class definition with the ascertainability requirement.  It next abused its discretion in determining
that the proposed classes weren’t ascertainable because they were
underinclusive, since non-buyers/lessees might have had their information
surreptitiously gathered.  But the Byrds
asked for a class of all buyers/lessees exposed to the program.  “[R]equiring such specificity may be
unworkable in some cases and approaches requiring a fail-safe class.”  Having objective criteria isn’t the same as
defining a class in terms of legal injury. Those who are injured but excluded
from the class are simply not bound.  “Requiring
a putative class to include all individuals who may have been harmed by a
particular defendant could also severely undermine the named class
representative’s ability to present typical claims.”
 
In addition, the district court abused its discretion in
finding that the proposed classes weren’t ascertainable because they were
“overly broad.” Defendants argued that the class wasn’t ascertainable because
the definition was decoupled from the underlying allegations of harm. But
predominance and ascertainability are separate issues. They also argued that
the class was overbroad when putative members lack standing or haven’t been
injured, but that again conflated ascertainability, predominance, and Article III
standing.  Potential differences between
the proposed class representatives and unnamed class members “should be
considered within the rubric of the relevant Rule 23 requirements—such as
adequacy, typicality, commonality, or predominance.” If defendants want to
argue that all putative class members must have standing, that issue should
first be decided by the district court. 
(Nice dodge, there.)
 
The proposed classes of “owners” and “lessees” were
ascertainable. There are “objective records” that could “readily identify”
them, and finding to the contrary was abuse of discretion, as was the finding
that “household members” weren’t ascertainable. The district court thought that
this was too vague and hard to prove, but the Byrds argued that the plain meaning
was “all of the people, related or unrelated, who occupy a housing unit,” as
shown by multiple definitions used in government documents for census,
taxation, and immigration purposes. Though these documents contained slight
variations, there were various ways in which household members could be
identified and verified.  A form similar
to the government forms could be used to identify household members, and that
was a “far cry” from an “unverifiable affidavit” or lack of a methodology to
identify class members. Because the location of household members was already
known, there were unlikely to be serious administrative burdens.
 
There will always be some level of inquiry required to
verify class membership, but that doesn’t necessarily mean a mini-trial. “Carrera does not suggest that no level
of inquiry as to the identity of class members can ever be undertaken. If that
were the case, no Rule 23(b)(3) class could ever be certified.” Defendants
argued that their due process rights were at risk, but the Byrds weren’t
relying solely on unverified affidavits. 
“Any form used to indicate a household member’s status in the putative
class must be reconciled with the 895 known class members or some additional
public records.”  Defendants could
challenge the methods the Byrds used to identify them—after the other issues
were resolved on remand.
 
Judge Rendell concurred to note that “the lengths to which
the majority goes in its attempt to clarify what our requirement of
ascertainability means, and to explain how this implicit requirement fits in
the class certification calculus, indicate that the time has come to do away
with this newly created aspect of Rule 23 in the Third Circuit. Our heightened
ascertainability requirement defies clarification. Additionally, it narrows the
availability of class actions in a way that the drafters of Rule 23 could not
have intended.”  Paper trail requirements
were ill-advised, because most low-value consumer class actions don’t involve
such records. Judges worried about a mere say-so might require an affidavit
from another household member, or a doctor, or something else.

The justifications for this rule were insufficient.  First, the claim that it avoided
administrative burdens really meant “short-circuiting the claims process by assuming
that when individuals file claims, they burden the court. But claims
administration is part of every class action. Imposing a proof-of-purchase
requirement does nothing to ensure the manageability of a class or the
‘efficiencies’ of the class action mechanism; rather, it obstructs
certification by assuming that hypothetical roadblocks will exist at the claims
administration stage of the proceedings.”
 
Denying certification to later avoid problems with notice
also was senseless.  Rule 23 required the
“best notice that is practicable under the circumstances.”  Potential difficulties with providing
individualized notice to all class members shouldn’t be a reason to deny
certification of a class. Due process is satisfied when notice is “reasonably
calculated” to reach the defined class.
 
Finally, the Third Circuit expressed concerns for the due
process rights of defendants, but “there is no evidence that, in small-claims
class actions, fabricated claims impose a significant harm on defendants.” The
chances of perjury to receive “a windfall of $1.59” were “far-fetched at best.”
Although most injured people won’t take the effort to claim a few dollars, “in
the aggregate, this sum is significant enough to deter corporate misconduct.”
By “focusing on making absolutely certain that compensation is distributed only
to those individuals who were actually harmed,” the Third Circuit’s
ascertainability requirement “ignored an equally important policy objective of
class actions: deterring and punishing corporate wrongdoing.”
 
The due process concern was also overblown because damages
under Rule 23 are assessed in the aggregate, so whether an individual can show
membership in a class doesn’t affect defendants’ rights to avoid paying more
than they’re liable for. The related concern for diluting “deserving” class
members’ recoveries “is unrealistic in modern day class action practice, and it
makes little sense when used to justify the wholesale dooming of the
small-value class action such that no injured plaintiff can recover at all.”
This was in any event an implementation issue, not an ascertainability
issue.  The Third Circuit’s rule cut at
the heart of the class action mechanism, which makes the most sense when
individual claims are small but aggregate injury is large.  As Judge Rakoff wrote, “[w]hile a rigorous
insistence on a proof-of-purchase requirement … keeps damages from the
uninjured, it does an equally effective job of keeping damages from the truly
injured as well, and ‘it does so with brutal efficiency.’”

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Territoriality is no bar to keeping up with the Kardashians in Kroma dispute

Posted on April 20, 2015 by rtushnet
Kroma Makeup EU, Ltd. v. Boldface Licensing Branding, Inc., No.
6:14–cv–1551, 2015 WL 1708757 (M.D. Fla. Apr. 15, 2015)
 
A foreign licensee of a US trademark sued US citizens for
alleged infringement abroad, and sued its licensor for refusing to share in the
proceeds of a settlement in a separate lawsuit about the infringement.  The court here found that it had subject
matter jurisdiction and that the foreign licensee could state a Lanham Act
claim. Plus, the licensee could proceed against its licensor under a breach of
contract theory.
 
Defendant Tillett owns a registration for Kroma for makeup,
used for a premium, all-natural makeup brand. “Kroma products sell from between
$19 and $100 and have been featured at high-profile fashion events throughout
the United States and the world, including the Oscars and the Emmys.”
 
According to the complaint, Plaintiff Kroma EU had an
exclusive license from Tillett to import and sell Kroma products in the EU,
with a guarantee from Tillett that it owned the Kroma mark.  This was a thriving business by late 2012,
with Kroma EU negotiating to place Kroma products in a number of upscale
British and European retail stores.
 
Enter Khroma, a new makeup line backed by defendants Kim
Kardashian, Kourtney Kardashian, and Khloe Kardashian and defendant Boldface.
The new line was released in the US and Europe in late 2012, priced between $6
and $20.  It was of inferior quality
compared to Kroma, and Kroma suffered severe consumer confusion.  Boldface sued Tillett for a declaration of
noninfringement.  Tillett counterclaimed,
and in 2013, the district court preliminarily enjoined Khroma.  Tillett and the other defendants eventually
settled.  Prior to the settlement,
Tillett allegedly promised to seek damages on Kroma EU’s behalf and sought information
from Kroma EU regarding its claimed damages. 
However, after winning the motion for a preliminary injunction, Tillett
allegedly abandoned Kroma EU’s interests, and the ultimate settlement didn’t
include a release of Kroma EU’s claims.
 
Thus, Kroma EU sued everybody, alleging trademark claims
against Boldface and the Kardashian defendants, and promissory estoppel against
Tillett. Boldface defaulted.
 
The Kardashian defendants suggested that Kroma EU lacked
standing to bring vicarious trademark infringement claims because Tillett was
the registrant and owner of Kroma in the US, and because Kroma EU couldn’t
enforce either a registered or unregistered foreign mark.
 
Although a licensee doesn’t own the mark it licenses, §43(a)
doesn’t require a “registrant,” but speaks of “any person who believes that he
or she is or is likely to be damaged.” Thus, ownership is irrelevant, and “courts
frequently find non-owners—such as manufacturers, competitors, distributors,
and others—to have standing under § 43(a).” 
Lexmark required “statutory
standing”—what the court here characterized as “more of a refinement to what
federal courts have called ‘prudential standing’ over the years.” (Of course
Justice Scalia insisted that he wasn’t engaged in a “standing” inquiry at all,
but this court, like many others, isn’t interested in changing the label.)
 
A plaintiff must demonstrate a cognizable “commercial
interest in reputation or sales” to fall within § 43(a)’s zone of interest, and
show that its injuries were proximately caused by the defendant’s wrongful
conduct. Kroma EU was not trying to enforce a foreign trademark in a US court,
but rather a domestic trademark.  (That
skips over territoriality completely. 
Kroma EU doesn’t have any rights to sell Kroma in the US, according to
the description of the license.  The mark
may have originated in the US, but when used in the EU it’s an EU mark.)  Kroma sufficiently satisfied the zone of
interests tests because of its commercial interest in selling Kroma. “Kroma EU
is exactly the type of commercial actor who § 43(a) of the Lanham Act envisions
protecting.”  And Kroma EU alleged
proximate cause: consumer confusion that cost it significant business and
revenue.
 
Nor did res judicata bar Kroma EU’s claims, since Kroma EU
was never a party to the prior litigation.
 
But did the Lanham Act reach the Kardashians’ conduct
abroad? Steele v. Bulova Watch Co., 344 U.S. 280 (1952), held that the Lanham
Act regulates not only domestic conduct, but also foreign conduct of U.S.
citizens where the conduct involves U.S. commerce and does not otherwise
interfere with the rights of foreign nationals in their own countries. Relevant
factors: (1) whether the defendant is a U.S. citizen, (2) whether the foreign
conduct had a substantial effect on U.S. commerce, and (3) whether adjudicating
the claim would interfere with another nation’s sovereignty.
 
Because all the alleged conduct occurred outside the US, the
Kardashians argued that there was no substantial effect on US commerce, and
also they contended that allowing Kroma EU to proceed would interfere with the
sovereignty of the United Kingdom and the European Union, as Kroma EU’s
trademark interests are based under the laws of each entity and all of the
alleged infringement occurred within these entities’ respective territorial
boundaries.
 
U.S. citizens should not be allowed to “evade the thrust of
the laws of the United States in a privileged sanctuary beyond our borders.”  Some courts call this the paramount
factor. 
 
Moreover, Kroma EU alleged conduct with a substantial effect
on US commerce.  If foreign conduct
creates confusion among American consumers, there can be little doubt of a
substantial effect on US commerce. This usually occurs when there’s intentional
importation of infringing goods into the US, or when infringing goods seep into
the US via third parties. In addition, the Eleventh Circuit also holds that the
Lanham Act also protects non-American consumers from confusion created by
American infringers. Babbit Electronics, Inc. v. Dynascan Corp., 38 F.3d 1161
(11th Cir.1994) (per curiam) (affirming extraterritorial application of the
Lanham Act where a U.S. corporation purchased infringing products to sell
exclusively to consumers in South America). Nonetheless, “global consumer
confusion is insufficient by itself to sustain a finding of a substantial
effect; there must be other connections to U.S. commerce.” Another connection
can be found through a defendant’s significant commercial activity within the US
to advance its infringing conduct abroad.
 
Kroma EU “more than adequately” alleged global consumer
confusion, including failed negotiations with a high end retailer that stated
that it didn’t want to be associated with the Kardashians or to be perceived as
selling discount or inferior-quality products, along with other confused
customers.  The court also inferred that
Kroma EU suffered confusion in the US too. 
(Except that it didn’t have any rights in the US!) “Because of Khroma’s
pervasive Internet presence around the world, the Court can reasonably infer
that some American consumers intending to purchase Kroma products were confused
into purchasing deeply discounted European Khroma products through the European
websites and that … these infringing makeup products seeped back into the
United States.”  (But, had Kroma EU tried
to sell back into the US, it would likely have violated its licensing
agreement.) 
 
Plus, Kroma EU alleged significant
commercial conduct by the Kardashians within the US to further their infringing
activities in Europe. They engaged Boldface to make the Khroma line and exerted
control over all aspects of the brand from within the US, chose the Khroma
name, marketed the brand through their personal celebrity, etc. Given the
policies underlying the Lanham Act—protecting consumers and securing the
rewards of trademark—it was appropriate to find a substantial effect on US
commerce. Given the defendants’ awareness of the Kroma mark, “U.S. trademark
law has a considerable interest in protecting U.S. trademarks regardless of
where an American infringer’s conduct occurs.”
 
Nor would enforcing Kroma EU’s interest interfere with the
sovereignty of another nation, which generally occurs “where the parties are
engaged in parallel litigation within the foreign nation or where the foreign
nation takes action against the interest which the plaintiff seeks to assert in
the United States court.” There’s no parallel litigation or foreign action
against the marks here. Because Kroma EU is the licensee of a US mark, the US
had the greatest interest in enforcing the mark.
 
As to the promisory estoppel claim, Kroma EU would need to
show: (1) the plaintiff relied to its detriment on a promise made by the
defendant, (2) the defendant should have reasonably expected the plaintiff to
rely on the promise, and (3) injustice can be avoided only by enforcing the
promise. However, promissory estoppel is unavailable where a written contract
governs the parties’ relations. 
 
All exclusive trademark licensing contracts provide as a
matter of law that the licensor is “under an implied good faith obligation not
to do anything that would impair or destroy the value of [the] exclusive
licensee’s rights.” The Eleventh Circuit has specifically held that a licensor must
share its proceeds from the settlement of a trademark infringement action with
its exclusive licensee where the exclusive licensee can show its damages. Thus,
contract law could adequately fashion an appropriate remedy, making promissory
estoppel unavailable.
 
But the plaintiff’s label for its claim was not dispositive.
Kroma EU’s factual allegations clearly set forth a claim for breach of contract
against Tillett.

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Lanham Act injunctive relief available without proof of injury

Posted on April 20, 2015 by rtushnet
Cascade Yarns, Inc. v. Knitting Fever, Inc., 2015 WL
1735517, No. C10–861 (W.D. Wash. Apr. 15, 2015)
 
This is another round of an “extensive” lawsuit between the
parties, who compete to sell yarn. Relevant here are Cascade’s claims against
KFI under the Lanham Act and Washington state law for for false advertising
related to the country of origin labels on KFI’s Katia and Mondial yarns. KFI
had previously admitted that certain yarns were sold by KFI in limited
quantities in 2012 without labels properly reflecting their Chinese origins.
 
KFI argued that Cascade’s false advertising claims had to
fail because Cascade had no evidence of injury, despite its assertion of sales
diversion.  Cascade argued that it was
pursuing a theory of disgorgement, which didn’t require direct injury. To get
money damages, Cascade needed to show actual injury; literal falsity leads to a
presumption of consumer deception, but not a presumption of damage to the
plaintiff when the literal falsity is noncomparative and there are numerous
competitors in the market. This principle avoids awarding plaintiffs a windfall
that would be punitive rather than compensatory. “The fact that failure to
designate country of origin may be actionable under the Lanham Act does not
mean that any competitor in the market is entitled to recover.” Thus, the
Lanham Act damages claim was dismissed.
 
In a footnote, the court rejected KFI’s argument that
Cascade lacked Lanham Act standing under Lexmark.
“Cascade’s allegations of lost profits and damage to its business reputation
satisfy the requirements of Article III standing, and as a direct competitor
alleging diversion of sales, Cascade meets the prudential standing requirements
that its claim fall within the ‘zone of interests’ protected by the Act and
that its alleged injuries be proximately caused by the Act’s violation.”
 
As for the availability of injunctive relief, competitors
need not prove injury. “Cascade’s failure to raise a triable issue of fact as
to causation and injury does not affect the viability of its Lanham Act claim
to the extent that Cascade seeks injunctive relief.”  However, Cascade still needed to show the
other elements of a false advertising claim.
 
The court first rejected KFI’s unclean hands defense.
Although Cascade admitted to having briefly sold four King Cole yarns that were
not properly labeled as to country of origin, that didn’t foreclose its claim
for injunctive relief.  “Indeed, there is
good reason to permit an injunction action to proceed where a monetary action
would be barred: in the former case the Court must take into account the
public’s interest in being freed from deceptive practices in addition to a
litigant’s interest in being compensated where harmed by them.” (Query how this comports with eBay and Winter.)
 
KFI admittedly mislabeled three yarns when they were first
imported in 2012, but they bore corrected labels by the end of 2012, and there
was no evidence of further mislabeling. Cessation alone didn’t moot the claim
for injunctive relief; the burden is on the defendant to show that its reform
is “irrefutable and total,” and injunctive relief may also be appropriate for a
terminated but willful violation. There was no evidence of willful violation
here. “KFI has provided ample assurance that it will not again sell these three
Mondial yarns without properly designating their Chinese origin.” Thus, the
court wouldn’t “waste judicial resources in fashioning an entirely superfluous
remedy” as to those yarns.
 
However, there was a genuine issue of material fact as to
continued mislabeling of another variety of yarn. A witness admission that it
was made in Turkey rather than Italy raised a question of proper labeling. KFI
continued to list the yarn on its website “without assurance that any past
mislabeling has been irrefutably addressed.” Cascade would be allowed to seek
equitable relief from the court (not a jury). 
The state law claims received the same treatment.

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Regression damages model fails to convince court

Posted on April 20, 2015 by rtushnet
Reed Const. Data Inc. v. McGraw-Hill Companies, Inc., — F.Supp.3d —-, 2014 WL 4746130, No. 09–CV–8578 (S.D.N.Y. Sept. 24, 2014)
 
Reed sued McGraw-Hill for violations of the Lanham Act, the Sherman Act, and various state law torts. The parties are the only two competitors in the business of providing construction product information (CPI), which allows subscribers in the building trade to bid for jobs.  They sell subscriptions to “nationwide searchable databases that can filter projects based on the user’s preferences. For example, a user can search for library projects in Topeka, Kansas, worth more than three million dollars, that need plumbing in the next two months.” The CPI services provide plans, bidding information, and contact information for the planner, architect, or general contractor on the job. Reed alleged that McGraw-Hill surreptitiously accessed Reed’s database (Connect) and used that access to generate false or misleading product comparisons with McGraw-Hill’s Dodge Network that it distributed to prospective Reed customers.
 
CPI customers prefer a service that lists more projects over one that lists fewer, so the parties compete to have the most projects in their databases. Their user agreements limit permissible use of the information, and the agreements don’t include “creating comparisons with competing CPI providers.”  (That prohibition of comparisons seems anticompetitive and against public policy, as opposed to a prohibition on scraping data, which has different justifications.)
 
Around 2004, McGraw-Hill began to access Reed Connect in order to create favorable comparisons; to do so, it needed to know how many projects were listed on Reed Connect.  It also wanted to be aware of changes in the marketplace and to ensure that Reed was not listing significant projects that it had missed. McGraw–Hill paid consultants—“referred to internally as ‘spies’”—to subscribe to Reed Connect. They would sometimes falsely claim that the fake entities they created to subscribe were associated with actual builders and contractors. McGraw–Hill paid these consultants $3.45 million in cash and personal checks and listed the expenses on its books as “Stationery and Supplies,” or “Magazines and Books.”
 
McGraw-Hill hired Roper to generate product comparisons, but, according to Reed, Roper wasn’t independent, as it claimed. Rather, Roper “did little more than send someone to sit in a room and watch a McGraw–Hill employee run searches on the two services,” without ensuring that the two searches were fairly comparable. McGraw–Hill allegedly used one of its other  products in the tests but said that it had used the Dodge Network.  The searches were selected so as to emphasize McGraw–Hill’s strengths and minimize Reed’s by limiting comparisons to projects worth more than $1 million, whereas Reed was stronger below $1 million.  In addition, McGraw-Hill allegedly ran searches to get projects that needed to be completed expeditiously (ASAPs) from its database but not from Reed’s database. The result was a report in which McGraw–Hill boasted “71% more planning projects, 78% more bidding projects, and 71 % more digitized plans and specifications.”
 
McGraw-Hill also made ad hoc comparisons of the services in response to questions from customers. McGraw–Hill frequently advised customers to search for a particular project in both services, knowing that the suggested project would be found only in the Dodge Network, as well as suggesting state and local comparisons that were generally similar to the Roper reports in both content and methodology. McGraw–Hill touted a five-to-one advantage in projects “exclusive” to McGraw–Hill. Reed alleged that the true ratio was closer to 2.6–to–1.
 
“On at least a few occasions, McGraw–Hill used its access to Reed Connect to find new projects.” McGraw–Hill said these were “isolated potential violations of McGraw–Hill’s rules in which McGraw–Hill may have used Reed Connect to obtain a source of project leads.” The parties agree that McGraw–Hill broke its own rules at least a few times and used its access to Reed Connect for purposes other than generating comparisons.
 
Reed sued in 2009; its RICO claims were dismissed, but the other claims proceeded. At the motion to dismiss stage, Reed alleged that no fewer than 231 customers reported noticing the Roper Reports and were influenced by their contents. “Discovery has not borne out that claim,” though Reed had one customer declaration showing that the Roper reports influenced purchases.  Reed also argued that it was injured because it was forced to price its services lower than it otherwise would have absent the misconduct. It offered Dr. Frederick Warren–Boulton’s testimony in support of this claim; McGraw-Hill moved to exclude his testimony.
 
Dr. Warren-Boulton opined on four questions: Was there a distinct national market for CPI sufficient to trigger § 2 of the Sherman Act? Did McGraw–Hill exercise power in that market? Did McGraw–Hill’s misconduct allow it to keep its market power? Did McGraw–Hill’s misconduct damage Reed? To support his opinions, he conducted statistical regression analyses of the parties’ pricing and service data in an attempt to isolate the effect of the variable at issue here (McGraw-Hill’s alleged misconduct).
 
In order to isolate the price effects of the misconduct, Warren-Boulton compared the parties’ prices for national services during the relevant period with the parties’ prices for local services during the relevant period.  This was based on the assumption that national pricing was affected by McGraw–Hill’s misconduct significantly more than local pricing, and that the effects of McGraw–Hill’s misconduct would grow weaker over time (because the misconduct ceased in approximately 2008). If the difference between each party’s price index declined over the relevant period, and that decline couldn’t be attributed to any other observable factor, then Warren-Boulton would consider that proof that McGraw–Hill’s malfeasance worked a price effect.
 
McGraw-Hill objected to the assumptions of the model.  Warren-Boulton acknowledged that Reed presumably had been becoming a more effective competitor, though the local market had always been effective; if that were true—and the evidence suggested it was—McGraw would have to cut its national prices but not its local prices, adequately explaining the narrowing gap without the presence of any misconduct. This was a significant flaw that, coupled with other flaws, rendered the model inadmissible.
 
McGraw-Hill also argued that Warren-Boulton’s model had to be wrong because he found a price effect with no corresponding quantity effect: he found that “the misconduct differentially affected the prices that customers were willing to pay for each of the two competitors’ services, but had no effect on how much customers chose one over the other.”  That contradicted standard microeconomic theory, which predicted that in almost all markets (excluding perfectly inelastic goods, Giffen goods, and Veblen goods, none of which were involved here), increased price decreases consumption.
 
Warren-Boulton responded that the CPI market had negotiated prices, so there could be a price effect without a quantity effect “because the price each consumer is willing to pay is a function of the price of the competing product and the relative value of the competing product and the negotiated product.”  But that would only be true if Reed and McGraw-Hill had a bigger range of prices they’d accept than prices that consumers would offer to pay.  But there was no evidence to support that, and no reason to believe that the CPI market had these “unusual economic characteristics.”
 
McGraw-Hill also convinced the court that construction volume was an important omitted variable in the analysis. National firms were hit harder by the 2008 recession than state and local firms, and price indices were in fact highly negatively correlated with construction volume data. The omission of a major variable was fatal to one of Warren-Boulton’s models.
 
When he added construction volume data, “a new problem arose: multicollinearity.” This happens when the independent variable is correlated with one of the control variables, making it impossible to isolate the effect of the independent variable on the dependent variable. “Because of the correlation between the explanatory variables, there is insufficient variation in the data set to produce statistically significant results.”  As it turns out, construction volume was highly correlated with both the independent and dependent variables. This made the independent variable (here, the misconduct) appear not to have statistical significance.
 
Warren-Boulton defended his choices by showing that using construction volume alone didn’t explain the prices and in fact had weird results (increasing prices for one party but decreasing them for another, and vice versa in different markets), but the court was unconvinced.  Among other things, Warren-Boulton was unable to explain his decision to pool local and national data in light of his expertise, and running the numbers without pooling produced opposite results (no price effect). Although there was no reason to believe that his judgment was “anything other than perfectly sensible,” he had no methodological explanation for his judgment, and a different judgment would also be reasonable and totally change the outcome.
 
Finally, and relatedly, the methodology he used was too manipulable to qualify as “scientific.”  The choice of end dates for measuring when the effect of McGraw-Hill’s misconduct fully dissipated was more or less arbitrary. That’s not fatal on its own; any statistical model requires some judgment. As long as the model is “robust with respect to different choices of arbitrary points, there is no pressing issue.” But here the choice of the end-date had an outcome-determinative effect; changing the end dates within a “very conservative” range produced a result of no price effect.  Generally, choice of a reasonable timeframe is an issue of credibility for the jury.  “But where, as here, very minor changes in arbitrarily selected model parameters can entirely alter the model’s conclusions, that model is insufficiently robust to withstand the scrutiny of Rule 702.”
 
Thus, Reed failed to meet its burden of showing that Warren-Boulton’s testimony was sufficiently reliable to be admissible.
 
Turning to the false advertising, Reed identified a number of false or misleading statements:
 
First, the court had to identify what was “advertising and promotion”; McGraw-Hill argued that only some of the misrepresentations were sufficiently disseminated to count. Should the ad hoc statements be considered together or separately? The court decided to take McGraw-Hill’s promotional efforts as a whole.  Unlike individual conversations that aren’t advertising or promotion, “the ad hoc comparisons at issue in this case were an undisputed part of a broader campaign to compete with Reed and to tout the supposed advantages of the Dodge Network over Reed Connect.”  There was also evidence that McGraw–Hill management directed individual salespeople to disseminate several of the allegedly false or misleading statements. “There is little difference between this and a traditional advertising campaign in either purpose or effect. … [T]he mere fact that the promotional campaign took the form of individual conversations does not mean that it is not advertising when taken as a whole.”
 
Turning to falsity, the court began with Roper’s involvement and the representations that Roper, an “independent” firm, “oversaw the entire comparison process [and] ensured that comparable categories were used” to evaluate the competing services. McGraw–Hill similarly represented that the reports were “independent,” “objective,” “audited,” and “unbiased.”  Roper’s “project director” testified that he made sure that the searches conducted were “worded similarly,” but he also told a colleague that McGraw–Hill paid Roper “just to say we oversaw the whole process.” He testified that he “did not know if [the searches were conducted] using Network or Dataline, another McGraw–Hill service.” Though the McGraw-Hill employee who conducted the comparisons testified that Roper “verified the numbers,” “made sure that they were not being misrecorded,” and “ensured that the comparisons were run in similar ways and that one search mirrored another search,” that didn’t make the truth of the claims uncontroverted. A reasonable jury could find literal falsity in the claims that the reports were “independent,” “objective,” and “overs[een]” by Roper.
 
Next set of statements: The Roper Reports and the ad hoc comparisons allegedly overstated the number of projects in McGraw Hill’s database as compared to Reed’s database by using the wrong database; exluding some Reed projects (including some utilities projects and the ASAP projects it counted for itself); double-counting some McGraw-Hill projects; and selecting search criteria designed to highlight its relative strengths. Reed alleged literal falsity in the use of a different database, Dataline, for at least one Roper Report, the double-counting of some of McGraw-Hill’s projects, and the imbalanced treatment of ASAP projects.  Reed failed to provide evidence that the Dataline listings weren’t in fact included in “Dodge electronic listings,” so its first literal falsity claim failed.  Likewise, the Dodge network listed some projects on dual tracks as multiple projects, but this is a perfectly sensible way to count: a school might seek asbestos removal while simultaneously planning a new wing.  Reed didn’t provide evidence that “projects” couldn’t have this meaning, so that single institutions could have multiple “projects.”
 
It was undisputed that a search for projects whose bid date was ASAP would yield more results in McGraw-Hill’s database, because Reed listed ASAP projects by simply leaving the bid-date field blank. McGraw–Hill characterized that as an error in Reed’s search algorithm. Reed didn’t offer evidence that the statement that both comparisons were based on searches for projects whose bid-date was listed as “ASAP” was false.
 
What about stale “Executive Briefs” citing data from a “recent” comparison from 2007 when there were more recent comparisons?  The briefs didn’t claim to use the most recent comparison, and words like “recent” are subject to a range of reasonable interpretations, so even in 2012 that wasn’t literally false. “[T]he Lanham Act does not require that comparisons listed as recent be based on the most current available data.”
 
False claims of exclusivity: Reed offered some circumstantial evidence that projects that McGraw-Hill claimed were exclusive to it were also in Reed’s database. On at least one occasion, Reed searched its database the day after McGraw–Hill told a customer that seven projects were exclusive to its service and found six out of the seven purportedly exclusive projects. A reasonable juror could find literal falsity.
 
Claimed project ratios of 5:1 in exclusive projects and 3:1 in all projects: Reed’s expert came up with substantially smaller ratios, but McGraw-Hill argued that she just used different means of calculation. Reed presented “plenty” of evidence that McGraw–Hill’s employees did not know how the ratios were calculated when they distributed them. So, the evidence was that other calculations, of contested accuracy, showed significantly lower advantages for McGraw–Hill than the ratios it touted, but there was no evidence on how it calculated those ratios. A reasonable juror could find literal falsity.
 
For the literally false statements, consumer deception would be presumed. For the rest, evidence of deliberate deception or consumer confusion would be required.  Reed first tried to show deliberate deception.  (1) McGraw-Hill spent a lot of money getting access to Reed Connect and generating the Roper Reports. (2) McGraw–Hill conducted its comparisons when they would be most advantageous to McGraw–Hill and “crafted search queries designed to maximize the McGraw–Hill projects counted while minimizing the projects counted for Reed.” (3) McGraw–Hill convinced consumers that the Roper Reports were independent. The court found this evidence insufficient to allow a reasonable jury to find deliberate deception, only recklessness.
 
As for consumer confusion, Reed submitted one declaration to show confusion.  But McGraw-Hill’s evidence of lack of confusion was “overwhelming” and one declaration was not enough for a reasonable jury to find that a substantial number of consumers were misled by the challenged statements.  Reed identified one customer “out of a national market that both parties concede contains at least 70,000 customers,” and the declarant might not actually have made the purchasing decisions at his company.
 
The court then analyzed the materiality of the remaining, possibly literally false, statements: (1) the statements about Roper’s involvement, (2) the statements touting exclusives to certain individual customers, and (3) the statements about the 5:1 and 3:1 project ratios. No reasonable juror could conclude that any of these statements was material.  Interpreting the Second Circuit’s adherence to older language about misrepresenting “an inherent quality or characteristic of a product,” the court concluded that this phrase meant “likely to influence purchasing decisions.”
 
Reed’s evidence failed for the same reason its evidence of deception failed: at worst, one customer relied on the misrepresentations.  “Every other customer testified that the Roper Reports and ad hoc comparisons were immaterial.” Summary judgment on the Lanham Act claims was granted.
 
McGraw-Hill also sought to get rid of claims that its disparaging ads constituted monopolization and attempted monopolization in violation of Section 2 of the Sherman Act. It is very hard to show an antitrust violation through misleading advertisements, because the test has a bunch of weird presumptions that aren’t really consistent with how false advertising works. You’re better off with the Lanham Act.
 
In the Second Circuit, “a plaintiff asserting a monopolization claim based on misleading advertising must overcome a presumption that the effect on competition of such a practice was de minimis” and therefore insufficient to sustain an antitrust action. To rebut that presumption, a plaintiff must show that the challenged statements were “[1] clearly false, [2] clearly material, [3] clearly likely to induce reasonable reliance, [4] made to buyers without knowledge of the subject matter, [5] continued for prolonged periods, and [6] not readily susceptible of neutralization or other offset by rivals.”  Reed’s arguments that the use of Roper as a third party guarantor triggered special rules, and that an exception should exist for two-competitor markets, were unavailing.
 
Plaintiffs don’t need to win on every factor to rebut the presumption. The inquiry is simply “whether a disparaging advertisement is so deceptive as to constitute anticompetitive exclusionary conduct.” The presumption formalized the rule that “[i]solated business torts, such as falsely disparaging another’s product, do not typically rise to the level of a Section 2 violation unless there is a harm to competition itself.”
 
There was, as noted above, sufficient evidence of literal falsity for some statements.  But literal falsity is not clear falsity—otherwise the word “clear” would be meaningless. (This seems to me an example of courts seizing on terms that were basically accidental. The literally false/misleading distinction in Lanham Act jurisprudence is relatively new; and anyway there is no reason to think that courts deciding antitrust cases were thinking about the Lanham Act in when they were formulating the antitrust test.)  So what does “clearly false” mean?
 
Epistemologically speaking, falsity is an absolute: a statement is either false or it is not. But the level of justification of one’s belief in a statement’s falsity can vary by degree. Thus, while a statement is either false or it is not, it can be more or less “clearly” false, as measured by how much thought or effort one has to put into determining its veracity or how confident one is in its falsity—or, put another way, how obvious or apparent its falsity is in light of the statement itself and its relationship to the state of the world.
 
A reasonable person could believe that Roper’s involvement in its reports was not a sham, given that a Roper employee was present during the challenged comparisons and made sure that the individual search terms used were comparable.  A reasonable person could likewise believe from the evidence that, “upon learning that McGraw–Hill was touting exclusive projects that Reed did not have in its database, Reed scurried to add them, and, therefore, the claim of exclusivity was true when made.” And there was still no evidence in the record about how the claims about the 5:1 and 3:1 ratios were calculated.  So the evidence was insufficient to show that the challenged statements were clearly false.
 
Obviously, the evidence also didn’t show that the statements were clearly material or likely to induce reasonable reliance.  As for customers’ knowledge, Reed argued that, because its customers lacked knowledge of complex data and statistical analysis, they were unable to discern the accuracy of McGraw–Hill’s claims.  The court disagreed—“buyers do not need a degree in statistics to count how many projects of a given type, value, and location appear in either service,” and there was evidence that “plenty of buyers conducted their own analyses when deciding which service to purchase.”
 
Exposure to the claims was prolonged, but that didn’t help.  Reed argued that McGraw-Hill’s statements weren’t susceptible to neutralization because they couldn’t easily be disproven and because McGraw-Hill tried to keep some of the comparisons from Reed.  But the challenged statements were simple sums of how many projects were in each database, and Reed definitely knew about them. As a result of the combination of the factors, the presumption of de minimis effect on competition held and McGraw-Hill got summary judgment.
 
Only state law claims remained:  (1) fraud, (2) misappropriation of trade secrets, (3) misappropriation of confidential information, (4) unfair competition, (5) tortious interference with contractual relations, and (6) unjust enrichment. Only Reed’s unfair competition claim survived.
 
Fraud: Reed alleged that McGraw–Hill defrauded it by falsely representing that the “consultants” McGraw–Hill hired to access Reed Connect were not McGraw–Hill employees. New York law, which applied because the fraud was carried out in New York, requires that the alleged losses stemming from a fraud “be the direct, immediate, and proximate result of the misrepresentation,” and that those losses be independent of other causes. But Reed alleged lost profits due to lost customers stemming from McGraw–Hill’s misleading ads, based on information gathered from the fraud.  That wasn’t sufficiently proximate.
 
Trade secrets and misappropriation of confidential information: information in the database was not secret. “Reed’s CPI lost its trade-secrets status—if it ever had any—when Reed gave out free trial subscriptions unaccompanied by any contractual restrictions on their use.” Tortious interference: Reed couldn’t prove injury to its business relationship with customers, because of the lack of harm evidence detailed above. Unjust enrichment:  Again, the undisputed evidence suggested that the only customer Reed allegedly “lost” because of McGraw–Hill’s misconduct didn’t make any purchasing decisions.
 
Unfair competition: McGraw-Hill conceded that on “two or three isolated” occasions, McGraw-Hill employees used project leads that they acquired through their illicit access to Reed Connect in their own database. Reed argues this constituted misappropriation. Applying New York law again as the principal locus of the defendant’s conduct, this claim survived. INS v. AP provided the framework, though large portions of New York’s unfair competition jurisprudence are preempted by the Copyright Act. Still, New York protects business people from “all forms of commercial immorality, the confines of which are marked only by the ‘conscience, justice and equity of common-law judges.’” The defendant must have taken something in which the plaintiff had a property right, and that constituted free riding on the plaintiff’s efforts.
 
McGraw-Hill argued that there was no property interest in project counts, but there could be in the underlying data.  “McGraw–Hill used phony entities to surreptitiously subscribe to Reed’s database service, then took the projects it found there and added them to its own database. The project listings are the parties’ stock in trade. Reed has a property interest—or at least a “quasi” property interest—in its project leads.” When McGraw–Hill put those leads into its own database, it “free r[ode]” on the significant effort Reed expended to collect projects. Lack of significant damage or broad scope wasn’t dispositive at this stage.
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Third Circuit clarifies its ascertainability rule but doesn’t remove it

Posted on April 20, 2015 by rtushnet
Byrd v. Aaron’s Inc., 2015 WL 1727613, No. 14–3050 (3d Cir. Apr. 16, 2015)
 
The Byrds filed a putative class action against Aaron’s for violating the Electronic Communications Privacy Act of 1986. The court of appeals reversed the district court’s finding that the proposed class was not ascertainable.
 
Aaron’s rented a laptop to the Byrds.  They discovered that the laptop was delivering screenshots of websites they visited as well as pictures of users to Aspen Way (which collected for Aaron’s) through spyware called “PC Rental Agent,” which could also collect keystrokes. In total, “the computers of 895 customers across the country … [had] surveillance conducted through the Detective Mode function of PC Rental Agent.”
 
The Byrds proposed two classes:
 
Class I—All persons who leased and/or purchased one or more computers from Aaron’s, Inc., and their household members, on whose computers DesignerWare’s Detective Mode was installed and activated without such person’s consent on or after January 1, 2007.
Class II—[The same, but including Aaron’s Inc. franchisees].
 
The district court concluded that the proposed classes were underinclusive because they did “not encompass all those individuals whose information [was] surreptitiously gathered by Aaron’s franchisees,” and overinclusive because not “every computer upon which Detective Mode was activated will state a claim under the ECPA for the interception of an electronic communication.”
 
The majority reasoned that the source of the circuit’s ascertainability requirement was “grounded in the nature of the class-action device itself.” A plaintiff must show that: (1) the class is “defined with reference to objective criteria”; and (2) there is “a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.” Plaintiffs don’t have to identify all class members at class certification—a plaintiff need only show that “class members can be identified.”
 
Carrera v. Bayer Corp.rejected certification of a class of consumers who purchased Bayer’s One–A–Day WeightSmart diet supplement in Florida. In that case, the court reasoned that retailer records and class member affidavits attesting to purchases of the diet supplement were insufficient.  Though retail records “may be a perfectly acceptable method of proving class membership,” the plaintiff’s proposed retail records did not identify a single purchaser of the Bayer diet supplement.  And affidavits risk relying on no more than potential class members’ say-so; there was no reason to think plaintiffs’ proposal for screening out false affidavits would work. “Remarkably, even the named plaintiff could not recall whether he had purchased the diet supplement.”
 
However, Carrera specified that “[a]lthough some evidence used to satisfy ascertainability, such as corporate records, will actually identify class members at the certification stage, ascertainability only requires the plaintiff to show that class members can be identified.” Thus, the court here said, “there is no records requirement.” Carrera stood for the proposition that “a party cannot merely provide assurances to the district court that it will later meet Rule 23’s requirements,” or propose a method of ascertaining a class without any evidence supporting the idea that the method will succeed.
 
Ultimately, ascertainability focuses on “whether individuals fitting the class definition may be identified without resort to mini-trials.”  This is closely tied to the provision of a proper class definition, using objective criteria and offering some assurance of “a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition,”  Ascertainability thus prepares a district court to “direct to class members the best notice that is practicable under the circumstances” if there is certification. 
 
The district court erred first by conflating standards governing class definition with the ascertainability requirement.  It next abused its discretion in determining that the proposed classes weren’t ascertainable because they were underinclusive, since non-buyers/lessees might have had their information surreptitiously gathered.  But the Byrds asked for a class of all buyers/lessees exposed to the program.  “[R]equiring such specificity may be unworkable in some cases and approaches requiring a fail-safe class.”  Having objective criteria isn’t the same as defining a class in terms of legal injury. Those who are injured but excluded from the class are simply not bound.  “Requiring a putative class to include all individuals who may have been harmed by a particular defendant could also severely undermine the named class representative’s ability to present typical claims.”
 
In addition, the district court abused its discretion in finding that the proposed classes weren’t ascertainable because they were “overly broad.” Defendants argued that the class wasn’t ascertainable because the definition was decoupled from the underlying allegations of harm. But predominance and ascertainability are separate issues. They also argued that the class was overbroad when putative members lack standing or haven’t been injured, but that again conflated ascertainability, predominance, and Article III standing.  Potential differences between the proposed class representatives and unnamed class members “should be considered within the rubric of the relevant Rule 23 requirements—such as adequacy, typicality, commonality, or predominance.” If defendants want to argue that all putative class members must have standing, that issue should first be decided by the district court.  (Nice dodge, there.)
 
The proposed classes of “owners” and “lessees” were ascertainable. There are “objective records” that could “readily identify” them, and finding to the contrary was abuse of discretion, as was the finding that “household members” weren’t ascertainable. The district court thought that this was too vague and hard to prove, but the Byrds argued that the plain meaning was “all of the people, related or unrelated, who occupy a housing unit,” as shown by multiple definitions used in government documents for census, taxation, and immigration purposes. Though these documents contained slight variations, there were various ways in which household members could be identified and verified.  A form similar to the government forms could be used to identify household members, and that was a “far cry” from an “unverifiable affidavit” or lack of a methodology to identify class members. Because the location of household members was already known, there were unlikely to be serious administrative burdens.
 
There will always be some level of inquiry required to verify class membership, but that doesn’t necessarily mean a mini-trial. “Carrera does not suggest that no level of inquiry as to the identity of class members can ever be undertaken. If that were the case, no Rule 23(b)(3) class could ever be certified.” Defendants argued that their due process rights were at risk, but the Byrds weren’t relying solely on unverified affidavits.  “Any form used to indicate a household member’s status in the putative class must be reconciled with the 895 known class members or some additional public records.”  Defendants could challenge the methods the Byrds used to identify them—after the other issues were resolved on remand.
 
Judge Rendell concurred to note that “the lengths to which the majority goes in its attempt to clarify what our requirement of ascertainability means, and to explain how this implicit requirement fits in the class certification calculus, indicate that the time has come to do away with this newly created aspect of Rule 23 in the Third Circuit. Our heightened ascertainability requirement defies clarification. Additionally, it narrows the availability of class actions in a way that the drafters of Rule 23 could not have intended.”  Paper trail requirements were ill-advised, because most low-value consumer class actions don’t involve such records. Judges worried about a mere say-so might require an affidavit from another household member, or a doctor, or something else.
The justifications for this rule were insufficient.  First, the claim that it avoided administrative burdens really meant “short-circuiting the claims process by assuming that when individuals file claims, they burden the court. But claims administration is part of every class action. Imposing a proof-of-purchase requirement does nothing to ensure the manageability of a class or the ‘efficiencies’ of the class action mechanism; rather, it obstructs certification by assuming that hypothetical roadblocks will exist at the claims administration stage of the proceedings.”
 
Denying certification to later avoid problems with notice also was senseless.  Rule 23 required the “best notice that is practicable under the circumstances.”  Potential difficulties with providing individualized notice to all class members shouldn’t be a reason to deny certification of a class. Due process is satisfied when notice is “reasonably calculated” to reach the defined class.
 
Finally, the Third Circuit expressed concerns for the due process rights of defendants, but “there is no evidence that, in small-claims class actions, fabricated claims impose a significant harm on defendants.” The chances of perjury to receive “a windfall of $1.59” were “far-fetched at best.” Although most injured people won’t take the effort to claim a few dollars, “in the aggregate, this sum is significant enough to deter corporate misconduct.” By “focusing on making absolutely certain that compensation is distributed only to those individuals who were actually harmed,” the Third Circuit’s ascertainability requirement “ignored an equally important policy objective of class actions: deterring and punishing corporate wrongdoing.”
 
The due process concern was also overblown because damages under Rule 23 are assessed in the aggregate, so whether an individual can show membership in a class doesn’t affect defendants’ rights to avoid paying more than they’re liable for. The related concern for diluting “deserving” class members’ recoveries “is unrealistic in modern day class action practice, and it makes little sense when used to justify the wholesale dooming of the small-value class action such that no injured plaintiff can recover at all.” This was in any event an implementation issue, not an ascertainability issue.  The Third Circuit’s rule cut at the heart of the class action mechanism, which makes the most sense when individual claims are small but aggregate injury is large.  As Judge Rakoff wrote, “[w]hile a rigorous insistence on a proof-of-purchase requirement … keeps damages from the uninjured, it does an equally effective job of keeping damages from the truly injured as well, and ‘it does so with brutal efficiency.’”
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Territoriality is no bar to keeping up with the Kardashians in Kroma dispute

Posted on April 20, 2015 by rtushnet
Kroma Makeup EU, Ltd. v. Boldface Licensing Branding, Inc., No. 6:14–cv–1551, 2015 WL 1708757 (M.D. Fla. Apr. 15, 2015)
 
A foreign licensee of a US trademark sued US citizens for alleged infringement abroad, and sued its licensor for refusing to share in the proceeds of a settlement in a separate lawsuit about the infringement.  The court here found that it had subject matter jurisdiction and that the foreign licensee could state a Lanham Act claim. Plus, the licensee could proceed against its licensor under a breach of contract theory.
 
Defendant Tillett owns a registration for Kroma for makeup, used for a premium, all-natural makeup brand. “Kroma products sell from between $19 and $100 and have been featured at high-profile fashion events throughout the United States and the world, including the Oscars and the Emmys.”
 
According to the complaint, Plaintiff Kroma EU had an exclusive license from Tillett to import and sell Kroma products in the EU, with a guarantee from Tillett that it owned the Kroma mark.  This was a thriving business by late 2012, with Kroma EU negotiating to place Kroma products in a number of upscale British and European retail stores.
 
Enter Khroma, a new makeup line backed by defendants Kim Kardashian, Kourtney Kardashian, and Khloe Kardashian and defendant Boldface. The new line was released in the US and Europe in late 2012, priced between $6 and $20.  It was of inferior quality compared to Kroma, and Kroma suffered severe consumer confusion.  Boldface sued Tillett for a declaration of noninfringement.  Tillett counterclaimed, and in 2013, the district court preliminarily enjoined Khroma.  Tillett and the other defendants eventually settled.  Prior to the settlement, Tillett allegedly promised to seek damages on Kroma EU’s behalf and sought information from Kroma EU regarding its claimed damages.  However, after winning the motion for a preliminary injunction, Tillett allegedly abandoned Kroma EU’s interests, and the ultimate settlement didn’t include a release of Kroma EU’s claims.
 
Thus, Kroma EU sued everybody, alleging trademark claims against Boldface and the Kardashian defendants, and promissory estoppel against Tillett. Boldface defaulted.
 
The Kardashian defendants suggested that Kroma EU lacked standing to bring vicarious trademark infringement claims because Tillett was the registrant and owner of Kroma in the US, and because Kroma EU couldn’t enforce either a registered or unregistered foreign mark.
 
Although a licensee doesn’t own the mark it licenses, §43(a) doesn’t require a “registrant,” but speaks of “any person who believes that he or she is or is likely to be damaged.” Thus, ownership is irrelevant, and “courts frequently find non-owners—such as manufacturers, competitors, distributors, and others—to have standing under § 43(a).”  Lexmark required “statutory standing”—what the court here characterized as “more of a refinement to what federal courts have called ‘prudential standing’ over the years.” (Of course Justice Scalia insisted that he wasn’t engaged in a “standing” inquiry at all, but this court, like many others, isn’t interested in changing the label.)
 
A plaintiff must demonstrate a cognizable “commercial interest in reputation or sales” to fall within § 43(a)’s zone of interest, and show that its injuries were proximately caused by the defendant’s wrongful conduct. Kroma EU was not trying to enforce a foreign trademark in a US court, but rather a domestic trademark.  (That skips over territoriality completely.  Kroma EU doesn’t have any rights to sell Kroma in the US, according to the description of the license.  The mark may have originated in the US, but when used in the EU it’s an EU mark.)  Kroma sufficiently satisfied the zone of interests tests because of its commercial interest in selling Kroma. “Kroma EU is exactly the type of commercial actor who § 43(a) of the Lanham Act envisions protecting.”  And Kroma EU alleged proximate cause: consumer confusion that cost it significant business and revenue.
 
Nor did res judicata bar Kroma EU’s claims, since Kroma EU was never a party to the prior litigation.
 
But did the Lanham Act reach the Kardashians’ conduct abroad? Steele v. Bulova Watch Co., 344 U.S. 280 (1952), held that the Lanham Act regulates not only domestic conduct, but also foreign conduct of U.S. citizens where the conduct involves U.S. commerce and does not otherwise interfere with the rights of foreign nationals in their own countries. Relevant factors: (1) whether the defendant is a U.S. citizen, (2) whether the foreign conduct had a substantial effect on U.S. commerce, and (3) whether adjudicating the claim would interfere with another nation’s sovereignty.
 
Because all the alleged conduct occurred outside the US, the Kardashians argued that there was no substantial effect on US commerce, and also they contended that allowing Kroma EU to proceed would interfere with the sovereignty of the United Kingdom and the European Union, as Kroma EU’s trademark interests are based under the laws of each entity and all of the alleged infringement occurred within these entities’ respective territorial boundaries.
 
U.S. citizens should not be allowed to “evade the thrust of the laws of the United States in a privileged sanctuary beyond our borders.”  Some courts call this the paramount factor. 
 
Moreover, Kroma EU alleged conduct with a substantial effect on US commerce.  If foreign conduct creates confusion among American consumers, there can be little doubt of a substantial effect on US commerce. This usually occurs when there’s intentional importation of infringing goods into the US, or when infringing goods seep into the US via third parties. In addition, the Eleventh Circuit also holds that the Lanham Act also protects non-American consumers from confusion created by American infringers. Babbit Electronics, Inc. v. Dynascan Corp., 38 F.3d 1161 (11th Cir.1994) (per curiam) (affirming extraterritorial application of the Lanham Act where a U.S. corporation purchased infringing products to sell exclusively to consumers in South America). Nonetheless, “global consumer confusion is insufficient by itself to sustain a finding of a substantial effect; there must be other connections to U.S. commerce.” Another connection can be found through a defendant’s significant commercial activity within the US to advance its infringing conduct abroad.
 
Kroma EU “more than adequately” alleged global consumer confusion, including failed negotiations with a high end retailer that stated that it didn’t want to be associated with the Kardashians or to be perceived as selling discount or inferior-quality products, along with other confused customers.  The court also inferred that Kroma EU suffered confusion in the US too.  (Except that it didn’t have any rights in the US!) “Because of Khroma’s pervasive Internet presence around the world, the Court can reasonably infer that some American consumers intending to purchase Kroma products were confused into purchasing deeply discounted European Khroma products through the European websites and that … these infringing makeup products seeped back into the United States.”  (But, had Kroma EU tried to sell back into the US, it would likely have violated its licensing agreement.) 
 
Plus, Kroma EU alleged significant commercial conduct by the Kardashians within the US to further their infringing activities in Europe. They engaged Boldface to make the Khroma line and exerted control over all aspects of the brand from within the US, chose the Khroma name, marketed the brand through their personal celebrity, etc. Given the policies underlying the Lanham Act—protecting consumers and securing the rewards of trademark—it was appropriate to find a substantial effect on US commerce. Given the defendants’ awareness of the Kroma mark, “U.S. trademark law has a considerable interest in protecting U.S. trademarks regardless of where an American infringer’s conduct occurs.”
 
Nor would enforcing Kroma EU’s interest interfere with the sovereignty of another nation, which generally occurs “where the parties are engaged in parallel litigation within the foreign nation or where the foreign nation takes action against the interest which the plaintiff seeks to assert in the United States court.” There’s no parallel litigation or foreign action against the marks here. Because Kroma EU is the licensee of a US mark, the US had the greatest interest in enforcing the mark.
 
As to the promisory estoppel claim, Kroma EU would need to show: (1) the plaintiff relied to its detriment on a promise made by the defendant, (2) the defendant should have reasonably expected the plaintiff to rely on the promise, and (3) injustice can be avoided only by enforcing the promise. However, promissory estoppel is unavailable where a written contract governs the parties’ relations. 
 
All exclusive trademark licensing contracts provide as a matter of law that the licensor is “under an implied good faith obligation not to do anything that would impair or destroy the value of [the] exclusive licensee’s rights.” The Eleventh Circuit has specifically held that a licensor must share its proceeds from the settlement of a trademark infringement action with its exclusive licensee where the exclusive licensee can show its damages. Thus, contract law could adequately fashion an appropriate remedy, making promissory estoppel unavailable.
 
But the plaintiff’s label for its claim was not dispositive. Kroma EU’s factual allegations clearly set forth a claim for breach of contract against Tillett.
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Lanham Act injunctive relief available without proof of injury

Posted on April 20, 2015 by rtushnet
Cascade Yarns, Inc. v. Knitting Fever, Inc., 2015 WL 1735517, No. C10–861 (W.D. Wash. Apr. 15, 2015)
 
This is another round of an “extensive” lawsuit between the parties, who compete to sell yarn. Relevant here are Cascade’s claims against KFI under the Lanham Act and Washington state law for for false advertising related to the country of origin labels on KFI’s Katia and Mondial yarns. KFI had previously admitted that certain yarns were sold by KFI in limited quantities in 2012 without labels properly reflecting their Chinese origins.
 
KFI argued that Cascade’s false advertising claims had to fail because Cascade had no evidence of injury, despite its assertion of sales diversion.  Cascade argued that it was pursuing a theory of disgorgement, which didn’t require direct injury. To get money damages, Cascade needed to show actual injury; literal falsity leads to a presumption of consumer deception, but not a presumption of damage to the plaintiff when the literal falsity is noncomparative and there are numerous competitors in the market. This principle avoids awarding plaintiffs a windfall that would be punitive rather than compensatory. “The fact that failure to designate country of origin may be actionable under the Lanham Act does not mean that any competitor in the market is entitled to recover.” Thus, the Lanham Act damages claim was dismissed.
 
In a footnote, the court rejected KFI’s argument that Cascade lacked Lanham Act standing under Lexmark. “Cascade’s allegations of lost profits and damage to its business reputation satisfy the requirements of Article III standing, and as a direct competitor alleging diversion of sales, Cascade meets the prudential standing requirements that its claim fall within the ‘zone of interests’ protected by the Act and that its alleged injuries be proximately caused by the Act’s violation.”
 
As for the availability of injunctive relief, competitors need not prove injury. “Cascade’s failure to raise a triable issue of fact as to causation and injury does not affect the viability of its Lanham Act claim to the extent that Cascade seeks injunctive relief.”  However, Cascade still needed to show the other elements of a false advertising claim.
 
The court first rejected KFI’s unclean hands defense. Although Cascade admitted to having briefly sold four King Cole yarns that were not properly labeled as to country of origin, that didn’t foreclose its claim for injunctive relief.  “Indeed, there is good reason to permit an injunction action to proceed where a monetary action would be barred: in the former case the Court must take into account the public’s interest in being freed from deceptive practices in addition to a litigant’s interest in being compensated where harmed by them.” (Query how this comports with eBay and Winter.)
 
KFI admittedly mislabeled three yarns when they were first imported in 2012, but they bore corrected labels by the end of 2012, and there was no evidence of further mislabeling. Cessation alone didn’t moot the claim for injunctive relief; the burden is on the defendant to show that its reform is “irrefutable and total,” and injunctive relief may also be appropriate for a terminated but willful violation. There was no evidence of willful violation here. “KFI has provided ample assurance that it will not again sell these three Mondial yarns without properly designating their Chinese origin.” Thus, the court wouldn’t “waste judicial resources in fashioning an entirely superfluous remedy” as to those yarns.
 
However, there was a genuine issue of material fact as to continued mislabeling of another variety of yarn. A witness admission that it was made in Turkey rather than Italy raised a question of proper labeling. KFI continued to list the yarn on its website “without assurance that any past mislabeling has been irrefutably addressed.” Cascade would be allowed to seek equitable relief from the court (not a jury).  The state law claims received the same treatment.
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Campbell conference: beyond transformative use

Posted on April 18, 2015 by rtushnet
Panel VII. Beyond Transformative Use—Other Fair and Permitted Uses (Moderator, Professor Gomulkiewicz) (partial: I had to leave early, sorry)
 
Gomulkiewicz: sometimes licenses get a bad rap but they can be a powerful engine for creativity.


Jessica Litman, University of Michigan: Campbell was set up and constrained by Sony.  Sony was filed only a few weeks after the 1976 Act became effective.  Issues Congress hadn’t considered: liability for personal uses; liability for manufacturers of devices. Members of Congress believed that personal copies were noninfringing; they assumed the extant 1909 Act and the Act they were working on wouldn’t reach those copies.  The scary new techs when Congress was working on the Act were photocopying and magnetic audiotape. Congress talked about them a great deal; consumers were using them extensively in the 1960s, and witnesses assured Congress that they wouldn’t face infringement suits. Instead they were worried about institutional/business substitutionary copying—most witnesses said we have copiers in the office and tape machines at home and think they’re great. Didn’t suggest liability for uses. Not arguing that Act contains implicit exception for personal copying: more modest argument—b/c Congress believed that personal copying didn’t mean liability, and b/c no one suggested device maker liability, Congress had no opportunity to craft relevant exceptions, limitations, or remedies.
 
The thrust of copyright owner lobbyists had still been to ensure that © rights were expressed in very broad language so that it would be clear that the same rules would apply to the next new scary technology.  So it became necessary to use fair use to protect individuals and device makers; Court ended up settling on noncommercial use = fair presumption, but the inverse presumption was disastrous, so 10 years later Souter disavowed Sony, without repudiating its result. Consumers meanwhile internalized the principle that recording was fair use; AHRA was supposed to give consumers a free pass for recording music. 
 
It became clear that applying the clear language of the statute wasn’t going to work in a lot of situations, but it was hard to get Congress to enact exceptions for clearly noninfringing uses b/c of fierce opposition from copyright owners.  E.g., Register of Copyrights suggested an express privilege for backing up copies on one’s computer, since backing up files is really important and people should do it.  §117 doesn’t do it if what you’re backing up is not a computer program. Probably it’s fair use, but then those copies are “lawfully made” and then those copies could be disposed of.  If it wasn’t lawfully made, but then we’re sending the message that this good, important, harmless thing is illegal, which is either bad for good data practices or for legitimacy or for both. Yet the opposition was vehement: no one is actually suing over this, so there’s no harm; any new exception to reproduction right, whatever it was, would pose a grave risk of encouraging rampant piracy.  Computer game makers suggested Congress should just repeal §117 entirely since media were now much more durable and no one needed to back up programs.
 
This story repeated again and again.  All new suggested exceptions are unnecessary and dangerous. Consider failure of telephone unlocking bills: everyone agreed it was fine and no one wanted to put it in the statute.  But there are always © owners who sue over stuff Congress didn’t intend to cover; that’s the point of the broad language. As © expands further, fair use has to stretch to match. If © owners mean that it’s important to constrain fair use to its mid-20th c. limits, we need to constrain copyright accordingly, or have a host of new express exemptions and limitations that would make it feasible to make fair use relatively narrow.
 
Anthony Reese, U.C. Irvine: Campbell transformed factor three: seems to boil down to how much the D took and how important it was. Relatively easy in most cases to measure how much D took but gives little guidance on how much is too much.  SCt before Campbell had no guidance at all; Sony involved 100% copying.  Said that 100% didn’t have the “ordinary effect” of militating against fair use.  Harper & Row wasn’t much help either, b/c it was on the other extreme of the spectrum: 400 words out of 200,000, or 0.2% of the work.  Court acknowledges this is insubstantial in absolute terms but was “qualitative” heart. 
 
Campbell changes all that in a few swift strokes: reasonable in relation to the purpose of the copying.  He’s studied results in appellate cases, 61 in 21 years.  Reviewed 4 judgments on pleadings, 14 on preliminary injunction, 33 summary judgment, remainder trials.  Fair use found by 30 dcts, 26 not fair use, 1 mixed and 4 no reaching of merits.  Appellate: 24 fair use, 31 not fair use, 3 mixed and 3 merits not reached. Not all affirmances despite similarity.
 
Half the cases (52.5%) explicitly state the reasonableness principle, quoting Campbell directly or indirectly.  28 of 61 cases with one or more uses found fair, 22 of 28 state the reasonableness principle.  33 of 61 finding not fair, or dct erred in finding fairness, quote reasonableness in 10 of 33 cases. This says nothing about the direction of causation of course.
 
35 of 61 involve uses of P’s entire work. 15 Still images: 10 photos/5 graphics. 10 involve texts: 6 books/manuscripts/dissertations (remainder journal article, student paper, etc.); 10 TV programs, software, sculptural works, music, sound recordings (Swatch conference call)
Entire work case: 18 not fair use, 5/18 mention reasonableness.  Fair use/mixed 16: 13/16 mention reasonableness. (1 didn’t reach the merits.)
Heavy number of new tech uses involve entire work—search cases; plagiarism search case of iParadigms; Swatch conference call (new tech b/c Bloomberg wouldn’t have used the whole call in any other reporting medium); then Napster & Gonzales, two P2P filesharing cases. In all but the filesharing cases, there’s a finding of fair use with an express reliance on reasonableness. Campbellgives structure to analyze how much is too much.
 
Rebecca Curtin, Suffolk: Transactional origins of authors’ rights. Don’t mean to imply that commercial norms do or should equal legal norms. Statute of Anne expressed concerns about social value.  Nonetheless, interesting questions about origins, because if you look just at court cases and statutory recognitions of literary property, authors are invisible from 1557 to 1710 and then they pop up.  Was this a cover for publishers’ interest? Idea that commercial practices didn’t change used to suggest that reference to authors was a sham.
 
If you look at commercial practices before the Statute of Anne, looks less like a cover story and more like a business model.  Petition for copyright from Stationers: emphasizes detriment to authors, but also the importance of © to their ability to carry on their business to create alienability: authors who used to dispose of their copies for consideration or reserved some part for the benefit of themselves have been harmed by other printings.  What did they mean “reserved some part”?  Something more than mere conveyance of the physical manuscript, even before there was a concept of literary property.  (Couldn’t that just be payment over time, like a loan?)
 
Is there evidence on the Register that publishers thought about copyright, not just physical manuscripts, being purchased? Is there evidence of sharing of contingent value after publication?  Examples: never print again without consent of the author—dated 1607.  Atypical entry in the Stationers’ Register. Contracts became more complex over time, such as Milton’s 1667 contract.  Building the rise of the idea of literary property. Idea of subscription projects: authors extend into the market and interact w/readers: 1694 contract to translate Virgil w/upfront milestone payments. Printer agrees to make best efforts to get certain number of subscribers, preserve exclusivity for subscribers until the edition is done. Once orders are filled, Dryden (author) can advertise himself for a second subscription. And if the publisher failed to get the subscription fully subscribed, Dryden had clawback rights.  Conceptualizing author’s right prior to codification again.  Contract language doesn’t use “copy” terminology, but “sole benefit of printing.”  Other contract language resembles a covenant of seizin: given the investment, author may need to indemnify publisher if there’s no legal right to sell literary property.
 
Post 1710 contracts sound very similar.  “Copy” means more than the physical manuscript.
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