DC rejects POM’s FTC challenge

Posted on January 30, 2015 by rtushnet

Via the Consumer Law & Policy Blog.  I must digest both lunch and this ruling, but I will definitely have more to say soon.

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false advertising claim based on "innovative/unique" survives

Posted on January 30, 2015 by rtushnet
Ferris Mfg. Corp. v. Carr, No. 14 C 04663, 2015 WL 279355 (N.D. Ill. Jan. 21, 2015)
 
Ferris sued Roy Carr and Curaline. Ferris makes various wound care products, allegedly award-winning and covered by several patents.  Carr was formerly a high-level Ferris employee, even a co-inventor on various Ferris patents related to wound dressings.  He allegedly signed confidentiality agreements.
 
He left Carr in 2003, and a bit over a month later he and another former Ferris employee filed a confidential provisional patent application with the USPTO. Though this application was later abandoned, Carr became the COO of Curaline, a Ferris competitor that now markets a wound care product called DevraSorb. DevraSorb allegedly incorporated the Ferris information that was included in the patent application.
 
Ferris alleged breach of fiduciary duty and contract, as well as false designation/false advertising by “representing to the market that its DevraSorb products are innovative and unique” and “by failing to disclose that they are based on or derived from know-how that Carr had misappropriated from Ferris.”
 
The court denied the motion to dismiss the breach of contract and fiduciary duty claims before more facts emerged.
 
Moreover, the Lanham Act claim was sufficiently alleged to satisfy Rule 9(b).  The complaint quoted Curaline’s marketing materials claiming that Curaline’s DevraSorb products are “innovative” and “unique” as well as Curaline’s own Department of Health and Human Services submission conversely claiming that Ferris’s PolyMem product was the “principal predicate” to Curaline’s DevraSorb product, and that DevraSorb is the “substantial equivalent” of Ferris’s PolyMem product.  
 
Curaline argued that the Ferris information allegedly incorporated into DevraSorb wasn’t confidential or proprietary any more.  But that didn’t go to whether Curaline misrepresented those products as “innovative” and “unique” and failed to disclose that they are instead “based on or derived from” Ferris’s information. (In a footnote, the court noted that the parties were unclear about whether this was a false designation of origin case or false advertising, but found the difference immaterial because the parties weren’t fighting about particular elements.  That doesn’t matter, of course, since the false designation claim is clearly Dastar-barred, and only false advertising—with its crucial materiality element—is a possibility here.)
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consumer survey on patent value admissible despite serious flaws

Posted on January 30, 2015 by rtushnet
Sentius Int’l, LLC v. Microsoft Corp., No. 5:13-cv-00825, 2015 WL 331939 (N.D. Cal. Jan. 23, 2015) (magistrate judge)
 
A little different today: this is a survey in a patent case trying to determine the value of a patented feature to consumers.  Despite Microsoft’s challenges, the court allows the survey, finding its flaws go merely to weight and not admissibility.  Sentius’s expert Wecker surveyed customers for preferences for spelling and grammar checking features in the accused products.
 
Surveys conducted according to accepted principles will ordinarily be sufficiently reliable under Daubert to be admitted.  “Unlike novel scientific theories, a jury should be able to determine whether asserted technical deficiencies undermine a survey’s probative value.” Once the survey is admitted, “issues of methodology, survey design, reliability, the experience and reputation of the expert, critique of conclusions, and the like go to the weight of the survey rather than its admissibility.” 
 
The survey asked customers about their preferences for the accused “check spelling and grammar errors as you type” (ed. note: yuck) features compared to alternative user-initiated spell- and grammar-checkers which Sentius’s technical expert identified as the best noninfringing alternatives.  Wecker asked direct, open-ended questions about consumers’ willingness to pay, but, recognizing that responses might overstate WTP, he adjusted his estimates by a “calibration factor.”
 
The survey asked respondents who had used and purchased an Office product and used the background or user-initiated features to suppose that Office included the user-initiated but not the check as you type options.  About 14.7% of spell checker respondents said they wouldn’t have bought the accused products without the background spell checker, and 14.8% for the grammar checker.  Wecker concluded that about 11.2% wouldn’t have bought the products without the accused features.
 
The court agreed that there were “significant concerns” about the structure of the survey and the way in which it was conducted, but these concerns went to weight rather than admissibility.  The survey questions were adequately tied to the subject matter of the asserted patents, and framing of questions is generally an issue of weight.  The description of the features in the survey did not vary so much from the patent that the survey failed to relate to any issue in the case. Microsoft argued that the questions didn’t distinguish between the patented and unpatented features of the background spell/grammar checkers—Sentius only claimed that certain subfeatures infringed.  But this wasn’t enough variation to make the survey unrelated to the case.  Microsoft also argued that Wecker didn’t ask questions about noninfringing alternatives that could implement the accused aspects of the background features.  Microsoft did offer evidence that it could have implemented several noninfringing alternatives, but Sentius could at least argue that its choice of comparator was correct.
 
In addition, the survey was based on reliable methodologies.  True, it asked respondents only about their preferences for the two accused features when the accused products include thousands of features, and thus didn’t accurately capture the value of the claimed inventions, but again this goes to weight.  Direct questioning was a generally accepted methodology even if it may have caused respondents to focus unduly on the accused features; a conjoint survey was not required for admissibility.  Using an “omnibus” survey asking a bunch of other unrelated questions likely impacted the quality of the survey, but that’s again weight.
 
Wecker’s use of a calibration factor to adjust the bias in his survey was also reliable.  He calculated his calibration factor based on a meta-analysis of 29 experimental studies. Microsoft argued that he didn’t show that this approach was generally accepted, but Microsoft failed to show that the presence of hypothetical bias/overvaluation of WTP was a reason to exclude the survey.  Given that, an expert’s adjustment for that bias couldn’t be a reason to exclude a survey either.
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False PAC advertising?

Posted on January 28, 2015 by rtushnet

This detailed Politico story suggests that there’s a fraudulent misrepresentation problem, but that the FEC can’t do much about it.

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Distributor’s TM registration blocks manufacturer’s claim

Posted on January 26, 2015 by rtushnet
Mighty Enterprises, Inc. v. She Hong Indus. Co. Ltd., 2015 WL 276771, No. 2:14–cv–06516 (C.D. Cal. Jan. 22, 2015)
 
Mighty distributes and services heavy machinery. She Hong makes heavy machinery under the name “Hartford.” Mighty sued She Hong for breach of contract and related claims, based on alleged breach of an oral contract granting Mighty exclusive rights to distribute and service Hartford machinery in the US. She Hong counterclaimed for false advertising and violation of California’s UCL.
 
She Hong alleged first sales of Hartford machinery in the US in 1982.  But in 2014, Mighty applied to register the Hartford mark in the US, attaching pictures of She Hong’s machinery to its application.  The registration was approved, and She Hong alleged that Mighty wrongfully applied for it.  Mighty allegedly used the Hartford marks in its advertising to attract She Hong’s consumers, falsely suggesting association with She Hong or that Mighty was the manufacturer of Hartford products.
 
The court rejected She Hong’s legal theory as alleged, because She Hong doesn’t “presently own” the rights to the Hartford mark.  Mighty’s registration was prima facie evidence of the validity of its mark.  Given that “admitted” ownership, the theory that use of the mark was false advertising couldn’t work.  It “put the cart before the horse—there can be no claim for false advertising against a company that advertises with a registered trademark it owns.”
 
She Hong’s position was “understandable,” but its legal theory depended on owning the rights to a mark it didn’t own.  Since the counterclaim was permissible, the court wouldn’t let She Hong amend without an “exceedingly persuasive” argument.  Comment: wouldn’t an “exceedingly persuasive” argument be: this registration is invalid because She Hong is the true owner; the registration should be cancelled/She Hong’s allegations if true would overcome the presumption of validity; after that the infringement/false advertising claims are cognizable?  I wonder why the court didn’t point to this alternative theory.
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No standing for injunction-only class

Posted on January 26, 2015 by rtushnet
Graiser v. Visionworks of America, 2015 WL 248003, No. 1:14–CV–01641 (N.D. Ohio Jan. 20, 2015)
 
Graiser sought an injunction on behalf of a putative class based on his false advertising claims, which alleged that Visionworks’s buy one get one free campaign for glasses was deceptive; Visionworks allegedly offered a single pair of glasses at a discounted price to customers who declined the “free” pair, and its disclaimers didn’t work.  Graiser was quoted a price of $410 for the BOGO offer, but then told he could get one pair for $246 if he gave up a claim for the “free” second pair.  He sought only injunctive relief under the Ohio Consumer Sales Practices Act.
 
Visionworks removed his state court complaint on the basis of diversity jurisdiction.  The court found that Graiser lacked Article III standing to pursue a claim for injunctive relief and remanded.
 
At least one named plaintiff in a putative class needs Article III standing: injury, caused by the defendant, that can be redressed by a favorable resolution of the lawsuit. Although Graiser didn’t disclaim an intention to purchase the product again, the court still found that he wasn’t likely to suffer future injury—a future injury can’t be conjectural or hypothetical.  He wasn’t at risk of being deceived again. A consumer not at risk of deception might still have standing—if the consumer prefers the product at issue for other reasons anyway, but is forced to pay a higher price because the deception allows the manufacturer to charge more.
 
The court thought that sort of analysis would provide Article III standing to “many” false advertising claims, when the false claim is about the product itself and the plaintiff intends to buy the product again.  If Visionworks’s ad campaign allowed it to charge a higher price for the single pair without the “free” pair, Graiser would likely have Article III standing, but it was “far from clear” that the BOGO campaign would have any effect on the price of a single pair, or whether it would make the single pair cheaper or more expensive.  (OK, that doesn’t make much sense.  Presumably, if Visionworks had a relatively cheap single-pair offer to tout, it would do so instead. Also, the whole point of regulating bait-and-switch tactics is that they allow the seller to charge more, by interfering with consumers’ search costs.)
 
Moreover, mere exposure to false advertising isn’t a harm for Article III purposes.  It doesn’t “guarantee the concrete adverseness that Article III standing requirements are meant to ensure.” 
 
Finally, one could argue that the BOGO campaign compelled Visionworks to offer a free pair when someone bought at the lower price Graiser paid.  This harm rests not on the misleading ad, but on Graiser’s failure to receive two pairs of glasses at the lower price.  Yet Visionworks was under no obligation to sell two pairs at the lower price unless it continues the BOGO campaign and continues to offer a single pair at a lower price, so “an unconditional injunction requiring Visionworks to offer two pairs of glasses at the lower price would be improper.” A conditional injunction against continuing both practices “would have virtually no chance of remedying Graiser’s harm,” since Visionworks could respond in a number of ways: it could discontinue the BOGO offer; it could change it to a permissible volume discount (e.g., 1 pair for $200, 2 pairs for $350), or by discontinuing the lower price single pair. “But Visionworks would certainly not begin offering two pairs of glasses for the discounted price.”  (If true, this seems to establish the misleadingness of the campaign.)
 
Thus, Graiser lacked standing in federal court.  And he lacked standing to seek an injunction based on likely future harm to unnamed class members. Damages would be available in federal court if sufficient amounts were in controversy, and state courts aren’t bound by Article III so they might still offer relief after remand.
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Mapping the law prof twitterverse

Posted on January 26, 2015 by rtushnet
Ryan Whalen maps the law prof Twitterverse.  My eccentricity turns out to be 4.0.  I’m not sure what that means, but based on the name, I probably would have guessed higher.
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Transformative use of the day: Washington’s football team edition

Posted on January 23, 2015 by rtushnet

This ad uses footage of Washington’s team to make the point that its racially inflammatory name and mascot are unnecessary.  Consider the TM and copyright implications!

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Q of the day: is this enough disclosure?

Posted on January 20, 2015 by rtushnet

Steve Clowney argues that Prawsfblawg’s disclosures of West-sponsored content aren’t enough, given how much a sponsored post looks like a regular post.  How would you advise a client to comply with the FTC’s guidance here?  Would the purported sophistication of legal readers matter?

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Dial U for unfair competition?

Posted on January 20, 2015 by rtushnet
Liveperson, Inc. v. 24/7 Customer, Inc., 2015 WL 170348, No. 14 Civ. 1559 (S.D.N.Y. Jan. 13, 2015)
 
LivePerson “provides customers with live-interaction and customer engagement technology for e-commerce websites, enabling businesses to interact in real-time with their website customers.”  Its competitor 24/7 used to provide human call-center operators for customers’ call centers, but more recently developed its own live-interaction technology. The parties entered into cooperative marketing/service contracts to serve certain customers in order to offer joint solutions—LP’s tech and 24/7’s call center personnel.  24/7 thus obtained a limited license to access and use LP’s IP.
 
24/7 allegedly misappropriated LP’s software and sold it as its own, along with other alleged wrongdoing: accessing LP’s back-end systems to copy LP’s technology and interfering with LP’s client relationships.  24/7 allegedly designed its competing software to interfere with LP’s software, so that a customer using both technologies would experience poor performance from LP, and also designed the software to collect performance data from LP’s data.  24/7 also allegedly poached LP employees, falsely claimed that its software was the “first predictive or smart chat platform,” and disseminated fabricated and disparaging LP performance metrics to clients.
 
First, the court dismissed LP’s copyright infringement claim as inadequately pled because it didn’t explain when the infringement allegedly took place, neither as a start time or a period of infringement.  However, alleging that 24/7 copied the entire software module adequately alleged that it copied protectable elements.
 
The DMCA claim was also inadequately pled.  While courts have have held that password protection, DVD encryption measures, activation and validation keys, and a “secret handshake” protocol have all been found to be protected technological measures, the complaint didn’t allege any of this.  LP alleged, somewhat contradictorily, that 24/7 had access to its back-end under their contractual relationship and misused its access and also that 24/7 improperly used its knowledge of LP’s customer-facing software to impersonate LP and gain unauthorized access to its secure internal system, at which point 24/7 allegedly installed spyware and code to degrade LP’s software’s functionality.  Also, LP alleged that 24/7 reverse engineered LP’s software after accessing LP’s internal system.
 
The complaint didn’t allege that 24/7 used reverse engineering to circumvent LP’s security measures, but rather that 24/7 breached its computers in order to carry out reverse engineering. This didn’t allege circumvention.  As for the alleged mimicking of LP to gain access to LP’s secure system, LP didn’t adequately allege what technological measure the mimicry circumvented.  Successful complaints have “explicitly referenced a password, encryption system, software protocol, validation key, or some other measure designed to thwart unauthorized access to a protected work.” Alleging that 24/7 “circumvented LivePerson’s security measures” didn’t provide adequate notice.
 
The CFAA claim was also inadequately pled because LP didn’t plead facts showing that 24/7 exceeded its authorization, and also didn’t adequately allege damages.  There’s legal uncertainty about whether a user who abuses authorized access can trigger the CFAA’s ban on exceeding authorized access.  The Second Circuit hasn’t ruled on the issue and other circuits and other district courts within the Second Circuit are split.  The court here joined the majority narrow approach, so that abusing authorized access isn’t actionable.  Among other things, this avoids adding a subjective intent requirement to the Act; comports with the type of “loss” against which the CFAA protects (which don’t include losses related to misappropriation of information); and complies with the rule of lenity governing ambiguous criminal laws.  Exceeding authorized access is therefore defined as having permission to access certain information on a computer, but accessing other information as to which there is no permission.  Here, LP’s allegations focused on 24/7’s misuse of data obtained through authorized access, or didn’t explain the means by which 24/7 allegedly gained unauthorized access.
 
In addition, LP didn’t adequately allege damage or loss over $5000, because actionable damage or loss under the CFAA has to relate to LP’s computer systems.  Allegations that 24/7’s conduct endangered LP’s relationships with several major clients, diluted its good will, injured its reputation, and misappropriated/devalued its IP didn’t qualify.
 
However, misappropriation of trade secrets and breach of contract were adequately pled, as well as some aspects of the intentional interference with prospective and existing economic relationships claims.  LP alleged improper interference from providing inaccurate performance data to LP’s clients, when the data required access to LP’s confidential system and differed significantly from LP’s performance data shown when its technology was used by other call-center labor providers/employees.  (Put that way, it sounds like LP did perform badly in conjunction with 24/7; inaccuracy isn’t really the complaint, but misleadingness about the source of the performance.)  LP also alleged that it found 24/7 code “expressly designed to suppress the proper operation of LivePerson’s technology, such as preventing livechat sessions from being initiated, and/or eliminating LivePerson’s ‘chat’ button from appearing altogether” on its clients’ websites. That would constitute improper interference.
 
By contrast, the alleged interference with LP’s employees wasn’t adequately pled.  LP didn’t allege noncompete agreements and failed to meet its high burden of alleging wrongful means, such as fraud or threats, to get employees to quit.  Raiding isn’t itself wrongful means.
 
Further, the Lanham Act claim was adequately pled.  LP alleged that 24/7 falsely claimed to have developed the first predictive chat platform, while LP actually did so, resulting in harm to LP’s goodwill and reputation as well as misappropriation and devaluation of its IP.  (Dastar problem, especially with the misappropriation/devaluation parts?)  LP didn’t provide the full context of the allegedly false ad, making it hard to evaluate the “entire mosaic” of the ad, as required.  24/7 correctly argued that context could establish truth, e.g., that 24/7 was promoting innovative, unique features; or “first” could be immaterial puffery, “considering the sophistication of the clients in this industry and the unlikelihood that claims of developing the ‘first’ such software would influence their purchasing decisions.” But materiality is generally a fact question not resolvable on the pleadings; LP was instead ordered to provide a more definite statement about context and materiality.
 
The common law unfair competition claim was also adequately pled.  Unfair competition is generally limited to passing off, acting solely to destroy a rival, and using independently illegal methods. Here, allegedly embedding spyware on LP’s clients’ websites to engage in reverse engineering, injecting tracking markers into LP’s systems to facilitate unauthorized data mining, manipulating LP’s software on client deployments to reduce its performance, and deploying software code designed to suppress the proper operation of LP’s technology, would either be independently illegal or would constitute passing off.  (Hunh? How is this passing off?)
 
Finally, unjust enrichment was adequately pled.
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Posted in cfaa, copyright, dmca, drm, http://schemas.google.com/blogger/2008/kind#post, trade secrets, unfairness | Leave a comment