False claims of third-party endorsement actionable as false advertising

Posted on February 19, 2015 by rtushnet
Fringe Insurance Benefits, Inc. v. Beneco, Inc., No. A–13–CV–034, 2015 WL 631181 (W.D. Tex. Feb. 11, 2015) (magistrate judge)
 
The parties compete to provide employee benefit plans; FIBI and Beneco specialize in fringe benefit services to government contractors who must comply with prevailing wage laws.  Zane Smith, who worked for Beneco, copied significant portions of an article published by FIBI and used it in an email to potential Beneco customers, in an article for Construction Executive Magazine, and another article sent to over 200 prospective clients.  This was copyright infringement.  But the core of the case was Lanham Act false advertising; each of the challenged statements was made in commercial advertising, but only some were proven false. 
 
Of particular note, FIBI prevailed on its claim that Beneco falsely claimed to have Department of Labor approval and endorsements from the American Subcontractors Association and Associated Builders and Contractors. The court found these to be literally false claims: Beneco’s plan wasn’t approved or endorsed by any of these entities.  Beneco was endorsed by particular chapters of the two private organizations, but not by the national groups, which both sent it C&D letters demanding that Beneco stop using their logos in ads.  This result is notable because, as a traditional “false endorsement” §43(a)(1)(A) case, FIBI wouldn’t have had standing to object on these associations’ behalf. But that doesn’t mean that FIBI didn’t suffer injury of its own on a false advertising §43(a)(1)(B) theory.  (Compare this recent case, misunderstanding this distinction.)
 
Other claims: FIBI failed to produce sufficient evidence that Beneco’s claims that “we historically find that our … plan is typically 50% less in cost than [FIBI’s] plan” were literally false.  Though FIBI showed that several specific cost comparisons sent to potential customers were literally false, and though Beneco never identified the analysis or study backing up this claim, FIBI didn’t provide evidence that Beneco never did any analysis justifying its claim or otherwise more thoroughly compare the products.  Moreover, the claim was clearly misleading, but FIBI didn’t provide evidence that this particular statement confused customers.
 
By contrast, specific cost comparisons were false. For example, one communication claimed that a specific customer would save “an estimated $1,523” by staying with Beneco. This estimate came from an attached spreadsheet containing several errors—misplacing a decimal point, increasing FIBI’s cost by over $1,900; using an outdated service fee, inflating FIBI’s cost by $1,541; and misstating a record keeping fee by $1/participant, inflating the cost by $108. This was literally false. (But was it commercial advertising or promotion?)  Beneco also provided inaccurate savings estimates to other customers, inflating FIBI’s costs by thousands of dollars and undercalculating its own total costs.  These estimates, “rife with errors,” were literally false.
 
FIBI failed to show that Beneco’s claims about FIBI’s higher fees and status as a target of legal investigation were literally false.  Beneco told one potential customer that FIBI’s “internal fees and expenses are 3 times higher” than Beneco’s, and that FIBI would hide its fees.  Later, it said that “FIBI has been under investigation by the Federal DoL.”  FIBI didn’t meet its burden of showing literal falsity as to the internal fees—it just provided testimony from a VP that he’d never seen any documentation supporting the claim.  FIBI also impeached Beneco’s only evidence, which compared the plans applied to a parcticular customer, but it didn’t show that the “three times higher fees” claim was wrong in every case, or even in a majority of cases.  And again, FIBI failed to show actual deception, treating the statement as merely misleading.
 
But the statement that FIBI hid its fees was literally false.  FIBI disclosed all its fees in written agreements and marketing materials. So was Beneco’s claim that FIBI lacked third-party trustee protection, forcing customers to bear certain risks themselves.
 
By contrast, the “DoL investigation” claim wasn’t false or misleading—though FIBI itself hadn’t been investigated, its affiliate, Plan Benefit Services, had been successfully sued by the Department of Labor for ERISA violations. Plan Benefit Services and FIBI shared common ownership, common control, and functioned together in the same market.  Thus, while the claim wasn’t entirely accurate, it wasn’t “sufficiently misleading to trigger Lanham Act liability.”  And FIBI didn’t prove likely consumer deception.
 
Coordinate claims of unfair competition under Texas law also succeeded based on the same facts, but a tortious interference claim didn’t, for want of evidence of interference with particular business relationships.
 
FIBI sought only a permanent injunction.  The Fifth Circuit doesn’t presume irreparable harm from literal falsity. However, the court found irreparable harm here, given testimony from a FIBI VP noting the small size of the benefit plan market and stating that “when information is provided that’s incorrect in those small circles, it gets around pretty quickly and can be damaging,” as well as testimony that many customers are small, “family-run” businesses easily influenced by false endorsements. “That many of the statements were contained in emails sent directly to customers makes an injunction all the more appropriate: as FIBI correctly notes, such ‘difficult-to-monitor channels’ are the most likely source of future harm.”
 
Thus, Beneco was ordered to refrain from making the statements found to be literally false, and to post a copy of the court’s order on its website, including a link to the judgment on its corporate home page, to persist for 30 days.  The link had to be no smaller than 12 point type “and readily apparent to the site’s visitors with no other accompanying commentary or explanatory statement.”  Aside from the posting requirement, the part of the injunction with the most bite is probably the part that barred Beneco from making “inaccurate and/or incomplete customer-specific comparisons between the costs, fees, or expenses of FIBI and Beneco products.”
 
Somewhat surprisingly and formalistically, the court then used the pre-eBay rule that copyright infringement leads to a presumption of irreparable harm, and also enjoined defendants “from infringing FIBI’s copyrights to publications, articles, literature or marketing material.”  (Also a pretty broad scope.)
 
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Transformative work of the day, superhero edition

Posted on February 18, 2015 by rtushnet

Superhero keyboard skin, via Deborah Gerhardt.  There’s only one problem with it (hint: check out the W). 

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Allegations of fake independent reviews state false advertising claim

Posted on February 18, 2015 by rtushnet
Swiss America Trading Corp. v. Regal Assets, LLC, 2015 WL 631569, No. CV 14–04960 (C.D. Cal. Feb. 13, 2015)
 
Swiss competes with Regal to sell precious metals.  The parties promote themselves online and rely on internet reviews and recommendations.  Swiss alleged that Regal’s affiliate marketing program/Regal’s own controlled websites included “ostensibly independent consumer reviews” that disparaged Swiss; made false statements, including completely fabricated reviewer identities and credentials; and recommended Regal over Swiss.
 
Regal moved to dismiss, arguing that the complaint failed to satisfy Rule 9(b).  The court didn’t need to decide whether Rule 9(b) or 8 applied, because the complaint sufficed either way.  It was enough to allege that (1) Regal’s websites falsely represented that they were independent of Regal, then criticized Swiss and recommended Regal; (2) the sites used false information to make reviews seem trustworthy, including fabricated reviewer identities and backgrounds, such as that of “Mark C. Turner”; and (3) Regal made false, disparaging statements about Swiss, including claims that Swiss has been accused of baiting and switching, “steering” customers away from worthwhile investments, and irrationally emphasizing coins over bullion.  That was enough to provide Regal with sufficient notice.
 
Nor were the alleged misrepresentations mere puffery. “Regal’s sites are alleged to falsely represent that they are independently operated, to put forth the fabricated opinions of purportedly knowledgeable professionals in the field who, in reality, do not exist, and to accuse Swiss of specific misdeeds such as baiting and switching. These statements are not vague, exaggerated, or subjective, and are precisely the type of representations upon which consumers might rely.”
 
The trade libel claims survived as well.  Regal argued that Swiss failed to plead special damages, but it was enough to plead that Swiss depended on word of mouth, particularly online reviews.  Swiss alleged that it lost market share to Regal and suffered continuing irreparable harm to reputation and goodwill, and that was enough.
 
The intentional interference with prospective economic advantage claim, however, was inadequately pled: Swiss failed to identify an economic relationship with any specific third party, or a probability that such a relationship would yield an economic benefit.  Dismissed with leave to amend.
 
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Misappropriating goodwill of abandoned mark is false advertising

Posted on February 17, 2015 by rtushnet
ITEX Corp. v. Global Links Corp., No. 2:14–cv–00057, 2015 WL 557067 (D. Nev. Feb. 11, 2015)
 
A false advertising theory might not work in every case of a new entity adopting an abandoned mark, but it proved fruitful for the plaintiffs here. (Trademark portions of the case remain to be decided.)
 
ITEX is a barter and exchange company that provides a marketplace for commercial transactions, which enables member businesses to trade products and services without exchanging cash. ITEX trains and supports independent brokers who enroll new members, educate them in marketplace policies and procedures, and provide information about products and services available in the marketplace. ITEX’s revenue mainly comes from a percentage of each transaction that occurs within its marketplace.  ITEX is the product of mergers and acquisitions, including of BXI Trade Exchange, Inc./BX International, Inc., founded 1960, known as the original barter exchange company. With 20,000 members, it operated under the “BXI” word trademark and “BXI circular arrow” trademark as early as 1987. A company known as BXI Exchange, Inc. remains ITEX’s wholly-owned subsidiary.
Defendant Global Links is a real estate development company; defendant BXI Trade Exchange, Inc. (“BTE Nevada”) was formed in 2006 for the purpose of transferring pre-existing real estate assets between privately held corporations. In 2012, defendants discovered that the registration for the BXI mark had been cancelled in 2010. They then filed for “BXI Trade Exchange”; a registration issued in 2014.
 
In 2013, Global Links issued a press release titled “Global Links Corp. Acquires BXI Trade Exchange, Inc.—The Original Barter Company.” Among other things, the release stated:
 
BXI, formerly the world’s largest barter trade exchange, will soon be fully operational with plans to once again become the premier marketplace for the barter industry…. Saul Yarmak, the former Chairman and Principal Owner of BXI before taking a break from the industry, is committed to once again be a driving force in the day-to-day operations of the exchange. The company’s stated intention is to quickly make BXI the recognized “Gold–Standard” of the barter industry while maintaining the highest level of ethics and reputation it was previously known for. At its peak, prior to the widespread use of the Internet for online business communications and transactions, BXI had more than 100 offices and 22,000 business members.
 
(Yarmak was involved with a predecessor BXI entity to ITEX, but sold all his interest and ITEX owned all the goodwill.)  Subsequent statements were to similar effect, such as that BXI was “back in business with plans to again become the premier marketplace for the barter industry,”and “if you were a previous BXI member[,][w]e are anxious to welcome you back.”  Defendants posted a “Short History of BXI” claiming the history of the other BXI entities since 1960, including, “Because of its 36 years of solid service and proven record in the trade industry, BXI enjoys a prestigious position in barter circles and is well positioned to service the growing need for additional barter exchanges across the country. We continue our out of the box approach and look forward to 36 + more solid years.”
 
ITEX sued for false advertising and sought an injunction barring defendants from making any further statements that BTE Nevada was related in any way to the BXI exchange business that ITEX purchased in 1998 and then reacquired in 2005.
 
The court found that there was no material issue of fact about many of the statements at issue: they were clearly false, either facially or by necessary implication.  Equivocating about the meaning of “BXI” meant that the statements were literally false—the term either referred to the original BXI business (no legal relationship to defendants) or BTE Nevada’s exchange business, and either way there was falsity, since BTE Nevada was not the original barter company and Global Links did not acquire the original one. This was not puffery, but a claim about a specific entity that consumers would rely on due to the history of the BXI name.  “Back in business,” “re-opening” and the like were also false because BTE Nevada has never been in the exchange business, quit, and then reentered the market.
 
The court also found the statements misleading, since defendants were “adamant” that they established a new BXI, and even represented in regulatory filings that the “present BXI is in no way connected to the past BXI.”  But they presented their company as a continuation of the old one in their ads. 
 
While the validity of defendants’ mark wasn’t before the court at this time, it was clear that they were presenting BTE Nevada as the successor-in-interest of plaintiff’s BXI entities. Even assuming that the mark was valid and noninfringing, the mark wouldn’t allow them to misappropriate the goodwill of the original BXI exchange business. First, most of the statements at issue predated the registration date for the mark (though that really shouldn’t matter since trademark rights depend on use, not registration).  Second, the falsity here wasn’t problematic because of the BXI name; the statements were problematic “because they state that BXI is back, that it is re-opening, and that it will once again be the industry leader.” The necessary implication was a link between BTE Nevada and the earlier BXI.  Even assuming that ITEX abandoned the BXI mark, that didn’t make defendants’ statements any less false or misleading, “and regardless of whether ITEX uses the BXI name currently, it still owns what was the original BXI exchange business.”
 
Defendants’ statements were misleading “because a consumer in the industry would undoubtedly understand these statements to mean that BTE Nevada is the successor-in-interest to BX International.”  Defendants’ promotional claim that “the company has gained a tremendous amount of interest and outreach from former members” further solidified the misleadingness, since BTE Nevada had no former members. The context—press releases—showed a tendency to mislead by associating the two entities.
 
“[W]hile Defendants’ efforts to establish a competing barter and trade marketplace would alone not be actionable, their strategy in this case has been to usurp the goodwill of the original BXI business by relying on the reputation of BX International, BTE California, and BEI, which was accumulated over years of serving BXI members. This is something that Defendants cannot do, even if Yarmak contributed to those efforts.”  Yarmak sold his interest to ITEX, including BXI’s goodwill and reputation; part of ITEX’s acquisition was “the right to claim and utilize BXI’s past history.”
 
Defendants argued that they never claimed that BTE Nevada was the same legal entity as old BXI, and that “the same individual[ ] officers and principals who ran and operated the BXI Trade Exchange” through BX International “have reopened ‘BXI Trade Exchange’ under a valid federal trademark registration.” Nope.  Their press releases didn’t say anything about individuals “once affiliated” with BXI being back in business. And the participation of past BXI employees and affiliates in BTE Nevada’s new exchange enhanced misleadingness. For example, defendants posted photos on Facebook showing Yarmak and other former participants in the original BXI exchange business at BTE Nevada’s “Soft Launch & Training Session” accompanied by comments that “BXI has the management team to become number one again.” “A consumer in the industry familiar with the original BXI exchange business and its affiliates would surely be misled by these comments and photos into believing that BTE Nevada is related to the original BXI exchange business.”
 
Yarmak was free to “tout his experience, knowledge, and past involvement with BX International and the BXI exchange business as evidence that the new BTE Nevada exchange will become the modern ‘Gold-Standard’ in the barter industry.” But what he couldn’t do is imply that BTE Nevada was in any way affiliated with or related to the original BXI.
 
Finally, defendants argued that its statements related to a “company,” not to a “product.” But “a service-oriented company generates goodwill by efficiently and promptly performing the service for which it is hired. The company and its name, therefore, become synonymous with the quality of service it provides.” Thus, defendants’ references were the equivalent of product references (or, really, service references).
 
Literal falsity raises a presumption of deception, which defendants did not rebut. Plus, the record showed likely deception.  Defendants’ own statement about “a tremendous amount of interest and outreach from former members” demonstrated that at least some members of the original BXI exchange network believed and understood BTE Nevada to be affiliated with the BXI business that ITEX bought.
 
Literal falsity also allowed a presumption of materiality; materiality was also shown by the fact that  “the statements at issue here were made for the specific purpose of influencing consumers to join BTE Nevada’s new exchange network and pay the accompanying fees.”  The number of members in a barter exchange network was criticial to its success. “Prior to joining a particular network, it is common sense that potential brokers and members evaluate the exchange company’s operating history, market presence, size of its customer base, and reputation.”  And using the reputation of a previously operating network with a proven track record would obviously help.  “If the operating history of the original BXI exchange business was not material to consumers’ decision of which exchange network to join, Defendants would likely not have gone to so much effort to present BTE Nevada as a continuation of the original BXI.”
 
Defendants argued that ITEX didn’t show actual injury, but only likely injury was required for an injunction, as opposed to damages.  Without discussion of eBay or Winter, the court then quickly concluded that ITEX was entitled to a permanent injunction. The injunction covered “false or misleading statements that imply that BTE Nevada’s new exchange business is related to, affiliated with, or the successor-in-interest of the original BXI exchange.”
 
Defendants could claim that BTE Nevada was a new exchange business that would become the nation’s leader in the barter trade industry. Individuals previously involved with old BXI could truthfully represent their past experience, and defendants could claim that BTE Nevada would be successful because of its management team. They just couldn’t claim that, because those people were working with BTE Nevada, BTE Nevada was somehow a successor to old BXI.
 
BTE Nevada’s right to continue to use the BXI name and mark was still an issue to be decided; the injunction here would continue regardless of the outcome of the trademark infringement portion of the case.
 
The court found this to be an “exceptional” case deserving attorneys’ fees.  Exceptionality requires “fraudulent, deliberate, or willful” behavior.  (Is this still the standard after Icon Fitness?)  The court found willfulness to be an easy call.  Adopting such a similar name was “inherently confusing to consumers.”  Yarmak personally benefited from the sale of the original BXI business, when he parted with the right to use the name and benefit from its goodwill.
Yarmak seemed to want to “have his cake and eat it, too.” Plus, repeatedly claiming to be formerly the “largest” barter trade company, etc., “demonstrates a deliberate attempt to confuse consumers.” Defendants’ deliberate claim to BXI’s history showed an intent to benefit from old BXI’s goodwill. One BTE Nevada broker stated in promotional material that “[her] best years in barter were the 13 years [she] worked for this company starting in 1994, before they sold the membership in 2005.” (The court was unsure whether this showed willful deception by defendants or actual deception on the part of the broker—but either way, defendants’ use of the statement supported the finding of exceptionality.)  Likewise, defendants’ adoption of similar, if not identical, trademarks, also indicated a willful attempt to confuse, even if the marks were valid and non-infringing.  (Not sure how they could be, given this finding, but there’s no motion for summary judgment as to the marks.)
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Fox hurts America yet again, losing fair use sj motion

Posted on February 13, 2015 by rtushnet
North Jersey Media Grp. Inc. v. Pirro, No. 13 Civ. 7153 (ER), 2015 BL 33458 (S.D.N.Y. Feb. 10, 2015)
 
Fair use should be nonpartisan; copyright restrictionists are generally liberal, but Fox deserves fair use too, even if it does dumb stuff. (Also Democrats are routinely terrible on copyright issues.)  Here, the district court denies summary judgment on a fair use defense, saying some understandable things and one very disturbing thing, along the way confirming some commentators’ suspicions about Cariou’s failure to explain what it meant about transformative purpose versus transformative content.
 
NJMG sued Fox (and individual defendant Jeanine Pirro) for infringing its copyright in an iconic photo of 9/11. On the Facebook page for Fox’s show Justice with Judge Jeanine, Fox posted an image juxtaposing the photo, featuring firefighters raising the American flag, with the classic photo of Marines raising the flag at Iwo Jima—a basic meme, in other words, something like this:
 
The photographer took the photo in the immediacy of the moment, not thinking much about it at the time given the events of the day.  The photo received numerous awards.  NJMG has made more than $1 million licensing the photo, mostly in 2002-2004.  Its gross revenue for editorial licensing was about $10,000 and for commercial licensing was about $4,700 from January 1, 2013 through June 3, 2014, though it has also granted a number of free licenses.  It didn’t file suit until 2012, though it occasionally sent a C&D; it might well have granted Fox a license for this post.
 
Though the PA in charge of the program and the associated Facebook page sought legal advice on fair use a few times a month for the program, she’d never consulted the legal department for the Facebook page.  She “Googled” 9/11 to find an appropriate commemorative image in 2013, and immediately recognized the juxtaposition.  She chose to use the combined image because of the parallel between the first responders and the Marines. The combined image uses a lower-resolution, cropped version of plaintiff’s photo. She added the hashtag #neverforget, and testified that she did so in order to convey Fox News’ participation in the global conversation taking place on social media that day. IHundreds of people commented on the image post.
 
The show didn’t discuss 9/11 on the editions immediately before and after the post, nor did the posting contain any information about the contents of the upcoming edition of the program, though NJMG claimed that a banner appearing across the top of the Facebook page provided that information.  Fox deleted the post after a takedown request.
 
Fox argued that its use was transformative commentary on the parallels between 9/11 and Iwo Jima, with its #neverforget hashtag expressing solemn remembrance and respect for heroism.  Although the work was somewhat altered in content, the court couldn’t find it sufficiently transformative as a matter of law.  The court found the alterations were “‘barely discernable; unless the viewer is specifically prompted to look for them,” with the photo the clearly predominant feature of the combined image.  Cariou suggested that more was required to transform an image, given the remand of five of the thirty images litigated in that case because they weren’t sufficiently transformed as a matter of law.  “Graduation,” for example, featured a black-and-white photo enlarged and tinted blue, with a diamond-like shape painted over the subject’s eyes and mouth, and enlarged hands and an electric guitar pasted onto the canvas.  By contrast, the work here was barely altered and immediately recognizable. The alteration here was “much less” than it was with the five remanded works in Cariou. It was also a “much closer call” than Blanch v. Koons.  The combined image “surely altered the content and message of the Work, but only minimally,” not enough to be transformative as a matter of law or give an “entirely different aesthetic.”  Fox’s purpose, then, was an issue of fact, not indisputably different as the publisher’s was in Bill Graham Archives.
 
This was a point made after Cariou by a number of commentators—the court, despite speaking of purpose, seemed to require transformation of content, contrary to the aims of much appropriation art.  But here’s where the district court adds a really troubling wrinkle: “there is also an issue as to whether the commentary Fox News wished to convey created anything new at all, much less anything transformative,” since it just reposted a meme (“a secondary use of a secondary use”): “some other person first thought to combine the two photographs, and the phrase ‘#neverforget’ was a ubiquitous presence on social media that day.”  All Fox did was say “Me too!”  And that’s not the creation of “new information, new aesthetics, new insights and understandings.” 
 
Importantly, the court notes that the parties didn’t discuss this issue.  If they had, I hope the court would have recognized several things: (1) By this reasoning, Prince’s catalog would be infringing even if his canvases weren’t, because they merely republished his canvases—saying “me too!”  The anti-abortion sites that reposted the anti-abortion video using excerpts from an abortion clinic in Northland Family Planning Clinic, Inc. v. Ctr. for Bio-Ethical Reform, 868 F. Supp. 2d 962 (C.D. Cal. 2012), wouldn’t have been saying anything other than “me too.” This can’t be the standard.  If something has been transformed enough to create a new meaning or message such that the initial speaker is making a fair use, then the transformativeness factor must weigh in exactly the same way for a publisher or republisher; the difference in entity status can be taken into account in the other elements, such as commerciality. 
 
(2) First Amendment doctrine in particular is super-clear about this: a publisher’s editorial judgment about which speech to select is entitled to the highest level of protection.  See, e.g., Hurley v. Irish-Am. Gay, Lesbian & Bisexual Group of Boston, 515 U.S. 557, 570 (1995) (“[T]he presentation of an edited compilation of speech generated by other persons is a staple of most newspapers’ opinion pages, which, of course, fall squarely within the core of First Amendment security ….” (citation omitted)); Turner I, 512 U.S. at 675 (O’Connor, J., concurring in part and dissenting in part) (“Selecting which speech to retransmit is, as we know from the example of publishing houses, movie theaters, bookstores, and Reader’s Digest, no less communication than is creating the speech in the first place.”); Miami Herald Publ’g. Co. v. Tornillo, 418 U.S. 241, 258 (1974). (Entity status may affect things like how reckless indifference plays out in the fault aspect of defamation, given the initial speaker’s access to truth v. the publisher’s, and media defendants may sometimes get stepped-up protection, but the baseline protection itself is the same.)  As a necessary implication, given the relationship between fair use and the First Amendment, the fact that speech was selected and not created in-house cannot affect the transformativeness element.
 
Transformativeness can only be properly measured by difference from the accusing work, not difference from all other speech out in the world.  That’s how the courts have always evaluated transformativeness until now, and nothing else makes sense. (Suppose this standard were applied to an initially transformative .gif on tumblr. I reblog the .gif.  If the post embeds the image, and thus doesn’t involve a new server copy of the image, is it more transformative than if there is a new server copy?  Or is my reblogging itself a nontransformative “me too” whether or not there’s a new server copy?)  Fox didn’t transform the (arguable) transformation, true.  But it didn’t need to do so to meet the relevant standard.
 
Moving on: Commercial use’s relevance depends on how transformative a use is; the Facebook page was designed to promote the Fox program (not for nothing, itself a First Amendment-protected work, but ok) and thus there was at least a question of material fact about whether Fox’s purpose was purely expressive or commercial/promotional, especially since the purposes were not mutually exclusive—by commenting on 9/11 and honoring first responders, “Fox News was also consciously associating itself with a view indisputably regarded favorably by most if not all of its target audience. Such uncontroversial commentary arguably generates goodwill for, and therefore serves to promote, the Program.”  This factor didn’t weigh in favor of either party as a matter of law.  [Is there much speech not designed to make the speaker look good to its target audience?]
 
The nature of the work was factual and created in the moment of recording history rather than staged; in addition, it had been published for a long time, and therefore factor two weighed in favor of Fox as a matter of law.  The third factor favored neither party, since if the purpose (commemorating 9/11) was acceptable, it wasn’t clear that Fox could have used any less.
 
The fourth factor was the most important (here citing cases that I don’t think survive Campbell, but arguably still correct if limited to nontransformative use).  Fox claimed there was no evidence of harm to a licensing market, and that NJMG allowed extensive unlicensed uses, showing that “stray internet uses” don’t substitute for or harm the market for the photo. However, the court found that this factor weighed against fair use. Without substantial transformativeness, the combined image evoked the historical meaning that allowed the photo to remain popular to this day. NJMG had an active licensing program, including licensing for editorial use—as allegedly intended here.  “Fox News’ interest in the Combined Image therefore poses a very real danger that other such media organizations will forego paying licensing fees for the Work and instead opt to use the Combined Image at no cost.” Thus, the danger was far more than a one-time lost fee. “[T]he continued demand for the Work for editorial use suggests that the purported use for commentary here was likewise paradigmatic of a primary market for the photograph.”  Even if NJMG hasn’t tried to get paid for many uses, it has the right to this market.
 
Summary judgment denied.
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returned goods sold as new were infringing, false advertising

Posted on February 13, 2015 by rtushnet
RFA Brands, LLC v. Beauvais, No. 13–14615, 2014 WL 7780975 (E.D. Mich. Dec. 23, 2014)
 
Plaintiffs make various electronics and accessories, with various registered marks. They use the same warehouse to distribute their products, which is in Commerce Township, Michigan.  They found their products on sale on Amazon by “Joe Roof” (later “1 Man’s Trash”), sold as new with prices well below retail and wholesale prices.  The total variety of products offered for sale had never been available from any single distributor or retailer; only the warehouse held them all.  Plaintiffs ordered a product and alleged that inspection revealed that it was used, not new. They concluded that the product had been returned to the warehouse as damaged or defective and should never have been re-sold to the public. The purchased product had stickers on it that weren’t applied by plaintiffs, including a sticker placed by a particular retailer, ShopHQ, confirming that this was a returned item as damaged or defective.
 
The SKUs and quantities changed significantly over time and were frequently replenished, indicating a continuous supply.  Beauvais admitted that “products were mostly identified as being new and/or unused,” and but asserted that he misrepresents the number of products that he has available as “a marketing technique” because no one will buy a single item but the listing of multiple items gives the appearance of a retail “king,” and he can then remove the additional items once a consumer is induced to purchase the single item.  He argued that the photos of the products were provided by Amazon.com to storefronts.  He also admitted that he lacked knowledge whether the product he sold to plaintiffs as a new product was actually used.
 
Beauvais claimed that all the products he sold came from an auction of two storage units. Pictures of the contents obtained from the storage company prior to auction didn’t show the goods in question, and no one witnessed the product in the units at the time that he came into possession of the units. The prior owner of the units testified that he never kept products with plaintiffs’ marks in the units, but only household goods, and that nothing in his storage units could have been sold as new, unused, unopened items.  
 
Beauvais’s Facebook page showed a photo of a van parked at plaintiffs’ warehouse, allegedly in an area only visible from the warehouse property.  Plaintiffs concluded that the majority of the products had come from the returns section of the warehouse, given that the products bore various retailer stickers, and some of the goods showed indications of having been opened and improper packaging.  Beauvais offered red and blue versions of one product, but those colors were a special order for one retailer, further indicating that the products were customer returns.  Nearly all of the packaging of the inspected inventory showed signs of wear, sometimes significant. Some of the products were much older models, and many bore indications of re-sealing with non-factory stickers.
 
At least nine of the items weren’t available in the United States until after March 25, 2013, the date after which the prior owner of the storage unit could’ve put stuff into it. Beauvais’s records also showed that inventory that was “sold out” in October was replenished in November. And, in another sale, defendant represented that the unpackaged product for sale had been “refurbished” and “showcased display models,” a statement that would be hard to make honestly if Beauvais had found this product in the storage units.
 
Plaintiffs alleged a policy against the sale of returned goods as a matter of quality control.  Instead of refurbishing or reconditioning, products are returned to the manufacturing site. Plaintiffs alleged that the sale of returned goods caused a significant risk of negative internet word of mouth, harming the brands and plaintiffs’ reputation. Also, plaintiffs’ warranty does not extend to older models and products that were subject to prior returns, though they may choose to accommodate customers at its discretion on a case-by-case basis.
 
Amazon requires “new” to be new: “Just like it sounds. A brand-new, unused, unopened item in its original packaging, with all original packaging materials included. Original protective wrapping, if any, is intact. Original manufacturer’s warranty, if any, still applies, with warranty details included in the listing comments.”  But Beauvais testified that he opened everything that he sold to verify that it was new and working.
 
Trademark infringement: there was no question about likely confusion. The only question was first sale.  Importantly, “when a defendant sells a product that is materially different … it is presumed that the undisclosed difference between the products will confuse consumers.” The threshold of materiality is low “to include even subtle differences between products.” And, the defendant bears the burden of proving lawful purchase to invoke first sale.
 
Plaintiffs challenged Beauvais’s story about buying storage units, and also argued that “[m]ysterious found goods of an unknown origin and unknown nature does not prove a first sale enabling [d]efendant to sell product as new[.]”  The court agreed. Even assuming that Beauvais found the products in the storage units, at best he could only speculate about their origin, and didn’t rebut plaintiffs’ evidence that the products were returned and not to be resold.  Thus, he didn’t establish that the first sales were “authorized.”  (Hmm.  Let’s say title did pass to the retailers, who subsequently returned them or passed on customer returns.  Why isn’t that first sale?  The fact that it’s retransferred to the original manufacturer doesn’t undo the initial sale, does it?  If I keep my malfunctioning electronic item rather than returning it, surely I can sell it as used?)
 
Plus, even if the first sale was authorized, the undisputed evidence was that the products offered for sale were materially different and inaccurately represented as new. Thus, the products weren’t genuine because they were sold as new rather than used.  And plaintiffs don’t allow distribution of returned goods; they never authorized resale.  “[R]eselling products with inferior warranties constitutes a material difference negating the first sale defense.”
 
The court rejected Beauvais’s argument that the products could be “deemed new” because customers were not complaining.  That didn’t change the products into “new” products; also, Beauvais sold some products as “refurbished” or as purported “show case models,” but those claims were precluded by his story that he bought the items at a storage locker auction; given his alleged chain of title he couldn’t know that.
 
Along with infringement, the court also found false advertising based on the sale of used and returned products as “new.” Beauvais also misrepresented a product as “refurbished” and admitted to misrepresenting the number of units available for sale. The court accepted that these actions “detract[ed] from the value of plaintiffs’ mark.”
 
Plaintiffs successfully asked for disgorgement of $20,000 in profits.
 
(So, where did those products come from?  I wonder if an internal investigation revealed any culprits.)
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New article on innovation in copyright licensing

Posted on February 13, 2015 by rtushnet
Rebecca Tushnet, All of this Has Happened Before and All of this Will Happen Again: Innovation in Copyright Licensing, Berkeley Technology Law Journal, Vol. 28, pp. 1447-1488, 2014
 
Abstract:     
Claims that copyright licensing can substitute for fair use have a long history. This article focuses on a new cycle of the copyright licensing debate, which has brought revised arguments in favor of universal copyright licensing. First, the new arrangements offered by large copyright owners often purport to sanction the large-scale creation of derivative works, rather than mere reproductions, which were the focus of earlier blanket licensing efforts. Second, the new licenses are often free. Rather than demanding royalties as in the past, copyright owners just want a piece of the action—along with the right to claim that unlicensed uses are infringing. In a world where licenses are readily and cheaply available, the argument will go, it is unfair not to get one. This development, copyright owners hope, will combat increasingly fair use–favorable case law.
 
This article describes three key examples of recent innovations in licensing-like arrangements in the noncommercial or formerly noncommercial spheres—Getty Images’ new free embedding of millions of its photos, YouTube’s Content ID, and Amazon’s Kindle Worlds—and discusses how uses of works under these arrangements differ from their unlicensed alternatives in ways both subtle and profound. These differences change the nature of the communications and communities at issue, illustrating why licensing can never substitute for transformative fair use even when licenses are routinely available. Ultimately, as courts have already recognized, the mere desire of copyright owners to extract value from a market—especially when they desire to extract it from third parties rather than licensees—should not affect the scope of fair use.
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Allegations of trademark "theft" falsifiable; other epithets puffery

Posted on February 13, 2015 by rtushnet
Candyland, Inc. v. Cornfields, Inc., No. 14-3119 (D. Minn. Feb. 5, 2015)
 
Candyland, which sells popcorn, candy, and chocolate, sued Cornfields and Snyder’s Lance for trademark infringement and unfair competition based on their use of the mark Chicago Mix.  Candyland uses the registered mark CHICAGO MIX for a mixture of traditional, caramel, and cheddar popcorn.  Defendants also sell popcorn called Chicago Mix. Defendants counterclaimed for violations of the state deceptive trade practices law, false advertising under the Lanham Act, and defamation.  Candyland was partially successful in its motion to dismiss the counterclaims.
 
Defendants challenged Candyland’s website statement, Chicago mix Trademark Information, that they were “‘corporate sharks’ and ‘shameful companies’ out to ‘steal the trademark and use it at their discretion, punishing the entire nation with over-priced, bad tasting, unappetizing, tainted mixtures of popcorn.’”  Candyland also called Cornfields’ product an “infringing” “knock off,” and wrote, “Snyders of Hanover aka Jay’s Potato Chips aka Okedoke aka Gross! I mean lets [sic] be honest, is it even popcorn?”  In an article on another website, Candyland accused Cornfields of producing “inferior products” that “degrade the brand,” and accused Cornfields and others of “stealing the name” in a book.  A Candyland email to bloggers said “We are doing whatever we can to protect the origin, history and integrity of the Chicago Mix® trademark—We are just protecting something that is being stolen from us, as would anyone else!”  Defendants alleged that these statements were defamatory and constituted false advertising in violation of state and federal law.
 
The court first asked whether the statements were falsifiable, considering 1) the precision and specificity of the disputed statement; 2) verifiability; 3) literary and social context; and 4) public context.  Most of Candyland’s statements could not be proven false because they were neither precise nor verifiable. There was no objective standard for judging what’s a “corporate shark” or a “shameful company.”  Calling the defendants’ popcorn “over-priced,” “bad tasting,” “unappetizing,” “gross,” “inferior,”  or “degrad[ing] the brand” were statements of judgment, not empirically verifiable facts.
 
The epithet “tainted” also couldn’t be proven false.  Though it could mean spoiled or rotten, in context, the term “emphasize[d] Candyland’s disrespect for the general quality of Cornfields’ and Snyder’s-Lance’s popcorn.”  It followed derogatory terms such as “bad tasting,” “unappetizing,” and “punishing the nation,” and preceded the “hyperbolic” “is it even popcorn?” Thus, the term indicated dislike, not an accusation of unfitness for human consumption.  Similarly, the “knock off” accusation was opinion.
 
Only one type of statement could be proven false: Candyland’s claims that the defendants were “stealing” its trademark. (Not “infringing”?) Courts have disagreed whether statements about the legality of a party’s action are opinions or can be proven false; context is key.  A statement is provably false if “a speaker is aware that statements are either untrue or unsupported conclusions not based on the prevailing law” but it is opinion if “the speaker is only opining on unsettled areas of the law.”  Here, the statements allegedly implied an illegal activity.  Whether they were provable or mere interpretation depended on context, and on the result of the trademark litigation.  The statements weren’t necessarily falsifiable; they might also be true. But at the motion to dismiss stage the allegations sufficed for defamation.  A similar result obtained for the state and federal false advertising claims.
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AU IP/Gender conference (with a keynote from me)

Posted on February 12, 2015 by rtushnet
Reimagining IP/Gender: The Next Ten Years of Feminist Engagement with Intellectual Property Law
 
Presented with the Women and the Law Program
American University Washington College of Law
February 27, 2015
For registration and more information.
 
At the 11th Annual IP/Gender, presenters will address the production of knowledge, commodification, definition, and valuation of women’s work, and other areas of feminist and queer inquiry. We hope to spur intellectual property scholars to explore how the tools of deliberately intersectional feminist and queer theory can shed new light on the challenge of creating intellectual property law that fosters social justice.
 
9:30 am – Welcome – Michael Carroll, American University Washington College of Law
 
9:35 – Opening Keynote
Ann Shalleck, American University Washington College of Law – Introduction
Rebecca Tushnet, Georgetown University Law Center- IP, Gender, and Creative Communities
 
10:00 – Panel I
Community Structure and Women’s Leadership in Traditional Cultural Production – Moderator – Margaret Chon, Seattle University School of Law
Helen Chuma Okoro, Nigerian institute of Advanced Legal Studies – Traditional Knowledge, Intellectual Property Protection, and Matriarchal Dominance: The Case of Traditional Textiles in South Western Nigeria
Lorraine Aragon, University of North Carolina – Cut From the Same Cloth? Reimagining Copyright’s Relationship with TCEs and Gender in Indonesia
 
11:00 Coffee 11:15 – Panel II Documenting Communities of Practice – Moderator – Meredith Jacob, American University Washington College of Law
Jhessica Reia, Center for Technology and Society at Fundacao Getulio Vargas (CTS-FGV) – DIY or Die! Gender and Creation in Marginal Music Production
Betsy Rosenblatt, Whittier Law School (and Rebecca Tushnet) – Transformative Works: Young Women’s Voices on Fandom and Fair Use
 
12:30 Lunch
 
1:00 – Lunch Keynote: Kara Swanson, Northeastern University School of Law – IP and Gender: Reflections on Methodology and Accomplishments
 
1:30 Panel III
Gendered Understandings of the Role and Scope of Intellectual Property Law – Moderator – Irene Calboli, Marquette Law School and National University of Singapore
Carys Craig, Osgoode Hall Law School, York University – Deconstructing Copyright’s Choreographer: the Power of Performance (and the Performance of Power)
Charles Colman, New York University School of Law – Patents and Perverts
 
2:30 Coffee
 
2:45 Panel IV
Gender and Intellectual Property in the U.S. Federal Courts – Moderator – Christine Farley, American University Washington College of Law
Jessica Silbey, Suffolk University Law School – Intellectual Property Reform Through the Lens of Constitutional Equality
Sandra Park, ACLU Women’s Rights Project – A Feminist Challenge to Gene Patents: Association for Molecular Pathology v. Myriad Genetics
 
3:45 – Looking Forward: the Next Ten Years – Peter Jaszi, American University Washington College of Law, Daniela Kraiem, American University Washington College of Law, and community
 
4:30 – Close
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Third Circuit affirms competitor’s victory in college course copying case

Posted on February 11, 2015 by rtushnet
CollegeSource, Inc. v. AcademyOne, Inc., — Fed.Appx. —-, 2015 WL 469041, No. 12–4167 (3d Cir. Feb. 5, 2015)
 
CS and A1 compete in the market for college credit-transfer information. CS alleged that A1 misappropriated the contents of CS’s main product, its CollegeSource Online database, to stock its own fledgling database. After various proceedings, the District Court granted summary judgment on all claims in favor of A1, and the court of appeals affirmed.  CS’s database contains over 50,000 digital course catalogs and related documents from the offerings of colleges across the country. CS tried to prevent or detect copying or use of its materials by potential competitors. It embedded an unavoidable “splash page” in its catalog files alerting the user that the catalog originated from CS, and a full-page “Copyright and Disclaimer,” which states that “CollegeSource digital catalogs are derivative works owned and copyrighted by CollegeSource, Inc. …. Catalog content is owned and copyrighted by the appropriate school.” The notice also declares that distribution and noncommercial use are prohibited.
 
Users of CollegeSource Online must check a box that states, “By signing in above, I agree to be bound by the terms of the … Subscription Agreement.” The agreement also states that commercial use of the data is prohibited.  CS also offered a service known as “CataLink,” allowing colleges to store their catalog information on CS’s servers and link to that information from their websites, rather than hosting the information themselves; 110 schools have paid to use that service.
 
A1 was founded in 2005 as a free online alternative to CS.  It was rebuffed in attempts to buy or license the contents of CS’s database, then hired an independent Chinese subcontractor to obtain course catalogs by downloading them directly from individual schools’ websites. A1 also pursued an in-house effort to obtain course catalogs in the same way. At its launch in 2007, A1 had course catalogs from roughly 4,000 schools, most of which were from the independent contractor. CS swiftly sent a C&D claiming over 700 copyright infringements and demanding removal of infringing material.  A1 conducted a brief review and concluded that CS was largely correct.  A1 immediately disabled acces to the database and made efforts to remove materials that originated with CS [NB that a lot of this might well have been copyright misuse], but this proved technically challenging.  As late as 2010, A1 discovered additional documents on its servers that contained CS’s Copyright and Disclaimer.
 
In late 2008, A1 was the winning bidder for a contract with the State of South Carolina that had also been sought by CS, which prompted CS to sue.
 
Breach of contract: CS argued that A1 entered into a contract with CS when it created trial accounts for CollegeSource Online. There was a limited agreement between the parties arising from those trial accounts.  But there was no evidence that A1 downloaded any of CS’s course catalogs pursuant to those trial subscriptions, and thus there was no breach. 
 
CS argued that some of A1’s initial documents came from websites of schools that subscribed to CataLink, and that by its terms the contract also governed the use of those documents because the contract by its own terms covered the use of all CS services.  However, a user of CollegeSource Online “could not have reasonably interpreted the Agreement to cover the attenuated scenario in which that same user obtains a course catalog from a link embedded in the website of a third-party college that happened to be a CataLink subscriber.”  Plus, the contract itself used the term “service” in ways inconsistent with CataLink’s characteristics, “for instance, by referring to the ‘Help section’ of a service, which CataLink does not have, and by noting that individuals access ‘services’ with a user name and password, neither of which CataLink requires.” 
 
Finally, CS argued that, no matter how A1 obtained the digital files, it was bound by the Copyright and Disclaimer barring use for a commercial purpose. “The Copyright and Disclaimer, however, explicitly identifies itself not as a contract, but as a declaration of copyright, and purports to describe the parties’ respective entitlements—i.e., what the viewer ‘may’ and ‘may NOT’ do.” It wasn’t a contract.  Summary judgment affirmed.
 
Unjust enrichment: This claim was preempted by the Copyright Act.  CS, however, disavowed any claim of copyright over the materials at issue, and thus claimed it fell outside §301.  [Note that this argument is wrong on its face: preemption is broader than copyright protection; a claim based on copying materials in the public domain would be preempted because it covers the subject matter of copyright.  A defendant need not admit infringement to take advantage of preemption.]  Even assuming that this was true, the claim failed on the merits.  On being notified of its “transgression,” A1 took extensive efforts to purge the materials from its database, and there was no evidence of direct or indirect profit from their use.  “These facts preclude a finding that an injustice would result if recovery is denied.” CS also failed to show damages.
 
CFAA: A CFAA claim requires proof that the defendant accessed information “without authorization” or “exceed[ed] authorized access.” Though courts have divided on the scope of this protection, there’s agreement that “without authorization” should be given its “common usage, without any technical or ambiguous meaning.”  There was no evidence that A1 accessed CS’s servers without authorization.  At least two A1 employees created trial accounts for CollegeSource Online, using a process available to the general public. But there was no evidence that those employees downloaded catalogs for commercial use in violation of the contract, “hacked into technologically sequestered portions of the database, or even so much as viewed any particular document.”  Course catalogs obtained from CataLink “were available without precondition to any member of the general public who clicked the link on the subscribing school’s website and was thereby directed to CS’s servers.”  That again was not without authorization.
 
Trademark infringement: A1 bought AdWords for terms including “college source,” and “collegesource.” The district court found no likely confusion using the Third Circuit’s multifactor test, guided by Network Automation.  The district court’s “careful” analysis concluded that the strength of CS’s mark was outweighed by: “(1) the lack of evidence of actual confusion; (2) the expected savviness of internet users seeking out college-transfer information; and (3) the distinct labeling of Google’s advertisements.” Affirmed.
 
False advertising: CS argued that A1 falsely represented the contents of its catalog database as current, reliable, and accurate, and that it emailed colleges in July 2010 with the false statement that CS regarded itself as the owner of the course catalogs in its database and was aggressively pursuing lawsuits containing “copyright claims” against competitors. The district court found that CS failed to show literal falsity or a tendency to deceive.  CS didn’t provide admissible evidence that A1’s database was out of date.
 
As for the email, CS argued that it mischaracterized CS’s legal claims, which weren’t based on copyright or on asserted ownership of the underlying course catalog data. The email, “viewed in light of CS’s aggressive prosecution of its alleged statutory and contractual rights, was at worst ambiguous regarding its description of the instant legal action.”  At the time it was sent, “CS had sued or threatened to sue A1 under the Copyright Act, the Lanham Act, RICO, the CFAA, the California Computer Crimes Act, the California Business and Professions Code, and the contract law of both Pennsylvania and California.” Many of its claims were based at least in part on CS’s position that users were bound by the Copyright and Disclaimer in each of its documents, which asserted entitlements under the Copyright Act and claimed ownership of the “digital catalogs” at issue.  No jury could reasonably find the email false or misleading.
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