Reading list: Putting Intellectual Property in Its Place

Laura J. Murray, S. Tina Piper, & Kirsty Robertson, Putting Intellectual Property in Its Place: Rights Discourses, Creative Labor, and the Everyday: Coming at roughly the same time as Jessica Silbey’s The Eureka Myth, this book, like Silbey’s, challenges IP lawyers’ reflexive assumption that intellectual property is central to the production of creative works, even for-profit creative works. They’re both important and intriguing works. Here, the basic argument is that IP laws have limited and attenuated effects in many different creative fields. Though rights talk and economics do matter, they’re at best loosely linked to formal law, which is “invoked or imagined occasionally, opportunistically, or instrumentally,” often to achieve objectives other than incentivizing creativity. IP is more rhetoric than rule; it can appear as fantasy (potential riches), rumor (fear of being sued), threat, whipping boy fueling resistance—“as a symbol of corporate power rather than as a specific set of rules,” and so on.

Much like Silbey, the authors conclude that IP appears as a strategy “adopted to cross or police boundaries long after a work has been created or an innovation has taken place.” Even when statutory and case law is readily available, “people actually choose to understand the law through information and opinion gathered from friends, strangers, coworkers, and the media.” They regularly choose their own grounds for negotiation and dispute, ignoring legal mechanisms. So, law on the books is far less important than how law is mis/understood on the ground.

The authors position themselves partly against studies of IP’s “negative space,” contending that such framing positions IP as primary and low-IP spaces as the ones in need of explanation, whereas creative practices generally are in fact low-IP. All groups have rules about attribution, ownership/custodianship, and fairness; sometimes those are formalized, but more often they are “indigenous”—“foundational and persistent, not ancestral or supplemental.”

Chapters examine specific communities of practice. One chapter (attributed to all authors) analyzes free culture rhetoric in Canada, which they argue has been raced, gendered, and US-oriented, with a presumed-male subject as the unexamined universal. Individualism is a politically limiting feature of this vision of “free culture,” they argue. (I’ve long thought that “free as in free speech, not free as in free beer” has a very interesting gender resonance on both sides—not only does some speech trade off with and suppress other speech in a way unrecognized by the first part of the slogan, but I always saw “free beer” as very far from free.) Creative Commons, then, tries to be liberatory, but accepts a US model that might not apply elsewhere, trying to fight supposedly restrictive norms that might not have been shared. Programs may be “ported,” but cultures are far trickier, and in choosing the language of “porting” CC licenses from the US to other countries, CC is making a significant move in presuming mechanical commonality between countries, legal systems, and creative cultures. Ultimately, what CC licenses legally would do in court isn’t as important as the symbolic relations they indicate. And the authors suggest that licenses aren’t appropriate to structure certain relations.

One example of different cultural meanings they explore is “appropriation.” In US legal discourse, “appropriation art” is edgy, challenging, and increasingly legally accepted as fair use, which most people treat as an advance compared to earlier infringement findings. But “appropriation” has a very different meaning when it comes to dominant groups exploiting artistic traditions and practices of oppressed groups.

Another chapter (Robertson) studies various crafters, using works like quilt patterns. Crafters use the rhetoric of IP if not the real law; their rules may even be more stringent than law when it comes to the acceptability of making money from an object created using a pattern. And, like many others, they often conflate copyright, trademark, and patent into a kind of agglomeration of “rights.” It’s easier to manage boundary issues when the rightsholders come from outside: while disputes persist about some norms within the community, other practices coalesce into best practices over time, particularly with respect to first sale/the acceptability of making things from purchased fabric featuring licensed characters. The discussion of knitters leads into a comparison with Canadian scientists, “who like the online knitters work and compromise with, cajole and bully their peers into common (and sometimes community-created) norms” as a way of managing community in new situations or spaces.

The scientists chapter (Piper) then examines a historical example of the use of patents relating to plant hormones as moves in a larger conversation with multiple goals: credit, sometimes commercialization, furthering the public interest. Uncertainty about the law allowed ideas about IP, rather than formal law, to shape behavior. In addition, the chapter emphasizes the importance of the material world: objects were often more important than abstract rights, as scientists shared their products with those they trusted.

Another historical chapter (Murray) looks at exchanges among 19th-century newspaper editors, who didn’t get copyright protection for their works but instead used cheap postage to get stories and to share stories in return so that everyone could fill their local papers with interesting coverage. To the publishers, this wasn’t permissionless copying—it was “the essence of an editor’s job” to select and collate the best. As one newspaper said, after condeming plagiarism, “This doctrine of never borrowing, of saying nothing but what you yourself originated, is cruel in the extreme. It would condemn most men to perpetual silence. In the halls of legislation, in the courts of law, in drawing rooms, and at dinner parties, what a long, sad, solemn stillness there would be!” Credit and reciprocity were important, but not law. “IP law can be a strategic crisis-management and boundary-policing tool without driving everyday knowledge management practices.” Borrowing was the beginning of the process, generating responses; newspapers developed brands based on the sources from which they copied and the editorial stance they took towards other sources.

The entry of new competitors and outsiders, however, drove a resort to law. In a familiar pattern, new entrants disrupted existing behaviors, and producers responded with any tools they could find—just as they did more recently with search engines. When producers began to use “hot news” misappropriation claims, however, they faced continuing challenges from non-IP methods of organization. The authors suggest that a high level of rights enforcement may indicate a sector’s sickness, not its health.

Another chapter (Piper) considers copying in the Canadian legal profession. Copying is a core feature of legal thought—making up new expression would often risk distortion of the meaning of a law or a legal test, so we often value fidelity. Lawyers, like other professionals, police the boundaries of their field; this self-regulation clashed with attempts by legal publishers to control copying legal materials from law libraries. And in Canada, the legal profession won: the Canadian Supreme Court ruled that such copying was fair dealing. Here, the authors argue, unlike knitters, “lawyers do not appeal to law to bolster their credibility or ability to make an income in their profession; such an appeal may even undermine their reputations.” But like knitters and scientists, they do appeal to IP law “when dealing with strangers or for market-based transactions.”

A chapter on cultural labor and institutions in a small Canadian city (Murray) looks at the art world outside prestige art and also outside “traditional knowledge,” the two more usual objects of study. IP is only a small part of the messy, in-between ways in which artists in this community make art and make a living.

A final chapter on production of paintings in Dafen, China (Robertson), looks at the ways in which the labor of individual copiers, who hand-paint the copies of classic and sometimes modern art, is understood or ignored. Copying “functions in many ways in the art world, most of them totally separate from both appropriation and also IP protection.” As in the other chapters, IP is invoked “where perceptions of how the art market should function collide with long-held, but often unmarked, norms among artists (for example in terms of what constitutes originality).” Thus, Robertson focuses on Western perceptions of Dafen, which tend to valorize Western art and denigrate Chinese artists. Westerners, she suggests, tend to position authenticity in the content, while Chinese commentators find authenticity in the act of painting.

When Western coverage didn’t find sufficiently sweatshop-like conditions of production, it shifted to Dafen’s challenge to the idea of “art” through its mass production techniques, though as the chapter points out, “arguably the presence of the hand in the Dafen paintings is precisely the opposite of industrialization.” The painters themselves say they’d run out of ideas if they had to paint their own works, and defend the idea of giving access to art to people who otherwise couldn’t afford it. They see their works as original because they aren’t mass replicated. And, the chapter notes, given that most art is accessed through copies—online, in books, etc.—these works may not be exceptional. Price depends on the quality of the copy, and customers can also request changes so that people in paintings look more like loved ones.

In another manifestation of the interaction between material objects and immaterial rights (or lack thereof), source images (including digital files or existing paintings) are important assets, returned to a boss after a commission is complete, and protected through agreements more like trade secrets or contracts than IP rights, since knowing what’s popular is key to profiting. Even copies of in-copyright works aren’t “fakes,” she argues, any more than the appropriated artworks of Sherrie Levine or Richard Prince are fakes—they’re copies, and they serve different functions. But the Western perception that Levine and Prince deliberately challenge concepts of originality and expression insulates them from the charge of fakery, as Dafen is not. Originality and authenticity may even give us alternatives to talking about the more politically challenging and controversial subject of labor; and at the same time, whether paradoxically or naturally, our discourse tends to focus on business rather than art. It’s a fascinating set of complications.

Overall, highly recommended.

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Reading list: facts versus opinions in mandatory disclosure

From the intro:
[This] essay reports the results of an original survey that presented respondents with the actual disclosures at issue in a number of recent compelled speech cases, and asked them to categorize these disclosures as factual or opinionated. Participants proved proficient at distinguishing fact from opinion, suggesting that consumer surveys could provide a valuable resource for courts. They also expressed dramatically different understandings of the controversial disclosures at issue in NAM and R.J. Reynolds than the D.C. Circuit did, offering a new and important perspective on how these, and similar, forms of mandated speech should be treated in future litigation.

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When is a 13-year discrepancy immaterial?

According to the UK ASA, when it’s the difference between 1860 and 1873 as the confirmed date of a bakery’s founding: “We understood that their competitors were much younger, with the oldest having been founded in 1949 and so Warrens Bakery was the oldest pasty provider still trading. In light of that, we considered that any consumers who had chosen to purchase a pasty from Warrens Bakery, as opposed to one of their competitors, because of their claimed heritage, would still have made the same decision to do so had they been aware that the earliest official record of the bakery’s existence that they were able to supply was 1873.”

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False advertising claims not arbitrable when ads predated agreement

Mohebbi v. Khazen, Case No. 13-cv-03044, 2014 WL 6845477 (N.D. Cal. Dec. 4, 2014)
Mohebbi sued Khazen over Mohebbi’s agreement to invest over $1 million in a partnership in exchange for defendants’ help in getting him qualified for the federal EB–5 immigrant visa program.  He sought recission and brought 22 claims against defendants.  The court found the arbitration agreement he signed enforceable and required him to arbitrate everything but his false advertising and recission claims, and stayed the false advertising claims pending the completion of arbitration.
Mohebbi’s false advertising claims concerned defendants’ alleged misrepresentations on their website, including an alleged misrepresentation of defendants’ business as a qualified Regional Center designated by the US Customs and Immigration Service for the purpose of assisting investors in applying for EB–5 visas.  False advertising claims are arbitrable, but the false advertising and reliance occurred before Mohebbi signed the agreement with the arbitration clause.  The agreement didn’t explicitly encompass claims predating its signing.  An agreement must be retroactive on its face to cover claims that predate its execution, and thus the false advertising claims were not arbitrable.
The arbitration clause was, however, enforceable and Mohebbi failed to meet his heavy burden to show that it was fraudulently induced, so he was not entitled to recission. 
The court then rejected defendants’ motion to dismiss the Lanham Act claim (California false advertising claims also survived but defendants apparently didn’t make separate arguments about them).  Along with the “Regional Center” claims, defendants allegedly promised to help “achiev[e] the fastest path to U.S. residency and citizenship.”  This adequately alleged falsity with respect to defendants’ services.  (The court didn’t address the obvious Lexmark problem of “standing,” that is, Mohebbi was a customer, not a competitor or other type of market participant.  But that wouldn’t get rid of the California claims anyway.)  The court then stayed the litigation pending the completion of arbitration, as required by the FAA.  Note that if arbitration is more trouble for Mohebbi than for defendants, then defendants gained an advantage in the non-arbitrable claims because Mohebbi brought arbitrable claims; there’d have been no stay without them.

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Garcia v. Google thoughts: input welcome!

Along with many others, Shyamkrishna Balganesh, Justin Hughes, Peter Menell, and David Nimmer submitted an amicus in Garcia v. Google making a number of interesting arguments; I’m generally sympathetic to the idea that we should be more flexible about joint authorship.  But right now I want to talk about a different argument in the brief: they say that, even assuming that Youssef had an implied license to incorporate Garcia’s performance, an implied nonexclusive license is nontransferable.  (This line of reasoning depends on the idea that Garcia could own a separate copyright in her performance, rather than a share of the copyright in the entire film by virtue of her performance; if she has a share in the entire film, then Youssef is simply her co-owner and his ability to license nonexclusively is unfettered.  Which itself is a good reason to conclude that the only viable “work” here is the film as a whole.)

If that’s so, then the reassurances of the original panel opinion and SAG that implied licenses will usually solve any failure to enter into work for hire agreements are completely wrong.  An implied license may work pretty well when a programmer writes a program for internal use at a business.  But Warner Bros. needs to license its rights to Netflix, Amazon, Wal-Mart, etc.  If all it has is a nontransferable license, then it has nothing of any value.  And remember, Petrella means there’s no such thing as a stale copyright claim.

So if a studio didn’t get a signed release from one of the extras in Titanic, the question it ought to be asking itself (and its insurers) is: Do you feel lucky?  Well, do you?  (According to SAG, that’s enough for a copyrightable performance.)

Side note: The Balganesh et al. brief also introduces a bit of error into the discussion because of the case’s unusual posture–the brief says that Youssef didn’t counternotify. But Google didn’t take down the video after Garcia’s notice, so there was nothing to him to counternotify about.  And now that the mandatory injunction requires Google to police all its sites, there’s no way to counternotify, even for the multiple non-Youssef parties who wanted to distribute the video in order to discuss its message.

Side note 2: The brief also takes a position on what would happen if Garcia were a joint author of the film that requires a resolution of what is as far as I know a novel question. If she’s an author, it says, she can file a DMCA notice based on her authorship of the film; Youssef could then counternotify because he’s also an author and thus has the right to put it on YouTube.  Perhaps she opens herself up to a 512(f) claim with her notice; but if Google honors it, the film has to stay down for 10 business days regardless of his objections.  But sending a DMCA notice requires that the sender own (or act on behalf of an owner of) an “exclusive” right. See 512(c)(3). Is a single co-owner acting alone an owner of an “exclusive” right?  My sense is that the right answer is yes, but it does raise the prospect of a co-owner getting undue leverage when another co-owner is using an online intermediary for distribution–and this wouldn’t just include YouTube, but also Amazon and other sites that might be generating substantial revenue.

What do you all think? 

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ABA teleconference on irreparable harm in Lanham Act false advertising cases

I’ll be participating in this teleconference, 12 pm EST on December 12. 

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A case peppered with TM and advertising issues

United Tactical Systems v. Real Action Paintball, Inc., 2014 WL 6788310, No. 14-cv-04050 (N.D. Cal. Dec. 2, 2014)
UTS sued RAP4 mostly over the trademark PepperBall; the court granted a preliminary injunction based on some of its claims.  Nonparty PepperBall Technologies (PBT), a dominant player in the relevant market, sold irritant projectiles called PepperBalls: “Irritant projectiles are generally small plastic spheres that contain an irritant powder that functions similar to pepper spray [but can be shot from a distance], and are primarily sold to law enforcement and military.”  PepperBall Technologies sold live rounds in a red shell, as well as other projectiles in different colors, such as green marking rounds and clear training rounds.
PBT’s PepperBall mark became incontestable.  It developed the irritant powder, and outside manufacturers assembled it into plastic shells; one manufacturer was Perfect Circle, which made most of BPT’s projectiles for nearly 14 years. More recently, PBT used a company called APON, though it wasn’t clear whether PBT ever sold APON-made projectiles.
PBT ran into money troubles.  Perfect Circle and another company, Tiberius Arms, bought PBT’s loans and formed a new company, Advanced Tactical Ordnance Systems (ATO).  Doing business as Phoenix International, ATO bought “all the tangible and nontangible assets” of PepperBall Technologies at a Uniform Commercial Code foreclosure sale, allegedly acquiring the incontestable PepperBall trademarks, goodwill, business name, and trade secrets.  UTS alleged that ATO ensured a seamless transition, retaining most employees, trainers, and suppliers. ATO thus became the supplier of PepperBall irritant projectiles, with parent company Perfect Circle continuing to manufacture PepperBall projectiles. ATO sold standard live rounds, which were all red, and maximum strength rounds, which were half-red and half-black.
RAP4 is a competitor using marks incorporating LESS LETHAL.  Its projectiles have come from various suppliers over the years, and it generally used orange shells to indicate live rounds.  (Frankly, I would think the industry would want to settle on one universal color for live rounds, to avoid dangerous misunderstandings!)  At one time, RAP4 bought irritant projectiles from SWAT, which RAP4 alleged merged with PBT, after which RAP4 sold those projectiles as PepperBall branded products—the only time it used such branding, according to RAP4.
After the foreclosure sale, RAP4 negotiated with PBT’s former COO for an exclusive dealing agreement for RAP4 to get irritant projectiles from APON, effective April 2012.  In August, RAP4 used its website and email to announce “RAP4 Resumes PepperBall Technologies Inc. Production.”  The announcement said:
RAP4 is proud to announce the acquisition of machinery, recipes, and materials once used by PepperBall Technologies Inc., the manufacturer of Less Lethal Live Rounds that are trusted by law enforcement and military units far and wide. Now we manufacture our Less Lethal Live Rounds directly, on that original machinery, and conforming with the original specifications, to provide our customers with improved quality control uninterrupted supplies. With the inspiring success and service-proven track record of our Less Lethal Launchers, comes the need for high-quality, highly effective less lethal ammunition like that originally manufactured by PepperBall Technologies Inc.
Earlier this year, PepperBall Technologies Inc was liquidated and foreclosed by their creditors. RAP4 acted immediately through acquisition and resume [sic] the machinery, recipes, and materials required to continue production of our Less Lethal Live Rounds. That means we have direct oversight of quality control, and the ability to keep producing those less lethal rounds that have proven themselves as invaluable tools time and again. [….]
With PepperBall Technologies Inc.’s equipment, recipes, and standards integrated into our manufacturing, we will be able to offer even more innovations … and an uninterrupted supply of the less lethal rounds that our police and military customers need!
The post had pictures of RAP4’s new projectiles, which used red and red-black to indicate standard and maximum strength live rounds. A day later, RAP4 issued “clarifications” stating that “The Original Recipe and machinery to produce pepperballs was acquisitioned by RAP4 and RAP4 is now able to manufacture the original pepperball under the name of RAP4 Less Lethal.” The clarification also acknowledges that “Pepperball Technology is Forclosed [sic]” and “[a]ll rights to the name Pepperball belong to the new owners, which is Phoenix International.”  A few days later, after a C&D from ATO, RAP4 sent out another email and added another statement to its website:
RAP4 Less Lethal Live Rounds are produced by the original OEM manufacturer that once produced for PepperBall Technologies Inc. In 2012 PepperBall Technologies Inc. was liquidated and foreclosed and now PepperBall Technologies Inc. and brands belong to Phoenix International LLC. Because of this reason, RAP4 and original OEM manufacturer have been able to team up and have improved the formula and process for making Less Lethal Live Rounds. Now RAP4 is able to guarantee the highest-quality product and provide continuous availability!
Disclaimer:
— RAP4 is not associated nor affiliated with PepperBall Technologies Inc. and brands. All rights to the PepperBall Technologies Inc. and brands belong to its new owner.
— RAP4 live rounds are NOT made by the current PepperBall Technologies Inc.
Both ATO and RAP4 received communications from customers and others indicating that they believed that (1) RAP4 had purchased PepperBall Technologies, and (2) RAP4 made and sold PepperBalls. RAP4 allegedly told customers over the phone that it was PepperBall Technologies and that it sold official PepperBalls, and didn’t correct customers’ misunderstandings when they contacted RAP4.
Further developments: A preliminary injunction against RAP4 in Indiana was dissolved on appeal for lack of personal jurisdiction.  ATO stopped selling all-red PepperBall projectiles in late 2012.  UTS allegedly acquired ATO’s assets, including PBT’s assets.  UTS, operating as PBT, now sells half-red, half-white PepperBalls as well as half-red, half-black ones.  RAP4 continued to sell its PAVA Less Lethal projectiles, and added Peppershot Less Lethal projectiles.
On the Section 32 and counterfeiting claims, RAP4 contested whether ATO validly acquired the mark from PBT or UTS validly acquired the mark from ATO.  UTS didn’t submit a written assignment from PBT or from ATO.  Though assignments recorded in the PTO are prima facie evidence of execution, they aren’t conclusive; the Assignment Branch of the PTO doesn’t examine substance.  Without a written assignment of goodwill, could UTS be the “registrant” of the incontestable mark?  Some courts presume that marks presumptively pass to a buyer, absent contrary evidence. Others look for a writing, to ensure against accidental assignment, clarity of rights, and predictability/certainty of ownership.  Given this uncertainty, there were too many unresolved issues to find that UTS was likely to show that it was the “registrant” for purposes of Section 32/counterfeiting claims.
Section 43(a) claims don’t require a registration, only commercial injury.  Commercial injury is generally presumed “when defendant and plaintiff are direct competitors and defendant’s misrepresentation has a tendency to mislead consumers” (citing the 9th Circuit’s TrafficSchool.comdecision, with a see also for Lexmark).  Given the competition between the parties, UTS could sue under §43(a).
Turning first to false association: RAP4 argued that “pepperball” is generic, submitting “dozens of pages of online printouts from newspaper articles, online forums, etc., where people have used the terms ‘pepperball,’ ‘pepper ball,’ and ‘pepper-ball’ amongst other things to refer to irritant filled projectiles.”  Incontestability is no bar to a genericity finding, but registered marks are entitled to a strong presumption of validity.  (Query how this works where the court has just found that UTS can’t proceed under §32 at this point.)  The court found this issue “perplexing,” given evidence that other manufacturers used “Pepper Balls” to identify irritant projectiles.  RAP4’s evidence was “compelling” but “limited,” and some of it could be construed as referring to PepperBall branded projectiles in particular.  There wasn’t enough evidence to find genericity yet.
This wasn’t a “traditional” confusion case.  UTS alleged that RAP4 used the PepperBall mark in announcements, metatags, and “hidden text” on RAP4’s website.  RAP4 argued that its use was nominative, while UTS argued that RAP4 was using the mark to speak about its own products, not UTS’s.  The court correctly noted that New Kids also applies where “the defendant’s ultimate goal is to describe his own product.”
Starting with the last announcement, RAP didn’t falsely suggest it was sponsored or endorsed by the trademark holder.  However, it “implicated the source-identification function by essentially implying it was the new source of PepperBalls.”  The evidence showed confusion (note that the nominative fair use test does not have actual confusion as an element; New Kidsspecifically declined to consider evidence of actual confusion).  UTS cited a number of consumers writing things like: “I have received an e-mail from RAP 4 stating they are taking over your business. Is there any information you can give me regarding this email and the training and equipment we have been purchasing from you over the years?” and “What do you know about Pepperball going out of business and being purchased by another company called RAP4? Is this true and, if so, how would it affect us?”  And here we get to the incoherence of “misleadingness”: Tabariand New Kids involved truthful uses that allegedly implied sposnorship, but “[u]nlike Toyota Motor Sales and New Kids, UTS alleges that RAP4’s use of the PepperBall mark was misleading.”  Note: the only way this makes any sense is to read “misleading” to mean “false,” in that the information conveyed that these were the “real” PepperBalls was not true; it’s ordinarily unproblematic to say that facially true claims can be misleading, but New Kids takes that implied falsity off the table for a certain class of uses.
It was possible for RAP4 to refer to its own projectiles without using the PepperBall mark; even if it was using the mark to refer to its arrangements with APON and their purported connection to PepperBall products, “there is considerable dispute as to whether RAP4’s statements were true, even without considering the underlying implications of those statements.”  The court concluded that this was more false association than traditional trademark infringement, but found confusion to be likely.
The issue with respect to metatags and “hidden text” was more complicated.  After the Indiana TRO and after RAP4 removed the announcement, it still used the metatags “Pepperball Projectiles,” “pepper ball,” “pepperball,” “pepperballs,” and “Pepperball” on its website, as well as white text on a white background including “pepperball.”  (This is a terrible idea. Search engines ignore it, but courts don’t. There is no upside.)  UTS didn’t provide evidence about how these functioned, and RAP4 didn’t make any arguments either.  Brookfieldblessed the initial interest confusion, but recently the Ninth Circuit warned against finding confusion “when a consumer is never confused as to source or affiliation, but instead knows, or should know, from the outset that a product or web link is not related to that of the trademark holder because the list produced by the search engine so informs him.” Network Automation.  Using Sleekcraft, the court found serious questions going to the merits as to infringement from these uses.  Notably, the court found that intent favored UTS because RAP4 used the mark with knowledge that it was another’s trademark.  (Also of note: the court still used “serious questions going to the merits” as an alternative standard for granting preliminary relief, even after Winter.)
False advertising: RAP4’s announcements connected it with PBT and the PepperBall projectiles.  The literally true statement “PepperBall Technologies Inc was liquidated and foreclosed by their creditors,” combined with other statements, including remarks about RAP4’s “acquisition” of PepperBall’s equipment and technology, was likely to mislead consumers into thinking that RAP4’s new projectiles had the same qualities and key characteristics as PBT’s because they came from the same source.  RAP4 argued that its subsequent announcements and disclaimers showed no intent to palm off.  But even the disclaimers had a context; they said that RAP4’s Live Rounds “are produced by the original OEM manufacturer that once produced for PepperBall Technologies Inc.” The implication was that RAP4’s projectiles were, “for all intents and purposes, PepperBalls,” and RAP4 implied it had “improved” the PepperBall formula and quality control, but there was no evidence of this.
The other clarifications were no better. “It has come to our Attention that there has been some misinformation and confusion in relation to our acquisition of PepperBall Technology” insinuates that it had acquired PBT, as did the post title, “Clarification About RAP4’s Acquisition of PepperBall Technology[.]”  RAP4 said it had acquired “[t]he Original Recipe and machinery to produce pepperballs” even as it disclaimed rights in the name.
UTS showed that these statements were likely to deceive by presenting evidence from actually confused customers.  RAP4 argued that a survey was required, but intent to mislead can justify a presumption of likely deception.  (Given the clarity of the confusion evidence here, it might have been stronger to rely on the evidence of actually confused consumers to extrapolate to a significant number.)  The court found UTS’s evidence of intent compelling, given testimony that a key player knew that the use of “acquisition” was confusing.
Deception about RAP4’s ability to produce PepperBall quality projectiles, or better, would be material, given PBT’s strong reputation for quality and reliability.
As for likely injury, the Ninth Circuit has held that the risk of future harm to a competitor, plus the interest in consumer protection, means that competitors need not prove injury for a §43(a) violation.  But anyway, UTS showed likely injury: it sold PepperBall projectiles, and if consumers were misled, sales were likely to be diverted.
Results on the California UCL and FAL claims tracked the federal claims.
UTS also alleged willful infringement of its red and red/black trade dress.  RAP4 rejoined, sensibly, that “because irritant projectiles are used in high-stress crowd-control or military situations, a user needs to be able to quickly distinguish the ‘live’ projectiles from other types, and live projectiles are generally made ‘red’ in color so the users can distinguish them from the other kinds.”  While UTS had the burden of showing nonfunctionality, RAP4 provided evidence that red had utilitarian advantages; PBT’s training materials showed that color was used to signal product features.  RAP4’s witness testified that in “[r]ecent history, our clients do require that the colors be in red for live-fire for reason that they have already successfully train[ed] their personnel to identify by the colors used,” and that other manufacturers also used the color red and/or reddish-orange to identify live pepper-filled rounds.  UTS argued that one specific agency only asked for red so it could buy from US manufacturers, but it didn’t provide evidence for that claim, and even if true, other customers also required red. The Department of Justice even says “distinctive markings and colorings on the different shells would help to more reliably distinguish lethal from less lethal [munitions].”
What about alternative colors used by RAP4 and other manufacturers, like orange/white?  UTS submitted an email indicating that RAP4 selected the red and red/black color scheme “to compete with Pepperball[.]”  However, UTS didn’t show that other color schemes were salable to law enforcement or other customers who’ve come to rely on red. UTS argued that “the only advantage red and red/black projectiles offer Defendants is that it makes it easier for them to sell to departments already trained to use UTS’s system,” but that isfunctionality.  RAP4 would be at a commercial disadvantage if it couldn’t use red to identify live rounds, and red/black to identify extra strength rounds. 
PBT’s training materials, now UTS’s also constituted evidence of advertising utilitarian features, which was strong evidence of functionality.  The expense of manufacture was neutral, but in total UTS failed to meet its heavy burden of showing that red served no purpose other than identification.
UTS also alleged trademark dilution.  (Seriously?)  UTS failed, of course, to show federal fame.While UTS alleged that it and the prior owners of the PepperBall mark “have spent millions of dollars and fifteen years publicizing the mark and selling the projectiles at issue in this litigation with the PepperBall trademark,” it didn’t provide specific evidence of how that money was spent or when the mark became famous.  It didn’t explain why selling 23 million projectiles at at least $1 each would make the mark recognized by the “general consuming public.”
Trade secret misappropriation: UTS argued that RAP4 contracted with Conrad Sun knowing that he was a former PBT officer and picked his brain, but Sun wasn’t party to the litigation.  UTS argued that RAP4 misappropriated the formula/recipe for the projectiles; UTS’s customer list; and “market leads and market research.”  UTS didn’t show that the last category was proprietary, or that RAP4 possessed or used this information, or even that it was defined with sufficient particularity.  A client list can be a trade secret, but UTS didn’t provide information about how its lists were developed or how RAP4 misappropriated them.
As for the formula/recipes for the projectiles, PBT did develop a formula it considered secret and proprietary. Even its manufacturer Perfect Circle wasn’t allowed to know the formula other than what was on the material safety data sheets. UTS’s evidence indicated that secrecy was maintained throughout the foreclosure sale, and that the proprietary nature of the formula was critical in the foreclosure decision.  RAP4 argued that UTS failed to take reasonable efforts to protect secrecy: the contents of the powder were listed on the material safety data sheets posted on PBT’s website, and the recipies were in PBT’s patents.  Given that UTS didn’t dispute the existence of the patents, the court found no likely success on the merits.
Irreparable harm for the §43 claims: UTS relied heavily on presumptions of harm rejected by Winter, eBay, and Herb Reed.  However, lost control over reputation and damage to goodwill could be irreparable harm, even though speculative injury isn’t sufficient.  UTS established likely irreparable harm “because without such relief continued loss of control over its business reputation is likely.”  Several of the announcements were still online and uncorrected, and UTS was still receiving calls indicating confusion.  Ongoing confusion “is likely to contribute to loss of control over UTS’s reputation and goodwill.”  (If lost control is irreparable without more, then likely confusion is irreparable harm because likely confusion means lost control.  But the Ninth Circuit told us not to collapse the inquiries!)
UTS argued that it was being harmed because RAP4’s projectiles were inferior. This was hotly disputed, but UTS submitted a picture of leaking projectiles allegedly from RAP4.  If accurate, this evidence supported UTS’s lost control theory. 
So, UTS showed irreparable harm due to lost control over its reputation and goodwill.
Though RAP4 showed evidence that the prior injunction harmed it, that was its own fault, and it didn’t show that a new injunction would cause similar harm. The public interest was also served by enjoining confusing uses and misleading advertising.
The court therefore preliminarily enjoined the defendants from using “PepperBall” or “PepperBall Technologies” on or to refer to RAP4 or RAP4’s irritant projectiles; shipping, selling or filling orders for PepperBall projectiles; making any false statements, “directly or indirectly,” about UTS, ATO, PBT, or Phoenix International; and making any false statements about the availability of “authentic” PepperBall projectiles from UTS or PBT.

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Religion isn’t (yet) a defense to false advertising

State v. Valerie Saxion, Inc., 2014 WL 6839970, No. 02–13–00227 (Tex. Ct. App. Dec. 4, 2014)
Valerie Saxion argued that her free speech (and RFRA) rights were being violated by the state’s pursuit of claims against her and her company for the false and misleading sale of dietary supplements.  Texas sued Saxion for violations of the Texas Food, Drug, and Cosmetic Act (TFDCA) and the Deceptive Trade Practices Act (DTPA), based on her claims about the ability of her dietary supplements to diagnose, mitigate, treat, cure, and prevent disease.  The state further alleged that Saxion’s promotion of herself as a “naturopathic” doctor, which Texas does not recognize, was deceptive, and stated that any use of terms like “Doctor” or “Dr.” her name on labels or advertising was false advertising.
Texas sought to enjoin Saxion from, among other things, misbranding, misrepresentation, and mislabeling by failing to disclose that claims to diagnose, mitigate, treat, cure, or prevent disease cannot legally be made for dietary supplements; representing that she had a sponsorship, approval, status, affiliation, or connection that she does not have by using the title “Doctor,” or the abbreviation “Dr.”; and making misleading claims, either explicitly or implicitly, to diagnose, mitigate, treat, cure, or prevent disease for dietary supplements through any means.  Examples of Saxion’s claims included: “CLA has been shown to have strong anti-cancer properties. Especially in inhibiting breast and prostate tumors as well as colorectal, stomach and skin cancer, including melanoma…. CLA even lowered cancer cell growth. CLA is an excellent inhibitor of tumor growth.”  The complaint also listed numerous other substances for which Saxion made numerous other equally aggressive claims.
Saxion contended that her statements were based on her sincerely held religious beliefs, though she admitted that these religious statements were “not contained on the labels of her products.”  She pointed to a book she wrote which stated:
1. Realize there is a problem! The first step to utilizing your spiritual authority over food or whatever has a hold on you is admitting you have a problem.
2. Ask for the Holy Spirit’s help! Ask the Holy Spirit to reveal anything that is not pleasing to Him. If you really want to be free, listen when he answers. You may be surprised what he reveals to you.
3. Repent! Ask the Lord to forgive you for allowing food to have such a strong hold on your life, and thank Him for [s]howing you this area of your life that needs work. Don’t beat yourself up over it. Just repent and receive God’s forgiveness and love.
God has placed herbs, minerals and vitamins for us to understand and utilize to maintain health and regain health[.] He [h]as instructed man through His Word on how to utilize these for our personal wellness.
Saxion sought a declaratory judgment that her rights would be violated if penalties were imposed against her, because her statements rested on religious doctrine or belief and her speech was therefore not just commercial speech.  She averred that she promoted dietary supplements to be used in conjunction with faith in God, that she was a regular on TBN’s Praise the Lord and hosted TBN’s Alternative Health, and that the attorney general’s office intended to silence her ministry and destroy her business.  Though her book told people to seek medical advice, none of the excerpts specifically mentioned the products at issue in this case, and she didn’t promote her products specifically on her shows, speaking instead of “vitamin C” and the like.  TBN apparently cancelled her alternative health programs “due to legal matters that are taking place within your ministry.” Saxion contended:
It strains credulity to imagine a person would dedicate her life to a theology contained in the book, The Gospel of Health, the A–Z Guide to Vibrant Health God’s Way, yet market her vitamins independent of any religious motivation. She does attempt to keep health claims off the labels. But maybe some do technically cross a line. She nevertheless cannot be stopped or punished. She avoids health claims on the labels to be respectful, not because she must.
Even in Texas, this did not fly.  For various reasons the procedural issues in this interlocutory appeal were tied up with the substance; Texas allows a member of the electronic or print media, or a person whose communication at issue appears in same, to appeal from an interlocutory order when the claim against it involves the free speech/free press clause of the First Amendment.  However, Saxion was not being sued by the State in the capacity of an author “or with regard to the statements made in her books and other media-related presentations but rather in the capacity of the owner of a business that manufactures and sells products that the State regulates.”  The communications at issue were labels, not libel.  “Saxion has not shown that her products’ allegedly improper and misleading labels appeared in or were published by the electronic or print media, and her own evidence shows that she kept her supplements business separate from her media activities.”  In addition, the law’s plain language didn’t include free exercise/freedom of religion claims.
Saxion claimed that the AG’s enforcement actions infringed on her free exercise rights.  If there was a burden on the free exercise of religion by interfering with an individual’s observance or practice of a central religious belief, the question was whether the burden was a substantial one, and if so, whether it was justified by a compelling governmental interest.  However, the practices challenged by the State didn’t seek to restrain Saxion from practicing any religious beliefs or expressing any religious opinions.  (This is a completely understandable conclusion, but query how it comports with Hobby Lobby: if she really has a sincere religious belief that she’s supposed to sell this stuff to cure cancer—and we’re not supposed to question her sincerity—why isn’t the state’s action suppressing a religious activity?  Of course I’d also find that there’s a compelling governmental interest—though note how, because she’s promoting these supplements to treat illness, the state doesn’t have to show that she’s wrong to show a violation of the state and federal food and drug laws.  Why shouldn’t the state have to bear that burden?)   
Tilton v. Marshall, 925 S.W.2d 672 (Tex. 1996), disallowed claims against a televangelist for conspiracy and intentional infliction of emotional distress but allowed claims with respect to fraud claims that did not involve allegedly fraudulent and deceitful presentations of religious doctrine or belief). In a plurality opinion, Tiltoncautioned that the trial court had to carefully consider each alleged misrepresentation and determine which fraud claims, if any, involved religious doctrines or beliefs, to ensure that the trier of fact did not hear evidence on them or pass on their veracity. In Saxion’s case, one of the labeling or other product-related issues involved any statements of religious belief.  Instead, the state was regulating the advertising and sale of dietary supplements “as a proper restraint on commercial speech necessary to protect the public.”  Saxion “failed to show how her religious calling to educate others on the health benefits of vitamins was substantially burdened when the part of her evidence that was undisputed by the State showed that she was able to separate her general message about vitamins and minerals from any promotion of a specific brand from her dietary-supplement business.”
Saxion had no federal RFRA claim because federal RFRA doesn’t apply to the states, and she failed to properly raise a state RFRA claim.

Posted in commercial speech, consumer protection, first amendment, http://schemas.google.com/blogger/2008/kind#post | Leave a comment

B&N almost entirely off the hook for copying backpack design

Rubio v. Barnes & Noble, Inc., 2014 WL 6769150, No. 14–CV–6561 (S.D.N.Y Nov. 11, 2014)
Rubio sued her alma mater, the Fashion Institute of Technology (FIT) and Barnes & Noble, Inc. for copying her original drawing of a backpack, producing actual backpacks based on her design, and selling those backpacks using her name. Only her copyright claims survived.
Rubio studied accessory design at FIT; in 2010, she took a course in accessory drawing, one of the assignments for which was to create an original drawing for 30% of the course grade.  It was announced that each drawing would be automatically entered in a contest sponsored by defendant Barnes & Noble as part of its “Back–To–Campus” collaboration with FIT. FIT didn’t explain the terms or what would happen to the winning entry. Rubio’s drawing won.
Rubio’s drawing
B&N sent Rubio a letter in May 2011 congratulating her and announcing that backpacks based on her drawing would be sold in Barnes & Noble stores and on its website.  FIT, months later, asked Rubio to sign a consent form assigning her rights, but she didn’t.  Rubio became aware that B&N was selling backpacks based on her design with a hangtag that reads: “Backpack, FIT Fashion Institute of Technology, State University of New York, Diana Rubio, AAS Accessories Design 2011.” The description on the Barnes & Noble website states: “This canvas backpack is designed by F.I.T. student, Diana Rubio, exclusively for Barnes & Noble!”  Rubio sent a C&D in 2013, registered her copyright, and sued in August 2014.
hangtag using Rubio’s name

Backpack as sold on B&N website
The court found it plausible that defendants copied the drawing in the course of making the actual backpacks, and thus the copyright infringement claim survived to the extent that it was based on copying the drawing itself.  But there was no claim based on production of the actual backpacks, which were useful articles.  Rubio didn’t identify conceptually separable elements, and the court couldn’t either.  (Nor can I.)
Rubio’s claim for violation of her right of privacy under Section 51 of the New York Civil Rights Law was barred by the one-year statute of limitations. New York uses the single publication rule, so a claim accrues on the first day the offending material is published, not upon each subsequent publication, and she sued too late.
Her state law claim for unjust enrichment was preempted.  Rubio argued that if the backpacks were uncopyrightable, then there was no preemption, but her claim was based on her rights in her drawing.  Congress’s choice not to accord copyright protection to useful articles derived from copyrighted images meant that preemption was exactly the right result.
Rubio’s Lanham Act false association claim failed because she has not alleged that she has any commercial interest in her name. While the Lanham Act’s protections are not limited to widely known celebrities, a plaintiff has standing under the statute only if his or her identity carries some “level of consumer recognition.” Rubio alleged that she was “a young, aspiring entrepreneur and fashion designer who, while holding a day job as a skincare professional, has been in the process of designing and launching her own fashion accessories since at least 2011.” But that failed to allege that her name carried any commercial value analogous to a trademark, or that it is recognized by consumers in the relevant market. So she lacked standing to assert a Lanham Act claim for false association.  (Query whether Lexmark analysis ought to have changed this in any way.)
Nor could her Lanham Act false advertising claim survive. She didn’t plausibly allege a false or misleading statement. The only statement at issue was the description of her backpack on the Barnes & Noble websites: “This canvas backpack is designed by F.I.T. student Diana Rubio, exclusively for Barnes & Noble!”  The court found this to be true: Rubio’s own allegations established that she designed the backpack while a FIT student, for submission to B&N.  “[T]he Drawing’s multiple references to ‘B & N’ and ‘Barnes & Noble’ belie any claim that it was not made specifically for Barnes & Noble.” Thus there was nothing false or misleading about the statement.  Note: Dastar might be needed to sew up the reasoning here.  The implication—perhaps even the necessary implication—of B&N’s statement is that Rubio willingly participated/authorized B&N to use her design; that part isn’t true, but it’s (1) unlikely to be material, and (2) the kind of implication Dastar may put off limits.
There’s no question that Rubio appears to have been badly treated.  FIT should have conducted itself much better, and B&N too.  The complaint indicates that Rubio found an initial settlement offer unpleasantly low; it’s hard to know from the outside what that means, but the inability to claim statutory damages or fees based on the infringement occurring pre-registration probably affected the amount she was offered.

Posted in copyright, dastar, http://schemas.google.com/blogger/2008/kind#post, right of publicity, standing, trademark, unfairness | Leave a comment

No free lift: ad-as-contract claim survives

Kearney v. Equilon Enterprises, LLC, No. 3:14–cv–00254, 2014 WL 6769697 (D. Or. Dec. 1, 2014)
Plaintiffs sued on behalf of a proposed nationwide class for breach of contract and violations of various state consumer protection statutes.  The court denied the motion to dismiss the breach of contract claims, but found that the consumer protection claims had to be pled with particularity and weren’t.
Shell service stations displayed this ad as part of Equilon’s Ski Free promotion:  

After buying ten gallons of fuel, a customer got a voucher with the receipt.  But the voucher couldn’t be exchanged for a free lift ticket. Instead it was a two for one coupon; you could only get a free ticket by buying another at full price, and there were various other restrictions.  (Note that, regardless of the fate of this lawsuit, this promotion would appear to violate FTC and similar state rules about “free” offers; consumer plaintiffs aren’t the only worries I’d have about this promotion.)
Equilon argued that its ad lacked sufficient specificity to be an offer, and therefore there could be no acceptance or meeting of the minds. The general rule is that an ad isn’t an offer, Leonard v. Pepsico, Inc., 88 F. Supp. 2d 116 (S.D.N.Y.1999), aff’d, 210 F.3d 88 (2d Cir. 2000), but rather requests to negotiate with incomplete terms.  But if an advertisement is “clear, definite, and explicit, and leaves nothing open for negotiation,” then the advertisement “constitutes an offer, acceptance of which will complete the contract.” Lefkowitz v. Great Minneapolis Surplus Store, 86 N.W.2d 689, 691 (1957).
Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777 (9th Cir. 2012), considered a tobacco rewards program that offered “C-Notes” along with cigarettes; these could be redeemed for merchandise after customers enrolled in the rewards program.  After years, RJR announced that it would end the program, giving customers 6 months to redeem their C-Notes.  Then, RJR didn’t allow redemption before the program’s termination, and customers sued.  On appeal, the court found that, while the plaintiffs had not adequately alleged the existence of an offer to enter into a bilateral contract, they had adequately alleged the existence of an offer to enter into a unilateral contract. “A bilateral contract consists of mutual promises made in exchange for each other by each of the two contracting parties,” while “a unilateral contract involves the exchange of a promise for a performance.”
In light of the totality of the circumstances, the court ruled, plaintiffs accepted RJR’s unilateral offer by saving their C–Notes and attempting to redeem them in accordance with the C–Notes catalogue’s terms. The totality of the circumstances included “the repeated use of the word ‘offer’ in the C–Notes; the absence of any language disclaiming the intent to be bound; the inclusion of specific restrictions in the C–Notes; the formal enrolment process …; and the substantial reliance expected from consumers.” Consumers’ substantial reliance was important because “a member of the public is unlikely to undertake substantial reliance in the absence of a binding commitment from the offeror—i.e., on the mere chance that the offeror will perform.”
There’s an exception to the general rule that an ad isn’t an offer for rewards, including offers of a reward for the redemption of coupons. That’s because the rule arose to address the problem of over-acceptance.  The issues were whether the advertiser clearly promised to perform in exchange for something requested by the advertiser, and whether the recipient “reasonably might have concluded that by acting in accordance with the request a contract would be formed.”
Construed favorably to plaintiffs, the ad here was the sign “buy 10 gallons of fuel, get a voucher for a free lift ticket!”  Equilon “in clear and positive terms, promised to render performance in exchange for the purchase of ten gallons of fuel.”  And a recipient reasonably might have concluded that by acting in accordance with the request a contract would be formed.
Nor did the contract fail for lack of consideration.  Equilon argued that the initial purchase of fuel was a separate contract from the purchase of ten or more gallons in return for a voucher, and past consideration can’t support a contract, nor did the price of the transaction overall vary whether or not the customer got a voucher.  But that assumed a bilateral contract, not a unilateral one.  A unilateral contract can be created by performing the act requested as acceptance and consideration.  Plaintiffs sufficiently alleged consideration when they stated that they purchased ten gallons of fuel at a participating Shell station with the intention of participating in the “Ski Free” promotion.
Then the court turned to the state law consumer protection claims: were they fraud-like? Fraud can be averred by specifically alleging fraud, or by alleging facts that necessarily constitute fraud even if the word “fraud’ is not used.”  Rule 9(b) is intended to protect reputation, and to provide adequate notice.  The relevant allegations were essentially that Equilon controlled the Ski Free promotion and that it didn’t provide the promised “free” ticket.  You might wonder why the absence of any intent allegation isn’t important, especially since one of the main reasons that consumer protection laws were enacted was to avoid the stringent scienter requirements of common-law fraud.  Anyway, I do.
But not this court!  “Although Plaintiffs do not allege that Defendant had knowledge of the advertisement’s falsity or ignorance of its truth directly, Plaintiffs do allege that Defendant conducted the advertisement program and approved all the marketing activities and plans.” And we can infer that Equilon intended the ad to be relied on, as the purpose of advertising is to induce reliance.  Thus, the claims sounded in fraud and had to be pled with particularity.
Note: this goes way further than most cases applying 9(b) to state consumer protection claims. In every other case of which I am aware, the plaintiff pled deliberate falsehood, not just falsehood, at least triggering the 9th Circuit’s standard.  Liability doesn’t depend on any scienter on the defendant’s part, and screwing this offer up could be negligence, at least.  I don’t get this result at all.
Because plaintiffs alleged a unified course of fraudulent conduct and relied entirely on that course of conduct as the basis for their claim, they had to satisfy Rule 9(b), and didn’t.  The “who” was “a Shell station located within the [relevant state].” The “what” was the Ski Free ad. The “when” was “within the class period.” The “where” was also “a Shell station located within the [relevant state].” The “how” is that the class representative purchased fuel at the Shell station with the intent of receiving a free lift ticket, but was instead provided a “buy one, get one free offer” with other various restrictions.
The court found the “who” and “where” insufficient, since there might be over a hundred Shell stations within each relevant state.  Even if Equilon reviewed its advertising, it might not know with specificity which station displayed the ad.  “Overall, simply alleging a generic Shell station within the relevant state does not state with particularity who engaged in fraudulent behavior.”
In addition, the “what” was disputed.  There was the alleged ad, and if that were all that “likely” would be enough to put Equilon on notice.  But plaintiffs also alleged that there were “various other signs or indications on or about the store property indicating in large bolded lettering that free products or services were being offered by the station under the Ski Free promotion,” and that “signage was consistent with signage contained on the http://www.skifreedeals.com website for various seasons during the class period.”  That might be enough under Rule 8, but it was shaky for 9(b); the court let it skate by.  The “how” was also sufficiently alleged.
The “when” was also insufficiently specified; plaintiffs never alleged the specific dates for the class period, which might be the 2012 ski season or might not, and anyway the ski season varies in length.  The one-year statute of limitations under Oregon law might kick in, depending on the facts.
Plaintiffs did, however, adequately plead reliance and causation.

Posted in consumer protection, contracts, http://schemas.google.com/blogger/2008/kind#post | Leave a comment