Insufficient deviation from FDA label and lack of materiality doom false ad claims

Posted on November 3, 2014 by rtushnet
Apotex Inc. v. Acorda Therapeutics, Inc., 2014 WL 5462547, No. 11 Civ. 8803 (S.D.N.Y. Oct. 23, 2014)
Zanaflex tablets and capsules (active ingredient tizanidine) are approved by the FDA to treat spasticity.  Somnolence is one of the most common side effects.  Apotex began selling a generic version of the tablets in 2004, and Acorda began selling Zanaflex capsules in 2005.  Tizanidine tablets and capsules aren’t bioequivalent when administered with food, and the differences might be clinically significant, including increased adverse events or delayed/faster onset of activity, for people switching between the two. Apotex sued Acorda for false advertising and related business torts. Acorda here won summary judgment.
The court began by noting that courts generally reject Lanham Act claims based on ads that merely repeat FDA-approved label information.  (Pom doesn’t even merit a mention.)  It then reviewed the various statements and images Apotex argued were false.
First, sales reps told doctors that Cmax (maximum blood concentration of a drug after dosing) was reduced when Zanaflex was taken with food.  But this was consistent with the FDA label, which said that  “the mean Cmax for the capsule when administered with food is approximately 2/3’s the Cmax for the tablet when administered with food.”
Second, sales reps told doctors that, when taken with food, Zanaflex capsules cause less somnolence than Zanaflex tablets.  The court rejected Acorda’s argument that these statements were unauthorized and isolated and thus couldn’t be the basis of liability, because they weren’t part of an organized campaign.  A reasonable juror could find otherwise.  Acorda also argued that a pharmaceutical company shouldn’t be held liable when it didn’t instruct the reps to make the statements and, after learning of them, reinforced company policy and made good faith compliance efforts.  That was a factual determination the court wasn’t willing to make on a summary judgment motion.
However, a reasonable juror couldn’t find these statements to be false.  Apotex argued that all it need to show was that the challenged statements weren’t supported by statistically significant evidence. When an ad explicitly or implicitly represents that its claims are test-backed, falsity can come from showing that the tests didn’t establish the proposition for which they were cited, including by showing that the tests weren’t sufficiently reliable.  But none of the statements about somnolence here were claims of test-proven superiority.  “At most, the statements suggest that, due to pharmacokinetic differences between the products, Zanaflex capsules cause less somnolence than Zanaflex tablets when taken with food.”  (Why wouldn’t reasonable doctors assume that there was actual evidence behind this, since the claim involves a scientific method of action?)  True, some of the challegned statements referred to a graph of pharmokinetic differences, but the graph seemed to be the one featured on the FDA label and there was no indication that the sales reps told doctors that the graph showed somnolence levels.  Encouraging doctors to draw an inference not directly supported by the graph was at most misleading, not false.  At most, Apotex showed lack of substantiation, not falsity.
Third, Acorda’s promotional materials said that taking Zanaflex tablets with food increases Cmax by 30%, whereas taking Zanaflex capsules with food decreases Cmax by 20%.  Again, this was consistent with the FDA-approved label; omitting “approximately” wasn’t enough to make the claim false. 
However, juxtaposing this claim with a graph of of mean tizanidine plasma concentration curves over time could create a literally false message, since mean plasma concentration over time is different from Cmax (the highest level, at whatever time it occurs).  Identifying the highest points on the graph as a “30% Increase for Tablets” and “20% Decrease for Capsules” unambiguously claimed that mean concentration increased that much/decreased that much when the drugs were taken with food.  However, the evidence suggested a much smaller increase/decrease of 13%/12%.  But falsity isn’t enough; there was no evidence that “misstating the extent to which food affects mean tizanidine plasma concentration was likely to influence consumers’ purchasing decisions.” Without materiality, summary judgment was appropriate.
Fourth, one promo piece claimed “Flexible Control in a Capsule,” images of the sun and moon, the words “day” and “night,” and information about “Important Pharmacokinetic Differences.” Apotex argued that this made a false claim that taking Zanaflex capsules with food reduces somnolence.  This was ambiguous at best: the brochure could be making a number of claims, such as that Zanaflex capsules relieve symptoms throughout the entire day, Zanaflex capsules release the drug in a controlled manner, or Zanaflex capsules allow for more effective treatment of spasticity over time.  And Apotex didn’t show misleadingness with extrinsic evidence.
Fifth, Acorda made statements about pharmacokinetic differences between Zanaflex capsules and tablets that differed from those on the FDA label, such as claiming unequivocally that effects and adverse events are related to plasma levels of tizanidine and calling the differences between capsules and tablets “important.”  But a claim isn’t literally false just because it exaggerates an FDA-approved statement.  There was no evidence allowing a reasonable juror to include that effects/adverse events weren’t related to plasma levels, that no important differences existed between the two forms, etc. Nor was there extrinsic evidence of consumer confusion.

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The nominative/descriptive line

Posted on October 30, 2014 by rtushnet

I love ads like this, which play with trademark meaning and non-trademark meaning: how should the law analyze them?

“Rekindle your love of beautiful books” ad for print books

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FTC challenges Gerber allergy-protection claims in court

Posted on October 30, 2014 by rtushnet

Read the FTC’s explanation.  The FDA approved an extremely limited claim about very sketchy scientific evidence, and Gerber converted that into “the first and only infant formula that meets the criteria for a FDA Qualified Health Claim,” with accompanying gold badge, while advertising that its formula could guard against children developing allergies.  That was probably a bad idea.

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Can’t replead TM as false advertising when functionality precludes TM

Posted on October 30, 2014 by rtushnet
Honeywell International Inc. v. ICM Controls Corp., 2014 WL 5438395, No. 11–569 (D. Minn. Oct. 24, 2014)
This litigation involves claims for patent infringement, copyright infringement, violations of the Lanham Act, and violations of the Uniform Deceptive Trade Practices Act based on ICM’s alleged copying of combustion control devices. A few months ago, the court kicked out Honeywell’s trade dress claim on functionality grounds and its false advertising claim based on ICM’s “Made in the USA” representations.  While at the time it questioned the validity of false advertising claims based on trade dress similarity, it now administered the coup de grace.
Honeywell maintained that it wasn’t just challenging ICM’s copying of trade dress, but also ICM’s promotion of its products as “the same as” Honeywell products.  ICM allegedly copied the appearance of Honeywell’s products “because that appearance gives contractors the impression that ICM’s products are ‘highly interchangeable’ with the range of Honeywell products they are intended to replace.”  However, ICM’s products were allegedly not the same and not always highly interchangeable with Honeywell products, making ICM’s marketing false or misleading.  Honeywell also argued that its history of making these products as “private label” products for third-party competitors contributed to the confusion.
The court was unconvinced.  Functionality protects competition and consumers.  The allegations didn’t show any false statement. Instead, ICM allegedly marketed products similar to Honeywell’s, which created a false impression of affiliation/sponsorship.  “But Honeywell International has no protectable interest in its claimed trade dress. Trade dress infringement does not arise out of ICM Controls’ products; the marketing of those same products does not constitute false advertising.”
Comment: I would state the doctrinal result as one that an implicit performance message, if any, conveyed by copying functional features must be allowed, even if that causes some confusion, to police the boundaries of trademark and patent law.  This is an unusual example of channeling from false advertising to trademark; more common is the other way around, where we usually require complaints about comparative advertising to be made under the head of false advertising with its stricter falsity, materiality, standing, and “advertising or promotion” requirements.
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Just in time for Halloween: this should make TM owners shiver

Posted on October 29, 2014 by rtushnet
The Ninth Circuit is not kidding about not presuming irreparable harm in trademark cases.
Titaness Light Shop, LLC v. Sunlight Supply, Inc., No. 13-16959 (9th Cir. Oct. 9, 2014)
Sunlight uses “Titan Controls” for devices that control indoor gardening equipment. Titaness Light Shop (TLS) began marketing indoor grow lighting systems under the mark “Titaness.”  The court of appeals reversed the district court’s grant of a preliminary injunction as an abuse of discretion, given that such an injunction is an extraordinary remedy that requires a clear showing of entitlement to such relief.
The problem was irreparable harm, as to which conclusory or speculative allegations are not enough.  Irreparable harm can include harm to reputation and goodwill, but evidence is required, not mere platitudes.  Here, Sunlight “Sunlight simply asserted to the district court that its goodwill and reputation would be irreparably harmed because TLS’s Titaness products were being sold by a website that supposedly catered to marijuana growers, while Sunlight had worked hard to ensure that its products were not marketed to marijuana growers.”  Yet Sunlight didn’t show actual or likely harm.  It didn’t show that its customers were aware of the relevant website; would associate products sold by the site with marijuana; or disliked marijuana enough to stop buying Sunlight products if they mistakenly perceived a link to marijuana.  Indeed, Sunlight was, at the time the appeal was argued, actually selling on that site as well.  

 Money quote: “The fact that Sunlight’s reputation might be harmed by the marketing of TLS’s products did not establish that irreparable harm to Sunlight’s reputation is likely.”

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Case against allegedly contaminated jerky treats proceeds

Posted on October 29, 2014 by rtushnet
In re Milo’s Dog Treats Consolidated Cases, 9 F.Supp.3d 523 (W.D. Pa. 2014)
The court adopted the magistrate judge’s recommendation to grant defendants’ motion to dismiss unjust enrichment claims, but to deny the motion as to the consumer protection and warranty claims in this dog jerky contamination case.
Plaintiff Funke sued on behalf of a class of purchasers of chicken and beef jerky dog treats from Milo’s Kitchen, owned by Del Monte.  She alleged that defendants misrepresented the quality of the treats, that they contained contaminants, and that after she fed the treats to her dog it became sick and ultimately had to be euthanized.  Among the allegedly false/misleading claims on the products’ packaging and associated websites: “100% Real—Wholesome and Delicious;” the ingredient list; “Milo’s Kitchen Home–Style Dog Treats are 100% real jerky, sausage slices, and meatballs;” each piece of Milo’s Kitchen Chicken Jerky “is made with whole fillets of 100% real jerky and the quality and care your dog deserves,” without any artificial chicken flavors or filler ingredients; and claims that their products comply with USDA, FDA and other food safety rules.
The FDA released numerous cautions to consumers about illness in dogs after consuming jerky treats made in China, as defendants’ were.  Defendants’ statements that neither the FDA nor the American Veterinarian Medical Association have been able to identify the cause of the illnesses or a connection between the illnesses and the jerky treats and that no contaminants have been found despite extensive testing were allegedly deceptive.  Funke further alleged that Milo’s safety process was deficient and that the FDA investigation failing to detect contaminants was fundamentally flawed.  Moreover, defendants allegedly failed to respond adequately once the contamination was found.
Funke brought the usual statutory California claims.  Defendants argued that the alleged misrepresentations were mere puffery.  Along with those listed above, plaintiff identified other alleged misrepresentations: that defendants started making Milo’s Kitchen dog treats because they believed dogs deserve treats made with the same quality of ingredients and care that their owners want in their food; the jerky treats are good for pets; and dogs deserve only the best with your food and deserve to enjoy snacks that not only look like jerky, sausage slices and meatballs, but actually are 100% real jerky, sausage slices and meatballs.
Other than the statements about defendants’ motivations for making the treats and the claim that they’re “good for pets,” each of these appeared verifiable and sufficiently specific to induce reliance. Moreover, even the statements that were puffery standing alone could contribute to the deceptive context of the packaging as a whole.
Funke also satisfied Rule 9(b) by alleging that defendants “engaged in a continuous course of conduct since 2007 (the when), whereby they have made misrepresentations on the jerky treat packaging and on their websites (the where), that their products are wholesome, safe, and that they otherwise have characteristics and qualities that they do not have which is likely to mislead the public (the what), and that these misrepresentations are false because many of the packages of jerky treats contain contaminants (the how).”  Funke also adequately alleged reliance.
Plaintiff Ruff’s claims fared similarly.  (Her dog also died.)  She challenged similar claims, including statements that the product is “100% REAL”; that it was made with “the quality and care your dog deserves”; and that the jerky treats are “wholesome natural treats.”  She also challenged Milo’s response to the FDA’s warnings as misleadingly downplaying the evidence and failing to warn consumers of the dangers.  She contended that neither she nor any reasonable person would have bought the jerky treats if they had known of the material risk of serious harm to their pets.  Along with the usual California claims, she alleged negligence and strict product liability.
The court found that Ruff adequately alleged a defect and proximate cause.  While an accident alone isn’t sufficient to prove a defect, defects can be alleged by circumstantial evidence such as that present here: Ruff bought a package of treats which she fed to her healthy dog; with no other material changes to its diet, it fell ill; it died from kidney failure within one week of consuming the treats; since Nov. 2011, the FDA has logged over 900 reports of illness and death from kidney failure in pets after consumption of jerky treats.
The court also found that Ruff could represent a nationwide class for her California UCL and CLRA claims, even though she wasn’t a California resident.  California law may be applied when the defendant is a California corporation, as here, and some or all of the alleged misconduct emanated from California, as alleged here, where Ruff pled that California was the headquarters for Del Monte’s US marketing and that the California location provides all customer support and makes all corporate decisions regarding marketing.  She could also bring a North Carolina UDTPA claim, because she lived there.
Ruff’s Magnuson-Moss Warranty Act claims for breach of the implied warranty of merchantability survived even though there was no privity.  The rule requiring privity has an exception for “foodstuffs,” and there was no reason to limit that exception to human food.

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Whole Foods’ not wholly natural foods are ok

Posted on October 27, 2014 by rtushnet
Gedalia v. Whole Foods Market Services, Inc., 2014 WL 5315030,  No. 4:13–CV–3517 (S.D. Tex. Sept. 30, 2014)
Gedalia sued on behalf of a putative class of people who bought Whole Foods’s private-label 365 Organic and 365 Everyday Value products allegedly falsely labelled as being organic, natural, and/or GMO-free.  Plaintiffs brought claims under various state consumer protection laws as well as common-law theories.  The claims encompassed hundreds of different products; the court expressed doubt about plaintiffs’ standing to represent consumers of products they didn’t purchase, but didn’t resolve the issue because it ruled on lack of plausible reliance. Likewise, the court was skeptical that plaintiffs could bring claims based on online and in-store representations not present on the actual packages, because they didn’t allege they saw those representations.
The court did reject preemption arguments; the Organic Foods Production Act (OFPA) does not clearly indicate a purpose to occupy the field, nor did it conflict with relevant California law.  Nor were “natural” claims impliedly preempted by the FDCA/NLEA.  Reliance on the primary jurisdiction doctrine “would likely be unfruitful due to the agency’s long-standing reluctance to officially define the term ‘natural.’”
The sticking point was a misrepresentation that would be likely to deceive a reasonable consumer.  This is usually a fact question unsuited for a motion to dismiss, unless “the advertisement itself made it impossible for the plaintiff to prove that a reasonable consumer was likely to be deceived.”  Other cases have noted that there’s not much reason to think that consumers know or understand federal definitions of things like “organic” or “synthetic.”  Williams v. Gerber, 552 F.3d 935 (9th Cir. 2008), held that consumers aren’t required to read the ingredient label to correct misleading impressions from the front of a package. In particular, a claim to be made with fruit and “other all natural ingredients” could reasonably be interpreted to mean “all the ingredients in the product were natural.”  Subsequently, courts have generally held that the definition of “natural” is a question of fact, to be determined based on “contextualized evidence regarding consumer perceptions.”  However, courts have also required pleadings to specify which ingredients are unnatural.  And some healthy-sounding terms have been held to be puffery.
Here, the allegations were that 365 Brands deceptively include (1) non-organic ingredients in organic products, (2) GMOs and (3) Unacceptable Ingredients. Plaintiffs submitted hundreds of product label images, but none of the labels said “100% organic,” though they did have USDA and third-party certification seals. Plaintiffs alleged that the products include “synthetic ingredients that are not permitted in organic foods” and that “have not been approved to be used in any food at all, much less in organic food.”  But they didn’t allege that the certifications were invalid or that the labels violated USDA regulations.  OFPA allows non-organic ingredients in “organic” food, depending on the label.  There was no reason to believe that “the reasonable consumer would assume 365 Brands organic products are any more organic than what organic certifying agencies require.”
GMOs: many of the labels stated that “365 Everyday Value products are formulated to avoid genetically engineered ingredients.” However, lab test results showed 365 Everyday Value Corn Flakes contained 57% GMO corn.  The Whole Foods website directed consumers to buy 365 Everyday Value products if they wanted to avoid GMOs and stated that “[a]ll ingredients derived from plants are sourced to avoid GMOs, and hundreds of those products are verified by the Non-GMO Project.”  However, another page on the website distinguished “enrolled” and “verified” non-GMO products. “While the website is not a model of clarity, the lab results and other evidence do not show 365 products were not ‘sourced to avoid’ GMOs, nor that verified non-GMO products contained GMOs.”  None of the labels and literature stated that 365 Brands products were “GMO free.”  (Really?  Because that seems pretty misleading to me; the implicit message is clearly that there aren’t GMOs, even if it’s carefully worded to avoid making that explicit claim.)
As for Unacceptable Ingredients, that came from a list on the Whole Foods website. That list started with a bold disclaimer that Whole Foods reserved the right to change the list at any time, and appeared to be written for producers hoping to sell their products to Whole Foods.  Plaintiffs alleged that they bought products containing Unacceptable Ingredients, including “irradiated foods” (cholecalciferol, ergocalciferol), “nitrates” (thiamine mononitrate), “artificial colors,” and “artificial flavors.” Whole Foods disputed the definition of “irradiated foods,” arguing that it targeted “the use of ionizing radiation in meat, produce, seafood and freestanding spice products, not obscure nutrient, vitamin, and mineral ingredients.”
Also, plaintiffs argued that all food coloring was “artificial,” even those made of “natural” ingredients, according to the FDA definition of “color additive.” They alleged that these ingredients didn’t meet the reasonable consumer’s understanding of the term “natural,” which “comports with federal law and Whole Foods’ proffered definition.” Whole Foods elsewhere defined natural foods as “foods that are minimally processed, largely or completely free of artificial ingredients, preservatives and other non-naturally occurring chemicals and as near to their whole, natural state as possible.” The USDA allowed “natural” on meat and poultry labels, as long as the products didn’t contain “any artificial flavor or flavoring, coloring ingredient, or chemical preservative, or any other artificial or synthetic ingredient” and provided that “the product and its ingredients are not more than minimally processed.”  Elsewhere, regulations define synthetic as “[a] substance that is formulated or manufactured by a chemical process or by a process that chemically changes a substance extracted from naturally occurring plant, animal, or mineral sources.”  While the FDA has no official “natural” definition, as a matter of policy it treats the term “as meaning that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.”
Because the FDA definition incorporated normal consumer expectations, it didn’t help with the reasonable consumer standard. The Whole Foods definition circularly defined “natural” as “not artificial” and “as near to [a] natural state as possible.” The USDA definition was more stringent, but was limited to meat and poultry.  Still, Whole Foods didn’t offer an alternative definition that might include all the allegedly “artificial” ingredients plaintiffs challenged. Instead, it argued that the proffered interpretation was “based on arcane and technical regulatory definitions, not what a reasonable consumer would consider the terms to mean.”  While whether reasonable consumers would consider an ingredient “natural” is a fact question, plaintiffs weren’t challenging the label “all natural” but were alleging misrepresentations based on the Unacceptable Ingredient list, from a page that plaintiffs didn’t show reasonable consumers would visit or rely on.
Plaintiffs also relied on images of advertising and signage that state, e.g., “Nothing artificial … ever, ever, ever.”  But none of the labels referred to the Unacceptable Ingredient list.  The court couldn’t find references to “natural” or “artificial” ingredients on the submitted labels, though it was possible that they existed but weren’t legible on the submitted images. “Based on the images submitted, a reasonable consumer would not consider such drawings to be more than decorative graphics and would not rely on them in purchasing the products.”  Plaintiffs argued that Whole Foods’ broad representations on its signs etc. belied the “dizzying array of ingredients” listed on its products. “But that is the purpose of requiring ingredient lists on every product label.” 
Plaintiffs’ argument reduced to the idea that, “since Whole Foods has developed a successful brand as a provider of natural foods, it should be obligated to guarantee every molecule in every product it sells under its in-house brand is natural,” and likewise with “organic,” in spite of OFPA’s tiered labeling regime.  Although the court commented that there’s an argument that organic labeling is inherently misleading, plaintiffs didn’t show how Whole Foods’ use of the term was any different from that of other organic producers, and the same was true of “natural.”
“Natural” cases allowing claims to proceed required “contextualized evidence regarding consumer perceptions,” but the claims here were far too broad.  “The only common representation on the actual labels of 365 Products is a logo stating ‘365 EVERYDAY VALUE.’” This didn’t plausibly suggest natural ingredients, but rather suggests that the products were less than premium quality.

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TM, advertising claims excluded from LivingSocial’s arbitration agreement

Posted on October 27, 2014 by rtushnet
Faegin, v. LivingSocial, Inc., No. 14cv00418, 2014 WL 5307186 (S.D. Cal. Oct. 15, 2014)
Plaintiffs (A.T. Your Service Cleaning and Janitorial) sued defendants for trademark infringement and related business torts.  ATYS is a cleaning service in San Diego.  LivingSocial is a national online marketing company that advertises deals and discounts on behalf of merchants. Plaintiffs signed an agreement with LivingSocial allowing it to advertise and sell vouchers for ATYS in San Diego; there was an arbitration provision covering “any dispute, claim, or disagreement arising from or relating to this Agreement or the breach thereof.”  This advertising relationship lasted a few months in 2012.
 In April 2013, plaintiffs contacted LivingSocial again, but was told there was a 2-3 month wait time in San Diego.  In May, plaintiffs heard from an existing customer that the customer had bought a voucher for ATYS through LivingSocial.  The voucher was not for ATYS, however; it was another company, At Your Service Housekeeping, also in the San Diego area.  LivingSocial didn’t include a phone number for AYSH on the vouchers it sold; customers who searched for “At Your Service San Diego” found plaintiffs’ web site and telephone number.  Plaintiffs received calls from customers who mistakenly thought they bought vouchers for ATYS. The complaint also alleged that AYSH failed to honor its vouchers, causing confused consumers to give negative reviews to ATYS on Yelp, Google, etc., harming ATYS.
LivingSocial argued that this dispute had to be arbitrated, since plaintiffs’ trademark claims “related to” the agreement.  Plaintiffs pointed out that they made no allegations relating to the terms and conditions of the parties’ agreement. The court found that the arbitration was worded broadly, reaching “every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract.” Nonetheless, arbitration may only be ordered when the parties agreed to arbitrate their dispute.
LivingSocial argued that plaintiffs’ trademark claims depended explicitly on the prior contract, and pointed to plaintiffs’ allegation that LivingSocial helped plaintiffs’ mark “become famous and distinguished” through LivingSocial’s assistance with promoting and strengthening the mark.  (Comment: Aaargh.  On the facts alleged, ATYS has suffered significant harm, but there is no way they have a famous mark and alleging dilution should be understood as meriting an award of fees to defendants in cases like this.) 
But claims “arise from” an agreement or breach when the claims relate to “the interpretation and performance of the contract itself.”   Resolution of the infringement claims wouldn’t require interpretation of the contract or of the parties’ performance thereunder.  The agreement didn’t say anything about LivingSocial’s rights or obligations with respect to ATYS’s mark. The infringement claims “constitute independent wrongs” and didn’t “arise from” the agreement.  Similarly with false advertising and unfair business practices claims: the agreement didn’t refer to LivingSocial’s right to advertise competing business, and nowhere in the agreement did LivingSocial agree to refrain from providing advertising services to companies with similar names.  The claims here weren’t based on LivingSocial’s relationship with ATYS; they were based on LivingSocial’s relationship with AYSH.

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Which false advertising claims are barred by Dastar?

Posted on October 27, 2014 by rtushnet
A.H. Lundberg Associates, Inc. v. TSI, Inc., No. C14–1160, 2014 WL 5365514 (W.D. Wash. Oct. 21, 2014)
The parties compete to make and supply equipment to various processing industries. Defendant TSI specializes in wood and biomass, and began purchasing plaintiff Lundberg’s products in 2007.  In 2012, Gary Raemhild, a Lundberg employee with design and engineering knowledge, left Lundberg to work for TSI.  TSI then began offering products that Lundberg alleged were copied from Lundberg based on information and drawings from Raemhild.  Lundberg alleged (1) false designation of origin/reverse passing off; (2) false advertising of the authorship of the design of the products; and (3) false advertising based on TSI’s claim to have made “improvements” to the products.
Dastar barred the false designation of origin claim.  TSI physically made the goods it sold, so that’s it.  Courts have also (wrongly) held that false claims of authorship can’t be false advertising under §43(a)(1)(B), and the court here joined them—misrepresenting authorship isn’t misrepresenting “nature, characteristics, or qualities” covered by §43(a)(1)(B).  An actionable misrepresentation has to relate to something that would “change the user’s actual experience of the product”:
[T]he origin of the design of a product, like licensing status, is not a “characteristic” of that good. A difference in the original author of the design would not change a pollution compliance product user’s experience because the features and function of the product would be identical in both instances. TSI’s alleged misrepresentation that it designed its own pollution control products amounts to a false designation of authorship and does not implicate any “physical or functional” attributes of the pollution compliance products.
The Lanham Act isn’t a device for perpetual patent protection any more than it is for perpetual copyright.
Comment: this result makes sense in this particular context, but it ought to be a materiality determination, not an interpretation of “characteristics.”  As stated, for example, a misrepresentation that goods were “union made” would arguably be excluded from §43(a)(1)(B) coverage.  Yet the precise reason that producers advertise “union made” or “dolphin safe” etc. is to generate sales from consumers who strongly believe that such products are better than products not produced under the relevant conditions.  (By contrast, producers make authorship claims almost inherently when selling: “our product does X” could at least be alleged to be a representation of creation.)  See Kwikset v. Superior Court (California consumer protection case discussing, among other things, the irrelevance of physical differences when meat has been misrepresented as kosher).
If we read “product user’s experience” to include the hedonic experience—the satisfaction the consumer receives from buying the product—then “union made” would be a “characteristic” even if authorship isn’t, despite the lack of physical effects on the product.  But why tap dance in this way instead of using materiality?  The court cited a Ninth Circuit case, Sybersound, that held that a misrepresentation about a song’s copyright licensing status wasn’t actionable under §43(a)(1)(B), but indicated that a misrepresentation about who performed a song would change the user’s experience and thus count as a misrepresented “characteristic”—but that’s not about the physical characteristics of the recording; it’s about how consumers perceive the value of different performers.)
Finally, the allegation that TSI falsely claimed improvements in the product design was dismissed because a claim that a product is “improved” is mere puffery, and the complaint alleged that TSI failed to state what the improvements were. However, Lundberg might be able to replead to include potential claims that TSI’s press release claimed “improvements to both construction and gas flow that enhance overall productivity and maintenance.”  But the court noted that it would require Lundberg to satisfy Rule 9(b), as the 9th Circuit has done for other types of false advertising claims.  Lundberg’s complaint sounded in fraud because it alleged that Raemhild stole its trade secrets (I don’t know why that alleges fraud, given the purposes of Rule 9(b)), and because the complaint alleged that TSI was “falsely describing and misrepresenting [TSI’s] products” (“false” doesn’t necessarily mean “intentionally false,” but the court so reads it here even though stating a claim under §43(a) does not require intentional falsity).  Further, the court expressed skepticism that even claimed improvements in “construction and gas flow” would be more than puffery in the absence of anything quantifiable or measurable.  But it would allow leave to amend anyway.

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Empirical IP Research Conference: copyright

Posted on October 25, 2014 by rtushnet
Effect of Copyright Infringement on Creative Incentives
Facilitator: Chris Sprigman (NYU)
Panelists:
Joel Waldfogel (Minnesota Carlson School of Management)
Topic: The strengths and limits of the natural experiment methodology to explore the effects of piracy on both industry output and creative incentives, Commenting on: Brett Danaher & Michael Smith, Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales (2013), Christian Peukert et al., Piracy and Movie Revenues: Evidence from Megaupload, A Tale of the Long Tail? (2013)
Do the rewards/incentives created by IP promote welfare? Welfare is consumer surplus plus revenue minus costs of creation/production/distribution.  Incentives depend on profit, not welfare.  Rather than “is stealing sapping our revenue,” ask whether enforcement actions like HADOPI or the Megaupload shutdown stimulate revenue.  Important question for big actors like MPAA, but relevance for creative incentives is indirect.
Both papers use Megaupload shutdown as discontinuous variation on feasibility of copying and ask about effects on legal purchases: not about profits/creation but revenue.  Want a measure of change in movie copying to isolate its impact on purchase. Not observed, so use country as proxy. High-copying countries like Spain provide a large experiment and lower-copying countries like the US provide an implicit control.
But: If revenues and costs are both falling, it’s not clear that digitization sapped incentives. What’s happening in the motion picture industry?  Digital camera costs falling, even for big budget movies.  Huge growth in production.  Supply responses take time; we need to distinguish between “is the Man getting paid?” and “is copyright fulfilling its function?”
Christopher Buccafusco (Chicago-Kent)
Topic: Translating Piracy’s Effect on Sales into Piracy’s Effect on Creative Incentives, Commenting on Commenting on: Brett Danaher & Michael Smith, Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales (2013), Christian Peukert et al., Piracy and Movie Revenues: Evidence from Megaupload, A Tale of the Long Tail? (2013)
Deep heterogeneity in the markets; effects on incentives may themselves be variable.  In the second paper, the Megaupload shutdown is pretty good for blockbusters and not helpful/possibly even harmful for smaller movies that rely on word of mouth for success. These aren’t simple or closed systems.  Need to be able to study the effects as they move around. 
Also, incentives for whom?  Who are the producers we care about? That can affect kinds of works created, who creates them, amount that gets invested in various groups, etc. Extrinsic v. extrinsic motivation: complicated relationship between incentive to create and output of products.  These won’t show up in large scale econometric studies and require different methodologies to answer.
What else don’t we know? These aren’t papers about the costs of production, so we need that. There’s not much about overall welfare.  What questions can experimentalists help answer?  Ultimately these are individuals, who might be better studied in labs or qualitative interviews.  To what extent do behavioral biases affect the kinds of creativity we get?
Peter DiCola (Northwestern)
Topic: Generalizability of Studies in One Creative Industry, Commenting on: Rahul Talang & Joel Waldfogel, Piracy and New Product Creation: A Bollywood Story (2014), Joel Waldfogel, Copyright Protection, Technological Change, and the Quality of New Products: Evidence from Recorded Music Since Napster, 55 J.L. & Econ. 715 (2012)
Waldfogel: estimates of quality of new music since Napster, using within rating system variations.  Data from 2000-2007 (end of decade ratings tend to be harsher on most recent music).  Music did not get worse after Napster by various quality measures, including airplay. 
Bollywood: revenue crash and decline in movie production 1985-2000, adjusted for quality.  But DiCola sees a v shape: revenue craters and comes back in 1992-93, making the institutional story more complex.  Unauthorized use: the causal claim comes from a historical narrative, but there’s VHS and cable. VHS proliferation starts in 1985; cable piracy starts in 1992.  Pro-studio change in 1994-95, and enforcement complaints continue through 1997.  Cable piracy starts when things start to recover.  Need a more precise timeline story, in order to generalize from one industry to another and to create a more formal model.
Pamela Samuelson (UC Berkeley)
Topic: Relevance of Empirical Research to Policymakers, Commenting on: National Academies Of Science Report, Copyright in the Digital Era: Building Evidence for Policy (2013)
Need more studies like DiCola’s recent studies of musicians.  Congress/the Copyright Office are willing to hear about real creator communities.  Questions about how to get more people to register copyrights/record transfers are empirical questions.  Are the fees too high? Would differential pricing help?
Katherine Strandburg: Transformativeness as a potential place for empirical data. Courts might be more receptive than Congress.
Samuelson: could identify target audiences for particular work; new audience makes fair use more plausible. Not everything works that way, but some targeted data could help.
McKenna: we never would have had iTunes without Napster.  Second- and third-order effects of legal rules. When you frame “the effects of getting rid of Megaupload” you need to think about the other effects of the legal rule that took down Megaupload, and that can’t be limited to Megaupload.
Talang: industries can recalibrate themselves.  Do we become too quick to offer a regulatory response?  Spotify: new revenue opportunities; labels are appropriating more of that v. the artists.  Will the market be able to work itself out?  India: ultimately people chose quality over free.
Sprigman: porn industry. Used to depend on the feature; now there’s a shift to the live cam/performance, which can’t be copied. 
Talang: growth in concert revenue in the music industry is another example: it’s an experience to be sold. 
Sprigman: industrial organization issue.  Slate article on Mindgeek and pornography—they own content producers and tube sites with a ton of piracy, including of content owned by the company that owns the tube sites.  Piracy takes from one hand and gives to the other.  Piracy drove down the price of the industry players they acquired; innovative in revolting ways.
Lunney: we haven’t mentioned software: is copyright working well there?  If so, why or why not?
DiCola: the calculations about decay in appeal of music over time would also be interesting to do for videogames.  There are people who use old simulators but most are interested in the next edition.
Samuelson: Breyer’s Uneasy Case for Copyright focused on books, but a little on computer programs. Software isn’t one industry but many; different mechanisms for capturing value, a lot not on copyright—complements, first mover advantage, updates, customization, ads.
Sprigman: platforms v. hosted games—different vulnerabilities to piracy. There must be something that the audiences want that sustains the platforms.
Bechtold: DRM on platforms makes it inconvenient to play pirated Xbox games; inconvenience and time constraints make buying easier, and interactive/online elements are also harder w/pirated or even secondary market purchases.
Strandburg: videogames are interesting because of how people consume them/potential substitutability with other works of entertainment that one might consume, e.g. board games.  What happens when you don’t have certain kinds of protections?
Copyright breakout session: Investigating Copyright Infringement Standards
Facilitators: Ben Depoorter (UC Hastings) & Paul Heald (Illinois)
Depoorter: Cognitive biases may affect infringement inquiries: confirmation bias, jury group effects, hindsight bias, etc. Applications in music: gaps between music theory and law. Some papers argue that music is different, similar story told about pictures (that’s me!).  Auditory sensation, time, musical elements lay observers find hard to detect; musical language is intuited but not understood; still we ask lay listeners to make the determination, but they consider performance characteristics rather than compositional ones.  Jamie Lund’s interesting empirical work: lots of room for false positives given how the cases are litigated.  What is to be done?  ABKCO v. Harrisongs: students look for similarities in My Sweet Lord and He’s So Fine; judge did it right by identifying similarities in musical forms.  Improvements: Lemley suggests increasing the role of experts in improper appropriation test; Pam Samuelson suggested reversing the test and looking first for improper appropriation and then to copying.
Heald: Laroche: mathematical approach to distance between a piece of music and an allegedly infringing piece—how many moves do you have to make to get from one to another.  When they map distance results to songs on the Columbia/USC music infringement database, they don’t get much consistency with the infringement findings, but that doesn’t mean their model is wrong.
For further research: redo Lund’s experiment with composers instead of lay listeners.  If © is a tort, we need a model for determining whether someone w/ a property right has suffered actionable damage.  What we ought to care about is whether composers are behaving reasonably when they borrow from other composers.  Reasonableness doesn’t require perfect rationality, just whether the appropriator is within the normal bounds of musical appropriation norms. 
We can also test for what composers think the law is.  A lot of compositional norms are distorted by an erroneous perception of the law.  Organists: is it ok for them to buy a piece of music and copy it to lay it out on the keyboard so they don’t have to turn pages since they are busy with hands and feet? Some think they can’t do that so they buy 8 copies.
Samuelson: role of experts.  Long period when experts were considered inappropriate for certain issues; are experts good/bad idea?  Also ideas about getting courts to move away from total concept and feel.
Jeanne Fromer: norms within areas differ—appropriation artists think differently than other groups. Experts about what?  Norms among artists; consumer understanding; something else?  Collecting data is hard because it’s hard to tell whether courts or judges are doing the same thing, or even the same thing from case to case—it’s not even a multifactor test.
Beebe: cases are borderline uncodable. Confirms slipperiness of concept of similarity in human cognition. 
Heald: efficient results require incredible flexibility of the infringement test in order to deal with the otherwise huge/rigid rights granted by a valid copyright; thus he’s not confident that much rationalization is possible.
Note that computer software doctrine is much more deferential to how programmers behave; not the lay observer. Would like to see that notion in all copyright law. Why care what lay auditor/observer sees instead of how a reasonable actor behaves towards relevant others?
Irina Manta: market substitution would still be relevant.  What about a study of copyright infringement surveys in TM infringement style?  What do people think about similarity in works and does it correlate with results in litigated cases?  If there’s a disparity we’d then want to know why/which we thought were right.
DiCola: The harm comes from the consumers—it’s either the primary part of the case or the result.  Heald is saying that the breach comes from D’s behavior, but harm has to be connected in some way to the wrongful behavior.
Samuelson: may need to distinguish reproductions from derivative works. Infringement test right now gets used the same between reproduction/derivative work.  Students ask what the difference is and she tries to give them a set of factors, but it’s difficult. Castle Rock: implausible to view SAT case as a case about substantial similarity and reproduction. TV series is not a quiz.  If it’s plausible at all, it’s a derivative works right case, and she doesn’t find it very convincing even as such. Good teaching case for discussing the difference.
DePoorter: if jury is substitute for survey, it’s harder to debias juries. Could try to mimic lab setting; valuable contributions would be in manipulating debiasing interventions.
Manta: currently parties are running their own unscientific surveys on the jurors. It would be fairer to do more; it doesn’t take much to skew people’s perceptions of similarity in our studies.  In a lab study you wouldn’t know anything about the litigation, who the parties are, etc.
DePoorter: what about not telling subjects that the D copied?
Manta: telling them that there was copying had a clear effect, as did telling them that a lot of labor went into the original; telling them there was market substitution did not have an effect. Subjects care about labor even though they’re not supposed to.
McKenna: even if people say works are similar, you have to figure out what’s triggering the similarity assessment, and a lot of things are supposed to be irrelevant. Controls are used in TM, at least theoretically. © control is harder to figure out.
Manta: true; our studies looked at smaller works like images rather than books/movies.
McKenna: Gucci v. Guess—sued over diagonal arrangement of overlapping Gs, beige on beige; Gucci claims all this as its trade dress, even though diagonals and beige on beige are common. Control: yellow on blue, arranged in square, with nonstylized letters—they changed all the elements, and the judge still said that was a fine control. Hard to have confidence in good © controls.
DiCola: evidence from criminal law suggests that debiasing is incredibly difficult/practically impossible.  Getting people not to think about labor may be impossible—how do we change their minds? 
Manta: but surveys help with that because people surveyed aren’t being told about labor; when it gets to the courtroom, you should limit what you allow attorneys to say.  Then it would be harder to ignore the survey evidence.
Fromer: courts have ignored this by sending it to jury.  Forcing the court’s hand by bringing in evidence and requiring its confrontation—in patent, inventors are forced to articulate what they think they’ve created up front. In copyright, we don’t have that, and there are good reasons, but it means that when you get to litigation you haven’t articulated what’s important about this work up front. We need a point in the © system as in patent and TM for forcing articulation of features P considers important.

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