business tort review: Lanham Act doesn’t cover all commercial defamation

Posted on August 14, 2014 by rtushnet
In my advertising law class, I teach that common-law business torts are both broader and narrower than the Lanham Act.  Here we have examples of both features: the scienter requirement and the lack of limitation to “commercial advertising and promotion.”
Innovasystems, Inc. v. Proveris Scientific Corp., No. 13–05077, 2014 WL 3887746 (D.N.J. Aug. 6, 2014)
The parties are the only domestic suppliers in the market for equipment used to test aerosol drug delivery products, and compete over a limited universe of customers.  Innova, a debtor in possession, alleged that Proveris published defamatory statements about its financial stability and intellectual property, violating New Jersey statutory and common law, the Lanham Act, and title 11’s automatic stay.  The court dismissed most of the claims but allowed some to proceed.
Proveris sued Innova in 2005 for patent infringement.  After various events, Innova conceded infringement on 9 of 11 claims; a jury found this not willful and not to merit any damages, but the district court permanently enjoined Innova from making the device found to infringe.  Innova developed a new iteration of the device it believed didn’t violate the injunction, but the court found in Proveris’s favor in the resulting litigation, including finding Innova in contempt.
Zachary Pitluk, a Proveris employee, began emailing prospective customers about the ruling, e.g. he wrote to one pharmaceutical executive that “[c]ontempt is a rare and almost always fatal condition for small business.”  In several other emails, he asserted that Innova faced criminal liability, e.g., “Innova was found to be in contempt of court, which is a very serious crime,” and infringed yet further patents. 
On the eve of the damages trial for the new suit, Innova filed for bankruptcy under Chapter 11. Pitluk sent a second wave of emails about Innova’s financial stability and ability to service customers.  One email to an overseas client implied that the injunction prohibited international sales, an assertion Innova strongly contested.  One Innova customer canceled a $400,000 purchase order and two distributors stopped selling Innova products.
The court considered Innova’s claims to sound in defamation, but Innova asserted “the full panoply of business torts”: defamation; trade libel and disparagement; tortious interference with prospective economic gain and contractual relations; Lanham Act false advertising; and false advertising/unfair competition under New Jersey law.
Defamation: the court found that claims that Innova was going out of business were not defamatory.  Statements about future conduct aren’t verifiable and thus actionable unless they “imply false underlying objective facts.”  The objective fact implied by Pitluk’s claims about Innova going out of business was that Innova was in a weakened financial position, but that was accurate and appropriate in light of the bankruptcy filing. “To the extent Proveris overstated the financial vulnerability of Innova, it was to an insufficient degree to render the assertion false.”
Likewise, the accusation of further infringement was not defamatory.  First, the court found that malice was required, not mere negligence.  Matters involving public concern require malice to be actionable, and allegations of infringement are matters of public concern.  Also, Proveris was denigrating a particular good, which is more a trade libel issue than one of defamation.  Trade libel always requires malice, unlike some varieties of defamation.  Innova failed to allege facts from which actual malice might reasonably be inferred.  Proveris implied that it would seek a finding that a different component infringed a different patent; this future orientation meant that pleading its knowledge that no court had found the component infringing didn’t sufficiently plead malice.
Allegations of criminal conduct: Pitluk’s assertion that Innova’s contempt ruling “is a very serious crime” was actionable.  “Courts place great importance on precluding inaccurate accusations of criminal liability, as evidenced by the fact that the imputation of a criminal offense to another constitutes slander per se, whereby a plaintiff need not prove any form of actual damage to his reputation.”
Sales overseas:  Pitluk told a prospective customer in India that “Innova has been found guilty of contempt of court of Federal judge Roberts order [sic] to stop selling, promoting, manufacturing or marketing the infringing ADSA system,” allegedly inaccurately implying that the injunction barred sales of the device made and sold abroad.  Proveris argued that this was in fact true, and submitted an excerpt of a hearing transcript from the court that issued the injunction, but that was outside the pleadings.  This claim also proceeded.
Trade libel: this claim was dismissed for failure to allege special damages, which is one element that distinguishes trade libel from defamation.  The lost purchase order and distributors allegedly followed the second round of Proveris’s statements about Innova’s financial weakness, but those statements weren’t actionable.  Thus, Innova didn’t allege the requisite pecuniary harm from a false allegation.  Restating the claim as one for tortious interference with economic gain didn’t help.
Lanham Act false advertising: The court found that the statements weren’t “commercial advertising or promotion,” even though it had already noted that the market for the parties’ products was quite limited. Statements must be “disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within that industry” to be actionable, while communications that “target … merely particular individuals” aren’t enough. The court held that the complaint just alleged emails to particular individuals.  But the court didn’t specifically assess what percentage of the specific market was reached; in a small enough market, misrepresentations to even one client can be enough.
New Jersey common law unfair competition: this is an amorphous tort designed to enforce “standards of fairness or commercial morality in trade,” though the classic case is palming off.  Despite its breadth and vagueness, it at least requires misappropriation of property with some sort of commercial or pecuniary value, and no such misappropriation was alleged here.
Finally, Innova’s allegations of violation of the automatic stay triggered by the bankruptcy filing survived.

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Needs more facts: insufficient allegations of dissemination doom Lanham Act claim

Posted on August 13, 2014 by rtushnet
SB Diversified Prods., Inc. v. Murchison, No. 12cv2328, 2014 WL 3894353 (S.D. Cal. July 28, 2014)
Previous opinion discussed here.  SB sued Murchison for false advertising and unfair competition, claiming that Murchison, a competitor in the squirrel trap market, made false and misleading statements about SB and its product, the “Squirrelinator,” to promote its own competing product, the “Black Fox.”  SB also sought a declaratory judgment of patent noninfringement.  After its first complaint was dismissed, it filed an amended complaint with a new claim for trade libel.
The court first found that SB had alleged enough facts to establish jurisdiction over the declaratory relief claim.  Though SB didn’t allege a direct threat of infringement proceedings from Murchison, it sufficed that SB alleged (1) Murchison’s statements on Amazon that the Squirrelinator is a “copy” of the “patented Black Fox under the ′086 patent”; and (2) a potential customer’s statement that “a fellow in Redding” [allegedly a misstatement of Murchison’s location, Red Bluff] was trying to sell the customer squirrel traps and claiming that another trap infringed on his (the fellow’s) patent, that he had video showing the Squirrelinator’s inferiority, and that he’d won a lawsuit against another entity.  Murchison’s alleged conduct would place SB in a position of abandoning sales of its product, which it claimed it had a right to make, or running the risk of being sued; that was enough.
False advertising: SB alleged that Murchison criticized the Squirrelinator, but Murchison argued that this wasn’t “commercial speech.”  The court quoted the old Gordon & Breach test for “commercial advertising or promotion,” without noting Lexmark’s probable effect on that test and in particular Lexmark’s approval of Lanham Act coverage for commercial disparagement.  Regardless, to be “commercial speech”—one element of Gordon & Breach—a core feature is that such speech must propose a commercial transaction.  The court concluded that SB failed to allege that Murchison engaged in commercial speech, because the statements alleged “simply criticize plaintiff’s product but do not propose a commercial transaction.”  (I really don’t think that formulation was designed to exclude “scaring off commercial competitors’ customers” from the category of commercial speech, even if no alternate transaction is suggested at the moment.) 
Separately, SB failed to allege facts showing sufficient dissemination to the purchasing public.  Indeed, the complaint contained an embarrassing oversight, alleging that Murchison “disseminated the video and email to a wide portion of the relevant purchasing public by emailing it to (NEED FACT HERE).”  The Lanham Act false advertising claim was dismissed without prejudice.
Then, in another weird little lacuna, the court separately dismissed what it characterized as a Lanham Act “unfair competition” claim, by which it seemed to mean §43(a)(1)(A) confusion/trademark infringement, since it quoted that part of the statute.  However, it then apparently applied the “commercial advertising or promotion” requirement to that claim too, reasoning that “[b]ecause plaintiff has not yet established that defendant’s purported statements were sufficiently disseminated to the purchasing public, the Court finds it premature to determine whether defendant’s purported statements regarding plaintiff’s product likely deceived, or caused confusion or mistake, among the purchasing public.”  Thus, it declined to dismiss the claim.  (Hunh? If there weren’t sufficient allegations for (B), why were there sufficient  allegations for (A)?).  Although I can see the point of having a kind of de minimis standard for §43(a)(1)(A) too, I don’t really know what the court is thinking here, nor do I have any idea what the alleged false association etc. was, since disparagement is inconsistent with confusion over source.
California UCL: SB failed to state a claim because it failed to allege facts demonstrating it lost money or property as a result of Murchison’s conduct.
Trade libel: This cause of action requires (1) a publication; (2) which induces others not to deal with plaintiff; and (3) special damages.  SB failed to allege facts demonstrating special damages.  General allegations of pecuniary harm through lost sales were insufficient in the absence of an allegation of amount lost, amount of business before the alleged trade libel, and/or amount of business after. 

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FTC can presume consumer reliance in contempt proceedings

Posted on August 13, 2014 by rtushnet
FTC v. BlueHippo Funding, LLC, No. 11-374-cv (2d Cir. Aug. 12, 2014) (random side note: decided two and a half years after oral argument!)
The FTC appealed the damages portion of a 2010 SDNY order granting in part the FTC’s motion for contempt against BlueHippo’s violation of a consent order.  The consent order had enjoined the defendants from making any express or implied misrepresentations of material fact with respect to, inter alia, their store credit and refund policy.  The FTC sought damages for alleged violations of the consent order from failing to disclose, at the time of purchase, material details concerning BlueHippo’s store credit policy. 
BlueHippo’s sales model was to offer consumers an installment contract; if they made 13 straight payments, BlueHippo promised to send them a computer and finance the rest. If they skipped a payment, they could continue with a layaway plan but no financing or buy something else for store credit.  BlueHippo failed to disclose when consumers entered into contracts that store credits couldn’t be applied to shipping and handling or tax, and that only one online store order could be placed at a time.  After the 2008 consent order initially resolved FTC charges, the FTC moved in late 2009 for contempt.  The district court found that BlueHippo violated the consent order by (1) failing to provide computers for 1348 orders within the promised three week time frame; (2) failing to provide either a computer or store credit merchandise for 677 orders; (3) failing to disclose details of the store credit policy to consumers; and (4) conditioning the extension of credit on mandatory preauthorized transfers.  
The FTC sought over $14 million in damages—an amount equal to defendants’ gross receipts—on the theory that it was entitled to a presumption of consumer reliance on these omissions and misrepresentations.  The district court awarded damages only relating to consumers who complied with BlueHippo’s payment requirements and qualified for but never received a promised computer—a bit over $600,000.
The court of appeals reversed. “[T]he FTC is entitled, when the proper showing has been made, to a presumption of consumer reliance.”  The district court was instructed to consider, in the first instance, whether the requirements for such a presumption had been met.  Moreover, the appropriate baseline for contempt damages was defendants’ gross receipts, though the baseline was rebuttable.
First, the court of appeals clarified that the FTC had authority to seek redress on behalf of injured consumers under §13 of the FTCA (15 USC §53), which included the ability to seek contempt damages on behalf of consumers.  A court can exercise broad discretion in setting the amount of coercive damages, but isn’t free to withhold a civil contempt damage award to the extent damages are established.  “[A] court should craft sanctions aimed at least in part on making whole the victims of the contumacious conduct.”
“The injury to a consumer occurs at the instant of a seller’s misrepresentations, which taint the consumer’s subsequent purchasing decisions.”  The fraud entitles consumers to full refunds.  “To require proof of each individual consumer’s reliance on a defendant’s misrepresentations would be an onerous task with the potential to frustrate the purpose of the FTC’s statutory mandate.”  Thus, presuming reliance in contempt cases would further the statutory purpose, as four other circuits have already recognized.  The FTC is therefore entitled to a presumption of consumer reliance upon showing that “(1) the defendant made material misrepresentations or omissions that ‘were of a kind usually relied upon by reasonable prudent persons;’ (2) the misrepresentations or omissions were widely disseminated; and (3) consumers actually purchased the defendants’ products.”
Once that presumption is triggered, damages must be calculated to ensure that all consumers who presumptively relied on the misrepresentations receive full compensation, and total gross receipts from all consumers provide the baseline.  It’s the full amount because the misrepresentations tainted the whole purchasing decisions.  Then defendants can provide evidence to justify offsets.
FTC v. Verity International, Ltd., 443 F.3d 48 (2d Cir. 2006), was not on point.  That case was a direct action against content providers who wrongly billed telephone line subscribers for internet access regardless of whether those subscribers had actually accessed the providers’ websites.  There, the Second Circuit held that disgorgement/equitable restitution was the proper measure of damages, requiring the FTC to show that its calculations reasonably approximated the defendant’s unjust gains and then shifting the burden to the defendant to show inaccuracies.
This case did not disrupt that framework.  In that case, restitution had to be calculated based on money the defendants actually received, since the payments had passed through a middleman who’d taken a bite.  But this was still disgorgement.  BlueHippo had been enjoined from making material misrepresentations about its store credit policy and enjoined to affirmatively disclose all material conditions before receiving any money from consumers.  This it did not do. 
During the violation period, 62,673 customers made purchases and 55,892 customers had not been compensated in any form.  At the time of those purchases, BlueHippo told consumers that they could cancel orders even more than seven days after ordering and receive store credit, but “conveniently omitted several material caveats accompanying their store credit policy ….   Unfortunate customers learned of these restrictions only after trying to use their credit.” This was information that likely would have influenced purchase decisions.  Nonetheless, the district court didn’t appear to have applied a presumption of damages.  This was error.

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Reading list: copyright history

Posted on August 13, 2014 by rtushnet
Reading list: Derek Miller, Performative Performances: A History and Theory of the “Copyright Performance,” 64 Theatre Journal 161 (2012).  Miller offers an account of an episode in 19th century British copyright law when, it was generally accepted, some sort of public performance in England was required before public performance in America (often the larger and more attractive market) in order to preserve English public performance rights.  Among other things, this story confirmed that people have been misunderstanding copyright law’s requirements for as long as there have been any—the “mail it to yourself” strategy is one in a long line, not a weird outlier.  Some playwrights used “copyright performances” to signal that they were worthy—after all, if they needed to engage in this formality, then their works must be valuable. 
Legally, playwrights were actually in a better position than novelists in terms of securing foreign rights—but they felt very ill treated.  Miller suggests that the physicality of theatre, and the reality that many productions are tweaked right until they open, made the requirement to perform in England, then hurry across the ocean to perform the “real” version in America particularly onerous.  “Copyright performances,” he explains, were often travesties from a standard perspective—missing rehearsal, scenery, dialogue, or even whole acts. The “legally performative” works that secured copyright protection were not “theatrical” performances in the conventional sense—they worked to secure status, not to entertain audiences.  More speculatively, Miller posits that the minimalism and anti-theatricality of copyright performances provided one input into the development of new forms of performance that challenged or rejected conventional norms about production values, acceptable acting, etc.

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court borrows limitations period from consumer protection law for Lanham Act claim

Posted on August 11, 2014 by rtushnet
Cannella v. Brennan, No. 2:12-CV-1247 (E.D. Pa. Aug. 5, 2014)
Plaintiffs First Senior Financial Group, Phillip Cannella, and Joann Small sued “Watchdog,” an anonymous blogger, and Doe defendants, ultimately identifying Krista Brennan as Watchdog and the Doe defendants as Granite Financial Solutions (a competitor of First Senior) and its employee Harry McWilliams.  First Senior is an insurance agency, and Cannella and Small are its employees.  Plaintiffs alleged that Brennan created TruthaboutCannella.com and TruthaboutCannella.net to disseminate false and misleading statements about plaintiffs and their services.  They sued for false advertising under the Lanham Act, tortious interference, civil conspiracy, and unfair competition.
The court rejected defendants’ arguments that the Lanham Act claims were barred by the applicable statute of limitations.  The Lanham Act has no limitations period itself, but subjects claims to principles of equity.  For limitations purposes, this means looking to the analogous state law.  Here, the court rejected the argument that the one-year limitations period for defamation applied. Rather, the six-year “catch all” statute of limitations under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), was most analogous to Lanham Act violations.  The UTPCPL governs unfair competition and deceptive business practices, including disparaging another’s goods and services.  Given that the parties were competitors, that the harm alleged was not just reputational but economic, and that the defamation allegedly occurred in commercial speech, this was the appropriate analogy.
On the merits, plaintiffs sufficiently pled the elements of a false advertising claim.  They identified four specific statements:
(a)        “They take every shortcut in financial planning they can certainly, why wouldn’t they take shortcuts for cosmetic vain purposes too? Speaks to character … or lack thereof.”
(b)        “These are the days Cannella is most dangerous. His game is fear peddling. He motivates people to buy from him through creating and fostering fear.”
(c)        “999am [sic] is willingly embracing a known criminal as an advertiser who continues to abuse elderly victims.”
(d)       “I wouldn’t put it past old Slippery Phil, Captain Crash Proof if he showed the agents one app and filed another to get them off of the application and so he KNOWS he doesn’t to pay them.”
Defendants alleged that these statements were opinion, not factual claims.  The court found that at least some were explicitly factual and verifiable, such as the claims that plaintiffs took “shortcuts” in the financial planning business and that Cannella was a “known criminal” who “abuse[s] elderly victims.”  (That statement didn’t specifically use Cannella’s name, but since it was posted on a website with the URL TruthaboutCannella.com, context made it plausible that this was a reference to him.)  Comment: I wonder whether there really are industry standards against which one could identify “shortcuts.”  Also, sometimes statements about criminality are taken to be mere hyperbole, especially online/anonymous statements—but that may be better left for a jury, or at least summary judgment.
The court then said that even assuming these statements were ambiguous and not literally false, plaintiffs met their burden by pleading consumer deception.  They pled that prospective customers cancelled appointments and existing clients terminated contracts as a result of defendants’ statements.  That was enough to plead misleadingness.  (This goes to an issue not often discussed—sometimes the fact/opinion line may be a factual question rather than one of law.  If reasonable consumers could take away a specific factual claim or a general opinion from a statement, then showing that they took away a specific (false) factual claim should justify liability.  But what if they took away a general negative opinion and nonetheless relied on it, because consumers do not behave completely like rational automatons?  Is harm enough to show falsifiability, or does harm sometimes just mean nonredressable, opinion-based harm?)
Turning to “commercial advertising or promotion”: the test for commercial speech looks to whether the speech is an ad, whether it refers to a specific product or service, and whether the speaker has an economic motivation for the speech.  Content is the most significant factor, and statements “related solely to the economic interests of the speaker and its audience” are indications of “commercial speech.”  Plaintiffs sufficiently pled that the defendants, their commercial competitors, used the website to damage plaintiffs’ reputation and in turn attract clients.  That sufficed. 
Nor was the website too sporadic or isolated to count as advertising or promotion; it allegedly contained over one hundred statements about plaintiffs.  The court also noted allegations that “[t]he website was accessible world-wide and was the first result to appear in a Google search for ‘Phil Cannella,’ ‘Joann Small,’ or ‘First Senior.’” Comment: Not that I think this should make a difference, but note the misunderstanding of how Google search results are varyingly presented to individuals—we don’t know that it’s the first result to appear when other people search.  If plaintiffs had been investigating the site before, it would probably come up higher for them than for people newly curious about plaintiffs. FWIW, it’s not the first result for “Phil Cannella” when I search, but Ripoff Report is; it’s not on the first page for “Joann Small,” nor “First Senior,” which for me brings up mostly entirely unrelated entities.
Plaintiffs alleged that at least 30-50 customers cited the website as a reason to cancel their business relationships with Plaintiffs. Defendants argued that there was no allegation that the four identified statements were the cause of that loss, but the court found it to be a reasonable inference at this stage that they were at least a partial cause.
Tortious interference: defendants argued that plaintiffs shouldn’t be able to circumvent the one-year defamation limitations period by recharacterizing their allegations as stating a claim for tortious interference when it was essentially defamation.  But when the gravamen of a claim was injury to economic interests or when the alleged non-defamation-related facts sufficiently supported a tortious interference claim, that reasoning didn’t apply.  The former rationale applied here and justified using the two-year limitations period for tortious interference.
However, plaintiffs failed to plead sufficient facts to support tortious interference with existing contractual relationships: they didn’t identify the people with whom they had contractual relations. While they did identify two insurance carriers allegedly contacted by defendants, they didn’t allege that the carriers did in fact terminate their business relationships.  References to “existing clients” or “various vendors” were insufficient to identify specific contracts.
By contrast, plaintiffs did sufficiently plead tortious interference with prospective contractual relations, which by definition are more difficult to identify precisely and thus require less specificity.  More than a “mere hope” of a future contract is required—instead, a plaintiff needs an objectively reasonable probability that a contract would come into existence, based on the parties’ then-current dealings.  Pleading that 30-50 potential customers cancelled follow-up appointments or decided not to do business with plaintiffs based on the website was sufficient to be more than a mere hope. These pleadings indicated that “potential customers were interested in Plaintiffs’ products or services, scheduled second appointments, and then cancelled these appointments in view of the contents that Defendants had posted on their website.”  (Given my personal experience with insurance pitches, I hope that factfinding includes inquiry into what plaintiffs counted as a showing of interest by a consumer.)
As a result of the holdings above, civil conspiracy and unfair competition claims also survived.

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Lexmark’s effect on "commercial advertising or promotion"

Posted on August 11, 2014 by rtushnet
Syngenta Seeds, Inc. v. Bunge North America, Inc., 2014 WL 3882886, No. 13-1391 (8th Cir. Aug. 8, 2014)
District court opinion discussed here.  This opinion is more Lexmark fallout.  Syngenta, a biotech company that makes genetically modified corn seed (Viptera), sued Bunge, a grain storage and transport company, for, among other things, violating the Lanham Act.  Syngenta had regulatory approval to sell Viptera in the US and numerous foreign countries, but not China. China barred corn grown from GMO seed, and could bar an entire shipment of corn from the Chinese market if it contained traces of GMO corn.  Bunge had purchase contracts with farmers who bought Viptera seed from Syngenta; the contracts authorized Bunge to refuse to accept products containing genetic modifications for which import approval has not been obtained in foreign export markets.
When China significantly increased corn imports, Bunge started treating China as a major export market for domestically-grown corn, and therefore began refusing to accept corn grown from Viptera seed. Bunge placed signs in its regional facilities and on its website stating that it was unable to accept delivery of Viptera (and another product) because “[t]hese seed products have not received necessary international approval from major export destinations for the U.S.”  It continued, “Bunge facilities are integrated into the export market, which is why the terms of Bunge’s purchase contract states that Bunge will not accept grains and oil seeds containing transgenic events not approved for U.S. export markets. Bunge will accept a listed product once the seeds receive approval from major export markets.”
Syngenta alleged that Bunge’s refusal caused additional expenses to farmers who had purchase contracts with Bunge and had planted Viptera. Many of those farmers allegedly  expressed dissatisfaction with Syngenta and, as a result, Syngenta allegedly lost profits, market share, and goodwill.  The district court granted summary judgment on Syngenta’s Lanham Act claim, concluding Syngenta lacked standing/had failed to show that Bunge’s signs were commercial speech.  (Discussion of other claims omitted.)
Pre-Lexmark, the district court had reasoned that Syngenta didn’t have standing because it wasn’t a Bunge competitor and that Bunge’s signs weren’t commercial speech.  Lexmarkestablished “the zone-of-interests test and proximate causality requirement as the proper analysis for analyzing standing.”  (Sorry, Justice Scalia. No one is listening to you when you say this isn’t about standing.  And they’re really serious about it, as you’ll see below.)  The Court expressly rejected the requirement that the challenged commercial speech has to come from a competitor.
The court of appeals declined to affirm the district court on the alternate ground that Bunge’s statements didn’t qualify as commercial speech, because “[l]ooking past the threshold standing determination to affirm on the basis of the merits of a contested point of law …would be assuming ‘hypothetical jurisdiction.’”  Thus, the district court needed to apply the zone of interests/proximate cause test in the first instance.  (And the district court will also have to grapple with the fact that Lexmark, though it doesn’t address the issue expressly, casts into doubt the standard “commercial advertising or promotion” test that requires the targeted speech to be speech by a competitor; it seems very unlikely that Congress did with those words what the Court said it did not do otherwise.  However, if the speech was still not “commercial speech” in a First Amendment sense, that might not matter.)

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Dodged a virus and copyright liability: Court rules unused copy isn’t infringing

Posted on August 11, 2014 by rtushnet
Design Data Corp. v. Unigate Enterprise, Inc., 2014 WL 3868076, No. 12–cv–04131 (N.D. Cal. Aug. 6, 2014)
The court found that defendants couldn’t be liable for copyright infringement when the only copying they ever did consisted of downloading, but not installing, a copy of the relevant software onto an external hard drive.  The plaintiff was given extra time and extensive discovery to show that further copying occurred, but could not do so.  Given this, the copying was de minimis as a matter of law.
Design Data owns structural steel detailing software called SDS/2, which is CAD software that can produce 2D and 3D drawings and models of structural steel components.  These drawings and models can only be viewed with the SDS/2 software, the “SDS/2 Viewer” software, and electronic images (and printed versions) exported from SDS/2 (e.g., .pdf or .tiff files).  Using SDS/2 to design a component generates a directory of folders that contain all the information and files related to a project, including text files detailing errors and instructions to correct errors.
Defendants (grouped as Unigate) provides steel detailing CAD files to customers.  It doesn’t do the detailing itself, but acts as a middleman between Chinese contractors and clients in the United States.  Defendants admittedly told clients that they “could do” steel detailing using SDS/2 and represented that they had offices in China, but in reality they outsourced the work to others in China.  (This opinion does not resolve Design Data’s attempts to bring false advertising claims.)
Unigate didn’t dispute that SDS/2 appeared to have been used to create drawings and images for five of its projects, it contended that the work was actually done in China.  Unigate also admitted that it forwarded files containing 2D and 3D drawings and models created with SDS/2 to clients and prospective clients.  And it admitted that one principal, Helen Zhang, downloaded a copy of SDS/2 to an external hard drive—the parties disputed whether this was a “cracked” copy that Zhang was unable to make work, or instead a free demonstration copy she believed to be legitimate.  Design Data found a folder containing installation files for SDS/2 and three patch files which enable a user to circumvent SDS/2’s licensing requirement on Unigate’s computers.
Forensic imaging by Unigate found a single reference to SDS/2 on a computer and a copy of SDS/2 on an external hard drive; the reference was an antivirus log showing that the copy was on the external hard drive.  The forensic analysis found no evidence that the SDS/2 software ever existed or was installed on the computer.  Design Data’s expert also created forensic images and reviewed Unigate’s expert’s copies; he was unable to locate or recover a copy of the circumvention file initially found by Design Data, but did find a reference to that file as being located on Zhang’s external drive and “quarantined” by the antivirus software.  (I’d say, given the outcome, that the antivirus software did them a huge favor even if the supposed crack was actually legitimate, for relevant values of legitimate.)  Design Data’s expert suggested that the file had been purposefully and permanently removed from the G drive, though he located a file suggesting that a file called sds2.exe could be found on Zhang’s G drive. He was also unable to locate any evidence suggesting the SDS Viewer program was ever saved or located on any of Unigate’s devices.
On Design Data’s contributory infringement claim, case law established that a US company can’t be found liable for contributory copyright infringement for authorizing or collaborating with someone that infringes a copyrighted work in a foreign country.  Subafilms, Ltd. v. MGM–Pathe Communications Co., 24 F.3d 1088 (9th Cir.1994). Design Data provided no evidence that any drawings and images were created in the US, so Unigate won summary judgment.
Direct infringement: Design Data first contended that Unigate imported files and images generated by SDS/2 in China, in violation of 17 U.S.C. § 602.  It argued that “job files” and images created in China constituted a copy of SDS/2.  Unigate did possess images containing drawings and models generated with SDS/2; text files generated by the operation of SDS/2 that were error logs containing user error reports and Design Data instructions regarding those errors; and entire directories of folders generated by SDS/2 (“job files”) containing all information related to the design of two projects with SDS/2.  Design Data argued that there was a material issue of fact whether these outputs contained expression protected by the SDS/2 copyright registration.
The court found that the copyright registration on the software was not broad enough to protect these outputted files and drawings.  Other cases about audiovisual display and “look and feel” were inapposite.  A computer program is a set of statements or instructions to be used to bring about a certain result; that result is program data, and not covered by the copyright in the computer program.  Drawings produced from SDS/2 might be copyrightable, but aren’t automatically entitled to protection as the output of SDS/2.  (Indeed, I suspect that Direct Data’s clients would be very, very surprised to hear that Direct Data claimed a copyright interest in specific drawings, or even in error logs.  Would they be joint authors?  How would intentionality work there?)  Thus, Direct Data failed to raise a material issue of whether the files and images created by SDS/2 were protected by the program copyright.
Infringement by downloading: For use to be actionable, it must be significant enough to count as infringement.  Where no reasonable juror could find that downloading but not opening or using the program was significant, summary judgment was appropriate.  Direct Data argued that copying the entire code couldn’t be de minimis as a matter of law. But the cases focus on the substantial or insubstantial “use” of the copyrighted material.  Ringgold, for example, speaks of de minimis copying as precluding a “claim based on a photograph of [the copyright holder’s] product in an office copy of a display card of a competitor’s product where the display card was never used.”  Cases that ask whether an audience would “recognize” a protected work in another work were inapposite, because their focus was on whether the audience listening to the new work would recognize the original.  (Here, there’s not an audience.  If you make a copy in the forest, is it a copy?  Abraham Drassinower has some interesting work on this.)
Direct Data tried to create an issue of fact about whether Unigate did actually use SDS/2 by pointing to a number of statements to prospective clients that it “used” or could “produce” drawings in SDS/2. But given the undisputed facts about its actual business model, its marketing pitches weren’t evidence of actual use. “[D]ownloading of a copy of SDS/2—without any evidence that the copy was installed or used—amounts at most to a de minimis ‘technical’ violation that is not actionable as a matter of law.”  (P2P users who create huge libraries to satisfy some acquisitive urge may take some comfort, though I suspect they’d be liable for crushing statutory damages anyway.  Just maybe not billions.)
Direct Data argued that Unigate was untrustworthy, e.g., refusing to turn over relevant information, buying and downloading a cracked copy of SDS/2, and falsely advertising that they used SDS/2.  But this wasn’t enough to defeat Unigate’s motion for summary judgment, given Direct Data’s ample opportunities to find evidence of actual infringement.

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Product disparagement as trademark dilution?

Posted on August 11, 2014 by rtushnet
Ferring Pharmaceuticals Inc. v. Braintree Laboratories, Inc., 2014 WL 3850072, No. 13–12553 (D. Mass. Aug. 4, 2014)
This is mostly a false advertising case, but stick around for the weird dilution ruling.  The parties compete in the market for bowel preparation drugs that are administered prior to colonoscopies.  Ferring sells Prepopik, and Braintree sells Suprep.  They sued/countersued each other for false advertising under the Lanham Act and unfair business practices under MGL ch. 93A.  Ferring also alleged that Braintree diluted the Prepopik mark by suggesting that Prepopik (the product) poses the same risks as a chemically identical product sold in Canada, Pico-Salax.  Braintree also sued for trade secret misappropriation.
The court here resolved Ferring’s motion to dismiss Braintree’s counterclaims and Ferring’s motion for summary judgment.
Ferring’s motion, trade secrets: Ferring’s VP and GC contacted Braintree to express concerns about certain Braintree training materials that he’d come to possess, supposedly “sent in from the field” by an unknown source.  Ferring returned six pages, but Braintree believed Ferring had the whole set of materials because it didn’t disseminated only those six pages. 
The court found that Braintree failed to state a claim; it didn’t adequately specify any trade secrets, and the six pages Ferring admitted possessing didn’t contain any protectable trade secrets.  They included publicly available information about Prepopik and information about Ferring’s marketing strategy.  “Braintree cannot plausibly claim that information it has obtained about the marketing strategy of a competitor is a protectable trade secret.” 
The materials did recommend strategies for Suprep in light of Prepopik’s marketing strategy: claims that Suprep was more effective, less expensive, and safer for patients with low renal function; encouragement to sales representatives to emphasize the link between Prepopik and Pico-Salax (“Don’t hide from the fact that Pico is out there and discuss this with accounts”); and suggestions to leverage existing relationships (“BLI has been servicing these accounts for over 3 decades, don’t be fooled by a foreigner!”).  Though one court suggested that marketing strategies could be protectable trade secrets under Massachusetts law, there was no evidence that the information about price, efficacy and safety differences was proprietary to Braintree. “Furthermore, it is implausible that platitudes such as ‘Cash in on relationships!’ are the product of significant effort or investment or are valuable to Braintree’s competitors.”
Lanham Act false advertising: Braintree alleges that Ferring made four false or misleading claims about Prepopik: “superior cleansing efficacy”, “lowest volume”, “flexible dosing” and “helps achieve success.”  Because literal falsity is a question of fact, it’s rarely susceptible to a motion to dismiss.  The court also declined to apply Rule 9(b) heightened pleading to false advertising claims.
The “superior cleansing efficacy” claim was, according to the relevant ad, backed up by study results; it was a statement of fact, not puffery.  In fine print, the relevant ad explained that the claim was based on “demonstrated non-inferiority” during randomized trials. The claim was allegedly falsified by evidence from a head-to-head study, and allegedly overstated Prepopik’s efficacy. That was enough to plead literal falsity.
Ferring repeatedly advertised Prepopik as  the “lowest volume of active prep solution/ingredient,” but Braintree alleged that this was false and misleading because there are tablet-only prep products requiring no solution.  Ferring argued that a reasonable doctor would be aware of the different kinds of prep regimens and would understand that the ads only compared Prepopik to other products that required some amount of liquid.  The court doubted that any reasonable doctor would find the claim misleading, but evaluating audience reaction wasn’t its job at the motion to dismiss stage.
Braintree alleged that Ferring’s “flexible dosing” claim was false and misleading as patients must take certain identified doses, must drink certain requisite quantities of other liquids, and must finish drinking all requisite liquids at least two hours before their colonoscopy. The relevant ad claimed “FLEXIBLE DOSING using either a split dose or day-before regimen.” Ferring argued that the ad didn’t claim that there were no restrictions on use.  Unlike the two previous comparative claims, this one didn’t draw any implicit comparisons or assert a specific and measureable benefit that could be proven true or false.  At most, “flexible” was ambiguous, and no reasonable person reading the advertisement as a whole would fail to understand that, as used in context, “flexible dosing” refers to “either a split dose or day-before regimen.”
As for “helps achieve success … with the lowest volume of active prep solution,” Braintree didn’t identify a specific ad that made the “helps achieve success” claim, so it was gone and would’ve been puffery anyway.
The court did apply a heightened pleading standard to related New Jersey Consumer Fraud Act claims, and found that Braintree hadn’t pled enough facts to establish that Ferring actually distributed a different set of claims—information and belief was enough.  Also, the court held that unfair competition under New Jersey common law doesn’t cover false advertising, only palming off.
As to Braintree’s motion for summary judgment, Ferring alleged that Braintree engaged in a nationwide campaign to disparage Prepopik, and that Braintree’s false and misleading statements about Prepopik’s risks “diluted Ferring’s trademark in Prepopik.”
Allegedly false claims that Prepopik was “dangerous” or “deadly”: Ferring’s press release announcing Preopik’s FDA approval stated that “Ferring has a long history in the international gastroenterology market, where PREPOPIK is available in Canada (marketed under the name PICO–SALAX), U.K., and other countries ….”  Pico-Salax and Prepopik are chemically identical, but Prepopik is approved in the US for only one indication, while Pico-Salax is approved in Canada for the additional uses of preparing for x-ray examinations and surgeries and is also approved for pediatric use.  The dosing instructions also differ; the Prepopik dose is smaller, which can change risks associated with fluid and electrolyte imbalances. Pico-Salax is available over the counter while Prepopik is prescription only.
A Canadian agency published information about Pico-Salax in Canadian Adverse Reaction Newsletter, stating that “[t]he diarrhea produced by [Pico–Salax] can lead to dehydration and loss of electrolytes, particularly sodium which may result in hyponatremia and convulsions…. As of June 30, 2012, Health Canada received 11 reports of convulsions suspected of being associated with Pico–Salax.”  Ferring alleged that Braintree was using the newsletter and related statements to claim that Prepopik was unsafe.  One rep allegedly wrote “Pico-Salax = Prepopik” on a copy of the newsletter given to a doctor.
Braintree argued that it was true that Pico-Salax was dangerous and that Pico-Salax was Prepopik give their chemical equivalency. The court found genuine issues of material fact, including what conclusions should be drawn from the newsletter and whether the different dosages eliminated the risk of convulsion.
Allegedly false or misleading claims about Suprep’s efficacy and superiority:  Braintree’s marketing materials say Suprep is 98% effective whereas Prepopik is only 74% effective, but Ferring alleged that there were no head-to-head studies and its own clinical trials showed greater effectiveness.  A Braintree ad claimed superiority in bowel cleansing based on investigator grading compared to a control group treated with polyethelene glycol, but Ferring argued that the prescribing information and FDA approval documents for Suprep indicated that no statistically or clinically significant differences between groups treated with the two preparations.
Ferring argued that the ad made an establishment claim, and Braintree disagreed, but it was wrong. “While the claims do not expressly reference a study or test, claims of 98% effectiveness and superior results ‘based on investigator grading’ are not ‘general claims of superiority.’” Thus Ferring’s burden would be to show that the tests weren’t sufficiently reliable to permit a conclusion that Suprep was superior.  There were genuine factual disputes about this; a study abstract alone couldn’t establish reliability, and Ferring hadn’t been provided the full results.
As a result, the ch. 93A claim, which in a competitor action requires “rascality,” also survived past summary judgment.
State trademark dilution: here we take a turn into the completely wrong.  Ferring alleged that Braintree’s negative comparisons were likely to dilute Prepopik’s distinctive quality as a mark—and the court bought it, at least for summary judgment purposes.  Ok, deep breaths.  Of course, even dilution proponents should immediately see the fatal problems.  (1) The mark is not the product.  Dilution protects marks, not products.  Braintree disparaged (truthfully or not) the product.  False advertising can be a legitimate cause of action in such cases, along with commercial disparagement/trade libel.  (Which, not at all incidentally, are subject to important First Amendment limitations, like “falsity.”)  Dilution cannot be implicated here.  Braintree didn’t suggest that the product had a stupid name.  (2)  Relatedly, comparative advertising does not have any effect on the “distinctive” quality of the mark, other than to reinforce it as being connected to its producer and distinguish it from the advertiser’s own product.  Using a mark to describe the mark owner’s product can’t be dilutive.  Not even Deere v. MTD would go that far.
What went wrong?  Braintree may have put too much emphasis on another logical, but much less powerful, argument, which was that it’s impossible to dilute a mark by comparing it to another mark owned by the same entity, Ferring.  But “[w]hile Braintree is correct that no Massachusetts case has expressly held that Ferring may assert a trademark dilution claim based upon confusion between two of its own marks, it is also the case that no court applying Massachusetts law has foreclosed that theory.”  (And note the incidental slippage between confusion and dilution.  But I’m not even mad about that.)  The court found that a federal court’s previous statement that dilution arises from an association with “products or services marketed by others” was “clearly dicta,” which again, argh—that is the classic definition of dilution used even by its profoundest believers.  Kodak pianos, anyone?

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IPSC part 10: hodgepodge

Posted on August 8, 2014 by rtushnet

Sixth Breakout Session
The Patented Design
Sarah Burstein
What should the patented design cover?  Require the design to be applied to a particular product, and signal that in the name/title.  That better respects First Amendment concerns, notice function of patents, better fit with presumption of validity.  Better allocation of search costs generally.  There’s a new search service for searching designs, but there are still issues of search costs to figure out if things are infringed/valid/invalid.  Abstract protection puts the risk all on competitors in an inappropriate way.
Nominative uses of design: stories about iPhones should be able to depict the product.  Also “transformative” uses.  If someone takes the iPhone size and shape and creates a sketchpad allowing designers to sketch (allowing them to plan apps), that shouldn’t infringe the design patent on the actual phone—Apple doesn’t need to control that market for incentives.  Other creative adaptations: various designs can be adapted from other products; that should be encouraged rather than discouraged.
Scope of prior art would be immediately affected if she’s right. Case about batter dividers for cupcakes.  D came up with purported prior art, like a cookie cutter; a muffin on a stick; a cupcake shaped cupcake holder; a toy figure shaped like a cupcake with a six-pack, arms and legs; a cupcake. If she’s right none of these should be novelty destroying—cookie cutters couldn’t cover cupcake dividers, and vice versa.
What regime if any should protect product designs?  If she’s right, other regimes look less attractive, at least in this one respect.
McKenna: how do you assess nonobviousness? Understands novelty argument, but why doesn’t that destroy nonobviousness?
A: Argued about that in other work. There’s not a clear motivation, to the extent that survives, to move from cupcake container to cupcake divider.  Not close enough.
McK: what does close enough mean? What’s the conceptual space b/t prior art and claim design?
A: her first paper.  If it’s not so close that it’d be perceived as the same thing—primary reference.
Q: how do you distinguish trade dress from design patent?
A: you do get visual representations and the things she wants to leave out in the trade dress arena; however her proposal might undermine attempts to get trade dress protection insofar as someone could make a note pad or a chandelier in the shape of an iPhone, which she thinks would be fine.
Sheff: help explain why this is so challenging. If we think design, like utility, is progressive, that explains some problems; if we think it’s aesthetic, we may find other features difficult; if it’s about distinctiveness it’s just TM and doesn’t make any sense to think about doctrinal problems in this way.  Why is it so important that design patents not be ported out of the products for which they’re granted?
NPE II
Policing the Cease-and-Desist Letter
Leah Grinvald
Larger project on abusive enforcement. Thesis: there is a problem, and current regulations are ineffective.  Need multifaceted approach.  Antiabuse cause of action; look at bar involvement; more aggressive enforcement of consumer protection laws by state AGs.
Vast majority of disputes typically settle through C&Ds, but there are incentives to send abusive ones. Not saying C&Ds are per se bad, but some are. What’s abusive?  Threat of litigation and unnecessary legalese/unsubstantiated legal citations; demand for settlement in short time frame; demand for upfront payment of money including licensing fees/attorneys’ fees (I just saw this recently with an unbelievable—I wish I could say sanctionable—demand for attorney’s fees as if they were ordinary relief in a Lanham Act case); weak legal claims. 
They’re effective because of asymmetrical disputants: well resourced rights holder v. low resourced small business or individual. Low resourced entities have inability to gather information; vulnerable to emotional response/inducement in the abusive letter.  Finally, they are unable to follow through with litigation. Say they have business insurance that will cover trial—they might not be able to deal with an appeal, which forces them to settle.
Model Rules of Professional Conduct are not helpful.  State anti-patent troll laws?  She argues they don’t go far enough.  State AG actions are limited so far, but should be expanded.  Bar associations should issue formal opinions on ethical rules against abusive C&Ds.  “Civility campaign” by San Diego bar ass’n.
Gaia Bernstein: is there any evidence that abusive C&Ds are more effective than nonabusive ones?
A: hard to study. Some attys say nastygram is scarier and more effective.  (Why should we want the rates of effectiveness to be the same?)
Mary LaFrance: how do you decide what’s abusive, given TM owner’s burden of policing/avoiding being deemed to be weak mark?
A: hard at edges, but there are core cases.  Louis Vuitton v. Penn: it’s a famous mark, but it did not need to threaten.  (I think we overstate the burden of policing to excuse TM owners; courts are very forgiving especially when the uses are small or outside the TM owner’s products/services as with many expressive uses.)
Lisa Ramsey: qs about definition.
A: various issues, like timeframe: give a reasonable one to a small entity, which among other things might need to find an att’y. Demand to halt at once is a problem.  3 days to respond—even an IP clinic takes time.
Q: are there constitutional limits on laws against abusive letters?
A: Yes, but laws can be written. Anti patent trolls are drafted similarly.
Rosenblatt: Cal. Lawyer article from this month: Demand Letters as Extortion—about the Cal. Penal Code.
Gallagher: like multifacted approach, but why do you think anything will work?  Will AGs be effective?
A: AGs could work—did affect scanner patent troll, even with investigation alone. Helps w/small  entity’s inability to follow through w/litigation.
RT’s thoughts: I think AGs can be very effective!  People are very interested in complying w/the gov’t, and counsel start giving advice/practice seminars on how to comply when the AGs get involved.  Sort of random thought: I think the preemption questions about anti-troll laws are super interesting. Since the Lanham Act doesn’t displace state laws, what effect should that have on possible preemption analysis?
IP Theory II
The IP Constitution: Private Power and State Power in IP Law
Ariel Katz
[missed intro]  Older cases: Extending the monopoly in IP is illegitimate—but what counts as extension?  Chicago school criticized this approach in the 1960s. IP rights don’t necessarily create market power.  Even if they do so, not clear what extension would occur or mean. Many challenged practices, they argued, were efficient and should be subject to rule of reason.
Chicago critique barked up the wrong monopoly tree. Monopoly has an economic meaning of controlling a market, but it also has an overlapping but distinct legal/political meaning.  Courts concerned about IP monopolies are speaking in the legal/political sense.  Motion Picture Patents v. Universal Film (1917)—patents on projectors for film; conditions of patent license was you were only allowed to exhibit movies sold by the patentee.  Court says you can’t do that, despite argument that this was efficient b/c it allowed the sale of the machine at a low price.  Court isn’t ignorant of the Chicago argument, but Court views that as clearest possible condemnation, b/c it proves that the patentee tries to get its profit not from the thing patented, but from things wholly outside of the patent monopoly.  Extending the patent to fix the price of unpatented supplies. That’s not why we grant patents.
Monopoly = private regulatory power.  Remote control—control people without privity. That’s the legal meaning of monopoly (cf. monopoly on legitimate violence).  The struggle of regulatory power over the centuries—Statute of Monopolies, 1623 declaring crown monopolies ineffective; only Parliament can grant monopolies.  Exception for letters patent to true inventor. Also, Parliament’s use of the power is fine—democratic deliberative process would be our analogy today.
Statute of Monopolies is political-constitutional, not an economic regulation. Antidelegation principle: if police regulatory power can only be exercised/granted by state, it can’t be assumed by individual nonstate actors. Nondelegation doctrine, due process, and antitrust implement this.
Camilla Hrdy: today, patents don’t necessarily confer monopoly. How would this apply where patent holder doesn’t have much market power?  Statute of Monopolies: Parliament reserved the right to itself; isn’t it different in the US because the Constitution granted Congress the power and Congress decided to implement via a patent statute?
A: Problem begins when lawful monopolies begin to exert regulatory powers over what’s not their writings and discoveries and asks the court to enforce it.
RT: Isn’t your argument somewhat circular? Why not read the patent statute as Congress saying: We grant you whatever regulatory power comes from owning your particular patent? 
A: Holmes dissent says that patentee doesn’t have to license at all, and can set conditions.  Court majority says the Constitution isn’t about getting control beyond the scope of your patent.  May be a question of property v. regulation.  The basic distinction is still valid.
Q: Congress amended the Act to say explicitly that certain things don’t count as patent misuse, if you don’t have market power.  How does that tie into the constitutional issues?
A: The other cases are still good law.
Data Pools
Michael Mattioli
Looking at data pools, mostly in medicine/agriculture, e.g., CancerLinQ, Open Ag Data Alliance, Biomarker Consortium, etc. Trying to aggregate data to find research questions, etc.
Proposals for sui generis data protection—no law yet, but perennial topic for debate (10 bills considered since 1996).  Traditional IP gives only thin/no protection.  Big data is becoming more important.  Can data pools reveal new insights?  Do these groups privately craft incentives similar to those that sui generis data protection would offer? What challenges do they face/new opportunities for policymaking? Merges argued that patent pools amount to private rejiggering of patent law—could there be something similar here?
Q: antitrust is an important issue.  (Some discussion of that; I’m not an antitrust expert.)  Exclusivity may be the start of the problem.
Q: what about tying this to health law issues?  Purse strings: gov’t can use them to get data disgorged. 
A: was considering charitable tax deduction; interesting idea.
Q: there might be not so laudable uses of data—touches on privacy, but underlying this work seems to be normative view that big data is good.  But that’s not always true.
A: tends to be an optimist, but that’s an important consideration.

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IPSC part 9: copyright plenary session

Posted on August 8, 2014 by rtushnet

Plenary Session
Making Copyright Work for Creative Upstarts
Sean Pager
Imagine you’re a singer in a rock band, and hear your song used unauthorized for a car commercial. You call and they brush you off.  You can’t afford a lawyer, and costs of litigating in federal court could dwarf any license fee you might recover. If you never registered you have no eligibility for statutory damages and attorneys’ fees. You quit and go to law school.
Our standard theory of copyright is that we give rights to incentivize creation, but rights aren’t self executing. Without capacity to use them, they’re not useful. Copyright might not be doing the work it’s supposed to.  Our system assumes sophistication—simple Qs often have convoluted answers, and that’s just the formal law, not the institutions that implement them and have complexities of their own.  Registration alone; signing up for ASCAP/BMI; SoundExchange; Google’s Content ID—a lot of registries to keep track of. 
Broader Q: who is our © system for?  19th c. might have been reasonable to assume that © users were capital-intensive endeavors.  What to do now that creation doesn’t look like that?  Mobile app designers, indie filmmakers, graphic artists—how are they doing in the © system?
What would an upstart-friendly system look like?  Increasing legal certainty—more safe harbors and bright line rules.  Small claims process—better if mandatory.  Enhanced damages tied to registration should be reconsidered.  $35-55 to register is a lot for a graphic artist.  Tech can be used—interoperability, common-sense standards to allow one-stop registration; streamlined online licensing, as w/UK’s Copyright Hub targeted at low-value works to be licensed efficiently using automated mechanisms.  Or expert systems automated to give advice—compare increased ease of tax now that we have TurboTax—similar system for copyright users. (Note that TurboTax has engaged in a lot of funky behavior to prevent tax simplification—a Copyright Hub might do the same, especially if it were a private, profit-seeking organization.)
Menell: Creative upstarts should be able to find works/use Content ID to quickly ID ownership, and on backend streamlining system would be good, but more worried about front end of enabling people to find and navigate.  If they’re not willing to pay $35 to register, should we give them such strong protections for how their works float in the ether.
A: maybe find way to register high volume of works at once.
Lemley: useful points about small creators. Q is what are we to make of the fact that we are nonetheless seeing an unprecedented wave of such creators. We have more video, music, books than ever before, most coming from people outside the © industries. What does that mean? They don’t seem to be quitting and going to law school, whether they should or not.
A: Commercialization—amateurs may create a lot, but don’t invest as much. Making a full length feature film takes resources, while you can write a book on your own.  iPhone filmmakers are limited in what they can do, so we need to find a way to make film pay.
Lemley: sounds like there’s sorting between upstarts and more commercially oriented folks, but those may be more attuned to © system as already exists.
(I agree w/Lemley.  W/r/t the opening story: If most commercializers behave most of the time, though, is that so much worse than other elements of starting your own business?  There is plagiarism of works on Amazon’s self-publishing, but there’s also persistence.  Overconfidence about success is often important in incentivizing creation/starting a business/etc. Is © any different than the other rules that aren’t necessarily enforced (e.g., wage theft)?)
A: there’s a spectrum. Better access to © system may enable you to negotiate better terms.
Q: valid points about accessibility. Is enforcement necessarily the issue? Even in perfect enforcement world, would their captured revenue stream allow people to avoid going to law school?  It could just be that people are flocking to fewer and fewer items—how big is the pie?
A: demand is partly influenced by supply.  Change the system to make it easier for independents to have access—not just ©–people might embrace more products, not just blockbusters.
Q: so the issue is that people aren’t entering the market who otherwise would? Or that they’re entering without being able to recoup value?
A: Soundexchange has $100 million unclaimed royalties—there is money to be had.
Rosenblatt: are creative upstarts any different from other kinds of upstarts? We expect people starting out to do their homework to make a living—get a professional license if they need it, pay taxes. TurboTax is a solution to what we expect from people. 
A: does think tax code should be simplified; does get to whether it’s the gov’ts role to act.  Gov’t may help make TurboTax available to poor people (or better, pre-fill the return like they do in other countries).
Copyright’s Private Ordering: Lessons For Congress
Jennifer Rothman
Congress should largely leave room for private ordering, but sometimes codify uniformly accepted norms and support private ordering/avoid calcification.
Different attempts to address uncertainty in law/uncertainty about fair use: arguments that it’s more predictable than some say, but in individual cases it’s still uncertain so risk-averse people will still license. Campbell is an object lesson in why you should license—district court reversed by court of appeals reversed by Supreme Court, which remanded; ultimately settled with licensing fee—in practice this was a total loss for 2 Live Crew.  She worries about courts interpreting risk aversion as customary licensing practice worth respecting: her favorite example is Ringgold, where a poster was on screen for less than 30 seconds, but court found unfair in part because it bucked an industry custom of licensing set dressing.
We could revise §107 to limit on reliance on customary licensing, use guidelines and alternative licensing.  Not saying that licensing shouldn’t be relevant—availability, feasibility and reasonableness of licensing is relevant. But that’s different from whether people usually license or usually don’t license in an industry.
Use guidelines trying to address uncertainty: the Classroom Guidelines developed after Congress threw up its hands. This didn’t turn out well.  Negotiated by authors and publishers mostly; didn’t include educators, students, or universities; courts have often incorporated them despite their unrepresentativeness and have used them as a ceiling on fair use. We might want to codify some changes: don’t use their violation to determine whether something is fair use; maybe try again with representative group. 
Best Practices largely coming out of AU: valiant effort to push back against clearance culture. Done some important work, but concerned about codifying them as standard in particular industries. Again, they’re not representative of large content owners whose content is most likely to be used. Documentary guidelines can be more limiting than necessary, like not allowing cutting to the beat in incidentally captured music or creating a work around a copyrighted work.
Alternative regimes on top of copyright: Creative Commons—also a reaction to fair use uncertainty.  Allows authors to express what uses they think are appropriate. Maybe we just want Congress to leave this alone—w/exceptions: codify favoring attribution for fair use analysis (maybe even safe harbors); clarify that violation of private contract doesn’t alter analysis of infringement v. fair use. Documentary filmmakers often can’t comply with CC; they shouldn’t be hesitant to make fair use anyway.
Technology/contracts altering ©’s boundaries, technology and DRM—private agreements like Content ID.  We should restrict the ability of tech and private party agreements to eliminate fair use.  © can leave breathing room for private ordering and experimentation, but adopt good ideas.
Other good ideas: faculty ownership of scholarship and course materials, a universally accepted norm that nonetheless seems to run afoul of WFH; maybe attribution should be a requirement; a la carte copyright where you can register and choose to allow, say, educational use.  © can protect against lock-in effect; protect fair use from obsolescence; support fair use.  Clarify whether transformativeness requires content change or just purpose.  Additional safe harbors; limit scope of statutory damages in certain circumstances, esp. where people erroneously predict that use will be fair.
Q: what about webcasting v. streaming in §114?  Private streaming services’ deals—a lot of the terms end up mimicking the terms in webcasting, even the weird performance complement rules; public/private distinction gets blurred.
A: in general there’s a lot of interplay, and there’s not a bright line—operates in the shadow of the law. Warps in response to law; we need what Kozinski was talking about, interplay with courts and legislature.
Gordon: do you have in mind a sort of anti-DMCA: if you use tech improperly we can stop you?
A: Does interplay w/DMCA in gov’t authority.
Q: PTO roundtable suggestion—require tech to leave breathing room for some use of works—e.g., let’s have at least 5 seconds of a work up, not auto takedown even if tech permits.
Secondary Copyright Remedies
Felix Wu
Proposal: Remedies for secondary © infringement should be more limited than remedies for direct infringement, whatever they are.  Statute doesn’t codify secondary liability at any point, leaving no room for judges who expound on secondary liability to provide for different remedies.
Relation to tech innovation.  Why not borrow from patent law?  Patent specifically defines secondary infringement, but the relation between infringement and innovation is different in © and patent. Courts borrowing from patent face a very different context—misborrowing.  In patent, the statute speaks of articles w/ no substantially noninfringing use. It’s not possible for tech to relate to the underlying ©ed work in the same way. What would it mean for something to be specifically adapted to infringe a specific work, as the patent statute requires?  The tech is always capable of processing public domain/authorized works. Taken seriously, there’d be no contributory infringement at all.
That’s not where we’ve gone.  This concept is not a nullity in patent because tech innovation is wrapped up in the primary monopoly we grant to patentee, and orthogonal to primary monopoly we grant to copyright owner.  Thus secondarily liable actor is differently positioned than primarily liable actor.
Second concern: free expression. Protect tech/platforms because of externalities they create. That by itself can’t be enough to protect secondary actors more than primary actors, who also often exercise some kind of speech right.  But the primary actors get benefits that are difficult to transfer to secondary actors—primary actor is willing to take on more risk than secondary actor, since primary actor receives sense of belonging/creativity/community that they can’t monetize and transfer.  Thus externalities will be greater for platform.
Why not an immunity? Might be right in certain circumstances, but not all.  Free expression is at the fore w/r/t §230.  But in © we might be concerned about uncompensated harm/mass infringement.  Platforms could be least-cost avoiders in screening out infringement.  Potential for moral hazard: immunity means incentive to make money off of interest in infringing works. 
What can we do to avoid overdeterrence?  (1) Reduce/eliminate statutory damages for secondary liability. (2) Give restitution/disgorgement but limit their ultimate exposure.  (3) Shift burden of proof from defendants in calculation of damages/profits to avoid overcompensating Ps. May not be possible to show effects of one particular copy, but secondary liability cases are generally large in scope.
Lemley: run away from restitution.  Damages would be worse. You mean disgorgement w/causation.  Too easy in remedies for disgorgement to be all your profits.
May not need statutory change. Statute is silent on remedies for secondary infringement.
A: courts don’t think they’re creating secondary liability out of whole cloth—meaning of what counts as an exclusive right/triggering full panoply of damages. But sees potential. He wants to use profits as a ceiling and shift the burden of proof to avoid that problem with disgorgement.
Q: curious about moving away from patents. If you’re saying anything that could be used to infringe © could be used for public domain works, you’re begging the Q of whether that use is substantial. Is that really different from patent?
A: substantiality is really small in patent—you could use this item as a doorstop = that’s not substantial. Value of use for that purpose is what courts look at. In ©, using it for public domain would have value. 
RT: In terms of why not an immunity: You give three reasons, but none of them seems to differ from §230 to me.  Even w/respect to “mass infringement,” many of the actors that people hate in the §230 context do aggregate gossipy/defamatory content or revenge porn, and most of the visitors are happy to consume lots of different humiliations, which is the business model of those sites.
A: interest in speech is different as between those types of content—© is less speechy.  I know you disagree.

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