FDCA doesn’t preclude lawsuit based on allegedly false claims about compounding drugs

Posted on August 28, 2024 by rtushnet

Pacira Biosciences, Inc. v. Nephron Sterile Compounding
Center, LLC, No. 3:23-5552-CMC, 2024 WL 3656489 (D.S.C. Jul. 15, 2024)

Pacira, which sells non-opioid pain management products, including
Exparel, sued Nephron for false advertising. Exparel is “bupivacaine suspended
in multivesicular liposomes,” and is injected at a surgical site during or
shortly after surgery to manage and reduce post-surgical pain.

Nephron allegedly operates a compounding pharmacy that
compounds BKK, comprised of ketorolac, ketamine, and bupivacaine in a syringe
for combined use, and RKK, a compounded drug consisting of syringes of
ketorolac, ketamine, and ropivacaine for combined use.

Compounded drugs are not FDA-approved, but may be made and
sold under certain circumstances, including rules about outsourcing facilities,
which may not compound using bulk drug substances unless the bulk drug
substances are on a relevant FDA list of clinical need/shortage drugs.

Pacira alleged that the production of BKK and RKK was not covered
by the FDCA’s protection for compounded drugs because (1) BKK and RKK do not
appear on the FDA’s drug shortage list, and (2) the bulk drug substances from
which BKK and RKK are made do not appear on the FDA’s list of bulk drug
substances for which there is a clinical need. But, of course, the FDCA may not
be enforced by private parties, so Pacira turned to the Lanham Act.

Thus, Pacira alleged that defendants “have engaged in a
sustained campaign to promote their drug cocktail products as safe and
effective opioid alternatives through demonstrably false and misleading
advertisements – including blatantly false statements that their drugs are
safer and more effective than EXPAREL.” They also allegedly claimed or implied
that BKK and RKK compounds have been approved by the FDA and/or subjected to
clinical studies and trials.

Caption: Nephron is fully inspected and approved by the FDA!

Footer with FDA approved logo

Nephron argued that its website was not false: The allegedly
deceptive statements, a “Nephron is fully inspected and approved by the FDA!”
banner and “FDA APPROVED” logo at the foot of Nephron’s website appeared in the
same place on every page of Nephron’s website, including its landing page. It
argued that, in context, the banner and footer, which included other logos,
such as “MADE IN U.S.A.,” obviously referenced only Nephron, and Nephron is, in
fact, a registered 503B outsourcing facility both certified and regularly
inspected by the FDA. Anyway, it argued, implicit misrepresentations of FDA
approval weren’t actionable.

Pacira responded that (1) the FDA doesn’t approve facilities,
(2) the statements would be attributed to BKK and RKK’s FDA approval, (3)
customers looking for information on those specific products wouldn’t
necessarily peruse every page to see what repeats, and (4) “Made in the USA” is
the kind of statement that consumers would attribute to the products, not
the facilities, so the footer logos encouraged confusion rather than diminished
it.

Despite the plausibility of these arguments, the court
adopted the rule that “the law does not impute representations of government
approval … in the absence of explicit claims.”

example of product benefit claims for pain, complications, etc.

slide specifically claiming superiority to Exparel and identifying it as “competition”

Allegedly false claims to hospitals and providers in
presentation and other marketing materials about the efficacy, safety, and
superiority of BKK and RKK: First, it was plausible to attribute those to Nephron
because it hired the person who created the slide show and conducted the
presentations. He allegedly “not only developed advertisements and marketing
materials for BKK, but he also actively participated in sales pitches and other
promotional events nationwide to sell.” This was enough at the pleading stage
to impute his actions to Nephron. However, the same “implicit misrepresentation
of government approval” rule applied to FDA-approval-related claims. But Pacira
also alleged that claims of improved patient safety, satisfaction, recovery
time, outcomes, and patient experience were false and misleading. It also
alleged that Nephron’s superiority claims, including that BKK and RKK are more
“efficacious for long term analgesia” and “post operative pain” than Exparel
were literally false. At this stage, the allegations were sufficient as to the
safety, efficacy, etc. statements.

footer claiming that Nephron is a 503B outsourcing facility

503B outsourcing facility claim as part of Nephron logo

Somewhat puzzlingly to me, the court also allowed claims
based on the idea that the logo indicating Nephron is a 503B outsourcing
facility conveys the false impression that BKK and RKK products are produced by
a 503B-compliant facility. A facility isn’t compliant if it compounds drugs it
shouldn’t, and Pacira alleged that this was the case. “Nephron’s claim it is a
503B outsourcing facility, even if true, could falsely imply BKK and RKK
satisfy the requirements of § 353b, if, indeed, they do not.” Pacira also
alleged reasonable consumer reliance on the misrepresentation by alleging that,
“[o]n information and belief, healthcare providers and consumers have
reasonably relied on Defendants’ false and misleading statements when deciding
to purchase BKK or RKK instead of EXPAREL” and that if they’d known the truth,
they wouldn’t have bought the drugs.

What about “commercial advertising or promotion”? Nephron
objected that Pacira didn’t define the relevant market or allege to whom the
presentations were disseminated. First, the statements were commercial speech
promoting Pacira’s products that were provided to a relevant market –
healthcare providers. But were such “product overview” statements in presentations
just medical education? No; “it would strain credulity to find Nephron did not
intend to turn a profit convincing its target audience to purchase BKK and RKK.”

Pacira sufficiently alleged injury.

Were the Lanham Act claims precluded by the FDCA? Nephron
argued that it could only be found to be falsely advertising if the court
interpreted the FDCA and determined that it was violating the compounding
regulations, but that interpretation/determination is for the FDCA. [Side note:
does this argument work in an age of lack of deference to agencies? Especially
if the question is what conduct satisfies the legal standard set out in the law?
Without Chevron, is a decision really committed to the FDA, or to a
court? I think I just found an interesting student note topic.]

Pom Wonderful LLC v. Coca-Cola Co., 573 U.S. 102 (2014), provides
the governing law. [This isn’t really correct—Pom involved a deception
theory that didn’t rely on the FDA’s rules and Coca-Cola argued that its
compliance with FDA’s rules precluded the deception theory. Here, the deception
theory does rely on the FDA’s rules.] The court here relied on Pom’s
policy-based reasoning: The FDA is for health and safety, not primarily
consumer protection; the Lanham Act is primarily about consumer protection. The
FDA lacks expertise in assessing whether people are deceived. [Again, while I’m
substantively in sympathy with Pacira on the policy, that may be true—but the
FDA is the expert on whether compounding facilities are complying with
its rules, which is factual key to this specific theory of deception.] Thus,
while characterizing defendant’s conduct as “illegal,” “unlawful,” and posing
“significant risks to patient safety and health” in the complaint was “overzealous”
because it could “implicate the need for enforcement by the FDCA,” the gravamen
of Pacira’s allegations were falsity and misleadingness and resulting harm to
Pacira.

from Blogger http://tushnet.blogspot.com/2024/08/fdca-doesnt-preclude-lawsuit-based-on.html

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Lanham Act unclean hands defenses are hard to win

Posted on August 27, 2024 by rtushnet

World Nutrition Inc. v. Advanced Enzymes USA, No.
CV-19-00265-PHX-GMS, 2024 WL 3665360 (D. Ariz. Aug. 6, 2024)

The parties—here WNI and AST—sell enzyme supplements and sued
each other under the Lanham Act, and both prevailed on their affirmative claims
and got disgorgement. The claims generally related to enteric coating (that is,
its absence despite the parties’ representations), though WNI also falsely
advertised certain certifications. WNI got a permanent injunction. WNI’s award
of disgorged profits was larger than AST’s, so AST was ordered to pay WNI
$1,827,651.68.

What about unclean hands? This requires a defendant to show
by clear and convincing evidence (1) “that the plaintiff’s conduct is
inequitable,” and (2) “that the conduct relates to the subject matter of its
claims.” Of relevance to dueling false advertising claims: “Factual similarity
between the misconduct that forms the basis for an unclean hands defense and
the plaintiff’s allegations in the lawsuit is not sufficient.” The defense only
protects those who “have acted fairly and without fraud or deceit as to the
controversy in issue.” And, in the Lanham Act context, “fraudulent intent” is
required. Plus, unclean hands isn’t automatic even then; it depends on what
justice requires.

Given this high mountain, AST didn’t show that it was
protected by WNI’s unclean hands. AST falsely advertised with literally false
claims about enteric coating. WNI’s claims of a buffer-enteric coating
and manufacturing compliance were also literally false, but AST failed to show
that WNI’s products were not enterically coated. If AST had proved that WNI’s
claim its products had an enteric coating that was 100% effective was false,
the court would have reached a different result on this part of the inquiry,
and would rule that justice was best served by offsetting damages. “The fact
that AST ultimately owes WNI damages is a reflection of two things: (1) each
party’s ability to prove damages and (2) the fact that AST earned more profits
while misleading consumers.”

from Blogger http://tushnet.blogspot.com/2024/08/lanham-act-unclean-hands-defenses-are.html

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Court accepts survey with disclaimer control that causes 38% confusion

Posted on August 27, 2024 by rtushnet

 Another ruling in the PNC v. Plaid case:

PNC Financial Services Gp. v. Plaid Inc., 2024 WL 3691607,
No. 2:20-cv-1977 (W.D. Pa. Aug. 7, 2024)

Daubert motions for this case. I’ll only discuss the
stuff I find interesting.  

Kivetz was PNC’s survey expert. The survey showed
respondents a 22-second video clip simulating the user flow within fintech app
Venmo from 2019: the Venmo home screen that an already-registered Venmo user
would see when they opened the app, then a cursor moving between the Venmo
screens. The survey then showed a series of static screens that a consumer
would see when connecting a bank account to their Venmo account, including the
Plaid Link consent, institution select, and credentials panes. There were
limited interactive elements on the screens.

The test group for this survey was shown the Plaid user
interface that allegedly appropriated PNC’s marks. The control group was shown
a “workup” of what a “Plaid branding only” user interface would look like.

Test stimulus, L; control stimulus, R

Richard Craswell’s work on controls in surveys remains a must-read in this area: choosing a noninfringing control is often very important because it can determine the amount of net confusion. One particularly interesting point here: the “control” shows very high levels of confusion (38%), which would ordinarily seem like a lot. PNC would ordinarily have a strong incentive to argue that disclaimers don’t work. But that would run up against a strong preference for truthful speech, especially if the alternative seems to be that PNC can control what apps its customers can use. There’d be some obvious competition law problems with that as well as nominative fair use (what Plaid argued before PNC dropped the argument that the current screen, which is not entirely unlike the control, infringed). Craswell makes the argument that there is an implicit cost-benefit analysis in control selection: we’re asking what’s the least confusing option that’s worth it. If some confusion is irreducible but we still want the activity to continue, that’s the level of confusion we should accept. That could indeed justify a control with 38% confusion, but that may not be something many TM owners want to admit. And it calls into question the broad definition of “affiliation” confusion that courts have adopted–often by assuming that “affiliation” in the Lanham Act means whatever consumers think it means in response to survey questions, although it could reasonably be read more strongly or consumers could be educated/asked for their definitions thereof.

Anyway, after the survey showed the stimuli, it then asked: “which company provides this credentials screen,” “does the company that provides this credential screen have a business affiliation or connection with another company or companies,” “with which other company or companies does the company that provides this credentials screen have a business affiliation or business connection,” and “did…the company that provides this credentials screen receive approval or sponsorship from another company or companies?”

PNC’s expert Kivetz concluded that 79% of the participants in the test group were confused into believing that the company that provides that credentials screen either (1) was PNC (75%); (2) has a business affiliation or connection with PNC (5.9%); and (3) received approval or sponsorship from PNC (5.4%). (Id. at 59–60). In contrast, participants in the control group experienced a confusion rate of 38.1%. The net confusion rate (the difference between the two confusion rates) was 41.3%.

Plaid challenged the survey based on the control, the lack of an interactive process in the survey, and the failure to limit the survey to PNC customers. The sample issue didn’t merit exclusion; the survey included potential PNC customers by asking potential respondents whether they engage in online banking and geographically limiting the population to states in which PNC had a physical branch location. Anyway, any effect of the allegedly skewed sample was “speculative,” since the broader question was about “whether the average consumer who connects a bank account to cash payment and investment account fintech applications would be confused by the use of a given set of marks (PNC’s) on Plaid’s user interface(s) during the connection process.” So too with the static visuals—that increased survey completion, and if respondents had actual options they might have tried to reach a different bank’s credentials login screen. The survey explained to respondents what was happening; they could click on and read the Plaid privacy policy before going forward.

The control group argument gave the court more pause. The control screen “displayed a disclaimer that was not present in the Plaid Link user interface, at least at the later stages of a consumer’s interactions with Plaid Link.” This could have been “so visually different (and perhaps, so obviously affiliated with Plaid) from the PNC institutional and credentials login screens that it diluted the confusion results on that side of the survey.” But the control was also similar, though not identical, to the credentials screen Plaid actually uses today. This was a question of weight, not admissibility. The disclaimer left nearly 2/5 of respondents confused, which undermined the assertion that the control wrongly pushed people away from PNC.

However, the expert’s opinion on “tarnishment” was excluded since it relied on non-record evidence of “bad acts” by Plaid and he only speculatively linked that to PNC, rather than showing a basis relying on a reliable process or analysis.

Plaid’s consumer confusion expert, Dhar, used a “consumer journey approach,” designed to mimic what users would be seeing when deciding whether to buy or use a given product or service. He opined that users were unlikely to be confused by Plaid’s use of PNC’s marks, especially given consumers’ ultimate goal of connecting their bank accounts to a given fintech app. He also opined that any confusion wasn’t material, based on internal Plaid testing, “which purportedly shows that the effect of the usage of bank marks on the institutional login and credentials login screens had minimal impact on consumer conversion (that is, minimal effect on whether consumers entered their banking information into the fintech app via Plaid Link).”

The court declined to exclude Dhar’s testimony. He provided context that might assist a jury, opining that “by the time a given user encountered a Plaid Link screen within a fintech app, the decisions to (1) download the app, (2) use it, and (3) link a bank account were likely already made,” meaning that confusion was unlikely. “While an expert’s application of their own experience and of principles in the field may not be as empirically rigorous as an experiment or a survey, FRE 702 does not bar the admission of more ‘qualitative’ expert testimony.” His methodology was not novel or pseudoscience; the consumer journey approach is “well recognized” in the field of consumer behavior.  

He wouldn’t be permitted to testify on the ultimate likelihood of consumer confusion, but he could testify as an expert about how the considerations outlined in his report impact the applicable factors: “the care consumers take in using fintech apps and Plaid Link and/or the relationship of Plaid Link and PNC in the minds of consumers.”

The court also allowed Dhar’s materiality opinion.  “Plaid ran a series of internal tests and studies that addressed the impact of Plaid’s use of bank logos in its user interface, and the notion that the data were unreliable solely because the data came from Plaid is inaccurate.” He explained the internal testing in his expert report, with detailed descriptions, and he applied scientific principles to the data, including in his visualizations. “Plaid was experimenting with different institutional selection and credentials panes for years, seeking to measure conversion rate, i.e., whether users would be more inclined to enter their banking information depending on the presentation of the given user interface. These tests are squarely applicable to one of the ultimate merits issues in this case: whether consumers were more or less likely to enter their banking credentials when Plaid used PNC’s marks.”

The court allowed PNC’s damages expert’s disgorgement analysis, though not his “contributed capital” damages theory, which was based on the idea that Plaid’s use of PNC’s marks constituted a forced investment in Plaid by PNC. That latter had issues of fit and reliability.

“PNC never made an investment in Plaid, and the notion that the fact finder in this case should view a portion of Plaid’s enhanced valuation over time as directly and proportionally attributable to the connections that Plaid made between PNC consumers and fintech apps during a one-year span in Plaid’s early days in a straight-line fashion is the kind of speculative opinion, unmoored from scientific rigor, that courts are to exclude under FRE 702.”

The disgorgement opinion, though, was fine because, given the statutory burden-shifting, it was ok to assume that 100% of PNC conversions were attributable to Plaid’s use of PNC’s marks.

Plaid’s damages expert, like its consumer expert, relied on Plaid’s internal testing suggesting that PNC customers using Plaid Link to connect their bank account to a fintech app “would still have connected their PNC account…95 percent to 99 percent of the time,” regardless of whether PNC’s marks were displayed. It was ok for the expert to rely on studies she didn’t conduct, especially a study that perfectly fit a key question here.

Duelling marketing experts also mostly got in. PNC’s marketing expert opined that Plaid benefited from the usage of PNC’s marks and that Plaid’s usage of PNC’s marks harmed PNC’s brand. His report purported “to demonstrate how PNC built its brand, how it continues to invest in its brand, how valuable its brand is, how Plaid utilized PNC’s brand (and the brands of other banks), and how that usage impacted PNC’s brand.” The court excluded his opinion regarding the general risk of harm to PNC’s brand from Plaid’s use, but not the rest of it. (Given that 2019 is now several years in the past, presumably there’s also real-world data about whether the brand was harmed.)

It was ok to use a qualitative analysis of “bad press” that allegedly came about from Plaid’s screens’/CSRs’ criticism of PNC. This went to the claim that required evidence of damage to goodwill (that is, false advertising). But his opinion that the mere use of PNC’s marks, in and of itself, put PNC’s brand at risk wasn’t reliable; it was speculation rather than expert analysis.

Beyond that, it also appears to the Court to be nothing more than an argumentative truism, akin to saying that a person lending her car to another necessarily places all of the assets of the lender at risk in the event the loaned car becomes involved in an accident. Adding the patina of an expert opinion to such a truism does not aid the finder of fact and is therefore unnecessary, as that is an argument that PNC can make without relying on expert testimony. Under FRE 702, PNC has not met its burden in demonstrating the reliability of this particular opinion. This specific aspect of Dr. Carpenter’s testimony—that Plaid’s use of PNC’s marks inherently placed PNC’s brand at considerable risk—is therefore excluded.

Plaid’s marketing expert rebutted PNC’s experts. It was also ok for him to use qualitative analysis.

PNC also offered proposed expert testimony on Plaid’s cybersecurity in “seeking as part of its damages out-of-pocket costs incurred [by PNC] from fraud on PNC customers that used Plaid Link.”  But the expert was unable to link the use of the trademarks to that harm, as opposed to Plaid’s retention of customer authentication information. Here, it mattered that the record showed that “at least some meaningful portion of PNC customers would have used Plaid Link even without visibility of PNC marks.” And Plaid’s central causal contribution was allegedly storing PNC customer data and then, critically, “auto populating” the “challenge question” authentication credentials that a PNC customer previously entered into the Plaid Link screens. That just wasn’t sufficiently tied to the trademark claims. The experts were unable to quantify or differentiate the harms to PNC that were caused by the marginal customers who might have been driven by the use of the marks.

However, if Plaid relied on its own cybersecurity processes or questioned those of PNC, expressly or by implication, the court might allow an expert to opine on “the mechanics of how authentication credentials operate generally and any vulnerabilities such would foster.”

Also, PNC would be allowed to use lay witness testimony that it contended demonstrates that “Plaid’s true purpose in using PNC’s marks was not to ease consumer use in connecting to fintech apps but was instead to increase Plaid’s data repository of consumer banking information for its own purposes.” And PNC would be permitted via lay witnesses to state generally what motivated it to alter how it dealt with Plaid, and how/why its limitations on PNC customer access to fintech apps via Plaid Link came to be, since that’s relevant to intent. “Lay or expert testimony as to who caused/did not cause the 2019 Cybersecurity Event, and the details ‘under the hood’ and/or explanations of that Event, will not be permitted, as such would readily lead to substantial jury confusion in light of the actual claims/defenses in this case and would likely generate substantial undue prejudice that eclipses any probative value under FRE 403.”

from Blogger http://tushnet.blogspot.com/2024/08/court-accepts-survey-with-disclaimer.html

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Plaid must face jury on PNC’s TM/advertising claims, but has good laches/acquiescence argument

Posted on August 27, 2024 by rtushnet

PNC Financial Services Gp. v. Plaid Inc., 2024 WL 3687956,
No. 2:20-cv-1977 (W.D. Pa. Aug. 7, 2024)

PNC is “a large, diversified financial institution offering
retail and wholesale banking services,” while Plaid connects cash payment and
investment account applications like Venmo, Robinhood, and Coinbase with a
user’s banks. This allows a user to input the username and password affiliated
with their bank account to create the connection between the user’s bank and
the fintech app so money can be transferred between them.

PNC interface, L; Plaid connection interface with PNC logo, R
sample Plaid bank selection workflow

PNC alleged that Plaid infringed its trademarks by
replicating the authentic PNC log-on screen to get them to provide private
financial information, allowing Plaid to collect their data. Plaid responded
that PNC knew about this as early as 2017 and worked with Plaid to make it
easier for PNC customers to connect to fintech apps. The relationship became
hostile in 2019, when a third party allegedy got PNC customer information that
had been obtained by Plaid and leaked it on the “Dark Web.” At that point, PNC
blocked Plaid from accessing/linking PNC account information using Plaid Link
software in fintech apps.

Plaid allegedly then presented PNC consumers who were trying
to connect to fintech apps via Plaid Link with messaging screens, using
allegedly confusing branding, that said, “we’re currently experiencing
connectivity issues with this bank” and “PNC has made a change that prevents
you from being able to link your accounts.” One such screen also provided a
link to the CFPB website and advised such users that they could file a
complaint against PNC about their lack of fintech app access with that federal
enforcement agency, “which PNC says led to users (who were presumably PNC
retail customers) filing complaints against PNC with the CFPB. Plaid’s
messaging also encouraged PNC customers to change banks.” In late 2020, a new
Plaid user interface finally propitiated PNC.

PNC sued for counterfeiting, infringement, and false
advertising/unfair competition under federal and Pennsylvania law. This opinion
denies summary judgment to everybody on everything they sought, including
claims and defenses.

Counterfeiting is probably the most eye-opening charge. A
jury could find that the marks used by Plaid were spurious, that is,
substantially indistinguishable from PNC’s actual marks and suggesting a false
origin. There were “subtle color differences,” but indistinguishability was a
“hallmark” question of fact.  And,
interestingly, counterfeiting has to cover the “same” goods and services as the
registrant’s, and the court considered it a jury question whether this was so.
A jury could rationally conclude that Plaid and PNC do not offer the same
financial services, given that “Plaid is not a bank.” Its customers are
primarily fintech apps, not bank account holders. However, a reasonable jury
could also find that Plaid offers the same “financial services” as PNC, or at
least that both offer “financial services” covered by PNC’s registrations,
especially given statements Plaid made to the PTO that it offered financial
services. (The court did find that there was no judicial estoppel preventing
Plaid from offering a defense that the services weren’t the “same,” given the
gray areas involved.) A jury could also conclude that even if bank customers
aren’t Plaid customers, they’re Plaid’s target audience—although how that
matches up with the counterfeiting requirement I don’t know.

Trademark claims: The court declined to do a shortcut around
the likely confusion factors despite the similarity of the uses and related
services. (As is so common these days, the real issue is affiliation confusion,
which also matters.)

The “consumer care” factor weighed against Plaid because of
evidence that “Plaid Link’s entire system was designed to make consumers feel
more comfortable in providing Plaid their banking information,” e.g. “[W]e use
the bank logo and color scheme because it has a significant impact on
conversion. It gives users more familiarity and trust in completing the linking
flow.” Although banking may be “high engagement,” the evidence of confusion in
the survey was “rather high (perhaps surprisingly high) in the control
condition” at 38%; Plaid’s own statements indicated that using the logos made
consumers more “comfortable” “and thereby perhaps less likely to be careful
with their banking information”; and Plaid’s own experts “emphasize[d] that
Plaid Link’s design structure promotes near-autonomous consumer decision
making.”

But other consumer-based factors were up for grabs. A jury
could readily conclude that “Plaid and PNC provide far different services and
market to very different customers.” [Part of the issue here is: who’s confused
about what? Plaid’s customers aren’t likely to be confused.]

Length of time/actual confusion: Record evidence “unconnected
to Plaid’s messaging on the heels of the 2019 Cybersecurity Event” was “relatively
sparse.” A consumer complaint cited by PNC might be relevant to false
advertising, but didn’t obviously show trademark confusion:  

Venmo says they have lost
connection with my bank – sounds like Venmo’s problem. I attempt to reconnect.
Then the ‘Plaid’ screen appears. (As noted, I’m sure it’s safer to have this
extra level of security – when it functions). Then the PNC (?) ‘Enter your
credentials’ screen appears; when I enter my username and password the PNC
screen says ‘the username you provided was incorrect.’ I have called PNC to
confirm my username, and it’s the same one that works on the pnc.com site. So
what next?

Maybe the complaining consumer believed that Plaid is a
security feature of PNC, but “this consumer complaint could also be read as
saying that Plaid is an independent software service that provides another
level of security. More importantly, there is minimal other record evidence of
actual confusion based exclusively off of Plaid’s use of PNC’s marks.” There
was the survey, but a jury could find in Plaid’s favor.

Plaid’s purposes— “consumer ease of use and bank
identification”—were not bad faith as a matter of law. However, bad faith isn’t
required, only “intentional conduct” [what can this possibly mean? It seems to
turn knowledge into bad intent]. And “statements from Plaid’s CEO regarding
Plaid’s efforts to conceal its use of bank marks from the banks supports the
conclusion that Plaid’s intent was willing and voluntary.” That is, the CEO
told employees to make sure that they did not send an email announcing the addition
of over 6,000 new bank logos to Plaid Link to the banks themselves. “A jury
could readily conclude that Plaid wanted to guise itself in the marks of other
banks, including PNC.”

PNC has a stake in another company, Akoya, designed to
compete with Plaid. “[W]hile a jury could reasonably conclude that PNC is
likely to indirectly compete with Plaid and that Plaid’s use of PNC’s marks
harms PNC’s hypothetical future efforts in the account linking and data
aggregation field, a jury could also conclude that PNC is prosecuting this case
less to foster its own expansion plans and more to undermine Plaid before
advancing its competing product.”

False advertising: This claim was based on Plaid’s messaging
screens blaming PNC after PNC implemented changes that prevented users from
using Plaid to link their PNC accounts with their chosen fintech apps. Plaid
encouraged consumers to report PNC to the CFPB, and Plaid customer service
representatives told those customers to switch banks.

Surprisingly, the court found that these statements could be
“intentionally misleading,” because the statements “implicitly place the
culpable fault on PNC for the measures it took to protect its customers’ data
after the 2019 Cybersecurity Event. … [A] jury could conclude that Plaid did
not tell PNC customers the full story, namely that there had been a security
breach involving Plaid by which PNC customers’ private data was leaked on the ‘Dark
Web.’” And the reference to the CFPB “could also be found to imply that PNC’s
conduct was at least wrongful, if not illegal.” [But the precedents usually
agree that statements by laypeople about violations of laws that are
arguable/not yet decided are not factual and therefore can’t violate the Lanham
Act. Unless Plaid was under a duty to disclose the security incident, it’s usually
ok to give only information that favors yourself.] And PNC identified “multiple
communications from consumers to the CFPB regarding their dissatisfaction with
PNC after Plaid’s messaging screens went live,” such as “PNC has blocked access
to Plaid, which allows me to transfer funds in and out of my account. It’s
extremely inconvenient and I will have to switch banks because of it.” But that
doesn’t demonstrate deception! That was true! Still, the court found this to be
evidence of materiality.

Nor could Plaid win summary judgment on harm. A jury could
find harm to goodwill.

PNC didn’t manage to kick out laches/acquiescence as a
defense. PNC delayed four years before objecting, and another before suing, “despite
evidence that shows that PNC worked with Plaid during much of that four-year
period and had access to demos that showed PNC what the Plaid Link user
interface looked like.” Prejudice was a closer question; it may have run up the
potential damages, and Plaid could argue that to the jury. Acquiescence was
similar: there was “plenty of record evidence that suggests that PNC made a
thoughtful decision to continue working with Plaid despite having access to
Plaid’s allegedly infringing user interface, at least in demo version, such
that PNC conveyed implied consent to Plaid to use PNC marks as it did.” A jury
could find this was more than mere inaction, especially given the participation
of PNC senior executives.

from Blogger http://tushnet.blogspot.com/2024/08/plaid-must-face-jury-on-pncs.html

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Punchbowl, punchback: district court finds confusion unlikely between invitation and political news sites

Posted on August 26, 2024 by rtushnet

Punchbowl, Inc. v. AJ Press LLC, 2:21-cv-03010-SVW-MAR (C.D.
Cal. Aug. 22, 2024)

Punchbowl home page

Punchbowl News home page

On remand from the 9th Circuit, the court conducts
a multifactor likely confusion analysis and finds that Punchbowl’s digital invitation
services are too distinct for likely confusion with Punchbowl News’s political reporting.
Two points stand out: first, the court considers it significant that mostly
women use Punchbowl and mostly men use Punchbowl News.

Second, there’s a useful discussion of misdirected
communications in light of the unrelatedness of the services. There were about 100, which in the context of thousands of queries a year for each party was not significant. Moreover, misdirected
communications may be probative of the fact that the names are similar, but not
of likely confusion, because relevant confusion has to relate to some kind of
purchase opportunity. Otherwise, trademark would turn into a right in gross:

Ultimately, the dissimilarity and
lack of proximity between the services provided by Plaintiff and Defendant carry
the day. This conclusion is the obvious one. At worst, some consumers might
mistakenly contact one party when they mean to contact the other party. A
misaddressed email, Facebook comment, or X post is a negligible friction that
stems from the fact that both parties have named their services a common word.
No reasonable consumer would purchase a subscription to a party planning software
platform when they intended to subscribe to a news website (or vice versa)
because they thought they came from the same source. No reasonable jury could
find otherwise.

from Blogger http://tushnet.blogspot.com/2024/08/punchbowl-punchback-district-court.html

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Trademark question of the day

Posted on August 26, 2024 by rtushnet

 Spotted around town:

back of bus ad: "slow down. this isn't a video game" over video game image; "you speed, you lose--DMV" on right, all in Grand Theft Auto font

For reference, here’s the Grand Theft Auto font:

from Blogger http://tushnet.blogspot.com/2024/08/trademark-question-of-day.html

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State Little FTC Acts still have teeth, as Georgia’s proves

Posted on August 26, 2024 by rtushnet

Federal Trade Commission v. Peyroux, — F.Supp.3d —-, 2024
WL 1283344, No. 1:21-cv-3329-AT (N.D. Ga. Mar. 11, 2024)

The FTC and the state of Georgia sued three corporate
defendants and two individual defendants, Peyroux and Detelich. The underlying
acts carried out by various defendants involved promoting stem cell therapy,
which “involves the injection of shots with products containing cells or growth
factors derived from birth tissue, including amniotic tissue or fluid,
placenta, Wharton’s jelly, umbilical cord blood, adipose tissue, and bone
marrow.” To get a sense of the costs at issue, over 2017-2019, at least 485
consumers purchased stem cell therapy injections from one defendant, Superior,
at a total cost of $3,350,416. Many patients were seniors.

The other corporate defendants were consulting services that
advised chiropractors and healthcare clinics on how to increase revenue by
offering additional services to patients. They provided “resources — marketing
manuals, flyers, lectures, sample emails ads, and PowerPoints — and a procedure
to launch advertising campaigns.” They provided coaching on how to deliver
PowerPoint presentations to potential patients, including on “handling
objections” and arranging financing; offered medical training for clinics; ordered
supplies for the stem cell injections, and provided other sales training, for
example, on how to track patients and potential patient responses to marketing
campaigns. Defendant Stem Cell Institute of America (SCIA) also “advertised
stem cell therapy directly to consumers through lectures, postcards, emails,
its website, YouTube, a documentary, and more.”

Peyroux was the 100% owner of all three corporate defendants;
Detelich was, among other things, a co-founder, officer, and director of SCIA,
and directly involved in developing, marketing, and delivering consulting
services about stem cell therapy for the other two corporate defendants.
Superior and SCIA filed for bankruptcy in 2019 (this proceeding continues as an
exercise of the police power, despite the automatic bankruptcy stay).

The ads at issue misrepresented the efficacy of stem cell
therapy, e.g., “stem cells can be used to treat nearly any type of condition
caused by injury or degeneration” and specifically claimed the ability to treat,
inter alia, COPD, Parkinson’s disease, multiple sclerosis, and congestive heart
failure. The ads offered to “reduce and even eliminate your pain without
surgery or additive medications.” Some of the ads claimed FDA approval. One of
the training videos included a role-play about how to respond to customer resistance:
“Over the past few years that we’ve done this, we have treated hundreds of
patients with knee conditions with amazing results. So the level of
degeneration you have in your knee makes you a really good candidate for this
procedure. And I feel very confident in telling you that this is going to be a
positive outcome for you as far as improving your range of motion, quality of
life, and decreasing pain.”

The court granted summary judgment to the FTC and the State
on many issues, including that the corporate defendants engaged in a common
enterprise and that the individual defendants were liable for the corporate
defendants’ acts. In addition, they made false or unsubstantiated efficacy
claims; false claims of FDA and FTC approval; and supplied their client clinics
with false/unsubstantiated ads and so provided clients with the means and
instrumentalities to commit further deceptive acts and practices.

Both the false efficacy claims and the false FDA/FTC
approval claims related to health and thus were presumptively material. And the
defendants supplied the means and instrumentalities of deception to clinics
through their extensive provision of ads and related services.

As to individual liability, this requires (1) control of the
corporation’s relevant acts and (2) some level of knowledge. Where a defendant
is a corporate officer of a small, closely-held corporation, “the individual’s
status gives rise to a presumption of ability to control the corporation.” Knowledge
means that the individual had “ ‘actual knowledge of the [unlawful] conduct,
was recklessly indifferent to its [unlawfulness], or had an awareness of a high
probability of [unlawfulness] and intentionally avoided learning of the truth.’
” Furthermore, “[a]n individual’s degree of participation in the business is
probative of knowledge.” Both of the individual defendants here directly
participated in the unlawful acts and advertising—they even delivered seminars
for the scheme—and also had authority to control the acts.

Georgia’s little FTC law, the GFBPA, outlaws “[u]nfair or
deceptive acts or practices in the conduct of consumer transactions and
consumer acts or practices in trade or commerce.” Examples of such unfair or
deceptive acts and practices include “[r]epresenting that goods or services
have sponsorship, approval, characteristics, ingredients, uses, benefits, or
quantities that they do not have.” It also bars using “a computer or computer
network” to “[e]ngage in any act, practice, or course or business that operates
… as a fraud or deceit upon a person.” “[T]he legislative intent and
interpretation provision of the GFBPA makes clear that the Act should be
interpreted broadly to end deceptive practices, and that the Act should be
interpreted as coterminous with the FTC Act.” The court therefore rejected defendants’
arguments that joint GFBPA liability could only be imposed if the corporate
veil could be pierced under Georgia law, noting that courts applying the laws
of several other states have found similarly.

On remedies, Detelich argued that there should be no injunctive
relief against him because there was no risk that he will engage in similar
conduct again. In determining whether there is “some cognizable danger of a
recurrent violation,” courts consider “the egregiousness of the defendant’s
actions; the isolated or recurrent nature of the actions; the degree of
scienter involved; the sincerity of the defendant’s assurances against future
violations; the defendant’s recognition of the wrongful nature of his conduct;
and the likelihood that the defendant’s occupation will present opportunities
for future violations….”

Using this standard, injunctive relief was appropriate as to
all existing defendants, who engaged in  “a
comprehensive campaign to develop and disseminate misleading advertisements
about the efficacy and approval of stem cell therapy on a massive scale.” The
ads were the focus of their business, and they profited massively therefrom.
The degree of scienter was high, and the individual defendants currently held
interests in many other healthcare companies.

The State also sought monetary relief in the form of civil
penalties and restitution under the GFBPA, which allows civil penalties up to
$5000 per violation (without specifying a method for identifying how many
violations occurred). There are additional penalties for targeting elderly and
disabled people online, up to $10,000 per violation.

Georgia sought $5000/day for misrepresentations on Superior’s
website ($6,650,000), $10,000/violation for 59 online advertising campaigns,
161 brochures downloaded online, 148 seminars delivered, and 335 elderly
consumer purchases of stem cell shots ($7,030,000); $5000 for each individual
consumer who purchased a stem cell shot who was not elderly ($750,000); and (4)
restitution for the 485 customers who purchased stem cell injections from Superior
($3,350,416).

The court declined to decide on an amount at this time and
noted the additional information it sought, but rejected some defense
challenges to the availability of monetary relief. First, civil penalties under
state law can be obtained in federal court, given an amendment specifying that “the
Attorney General is authorized to initiate … or otherwise appear in any
federal court or administrative agency to implement the provisions of this
article.”

Nor was the civil penalty provision unconstitutionally vague,
even though defendants argued that it had no specific method for calculating
the number of violations or setting an amount within the range. The
per-violation language should be interpreted in concert with the rest of the
statute, suggesting that “each unfair or deceptive act or practice, or consumer
transaction, serves as a separate violation of the statute.” Courts
interpreting similar statutes have assessed per violation penalties “based on
the number of ads published, transactions completed, consumer purchases, or a
mix of these measures.”

from Blogger http://tushnet.blogspot.com/2024/08/state-little-ftc-acts-still-have-teeth.html

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Grubhub’s listing of unaffiliated restaurants on its platform could infringe TM

Posted on August 26, 2024 by rtushnet

Lynn Scott, LLC v. Grubhub Inc., 2024 WL 3673718, No. 20 C
6334 (N.D. Ill. Aug. 6, 2024)

Restaurants brought a putative class action alleging that
Grubhub used their names and logos confusingly, asserting claims under the
Lanham Act.

“Grubhub acts as an intermediary between consumers looking
to order food and restaurants looking for additional customers.” Restaurants
who partner with Grubhub pay it a percentage for “an additional way of
generating orders, internet advertising, and a delivery infrastructure.”
Plaintiffs alleged that, since its founding (2004), Grubhub only included
restaurants on its platform who agreed to appear. Thus, consumers allegedly
expected that “restaurants listed on Grubhub’s platform were working
cooperatively with Grubhub to provide takeout and food delivery services.” But
in 2019, Grubhub changed to add more than 150,000 restaurants, including
plaintiffs’, without permission.

Grubhub allegedly used different colors on its mobile app to
help drivers distinguish restaurants who were partners versus unaffiliated
restaurants and further disguised its actions by having drivers place orders
under customer names and pick them up from the regular customer area without
mentioning Grubhub. Customers allegedly erroneously blamed the restaurants for
negative dining experiences.

False association: Some plaintiffs failed to allege
protectable trademarks, but this would be curable in an amended complaint. The
court rejected plaintiffs’ argument that they could bring false association
claims without alleging a protectable trademark; Ҥ 43(a) does not have
boundless application as a remedy for unfair trade practices.” Belmora
was factually and legally distinguishable; there was at least a valid foreign
mark there.

And likely confusion was generally a factual question. Enough
was alleged here, including “exact replicas” of names and logos. For actual
confusion, plaintiffs alleged “multiple accounts of customers who received poor
service from Grubhub and, in turn, blamed Plaintiffs,” e.g., for an “outdated”
menu on Grubhub that meant that orders couldn’t be fulfilled correctly. [I take
it the court wouldn’t find confusion plausible if it was a newspaper review
that became outdated. The usual multifactor test isn’t really suitable for that
(or anyway, all the work in rejecting the plausibility of that theory comes
from the unrelatedness of the goods and services).]

False advertising: Plaintiffs alleged that (1) use of
Plaintiffs’ names and logos, (2) false representations that Plaintiffs’
restaurants are working alongside Grubhub, and (3) false and misleading
statements made in connection with Grubhub’s use of the names and logos, such
as statements that Plaintiffs’ restaurants were closed and the posting of
incorrect pricing and menu items, constituted false advertising. Without
discussing materiality, the court found this adequate.

from Blogger http://tushnet.blogspot.com/2024/08/grubhubs-listing-of-unaffiliated.html

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IPSC Closing Plenary: Fair Use After Warhol

Posted on August 9, 2024 by rtushnet

Christopher Buccafusco, Copyrighting Style

There are plenty of precedents that say style isn’t ©able.
Appropriating the “core” of a work is not infringing in the absence of substantial
similarity.there are also cases suggesting ©ability of style: Steinberg, saying
style is part of expression. Blehm v. Jacobs, Bandana v. TJX, Reece v. Mark
Ecko say that style is an ingredient of expression etc.

Unfortunately, this matters because of AI. Greg Rutkowski is
a more popular prompt than Picasso and he doesn’t like this. Visual art for
examples, but can be extended to music and text.

To some extent, style is ©able and to some extent not. Style
sits between idea/content/subject and method/process, things that are excluded
from ©ability. © attaches to the how, not the what: the means by which the
ideas are given expression. The manner by which the author makes certain
choices. These are forms—but that’s one way of defining style, the manner in
which we clothe our forms of thought. Synonymy: the idea that you can say the
same thing in many different ways. That’s a questionable commitment in
aesthetic philosophy these days.

Same problems if we think of style v. method/process. Style
feels a lot like method/process—ways in which you learn to engage in 2-point
perspective drawing seems like a method for doing things. But not everything
with a bunch of steps in it is uncopyrightable. Choreography can be ©able.

We can also make incentive claims about broader protection
for style. But © doesn’t (shouldn’t) care about fame or distinctiveness.
Copyright attaches to works, not ouvres. The scope of © shouldn’t grow b/c an
author has made six works when the six works made by six different authors
would have a smaller scope of ©. Style inevitably involves authorial choices about
manner and form of expressing ideas; impossible to say with any coherence when
these choices become sufficiently abstract to be ideas. Telling the jury “good
luck” admits that we don’t know how to do this.

Path forward: copyright consists in the original properties by
which a work expresses: by which it represents, denotes, and exemplifies. These
include both formal features and the subject or content of the work. A work is
an expressive unit of both the formal features and the underlying content; the
relationship between those is what constitutes the work. Only when all the
relevant features are substantially similar should we find infringement:
combining formal features and underlying content should be required. Subject of
work acts as a limitation on scope of ©. Monet gets a © in his depiction of
waterlilies but not as against depiction of violets. 2 photos of Michael Jordan
in grande jete pose but with different formal features.

This will get hard: Steinberg-style drawings of other cities
are hard for him.

This is basically what Krofft said in the parts that
are good and not terrible: you need substantial similarity in expression of
ideas, not merely of ideas. Statue of a horse can’t embody the same idea as statue
of a dancer even if formal features are the same, nor would a painting of a
dancer.

Cubism makes it hard: could Braque have sued Picasso? Hard
to figure out what the subjects are.

Is this relevant to fair use? Suggests that satire should
have a greater claim to noninfringement than it historically has. Satire involves
using the same style to clothe different ideas; therefore it shouldn’t infringe
(lack of substantial similarity as in the Greatest American Hero case; German
case law; perhaps the jury’s reasoning in the Kat von D case).

Courts should avoid analyzing “feel” and more focus on
formal features. More about glint in eye than “uncomfortable” versus “larger
than life” in Prince.

[seems like this is going to have trouble with derivative
works]

Amanda Levendowski, Fairer Public Benefit

Bias and harms of works aren’t taken into account in fair
use analysis: recruits a legal tool typically aimed at one set of problems for
the purpose of cleverly addressing a different set of problems. Here the tool
is the “public benefit” subfactor of fair use, aimed at balancing public
benefits with market harms. Novel tech can promote sociotech harms like bias,
mis/disinformation and social/environmental destruction. Particularly
pronounced with algorithms and AI. Defining public benefit could mitigate some
of those harms. [I am v skeptical of this given the inability of courts to do
full cost benefit analysis; 1201 exemption analysis shows that putting downstream
effects into the hopper is generally a way to suppress fair uses, and
competition, in the service of fears of lack of control by big companies like
John Deere.]

Cases that have discussed public benefit in fair use: 19 of
38 involve novel technologies—VCRs, digital libraries, early algorithms.

Defining public benefit is difficult. But deeply troubled by
algorithmic fair use cases that allowed lots of exploitation—iParadigms (plagiarism
detection) and Perfect 10 (exposing women to public view when they contracted
for more restricted nudity). Amplified misinfo: these women didn’t consent to having
their nudity exploited publicly. This is inconsistent w/the promotion of progress,
and misinformation doesn’t do that. [How do you know that viewers received that
message or perceived any difference between “posing for Perfect 10” and “having
images online”?] Not saying Perfect 10 was wrongly decided, but not an uncritical
public benefit. Could have named the costs, which influences how lawyers and
courts think and behave.

Should consider public benefits of use discounted by public
harms. Benefits and harms are both difficult to quantify.

Courts, as well lawyers counseling clients, can do this.
Courts can elevate scholarship into doctrine. [Do we think that today’s courts
will embrace the broader social benefits of a trans
Joker,
or instead consider the film to inflict broader social harm?] This wouldn’t be
dispositive and anyway the harms will already have been caused in litigation.

What about Congress? Codifying this definition is risky.

Fairer public benefit can be operationalized by
client-centered lawyers seeking to help clients develop better technologies—exploring
possible consequences of their actions. Consequences are often sociotechnical,
not legal. Lawyers should be counseling on them. Formalize the tech; assess public
benefits; identify public harms; reconsider public benefits; report to the
client.

[why do you need to bring © into this? If ethical lawyering assesses
sociotech impacts, then © is just a distraction.]

Michael Mattioli, Facilitative Fair Use

Implications of Warhol on training AI: surprising ways that
AI is actually facilitating some good things in © ecosystem. Little AI services
may be much more beneficial than Big AI. Amanda Wood-Shapiro, writer with
dyslexia, describing use of AI as game-changer for author. Ability/desire to tell
stories; difficulty organizing thoughts. More than just spellcheck/grammar checker;
AI was a mentor for her (Grammarly). Not the only neurodivergent person using
LLMs to get ideas out as authors. Publishers drowning under slush piles may be
able to use LLMs to identify the diamond in the rough. Sudowrite and other
editors—help speed of production, looking at narrative consistency and pacing.
Writing ad copy, which authors need to sell their works. Not just books; ScriptBook
for scriptwriting can evaluate potential in script—character likeability,
whether there’s a big enough audience, etc.

Word of pessimism: if it’s not run properly, especially if
trained on limited/biased dataset, could narrow the range of voices. But these
tools are already there. AI models for casting data to determine who to cast—but
trained on existing ads and films. Generating storyboards: directors can
experiment w/different camera angles and scene composition.

AI is used to produce/disseminate games—porting it from
platform to platform.

W/o fair use, these tools are far more limited. Licensing=only
really deep pockets can play, and even they will have access to a far more limited
set of training data, steering © system towards more bias and fewer voices. [Although
the companies didn’t love how much omegaverse showed up in their first few
iterations.]

Pamela Samuelson, Justifications for Fair Uses

Warhol: main opinion uses “justified,” “unjustified,” and “justification”
28 times in discussing factor 1; identified “targeting” as a justification,
with 10 references to “target” (5 in dissent). Warhol Foundation, majority
found, didn’t offer a persuasive justification for offering a license to Conde
Nast to use Orange Prince on a magazine cover. Need justification for each use,
not just initial creation. Will courts interpret Warhol as limiting justifications
to targeting?

Whyte Monkee v. Netflix: court did exactly that—using parts
of a funeral video in documentary was not transformative b/c didn’t comment on
the authorial choices and intended meaning of the video. Fortunately, 10th
Cir. reheard the case; waiting to see whether they don’t mess it up quite as
badly.

Other questions: will/should justification become a new subfactor
in factor 1? She hopes not.

What fair use justifications will/should courts find
sufficient besides targeting the first work for criticism or comment? (lots of
them hopefully)

Are justifications only relevant to factor 1? (no)

Are justifications only needed if the second work has the same
purpose as the first work? (maybe)

What kind of evidence is relevant to proving justifications?
(??)

Leval’s conception of justifications: also uses “justif”
words 33 times, almost all in relation to factor 1. For him, justification
turned on transformativeness, adding something new with a further purpose or
different character, altering the first with new expression, meaning or
message. Historians & journalists need to quote others’ works to support
their arguments/theories—a key concern for Leval. Thus transformativeness
enables © to fulfill its larger public purposes. A justification may exist
under factor 1, and it must be weighed v. other factors, e.g., did D take too
much. Transformativeness is for him the justification—you don’t need a
justification on top of a justification.

Campbell took a holistic conception of fair use
justifications and emphasized the importance of fair use to provide breathing
space; courts must consider all factors together and weigh them in light of the
ends of copyright law. Transformative purpose may have spillover effects in
relation to the amount and market effects factors—the more transformative the
second work, the more spillover effects are likely. Every case to be decided on
its own facts.

Campbell did involve targeting for criticism, but this isn’t
the only kind of targeting in case law. Targeting the author, not the work: New
Era—what a cruel, bigoted person L Ron Hubbard was. Targeting the subject of
the work: Kienitz, saying the mayor was a jerk. Targeting a third person: Hill v.
Public Advocate—photo of gay couple kissing to target legislator who supported gay
marriage. Targeting a theory—Time v. Bernard Geis Assoc.

Justifications beyond factor 1: GvO involves factor 2
justifications; programmer investments in learning Java declarations that were inextricably
bound up with method calls & implementing code

Factor 3 justifications: Faulkner Literary Rights v. Sony: “miniscule
qualitative” part was fair use.

Factor 4 justifications: harm speculative/work not competing—Sony
v. Universal; AG v. HathiTrust.

Other types of justifications? Public interest in access to
info: Warhol gives this as example, making information available, citing
Authors Guild v. Google; search engine cases (Kelly, Perfect 10, Authors Guild
v. Google); online posting of gov’t edicts (ASTM); print disabled access to
books (HathiTrust). Private interest in access to info: reverse engineering
cases (Sega v. Accolade).

Freedom of expression: protests (Kienitz); anti-censorship
(SUntrust)

Evidentiary: documentary film clips used to prove filmmakers
point; evidence in court (Bond v. Blum); court reproducing images in opinion
(Warhol)

Economic justifications can also come in different flavors;
her project is to evaluate different types of justifications.

Post-Warhol caselaw has gotten more boring; courts don’t
seem to understand that works could have more than 1 purpose. A “further”
purpose is what Campbell talked about. Depends on level of generality of “purpose”—watch
out for manipulation. DC Circuit upheld ASTM’s posting as transformative,
Warhol notwithstanding. Cramer v. Netflix—tattoos shown briefly in Tiger King
show fair b/c of transformatively different purpose. Thomson Reuters v. Ross:
jury to decide if training data transformative; Warhol didn’t require TR win. Sedlik
v. Kat von D appeal pending—Sedlik argues that he has to win regardless of jury
verdict b/c of Warhol. Still early to judge impact, but justification not yet
playing major role; most cases involve more than targeting original for
criticism. Bringing that to court’s attention is our job.

Chris Sprigman, Copyright, Meet Antitrust: The Warhol Court
and the Rise of Competition Analysis in Fair Use

Warhol has two innovations. First, the analysis has to be
use by use, not work by work. Imminent in prior jurisprudence, but comes out
roaring here. The use in Warhol is the licensing to Conde Nast for use on an
issue commemorating Prince’s life. Second, a change in the definition of what a
different purpose or character is for transformativeness purposes. Many uses
with new meaning/message will be transformative, but needs to be sufficient to
make the use different in purpose or character from a use the P might want to
make of their work. “[T]he first factor relates to the problem of substitution—©’s
bete noire.” That is, the thing copyright hates most is not copying itself, but
copying that substitutes. Using a work to achieve a purpose the same as or similar
to the original is more likely to supplant the original.

That makes competition key to transformativeness. It was
intuitive to the Court that the images looked alike and could be used on magazines,
and therefore competed. This is wrong. Milk and Coca-Cola can both be drunk;
someone dying of thirst would grab at both; but they are not competitors in any
ordinary sense.

Antitrust has a thicker definition. Start with a candidate
market (e.g. Goldsmith’s photos). If a single firm owned all products in
candidate product market, would it be profit-maximizing to impose a small, significant
nontransitory price increase of 5-10%? If not, add the next closest product and
try again. Does Peets compete with Starbucks? If they both increased prices, would
people defect to Dunkin and defeat the price increase? If they would, you haven’t
defined your market.

This methodology is both empirical and normative. Empirical:
uses data from historical price changes/econometric analysis; customer/user
interviews; objective information re product characteristics. Normative: why 5-10%?
This is the competitive margin on which antitrust should focus. This isn’t
always the lower threshold; sometimes 1% is enormously consequential for an
industry where the margins are very slim. The normativity of the test is
connected to its empirics.

Methodology actually applied to fair use cases: a D who
creates an artwork for exhibition or sale will almost never compete. When you
narrow it to particular uses, as Warhol did, substitutability becomes more
tractable. What about widely distributed works? Empirics of antitrust will work
for you—there will be historical price data that help you assess
cross-elasticity of demand b/t works.

What about Warhol itself, with episodically licensed works
on both sides? Hardest case. Prince is one of most photographed men on planet.
That means that the market for works to illustrate magazine articles is
crowded. Many works available for licensing. Unilateral effects theory:
competitive “nodes.” If you have a crowded market, there can still be a harm if
there’s a competitive node—if competition b/t the Goldsmith photo and the other
photos was much less close than competition b/t Goldsmith photo and Warhol
image. That’s what the Court should have asked. Asking about licensing to magazines
generally is like saying that milk and Coke compete. Photo is a classical
portrait; the Warhol work licensed to Vanity Fair was about iconization—a visual
representation of “Purple Fame.” If they had licensing people, people would
have observed that the Warhol was compatible with the article and the photo was
less so. After Prince’s death, Orange Prince was an icon painting.

Moderator: Pamela Samuelson, Berkeley Law

Lemley for Levendowski: Negative as well as positive public
benefits for the market factor too—why not? Level of generality at which you
assess benefits v. harms: Perfect 10 was not a tech for depicting naked people,
but rather for depicting images. Assess only uses made in particular case, or
all uses and future uses that come from having/not having image search?

A: agree, include market benefits as well. Level of
generality is a tricky question: privacy law can be imported to provide some
frameworks about ©. For Perfect 10, Nissenbaum’s theory of contextual integrity
explains why it’s invasive to take images behind a paywall and reproduce them
outside the paywall. That aligns with courts’ unwillingness to endorse disclosure
of unpublished works.

McKenna for Buccafusco: Formal characteristics and subject
of work—there are levels of abstraction problems in identifying subjects—why is
Monet’s subject lilies and not “flowers”? Steinberg: you said the formal
characteristics were the same but not the subject—do you mean “thing depicted”
or “meaning”?

A: definitely creates another hierarchy problem, but may be
able to get a better handle on it by separating them. Substance hurdle + formal
features hurdle.

Saurabh Vishnubhakat for Sprigman: isn’t your distinction
b/t Warhol and photo snobbish and aesthetic?

A: don’t overread snobbishness—my analysis fits any crowded
market. It’s about consumer preferences, which we take as they are. If they’re
coffee snobs, we let them be; if magazine people think that the Warhol picture
fits a theme, we don’t judge that.

Felix Wu: if the lookalikes generated by AI are
substitutionary relative to original artists, should we worry about that?

Buccafusco: If we think about competition, Moscow on the
Hudson doesn’t compete plausibly with Steinberg; you could increase the price
of the latter a lot and Robin Williams’ presence would still make the former
nonsubstitutionary. This is also probably true of a lot of the derivative work
stuff.

Sprigman: Be disciplined about what part of the FU analysis
we’re doing. Factor 1 involves competition. Steinberg is definitely not
competitive. But it might not add new meaning or message and therefore might
not be transformative. [I thought he was going to pivot to Factor 4 being a distinct
analysis.] The court announces a result in Warhol telling us that competition
is central for transformativeness, but doesn’t explore the dark corners. Let’s
just say we apply substitution analysis to that situation—we would probably
find the same purpose. Is purpose defined by competition? Or is purpose guided
by competition? He thinks the latter is more useful. If they compete b/c of
similarities in nonprotectable expression, that shouldn’t count.

Katrina Geddes for Levendowski: worry about courts’ ability
to handle more capacious understanding of public benefit. Would that devolve
into a battle of experts where whoever hires the best expert wins? Wouldn’t
that harm smaller communities?

A: good question, and part of why I think best way to
implement this is pre-litigation stage. Client may just say “thanks, it’s profitable
to spread disinformation.” That’s the dangerous part of client centered
lawyering. But less a battle of experts and more a battle of amici. [This is
also about resources—they need to know that they need amici, and they often don’t
until it’s too late.] We saw this in the pending Internet Archive case; they
made a robust public benefit argument that the court didn’t like but did
grapple with.

Q: Look at CFR 21 in medical device world—you’re always
talking about reasonable assurance of safety versus benefit/effectiveness. That’s
a way to balance interests. For AI: controls for randomness/going off the rails
need to be taken into account. For Sprigman: is this a noun, verb, or
adjective?

Q: Antitrust: plaintiffs hate market definition; it’s really
hard. Courts hated having patent case inside an antitrust case in pay for delay
and might hate this too.

A: Doesn’t have to be fullscale analysis; Court should have
gotten an explanation that not all magazine licensing is the same/competitive.
Maybe 5-10% isn’t right margin: should look at incentives to create in the
first place.

Stefan Bechtold: Price is probably not the only normative
goal in ©, so SSNIP might not be the right tool.

A: if we’re honest about ©, it’s trying to remove discipline
from prices, so is that right? But what is our specific goal in factor 1
analysis? Court just told us a mission for that, and we can use these tools,
albeit not unthinkingly. Who are the buyers? They may be very different in ©
markets versus commodity market. © has problems; so does antitrust. Every
regulatory system has problems. But we learn something from asking the Qs that
antitrust wants us to ask.

RT: 1201 exemptions suggest to me it’s a bad idea to ask any
authority to do global-cost benefit analysis as part of a fair use inquiry. The
Copyright Office thinks that it should only find circumvention noninfringing if
it won’t risk people crashing Teslas, and it’s not good at that assessment.

A: Clients come in the door thinking that © is the problem;
you need to identify problems earlier, sooner, and louder. It would be better
as a general part of good transactional lawyering, but no one is there yet. If
clients have © Qs, that gives them an opportunity to engage with public law
problems. [I don’t get why that means it’s copyright’s problem. Clients often
confuse TM, ©, ROP, employment law, and lots of other stuff. The lawyer’s job
is to identify their actual problems.]

Rothman: Prince was terrified of being photographed; even with
lots of photos of him, there may be fewer carefully posed photos than you
think. Thinks Warhol is more about misappropriation.

A: Prince contained multitudes; he was photographed a lot
even if he hated it. The Court may be motivated by something other than
substitution, but what it said was substitution.

from Blogger http://tushnet.blogspot.com/2024/08/ipsc-closing-plenary-fair-use-after.html

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IPSC Breakout 5 Comparative Approaches

Posted on August 9, 2024 by rtushnet

Stefania Fusco (co-author Valerio Sterzi), Does the EU Need
an EBay-Like Case? Evidence Against Granting Automatic Injunctions in Europe

Patent paper; issues involving NPEs similar to trolling
issues in US. If most infringement cases are between noncompetitors, automatic
injunction is inappropriate and an eBay-like rule is appropriate, and their
research suggests that this is the case.

Justin Hughes, Comparative Online Bad Guys

After issues of application of © online were settled, key
was determining liabilities of intermediaries. A problem of elephants and mice.
Enforcing against mice is difficult, but elephants can’t hide and are subject
to lawsuits. So enforcement for CSAM through © went to platforms. DSM Directive
in EU and US developments were all about enforcement on the elephants. A big
part has been site blocking: a court or admin body orders an ISP to block
internet access to particular online locations. Roots as old as 2001 Directive
ordering methods developed, as well as 512(j)(1) allowing site-blocking
injunctions in the US which has never really been tested in court. Now picking
up speed—over 30 jurisdictions, most democracies, have endorsed site-blocking,
often by the highest court. [defined: no fault injunctions against ISPs, so I
guess China’s Great Wall doesn’t count?]

Early days: there were questions of power to make orders
against innocent third parties. EU: statute. Canada: determined as matter of
common law. EU got proportionality analysis. Early cases, also questions of
technical possibility and burden sharing for site blocking. Can be done with
domain names, IP addresses, a combination, URL blocking. 2014: ECJ said that
the court didn’t need to designate technical measures—could order an outcome
prohibition; transmission entities have to effectively achieve site-blocking.
EU study: most EU jurisdictions have included that intermediaries must pay, also
true in Australia. 2018: UK House of Lords, TM site-blocking case disagreed.

How do you ID the bad guys? Pirates, rogue, flagrantly
infringing online locations (Singapore), infringement-based business models.
This wasn’t an issue in early cases because if you’re asking to block “the
pirate bay” there’s not a big problem, and courts will gloss over the necessary
evidence. But more important with dynamic injunctions, where jurisdictions
adopt some shortcut mechanism whereby an initial injunction against ISPs can be
used by Ps to add URLs/domain names/IP addresses to the injunction. Adopted in
Argentina, Canada, India, Singapore, UK, Netherlands, Germany.

Comparatively, jurisdictions are starting to develop criteria:
Singapore’s “flagrantly infringing online location,” codified 10 years ago.
Primary purpose to infringe ©; directories, indexes, categories of means to
commit or facilitate © infringement. Australia adopted a similar law (includes
weighing of harm to others and whether other injunctions have been issued).
Good to look at what people in other countries are doing. Delhi high court decision
2019 followed Singapore/Australian list. Canada has considered use of new
domain names, IP addresses, etc. to evade site blocking; India and Singapore consider
volume of traffic/frequency of access to the online location; etc.

Many of the things the courts say are separate factors are
going to “is the primary purpose or effect to cause © infringement?”
Directories/indexes for promoting infringement; flagrancy; silence or inaction
on receipt of takedown notices; circumvention instructions. One interesting
factor: looking to whether website has been disabled by orders from one or more
courts in other jurisdictions on © grounds. Australia, Denmark, India,
Singapore all consider this.

Would not be surprised to see legislation coming to US this
year. Hope will consider these models before adopting rules.

Q: how related to SOPA/PIPA?

A: motivated grassroots action—truly believe that American
court could already do this under 512(j). Why didn’t people test 512(j) in
court first? The answer is: most people in DC think that the tech community is
ready for this. We’re in a very different place: now Google can do no right on
Capitol Hill. Balance of power has changed.

Marketa Trimble: Under Nevada law, have to comply with other
countries’ laws to be licensed for online gambling in Nevada.

A: hard to imagine US court doing this on its own initiative.

Peter Yu: duration of blocking? UK careful about that.

A: interesting but not important b/c pirates move on so quickly
that an 18 month period is 5 business models. Might matter to transmission ISP
to clean up their blocklists though.

Cesar Ramirez-Montes, Digital User Rights in the Mexican
Supreme Court

Potential for global South to think of exceptions/limitations
as user rights, using Mexico as a point of reference. Not bashing the country
and its © system as such, but presenting the academic argument for room in
global South to develop this notion, and Mexico specifically. Implementation of
safe harbor provisions under USMCA was challenged before Mexican SCt; two
different rulings.

Descriptively: USMCA provides only for notice and takedown,
lifted from DMCA. Prescriptive: Mexican legislators should rethink their
adoption of DMCA Plus mechanisms such as notice and stay down which was adopted
as part of transposing the USMCA into legislation. Also: Mexican SC should
develop notion of exceptions and limitations as user’s rights as a new rule of interpretation
that provides greater attention to user interests and thereby balance © scope
with larger public interest.

Almost excessive attention paid to rightholders’ interests
and little interest in users’, audience’s, and public’s interest. As if it was
merely a system of protecting authors and nothing else.

The public bears a great cost from this, and © owners gave
nothing in return. Model: Canadian SCt ruling and relevant scholarly
explorations of exceptions and limitations as user rights.

Mexico adopted the safe harbor framework from USMCA, which
was modeled on DMCA. But added staydown obligation: “reasonable measures” to
prevent same content from being uploaded. Implementation also covers TPMs
though overrides protections for out of copyright works. Also funneling WIPO
internet treaties, Marrakesh Treaty, and TPPA implementation. Result: DMCA-Plus
approach to safe harbors.

Challenges before SCt: (1) freedom of expression under
Mexican constitution, contrary to due process and legal principle; (2) lack of
definition of key terms did not provide legal certainty. Notification
requirements didn’t require evidence of infringement; chilling effects and failed
to provide adequate remedies for users entitled to circumvent b/c of tool
prohibitions on DRMs: a disabled person could be entitled to an exception but unable
to get a device that would do the circumvention.

Jan. 2024, Mex. SCt First Chamber dismissed the appeal re
TPMs but found that staydown unduly restricted freedom of expression according
to proportionality test. Previously, Mexican law already had remedies for ©
owners. Comparative analysis of US law; cited EFF on DMCA’s effects. Grand Chamber
arrived at a different conclusion in May/June 2024, but have not published
reasoning.

Marketa Trimble, Cross-Border Exceptions and Limitations to
Copyright: “Powered by AI”

Not interested here in whether training infringes/using AI
as an example of a process. Legislation of exceptions and limitations is often
considered on a single-country basis. But in multi-country transactions, such
as when a library in country A wants to provide an article to a researcher via
a library in country B, we need to know if there are identical or similar
exceptions in A and B that cover the acts in the same manner. Libraries need
cross-border exceptions; the model of AI suggests that we could get them, but
libraries lack the political clout of big companies. Potential solutions:
internationally uniform exception; mutual recognition of national exceptions
(exists in some countries—once it’s permitted in one country, the other country
accepts it as legal); mutual recognition with national verification (we have
the same kind of exception and we check for compliance with our exception).
Localization (no matter what happens across the border, we apply that country’s
exception). Private ordering. Delocalization by brute force: Seen online in
other areas where companies don’t bother to localize TOS, just comply with US
law which is home country law; that solves the problem for them and they wait
for litigation if it materializes. Technological solutions?

International law and EU law are models. Mutual recognition
in EU Orphan Works Directive; mutual recognition with verification in
Marrakesh; localization approaches in EU SatCab directive, EU Portability
regulation, and DSM Directive. But attempt to enlarge localization to other
aspects of © ran into hard wall in EU. Unification of exceptions is unlikely to
do the trick.

Take some lessons from preexisting examples and models,
recognizing that libraries and archives can’t move international change forward
on their own.

Peter Yu (co-author Matthew Sag), The Globalization of Fair
Use Standards for AI

Copyright Office is interested in whether there will be globalization
on training and copyrightability. Different reasons for divergence: author’s
rights/©; civil/common law; developed/developing. We look at training AI
regimes. Group one: fair use. US, Israel (ministry of justice opinion embracing
training); Liberia, Malaysia, South Korea, Sri Lanka, Taiwan. Canada is
somewhat similar to US. Group II: TDM exceptions: Japan, UK, EU, Singapore,
possibly China. Japan was earliest, in 2009. Not using for personal enjoyment =
exception the broadest we’ve seen. Singapore is newest: computational data
analysis (with limits to prevent excess dissemination). Interestingly, Singapore
also has fair use.

Group III: Others, like China’s 3d amendment to Chinese
copyright law. “Other circumstances as provided by laws and administrative
regulations”—allowed limitations and exceptions. Seems to move towards an open-ended
system. We’re waiting for implementing regulations.

UAE: efforts with Falcon AI. Law is very far behind; closest
we’ve found is educational use.

No consensus. Emerging equilibrium. The underlying
grundnorm: idea/expression distinction.

Countries do want to move forward; incentives to allow
creation of systems in US/China/EU race. Gowers Review of IP—not adopted! But
they believe that fair use would be better for UK to advance tech development.
US dominance in AI investment and development.

US developments on deepfakes also matter—new ROP protections
could change the environment. AI Act/not clear whether opt out or remuneration
will proceed in EU. Also EU is trying to reach out with its regulation by being
indifferent to jurisdiction in which AI was trained.

TDM/fair use is the way to go. There won’t be major
international disputes on input end, but different modalities for
implementation. Non IP issues will affect © development. Changes are likely to
be incremental.

Hughes: you assume it’s fair use in the US. But we don’t
know. Isn’t the real lesson that law doesn’t matter in the face of all the
venture capital investment? We may never get a fair use determination b/c
OpenAI and Google are doing deals with Reddit, and maybe the cases will settle.

A: we do think there’s enough case law for fair use, but
what’s unclear is the interface b/t input and output.

AI and Authorship

Margaritha Windisch, Unveiling the Bond Between Artists and
Their Work: A Vignette Study

Personality rights theory of ©: bond between artist and work/work
is part of the personal sphere of the creator and part of their personal
identity. Authors’ rights are designed to protect that intellectual and
emotional bond. Strong emphasis on moral rights in continental Europe.

Fascinating empirical study among European visual artists
randomly assigned to use traditional materials, digital drawing, or AI prompts.
Their connection to their work felt significantly lower with AI prompts
(somewhat lower with digital drawing but not nearly as much).

Time spent on creating matters to bond, but even controlling
for that there is an effect. Whether their personality is reflected in the
work/whether they had freedom of choice in decisionmaking—factors relevant to
EU law; significant decrease for AI condition—whether they perceive the work as
their own intellectual creation is much lower v. physical or digital creation.
Differences b/t German-speaking and French-speaking participants as well!

There’s no threshold for the bond b/t artist and work; what’s
the right policy to protect authors when there is a low bond? UK provides for ©
protection for computer generated work for 50 years, but no moral rights. The
author is defined only as “the person by whom the arrangements necessary for
the creation of the work are undertaken.”

[I’m really interested in Kant’s disrespect for visual art
in initial arguments about authors’ rights, which is right there in the name
(it’s not artists’ rights). Somehow people just skip past the medium in modern
moral rights argument—but how and why?]

Jessica Silbey: We have bonds to lots of things in our lives
that we didn’t create or don’t own.

Josh Sarnoff: rewarding for the bond seems to be rewarding
the wrong thing—acquisitiveness or ownership desires.

A: no, the bond develops through the process of creation—what
makes it difficult to produce is what develops the attachment to the work.

Q: consider storyboarding for a movie—playing with AI might
be different.

A: agreed. Visual art has a tradition and might well be
different for works that have had tech in the creation process from the
beginning.

from Blogger http://tushnet.blogspot.com/2024/08/ipsc-breakout-5-comparative-approaches.html

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